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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 MARCH 31, 1995 COMMISSION FILE NUMBER 1-10307
IMPERIAL HOLLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-0704500
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE IMPERIAL SQUARE, SUITE 200
P.O. BOX 9
SUGAR LAND, TEXAS 77487
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 491-9181
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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Common Stock, without par value American Stock Exchange
Rights to Purchase Preferred Stock American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $56 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on June
9, 1995 and (solely for this purpose) treating all directors, executive
officers and 10% shareholders of the registrant as affiliates.
The number of shares outstanding of the registrant's Common Stock, as of June
9, 1995, was 10,287,876.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 1995 Annual Meeting of Shareholders are incorporated by
reference in Part III hereof.
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TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 9
Executive Officers of the Registrant........................... 9
PART II
Market for the Registrant's Common Equity and Related
Item 5. Shareholder Matters........................................... 11
Item 6. Selected Financial Data........................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 12
Item 8. Financial Statements and Supplementary Data.................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant............. 16
Item 11. Executive Compensation......................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management. 16
Item 13. Certain Relationships and Related Transactions................. 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 17
i
PART I
ITEM 1. BUSINESS.
Imperial Holly Corporation (the "Company") is one of the nation's largest
producers and marketers of refined sugar, producing both cane and beet sugar.
The Company refines raw cane sugar at its Imperial Sugar Company refinery in
Sugar Land, Texas, and, through its wholly owned subsidiary, Holly Sugar
Corporation, extracts refined beet sugar by processing sugarbeets purchased
from independent growers at processing plants in California, Wyoming, Montana
and Texas. The Company sells its refined sugar directly and through brokers to
wholesalers, retail grocers and food manufacturers. The Company sells by-
products (beet pulp and molasses) from the extraction and refining processes
for use as livestock feed and markets commercial beet seed.
The Company was incorporated in 1924 as Imperial Sugar Company and is the
successor to a cane sugar plantation and milling operation begun in Sugar Land
in the early 1800's that began producing granulated sugar in 1843. In 1988, the
Company purchased Holly Sugar Corporation and the Company's name was changed to
Imperial Holly Corporation. Holly was founded in 1905 and incorporated in 1916.
As used herein, the "Company" refers to Imperial Holly Corporation and its
subsidiaries, including Holly; "Imperial" refers to the Company's cane sugar
refinery operations, which are conducted directly by the Company under the name
Imperial Sugar Company--a division of Imperial Holly Corporation; and "Holly"
refers to Holly Sugar Corporation, a wholly owned subsidiary of the Company,
which conducts the Company's beet sugar processing operations.
PRODUCTS AND SALES
Sugar. The Company's principal product line is refined sugar, which accounted
for approximately 92% of consolidated net sales in the Company's fiscal year
ended March 31, 1995. Cane sugar and beet sugar account for approximately 40%
and 60%, respectively, of the Company's sugar production. The Company produces
and sells granulated white, brown and powdered sugar to wholesalers, retail
grocers and food manufacturers. Sugar is sold in consumer packages and
industrial packages and in bulk and liquid form (including invert sugar and
blended products).
Sales to wholesalers and grocers consist primarily of consumer packages of
granulated, brown and powdered sugar. These consumer packages, which range from
one pound boxes to 25-pound bags and constitute approximately one-third of the
sugar sold, are marketed under the Imperial(R) and Holly(R) brand names and
under various private labels. Private label packaged sugar, which represents a
significant percentage of the Company's sales, is generally sold at prices
lower than that received for branded sugar. The Company continues to focus
efforts on increasing sales of branded products as a percentage of total
consumer sales.
Food manufacturers principally purchase sugar in industrial size packages and
in bulk or liquid form for use in the preparation of confections, baked
products, frozen desserts, canned goods and various other food products. A
majority of the Company's industrial sales are made to customers under fixed
price contracts with terms of one year or less.
The Company's products are sold directly by the Company's sales force and
through independent brokers. The Company maintains sales offices at its
corporate headquarters in Sugar Land as well as in Chicago, Illinois, Denver,
Colorado and Tracy, California. The Company considers its marketing and
promotional activities important to its overall sales effort. The Company
advertises its brand names in both print and broadcast media and distributes
various promotional materials, including discount coupons and compilations of
recipes.
The Company's sales are concentrated in the western half of the United
States, although during fiscal 1995, the Company's sugar was sold or
distributed in each of the 50 states. No customer accounted for more than 5% of
the Company's sales during fiscal 1995.
1
Sales of refined sugar are moderately seasonal, normally increasing during
the summer months because of increased demand of various food manufacturers,
including fruit and vegetable packers; shipments of specialty products (brown
and powdered sugar) increase in the fourth calendar quarter due to holiday
baking needs. Although the refining of cane sugar is not seasonal, the
production of beet sugar is a seasonal activity. Each of the Company's beet
sugar factories operates during sugar-making campaigns, which generally total
120 days to 180 days in length each year, depending upon the supply of
sugarbeets available to the factory. Because of the geographical diversity of
its manufacturing facilities, the Company is generally able to produce beet
sugar year-round. While the seasonal production of beet sugar requires the
Company to store significant refined sugar inventory at each factory, the
geographical diversity and staggered periods of production at the various
facilities enable the Company's total investment in inventories to be reduced.
Additionally, these factors reduce the likelihood that adverse weather
conditions will affect all of the Company's productive areas simultaneously and
aid in distribution. Refined sugar is shipped by rail and truck, including
Company-owned vehicles.
By-Products. Holly's by-products from beet sugar processing (beet pulp and
molasses) are sold primarily as livestock feeds to dairymen, livestock feeders,
livestock feed processors and distributors. By-product sales accounted for
approximately 7% of consolidated net sales during fiscal 1995. The major
portion of the beet pulp and molasses produced from sugarbeet operations is
sold during and shortly after sugar-making campaigns.
Holly's marketing of by-products from beet sugar processing is concentrated
in the western half of the United States and Japan. In fiscal 1995, export
sales accounted for approximately 18% of by-product sales.
Both the domestic and export markets are highly competitive because of the
availability and pricing of by-products of other sugarbeet processors and corn
wet millers, as well as other livestock feeds and grains. The market price of
the Company's by-products relative to the price of competitive feeds and grains
is the principal competitive determinant. Among other factors, the weather and
seasonal abundance of such feeds and grains may affect the market price of by-
products.
Holly also markets precipitated calcium carbonate from beet sugar processing,
but such marketing efforts currently are limited to the local factory areas
primarily as a result of relatively high freight costs.
Beet Seed. Holly Hybrids, a division of Holly, develops and markets
commercial seed to beet growers under contract to Holly as well as growers
under contract to grow for other beet sugar processors.
RAW MATERIAL AND PROCESSING REQUIREMENTS
Raw Cane Sugar. Imperial purchases raw cane sugar from both United States and
foreign sources. Principal sources of supply in the recent past have been
Louisiana and Florida, and secondary sources have included countries in the
Caribbean and Central America. Import quotas have reduced the availability of
foreign raw cane sugar currently to near the minimum quota level designated by
applicable legislation. See "--Sugar Legislation and Other Market Factors".
During fiscal 1995, approximately 95% of the raw sugar purchased by Imperial
was produced domestically. The raw sugar purchased by the Company is produced
from sugar cane processed at independent mills located close to the fields in
which the sugar cane is grown. The Company has not experienced difficulties in
the past in contracting sufficient quantities of raw sugar to supply the
refinery.
Imperial receives raw sugar directly by rail in Sugar Land and by
intercoastal barges and ocean-going vessels at the Company's facility in
Galveston, Texas, approximately 60 miles from Sugar Land. Raw sugar received at
the Galveston facility is unloaded under the supervision of CSCO, Incorporated,
a wholly owned subsidiary, and is weighed, sampled and stored in Imperial's
Galveston warehouse, which has a capacity of approximately 30,000 tons of raw
sugar. Imperial is paid a stevedoring allowance by the raw sugar sellers to
unload the raw sugar and receives additional dispatch payments from the
carriers if the unloading is completed in less than the allotted time or pays
demurrage if unloading takes more than the time allotted.
2
In Sugar Land, the raw sugar is stored in a warehouse having a capacity of
approximately 20,000 tons. Raw sugar can also be stored in rail cars in
Galveston and Sugar Land or in transit for short periods of time.
Raw sugar purchase contracts can provide for the delivery of a single cargo
or for multiple cargoes over a specified period or a specified percentage of
the seller's production. Contract terms may provide for fixed prices but
generally provide for prices based on the futures market during a specified
period of time. The contracts provide for a premium if the quality of the raw
sugar is above a specified grade or a discount if the quality is below a
specified grade. Contracts generally provide that the seller pays freight,
insurance charges and other costs of shipping.
Because of the time required to take delivery of and refine raw sugar,
Imperial contracts to purchase raw sugar substantially in advance of the time
it delivers the refined sugar produced from that purchase. Accordingly,
Imperial can be exposed to the risk of fluctuations in the market price of
refined products. In order to minimize this risk, Imperial attempts to match
refined sugar sales contracted for future delivery with the purchase or pricing
of raw sugar.
Sugarbeet Purchases. Holly purchases sugarbeets, from which it extracts sugar
and produces by-products, from independent growers under contracts negotiated
between Holly and associations representing such growers. Holly contracts for
acreage prior to the planting season based on estimated demand, marketing
strategy, processing capacity and historical crop yields. The type of contract
used provides for payments to the grower based on the sugar content of the
sugar beets delivered by each grower and the net selling price of beet sugar
during the specified contract year. Some of Holly's contracts provide for a
premium to the growers for delivering beets of superior quality. The net
selling price is the gross sales price less certain marketing costs, including
packaging costs, brokerage, freight expense and amortization costs for certain
facilities used in connection with marketing. Use of this type of participating
contract reduces Holly's exposure to inventory price risks on its sugarbeet
purchases so long as the net selling price does not fall below the regional
minimum support prices established by the United States Department of
Agriculture ("USDA"). See "--Sugar Legislation and other Market Factors".
Acreage contracted at each factory location may vary from year to year on the
basis of prior crop quality, productivity, weather conditions, availability of
irrigation water, the prices anticipated by growers for alternate crops, and
competition with other beet sugar processors. Sugarbeet acreage in Northern
California and the Texas Panhandle has declined in recent years. Harvested
beets are purchased by Holly and, in some locations, stored in piles until
processed. Weather conditions during the growing, harvesting and processing
seasons, as well as diseases, insects and other parasites, may materially
affect the quality and quantity of sugarbeets available for purchase as well as
the unit costs of raw materials and processing. Weather conditions can also
adversely affect sugarbeets in storage piles awaiting processing.
