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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2002 Commission File No. 1-10307
IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
One Imperial Square, 8016 Highway 90-A, P.O. Box 9, Sugar Land, Texas 77487-0009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 491-9181
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark 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 the 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. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [_]
There were 10,000,000 shares of the registrant's common stock outstanding on
December 27, 2002. The aggregate market value of the voting stock held by
non-affiliates of the registrant on December 27, 2002, based on the last
reported trading price of the registrant's common stock on the OTC Bulletin
Board on that date, was approximately $24 million. For purposes of the above
statement only, all directors, executive officers and 10% shareholders are
treated as affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for registrant's
2003 Annual Shareholders Meeting are incorporated by reference into Part III of
this report.
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TABLE OF CONTENTS
PART I
ITEM 1. Business............................................................................. 1
ITEM 2. Properties........................................................................... 10
ITEM 3. Legal Proceedings.................................................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders.................................. 10
Executive Officers of the Registrant................................................. 11
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters................ 13
ITEM 6. Selected Financial Data.............................................................. 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk............................ 22
ITEM 8. Financial Statements and Supplementary Data.......................................... 24
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant................................... 25
ITEM 11. Executive Compensation............................................................... 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....................... 25
ITEM 13. Certain Relationships and Related Transactions....................................... 25
PART IV
ITEM 14. Controls and Procedures.............................................................. 26
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 26
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Forward-Looking Statements
Statements regarding future market prices and margins, future operating
results, sugarbeet acreage, operating efficiencies, future government and
legislative action, cost savings, future compliance with covenants in our
financial agreements, the future status of financing agreements, our liquidity
and ability to finance our operations, and other statements that are not
historical facts contained in this report on Form 10-K are forward-looking
statements. We identify forward-looking statements in this report by using the
following words and similar expressions:
. expect . project . estimate
. believe . anticipate . likely
. plan . intend . could
. should . may . predict
. budget
Forward-looking statements involve risks, uncertainties and assumptions,
including, without limitation, market factors, the effect of weather and
economic conditions, farm and trade policy, our ability to realize planned cost
savings, the available supply of sugar, available quantity and quality of
sugarbeets, energy costs, court decisions and actions, the results of
negotiations, actual or threatened acts of terrorism or armed hostilities,
legislative and administrative actions and other factors detailed elsewhere in
this report and in our other filings with the SEC. Many of such factors are
beyond our ability to control or predict. Management cautions against placing
undue reliance on forward-looking statements or projecting any future results
based on such statements or present or future earnings levels. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. All forward-looking statements in this Form 10-K are qualified in
their entirety by the cautionary statements contained in this section and
elsewhere in this report.
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PART I
ITEM 1. Business
Overview
Imperial Sugar Company is one of the largest processors and marketers of
refined sugar in the United States. We produce, package and distribute sugar at
facilities located in California, Georgia, Louisiana and Texas. For the year
ended September 30, 2002, we sold approximately 42 million hundredweight, or
cwt, of refined sugar.
We offer a broad product line and sell to a wide range of customers directly
and through wholesalers and distributors. Our customers include retail grocers
and industrial customers, principally food manufacturers. Our products include
granulated, powdered, liquid and brown sugars marketed in a variety of
packaging options (one pound boxes to 100-pound bags and in bulk) under various
brands (Imperial(R), Holly(R), Spreckels(R), Dixie Crystals(R), Pioneer(R) and
Wholesome Sweeteners(TM)) or private labels. In addition, we produce selected
specialty sugar products, including Savannah Gold(TM) (a premium-priced,
free-flowing brown sugar), Sucanat(TM) (sugar milled from organically grown
sugar cane) and specialty sugars used in confections and icings. We have a
broad customer base and no single customer accounted for 10% or more of our
consolidated sales for the year ended September 30, 2002.
During fiscal 2002, we operated in two business segments--the sugar segment,
which produces and sells refined sugar and related products, and the
foodservice segment, which sold and distributed numerous products to
foodservice customers. For the year ended September 30, 2002, our sugar segment
accounted for approximately $993 million, or 77%, and our foodservice segment
accounted for approximately $305 million, or 23%, of our consolidated net
sales. On December 30, 2002, we sold our foodservice business for gross
proceeds of approximately $115 million. We retained a substantial portion of
the sugar product sales to the foodservice market in this transaction. We now
focus on producing and selling refined sugar and related products. We plan to
reflect our foodservice business as discontinued operations in our consolidated
financial statements commencing with reporting for the first quarter of fiscal
2003. Please read "--Disposed of Operations."
In addition to the sale of our foodservice business, since the beginning of
fiscal 2002, we sold (1) our disposable meal kit business in December 2001, (2)
our Michigan Sugar Company subsidiary in February 2002, (3) our Worland,
Wyoming sugarbeet factory in June 2002 and (4) our Sidney, Montana, Torrington,
Wyoming and Hereford, Texas sugarbeet facilities in October 2002. These sales
(including the sale of our foodservice business), together with sales of
surplus land and non-operating assets, have generated gross proceeds of
approximately $251 million. We also discontinued our raw cane sugar refinery
operations in Sugar Land, Texas in December 2002. We undertook these
transactions and others to reduce our debt, to lower our working capital needs,
to reduce our costs and to concentrate our resources in our most strategic
regions of the Southeast, Southwest and the West Coast. In connection with the
Michigan Sugar Company and Worland, Wyoming factory sales, we entered into
multi-year agreements to market all refined sugar production from those
facilities.
On August 29, 2001, Imperial Sugar and substantially all of its subsidiaries
emerged from protection under the U.S. Bankruptcy Code, under which they filed
for relief in January 2001. Under our plan of reorganization, our old common
stock was canceled, our bondholders and some of our trade creditors received
98% of the stock of our reorganized company and some of our creditors received
reduced cash and deferred payment settlements. We have applied reorganization
and fresh start accounting adjustments to our consolidated balance sheet as of
August 29, 2001. Under fresh start accounting, a new reporting entity is
considered to be created and the recorded amounts of assets and liabilities are
adjusted to reflect their estimated fair values at the date fresh start
accounting is applied.
In conjunction with the sale of our foodservice business, we refinanced our
senior bank debt in December 2002, and entered into a new $175 million credit
facility. Please read "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
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Imperial Sugar Company was incorporated in 1924 and is the successor to a
cane sugar plantation and milling operation begun in Sugar Land, Texas in the
early 1800s that began producing granulated sugar in 1843. In 1988, we
purchased Holly Sugar Corporation and in April 1996, we acquired Spreckels
Sugar Company. We completed our acquisition of Savannah Foods & Industries,
Inc. in December 1997 and we acquired Wholesome Sweeteners L.L.C. in September
1998 and Diamond Crystal Specialty Foods, Inc. in November 1998.
Overview of the Sugar Industry
Refined sugar can be produced by either processing sugarbeets or refining
raw sugar produced from sugar cane. The profitability of cane sugar and beet
sugar operations is affected by government programs designed to support the
price of domestic crops of sugar cane and sugarbeets. These government programs
affect cane sugar and beet sugar operations differently.
Cane Sugar Production Process
Sugar cane is grown in tropical and semitropical climates throughout the
world. Sugar cane is processed into raw sugar by raw cane mills promptly after
harvest. Raw sugar is approximately 98% sucrose and may be stored for long
periods and transported over long distances without affecting its quality. Raw
cane sugar imports currently are limited by United States government programs.
Cane sugar refineries like those we operate purify raw sugar to produce
refined sugar. Operating results of cane sugar refineries are driven primarily
by the spread between raw sugar and refined sugar prices.
Beet Sugar Production Process
In contrast to sugar cane, sugarbeets can grow wherever a five-month growing
season is possible. In the United States, sugarbeets are grown in California,
Colorado, Idaho, Michigan, Minnesota, Montana, Nebraska, North Dakota, Ohio,
Oregon, South Dakota, Washington and Wyoming. Harvest periods depend on the
growing area, but generally are in the early fall, except in California, where
spring and summer harvests also occur.
Sugarbeets are highly perishable and must be processed into refined sugar
quickly after harvest to avoid deterioration. Sugarbeets may be stored in piles
for short periods while awaiting processing where temperatures are sufficiently
cool. Sugarbeets are converted to refined sugar through a single continuous
process at beet sugar factories, which are located near the areas in which
sugarbeets are grown in order to reduce freight costs and the risk of
deterioration before processing.
The production campaigns at any facility generally last 90 to 200 days, and
operating results are driven primarily by the quantity and quality of
sugarbeets dedicated to the factory and the net sales prices received for the
refined beet sugar. Under industry practice, the beet processor shares a
portion of the net sales price with growers through various participation or
recovery contracts or cooperative arrangements.
Government Regulation
Federal government programs have existed to support the price of domestic
crops of sugarbeets and sugar cane almost continually since 1934. The
regulatory framework that currently affects the domestic sugar industry
includes the Farm Security and Rural Investment Act of 2002, or the Farm Bill.
The Farm Bill provides for loans on sugar inventories to first processors
(i.e., raw cane sugar mills and sugarbeet processors), implements a tariff rate
quota that limits the amount of raw and refined sugar that can be imported into
the United States, and imposes marketing allotments on sugarbeet processors and
domestic raw cane sugar producers in some circumstances. In addition, the North
American Free Trade Agreement, or NAFTA, adopted in 1994, limits the amount of
sugar that can be imported to and exported from Mexico. To date, NAFTA has had
a lesser impact on the United States sugar market than the Farm Bill and its
predecessor acts. However, NAFTA may have a greater
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impact on both demand and supply in the future as its provisions come into
effect. Please read "--Sugar Legislation and Other Market Factors."
Domestic Demand
Domestic demand for refined sugar increased each year from 1986 through 2001
(after an earlier period in which sugar consumption declined due primarily to a
switch by soft-drink manufacturers from refined sugar to high-fructose corn
syrup), and the annual rate of growth over the five-year period ended September
30, 2001 has ranged from 1.5% to 2.0%. During 2002 domestic demand declined
0.5%, due to increased imports of sugar containing products and sugar blends.
Domestic Supply
Reduced demand in the early 1980s due primarily to the switch of soft drink
manufacturers to high-fructose corn syrup was absorbed principally by capacity
reductions in the cane sugar refining sector. Approximately one-third of
domestic cane sugar refining capacity was eliminated between 1981 and 1988.
Cane sugar refining capacity remained relatively flat from 1988 until 1998,
when a competitor constructed a refinery in Florida with a rated annual
capacity of approximately 10 million cwt. Growth in refined sugar demand during
the last decade has been largely satisfied through increased beet sugar
production. In recent years, there have been a number of expansions to existing
beet sugar factories to allow for an increase in acreage dedicated to
sugarbeets. Marketing allotments under the Farm Bill likely will affect future
sugarbeet production. These allocations may limit the amount of domestic raw
sugar that is available for refining and may limit sugar available for sales in
future periods. Please read "--Sugar Legislation and Other Market Factors."
Domestic Refined Sugar Prices
Given the existing domestic supply and demand situation and the current
status of government regulation, the price of refined sugar in the United
States in recent years has been driven primarily by the amount of beet sugar
supply. Historically, good crop years have led to relatively soft refined sugar
prices, and small crop years have led to relatively strong refined sugar prices.
Our Products
Sugar Products
Imperial Sugar is one of the largest processors and marketers of refined
sugar in the United States. Our sugar customers include both retail grocers and
industrial customers, principally food manufacturers.
Refined sugar is our principal product and accounted for approximately 92%
of our consolidated net sales and approximately 98% of sugar segment sales for
year ended September 30, 2002. We produced approximately 82% of our refined
sugar from raw cane sugar and 18% from sugarbeets in fiscal 2002. We market our
sugar products to retail grocers and industrial food manufacturers by direct
sales and through brokers.
Retail Grocery Sales--We produce and sell granulated white, brown and
powdered sugar to grocery customers in packages ranging from one-pound boxes to
25-pound bags. Retail packages are marketed under the trade names:
. Imperial(R) . Pioneer(R)
. Spreckels(R) . Holly(R)
. Dixie Crystals(R) . Wholesome
Sweeteners(TM)
and also are sold under retailers' private labels. We generally sell private
label packaged sugar, which represents a significant percentage of our grocery
sales, at prices lower than those for branded sugar. Core markets for our
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branded sugar and private label products include the Southeast and Southwest
United States. Our business strategy is to seek to capitalize on our well-known
brands to increase sales of our higher-margin branded products as a percentage
of total grocery sales. For the year ended September 30, 2002, our sales of
refined sugar products to retail grocery customers accounted for approximately
36% of our refined sugar sales in the sugar segment.
Industrial Sales--We produce and sell refined sugar, molasses and other
ingredients to industrial customers, principally food manufacturers, in bulk,
packaged or liquid form. Food manufacturers purchase sugar for use in the
preparation of confections, baked products, frozen desserts, canned goods and
various other food products. Historically, we have made the majority of our
sales to industrial customers under fixed price, forward sales contracts with
terms of one year or less. Industrial sales generally provide lower margins
than grocery sales. For the year ended September 30, 2002, our sales of refined
sugar products to industrial customers accounted for approximately 64% of our
refined sugar sales in the sugar segment.
Specialty Product Sales--We also produce and sell specialty sugar products
to retail grocers and industrial customers. Specialty sugar products include:
. Savannah Gold(TM) (a premium-priced, free flowing brown sugar marketed
primarily to industrial customers)
. edible molasses
. syrups
. sucanat (sugar milled from organically grown sugar cane)
. sugar produced from organically grown sugar cane
. specialty sugars used in confections, fondants and icings.
By-Products
We sell by-products from our beet sugar processing, principally beet pulp
and molasses, as livestock feeds to dairymen, livestock feeders and livestock
feed processors. The major portion of the beet pulp and molasses produced from
sugarbeet operations is sold during and shortly after the sugar-making
campaigns. By-products from beet sugar processing are marketed in the United
States, Europe and Japan. 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 our 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.
Beet Seed
We also develop, produce and market commercial seed to beet growers under
contract to us as well as to growers under contract to grow for other beet
sugar processors. We do not sell, nor do we authorize our growers to use,
genetically modified seed in their production programs. Our beet seed
operations are conducted primarily in Sheridan, Wyoming.
We also are active in sugarbeet disease control, as sugarbeet growing areas
have varying levels of diseases that affect sugarbeet quality and quantity as
well as the cost of processing. We have a sugarbeet plant pathology disease
control research laboratory in Tracy, California that develops and implements
disease control strategies for all of our sugarbeet growing areas. We also have
an agreement with ADVANTA SEEDS, a partnership of D.J. van der Have B.V. and
Societe Europeenne de Semences, N.V., S.A., granting ADVANTA access to our
proprietary beet seed breeding material for varietal seed development in
exchange for the exclusive marketing rights to ADVANTA's beet seed in certain
markets in the United States, Canada and Mexico.
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Sales and Marketing
We sell products directly through our sales force and through independent
brokers. We maintain sales offices at our offices in Sugar Land, Texas and
Savannah, Georgia and at regional locations across the United States. We
consider our marketing and promotional activities important to our overall
sales effort. We advertise our brand names in both print and broadcast media
and distribute various promotional materials, including discount coupons and
compilations of recipes.
Operational Facilities
We own three cane sugar refineries and two sugarbeet factories. Each
facility is served by adequate transportation and is maintained in good
operating condition. The following table shows the location and capacity of
each of our refineries and processing plants:
Approximate Daily Fiscal 2002
Melting Capacity Production
Cane Sugar Facilities (Pounds of Raw Sugar) (cwt)
--------------------- --------------------- -----------
Port Wentworth, Georgia 6,300,000 16,449,000
Gramercy, Louisiana.... 4,200,000 10,130,000
Sugar Land, Texas*..... 4,000,000 7,366,000
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Total............... 14,500,000 33,945,000
========== ==========
- --------
* Facility ceased refining raw sugar in December 2002, but expect to continue
distribution and packaging operations.
Approximate Daily Fiscal 2002
Slicing Capacity Production
Beet Sugar Facilities (Tons of Sugarbeets) (cwt)
--------------------- -------------------- -----------
Brawley, California. 9,000 2,645,000
Mendota, California. 4,200 1,612,000
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Total............ 13,200 4,257,000
====== =========
We also operate a distribution center in Tracy, California that formerly
served as a beet sugar production facility.
Raw Materials and Processing Requirements
Raw Cane Sugar
We currently purchase raw cane sugar from domestic sources of supply located
in Louisiana, Florida and Texas, as well as from various foreign countries. The
availability of foreign raw cane sugar is determined by the import quota level
designated by applicable regulation.
Of our raw cane sugar purchases, we historically have purchased
approximately 40% to 60% through long-term contracts with raw sugar producers;
20% to 30% under annual contracts with sugar producers or sugar traders; and
10% to 20% on a spot basis. In October 2002, we entered into a one-year raw
cane sugar supply arrangement for our Savannah, Georgia raw cane sugar
refinery. Under this arrangement, we can purchase weekly production needs for
that refinery in lieu of purchasing full shiploads of raw sugar. We expect to
purchase substantially all our raw cane sugar needs for the Georgia refinery
under this supply arrangement through September 2003. We have a three-year
contract with a local producer that supplies substantially all the raw sugar
needs for our Louisiana refinery.
The terms of raw cane sugar contracts vary. Raw cane sugar purchase
contracts can provide for the delivery of a single cargo or for multiple
cargoes over a specified period or a specified quantity over one or more crop
years. Contract terms may provide for fixed prices but generally provide for
prices based on the futures market
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during a specified period of time. The contracts provide for a premium if the
quality of the raw cane 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.
Historically, the majority of our industrial sales are under fixed price,
forward sales contracts. In order to mitigate price risk in raw and refined
sugar commitments, we manage the volume of refined sugar sales contracted for
future delivery in relation to the volume of raw cane sugar purchased for
future delivery by entering into forward purchase contracts to buy raw cane
sugar at fixed prices and by using raw sugar futures and option contracts.
