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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, 1997 COMMISSION FILE NUMBER 1-10307

IMPERIAL HOLLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS 74-0704500
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)


ONE IMPERIAL SQUARE, SUITE 200
P.O. BOX 9
SUGAR LAND, TEXAS 77487
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 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 $95.8 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on June
2, 1997 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 2, 1997, was 14,250,293.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 1997 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................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.............. 10
Executive Officers of the Registrant............................. 10

PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters........................................................ 12
Item 6. Selected Financial Data ......................................... 12
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations............................................ 13
Item 8. Financial Statements and Supplementary Data ..................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................... 16

PART III

Item 10. Directors and Executive Officers of the Registrant ............. 16
Item 11. Executive Compensation ......................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management . 16
Item 13. Certain Relationships and Related Transactions ................. 16

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 17



----------------

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", "anticipate", "plan", "intend", "could", "may",
"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 all of the outstanding capital stock of
Spreckels and Limestone Products Company, Inc. Effective March 31, 1997,
Spreckels was merged into Holly Sugar Corporation and continues as a division
of Holly. 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 the seller and
has been closed. Spreckels has been in continuous operation since 1898. The
Company ceased sugarbeet processing at Holly's Hamilton City, California
factory in June 1996.

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. This facility is
under construction with a current total budget of approximately $140 million
and is expected to process sugarbeets for the first time in the 1998 fall
campaign.

PRODUCTS AND SALES

Sugar. The Company's principal product line is refined sugar, which
accounted for approximately 90% of consolidated net sales in the Company's
fiscal year ended March 31, 1997. Cane sugar and beet sugar account for
approximately 45% and 55%, respectively, of the Company's fiscal 1997 sugar
production. The Company produces and sells granulated white, brown and
powdered sugar to wholesalers, retail grocers and food manufacturers. Sugar is
sold in consumer packages and industrial packages and in bulk and liquid form
(including invert sugar and blended products).

Sales to wholesalers and grocers consist primarily of consumer packages of
granulated, brown and powdered sugar. These consumer packages, which range
from one pound boxes to 25-pound bags and constitute approximately one-third
of the sugar sold, are marketed under the Imperial(R) and Holly(R) brand names
and under various private labels. Spreckels 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.

1


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 and mid-western portions
of the United States. No customer accounted for more than 10% of the Company's
sales during fiscal 1997.

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 7% of consolidated net sales during fiscal 1997. 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 1997, export sales
accounted for approximately 25% 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.

Beet Seed. Holly Hybrids, a division of Holly, produces and markets
commercial seed to beet growers under contract to Holly as well as 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 consolidated Spreckels' and
Holly's beet seed programs during the 1997 fiscal year. See "Research."

Inulin. In October 1995, the Company and Cooperatie Cosun U.A., a
Netherlands sugar processor (formerly known as Cooperatie Suiker Unie U.A.),
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 Cosun and Sensus, a business unit of
Cosun, whereby the Company has agreed to

2


provide certain marketing and administrative services to the joint venture.
Imperial-Suiker Unie has the exclusive right to market in Canada, Mexico and
the United States inulin and inulin-based products produced by Cosun. 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 domestic and
foreign sources. Sources of supply in the recent past have been Louisiana,
Florida and countries in the Caribbean and Central America. The availability
of foreign raw cane sugar is determined by the import quota level designated
by applicable regulation. See "--Sugar Legislation and Other Market Factors".
During fiscal 1997, approximately 48% of the raw sugar purchased by Imperial
was produced domestically. 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 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.

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 when feasible.

Holly supplements its beet sugar production by refining raw cane sugar at
its sugarbeet processing facilities. The cane sugar refined by Holly generally
is co-processed with its beet sugar production, but Holly has also refined raw
cane sugar during periods when it was not processing sugarbeets. Holly expects
to continue to supplement its beet sugar production by refining raw cane sugar
during fiscal 1998.

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 applicable regional minimum support prices, if any,
established by the United States Department of Agriculture ("USDA"). See " --
Sugar Legislation and other Market Factors".

3


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 but appears to have stabilized,
with modest growth expected in fiscal 1998.

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 use significant amounts of coal.
The Company generates a substantial portion of the electricity used at the
refinery and the factories. Fuel oil can be used by the Company at certain
locations both as an alternative energy source when the price is more
attractive and as a backup to natural gas in the event of curtailment of gas
deliveries. Natural gas and coal supplies are typically purchased under
contracts which do not contain minimum quantities for terms of one year or
more.

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. Coal is available in abundant supply domestically and the Company
is able to purchase coal competitively.

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.

Other Raw Materials. Foundry coke and limestone are used in the beet sugar
extraction process. The Company generally purchases coke under contracts with
one to three year terms and utilizes rail transportation to deliver the coke
to factories. Domestic coke supplies may become tighter due to environmental
restrictions; the Company has the option of converting existing coke-fired
equipment to natural gas should the availability and economics of coke so
dictate. 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.
Limestone required in the other factory operations is generally purchased from
independent sources under contracts with one to five-year terms.

RESEARCH

The Company has recently completed the relocation of its Research and
Development Center, consolidating research relating to manufacturing process
technology, factory operations, food science and new product development in
Sugar Land.

Holly has an agreement with D. J. van der Have B.V., a Netherlands beet seed
company, granting D. J. van der Have access to Holly's proprietary beet seed
breeding material for varietal seed 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.

4


Holly is active in sugarbeet disease control. Holly's growing areas, like
those of its competitors, 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 semiannually.

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 at
times during this period.

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; in recent months such discount has increased. The level of per
capita sucrose consumption in the United States has increased 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 lesser extents,
saccharin and acesulfam-k.

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



1993 1994 1995 1996(1)
----------------- ----------------- ----------------- -----------------
POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE POUNDS PERCENTAGE
------ ---------- ------ ---------- ------ ---------- ------ ----------

Refined sugar........... 65.5 45% 65.8 45% 66.2 44% 66.9 44%
HFCS.................... 54.4 38 56.4 38 58.4 39 59.8 39
Other corn sweeteners... 23.6 16 23.9 16 24.3 16 24.4 16
Other................... 1.4 1 1.5 1 1.5 1 1.5 1
----- --- ----- --- ----- --- ----- ---
Total................. 144.9 100% 147.6 100% 150.4 100% 152.6 100%
===== === ===== === ===== === ===== ===

- --------
(1)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.

5


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 became effective July 1, 1996 and extended 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 22.9 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 determined permitted imported quantity and is designed to make the
importation of the excess sugar uneconomical. To the extent the Company sells
refined sugar for export from the United States, it is entitled to import an
equivalent quantity of non-quota eligible foreign raw sugar. The tariff-rate
quota for sugar to be allowed entry into the United States during the year
ending September 30, 1997 is 2,339,000 STRV.