Energy. The refining of raw cane sugar and processing of sugarbeets are
energy intensive. The primary fuel used by Imperial at its Sugar Land refinery
is natural gas purchased under a three-year contract ending July 1, 1996.
Imperial generates a substantial portion of the electricity used at the
refinery and purchases and sells electricity on a cogeneration basis. Holly
also generates a portion of its electricity needs at each of the factories. The
primary fuels used in Holly's factories are natural gas and coal; No. 6 fuel
oil is used both as an alternative when the price is more attractive and as a
backup to natural gas in the event of a curtailment of gas deliveries. Natural
gas and coal supplies are typically purchased under contracts with a minimum
term of one year.
Pricing of natural gas contracts is generally fixed for the term or indexed
to a spot market index. The Company has also utilized financial tools such as
swaps and caps to stabilize the price for gas purchases under indexed
contracts. The Company has been able to negotiate lower gas and pipeline
transmission rates because of competitive options such as pipeline bypasses and
alternative fuel capability. Coal is available in abundant supply domestically
and the Company is able to purchase coal very competitively, although increases
in freight costs, especially rail freight, are difficult to control.
3
The Company owns a royalty interest in a coal seam methane gas project in the
Black Warrior Basin of Alabama as an additional indirect hedge against future
natural gas price increases. Development of the gas reserves in which the
Company has a royalty interest is continuing and some of the wells in the
project are producing.
Other Raw Materials. Foundry coke and limestone are used in the beet sugar
extraction process. The Company generally purchases coke under contracts with
one- to three-year terms and utilizes rail transportation to deliver the coke
to factories. Domestic coke supplies may become tighter due to environmental
restrictions; the Company has the option of converting existing coke-fired
equipment to natural gas should the availability and economics of coke so
dictate. Limestone required in the factory operations is generally purchased
from independent sources under contracts with one- to five-year terms. Holly
owns a 50% share of a limestone quarry in Warren, Montana which supplies the
Sidney, Montana and Worland, Wyoming factories with their annual limestone
requirements. This quarry does not normally supply other Holly factories
because of high freight costs. However, should supplies from other sources
become unavailable, the reserve capacity of this quarry is sufficient to supply
other factories.
RESEARCH
Research relating to manufacturing process technology, factory operations,
food science and new product development is conducted principally at the
Company's Research and Development Center in Colorado Springs. Separate
laboratories for microbiology, chemistry and food science have been established
with the resources of a central, computerized technical library available to
its staff. The Company also has a food science laboratory in Sugar Land.
Holly's beet seed research programs in seed varietal development and
improvements in beet quality performance are conducted primarily at Holly
Hybrids' headquarters in Sheridan, Wyoming and at Holly's Tracy, California
Agriculture Station. In conjunction with this effort, Holly is participating in
a joint venture with Societe Europeenne de Semences, N.V.- S.A., a Belgian beet
seed company, to develop improved beet seed varieties.
Holly is active in sugarbeet disease control. Holly's growing areas have
varying levels of diseases which affect sugarbeet quality and quantity as well
as the cost of processing. Holly has a sugarbeet plant pathology disease
control research laboratory in Tracy, California which develops and implements
disease control strategies for each of Holly's sugarbeet growing areas. Holly
communicates information about agricultural practices to growers through its
computerized AgTrak system and printed material, including its magazine
Sugarbeet Update, published quarterly.
COMPETITION
The Company competes with other cane sugar refiners and beet sugar processors
and, in certain product applications, with producers of other nutritive and
non-nutritive sweeteners. Selling price and the ability to supply the buyer's
quality and quantity requirements in a timely fashion are important competitive
factors. Certain competing beet sugar processors have expanded their production
significantly over the past five years. The additional sugar marketed as a
result of this expansion has acted to depress sugar market prices.
The most significant nutritive sweeteners that compete with refined sugar are
high fructose corn syrup ("HFCS"), glucose syrup and dextrose, all of which
generally sell at a discount to refined sugar. The level of per capita sucrose
consumption in the United States has been stable in recent years; the Company
believes that future increases or decreases in sucrose consumption will be
dependent upon technological improvements, changes in population, geographic
shifts in population and changes in consumer sweetener preferences. In certain
applications, refined sugar also competes with non-nutritive or low-calorie
sweeteners, principally aspartame and, to a lesser extent, saccharin.
4
The table below is based on data published by the USDA and sets forth per
capita consumption of nutritive sweeteners in the United States for the years
indicated.
ANNUAL PER CAPITA U.S. NUTRITIVE SWEETENER CONSUMPTION
1991 1992 1993 1994
----------------- ----------------- ----------------- -----------------
POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE
------ ---------- ------ ---------- ------ ---------- ------ ----------
Refined sugar........... 63.7 45% 64.5 45% 64.2 44% 64.6 43%
HFCS.................... 50.7 36 52.3 36 55.3 37 56.5 38
Other corn sweeteners... 24.7 18 25.6 18 26.3 18 26.7 18
Other................... 1.4 1 1.4 1 1.4 1 1.4 1
----- --- ----- --- ----- --- ----- ---
Total................. 140.5 100% 143.8 100% 147.2 100% 149.2 100%
SUGAR LEGISLATION AND OTHER MARKET FACTORS
The Company's business and results of operations are substantially affected
by market factors, principally the domestic prices for refined sugar and raw
cane sugar. These market factors are influenced by a variety of forces,
including the number of domestic acres contracted to grow sugar cane and
sugarbeets, weather conditions and United States farm and trade policies.
Federal government programs, in the form of legislative or regulatory action,
have existed to support the price of domestic crops of sugarbeets and sugar
cane almost continually since 1934. The principal legislation presently
affecting the domestic sugar industry is the Food, Agriculture, Conservation,
and Trade Act of 1990 (the "Act"), which became effective October 1, 1991 and
extended the sugar price support program for sugar cane and sugarbeets until
September 30, 1998. Participants in the sugar industry, however, are discussing
the preparation of a sugar section for the 1995 Farm Bill now being considered
by Congress. The Company is unable to predict (i) whether the 1995 Farm Bill
will include a sugar section, (ii) whether the sugar program under such a
section, if any, would be similar to the current sugar program or (iii) the
effects of such legislation on market prices for refined and raw sugar, the
margins received by the Company on the sugar it sells or the results of
operations of the Company.
Pursuant to the Act as currently in effect, the Commodity Credit Corporation
("CCC") is obligated annually to make loans available to domestic sugar
processors on existing sugar inventories from the current crop year production
at a stipulated price, provided the processor agrees to pay participating
growers a predetermined minimum support price for such sugar. The CCC loans are
non-recourse, secured by the processor's current crop year sugar inventories,
and mature September 30 of each year and in no event more than nine months
after the month in which the loan was made. Because the loans are non-recourse,
if the price of sugar were to drop below the minimum support price
predetermined by the USDA such that it becomes more advantageous to forfeit the
sugar than to sell it, a processor may choose to forfeit the sugar to the
Government. The minimum support price for sugar in certain sugarbeet growing
regions of the United States is currently above the net selling price of sugar
processed by the Company in those regions. The Company would incur a reduction
in margins should it choose not to forfeit when the applicable minimum support
price exceeds the net selling price. Holly and another sugarbeet processor
chose to forfeit sugar collateralizing certain CCC loans in July and August
1994.
Under the Act, the USDA utilizes two regulatory mechanisms (import quota and
marketing allotments) to affect sugar price supports and prevent forfeitures
under the CCC loan program. If the estimated domestic sugar production for any
year is so large and/or estimated domestic sugar consumption is so low that
import requirements would be less than the minimum tariff-rate quota set by the
Act as described below, the Secretary of Agriculture is required to impose
marketing allotments on refined beet sugar and raw cane sugar produced from
domestically grown sugarbeets and sugar cane as well as on crystalline fructose
so as to maintain the minimum availability of imported sugar. Marketing
allotments impose producer-by-producer limits on the amount of sugar which may
be sold during the allotment period. Since the Act became effective,
5
the USDA has imposed marketing allotments for the quarter ended September 30,
1993 and the year ending September 30, 1995, which allotments are currently in
effect. The Company cannot predict whether marketing allotments will be
extended beyond September 30, 1995. Additionally the USDA annually implements a
tariff-rate quota for foreign sugar, which has the effect of limiting the total
available supply of sugar in the United States. The tariff-rate quota controls
the supply of sugar by setting a punitive tariff on all sugar imported for
domestic consumption that exceeds the determined permitted imported quantity
and is designed to make the importation of the excess sugar uneconomical. To
the extent the Company 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 Act sets the minimum tariff-rate quota at 1,250,000 short tons
raw value ("STRV") annually. The tariff-rate quota for sugar to be allowed
entry into the United States during the year ending September 30, 1995 is
1,445,000 STRV.
Beginning in October 1991, federal legislation imposed a marketing assessment
fee, currently 19.8 cents per hundred pounds of raw cane sugar and 21.23 cents
per hundred pounds of refined beet sugar, that is paid to the CCC by the
processor. This fee is applicable to all refined beet sugar produced from
domestically grown sugarbeets and all raw sugar produced from domestically
grown sugar cane.
The North American Free Trade Agreement contains provisions that allow Mexico
(which is currently a net importer of sugar) to increase its sugar exports to
the United States if Mexico is projected to produce a surplus of caloric
sweeteners (sugar, fructose and/or corn sweeteners). After the year 2000,
Mexico's ability to export to the United States would be further increased in
the event Mexico produced a caloric sweetener surplus for two consecutive
years. Based on Mexico's current rate of population growth, the high current
production cost of sugar in Mexico and the absence of a corn sweetener industry
in Mexico, the Company believes that Mexico will not become a surplus producer
of caloric sweeteners in the near future.
EMPLOYEES
As of March 31, 1995, the Company employed approximately 1,500 year-round
employees. In fiscal 1995, the Company employed approximately 1,700 seasonal
employees during the sugarbeet processing seasons.
The Company's cane refinery and distribution employees are represented by the
International Association of Machinists and Aerospace Workers, AFL-CIO under a
three-year contract which expires October 5, 1997. The Company's beet sugar
factory operating personnel are represented by the Distillery, Wine and Allied
Workers International Union, AFL-CIO at the California factories and by the
American Federation of Grain Millers International Union, AFL-CIO at the
Montana, Wyoming and Texas factories under contracts which expire March 1, 1998
and April 30, 1996, respectively. The Company believes its employee and union
relationships are good.
ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive regulation by various
federal, state and local environmental agencies. Regulations and statutes
impose effluent and emission limitations, waste disposal and other requirements
upon the Company's operations requiring it to obtain permits and operate in
compliance with permit limitations and the mandates of various governmental
authorities. The Company has obtained, has applications pending or is making
application for such permits and authorizations. The Company is dedicated to
its role as a responsible corporate citizen relative to environmental matters
and addresses such matters in a practical manner under planned and prioritized
schedules.