We have access to approximately 295,000 short tons of aggregate raw sugar
storage capacity, including 215,000 short tons of storage capacity at our Port
Wentworth, Georgia refinery. At Port Wentworth, we have the ability to
segregate our raw sugar inventory, which allows us to store bonded sugar for
re-export. This capability facilitates our participation in the re-export
market. We have been active in this market in the past and may be active in the
future when pricing and market conditions are favorable.
Sugarbeet Purchases
We purchase sugarbeets for our two California beet processing facilities
from independent growers under contracts, the terms of which are negotiated
annually with an association representing growers. We contract for acreage
prior to the planting season based on estimated demand, marketing strategy,
expected impact of marketing allotments, processing capacity and historical
crop yields.
The contracts we use provide for payments to the grower based on the sugar
content of the sugarbeets delivered by each grower and the net selling price of
refined beet sugar during the specified contract year. 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 a participating contract reduces our
exposure to price risks on our refined sugar inventory by causing the price we
pay on our sugarbeet purchases to vary with the price received for refined
sugar.
Our beet sugar operations depend on the quantity, quality and proximity of
sugarbeets available to our factories. Sugarbeet acreage varies depending on
factors such as prices anticipated by growers for sugarbeets versus alternative
crops, prior crop quality, productivity, availability of irrigation and weather
conditions. In addition, the quantity and cost of refined sugar subsequently
produced from the sugarbeet crop may be materially affected by the acreage
harvested, disease, insects and weather conditions during the growing,
harvesting and processing season.
Energy
The primary fuel we use is natural gas, although some of our factories also
use coal; we generate a substantial portion of the electricity used at our
refineries and factories. We have the equipment to use fuel oil at certain
locations both as an alternative energy source when the price is more
attractive and as a backup to natural gas in the event of curtailment of gas
deliveries.
We typically purchase natural gas and coal supplies under contracts for
terms of one year or more that do not contain minimum quantity requirements.
Pricing of natural gas contracts generally is indexed to a spot market index.
We have used financial tools such as futures, options, swaps and caps to
stabilize the price for gas purchases under indexed contracts. Coal is
available in abundant supply domestically, and we are able to purchase coal
competitively. High energy prices could affect us adversely in future periods.
Other Raw Materials
We use foundry coke and limestone in the beet sugar extraction process. We
generally purchase coke under contracts with one to three-year terms and use
rail transportation to deliver the coke to factories. Domestic coke
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supplies may become tighter due to environmental restrictions; however, we have
the option of converting existing coke-fired equipment to natural gas should
the availability and economics of coke so dictate.
Seasonality
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 our beet sugar
factories operates during sugar-making campaigns, which generally total 150
days to 200 days in length each year, depending on the supply of sugarbeets
available to the factory. The seasonal production of sugarbeets requires us to
store significant refined sugar inventory at each factory.
Sugar Legislation and Other Market Factors
Our business and results of operations are substantially affected by market
factors, principally the domestic prices for refined sugar and raw cane sugar
and the quality and quantity of sugarbeets available to us. These market
factors are influenced by a variety of forces, including the number of domestic
acres contracted to grow sugarbeets, prices of competing crops, weather
conditions and United States farm and trade policies.
The principal legislation currently supporting the price of domestic crops
of sugar cane and sugarbeets is the Farm Security and Rural Investment Act of
2002, or the Farm Bill, which became effective October 1, 2002 and extended the
sugar price support program for sugar cane and sugarbeets until 2008.
Farm Bill
The Farm Bill has three important aspects:
. Non-recourse Loan Program. The Farm Bill creates a loan program
(continued from the predecessor acts) covering sugar cane and sugarbeet
crops during the 2002 to 2008 period. The program authorizes the
Commodity Credit Corporation, or CCC, a federally owned and operated
corporation within the U.S. Department of Agriculture, or USDA, to extend
loans to first-processors of domestically grown sugar cane and sugarbeet
crops secured by sugar inventories from current year crop production at
rates of approximately 18 and 22.9 cents per pound, respectively. CCC
loans are non-recourse and mature the earlier of nine months or September
30 each year. The program provides price support as it effectively
permits first-processors to sell raw cane sugar and refined beet sugar by
forfeiture of the collateral at the respective loan rates in the event
that the market prices drop below the loan-advance levels.
. Tariff-rate Quota System. The tariff-rate quota, or TRQ, element of the
Farm Bill limits the amount of raw and refined sugar that can be imported
into the United States, subject to a minimum amount mandated under the
General Agreement on Tariffs and Trade, by imposing a tariff on
over-quota sugar that makes its import uneconomical. To the extent a
processor sells refined sugar for export from the United States, it is
entitled to import an equivalent quantity of non-quota eligible foreign
raw sugar. The government administers the program by adjusting duties and
quotas for imported sugar to maintain domestic sugar prices at a level
that discourages loan defaults under the non-recourse loan program.
. Marketing Allotments. The Farm Bill will, in certain circumstances,
impose marketing allotments on sugarbeet processors and domestic raw cane
sugar producers who supply raw sugar. Marketing allotments could have the
effect of reducing the amount of domestic sugar that is available for
marketing and strengthening sugar prices.
The Farm Bill requires that the USDA operate its non-recourse sugar loan
program, to the maximum extent possible, so as to avoid forfeiture of sugar to
the CCC. To this end, the USDA has the authority to accept bids from sugar cane
and sugarbeet processors to obtain raw cane sugar or refined beet sugar in CCC
inventory in
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exchange for reduced production of raw cane sugar or refined beet sugar. This
payment-in-kind authority, or PIK, effectively moves inventories of CCC-owned
sugar back into the market without increasing overall supply.
NAFTA
The North American Free Trade Agreement, or NAFTA, contains provisions that
allow Mexico to increase its raw or refined sugar exports to the United States
to up to 275,576 short tons raw value by 2007, if Mexico is projected to
produce a net surplus of sugar. In 2008, NAFTA sugar duties and quotas expire
and sugar may be freely traded between the United States and Mexico. The NAFTA
sugar agreement currently is under renegotiation by the governments of the
United States and Mexico. Mexican access to the United States could be higher
in future periods.
Environmental Regulation
Our operations are governed by various federal, state and local
environmental regulations. These regulations impose effluent and emission
limitations, and requirements regarding management of water resources, air
resources, toxic substances, solid waste and emergency planning.
Environmental Permits
We have obtained or are making application for the environmental permits
required under federal, state and local regulations. We have or had filed
environmental permit applications as required in California, Florida, Georgia,
Kentucky, Louisiana and Texas.
Remediation at Operating Facilities
The soil and ground water at our Mendota, California facility has been found
to have elevated concentrations of salts. In the mid 1990's, we developed a
prevention plan to install a clay cap on the area of concern and to treat the
affected ground water. The prevention plan will be accomplished over a 20- to
30-year period, and we have recorded a $1.1 million liability for the estimated
costs of this project.
Remediation at Non-Operating Facilities
As a result of the cessation of sugar production at our facilities in
Clewiston, Florida, Hamilton City, California and Tracy, California, we expect
that we will be required to incur costs to remediate certain production areas,
including possibly the removal of material from former production settling
ponds in accordance with waste discharge requirements. We continue discussions
with the California Regional Water Quality Control Board concerning remediation
for our Tracy facility. Additional expenditures also may be required to comply
with future environmental protection standards, although the amount of any
further expenditures cannot be fully estimated. We have recorded a liability of
$1.4 million for estimated environmental costs in connection with the closure
of these facilities.
Research
We operate research and development centers in Sugar Land, Texas and
Savannah, Georgia where we conduct research relating to:
. manufacturing process technology
. factory operations
. food science
. new product development.
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In Savannah, we operate a "pilot plant" where we have developed sugar
products co-crystallized with other flavors such as honey. We market the
co-crystallized specialty products produced at the pilot plant.
Competition
We compete with other cane sugar refiners and beet sugar processors and, in
certain product applications, with producers of other nutritive and
non-nutritive sweeteners, such as high-fructose corn syrup, aspartame,
saccharin and acesulfam-k. Our principal business is highly competitive, where
the selling price and our ability to supply a customer's needs in a timely
fashion are important competitive considerations.
Employees
At November 30, 2002, we employed approximately 2,200 year-round employees.
In addition, we employ approximately 300 seasonal employees over the course of
a year in our California sugarbeet operations. While our Port Wentworth,
Georgia refinery employs non-union labor, we have collective bargaining
agreements with union representatives with respect to the employees at our
other sugar plants. We expect to reduce our total number of year-round
employees by approximately 325 in January 2003 as a result of the
discontinuance of our raw cane sugar refinery operations in Sugar Land, Texas.
In connection with the sale of our foodservice business, we reduced our total
number of year-round employees by approximately 600.
Disposed of Operations
Since we emerged from bankruptcy protection in August 2001, we have explored
avenues to rationalize capacity, reduce cash flow volatility and to shift our
focus to high-value functions such as marketing and distribution. To that end,
we sold (1) our Michigan Sugar Company subsidiary and its four sugarbeet
factories in February 2002 for gross proceeds of approximately $63 million, (2)
our Worland, Wyoming sugarbeet factory in June 2002 for gross proceeds of
approximately $3 million and (3) our Sidney, Montana, Torrington, Wyoming and
Hereford, Texas sugarbeet facilities in October 2002 for gross proceeds of
approximately $34 million. In connection with the sale of the four Michigan
Sugar Company beet factories and of the Worland, Wyoming beet factory, we
entered into multi-year agreements to market all refined sugar production from
those factories. In addition, we discontinued our raw cane sugar refinery
operations in Sugar Land, Texas in December 2002. We plan to reflect our
Sidney, Torrington and Hereford sugarbeet facilities as discontinued operations
commencing with reporting for first quarter of fiscal 2003.
We acquired a substantial portion of our foodservice business in the
acquisition of Diamond Crystal Specialty Foods, Inc. in November 1998.
Following that acquisition, we began reporting our business in two
segments--sugar and foodservice. We sold our nutritional products business in
April 2001 for gross proceeds of approximately $65 million and our disposable
meal kits business in December 2001 for gross proceeds of approximately $28
million. On December 30, 2002, we sold the remaining part our foodservice
business to Hormel Foods Corporation for gross proceeds of approximately $115
million. We retained a substantial portion of the sugar product sales to the
foodservice market in this transaction and entered into a five-year agreement
to supply the majority of the sugar requirements for the disposed of business.
As a result of the sale, we plan to reflect our foodservice business as
discontinued operations in our consolidated financial statements commencing
with reporting for first quarter of fiscal 2003.
Our foodservice business sold numerous products to our foodservice customers
ranging from 50-pound bags of sugar to individual packets of sugar, salt,
pepper, non-dairy creamer, sauces, seasonings, drink mixes and desserts. Our
foodservice customers included restaurants, healthcare institutions, geriatric
centers, schools, and other institutions and distributors to these businesses.
During the year ended September 30, 2002, our foodservice business accounted
for approximately $305 million, or 23%, of our consolidated net sales. Sugar
products sold in our foodservice business accounted for approximately 17% of
our consolidated net sales and for approximately 72% of our foodservice sales.
9
During 2002 we owned and operated five foodservice manufacturing facilities.
The sale of our foodservice business included the sale of four of these
facilities. The following table shows the location and approximate square
footage of the foodservice manufacturing facilities:
Square
Foodservice Manufacturing Facilities Feet
------------------------------------ -------
Savannah, Georgia............ 314,500
Mitchellville, Iowa.......... 152,513
Perrysburg, Ohio............. 131,000
Visalia, California.......... 101,500
Indianapolis, Indiana*....... 63,240
- --------
* We ceased manufacturing at the Indianapolis, Indiana facility in August 2002.
We retained this facility in the sale of our foodservice business and plan to
sell the property in fiscal 2003.
ITEM 2. Properties
We own each of our cane sugar refineries and sugarbeet processing plants. We
own our corporate headquarters in Sugar Land, Texas and contract for throughput
and storage at warehouses and distribution stations. We own additional acreage
at our factories and refineries which is used primarily for settling ponds and
as buffers from nearby communities or is leased as farm and pasture land.
Substantially all of these assets are subject to liens securing our bank debt.
We are actively marketing the real estate for our former Clewiston, Florida
facility and the real estate surrounding our Tracy, California and our
Woodland, California facilities. Please read "Item 1. Business--Operational
Facilities."
ITEM 3. Legal Proceedings
We are a party to litigation and claims which are normal in the course of
our operations. While the results of litigation and claims cannot be predicted
with certainty, we believe the final outcome of such matters will not
materially and adversely affect our consolidated results of operations or
financial position.
In accordance with our plan of reorganization, we are working to resolve the
remaining disputed claims of our pre-petition trade creditors in the U.S.
Bankruptcy Court for the District of Delaware. As we resolve disputed claims,
we are distributing to the remaining pre-petition trade creditors cash or
common stock as provided under the plan of reorganization.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
10
EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the name, age and position of our executive
officers as of December 20, 2002. Our by-laws provide that each officer shall
hold office until the officer's successor is elected or appointed and qualified
or until the officer's death, resignation or removal by the Board of Directors.
Name Age Positions
---- --- ---------
Robert A. Peiser....... 54 President and Chief Executive Officer
Patrick D. Henneberry.. 48 Executive Vice President--Commodities
Walter C. Lehneis...... 58 President of Diamond Crystal Brands
William F. Schwer...... 55 Executive Vice President and General Counsel
W.J. Smith............. 47 Executive Vice President--Operations
Darrell D. Swank....... 39 Executive Vice President and Chief Financial Officer
Lee Van Syckle......... 52 Executive Vice President--Sales and Marketing
Benjamin A. Oxnard, Jr. 68 Managing Director and President of Savannah Foods
H. P. Mechler.......... 49 Vice President--Accounting
Karen L. Mercer........ 40 Vice President and Treasurer
Roy L. Cordes, Jr...... 55 Secretary and Deputy General Counsel
Mr. Peiser became President and Chief Executive Officer in April 2002. Prior
to joining Imperial, Mr. Peiser served as Chairman and Chief Executive Officer
of Vitality Beverages, Inc. of Tampa, Florida, a $500 million privately owned
beverage company, from July 1999 to February 2002. Mr. Peiser held senior
management positions at CV Services International, Inc. from May 1998 to
November 1999 and at Western Pacific Airlines from December 1996 to February
1998. Previously, Mr. Peiser was in management positions with FoxMeyer Drug
Company, and Trans World Airlines.
Mr. Henneberry joined Imperial as Executive Vice President in July 2002.
Prior to joining Imperial, he served as an executive vice president at Louis
Dreyfus Sugar Company from 1980 to 2002, where he was responsible for sugar
trading and distribution activities in the Western Hemisphere.
Mr. Lehneis became President of Diamond Crystal Brands in October 2000. Mr.
Lehneis joined a predecessor of Diamond Crystal Brands in 1990.
Mr. Schwer became Executive Vice President in July 1999 and served as
Managing Director from October 1995 to July 1999, and General Counsel since
1989. He also served as Senior Vice President from 1993 to 1995. Mr. Schwer
joined Holly as Assistant General Counsel in 1988.
Mr. Smith joined Imperial as a Managing Director in September 1999 and
became Executive Vice President in 2002. Prior to joining Imperial, Mr. Smith
was Senior Vice President--Worldwide Product Supply at Gerber Products Company
from 1995 to 1999.
Mr. Swank joined Imperial as Executive Vice President and Chief Financial
Officer in September 2002. Prior to joining Imperial, he served as executive
vice president, chief financial officer and corporate secretary of Purina
Mills, Inc., a leading branded consumer and agricultural feed manufacturer in
the U.S. from April 1998 to February 2002. Before Purina Mills, Inc., Mr. Swank
was the Chief Financial Officer of Koch Agriculture, a division of Koch
Industries.
Mr. Van Syckle joined Imperial as Executive Vice President in November 2002.
Prior to joining Imperial, he served as head of Global Sales for Novartis
Consumer Health, from March 2001 to April 2002 and was Senior Vice President of
Sales in North America from November 1997 to March 2001. Prior to the
acquisition of Gerber by Novartis he served as Vice President--Sales, Gerber
Infant Care, North America.
11
Mr. Oxnard became a Managing Director in February 1998 and President of
Savannah Foods in October 1999. Since 1996, he had served as Senior Vice
President--Raw Sugar of Savannah Foods. Mr. Oxnard joined Savannah Foods in
1983 as Vice President--Raw Sugar.
Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had
been Controller since joining Imperial in 1988.
Ms. Mercer became Vice President in April 1997 and has served as Treasurer
since 1994. She joined Imperial in 1993.
Mr. Cordes joined Imperial as Deputy General Counsel in September 1997. He
became Secretary of Imperial in July 1998. Prior to joining the Company, Mr.
Cordes was in private law practice from 1995 to 1997.
12
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters
Recent Sales of Unregistered Securities
On August 29, 2001, Imperial Sugar's plan of reorganization became
effective. Under the plan of reorganization, an aggregate of 10,000,000 shares
of common stock were issued to persons who were common shareholders and
creditors of Imperial Sugar immediately prior to effectiveness of the plan of
reorganization. As of December 30, 2002, 501,061 shares of common stock were
not yet distributed pursuant to the plan of reorganization pending finalization
of certain claims. Under the plan of reorganization, warrants to purchase an
aggregate of 1,111,111 shares of Imperial Sugar's common stock were issuable to
persons who were common shareholders of Imperial Sugar immediately prior to
effectiveness of the plan of reorganization. The warrants were issued to such
persons on March 22, 2002 at an exercise price of $31.89 per share. The common
stock and warrants issued under the plan of reorganization were issued in
reliance on an exemption from the registration requirements of the Securities
Act of 1933 provided by Section 1145(a)(1) of the U.S. Bankruptcy Code.
