Imperial Sugar Company (IPSU)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the quarterly period ended March 31, 2007

OR

For the transition period from              to             

Commission file number 000-16674

IMPERIAL SUGAR COMPANY

One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487

(Address of principal executive offices, including Zip Code)

(281) 491-9181

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 a large accelerated filer, an accelerated filer or a non-accelerated filer, see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨    Accelerated Filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

As of April 23, 2007 there were 11,751,376 shares of common stock, without par value, of the registrant outstanding.

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IMPERIAL SUGAR COMPANY

Index

Statements regarding future market prices and margins, future energy costs, future operating results, future availability of raw sugar, operating efficiencies, future government and legislative actions, future outcomes of legal proceedings, future cost savings, future pension payments, 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:

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, results of actuarial assumptions, strategic initiatives, 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 and other SEC filings.

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PART I—FINANCIAL INFORMATION

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See notes to consolidated financial statements.

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IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See notes to consolidated financial statements.

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IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

See notes to consolidated financial statements.

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IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended March 31, 2007

(Unaudited)

See notes to consolidated financial statements.

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IMPERIAL SUGAR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(unaudited)

The unaudited 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, 2006. The Company operates its business as one domestic segment—the production and sale of refined sugar and related products.

Certain reclassifications were made to the prior years’ financial statements to conform to current year presentation.

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.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48—Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the potential impact, if any, of FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently analyzing the potential impact, if any, of SFAS 157 on its consolidated financial statements.

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In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). This statement amends SFAS No. 87, Employers’ Accounting for Pensions (SFAS 87), SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88), SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (SFAS 106), and SFAS No. 132 (revised 2003), Employers’ Disclosure about Pension and Other Postretirement Benefits (SFAS 132R). It requires the recognition of the overfunded or underfunded status of a defined benefit pension and other postretirement plan as an asset or liability in the balance sheet and changes in that funded status to be recognized in comprehensive income in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the balance sheet date. As permitted, the Company has early-adopted the funded status recognition provisions of SFAS 158 effective September 30, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008. The Company expects to adopt the measurement date provisions of SFAS 158 in fiscal 2009.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115 (SFAS 159). SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value that are currently not required to be measured at fair value. Under SFAS 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. The statement establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity’s election on its earnings. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company is currently analyzing the potential adoption and impact, if any, of SFAS 159 on its consolidated financial statements.

In January 2007, Intercontinental Commodity Exchange, Inc. (NYSE: ICE) merged with the New York Board of Trade (NYBOT) in exchange for a combination of cash and ICE common stock. The Company was a member of NYBOT and has two seats on the exchange, which gives the Company trading privileges in the sugar futures and options contracts traded on the exchange. The merger consideration received for the Company’s membership interests included $0.8 million of cash and restricted and unrestricted ICE stock. A gain of approximately $3.7 million was recorded in connection with this transaction. As of March 31, 2007, the Company had disposed of 7,905 shares of the ICE stock received in this transaction for proceeds of $1.0 million. The Company continues to own 7,905 shares of unrestricted stock and 6,324 restricted shares.

The Company is party to litigation and claims which are normal in the course of its operations. While the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its consolidated results of operations, financial position or cash flows.

In connection with the sale of a subsidiary in 2002, the buyer assumed $18.5 million of industrial revenue bonds, with final maturity in 2025. The Company remains contingently liable for repayment of the bonds under a guaranty arrangement and does not believe that a liability is probable. The Company has recorded a non-current liability for the fair value of the guarantee pursuant to Financial Interpretation No. 45.

In connection with the sales of certain businesses, the Company made customary representations and warranties, and undertook indemnification obligations with regard to certain of these representations and warranties including financial statements, environmental and tax matters, and the conduct of the businesses prior to the sale. These indemnification obligations are subject to certain deductibles, caps and expiration dates and, in some cases, may be deducted from the related escrow balance. In connection with the sale of the Holly Sugar subsidiary (“Holly”) to Southern Minnesota Beet Sugar Cooperative (“SMBSC”) in September 2005, $2.8 million of proceeds are in escrow to secure the Company’s indemnity obligations. SMBSC has alleged that the Company

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breached certain warranties and covenants in the sales agreement and filed an arbitration claim before the American Arbitration Association (“AAA”) alleging damages in excess of $14.3 million.