The Act imposes a marketing assessment fee, which was increased to 24.8
cents per hundred pounds of raw cane sugar and 26.5 cents per hundred pounds
of refined beet sugar, that is paid to the CCC by the processor. This fee is
applicable to all refined beet sugar produced from domestically grown
sugarbeets and all raw sugar produced from domestically grown sugar cane.

The North American Free Trade Agreement contains provisions that allow
Mexico to increase its sugar exports to the United States if Mexico is
projected to produce a net surplus of sugar. 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, 1997, the Company employed approximately 1,700 year-round
employees. In fiscal 1997, the Company employed an additional approximately
2,500 seasonal employees during the sugarbeet processing seasons when beet
sugar factories are operating around-the-clock.

The Company's cane refinery and distribution employees are represented by
the International Association of Machinists and Aerospace Workers, AFL-CIO
under a three-year contract which expires October 5, 1997. The Company's beet
sugar factory operating personnel are represented by the Distillery, Wine and
Allied Workers International Division of the United Food and Commercial
Workers International Union, AFL-CIO at

6


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
expires April 30, 1999.

Certain employees of the Company's Cool, California quarry are represented
by the International Union of Operating Engineers, AFL-CIO under a three-year
contract expiring July 31, 1998.

Maintenance and repair employees at the Galveston, Texas facility are
represented by the South Atlantic and Gulf Coast District of the International
Longshoremen's Association under a three-year contract that expires September
30, 1998.

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, and the Company expects the cost of compliance
to continue to increase.

Imperial's Sugar Land refinery is permitted to discharge waste water for
treatment to the Sugar Land Regional Sewage System. Imperial's discharge of
this waste water to the publicly owned treatment facility has become subject
to more restrictive limitations, which will require capital expenditures of
approximately $0.5 million in fiscal 1998.

Waste water odor control is being addressed at Holly's Tracy, California and
Spreckels' facilities at Mendota, California and Woodland, California. The
soil and ground water at Spreckels' 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. The Company has recorded a
liability for the estimated costs of this project. Holly's Torrington facility
has made significant operational modifications in order to meet more
restrictive state solid waste and groundwater regulations.

The Clean Air Act Amendment 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 been required at Holly's Wyoming
and California factories. 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.

7


ITEM 2. PROPERTIES.

Imperial's refinery in Sugar Land is located on 26 acres owned by the
Company and consists of numerous buildings with approximately 600,000 square
feet of factory space. The refinery operates 24 hours a day when sugar is
being refined. The refinery has an estimated melting capacity in excess of
4,000,000 pounds of raw sugar per day. The refinery is served by adequate
transportation and maintained in good operating condition.

The following table shows the location and capacity of Holly's beet sugar
production facilities, each of which is served by adequate transportation and
is maintained in good operating condition. Each of the facilities operates
continuously during the facility's sugar-making campaign, which generally
total 120 to 180 days each year, depending upon the supply of sugarbeets
available.



APPROXIMATE DAILY
SLICING CAPACITY
BEET SUGAR FACTORIES (TONS OF SUGARBEETS)
- -------------------- --------------------

Brawley, California........................................ 8,200
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...................................................... 43,700
======


In June 1996, the Company ceased sugarbeet processing at Holly's Hamilton
City, California factory. 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.

Holly participates in a venture with the sugarbeet growers' associations
representing the sugarbeet growers supplying Holly's Rocky Mountain factories
which significantly increased the refined sugar storage capacity available at
Holly's Sidney factory 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 64,500 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 currently leases approximately 3,897 square feet of office
space for administrative offices in Colorado Springs, Colorado. As part of the
Company's strategy to consolidate corporate functions in Sugar Land, in fiscal
1997 Holly negotiated a novation agreement with the landlord and was released
from liability for the remainder of the Colorado Springs administrative office
space. 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
expire in 2005.

Spreckels leases 22,000 square feet of office space in Pleasanton,
California. The Company closed the Pleasanton office and has subleased the
space through the term of the lease, which terminates in 2003. Spreckels
leases a 90,000 square foot raw sugar warehouse in Stockton, California under
a lease which terminates June 30, 1998.

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.

8


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 buffers
from nearby communities. The remainder of the land is leased as farm and
pasture land. 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 partnership interest in a partnership which owns the
site of a former beet sugar production facility in Moses Lake, Washington. The
partnership is constructing a beet processing facility on the 1,400 acre site
which is scheduled for commissioning in 1998.

ITEM 3. LEGAL PROCEEDINGS.

Spreckels Industries, Inc. (the "Seller") sued the Company claiming the
purchase price paid for Spreckels Sugar Company and Limestone Products Company
was not properly calculated. The Company and the Seller have settled this
dispute and the litigation was dismissed in May 1997. See Note 2 to the
Consolidated Financial Statements for further discussion of the Spreckels
acquisition.

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.

9


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, 1997

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................. 57 President, Chief Executive Officer and
Chief Financial Officer
Peter C. Carrothers.............. 57 Managing Director
Douglas W. Ehrenkranz............ 39 Managing Director
Roger W. Hill.................... 57 Managing Director and President and
Chief Executive Officer of Holly
John A. Richmond................. 50 Managing Director
William F. Schwer................ 49 Managing Director, Secretary and
General Counsel
Brian T. Harrison................ 41 Vice President--Operations Development
Roy E. Henderson................. 58 Vice President--Administration
Calvin K. Jones.................. 51 Vice President--Agriculture
Raymond Knecht................... 49 Vice President--Cane Operations
H. P. Mechler.................... 43 Vice President--Accounting
Karen L. Mercer.................. 35 Vice President and Treasurer
Roy F. Silva..................... 57 Vice President--Product Development
Robert W. Strickland............. 50 Vice President--Beet Operations
Alan K. Lebsock.................. 44 Controller

- --------
* As of June 2, 1997.

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 since 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. Carrothers became a Managing Director in October 1995 and had 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. Ehrenkranz became a Managing Director in April 1997 and had been Vice
President--Sales & Marketing since September 1995. Prior thereto, Mr.
Ehrenkranz had been Director of Sales, Planning & Marketing-Development since
joining the Company in April 1995. Prior to joining the Company, Mr.
Ehrenkranz was Marketing Manager with 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. Hill was named a Managing Director in October 1995 and had 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.