Market Price of and Dividends on Common Equity and Related Stockholder Matters
Our common stock currently is quoted on the OTC Bulletin Board under the
symbol "IPSU". The Imperial Sugar common stock existing before our
reorganization was listed and traded on the American Stock Exchange under the
symbol "IHK." The American Stock Exchange halted trading of our common stock on
December 13, 2000 and delisted our common stock on February 21, 2001. Our
common stock did not trade from December 14, 2000 through February 21, 2001. On
February 22, 2001, our common stock began trading on the OTC Bulletin Board. On
August 29, 2001, all shares of Imperial Sugar common stock existing before our
reorganization were canceled and new shares of Imperial Sugar common stock were
issued. As of December 27, 2002, Imperial Sugar had 10,000,000 shares of common
stock outstanding and had approximately 2,000 shareholders of record. The bid
price of our common stock as quoted on the OTC Bulletin Board on December 27,
2002 was $3.60.
The following table contains information about the high and low sales price
per share of our common stock for fiscal year 2002 and for fiscal year 2001,
both after and before our plan of reorganization became effective on August 29,
2001. We have not paid any cash dividends since the year ended September 30,
1999. Sales price information for periods on or before December 13, 2000
reflect prices reported by the American Stock Exchange. Sales price information
for periods after February 22, 2001 reflects quotes from the OTC Bulletin
Board. Shares of our common stock existing after our reorganization became
effective did not begin trading on the OTC Bulletin Board until October 11,
2001. Information about OTC bid quotations represents prices between dealers,
does not include retail mark-ups, mark-downs or commissions, and may not
necessarily represent actual transactions. Quotations on the OTC Bulletin Board
are sporadic and currently there is no established public trading market for
Imperial Sugar's common stock.
After Reorganization--new common stock; 10,000,000 shares outstanding:
Sales Price
-----------
High Low
----- -----
Three months ended
Fiscal 2002
December 31, 2001. $9.50 $5.50
March 31, 2002.... $8.65 $6.50
June 30, 2002..... $6.17 $1.95
September 30, 2002 $2.75 $2.00
13
Sales Price
-----------
High Low
---- ---
Fiscal 2001
August 29--September 30, 2001 -- --
Before Reorganization--old common stock; 32,412,368 shares outstanding as of
August 28, 2001:
Fiscal 2001
October 1--December 13, 2000 $1.31 $0.75
February 22--March 31, 2001. $0.39 $0.06
April 1--June 30, 2001...... $0.16 $0.06
July 1--August 28, 2001..... $0.38 $0.06
Dividend Policy
Our new credit agreement prohibits the payment of dividends, other than
certain dividends payable solely in our capital stock, so long as any
borrowings remain outstanding under the credit agreement. Unless we repay
borrowings early, we will have borrowings outstanding under our credit facility
until December 31, 2005. In addition, we currently do not anticipate paying
dividends in the form of our capital stock. Any determination to declare or pay
dividends out of funds legally available for that purpose after termination or
expiration of the restructuring credit facility will be at the discretion of
our board of directors and will depend on our future earnings, results of
operations, financial condition, capital requirements, any future contractual
restrictions and other factors our board of directors deems relevant.
14
ITEM 6. Selected Financial Data
The following selected consolidated financial information is derived from
the consolidated financial statements of Imperial Sugar for periods both before
and after emerging from bankruptcy protection in August 2001. This consolidated
financial data should be read in conjunction with our consolidated financial
statements including the related notes, and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
report.
The consolidated statements of operations information for the period ended
September 30, 2002 and 2001 and the consolidated balance sheet information at
September 30, 2002 and 2001 reflect our financial position and operating
results after the effect of our plan of reorganization and the application of
the principles of fresh start accounting in accordance with the provisions of
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"). Accordingly, such financial
information is not comparable to our historical financial information before
August 29, 2001.
Selected financial data for the last six periods is as follows (in thousands
of dollars, except per share data):
Successor Company Predecessor Company
-------------------------- -------------------------------------------------
Period from Period
August 30, from
Year Ended 2001 to October 1, Year Ended September 30,
September 30, September 30, 2000 to -------------------------------------
2002 2001 August 29, 2000 1999(2) 1998(3)
------------- ------------- 2001(1) ---------- ---------- ----------
For the Period:
Net Sales.............................. $1,297,831 $133,929 $1,418,719 $1,821,231 $1,888,630 $1,783,091
Operating Income (Loss)................ 14,814 (4,234) (32,372) (27,822) 47,904 38,939
Income (Loss) Before Cumulative Effect
and Extraordinary Item................ 16,417 (6,464) (499,148) (34,677) (18,124) (5,835)
Net Income (Loss)...................... 16,417 (6,464) (316,340) (34,677) (18,124) (7,834)
Per Share Data:
Basic Income (Loss) per Share:
Before Cumulative Effect And
Extraordinary Item................... $ 1.64 $ (0.65) $ (15.40) $ (1.07) $ (0.57) $ (0.24)
Net Income (Loss)..................... 1.64 (0.65) (9.76) (1.07) (0.57) (0.32)
Diluted Income (Loss) per Share:
Before Cumulative Effect And
Extraordinary Item................... $ 1.64 $ (0.65) $ (15.40) $ (1.07) $ (0.57) $ (0.24)
Net Income (Loss)..................... 1.64 (0.65) (9.76) (1.07) (0.57) (0.32)
Cash Dividends Declared per Share...... -- -- -- -- 0.12 0.12
At Period End:
Total Assets........................... $ 463,365 $555,783 $1,093,690 $1,280,783 $1,179,800
Long-term Debt-Net..................... 148,878 226,779 20,000 (4) 553,577 525,893
Total Shareholders' Equity............. 98,260 79,657 318,601 373,424 352,907
- --------
(1) Includes fresh start adjustments aggregating $453.2 million and
reorganization costs totaling $19.7 million, as more fully described in
note 2 to the consolidated financial statements.
(2) Includes the results of Diamond Crystal since November 2, 1998.
(3) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997.
(4) At September 30, 2000, substantially all of our long-term debt was
reclassified to current.
15
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with information contained in
the Consolidated Financial Statements and the notes thereto.
Overview
We have made significant progress in de-leveraging our balance sheet and
improving our liquidity and our operating results since emerging from
bankruptcy in August 2001. A key part of our strategy was the sale of surplus
assets (for example, excess real estate and idle factory assets) and certain
operating units. During fiscal 2002 we realized $67 million cash from asset
sales, including the sale of our King Packaging operation, our Michigan
sugarbeet operation and our Worland, Wyoming sugar beet factory. In the first
quarter of fiscal 2003 we completed the sales of our Sidney, Montana,
Torrington, Wyoming and Hereford, Texas factories and our foodservice business
for approximately $34 million and $115 million, respectively. As a result, our
total debt has been reduced from $231 million upon our emergence from
bankruptcy to $50 million upon our refinancing completed December 31, 2002.
In connection with our de-leveraging efforts, we have shifted our focus to
marketing and distributing our sugar products in core geographic markets in the
Southeast, Southwest and West Coast markets.
The comparability of our financial results are affected by our filing for
reorganization under chapter 11 of the Bankruptcy Code on January 16, 2001 and
our emergence from bankruptcy. The consolidated balance sheet information at
September 30, 2002 and 2001 and the consolidated statements of operations and
cash flows for the year ended September 30, 2002 and the period ending
September 30, 2001 reflect results after the consummation of our plan of
reorganization and the application of the principles of fresh start accounting
in accordance with the provisions of SOP 90-7. Our company before and our
company after adopting fresh start accounting are different reporting entities
and our consolidated financial statements have not been prepared on the same
basis.
We have historically operated in two domestic business segments. Our sugar
segment produces and sells refined sugar and related products. Our foodservice
segment, which we sold in December 2002, sold and distributed sugar and
numerous other products to foodservice customers. The segments were managed
separately because each business requires different production techniques and
marketing strategies. Please read note 12 to our consolidated financial
statements for additional information regarding our reporting segments.
Liquidity and Capital Resources
We entered into a restructuring credit facility and a receivables
securitization facility when we emerged from bankruptcy. These facilities
replaced our debtor-in-possession financing agreements which provided for
financing during the pendency of our reorganization.
16
On December 31, 2002, we entered into a new credit facility with a group of
lenders led by Bank of America and General Electric Capital Corporation. The
initial funding under the new facility, together with the cash proceeds from
the sale of our foodservice operations, was used to repay our senior bank debt
under the restructuring credit agreement and repurchase accounts receivable
sold under our securitization agreement, which were both terminated. The new
facility consists of a $35 million three-year term loan and a $140 million
(subject to a borrowing base calculation) three-year revolving credit facility,
including a $50 million sub-limit for letters of credit. At closing we had no
outstanding borrowings under the revolving credit facility.
The facility is secured by substantially all of our assets and is guaranteed
by all of our subsidiaries. The agreement contains covenants limiting our
ability to, among other things:
. incur other indebtedness
. incur other liens
. undergo any fundamental changes
. declare or pay dividends
. engage in transactions with affiliates
. enter into sale and leaseback transactions
. change our fiscal periods
. enter into mergers or consolidations
. sell assets
. prepay other debt
In addition, the agreement requires that, commencing September 30, 2003, we
comply with the following:
. a minimum level of earnings before interest, taxes, depreciation and
amortization ("EBITDA")
. a minimum fixed charge coverage ratio
The facility also includes customary events of default, including a change
of control. Borrowings will generally be available subject to a borrowing base
and to the accuracy of all representations and warranties, including the
absence of a material adverse change and the absence of any default or event of
default. The Company expects to classify debt under the new credit facility as
current, pursuant to Emerging Issues Task Force Issue 95-22.
Interest on the term loan accrues at LIBOR plus a margin that varies (based
on utilization) between 2.75% and 3.50% or at a base rate (the Bank of America
prime rate) plus a margin that varies from 0.25% to 1.00%. Interest on
revolving credit borrowings accrue at LIBOR plus a margin of 2.25% to 3.00% or
the base rate plus a margin of zero to 0.50%.
Our capital expenditures for the twelve months ended September 30, 2002 were
$14.6 million, primarily for environmental, safety and production replacement
projects. Capital expenditures in fiscal 2003 are expected to total $20
million, and include productivity and packaging improvements, as well as normal
replacement projects.
Our sugar production operations require seasonal working capital. Following
the sale of our Rocky Mountain sugarbeet factories, which had substantial
working capital requirements in the first half of our fiscal year, this
seasonal requirement is expected to peak during our third fiscal quarter when
inventory levels are high, and a substantial portion of the payments to raw
material suppliers have been made. Management believes that the credit facility
and cash flow from operations will provide sufficient capital to meet
anticipated working capital and operational needs for at least the next twelve
months.
17
Results of Operations
Industry Environment
Our results of operations substantially depend on market factors, including
domestic prices for refined sugar and raw cane sugar, the quantity and quality
of sugarbeets available to us and the availability and price of energy and
other resources. These market factors are influenced by a variety of external
forces that we are unable to predict, including the number of domestic acres
contracted to grow sugar cane and sugarbeets, prices of competing crops,
weather conditions and United States farm and trade policy. The domestic sugar
industry is subject to substantial influence by legislative and regulatory
actions. The current farm bill limits the importation of raw cane sugar and the
marketing of refined beet and raw cane sugar, potentially affecting refined
sugar sales prices and volumes as well as the supply and cost of raw material
available to our cane refineries. Please read "Item 1. Business--Sugar
Legislation and Other Market Factors" and "--Competition" and "--Overview of
the Sugar Industry."
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 affect the quality and quantity of
sugarbeets available for purchase as well as the costs of raw materials and
processing. Please read "Item 1. Business--Raw Materials and Processing
Requirements."
Fiscal Year Ended September 30, 2002
During fiscal 2001 and 2002, we sold a number of business units in order to
reduce our leverage. As a result, our consolidated sales, costs and expenses
declined significantly during fiscal 2002. The table below shows the effects of
these dispositions, and our pro forma net sales, costs of sales and gross
margin (before depreciation) as if all these transactions had occurred on
October 1, 2000 (in millions of dollars). This presentation does not include
the effects of the sales in first quarter fiscal 2003 of our foodservice
business and our Rocky Mountain beet factories.
Twelve Months Ended September 30, 2002
------------------------------------------------------------------
Food Service Sugar Pro Forma
As Business Business -----------------------------
Reported Units Sold(1) Units Sold(2) Foodservice Sugar Total
-------- ------------- ------------- ----------- -------- --------
Net Sales.... $1,297.8 $ 4.7 $ 1.3 $300.1 $ 991.7 $1,291.8
Cost of Sales 1,196.5 3.3 1.2 266.6 925.4 1,192.0
-------- ----- ------ ------ -------- --------
Gross Margin. 101.3 1.4 0.1 33.5 66.3 99.8
Twelve Months Ended September 30, 2001
------------------------------------------------------------------
Food Service Sugar Pro Forma
As Business Business -----------------------------
Reported Units Sold(1) Units Sold(2) Foodservice Sugar Total
-------- ------------- ------------- ----------- -------- --------
Net Sales.... $1,552.6 $60.6 $187.9 $296.1 $1,008.0 $1,304.1
Cost of Sales 1,464.5 43.2 179.1 266.7 975.5 1,242.2
-------- ----- ------ ------ -------- --------
Gross Margin. 88.1 17.4 8.8 29.4 32.5 61.9
- --------
(1) Includes the results of King Packaging sold in December 2001 and the
nutritional products business sold in April 2001.
(2) Includes the results of Michigan Sugar Company sold in February 2002 and
our Worland, Wyoming factory sold in June 2002. These facilities were each
leased to their respective buyers in fiscal 2002 prior to sale.
Pro forma net sales decreased $12.3 million or 0.9% in fiscal 2002 as lower
sales volume in the sugar segment resulting primarily from the closure of two
Northern California beet factories in fiscal 2001 more than offset a 10%
increase in sugar prices. Sugar prices in fiscal 2001 were depressed by a
significant oversupply resulting from consecutive large domestic sugarbeet
crops which outstripped the USDA's ability to maintain price supports at higher
levels. Smaller domestic crops and certain USDA actions, including
implementation of PIK programs, led to higher refined prices in fiscal 2002.
These factors and additional regulatory authority
18
provided under the new Farm Bill are expected to continue the trend of firmer
prices in fiscal 2003. Pro forma foodservice revenues remained relatively
unchanged as higher volumes and sugar prices were offset by somewhat lower
non-sugar prices.
Pro forma gross margin as a percent of sales increased from 4.7% in 2001 to
7.7% in 2002, principally as a result of improved margins on sugar products
sold both in the sugar and foodservice segments. Refined sugar prices increased
more than raw cane sugar costs during fiscal 2002, improving margins. Sugarbeet
costs increased proportionately with refined prices due to the provision for
sharing in net sales prices in our contracts with the growers. Additionally,
reductions in manufacturing costs, including lower energy costs, added to
margin improvements.
Included in the pro forma presentation above are net sales of $219 million
and cost of sales of $180 million related to our foodservice division and our
Rocky Mountain beet factories, which were sold in the first quarter of fiscal
2003. Had these sales, as well as ones described above, all occurred at the
beginning of fiscal 2002, pro forma net sales, cost of sales and gross margin
for fiscal 2002 would have been $1,073 million, $1,012 million and $61 million,
respectively.
Selling, general and administrative expense declined $6.5 million in fiscal
2002 compared to the combined amount for the period ended August 29, 2001 and
the period ended September 30, 2001, principally as a result of reductions in
selling and administrative cost from sale of business units, as well as ongoing
cost savings initiatives. Additionally, the 2001 amounts include $3.2 million
of costs incurred in connection with, but prior to, filing a petition for
relief under Chapter 11 of the U.S. Bankruptcy Code, while the 2002 totals
include $1.6 million of trailing bankruptcy costs. Costs incurred during the
pendency of the bankruptcy case last year are reported separately as
reorganization costs. Also included in the fiscal 2002 amounts are $5.5 million
of consulting and personnel related costs incurred in connection with the
rationalization of our businesses and restructuring of our capital
requirements, which we do not expect will recur in fiscal 2003. We experienced
higher pension costs affecting both manufacturing cost and administrative
expense in 2002, as a result of both fresh start accounting and investment
losses in the pension trust accounts. We expect this trend of increased pension
costs to continue. In addition, absent significant gains in the trust assets,
we expect our annual required cash pension contributions to increase by
approximately $10 million beginning in fiscal 2004. As a result of the sales of
business units we expect that selling, general and administrative expenses will
decline by at least $9 million in fiscal 2003.
In December 2002, we ceased refining operations at our Sugar Land, Texas
refinery and expect to reduce our staffing levels by approximately 325 persons.
We intend to continue to package and distribute products at the Sugar Land
facility. We expect to record a charge related primarily to severance costs, in
fiscal 2003; the amount of this charge will be determined by negotiations with
labor unions currently in progress.
Depreciation and amortization decreased during fiscal 2002 due to the
application of fresh start accounting and the disposition of assets.
Interest expense declined during 2002 as a result of lower market interest
rates and lower borrowings levels resulting both from the sale of business
units and the restructuring of our debt in bankruptcy. The margin of our
borrowing rates over market interest rates under our senior bank credit
agreement, which was repaid in December 2002, were increased under amendments
executed during fiscal 2002. As a result of our repaying the senior bank debt
in December 2002, we received a refund of $2.1 million of interest which had
been charged to expense in fiscal 2002. We will reduce interest expense in
fiscal 2003 by this refund.
19
Period from October 1, 2000 to August 29, 2001 and
Period from August 30, 2001 to September 30, 2001
Net sales combined for the period ended August 29, 2001 and the period ended
September 30, 2001 are approximately 15% lower than net sales for fiscal 2000.
The primary reasons for the decrease were lower sales prices for sugar, lower
sugar sales volumes and lower non-sugar volumes, partially offset by higher
non-sugar sales prices. Sugar sales prices and volumes in both our sugar and
foodservice segments were negatively impacted by increased supplies of refined
sugar in the market following two years of record domestic sugarbeet crops.