All of the Company's facilities perform environmental monitoring of both air
and water quality as mandated by regulatory agencies. Additional testing
requirements and more stringent permit limits recently imposed, along with
increasing permit evaluation and emissions fees, have resulted in increased
environmental control costs. The Company expects the costs of environmental
compliance to continue to increase.
Solid wastes from Imperial's Sugar Land refinery are disposed of in approved
landfills. Liquid wastes are treated in the Sugar Land Regional Sewage System,
while cooling water is discharged under a discharge
6
permit. More restrictive discharge limits adopted with respect to barometric
condenser cooling water will require capital expenditures to achieve long-term
compliance. Air emissions from the refinery consist of combustion products of
natural gas used in boilers in the generation of steam and the cogeneration of
electricity. Holly has installed scrubbers at several of its beet sugar
factories as part of its coal conversion program. The Tracy, California factory
continues a wastewater odor control and aeration system and has increased its
dust suppression techniques. The Torrington, Wyoming factory is in the process
of making significant changes in the handling of solid waste in order to meet
the requirements of new state solid waste regulations and state groundwater
regulations. Such equipment necessarily increases energy consumption and adds
to unit manufacturing costs.
The Clean Air Act Amendments of 1990 ("CAAA") are expected to require
substantial capital expenditures and increased operating expenses over the next
ten years (revisions in State Implementation Plans required by the CAAA may
require additional emissions controls in some areas of the country).
Regulations implementing these amendments are now being written and will be
issued over the next several years. By 1996, Holly's factories and Imperial's
refinery must obtain CAAA Title V permits, which will require additional air
monitoring and reporting, and an increase in permitting fees is expected. For
example, recent changes in California could require the retrofitting of
nitrogen oxide controls to the Tracy plant boilers by 1996. The Company will
not be able to estimate compliance costs until the new regulations are issued
and permit negotiations are completed.
Ongoing compliance with environmental statutes and regulations has not had,
and the Company does not anticipate that it will in the future have, a material
adverse effect on the Company's competitive position since its competitors are
subject to similar regulation. Additional capital expenditures will be required
to comply with future environmental protection standards, although the amount
of any further expenditures cannot be accurately estimated. Management does not
believe that compliance costs will have a materially adverse impact on capital
resources.
ITEM 2. PROPERTIES.
Imperial's refinery in Sugar Land is located on 26 acres owned by the Company
and consists of numerous buildings with approximately 600,000 square feet of
factory space. The refinery operates 24 hours a day when sugar is being
refined. The refinery has an estimated melting capacity in excess of 4,000,000
pounds of raw sugar per day. The refinery is served by adequate transportation
and maintained in good operating condition.
The following table shows the location and capacity of Holly's beet sugar
production facilities, each of which is served by adequate transportation and
is maintained in good operating condition. Each of the facilities operates
continuously during the facility's sugar-making campaign, which generally total
120 to 180 days each year, depending upon the supply of sugarbeets available.
APPROXIMATE DAILY
SLICING CAPACITY
BEET SUGAR FACTORIES (TONS OF SUGARBEETS)
-------------------- --------------------
Brawley, California.................................. 8,000
Hamilton City, California............................ 4,000
Tracy, California.................................... 5,000
Sidney, Montana...................................... 5,400
Hereford, Texas...................................... 7,700
Torrington, Wyoming.................................. 5,400
Worland, Wyoming..................................... 3,600
------
Total.............................................. 39,100
======
Holly operates an ion exclusion facility at its Hereford, Texas factory which
increases the factory's refined sugar production capacity without an increase
in beet slicing capacity by extracting sugar from
7
molasses, a by-product of the beet sugar production process. This molasses
desugarization process results in the utilization of a portion of the beet
sugar factory for periods of time when the factory would otherwise be idle.
In April 1995, Holly entered into a venture with the sugarbeet growers'
associations representing the sugarbeet growers supplying Holly's Rocky
Mountain factories. Through this venture, the refined sugar storage capacity
available at Holly's Sidney factory will be significantly increased by the
construction of additional silos during 1995. The additional silos, to be built
on land leased by Holly to the venture, will be owned by the venture and leased
to Holly.
The Company's principal executive offices occupy approximately 62,000 square
feet of office space in an office complex owned by the Company near the Sugar
Land refinery. The Company leases other space in the complex to third parties.
The office complex is located on nine acres owned by the Company. Holly leases
approximately 25,900 square feet of office space for its principal
administrative offices in the Holly Sugar Building in Colorado Springs,
Colorado. Holly also leases a 9,000 square foot single story building in the
Pikes Peak Research Park in Colorado Springs which is the headquarters of the
Company's Research and Development Center. Each of the leases in Colorado
Springs expires in 2005.
Imperial's wharf and warehouse facilities in Galveston are located on
property leased from the Port of Galveston under a lease which expires in 2013.
The Company owns the raw sugar discharging equipment located at this facility.
During the fiscal year ended March 31, 1995, the Company sold distribution
stations in Arlington, Texas, and Brookfield, Illinois (see note 3 to
Consolidated Financial Statements) and entered into operating agreements with
the purchaser to provide services similar to those the Company performed when
it owned the facilities. The Company operates a forward packaging and
distribution center in Betteravia, California.
The Company owns approximately 250 acres of land near its refinery and
approximately 8,050 acres of land at the various beet sugar factory sites. Most
of this acreage is used for the factories, settling ponds and as buffers from
nearby communities. The remainder of the land is leased as farmland and
pastures. Holly also owns approximately 100 acres of land, an agricultural
research facility and a sugarbeet seed processing facility at Sheridan,
Wyoming. Holly owns a 50% interest in The Bighorn Limestone Company, the owner
of a limestone quarry in Warren, Montana.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation and claims which are normal in the
course of its operations; while the results of such litigation and claims
cannot be predicted with certainty, the Company believes the final outcome of
such matters will not have a materially adverse effect on its results of
operations or consolidated financial position.
In 1992, the U. S. Customs Service ("Customs") notified the Company that
Customs had audited customs drawback claims filed by the Company in 1985 and
that Customs would require the Company to repay to Customs certain duties and
fees previously refunded to the Company. In April 1992, the Company refunded
$2.5 million to Customs under protest, a condition precedent to the
commencement of an appeal of the audit decision and recorded such amount in
other assets. In April 1995, the Company received $2.7 million in settlement of
this claim.
In March 1995, the Anti-dumping and Countervailing Division of Revenue Canada
initiated an investigation concerning the alleged dumping into Canada of
refined sugar originating in or exported from the United States and other
countries. The Company, along with most other sugar processors in the United
States, was served by Revenue Canada with a request identifying the Company as
a potential exporter of refined sugar into Canada. Pursuant to the request,
Revenue Canada requested that the Company prepare
8
documentation responding to Revenue Canada's dumping investigation and required
the Company to prepare documentation responding to Revenue Canada's allegations
of injurious subsidizing of refined sugar by U.S. governmental entities. The
Company has provided the requested documentation to Revenue Canada and intends
to continue to cooperate with Revenue Canada's investigation. The Company's
records do not indicate any sales into Canada during the period of
investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of the Company are elected annually to serve for the
ensuing year or until their successors have been elected. The following table
sets forth certain information with respect to the executive officers of the
Company:
NAME AGE* POSITIONS
---- ---- ---------
I. H. Kempner, III................ 62 Chairman of the Board of Directors
James C. Kempner.................. 55 President, Chief Executive Officer
and Chief Financial Officer
Roger W. Hill..................... 55 Executive Vice President; President
and Chief Executive Officer of Holly
Executive Vice President--Sales and
Harry J. Smith.................... 46 Marketing
Peter C. Carrothers............... 56 Senior Vice President--Operations
Senior Vice President, Secretary and
William F. Schwer................. 47 General Counsel
Woodrow J. Anderson............... 51 Vice President--Engineering Services
Brian T. Harrison................. 39 Vice President--Refinery Operations
Roy E. Henderson.................. 56 Vice President--Administration
William M. Krocak................. 52 Vice President--Human Resources
K. D. Lam......................... 47 Vice President--Corporate Improvement
Programs
Otto W. Meyers, III............... 35 Vice President--Corporate Finance
Roy F. Silva...................... 55 Vice President--Product Development
H. P. Mechler..................... 41 Controller
Karen L. Mercer................... 33 Treasurer
- --------
* As of June 1, 1995.
Except as set forth below, executive officers have held their present offices
for at least the past five years. Positions, unless specified otherwise, are
with the Company.
Mr. I. H. Kempner, III has been Chairman of the Board of Directors since
March 1971. He became Chairman of the Executive Committee of the Board of
Directors in April 1978. Mr. Kempner joined the Company in May 1964 and served
in various executive capacities prior to his election as Chairman of the Board
in 1971.
Mr. James C. Kempner became President and Chief Executive Officer on October
1, 1993 and has been Chief Financial Officer from March 1988. Mr. Kempner
became President and Chief Executive Officer of Imperial on May 1, 1994. Mr.
Kempner served as Executive Vice President from March 1988 to October 1993.
Mr. Hill has been Executive Vice President since June 1988 and President and
Chief Executive Officer of Holly since February 1988. Mr. Hill joined Holly in
1963 and served in various capacities, including Vice President--Agriculture
and Executive Vice President.
9
Mr. Smith joined the Company in June 1993 as Executive Vice President--Sales
and Marketing. From 1991 to 1993, he was Vice President of U. S. Consumer Sales
for Dole Packaged Foods Company, a fruit, juice and frozen foods processing
business. From 1990 to 1991, he served as Vice President, Sales and Marketing
of The Redwing Company, a private label food manufacturer and a division of R.
H. M. Ltd.
Mr. Carrothers became Senior Vice President--Operations in March 1995 after
joining the Company as Senior Vice President--Logistics in May 1994. From 1990
until joining the Company, he was Vice President--Logistics of PepsiCo Foods
International and had served in various other capacities with Frito Lay, Inc.,
a subsidiary of PepsiCo, since 1973.
Mr. Schwer was named Senior Vice President, Secretary and General Counsel of
the Company in October 1993 and had been Vice President, Secretary and General
Counsel since June 1989. He joined Holly as Assistant General Counsel in August
1988.
Mr. Anderson has been Vice President--Engineering Services since July 1990.
He joined Holly in November 1988 as Director of Engineering and Chief Engineer.
Mr. Harrison has been Vice President--Refinery Operations since July 1993 and
has been Senior Vice President--Refinery Operations of Imperial since April
1994. He was Refinery Manager of Imperial from January 1991 to May 1992 and has
served in various other capacities since he joined the Company in April 1980.
