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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1994 COMMISSION FILE NUMBER 1-10307
IMPERIAL HOLLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-0704500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE IMPERIAL SQUARE, SUITE 200
P. O. BOX 9
SUGAR LAND, TEXAS 77487
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 491-9181
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, without par value American Stock Exchange
Rights to Purchase Preferred Stock American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 the
filing requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K .
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $51 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on June 6,
1994 and (solely for this purpose) treating all directors, executive officers
and 10% shareholders of the registrant as affiliates.
The number of shares outstanding of the registrant's Common Stock, as of
June 6, 1994, was 10,257,936.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 1994 Annual Meeting of Shareholders are incorporated by
reference in Part III hereof.
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business-------------------------------------------------------------------- 1
Item 2. Properties------------------------------------------------------------------ 8
Item 3. Legal Proceedings----------------------------------------------------------- 9
Item 4. Submission of Matters to a Vote of Security Holders------------------------- 9
Executive Officers of the Registrant---------------------------------------- 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters--- 12
Item 6. Selected Financial Data----------------------------------------------------- 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations---------------------------------------------------------------- 13
Item 8. Financial Statements and Supplementary Data--------------------------------- 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure---------------------------------------------------------------- 16
PART III
Item 10. Directors and Executive Officers of the Registrant-------------------------- 17
Item 11. Executive Compensation------------------------------------------------------ 17
Item 12. Security Ownership of Certain Beneficial Owners and Management-------------- 17
Item 13. Certain Relationships and Related Transactions------------------------------ 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K------------- 18
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PART I
ITEM 1. BUSINESS.
Imperial Holly Corporation (the 'Company') is one of the nation's largest
producers and marketers of refined sugar, producing both cane and beet sugar.
The Company refines raw cane sugar at its Imperial Sugar Company refinery in
Sugar Land, Texas, and, through its wholly owned subsidiary, Holly Sugar
Corporation, produces refined beet sugar by processing sugarbeets purchased from
independent growers at processing plants in California, Wyoming, Montana and
Texas. The Company sells its refined sugar directly and through brokers to
wholesalers, retail grocers and food manufacturers. The Company sells
by-products (beet pulp and molasses) from the manufacturing and refining
processes for use as livestock feed and markets commercial beet seed.
The Company was incorporated in 1924 as Imperial Sugar Company and is the
successor to a cane sugar plantation and milling operation begun in Sugar Land
in the early 1800's that began producing granulated sugar in 1843. In 1988, the
Company purchased Holly Sugar Corporation and the Company's name was changed to
Imperial Holly Corporation. Holly was founded in 1905 and incorporated in 1916.
As used herein, the 'Company' refers to Imperial Holly Corporation and its
subsidiaries, including Holly; 'Imperial' refers to the Company's cane sugar
refinery operations, which are conducted directly by the Company under the name
Imperial Sugar Company -- a division of Imperial Holly Corporation; and 'Holly'
refers to Holly Sugar Corporation, a wholly owned subsidiary of the Company,
which conducts the Company's beet sugar processing operations.
PRODUCTS AND SALES
SUGAR. The Company's principal product line is refined sugar, which
accounted for approximately 92% of consolidated net sales in the Company's
fiscal year ended March 31, 1994. Cane sugar and beet sugar account for
approximately 40% and 60%, respectively, of the Company's sugar production. The
Company produces and sells granulated white, brown and powdered sugar to
wholesalers, retail grocers and food manufacturers. Sugar is sold in consumer
packages, industrial packages, bulk and liquid form (including invert sugar and
blended products).
Sales to wholesalers and grocers consist primarily of consumer packages of
granulated, brown and powdered sugar. These consumer packages, which range from
one pound boxes to 25-pound bags and constitute approximately one-third of the
sugar sold, are marketed under the Imperial (registered) and Holly (registered)
brand names and under various private labels. The price received for sugar sold
in private label packages is generally lower than that received for branded
sugar. Over the past 15 years, private label sales have increased significantly
and have caused a reduction in sales of retail size packages bearing the
Company's brand names. The Company continues to focus efforts on increasing
sales of branded products as a percentage of total consumer sales.
Food manufacturers principally purchase sugar in industrial size packages
and in bulk or liquid form for use in the preparation of confections, baked
products, frozen desserts, canned goods and various other food products. A
majority of the Company's industrial sales are made to customers under fixed
price contracts with terms of one year or less.
The Company's products are sold directly by the Company's sales force and
through independent brokers. The Company maintains sales offices at its
corporate headquarters in Sugar Land as well as in Chicago, Illinois, Tracy,
California and Arlington, Texas. The Company considers its marketing and
promotional activities important to its overall sales effort. The Company
advertises its brand names in both print and broadcast media and distributes
various promotional materials, including discount coupons and compilations of
recipes.
The Company's sales are concentrated in the western half of the United
States, although during fiscal 1994, the Company's sugar was sold or distributed
in each of the 50 states. No customer accounted for more than 10% of the
Company's sales during fiscal 1994.
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Sales of refined sugar are moderately seasonal, normally increasing during
the summer months because of increased demand of various food manufacturers,
including fruit and vegetable packers; shipments of specialty products (brown
and powdered sugar) increase in the fourth calendar quarter due to holiday
baking needs. Although the refining of cane sugar is not seasonal, the
production of beet sugar is a seasonal activity. Each of the Company's beet
sugar factories operates during sugar-making campaigns, which generally total
120 days to 180 days in length each year, depending upon the supply of
sugarbeets available to the factory. Because of the geographical diversity of
its manufacturing facilities, the Company is generally able to produce beet
sugar year-round. While the seasonal production of sugarbeets requires the
Company to store significant refined sugar inventory at each factory, the
geographical diversity and staggered periods of production at the various
facilities enable the Company's total investment in inventories to be reduced.
Additionally, these factors reduce the likelihood that adverse weather
conditions will affect all the Company's productive areas simultaneously and aid
in distribution. Refined sugar is shipped by rail and truck, including
Company-owned vehicles.
BY-PRODUCTS. Holly's by-products from beet sugar processing (beet pulp and
molasses) are sold primarily as livestock feeds to dairymen, livestock feeders,
livestock feed processors and distributors. By-product sales accounted for
approximately 7% of consolidated net sales during fiscal 1994. The major portion
of the beet pulp and molasses produced from sugarbeet operations is sold during
and shortly after sugar-making campaigns.
Holly's marketing of by-products from beet sugar processing is concentrated
in the western half of the United States and Japan. In fiscal 1994, export sales
accounted for approximately 20% of by-product sales.
Both the domestic and export markets are highly competitive because of the
availability and pricing of by-products of other sugarbeet processors and corn
wet millers, as well as other livestock feeds and grains. The market price of
the Company's by-products relative to the price of competitive feeds and grains
is the principal competitive determinant. Among other factors, the weather and
seasonal abundance of such feeds and grains may affect the market price of
by-products.
Holly also markets precipitated calcium carbonate from beet sugar
processing, but such marketing efforts currently are limited to the local
factory areas primarily as a result of relatively high freight costs.
BEET SEED. Holly Hybrids, a division of Holly, develops and markets
commercial seed to beet growers under contract to Holly as well as growers under
contract to grow for other beet sugar processors.
RAW MATERIAL AND PROCESSING REQUIREMENTS
RAW CANE SUGAR. Imperial purchases raw cane sugar from both United States
and foreign sources. Principal sources of supply in the recent past have been
Louisiana and Florida, and secondary sources have included countries in the
Caribbean and Central America. Import quotas have reduced the availability of
foreign raw cane sugar currently to the minimum quota level designated by
applicable legislation. See 'Sugar Legislation and Other Market Factors'. During
fiscal 1994, approximately 90% of the raw sugar purchased by Imperial was
produced domestically. The raw sugar purchased by the Company is produced from
sugar cane processed at independent mills located close to the fields in which
the sugar cane is grown. The Company has not experienced difficulties in the
past in contracting sufficient quantities of raw sugar to supply the refinery.
Imperial generally receives raw sugar in cargoes of 1,500 to 25,000 tons,
which are delivered in intercoastal barges and ocean-going vessels to the
Company's facility in Galveston, Texas, approximately 60 miles from Sugar Land.
This raw sugar is unloaded under the supervision of CSCO, Incorporated, a wholly
owned subsidiary, and is weighed, sampled and stored in Imperial's Galveston
warehouse, which has a capacity of approximately 30,000 tons of raw sugar.
Imperial is paid a stevedoring allowance by the raw sugar sellers to unload the
raw sugar and receives additional
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dispatch payments from the carriers if the unloading is completed in less than
the allotted time or pays demurrage if unloading takes more than the time
allotted. The raw sugar is then moved by rail to the Sugar Land refinery.
Imperial also receives a portion of its raw sugar directly by rail in Sugar
Land.
In Sugar Land, the raw sugar is stored in a warehouse having a capacity of
approximately 20,000 tons. Raw sugar can also be stored in rail cars in
Galveston and Sugar Land or in transit for short periods of time.
Raw sugar purchase contracts can provide for the delivery of a single cargo
or for multiple cargoes over a specified period. Contract terms may provide for
fixed prices but generally provide for prices based on the futures market during
a specified period of time. The contracts provide for a premium if the quality
of the raw sugar is above a specified grade or a discount if the quality is
below a specified grade. Contracts generally provide that the seller pays
freight, insurance charges and other costs of shipping.
Because of the time required to take delivery of and refine raw sugar,
Imperial contracts to purchase raw sugar substantially in advance of the time it
delivers the refined sugar produced from that purchase. Accordingly, Imperial
can be exposed to the risk of fluctuations in the market price of refined
products. In order to minimize this risk, Imperial attempts to match refined
sugar sales contracted for future delivery with the purchase or pricing of raw
sugar.
SUGARBEET PURCHASES. Holly purchases sugarbeets, from which it manufactures
sugar and by-products, from independent growers under contracts negotiated
between Holly and associations representing such growers. Holly contracts for
acreage prior to the planting season based on estimated demand, marketing
strategy, processing capacity and historical crop yields. The type of contract
used provides for payments to the grower based on the net selling price of beet
sugar and the sugar content of the sugarbeets delivered by each grower. Some of
Holly's contracts provide for a premium to the growers for delivering beets of
superior quality. The net selling price is the gross sales price less certain
marketing costs, including packaging costs, brokerage, freight expense and
amortization costs for certain facilities used in connection with marketing. Use
of this type of participating contract reduces Holly's exposure to inventory
price risks on its sugarbeet purchases so long as the net selling price does not
fall below the regional minimum support prices established by the United States
Department of Agriculture ('USDA'). See 'Business -- Sugar Legislation and Other
Market Factors'.
Acreage contracted at each factory location may vary from year to year on
the basis of prior crop quality, productivity, weather conditions, availability
of irrigation water, the prices anticipated by growers for alternate crops, and
competition with other beet sugar processors. Harvested beets are purchased by
Holly and, in some locations, stored in piles until processed. Weather
conditions during the growing, harvesting and processing seasons, as well as
diseases, insects and other parasites, may materially affect the quality and
quantity of sugarbeets available for purchase as well as the unit costs of raw
materials and processing. Weather conditions can also adversely affect
sugarbeets in storage piles awaiting processing. Holly currently maintains beet
pile insurance covering a portion of the potential loss of beets in storage
under certain defined conditions at those factories which pile beets.
ENERGY. The refining of raw cane sugar and processing of sugarbeets are
energy intensive. The primary fuel used by Imperial at its Sugar Land refinery
is natural gas purchased from Entex, a division of NorAm Energy Corp., under an
annual contract. Imperial generates a substantial portion of the electricity
used at the refinery and purchases and sells electricity on a cogeneration
basis. The primary fuels used in Holly's beet sugar factories are natural gas
and coal; No. 6 fuel oil is used both as an alternative when the price is more
attractive and as a backup to natural gas in the event of curtailment. Natural
gas and coal supplies are typically purchased under contracts with a minimum
term of one year.
3
Pricing of natural gas contracts is generally fixed for the term or indexed
to a spot market index. The Company has also utilized financial tools such as
swaps and caps to stabilize the price for gas purchases under indexed contracts.
The Company has been able to negotiate lower gas pipeline transmission rates
because of competitive options such as pipeline bypasses and alternative fuel
capability. Coal is available in abundant supply domestically and the Company is
able to purchase coal very competitively, although increases in freight costs,
especially rail freight, are difficult to control.
