The Imperial Sugar Company (IPSU) today reported income from continuing operations for the fiscal first quarter ended Dec. 31, 2009 of $178.1 million, or $14.84 per diluted share, compared to a loss from continuing operations of $0.6 million, or $0.05 per diluted share, for the same period last year.
The recent quarter’s results were impacted by several items, most significantly pre-tax gains totaling $278.5 million associated with the settlement of insurance claims related to the February 2008 Port Wentworth accident. As previously announced, the company and its insurers agreed to a final claims settlement of $345 million under the $350 million policy which covered property damage and business interruption losses.
A final report released last year by the U.S. Chemical Safety Board says the Feb. 7, 2008 explosion at the Imperial Sugar Refinery in Wentworth, Georgia was caused by inadequately designed and maintained equipment. According to the report, “inadequate housekeeping practices allowed highly combustible sugar dust and granulated sugar to build up throughout the refinery’s packing buildings.”
“Imperial’s management as well as the managers at the Port Wentworth refinery did not take effective actions over many years to control dust explosion hazards – even as smaller fires and explosions continued to occur at their plants and other sugar facilities around the country,” said CSB Investigation Supervisor John Vorderbrueggen.
Fourteen workers died and about 40 were injured in the industrial disaster, and the U.S. Occupational Safety and Health Administration proposed an order levying $8.76 million in fines against Imperial.
Cleanup, repairs, continuing refinery payroll and other costs related to the accident cost the company nearly $15 million by early 2009, although the bulk of that amount was paid by Imperial’s insurer. In July of 2009, Imperial said it had spent about $102 million in Wentworth construction costs through June 30, 2009. It expects total construction costs at the plant will reach $200 million to $220 million.
Sugar Land-based Imperial Sugar Co. began shipping products again from the rebuilt Georgia plant in July of last year.
In addition, during the first quarter the company recognized $18.9 million of gains on derivative contracts intended to hedge future raw sugar purchases. These gains did not qualify for hedge accounting treatment. Partially offsetting these gains were approximately $8.8 million of higher raw sugar costs resulting from derivative gains recognized in the fourth quarter of fiscal 2009 which were intended to hedge the Company’s first quarter’s raw sugar purchases. Absent the impact of the insurance and derivative gains, income from continuing operations for the quarter would have been a loss of $6.5 million, or $0.55 per diluted share.
“The finalization of our property and business interruption insurance claim is a major milestone in our recovery from the Port Wentworth tragedy,” stated John Sheptor, president and CEO. “The claims negotiation was well managed by our financial team, insurance broker and the insurance carriers, minimizing interference with rebuild activities and reaching an amicable settlement rapidly. We continue to make important progress in the Port Wentworth reconstruction, with the start up of the conditioning silos in January. We continue efforts to improve the refinery production rate, with a target to return to normal operations within the quarter. Packaging plant start up activities are focused on the new brown sugar and powdered sugar lines in anticipation of supplying customer Easter holiday requirements.”
The recent quarter’s results included pre-tax charges of $1.8 million for legal and consulting charges related to the Port Wentworth accident, while last year’s first quarter included a pre-tax charge of $14.9 million, primarily for cleanup and repairs, continuing refinery payroll and legal related costs. The prior year’s charges were offset by $11.7 million of insurance recoveries recognized under the Company’s property insurance coverage as well as an unrelated gain on a litigation settlement of $16.1 million.
“Raw sugar prices continue to escalate, compressing refined white sugar margins and creating a challenging environment for our industry and our customers,” added Sheptor. “Prices have risen in response to the imbalance between international supply and demand, depleted domestic and Mexican stock positions and moderate 2009 domestic sugar production. We are encouraging the USDA to announce an increase in the domestic raw sugar import quota prior to April 1, 2010 to ensure an adequate production of refined sugar between now and the 2010 domestic harvest.”
“We are excited about the initiation of construction of the new LSR refinery which will create over 500 new construction jobs in the Gramercy, Louisiana area. The February 3, 2010 ground breaking ceremony was a historic event for the Louisiana agribusiness community.”
Net sales and gross margin for the fiscal first quarter increased to $173.8 million and 7.1 percent compared to $108.6 million and a negative 2.7 percent, respectively, for the same period last year. Higher domestic sugar volumes primarily due to the result of additional production from the Port Wentworth refinery and higher domestic prices contributed to the 60 percent increase in sales. The increased gross margin was due to higher refined sugar prices as well as the gains on the raw sugar derivatives. In addition, higher raw sugar costs and higher manufacturing costs due to the ramp up of production volume at the Port Wentworth refinery were offset by lower energy and transportation costs.
Because of these factors, operating income rose to $277.6 million compared to an operating loss of $1.7 million for the same period last year.
The Company reported cash and cash equivalents of $66.4 million at quarter-end after capital expenditures of $37.6 million. Available capacity under the borrowing base formula for the bank credit facility was $32.6 million, after outstanding borrowings of $60 million. The company received the final $45 million payment from the insurance settlement in early January 2010. It is anticipated that available liquidity and capital resources should be sufficient to meet operating and capital needs which includes an additional $34 million of capital expenditures to complete the Port Wentworth rebuild project.
When will Imperial Sugar be running at 100% (or close to it)?