Mr. Henderson has been Vice President--Administration since November 1994.
From December 1981 until November 1994, he was Vice President and Treasurer,
and he has been an employee of the Company since May 1967.
Mr. Krocak has been Vice President--Human Resources since June 1989. From
January 1985 to June 1989, he was Director of Human Resources.
Ms. Lam has been Vice President--Corporate Improvement Programs since May
1992. Prior to that, she was President of ExcelNet, a management consulting
firm, and Director of Strategic Planning for the Defense Systems division of
Northrop Corporation.
Mr. Meyers became Vice President--Corporate Finance in October 1993. Mr.
Meyers joined the Company in March 1990 and served as Manager, Financial
Analysis from March 1990 to March 1992 and as Manager, Corporate Development
from April 1992 to October 1993.
Mr. Silva has been Vice President--Product Development of the Company since
October 1992. Prior thereto, he served as Vice President of U. S. Food
Operations for Nattermann Phospholipid, Inc., a German subsidiary of Rhone-
Poulenc Rorer, from 1989 to 1992 and as the Director of Technical Development
and Marketing from 1988 to 1989.
Mr. Mechler has been Controller since June 1988.
Ms. Mercer became Treasurer in December 1994 and has been an employee of the
Company since September 1993. Prior to joining the Company she was employed by
First City, Texas--Houston, National Association from January 1988 to February
1993 and Texas Commerce Bank National Association from February 1993 to
September 1993. The last position she held at Texas Commerce Bank was Vice
President--Commercial Lending.
Mr. I. H. Kempner, III and Mr. James C. Kempner are brothers.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is traded on the American Stock Exchange. At June
1, 1995 there were 862 shareholders of record of the Common Stock. The
following table sets forth the high and low sales price per share of Common
Stock, as quoted by the American Stock Exchange, and cash dividends declared
during the last eight fiscal quarters.
SALES PRICE
------------- CASH
THREE MONTHS ENDED HIGH LOW DIVIDEND
------------------ ------ ------ --------
June 30, 1993...................................... $16.50 $12.88 $0.12
September 30, 1993................................. 15.25 11.25 0.12
December 31, 1993.................................. 11.38 8.38 0.04
March 31, 1994..................................... 11.75 8.88 0.04
June 30, 1994...................................... 9.38 7.38 0.04
September 30, 1994................................. 9.50 8.25 0.04
December 31, 1994.................................. 9.00 8.12 0.04
March 31, 1995..................................... 10.25 8.38 0.04
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the last five years is as follows (in thousands
of dollars):
YEAR ENDED MARCH 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
FOR THE PERIOD:
- ---------------
Net Sales.................... $586,925 $655,498 $647,825 $688,597 $716,513
Operating Income (Loss)...... (2,091) (4,566) 7,139 2,980 39,987
Income (Loss) Before
Extraordinary Item and
Accounting Change........... (5,365) (7,965) 123 (2,815) 21,863
Extraordinary Item (1)....... -- -- (3,509) -- --
Cumulative Effect of
Accounting Change (2)....... -- -- -- -- (899)
Net Income (Loss)............ (5,365) (7,965) (3,386) (2,815) 20,964
PER SHARE DATA:
- ---------------
Income (Loss) Before
Extraordinary Item and
Accounting Change........... $ (0.52) $ (0.78) $ 0.01 $ (0.28) $ 2.16
Extraordinary Item (1)....... -- -- (0.34) -- --
Cumulative Effect of
Accounting Change (2)....... -- -- -- -- (.09)
Net Income (Loss)............ (0.52) (0.78) (0.33) (0.28) 2.07
Cash Dividends Declared...... .16 .32 .36 .48 .42
AT PERIOD END:
- --------------
Total Assets................. $374,124 $393,660 $398,202 $364,121 $363,734
Long-Term Debt--Net.......... 100,010 100,044 108,181 64,635 75,409
Total Shareholders' Equity... 109,977 114,737 122,462 129,261 136,693
- --------
(1) See Note 5 to the Consolidated Financial Statements.
(2) In fiscal 1991, the Company changed its method of accounting for the cost
of certain deferred compensation contracts to conform to Statement of
Financial Accounting Standards No. 106.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations in fiscal 1995 was $22.2 million and includes
decreases in inventory and accounts receivable resulting from lower sugar
sales. Operating cash flow was used primarily to reduce bank borrowings and
fund capital expenditures. Working capital totaled $87.2 million at March 31,
1995 and includes marketable securities which are recorded at a market value of
$35.1 million, as discussed in Note 2 to the Consolidated Financial Statements.
The Company's current ratio was 1.6:1.0 at March 31, 1995. Working capital
financing is provided by a combination of trade credit and borrowings.
Management believes that existing internal and external sources of liquidity
are adequate to meet financing needs. Short-term financing is available to the
Company's beet sugar operations in the form of nonrecourse, secured borrowings
from the CCC under the USDA price support program. Net selling prices of sugar
during parts of fiscal 1995 were below collateral rates on some CCC loans. The
Company chose to forfeit sugar in full satisfaction of a CCC loan which matured
August 31, 1994 in the amount of $652,000. The Company has available a
combination of committed and uncommitted bank lines aggregating $115 million as
described in Note 4 to the Consolidated Financial Statements. The Company uses
these arrangements to supplement trade credit and CCC borrowings as necessary
to meet working capital needs.
Capital expenditures for fiscal 1995 totaled $7.8 million, a significant
reduction from prior years when the Company was focusing on expanding and
balancing capacities and improving the operating efficiency of the beet sugar
factories. Capital expenditures for fiscal 1996 are expected to approximate
$8.0 million. The Company from time to time explores opportunities to re-deploy
strategically non-core assets to provide for higher returns. In fiscal 1995,
the Company sold assets, including two distribution facilities as well as a
number of pieces of transportation equipment, with an aggregate sales price of
$8.4 million (including notes receivable of $2.5 million). In April 1995, the
Company entered into a venture with the sugarbeet growers associations
representing the growers supplying Holly's Rocky Mountain factories to jointly
build additional bulk refined sugar storage silos at Holly's Sidney, Montana
factory. The additional silos will be owned by the venture and construction
will be financed largely by non-recourse term bank debt.
Long-term debt at March 31, 1995 was approximately 48% of total long-term
debt plus shareholders' equity, consisting almost exclusively of $100 million
principal amount of 8 3/8% senior notes due 1999. Shareholders' equity was
$110.0 million at March 31, 1995, approximately 29% of total assets.
RESULTS OF OPERATIONS
Industry Environment
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar and raw cane sugar. These
market factors are influenced by a variety of external forces, including the
number of domestic acres contracted to grow sugar cane and sugarbeets, weather
conditions and United States farm and trade policy, that the Company is unable
to predict. Certain segments of the beet sugar industry have expanded sugarbeet
acreage at rates exceeding the rate of growth in the demand for refined sugar,
which along with large crop yields, has put downward pressure on refined sugar
prices. See "Business--Competition".
Since October 1, 1994, the domestic sugar industry has been operating under
marketing allotments imposed by the USDA, which are scheduled to expire
September 30, 1995. The Company's current allotment has not had, and management
does not expect that it will have, a significant restrictive effect on the
Company's marketing plans. The Company is unable to predict if marketing
allotments will be extended beyond September 30, 1995 or, if extended, what the
allotment level for the total market or the Company's share thereof would be,
nor the effect of any such extension on raw and refined sugar prices, margins
and the
12
Company's results of operations. See "Business--Sugar Legislation and Other
Market Factors". In addition, weather conditions during the growing, harvesting
and processing seasons, the availability of acreage to contract for sugarbeets,
as well as the effects of diseases and insects, may materially affect the
quality and quantity of sugar beets available for purchase as well as the unit
costs of raw materials and processing. See "Business--Raw Materials and
Processing Requirements".
Year Ended March 31, 1995 versus 1994
Net sales declined $68.6 million or 10.5% in fiscal 1995, primarily due to a
10% reduction in the volume of refined sugar sold. Cane sugar sales volumes
were reduced significantly in response to continued reductions in favorable
sales opportunities in the face of a continuation of weak prices and rising raw
cane sugar costs. Lower beet sugar sales volumes were principally the result of
lower fiscal 1995 production owing to the closure of the Betteravia, California
factory in August 1993. Average sugar sales prices increased less than .2% on a
year-to-year basis. Reduced byproduct sales volumes as a result of the
Betteravia closure also contributed to the lower fiscal 1995 net sales.
Cost of sales decreased $66.0 million or 11.0% in fiscal 1995, as the sales
volume decreases were coupled with reductions in unit manufacturing costs.
Costs per unit of refined sugar sold declined 1.3% as operating efficiencies at
both the beet factories and the cane refinery as well as elimination of the
high cost Betteravia production overcame a 1.5% increase in the cost of raw
cane sugar. The Company purchases sugarbeets under participatory contracts
which provide for a percentage sharing of the net selling price realized on
refined beet sugar sales between the Company and the grower. Use of this type
of contract reduces the Company's exposure to inventory price risks on
sugarbeet purchases so long as the contract net selling price does not fall
below the regional minimum support prices established by the USDA. Depressed
refined sugar selling prices have resulted in net selling prices falling below
such minimum support levels in some contract areas. Consequently, the low
selling price of refined beet sugar has only partially been offset by reduced
cost of sugarbeets purchased.
The heavy rains experienced in Northern California during the first four
months of calendar 1995 caused a reduction in the sugarbeet acreage available
for harvest this fall. Although this decline in volume is expected to be
largely offset by expanded acreage in Southern California, it may result in
increased unit production costs in Northern California. Additionally, Holly
experienced a decline in sugarbeet acreage at its Hereford, Texas factory which
reduced throughput and increased unit costs. Acreage contracted to grow
sugarbeets in Hereford is expected to be further reduced in fiscal 1996. The
Company has deferred recognition of the margins on certain export refined sugar
sales until receipt of the equivalent world market raw sugar imports (scheduled
for March and April 1996) which are under firm forward purchase contracts. Such
deferred margins total approximately $.9 million at March 31, 1995.
Selling, general and administrative expenses declined $4.1 million from the
year earlier level. Selling and distribution costs declined approximately $1.5
million, primarily due to sales volume reductions; general and administrative
costs, combined with research and development costs were $2.6 million lower in
fiscal 1995 largely as a result of a full year effect of the cost reduction
program implemented in the third quarter of fiscal 1994.
Interest expense increased $520,000 as higher interest rates more than offset
lower average balances of both long and short-term debt. See Notes 4 and 5 to
the Consolidated Financial Statements for a description of the Company's
borrowings.
