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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10307
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IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487
(Address of principal executive offices, including Zip Code)
(281) 491-9181
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 13, 2003.
10,008,000 shares.
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IMPERIAL SUGAR COMPANY
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ........................... 3
Consolidated Statements of Operations ................. 4
Consolidated Statements of Cash Flows ................. 5
Consolidated Statements of Changes in
Shareholders' Equity .................................. 6
Notes to Consolidated Financial Statements ............ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 13
Item 3. Quantitative and Qualitative Disclosure
About Market Risk ..................................... 16
Item 4. Controls and Procedures ............................... 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ... 18
Item 6. Exhibits and Reports on Form 8-K ...................... 19
----------------------
Forward-Looking Statements
Statements regarding future market prices and margins, future operating
results, sugarbeet acreage, operating efficiencies, future government action,
cost savings, our liquidity and ability to finance our operations, and other
statements that are not historical facts contained in this report on Form 10-Q
are forward-looking statements. We identify forward-looking statements in this
report by using the following words and similar expressions:
o expect o project o estimate
o believe o anticipate o likely
o plan o intend o could
o should o may o predict
o budget
Forward-looking statements involve risks, uncertainties and assumptions,
including, without limitation, market factors, energy costs, the effect of
weather and economic conditions, farm and trade policy, our ability to realize
planned cost savings, the available supply of sugar, available quantity and
quality of sugarbeets, actual or threatened acts of terrorism or armed
hostilities, legislative, administrative and judicial actions and other factors
detailed elsewhere in this report and in our other filings with the SEC. Many of
such factors are beyond our ability to control or predict. Management cautions
against placing undue reliance on forward-looking statements or projecting any
future results based on such statements or present or future earnings levels.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated. All forward-looking statements in this Form 10-Q are qualified
in their entirety by the cautionary statements contained in this section and
elsewhere in this report.
2
PART I - FINANCIAL INFORMATION
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
2003 2002
--------- ---------
(In Thousands of Dollars)
ASSETS
CURRENT ASSETS:
Cash and temporary investments ............................................... $ 49,944 $ 5,885
Marketable securities ........................................................ 2,541 2,907
Accounts receivable (Note 4) ................................................. 71,647 31,788
Notes receivable-securitization affiliate (Note 4) ........................... - 7,084
Inventories:
Finished products .......................................................... 44,859 92,303
Raw and in-process materials ............................................... 29,837 39,161
Supplies ................................................................... 9,074 11,544
--------- ---------
Total inventory .......................................................... 83,770 143,008
Deferred costs and prepaid expenses .......................................... 17,691 11,364
Net assets of discontinued operations (Note 6) ............................... - 58,548
--------- ---------
Total current assets ..................................................... 225,593 260,584
OTHER INVESTMENTS .............................................................. 11,670 14,280
INVESTMENT IN SECURITIZATION AFFILIATE (Note 4) ................................ - 13,895
PROPERTY, PLANT AND EQUIPMENT - net ............................................ 142,358 151,071
OTHER ASSETS ................................................................... 15,336 4,770
--------- ---------
TOTAL .................................................................... $ 394,957 $ 444,600
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ..................................................... $ 58,256 $ 61,904
Short-term borrowings ........................................................ 826 3,445
Current maturities of long-term debt (Note 2) ................................ 34,261 6,844
Other current liabilities .................................................... 50,734 50,340
--------- ---------
Total current liabilities ................................................ 144,077 122,533
LONG-TERM DEBT - net of current maturities (Note 2) ............................ 12,145 148,878
DEFERRED EMPLOYEE BENEFITS AND OTHER............................................ 113,155 74,929
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, without par value, issuable in
series; 5,000,000 shares authorized, none issued ............................ - -
Common stock, without par value;
50,000,000 shares authorized ................................................ 95,316 95,316
Retained earnings ............................................................ 73,088 9,953
Accumulated other comprehensive income ....................................... (42,824) (7,009)
--------- ---------
Total shareholders' equity ............................................... 125,580 98,260
--------- ---------
TOTAL .................................................................... $ 394,957 $ 444,600
========= =========
See notes to consolidated financial statements.