The Company owns a royalty interest in a coal seam methane project in the
Black Warrior Basin of Alabama as an additional indirect hedge against future
natural gas price increases. Development of the gas reserves in which the
Company has a royalty interest is continuing and production from some wells has
commenced.
OTHER RAW MATERIALS. Foundry coke and limestone are used in the beet sugar
manufacturing process. The Company generally purchases coke under one-year
contracts and utilizes rail transportation to deliver the coke to factories.
Domestic coke supplies may become tighter due to environmental restrictions; the
Company has the option of converting existing coke-fired equipment to natural
gas should the availability and economics of coke so dictate. Limestone required
in the factory operations is generally purchased from independent sources under
contracts with one to five year terms. Holly owns a 50% share of a limestone
quarry in Warren, Montana which supplies the Sidney, Montana and Worland,
Wyoming factories with their annual limestone requirements. This quarry does not
normally supply other Holly factories because of high freight costs. However,
should supplies from other sources become unavailable, the reserve capacity of
this quarry is sufficient to supply other factories.
RESEARCH
Research relating to manufacturing technology, factory operations, food
science and new product development is conducted principally at the Company's
Research and Development Center in Colorado Springs. Separate laboratories for
microbiology, chemistry and food science have been established with the
resources of a central, computerized technical library available to its staff.
The Company also has a food science laboratory in Sugar Land.
Holly's beet seed research programs in seed varietal development and
improvements in beet quality performance are conducted primarily at Holly
Hybrids' headquarters in Sheridan, Wyoming and at Holly's Tracy, California
Agriculture Station. Holly Hybrids continues to make advances in the development
of seeds resistant to various diseases, including rhizomania, a disease
threatening the California sugarbeet crop. As a result of one such effort, Holly
has introduced Rhizosen Plus, its latest variety of highly disease-tolerant beet
seed. In conjunction with this effort, Holly is participating in a joint venture
with Societe Europeenne de Semences, N.V. - S.A., a Belgian beet seed company,
to develop improved beet seed varieties.
Holly is active in sugarbeet disease control. Holly's growing areas have
varying levels of diseases which affect sugarbeet quality and quantity as well
as the cost of processing. Holly has a sugarbeet plant pathology disease control
research laboratory in Tracy, California to develop and implement a disease
control strategy for all Holly sugarbeet growing areas. Holly communicates
information about agricultural practices to growers through its computerized
AgTrak system and published material.
COMPETITION
The Company competes with other cane sugar refiners and beet sugar
processors and, in certain product applications, with producers of other
nutritive and non-nutritive sweeteners. Selling price and the ability to supply
the buyer's quality and quantity requirements in a timely fashion are important
competitive factors.
The sugarbeet growers in the Red River Valley growing area of North Dakota,
South Dakota and Minnesota have expanded sugarbeet acreage aggressively and have
announced an intention to
4
continue to do so. As a result, refined sugar prices have declined and the
Company believes that other processors and producers may adjust their output as
more refined sugar is made available to the market.
The most significant nutritive sweeteners that compete with refined sugar
are high fructose corn syrup ('HFCS'), glucose syrup and dextrose. HFCS, which
sells at a discount to refined sugar, became a significant competitor of sugar
after HFCS's introduction in the early 1970's, principally due to the
replacement of refined sugar by HFCS in the beverage market. The Company
believes that the shift from sucrose to HFCS is largely complete and that the
level of per capita sucrose consumption in the United States has stabilized.
Future increases or decreases in sucrose consumption will be dependent upon
technological improvements, changes in population, geographic shifts in
population and changes in consumer sweetener preferences. The Company believes
there will be increased marketing opportunities in two of the Company's major
markets, the west and southwest, due to increases in population.
In certain applications, refined sugar also competes with non-nutritive or
low-calorie sweeteners, principally aspartame and, to a lesser extent,
saccharin. Consumption of non-nutritive sweeteners has increased, especially
since the commercial introduction of aspartame in 1981. The recent expiration of
the U. S. aspartame patent has increased price competition in the non-nutritive
sweetener market.
The table below is based on data published by the United States Department
of Agriculture and sets forth per capita consumption of nutritive sweeteners in
the United States for the years indicated.
ANNUAL PER CAPITA U. S. NUTRITIVE SWEETENER CONSUMPTION
1978 1986 1991 1992
POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE
Refined sugar------------------------ 91.4 73% 60.0 47% 63.7 45% 64.5 45%
HFCS--------------------------------- 10.8 9 45.8 35 50.7 36 52.3 36
Other corn sweeteners---------------- 21.5 17 22.5 17 24.7 18 25.6 18
Other-------------------------------- 1.5 1 1.4 1 1.4 1 1.4 1
Total---------------------------- 125.2 100% 129.7 100% 140.5 100% 143.8 100%
1993
POUNDS PERCENTAGE
Refined sugar------------------------ 64.2 44%
HFCS--------------------------------- 55.3 37
Other corn sweeteners---------------- 26.3 18
Other-------------------------------- 1.4 1
Total---------------------------- 147.2 100%
SUGAR LEGISLATION AND OTHER MARKET FACTORS
The Company's business and results of operations are substantially affected
by market factors, principally the domestic prices for refined sugar and raw
cane sugar. These market factors are influenced by a variety of forces,
including weather conditions and United States farm and trade policies.
Federal government programs, in the form of legislative or regulatory
action, have existed to support the price of domestic crops of sugarbeets and
sugar cane almost continually since 1934. The 1981 Farm Bill resulted in
increased duties and fees on sugar imports to support domestic sugar prices.
When those actions failed to support United States sugar prices at the market
stabilization price for raw cane sugar, country by country quotas on imports of
sugar into the United States were established in 1982. The principal legislation
presently affecting the domestic sugar industry is the Food, Agriculture,
Conservation, and Trade Act of 1990 (the 'Act'), which became effective October
1, 1991 and extended the sugar price support program for sugar cane and
sugarbeets until September 30, 1998. Pursuant to the Act, the Commodity Credit
Corporation ('CCC') is obligated annually to make loans available to domestic
sugar processors on existing sugar inventories from the current crop year
production at a stipulated price, provided the processor agrees to pay
participating growers a predetermined minimum support price for such sugar. The
CCC loans are nonrecourse, secured by the processor's current crop year sugar
inventories, and mature September 30 of each year and in no event more than nine
months after the month in which the loan was made. Because the loans are
nonrecourse, if the price of sugar were to drop below the minimum support price
predetermined by the USDA such that it becomes more advantageous to forfeit the
sugar than to sell it, a processor may
5
choose to forfeit the sugar to the Government. The minimum support price for
sugar in certain sugarbeet growing regions of the United States is currently
above the net selling price of sugar processed by the Company in those regions.
The Company would incur a reduction in margins should it choose not to forfeit
when the applicable minimum support price exceeds the net selling price.
The Act requires the USDA to take regulatory action to cause the sugar price
support program to operate at no cost to the Government. The USDA treats a
forfeiture as incurring costs to the Government even though the Government may
subsequently sell the forfeited sugar at prices exceeding the forfeiture levels.
The principal regulatory action utilized by the USDA to prevent forfeitures is
the annual implementation of a tariff-rate quota for foreign sugar, which has
the effect of limiting the total available supply of sugar in the United States
and thus influencing sugar prices. The tariff-rate quota controls the supply of
sugar by setting a punitive tariff on all sugar imported that exceeds the
determined permitted imported quantity and is designed to make the importation
of the excess sugar uneconomical.
To maintain a viable cane sugar refining industry and to ensure a minimum
raw sugar market for the traditional offshore suppliers of raw sugar to the
United States, the Act set the minimum tariff-rate quota at 1,250,000 short tons
raw value ('STRV') annually. If the estimated domestic sugar production for any
year is so large and/or estimated domestic sugar consumption is so low that
import requirements would be less than the 1,250,000 STRV level, the Secretary
of Agriculture is required to impose marketing allotments on refined beet sugar
and raw cane sugar produced from domestically grown sugarbeets and sugar cane as
well as on crystalline fructose so as to maintain the minimum availability of
imported sugar. The tariff-rate quota for sugar to be allowed entry into the
United States during the year ended September 30, 1993 was originally 1,350,000
STRV, however, in May 1993, the quota year was extended until September 30,
1994, and the tariff-rate quota for this two year period was set at 2,500,000
STRV (effectively setting the quota for each year at the minimum level of
1,250,000 STRV). On July 1, 1993, the USDA imposed marketing allotments on
domestically produced raw cane sugar and refined beet sugar, which were allowed
to expire September 30, 1993. The Company is unable to predict whether the
import quota will be raised or whether marketing allotments will be re-instated
or the impact of either such action on refined sugar prices, raw sugar prices or
the Company's selling margins.
To help reduce the Federal deficit, the Omnibus Budget Reconciliation Act of
1990 requires a marketing assessment fee of 18 cents per hundred pounds of raw
cane sugar and 19.3 cents per hundred pounds of refined beet sugar be paid to
the CCC by the processor. This fee is applicable to all refined beet sugar
produced from domestically grown sugarbeets and all raw sugar produced from
domestically grown sugar cane during crop years 1991--1995.
The North American Free Trade Agreement contains provisions that allows
Mexico (which is currently a net importer of sugar) to increase its sugar
exports to the United States if Mexico is projected to produce a surplus of
caloric sweeteners (sugar, fructose and/or corn sweeteners). After the year
2000, Mexico's ability to export to the United States would be further increased
in the event Mexico produced a caloric sweetener surplus for two consecutive
years. Based on Mexico's current rate of population growth, the high current
production cost of sugar in Mexico and the absence of a corn sweetener industry
in Mexico, the Company believes that Mexico will not become a surplus producer
of caloric sweeteners in the near future.
EMPLOYEES
As of March 31, 1994, the Company employed approximately 1,600 year-round
employees. In fiscal 1994, the Company employed approximately 2,000 seasonal
employees during the sugarbeet processing seasons when beet sugar factories are
operating around-the-clock.
The Company's cane refinery and distribution employees are represented by
the International Association of Machinists and Aerospace Workers, AFL-CIO under
a three-year contract which expires October 1, 1994. The Company's beet sugar
factory operating personnel are represented by
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the Distillery, Wine and Allied Workers International Union, AFL-CIO at the
California factories and by the American Federation of Grain Millers
International Union, AFL-CIO at the Montana, Wyoming and Texas factories
under contracts which expire in March 1, 1995 and April 30, 1996, respectively.
The Company believes its employee and union relationships are good.
ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive regulation by various
federal, state and local environmental agencies. Regulations and statutes impose
effluent and emission limitations, waste disposal, and other requirements upon
the Company's operations requiring it to obtain permits and operate in
compliance with permit limitations and the mandates of various governmental
authorities. The Company has obtained, has applications pending or is making
application for such permits and authorizations. The Company is dedicated to its
role as a responsible corporate citizen relative to environmental matters and
will address such matters in a practical manner under a planned and prioritized
schedule.
All of the Company's facilities perform environmental monitoring of both air
and water quality as mandated by regulatory agencies. Additional testing
requirements and more stringent permit limits recently imposed, along with
increasing permit evaluation and emissions fees, have resulted in increased
environmental control costs. The Company expects these costs of environmental
compliance to continue to increase.
Solid wastes from Imperial's Sugar Land refinery are disposed of in approved
landfills. Liquid wastes are treated in the Sugar Land Regional Sewage System,
while cooling water is discharged under a discharge permit. More restrictive
discharge limits adopted with respect to barometric condenser cooling water will
require capital expenditures to achieve long-term compliance. Air emissions from
the refinery consist of combustion products of natural gas used in boilers in
the generation of steam and the cogeneration of electricity. Holly has installed
scrubbers at several of its beet sugar factories as part of its coal conversion
program. The Tracy, California factory continues a wastewater odor control and
aeration system and has increased its dust suppression techniques. The Worland,
Wyoming factory has completed construction of a system to capture water seepage
from wastewater ponds and return the water to the ponds. The Torrington, Wyoming
factory is in the process of making significant changes in the handling of solid
waste in order to meet the requirements of new state solid waste regulations and
state groundwater regulations. Such equipment necessarily increases energy
consumption and adds to unit manufacturing costs.
The Clean Air Act Amendments of 1990 ('CAAA') are expected to require
substantial capital expenditures and increased operating expenses over the next
ten years (revisions in State Implementation Plans required by the CAAA may
require additional emissions controls in some areas of the country). Regulations
implementing these amendments are now being written and will be issued over the
next several years. By 1996, Holly's factories and Imperial's refinery must
obtain CAAA Title V permits, which will require additional air monitoring and
reporting, and an increase in permitting fees is expected. For example, recent
changes in California could require the retrofitting of nitrogen oxide controls
to the Tracy plant boilers by 1996. The Company will not be able to estimate
compliance costs until the new regulations are issued and permit negotiations
are completed.
