[value]We’re adding value to sugar. 2006 A NNUAL R EPORT We’re adding value to sugar to build value for investors. Some people look at sugar and see a commodity. At Imperial Sugar, we look beyond what’s common about our product and focus on offering uncommon [value]. We look at sugar and see the thousands of customers who sell our products and the millions of consumers who use them. We know they’re not all alike, and we set ourselves apart in an industry dominated by a commodity mentality through [innovation] that extends from the dock to the pantry. Understanding the different ways that our sugar is sold and how it’s used is the foundation of a strong [customer focus] that is unique within our industry. We identify unmet needs and turn those needs into opportunities – from convenience-oriented products for consumers to [supply chain]XSJUDGHVWKDWFUHDWHHI¿FLHQF\DQGYDOXHIRU customers in every sector of our business. Through [continuous investment], we are positioning Imperial Sugar for long-term success across all business cycles – building value for investors by adding value to sugar. 2006 ANNUAL REPORT [value] [Financial Highlights] Fiscal Year Ended September 30, 2006 2005 2004 (in Millions, except Per Share Data) Results of Continuing Operations Net Sales $946.8 $803.8 $785.9 Gross Margin 130.5 42.2 62.6 As a Percent of Sales 13.8% 5.3% 8.0% Income (Loss) from Continuing Operations 48.4 (5.4) 7.5 Diluted Earnings Per Share from Continuing Operations 4.31 (0.52) 0.69 Financial Condition Total Assets $371.1 $ 359.8 $ 415.8 Long-Term Debt 1.5 4.4 6.7 Shareholders’ Equity 185.9 149.5 176.2 1 Imperial Sugar Company [value]2006 was a very successful year for Imperial Sugar. [Letter to Shareholders] 2006 WAS A VERY SUCCESSFUL YEAR products was delayed because a significant portion of FOR IMPERIAL SUGAR. these sales are under contracts entered prior to the beginning of our fiscal year. As a result, much of our This past year was a remarkable one in many ways, industrial sales volume in the early part of the year both from a financial and operational point of view. reflected market conditions prior to the hurricanes. It started with the devastation from Hurricanes Katrina Because of the generally higher prices in the and Rita. Not only did the storms take a personal toll marketplace and the gradual runoff of older industrial on many homes and businesses near our refinery in contracts, our financial performance improved as Louisiana, they also disrupted the supply chain of the year progressed. Indeed, as you will read in this virtually all businesses in the Southeast. We were very annual report, our financial results for the full year fortunate to escape much of the physical damage that were very strong, generating significant cash flow struck many of our neighbors, but we were greatly that was tempered only by our decision to increase affected by transportation dislocations during the busy inventories as we approached the 2006 hurricane first quarter of our fiscal year. season to protect our customers from weather-related In addition to supply chain disruptions, these supply disruptions. weather-induced tragedies caused a sharp reduction It was also a year of significant progress for many in sugar supply and refining capacity while unrelated of our internal initiatives. In particular, we devoted factors reduced the size of the beet sugar crop. As a considerable time, effort and financial resources result, prices of refined sugar throughout the country towards improving our supply chain processes and rose significantly during the first half of our fiscal year systems. These investments will benefit our customers and only began to recede as the year drew to a close. and enhance their view of us as a valued supplier. The price increases crossed all three of our business Our intent was not only to be better prepared for lines, but their impact on earnings from our industrial 2 2006 ANNUAL REPORT future weather-induced disruptions but, more impor- cycles of the sugar industry, your management has tantly, to bring our level of customer service up to made good progress in positioning the Company to take the top of our industry and exceed our customers’ advantage of strong periods in the cycle and dampen expectations. I am very pleased with the progress we the effect of poor periods. Such progress includes: made in this regard and feel comfortable in saying that an extremely strong balance sheet that will allow our customers can now expect service that is second for continued investments in the Company regardless to none in our industry. of the industry cycle; value-added products that will provide additional margins over time; a supply chain We also continued our innovative approach to the that is second to none in the sugar