3
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31,
-------------------------------- --------------------------------
2003 2002 2003 2002
------------- ------------- -------------- ------------
(In Thousands of Dollars, Except per Share Amounts)
NET SALES .............................................. $ 239,657 $ 244,795 $ 516,866 $ 490,389
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales ........................................ 226,521 225,604 483,439 458,272
Selling, general and administrative .................. 12,776 13,850 27,317 25,604
Discount on receivables sold to
securitization affiliate ........................... - 630 1,930 1,594
Depreciation and amortization ........................ 5,292 3,795 8,647 7,609
Asset impairment and other charges
(Note 3) ........................................... (93) - 2,690 -
------------ ------------ ------------ ------------
Total ............................................ 244,496 243,879 524,023 493,079
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ................................ (4,839) 916 (7,157) (2,690)
INTEREST EXPENSE ....................................... (1,447) (4,374) (2,031) (10,284)
COSTS ASSOCIATED WITH DEBT REPAID ...................... - - (4,617) -
CHANGE IN FAIR VALUE OF INTEREST
RATE SWAPS ......................................... (295) 1,178 (610) 2,094
GAIN ON SALE OF ASSETS ................................. 221 13,901 1,645 13,819
OTHER INCOME (EXPENSE) - net ........................... 353 (278) 1,215 (706)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ................................ (6,007) 11,343 (11,555) 2,233
PROVISION FOR INCOME TAXES ............................. - - - -
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... (6,007) 11,343 (11,555) 2,233
INCOME FROM DISCONTINUED OPERATIONS
(Note 6) ........................................... 5,683 2,951 74,690 11,222
------------ ------------ ------------ ------------
NET INCOME (LOSS) ...................................... $ (324) $ 14,294 $ 63,135 $ 13,455
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Income (loss) from continuing
operations) ...................................... $ (0.60) $ 1.13 $ (1.16) $ 0.23
Income from discontinued operations ................ 0.57 0.30 7.47 1.12
------------ ------------ ------------ ------------
Net income (loss) .................................. $ (0.03) $ 1.43 $ 6.31 $ 1.35
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING .................... 10,000,000 10,000,000 10,000,000 10,000,000
============ ============ ============ ============
See notes to consolidated financial statements.
4
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Six Months Ended
March 31,
--------------------------------
2003 2002
--------- ---------
(In Thousands of Dollars)
OPERATING ACTIVITIES:
Net income ................................................................ $ 63,135 $ 13,455
Adjustments for non-cash and non-operating items:
Recognition of deferred loss on hedge derivative
instruments in net income ............................................. (1,907) (1,553)
Unrealized loss on interest rate swaps .................................. (610) (916)
Inventory impairment .................................................... 2,393 -
Write off of deferred debt costs ........................................ 2,420 -
Cash settlements on derivative instruments .............................. 3,492 3,606
Depreciation and amortization ........................................... 8,647 7,609
Loss (Gain) on sale of assets ........................................... (1,645) -
Loss (Gain) on sale of discontinued operations .......................... (69,824) (17,873)
Income from discontinued operations ..................................... (4,866) (11,222)
Other ................................................................... (254) 1,197
Changes in operating assets and liabilities:
Accounts receivables .................................................... 2,337 7,842
Inventories ............................................................. 55,361 13,704
Deferred costs and prepaid expenses ..................................... (6,639) (9,951)
Accounts payable - trade ................................................ (4,644) (30,890)
Other current liabilities ............................................... 772 2,780
--------- ---------
Net cash (used in) provided by continuing operations ...................... 48,168 (22,212)
Net cash provided by discontinued operations .............................. 5,693 13,715
--------- ---------
Net cash provided by (used in) operating activities ............................ 53,861 (8,497)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures - discontinued operations ............................ (155) (1,031)
Capital expenditures - continuing operations .............................. (4,714) (4,186)
Proceeds from sale of assets .............................................. 6,766 50,565
Proceeds from sale of discontinued operations ............................. 139,992 -
Other ..................................................................... (2,826) (1,266)
--------- ---------
Investing cash flow ............................................................ 139,063 44,082
--------- ---------
FINANCING ACTIVITIES:
Short-term debt:
Commodity Credit Corporation - advances, net ............................ - 21,774
Other - net ............................................................. (2,281) (98)
Long-term debt borrowings ................................................. 32,403 -
Revolving credit repayment - net .......................................... (25,040) (19,143)
Repayment of long-term debt ............................................... (116,679) (20,100)
Repurchase accounts receivable ............................................ (37,268) -
--------- ---------
Financing cash flow ............................................................ (148,865) (17,567)
--------- ---------
INCREASE IN CASH AND TEMPORARY INVESTMENTS ..................................... 44,059 18,018
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD ............................ 5,885 7,331
--------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD .................................. $ 49,944 $ 25,349
========= =========
See notes to consolidated financial statements.
5
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 2003
(UNAUDITED)
Shares Accumulated
of Other
Common Common Retained Comprehensive
Stock Stock Earnings Income (Loss) Total
---------- ------ -------- ------------- -------
(In Thousands of Dollars)
BALANCE SEPTEMBER 30, 2002 ................ 10,000,000 $95,316 $9,953 $(7,009) $98,260
Comprehensive income:
Net income ................................ - - 63,135 - 63,135
Change in derivative
fair value ............................. - - - 3,492 3,492
Recognition of deferred
gains in net income .................... - - - (1,907) (1,907)
Change in minimum
pension liability ...................... - - - (37,400) (37,400)
-------
Total comprehensive income ................ - - - - 27,320
---------- ------ ------ ------- -------
BALANCE MARCH 31, 2003 .................... 10,000,000 $95,316 $73,088 $(42,824) $125,580
========== ====== ====== ======= =======
See notes to consolidated financial statements.
