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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 COMMSSION 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
Common Stock, without par value REGISTERED
Rights to Purchase Preferred Stock American Stock Exchange
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 $77 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on June
3, 1996 and (solely for this purpose) treating all directors, executive
officers and 10% shareholders of the registrant (other than those holding
shares in a fiduciary capacity) as affiliates.
The number of shares outstanding of the registrant's Common Stock, as of
June 3, 1996, was 10,315,070.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 1996 Annual Meeting of Shareholders are incorporated by
reference in Part III hereof.
TABLE OF CONTENTS
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 8
Item 3. Legal Proceedings................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.............. 11
Executive Officers of the Registrant............................. 11
PART II
Market for the Registrant's Common Equity and Related Shareholder
Item 5. Matters.......................................................... 13
Item 6. Selected Financial Data ......................................... 13
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations............................................ 14
Item 8. Financial Statements and Supplementary Data ..................... 17
Changes in and Disagreements with Accountants on Accounting and
Item 9. Financial Disclosure ............................................ 17
PART III
Item 10. Directors and Executive Officers of the Registrant .............. 17
Item 11. Executive Compensation .......................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management .................................................... 17
Item 13. Certain Relationships and Related Transactions .................. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ...................................................... 18
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The statements regarding future market prices and operating results and
other statements that are not historical facts contained in this report on
Form 10-K are forward-looking statements. The words "expect," "project,"
"estimate," "believe," "predict" and similar expressions are also intended to
identify forward- looking statements. Such statements involve risks,
uncertainties and assumptions, including, without limitation, market factors,
the effect of weather and economic conditions, farm and trade policy, the
available supply of sugar, available quantity and quality of sugar beets and
other factors detailed elsewhere in this and other Company filings with the
Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
PART I
ITEM 1. BUSINESS.
Imperial Holly Corporation is one of the nation's largest producers and
marketers of refined sugar, producing both cane and beet sugar. As used
herein, the "Company" refers to Imperial Holly Corporation and its
subsidiaries; "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 the Company's wholly-owned subsidiary, Holly Sugar Corporation, and
its subsidiaries, including Spreckels Sugar Company, Inc. ("Spreckels").
The Company refines raw cane sugar primarily at its Imperial Sugar Company
refinery in Sugar Land, Texas. Through Holly, the Company 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 (primarily 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 and the Company's name was changed to Imperial
Holly Corporation. Holly was founded in 1905 and incorporated in 1916.
On April 19, 1996, Holly acquired from Spreckels Industries, Inc. all of the
outstanding capital stock of Spreckels and Limestone Products Company, Inc.
See Note 2 to the Consolidated Financial Statements for further discussion of
the Spreckels acquisition. Spreckels operates beet sugar processing plants in
Woodland and Mendota, California. Holly did not acquire Spreckels' Manteca,
California factory, which was retained by Spreckels Industries and has been
closed. Spreckels has been in continuous operation since 1898. Spreckels was
acquired by Holly after the conclusion of the fiscal year ended March 31, 1996
and therefore, except as otherwise specifically stated in this report, the
results of operations of the Company covered by this report do not include the
results of Spreckels. Information concerning Spreckels is included in this
report solely to provide that the business of the Company be described as of
the latest practical date.
In April 1996, the Company announced that it would cease sugarbeet
processing at Holly's Hamilton City, California factory upon completion of the
current spring production campaign.
A wholly-owned subsidiary of Holly has entered into a limited partnership
agreement with a sugarbeet growers' cooperative in Washington state to build
and operate a sugarbeet factory at Moses Lake, Washington. The Company's
capital commitment to the partnership primarily consists of $2 million and
certain surplus production equipment.
PRODUCTS AND SALES
Sugar. The Company's principal product line is refined sugar, which
accounted for approximately 93% of consolidated net sales in the Company's
fiscal year ended March 31, 1996. Cane sugar and beet sugar account for
approximately 40% and 60%, respectively, of the Company's fiscal 1996 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
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approximately one-third of the sugar sold, are marketed under the Imperial(R)
and Holly(R) brand names and under various private labels. Spreckels currently
sells sugar under its Spreckels(R) and U&I(R) brands 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. The
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 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 1996, the Company's sugar was sold or
distributed in each of the 50 states. No customer accounted for more than 10%
of the Company's sales during fiscal 1996.
Sales of refined sugar are moderately seasonal, normally increasing during
the summer months because of increased demand of various food manufacturers,
including fruit and vegetable packers; shipments of specialty products (brown
and powdered sugar) increase in the fourth calendar quarter due to holiday
baking needs. Although the refining of cane sugar is not seasonal, the
production of beet sugar is a seasonal activity. Each of the Company's beet
sugar factories operates during sugar-making campaigns, which generally total
120 days to 180 days in length each year, depending upon the supply of
sugarbeets available to the factory. Because of the geographical diversity of
its manufacturing facilities, the Company is generally able to produce beet
sugar year-round. While the seasonal production of sugarbeets requires the
Company to store significant refined sugar inventory at each factory, the
geographical diversity and staggered periods of production enable the
Company's total investment in inventories to be reduced. Additionally, these
factors reduce the likelihood that adverse weather conditions will affect all
the Company's productive areas simultaneously and aid in distribution. Refined
sugar is shipped by rail and truck, including Company-owned vehicles.
By-Products. By-products from beet sugar processing (beet pulp and molasses)
are sold primarily as livestock feeds to dairymen, livestock feeders,
livestock feed processors and industrial customers. By-product sales accounted
for approximately 6% of consolidated net sales during fiscal 1996. The major
portion of the beet pulp and molasses produced from sugarbeet operations is
sold during and shortly after the sugar-making campaigns.
Marketing of by-products from beet sugar processing is concentrated in the
western half of the United States and Japan. In fiscal 1996, export sales
accounted for approximately 22% 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. Poor weather conditions in grain growing regions of the
United States have resulted in substantially higher returns on pulp sales
beginning in late fiscal 1996.
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.
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Beet Seed. Holly Hybrids, a division of Holly, produces and markets
commercial seed to beet growers under contract to Holly as well as to growers
under contract to grow for other beet sugar processors. In addition, Spreckels
is active in the development and production of commercial seed for use by
California beet growers. Holly's beet seed sales program is conducted
primarily at Holly Hybrids' headquarters in Sheridan, Wyoming and at Holly's
Tracy, California Agriculture Station. The Company anticipates consolidation
of Spreckels' and Holly's beet seed programs during the 1997 fiscal year. See
"Research."
Inulin. In October 1995, the Company and Cooperatie Suiker Unie, U.A., a
Netherlands sugar processor, formed Imperial-Suiker Unie, L.L.C. ("Imperial-
Suiker Unie"), a 50-50 joint venture. In connection with the creation of
Imperial-Suiker Unie, the Company has entered into various agreements with
Cooperatie Suiker Unie whereby the Company has agreed to provide certain
services relating to the exclusive right to market inulin and inulin-based
products, produced by Cooperatie Suiker Unie, in the United States, Canada and
Mexico. Inulin is extracted from chicory roots by a process similar to sugar
extraction from sugarbeets and is a natural carbohydrate with multifunctional
properties with potential both as a nutritional additive and as a functional
food ingredient.
RAW MATERIAL AND PROCESSING REQUIREMENTS
Raw Cane Sugar. The Company 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 reduce the availability of
foreign raw cane sugar currently to the quota level designated by applicable
legislation. See "--Sugar Legislation and Other Market Factors". During fiscal
1996, approximately 78% 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, weighed, sampled and stored in
Imperial's Galveston warehouse, which has a capacity of approximately 30,000
tons. 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.
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 over one of more crop years. 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, the
Company contracts to purchase raw sugar substantially in advance of the time
it delivers the refined sugar produced from that purchase. The majority of the
Company's industrial sales are under fixed price contracts; in order to
minimize price risk in raw and refined sugar commitments, the Company attempts
to match refined sugar sales contracted for future delivery with the purchase
or pricing of raw sugar.