Also, in conjunction with the sale of Holly, the Company negotiated a five-year option to purchase up to 500,000 hundredweight of bulk, refined sugar per year from SMBSC at a formula price based on the traded domestic raw sugar futures market. SMBSC rejected the Company’s exercise of that option in February 2006, alleging that there had been a “material change” in the domestic raw sugar futures market, necessitating a renegotiation of the refined sugar price under the option. The Company filed a counterclaim against SMBSC in the AAA proceeding seeking specific performance of the Supply Option Agreement and $6.1 million of damages for breach of contract.

The AAA hearing on both SMBSC’s claim and the Company’s counterclaim was held in March 2007, and a ruling by the arbiter is pending.

Options to purchase 201,943 shares and 395,001 shares of the Company’s common stock with a weighted-average exercise price per share of $4.36 and $4.79 were exercised during the three and six-month periods ended March 31, 2007, respectively. Cash received from the exercise of stock options was $0.9 million and $1.9 million for the same periods. The total intrinsic value of options exercised for the three and six months was $5.2 million and $9.4 million, respectively. The excess tax benefit realized from stock options exercised and restricted stock vested was $1.0 million and $2.0 million, for the three and six months ended March 31, 2007, respectively.

In the six-month period ended March 31, 2007, the Company granted 70,000 shares of restricted stock with a weighted-average grant date fair value of $32.45 per share. The shares generally vest over a four-year period from date of grant. During the six-month period, 45,636 shares of restricted stock vested with a fair value of $1.5 million. Additionally, in the current quarter the Company granted 12,000 restricted share units (RSU’s). The RSU’s have no requisite service period and were immediately expensed under the requirements of SFAS No. 123R, Share-Based Payment. The Company recognized approximately $0.4 million of compensation expense in connection with this grant in the current quarter.

Stock Appreciation Rights (SARs) totaling 5,000 were exercised during the three-month period ended December 31, 2006 at an exercise price of $1.35 per share. At March 31, 2007, there were no SARs remaining.

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The following table presents information necessary to calculate basic and diluted earnings per share (in thousands of dollars, except per share amounts):

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The components of net periodic benefit costs for the three and six months ended March 31, 2007 and 2006 were (in thousands):

Pension plan contributions, which are based on regulatory requirements, were $0.5 million and $0.4 million during the six months ended March 31, 2007 and 2006, respectively. Contributions during the remainder of fiscal 2007 are expected to be approximately $1.0 million.

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This discussion should be read in conjunction with information contained in the Consolidated Financial Statements and the notes thereto and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

We operate in a single domestic business segment, which produces and sells refined sugar and related products. Our results of operations substantially depend on market factors, including the demand for and price of refined sugar, the price of raw cane sugar 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, domestic health and eating trends, competing sweeteners, 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 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.

Results of Operations

Three and Six Months Ended March 31, 2007 compared to Three and Six Months Ended March 31, 2006

In the second fiscal quarter ended March 31, 2007, we reported income from continuing operations of $8.7 million or $0.74 per diluted share, compared to $7.1 million or $0.63 per diluted share during the second fiscal quarter of the prior year. For the first six months of the current year, we reported income from continuing operations of $24.4 million or $2.11 per diluted share, compared to $18.2 million or $1.64 per diluted share last year. The current quarter increase was the result of an improvement in gross margin resulting from lower raw sugar and energy costs and a gain on commodity exchange seats we hold, offset in part by higher selling, general and administrative costs that in large part were caused by factors not expected to continue during the balance of the year at these levels. A lower effective tax rate driven by the tax treatment of certain gains in the quarter also contributed to the quarter’s results. We discuss these factors in more detail below.

Our results of operations primarily depend on our success in achieving appropriate spreads of sugar sales prices over raw material costs and our ability to control our manufacturing, distribution and administrative costs. Sugar sales comprise approximately 97% of our net sales.