Realized gains on marketable securities increased $184,000 during fiscal
1995; unrealized gains and losses, which have not been recognized in the
Company's results of operations, but are shown, net of tax, as a component of
shareholders' equity, are detailed in Note 2 to the Consolidated Financial
Statements. Other income--net increased $489,000 due primarily to gains on
sales of assets.
The components of income tax expense and its relationship to statutory rates
are detailed in Note 6 to the Consolidated Financial Statements.
13
Year Ended March 31, 1994 versus 1993
Net sales for fiscal 1994 increased $7.7 million or 1.2% compared to fiscal
1993, as a result of an increase in sugar sales revenues of less than 1% and an
11% increase in pulp sales revenues and volumes. The volume of sugar sold
increased approximately 4% while average sales prices declined 3.1%. Beet sugar
sales volumes in the first half of fiscal 1993 had been reduced because of
lower beginning inventory balances resulting from the substantial reduction in
production volumes in the Rocky Mountain and Texas factories in the last half
of fiscal 1992. Cane sugar sales increased modestly during the period of
marketing allotments. Refined sugar prices remained weak during the fiscal year
as a result of an oversupply of refined sugar in the market. Spot prices did
rise modestly during the second and third fiscal quarters as a result of
marketing allotments imposed by the USDA in July 1993. Marketing allotments
were allowed to lapse in October 1993, and average sales prices declined to
below year earlier levels in the fourth fiscal quarter.
Cost of sales increased $22.4 million or 3.9%, due primarily to the increased
volumes of sugar and pulp sales. Unit cost of sugar sold declined less than
.5%, in spite of the 3.1% decline in selling prices, resulting in the Company's
overall gross margin declining from 11.1% of sales in fiscal 1993 to 8.7% of
sales in fiscal 1994. Raw cane sugar costs increased .8% on a year to year
basis in the face of declining selling prices, contributing approximately half
of the reduction in gross margin. Unit costs of refined beet sugar declined
only .5% as higher unit manufacturing costs resulting from a smaller, lower
quality crop (when compared to the exceptional crop in fiscal 1993), as well as
muddy harvest conditions and an early freeze in some growing areas, offset
lower sugarbeet costs.
The Company implemented a cost reduction program in the third quarter of
fiscal 1994, and recorded a $925,000 charge for the cost of a work force
reduction which was a part of that program. At March 31, 1994, the Company had
reduced its non-bargaining unit work force by approximately 11%, primarily in
administrative and research areas, and its year-round bargaining unit positions
by approximately 15%, when compared to March 31, 1993. Selling, general and
administrative expenses for fiscal 1994 declined $.7 million or 1.1%, as a 7.7%
decrease in general and administrative and research and development costs more
than offset a volume driven 3.3% increase in selling and distribution costs.
Interest expense for fiscal 1994 was approximately the same as in fiscal
1993, as higher balances of both short and long term borrowings were offset by
lower interest rates. See Notes 4 and 5 to the Consolidated Financial
Statements for a description of the Company's borrowings.
Realized gains on marketable securities increased $567,000 during fiscal
1994; unrealized gains and losses, which have not been recognized in the
Company's results of operations, but are shown as a component of shareholders'
equity, are detailed in Note 2 to the Consolidated Financial Statements. Other
income--net, decreased $229,000 primarily as a result of a recovery on the
settlement of certain litigation in the prior fiscal year.
The components of income tax expense and its relationship to statutory rates
are detailed in Note 6 to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index of financial statements and financial statement schedules under
"Exhibits, Financial Statement Schedules and Reports on Form 8-K."
14
Unaudited quarterly financial data for the last two fiscal years is as
follows (in thousands of dollars):
PER SHARE
-----------------
NET NET
GROSS INCOME INCOME CASH
NET SALES MARGIN (LOSS) (LOSS) DIVIDENDS
--------- ------- ------ ------ ---------
Fiscal 1994:
June 30, 1993..................... $168,079 $17,657 $ (365) $(0.04) $0.12
September 30, 1993(1)............. 164,808 12,156 (5,270) (0.52) 0.12
December 31, 1993................. 176,070 16,459 681 0.07 0.04
March 31, 1994.................... 146,541 10,786 (3,011) (0.29) 0.04
Fiscal 1995:
June 30, 1994..................... $149,324 $14,592 $ 996 $ 0.10 $0.04
September 30, 1994................ 162,072 13,752 (1,140) (0.11) 0.04
December 31, 1994................. 147,776 16,909 107 0.01 0.04
March 31, 1995.................... 127,753 9,249 (5,328) (0.52) 0.04
- --------
(1) Results of operations for the second quarter of fiscal 1994 include a pre-
tax charge of $925,000 related to the cost of a work force reduction as
discussed in Note 10 to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Election of Directors--
Nominees", "--Continuing Directors" and "--Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Company's definitive Proxy Statement
for its 1995 Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Proxy Statement"), is incorporated
herein by reference. See also "Executive Officers of the Registrant" included
in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Election of Directors--Director
Remuneration", "--Executive Compensation" and "--Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Election of Directors--Security
Ownership" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Election of Directors--
Compensation Committee Interlocks and Insider Participation" and "--Other
Information" in the Proxy Statement is incorporated herein by reference.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
ITEM PAGE
---- ----
Independent Auditors' Report........................................... F-1
Consolidated Balance Sheets at March 31, 1995 and 1994................. F-2
Consolidated Statements of Income for the years ended March 31, 1995,
1994 and 1993......................................................... F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1995, 1994 and 1993............................. F-4
Consolidated Statements of Cash Flows for the years ended March 31,
1995, 1994 and 1993................................................... 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 Commission have been omitted because they are not
required under the relevant instructions or are inapplicable.
(a)(3) Exhibits.
Asterisk indicates exhibit previously filed with the Commission and
incorporated herein by reference as indicated.
*3(a) --Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Registration Statement
on Form S-4 (Registration No. 33-20959)).
*3(b) --Articles of Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990
(File No. 1-10307)).
*3(c) --Statement of Resolution establishing Series of Shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form
10-K for the year ended March 31, 1990 (File No. 1-10307) (the
"1990 Form 10-K")).
*3(d) --Statement of Resolution increasing number of shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990 (File No. 1-10307)).
*3(e)(1) --Rights Agreement dated as of September 14, 1989 between the
Company and The Bank of New York, as Rights Agent (incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K
dated September 21, 1989 (File No. 1-10307)).
*3(e)(2) --Amendment to Rights Agreement dated as of January 27, 1995
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated January 27, 1995 (File No. 1-10307)).
*3(f) --By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1989 (File No. 0-16674) (the "1989 Form 10-K")).
17
*4(a)(1) --Credit Agreement dated as of June 10, 1993 among the Company,
the signatory banks thereto and Harris Trust and Savings Bank, as
Agent (incorporated by reference to Exhibit 4(b) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1993
(File No. 1-10307) (the "1993 Form 10-K")).
*4(a)(2) --First Amendment to Credit Agreement dated December 1, 1993
(incorporated by reference to Exhibit 4(a)(2) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1994
(File No. 1-10307) (the "1994 Form 10-K")).
*4(a)(3) --Second Amendment to Credit Agreement and First Amendment to
Notes dated March 4, 1994 (incorporated by reference to Exhibit
4(a)(3) to the 1994 Form 10-K).
*4(a)(4) --Third Amendment to Credit Agreement dated July 13, 1994
(incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
(File No. 1-10307)).
4(a)(5) --Fourth Amendment to Credit Agreement dated April 28, 1995.
*4(b) --Indenture dated as of October 15, 1992 by and between the
Company and Texas Commerce Bank National Association, as Trustee,
relating to the Company's 8 3/8% Senior Notes due 1999
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (File 1-10307)).
The Company is a party to several debt instruments under which
the total amount of securities authorized does not exceed 10% of
the total assets of the Company and its subsidiaries on a
consolidated basis. Pursuant to paragraph 4(iii)(A) of Item
601(b) of Regulation S-K, the Company agrees to furnish a copy of
such instruments to the Commission upon request.
Exhibits 10(a) through 10(i) relate to management contracts or
compensatory plans.
*10(a) --Imperial Holly Corporation Stock Incentive Plan (as amended and
restated effective April 29, 1993) (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 (File No. 1-10307)).
*10(b) --Specimen of the Company's Employment Agreement for certain of
its officers (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990 (File No. 1-10307)(the "September 1990 Form
10-Q")).
*10(b)(2) --Specimen of the Company's Amendment to Employment Agreement for
certain of its officers (incorporated by reference to Exhibit
10(c)(2) to the 1994 Form 10-K).
*10(b)(3) --Schedule of Employment Agreements (incorporated by referenced to
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994 (File No. 1-10307) (the
"September 1994 Form 10-Q")).
*10(c) --Specimen of the Company's Severance Pay Agreements for certain
of its officers (incorporated by reference to Exhibit 10.2 to the
September 1990 Form 10-Q).
*10(d)(1) --Imperial Holly Corporation Salary Continuation Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(b)(1) to the September 1994 Form 10-Q).
*10(d)(2) --Specimen of the Company's Salary Continuation Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(b)(2) to the
September 1994 Form 10-Q).
*10(d)(3) --Specimen of the Company's Salary Continuation Agreement,
(Graduated Vesting) (incorporated by reference to Exhibit
10(b)(3) to the September 1994 Form 10-Q).
10(d)(4) --Schedule of Salary Continuation Agreements.
*10(e)(1) --Imperial Holly Corporation Benefit Restoration Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(c)(1) to the September 1994 Form 10-Q).
*10(e)(2) --Specimen of the Company's Benefit Restoration Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(c)(2) to the
September 1994 Form 10-Q).
18
*10(e)(3) --Specimen of the Company's Benefit Restoration Agreement
(Graduated Vesting) (incorporated by reference to Exhibit 10(c)(3)
to the September 1994 Form 10-Q).
10(e)(4) --Schedule of Benefit Restoration Agreements.
*10(f)(1) --Imperial Holly Corporation Executive Benefits Trust (incorporated
by reference to Exhibit 10.5 to the September 1990 Form 10-Q).
*10(f)(2) --First Amendment to the Company's Executive Benefits Trust dated
June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the
1994 Form 10-K).
*10(g) --Imperial Holly Corporation 1989 Nonemployee Director Stock Option
Plan (incorporated by reference to Exhibit A to the Company's
Proxy Statement dated June 16, 1989 for the 1989 Annual Meeting of
Shareholders, File No. 0-16674).
*10(h) --Imperial Holly Corporation Retirement Plan For Nonemployee
Directors (incorporated by reference to Exhibit 10(j) to the 1994
Form 10-K).
*10(i)(1) --Specimen of the Company's Change of Control Agreement
(incorporated by reference to Exhibit 10(d)(1) to the September
1994 Form 10-Q).
10(i)(2) --Schedule of Change of Control Agreements.