6
IMPERIAL SUGAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2003 AND 2002
1. ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect, in the opinion of management, all adjustments,
consisting only of normal recurring accruals, that are necessary for a fair
presentation of financial position and results of operations for the interim
periods presented. These financial statements include the accounts of Imperial
Sugar Company and its majority owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain information and footnote disclosures required by
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations. The financial
statements included herein should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended September 30, 2002.
Cost of Sales
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. These financial statements include an
accrual for estimated additional amounts to be paid to growers based on the
average net return realized 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 incurred prior to
production are deferred and allocated to production costs based on estimated
production for each sugar manufacturing campaign. Additionally, the Company's
sugar inventories, which are accounted for on a LIFO basis, are periodically
reduced at interim dates to levels below that of the beginning of the fiscal
year. When such interim LIFO liquidations are expected to be restored prior to
fiscal year-end, the estimated replacement cost of the liquidated layers is
utilized as the basis of the cost of sugar sold from beginning of the year
inventory. Accordingly, the cost of sugar utilized in the determination of cost
of sales for interim periods includes estimates which may require adjustment in
future fiscal periods.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires estimates
and assumptions, including those described above, 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.
Reportable Segments
The Company has previously identified two reportable segments: sugar and
foodservice. The Company sold the majority of its foodservice division in
December 2002, as discussed in footnote 6, and has reported the results of that
business as discontinued operations. Therefore, the Company now operates its
business as one segment.
7
Accounting Pronouncements
Effective October 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 145 which, among other things, amends prior
statements to require that gains and losses from the extinguishment of debt
generally be classified within continuing operations.
Effective October 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets," which requires that long-lived assets be
disposed of by sale, including discontinued operations, and be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
Effective January 2003, the Company adopted Statement of Financial
Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with
Exit or Disposal Activities," which replaced Emerging Issues Task Force (EITF)
Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity." SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This had no effect at
the date of adoption.
Effective January 2003, the Company adopted Statement of Financial
Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amends Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation." This
Statement amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. In
addition, this statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation, which the Company has elected not to adopt at this time.
The Company has provided the results of this adoption in footnote three.
Reclassifications
Certain amounts in the prior year presentation have been reclassified to be
consistent with fiscal 2003.
2. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
March 31, September 30,
2003 2002
-------- --------
Senior bank agreements:
Revolving credit facility ....................... $ - $ 25,040
Term loan ....................................... 32,403 115,836
Industrial revenue bonds .......................... 3,760 3,840
Non-interest bearing notes ........................ 10,243 11,006
-------- --------
Total long-term debt ............................ 46,406 155,722
Less current maturities ........................... 34,261 6,844
-------- --------
Long-term debt, net ............................... $ 12,145 $148,878
======== ========
On December 31, 2002, the Company repaid its existing senior bank debt
and entered into a $175 million Senior Secured Credit Facility. The new debt
8
consists of a three-year $140 million (subject to a borrowing base calculation)
senior secured revolving credit facility ("Revolver") and a three-year $35
million term loan ("Term Loan"). The funds from the new borrowing along with the
proceeds of the sale of the foodservice division were used to repay existing
senior bank debt, repurchase accounts receivable from the Company's accounts
receivable securitization facility, and pay related fees and expenses associated
with these transactions.
The new facility is secured by substantially all of the Company's assets
and all subsidiaries of the Company are borrowers or guarantors under the
facility. The agreement contains financial covenants which require, commencing
September 30, 2003, maintenance of a minimum EBITDA level and a minimum fixed
charge coverage ratio.
Interest rates on the term loan are LIBOR plus a margin of 2.75% to 3.50%
or prime plus 0.25% to 1.00%. Interest rates on the revolver are LIBOR plus a
margin of 2.25% to 3.00% or prime plus zero to 0.50%.
The term loan is repayable in monthly installments of approximately
$583,000, commencing February 1, 2003 with final payment of the remaining
balance due December 31, 2005. Although it has a final maturity date of December
31, 2005, the Company has classified debt under the Senior Secured Credit
Facility as current, pursuant to Emerging Issues Task Force Issue 95-22, as the
agreement contains a subjective acceleration clause if there is a material
adverse effect, in the opinion of the lender, and provides the lenders direct
access to our cash receipts.
In connection with the sale of Michigan Sugar, in February 2002, the buyer
assumed industrial revenue bonds totaling $18.5 million, for which the Company
remains contingently liable.
3. ASSET IMPAIRMENT AND OTHER CHARGES
In December 2002, the Company ceased sugar refining operations at its Sugar
Land, Texas facility and in March 2003, the Company determined that it would
discontinue its remaining packaging and distribution operations in Sugar Land
during the third quarter of fiscal 2003. Additionally, the Company settled a
lease obligation previously recorded in connection with the closure of two beet
factories in 2001. The Company recorded charges and credits during the six
months ended 2003 as follows (in thousands of dollars):
Sugar Land Refinery:
Impairment of supplies inventory ............................ $2,393
Accrual for cash costs:
Severance (for 50 salaried employees) .................... 869
Environmental costs ...................................... 50
Abandoned lease commitments and other cash costs ......... 220
-------
Total Sugar Land refinery ................................... 3,532
-------
Adjust liability upon settlement of lease obligation ........... (842)
-------
Total ....................................................... $ 2,690
=======
The supplies inventory impairment reduces to net realizable value
inventories that are not readily transferable to the Company's other production
facilities because of differences in equipment or process technologies.