Ongoing compliance with environmental statutes and regulations has not had,
and the Company does not anticipate that it will in the future have, a material
adverse effect on the Company's competitive position since its competitors are
subject to similar regulation. Additional capital expenditures will be required
to comply with future environmental protection standards, although the amount of
any further expenditures cannot be accurately estimated. Management does not
believe that these compliance costs will have a materially adverse impact on
capital resources.
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ITEM 2. PROPERTIES.
Imperial's refinery in Sugar Land is located on 26 acres owned by the
Company and consists of numerous buildings with approximately 600,000 square
feet of factory space. The refinery operates 24 hours a day when sugar is being
refined. The refinery has an estimated melting capacity in excess of 4,000,000
pounds of raw sugar per day. The refinery is served by adequate transportation
and maintained in good operating condition.
The following table shows the location and capacity of Holly's beet sugar
manufacturing facilities, each of which is served by adequate transportation and
is maintained in good operating condition. Each of the facilities operates
continuously during the facility's sugar-making campaign, which generally total
120 to 180 days each year, depending upon the supply of sugarbeets available.
APPROXIMATE DAILY
SLICING CAPACITY
BEET SUGAR FACTORIES (TONS OF SUGARBEETS)
Brawley, California------------------ 8,000
Hamilton City, California------------ 4,000
Tracy, California-------------------- 5,000
Sidney, Montana---------------------- 5,400
Hereford, Texas---------------------- 7,700
Torrington, Wyoming------------------ 5,400
Worland, Wyoming--------------------- 3,600
Total---------------------------- 39,100
In August 1993, the Company ceased beet sugar production at its Betteravia,
California factory and converted the facility to a forward packaging and
distribution center.
Holly operates an ion exclusion facility at its Hereford, Texas factory
which increases the factory's refined sugar production capacity without an
increase in beet slicing capacity by extracting sugar from molasses, a
by-product of the beet sugar production process. This molasses desugarization
process results in the utilization of a portion of the beet sugar factory for a
period after the conclusion of the campaign when the factory would otherwise be
idle.
The Company's principal executive offices occupy approximately 62,000 square
feet of office space in an office complex owned by the Company near the Sugar
Land refinery. The Company leases other space in the complex to third parties.
The office complex is located on nine acres owned by the Company. Holly leases
approximately 25,900 square feet of office space for its principal
administrative offices in the Holly Sugar Building in Colorado Springs,
Colorado. Holly also leases a 9,000 square foot single story building in the
Pikes Peak Research Park in Colorado Springs which is the headquarters of the
Company's Research and Development Center. Each of the leases in Colorado
Springs expires in 2005.
Imperial's wharf and warehouse facilities in Galveston are located on
property leased from the Port of Galveston under a lease which expires in 2013.
The Company owns the raw sugar discharging equipment located at this facility.
The Company owns and operates distribution stations in Arlington, Texas,
Brookfield, Illinois and Betteravia, California. Each of the distribution
stations produce liquid sucrose and liquid invert sugar. The Arlington and
Brookfield distribution stations have blending facilities that can combine
liquid sugar and invert sugar with high fructose corn syrup and other corn
sweeteners purchased from third parties. The distribution stations also receive
bulk sugars via rail and ship bulk sugars by truck.
The Company owns approximately 250 acres of land near its refinery and
approximately 8,050 acres of land at the various beet sugar factory sites. Most
of this acreage is used for the factories, settling ponds and as buffers from
nearby communities. The remainder of the land is leased as farmland and
pastures. Holly also owns approximately 100 acres of land, an agricultural
research
8
facility and a sugarbeet seed processing facility at Sheridan, Wyoming.
Holly owns a 50% interest in The Bighorn Limestone Company, the owner of a
limestone quarry in Warren, Montana.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation and claims which are normal in the
course of its operations, and, 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 results of
operations or consolidated financial position.
In 1992, the U. S. Customs Service ('Customs') notified the Company that
Customs had audited customs drawback claims filed by the Company in 1985 and
that Customs would require the Company to repay to Customs certain duties and
fees previously refunded to the Company. In April 1992, the Company refunded
$2.5 million to Customs under protest, a condition precedent to the commencement
of an appeal of the audit decision and recorded such amount in other assets. In
May 1992, the Company filed its appeal in the Court of International Trade and,
based in part on an evaluation by outside counsel, management expects to be
successful in its claim.
The Company was initially notified by the Environmental Protection Agency
('EPA') in October 1992 that it had been identified as a 'de minimis'
potentially responsible party with respect to the Operating Industries, Inc.
Superfund site in Monterey, California. The EPA notice states that fuel oil
removed from a former Holly factory was disposed of at the site by a third party
waste disposal contractor when the factory was closed in 1977, prior to the
acquisition of Holly by the Company. According to the notice from the EPA,
approximately 300 potentially responsible parties have previously agreed to
perform portions of the cleanup work at the site and to pay the costs for the
oversight of this work. In May 1993, the Company received a new notice from the
EPA informing the Company that its status had been revised to that of a
potentially responsible party on the basis of volumetric calculations by the
EPA. The Company successfully contested the EPA's volumetric calculations and,
in November 1993, received acknowledgment from the EPA that volumes of fuel oil
from the former Holly factory disposed of at the site had been reduced to the
level which should result in the Company being reclassified as a 'de minimis'
potentially responsible party. By law, as long as a party remains a 'de minimis'
potentially responsible party, liability for clean up costs is limited to no
more than $500,000. The Company has not been able to determine its ultimate
liability, if any, with respect to this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1994.
9
EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of the Company are elected annually to serve for the
ensuing year or until their successors have been elected. The following table
sets forth certain information with respect to the executive officers of the
Company:
NAME AGE* POSITIONS
I. H. Kempner, III------ 61 Chairman of the Board of Directors
James C. Kempner-------- 54 President, Chief Executive Officer and Chief
Financial Officer
Roger W. Hill----------- 54 Executive Vice President; President and Chief
Executive Officer of Holly
Harry J. Smith---------- 45 Executive Vice President--Sales and Marketing
Peter C. Carrothers------ 55 Senior Vice President--Logistics
William F. Schwer-------- 46 Senior Vice President, Secretary and General
Counsel
Woodrow J. Anderson------ 50 Vice President--Engineering Services
William A. Coker, Jr.---- 64 Vice President--Transportation
Brian T. Harrison-------- 38 Vice President--Refinery Operations
Roy E. Henderson--------- 55 Vice President and Treasurer
William M. Krocak-------- 51 Vice President--Human Resources
Otto W. Meyers, III------ 34 Vice President--Corporate Finance
Roy F. Silva------------- 54 Vice President--Product Development
James R. Skiles---------- 64 Vice President--Distribution
H. P. Mechler------------ 40 Controller
* As of June 1, 1994.
Except as set forth below, executive officers have held their present
offices for at least the past five years. Positions, unless specified otherwise,
are with the Company.
Mr. I. H. Kempner, III has been Chairman of the Board of Directors since
March 1971. He became Chairman of the Executive Committee of the Board of
Directors in April 1978. Mr. Kempner joined the Company in May 1964 and served
in various executive capacities prior to his election as Chairman of the Board
in 1971.
Mr. James C. Kempner became President and Chief Executive Officer on October
1, 1993 and has been Chief Financial Officer from March 1988. Effective with the
retirement of Mr. Bartolo on May 1, 1994, Mr. Kempner became President and Chief
Executive Officer of Imperial. Mr. Kempner served as Executive Vice President
and Chief Financial Officer from March 1988 to October 1993. From 1977 to 1988,
Mr. Kempner was employed by Pogo Producing Company, an oil and gas exploration
and production company, where he served in various capacities, the last being
Vice President--Finance.
Mr. Hill has been Executive Vice President since June 1988 and President and
Chief Executive Officer of Holly since February 1988. Mr. Hill joined Holly in
1963 and served in various capacities, including Vice President--Agriculture and
Executive Vice President.
Mr. Smith joined the Company in June 1993 as Executive Vice President--Sales
and Marketing. From 1991 to 1993, he was Vice President of U. S. Consumer Sales
for Dole Packaged Foods Company, a fruit, juice and frozen foods processing
business. From 1990 to 1991, he served as Vice President, Sales and Marketing of
The Redwing Company, a private label food manufacturer and a division of R. H.
M. Ltd. Prior thereto, he was Vice President and General Manager of Stella
Cheese Division of Universal Foods from 1989 to 1990 and served as its Vice
President/Sales and Marketing from 1987 to 1989.
10
Mr. Carrothers joined the Company as Senior Vice President--Logistics in May
1994. From 1990 until joining the Company, he was Vice President--Logistics of
PepsiCo Foods International and had served in various other capacities with
Frito Lay, Inc., a subsidiary of PepsiCo, since 1973.
Mr. Schwer was named Senior Vice President, Secretary and General Counsel of
the Company in October 1993 and had been Vice President, Secretary and General
Counsel since June 1989. He joined Holly as Assistant General Counsel in August
1988.
Mr. Anderson has been Vice President--Engineering Services since July 1990.
He joined Holly in November 1988 as Director of Engineering and Chief Engineer.
Mr. Coker has been Vice President--Transportation since July 1990. From May
1988 until July 1990, he served as Vice President--Traffic and Transportation of
Holly. Mr. Coker has been an employee of the Company since 1966.
Mr. Harrison has been Vice President--Refinery Operations since July 1993
and has been Senior Vice President--Refinery Operations of Imperial since April
1994. He was Refinery Manager of Imperial from January 1991 to May 1992 and has
served in various other capacities since he joined the Company in April 1980.
Mr. Henderson has been Vice President and Treasurer since December 1981 and
has been an employee of the Company since May 1967.
Mr. Krocak has been Vice President--Human Resources since June 1989. From
January 1985 to June 1989, he was Director of Human Resources.
Mr. Meyers became Vice President--Corporate Finance in October 1993. Mr.
Meyers joined the Company in March 1990 and served as Manager, Financial
Analysis from March 1990 to March 1992 and as Manager, Corporate Development
from April 1992 to October 1993. Prior thereto, he was employed as a consultant
with Price Waterhouse from September 1985 to March 1990, where his last position
was Senior Manager.
Mr. Silva has been Vice President--Product Development of the Company since
October 1992. Prior thereto, he served as Vice President of U. S. Food
Operations for Nattermann Phospholipid, Inc., a German subsidiary of
Rhone-Poulenc Rorer, from 1989 to 1992 and as the Director of Technical
Development and Marketing from 1988 to 1989.
Mr. Skiles has been Vice President--Distribution since April 1978 and has
been with the Company since 1966.
Mr. Mechler has been Controller since June 1988.
Mr. I. H. Kempner, III and Mr. James C. Kempner are brothers.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is traded on the American Stock Exchange. At June
1, 1994 there were 847 shareholders of record of the Common Stock. The following
table sets forth the high and low sales price per share of Common Stock, as
quoted by the American Stock Exchange during the last eight fiscal quarters. The
Company has consistently paid quarterly dividends on the Common Stock.