10


Mr. Richmond became a Managing Director in April 1997 and 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 Senior Vice President and General Manager--Eastern Division of
Holly from June 1992 to 1993; Vice President and General Manager--Eastern
Division of Holly from December 1991 to June 1992; Vice President and
Operations Manager--Eastern Division from September 1990 to December 1991;
Vice President, Technical Services and Assistant Operations Manager--Eastern
Division from July 1989 to September 1990; and Vice President, Technical
Services from December 1982 to July 1989. Mr. Richmond joined Holly in 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. Harrison became Vice President--Operations Development in November 1996.
Previously he was Vice President--Refinery Operations from 1993 to 1996. 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--Agriculture in April 1997 and had been
Vice President--Commodities since 1985. Mr. Jones has served in various
positions with Holly since joining in 1969.

Mr. Raymond Knecht has been Vice President--Cane Operations since November
1996. Prior to joining the Company he was employed by Refined Sugar
Incorporated as Vice President--Operations from 1993 to 1996 and he held the
same position with C & H Sugar from 1986 to 1993.

Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had
been Controller since joining the Company in 1988.

Ms. Mercer became Vice President and Treasurer in April 1997. 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.

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. Lebsock became Controller in April 1997 and has been Controller for
Holly since October 1990. From October 1984 to September 1990, he was
Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974.


11


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.

The Company's Common Stock is traded on the American Stock Exchange. At June
2, 1997 there were 906 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, 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 --
June 30, 1996...................................... 12.50 7.50 --
September 30, 1996................................. 16.75 11.25 --
December 31, 1996.................................. 16.00 14.50 --
March 31, 1997..................................... 15.38 10.50 --


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,
--------------------------------------------------
1997(3) 1996 1995 1994 1993
-------- -------- -------- -------- --------
FOR THE PERIOD:
- ---------------

Net Sales............... $752,595 $616,450 $586,925 $655,498 $647,825
Operating Income (Loss). 28,423 (2,431) (2,091) (4,566) 7,139
Income (Loss) Before Ex-
traordinary Item....... 11,518 (3,218) (5,365) (7,965) 123
Extraordinary Item...... -- 604 (2) -- -- (3,509)(1)
Net Income (Loss)....... 11,518 (2,614) (5,365) (7,965) (3,386)

PER SHARE DATA:
- ---------------

Income (Loss) Before Ex-
traordinary Item....... $ 0.92 $ (0.31) $ (0.52) $ 0.78 0.01
Extraordinary Item...... -- 0.06 (2) -- -- (0.34)(1)
Net Income (Loss)....... 0.92 (0.25) (0.52) (0.78) (0.33)
Cash Dividends Declared. -- .04 .16 .32 .36

AT PERIOD END:
- --------------

Total Assets............ $449,933 $325,319 $374,124 $393,660 $398,202
Long-Term Debt--Net..... 90,619 89,800 100,010 100,044 108,181
Total Shareholders' Eq-
uity................... 176,956 111,043 109,977 114,737 122,462

- --------
(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.

(3) Includes the results of Spreckels since April 19, 1996, as discussed in
Note 2 to the Consolidated Financial Statements.

12


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

LIQUIDITY AND CAPITAL RESOURCES

The Company completed the Spreckels acquisition in April 1996, and funded
the $35.3 million cash purchase price from short-term borrowings under the
Company's bank credit lines. In August 1996, the Company sold 3.8 million
shares of common stock in a private placement to Greencore Group plc for $49.8
million, and the proceeds were used initially to reduce short-term debt. The
Company has announced a $35 million capital program, much of which is expected
to be completed in fiscal 1998, and expects to fund such expenditures from
cash generated from operations and existing bank borrowing agreements. Major
projects in the program include an $11 million expansion of the Sidney,
Montana factory, as well as the addition of bulk sugar storage and high speed
packaging equipment at the Sugar Land refinery with costs totaling $16
million.

The Company has an $110 million committed bank line of credit expiring in
June 1998, as well as uncommitted bank lines which aggregate $55 million as
described in Note 5 to the Consolidated Financial Statements. Loans
outstanding under these bank lines total $8.7 million at March 31, 1997.
Working capital financing is provided by a combination of trade credit and
borrowings. In addition to the bank lines of credit, short-term inventory
financing is available to the Company's beet sugar operations in the form of
secured borrowings from the CCC under the USDA price support program. CCC
loans may be recourse or non-recourse depending upon certain regulatory
matters. See "Business--Sugar Legislation and Other Market Factors."
Management believes that existing internal and external sources of liquidity
are adequate to meet financing needs.

Working capital increased $52.2 million to $133.9 million at March 31, 1997
and includes marketable securities which are recorded at a market value of
$49.0 million, $20.0 million in excess of cost. The increase in working
capital items during fiscal 1997 resulted primarily from the Spreckels
acquisition and the return of refined inventory to more normal levels, after
the reductions in fiscal 1996 resulting from the smaller than expected
sugarbeet crop that year. The Company's current ratio was 1.9:1.0 at March 31,
1997.

The Company, as a 43% limited partner, and a Washington sugarbeet growers
cooperative, as the 57% general partner, have formed a partnership which is
building a new sugarbeet factory in Moses Lake, Washington. The Company has
made capital contributions and advances in the form of subordinated loans to
the partnership of $3 million and has contributed certain surplus production
equipment. The general partner has made capital contributions to the
partnership of $6 million and has contributed certain surplus equipment from
an abandoned sugar beet processing facility. Additionally, the Company and the
cooperative may be required to make further subordinated loans of up to $1.7
million each, depending upon final construction costs. The remainder of the
$118 million projected cash construction budget is expected to be financed by
loans to the general partner who will in turn advance such funds to the
partnership.

In fiscal 1996, the Company entered into a venture with the sugarbeet
growers associations representing the growers supplying Holly's Rocky Mountain
factories which built 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 the venture's non-recourse, term bank debt.

In 1997 and 1996 the Company purchased and retired $0.3 million and $10.2
million principal amount, respectively, of its 8 3/8% senior notes due 1999.
The Company purchased and retired an additional $8.3 million principal amount
of the notes in April 1997. The remaining notes, with an aggregate principal
amount of $81.2 million, require semi-annual interest only payments prior to
maturity. Long-term debt at March 31, 1997 was approximately 34% of total
long-term debt plus shareholders' equity. Shareholders' equity was $177.0
million at March 31, 1997, approximately 40% of total assets.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
This new standard requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the earnings statement and requires a
reconciliation

13


of the numerators and denominators of basic and diluted EPS calculations. This
statement will be effective for both interim and annual periods ending after
December 15, 1997. The Company's current EPS calculation conforms to basic EPS.
Diluted EPS as defined by SFAS No. 128 is not expected to be materially
different from basic EPS.