Spreckels supplements its beet sugar production by refining raw cane sugar
at its sugarbeet processing facilities. Raw sugar purchased by Spreckels is
stored in a leased warehouse located at Stockton, California. The
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cane sugar refined by Spreckels generally is co-processed with its beet sugar
production, but Spreckels has also refined raw cane sugar during periods when
it was not processing sugarbeets. Cane sugar as a percentage of Spreckels'
total sugar production was approximately 14% during Spreckels' fiscal year
ended June 30, 1995. Spreckels expects to continue to supplement its beet
sugar production by refining raw cane sugar during fiscal 1997.
Sugarbeet Purchases. Holly purchases sugarbeets, from which it extracts
sugar and produces by-products, from independent growers under contracts
negotiated with associations representing such growers. The grower contracts
typically are for one crop; however, on occasion, contracts may cover multiple
crops. 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 refined beet sugar during the specified contract year. Some
grower 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 applicable regional minimum support price
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, the North Platte Valley of Wyoming and the
Texas Panhandle has declined in recent years and is anticipated to decline
further this coming fiscal year as a result of weather conditions, competing
crops and other factors impacting those areas.
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 the Company is natural gas,
although certain of the Company's factories also utilize significant
quantities of coal. The Company generates a substantial portion of the
electricity used at the refinery and the factories. Imperial also purchases
and sells electricity on a cogeneration basis. No. 6 fuel oil is used by the
Company both as an alternative energy source when the price is more attractive
and as a backup to natural gas in the event of curtailment of gas deliveries.
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 competitively, although
increases in freight costs, especially rail freight, are difficult to control.
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
4
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. Limestone Products Company, Inc., a subsidiary
of Holly, operates a limestone quarry in Cool, California which supplies
Holly's Northern California beet processing factories with limestone. These
quarries do not normally supply other Holly factories because of high freight
costs.
RESEARCH
The Company closed its Research and Development Center in Colorado Springs
in fiscal 1996. Research relating to manufacturing process technology, factory
operations, food science and new product development has been consolidated
principally at the Company's facilities at Sugar Land.
Holly has entered into an agreement with D. J. van der Have B.V., a
Netherlands beet seed company, whereby Holly discontinued certain beet seed
development activities and allowed D. J. van der Have access to Holly's
proprietary beet seed breeding material for varietal development in exchange
for the exclusive marketing rights to D. J. van der Have's beet seed in
certain markets in the United States, Canada and Mexico. In addition, 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 all of the Company's sugarbeet growing areas.
Holly communicates information about agricultural practices to growers through
its computerized agriculture information systems and printed material,
including Holly's 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
capacity significantly over the past five years. The additional sugar marketed
as a result of this expansion has acted to depress sugar market prices during
some periods.
The most significant nutritive sweetener that competes with refined sugar is
high fructose corn syrup ("HFCS"), which generally sells 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.
5
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
1992 1993 1994(1) 1995(2)
----------------- ----------------- ----------------- -----------------
POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE
------ ---------- ------ ---------- ------ ---------- ------ ----------
Refined sugar........... 64.6 46% 65.5 45% 65.1 44% 64.6 43%
HFCS.................... 51.6 37 54.4 38 56.4 38 58.4 39
Other corn sweeteners... 23.0 16 23.6 16 24.0 16 24.5 16
Other................... 1.4 1 1.4 1 1.3 1 1.3 1
----- ---- ----- --- ----- --- ----- ---
Total................. 140.6 100% 144.9 100% 146.8 100% 148.8 100%
===== ==== ===== === ===== === ===== ===
- --------
(1) Preliminary.
(2) Estimate.
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, and the quality and quantity of sugar beets available to the
Company. These market factors are influenced by a variety of forces, including
the number of domestic acres contracted to grow sugar cane and sugarbeets,
prices of competing crops, weather conditions and United States farm and trade
policies.
Federal government programs, in the form of legislative or regulatory
action, have existed to support the price of domestic crops of sugar beets and
sugar cane almost continually since 1934. The principal legislation affecting
the domestic sugar industry is the Federal Agricultural Improvement and Reform
Act of 1996 (the "Act"), which is scheduled to become effective July 1, 1996
and will extend the sugar price support program for sugar cane and sugarbeets
until June 30, 2003.
Pursuant to the Act, the Commodity Credit Corporation ("CCC") is obligated
annually to make loans available to domestic sugar processors on existing
sugar inventories from the current crop year production at 18.0 cents per
pound of raw cane sugar and 22.90 cents per pound of refined beet sugar
(subject to a limited right of reduction by the USDA); however, unlike the
predecessor act, the processor is generally not obligated to pay participating
growers a predetermined minimum support price for such sugar. The CCC loans
under the Act are recourse loans unless the tariff rate quota for import sugar
is set at a level in excess of 1.5 million short tons raw value ("STRV"). If
the tariff rate quota exceeds 1.5 million STRV, the CCC loans will become non-
recourse and processors will be obligated to pay participating growers a
predetermined minimum support price. As under the predecessor act, CCC loans
mature September 30 of each year and in no event more than nine months after
the month in which the loan was made. Under the Act, processors may forfeit
sugar to the USDA; if the tariff rate is below 1.5 million STRV and the
collateral for the loan is inadequate to cover the loan amount, the USDA may
proceed against the processor for the difference between the loan amount and
the proceeds from the sale of the forfeited sugar. A processor will be
penalized approximately 1 cent per pound for each pound of sugar forfeited.
Under the Act, the USDA utilizes the import quota and the forfeiture penalty
to affect sugar price supports and prevent forfeitures under the CCC loan
program. Unlike the predecessor act, marketing allotments are not authorized
by the Act. 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 permitted imported quantity and is designed to make the
importation of the excess sugar uneconomical. To the
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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 tariff-rate quota for sugar to be allowed entry into the United
States during the year ending September 30, 1996 is 2,223,577 STRV.
The Act imposes a marketing assessment fee, 24.75 cents per hundred pounds
of raw cane sugar and 26.54 cents per hundred pounds of refined beet sugar
(both increased from the predecessor act), 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 to increase its sugar exports to the United States if Mexico is
projected to produce a net surplus of sugar. Mexico claims to have been a
surplus producer during fiscal 1996 and the market anticipates Mexico will be
a surplus producer in fiscal 1997. The terms of the North American Free Trade
Agreement restrict Mexico's exports to the United States to no more than
25,000 STRV annually until the year 2000. Mexico's exports to the United
States would be further increased in the event Mexico produced a sugar surplus
for two consecutive years during the seven years prior to the year 2000 or at
anytime after the year 2000.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 1,500 year-round
employees. In fiscal 1996, the Company employed approximately 1,450 seasonal
employees during the sugarbeet processing seasons when beet sugar factories
are operating around-the-clock. Spreckels employed approximately 500 year-
round employees and 275 seasonal employees at April 30, 1996.
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. The Distillery, Wine and Allied Workers
International Union contract expires March 1, 1998. The American Federation of
Grain Millers International Union contract expired on April 30, 1996 and a new
contract is being negotiated. The Company and the Union have agreed to perform
under the terms of the expired contract while negotiations are proceeding. The
Company believes its employee and union relationships are good.
ENVIRONMENTAL REGULATION
Company operations are governed by various federal, state and local
environmental regulations. These regulations impose effluent and emission
limitations, and requirements regarding management of water resources, air
resources, toxic substances, solid waste and emergency planning. The Company
has obtained or is making application for the required permits.
Each of the Company's manufacturing locations is permitted for the disposal
of waste materials and the monitoring of air and water quality. Additional
testing requirements and more stringent permit limitations have resulted in
increasing environmental costs. The Company expects the cost of compliance to
continue to increase.