9
Changes in the accrued balance for future cash expenditures in conjunction
with closing production facilities is summarized below (in thousands of
dollars):
Accrued Other Accrued
Balance at Amounts Amounts Adjustments Balance at
September 30, Accrued in Paid in in March 31,
2002 Fiscal 2003 Fiscal 2003 Fiscal 2003 2003
----------------- ----------- ----------- ----------- -------------
Accrual for
cash charges:
Severance ........... - $ 869 $ (380) - $ 489
Environmental
costs ............ $1,444 50 (36) - 1,458
Abandoned lease
commitments
and other
cash costs ....... 842 220 (7) (842) 213
----- ----- ----- ----- -----
Total ........ $2,286 $1,139 $ (423) $ (842) $2,160
===== ===== ===== ===== =====
Based on the decision to cease packaging and warehousing operations in
Sugar Land, the Company has evaluated the recoverability of the book values of
assets that will not be relocated and shortened the remaining service lives of
those assets pursuant to Statement of Financial Accounting Standards No. 144.
Approximately $4 million of assets were determined to have a remaining service
life of two months, resulting in additional depreciation charges of $2 million
recorded in March 2003. The remaining depreciation amount of $2 million will be
recorded in the third fiscal quarter.
In conjunction with the cessation of refining operations in Sugar Land, the
Company offered its affected bargaining unit employees severance of $2.3 million
even though not required in the collective bargaining agreement in return for
certain changes in the agreement. The union leadership rejected the Company's
offer and filed a grievance alleging the Company owed unspecified severance
pursuant to the existing contract. The Company estimates that severance
calculated pursuant to the grievance calculations would be approximately $4
million. Based on the advice of counsel, the Company believes that its
interpretation of the contract is correct and intends to contest the union's
grievance.
4. SALE OF ACCOUNTS RECEIVABLE
Previously the Company sold trade receivables to an unconsolidated,
wholly-owned subsidiary of the Company that, in turn, borrowed from a third
party lender. In December 2002, in connection with the sale of the foodservice
segment and the refinancing of the Company's senior bank debt, the Company
repurchased all receivables sold under the securitization facility and
terminated the facility.
5. STOCK OPTIONS
During the six months ended March 31, 2003, the Company granted options to
purchase 452,000 shares of common stock as follows:
Strike Price
Shares Per Share
------ -----------------
60,000 $1.170
9,000 1.350
60,000 2.015
26,000 2.475
297,000 5.575
-------
452,000
10
The options, which vest over a three-year period, expire ten years after
the date of grant. Additionally, the Company granted stock appreciation rights
(SARs) to certain employees based on 119,000 shares, at a stated price of $1.35
per share. The SARs provide the right to receive, at the date the rights are
exercised, cash equal to the market appreciation between the stated price and
the current market value to a maximum appreciation value of $5.55 per share. The
SARs vest over a three-year period and expire 10 years from date of grant. The
Company accrues for the value of the SARs over the vesting term.
A total of 1,457,456 options to purchase common stock, which are
potentially dilutive in future periods, were excluded from the computation of
earnings per share because they were antidilutive for the six months ended March
31, 2003.
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" as amended by Statement of Financial
Accounting Standards No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure," the Company measures compensation cost using the
intrinsic value method prescribed in by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." The Company's reported net loss
and net loss per share would have been different had compensation cost for the
Company's stock-based compensation plans been determined using the fair value
method of accounting as shown in the pro forma amounts below:
Three Months Ended
March 31, 2003
-----------------
Net loss, as reported .................................... $ (324)
Deduct: Total stock-based employee compensation:
Expense determined under fair value based method........ (129)
-----------
Pro forma net loss ....................................... $ (453)
===========
Net loss per share, Basic and Diluted:
As reported ............................................ $ (0.03)
===========
Pro forma .............................................. $ (0.05)
===========
For purpose of estimating the fair value of options on their date of grant, the
Black-Scholes option-pricing model was used with the following assumptions:
Expected stock price volatility 4.5 - 6.5%
Risk-free interest rate 2.9 - 4.2%
Expected life of options 5.0
6. DISCONTINUED OPERATIONS
In October 2002, the Company completed the sale of its beet processing
facilities in Sidney, Montana and Torrington, Wyoming, and its Hereford, Texas
beet factory with a book value of approximately $31 million. Gross sales price
in the transaction was $35 million, approximately $925,000 of which was placed
in escrow, resulting in a gain of approximately $2.9 million.
In December 2002, the Company completed the sale of its Diamond Crystal
Brands ("DCB") foodservice division for a gross sales price of approximately
$121 million after certain post-closing working capital adjustments of
approximately $5.6 million. The Company retained a substantial portion of the
sugar product sales to the foodservice segment as a result of this disposition.