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, weather conditions and United States farm and trade policy,
that the Company is unable to predict. Certain segments of the beet sugar
industry in the recent past 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. Smaller sugar beet crops
in the fall of 1995 and 1996 have increased refined sugar prices. The domestic
sugar industry is subject to substantial influence by legislative and
regulatory actions. The current farm bill limits the importation of raw cane
sugar, affecting the supply and cost of raw material available to the Company's
Imperial Sugar refinery. See "Business--Sugar Legislation and Other Market
Factors" and "--Competition".

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, 1997 versus 1996

Net sales increased $136.1 million or 22.1% in fiscal 1997 as a result of
almost equal contributions from higher sugar sales prices and volumes, as well
as higher beet pulp sales prices. Sugar sales prices increased as a result of
smaller than usual sugar beet crops in the fall of 1995 and 1996. A significant
portion of the Company's industrial sales are made under fixed price, 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". Increases in cane sugar sales volumes
and the additional volumes attributable to the Spreckels acquisition more than
offset lower sales by Holly resulting from lower refined sugar inventories in
the first half of the fiscal year. Beet pulp prices began increasing late in
fiscal 1996 as a result of higher feed grain prices and returned to more normal
levels in the latter part of fiscal 1997.

Cost of sales increased $103.0 million or 18.3% and gross margin improved to
11.7% of sales in fiscal 1997 from 8.9% in fiscal 1996. Unit sugar sales
margins improved as reductions in cane sugar unit manufacturing costs resulting
from increased volumes and reductions in raw cane sugar costs offset higher
energy costs and higher beet sugar manufacturing costs owing to reduced
throughput at three of the Company's beet sugar factories. Additionally, winter
flooding disrupted rail service in Northern California requiring the diversion
of harvested beets in Oregon and Washington to the Company's Sidney, Montana
factory. The delays in processing these, as well as the Sidney beets affected
beet quality and impacted processing, reducing sugar recovery and increasing
costs several million dollars. The Company purchases sugar beets 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 risk. The increase in sales prices for beet sugar resulted in
an increase in cost of sugar beets under the participatory contracts.

In recent years the Company has experienced reductions in the availability of
acreage planted in sugarbeets supplying its Hereford, Texas, Torrington,
Wyoming and Northern California factories, resulting in reduced

14


throughput and corresponding increases in unit manufacturing costs. Sugarbeet
acreage supplying each of these factories is expected to increase in fiscal
1998, although acreage is expected to remain below the Company's targeted
levels. The Company has processed raw cane sugar at some of these factories,
which increases throughput and lowers unit fixed manufacturing costs.

Selling, general and administrative expenses increased $4.5 million resulting
from increases in volume related selling and distribution costs and incentive
compensation as well as increases in administrative costs associated with
Spreckels' Pleasanton, California office which was closed in the Company's
second fiscal quarter.

Interest expense--net, increased primarily due to higher average short-term
borrowings. Other income--net includes losses on asset dispositions of
approximately $700,000 in 1997 and gains of $400,000 in 1996.

Realized gains on marketable securities decreased $5.0 million in fiscal
1997; net unrealized gains which have not been recognized in the Company's
results of operations increased $6.2 million and 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.

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. 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. 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.

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
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, expired 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.

15


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the index of financial statements and financial statement schedules
under "Exhibits, Financial Statement Schedules and Reports on Form 8-K."

Unaudited quarterly financial data for the last two fiscal years is as
follows (in thousands of dollars, 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 1997(1):
June 30, 1996............. $179,905 $24,268 $ 4,149 $ 4,149 $ 0.40 $ 0.40 --
September 30, 1996........ 214,050 22,121 2,928 2,928 0.25 0.25 --
December 31, 1996......... 189,935 19,334 1,496 1,496 0.11 0.11 --
March 31, 1997............ 168,705 22,026 2,945 2,945 0.21 0.21 --
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(2)........171,569..13,760 (419) (195) (0.04) (0.02) --
March 31, 1996(3)...........130,271..12,337 (2,035) (2,035) (0.20) (0.20) --

- --------
(1) Includes the results of Spreckels Sugar Company since April 19, 1996. See
Note 2 to the Consolidated Financial Statements.
(2) 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.
(3) 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 "--Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement for its 1997
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Proxy Statement"), is incorporated herein by reference.
See also "Executive Officers of the Registrant" included in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION.

The information set forth under the captions "Election of Directors--
Director Remuneration", "--Executive Compensation" and "--Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information set forth under the caption "Election of Directors--Security
Ownership" in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth under the caption "Election of Directors--
Compensation Committee Interlocks and Insider Participation" and "--Other
Information" in the Proxy Statement is incorporated herein by reference.

16


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements.



ITEM PAGE
---- ----

Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheets at March 31, 1997 and 1996.................... F-2
Consolidated Statements of Income for the years ended March 31, 1997, 1996
and 1995................................................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the years
ended March 31, 1997, 1996 and 1995...................................... F-4
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1996 and 1995............................................................ 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")).
*3(g)(1) --Investor Agreement dated August 29, 1996 by and among the Company,
Greencore Group plc and Earlsfort Holdings B.V. (incorporated by
reference to Exhibit 4.3 to the Company's current report on Form 8-
K dated September 5, 1996 (File No. 1-10307) (the "September 5,
1996 Form 8-K")).


17




*3(g)(2) --Registration Rights Agreement dated August 29, 1996 by and among
the Company, Greencore Group plc and Earlsfort Holdings B.V.
(incorporated by reference to Exhibit 4.2 to the September 5, 1996
Form 8-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).
*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(a)(6) --Fifth Amendment to Credit Agreement dated June 28, 1996
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
(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(l) relate to management contracts or
compensatory plans.
10(a) --Imperial Holly Corporation Stock Incentive Plan (as amended and
restated effective May 1, 1997).
*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).


18




*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 (incorporated by
reference to Exhibit 10(d)(4) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 (File No. 1-10307)
(the "1996 Form 10-K")).
*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).
*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) --Independent Consultant Agreement between I. H. Kempner III and
the Company (incorporated by reference to Exhibit 10(k) to the
1996 Form 10-K).
10(k) --Specimen of the Company's Restricted Stock Agreement with certain
of its officers.
10(l) --Schedule of Restricted Stock Agreements.
*10(m) --Agreement of Limited Partnership of ChartCo Terminal, L.P.
(incorporated by reference to Exhibit 10(j) to the 1990 Form 10-
K).
11 --Computation of Income Per Common Share.
21 --Subsidiaries of the Company.
23 --Independent Auditors' Consent


(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the Company during the three months
ended March 31, 1997.