Volumes were also lower as a result of our decision to cease beet sugar
production at our two northern California sugarbeet factories in December 2000.
Non-sugar volumes in our foodservice segment were reduced when we sold our
nutritional products business in April 2001, resulting in $16 million of the
decrease in revenues.
Gross margin after depreciation as a percent of sales was 3.7% for the
period ended August 29, 2001 and 1.1% for the period ended September 30, 2001,
compared to 5.6% for fiscal 2000. The reduced margins are primarily the result
of the lower sugar sales prices and higher energy costs, more than offsetting
lower raw material costs. Additionally, during the period from August 30, 2001
to September 30, 2001, the sugar segment was impacted by higher manufacturing
costs and lower production yields at one of our cane sugar refineries as a
result of unusually poor quality raw material from one supplier.
Imperial Sugar, as well as most of the domestic sugar industry, experienced
a very difficult operating environment during 2001. Following a period of
expansion in acreage planted in sugarbeets, the rate of which has exceeded
growth in domestic demand for refined sugar, two consecutive large domestic
sugarbeet crops in the fall of 1999 and the fall of 2000, produced a
significant oversupply of refined sugar. The market reacted accordingly, and
prices for refined bulk sugar fell to fifteen-year lows, with published
industry prices declining over 20% in fiscal 2000. The largest cane sugar crop
in history, again due to acreage expansion as well as the development of higher
yielding cane varieties, caused the market price for domestic and
quota-eligible foreign raw cane sugar to fall over 15%, also to fifteen-year
lows.
The decline in refined sugar prices reduced margins both in our sugarbeet
processing operations, where we share in the net revenues from refined sugar
with the growers, as well as in our cane sugar refinery operations. We
contracted a portion of industrial sugar sales for fiscal 2000 prior to the
majority of the decline in prices, so we did not feel the entire impact of the
price decline until the twelve months ended September 30, 2001. Similarly, we
did not realize the entire benefit of the lower raw sugar prices in fiscal 2000
because we contracted for our raw sugar supplies as we contracted for refined
cane sugar industrial sales, pricing some of our raw sugar needs at higher
levels. Overall, refined sugar prices declined more than raw sugar prices,
resulting in a significant adverse impact on our margins. These reduced
margins, together with our history of losses, cash flow problems, our high
degree of leverage and non-compliance with financial covenants in our debt
instruments, led to our decision to file for bankruptcy protection in January
2001.
In an effort to reduce the oversupply of refined sugar, the government
bought through a tender process 132,000 short tons of refined sugar in June
2000, of which we sold 82,000 short tons. The government initiated a Payment in
Kind program ("PIK") in the fall of 2000, in which growers received 277,000
short tons of refined sugar from the government in exchange for not harvesting
102,000 acres already planted in sugarbeets. Additionally, the industry
participated in permitted forfeitures totaling 598,000 short tons of refined
sugar and 305,000 short tons raw value of raw sugar in full satisfaction of
outstanding loans with the CCC from July through September 2000, in lieu of
repaying the loans, because the forfeiture price exceeded the current market
price. We forfeited 100,000 tons of refined sugar in full satisfaction of $47.1
million of CCC loans in fiscal 2000. A second PIK program in the fall of 2001,
resulted in growers receiving 194,000 short tons of refined sugar in exchange
for not harvesting 90,000 acres of sugarbeets.
20
Selling, general and administrative costs combined for the period ended
August 29, 2001 and the period ended September 30, 2001 are approximately 11%
lower than for fiscal 2000, as a result of cost cutting initiatives implemented
over the past year, as well as the sale of our nutritional business in April
2001. Selling, general and administrative costs for the period ending August
29, 2001 includes a $1.2 million severance charge incurred in connection with a
reduction in force, and $3.2 million of costs incurred prior to January 16,
2001 relating to our preparation to file for bankruptcy protection. Costs
related to the reorganization, primarily legal and professional fees and a
retention compensation plan, during the pendancy of our reorganization are
identified separately in our consolidated statements of operations as
"Reorganization Costs."
Interest expense combined for the period ended August 29, 2001 and the
period ended September 30, 2001 was substantially less than the year earlier
period as we ceased accruing interest on our $250 million 9/ 3//4% Senior
Subordinated Notes due 2007, effective with filing our bankruptcy petition on
January 16, 2001. This debt was converted to equity under our plan of
reorganization. Additionally, lower market interest rates were offset by higher
interest margins required by our debtor-in-possession financing arrangements
and somewhat higher borrowing levels.
We sold our nutritional products business in April 2001, reporting a $2.2
million gain, and we sold our California limestone quarry in September 2001 for
a $0.7 million gain.
As a result of our reorganization, we had an extraordinary gain from
settling liabilities for a combination of cash, equity and deferred payments.
Additionally, the fresh start accounting provisions of SOP 90-7 resulted in net
write-downs of assets, including goodwill, totaling $453 million. These items
are more fully discussed in note 2 to our consolidated financial statements.
New Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued a number of new
accounting standards discussed in note 1 to the consolidated financial
statements. These standards, which become effective in fiscal 2003, establish
additional accounting and disclosure requirements. Management has evaluated, as
described in note 1 to the consolidated financial statements, what effects such
requirements will have on our consolidated financial statements.
In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supersedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No.
30, "Reporting Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 requires that long-lived assets to be
disposed of by sale, including discontinued operations, be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that have operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the
rest of the entity. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. We expect to apply SFAS 144 to the sale of
our foodservice business and the sale of our Sidney, Torrington and Hereford
sugarbeet factories in fiscal 2003, and report such operations' revenues and
costs in results of discontinued operations. We expect to report a gain on
sales in excess of $50 million.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145") which, among other things, amends prior statements to
require that gains and losses from the extinguishment of debt generally be
classified within continuing operations. The provisions of SFAS 145 are
effective for fiscal years beginning after May 15, 2002 and early application
is encouraged. The Company will adopt SFAS 145 in fiscal 2003 and expects to
reclassify the previously reported extraordinary item.
21
In June 2002, the FASB issued SFAS No. 146 ("SFAS 146"), "Accounting for
Costs Associated with Exit or Disposal Activities," which replaces Emerging
Issues Task Force (EITF) Issue 94-3, "Liability recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity." SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. This statement is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe that the adoption of SFAS 146 will have a significant impact on its
financial statements.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk
We use raw sugar futures and options in our raw sugar purchasing programs
and natural gas futures and options to hedge natural gas purchases used in our
manufacturing operations. Gains and losses on raw sugar futures and options are
matched to inventory purchases and charged or credited to cost of sales as such
inventory is sold. Gains and losses on natural gas futures are matched to the
natural gas purchases and charged to cost of sales in the period of the
purchase.
The information in the table below presents our domestic and world raw sugar
futures positions outstanding as of September 30, 2002. Our world sugar option
positions are not material to our consolidated financial position, results of
operations or cash flows.
Expected Expected
Maturity Maturity
Fiscal 2003 Fiscal 2004
----------- -----------
Domestic Futures Contracts (long positions):
Contract Volumes (cwt.)..................... 1,543,360 48,160
Weighted Average Contract Price (per cwt.).. $ 21.23 $ 20.76
Contract Amount............................. $32,771,000 $1,000,000
Weighted Average Fair Value (per cwt.)...... $ 21.89 $ 21.55
Fair Value.................................. $33,784,000 $1,038,000
Expected
Maturity
Fiscal 2003
-----------
World Futures Contracts (long positions):
Contract Volumes (cwt.)................... 1,389,920
Weighted Average Contract Price (per cwt.) $ 5.95
Contract Amount........................... $8,265,000
Weighted Average Fair Value (per cwt.).... $ 6.15
Fair Value................................ $8,553,000
World Futures Contracts (short positions):
Contract Volumes (cwt.)................... $ 303,520
Weighted Average Contract Price (per cwt.) $ 6.13
Contract Amount........................... $1,860,229
Weighted Average Fair Value (per cwt.).... $ 6.44
Fair Value................................ $1,954,669
The above information does not include either our physical inventory or our
fixed price purchase commitments for raw sugar. At September 30, 2001, our
domestic futures position was a net long position of 1.9 million cwt. at an
average contract price of $21.42 and an average fair value price of $21.17. Our
world futures position at September 30, 2001 was a net long position of 1.7
million cwt. at an average contract price of $7.63 and an average fair market
value of $6.62.
22
The information in the table below presents our natural gas futures and
options positions outstanding as of September 30, 2002.
Expected
Maturity
Fiscal 2003
-----------
Futures Contracts (long positions):
Contract Volumes (mmbtu)....................... 1,650,000
Weighted Average Contract Price (per mmbtu).... $ 3.87
Contract Amount................................ $6,385,000
Weighted Average Fair Value (per mmbtu)........ $ 3.94
Fair Value..................................... $6,507,900
Natural Gas Option Contracts (long positions):
Contract Volumes............................... 3,050,000
Weighted Average Strike Price.................. $ 3.62
Contract Amount................................ $1,479,498
Fair Value..................................... $2,170,250
Natural Gas Option Contracts (short positions):
Contract Volumes............................... 1,050,000
Weighted Average Strike Price.................. $ 4.02
Contract Amount................................ $ 635,996
Fair Value..................................... $ 402,000
At September 30, 2001, our natural gas futures position was a long position
of 14.4 million mmbtu's with an average contract price of $3.18 and an average
fair value price of $2.95.
We have material amounts of debt with interest rates that float with market
rates, exposing us to interest rate risk. We have attempted to reduce this risk
by entering into interest rate swap agreements for a portion of this floating
rate debt. In connection with the refinancing of our senior bank debt, we
terminated our interest rate swap agreements in December 2002. We expect to
enter into new interest rate swap agreements in fiscal 2003.
The tables below provide information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations at September
30, 2002 and 2001, respectively. For debt obligations, the table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. For interest rate swaps, the table presents notional amounts
and weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average variable rates are based on implied
forward rates in the treasury yield curve at the reporting date.
Expected Maturity Date at September 30, 2002
Fiscal Year Ending September 30,
-------------------------------------------------------------
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
----- ------ ----- ----- ----- ---------- ------ ------
(In millions of dollars)
Liabilities
Long-term debt:
Fixed rate debt....... $ 1.6 $ 1.8 $ 2.0 $ 2.3 $ 2.6 $2.2 $ 12.5 $ 12.5
Average interest rate. 12.0% 12.0% 12.0% 12.0% 12.0% 8.1% 11.3%
Variable rate debt.... $ 5.1 $ 33.5 $72.5 $25.6 $ 5.0 $1.5 $143.2 $143.2
Average interest rate. 14.5% 8.7% 9.0% 10.0% 10.2% 7.6% 9.3%
Interest Rate Derivatives
Interest rate swaps:
Variable to fixed..... $83.0 $(41.8) $41.3 $ 8.0 -- -- $ 90.5 $ (3.6)
Average pay rate...... 6.0% 6.0% 6.0% 6.0% -- -- 6.0%
Average receive rate.. 1.8% 2.1% 2.6% 2.9% -- -- 2.1%
23
Expected Maturity Date at September 30, 2001
Fiscal Year Ending September 30,
-------------------------------------------------------------
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
----- ----- ------ ----- ----- ---------- ------ ------
(In millions of dollars)
Liabilities
Long-term debt:
Fixed rate debt....... $ 0.8 $ 1.6 $ 1.9 $ 2.2 $ 5.1 $20.1 $ 31.7 $ 31.7
Average interest rate. 12.0% 12.0% 12.0% 12.0% 12.0% 6.4% 8.5%
Variable rate debt.... $ 2.9 $ 5.9 $ 67.1 $84.1 $29.7 $ 9.1 $198.8 $198.8
Average interest rate. 7.3% 7.8% 9.3% 8.9% 9.9% 9.2% 9.2%
Interest Rate Derivatives
Interest rate swaps:
Variable to fixed..... $17.2 $83.0 $(41.8) $41.3 $ 8.0 -- $107.7 $ (4.8)
Average pay rate...... 6.0% 6.0% 6.0% 6.0% 6.0% -- 6.0%
Average receive rate.. 5.7% 6.1% 6.5% 6.8% 7.1% -- 6.3%
ITEM 8. Financial Statements and Supplementary Data.
See the index of financial statements and financial statement schedules
under "Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K."
Unaudited quarterly financial data for the last eight fiscal quarters is as
follows (in thousands of dollars, except per share amounts):
Earnings Per Share
--------------------------------------
Income Before Income Before
Cumulative Cumulative Effect and
Effect and Net Extraordinary Item Net Income (Loss)
Net Gross Extraordinary Income -------------------- ----------------
Sales Margins Items (Loss) Basic Diluted Basic Diluted
-------- ------- ------------- --------- ------- ------- ------ -------
Successor Company
Fiscal Year Ended
September 30, 2002:
December 31, 2001............ $322,268 $22,021 $ (839) $ (839) $ (0.08) $ (0.08) $(0.08) $(0.08)
March 31, 2002(1)............ 306,402 26,247 14,294 14,294 1.43 1.41 1.43 1.41
June 30, 2002................ 319,854 24,559 2,786 2,786 0.28 0.28 0.28 0.28
September 30, 2002(2)........ 349,307 28,459 176 176 0.01 0.01 0.01 0.01
Period from August 30, 2001 to
September 30, 2001............. $133,929 $ 3,026 $ (6,464) $ (6,464) $ (0.65) $ (0.65) $(0.65) $(0.65)
Predecessor Company
Period from October 1, 2000 to
August 29, 2001:
December 31, 2000............ $428,462 $31,222 $ (12,659) $ (10,307) $ (0.39) $ (0.39) $(0.32) $(0.32)
March 31, 2001(3)............ 372,586 22,724 (15,176) (15,176) (0.47) (0.47) (0.47) (0.47)
June 30, 2001(4)............. 372,274 22,020 (14,098) (14,098) (0.43) (0.43) (0.43) (0.43)
Period from July 1, 2001 to
August 29, 2001(5).......... 245,397 9,206 (457,215) (276,759) (14.11) (14.11) (8.54) (8.54)
There were no cash dividends for any of the last eight fiscal quarters.
- --------
(1) Includes a gain on sale of assets of $13.9 million.
(2) Includes a $3.9 million change in estimate of the effective annual tax rate
due to finalization of tax gain on sale of subsidiaries.
(3) Includes reorganization costs of $4.2 million and a gain on sale of the
nutritional products business of $2.2 million.
(4) Includes reorganization costs of $3.5 million.
(5) Includes fresh start adjustments of $453.2 million and reorganization costs
of $12.0 million.
24
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
Information regarding Imperial Sugar's executive officers is included in
Part I of this report. The other information required by Items 10, 11, 12 and
13 will be included in our definitive proxy statement for the 2003 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after September 30, 2002, and is incorporated in
this report by reference.
25
PART IV
ITEM 14. Controls and Procedures
Within 90 days prior to the filing of this report, an evaluation was
performed under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Executive Vice
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including our President and Chief Executive Officer and our
Executive Vice President and Chief Financial Officer, concluded that our
disclosure controls and procedures were effective in ensuring that material
information relating to us with respect to the period covered by this report
was made known to them. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of that evaluation.
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements.
Item Page
- ---- ----
Independent Auditors' Report......................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2002 and 2001........................................ F-2
Consolidated Statements of Operations for the year ended September 30, 2002, for the period from
August 30, 2001 to September 30, 2001 (Successor Company) and for the period from October 1,
2000 to August 29, 2001 and the year ended September 30, 2000 (Predecessor Company)............. F-3
Consolidated Statements of Changes in Shareholders' Equity for the year ended September 30, 2002,
for the period from August 30, 2001 to September 30, 2001 (Successor Company) and for the
period from October 1, 2000 to August 29, 2001 and the year ended September 30, 2000
(Predecessor Company)........................................................................... F-4
Consolidated Statements of Cash Flow for the year ended September 30, 2002, for the period from
August 30, 2001 to September 30, 2001 (Successor Company) and for the period from October 1,
2000 to August 29, 2001 and the year ended September 30, 2000 (Predecessor Company)............. F-5
Notes to Consolidated Financial Statements........................................................ F-6
(a)(2) Financial Statement Schedules.
All schedules and other statements for which provision is made in the
applicable regulations of the SEC have been omitted because they are not
required under the relevant instructions or are inapplicable.
26
(a)(3) Exhibits.
An asterisk indicates we have previously filed the exhibit with the SEC as
indicted in the document description. We incorporate those previously filed
exhibits in this report by reference.
Exhibit
No. Document
------- --------
*2(a) Second Amended and Restated Joint Plan of Reorganization (previously filed as an Exhibit to
Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and
incorporated herein by reference).
*2(b) Stipulation with Respect to Confirmation Objection of Wells Fargo Bank (Texas), N.A. and
Amendment to Debtors' Second Amended and Restated Joint Plan of Reorganization dated June 5,
2001 (previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated
September 12, 2001 (File No. 001-10307) and incorporated herein by reference).
*2(c) Stipulation Regarding Confirmation Objection of Missouri Department of Revenue and Amendment
to Debtors' Second Amended and Restated Joint Plan of Reorganization dated June 5, 2001
(previously filed as an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12,
2001 (File No. 001-10307) and incorporated herein by reference).
*3(a)(1) Amended and Restated Articles of Incorporation of Reorganized Imperial Sugar (previously filed as
an Exhibit to Imperial Sugar's Current Report on Form 8-K dated September 12, 2001
(File No. 001-10307) and incorporated herein by reference).
3(a)(2) Articles of Amendment dated February 28, 2002, to the Amended and Restated Articles of
Incorporation.
*3(b) Amended and Restated By-Laws of Reorganized Imperial Sugar (previously filed as an Exhibit to
Imperial Sugar's Current Report on Form 8-K dated September 12, 2001 (File No. 001-10307) and
incorporated herein by reference).