SALES PRICE CASH
THREE MONTHS ENDED HIGH LOW DIVIDEND
June 30, 1992------------------------ $13.63 $11.00 $ --(1)
September 30, 1992------------------- 12.88 11.38 0.12
December 31, 1992-------------------- 12.00 10.75 0.12
March 31, 1993----------------------- 13.88 10.88 0.12
June 30, 1993------------------------ 16.50 12.88 0.12
September 30, 1993------------------- 15.25 11.25 0.12
December 31, 1993-------------------- 11.38 8.38 0.04
March 31, 1994----------------------- 11.75 8.88 0.04
(1) The Company's quarterly dividend payment dates were changed to coincide with
the Company's rescheduled Board of Directors' meetings; consequently, no
dividend was declared during the quarter ended June 30, 1992.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the last five years is as follows (in thousands
of dollars):
YEAR ENDED MARCH 31,
1994 1993 1992 1991 1990
FOR THE PERIOD:
Net Sales---------------------------- $655,498 $647,825 $688,597 $716,513 $717,635
Operating Income (Loss)-------------- (4,120) 7,139 2,980 39,987 34,872
Income (Loss) Before Extraordinary
Item and Accounting Change--------- (7,965) 123 (2,815) 21,863 18,002
Extraordinary Item (1)--------------- -- (3,509) -- -- --
Cumulative Effect of Accounting
Change(2)-------------------------- -- -- -- (899) --
Net Income (Loss)-------------------- (7,965) (3,386) (2,815) 20,964 18,002
PER SHARE DATA:
Income (Loss) Before Extraordinary
Item and Accounting Change---------- $ (0.78) $ 0.01 $ (0.28) $ 2.16 $ 1.87
Extraordinary Item(1)---------------- -- (0.34) -- -- --
Cumulative Effect of Accounting
Change(2)-------------------------- -- -- -- (.09) --
Net Income (Loss)-------------------- (0.78) (0.33) (0.28) 2.07 1.87
Cash Dividends Declared-------------- .32 .36 .48 .42 .34
AT PERIOD END:
Total Assets------------------------- $393,660 $398,202 $364,121 $363,734 $337,526
Long-Term Debt -- Net---------------- 100,044 108,181 64,635 75,409 75,253
Total Shareholders' Equity----------- 114,737 122,462 129,261 136,693 119,467
(1) See Note 5 to the Consolidated Financial Statements.
(2) In fiscal 1991, the Company changed its method of accounting for the cost of
certain deferred compensation contracts to conform to Statement of Financial
Accounting Standards No. 106.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operations in fiscal 1994 was $7.7 million and reflects
increases in raw cane and refined sugar inventories of approximately $12.8
million. Working capital totaled $84.0 million at March 31, 1994 and includes
marketable securities which are recorded at market value of $28.3 million, as
discussed in Note 2 to the Consolidated Financial Statements. The Company's
current ratio was 1.6:1.0 at March 31, 1994. Working capital financing is
provided by a combination of trade credit and borrowings. Management believes
that existing internal and external sources of liquidity are adequate to meet
financing needs. Currently, short-term financing is available to the Company's
beet sugar operations in the form of nonrecourse, secured borrowings from the
CCC under the USDA price support program. The Company has available a
combination of committed and uncommitted bank lines aggregating $135 million, as
described in Note 4 to the Consolidated Financial Statements. The Company uses
these arrangements to supplement trade credit and CCC borrowings as necessary to
meet working capital needs. Short-term borrowings increased in fiscal 1994 to
finance increased inventories and reductions in long-term debt.
Capital expenditures for fiscal 1994 totaled $8.4 million, a significant
reduction from prior years when the Company was focusing on expanding and
balancing capacities and improving the operating efficiency of the beet sugar
factories. Capital expenditures for fiscal 1995 are expected to approximate $8.5
million. The Company from time to time explores opportunities to re-deploy
strategically non-core assets to provide for higher returns.
In October 1992, the Company issued $100 million principal amount of 8 3/8%
senior notes due 1999. A portion of the net proceeds of approximately $98.7
million were used to retire $56.3 million principal amount of the Company's
10.93% senior notes plus accrued interest of $4.1 million and a make-whole
premium of approximately $5.1 million. The Company repaid the remaining $18.8
million principal amount of the 10.93% senior notes without premium in October
1993. Long-term debt at March 31, 1994 was approximately 47% of total long-term
debt plus shareholders' equity.
Shareholders' equity decreased to $114.7 million at March 31, 1994, and is
approximately 29% of total assets.
RESULTS OF OPERATIONS
INDUSTRY ENVIRONMENT
During most of the 1970s and 1980s, the sweetener industry witnessed two
significant trends: the increase in consumption of non-nutritive sweeteners,
principally aspartame, and the increased use of HFCS in place of refined sugar
(sucrose) in certain food products, primarily beverages. These market trends,
along with the competitive effects of domestic agricultural price support
legislation favoring beet sugar growers and processors, resulted in a reduced
market for refined sugar, a reduction in domestic cane sugar refining capacity
of approximately 40% between 1981 and 1988, and a consolidation of much of the
remaining sucrose industry. Cane sugar refining capacity has stabilized over the
past few years, and government statistics indicate that United States refined
sugar consumption has increased in recent years. More recently, certain segments
of the beet sugar industry have expanded at rates exceeding the rate of growth
in the demand for refined sugar, thus putting downward pressure on refined sugar
prices. These segments have announced plans to continue to increase sugarbeet
acreage in the near future. See 'Business -- Competition'.
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar and raw cane sugar. These
market factors are influenced by a variety of external forces, including weather
conditions and United States farm and trade policy, that the Company is unable
to predict. See 'Business -- Sugar Legislation and Other Market Factors'. In
addition, weather conditions during the growing, harvesting and processing
seasons, the availability of acreage to contract for sugarbeets, as well as the
effects of diseases and insects, may materially
13
affect the quality and quantity of sugar beets available for purchase as well as
the unit costs of raw materials and processing. See 'Business -- Raw Materials
and Processing Requirements'.
YEAR ENDED MARCH 31, 1994 VERSUS 1993
Net sales for fiscal 1994 increased $7.7 million or 1.2% compared to fiscal
1993, as a result of an increase in sugar sales revenues of less than 1% and an
11% increase in pulp sales revenues and volumes. The volume of sugar sold
increased approximately 4% while average sales prices declined 3.1%. Beet sugar
sales volumes in the first half of the prior fiscal year had been reduced
because of lower beginning inventory balances resulting from the substantial
reduction in production volumes in the Rocky Mountain and Texas factories in the
last half of fiscal 1992. Cane sugar sales increased modestly during the period
of marketing allotments discussed below. Refined sugar prices remained weak
during the fiscal year as a result of an oversupply of refined sugar in the
market. Spot prices did rise modestly during the second and third fiscal
quarters as a result of marketing allotments imposed by the USDA in July 1993.
Marketing allotments were allowed to lapse in October 1993, and average sales
prices declined to below year earlier levels in the fourth fiscal quarter.
Present legislation allows the Secretary of Agriculture to impose marketing
allotments on domestic raw cane and refined beet sugar producers should domestic
sugar production not allow for an adequate market for the minimum import quota.
The raw sugar import quota for the USDA's fiscal year ending September 30, 1994,
is set at the statutory minimum and marketing allotments are not currently in
place. The Company is unable to predict whether the import quota will be raised
or whether marketing allotments will be re-instated or the impact of either such
action on refined sugar prices, raw sugar prices or the Company's selling
margins. See 'Business -- Sugar Legislation and Other Market Factors'.
Cost of sales increased $22.0 million or 3.8%, due primarily to the
increased volumes of sugar and pulp sales. Unit cost of sugar sold declined less
than .5%, in spite of the 3.1% decline in selling prices, resulting in the
Company's overall gross margin declining from 11.1% of sales in fiscal 1993 to
8.8% of sales in fiscal 1994. Raw cane sugar costs increased .8% on a year to
year basis in the face of declining selling prices, contributing approximately
half of the reduction in gross margin. Unit costs of refined beet sugar declined
only .5% as higher unit manufacturing costs resulting from a smaller, lower
quality crop (when compared to the exceptional crop in fiscal 1993), as well as
muddy harvest conditions and an early freeze in some growing areas, offset lower
sugarbeet costs.
The Company expects the cessation of sugarbeet processing at its Betteravia
factory during fiscal 1994 to reduce its fiscal 1995 unit production costs in
California. This cessation of production, along with acreage reductions in
certain areas where alternative crops are available to growers, is expected to
result in reductions in beet sugar production approximating 5% of 1994
consolidated sugar sales.
The Company implemented a cost reduction program in the third quarter of
fiscal 1994, and recorded a $925,000 charge for the cost of a work force
reduction which was a part of that program. At March 31, 1994, the Company had
reduced its non-bargaining unit work force by approximately 11%, primarily in
administrative and research areas, and its year-round bargaining unit positions
by approximately 15%, when compared to March 31, 1993. Selling, general and
administrative expenses for fiscal 1994 declined $.7 million or 1.1%, as a 7.7%
decrease in general and administrative and research and development costs more
than offset a volume driven 3.3% increase in selling and distribution costs.
Interest expense for fiscal 1994 was approximately the same as in fiscal
1993, as higher balances of both short and long term borrowings were offset by
lower interest rates. See Notes 4 and 5 to the Consolidated Financial Statements
for a description of the Company's borrowings.
Realized gains on marketable securities increased $567,000 during fiscal
1994; unrealized gains and losses, which have not been recognized in the
Company's results of operations, but are shown as a component of shareholders'
equity, are detailed in Note 2 to the Consolidated Financial Statements.
14
Other income -- net, decreased $229,000 primarily as a result of a recovery on
the settlement of certain litigation in the prior fiscal year.
The components of income tax expense and its relationship to statutory rates
are detailed in Note 6 to the Consolidated Financial Statements.
YEAR ENDED MARCH 31, 1993 VERSUS 1992
Net sales for fiscal 1993 decreased $40.8 million or 5.9% compared to fiscal
1992 primarily due to a 2.8% reduction in the volume of sugar sold and a 3.3%
decrease in refined sugar sales prices. The reduction in sales volume occurred
during the first half of the fiscal year because of lower beginning beet sugar
inventories attributable to the substantial reduction in production volumes in
the Rocky Mountain and Texas areas in the last half of fiscal 1992. Refined
sugar prices remained under pressure throughout the fiscal year as a very large
sugar beet crop along with ample raw sugar supplies created a surplus of refined
sugar in the market. Lower beet pulp and molasses prices also contributed to the
reduction in net sales revenues.
Cost of sales decreased $49.4 million or 7.9% and represented 89% of net
sales revenues in fiscal 1993 compared to 91% in 1992. Reductions in beet sugar
manufacturing costs due to a high quality crop and efficient factory operations
in the Rocky Mountain and Texas factories, as well as high rates of recovery
compared to fiscal 1992's weather-plagued processing campaigns, led to a
substantial increase in the gross margin on beet sugar sales. Cane sugar margins
decreased as raw sugar and processing costs remained relatively constant in the
face of declining refined sugar prices. Cost of sugar sold is determined on a
LIFO basis and, in 1993, included the effects of a liquidation of beginning
inventory layers as described in Note 1 to the Consolidated Financial
Statements.
Selling, general and administrative costs increased $1.2 million or 1.9% as
increases in research and development costs, pension costs, marketing assessment
fees (which commenced October 1, 1991 and amounted to $2.4 million in fiscal
1993) and transportation costs more than offset reductions in volume-related
selling expenses and employee medical costs. The $3.3 million provision for
consolidation of manufacturing facilities relates to the estimated costs of
downsizing the California beet sugar operations as discussed in Note 10 to the
Consolidated Financial Statements.
Interest expense increased as a result of higher average short-term
borrowings, lower amounts of interest capitalized as part of the cost of
constructing assets, and the effect of using a portion of the proceeds from the
8 3/8% senior notes offering to reduce short-term borrowings with lower current
interest rates.
Other income -- net increased $1.8 million primarily due to the charge in
fiscal 1992 for the settlement of a lawsuit by a former employee discussed in
Note 9 to the Consolidated Financial Statements. The components of income tax
expense and its relationship to statutory rates are detailed in Note 6 to the
Consolidated Financial Statements.
The extraordinary item represents the make-whole premium paid in connection
with the retirement of a portion of the 10.93% senior notes as discussed in Note
5 to Consolidated Financial Statements.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index of financial statements and financial statement schedules
under 'Exhibits, Financial Statement Schedules and Reports on Form 8-K.'
Unaudited quarterly financial data for the last two fiscal years is as
follows (in thousands of dollars):
PER SHARE
INCOME
INCOME (LOSS) (LOSS)
BEFORE NET BEFORE NET
NET GROSS EXTRAORDINARY INCOME EXTRAORDINARY INCOME CASH
SALES MARGIN ITEM (LOSS) ITEM (LOSS) DIVIDENDS
Fiscal 1993:
June 30, 1992-------------------- $ 148,228 $ 17,196 $ 651 $ 651 $ 0.06 $ 0.06 $ --(1)
September 30, 1992--------------- 174,684 15,664 (533) (533) (0.05) (0.05) 0.12
December 31, 1992(2)------------- 177,060 24,778 4,494 985 0.44 0.10 0.12
March 31, 1993(3)---------------- 147,853 14,162 (4,489) (4,489) (0.44) (0.44) 0.12
Fiscal 1994:
June 30, 1993-------------------- $ 168,079 $ 17,676 $ (365) $ (365) $(0.04) $(0.04) $0.12
September 30, 1993(4)------------ 164,808 12,324 (5,270) (5,270) (0.52) (0.52) 0.12
December 31, 1993---------------- 176,070 16,574 681 681 0.07 0.07 0.04
March 31, 1994------------------- 146,541 10,930 (3,011) (3,011) (0.29) (0.29) 0.04
(1) The Company's quarterly dividend payment dates were changed to coincide with
the Company's rescheduled Board of Directors' meetings; consequently, no
dividend was declared during the quarter ended June 30, 1992.