19


SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JUNE 10, 1997.

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 10, 1997.



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/ John D. Curtin, Jr.
- -------------------------------------------
John D. Curtin, Jr. Director
/s/ David J. Dilger
- -------------------------------------------
David J. Dilger Director
/s/ Edward O. Gaylord
- -------------------------------------------
Edward O. Gaylord Director
/s/ Gerald Grinstein
- -------------------------------------------
Gerald Grinstein Director
/s/ Ann O. Hamilton
- -------------------------------------------
Ann O. Hamilton Director
/s/ Roger W. Hill
- -------------------------------------------
Roger W. Hill Director


20




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/ Kevin C. O'Sullivan
- -------------------------------------------
Kevin C. O'Sullivan Director
/s/ Fayez Sarofim
- -------------------------------------------
Fayez Sarofim Director
/s/ Daniel K. Thorne
- -------------------------------------------
Daniel K. Thorne Director


21


INDEPENDENT AUDITORS' REPORT

Imperial Holly Corporation:

We have audited the accompanying consolidated financial statements of
Imperial Holly Corporation and subsidiaries (the "Company"), listed in Item
14(a)(1). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Imperial Holly Corporation
and subsidiaries at March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles.

Deloitte & Touche llp

Houston, Texas
May 30, 1997

F-1


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



MARCH 31,
-----------------
1997 1996
ASSETS -------- --------
(IN THOUSANDS OF
DOLLARS)

CURRENT ASSETS:
Cash and temporary investments............................. $ 7,719 $ 1,930
Marketable securities...................................... 48,963 37,373
Accounts receivable--trade................................. 52,157 37,251
Income tax receivable...................................... 3,400 1,485
Inventories:
Finished products........................................ 119,206 61,702
Raw and in-process materials............................. 12,428 15,929
Supplies................................................. 16,392 12,124
Manufacturing costs prior to production.................... 20,888 12,476
Prepaid expenses........................................... 3,994 3,260
-------- --------
Total current assets................................... 285,147 183,530
NOTES RECEIVABLE............................................. 1,168 1,195
OTHER INVESTMENTS............................................ 11,949 6,702
PROPERTY, PLANT AND EQUIPMENT--Net........................... 146,402 124,103
OTHER ASSETS................................................. 5,267 9,789
-------- --------
TOTAL.................................................. $449,933 $325,319
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade.................................... $ 42,492 $ 37,937
Short-term borrowings...................................... 62,470 31,839
Current maturities of long-term debt....................... 1,017 8
Deferred income taxes--net................................. 16,256 8,248
Other current liabilities.................................. 29,006 23,772
-------- --------
Total current liabilities.............................. 151,241 101,804
-------- --------
LONG-TERM DEBT--Net of current maturities.................... 90,619 89,800
DEFERRED INCOME TAXES--Net................................... 21,453 21,320
DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS................. 9,664 1,352
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, issuable in series;
5,000,000 shares authorized, none issued.................. -- --
Common stock, without par value; 50,000,000 shares
authorized, 14,158,195 and 10,312,507 shares issued and
outstanding at March 31, 1997 and 1996, respectively...... 82,620 32,276
Retained earnings.......................................... 81,347 69,829
Unrealized securities gains--net of income taxes........... 12,989 8,938
-------- --------
Total shareholders' equity............................... 176,956 111,043
-------- --------
TOTAL.................................................. $449,933 $325,319
======== ========


See notes to consolidated financial statements.

F-2


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



YEAR ENDED MARCH 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)

NET SALES.................................. $ 752,595 $ 616,450 $ 586,925
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales............................ 664,846 561,878 532,423
Selling, general and administrative...... 59,326 54,778 56,593
Restructuring charges (Note 11).......... -- 2,225 --
---------- ---------- ----------
Total.................................. 724,172 618,881 589,016
---------- ---------- ----------
OPERATING INCOME (LOSS).................... 28,423 (2,431) (2,091)
INTEREST EXPENSE--Net...................... (12,430) (11,207) (11,426)
REALIZED SECURITIES GAINS--Net............. 426 5,389 1,649
OTHER INCOME--Net.......................... 1,269 3,173 3,219
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ 17,688 (5,076) (8,649)
PROVISION (CREDIT) FOR INCOME TAXES........ 6,170 (1,858) (3,284)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... 11,518 (3,218) (5,365)
EXTRAORDINARY ITEM--Net of tax of $325
(Note 6).................................. -- 604 --
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 11,518 $ (2,614) $ (5,365)
========== ========== ==========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item.. $ 0.92 $ (0.31) $ (0.52)
Extraordinary item--Net.................. -- 0.06 --
---------- ---------- ----------
Net income (loss)........................ $ 0.92 $ (0.25) (0.52)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING........ 12,576,489 10,300,487 10,266,229
========== ========== ==========



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, 1994.. 10,252,959 $31,780 $ 79,862 $ 3,804 $(709) $114,737
Net loss.............. -- -- (5,365) -- -- (5,365)
Cash dividend ($.16
per share)........... -- -- (1,643) -- -- (1,643)
Exercise of stock
options.............. 7,582 66 -- -- -- 66
Employee stock
purchase plan........ 22,904 200 -- -- -- 200
Change in unrealized
securities gains--
net.................. -- -- -- 1,831 -- 1,831
Pension liability
adjustment........... -- -- -- -- 151 151
---------- ------- -------- ------- ----- --------
BALANCE, MARCH 31, 1995. 10,283,445 32,046 72,854 5,635 (558) 109,977
Net loss.............. -- -- (2,614) -- -- (2,614)
Cash dividends ($.04
per share)........... -- -- (411) -- -- (411)
Exercise of stock
options.............. 11,445 85 -- -- -- 85
Employee stock
purhcase plan........ 17,617 145 -- -- -- 145
Change in 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
Net income............ -- -- 11,518 -- -- 11,518
Exercise of stock
options.............. 14,411 147 -- -- -- 147
Employee stock
purchase plan........ 9,517 115 -- -- -- 115
Nonemployee director
compensation plan.... 21,760 301 -- -- -- 301
Private placement of
common stock......... 3,800,000 49,781 -- -- -- 49,781
Change in unrealized
securities gains--
net.................. -- -- -- 4,051 -- 4,051
---------- ------- -------- ------- ----- --------
BALANCE, MARCH 31, 1997. 14,158,195 $82,620 $ 81,347 $12,989 $ 0 $176,956
========== ======= ======== ======= ===== ========


See notes to consolidated financial statements.