Imperial's Sugar Land refinery is permitted to discharge waste water for
treatment by the Sugar Land Regional Sewage System. Imperial's discharge of
cooling water has become subject to more restrictive limitations, which will
require capital expenditures of approximately $1.5 million in the next year to
achieve and maintain long-term compliance.
Waste water odor control is being addressed at Holly's Tracy, California
facility and Spreckels' facilities at Mendota, California and Woodland,
California. The soil and ground water at Spreckel's Mendota, California
facility have high concentrations of salts. Spreckels has developed a
prevention plan to install a clay cap on the areas of concern and to treat the
affected ground water. This plan will be accomplished over a 20 to 30 year
period with an expected annual cost ranging from $40,000 to $120,000. Holly's
Torrington facility has made significant operational modifications in order to
meet more restrictive state solid waste and groundwater regulations.
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The Clean Air Act Amendments of 1990 ("CAAA") are expected to require
substantial capital expenditures, increased operational costs, and increased
emissions and permitting fees over the next ten years. Each State's
Implementation Plan will define permit parameters, monitoring requirements and
reporting criteria as directed by the CAAA Title V permitting process. To date
application for Title V permits have only been required at Holly's Wyoming
factories in Torrington and Worland. Applications for these permits have been
filed. The Company will not be able to estimate compliance costs until the
final regulations are issued and permits are obtained.
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 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.
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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........................................ 8,200
Hamilton City, California.................................. 4,000
Mendota, California (Spreckels)............................ 4,200
Tracy, California.......................................... 5,000
Woodland, California (Spreckels)........................... 4,000
Sidney, Montana............................................ 5,400
Hereford, Texas............................................ 7,700
Torrington, Wyoming........................................ 5,600
Worland, Wyoming........................................... 3,600
------
Total.................................................... 47,700
======
In April 1996, the Company announced that it would cease sugarbeet
processing at Holly's Hamilton City, California factory upon completion of the
current spring production campaign. In March 1996, the Company discontinued
operation of its forward packaging and distribution center in Betteravia,
California.
Holly operates ion exclusion facilities at its Hereford, Texas and Mendota,
California factories, and a Steffens extraction process at its Woodland,
California factory. These processes increase each factory's refined sugar
production capacity without an increase in beet slicing capacity by extracting
sugar from molasses, a by-product of the beet sugar production process.
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 was significantly increased by the
construction of additional silos during fiscal 1996. The additional silos,
built on land leased by Holly to the venture, are 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 office complex is located on nine acres owned by the
Company. Holly leases approximately 25,900 square feet of office space for
administrative offices in Colorado Springs, Colorado. Holly is attempting to
sublease the administrative offices to a third party as part of the Company's
strategy to consolidate corporate functions in Sugar Land. Holly has subleased
until the termination of the base lease the Research and Development Center in
Colorado Springs to a third party as part of the Company's consolidation
efforts. Each of the leases in Colorado Springs expires in 2005.
Spreckels leases 22,000 square feet of office space in Pleasanton,
California. The Company will close the administrative office and is attempting
to sublease the space. The lease for the Pleasanton office terminates in 2003.
Spreckels leases a 90,000 square foot raw sugar warehouse in Stockton,
California under a lease which terminates in 1997.
Imperial's wharf and warehouse facilities in Galveston are located on
property leased from the Port of Galveston under a lease which expires in
2013. The Company owns the raw sugar discharging equipment located at this
facility.
The Company owns approximately 250 acres of land near its refinery and
approximately 10,800 acres of land at the various beet sugar factory sites.
Most of this acreage is used for the factories, settling ponds and as
9
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. Limestone Products
Company, Inc., a subsidiary of Holly, is the owner of a limestone quarry at
Cool, California.
Holly has a 43% limited partner interest in a partnership which owns the
site of a former beet sugar production facility in Moses Lake, Washington. The
facility, once operated by U & I Sugar, includes silos and storage tanks, and
is located on approximately 1,400 acres. The partnership is proceeding with
arrangements to construct a beet processing facility on the site.
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.
As a result of the investigation by the Anti-dumping and Countervailing
Division of Revenue Canada concerning the alleged dumping into Canada of
refined sugar originating in or exported from the United States and other
countries, a prohibitive import duty has been imposed on sugar exported to
Canada from the United States. During the past two fiscal years, the Company
has not exported sugar to Canada and thus the Company believes that the duty
will not have a materially adverse effect on its results of operations or
consolidated financial position.
10
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, 1996.
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
---- ---- ---------
James C. Kempner................. 56 President, Chief Executive Officer and
Chief Financial Officer
Roger W. Hill.................... 56 Managing Director and Executive Vice
President; President and Chief
Executive Officer of Holly
Peter C. Carrothers.............. 56 Managing Director and Senior Vice
President--Operations
William F. Schwer................ 48 Managing Director, Senior Vice
President, Secretary and General
Counsel
Douglas W. Ehrenkranz............ 38 Vice President--Sales & Marketing
Brian T. Harrison................ 40 Vice President--Cane Operations
Roy E. Henderson................. 57 Vice President--Administration
Calvin K. Jones.................. 50 Vice President--Commodities
John A. Richmond................. 49 Vice President--Operations
Roy F. Silva..................... 56 Vice President--Product Development
Robert W. Strickland............. 49 Vice President--Beet Operations
H. P. Mechler.................... 42 Controller
Karen L. Mercer.................. 34 Treasurer
- --------
* As of June 3, 1996.
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. James C. Kempner became President and Chief Executive Officer in 1993
and has been Chief Financial Officer from 1988. In 1994, Mr. Kempner became
President and Chief Executive Officer of Imperial. Mr. Kempner served as
Executive Vice President from 1988 to 1993.
Mr. Hill was named a Managing Director in October 1995 and has been
Executive Vice President since 1988. Mr. Hill also has been President and
Chief Executive Officer of Holly since 1988. Mr. Hill joined Holly in 1963 and
served in various capacities, including Vice President--Agriculture and
Executive Vice President.
Mr. Carrothers became a Managing Director in October 1995 and has been
Senior Vice President--Operations since March 1995. Mr. Carrothers joined the
Company as Senior Vice President--Logistics in May 1994. From 1990 until
joining the Company, he was Vice President--Logistics of PepsiCo Foods
International and had served in various other capacities with Frito Lay, Inc.,
a subsidiary of PepsiCo, since 1973.
Mr. Schwer became a Managing Director in October 1995 and was named Senior
Vice President, Secretary and General Counsel of the Company in 1993. Mr.
Schwer had been Vice President, Secretary and General Counsel since 1989. He
joined Holly as Assistant General Counsel in 1988.
Mr. Ehrenkranz became Vice President--Sales & Marketing in September 1995.
Prior thereto, Mr. Ehrenkranz had been Director of Sales, Planning &
Marketing-Development since joining the Company in April
11
1995. Prior to joining the Company, Mr. Ehrenkranz was Marketing Manager with
the PepsiCo's Taco Bell subsidiary from 1993 to 1994 and served in various
positions at Procter & Gamble from 1979. His last position at Procter & Gamble
before joining PepsiCo was Category Sales Manager for Folgers Coffee.
Mr. Harrison has been Vice President--Refinery Operations since 1993 and has
been Senior Vice President--Refinery Operations of Imperial since 1994. He was
Refinery Manager of Imperial from 1991 to 1992 and has served in various other
capacities since he joined the Company in 1980.
Mr. Henderson has been Vice President--Administration since 1994. From 1981
until 1994, he was Vice President and Treasurer, and has been an employee of
the Company since 1967.
Mr. Jones was named Vice President--Commodities in October 1995 and has been
Vice President--Agriculture of Holly since 1988. Mr. Jones has served in
various positions with Holly since joining in 1969.
Mr. Richmond was named Vice President--Operations in October 1995. Mr.