(2) Results of operations for the third quarter of fiscal 1993 include an
extraordinary item, net of tax, of $3,509,000 or $0.34 per share, as
described in Note 5 to the Consolidated Financial Statements.
(3) Results of operations for the fourth quarter of fiscal 1993 include a
pre-tax charge of $3,300,000 related to the costs of consolidating
manufacturing facilities as discussed in Note 10 to the Consolidated
Financial Statements.
(4) Results of operations for the second quarter of fiscal 1994 include a
pre-tax charge of $925,000 related to the cost of a work force reduction as
discussed in Note 10 to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions 'Election of
Directors -- Nominees', ' -- Continuing Directors' and ' -- Compliance with
Section 16(a) of the Securities Exchange Act of 1934' in the Company's
definitive Proxy Statement for its 1994 Annual Meeting of Shareholders, as filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the 'Proxy Statement'), is
incorporated herein by reference. See also 'Executive Officers of the
Registrant' included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions 'Election of
Directors -- Director Remuneration', ' -- Executive Compensation' and
' -- Compensation Committee Interlocks and Insider Participation' in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption 'Election of
Directors -- Security Ownership' in the Proxy Statement is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption 'Election of
Directors -- Compensation Committee Interlocks and Insider Participation' and
' -- Other Information' in the Proxy Statement is incorporated herein by
reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
ITEM PAGE
Independent Auditors' Report------------------------------------------- F-1
Consolidated Balance Sheets at March 31, 1994 and 1993----------------- F-2
Consolidated Statements of Income for the years ended March 31, 1994,
1993 and 1992-------------------------------------------------------- F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1994, 1993 and 1992---------------------------- F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, 1993 and 1992---------------------------------------- F-5
Notes to Consolidated Financial Statements----------------------------- F-6
(a)(2) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE PAGE
Schedule V. -- Property, Plant and Equipment-------------------------- S-1
Schedule VI. -- Accumulated Depreciation of Property, Plant and
Equipment------------------------------------------------------------ S-2
All other statements and schedules for which provision is made in the
applicable regulations of the Commission have been omitted because they are not
required under the relevant instructions or are inapplicable, or the information
is shown in the financial statements and related notes.
(a)(3) EXHIBITS.
Asterisk indicates exhibit previously filed with the Commission and
incorporated herein by reference as indicated.
*3(a) -- Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Registration Statement on
Form S-4 (Registration No. 33-20959)).
*3(b) -- Articles of Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990 (File No.
1-10307)).
*3(c) -- Statement of Resolution establishing Series of Shares designated Series
A Junior Participating Preferred Stock (incorporated by reference to
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year
ended March 31, 1990 (File No. 1-10307) (the '1990 Form 10-K')).
*3(d) -- Statement of Resolution increasing number of shares designated Series A
Junior Participating Preferred Stock (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 1-10307)).
*3(e) -- Rights Agreement dated as of September 14, 1989 between the Company and
The Bank of New York, as Rights Agent (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K dated September
21, 1989 (File No. 1-10307)).
*3(f) -- By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the year ended March 31, 1989
(File No. 0-16674) (the '1989 Form 10-K')).
*4(a)(1) -- Credit Agreement dated as of June 10, 1993 among the Company, the
signatory banks thereto and Harris Trust and Savings Bank, as Agent
(incorporated by reference to Exhibit 4(b) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1993 (File No. 1-10307)
('1993 Form 10-K')).
18
4(a)(2) -- First Amendment to Credit Agreement dated December 1, 1993.
4(a)(3) -- Second Amendment to Credit Agreement and First Amendment to Notes dated
March 4, 1994.
*4(b) -- Indenture dated as of October 15, 1992 by and between the Company and
Texas Commerce Bank National Association, as Trustee, relating to the
Company's 8 3/8% Senior Notes due 1999 (Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992
(File 1-10307)).
The Company is a party to several debt instruments under which the total
amount of securities authorized does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the Company agrees
to furnish a copy of such instruments to the Commission upon request.
Exhibits 10(a) through 10(k) relate to management contracts or
compensatory plans.
*10(a) -- Imperial Holly Corporation Stock Incentive Plan (as amended and restated
effective April 29, 1993) (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 (File No. 1-10307)).
*10(b)(1) -- Imperial Holly Corporation Retirement Plan (as amended and restated
effective January 1, 1989) (incorporated by reference to Exhibit 10(b)
to the Company's Annual Report on Form 10-K for the year ended March 31,
1992 (File No. 1-10307) ('1992 Form 10-K')).
*10(b)(2) -- Amendment to Imperial Holly Corporation Retirement Plan (incorporation
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992 (File No. 1-10307)).
*10(c)(1) -- Specimen of the Company's Employment Agreement for certain of its
officers (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1990
(File No. 1-10307) (the 'September 1990 Form 10-Q')).
10(c)(2) -- Specimen of the Company's Amendment to Employment Agreement for certain
of its officers.
10(c)(3) -- Schedule of Executive Officers' Employment Agreements.
*10(d) -- Specimen of the Company's Severance Pay Agreements for certain of its
officers (incorporated by reference to Exhibit 10.2 to the September
1990 Form 10-Q).
*10(e)(1) -- Imperial Holly Corporation Salary Continuation Plan (as amended and
restated effective August 1, 1990) and specimen of the Company's Salary
Continuation Agreements (fully vested and graduated vesting) (as amended
and restated effective August 1, 1990) for certain of its officers
(incorporated by reference to Exhibit 10.3 to the September 1990 Form 10-Q).
10(e)(2) -- Specimen of the Company's Amendatory Agreement to Salary Continuation
Agreement, amending payment amounts.
10(e)(3) -- Specimen of the Company's Amendment to Salary Continuation Agreement,
amending paragraph 4.
10(e)(4) -- Specimen of the Company's Amendatory Agreement to Salary Continuation
Agreement, amending paragraphs 2, 3, 4 and 8.
10(e)(5) -- Schedule of Executive Officers' Salary Continuation Agreements.
19
*10(f)(1) -- Imperial Holly Corporation Benefit Restoration Plan (as amended and
restated effective August 1, 1990) and specimen of the Company's Benefit
Restoration Agreement for certain of its officers (incorporated by
reference to Exhibit 10.4 to the September 1990 Form 10-Q).
10(f)(2) -- First Amendment to the Company's Benefit Restoration Plan dated June 4, 1991.
10(f)(3) -- Schedule of Executive Officers' Benefit Restoration Agreements.
*10(g)(1) -- Imperial Holly Corporation Executive Benefits Trust (incorporated by
reference to Exhibit 10.5 to the September 1990 Form 10-Q).
10(g)(2) -- First Amendment to the Company's Executive Benefits Trust dated June 4,
1991.
*10(h)(1) -- Imperial Holly Corporation Employee Stock Ownership Plan (incorporated
by reference to Exhibit 10(i) to the 1989 Form 10-K).
10(h)(2) -- First Amendment to the Company's Employee Stock Ownership Plan dated
September 27, 1988.
10(h)(3) -- Second Amendment to the Company's Employee Stock Ownership Plan dated
April 21, 1989.
10(h)(4) -- Third Amendment to the Company's Employee Stock Ownership Plan dated
December 21, 1989.
10(h)(5) -- Fourth Amendment to the Company's Employee Stock Ownership Plan dated
December 30, 1992.
*10(i) -- Imperial Holly Corporation 1989 Nonemployee Director Stock Option Plan
(incorporated by reference to Exhibit A to the Company's Proxy Statement
dated June 16, 1989 for the 1989 Annual Meeting of Shareholders, File
No. 0-16674).
10(j) -- Imperial Holly Corporation Retirement Plan For Nonemployee Directors.
*10(k) -- Imperial Holly Corporation Employee Stock Purchase Plan (as amended and
restated effective September 1, 1993) (incorporated by reference to
Exhibit 4.10 to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (Registration No. 33-41769)).
*10(l) -- Agreement of Limited Partnership of ChartCo Terminal, L.P. (incorporated
by reference to Exhibit 10(j) to the 1990 Form 10-K).
11 -- Computation of Income Per Common Share.
21 -- Subsidiaries of the Company.
23 -- Independent Auditors' Consent
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the fourth quarter
of the fiscal year ended March 31, 1994.
20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, ON JUNE 8, 1994.
IMPERIAL HOLLY CORPORATION
By: JAMES C. KEMPNER
JAMES C. KEMPNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON JUNE 8, 1994.
SIGNATURE CAPACITY
JAMES C. KEMPNER President, Chief Executive Officer,
JAMES C. KEMPNER Chief Financial Officer and Director
(Principal Executive Officer and
Principal Financial Officer)
H. P. MECHLER Controller (Principal Accounting Officer)
H. P. MECHLER
I. H. KEMPNER, III Chairman of the Board of Directors
I. H. KEMPNER, III
ROBERT C. HANNA Vice Chairman of the Board of Directors
ROBERT C. HANNA
A. M. BARTOLO Director
A. M. BARTOLO
JOHN D. CURTIN, JR. Director
JOHN D. CURTIN, JR.
EDWARD O. GAYLORD Director
EDWARD O. GAYLORD
ANN O. HAMILTON Director
ANN O. HAMILTON
21
SIGNATURE CAPACITY
ROGER W. HILL Director
ROGER W. HILL
HARRIS L. KEMPNER, JR. Director
HARRIS L. KEMPNER, JR.
HENRY E. LENTZ Director
HENRY E. LENTZ
ROBERT L. K. LYNCH Director
ROBERT L. K. LYNCH
FAYEZ S. SAROFIM Director
FAYEZ S. SAROFIM
DANIEL K. THORNE Director
DANIEL K. THORNE
22
INDEPENDENT AUDITORS' REPORT
Imperial Holly Corporation:
We have audited the accompanying consolidated financial statements of
Imperial Holly Corporation and subsidiaries (the 'Company'), listed in Item
14(a)(1). Our audits also included the financial statement schedules listed in
Item 14(a)(2). These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Imperial Holly Corporation and
subsidiaries at March 31, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1994
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities to conform with Statement of Financial Accounting Standards No. 115
in 1994.
DELOITTE & TOUCHE
Houston, Texas
June 1, 1994
F-1
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
1994 1993
(IN THOUSANDS OF
ASSETS DOLLARS)
CURRENT ASSETS:
Cash and temporary
investments-------------------- $ 555 $ 9,405
Marketable securities (Note
2)----------------------------- 28,334 22,148
Accounts receivable -- trade----- 38,868 41,609
Income tax receivable------------ 4,988 5,703
Inventories:
Finished products (Note
4)------------------------- 110,671 99,365
Raw and in-process
materials------------------ 22,370 19,629
Supplies--------------------- 11,688 12,926
Manufacturing costs prior to
production (Note 1)------------ 13,573 17,105
Prepaid expenses----------------- 4,604 4,495
Total current assets----- 235,651 232,385
OTHER INVESTMENTS -- at cost--------- 6,553 6,799
PROPERTY, PLANT AND EQUIPMENT -- Net
(Note 3)--------------------------- 141,234 148,238
OTHER ASSETS------------------------- 10,222 10,780
TOTAL-------------------- $ 393,660 $ 398,202
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade-------- 43,767 46,659
Short-term borrowings (Note
4)----------------------------- 77,438 50,127
Current maturities of long-term
debt (Note 5)------------------ 84 10,763
Deferred income taxes (Note
6)----------------------------- 9,957 8,769
Other current liabilities-------- 20,361 23,743
Total current liabilities---- 151,607 140,061
LONG-TERM DEBT -- net of current
maturities (Note 5)---------------- 100,044 108,181
DEFERRED INCOME TAXES (Note 6)------- 21,605 19,950
ACCRUED PENSION AND OTHER BENEFITS
(Note 7)--------------------------- 5,667 7,548
COMMITMENTS AND CONTINGENCIES (Note
9)
SHAREHOLDERS' EQUITY (Notes 4, 7 and
8):
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,
10,252,959 and 10,203,728
shares issued at March 31, 1994
and 1993, respectively--------- 31,780 31,367
Retained earnings---------------- 79,862 91,095
Unrealized securities
gains -- net of income taxes
(Note 2)----------------------- 3,804 --
Pension liability adjustment
(Note 7)----------------------- (709) --
Total shareholders'
equity--------------------- 114,737 122,462
TOTAL-------------------- $ 393,660 $ 398,202
See notes to consolidated financial statements.