F-4


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW



YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS OF DOLLARS)

OPERATING ACTIVITIES:
Net income (loss)............................. $ 11,518 $ (2,614) $ (5,365)
Adjustments for noncash and nonoperating
items:
Extraordinary item--net..................... -- (604) --
Depreciation................................ 14,773 12,681 13,429
Deferred income tax provision............... 5,760 (1,737) (3,294)
Other....................................... 1,164 (5,203) (2,021)
Working capital changes (excluding working
capital acquired in the Spreckels
acquisition):
Receivables................................. (10,172) (502) 5,380
Inventory................................... (22,564) 45,408 8,914
Deferred and prepaid costs.................. (1,105) 627 1,814
Accounts payable............................ (6,997) (6,819) 989
Other liabilities........................... (1,285) (3,361) 2,358
-------- --------- --------
Operating cash flow........................... (8,908) 37,876 22,204
-------- --------- --------
INVESTING ACTIVITIES:
Acquisition of Spreckels...................... (36,287) -- --
Capital expenditures.......................... (12,322) (8,890) (7,850)
Investment in marketable securities........... (7,044) (6,537) (6,675)
Proceeds from sale of marketable securities... 2,139 14,974 4,344
Proceeds from sale of fixed assets............ 109 1,478 5,915
Other investments............................. (2,872) (741) 245
Other......................................... 4,207 864 131
-------- --------- --------
Investing cash flow........................... (52,070) 1,148 (3,890)
-------- --------- --------
FINANCING ACTIVITIES:
Private placement of common stock............. 49,781 -- --
Short-term borrowings:
Bank borrowings--net........................ 4,180 (5,431) (15,721)
CCC borrowings--advances.................... 93,014 153,143 76,307
CCC borrowings--repayments.................. (79,125) (176,965) (76,280)
Repayment of long-term debt................... (1,595) (9,324) (67)
Dividends paid................................ -- (411) (1,643)
Stock option proceeds and other............... 512 208 221
-------- --------- --------
Financing cash flow........................... 66,767 (38,780) (17,183)
-------- --------- --------
INCREASE IN CASH AND TEMPORARY INVESTMENTS...... 5,789 244 1,131
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR........................................... 1,930 1,686 555
-------- --------- --------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR..... $ 7,719 $ 1,930 $ 1,686
======== ========= ========


See notes to consolidated financial statements.

F-5


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997, 1996 AND 1995

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.

A significant portion of the Company's industrial sales are made under fixed
price, forward sales contracts, most of which commence October 1 and extend
for up to one year. The Company contracts to purchase raw cane sugar
substantially in advance of the time it delivers the refined sugar produced
from that purchase. To mitigate its exposure to future price changes, the
Company attempts to match refined sugar sales contracted for future delivery
with the purchase or pricing of raw cane sugar when feasible. Additionally,
the Company utilizes a participatory sugar beet purchase contract, described
below, which relates the cost of sugar beets to the net selling price realized
on refined beet sugar sales.

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 Sheet 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
$19.2 million and $12.9 million higher at March 31, 1997 and 1996,
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

F-6


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

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.

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 $89.5 million
principal amount of 8 3/8% senior notes as of March 31, 1997 was approximately
par value, 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.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
This new standard requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the earnings statement and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. This statement will be effective for both interim and annual
periods ending after December 15, 1997. The Company's current EPS calculation
conforms to basic EPS. Diluted EPS as defined by SFAS No. 128 is not expected
to be materially different from basic EPS.

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. The Company notified the seller that it
calculated the total purchase price as $29.3 million. The seller filed a
lawsuit claiming that the final purchase price was $39.1 million, with $3.8
million remaining unpaid. The Company and the seller have settled their
dispute and the litigation was dismissed in May 1997. Under such settlement,
the purchase price was agreed to equal $35.3 million and the Company paid an
additional $200,000

F-7


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

to acquire certain former Spreckels' assets not included in the original
purchase. These assets have an estimated value of approximately $2.5 million
based on an independent appraisal.

The acquisition was accounted for as a purchase and Spreckels' results of
operations are included in these consolidated financial statements commencing
April 19, 1996. Summarized pro forma operating results for the years ended
March 31, 1997 and 1996, as if the acquisition had occurred on the first day
of each of the respective years are as follows (in thousands of dollars,
except per share amounts):


1997 1996
-------- --------

Net sales............................................. $760,432 $797,629
Income (loss) before extraordinary item............... 11,851 (11,744)
Net income (loss)..................................... 11,851 (11,140)
Earnings per share:
Income (loss) before extraordinary item............. $ 0.94 $ (1.14)
Net income (loss)................................... $ 0.94 $ (1.08)


3. INVESTMENTS

Marketable securities consisted of the following (in thousands of dollars):



MARCH 31, 1997 MARCH 31, 1996
------------------------------------ -------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
FAIR HOLDING FAIR HOLDING
AMORTIZED MARKET ------------------ AMORTIZED MARKET -------------------
COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES
--------- ------- --------- -------- --------- ------- ---------- --------

US Government securities
due 1997 through 1998.. $ 9,226 $ 9,222 $ 8 $ (12) $ 4,881 $ 4,937 $ 56 $ --
Common stocks........... 19,755 39,741 20,085 (99) 18,740 32,436 13,696 --
------- ------- --------- ------- ------- ------- ---------- ------
Total................... $28,981 $48,963 $ 20,093 $ (111) $23,621 $37,373 $ 13,752 $ --
======= ======= ========= ======= ======= ======= ========== ======


Realized securities gains are reported net of realized losses of $28,000 in
1997, $2,000 in 1996, and $106,000 in 1995. Marketable securities with a
market value of $14.3 million at March 31, 1997 were pledged to secure certain
insurance obligations.

Other investments include the Company's royalty interest in a coal seam
methane gas project, which is accounted for at amortized cost and its
investment in a limited partnership which is constructing a beet sugar factory
in Washington state which is accounted for on the equity method.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at March 31, 1997 and 1996 consisted of the
following (in thousands of dollars):


1997 1996
-------- --------

Land................................................... $ 19,949 $ 13,682
Buildings, machinery and equipment..................... 271,002 251,949
Construction in progress............................... 5,440 2,094
-------- --------
Total.............................................. 296,391 267,725
Less accumulated depreciation.......................... 149,989 143,622
-------- --------
Property, Plant and Equipment--Net..................... $146,402 $124,103
======== ========


The Company sold a distribution facility during fiscal 1995 in exchange for
a three-year, fixed rate note and deferred the gain of $780,000 on the sale
until collection of the note whose final maturity is in fiscal 1998.