Sugar sales volumes and prices were:

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Net sales decreased 3.9% for the three months and 7.5% for the six months ended March 31, 2007, each compared to the same period in the prior year. Domestic sugar volumes decreased 4.5% for the quarter and 13.6% for the six-month period. Domestic prices decreased 3.0% for the quarter and increased 3.9% for the six-month period. Last year’s tight domestic sugar market supply conditions, driven by a smaller domestic sugar beet crop and delays in the start of the harvest in some sugar beet areas, along with the impact of Gulf Coast hurricanes on the cane sugar industry in the fall of 2005, led to rapidly rising refined sugar prices. Additionally, certain channels experienced higher volumes caused by shortages in the domestic industry’s refining capacity in the months immediately following the hurricanes. Beginning late in fiscal 2006 and continuing in fiscal 2007, spot industrial prices and new contract pricing for 2007 declined from the high levels reached in 2006 due to the restoration of capacity and USDA estimates of a 12.5% increase in beet sugar production from the crop which commenced harvest in fall of 2006.

A significant portion of our industrial sales are done under fixed price forward sales contracts for generally up to a year, many of which are on a calendar year basis. As a result, industrial sales prices tend to lag market trends. The lag effect of rising industrial contract prices last year largely matured in the second half of fiscal 2006 and the impact of falling prices began to be realized in this second quarter. As a result, industrial prices realized during the current quarter were slightly lower than the second quarter of the prior year, but were 7.0% lower than the first quarter of fiscal 2007. Industrial volumes increased in the second quarter of fiscal 2007 due in part to a shift of a toll contract to industrial sales as well as an aggressive sales effort. Industrial prices are expected to decline during the remainder of fiscal 2007, as sales contracts negotiated during last year’s higher price market have largely been fulfilled.

Branded consumer volume during the quarter increased significantly from levels achieved in the previous year due to an aggressive sales effort to restore business volumes with the existing customer base as well as to establish sales with new customers. On the other hand, private label consumer volume continues to be down due to both the increased availability of sugar this past fall and increased private label competition, including Mexican imports. Average consumer prices increased 1.0% and 3.1% in the current quarter and six-month period, compared to the same periods last year, in part due to this shift in the mix of volumes to branded items.

Restoration of the domestic cane production capacity and competitive pressure resulted in the reduction of foodservice volumes, while foodservice prices declined significantly during the current quarter from the first quarter of fiscal 2007 and were 12.6% lower than the same quarter last year. Foodservice prices are expected to continue to decline during the remainder of fiscal 2007. World and toll sales volumes increased 4.1% in the current quarter compared to the prior year quarter as higher world sales more than offset the conversion of a toll contract to domestic industrial sales. World and toll sales price increased significantly with the shift of volumes to higher priced world sales in the current quarter.

Offsetting the margin impact of lower refined prices, market prices of raw sugar continued to decline from the prior year levels. The domestic raw sugar supplies are substantially restored following the damage in 2005 to the Louisiana and Florida crops from three hurricanes. This, coupled with other increases in domestic sugar supplies, has resulted in the softening of domestic raw sugar prices thus far this fiscal year. Our cost of domestic raw cane sugar decreased from $22.13 per cwt (on a raw market basis) for the quarter ended March 31, 2006 to $20.79 per cwt for the current quarter and from $21.47 per cwt for the first six months of last fiscal year to $20.95 per cwt for the first six months of this fiscal year. The lower domestic raw cane sugar cost increased our gross margin percentage by 3.7% for the three months and 1.4% for the six months ended March 31, 2007. While we are unable to predict whether these lower raw sugar market prices will continue, we have purchased or hedged substantially all of our expected raw sugar requirements for fiscal 2007 at prices below prior year levels. The cost of world raw sugar was higher compared to both the prior year quarter and first six months of last year such that gross margin was negatively impacted by 0.5% and 0.2%, respectively.

In addition, energy costs have decreased significantly compared to the past year. Natural gas provides approximately half of the energy for our plants, while the remainder of our energy usage is comprised of coal and fuel oil. Our average NYMEX basis cost of natural gas after applying gains and losses from hedging activity decreased to $8.89 per mmbtu in the current quarter from $11.11 per mmbtu in the comparable prior year’s quarter and to $8.11 from $10.95 for the six month periods. Our purchases of coal decreased to an annual average cost of $3.58 per mmbtu in fiscal 2007 compared to $3.86 per mmbtu in the prior year. In total, energy costs were

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$1.5 million and $2.3 million lower for the three and six months ended March 31, 2007, amounting to an increase of gross margin percentage of 0.7% and 0.5% for the quarter and six months ended March 31, 2007. We have purchased or hedged substantially all of our expected 2.4 million mmbtu natural gas requirements for fiscal 2007 at prices below prior year levels.