F-2
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED MARCH 31,
1994 1993 1992
(IN THOUSANDS OF DOLLARS)
NET SALES---------------------------- $ 655,498 $ 647,825 $ 688,597
COSTS AND EXPENSES:
Cost of sales-------------------- 597,994 576,025 625,405
Selling, general and
administrative----------------- 60,699 61,361 60,212
Cost of work force reduction
(Note 10)---------------------- 925 -- --
Provision for consolidation of
manufacturing facilities (Note
10)---------------------------- -- 3,300 --
Total------------------------ 659,618 640,686 685,617
OPERATING INCOME (LOSS)-------------- (4,120) 7,139 2,980
INTEREST EXPENSE--------------------- (10,906) (10,824) (9,247)
REALIZED SECURITIES GAINS -- Net
(Note 2)--------------------------- 1,465 898 67
OTHER INCOME -- Net (Note 10)-------- 2,284 2,513 728
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM----------------- (11,277) (274) (5,472)
PROVISION (CREDIT) FOR INCOME TAXES
(Note 6)--------------------------- (3,312) (397) (2,657)
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM------------------------------- (7,965) 123 (2,815)
EXTRAORDINARY ITEM -- Net of tax of
$1,808,000 (Note 5)---------------- -- (3,509) --
NET INCOME (LOSS)-------------------- $ (7,965) $ (3,386) $ (2,815)
EARNINGS (LOSS) PER SHARE OF COMMON
STOCK:
Income (Loss) before
extraordinary item------------- $ (0.78) $ 0.01 $ (0.28)
Extraordinary item -- Net-------- -- (0.34) --
Net Income (Loss)---------------- $ (0.78) $ (0.33) $ (0.28)
WEIGHTED AVERAGE SHARES
OUTSTANDING------------------------ 10,220,172 10,187,184 10,162,836
See notes to consolidated financial statements.
F-3
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED PENSION
COMMON STOCK RETAINED SECURITIES LIABILITY
SHARES AMOUNT EARNINGS GAINS ADJUSTMENT TOTAL
(IN THOUSANDS OF DOLLARS)
BALANCE, APRIL 1, 1991--------------- 10,154,898 $ 30,848 $ 105,845 $ 136,693
Net loss------------------------- -- -- (2,815) (2,815)
Cash dividends ($.48 per
share)------------------------- -- -- (4,881) (4,881)
Exercise of stock options and
other transactions------------- 21,519 264 -- 264
BALANCE, MARCH 31, 1992-------------- 10,176,417 31,112 98,149 129,261
Net loss------------------------- -- -- (3,386) (3,386)
Cash dividends ($.36 per
share)------------------------- -- -- (3,668) (3,668)
Exercise of stock options and
other transactions------------- 27,311 255 -- 255
BALANCE, MARCH 31, 1993-------------- 10,203,728 31,367 91,095 122,462
Net loss------------------------- (7,965) (7,965)
Cash dividends ($.32 per
share)------------------------- -- -- (3,268) (3,268)
Exercise of stock options-------- 38,805 306 -- 306
Employee stock purchase plan----- 10,426 107 -- 107
Unrealized securities
gains -- net------------------- -- -- -- $ 3,804 -- 3,804
Pension liability adjustment----- -- -- -- -- $ (709) (709)
BALANCE, MARCH 31, 1994-------------- 10,252,959 $ 31,780 $ 79,862 $ 3,804 $ (709) $ 114,737
See notes to consolidated financial statements.
F-4
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31,
1994 1993 1992
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net income (loss)---------------- $ (7,965) $ (3,386) $ (2,815)
Adjustments for noncash and
nonoperating items:
Extraordinary item -- net---- -- 3,509 --
Depreciation----------------- 15,360 15,251 14,311
Deferred income tax
provision------------------ 678 271 (2,912)
Other------------------------ (797) 393 23
Working capital changes:
Receivables------------------ 3,456 (3,858) 2,487
Inventory-------------------- (12,809) (19,359) 15,679
Deferred and prepaid
costs---------------------- 3,423 (1,091) 2,783
Accounts payable------------- (2,892) (212) 1,372
Other liabilities------------ (6,119) 497 (1,165)
Operating cash flow-------------- (7,665) (7,985) 29,763
INVESTING ACTIVITIES:
Capital expenditures------------- (8,423) (12,111) (33,683)
Investment in marketable
securities--------------------- (5,135) (4,706) (4,579)
Proceeds from sale of marketable
securities--------------------- 6,231 4,220 3,928
Proceeds from sale of fixed
assets------------------------- 60 129 146
Other investments---------------- 169 (301) --
Other---------------------------- 356 (1,113) (615)
Investing cash flow-------------- (6,742) (13,882) (34,803)
FINANCING ACTIVITIES:
Short-term borrowings:
Bank borrowings -- net------- 25,622 (17,642) 14,096
CCC
borrowings -- advances----- 70,712 156,172 169,453
CCC
borrowings -- repayments---- (69,023) (142,958) (174,961)
Repayment of long-term debt------ (18,816) (61,602) (46)
Proceeds of long-term debt------- -- 100,000 --
Dividends paid------------------- (3,268) (4,889) (4,880)
Stock option proceeds and
other-------------------------- 330 177 148
Financing cash flow-------------- 5,557 29,258 3,810
INCREASE (DECREASE) IN CASH AND
TEMPORARY INVESTMENTS-------------- (8,850) 7,391 (1,230)
CASH AND TEMPORARY INVESTMENTS,
BEGINNING OF YEAR------------------ 9,405 2,014 3,244
CASH AND TEMPORARY INVESTMENTS, END
OF YEAR---------------------------- $ 555 $ 9,405 $ 2,014
See notes to consolidated financial statements.
F-5
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994, 1993 AND 1992
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of Imperial Holly Corporation and its majority owned subsidiaries (the
'Company'). All significant intercompany balances and transactions have been
eliminated. The Company operates in one domestic business segment -- the
production and sale of refined sugar and related products.
CASH AND TEMPORARY INVESTMENTS -- Temporary investments consist of
short-term, highly liquid investments with maturities of 90 days or less at the
time of purchase.
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
of sugar is determined under the last-in first-out ('LIFO') method. All other
costs are determined under the first-in first-out ('FIFO') method.
If only the FIFO cost method had been used, inventories would have been
$14,805,000 and $13,823,000 higher at March 31, 1994 and 1993, respectively.
Reductions in inventory quantities in fiscal 1993 and 1992 resulted in
liquidations of LIFO inventory layers carried at costs prevailing in prior years
which were different than current costs. The effect of these liquidations was to
decrease net income for the year ended March 31, 1993 by about $159,000 ($0.02
per share) and increase net income for the year ended March 31, 1992 by about
$915,000 ($0.09 per share).
SUGARBEETS PURCHASED -- Payments to growers for sugarbeets are based in part
upon the Company's average net return for sugar sold (as defined in the
participating contracts with growers) during the grower contract years, some of
which extend beyond March 31. The contracts provide for the sharing with growers
of the net selling price (gross sales price less certain marketing costs,
including packaging costs, brokerage, freight expense and amortization of costs
for certain facilities used in connection with marketing). Cost of sales
includes an accrual for estimated additional amounts to be paid to growers based
on the average net return realized to date for sugar sold in each of the
contract years through March 31. The final cost of sugarbeets cannot be
determined until the end of the contract year for each growing area.
MANUFACTURING COSTS PRIOR TO PRODUCTION -- Certain manufacturing costs,
principally repairs and maintenance, are incurred between processing periods.
Such costs are deferred and are allocated to future sugar production.
PROPERTY AND DEPRECIATION -- Property is stated at cost and includes
expenditures for renewals and improvements and capitalized interest. Maintenance
and repairs are charged to current operations. When property is retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the respective accounts, and any gain or loss on disposition is included in
income.
Depreciation is provided principally on the straight-line or
sum-of-the-years' digits methods over the estimated service lives of the assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of financial
instruments is estimated based upon market trading information, where available.
Absent published market values for an instrument, management estimates fair
values based upon quotations from broker/dealers or interest rate information
for similar instruments. The carrying amount of cash and temporary investments,
accounts receivable, accounts payable, short-term borrowings and other current
liabilities approximates fair value because of the short maturity and/or
frequent repricing of those instruments.
F-6
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
FEDERAL INCOME TAXES -- Federal income tax expense includes the current tax
obligation and the change in deferred income tax liability for the period.
Deferred income taxes result from temporary differences between financial and
tax bases of certain assets and liabilities.
EARNINGS PER SHARE -- The computation of earnings per share is based on the
weighted average number of shares outstanding. Shares of common stock issuable
under stock options have not been included in the computation of earnings per
share as their effect would be insignificant.
RECLASSIFICATIONS -- Certain amounts reported in prior fiscal years have
been reclassified to conform with the fiscal 1994 presentation.
2. MARKETABLE SECURITIES
Effective March 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES ('SFAS No. 115'). All of the Company's marketable securities
are classified as 'available for sale', and accordingly, are reflected in the
March 31, 1994 Consolidated Balance Sheet at fair market value, with the
aggregate unrealized gain, net of related deferred tax liability, included in
shareholders' equity. SFAS No. 115 may not be applied to prior periods,
therefore the Company's marketable securities portfolio at March 31, 1993 is
reported in the Consolidated Balance Sheet at amortized cost. Adoption of SFAS
No. 115 had no effect on reported earnings. Cost for determining gains and
losses on sales of marketable securities is determined on the FIFO method.
Marketable securities consisted of the following (in thousands of dollars):
MARCH 31, 1994
FAIR GROSS
AMORTIZED MARKET UNREALIZED HOLDING
SHARES COST VALUE GAINS LOSSES
US Government securities due 1995
through 1997------------------------ $ 1,295 $ 1,308 $ 22 $ (9)
Municipal securities due 1996-------- 1,482 1,472 -- (10)
Corporate debt securities due
2015------------------------------- 1,093 1,104 11 --
Preferred stocks--------------------- 698 981 283 --
Common stocks:
Philip Morris Companies Inc.----- 142,700 4,036 7,224 3,188 --
Food and beverage stocks--------- 4,480 6,732 2,320 (68)
Health care stocks--------------- 2,787 2,400 30 (417)
Energy stocks-------------------- 1,984 2,267 289 (6)
Other common stocks-------------- 4,626 4,846 407 (187)
Total common stocks---------- 17,913 23,469 6,234 (678)
Total-------------------------------- $ 22,481 $ 28,334 $ 6,550 $ (697)
F-7
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
MARCH 31, 1993
FAIR GROSS
AMORTIZED MARKET UNREALIZED HOLDING
SHARES COST VALUE GAINS LOSSES
US Government securities------------- $ 1,736 $ 1,875 $ 139 --
Municipal securities----------------- 2,376 2,401 25 --
Preferred stocks--------------------- 2,015 2,571 556 --
Common stocks:
Philip Morris Companies Inc.----- 175,000 4,816 11,200 6,384 --
Food and beverage stocks--------- 4,480 7,580 3,113 $ (13)
Health care stocks--------------- 2,787 2,778 189 (198)
Energy stocks-------------------- 1,454 1,693 239 --
Other common stocks-------------- 2,484 2,898 419 (5)
Total common stocks---------- 16,021 26,149 10,344 (216)
Total-------------------------------- $ 22,148 $ 32,996 $ 11,064 $ (216)
Realized securities gains are reported net of realized losses of $0 in 1994,
$49,000 in 1993 and $19,000 in 1992. Marketable securities with a market value
of $5,527,000 at March 31, 1994 were pledged to secure certain insurance
obligations.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1994 and 1993 consisted of the
following (in thousands of dollars):
1994 1993
Land--------------------------------- $ 14,674 $ 14,625
Buildings, machinery and
equipment-------------------------- 250,902 243,596
Construction in progress------------- 1,569 2,161
Total---------------------------- 267,145 260,382
Less accumulated depreciation-------- 125,911 112,144
Property, Plant and
Equipment -- Net------------------- $ 141,234 $ 148,238
4. SHORT-TERM BORROWINGS
At March 31, 1994, the Company had working capital financing available from
domestic banks under a $90,000,000 unsecured revolving credit line. The line of
credit provides for interest on advances at floating or negotiated rates,
requires commitment fees and is subject to a credit agreement which limits,
among other things, the Company's right, without consent of the lenders, to take
certain actions and requires the Company to maintain certain financial and
operating ratios. At March 31, 1994, the Company had the ability to pay
dividends of up to $20,000,000 under the most restrictive of such financial
covenants. The Company also has short-term borrowing facilities available from
banks on an uncommitted basis aggregating $45,000,000 at March 31, 1994.