F-8


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

5. SHORT-TERM BORROWINGS

At March 31, 1997, the Company had working capital financing available from
domestic banks under a $110,000,000 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, 1997,
the Company had the ability to pay dividends of up to $75.0 million under the
most restrictive of such financial covenants. The Company also has short-term
borrowing facilities available from banks on an uncommitted basis aggregating
$55,000,000 at March 31, 1997. 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 if the tariff rate import quota for raw sugar exceeds 1.5 million
short tons raw value ("STRV"); such quota was 2.3 million STRV at March 31,
1997.

Outstanding borrowings at March 31, 1997 and 1996 were as follows (in
thousands of dollars):



1997 1996
------- -------

Commodity Credit Corporation............................ $53,770 $27,319
Bank working capital financing.......................... 8,700 4,520
------- -------
Total............................................... $62,470 $31,839
======= =======
Weighted Average Interest Rate.......................... 6.70% 5.36%
======= =======


6. LONG-TERM DEBT

Long-term debt at March 31, 1997 and 1996 was as follows (in thousands of
dollars):



1997 1996
------- -------

8 3/8% senior notes...................................... $89,468 $89,800
Other, principally equipment capital leases.............. 2,168 8
------- -------
Total long-term debt..................................... 91,636 89,808
Less current maturities.................................. 1,017 8
------- -------
Long-term debt, net...................................... $90,619 $89,800
======= =======


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 1997 and 1996, the Company purchased and retired $0.3 million
and $10.2 million principal amount, respectively, of the senior notes. The
fiscal 1996 purchases were for amounts less than book value, and the Company
reported such difference, net of tax, as an extraordinary item. In April 1997,
the Company purchased and retired an additional $8.3 million principal amount
of the senior notes at par value.

The Company had an interest rate swap agreement with Lehman Brothers Inc.
("Lehman") under which the Company received payments based on a fixed rate of
7.77% and paid Lehman amounts based on the three month LIBOR rate. Income
(loss) on the swap (which expired in October 1996) totaled ($3,000) in 1997,
$289,000 in 1996, and $643,000 in 1995 and is reported in interest expense-
net.

F-9


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

Cash paid for interest on short and long-term debt was $11,949,000 in 1997,
$12,228,000 in 1996, and $11,463,000 in 1995. Interest capitalized as part of
the cost of constructing assets was not significant in 1997, 1996 or 1995.

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):



1997 1996 1995
------- ------- -------

Federal:
Current...................................... $ 20 $ 109 $ (36)
Tax benefit of operating loss carryforward... (1,762) (1,452) (1,636)
Deferred..................................... 7,522 (285) (1,658)
State.......................................... 390 95 46
------- ------- -------
Total........................................ $ 6,170 $(1,533) $(3,284)
======= ======= =======


The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities at March 31, 1997 and 1996 were as follows
(in thousands of dollars):



1997 1996
---------------------------- ---------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------- ----------- -------- ------ ----------- --------

Current:
Marketable securities
valuation
differences.......... -- $ (6,994) $ (6,994) -- $ (4,813) $ (4,813)
Inventory valuation
differences,
principally purchase
accounting........... -- (12,324) (12,324) -- (6,320) (6,320)
Manufacturing costs
prior to production
deducted currently... -- (7,311) (7,311) -- (4,366) (4,366)
Accruals not currently
deductible........... $ 2,446 -- 2,446 $2,081 -- 2,081
Alternate minimum tax
differences.......... 903 -- 903 903 -- 903
Operating loss
carryforward
(expiring 2010, 2011
and 2012............. 5,919 -- 5,919 3,172 -- 3,172
Other................. 1,105 -- 1,105 1,135 (40) 1,095
------- -------- -------- ------ -------- --------
Total current....... 10,373 (26,629) (16,256) 7,291 (15,539) (8,248)
------- -------- -------- ------ -------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (22,160) (22,160) -- (18,443) (18,443)
Pension cost
differences.......... 1,153 1,153 -- (1,711) (1,711)
Accruals not currently
deductible........... 658 -- 658 154 -- 154
Other................. -- (1,104) (1,104) -- (1,320) (1,320)
------- -------- -------- ------ -------- --------
Total noncurrent.... 1,811 (23,264) (21,453) 154 (21,474) (21,320)
------- -------- -------- ------ -------- --------
Total................... $12,184 $(49,893) $(37,709) $7,445 $(37,013) $(29,568)
======= ======== ======== ====== ======== ========


F-10


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

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):



1997 1996 1995
------ ------- -------

Income taxes computed at the statutory federal
rate......................................... $6,191 $(1,451) $(3,027)
Nontaxable interest and dividends............. (217) (251) (299)
State income taxes............................ 253 62 30
Foreign sales corporation..................... (60) (59) (68)
Other......................................... 3 166 80
------ ------- -------
Total....................................... $6,170 $(1,533) $(3,284)
====== ======= =======


Income taxes paid were $2,300,000 in 1997 and $213,000 in 1996; income tax
refunds received were $3,778,000 in 1995.

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):



1997 1996 1995
------- ------- ------

Company-sponsored plans:
Service cost for benefits earned during the
period...................................... $ 2,756 $ 2,089 $2,128
Interest cost on projected benefit
obligation.................................. 5,883 2,653 2,348
Actual return on plan assets................. (15,675) (10,141) (4,439)
Net amortization and deferral................ 10,355 8,377 3,254
------- ------- ------
Net periodic pension cost -
Company-sponsored plans.................... 3,319 2,978 3,291
Industry-wide plan for certain unionized em-
ployees....................................... 432 438 459
------- ------- ------
Total pension cost............................. $ 3,751 $ 3,416 $3,750
======= ======= ======


F-11


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

The funded status of the Company-sponsored plans was as follows at March 31,
1997 and 1996 (in thousands of dollars):



1997 1996
------------------------------- -------------------------------
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.............. $27,039 $37,458 $9,055 $17,832
Nonvested........... 1,210 1,049 668 433
------- ------- ------ -------
Total accumulated
benefit obligations.. 28,249 38,507 9,723 18,265
Effect of projected
future salary
increases............ 1,219 8,279 715 8,434
------- ------- ------ -------
Projected benefit
obligations.......... 29,468 46,786 10,438 26,699
Plan assets at fair
value (primarily listed
stocks and bonds)...... 25,649 60,850 6,889 31,888
------- ------- ------ -------
Projected benefit obli-
gations over (under)
plan assets............ 3,819 (14,064) 3,549 (5,189)
Prior service cost of
plan amendments........ (2,651) (1,628) (2,118) 22
Unrecognized net gains
(losses):
Arising at transition
date................. ( 675) 215 ( 989) 293
Arising subsequent to
transition date...... 2,793 16,902 (175) 3,108
Adjustment for addi-
tional liability....... 1,671 -- 2,567 --
------- ------- ------ -------
Accrued (prepaid) pen-
sion cost.............. $ 4,957 $ 1,425 $2,834 $(1,766)
======= ======= ====== =======
Assumptions used:
Current discount rate
for plan liabilities. 8.0% 8.0% 7.5% 7.5%
Projected annual rate
of increase in
compensation levels.. 5.0% 5.0% 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. The amount charged to expense for these plans for fiscal 1997
was $85,000; no amount was charged to expense for these plans in 1996 and
1995.