Richmond has been Senior Vice President and General Manager, Beet Sugar
Operations, of Holly since 1993. Mr. Richmond was Vice President and General
Manager--Eastern Division of Holly from June 1992 to 1993; Vice President and
Operations Manager of Holly from December 1991 to June 1992; Vice President
and Assistant Operations Manager, Eastern Division from September 1990 to
December 1991; and Assistant Operations Manager, Eastern Region from July 1989
to September 1990. Mr. Richmond joined Holly in 1973.
Mr. Silva has been Vice President--Product Development of the Company since
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 its Director of Technical Development and Marketing
from 1988 to 1989.
Mr. Strickland was named Vice President--Beet Operations in October 1995 and
has been Vice President--Operations of Holly since 1993. Mr. Strickland was
Operations Coordinator for Holly from 1992 to 1993 and Operations Manager,
Western Division of Holly from 1988 to 1992. Mr. Strickland joined Holly in
1972.
Mr. Mechler has been Controller since 1988.
Ms. Mercer became Treasurer in 1994 and has been an employee of the Company
since 1993. Prior to joining the Company she was employed by First City,
Texas--Houston, National Association from 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.
12
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
3, 1996 there were 784 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, 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
June 30, 1995....................................... 9.50 8.69 0.04
September 30, 1995.................................. 9.19 7.88 --
December 31, 1995................................... 8.38 5.25 --
March 31, 1996...................................... 9.63 5.38 --
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the last five years is as follows (in thousands
of dollars, except per share data):
YEAR ENDED MARCH 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
FOR THE PERIOD:
- ---------------
Net Sales............... $616,450 $586,925 $655,498 $647,825 $688,597
Operating Income (Loss). (2,431) (2,091) (4,566) 7,139 2,980
Income (Loss) Before
Extraordinary Item..... (3,218) (5,365) (7,965) 123 (2,815)
Extraordinary Item...... 604 (2) -- -- (3,509)(1) --
Net Income (Loss)....... (2,614) (5,365) (7,965) (3,386) (2,815)
PER SHARE DATA:
- ---------------
Income (Loss) Before
Extraordinary Item..... $ (0.31) $ (0.52) $ (0.78) $ 0.01 $ (0.28)
Extraordinary Item...... 0.06 (2) -- -- (0.34)(1) --
Net Income (Loss)....... (0.25) (0.52) (0.78) (0.33) (0.28)
Cash Dividends Declared. .04 .16 .32 .36 .48
AT PERIOD END:
- --------------
Total Assets............ $325,319 $374,124 $393,660 $398,202 $364,121
Long-Term Debt--Net..... 89,800 100,010 100,044 108,181 64,635
Total Shareholders'
Equity.................. 111,043 109,977 114,737 122,462 129,261
- --------
(1) In fiscal 1993 the Company paid a make-whole premium in connection with
the prepayment of a series of senior notes and recorded the charge, net of
tax, as an extraordinary item.
(2) See Note 6 to the Consolidated Financial Statements.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations in fiscal 1996 was $37.9 million and includes
decreases in raw material and finished products inventory. Operating cash flow
along with the net proceeds from marketable securities sales were used
primarily to reduce long and short-term borrowings and fund capital
expenditures. Working capital totaled $81.7 million at March 31, 1996 and
includes marketable securities which are recorded at a market value of $37.4
million, as discussed in Note 3 to the Consolidated Financial Statements. The
Company's current ratio was 1.8:1.0 at March 31, 1996. 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. Future CCC loans may be
recourse in certain circumstances under recently enacted legislation. See
"Business--Sugar Legislation and Other Market Factors." The Company has a $90
million committed bank line of credit expiring June 1998, as well as
uncommitted bank lines which aggregate $35 million, as described in Note 5 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 1996 totaled $8.9 million; capital
expenditures for fiscal 1997 are expected to approximate $12 million. As
described in Note 2 to the Consolidated Financial Statements, the Company
completed the acquisition of Spreckels in April 1996 for an initial payment of
$35.3 million; the final purchase price and remaining balance due is subject
to the resolution of certain post-closing review issues. The purchase price
was funded from advances under the Company's revolving credit line. Spreckels
owns sugarbeet processing plants in Woodland and Mendota, California, as well
as a sugarbeet seed operation and a limestone quarry. Spreckels' sales for its
most recent fiscal year which ended June 30, 1995, were equivalent to
approximately one-quarter of the Company's sales volume.
The Company has entered into a limited partnership agreement with a
sugarbeet growers cooperative in Washington state to build, operate and market
the production from a new sugarbeet factory. The Company's capital commitment
consists of $2 million and certain production equipment which is not presently
in use. In fiscal 1996, 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 are owned by the venture
and are financed largely by non-recourse, term bank debt.
In fiscal 1996, the Company purchased and retired $10.2 million principal
amount of its 8 3/8% senior notes due 1999. The remaining notes, with an
aggregate principal amount of $89.8 million, require semi-annual interest only
payments prior to maturity. Long-term debt at March 31, 1996 was approximately
45% of total long-term debt plus shareholders' equity. Shareholders' equity
was $111.0 million at March 31, 1996, approximately 34% of total assets.
The Company will adopt Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123") in fiscal 1997. The
Company expects to elect to continue to follow Accounting Principles Board
Opinion No. 25 to measure employee stock compensation cost, and to provide the
pro forma disclosures required by SFAS No. 123. Consequently, the Company does
not expect the adoption of SFAS No. 123 to materially effect reported results
of operations or financial position.
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, prices
of competing crops,
14
weather conditions and United States farm and trade policy, that the Company
is unable to predict. Certain segments of the beet sugar industry in recent
years have expanded sugarbeet acreage at rates exceeding the rate of growth in
the demand for refined sugar, which along with large crop yields, put downward
pressure on refined sugar prices. A smaller than expected sugarbeet crop in
the fall of 1995, along with projections of some reductions in sugarbeet
acreage for the fall of 1996, have increased spot refined sugar prices
recently. See "Business--Competition".
The domestic sugar industry operated under marketing allotments imposed by
the USDA for the year ended September 30, 1995. The Company's allotment did
not have a significant restrictive effect on the Company's marketing
abilities. Marketing allotments are not included in the recently enacted
legislation which becomes effective July 1, 1996. 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, 1996 versus 1995
Net sales increased $29.5 million or 5.0% in fiscal 1996 resulting from
increases in both sugar sales volumes and average sales prices. The increase
in sales volumes, which occurred in both the Company's cane and beet sugar
operations, along with a smaller than expected fall sugarbeet crop
significantly reduced ending beet sugar inventory levels. As a result, the
Company expects beet sugar sales volumes during the first two quarters of
fiscal 1997 to be lower than fiscal 1996 (prior to the inclusion of refined
sugar sales owing to the Spreckels acquisition). A substantial portion of this
decrease is expected to be offset by higher cane sugar sales volumes as a
result of lower refined beet sugar inventories industry-wide. Average sales
prices of refined sugar increased modestly during fiscal 1996. Spot prices
began strengthening in the second half of the fiscal year as a result of the
smaller domestic sugarbeet crop. A significant portion of the Company's
industrial sales are made under forward sales contracts, most of which
commence October 1 and extend for up to one year. As a result, changes in the
Company's realized sales prices tend to lag market price changes. To mitigate
its exposure to future price changes, the Company enters into forward purchase
contracts for raw cane sugar and utilizes a participatory sugarbeet purchase
contract described below. See "Business--Raw Materials and Processing
Requirements". By-product sales revenues were virtually unchanged as lower
volumes offset the impact of higher prices. Prices began rising significantly
late in the fiscal year as a result of high feed grain prices.