The Company is a party to several long-term 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 Securities and Exchange Commission upon
request.
4(a) Rights Agreement dated as of December 31, 2002 between the Company and The Bank of New York.
4(b) Credit Agreement dated as of December 31, 2002 among the financial institutions named therein, as
lenders, Bank of America, N.A., as administrative agent, and Imperial Sugar Company.
*4(c) Warrant Agreement dated as of August 28, 2001 between Imperial Sugar Company and The Bank of
New York, as warrant agent (previously filed as an Exhibit to Imperial Sugar's Current Report on
Form 8-K dated September 12, 2001 (File No. 001-10307) and incorporated herein by reference).
*4(d) Registration Rights Agreement dated as of August 28, 2001, by and among Imperial Sugar Company
and the parties listed on the signature page thereto (previously filed as Exhibit 4(d) to Imperial
Sugar's Annual Report on Form 10-K for the year ended September 30, 2001 (" the 2001 Form
10-K") and incorporated herein by reference).
Exhibits 10(a) through 10(f) relate to management contracts or compensatory plans.
*10(a)(1) Specimen of Employment Agreement (Form A) for certain of Imperial Sugar's officers (previously
filed as Exhibit 10(a)(1) to the 2001 Form 10-K and incorporated herein by reference).
*10(a)(2) Specimen of Employment Agreement (Form B) for certain of Imperial Sugar's officers (previously
filed as Exhibit 10(a)(2) to the 2001 Form 10-K and incorporated herein by reference).
10(a)(3) Specimen of Employment Agreement (Form C) for certain of Imperial Sugar's officers.
27
Exhibit
No. Document
- ------- --------
10(a)(4) Schedule of Employment Agreements.
10(a)(5) Specimen of Change in Control and Severance Agreement for certain of Imperial Sugar's officers.
10(a)(6) Schedule of Change in Control and Severance Agreements.
10(a)(7) Specimen of Change in Control Agreement for certain of Imperial Sugar's officers.
10(a)(8) Schedule of Change in Control Agreements.
*10(b)(1) Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective August 1,
1994) (previously filed as Exhibit 10(b)(1) to Imperial Sugar's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 ("the September 1994 Form 10-Q") and incorporated herein by
reference).
*10(b)(2) Specimen of Imperial Sugar's Salary Continuation Agreement entered into with W.F. Schwer
(previously filed as Exhibit 10(b)(3) to the September 1994 Form 10-Q and incorporated herein by
reference).
*10(c)(1) Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective August 1,
1994) (previously filed as Exhibit 10(c)(1) to the September 1994 Form 10-Q and incorporated
herein by reference).
*10(c)(2) Specimen of Imperial Sugar's Benefit Restoration Agreement entered into with W.F. Schwer
(previously filed as Exhibit 10(c)(2) to the September 1994 Form 10-Q and incorporated herein by
reference).
*10(d) Imperial Holly Corporation Retirement Plan For Nonemployee Directors (previously filed as
Exhibit 10(j) to Imperial Sugar's Annual Report on Form 10-K for the year ended September 30,
1994 and incorporated herein by reference).
*10(e) Long-Term Incentive Plan of Reorganized Imperial Sugar Company (previously filed as Exhibit
10(f) to the 2001 Form 10-K and incorporated herein by reference).
*10(f) Independent Consulting Agreement with Robert J. McLaughlin dated October 22, 2001 (previously
filed as Exhibit 10(g) to the 2001 Form 10-K and incorporated herein by reference).
10(g) Stock Purchase Agreement, dated as of December 30, 2002, by and between Imperial Sugar
Company and Hormel Foods Corporation.
21 Subsidiaries of Imperial Sugar Company.
(b) Reports on Form 8-K.
. The Company filed a current report on Form 8-K on July 2, 2002, in
connection with amendments to its Restructuring Credit Agreement and its
Receivable Funding Agreement.
. The Company filed a current report on Form 8-K on August 13, 2002, in
connection with the furnishing to the SEC of the certifications by the
Company's Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and Order No. 4-460 of the
SEC dated June 27, 2002.
. The Company filed a current report on Form 8-K on August 30, 2002 in
connection with the appointment of Mr. Swank as Executive Vice President
and Chief Financial Officer.
. The Company filed a current report on Form 8-K on October 15, 2002 in
connection with the sale of its Sidney, Montana, Torrington, Wyoming and
Hereford, Texas beet processing facilities.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 December 31, 2002.
IMPERIAL SUGAR COMPANY
By: /s/ ROBERT A. PEISER
-----------------------------
Robert A. Peiser
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 December 31, 2002.
Signature Title
--------- -----
/s/ ROBERT A. PEISER Director, President and Chief
- ----------------------------- Executive
Robert A. Peiser Officer (Principal
Executive Officer)
/s/ DARRELL D. SWANK Executive Vice President and
- ----------------------------- Chief Financial Officer
Darrell D. Swank (Principal Financial
Officer)
/s/ H.P. MECHLER Vice
- ----------------------------- President-Accounting (Principal
H.P. Mechler Accounting Officer)
/s/ ROBERT J. MCLAUGHLIN Chairman of the Board of
- ----------------------------- Directors
Robert J. McLaughlin
/s/ CURTIS G. ANDERSON Director
- -----------------------------
Curtis G. Anderson
/s/ GAYLORD O. COAN Director
- -----------------------------
Gaylord O. Coan
/s/ JAMES J. GAFFNEY Director
- -----------------------------
James J. Gaffney
/s/ YVES-ANDRE ISTEL Director
- -----------------------------
Yves-Andre Istel
/s/ JAMES A. SCHLINDWEIN Director
- -----------------------------
James A. Schlindwein
/s/ JOHN K. SWEENEY Director
- -----------------------------
John K. Sweeney
29
CERTIFICATION
I, Robert A. Peiser, certify that:
1. I have reviewed this annual report on Form 10-K of Imperial Sugar Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 31, 2002 By: /s/ ROBERT A. PEISER
------------------------------------
Robert A. Peiser
President and Chief Executive Officer
30
CERTIFICATION
I, Darrell D. Swank, certify that:
1. I have reviewed this annual report on Form 10-K of Imperial Sugar Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 31, 2002 By: /s/ DARRELL D. SWANK
-----------------------------
Darrell D. Swank
Executive Vice President and
Chief Financial Officer
31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Imperial Sugar Company
Sugar Land, Texas
We have audited the accompanying consolidated balance sheets of Imperial
Sugar Company and subsidiaries (the "Company") as of September 30,2002 and 2001
(Successor Company balance sheet) and the related consolidated statements of
operations, shareholders' equity and cash flow for the year ended September 30,
2002 and the period from August 30, 2001 to September 30, 2001 (Successor
Company operations), the period from October 1, 2000 to August 29, 2001, and
the year ended September 30, 2000 (Predecessor Company operations). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.
As discussed in Note 2 to the consolidated financial statements, on January
16, 2001, the Company and substantially all of its subsidiaries filed petitions
for relief under Chapter 11 of the U.S. Bankruptcy Code from which it emerged
on August 29, 2001. Accordingly, the accompanying financial statements have
been prepared in conformity with AICPA Statement of Position 90-7, "Financial
Reporting for Entities in Reorganization Under the Bankruptcy Code," for the
Successor Company as a new entity with assets, liabilities, and a capital
structure having carrying values not comparable with prior periods as described
in Note 2.
In our opinion, the Successor Company financial statements present fairly,
in all material respects, the financial position of the Company as of September
30, 2002 and 2001, and the results of its operations and its cash flows for the
year ended September 30, 2002 and the period from August 30, 2001 to September
30, 2001, in conformity with accounting principles generally accepted in the
United States of America. Further, in our opinion, the Predecessor Company
financial statements referred to above present fairly, in all material
respects, the results of its operations and its cash flows for the period from
October 1, 2000 to August 29, 2001, and the year ended September 30, 2000, in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Houston, Texas
December 31, 2002
F-1
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
------------------------
2002 2001
-------- --------
(In Thousands of Dollars)
ASSETS
CURRENT ASSETS:
Cash and temporary investments...................................................... $ 5,918 $ 7,331
Marketable securities............................................................... 2,907 2,770
Accounts receivable, net............................................................ 23,687 17,768
Notes receivable--securitization affiliate (Note 4)................................. 9,857 12,605
Inventories:
Finished products................................................................. 98,637 82,466
Raw and in-process materials...................................................... 40,838 52,826
Supplies.......................................................................... 17,767 36,457
Deferred costs & prepaid expenses................................................... 24,090 38,364
-------- --------
Total current assets............................................................ 223,701 250,587
INVESTMENT IN SECURITIZATION AFFILIATE (Note 4)...................................... 13,895 19,933
OTHER INVESTMENTS.................................................................... 14,280 4,293
PROPERTY, PLANT AND EQUIPMENT--Net................................................... 206,719 275,453
OTHER ASSETS......................................................................... 4,770 5,517
-------- --------
TOTAL........................................................................... $463,365 $555,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade............................................................. $ 67,140 $ 81,514
Short-term borrowings............................................................... 3,445 532
Current maturities of long-term debt (Note 7)....................................... 6,844 3,746
Other current liabilities........................................................... 62,499 77,142
-------- --------
Total current liabilities....................................................... 139,928 162,934
-------- --------
LONG-TERM DEBT--Net of current maturities (Note 7)................................... 148,878 226,779
DEFERRED INCOME TAXES--Net (Note 8).................................................. -- --
DEFERRED EMPLOYEE BENEFITS........................................................... 76,299 86,413
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, issuable in series; 5,000,000 shares authorized,
none issued....................................................................... -- --
Common stock, without par value; 50,000,000 shares authorized....................... 95,316 90,000
Retained earnings (accumulated deficit)............................................. 9,953 (6,464)
Accumulated other comprehensive (loss).............................................. (7,009) (3,879)
-------- --------
Total shareholders' equity...................................................... 98,260 79,657
-------- --------
TOTAL........................................................................... $463,365 $555,783
======== ========
See notes to consolidated financial statements.
F-2
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Successor Company Predecessor Company
------------------------------ ----------------------------
Period from Period from
August 30, October 1,
Year Ended 2001 to 2000 to Year Ended
September 30, September 30, August 29, September 30,
2002 2001 2001 2000
------------- ------------- ----------- -------------
(In Thousands of Dollars, Except Share and Per Share Amounts)
NET SALES.................................. $ 1,297,831 $ 133,929 $ 1,418,719 $ 1,821,231
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............................. 1,196,545 130,903 1,333,547 1,682,529
Selling, general and administrative....... 64,138 4,788 65,879 80,588
Asset impairment and other charges (Note
15)..................................... -- -- -- 27,541
Discount on receivables sold.............. 3,629 841 5,978 6,416
Depreciation and amortization............. 18,705 1,631 45,687 51,979
----------- ----------- ----------- -----------
Total................................. 1,283,017 138,163 1,451,091 1,849,053
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)................. 14,814 (4,234) (32,372) (27,822)
INTEREST EXPENSE........................... (22,288) (2,551) (32,658) (56,656)
REORGANIZATION COSTS....................... -- -- (19,716) --
FRESH START ADJUSTMENTS.................... -- -- (453,188) --
REALIZED SECURITIES GAINS--Net............. 72 -- -- 35,874
GAIN/(LOSS) ON SALE OF ASSETS.............. 26,523 -- 4,309 (343)
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS............................... 1,236 (901) (8,465) --
OTHER INCOME--Net.......................... 1,376 1,222 4,240 1,297
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......... 21,733 (6,464) (537,850) (47,650)
PROVISION (CREDIT) FOR INCOME
TAXES.................................... 5,316 0 (38,702) (12,973)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES AND EXTRAORDINARY
ITEM..................................... 16,417 (6,464) (499,148) (34,677)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE--NET OF TAX....................... -- -- 2,352 --
EXTRAORDINARY ITEM--NET OF TAX............. -- -- 180,456 --
----------- ----------- ----------- -----------
NET INCOME (LOSS).......................... $ 16,417 $ (6,464) $ (316,340) $ (34,677)
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON STOCK:
Income (loss) before cumulative effect and
extraordinary item...................... $ 1.64 $ (0.65) $ (15.40) $ (1.07)
Net income (loss)......................... $ 1.64 $ (0.65) $ (9.76) $ (1.07)
WEIGHTED AVERAGE SHARES
OUTSTANDING.............................. 10,000,000 10,000,000 32,409,074 32,293,759
=========== =========== =========== ===========
See notes to consolidated financial statements.
F-3
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Shares of Common Stock Common Stock
--------------------------------- ---------------------------- Accumulated
Held by Held by Other
Benefit Treasury Benefit Treasury Retained Comprehensive
Issued Trust Stock Amount Trust Stock Earnings Income
----------- -------- ---------- --------- ------- -------- --------- -------------
(in thousands of dollars)
Predecessor Company
BALANCE September 30, 1999.......... 33,524,166 (684,971) (635,279) $ 309,847 $(8,208) $ (7,611) $ 58,191 $ 21,205
Comprehensive income:
Net loss........................... -- -- -- -- -- -- (34,677) --
Change in unrealized securities
gains--net of $11,152,000
tax............................... -- -- -- -- -- -- -- (20,711)
Total comprehensive income..........
Stock transferred from benefit
trust.............................. -- 684,971 (684,971) -- 8,208 (8,208) -- --
Restricted shares withheld.......... -- -- (25,569) -- -- (40) -- --
Employee stock plans................ 109,906 -- -- 214 -- -- -- --
Nonemployee director compensation
plan............................... 91,212 -- -- 391 -- -- -- --
----------- -------- ---------- --------- ------- -------- --------- --------
BALANCE September 30, 2000.......... 33,725,284 -- (1,345,819) 310,452 -- (15,859) 23,514 494
Comprehensive income:
Net loss........................... -- -- -- -- -- (316,340) --
Change in unrealized securities
gains--net of $207,000 tax........ -- -- -- -- -- -- -- 385
Cumulative effect of accounting
change; net of $4,151,000 of
income tax......................... -- -- -- -- -- -- -- 7,707
Change in derivative fair value, net
of $6,541,000 of income tax........ -- -- -- -- -- -- -- (12,148)
Recognition of deferred gains in net
income, net of $3,118,000 of
income tax......................... -- -- -- -- -- -- -- (5,791)
Total comprehensive income.......... -- -- -- -- -- -- --
Employee stock plans................ 32,903 -- -- 35 -- -- -- --
Reorganization adjustments.......... (33,758,187) -- 1,345,819 (310,487) -- 15,859 292,826 9,353
----------- -------- ---------- --------- ------- -------- --------- --------
BALANCE August 29, 2001............. 0 -- 0 $ 0 $ -- $ 0 $ 0 $ 0
=========== ======== ========== ========= ======= ======== ========= ========
- -------------------------------------------------------------------------------------------------------------------------------
Successor Company
Stock issued in reorganization...... 10,000,000 $ 90,000
----------- ---------
Comprehensive income:
Net Loss........................... -- -- $ (6,464)
Change in unrealized securities
gains............................. -- -- -- $ 9
Change in derivative fair value.... -- -- -- (3,888)
Total comprehensive income..........
----------- --------- --------- --------
BALANCE September 30, 2001.......... 10,000,000 90,000 (6,464) (3,879)
Comprehensive income:
Net income......................... -- -- 16,417
Tax benefit realized from net
operating loss carryforwards...... -- 5,316 -- --
Change in unrealized securities
gains............................. -- -- -- 48
Change in derivative fair value.... -- -- -- 13,440
Recognition of deferred gains in
net income........................ -- -- -- (5,278)
Change in minimum pension
liability......................... -- -- -- (11,340)
Total comprehensive Income..........
----------- --------- --------- --------
BALANCE September 30, 2002.......... 10,000,000 $ 95,316 $ 9,953 $ (7,009)
=========== ========= ========= ========
Total
---------
Predecessor Company
BALANCE September 30, 1999.......... $ 373,424
Comprehensive income:
Net loss........................... (34,677)
Change in unrealized securities
gains--net of $11,152,000
tax............................... (20,711)
---------
Total comprehensive income.......... (55,388)
Stock transferred from benefit
trust.............................. --
Restricted shares withheld.......... (40)
Employee stock plans................ 214
Nonemployee director compensation
plan............................... 391
---------
BALANCE September 30, 2000.......... 318,601
Comprehensive income:
Net loss........................... (316,340)
Change in unrealized securities
gains--net of $207,000 tax........ 385
Cumulative effect of accounting
change; net of $4,151,000 of
income tax......................... 7,707
Change in derivative fair value, net
of $6,541,000 of income tax........ (12,148)
Recognition of deferred gains in net
income, net of $3,118,000 of
income tax......................... (5,791)
---------
Total comprehensive income.......... (326,187)
Employee stock plans................ 35
Reorganization adjustments.......... 7,551
---------
BALANCE August 29, 2001............. $ 0
=========
- -----------------------------------------------
Successor Company
Stock issued in reorganization...... $ 90,000
---------
Comprehensive income:
Net Loss........................... (6,464)
Change in unrealized securities
gains............................. 9
Change in derivative fair value.... (3,888)
---------
Total comprehensive income.......... (10,343)
---------
BALANCE September 30, 2001.......... 79,657
Comprehensive income:
Net income......................... 16,417
Tax benefit realized from net
operating loss carryforwards...... 5,316
Change in unrealized securities
gains............................. 48
Change in derivative fair value.... 13,440
Recognition of deferred gains in
net income........................ (5,278)
Change in minimum pension
liability......................... (11,340)
---------
Total comprehensive Income.......... 18,603
---------
BALANCE September 30, 2002.......... $ 98,260
=========
See notes to consolidated financial statements.