*10(j) --Agreement of Limited Partnership of ChartCo Terminal, L.P.
(incorporated by reference to Exhibit 10(j) to the 1990
Form 10-K).
11 --Computation of Income Per Common Share.
*21 --Subsidiaries of the Company (incorporation by reference to
Exhibit 21 to the 1994 Form 10-K).
23 --Independent Auditors' Consent.
27 --Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated January 27, 1995 in
connection with the amendment of the Rights Agreement between the Company and
the Bank of New York, as Rights Agent.
19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JUNE 12, 1995.
IMPERIAL HOLLY CORPORATION
/s/ James C. Kempner
By: _________________________________
James C. Kempner
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON JUNE 12, 1995.
SIGNATURE CAPACITY
--------- --------
/s/ James C. Kempner President, Chief Executive Officer, Chief
____________________________________ Financial Officer and Director (Principal
James C. Kempner Executive Officer and Principal Financial
Officer)
/s/ H. P. Mechler Controller (Principal Accounting Officer)
____________________________________
H. P. Mechler
/s/ I. H. Kempner, III Chairman of the Board of Directors
____________________________________
I. H. Kempner, III
/s/ Robert C. Hanna Vice Chairman of the Board of Directors
____________________________________
Robert C. Hanna
/s/ A. M. Bartolo Director
____________________________________
A. M. Bartolo
/s/ John D. Curtin, Jr. Director
____________________________________
John D. Curtin, Jr.
/s/ Edward O. Gaylord Director
____________________________________
Edward O. Gaylord
20
SIGNATURE CAPACITY
--------- --------
/s/ Ann O. Hamilton Director
____________________________________
Ann O. Hamilton
/s/ Roger W. Hill Director
____________________________________
Roger W. Hill
/s/ Harris L. Kempner, Jr. Director
____________________________________
Harris L. Kempner, Jr.
/s/ Henry E. Lentz Director
____________________________________
Henry E. Lentz
/s/ Robert L. K. Lynch Director
____________________________________
Robert L. K. Lynch
/s/ Fayez Sarofim Director
____________________________________
Fayez Sarofim
/s/ Daniel K. Thorne Director
____________________________________
Daniel K. Thorne
21
INDEPENDENT AUDITORS' REPORT
Imperial Holly Corporation:
We have audited the accompanying consolidated financial statements of
Imperial Holly Corporation and subsidiaries (the "Company"), listed in Item
14(a)(1). 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Imperial Holly Corporation and
subsidiaries at March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities to conform with Statement of Financial Accounting Standards No. 115
in 1994.
Deloitte & Touche LLP
Houston, Texas
June 9, 1995
F-1
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
------------------
1995 1994
ASSETS -------- --------
(IN THOUSANDS OF
DOLLARS)
CURRENT ASSETS:
Cash and temporary investments........................... $ 1,686 $ 555
Marketable securities (Note 2)........................... 35,079 28,334
Accounts receivable--trade............................... 37,109 38,868
Income tax receivable.................................... 1,125 4,988
Inventories:
Finished products (Note 4)............................. 100,540 110,671
Raw and in-process materials........................... 22,633 22,370
Supplies............................................... 11,990 11,688
Manufacturing costs prior to production (Note 1)......... 11,969 13,573
Prepaid expenses......................................... 4,394 4,604
-------- --------
Total current assets................................. 226,525 235,651
NOTES RECEIVABLE (Note 3).................................. 2,445 --
OTHER INVESTMENTS (Note 2)................................. 6,450 6,553
PROPERTY, PLANT AND EQUIPMENT--Net (Note 3)................ 128,952 141,234
OTHER ASSETS............................................... 9,752 10,222
-------- --------
TOTAL................................................ $374,124 $393,660
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade.................................. $ 44,756 $ 43,767
Short-term borrowings (Note 4)........................... 61,092 77,438
Current maturities of long-term debt (Note 5)............ 51 84
Deferred income taxes (Note 6)........................... 7,930 9,957
Other current liabilities................................ 25,491 20,361
-------- --------
Total current liabilities............................ 139,320 151,607
-------- --------
LONG-TERM DEBT--net of current maturities (Note 5)......... 100,010 100,044
DEFERRED INCOME TAXES (Note 6)............................. 21,323 21,605
DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS............... 3,494 5,667
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Notes 4, 7 and 8):
Preferred stock, without par value, issuable in series;
5,000,000 shares authorized, none issued................
Common stock, without par value; 50,000,000 shares
authorized, 10,283,445 and 10,252,959 shares issued at
March 31, 1995 and 1994, respectively................... 32,046 31,780
Retained earnings........................................ 72,854 79,862
Unrealized securities gains--net of income taxes (Note
2)...................................................... 5,635 3,804
Pension liability adjustment (Note 7).................... (558) (709)
-------- --------
Total shareholders' equity............................. 109,977 114,737
-------- --------
TOTAL................................................ $374,124 $393,660
======== ========
See notes to consolidated financial statements.
F-2
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED MARCH 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
NET SALES.................................. $ 586,925 $ 655,498 $ 647,825
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales............................ 532,423 598,440 576,025
Selling, general and administrative...... 56,593 60,699 61,361
Cost of work force reduction (Note 10)... -- 925 --
Provision for consolidation of
manufacturing facilities (Note 10)...... -- -- 3,300
---------- ---------- ----------
Total.................................. 589,016 660,064 640,686
---------- ---------- ----------
OPERATING INCOME (LOSS).................... (2,091) (4,566) 7,139
INTEREST EXPENSE--Net...................... (11,426) (10,906) (10,824)
REALIZED SECURITIES GAINS--Net (Note 2).... 1,649 1,465 898
OTHER INCOME--Net (Note 10)................ 3,219 2,730 2,513
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ (8,649) (11,277) (274)
PROVISION (CREDIT) FOR INCOME TAXES (Note
6)........................................ (3,284) (3,312) (397)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... (5,365) (7,965) 123
EXTRAORDINARY ITEM--Net of tax of
$1,808,000 (Note 5)....................... -- -- (3,509)
---------- ---------- ----------
NET INCOME (LOSS).......................... $ (5,365) $ (7,965) $ (3,386)
========== ========== ==========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (Loss) before extraordinary item.... $ (0.52) $ (0.78) $ 0.01
Extraordinary item--Net.................. -- -- (0.34)
---------- ---------- ----------
Net Income (Loss)........................ $ (0.52) $ (0.78) $ (0.33)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING........ 10,266,229 10,220,172 10,187,184
========== ========== ==========
See notes to consolidated financial statements.
F-3
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK UNREALIZED PENSION
------------------ RETAINED SECURITIES LIABILITY
SHARES AMOUNT EARNINGS GAINS ADJUSTMENT TOTAL
---------- ------- -------- ---------- ---------- --------
(IN THOUSANDS OF DOLLARS)
BALANCE, APRIL 1, 1992.. 10,176,417 $31,112 $98,149 $129,261
Net loss.............. -- -- (3,386) (3,386)
Cash dividends ($.36
per share)........... -- -- (3,668) (3,668)
Exercise of stock
options and other
transactions......... 27,311 255 -- 255
---------- ------- ------- --------
BALANCE, MARCH 31, 1993. 10,203,728 31,367 91,095 122,462
Net loss.............. -- -- (7,965) (7,965)
Cash dividends ($.32
per share)........... -- -- (3,268) (3,268)
Exercise of stock
options.............. 38,805 306 -- 306
Employee stock
purchase plan........ 10,426 107 -- 107
Unrealized securities
gains--net........... -- -- -- $3,804 3,804
Pension liability
adjustment........... -- -- -- -- $(709) (709)
---------- ------- ------- ------ ----- --------
BALANCE, MARCH 31, 1994. 10,252,959 31,780 79,862 3,804 (709) 114,737
Net loss.............. -- -- (5,365) -- -- (5,365)
Cash dividend ($.16
per share)........... -- -- (1,643) -- -- (1,643)
Exercise of stock
options.............. 7,582 66 -- -- -- 66
Employee stock
purchase plan........ 22,904 200 -- -- -- 200
Change in unrealized
securities gains--
net.................. -- -- -- 1,831 -- 1,831
Pension liability
adjustment........... -- -- -- -- 151 151
---------- ------- ------- ------ ----- --------
BALANCE, MARCH 31, 1995. 10,283,445 $32,046 $72,854 $5,635 $(558) $109,977
========== ======= ======= ====== ===== ========
See notes to consolidated financial statements.
F-4
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED MARCH 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net income (loss)............................. $ (5,365) $ (7,965) $ (3,386)
Adjustments for noncash and nonoperating
items:
Extraordinary item--net..................... -- -- 3,509
Depreciation................................ 13,429 15,360 15,251
Deferred income tax provision............... (3,294) 678 271
Other....................................... (2,021) (797) 393
Working capital changes:
Receivables................................. 5,380 3,456 (3,858)
Inventory................................... 8,914 (12,809) (19,359)
Deferred and prepaid costs.................. 1,814 3,423 (1,091)
Accounts payable............................ 989 (2,892) (212)
Other liabilities........................... 2,358 (6,119) 497
-------- -------- ---------
Operating cash flow........................... 22,204 (7,665) (7,985)
-------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures.......................... (7,850) (8,423) (12,111)
Investment in marketable securities........... (6,675) (5,135) (4,706)
Proceeds from sale of marketable securities... 4,344 6,231 4,220
Proceeds from sale of fixed assets............ 5,915 60 129
Other investments............................. 245 169 (301)
Other......................................... 131 356 (1,113)
-------- -------- ---------
Investing cash flow........................... (3,890) (6,742) (13,882)
-------- -------- ---------
FINANCING ACTIVITIES:
Short-term borrowings:
Bank borrowings--net........................ (15,721) 25,622 (17,642)
CCC borrowings--advances.................... 76,307 70,712 156,172
CCC borrowings--repayments.................. (76,280) (69,023) (142,958)
Repayment of long-term debt................... (67) (18,816) (61,602)
Proceeds of long-term debt.................... -- -- 100,000
Dividends paid................................ (1,643) (3,268) (4,889)
Stock option proceeds and other............... 221 330 177
-------- -------- ---------
Financing cash flow........................... (17,183) 5,557 29,258
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND TEMPORARY
INVESTMENTS.................................... 1,131 (8,850) 7,391
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR........................................... 555 9,405 2,014
-------- -------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR..... $ 1,686 $ 555 $ 9,405
======== ======== =========
See notes to consolidated financial statements.
F-5
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994 AND 1993
1. ACCOUNTING POLICIES
Basis of Presentation--The consolidated financial statements include the
accounts of Imperial Holly Corporation and its majority owned subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated. The Company operates in one domestic business segment--the
production and sale of refined sugar and related products.