industry and which marketplace with new packaging ideas such as our complements our already strong refining operations eight-cup resealable pouch and other products that and, finally, a commitment to drive costs down offer a far better customer experience than traditional wherever possible. sugar packaging. While we do not expect these new Of course, no letter like this is complete without products to have a material impact on our profitability recognizing the hard work demonstrated by all associ- in 2007, given their relatively recent launch, they do ates, all members of our management team and our position us well for the future in developing a portfolio Board of Directors. I would like to thank everyone who of value-added products that are attractive to our has supported us in the past year and for all the effort retail customers and their consumers. We have devel- that has resulted in the achievements during this time. oped other retail products that we plan to introduce All of us are committed to building on this progress in in 2007, have begun to expand these ideas into the 2007 and beyond. foodservice marketplace and have increased our focus on product development applicable across all three business lines, extending our commitment to innovation Robert A. Peiser to our industrial customers. Indeed, the central message of this annual report is how we are actually adding value to what has historically been viewed as simply a consumer staple. 3UHVLGHQWDQG&KLHI([HFXWLYH2IÀFHU Whether it is through our product and packaging devel- opments, through our improved supply chain or through the internal efficiencies that we continue to implement, Imperial Sugar is becoming known as the sugar company that is breaking with tradition in many ways. As we look to the future, our current efforts and investments should help us provide a counterbalance in years when the industry cycle is less favorable than it was in 2006 or than we expect it to be in 2007. In summary, while Imperial is certainly subject to the 3 Imperial Sugar Company “I am very happy with the new zip close bag. ,OLNHWKHVHEDJVEHFDXVHZKDWHYHUGRHVQ¶W¿WLQP\VXJDUFRQWDLQHU is easy to store in my pantry. Thank you so much for improving the bag and for providing an excellent product.” ±0/23(=635,1*7(;$6 [Innovation] Consumers and retailers have embraced packaging innovations. We continue to focus on SDFNDJLQJLQQRYDWLRQVWKDWUHÀHFWWKHZD\FRQVXPHUVXVHVXJDU2YHUWKHSDVWVHYHUDO\HDUVZHKDYH LQWURGXFHGQLQHQHZSURGXFWVWKDWHQKDQFHFRQYHQLHQFHUHGXFHPHVVDQGRIIHUEHWWHUSURWHFWLRQDJDLQVW KXPLGLW\DQGSHVWVIRUKRPHDQGIRRGVHUYLFHFXVWRPHUV7KHPRVWLPSRUWDQWRIWKHVHLVWKHFXSVWDQGXS UHVHDODEOH]LSSHUSRXFKRIJUDQXODWHGVXJDUWKDWLVEHFRPLQJDSRSXODUDOWHUQDWLYHWRWKHVWDQGDUGIRXU DQG¿YHSRXQGSDSHUEDJV 2WKHUSURGXFWLQQRYDWLRQVWKDWDSSHDOWRFRQYHQLHQFHRULHQWHGFRQVXPHUVDUHVKDNHUERWWOHVFRQWDLQ LQJDFKRLFHRIVL[GLIIHUHQWW\SHVRIVXJDUDQGLQGLYLGXDOO\VHDOHGRQHFXSFRQWDLQHUVRIEURZQVXJDUVROG LQWKUHHSDFNV:HSURPRWHGWKHVHYDOXHDGGHGKLJKHUPDUJLQSURGXFWVYHU\DJJUHVVLYHO\LQDGYDQFHRI WKHEXV\IDOODQGZLQWHUVHDVRQV:HDUHVHHLQJWKHPJDLQSRSXODULW\DQGJHQHUDWHLQWHUHVWDQGLQTXLULHV IURPUHWDLOHUVRXWVLGHRXUFRUHPDUNHWDUHDV %\GLIIHUHQWLDWLQJRXU,PSHULDO6XJDUDQG'L[LH&U\VWDOVEUDQGVWKHVHSDFNDJLQJLQQRYDWLRQVSRVLWLRQ XVWRLQFUHDVHEXVLQHVVZLWKH[LVWLQJFXVWRPHUVDQGSHQHWUDWHRWKHUUHJLRQVRUUHWDLOHUV 4 2006 ANNUAL REPORT [Customer Focus] New packaging and displays expand distribution. Packaging that responds to the many ways retailers display and sell sugar is opening new doors for our products. We added an important distribution channel with the development of package sizes and brands tailored to dollar stores, the fastest-growing retail segment. We also expanded our distribution through club stores and enhanced our service to customers like Sam’s and Costco by developing large-sized polyvinyl and polypropylene packages as well as unitized product displays that are tailored to the needs of warehouse-type retailers. Continued innovation captures opportunity across customer segments. Recognizing that foodservice customers have many of the same needs as households, but on a larger scale, we created upsized versions of some of our popular packaging innovations. One- to two-pound sugar shakers that feature a two-sided lid for shaking or spooning offer foodservice customers all the convenience of the smaller-sized household products. In the industrial segment, our focus is on looking at the way manu- facturers use sugar to identify opportunities to create specialty products and custom blends that meet their unique needs. “Retailers are excited to see our focus on packaging innovation, which appeals to consumers in a category that has seen little historically… ORQJWHUPWKLVRIIHUVVLJQL¿FDQWVDYLQJVWRUHWDLOHUVE\UHGXFLQJSURGXFW damage.” – GREIG DEBOW, DIRECTOR OF CONSUMER