Cost of sales increased $29.5 million or 5.5% as a result of both higher
sales volumes and increases in unit costs. Raw cane sugar costs increased
significantly during the fiscal year, particularly during the first six
months, due to a tight raw sugar market. Average beet sugar manufacturing
costs increased slightly as the reduced throughput from the smaller fall
sugarbeet crop offset cost reductions achieved in the spring processing
campaigns. As discussed in Note 1 to the Consolidated Financial Statements,
the Company liquidated beginning LIFO inventory layers at costs below current
year cost, and charged such beginning amounts to cost of sales. Competitive
crop pressure, particularly in light of high feed grain prices, as well as
weather conditions in some areas, have reduced the availability of sugarbeet
acreage to contract. The Company has experienced, and expects in fiscal 1997
to continue to experience, reductions in acreage contracted to grow sugarbeets
for its Hereford, Texas plant, and to a lesser degree its Torrington, Wyoming
plant, increasing unit manufacturing costs at those facilities. Sugarbeet
acreage in recent years has also declined in Northern California. Concurrent
with the acquisition of Spreckels, the Company announced that it will cease
processing beet sugar at its Hamilton City, California plant after the current
spring campaign. Prior to its acquisition by Holly, Spreckels closed its
Manteca, California factory, which was retained by the seller. The Company
expects that the consolidation of the processing of the sugarbeets purchased
in Northern California, Oregon and Washington into its three Northern
California plants will reduce freight, increase individual factory throughput
and reduce unit manufacturing costs at those facilities.
Selling, general and administrative costs declined $1.8 million or 3.2% as
increases in volume related selling and distribution costs were more than
offset by reductions in general and administrative as well as research and
15
development costs. During the third fiscal quarter, the Company commenced a
cost reduction program in the sales, administrative and manufacturing overhead
areas and recorded a charge to earnings of $475,000 for the cost of a work
force reduction. Additionally, the Company recorded a $1,750,000 charge in the
fourth quarter related to the closure of the Hamilton City factory.
Interest expense for fiscal 1996 was lower than fiscal 1995 as lower
balances of both short and long-term borrowings were partially offset by
higher short-term interest rates and a lower earnings credit from the interest
rate swap described in Note 6 to the Consolidated Financial Statements. The
interest rate swap, which was entered into to effectively convert a portion of
the Company's fixed rate debt to a floating rate basis and has provided
positive cash flow for each period during its term, expires in October 1996.
Realized gains on marketable securities increased $3.7 million during fiscal
1996; 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 3 to the Consolidated Financial
Statements. The components of income tax expense and its relationship to
statutory rates are detailed in Note 7 to the Consolidated Financial
Statements. The extraordinary item is discussed in Note 6 to the Consolidated
Financial Statements.
Year Ended March 31, 1995 versus 1994
Net sales declined $68.6 million or 10.5% in fiscal 1995, primarily due to a
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 as operating efficiencies at
both the beet factories and the cane refinery as well as elimination of the
high cost Betteravia production overcame an increase in the cost of raw cane
sugar. Additionally, Holly experienced a decline in sugarbeet acreage at its
Hereford, Texas factory which reduced throughput and increased unit costs. 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
resulted in net selling prices falling below such minimum support levels in
some contract areas. Consequently, the low selling price of refined beet sugar
was only partially offset by reduced cost of sugarbeets purchased.
Selling, general and administrative expenses declined $4.1 million from the
year earlier level. Selling and distribution costs declined primarily due to
sales volume reductions; general and administrative costs, combined with
research and development costs were 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 5
and 6 to the Consolidated Financial Statements for a description of the
Company's borrowings.
Realized gains on marketable securities increased $184,000 during fiscal
1995. 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 7 to the Consolidated Financial Statements.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index of financial statements and financial statement schedules
under "Exhibits, Financial Statement Schedules and Reports on Form 8-K."
Unaudited quarterly financial data for the last two fiscal years is as
follows (in thousands of dollars, except per share amounts):
PER SHARE
-------------------------------
INCOME (LOSS) INCOME (LOSS)
-------------------- --------------------
BEFORE NET BEFORE NET
NET GROSS EXTRAORDINARY INCOME EXTRAORDINARY INCOME CASH
SALES MARGIN ITEM (LOSS) ITEM (LOSS) DIVIDENDS
-------- ------- ------------- ------ ------------- ------ ---------
Fiscal 1996:
June 30, 1995......... $148,824 $14,517 $ 766 $1,146 $0.07 $0.11 $0.04
September 30, 1995.... 165,786 13,958 (1,530) (1,530) (0.15) (0.15) --
December 31, 1995(1).. 171,569 13,760 (419) (195) (0.04) (0.02) --
March 31, 1996(2)..... 130,271 12,337 (2,035) (2,035) (0.20) (0.20) --
Fiscal 1995:
June 30, 1994......... $149,324 $14,592 $ 996 $ 996 $0.10 $0.10 $0.04
September 30, 1994.... 162,072 13,752 (1,140) (1,140) (0.11) (0.11) 0.04
December 31, 1994..... 147,776 16,909 107 107 0.01 0.01 0.04
March 31, 1995........ 127,753 9,249 (5,328) (5,328) (0.52) (0.52) 0.04
- --------
(1) Results of operations for the third quarter of fiscal 1996 include a pre-
tax charge of $475,000 related to the cost of a work force reduction as
discussed in Note 11 to the Consolidated Financial Statements.
(2) Results of operations for the fourth quarter of fiscal 1996 include a pre-
tax charge of $1,750,000 related to costs associated with the closure of
the Company's Hamilton City, California factory as discussed in Note 11 to
the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTOR 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 1996 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.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
ITEM PAGE
---- ----
Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheets at March 31, 1996 and 1995.................... F-2
Consolidated Statements of Income for the years ended March 31, 1996, 1995
and 1994................................................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the years
ended March 31, 1996, 1995 and 1994...................................... F-4
Consolidated Statements of Cash Flow for the years ended March 31, 1996,
1995 and 1994............................................................ 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")).
*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).
18
*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
(incorporated by reference to Exhibit 4(a)(5) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1995 (File
No. 1-10307)).
*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).
*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).
19
*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).
10(k) --Independent Consultant Agreement between I.H. Kempner III and the
Company.
*10(l) --Stock Purchase Agreement dated as of January 8, 1996 by and
between Holly Sugar Corporation and Spreckels Industries, Inc.
(incorporated by reference to Exhibit 4 to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1995 (File
1-10307)).
11 --Computation of Income Per Common Share.
21 --Subsidiaries of the Company.
23 --Independent Auditors' Consent
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated May 3, 1996 in
connection with its acquisition of Spreckels Sugar Company, Inc. and Limestone
Products Company, Inc. on April 19, 1996.
20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JUNE 6, 1996.
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 6, 1996.
SIGNATURE CAPACITY
--------- --------
/s/ James C. Kempner
- -------------------------------------------
James C. Kempner President, Chief Executive Officer, Chief
Financial Officer and Director (Principal
Executive Officer and Principal Financial
Officer)
/s/ H. P. Mechler
- -------------------------------------------
H. P. Mechler Controller (Principal Accounting Officer)
/s/ I. H. Kempner, III
- -------------------------------------------
I. H. Kempner, III Chairman of the Board of Directors
/s/ Robert C. Hanna
- -------------------------------------------
Robert C. Hanna Director
/s/ A. M. Bartolo
- -------------------------------------------
A. M. Bartolo Director
/s/ John D. Curtin, Jr.
- -------------------------------------------
John D. Curtin, Jr. Director
/s/ Edward O. Gaylord
- -------------------------------------------
Edward O. Gaylord Director
/s/ Ann. O. Hamilton
- -------------------------------------------
Ann. O. Hamilton Director
/s/ Roger W. Hill
- -------------------------------------------
Roger W. Hill Director
21
SIGNATURE CAPACITY
--------- --------
/s/ Harris L. Kempner, Jr.