Cash and Temporary Investments--Temporary investments consist of short-term,
highly liquid investments with maturities of 90 days or less at the time of
purchase.
Inventories--Inventories are stated at the lower of cost or market. Cost of
sugar is determined under the last-in first-out ("LIFO") method. All other
costs are determined under the first-in first-out ("FIFO") method.
If only the FIFO cost method had been used, inventories would have been
$13,267,000 and $14,805,000 higher at March 31, 1995 and 1994, respectively.
Reductions in inventory quantities in fiscal 1995 and 1993 resulted in
liquidations of LIFO inventory layers carried at costs prevailing in prior
years which were higher than current costs. The effect of these liquidations
was to decrease net income by about $114,000 ($0.01 per share) and $159,000
($0.02 per share) in 1995 and 1993, respectively.
Sugarbeets Purchased--Payments to growers for sugarbeets are based in part
upon the Company's average net return for sugar sold (as defined in the
participating contracts with growers) during the grower contract years, some of
which extend beyond March 31. The contracts provide for the sharing 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 March 31. The final cost of sugarbeets cannot be
determined until the end of the contract year for each growing area.
Manufacturing Costs Prior to Production--Certain manufacturing costs,
principally repairs and maintenance, incurred between processing periods are
deferred and allocated to future sugar production.
Property and Depreciation--Property is stated at cost and includes
expenditures for renewals and improvements and capitalized interest.
Maintenance and repairs are charged to current operations. When property is
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts, and any gain or loss on disposition
is included in income.
Depreciation is provided principally on the straight-line or sum-of-the-
years' digits methods over the estimated service lives of the assets.
Fair Value of Financial Instruments--The fair value of financial instruments
is estimated based upon market trading information, where available. Absent
published market values for an instrument, management estimates fair values
based upon quotations from broker/dealers or interest rate information for
similar instruments. The carrying amount of cash and temporary investments,
accounts receivable, accounts payable, short-term borrowings and other current
liabilities approximates fair value because of the short maturity and/or
frequent repricing of those instruments. The fair value of the $100 million
principal amount of 8 3/8% senior notes as of March 31, 1995 was approximately
$90 million, based on a dealer quote.
F-6
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
Federal Income Taxes--Federal income tax expense includes the current tax
obligation and the change in deferred income tax liability for the period.
Deferred income taxes result from temporary differences between financial and
tax bases of certain assets and liabilities.
Earnings Per Share--The computation of earnings per share is based on the
weighted average number of shares outstanding. Shares of common stock issuable
under stock options have not been included in the computation of earnings per
share as their effect would be insignificant.
Reclassifications--Certain amounts reported in prior fiscal years have been
reclassified to conform with the fiscal 1995 presentation.
2. INVESTMENTS
Effective March 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115"). All of the Company's marketable securities
are classified as "available for sale", and accordingly, are reflected in the
Consolidated Balance Sheet at fair market value, with the aggregate unrealized
gain, net of related deferred tax liability, included as a component of
shareholders' equity. Adoption of SFAS No. 115 had no effect on reported
earnings. Cost for determining gains and losses on sales of marketable
securities is determined on the FIFO method. Marketable securities consisted of
the following (in thousands of dollars):
MARCH 31, 1995 MARCH 31, 1994
------------------------------------- -------------------------------------
GROSS GROSS
FAIR UNREALIZED HOLDING FAIR UNREALIZED HOLDING
AMORTIZED MARKET ------------------- AMORTIZED MARKET -------------------
COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES
--------- ------- --------- --------- --------- ------- --------- ---------
US Government securities
due 1995 through 1997.. $ 2,889 $ 2,875 $ 3 $ (17) $ 1,295 $ 1,308 $ 22 $ (9)
Municipal securities due
1996................... 1,456 1,458 2 -- 1,482 1,472 -- (10)
Common stocks........... 20,281 28,808 8,632 (105) 17,913 23,469 6,234 (678)
Other................... 1,784 1,938 184 (30) 1,791 2,085 294 --
------- ------- --------- -------- ------- ------- --------- --------
Total................... $26,410 $35,079 $ 8,821 $ (152) $22,481 $28,334 $ 6,550 $ (697)
======= ======= ========= ======== ======= ======= ========= ========
Realized securities gains are reported net of realized losses of $106,000 in
1995, $0 in 1994, and $49,000 in 1993. Marketable securities with a market
value of $7,933,000 at March 31, 1995 were pledged to secure certain insurance
obligations.
Other investments includes the Company's royalty interest in a coal seam
methane gas project, which is accounted for at amortized cost.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1995 and 1994 consisted of the
following (in thousands of dollars):
1995 1994
-------- --------
Land................................................... $ 14,071 $ 14,674
Buildings, machinery and equipment..................... 245,382 250,902
Construction in progress............................... 2,281 1,569
-------- --------
Total.............................................. 261,734 267,145
Less accumulated depreciation.......................... 132,782 125,911
-------- --------
Property, Plant and Equipment--Net..................... $128,952 $141,234
======== ========
F-7
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
The Company sold distribution facilities during fiscal 1995 in exchange for
three-year, fixed rate notes aggregating $2,466,000. A gain of $780,000 on one
such sale was deferred.
4. SHORT-TERM BORROWINGS
At March 31, 1995, the Company had working capital financing available from
domestic banks under a $90,000,000 unsecured revolving credit line. The line of
credit provides for interest on advances at floating or negotiated rates,
requires commitment fees and is subject to a credit agreement which limits,
among other things, the Company's right, without consent of the lenders, to
take certain actions and requires the Company to maintain certain financial and
operating ratios. At March 31, 1995, the Company had the ability to pay
dividends of up to $13,800,000 under the most restrictive of such financial
covenants. The Company also has short-term borrowing facilities available from
banks on an uncommitted basis aggregating $25,000,000 at March 31, 1995.
Interest on these borrowings is on a negotiated rate basis.
Additionally, the Company borrows short-term from the Commodity Credit
Corporation ("CCC") under the United States Department of Agriculture's price
support loan program. CCC borrowings are secured by refined beet sugar
inventory and are nonrecourse to the Company. The Company chose to forfeit
sugar in full satisfaction of a CCC loan which matured August 31, 1994 in the
amount of $652,000.
Outstanding borrowings at March 31, 1995 and 1994 were as follows (in
thousands of dollars):
1995 1994
------- -------
Commodity Credit Corporation............................ $51,141 $51,766
Bank working capital financing.......................... 9,951 25,672
------- -------
Total............................................... $61,092 $77,438
======= =======
Weighted Average Interest Rate.......................... 7.03% 3.82%
======= =======
5. LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1994 was as follows (in thousands of
dollars):
1995 1994
-------- --------
8 3/8% senior notes.................................... $100,000 $100,000
Other.................................................. 61 128
-------- --------
Total long-term debt................................... 100,061 100,128
Less current maturities................................ 51 84
-------- --------
Long-term debt, net.................................... $100,010 $100,044
======== ========
In a public offering completed in October 1992, the Company issued
$100,000,000 principal amount of 8 3/8% senior notes due 1999. The notes do not
require principal payments prior to maturity. A portion of the net proceeds of
approximately $98.7 million were used to prepay an earlier series of senior
notes, including a make-whole premium which is reported, net of tax, as an
extraordinary item in fiscal 1993. The indenture relating to the 8 3/8% senior
notes contains restrictions on the Company's ability to create liens on certain
properties.
The Company has an interest rate swap agreement with Lehman Brothers Inc.
("Lehman") under which the Company receives payments based on a fixed rate of
7.77% and pays Lehman amounts based on the three month LIBOR rate. The swap,
which expires in October 1996, has a notional principal amount of $21.4
million, which reduces to $10.7 million in October 1995. The Company is exposed
to credit risk in the event of non-performance by Lehman; however the Company
does not anticipate non-performance. The swap is
F-8
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
recorded in other investments at its market value of $242,000 at March 31,
1995. Income on the swap of $529,000 in 1995, $1,356,000 in 1994 and $1,374,000
in 1993 is reported in interest expense--net.
Cash paid for interest on short and long-term debt was $11,463,000 in 1995,
$12,562,000 in 1994, and $11,252,000 in 1993. Interest capitalized as part of
the cost of constructing assets was $98,000 in 1995, $31,000 in 1994, and
$43,000 in 1993.
6. INCOME TAXES
The components of the consolidated income tax provision (credit) for each of
the last three fiscal years were as follows (in thousands of dollars):
1995 1994 1993
------- ------- -------
Federal:
Current...................................... $ (36) $(4,032) $(1,063)
Tax benefit of operating loss carryforward... (1,636) -- --
Deferred..................................... (1,658) 678 271
State.......................................... 46 42 395
------- ------- -------
Total........................................ $(3,284) $(3,312) $ (397)
======= ======= =======
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities at March 31, 1995 and 1994 were as follows
(in thousands of dollars):
1995 1994
--------------------------- ---------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------ ----------- -------- ------ ----------- --------
Current:
Marketable securities
valuation
differences.......... -- $ (3,034) $ (3,034) -- $ (2,049) $ (2,049)
Inventory valuation
differences,
principally purchase
accounting........... -- (6,091) (6,091) -- (6,222) (6,222)
Manufacturing costs
prior to production
deducted currently... -- (4,189) (4,189) -- (4,747) (4,747)
Accruals not currently
deductible........... $2,005 -- 2,005 $1,729 -- 1,729
Alternate minimum tax
differences.......... 1,146 -- 1,146 903 -- 903
Operating loss
carryforward
(expiring 2010)..... 1,636 -- 1,636 -- -- --
Other................. 637 (40) 597 429 -- 429
------ -------- -------- ------ -------- --------
Total current....... 5,424 (13,354) (7,930) 3,061 (13,018) (9,957)
------ -------- -------- ------ -------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (19,980) (19,980) -- (21,117) (21,117)
Pension cost
differences.......... -- (1,099) (1,099) -- (616) (616)
Accruals not currently
deductible........... 908 -- 908 1,097 -- 1,097
Other................. -- (1,152) (1,152) -- (969) (969)
------ -------- -------- ------ -------- --------
Total noncurrent.... 908 (22,231) (21,323) 1,097 (22,702) (21,605)
------ -------- -------- ------ -------- --------
Total................... $6,332 $(35,585) $(29,253) $4,158 $(35,720) $(31,562)
====== ======== ======== ====== ======== ========
F-9
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's income before taxes. The reasons for the differences from the
statutory rate are as follows (in thousands of dollars):
1995 1994 1993
------- ------- ------
Statutory federal rate......................... 35% 35% 34%
======= ======= ======
Income taxes computed at the statutory federal
rate.......................................... $(3,027) $(3,947) $ (93)
Effect of increase in statutory rate on
deferred tax liabilities...................... -- 871 --
Nontaxable interest and dividends.............. (299) (295) (341)
Effect of state income taxes................... 30 28 262
Effect of foreign sales corporation............ (68) (53) (111)
Other.......................................... 80 84 (114)
------- ------- ------
Total........................................ $(3,284) $(3,312) $ (397)
======= ======= ======
Income tax refunds received were $3,778,000 in 1995, $4,482,000 in 1994, and
$3,571,000 in 1993.