F-4
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Successor Company Predecessor Company
-------------------------- ------------------------
Period from Period from
August 30, October 1,
Year Ended 2001 to 2000 to Year Ended
September 30, September 30, August 29, September 30,
2002 2001 2001 2000
------------- ------------- ----------- -------------
(In Thousands of Dollars)
OPERATING ACTIVITIES:
Net income (loss)................................................ $ 16,417 $ (6,464) $(316,340) $(34,677)
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting changes......................... -- -- (2,352) --
Fresh start adjustments......................................... -- -- 453,188 --
Extraordinary item--net......................................... -- -- (180,456) --
Impairment loss................................................. -- -- -- 16,066
Reclassification adjustment from accumulated income to net
income......................................................... (5,278) -- (9,074) --
Cash settlement of derivatives.................................. 10,878 (5,982) (16,757) --
Change in fair value of interest rate swaps..................... (1,236) 901 7,540 --
Depreciation and amortization................................... 18,705 1,631 45,687 51,979
Loss (gain) on sale of assets................................... (26,523) -- (4,309) 343
(Gain) on sale of securities.................................... (72) -- -- (35,874)
Deferred income taxes........................................... 5,316 -- (17,402) (12,623)
Other........................................................... 3,118 (1,116) 5,103 3,608
Changes in operating assets and liabilities (excluding operating
assets and liabilities sold in dispositions):
Accounts receivables............................................ 7,456 9,122 30,636 1,080
Inventories..................................................... (6,013) 15,520 1,117 26,871
Deferred costs and prepaid expenses............................. 607 (310) 5,374 (6,541)
Accounts payable--trade......................................... (11,611) (10,599) (15,864) (35,971)
Other liabilities............................................... (7,209) 491 (24,540) 35,383
-------- -------- --------- --------
Operating cash flow............................................ 4,555 3,194 (38,449) 9,644
-------- -------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures............................................. (14,634) (2,579) (8,896) (16,303)
Investment in marketable securities.............................. (2,468) -- (1,666) (3,273)
Proceeds from sale of marketable securities...................... 835 -- -- 64,221
Proceeds from maturity of marketable securities.................. 1,519 -- 3,347 3,996
Proceeds from sale of assets..................................... 67,191 -- 56,050 4,157
Investment in securitization affiliate........................... -- -- (19,933) --
Other............................................................ (2,627) (229) (877) (2,085)
-------- -------- --------- --------
Investing cash flow............................................ 49,816 (2,808) 28,025 50,713
-------- -------- --------- --------
FINANCING ACTIVITIES:
Short-term borrowings:
CCC borrowings--advances........................................ 34,268 -- -- 105,072
CCC borrowings--repayments...................................... (34,268) -- -- (57,975)
Other short--term borrowings--net............................... 2,913 -- (1,673) 60
Revolving credit borrowings--net................................. (32,253) 3,050 24,243 (61,500)
Long-term debt repayments........................................ (26,444) (2,000) (12,814) (47,841)
Stock option proceeds and other.................................. -- -- 30 435
-------- -------- --------- --------
Financing cash flow............................................ (55,784) 1,050 9,786 (61,749)
-------- -------- --------- --------
INCREASE (DECREASE) IN CASH AND TEMPORARY
INVESTMENTS....................................................... (1,413) 1,436 (638) (1,392)
CASH AND TEMPORARY INVESTMENTS BEGINNING OF
PERIOD,........................................................... 7,331 5,895 6,533 7,925
-------- -------- --------- --------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD...................... $ 5,918 $ 7,331 $ 5,895 $ 6,533
======== ======== ========= ========
See notes to consolidated financial statements.
F-5
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002, 2001, and 2000
1. ACCOUNTING POLICIES
The Company
The consolidated financial statements include the accounts of Imperial Sugar
Company and its wholly owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated. The Company
operates in two domestic business segments--the production and sale of refined
sugar and the sale and distribution of products for the foodservice industry.
Reorganization
On January 16, 2001, Imperial Sugar Company and substantially all of its
subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code in the District of Delaware. On August 29, 2001, the Company's Second
Amended and Restated Joint Plan of Reorganization (the "Plan of
Reorganization") became effective, and the Company emerged from bankruptcy
court protection. The Company applied the accounting principles provided for in
the American Institute of Certified Public Accountant's Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"), including fresh start accounting upon emergence.
Accordingly, the Company's financial position, results of operations and cash
flows for the periods after the Company's emergence from bankruptcy are not
comparable to earlier periods.
Reorganization costs include legal and professional fees associated with the
Company's bankruptcy proceedings and employee retention compensation costs.
Business Risk
The Company is significantly affected by market factors, including domestic
prices for refined sugar and raw cane sugar. These market factors are
influenced by a variety of external forces, including the number of domestic
acres contracted to grow sugar cane and sugarbeets, prices of competing crops,
weather conditions and United States farm and trade policy. Federal legislation
and regulations provide for mechanisms designed to support the price of
domestic sugar crops, principally through the limitations on importation of raw
cane sugar for domestic consumption and, commencing in 2003, marketing
allotments. In addition, agricultural conditions in the Company's growing areas
may materially affect the quality and quantity of sugar beets available for
purchase as well as the unit costs of raw materials and processing.
A significant portion of the Company's industrial sales are made under fixed
price, forward sales contracts, which extend for up to one year. The Company
also contracts to purchase raw cane sugar substantially in advance of the time
it delivers the refined sugar produced from the purchase. To mitigate its
exposure to future price changes, the Company attempts to manage the volume of
refined sugar sales contracted for future delivery in relation to the volume of
raw cane sugar contracted for future delivery, when feasible. Additionally, the
Company utilizes a participatory sugarbeet purchase contract, described below,
which relates the cost of sugarbeets to the net selling price realized on
refined beet sugar sales.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
estimates and assumptions that affect the reported amounts as well as certain
disclosures. The Company's financial statements include amounts that are based
on management's best estimates and judgments. Actual results could differ from
those estimates.
F-6
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
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.
Marketable Securities
All of the Company's marketable securities are classified as "available for
sale," and accordingly are reflected in the Consolidated Balance Sheet at fair
market value, with the aggregate unrealized gain, net of related deferred tax
liability, included as a separate component of comprehensive income within
shareholders' equity. Cost for determining gains and losses on sales of
marketable securities is determined on the FIFO method.
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. Pursuant to the
application of fresh start accounting, the current cost of inventory at August
29, 2001, became the LIFO base layer.
LIFO inventories at September 30, 2002 and 2001 approximated current cost.
Reductions in inventory quantities in the year ended September 30, 2000
resulted in liquidations of LIFO inventory layers carried at costs prevailing
in prior years. The effect of this liquidation was to increase the net loss by
about $0.3 million ($0.01 per share) in fiscal 2000.
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 the growers) during the grower contract years, some of which extend beyond
the fiscal year end. The contracts provide for the sharing of the net selling
price (gross sales price less certain marketing costs, including packaging
costs, brokerage, freight expense and amortization of costs for certain
facilities used in connection with marketing) with growers. Cost of sales
includes an accrual for estimated additional amounts to be paid to growers
based on the average net return realized to date for sugar sold in each of the
contract years through the end of the fiscal year. The final cost of sugarbeets
cannot be determined until the end of the contract year for each growing area.
Revenue Recognition
Revenue from product sales is recognized when the related goods are shipped
and all significant obligations of the Company have been satisfied.
Hedge Accounting
The Company uses raw sugar futures and options in its raw sugar purchasing
programs and uses natural gas futures, options and basis swaps to hedge natural
gas purchases used in its manufacturing operations. Effective October 1, 2000,
the Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activity," and recorded a
cumulative effect of a change in accounting
F-7
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
principles. Eligible gains and losses on raw sugar futures and options are
deferred and recognized as part of the cost of inventory purchases and charged
or credited to cost of sales as such inventory is sold. Eligible gains and
losses on natural gas futures, options and basis swaps are deferred and
recognized as part of the cost of the natural gas purchases and charged to cost
of sales in the period of the purchase.
Manufacturing Costs Prior to Production
Certain manufacturing costs incurred between processing periods which are
necessary to prepare each factory for the next processing campaign are deferred
and allocated to the cost of sugar produced in the subsequent campaign. At
September 30, 2002 and 2001, such amounts included in deferred costs and
prepaid expenses were $14.2 million and $23.9 million.
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. In general, buildings are depreciated over 10 to 20 years, machinery
and equipment over 3 to 10 years.
Property, plant and equipment was revalued pursuant to fresh start
accounting.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset or its disposition. Measurement
of an impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use are based on the fair value of
the asset. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or net realizable
value.
Interest Rate Swap Agreements
Interest rate swap agreements are recorded at market value. The differential
paid or received on interest rate swap agreements is recognized as an increase
or decrease in interest expense. The Company does not use these instruments for
trading purposes, rather it uses them to hedge the impact of interest rate
fluctuations on floating rate debt.
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
F-8
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
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.
Federal Income Taxes
Federal income tax expense includes the current tax obligation or benefit
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. The Company evaluates the realizability of
deferred tax assets quarterly.
Environmental Matters
The Company provides for environmental remediation costs based on estimates
of known environmental remediation exposure when such amounts are probable and
estimable. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are expensed as incurred. Capital costs incurred to prevent
future environmental contamination are capitalized.
Accounting Pronouncements
In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supersedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No.
30, "Reporting Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 requires that long-lived assets to be
disposed of by sale, including discontinued operations, be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that have operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the
rest of the entity. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. We expect to apply SFAS 144 to the sale of
our foodservice business and the sale of our Sidney, Torrington and Hereford
sugarbeet factories in fiscal 2003, and report such operations' revenues and
costs in results of discontinued operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145") which, among other things, amends prior statements to
require that gains and losses from the extinguishment of debt generally be
classified within continuing operations. The provisions of SFAS 145 are
effective for fiscal years beginning after May 15, 2002 and early application
is encouraged. The Company will adopt SFAS 145 in fiscal 2003 and expects to
reclassify the previously reported extraordinary item.
In June 2002, the FASB issued SFAS No. 146 ("SFAS 146"), "Accounting for
Costs Associated with Exit or Disposal Activities," which replaces Emerging
Issues Task Force (EITF) Issue 94-3, "Liability recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity." SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. This statement is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe that the adoption of SFAS 146 will have a significant impact on its
financial statements.
F-9
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Reclassifications
Certain amounts in prior years have been reclassified to be consistent with
the current period presentation.
2. REORGANIZATION AND FRESH START ADJUSTMENTS
On January 16, 2001, Imperial Sugar Company and substantially all of its
subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code in the District of Delaware. The Company's Plan of Reorganization became
effective and the Company emerged from bankruptcy on August 29, 2001.
Prior to the Company's filing for bankruptcy protection, the Company was in
default under certain financial covenants in its senior credit agreement. The
Company did not make its required interest payments which were due on December
15, 2000 and June 15, 2001 on its 9 3/4% Senior Subordinated Notes due 2007
(the "Subordinated Debt").
The Plan of Reorganization provided that holders of the Subordinated Debt
and certain other unsecured creditors received 9,800,000 shares of common stock
representing 98% of the common equity in the restructured entity in
satisfaction of their debt obligations. Trade creditors were given the option
of receiving $5,000 or 10% of their claim in cash, in lieu of receiving common
stock. Additionally, the Plan of Reorganization provided that certain former
employees and directors who were participants in non-qualified pension and
deferred compensation plans received common stock or, at their option, cash and
a non-interest bearing note for 60% of their allowed claim. Previous holders of
the common equity of the Company received 200,000 shares of common stock
representing 2.0% of the common equity in the restructured entity and 7-year
warrants to purchase an additional 1,111,111 shares of common stock
representing 10.0% of the restructured entity on a diluted basis. These share
numbers and ownership percentages exclude shares issuable upon the exercise of
options to be granted in connection with the long-term management incentive
plan adopted by the Company as part of the reorganization proceedings.
F-10
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Upon its emergence from bankruptcy, the Company implemented the fresh start
accounting provisions of SOP 90-7. In accordance with fresh start accounting,
the reorganization value of the Company was allocated to the Company's assets
and liabilities in relation to their fair values. In addition, the accumulated
deficit of the Company was eliminated and its common stock was valued based on
an enterprise value midpoint of $350 million and an equity value midpoint of
$90 million. The Company recorded the effects of the Plan of Reorganization and
fresh-start reporting as of August 29, 2001, as follows (in thousands):
Adjustments to Record
Predecessor Effects of the Plan Successor
- Company ------------------------- Company
Consolidated Reorganization Fresh Start Consolidated
Balance Sheet Adjustments Adjustments Balance Sheet
------------- -------------- ----------- -------------
Current assets............................... $270,900 $ -- $ 4,912 $275,812
Property, plant and equipment, net........... 331,113 -- (56,118) 274,995
Goodwill and other intangibles............... 330,401 -- (330,401) --
Other assets, net............................ 47,042 (8,544) (9,038) 29,460
-------- --------- --------- --------
Total assets.............................. $979,456 $ (8,544) $(390,645) $580,267
======== ========= ========= ========
Current liabilities.......................... $223,766 $ (25,435) $ (25,353) $172,978
Long-term debt............................... 467,779 (238,304) -- 229,475
Other long-term liabilities.................. 77,649 (13,461) 23,626 87,814
-------- --------- --------- --------
Total liabilities......................... 769,194 (277,200) (1,727) 490,267
-------- --------- --------- --------
Common stock................................. 310,487 88,200 (308,687) 90,000
Treasury stock............................... (15,859) -- 15,859 --
Accumulated deficit.......................... (75,033) 180,456 (105,423) --
Accumulated other comprehensive income (loss) (9,333) -- 9,333 --
-------- --------- --------- --------
Total shareholders' equity................ 210,262 268,656 (388,918) 90,000
-------- --------- --------- --------
Total..................................... $979,456 $ (8,544) $(390,645) $580,267
======== ========= ========= ========
Reorganization adjustments reflect the conversion of both the Subordinated
Debt, including related accrued interest, and certain prepetition trade
payables into new common stock, as well as the settlement of the non-qualified
pension and deferred compensation liabilities, resulting in an extraordinary
gain of $180.5 million.
3. MARKETABLE SECURITIES
In fiscal 2002, the Company's marketable securities consisted primarily of
U.S. Government securities, maturing in 2003. The amortized cost of these
securities at September 30, 2002 was $2.8 million. Realized securities losses
in fiscal 2000 were $0.5 million. Marketable securities at September 30, 2002
were pledged to secure certain insurance obligations.
Other investments include notes received in the sale of Michigan Sugar and
the Company's royalty interest in a coal seam methane gas project, which is
accounted for at amortized cost. The Company has a limited partnership interest
in a company which owns an interest in a fuel oil terminal in the Port of
Houston; a former director of the Company is the general partner.
F-11
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
4. SALE OF ACCOUNTS RECEIVABLE
The Company entered into a receivables securitization facility in 2001 in
conjunction with its emergence from bankruptcy. The facility was scheduled to
extend until August 2004 and provided for loans from a third party to a
wholly-owned, unconsolidated subsidiary of up to $110 million. Such loans were
secured by trade accounts receivable purchased by such subsidiary from the
Company on a non-recourse basis, for a combination of cash, notes and an equity
contribution. Loans outstanding from the third party to such unconsolidated
subsidiary, not included in the consolidated financial statements, totaled
$61.5 million at September 30, 2002. Trade receivables sold to such subsidiary
during the period ended September 30, 2002 totaled $1.40 billion and the
balance of receivables sold totaled $86.8 million at September 30, 2002. The
Company serviced the receivables under the agreement for a fee of 1% .
Comparatively in 2001, loans outstanding from the third party to such
unconsolidated subsidiary, not included in the consolidated financial
statements, totaled $78.1 million at September 30, 2001. Trade receivables sold
to such subsidiary during the period ended September 30, 2001 totaled $263.6
million and the balance of receivables sold totaled $112.7 million at September
30, 2001.
The discount on receivables sold was variable based on an interest component
which approximates the prime rate plus administrative fees. The Company
received compensation for servicing the accounts receivables that approximates
its cost to provide such services. Accordingly, no servicing assets or
liability is recorded.
The Company previously had a receivable securitization facility which
expired upon its emergence from bankruptcy. The Company sold receivables
without recourse under such facility at a discount to an unrelated third party.
In December 2002, in connection with the sale of the foodservice segment and
the refinancing of the Company's senior bank debt, the Company repurchased
receivables sold under the securitization facility and terminated the facility.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands of
dollars):
September 30,
-----------------
2002 2001
-------- --------
Land.............................. $ 22,538 $ 27,475
Buildings, machinery and equipment 194,481 239,631
Construction in progress.......... 7,497 9,974
-------- --------
Total.......................... 224,516 277,080
Less accumulated depreciation..... 17,797 1,627
-------- --------
Property, Plant and Equipment--Net $206,719 $275,453
======== ========
Property, plant and equipment was revalued in 2001 pursuant to fresh start
accounting.
F-12
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
6. SHORT-TERM BORROWINGS
From time to time, the Company borrows short-term from the Commodity Credit
Corporation ("CCC") under the USDA's price support loan program. CCC
borrowings, which mature September 30 each year, are secured by refined beet
sugar inventory and are nonrecourse to the Company. During fiscal 2000, the
Company participated in permitted forfeitures of refined sugar in full
satisfaction of $47.1 million of outstanding loans with the CCC in lieu of
repaying the loans because the forfeiture price exceeded the current market
price. The Company accounted for this transaction as a debt repayment. The net
book value of inventory forfeited approximated the debt discharged, including
interest.
7. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
September 30,
-----------------
2002 2001
-------- --------
Senior bank debt:
Revolving credit facility.... $ 25,040 $ 57,293
Term loans................... 115,836 139,036
Industrial revenue bonds........ 3,840 22,500
Non-interest bearing notes...... 11,006 11,696
-------- --------
Total long-term debt..... 155,722 230,525
Less current maturities......... 6,844 3,746
-------- --------
Long-term debt, net............. $148,878 $226,779
======== ========
The senior bank agreement included a $96 million (subject to borrowing base
calculation) revolving credit facility (available through September 30, 2004)
and term loans aggregating $116 million. Generally, CCC borrowings reduced the
amounts available under the revolving credit facility, however, CCC borrowings
of up to $25 million seasonally could be made without reducing the availability
of borrowings under the revolving credit facility. At September 30, 2002, the
carrying amount of the Company's debt approximates fair value.