- -------------------------------------------
Harris L. Kempner, Jr. Director
/s/ Henry E. Lentz
- -------------------------------------------
Henry E. Lentz Director
/s/ Robert L. K. Lynch
- -------------------------------------------
Robert L. K. Lynch Director
/s/ Fayez Sarofim
- -------------------------------------------
Fayez Sarofim Director
/s/ Daniel K. Thorne
- -------------------------------------------
Daniel K. Thorne Director
22
INDEPENDENT AUDITORS' REPORT
Imperial Holly Corporation:
We have audited the accompanying consolidated financial statements of
Imperial Holly Corporation and subsidiaries (the "Company"), listed in Item
14(a)(1). 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
Deloitte & Touche llp
Houston, Texas
May 31, 1996
F-1
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
-----------------
1996 1995
ASSETS -------- --------
(IN THOUSANDS OF
DOLLARS)
CURRENT ASSETS:
Cash and temporary investments............................ $ 1,930 $ 1,686
Marketable securities (Note 3)............................ 37,373 35,079
Accounts receivable--trade................................ 37,251 37,109
Income tax receivable..................................... 1,485 1,125
Inventories:
Finished products (Note 5).............................. 61,702 100,540
Raw and in-process materials............................ 15,929 22,633
Supplies................................................ 12,124 11,990
Manufacturing costs prior to production .................. 12,476 11,969
Prepaid expenses.......................................... 3,260 4,394
-------- --------
Total current assets.................................. 183,530 226,525
NOTES RECEIVABLE (Note 4)................................... 1,195 2,445
OTHER INVESTMENTS (Note 3).................................. 6,702 6,450
PROPERTY, PLANT AND EQUIPMENT--Net (Note 4)................. 124,103 128,952
OTHER ASSETS................................................ 9,789 9,752
-------- --------
TOTAL................................................. $325,319 $374,124
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade................................... $ 37,937 44,756
Short-term borrowings (Note 5)............................ 31,839 61,092
Current maturities of long-term debt (Note 6)............. 8 51
Deferred income taxes (Note 7)............................ 8,248 7,930
Other current liabilities................................. 23,772 26 ,354
-------- --------
Total current liabilities............................. 101,804 140,183
-------- --------
LONG-TERM DEBT--Net of current maturities (Note 6).......... 89,800 100,010
DEFERRED INCOME TAXES (Note 7).............................. 21,320 21,323
DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS (Note 8)....... 1,352 2,631
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Notes 5, 8 and 9):
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, 10,312,507 and 10,283,445 shares issued
and outstanding at March 31, 1996 and 1995, respectively. 32,276 32,046
Retained earnings......................................... 69,829 72,854
Unrealized securities gains--net of income taxes (Note 3). 8,938 5,635
Pension liability adjustment (Note 8)..................... -- (558)
-------- --------
Total shareholders' equity.............................. 111,043 109,977
-------- --------
TOTAL................................................. $325,319 $374,124
======== ========
See notes to consolidated financial statements.
F-2
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED MARCH 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
NET SALES.................................. $ 616,450 $ 586,925 $ 655,498
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales............................ 561,878 532,423 598,440
Selling, general and administrative...... 54,778 56,593 60,699
Restructuring charges (Note 11).......... 2,225 -- 925
---------- ---------- ----------
Total.................................. 618,881 589,016 660,064
---------- ---------- ----------
OPERATING INCOME (LOSS).................... (2,431) (2,091) (4,566)
INTEREST EXPENSE--Net...................... (11,207) (11,426) (10,906)
REALIZED SECURITIES GAINS--Net (Note 3).... 5,389 1,649 1,465
OTHER INCOME--Net (Note 11)................ 3,173 3,219 2,730
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ (5,076) (8,649) (11,277)
PROVISION (CREDIT) FOR INCOME TAXES
(Note 7).................................. (1,858) (3,284) (3,312)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... (3,218) (5,365) (7,965)
EXTRAORDINARY ITEM--Net of tax of $325
(Note 6).................................. 604 -- --
---------- ---------- ----------
NET INCOME (LOSS).......................... $ (2,614) $ (5,365) $ (7,965)
========== ========== ==========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (Loss) before extraordinary item.. $ (0.31) $ (0.52) $ (0.78)
Extraordinary item--Net.................. 0.06 -- --
---------- ---------- ----------
Net Income (Loss)........................ $ (0.25) $ (0.52) $ (0.78)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING........ 10,300,487 10,266,229 10,220,172
========== ========== ==========
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, EXCEPT SHARE AMOUNTS)
BALANCE, APRIL 1, 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
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
Net loss.............. -- -- (2,614) -- -- (2,614)
Cash dividends ($.04
per share)........... -- -- (411) -- -- (411)
Exercise of stock
options.............. 11,445 85 -- -- -- 85
Employee stock
purchase plan........ 17,617 145 -- -- -- 145
Unrealized securities
gains--net........... -- -- -- 3,303 -- 3,303
Pension liability
adjustment........... -- -- -- -- 558 558
---------- ------- ------- ------ ----- --------
BALANCE, MARCH 31, 1996. 10,312,507 $32,276 $69,829 $8,938 $ 0 $111,043
========== ======= ======= ====== ===== ========
See notes to consolidated financial statements.
F-4
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED MARCH 31,
-----------------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net income (loss)............................. $ (2,614) $ (5,365) $ (7,965)
Adjustments for noncash and nonoperating
items:
Extraordinary item--net..................... (604) -- --
Depreciation................................ 12,681 13,429 15,360
Deferred income tax provision............... (1,737) (3,294) 678
Other....................................... (5,203) (2,021) (797)
Working capital changes:
Receivables................................. (502) 5,380 3,456
Inventory................................... 45,408 8,914 (12,809)
Deferred and prepaid costs.................. 627 1,814 3,423
Accounts payable............................ (6,819) 989 (2,892)
Other liabilities........................... (3,361) 2,358 (6,119)
--------- -------- --------
Operating cash flow........................... 37,876 22,204 (7,665)
--------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.......................... (8,890) (7,850) (8,423)
Investment in marketable securities........... (6,537) (6,675) (5,135)
Proceeds from sale of marketable securities... 14,974 4,344 6,231
Proceeds from sale of fixed assets............ 1,478 5,915 60
Other investments............................. (741) 245 169
Other......................................... 864 131 356
--------- -------- --------
Investing cash flow........................... 1,148 (3,890) (6,742)
--------- -------- --------
FINANCING ACTIVITIES:
Short-term borrowings:
Bank borrowings--net........................ (5,431) (15,721) 25,622
CCC borrowings--advances.................... 153,143 76,307 70,712
CCC borrowings--repayments.................. (176,965) (76,280) (69,023)
Repayment of long-term debt................... (9,324) (67) (18,816)
Proceeds of long-term debt.................... -- -- --
Dividends paid................................ (411) (1,643) (3,268)
Stock option proceeds and other............... 208 221 330
--------- -------- --------
Financing cash flow........................... (38,780) (17,183) 5,557
--------- -------- --------
INCREASE (DECREASE) IN CASH AND TEMPORARY
INVESTMENTS.................................... 244 1,131 (8,850)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR........................................... 1,686 555 9,405
--------- -------- --------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR..... $ 1,930 $ 1,686 $ 555
========= ======== ========
See notes to consolidated financial statements.
F-5
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES
The Company--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. The Company is
significantly affected by market factors, including domestic prices for
refined sugar and raw cane sugar. These market factors are influenced by a
variety of external forces, including the number of domestic acres contracted
to grow sugar cane and sugarbeets, prices of competing crops, weather
conditions and United States farm and trade policy. Federal legislation and
regulations provide for mechanisms designed to support the price of domestic
sugar crops, principally the limitations on importation of raw cane sugar for
domestic consumption. In addition, agricultural conditions in the Company's
growing areas may materially affect the quality and quantity of sugar beets
available for purchase as well as the unit costs of raw materials and
processing.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and assumptions
that affect the reported amounts as well as certain disclosures. The Company's
financial statements include amounts that are based on management's best
estimates and judgments. Actual results could differ from those estimates.
