Imperial Sugar Company Announces Second Fiscal Quarter 2010 Results

Imperial Sugar Company (NASDAQ:IPSU) today reported a net loss of $33.3 million, or $2.82 per share, for the second fiscal quarter ended March 31, 2010, compared to a net loss of $12.6 million, or $1.07 per share, for the second fiscal quarter of 2009. Raw sugar derivative activity and Port Wentworth refinery operations significantly impacted the current quarter’s results.

"Derivatives gains recorded in the past two quarters have substantially reversed in this quarter. Higher raw sugar costs have been largely offset by higher refined prices, but margins were eroded by weaker Port Wentworth refinery performance than expected. Progress during the quarter continued as we worked diligently to restore Port Wentworth to normalized operating levels but at a slower pace than planned,” commented John Sheptor, president and CEO of Imperial Sugar. "The refinery’s total production increased to 80% of normal periods from 60% in the first fiscal quarter of this year, a marked improvement. However, daily production rates lagged normal capacities, necessitating additional production days which increased costs, while the lower total production constrained sales. We are encouraged by the progress to date and expect daily production rates and volumes to continue an upward trend, which should improve results going forward.”

Net sales for the second fiscal quarter were $208.9 million, compared to $124.3 million for the same period last year. Year-over-year quarterly sales were higher mainly due to the ramp up in production volumes and higher domestic prices. Domestic sugar volumes increased 43.4% compared to second fiscal quarter 2009 while prices increased 15.1%. While production during the quarter improved, challenges starting up certain specialty product lines delayed the resumption of distribution to certain customers, notably several retailers who require a full line offering of products. With the sugar beet crop still significantly below recent historical levels, lower Mexican imports and higher raw cane sugar prices, refined prices have increased.

The Company manages the risks related to raw sugar price changes through its hedging program. During the second quarter, the raw sugar market declined from December 31, 2009, levels generating $24.8 million of losses on derivative contracts intended to hedge future raw sugar purchases which did not qualify for hedge accounting treatment. These losses increased the Company’s cost of sales, subsequently reducing gross margin. Additionally, raw sugar costs for the quarter were adversely impacted by $17.0 million of derivative gains recognized in previous periods on raw sugar futures contracts with second quarter delivery dates.

For the three months ended March 31, 2010, gross margin decreased to a negative 19.6% compared to a negative 4.7% in the prior year quarter. The decrease in gross margin percentage is primarily due the aforementioned raw sugar derivative activity and higher manufacturing costs. Absent the impact of this derivative activity, gross margin as a percent of sales would have been 0.4% in the current quarter.

Also included in results is a pre-tax charge of $5.1 million for the second fiscal quarter 2010 compared to $4.9 million for the same period last year related to the Company's Port Wentworth industrial accident that occurred in 2008.

Other income, which includes equity investment earnings and distributions from cost basis investments, increased significantly in the current quarter to $2.2 million as compared to $0.95 million last year due primarily to a significant improvement in Wholesome Sweeteners’ earnings and proceeds from settlement of a class action natural gas pricing litigation.

Cash and equivalents at March 31, 2010 were $13.9 million. The Company also had $30 million of outstanding borrowings and had the capacity under the borrowing base formula to borrow $64.1 million against inventory and receivables, after deducting outstanding letters of credit of $5.9 million.

Six Months Ended March 31, 2010

For the six-month period ended March 31, 2010 the Company reported net income of $144.9 million, or $12.01 per share, compared to a net loss of $12.5 million, or $1.07 per share, for the same period last year. Included in the current six-month period are $278.5 million of pre-tax gains associated with the settlement of insurance claims related to the February 2008 Port Wentworth accident, $12.9 million of pre-tax losses on derivatives and $6.9 million of pre-tax charges related to the refinery accident. Results for the prior year include pre-tax charges of $8.2 million related to the refinery accident and a $16.1 million gain on litigation settlement.

Net sales for the current six-month period increased 64% to $382.6 million compared to $233.0 million last year mainly due to higher domestic sugar volumes from the additional Port Wentworth production and higher domestic prices, partially offset by lower volumes of sugar purchased from other producers. The ramp up in volumes at the Port Wentworth refinery has constrained the increased in sales volumes during the current fiscal year.

Manufacturing costs increased in six-month period compared to last year also due to the Port Wentworth refinery ramping production volume throughout fiscal 2010.

Gross margin as a percent of sales for the six months ended March 31, 2010 declined to a negative 7.4% from a negative 3.8% for the same period last year primarily due to higher raw sugar costs resulting from derivative gains recognized in the fourth quarter of fiscal 2009 which were intended to hedge fiscal 2010 raw sugar purchases. Gross margin as a percent of sales for the six months ended March 31, 2010 would have been 0.9% after considering the $12.9 million of losses recognized in fiscal 2010 along with the $18.8 million of gains recognized in fiscal 2009.

Conference Call Details

Imperial Sugar's President and CEO John Sheptor and Senior Vice President and CFO Hal Mechler will discuss the company's operating results for its fiscal second quarter ended March 31, 2010 today at 3:30 p.m. EST.

Participants wishing to listen and participate in a brief question-and-answer session after management’s remarks can dial 1-866-510-0708 and enter the Participant Passcode: 77918564. The conference call can also be accessed via live audio webcast by visiting Imperial Sugar's web site at http://www.imperialsugarcompany.com and clicking on the "Q2 2010 Imperial Sugar Earnings Conference Call" icon under "Investor Relations." For those who are unable to listen to the call during its live broadcast, a replay of the entire presentation will be available on the company's web site beginning one hour following the conclusion of the call. In addition to the webcast replay, a telephone replay will also be available beginning one hour following the conclusion of the call that can be accessed dialing 1-888-286-8010 and entering the Passcode: 77796787. Both replays will be available through June 10, 2010.

Please note: Participants planning to listen to the call via the Internet may need to download Windows Media Player(R) to hear the call if this feature has not been previously installed on their computers.

About Imperial

Imperial Sugar Company is one of the largest processors and marketers of refined sugar in the United States to food manufacturers, retail grocers and foodservice distributors. The Company markets products nationally under the Imperial®, Dixie Crystals® and Holly® brands. For more information about Imperial Sugar, visit www.imperialsugarcompany.com

Statements regarding future market prices and margins, future refinery construction costs, timelines and operational restart dates, future expenses and liabilities arising from the Port Wentworth refinery incident, future costs and actions regarding the Louisiana Sugar Refinery, LLC venture, future import and export levels, future government and legislative action, future operating results, future availability of raw sugar, operating efficiencies, future investments and initiatives, future cost savings, future product innovations, future energy costs, our liquidity and ability to finance our operations and capital investment programs, future pension payments and other statements that are not historical facts contained in this release are forward-looking statements that involve certain risks, uncertainties and assumptions. These include, but are not limited to, market factors, farm and trade policy, unforeseen engineering, construction and equipment delays, regulatory or third party inspections and approvals, our ability to realize planned cost savings and other improvements, the available supply of sugar, energy costs, the effect of weather and economic conditions, results of actuarial assumptions, actual or threatened acts of terrorism or armed hostilities, legislative, administrative and judicial actions and other factors detailed in the Company’s Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.