The industrial revenue bonds consist of various issues at fixed and variable
interest rates, ranging from 1.8% to 6.4%, and have maturity dates ranging from
2015 to 2025.
Pursuant to the Plan of Reorganization, the non-interest bearing notes were
issued to certain former employees and directors who were participants in
non-qualified pension and deferred compensation plans. The notes require
quarterly payments aggregating $0.7 million through August 2007. The notes have
been recorded on a discounted basis at a 12% rate of interest.
Scheduled maturities of long-term debt at September 30, 2002, is as follows
(in thousands of dollars):
Senior
Bank Debt Other Total
--------- ------- --------
Fiscal 2003 $ 4,986 $ 1,858 $ 6,844
Fiscal 2004 33,317 1,972 35,289
Fiscal 2005 72,307 2,199 74,506
Fiscal 2006 25,449 2,455 27,904
Fiscal 2007 4,817 2,753 7,570
Thereafter. -- 3,609 3,609
-------- ------- --------
$140,876 $14,846 $155,722
======== ======= ========
F-13
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
In December 2002, the Company repaid its existing senior bank debt with the
proceeds of a $175 million Senior Secured Credit Facility. The new debt
consists of a three-year $140 million (subject to borrowing base calculation)
senior secured revolving credit facility ("Revolver") and a three-year $35
million term loan ("Term Loan"). The funds from the new borrowing along with
the proceeds of the sale of the foodservice division were used to repay
existing senior bank debt, repurchase accounts receivable from Imperial's
accounts receivable securitization facility, and pay related fees and expenses
associated with these transactions. At closing we had no outstanding borrowings
under the Revolver.
The new facility is secured by substantially all of the Company's assets and
guaranteed by all the Company's subsidiaries. The agreement contains financial
covenants which require, commencing September 30, 2003, maintenance of a
minimum EBITDA level and a minimum fixed charge coverage ratio.
Interest rates on the term loan are LIBOR plus a margin of 2.75% to 3.50% or
prime plus 0.25% to 1.00%. Interest rates on the revolver are LIBOR plus a
margin of 2.25% to 3.00% or prime plus zero to 0.50%.
The $35 million borrowed on the new term loan is repayable in monthly
installments of approximately $583,000, commencing February 1, 2003 with final
payment of the remaining balance due January 1, 2006. The Company expects to
classify debt under the Senior Secured Credit Facility as current, pursuant to
Emerging Issues Task Force Issue 95-22.
The Company had entered into interest rate swap agreements with a major
financial institution in which the Company pays a fixed interest rate of 6.01%
on $90.6 million. The Company was exposed to credit risk in the event of
nonperformance by counterparties to its interest rate swap agreements. The
Company terminated these interest rate swap agreements in December 2002.
Cash paid for interest on short and long-term debt was $20.6 million for the
year ended September 30, 2002, $0.8 million for the period ended September 30,
2001, $21.2 million for the period ended August 29, 2001, and $54.5 million for
fiscal 2000. Interest capitalized as part of the cost of constructing assets
was $0.3 million for fiscal 2002, $0.01 million for the period ended September
30, 2001, $0.4 million for the period ended August 29, 2001, and $0.5 million
for fiscal 2000.
In connection with the sale of Michigan Sugar, the buyer assumed industrial
revenue bonds totaling $18.5 million, for which the Company remains
contingently liable. Additionally, the Company was obligated under $33.4
million of letters of credit, primarily securing insurance obligations.
F-14
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
8. INCOME TAXES
The components of the consolidated income tax provision (credit), including
amounts reported as an extraordinary item, were as follows (in thousands of
dollars):
Successor Company Predecessor Company
------------------------------- ---------------------------------
Period from Period from
Year Ended August 30, 2001 October 1, 2000
September 30, to to Year Ended
2002 September 30, 2001 August 29, 2001 September 30, 2000
------------- ------------------ --------------- ------------------
Federal:
Current................................. -- -- -- --
Tax benefit of operating loss
carryforward utilized (generated)..... -- $ 5,979 $(41,169) $ (920)
Deferred................................ $4,963 (7,980) (38,640) (11,703)
State...................................... 353 84 874 (350)
------ ------- -------- --------
Total before extraordinary item..... 5,316 (1,917) (78,935) (12,973)
Tax effect of extraordinary item (reduction
of net operating loss carryforward)...... -- -- 21,300 --
Valuation allowance........................ -- 1,917 40,233 --
------ ------- -------- --------
Total............................... $5,316 $ 0 $(17,402) $(12,973)
====== ======= ======== ========
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate of 35% to
the Company's income before taxes (including extraordinary item). The reasons
for the differences from the statutory rate are as follows (in thousands of
dollars):
Successor Company Predecessor Company
-------------------------- ----------------------------
Period from
August 30, Period from
Year Ended 2001 to October 1, 2000 Year Ended
September 30, September 30, to September 30,
2002 2001 August 29, 2001 2000
------------- ------------- --------------- -------------
Income taxes computed at the statutory federal rate $ 7,607 $(2,262) $(188,247) $(16,678)
Non deductible goodwill amortization............ -- -- 3,377 3,787
Non deductible fresh start adjustments.......... -- -- 100,796 --
State income taxes.............................. 229 84 874 (350)
Basis difference on sale of subsidiaries' stock. (3,114)
Other........................................... 594 261 4,265 268
Valuation allowance............................. -- 1,917 40,233 --
------- ------- --------- --------
Total before extraordinary item............. $ 5,316 $ 0 $ (38,702) $(12,973)
======= ======= ========= ========
Income taxes paid were $0.4 million for the period ended September 30, 2002,
zero for the period ended September 30, 2001, $1 million for the period ended
August 29, 2001, and $1.7 million in fiscal 2000.
F-15
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities were as follows (in thousands of dollars):
September 30, 2002 September 30, 2001
---------------------------- -----------------------------
Assets Liabilities Total Assets Liabilities Total
------- ----------- -------- -------- ----------- --------
Current:
Inventory valuation differences,
principally purchase accounting....... -- $(11,989) $(11,989) -- $(19,472) $(19,472)
Manufacturing costs prior to production
deducted currently.................... -- (4,962) (4,962) -- (7,851) (7,851)
Accruals not currently deductible....... $ 4,042 -- 4,042 $ 5,316 -- 5,316
Alternate minimum tax................... -- -- -- 1,499 -- 1,499
Other................................... -- (1,172) (1,172) 1,506 -- 1,506
------- -------- -------- -------- -------- --------
Total current....................... 4,042 (18,123) (14,081) 8,321 (27,323) (19,002)
------- -------- -------- -------- -------- --------
Noncurrent:
Depreciation differences, including
purchase accounting................... (18,162) (18,162) -- (40,095) (40,095)
Pensions................................ 13,672 -- 13,672
Accruals not currently deductible....... 14,993 -- 14,993 24,976 -- 24,976
Operating loss carryforwards............ 3,570 -- 3,570 32,413 -- 32,413
Other................................... 4,751 4,751 43,858 43,858
------- -------- -------- -------- -------- --------
Total noncurrent.................... 36,986 (18,162) 18,824 101,247 (40,095) 61,152
------- -------- -------- -------- -------- --------
Total...................................... $41,028 $(36,285) 4,743 $109,568 $(67,418) 42,150
======= ======== ======== ========
Valuation allowance........................ (4,743) (42,150)
-------- --------
Net..................................... $ 0 $ 0
======== ========
The Company has net operating loss ("NOL") carryforwards of $10.2 million
which expire in 2020. The income tax benefit resulting from the future
realization of the NOL carryforwards will be credited to capital stock in
accordance with the principles of fresh start reporting.
The valuation allowance reduces deferred tax assets to the amount that the
Company believes is most likely to be realized. Due to the recent history of
losses, the Company has provided a valuation allowance for the net deferred tax
asset balance. The valuation allowance decreased by $37.4 million in the year
ended September 30, 2002, of which $5.3 million relates to the utilization of
NOL carryforwards for which a valuation allowance had been provided in fresh
start accounting and a corresponding credit was recorded in capital stock. The
balance of the decrease relates to adjustments made to the deferred tax assets
on finalization of the Company's tax return, and changes during fiscal 2002,
including the sale of King Packaging and Michigan Sugar Company.
9. EMPLOYEE BENEFITS
Defined Benefit Pension Plans and Postretirement Benefits Other Than Pensions
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
F-16
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
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 the remaining service periods. 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. The Company provides 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. Certain of
the Company's employees are covered by benefit plans that provide
postretirement health care and life insurance benefits to certain employees who
meet the applicable eligibility requirements. The Company's actuary prepares a
valuation as of June 30 each year.
The following tables present the benefit obligation, changes in plan assets,
the funded status of the pension plans and the assumptions used (in thousands
of dollars):
Pension Benefits
--------------------------------------
Period from Period from
August 30, October 1
Year Ended 2001 to 2000 to
September 30, September 30, August 29,
2002 2001 2001
------------- ------------- -----------
Change in benefit obligation:
Benefit obligation at beginning of period............... $247,987 $247,295 $225,503
Service cost............................................ 5,707 483 5,359
Interest cost........................................... 16,629 1,487 15,519
Amendments.............................................. 141 -- 435
Actuarial (gain)/loss................................... (8,704) -- 27,088
Disposition of business units........................... (10,557) -- --
Expenses paid........................................... (1,392) (89) (1,836)
Benefits paid........................................... (17,816) (1,189) (14,514)
Bankruptcy settlement of certain non-qualified benefits. -- -- (10,259)
Curtailment and other................................... (2,918) -- --
-------- -------- --------
Benefits obligation at end of period.................... $229,077 $247,987 $247,295
======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of period........ $216,703 $216,368 $253,552
Actual return on plan assets............................ (20,434) 1,613 (21,629)
Employer contribution................................... 3,716 -- 795
Disposition of business units........................... (8,919) -- --
Expenses paid........................................... (1,392) (89) (1,836)
Benefits paid........................................... (17,816) (1,189) (14,514)
-------- -------- --------
Fair value of plan assets at end of period.............. $171,858 $216,703 $216,368
======== ======== ========
Funded status.............................................. $(57,219) $(31,283) $(30,927)
Unrecognized actuarial (gain)/loss......................... 26,869 -- --
Unrecognized prior service cost............................ 141 -- --
Adjustment for fourth quarter contributions................ 752 368 --
-------- -------- --------
Net amount recognized...................................... $(29,457) $(30,915) $(30,927)
======== ======== ========
F-17
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Postretirement Benefits Other Than Pensions
------------------------------------------
Period from Period from
August 30, October 1
Year Ended 2001 to 2000 to
September 30, September 30, August 29,
2002 2001 2001
------------- ------------- -----------
Change in benefit obligation:
Benefit obligation at beginning of period........ $ 42,076 $ 41,978 $ 38,035
Service cost..................................... 141 35 565
Interest cost.................................... 1,556 253 2,610
Amendments....................................... -- -- (12,401)
Actuarial (gain)/loss............................ 3,153 -- 15,544
Disposition of business units.................... (19,861) -- --
Curtailment...................................... (468) -- --
Benefits paid.................................... (1,791) (190) (2,375)
-------- -------- --------
Benefits obligation at end of period............. $ 24,806 $ 42,076 $ 41,978
======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of period. $ -- $ -- $ --
Employer contribution............................ 1,791 190 2,375
Benefits paid.................................... 1,791 (190) (2,375)
-------- -------- --------
Fair value of plan assets at end of period....... $ -- $ -- $ --
======== ======== ========
Funded status....................................... $(24,806) $(42,076) $(41,978)
Unrecognized actuarial (gain)/loss.................. 2,210 -- --
Adjustment for fourth quarter contributions......... 473 -- --
-------- -------- --------
Net amount recognized............................... $(22,123) $(42,076) $(41,978)
======== ======== ========
Postretirement Benefits
Pension Benefits Other than Pensions
------------------ ----------------------
September 30, September 30,
------------------ ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Amounts recognized in the statement of financial position consist
of:
Accrued benefit liability..................................... $(40,797) $(30,915) $(22,123) $(42,076)
Accumulated other comprehensive income........................ 11,340 -- -- --
-------- -------- -------- --------
Net amount recognized............................................ $(29,457) $(30,915) $(22,123) $(42,076)
======== ======== ======== ========
F-18
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
The assumptions used and the annual cost related to these plans consist of
the following:
Period from Period from
Year Ended August 30, October 1
to 2001 to 2000 to
September 30, September 30, August 29,
2002 2001 2001
------------- ------------- -----------
Pension Benefits
Weighted-average assumptions:...............................
Discount rate............................................ 7.25% 7.25% 7.25%
Expected return on plan assets........................... 9.0 % 9.0% 9.0%
Rate of compensation increase............................ 4.0-5.0% 4.5-5.0% 4.5-5.0%
Components of net periodic benefit cost of Company-sponsored
plans:....................................................
Service cost............................................. $ 5,707 $ 483 $ 5,359
Interest cost............................................ 16,629 1,487 15,518
Expected return on plan assets........................... (18,057) (1,614) (20,355)
Amortization of prior service cost....................... -- -- 766
Recognized actuarial (gain)/loss......................... -- -- (2,583)
-------- -------- --------
Total net periodic benefit cost - Company-sponsored plans... 4,279 356 (1,295)
Industry-wide plan for certain unionized employees.......... 596 40 479
-------- -------- --------
Total pension cost................................... $ 4,875 $ 396 $ (816)
======== ======== ========
Period from Period from
August 30, October 1
Year Ended 2001 to 2000 to
September 30, September 30, August 29,
2002 2001 2001
------------- ------------- -----------
Postretirement Benefits Other Than Pensions
Discount rate assumptions.................. 7.25% 7.25% 7.25%
Components of net periodic benefit cost:...
Service cost............................ $ 141 $ 35 $ 565
Interest cost........................... 1,556 252 2,610
Recognized actuarial (gain)/loss........ -- -- 91
------ ----- ------
Net periodic benefit cost.................. $1,697 $ 287 $3,266
====== ===== ======
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $145.6 million, $129.8 million, and $96.3
million, respectively, as of September 30, 2001. At September 30, 2002,
accumulated benefit obligations were in excess of plan assets for all plans.
The Company recorded a curtailment in the postretirement and pension plans
in connection with the reduction of active plan participants primarily
resulting from the sale of business units during fiscal 2002 described in note
14.
F-19
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
The assumed health care cost trend rate used in measuring the accumulated
benefit obligation for postretirement benefits other than pensions as of
September 30, 2002 was 12.75% for 2003. The rate was assumed to decrease
gradually to 5.25% for 2009 and remain at that level thereafter. Assumed health
care cost trend rates have a significant effect on the amounts reported for the
health care plan. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
One One
Percentage Percentage
Point Point
Increase Decrease
---------- ----------
(In Thousands of
Dollars)
Effect on total service and interest cost components $ 167 $ (141)
Effective on postretirement benefit obligation...... 1,916 (1,646)
401(k) Plans
Substantially all of the employees may elect to defer up to 15% of their
annual compensation in the Company sponsored 401(k) tax deferred savings plans.
The Company makes matching contributions in some of these plans. The amounts
charged to expense for each of the periods presented for these plans were not
significant.
Employee Stock Purchase Plan
Prior to bankruptcy, the Company had an employee stock purchase plan which
provided 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 value. The amounts charged to
compensation expense for each of the periods presented for the discount on
shares purchased under the latter alternative were not significant. This plan
was terminated in December 2001.
F-20
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
10. SHAREHOLDERS' EQUITY
Earnings per Share
The following table presents information necessary to calculate basic and
diluted earnings per share (in thousands of dollars, except per share amounts):
Period from Period from
August 30, October 1,
Year Ended 2001 to 2000 to Year Ended
September 30, September 30, August 29, September 30,
2002 2001 2001 2000
------------- ------------- ----------- -------------
Earnings for basic and diluted computation:
Income (loss) before cumulative effect and
extraordinary item................................ $ 16,417 $ (6,464) $ (499,148) $ (34,677)
Net income (loss)................................... 16,417 (6,464) (316,340) (34,677)
=========== =========== =========== ===========
Basic earnings per share:
Weighted average shares outstanding................. 10,000,000 10,000,000 32,409,074 32,293,759
=========== =========== =========== ===========
Income (loss) per share before cumulative effect and
extraordinary item................................ $ 1.64 $ (0.65) $ (15.40) $ (1.07)
=========== =========== =========== ===========
Cumulative effect of accounting change.............. -- -- $ 0.07 --
=========== =========== =========== ===========
Extraordinary item.................................. -- -- $ 5.57 --
=========== =========== =========== ===========
Net income (loss) per share......................... $ 1.64 $ (0.65) $ (9.76) $ (1.07)
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares outstanding................. 10,000,000 10,000,000 32,409,074 32,293,759
Incremental shares issuable from assumed exercise
of stock options under the treasury stock
method............................................ -- -- -- --
----------- ----------- ----------- -----------
Weighed average shares outstanding-as adjusted...... 10,000,000 10,000,000 32,409,074 32,293,759
Income (loss) per share before cumulative effect and
extraordinary item................................ $ 1.64 $ (0.65) $ (15.40) $ (1.07)
=========== =========== =========== ===========
Cumulative effect of accounting change.............. -- -- $ 0.07 --
=========== =========== =========== ===========
Extraordinary item.................................. -- -- $ 5.57 --
=========== =========== =========== ===========
Net income (loss) per share......................... $ 1.64 $ (0.65) $ (9.76) $ (1.07)
=========== =========== =========== ===========
F-21
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
In connection with the Company's emergence from bankruptcy, the Company
adopted a long-term incentive plan which provides for the granting to
management of options to purchase up to 1,234,568 shares of common stock of the
reorganized company. The plan provides for the granting of incentive awards in
the form of stock options, stock appreciation rights (SARs), restricted stock,
cash award performance units and performance shares at the discretion of the
Executive Compensation Committee of the Board of Directors. Stock options to
date have an exercise price equal to the fair market value of the shares of
common stock at date of grant. On the grant date, 25% of the options become
exercisable and 25% in annual increments for the three years following the
grant date. These options expire not more than ten years from date of grant.