Gross margin as a percentage of sales for the three months ended March 31, 2007, increased to 11.6% compared to 11.4% in the prior year quarter and increased to 14.4% for the first six months compared to 12.1% for the prior year. In addition to the effects of sales prices, raw sugar costs and energy costs described above, gross margin was impacted by manufacturing and freight costs. Manufacturing costs increased in the current quarter and fiscal year due to increased costs for labor, repairs and maintenance costs, insurance expense, fringe benefit costs and the influence of lower production volumes on unit costs. Increased manufacturing costs (excluding energy) negatively impacted gross margin by approximately 1.1% and 1.4% for the three and six-month periods ended March 31, 2007 compared to the same periods in the prior year. Fuel costs continue to have an adverse effect on our transportation costs, which decreased our gross margin 0.4% for the quarter and six months compared to the same periods in the prior year.

Selling, general and administrative expense increased $4.1 million for the three months ended March 31, 2007 compared to the same period in the prior year primarily because of litigation costs of $1.2 million and professional services related to corporate development activities of $1.1 million. Additionally, higher advertising costs ($0.4 million), bad debt costs ($0.4 million) and compensation and other employee-related expenses ($0.6 million) contributed to the increase. A $4.2 million increase for the six-month period was driven by many of the same factors. We do not expect legal and corporate development expenses to continue during the second half of this fiscal year at the rate experienced during the second quarter.

Depreciation expense decreased $0.3 million in the three-month period and $0.4 in the six-month period ended March 31, 2007 compared to the same period in the prior year. The decrease is primarily a result of certain assets becoming fully depreciated.

In January 2007, Intercontinental Commodity Exchange, Inc. (NYSE: ICE) merged with the New York Board of Trade (NYBOT) in exchange for a combination of cash and ICE common stock. The merger consideration received for our NYBOT membership interests included $0.8 million of cash and restricted and unrestricted ICE stock. A gain of approximately $3.7 million was recorded in connection with this transaction as Gain on Commodity Exchange Seats.

In the current quarter, we sold a former refinery site in Clewiston, Florida, which was previously reflected in Assets Held for Sale, and recorded a gain of approximately $0.7 million.

The Company’s lower debt level in fiscal 2007 decreased interest expense $0.1 million for the quarter and $0.2 million for the six-months ended March 31, 2007 compared to the same periods in the prior year.

Other income, which includes interest income, equity investment earnings and distributions from cost basis investments, increased $0.2 million in the three-month period and $1.1 million in the six-month period ended March 31, 2007 compared to the same periods in the prior year, primarily due to higher interest income.

We have estimated a combined federal and state income tax rate of 33.0% for the six months ended March 31, 2007 compared to 36.6% in the same period of last year. The decrease in the effective tax rate is primarily attributable to utilization of previous capital loss carryforwards as a result of the ICE/NYBOT transaction and the sale of the Clewiston property in the current year, as well as an increasing federal manufacturing credit that the Company expects to more fully utilize in fiscal 2007.

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We fund our liquidity and capital requirements from cash generated from operations, supplemented as necessary with revolving credit borrowings under an agreement that provides for up to $100 million (subject to a borrowing base) of senior secured revolving credit loans (the “Revolver”). At March 31, 2007, we had no outstanding borrowings under the Revolver and had borrowing capacity of $92.3 million, after deducting outstanding letters of credit totaling $7.7 million.

The Revolver, which expires in December 2008, is secured by our cash and temporary investments, accounts receivable, inventory, certain investments and certain property, plant and equipment. Each of our subsidiaries is either a borrower or a guarantor under the facility. The agreement contains covenants limiting our ability to, among other things:

In addition, in the event that our average total liquidity (defined as the average of the borrowing base including cash, less average actual borrowings and letters of credit) falls below $20 million, the Revolver requires that we comply with a quarterly covenant which establishes a minimum level of earnings before interest, taxes, depreciation and amortization. The Revolver limits our ability to pay dividends or repurchase stock if our average total liquidity, after adjustment on a pro forma basis for such transaction, is less than $20 million. Average total liquidity was $143 million during the six months ended March 31, 2007.