Cash and Temporary Investments--Temporary investments consist of short-term,
highly liquid investments with maturities of 90 days or less at the time of
purchase.
Marketable Securities--All of the Company's marketable securities are
classified as "available for sale", and accordingly, are reflected in the
Consolidated Balance Sheets at fair market value, with the aggregate
unrealized gain, net of related deferred tax liability, included as a
component of shareholders' equity. Cost for determining gains and losses on
sales of marketable securities is determined on the FIFO method.
Inventories--Inventories are stated at the lower of cost or market. Cost of
sugar is determined under the last-in first-out ("LIFO") method. All other
costs are determined under the first-in first-out ("FIFO") method.
If only the FIFO cost method had been used, inventories would have been
$12,867,000 and $13,267,000 higher at March 31, 1996 and 1995, respectively.
Reductions in inventory quantities in fiscal 1996 and 1995 resulted in
liquidations of LIFO inventory layers carried at costs prevailing in prior
years. The effect of these liquidations was to increase net income by about
$1,385,000 ($0.13 per share) in 1996 and decrease net income by about $114,000
($0.01 per share) in 1995.
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
incurred between processing periods which are necessary to prepare the factory
for the next processing campaign are deferred and allocated to the cost of
sugar produced in the subsequent campaign.
F-6
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
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 $89.8 million
principal amount of 8-3/8% senior notes as of March 31, 1996 was approximately
$88 million, based on a dealer quote.
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 1996 presentation.
2. ACQUISITION OF SPRECKELS SUGAR
On April 19, 1996, the Company acquired all of the outstanding capital stock
of Spreckels Sugar Company, Inc. and Limestone Products Company, Inc.
(collectively "Spreckels"), a California based beet sugar processor. The
purchase price was the sum of i) Spreckels' net working capital as of December
31, 1995, ii) $3 million and iii) net cash advanced to Spreckels by the seller
between December 31, 1995 and the closing date. The Company funded from
current borrowings under the Company's revolving credit line $35.3 million of
the purchase price at closing, and the seller calculated the total purchase
price as $41.3 million, with a remaining balance due of $6.0 million. As a
result of a post-closing review performed by the Company pursuant to the Stock
Purchase Agreement, the Company has notified the seller that it calculates the
purchase price as $29.3 million. The Company and the seller are presently
attempting to resolve these differences.
The acquisition will be accounted for as a purchase and Spreckels' results
of operations will be included in the Company's consolidated financial
statements commencing April 19, 1996. Accordingly, the assets, liabilities and
operating results of Spreckels are not included in the accompanying
consolidated financial statements.
F-7
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
3. INVESTMENTS
Marketable securities consisted of the following (in thousands of dollars):
MARCH 31, 1996 MARCH 31, 1995
-------------------------------- -------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
FAIR HOLDING FAIR HOLDING
AMORTIZED MARKET -------------- AMORTIZED MARKET -------------
COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES
--------- ------- ------- ------ --------- ------- ------ ------
US Government securities
due 1996 through 1997.. $ 4,881 $ 4,937 $ 56 $-- $ 2,889 $ 2,875 $ 3 $ (17)
Municipal securities.... -- -- -- -- 1,456 1,458 2 --
Common stocks........... 18,740 32,436 13,696 -- 20,281 28,808 8,632 (105)
Other................... -- -- -- -- 1,784 1,938 184 (30)
------- ------- ------- --- ------- ------- ------ -----
Total................... $23,621 $37,373 $13,752 $-- $26,410 $35,079 $8,821 $(152)
======= ======= ======= === ======= ======= ====== =====
Realized securities gains are reported net of realized losses of $2,000 in
1996, $106,000 in 1995 and $0 in 1994. Marketable securities with a market
value of $7,039,000 at March 31, 1996 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.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1996 and 1995 consisted of the
following (in thousands of dollars):
1996 1995
-------- --------
Land................................................... $ 13,682 $ 14,071
Buildings, machinery and equipment..................... 251,949 245,382
Construction in progress............................... 2,094 2,281
-------- --------
Total.............................................. 267,725 261,734
Less accumulated depreciation.......................... 143,622 132,782
-------- --------
Property, Plant and Equipment--Net..................... $124,103 $128,952
======== ========
The Company sold distribution facilities during fiscal 1995 in exchange for
three-year, fixed rate notes aggregating $2,466,000; one such note was
collected in full in fiscal 1996. A gain of $780,000 on one such sale was
deferred until collection of the related note whose final maturity is in
fiscal 1998.
During fiscal 1996 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which did not have a material effect on
results of operations or financial position.
5. SHORT-TERM BORROWINGS
At March 31, 1996, the Company had working capital financing available from
domestic banks under a $90,000,000 unsecured revolving credit line which
expires in June 1998. 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, 1996,
the Company had the ability to pay dividends of up to $6,000,000 under the
most restrictive of such financial covenants. The
F-8
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
Company also has short-term borrowing facilities available from banks on an
uncommitted basis aggregating $35,000,000 at March 31, 1996. Interest on these
borrowings is on a negotiated rate basis.
Additionally, the Company borrows short-term from the Commodity Credit
Corporation ("CCC") under the USDA'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, 1996 and 1995 were as follows (in
thousands of dollars):
1996 1995
------- -------
Commodity Credit Corporation............................ $27,319 $51,141
Bank working capital financing.......................... 4,520 9,951
------- -------
Total............................................... $31,839 $61,092
======= =======
Weighted Average Interest Rate.......................... 5.36% 7.03%
======= =======
6. LONG-TERM DEBT
Long-term debt at March 31, 1996 and 1995 was as follows (in thousands of
dollars):
1996 1995
------- --------
8-3/8% senior notes..................................... $89,800 $100,000
Other................................................... 8 61
------- --------
Total long-term debt.................................... 89,808 100,061
Less current maturities................................. 8 51
------- --------
Long-term debt, net..................................... $89,800 $100,010
======= ========
The Company's 8-3/8% senior notes due 1999 do not require principal payments
prior to maturity. The indenture relating to the senior notes contains
restrictions on the Company's ability to create liens on certain properties.
During fiscal 1996, the Company purchased and retired $10.2 million principal
amount of the senior notes for amounts less than its book value, and reported
such difference, net of tax, as an extraordinary item.
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 $10.7
million. 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 recorded in other investments at its market value of $224,000 at March 31,
1996. Income on the swap of $289,000 in 1996, $643,000 in 1995 and $1,356,000
in 1994 is reported in interest expense-net.
Cash paid for interest on short and long-term debt was $12,228,000 in 1996,
$11,463,000 in 1995 and $12,562,000 in 1994. Interest capitalized as part of
the cost of constructing assets was not significant for 1996, 1995 or 1994.