Approximately $9.2 million of proceeds from this transaction were placed in
escrow for two years. The sale of this division, which had a book value of
approximately $49 million, resulted in a gain of approximately $67.0 million.
11
The financial statements have been reclassified to reflect these operations
as discontinued. The operating results of DCB have been included through
December 30, 2002 and the operating results of Sidney, Torrington, and Hereford
have been included through October 7, 2002. The net assets of discontinued
operations prior to the date of sale were segregated on the balance sheet and
components have been detailed below. No provision for income taxes on
discontinued operations was recorded because of differences in the book and tax
basis of the stock of DCB that was sold in December 2002.
Summary operating results of discontinued operations are as follows (in
thousands of dollars):
Six Months Ended Three Months Ended
March 31, March 31,
----------------------------- ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
NET SALES ............................... $ 49,986 $ 138,281 $ 61,607
COST AND EXPENSES ....................... 44,625 128,602 58,038
DEPRECIATION ............................ 794 2,493 658
-------- --------- -------
OPERATING INCOME FROM
DISCONTINUED OPERATIONS .............. 4,567 7,186 2,911
OTHER INCOME (LOSS) ..................... 303 (18) (31)
GAIN (LOSS) ON SALE OF ASSETS ........... (4) 4,054 71
PROVISION FOR INCOME TAXES .............. - - -
-------- --------- -------
INCOME FROM DISCONTINUED
OPERATIONS BEFORE GAIN ............... 4,866 11,222 2,951
GAIN ON DISPOSAL ........................ 69,824 - $ 5,683 -
-------- --------- ------- -------
INCOME FROM DISCONTINUED
OPERATIONS ........................... $ 74,690 $ 11,222 $ 5,683 $ 2,951
======== ========= ======= =======
Net Assets of discontinued operations are as follows (in thousands of dollars):
September 30, 2002
------------------
CURRENT ASSETS ......................................... $21,665
PROPERTY, PLANT AND EQUIPMENT, NET ..................... 55,648
-------
TOTAL ASSETS .................................... 77,313
-------
CURRENT LIABILITIES .................................... 17,395
OTHER LONG-TERM LIABILITIES ............................ 1,370
-------
TOTAL LIABILITIES ............................... 18,765
-------
Net assets of discontinued operations ............. $58,548
=======
7. DERIVATIVES
In the three months ended March 31, 2003, the Company recognized
approximately $945,000 of gains on natural gas hedge positions which no longer
qualified for deferral accounting as "highly effective" under Statement of
Financial Accounting Standards No. 133. As a result, these hedge gains will not
be available to offset higher physical gas costs expected for the third and
fourth quarters.
The Company had interest rate swap agreements with a major financial
institution which were terminated in December 2002, under which the Company paid
a fixed interest rate of 6.01% on $90.6 million. The Company entered into a new
interest rate swap agreement with a major financial institution in January 2003
under which the Company pays a fixed rate of 2.465% and receives a floating
interest payment based on 3 month LIBOR, on a notional amount which starts at
$25 million and reduces $1.75 million per quarter, until final maturity in
December 2005.
12
Since the Company has the ability to change the interest rate index of the
debt, the interest rate swap agreements are not designated as hedging
instruments under SFAS 133. Therefore, changes in the fair value of the interest
rate swaps are recognized in earnings.
8. PENSION LIABILITY
During the second quarter of fiscal 2003 the Company froze benefits under
its salaried pension plan which, along with the reduction of participants
resulting from the sale of DCB, was accounted for as a curtailment pursuant to
Statement of Financial Accounting Standards No. 88. As a result of the
curtailment, the projected benefit obligation for the salaried plan decreased;
this actuarial gain was offset against existing unrecognized actuarial losses.
No gain or loss was recognized in the income statement. As a result of an
updated valuation required by the curtailment, the Company's minimum pension
liability increased $37 million with a corresponding charge to Other
Comprehensive Income. This increase was driven by two factors, a lower interest
rate assumption (6.5% versus 7.25%) for discounting future cash flows and lower
market values of plan assets as a result of unfavorable market conditions.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with information contained in
the Consolidated Financial Statements and the notes thereto.
Overview
We have significantly de-leveraged our balance sheet and improved our
liquidity and our operating results since emerging from bankruptcy in August
2001. A key part of our strategy was the sale of certain operating units as well
as the sale of surplus assets (for example, excess real estate and idle factory
assets). In the first quarter of fiscal 2003 we completed the sales of our
Sidney, Montana, Torrington, Wyoming and Hereford, Texas sugarbeet factories and
our foodservice business for gross proceeds of approximately $34 million and
$121 million respectively. As a result, our total debt has been reduced from
$231 million upon our emergence from bankruptcy to $46 million at March 31,
2003.
We have historically operated in two domestic business segments. Our sugar
segment produces and sells refined sugar and related products. Our foodservice
segment, which we sold in December 2002, sold and distributed sugar and numerous
other products to foodservice customers. We retained a substantial portion of
the sugar product sales to the foodservice market. The segments were managed
separately because each business required different production techniques and
marketing strategies.