The Revolver also includes customary events of default, including a change of control. Borrowings are generally 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, 2008, we classify debt under the Revolver as current, pursuant to Emerging Issues Task Force Issue 95-22 as the agreement contains a subjective acceleration clause if in the opinion of the lenders there is a material adverse effect, and provides the lenders direct access to our cash receipts.

Our capital expenditures for the first six months of fiscal 2007 were $4.4 million, primarily for normal replacement and safety improvements. Capital expenditures in fiscal 2007 are expected to be about $15 million, of which approximately $10 million relates to normal equipment, product quality and safety improvements and the balance relates to process improvement, packaging and technology investments.

During the first quarter of fiscal 2007, we declared a special cash dividend of $3.00 per share or $34.4 million, which was paid in January 2007. In January, the regular quarterly dividend of $0.06 per share was increased to $0.07 per share.

A detailed analysis of the sources and uses of cash is provided in the Consolidated Statements of Cash Flows.

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There have been no material changes to our critical accounting policies and estimate methodologies since the filing of our Annual Report on Form 10-K for the year ended September 30, 2006.

We use raw sugar futures and options in our raw sugar purchasing programs and natural gas futures and options to hedge natural gas purchases used in our manufacturing operations. Our ability to effectively hedge raw sugar purchases is 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, 2007.

The above information does not include either our physical inventory or our fixed price purchase commitments for raw sugar. Short raw sugar futures positions may occur when suppliers deliver short futures pursuant to the pricing provisions of raw sugar supply agreements, creating an equal and offsetting long position in the physical supply agreement.

The information in the table below presents our natural gas futures positions outstanding as of March 31, 2007.

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In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2007, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal controls over financial reporting that occurred during the six months ended March 31, 2007, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION

The Company is party to litigation and claims which are normal in the course of its operations. While the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its consolidated results of operations, financial position or cash flows.

In connection with the sales of certain businesses, the Company made customary representations and warranties, and undertook indemnification obligations with regard to certain of these representations and warranties including financial statements, environmental and tax matters, and the conduct of the businesses prior to the sale. These indemnification obligations are subject to certain deductibles, caps and expiration dates and, in some cases, may be deducted from the related escrow balance. In connection with the sale of the Holly Sugar subsidiary (“Holly”) to Southern Minnesota Beet Sugar Cooperative (“SMBSC”) in September 2005, $2.8 million of proceeds are in escrow to secure the Company’s indemnity obligations. SMBSC has alleged that the Company breached certain warranties and covenants in the sales agreement and filed an arbitration claim before the American Arbitration Association (“AAA”) alleging damages of $14.3 million.

Also, in conjunction with the sale of Holly, the Company negotiated a five-year option to purchase up to 500,000 hundredweight of bulk, refined sugar per year from SMBSC at a formula price based on the traded domestic raw sugar futures market. SMBSC rejected the Company’s exercise of that option in February 2006, alleging that there had been a “material change” in the domestic raw sugar futures market, necessitating a renegotiation of the refined sugar price under the option. The Company filed a counterclaim against SMBSC in the AAA proceeding seeking specific performance of the Supply Option Agreement and $6.1 million of damages for breach of contract.

The AAA hearing on both SMBSC’s claim and the Company’s counterclaim was held in March 2007, and a ruling by the arbiter is pending.

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended September 30, 2006.

Under the Company’s August 2001 plan of reorganization, warrants to purchase an aggregate of 1,111,111 shares of common stock were issuable to persons who were common shareholders of the Company immediately prior to effectiveness of the plan of reorganization. During the quarter ended March 31, 2007, warrant holders exercised 1,569 warrants to purchase shares of the Company’s common stock at an effective exercise price of $23.05 per share. As of March 31, 2007, warrant holders had exercised 1,731 warrants to purchase shares of the Company’s common stock, at an effective exercise price of $23.40 per share, since the warrants were issued. The issuance of the shares and the conversion of the warrants were exempt from registration under Section 1145 of the U.S. Bankruptcy Code.

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On January 30, 2007, the Company held its annual meeting of shareholders and voted on two proposals.

(1) Three directors were elected with votes cast as follows:

(2) The shareholders ratified the appointment of Deloitte & Touche L.L.P. as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2007, with votes cast as follows:

(a) Exhibits

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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.

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Exhibit Index

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