7. EMPLOYEE BENEFITS
Retirement Plans--Substantially all of the Company's nonseasonal employees
are covered by retirement plans. Certain unionized employees are covered by an
industry-wide plan, and other employees are covered by Company-sponsored
defined benefit plans. Under the Company-sponsored defined benefit plans,
retirement benefits are primarily a function of years of service and the
employee's compensation for a defined period of employment. The Company funds
pension costs at an actuarially determined amount based on normal cost and the
amortization of prior service costs, gains, and losses over a weighted average
period of twelve years. Additionally, the Company provides a supplemental non-
qualified, unfunded pension plan for certain officers whose benefits under the
qualified plan are limited by federal tax law. In fiscal 1993, the Company
adopted a non-qualified retirement plan for non-employee directors, which
provides benefits based upon years of service as a director and the retainer in
effect at the date of a director's retirement.
The aggregate net periodic pension cost for these plans for each of the past
three fiscal years included the following components (in thousands of dollars):
1995 1994 1993
------ ------ ------
Company-sponsored plans:
Service cost for benefits earned during the
period........................................ $2,128 $1,973 $2,095
Interest cost on projected benefit obligation.. 2,348 2,156 2,137
Actual return on plan assets................... (4,439) 275 (535)
Net amortization and deferral.................. 3,254 (1,398) 43
------ ------ ------
Net periodic pension cost--Company-sponsored
plans......................................... 3,291 3,006 3,740
Industry-wide plan for certain unionized
employees....................................... 459 517 474
------ ------ ------
Total pension cost............................. $3,750 $3,523 $4,214
====== ====== ======
F-10
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
The funded status of the Company-sponsored plans was as follows at March 31,
1995 and 1994 (in thousands of dollars):
1995 1994
------------------------------- -------------------------------
PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
--------------- --------------- --------------- ---------------
Actuarial present value
of projected benefit
obligations:
Accumulated benefit
obligations:
Vested.............. $8,353 $14,948 $7,040 $13,436
Nonvested........... 627 497 611 540
------ ------- ------ -------
Total accumulated
benefit obligations.. 8,980 15,445 7,651 13,976
Effect of projected
future salary
increases............ 673 7,442 753 7,226
------ ------- ------ -------
Projected benefit
obligations.......... 9,653 22,887 8,404 21,202
Plan assets at fair
value (primarily listed
stocks and bonds)...... 5,029 23,990 3,115 18,028
------ ------- ------ -------
Projected benefit
obligations over
(under) plan assets.... 4,624 (1,103) 5,289 3,174
Prior service cost of
plan amendments........ (2,440) 50 (2,520) 54
Unrecognized net gains
(losses):
Arising at transition
date................. (1,302) 370 (1,616) 448
Arising subsequent to
transition date...... (834) (1,932) (1,043) (4,835)
Adjustment for
additional liability... 3,903 0 4,426 0
------ ------- ------ -------
Accrued (prepaid)
pension cost........... $3,951 $(2,615) $4,536 $(1,159)
====== ======= ====== =======
Assumptions used:
Current discount rate
for plan liabilities. 8.0% 8.0% 7.75% 7.75%
Projected annual rate
of increase in
compensation levels.. 5.5% 5.5% 5.5% 5.5%
Assumed long-term re-
turn on plan assets.. 8.0% 8.0% 8.0% 8.0%
401(k) Plans--Substantially all of the Company's nonbargaining unit employees
may elect to defer up to 15% of their annual compensation in the Company's
401(k) Tax Deferred Savings Plan. The Company may make discretionary matching
contributions of up to 38% of the first $2,500 contributed by an employee. The
Company also provides 401(k) plans for certain bargaining unit groups which
allow participating employees to defer up to 15% of their annual compensation.
No amount was charged to expense for these plans in the last three fiscal
years.
Employee Stock Purchase Plan--In July 1993, the shareholders approved an
amended and restated employee stock purchase plan and reserved 1,000,000 shares
of common stock. The plan provides substantially all year-round employees the
option to purchase shares of common stock either through open market purchases
at market value or directly from the Company at 85% of market value. The amount
charged to compensation expense for the discount on shares purchased under the
latter alternative was $30,000 in 1995 and $16,000 in 1994.
F-11
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
Stock Incentive Plan--The shareholders have approved the Imperial Holly
Corporation Stock Incentive Plan, and have reserved for issuance 812,500 shares
of common stock. The plan provides for the granting of incentive awards in the
form of stock options, stock appreciation rights (SARs), restricted stock,
performance units and performance shares at the discretion of the Executive
Compensation Committee of the Board of Directors. Stock options have an
exercise price equal to the fair market value of the shares of common stock at
date of grant, become exercisable in annual increments for up to five years
commencing one year after date of grant, and expire not more than ten years
from date of grant.
Stock option activity in the plan during the last three fiscal years was as
follows:
1995 1994 1993
--------------------- --------------------- ---------------------
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- ------------ ------- ------------ ------- ------------
Beginning Balance....... 494,815 $6.44-$16.83 363,214 $6.44-$16.83 404,939 $6.44-$16.83
Granted................. 24,500 $8.81-$ 9.75 208,000 $8.69-$14.00 --
Expired................. (1,000) $8.69 (34,201) $8.69-$15.88 (14,414) $6.44-$15.88
Exercised............... (7,582) $6.44-$ 8.69 (42,198) $6.44 (27,311) $6.44
------- ------- -------
Balance, March 31....... 510,733 $6.44-$16.83 494,815 $6.44-$16.83 363,214 $6.44-$16.83
======= ======= =======
Exercisable as of March
31..................... 331,609 $6.44-$16.83 248,466 $6.44-$16.83 264,727 $6.44-$16.83
======= ======= =======
Certain stock options listed above were granted with SARs. The SARs provide
that, in lieu of the exercise of options, the optionee may receive cash or
shares of stock with a fair market value equal to the amount by which the fair
market value on exercise date of the stock subject to the option exceeds the
option price. No SARs have been exercised and, at March 31, 1995, options
outstanding with SARs attached totaled 70,395 shares (of which 67,895 were
exercisable). A charge (credit) representing the increase (decrease) of the
excess of fair market value over the exercise price of SARs totaling $0 in
1995, ($159,000) in 1994, and $19,000 in 1993 has been recorded as compensation
expense.
Nonemployee Director Stock Option Plan--The shareholders have approved the
Nonemployee Director Stock Option Plan and have reserved 30,000 shares of
common stock for issuance. The plan provides for the automatic granting to each
nonemployee director of options to purchase 1,500 shares of common stock at a
price equal to 50% of the fair market value at date of grant. The options
become exercisable upon the completion of three years of service as a director,
and expire over a two year period from the date first exercisable. Stock option
activity in the plan during the last three fiscal years was as follows:
1995 1994 1993
------------------- ------------------- -------------------
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- ----------- ------- ----------- ------- -----------
Beginning Balance....... 6,000 $4.75-$8.84 3,000 $8.09-$8.84 3,000 $8.09-$8.84
Granted................. -- 3,000 $4.75-$7.00 --
Expired................. 750 $8.84 -- --
Exercised............... -- -- --
----- ----- -----
Balance, March 31....... 5,250 $4.75-$8.84 6,000 $4.75-$8.84 3,000 $8.09-$8.84
===== ===== =====
Exercisable as of March
31..................... 2,250 $8.09-$8.84 1,500 $8.84 --
===== ===== =====
F-12
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
8. SHAREHOLDER RIGHTS PLAN
In 1989, the Board of Directors declared a dividend of one Right for each
outstanding share of the Company's common stock. Certain terms of the rights
were amended in January 1995. Each of the Rights, which are currently attached
to the common stock, entitle the holder to purchase two three-hundredths of a
share of a new series of Junior Participating Preferred Stock (68,556 in total
as of March 31, 1995) at a price of $60 (subject to adjustment). The Rights are
not exercisable until the earlier of ten days after the public announcement
that a person or group has acquired 15% or more (25% or more for persons who
were 10% shareholders on January 27, 1995) of the Company's outstanding common
stock (an "Acquiring Person") or ten business days after the commencement of a
tender offer to acquire such an interest. Under certain circumstances, the
Rights, other than the Rights held by the Acquiring Person, will become
exercisable for common stock of the Company (or an acquiror) with a market
value equal to two times the exercise price of the Right. The Rights are
redeemable, at 2/3 cents per Right, at any time prior to a person becoming an
Acquiring Person. The Rights will expire on September 25, 1999.
9. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
In 1992, the U.S. Customs Service ("Customs") notified the Company that
Customs had audited customs drawback claims filed by the Company in 1985 and
that Customs would require the Company to repay to Customs certain duties and
fees previously refunded to the Company. In April 1992, the Company refunded
$2.5 million to Customs under protest, a condition precedent to the
commencement of an appeal of the audit decision, and recorded such amount in
other assets. In April 1995, the Company received $2.7 million in settlement of
this claim.
The Company has had $1.5 million of standby letters of credit issued by banks
to secure certain insurance obligations.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $3,519,000, $3,117,000 and $4,542,000 in fiscal 1995, 1994, and
1993 respectively.
The aggregate future minimum lease commitments under noncancelable operating
leases at March 31, 1995 are summarized as follows (in thousands of dollars):
OPERATING
FISCAL YEAR LEASES
----------- ---------
1996........................................................... $1,637
1997........................................................... 877
1998........................................................... 580
1999........................................................... 453
2000........................................................... 427
After 2000...................................................... 1,201
F-13
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1995, 1994 AND 1993
10. SUPPLEMENTARY INCOME STATEMENT INFORMATION
A $925,000 charge was recorded in fiscal 1994 to provide for the cost of a
work force reduction which was substantially completed during the year.
The Company ceased beet sugar production at its Betteravia, California
factory and converted the facility to a forward packaging and distribution
center during fiscal 1994. A pre-tax charge of $3,300,000 was included in
fiscal 1993 operating results for the estimated costs of this action, including
a $1,100,000 allowance for loss on disposition of the manufacturing related
assets.
Other income--net includes interest and dividends totaling $1,456,000 in
1995, $1,494,000 in 1994, and $1,584,000 in 1993. Amounts charged to expense
for research and development were $2,084,000 in 1995, $2,679,000 in 1994, and
$3,579,000 in 1993.
F-14