Interest on these borrowings is on a negotiated rate basis.
Additionally, the Company borrows short-term from the Commodity Credit
Corporation ('CCC') under the United States Department of Agriculture's price
support loan program. CCC borrowings are secured by refined beet sugar inventory
and are nonrecourse to the Company.
F-8
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
Outstanding borrowings at March 31, 1994 and 1993 were as follows (in
thousands of dollars):
1994 1993
Commodity Credit Corporation--------- $ 51,766 $ 50,077
Bank working capital financing------- 25,672 50
Total---------------------------- $ 77,438 $ 50,127
Short-term borrowing balance and interest rate information for the last
three fiscal years is as follows (in thousands of dollars):
1994 1993 1992
At period end:
Balance-------------------------- $ 77,438 $ 50,127 $ 54,555
Weighted average rate------------ 3.82% 3.38% 4.28%
During the period:
Daily average balance------------ $ 68,846 $ 64,391 $ 39,595
Daily average rate--------------- 3.56% 3.81% 5.26%
Maximum month-end balance-------- $ 108,153 $ 82,417 $ 69,861
Interest capitalized as part of the cost of constructing assets was $31,000
in 1994, $43,000 in 1993, and $624,000 in 1992.
5. LONG-TERM DEBT
Long-term debt at March 31, 1994 and 1993 was as follows (in thousands of
dollars):
1994 1993
8 3/8% senior notes------------------ $ 100,000 $ 100,000
10.93% senior notes------------------ -- 18,750
Equipment financing obligations and
other------------------------------ 128 194
Total long-term debt----------------- 100,128 118,944
Less current maturities-------------- 84 10,763
Long-term debt, net------------------ $ 100,044 $ 108,181
In a public offering completed in October 1992, the Company issued
$100,000,000 principal amount of 8 3/8% senior notes due 1999. The notes do not
require principal payments prior to maturity. A portion of the net proceeds of
approximately $98.7 million were used to retire $56.3 million principal amount
of the Company's 10.93% senior notes. In connection with the prepayment of the
10.93% senior notes, the Company paid a make-whole premium which is reported,
net of tax, as an extraordinary item. The remaining balance of the 10.93% senior
notes was repaid, without premium, in October 1993. The indenture relating to
the 8 3/8% senior notes contains restrictions on the Company's ability to create
liens on certain properties. Based on a dealer quote, the fair value of the
8 3/8% senior notes as of March 31, 1994 was approximately $92 million.
In August 1991, the Company entered into an interest rate swap agreement
with Lehman Brothers, Inc. ('Lehman') under which the Company receives payments
based on a fixed rate of 7.77%, and pays Lehman amounts based on the three month
LIBOR rate. The swap extends for a five year term, with the initial notional
principal amount of $32,143,000 being reduced by $10,714,000 per year in the
fourth and fifth years. The Company is exposed to credit risk in the event of
non-performance by Lehman; however, the Company does not anticipate
non-performance.
Cash paid for interest on short and long-term debt was $11,160,000 in 1994,
$10,031,000 in 1993, and $10,263,000 in 1992.
F-9
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
6. INCOME TAXES
In 1992, the Company adopted Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES. The effect of the adoption of this new
standard on the Company's results of operations was not significant.
The components of the consolidated income tax provision (credit) for each of
the last three fiscal years were as follows (in thousands of dollars):
1994 1993 1992
Federal:
Current-------------------------- $ (4,032) $ (1,063) $ 769
Deferred------------------------- 678 271 (2,912)
State-------------------------------- 42 395 (514)
Total------------------------ $ (3,312) $ (397) $ (2,657)
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities at March 31, 1994 and 1993 were as follows
(in thousands of dollars):
1994 1993
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
Current:
Marketable securities valuation
differences-------------------- -- $ (2,049) $ (2,049) -- -- --
Inventory valuation differences,
principally purchase
accounting--------------------- -- (6,222) (6,222) -- $ (6,420) $ (6,420)
Manufacturing costs prior to
production deducted
currently---------------------- -- (4,747) (4,747) -- (5,815) (5,815)
Accruals not currently
deductible--------------------- $ 1,729 -- 1,729 $ 2,220 -- 2,220
Alternate minimum tax
differences-------------------- 903 -- 903 903 -- 903
Other---------------------------- 429 -- 429 343 -- 343
Total current---------------- 3,061 (13,018) (9,957) 3,466 (12,235) (8,769)
Noncurrent:
Depreciation differences,
including purchase
accounting--------------------- -- (21,117) (21,117) -- (20,420) (20,420)
Pension cost differences--------- -- (616) (616) 133 -- 133
Accruals not currently
deductible--------------------- 1,097 -- 1,097 1,429 -- 1,429
Other---------------------------- -- (969) (969) -- (1,092) (1,092)
Total noncurrent------------- 1,097 (22,702) (21,605) 1,562 (21,512) (19,950)
Total------------------------ $ 4,158 $ (35,720) $ (31,562) $ 5,028 $ (33,747) $ (28,719)
F-10
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's income before taxes. The reasons for the differences from the
statutory rate are as follows (in thousands of dollars):
1994 1993 1992
Statutory federal rate--------------- 35% 34% 34%
Income taxes computed at the
statutory federal rate------------- $ (3,947) $ (93) $ (1,860)
Effect of increase in statutory rate
on deferred tax liabilities-------- 871 -- --
Nontaxable interest and dividends---- (295) (341) (320)
Effect of state income taxes--------- 28 262 (305)
Effect of foreign sales
corporation------------------------ (53) (111) (99)
ESOP dividends and other------------- 84 (114) (73)
Total---------------------------- $ (3,312) $ (397) $ (2,657)
Income taxes paid (recovered) were $(4,482,000) in 1994, $(3,571,000) in
1993, and $5,812,000 in 1992.
7. EMPLOYEE BENEFITS
RETIREMENT PLANS -- Substantially all of the Company's nonseasonal employees
are covered by retirement plans. Certain unionized employees are covered by an
industry-wide plan, and other employees are covered by Company-sponsored defined
benefit plans. Under the Company-sponsored defined benefit plans, retirement
benefits are primarily a function of years of service and the employee's
compensation for a defined period of employment. The Company funds pension costs
at an actuarially determined amount based on normal cost and the amortization of
prior service costs, gains, and losses over a weighted average period of twelve
years. Additionally, the Company provides a supplemental non-qualified, unfunded
pension plan for certain officers whose benefits under the qualified plan are
limited by federal tax law. In fiscal 1993, the Company adopted a non-qualified
retirement plan for non-employee directors, which provides benefits based upon
years of service as a director and the retainer in effect at the date of a
director's retirement.
As required by Statement of Financial Accounting Standards No. 87, the
Company has recorded as a minimum pension liability the excess of the
accumulated benefit obligation over the fair value of plan assets. To the extent
that the resulting adjustment exceeded unamortized prior service cost and
transition loss, the additional charge has been shown as a reduction of
shareholders' equity.
The aggregate net periodic pension cost for these plans for each of the past
three fiscal years included the following components (in thousands of dollars):
1994 1993 1992
Company-sponsored plans:
Service cost for benefits earned
during the period $ 1,973 $ 2,095 $ 1,603
Interest cost on projected
benefit obligation------------- 2,156 2,137 1,703
Actual return on plan assets----- 275 (535) (784)
Net amortization and deferral---- (1,398) 43 167
Net periodic pension
cost -- Company-sponsored
plans-------------------------- 3,006 3,740 2,689
Industry-wide plan for certain
unionized employees---------------- 517 474 421
Total pension cost--------------- $ 3,523 $ 4,214 $ 3,110
F-11
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
The funded status of the Company-sponsored plans was as follows at March 31,
1994 and 1993 (in thousands of dollars):
1994 1993
PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligations:
Vested----------------------- $ 7,040 $ 13,436 $ 6,375 $ 11,354
Nonvested-------------------- 611 540 553 481
Total accumulated benefit
obligations-------------------- 7,651 13,976 6,928 11,835
Effect of projected future salary
increases---------------------- 753 7,226 380 6,718
Projected benefit obligations---- 8,404 21,202 7,308 18,553
Plan assets at fair value (primarily
listed stocks and bonds)----------- 3,115 18,028 2,631 16,039
Excess of projected benefit
obligations over plan assets------- 5,289 3,174 4,677 2,514
Prior service cost of plan
amendments------------------------- (2,520) 54 (1,790) (192)
Unrecognized net gains (losses):
Arising at transition date------- (1,616) 448 (1,930) 525
Arising subsequent to transition
date--------------------------- (1,043) (4,835) (593) (2,699)
Adjustment for additional
liability-------------------------- 4,426 0 3,934 0
Accrued (prepaid) pension cost------- $ 4,536 $ (1,159) $ 4,298 $ 148
Assumptions used:
Current discount rate for plan
liabilities-------------------- 7.75% 7.75% 7.75% 7.75%
Projected annual rate of increase
in compensation levels--------- 5.5% 5.5% 5.5% 5.5%
Assumed long-term return on plan
assets------------------------- 8.0% 8.0% 8.0% 8.0%
401(K) TAX DEFERRED SAVINGS PLAN -- Substantially all of the Company's
nonbargaining unit employees and a portion of the Company's bargaining unit
employees may elect to defer from 1% to 15% of their annual compensation in the
plan established January 1, 1990. The Company may make discretionary matching
contributions of up to 38% of the first $2,500 contributed by an employee. No
amount was charged to expense in 1994 and 1993; $226,000 was charged to expense
in fiscal 1992.
EMPLOYEE STOCK PURCHASE PLAN -- In July 1993, the shareholders approved an
amended and restated employee stock purchase plan and reserved 1,000,000 shares
of common stock. The plan provides substantially all year-round employees the
option to purchase shares of common stock either through open market purchases
at market value or directly from the Company at 85% of market
F-12
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
value. An amount of $16,000 was charged to compensation expense in fiscal 1994
for the discount on shares purchased under the latter alternative.
STOCK INCENTIVE PLAN -- The shareholders have approved the Imperial Holly
Corporation Stock Incentive Plan, and have reserved for issuance 812,500 shares
of common stock. The plan provides for the granting of incentive awards in the
form of stock options, stock appreciation rights (SARs), restricted stock,
performance units and performance shares at the discretion of the Executive
Compensation Committee of the Board of Directors. Stock options have an exercise
price equal to the fair market value of the shares of common stock at date of
grant, become exercisable in annual increments for up to five years commencing
one year after date of grant, and expire not more than ten years from date of
grant.
Stock option activity in the plan during the last three fiscal years was as
follows:
1994 1993 1992
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
Beginning Balance-------------------- 363,214 $6.44-$16.83 404,939 $6.44-$16.83 440,084 $6.44-$16.83
Granted------------------------------ 208,000 $8.69-$14.00 -- --
Cancelled---------------------------- (34,201) $8.69-$15.88 (14,414) $6.44-$15.88 (16,626) $6.44-$15.88
Exercised---------------------------- (42,198) $6.44 (27,311) $6.44 (18,519) $6.44
Balance,
March 31--------------------------- 494,815 $6.44-$16.83 363,214 $6.44-$16.83 404,939 $6.44-$16.83
Exercisable as of March 31----------- 248,466 $6.44-$16.83 264,727 $6.44-$16.83 178,084 $6.44-$16.83
Certain stock options listed above were granted with SARs. The SARs provide
that, in lieu of the exercise of options, the optionee may receive cash or
shares of stock with a fair market value equal to the amount by which the fair
market value on exercise date of the stock subject to the option exceeds the
option price. No SARs have been exercised and, at March 31, 1994, options
outstanding with SARs attached totaled 72,589 shares (of which 60,431 were
exercisable). A charge (credit) representing the increase (decrease) of the
excess of fair market value over the exercise price of SARs totaling $(159,000)
in 1994, $19,000 in 1993, and $(15,000) in 1992 has been recorded as
compensation expense.