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 $17,000 in 1997, $22,000 in 1996,
and $30,000 in 1995.

F-12


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

9. SHAREHOLDERS' EQUITY

The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") in fiscal 1997. As
permitted by SFAS No. 123, the Company elected 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. The pro forma effect on compensation costs, net income and earnings
per share of measuring compensation cost pursuant to SFAS No. 123 in fiscal
1997 was not material.

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 (94,388 in total as of March 31, 1997) 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 acquirer) 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.

Stock Sale--On August 29, 1996, the Company completed the private placement
of 3,800,000 shares of the Company's common stock to Greencore Group plc
("Greencore"), an Irish sugar and agricultural products company, for net
proceeds of $49.8 million. In July, the Board of Directors took action under
the Shareholder Rights Plan to increase the ownership percentage that would
trigger the Plan with respect to Greencore to 30% during the term of the
Investor Agreement between Greencore and the Company (not more than 5 years).
Thereafter, the trigger level would be increased to 35%, until such time as
Greencore's investment falls below 15%, at which time the trigger level
becomes 15%. During the term of the Investor Agreement, Greencore will have
the right to designate two nominees for election as directors of the Company,
and will be required to vote for the director nominees recommended by the
Board of Directors. During the term of the Investor Agreement, Greencore is
also subject to restrictions relative to certain actions regarding the
Company.

Stock Incentive Plan--The shareholders have approved the Imperial Holly
Corporation Stock Incentive Plan, and have reserved for issuance 1,062,500
shares of common stock. The plan provides for the granting of incentive awards
in the form of stock options, stock appreciation rights (SARs), restricted
stock, performance units and performance shares at the discretion of the
Executive Compensation Committee of the Board of Directors. Stock options have
an exercise price equal to the fair market value of the shares of common stock
at date of grant, become exercisable in annual increments for up to five years
commencing one year after date of grant, and expire not more than ten years
from date of grant.

F-13


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

Stock option activity in the plan during the last three fiscal years was as
follows:



1997 1996 1995
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- -------------- ------- -------------- ------- --------------

Beginning Balance....... 528,589 $10.03 510,733 $10.67 494,815 $10.68
Granted................. 141,700 12.90 94,000 7.84 24,500 9.18
Expired................. (41,551) 15.22 (66,199) 12.33 (1,000) 8.69
Exercised............... (14,411) 7.97 (9,945) 6.67 (7,582) 6.74
------- ------- -------
Balance, March 31....... 614,327 10.39 528,589 10.03 510,733 10.67
======= ======= =======
Exercisable as of March
31..................... 324,252 10.23 330,964 11.05 331,609 11.58
======= ======= =======


Options outstanding at March 31, 1997 consisted of the following:



EXERCISABLE OPTIONS
RANGE OF -------------------------
EXERCISE WEIGHTED- WEIGHTED-
PRICES AVERAGE WEIGHTED-AVERAGE AVERAGE
PER NUMBER EXERCISE PRICE REMAINING NUMBER EXERCISE PRICE
SHARE OF OPTIONS PER SHARE CONTRACTUAL LIFE OF OPTIONS PER SHARE
- -------- ---------- -------------- ---------------- ---------- --------------

$ 6.44-
$ 8.81 370,677 $ 7.85 5.8 years 217,052 $ 7.55
$ 9.75-
$12.25 12,000 10.38 8.9 years 4,250 9.75
$13.19-
$16.83 231,650 14.46 6.9 years 102,950 15.91


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, 1997, options
outstanding with SARs attached totaled 49,795 shares, all of which were
exercisable.

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:



1997 1996 1995
---------------------- ----------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- -------------- ------- -------------- ------- --------------

Beginning Balance....... 3,000 $5.88 5,250 $6.93 6,000 $7.17
Granted................. 1,500 7.84 -- --
Expired................. -- (750) 8.84 (750) 8.84
Exercised............... -- (1,500) 8.09 --
----- ------ -----
Balance, March 31....... 4,500 6.53 3,000 5.88 5,250 6.93
===== ====== =====
Exercisable as of March
31..................... 3,000 5.88 -- -- 2,250 8.34
===== ====== =====


Options outstanding at March 31, 1997 have a range of exercise prices of
$4.75 to $7.84, and a weighted-average remaining contractual life of 2.0
years.

F-14


IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

MARCH 31, 1997, 1996 AND 1995

Nonemployee Director Compensation Plan--In fiscal 1997, the shareholders
approved the Nonemployee Director Compensation Plan which provides for the
annual award of common stock to directors in lieu of their cash retainer. In
fiscal 1997, 21,760 shares of common stock were awarded pursuant to this plan.

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 $3.9 million of standby letters of credit issued by
banks to secure certain insurance obligations.

The Company has a contingent commitment to advance additional amounts to a
limited partnership which is constructing a beet sugar factory in Washington
state of up to $1.7 million, depending upon final construction costs.

The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $5,788,000, $4,343,000, and $3,519,000 in fiscal 1997, 1996 and
1995, respectively.

The aggregate future minimum lease commitments under noncancelable operating
leases at March 31, 1997 are summarized as follows (in thousands of dollars):



OPERATING
FISCAL YEAR LEASES
----------- ---------

1998........................................................... $2,697
1999........................................................... 2,279
2000........................................................... 1,713
2001........................................................... 1,458
2002........................................................... 936
After 2002...................................................... 646


The aggregate future minimum amount to be received under sub-leases was
$2,978,000 at March 31, 1997.

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, including $650,000 related to the layoff of approximately
68 employees. Through March 31, 1997, approximately $475,000 of such amount
had been incurred. Additionally, in fiscal 1996, the Company recorded a charge
of $475,000 related to costs in connection with a work force reduction. As of
March 31, 1997 substantially all of that amount had been incurred in
connection with the termination of 47 individuals.

Other income--net includes interest and dividends totaling $1,792,000 in
1997, $1,820,000 in 1996, and $1,456,000 in 1995. Amounts charged to expense
for research and development were $1,445,000 in 1997, $1,670,000 in 1996, and
$2,084,000 in 1995.

F-15