Liquidity and Capital Resources
On December 31, 2002, we entered into a new credit facility with a group of
lenders led by Bank of America and General Electric Capital Corporation. The
initial funding under the new facility, together with the cash proceeds from the
sale of our foodservice operations, was used to repay our existing senior bank
debt and repurchase accounts receivable sold under our securitization agreement,
which were both terminated. The new facility consists of a $35 million
three-year term loan and a $140 million (subject to a borrowing base
calculation) three-year revolving credit facility, including a $50 million
sub-limit for letters of credit. At March 31, 2003, we had no outstanding
borrowings under the revolving credit facility. As of May 13, 2003, we had no
outstanding revolving credit facility borrowings and had unused borrowing
capacity of $28 million pursuant to the borrowing base
13
calculation under the revolving credit facility. Additionally, we had $50
million of cash and temporary investments at March 31, 2003.
Our sugar production operations require significant amounts of seasonal
working capital. These seasonal requirements are expected to peak during our
third fiscal quarter when inventory levels are high, and a substantial portion
of the payment to raw material suppliers have been made. Management believes
that the credit facility, existing cash balances, and cash flow from operations
will provide sufficient capital to meet anticipated working capital and
operational needs for at least the next twelve months.
The facility is secured by substantially all of our assets and all
subsidiaries of the Company are borrowers or guarantors under the facility. The
agreement contains covenants limiting our ability to, among other things:
o incur other indebtedness
o incur other liens
o undergo any fundamental changes
o declare or pay dividends
o engage in transactions with affiliates
o enter into sale and leaseback transactions
o change our fiscal periods
o enter into mergers or consolidations
o sell assets
o prepay other debt
In addition, the agreement requires that, commencing September 30, 2003, we
comply each quarter with the following:
o a minimum level of earnings before interest, taxes, depreciation and
amortization ("EBITDA")
o a minimum fixed charge coverage ratio
The facility also includes customary events of default, including a change
of control. Borrowings will generally be available subject to a borrowing base
and to the accuracy of all representations and warranties, including the absence
of a material adverse change and the absence of any default or event of default.
Although the facility has a final maturity date of December 31, 2005, the
Company has classified debt under the new credit facility as current, pursuant
to Emerging Issues Task Force Issue 95-22 as the agreement contains a subjective
acceleration clause if there is a material adverse effect, and provides the
lenders direct access to our cash receipts.
Interest on the term loan accrues at LIBOR plus a margin that varies (based
on utilization) between 2.75% and 3.50% or at a base rate (the Bank of America
prime rate) plus a margin that varies from 0.25% to 1.00%. Interest on revolving
credit borrowings accrue at LIBOR plus a margin of 2.25% to 3.00% or the base
rate plus a margin of zero to 0.50%.
Our capital expenditures for fiscal 2003 are expected to total
approximately $20 million, and include productivity, packaging, and information
technology improvements, as well as normal replacement projects.
Results of Operations
Industry Environment
Our results of operations substantially depend on market factors, including
domestic prices for refined sugar and raw cane sugar, the quantity
14
and quality of sugarbeets available to us and the availability and price of
energy and other resources. These market factors are influenced by a variety of
external forces that we are unable to predict, including the number of domestic
acres contracted to grow sugar cane and sugarbeets, prices of competing crops,
weather conditions and United States farm and trade policy. The domestic sugar
industry is subject to substantial influence by legislative and regulatory
actions. The current farm bill limits the importation of raw cane sugar and the
marketing of domestic refined beet and raw cane sugar, potentially affecting
refined sugar sales prices and volumes as well as the supply and cost of raw
material available to our cane refineries.
Weather conditions during the growing, harvesting and processing seasons,
the availability of acreage to contract for sugarbeets, as well as the effects
of diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the costs of raw materials and
processing.
Three and Six Months Ended March 31, 2003
Net sales from continuing operations decreased $5.1 million, or 2.1%, for
the three months ended March 31, 2003 compared to 2002 due to lower volumes, in
part due to the closure of the Sugar Land refinery and related rationalization
of our business, as well as the timing of the Easter holiday, which more than
offset a 3% increase in sugar prices. For the six-month period, net sales from
continuing operations increased $26.5 million, or 5.4%, primarily on the
strength of domestic sales prices which were 5% higher. Following a period of
oversupply and low prices in prior years, the domestic sugar markets experienced
increases in sugar prices during fiscal 2002. Because of our forward priced
sales contracts, some of which are written on a calendar year basis, we saw
prices rising during the first half of fiscal 2002 and level off in later
quarters. Our prices realized in the first half of fiscal 2003 are higher than
those during the same period last year.