Stock option activity in the plan was as follows:
Year Ended September 30, 2002
-----------------------------
Weighted Average
Options Price per Share
--------- ----------------
Beginning balance............. -- --
Granted....................... 1,286,456 $5.30
Expired or cancelled.......... (175,000) 5.55
Exercised..................... -- --
---------
Balance, September 30......... 1,111,456 4.97
=========
Exercisable as of September 30 321,614 5.30
=========
Options outstanding at September 30, 2002 consisted of the following:
Exercisable Options
--------------------------
Range of Weighted-Average Weighted-Average Number Weighted-Average
Exercise Prices Number of Exercise Price per Remaining of Exercise Price per
per Share Options Share Contractual Life Options Share
- --------------- --------- ------------------ ---------------- ------- ------------------
$5.55 997,456 $5.55 9.4 years 293,114 $5.55
$2.05-4.00 114,000 2.69 9.8 years 28,500 2.69
Prior to bankruptcy, the Company had a stock incentive plan which provided
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. Additionally, the Company had a non-employee director stock
option plan and a non-employee director stock compensation plan. These plans
were terminated and all outstanding options were cancelled pursuant to the Plan
of Reorganization.
The Company measures compensation cost of stock-based compensation using the
intrinsic value method. In 2002 the Company's reported net income and earnings
per share would have been reduced had compensation cost for the Company's
stock-based compensation plans been determined using the fair value method of
accounting. For purposes of estimating the fair value disclosures below, the
fair value of stock options has been estimated on the grant date with a
Black-Scholes option-pricing model using the following weighted-average
F-22
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
assumptions: expected volatility of 4.52%; risk-free interest rate of 4.23%;
and expected lives of 5 years. The effects of using the fair value method of
accounting on net income and earnings per share are indicated in the unaudited
pro forma amounts below (in thousands of dollars, except per share amounts):
Year Ended
September 30,
2002
-------------
Net income:
As reported....................... $16,417
Pro forma......................... 15,918
Basic and diluted earnings per share:
Net income:
As reported....................... $ 1.64
Pro forma......................... 1.59
11. DERIVATIVE INSTRUMENTS
The Company uses derivative instruments to manage exposures to changes in
raw sugar prices, natural gas prices and interest rates. The Company's
objective for holding derivatives is to minimize risk using the most efficient
methods to eliminate or reduce the impacts of these exposures.
Raw Sugar
The Company's risk management policy is to manage the forward pricing of
purchases of raw sugar in relation to its forward refined sugar sales to reduce
price risk. The Company attempts to meet this objective by entering into fixed
price supply agreements, futures contracts and options contracts to reduce its
exposure. The Company has designated its futures contracts and certain options
contracts as cash flow hedging instruments. Such financial instruments are used
to manage the Company's exposure to variability in future cash flows
attributable to the purchase price of raw sugar. The changes in the fair value
of the designated futures contracts and certain options contracts are included
as a component of Other Comprehensive Income ("OCI").
The Company collects or pays cash based upon the change in the market value
of open futures positions on a daily basis; accordingly, no asset or liability
for the raw sugar futures contracts is reflected in the consolidated balance
sheet.
The changes in the fair value of the designated futures contracts and
options contracts are matched to inventory purchases by period, and are
recognized in earnings as such inventory is sold. The Company expects to
recognize in earnings through September 30, 2003, approximately $1.5 million of
existing net gains presently deferred in OCI.
The pricing mechanisms of the futures contracts and the respective
forecasted raw sugar purchase transactions are the same. As a result, there is
no hedge ineffectiveness to be reflected in earnings. The Company excludes the
change in the time value of the options contracts from its assessment of hedge
effectiveness. The Company recorded a loss of $0.3 million in cost of sales as
the change in the time value of options for the period ended August 29, 2001.
There were no such options in fiscal 2002.
The Company has hedged a portion of its exposure to raw sugar price risk
movement through January 30, 2004.
F-23
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Certain options contracts not designated as hedging instruments under SFAS
133 are also used to hedge the impact of the variability of price risk for raw
sugar. The change in the fair value of such instruments is recognized currently
in earnings.
Natural Gas
The Company uses fixed price physical delivery contracts, futures contracts,
options, and basis swaps to help manage its costs of natural gas. The Company
has designated as cash flow hedge instruments certain natural gas futures and
options contracts matched against variable price forecasted gas purchases. The
change in the fair value of such contracts is included as a component of OCI.
The Company also has natural gas futures and options contracts that cannot
be designated as cash flow hedge instruments because the aggregate notional
value of its natural gas futures and options contracts exceeds the Company's
forecasted natural gas requirements in the relevant periods. Any change in fair
value of such instruments is recorded as gain or loss in the period of the
change.
The Company collects or pays cash based upon the change in the market value
of all open natural gas futures contracts on a daily basis; accordingly, no
asset or liability for the natural gas futures contracts is reflected in the
consolidated balance sheet. Natural gas basis swaps with a market value
liability of $1.7 million were included in the consolidated balance sheet at
September 30, 2001. There were no outstanding natural gas basis swaps at
September 30, 2002.
The changes in the fair value of the designated futures and options are
matched to forecasted natural gas purchases and will be recognized in earnings
in the period of the purchase. The Company expects to recognize in earnings
through September 30, 2003, approximately $1.1 million of existing net gains
presently deferred in OCI.
For the period ended September 30, 2002, the Company recognized $480,000 of
derivative gains recorded in cost of sales, which represented the
ineffectiveness of the natural gas cash flow hedging activity. For the periods
ended August 29, 2001 and September 30, 2001, the Company recognized $0.3
million and ($87,000) respectively of derivative gains(losses) recorded in cost
of sales, which represented the ineffectiveness of the natural gas cash flow
hedging activity.
For the period ended August 29, 2001 the Company reclassified $2.6 million
of derivative gains from OCI to cost of sales, representing the discontinuance
of cash flow hedges as it was no longer probable that the original forecasted
transactions would occur.
The Company has hedged a portion of its exposure to natural gas price risk
through September 30, 2003.
Interest Rates
The Company has material amounts of debt with interest rates that float with
market rates, exposing the Company to interest rate risk. The Company's policy
is to reduce interest rate risk on its variable rate debt by entering into
interest rate swap agreements for a portion of such floating rate debt. Since
the Company has the ability to change the interest rate index of the debt, the
interest rate swap agreements are not designated as hedging instruments under
SFAS 133. Therefore, changes in the fair value of the interest rate swaps are
recognized in earnings.
12. REPORTABLE SEGMENTS
The Company has historically identified two reportable segments: sugar and
foodservice. The segments are strategic business units that offer different
products to different customers. The segments are managed separately because
each business requires different production technology and marketing strategies.
F-24
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company accounts for
intersegment sales as if the sales were to third parties, that is, at current
market prices. The Company evaluates performance based on operating income of
the respective business units.
The sugar segment produces and sells refined sugar and related products. The
segment's products include granulated, powdered, liquid, liquid blends and
brown sugars, which are primarily sold to grocery and industrial customers and
by-products from the production of refined sugar. The foodservice segment sells
numerous products to foodservice customers, ranging from 50-pound bags of sugar
to individual packets of sugar, salt, pepper, non-dairy creamer, sauces,
seasonings, drink mixes and desserts.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Corporate and Other" column
includes corporate-related items and securitization activities.
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
-------- ----------- --------- ------------ ------------
Successor Company
----------------- (In Thousands of Dollars)
As of and for the Year Ended September 30,
2002
Revenues from external customers.......... $993,015 $304,816 -- -- $1,297,831
Intersegment revenues..................... 174,509 15,243 -- $(189,752) --
Gross margin.............................. 66,542 34,931 $ (187) -- 101,286
Depreciation and amortization............. 13,908 3,740 1,057 -- 18,705
Operating income (loss)................... 1,289 16,988 (3,463) -- 14,814
Capital expenditures...................... 9,625 2,873 2,136 -- 14,634
Total assets.............................. 373,302 51,289 38,774 -- 463,365
As of and For the Period From August 30, 2001
to September 30, 2001
Revenues from external customers.......... $106,606 $ 27,323 -- -- $ 133,929
Intersegment revenues..................... 6,544 569 -- $ (7,113)
Gross margin.............................. 389 2,637 -- -- 3,026
Depreciation and amortization............. 1,145 417 $ 69 -- 1,631
Operating income (loss)................... (4,600) 737 (371) -- (4,234)
Capital expenditures...................... 1,683 570 326 -- 2,579
Total assets.............................. 445,791 91,852 18,140 -- 555,783
F-25
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
---------- ----------- --------- ------------ ------------
Predecessor Company
------------------- (In Thousands of Dollars)
For the Period from October 1, 2000 to
August 29, 2001
Revenues from external customers... $1,089,337 $329,382 -- -- $1,418,719
Intersegment revenues.............. 77,640 6,944 -- $ (84,584) --
Gross margin....................... 40,998 44,174 -- -- 85,172
Depreciation and amortization...... 33,811 8,052 $ 3,824 -- 45,687
Operating income (loss)............ (35,397) 13,236 (10,211) -- (32,372)
Capital expenditures............... 6,394 1,240 1,262 -- 8,896
For the Year Ended September 30, 2000
Revenues from external customers... $1,429,242 $391,989 $1,821,231
Intersegment revenues.............. 98,026 7,298 $(105,324) --
Gross margin....................... 97,378 41,324 138,702
Depreciation and amortization...... 37,473 10,297 $ 4,209 51,979
Operating income (loss)............ (23,785) 2,421 (6,458) (27,822)
Capital expenditures............... 13,486 1,345 1,472 16,303
Reconciliation of operating income to net loss before income taxes, minority
interest and extraordinary item (in thousands):
Period from Period from
August 30, October 1,
2001 2000
Year Ended to to Year Ended
September 30, September 30, August 29, September 30,
2002 2001 2001 2000
------------- ------------- ----------- -------------
Operating income (loss)............................. $ 14,814 $(4,234) $ (32,372) $(27,822)
Interest expense-net................................ (22,288) (2,551) (32,658) (56,656)
Reorganization costs................................ -- -- (19,716) --
Fresh start adjustments............................. -- -- (453,188) --
Realized securities gains-net....................... 72 -- -- 35,874
Gain on sale of assets.............................. 26,523 -- 2,217 --
Change in fair value of interest rate swaps......... 1,236 (901) (8,465) --
Other income-net.................................... 1,376 1,222 6,332 954
-------- ------- --------- --------
Income (loss) before income taxes, cumulative effect
and extraordinary item............................ $ 21,733 $(6,464) $(537,850) $(47,650)
======== ======= ========= ========
F-26
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
13. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
The Company was obligated under $33.6 million in outstanding letters of
credit at September 30, 2002.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $3.2 million in fiscal 2002, $5.0 million in period ending August
29, 2001, $0.3 million in period ending September 30, 2001, and $6.2 million in
fiscal 2000.
The aggregate future minimum lease commitments under noncancelable operating
leases at September 30, 2002 are summarized as follows (in thousands of
dollars):
Operating
Fiscal Year Ending September 30, Leases
-------------------------------- ---------
2003................ 1,360
2004................ 769
2005................ 437
2006................ 148
2007................ 97
Thereafter........... 16
The aggregate future minimum amount to be received under sub-leases was $0.7
million at September 30, 2002, compared to $0.8 million at September 30, 2001.
14. SALES OF BUSINESS UNITS
In April 2001, the Company completed the sale of the nutritional products
portion of its foodservice segment to Hormel Foods Corporation for $63.7
million cash, of which $5.4 million was collected from escrow in October 2002.
The Company applied the net proceeds to reduce debt. The nutritional products,
which were sold primarily to hospitals and nursing homes, represented
approximately $50 million and $34 million of net sales in fiscal 2000 and the
seven months ended April 30, 2001, respectively. The Company sold its
California limestone quarry in September 2001 for $100,000 plus the assumption
of environmental reclamation liabilities.
In December 2001, the Company completed the sale of its King Packaging
subsidiary for approximately $28 million. Sales proceeds of $2.8 million remain
in escrow until June 2003. The Company applied the net proceeds to reduce debt
and expects to apply a portion of the escrow funds released to the Company to
further reduce debt. King Packaging's sale of kits containing plastic cutlery
and seasonings totaled $27 million for the twelve months ended September 30,
2001 and $5 million for the three months ended December 31, 2001.
The Company completed the sale of its Michigan Sugar Company subsidiary in
February 2002 to a grower-owned cooperative. The sales price consisted of
approximately $29 million cash, $16 million in deferred payments, and the
assumption of $18.5 million in industrial revenue bonds, for which the Company
remains contingently liable. The Company entered into a sales and marketing
agreement under which it will continue to market the refined sugar processed by
Michigan Sugar Company for ten years following the sale.
F-27
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Prior to the sale, the Company leased the four Michigan factories to the
cooperative during fiscal 2002 and managed and operated these factories for the
cooperative. The lease agreement proved that the cooperative (1) pay all
expenses necessary to operate the four factories and (2) pay the Company a
lease, management and marketing fee based on the number of tons of sugarbeets
received at these factories for processing. Michigan Sugar Company's sales were
$162 million for the twelve months ended September 30, 2001. For the twelve
months ended September 30, 2002, lease, management and marketing fees totaled
$8.2 million.
On June 30, 2002, the Company completed the sale of its Worland, Wyoming
factory for $3.0 million. The Company entered into a sales and marketing
agreement under which it will continue to market the refined sugar processed by
the Worland facility for ten years following the sale.
In October 2002, the Company completed the sale of its beet processing
facilities in Sidney, Montana and Torrington, Wyoming, and its Hereford, Texas
beet factory to a Minnesota based cooperative. Proceeds from the transaction
were $34 million, less fees and expenses. Approximately $925,000 was placed in
escrow. Sales from these facilities were $88 million for the twelve months
ended September 30, 2002.
On December 30, 2002, the Company completed the sale of its Diamond Crystal
Brands ("DCB") foodservice division. The Company retained a substantial portion
of the sugar products sales to the foodservice segment as result of this
disposition. The proceeds from the sale of this division were approximately
$115 million (subject to certain post-closing adjustments), including $9.2
million placed in escrow for two years. DCB sales, excluding the portion of
sugar product sales retained by the Company, were approximately $171.0 million
for the twelve months ended September 30, 2002.
15. SUPPLEMENTARY INFORMATION
The Company ceased processing sugarbeets at the Tracy and Woodland,
California facilities near the end of calendar 2000 following the completion of
the fall production campaigns. In October 2000, the Company ceased cane sugar
refining at its Clewiston, Florida refinery and concentrated production in the
southeastern United States in its large Savannah, Georgia refinery. As a
result, the Company recorded charges in fiscal 2000 totaling $27.5 million as
summarized below (in thousands of dollars):
Total
-------
Accrual for cash charges:
Severance for approximately 280 employees........ $ 3,203
Environmental costs.............................. 6,245
Abandoned lease commitments and other cash costs. 2,026
-------
Sub total cash charges....................... 11,474
Noncash charges -- asset impairment of:
Property and equipment........................... 15,142
Beet seed inventory.............................. 925
-------
Subtotal noncash charges..................... 16,067
-------
Total impairment and other charge................... $27,541
=======
F-28
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002, 2001 and 2000
Changes in the accrued balance were as follow (in thousands of dollars):
Other
Amounts Paid Amounts Paid Adjustments
Accrued in the Twelve Accrued in the Twelve in the Twelve Accrued
Balance at Months Ended Balance at Months Ended Months Ended Balance at
September 30, September 30, September 30, September 30, September 30, September 30,
2000 2001 2001 2002 2002 2002
------------- ------------- ------------- ------------- ------------- -------------
Accrual for cash charges:
Severance................ $ 3,203 $2,612 $ 591 $ 591 -- --
Environmental costs...... 6,245 1,214 5,031 317 $3,270 $1,444
Abandoned lease
commitments and other
cash costs.............. 2,026 669 1,357 515 -- 842
------- ------ ------ ------ ------ ------
Subtotal cash
charges.............. $11,474 $4,495 $6,979 $1,423 $3,270 $2,286
======= ====== ====== ====== ====== ======
The Company accrued $6.2 million related to expected, environmental exit
costs associated with the California and Florida facilities. The Company
expects it will be required to incur costs to remediate certain production
areas, including the removal or capping of certain former production settling
ponds. In connection with the sale of one of the factory sites, $3.2 million of
such liability was assumed by the buyer and included in the determination of
the gain on sale of assets. The Company expects to spend the remaining $1.4
million over a 3-year period.
The Company recorded an asset impairment charge of $15.1 million to write
down the book value of buildings and equipment which will no longer be used in
the Company's sugar operations to the estimated value to be realized upon
disposal. Additionally, the Company provided an allowance for the impairment of
the book value of beet seed inventory varieties which were developed
specifically for the Northern California growing region.
During the fourth quarter of 2000, the Company recorded $6.8 million of cost
of sales resulting from balances between subsidiaries.
Interest income and dividends totaled $1.6 million for fiscal 2002, $0.03
million for the period ended September 30, 2001, $0.5 million for the period
ended August 29, 2001, and $1.2 million for fiscal 2000.
Other current liabilities at September 30, 2002 include payroll and employee
benefit accruals totaling $21.6 million.
F-29