F-9
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
7. INCOME TAXES
The components of the consolidated income tax provision (credit), including
amounts reported as an extraordinary item, for each of the last three fiscal
years were as follows (in thousands of dollars):
1996 1995 1994
------- ------- -------
Federal:
Current...................................... $ 109 $ (36) $(4,032)
Tax benefit of operating loss carryforward... (1,452) (1,636) --
Deferred..................................... (285) (1,658) 678
State.......................................... 95 46 42
------- ------- -------
Total........................................ $(1,533) $(3,284) $(3,312)
======= ======= =======
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities at March 31, 1996 and 1995 were as follows
(in thousands of dollars):
1996 1995
--------------------------- ---------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------ ----------- -------- ------ ----------- --------
Current:
Marketable securities
valuation
differences.......... -- $ (4,813) $ (4,813) -- $ (3,034) $ (3,034)
Inventory valuation
differences,
principally purchase
accounting........... -- (6,320) (6,320) -- (6,091) (6,091)
Manufacturing costs
prior to production
deducted currently... -- (4,366) (4,366) -- (4,189) (4,189)
Accruals not currently
deductible........... $2,081 -- 2,081 $2,005 -- 2,005
Alternate minimum tax
differences.......... 903 -- 903 1,146 -- 1,146
Operating loss
carryforwards
(expiring 2010 and
2011)................ 3,172 -- 3,172 1,636 -- 1,636
Other................. 1,135 (40) 1,095 637 (40) 597
------ -------- -------- ------ -------- --------
Total current....... 7,291 (15,539) (8,248) 5,424 (13,354) (7,930)
------ -------- -------- ------ -------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (18,443) (18,443) -- (19,980) (19,980)
Pension cost
differences.......... -- (1,711) (1,711) -- (1,099) (1,099)
Accruals not currently
deductible........... 154 -- 154 908 -- 908
Other................. -- (1,320) (1,320) -- (1,152) (1,152)
------ -------- -------- ------ -------- --------
Total noncurrent.... 154 (21,474) (21,320) 908 (22,231) (21,323)
------ -------- -------- ------ -------- --------
Total................... $7,445 $(37,013) $(29,568) $6,332 $(35,585) $(29,253)
====== ======== ======== ====== ======== ========
F-10
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate of 35% to
the Company's income before taxes. The reasons for the differences from the
statutory rate are as follows (in thousands of dollars):
1996 1995 1994
------- ------- -------
Income taxes computed at the statutory federal
rate......................................... $(1,451) $(3,027) $(3,947)
Effect of increase in statutory rate on
deferred tax liabilities..................... -- -- 871
Nontaxable interest and dividends............. (251) (299) (295)
State income taxes............................ 62 30 28
Foreign sales corporation..................... (59) (68) (53)
Other......................................... 166 80 84
------- ------- -------
Total....................................... $(1,533) $(3,284) $(3,312)
======= ======= =======
Income taxes paid in 1996 were $213,000; income tax refunds received were
$3,778,000 in 1995 and $4,482,000 in 1994.
8. 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 the remaining
service periods. Additionally, the Company provides a supplemental non-
qualified, unfunded pension plan for certain officers whose benefits under the
qualified plan are limited by federal tax law. The Company provides a non-
qualified retirement plan for non-employee directors, which provides benefits
based upon years of service as a director and the retainer in effect at the
date of a director's retirement.
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):
1996 1995 1994
-------- ------- -------
Company-sponsored plans:
Service cost for benefits earned during the
period.................................... $ 2,089 $ 2,128 $ 1,973
Interest cost on projected benefit
obligation................................ 2,653 2,348 2,156
Actual return on plan assets............... (10,141) (4,439) 275
Net amortization and deferral.............. 8,377 3,254 (1,398)
-------- ------- -------
Net periodic pension cost - Company-
sponsored plans........................... 2,978 3,291 3,006
Industry-wide plan for certain unionized
employees................................... 438 459 517
-------- ------- -------
Total pension cost......................... $ 3,416 $ 3,750 $ 3,523
======== ======= =======
F-11
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
The funded status of the Company-sponsored plans was as follows at March 31,
1996 and 1995 (in thousands of dollars):
1996 1995
------------------------------- -------------------------------
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.............. $ 9,055 $17,832 $ 8,353 $14,948
Nonvested........... 668 433 627 497
------- ------- ------- -------
Total accumulated
benefit obligations.. 9,723 18,265 8,980 15,445
Effect of projected
future salary
increases............ 715 8,434 673 7,442
------- ------- ------- -------
Projected benefit
obligations.......... 10,438 26,699 9,653 22,887
Plan assets at fair
value (primarily listed
stocks and bonds)...... 6,889 31,888 5,029 23,990
------- ------- ------- -------
Projected benefit
obligations over
(under) plan assets.... 3,549 (5,189) 4,624 (1,103)
Prior service cost of
plan amendments........ (2,118) 22 (2,440) 50
Unrecognized net gains
(losses):
Arising at transition
date................. ( 989) 293 (1,302) 370
Arising subsequent to
transition date...... (175) 3,108 (834) (1,932)
Adjustment for
additional liability... 2,567 -- 3,903 --
------- ------- ------- -------
Accrued (prepaid)
pension cost........... $ 2,834 $(1,766) $ 3,951 $(2,615)
======= ======= ======= =======
Assumptions used:
Current discount rate
for plan liabilities. 7.5% 7.5% 8.0% 8.0%
Projected annual rate
of increase in
compensation levels.. 5.5% 5.5% 5.5% 5.5%
Assumed long-term
return on plan
assets............... 8.0% 8.0% 8.0% 8.0%
401(k) 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 $22,000 in 1996, $30,000 in 1995
and $16,000 in 1994.
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
F-12
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
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:
1996 1995 1994
--------------------- --------------------- ---------------------
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- ------------ ------- ------------ ------- ------------
Beginning Balance....... 510,733 $6.44-$16.83 494,815 $6.44-$16.83 363,214 $6.44-$16.83
Granted................. 94,000 $7.78-$ 8.88 24,500 $8.81-$ 9.75 208,000 $8.69-$14.00
Expired................. (66,199) $8.69-$15.88 (1,000) $8.69 (34,201) $8.69-$15.88
Exercised............... (9,945) $6.44-$ 8.69 (7,582) $6.44-$ 8.69 (42,198) $6.44
------- ------- -------
Balance, March 31....... 528,589 $6.44-$16.83 510,733 $6.44-$16.83 494,815 $6.44-$16.83
======= ======= =======
Exercisable as of March
31..................... 330,964 $6.44-$16.83 331,609 $6.44-$16.83 248,466 $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, 1996, options
outstanding with SARs attached totaled 61,128 shares, all of which were
exercisable. A charge (credit) representing the increase(decrease) of the
excess of fair market value over the exercise price of SARs totaling $(89,000)
in 1996, $0 in 1995 and ($159,000) in 1994 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:
1996 1995 1994
-------------------- ------------------- -------------------
PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- ----------- ------- ----------- ------- -----------
Beginning Balance....... 5,250 $4.75-$8.84 6,000 $4.75-$8.84 3,000 $8.09-$8.84
Granted................. -- -- 3,000 $4.75-$7.00
Expired................. (750) $8.84 (750) $8.84 --
Exercised............... (1,500) $8.09 -- --
------ ----- -----
Balance, March 31....... 3,000 $4.75-$7.00 5,250 $4.75-$8.84 6,000 $4.75-$8.84
====== ===== =====
Exercisable as of March
31..................... -- -- 2,250 $8.09-$8.84 1,500 $8.84
====== ===== =====
F-13
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996, 1995 AND 1994
9. 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 (68,750 in total
as of March 31, 1996) 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.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
The Company has had $2.8 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 $4,343,000, $3,519,000 and $3,117,000 in fiscal 1996, 1995 and
1994 respectively.
The aggregate future minimum lease commitments under noncancelable operating
leases at March 31, 1996 are summarized as follows (in thousands of dollars):
OPERATING
FISCAL YEAR LEASES
----------- ---------
1997........................................................... $1,894
1998........................................................... 1,593
1999........................................................... 1,230
2000........................................................... 772
2001........................................................... 665
After 2001...................................................... 1,504
11. SUPPLEMENTARY INCOME STATEMENT INFORMATION
In fiscal 1996 the Company recorded a charge of $1,750,000 related to the
announced closure of its Hamilton City California beet processing facility in
early fiscal 1997, as well as a charge of $475,000 related to costs in
connection with a work force reduction affecting approximately 50 persons in
administrative and manufacturing overhead positions. As of March 31, 1996,
$336,000 had been incurred in connection with the termination of 45
individuals. 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.
Other income--net includes interest and dividends totaling $1,820,000 in
1996, $1,456,000 in 1995 and $1,494,000 in 1994. Amounts charged to expense
for research and development were $1,670,000 in 1996, $2,084,000 in 1995 and
$2,679,000 in 1994.
F-14