Cost of sales as a percentage of net sales for the three months ended March
31, 2003, increased to 94.5% from 92.2% in the prior year's period primarily as
a result of higher raw sugar costs and higher energy costs. Inefficient
operations at the Company's Sugar Land, Texas facility, which ceased refining
operations in December 2002, but continued to package and distribute product
during this quarter, contributed to higher costs. The Company decided in early
March 2003, that it would discontinue remaining packaging and distribution
operations in Sugar Land in the third fiscal quarter. We expect to continue to
experience high cost in the Sugar Land facility through the discontinuation of
its remaining operations in the third quarter. For the six-month period ended
March 31, 2003, cost of sales as a percentage of net sales was unchanged at
93.5% as the increase in sales prices offset higher raw material and energy
costs. Sugar refining is an energy intensive industry and our production
facilities consume approximately 5 million mmbtu of natural gas per year. We
have hedged a significant portion of our natural gas requirements for the
balance of fiscal 2003, and in the second quarter we recognized approximately
$945,000 in gains on such hedge positions which no longer qualified for deferral
accounting. As a result, these gains will not be available to offset higher
physical gas costs expected for the third and fourth quarters. Absent a change
in the energy markets, we expect energy costs to continue to be higher in future
periods.
A significant portion of the Company's industrial sales are made under
fixed price, forward sales contracts, most of which commence October 1 or
January 1, and extend for up to one year. Additionally, the Company prices a
portion of its raw sugar purchases in advance of the time of delivery either
through pricing provisions of its raw sugar contracts or through hedging
transactions in the raw sugar futures market. As a result, the Company's
realized sales prices, as well as its realized raw sugar costs, lagged market
price changes.
The Company incurred approximately $3.5 million in charges in the six
months ended March 31, 2003 associated with discontinuance of refining at the
Sugar Land refinery. These costs include severance, impairment of inventory
15
and environmental costs. Also, upon settlement of the obligation, we adjusted by
$0.8 million a lease liability which had previously been recorded in connection
with the closure of two sugarbeet plants in fiscal 2001.
Selling, general and administrative costs decreased $1.1 million, or 7.8%,
for the three months and increased $1.7 million, or 6.7%, for the six months
ended March 31, 2003, each when compared to the same period of the prior year.
We experienced increased professional fees and other costs in connection with
our initiative to rationalize our businesses and restructure our capital
requirements, including trailing bankruptcy costs and legal fees. Such costs
totaled $0.7 million for the three months and $2.8 million for the six months
ended March 31, 2003, compared to $1.1 million and $1.4 million for the
comparable three and six months ended March 31, 2002. We have undertaken a
number of cost savings initiatives during the time since our emergence from
bankruptcy in late fiscal 2001, including closing administrative offices,
reducing staff levels and modifying benefit programs, which have resulted in
lower costs. We recorded severance costs of $0.8 million during the three months
ended March 31, 2003, in connection with a reduction in administrative
personnel. Effective March 31, 2003, we froze benefits in our salaried pension
plan and increased the matching contribution in our 401k savings plan to further
reduce costs and mitigate the impact of stock market volatility on our required
contribution levels.
In connection with the decision to discontinue packaging and distribution
in Sugar Land, we reduced the estimated remaining useful lives of certain
facilities and equipment and recorded an additional $2 million of depreciation
and amortization during the three months ended March 31, 2003. We expect to
record a similar amount of additional depreciation in our third fiscal quarter,
when these assets will be taken out of service. Partially offsetting this
charge, depreciation and amortization decreased as a result of assets disposed
of in the Michigan and Worland beet factory sales in February and June 2002,
respectively.
Interest expense decreased $2.9 million for the three months and $8.3
million for the six months ended March 31, 2003 compared to 2002 as a result of
lower market interest rates and lower borrowings levels resulting from the sale
of business units. As a result of our repaying the senior bank debt in December
2002, the prior bank agreement provided for a refund of interest of $2.1 million
which had been charged to expense in fiscal 2002; interest expense in the first
quarter of fiscal 2003 has been reduced by this amount.
The Company incurred costs of $4.6 million in the first quarter of fiscal
2003, related to the write-off of prior deferred debt costs during the
refinancing of the senior secured debt facility, as well as restructuring
advisory fees incurred in the process of refinancing the prior credit facility.
We realized gains on sales of surplus real estate totaling $1.6 million
during the six months ended March 31, 2003.
Income from discontinued operations includes the operating results of DCB
and the sugarbeet factories in Sidney, Torrington and Hereford through the dates
of their sale, as well as the gains realized on the sale of these businesses.
The Company and the grower-owners of the Worland, Wyoming factory mutually
agreed to terminate the sales and marketing agreement on May 1, 2003. Our
marketing fees under their agreement were approximately $250,000 in the six
months ended March 31, 2003.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We use raw sugar futures and options in our raw sugar purchasing programs
and natural gas futures and options to hedge natural gas purchases
16
used in our manufacturing operations. Our ability to effectively hedge raw sugar
purchases is somewhat limited by the illiquidity in the domestic raw sugar
futures market. Gains and losses on raw sugar futures and options are matched to
inventory purchases and charged or credited to cost of sales as such inventory
is sold. Gains and losses on natural gas futures are matched to the natural gas
purchases and charged to cost of sales in the period of the purchase.
The information in the table below presents our domestic and world raw
sugar futures positions outstanding as of March 31, 2003. Our world sugar option
positions are not material to our consolidated financial position, results of
operations or cash flows.
