Imperial Sugar Company was incorporated in 1924 and is the successor to a cane sugar plantation and milling operation founded in Sugar Land, Texas in the early 1800s that began producing granulated sugar in 1843. Imperial Sugar Company is one of the largest processors and marketers of refined sugar in the NAFTA region. We refine, package and distribute sugar at facilities located in Georgia and Louisiana. For the year ended September 30, 2009, we sold approximately 15.2 million hundredweight, or cwt, of refined sugar. Additionally, through joint venture operations we market sugar and other sweeteners in Mexico and Canada.
We offer a broad product line and sell to a wide range of customers directly and indirectly through wholesalers and distributors. Our customers include retailers, restaurant chains, distributors and industrial customers, principally food manufacturers. Our products include granulated, powdered, liquid and brown sugars marketed in a variety of packaging options (6 oz shakers to 50-pound bags and in bulk) under various brands (Dixie Crystals®, Holly® Imperial® and Wholesome Sweeteners) or private labels. In addition, we produce selected specialty sugar products.
The Company experienced an explosion and fire on February 7, 2008, at its sugar refinery in Port Wentworth, Georgia, which is located near Savannah, Georgia. Production at the refinery, which comprises approximately 60% of our capacity, was suspended after the accident until we commenced limited bulk sugar production in the summer of 2009 and initiated packaging production in the fall of 2009. The reconstruction project is expected to be completed when the refined sugar silos are operational in January 2010.
In November 2009, we entered into a joint venture agreement which will result in the vertical integration of our Gramercy, Louisiana refining operation with our Louisiana raw sugar supplier. Under the terms of the agreement we will contribute our refinery assets to the joint venture which is constructing a new cane sugar refinery adjacent to the existing refinery.
Cane Sugar Production Process
Sugar cane is grown in tropical and semitropical climates throughout the world as well as domestically in Florida, Louisiana, Texas and Hawaii. Sugar cane is processed into raw sugar by raw cane mills promptly after harvest. Raw sugar is approximately 98% sucrose and may be stored for long periods and transported over long distances without affecting its quality. Raw sugar imports are limited by United States government programs.
Cane sugar refineries like those we operate purify raw sugar to produce refined sugar. Operating results of cane sugar refineries are driven primarily by the spread between raw sugar and refined sugar prices and by the conversion and other costs of the refining process.
Our Products and Customers
Imperial Sugar is one of the largest processors and marketers of refined sugar in the United States. Refined sugar is our principal product line and accounted for approximately 98% of our consolidated net sales for the year ended September 30, 2009. We produce refined sugar from raw cane sugar and market our sugar products to retailers, distributors and industrial food manufacturers directly through our sales force and indirectly through wholesalers and independent brokers. No customer accounted for more than 10% of our net sales in fiscal 2009.
We maintain sales offices at our headquarters in Sugar Land, Texas, in Port Wentworth, Georgia and at regional locations across the United States. Sales are accomplished through a variety of methods, including direct negotiation, publishing price lists, competitive bidding processes and trade promotions. We consider our marketing and promotional activities important to our overall sales effort and we advertise our brand names in print media, radio, internet websites and social media. We also distribute various promotional materials, including discount coupons and recipes.
We regularly develop new, innovative products to our customers and consumers. Sugar packaging has not experienced as much innovation as some other consumer categories, and we believe that we can increase our share of retail sales and margins by offering consumers value-added products that provide easier usage and storage. We have introduced a number of new products in the past few years, including a stand-up pouch line, shaker lines for both consumer and foodservice distribution, a package of pre-measured, one-quarter cup envelopes of brown sugar and pre-measured liquid sweetener products for foodservice operators. In the fall of 2009, we began test marketing a line of frosting mixes under the Baker’s Supremetm brand label.
Retail Sales—We produce and sell granulated white, brown and powdered sugar to retailers and distributors in packages ranging from 6 oz shakers to 50-pound bags. Retail packages are marketed under the trade names: Dixie Crystals®, Imperial® and Holly®.
Retail packages are also sold under retailers’ private labels, generally at prices lower than those for branded sugar. Core geographies for our branded sugar and private label products include the Southeast and Southwest United States. We also distribute the Imperial brand nationally through the drugstore channel. Our primary business strategy is to capitalize on our well-known brands and expand brand penetration through product and packaging innovation. Sales of refined sugar products to retail customers accounted for approximately 35% of our refined sugar sales revenue in fiscal 2009. Sales made to retail customers in the year ended September 30, 2009, were approximately 45% branded and 55% private label.
Industrial Sales—We produce and sell refined sugar, molasses and other ingredients to industrial customers, principally food manufacturers, in bulk, packaged or liquid form. Food manufacturers purchase sugar for use in the preparation of confections, baked products, frozen desserts, cereal, canned goods, beverages and various other food products. Historically, we have made the majority of our sales to industrial customers under fixed price, forward sales contracts with terms of up to one year. Industrial sales generally provide lower margins than retail and distributor sales. For the year ended September 30, 2009, our sales of refined sugar products to industrial customers accounted for approximately 46% of our refined sugar sales revenue.
Distributor Sales—We sell a variety of sugar products (including granulated, powdered and brown sugar) in package sizes ranging from one-pound packages to 50-pound bags to foodservice and industrial distributors who in turn sell those products to manufacturers, restaurants and institutional foodservice establishments. For the year ended September 30, 2009, our sales of refined sugar products to distributors accounted for approximately 19% of our refined sugar sales revenue. Under the terms of a non-compete agreement negotiated in connection with the sale of a business, we agreed not to sell individual servings of sugar and certain non-sugar products for a period of time ending in 2012, in exchange for an agreed upon volume purchase requirement of the Company’s refined sugar from the other party. The agreement allows the Company to begin selling individual servings of sugar and certain non-sugar products upon certain notice requirements and an agreed reduction in the customer’s purchase obligation.