F-13
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN -- During fiscal 1990, the
shareholders approved the Nonemployee Director Stock Option Plan and reserved
30,000 shares of common stock for issuance under the plan. The plan provides for
the automatic granting to each nonemployee director options to purchase 1,500
shares of common stock at a price equal to 50% of the fair market value at date
of grant. The options become exercisable upon the completion of three years of
service as a director, and expire over a two year period from the date first
exercisable. Stock option activity in the plan during the last three fiscal
years was as follows:
1994 1993 1992
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
Beginning Balance-------------------- 3,000 $8.09-$8.84 3,000 $8.09-$8.84 4,500 $8.84-$9.29
Granted------------------------------ 3,000 $4.75-$7.00 -- 1,500 $8.09
Exercised---------------------------- -- -- (3,000) $9.29
Balance, March 31-------------------- 6,000 $4.75-$8.84 3,000 $8.09-$8.84 3,000 $8.09-$8.84
Exercisable as of March 31---- 1,500 $8.84 -- --
8. SHAREHOLDER RIGHTS PLAN
On September 14, 1989, the Board of Directors declared a dividend of one
Right for each outstanding share of the Company's common stock. Each of the
Rights, which are currently attached to the common stock, entitle the holder to
purchase two three-hundredths of a share of a new series of Junior Participating
Preferred Stock (68,353 in total as of March 31, 1994) at a price of $60
(subject to adjustment). The Rights are not exercisable until the earlier of ten
days after the public announcement that a person or group has acquired 25% or
more of the Company's outstanding common stock or ten business days after the
commencement of a tender offer to acquire such 25% interest. Under certain
circumstances, the Rights, other than the Rights held by the 25% shareholder,
will become exercisable for common stock of the Company (or an acquiring person)
with a market value equal to two times the exercise price of the Right. The
Rights are redeemable, at 2/3 cents per Right, at any time prior to a person
becoming a 25% shareholder. The Rights will expire on September 25, 1999.
9. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations, and, 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 results of operations
or consolidated financial position.
A jury verdict was rendered against the Company in a wrongful discharge suit
in October 1991. The Company reached a settlement of this matter with the
plaintiff in May 1992 and provided for the full amount of the settlement by a
charge to other income in fiscal 1992.
In 1992, the U.S. Customs Service ('Customs') notified the Company that
Customs had audited customs drawback claims filed by the Company in 1985 and
that Customs would require the Company to repay to Customs certain duties and
fees previously refunded to the Company. In April 1992, the Company refunded
$2.5 million to Customs under protest, a condition precedent to the commencement
of an appeal of the audit decision, and recorded such amount in other assets. In
May 1992, the Company commenced its appeal in the Court of International Trade
and, based in part on an evaluation by outside counsel, management expects to be
successful in its claim.
F-14
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994, 1993 AND 1992
The Company was initially notified by the Environmental Protection Agency
('EPA') in October 1992 that it had been identified as a 'de minimis'
potentially responsible party with respect to the Operating Industries, Inc.
Superfund site in Monterey, California. The EPA notice states that fuel oil
removed from a former Holly Sugar Corporation factory was disposed of at the
site by a third party waste disposal contractor when the factory was closed in
1977, prior to the acquisition of Holly Sugar by the Company. According to the
notice from the EPA, approximately 300 potentially responsible parties have
previously agreed to perform portions of the cleanup work at the site and to pay
the costs for the oversight of this work. In May 1993, the Company received a
new notice from the EPA informing the Company that its status had been revised
to that of a potentially responsible party on the basis of volumetric
calculations by the EPA. The Company successfully contested the EPA's volumetric
calculations and in November 1993, received acknowledgment from the EPA that
volumes of fuel oil from the former Holly Sugar factory disposed of at the site
had been reduced to the level which should result in the Company being
reclassified as a 'de minimis' potentially responsible party. By law, as long as
a party remains a 'de minimis' potentially responsible party, liability for
clean up costs is limited to no more than $500,000. The Company has not been
able to determine its ultimate liability, if any, with respect to this matter.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $3,117,000, $4,542,000 and $6,570,000 in fiscal 1994, 1993 and 1992
respectively.
The aggregate future minimum lease commitments under noncancelable operating
leases at March 31, 1994 are summarized as follows (in thousands of dollars):
OPERATING
FISCAL YEAR LEASES
1995------------------------------- $ 2,123
1996------------------------------- 1,657
1997------------------------------- 1,111
1998------------------------------- 753
1999------------------------------- 517
After 1999--------------------------- 2,604
10. SUPPLEMENTARY INCOME STATEMENT INFORMATION
A $925,000 charge was recorded in fiscal 1994 to provide for the cost of a
work force reduction which was substantially completed during the year.
The Company ceased beet sugar production at its Betteravia, California
factory and converted the facility to a forward packaging and distribution
center during fiscal 1994. A pre-tax charge of $3,300,000 was included in fiscal
1993 operating results for the estimated costs of this action, including a
$1,100,000 allowance for loss on disposition of the manufacturing related
assets.
Other income -- net includes interest and dividends totaling $1,494,000 in
1994, $1,584,000 in 1993 and $1,649,000 in 1992. Maintenance and repair costs
totaled $30,257,000 in 1994, $29,373,000 in 1993 and $31,225,000 in 1992.
Amounts charged to expense for research and development were $2,679,000 in 1994,
$3,579,000 in 1993 and $3,017,000 in 1992.
F-15
SCHEDULE V
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
BALANCE AT BALANCE
BEGINNING ADDITIONS OTHER AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
1994:
Land----------------------------- $ 14,625 $ 49 $ 14,674
Buildings, machinery and
equipment---------------------- 243,596 1,629 $ 1,660 $ 7,337 (1) 250,902
Construction in progress--------- 2,161 6,745 (7,337)(1) 1,569
TOTAL------------------------ $ 260,382 $ 8,423 $ 1,660 $ 0 $267,145
1993:
Land----------------------------- $ 14,867 $ 242 $ 14,625
Buildings, machinery and
equipment---------------------- 229,887 $ 5,055 767 $ 10,521 (1) 243,596
(1,100)(2)
Construction in progress--------- 5,626 7,056 (10,521)(1) 2,161
TOTAL------------------------ $ 250,380 $ 12,111 $ 1,009 $ (1,100) $260,382
1992:
Land----------------------------- $ 14,665 $ 212 $ 10 $ 14,867
Buildings, machinery and
equipment---------------------- 192,817 4,796 1,257 $ 33,531 (1) 229,887
Construction in progress--------- 10,470 28,687 (33,531)(1) 5,626
TOTAL------------------------ $ 217,952 $ 33,695 $ 1,267 $ 0 $250,380
(1) Transfers from construction in progress.
(2) Allowance for loss on disposition of manufacturing related assets.
S-1
SCHEDULE VI
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
ADDITIONS
CHARGED
BALANCE AT TO COST BALANCE
BEGINNING AND AT END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS OF PERIOD
1994:
Buildings, machinery and
equipment---------------------- $ 112,144 $ 15,360 $ 1,593 $ 125,911
1993:
Buildings, machinery and
equipment---------------------- $ 97,478 $ 15,251 $ 585 $ 112,144
1992:
Buildings, machinery and
equipment---------------------- $ 84,276 $ 14,311 $ 1,109 $ 97,478
S-2
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
*3(a) -- Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3(b) to the Company's Registration Statement on Form S-4 (Registration No. 33-20959)).
*3(b) -- Articles of Amendment to Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1990 (File No. 1-10307)).
*3(c) -- Statement of Resolution establishing Series of Shares designated Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1990 (File No. 1-10307) (the '1990
Form 10-K')).
*3(d) -- Statement of Resolution increasing number of shares designated Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 1-10307)).
*3(e) -- Rights Agreement dated as of September 14, 1989 between the Company and The Bank of New
York, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated September 21, 1989 (File No. 1-10307)).
*3(f) -- By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1989 (File No. 0-16674) (the '1989 Form
10-K')).
*4(a)(1) -- Credit Agreement dated as of June 10, 1993 among the Company, the signatory banks thereto
and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4(b) to
the Company's Annual Report on Form 10-K for the year ended March 31, 1993 (File No.
1-10307) ('1993 Form 10-K')).
4(a)(2) -- First Amendment to Credit Agreement dated December 1, 1993.
4(a)(3) -- Second Amendment to Credit Agreement and First Amendment to Notes dated March 4, 1994.
*4(b) -- Indenture dated as of October 15, 1992 by and between the Company and Texas Commerce Bank
National Association, as Trustee, relating to the Company's 8 3/8% Senior Notes due 1999
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (File 1-10307)).
The Company is a party to several debt instruments under which the total amount of
securities authorized does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of
Regulation S-K, the Company agrees to furnish a copy of such instruments to the Commission
upon request.
Exhibits 10(a) through 10(k) relate to management contracts or compensatory plans.
*10(a) -- Imperial Holly Corporation Stock Incentive Plan (as amended and restated effective April
29, 1993) (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993 (File No. 1-10307)).
*10(b)(1) -- Imperial Holly Corporation Retirement Plan (as amended and restated effective January 1,
1989) (incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form
10-K for the year ended March 31, 1992 (File No. 1-10307) ('1992 Form 10-K')).
*10(b)(2) -- Amendment to Imperial Holly Corporation Retirement Plan (incorporation by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 (File No. 1-10307)).
*10(c)(1) -- Specimen of the Company's Employment Agreement for certain of its officers (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1990 (File No. 1-10307) (the 'September 1990 Form 10-Q')).
10(c)(2) -- Specimen of the Company's Amendment to Employment Agreement for certain of its officers.
10(c)(3) -- Schedule of Employment Agreements.
*10(d) -- Specimen of the Company's Severance Pay Agreements for certain of its officers
(incorporated by reference to Exhibit 10.2 to the September 1990 Form 10-Q).
*10(e)(1) -- Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective
August 1, 1990) and specimen of the Company's Salary Continuation Agreements (fully vested
and graduated vesting) (as amended and restated effective August 1, 1990) for certain of
its officers (incorporated by reference to Exhibit 10.3 to the September 1990 Form 10-Q).
10(e)(2) -- Specimen of the Company's Amendatory Agreement to Salary Continuation Agreement, amending
payment amounts.
10(e)(3) -- Specimen of the Company's Amendment to Salary Continuation Agreement, amending paragraph
4.
10(e)(4) -- Specimen of the Company's Amendatory Agreement to Salary Continuation Agreement, amending
paragraphs 2, 3, 4 and 8.
10(e)(5) -- Schedule of Executive Officers' Salary Continuation Agreements.
*10(f)(1) -- Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective
August 1, 1990) and specimen of the Company's Benefit Restoration Agreement for certain of
its officers (incorporated by reference to Exhibit 10.4 to the September 1990 Form 10-Q).
10(f)(2) -- First Amendment to the Company's Benefit Restoration Plan dated June 4, 1991.
10(f)(3) -- Schedule of Executive Officers' Benefit Restoration Agreements.
*10(g)(1) -- Imperial Holly Corporation Executive Benefits Trust (incorporated by reference to Exhibit
10.5 to the September 1990 Form 10-Q).
*10(h)(1) -- Imperial Holly Corporation Employee Stock Ownership Plan (incorporated by reference to
Exhibit 10(i) to the 1989 Form 10-K).
10(h)(2) -- First Amendment to the Company's Employee Stock Ownership Plan dated September 27, 1988.
10(h)(3) -- Second Amendment to the Company's Employee Stock Ownership Plan dated April 21, 1989.
10(h)(4) -- Third Amendment to the Company's Employee Stock Ownership Plan dated December 21, 1989.
10(h)(5) -- Fourth Amendment to the Company's Employee Stock Ownership Plan dated December 30, 1992.
*10(i) -- Imperial Holly Corporation 1989 Nonemployee Director Stock Option Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated June 16, 1989 for the 1989
Annual Meeting of Shareholders, File No. 0-16674).
10(j) -- Imperial Holly Corporation Retirement Plan For Nonemployee Directors.
*10(k) -- Imperial Holly Corporation Employee Stock Purchase Plan (as amended and restated effective
September 1, 1993) (incorporated by reference to Exhibit 4.10 to Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-8 (Registration No. 33-41769)).
*10(l) -- Agreement of Limited Partnership of ChartCo Terminal, L.P. (incorporated by reference to
Exhibit 10(j) to the 1990 Form 10-K).
11 -- Computation of Income Per Common Share.
21 -- Subsidiaries of the Company.
23 -- Independent Auditors' Consent