Expected Maturity Expected Maturity
Fiscal 2003 Fiscal 2004
------------------------ -------------------------
Domestic Futures Contracts (long positions):
Contract Volumes (cwt.) .................................. 2,067,520 655,200
Weighted Average Contract Price (per cwt.) ............... $22.06 $21.90
Contract Amount .......................................... $45,600,731 $14,351,678
Weighted Average Fair Value (per cwt.) ................... $22.29 $21.84
Fair Value ............................................... $46,092,346 $14,308,616
Expected Maturity
Fiscal 2004
-----------------
Domestic Futures Contracts (short positions):
Contract Volumes (cwt.) .................................................. 180,320
Weighted Average Contract Price (per cwt.) ............................... $21.98
Contract Amount .......................................................... $3,963,104
Weighted Average Fair Value (per cwt.) ................................... $21.91
Fair Value ............................................................... $3,951,595
Expected Maturity Expected Maturity
Fiscal 2003 Fiscal 2004
------------------------ -------------------------
World Futures Contracts (long positions):
Contract Volumes (cwt.) .................................... 911,680 185,920
Weighted Average Contract Price (per cwt.) ................. $6.74 $7.01
Contract Amount ............................................ $6,144,812 $1,302,533
Weighted Average Fair Value (per cwt.) ..................... $7.51 $7.02
Fair Value ................................................. $6,843,278 $1,305,158
The above information does not include either our physical inventory or our
fixed price purchase commitments for raw sugar.
The information in the table below presents our natural gas futures and
options positions outstanding as of March 31, 2003.
Expected Maturity Expected Maturity
Fiscal 2003 Fiscal 2004
------------------------ -------------------------
Futures Contracts (long positions):
Contract Volumes (mmbtu) .................................. 1,550,000 200,000
Weighted Average Contract Price (per mmbtu) ............... $3.85 $4.79
Contract Amount ........................................... $5,968,295 $958,400
Weighted Average Fair Value (per mmbtu) ................... $5.11 $5.08
Fair Value ................................................ $7,914,500 $1,016,400
17
Expected Maturity
Fiscal 2003
-----------------
Natural Gas Option Contracts (long positions):
Contract Volumes (mmbtu) ................................ 950,000
Weighted Average Strike Price (per mmbtu) ............... $3.52
Contract Amount ......................................... $439,050
Fair Value .............................................. $1,507,050
Natural Gas Option Contracts (short positions):
Contract Volumes (mmbtu) ................................ 150,000
Weighted Average Strike Price (per mmbtu) ............... $3.80
Contract Amount ......................................... $77,550
Fair Value .............................................. $150
During December 2002, the Company terminated its interest swap agreement.
The Company entered into a new swap agreement in January 2003 as described in
footnote 7 to the financial statements.
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation was
performed under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Senior Vice
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including our President and Chief Executive Officer and our
Senior Vice President and Chief Financial Officer, concluded that our disclosure
controls and procedures were effective in ensuring that material information
relating to us with respect to the period covered by this report was made known
to them. There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of that evaluation.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On February 28, 2003, the Company held its annual meeting of shareholders
and voted on three proposals.
(1) Four directors were elected with votes cast as follows:
Abstentions or
Nominee Votes for votes withheld
------- --------- --------------
Robert J. McLaughlin 7,543,257 421,722
Robert A. Peiser 7,543,293 421,686
John K. Sweeney 7,860,307 104,672
Curtis G. Anderson 7,631,035 333,944
(2) A proposal to amend the Company's Long-term Incentive Plan was
approved with votes cast as follows:
Abstentions or
Votes for Votes against votes withheld
--------- ------------- --------------
7,784,967 174,330 5,682
18
(3) The shareholders ratified the appointment of Deloitte & Touche L.L.P.
as the Company's independent accountants for the fiscal year ending
September 30, 2003, with votes cast as follows:
Abstentions or
Votes for Votes against votes withheld
--------- ------------- --------------
7,961,804 2,553 622
Item 6. Exhibits and Reports on Form 8-K
(a) None.
The Company is a party to several long-term debt instruments under which
the total amount of securities authorized does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii) (A) of Item 601(b) of Regulation S-K, the Company agrees to
furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on January 9, 2003
in connection with the adoption of its Shareholder Rights Plan.
The Company filed a current report on Form 8-K on January 14,
2003 in connection with the sale of its Diamond Crystal Brands
foodservice business.
19
SIGNATURES
Pursuant to the requirements 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.
IMPERIAL SUGAR COMPANY
(Registrant)
Dated: May 14, 2003 By: /s/ Darrell D. Swank
---------------------------------
Darrell D. Swank
Senior Vice President and
Chief Financial Officer
20
CERTIFICATION
I, Robert A. Peiser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the quarterly report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Robert A. Peiser
-----------------------------------------
Robert A. Peiser
President and Chief Executive Officer
21
CERTIFICATION
I, Darrell D. Swank, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the quarterly report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
d. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
e. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Darrell D. Swank
-------------------------------------
Darrell D. Swank
Senior Vice President and
Chief Financial Officer
22