<Page 1>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________to__________________
COMMISSION FILE NUMBER 0-1287
STERLING SUGARS, INC.
____________________________________________________________________
Exact name of registrant as specified in its charter
Delaware 72-0327950
_______________________________ ______________________________
State or other jurisdiction of IRS employer identification
incorporation or organization number
P. O. Box 572, Franklin, La. 70538
____________________________________________________________________
Address of principal executive offices Zip Code
Registrant's telephone number including area code 318 828 0620
Not Applicable
____________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether 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 such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirments for the past 90 days.
YES X NO
There were 2,500,000 common shares outstanding at November 30, 1996.
Total number of pages 16
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STERLING SUGARS, INC.
I N D E X
PAGE
NUMBER
PART I: FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Condensed balance sheets October 31, 1996
(unaudited) and January 31, 1996 I-1
Statements of earnings and retained earnings
Nine months ended October 31, 1996 and 1995
(unaudited) I-2
Statements of earnings and retained earnings I-3
Three months ended October 31, 1996 and 1995
(unaudited)
Statements of cash flows
Nine months ended October 31, 1996 and 1995
(unaudited) I-4
Notes to condensed financial statements
Three & nine months ended October 31, 1996 and I-6
1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS I-8
PART II. OTHER INFORMATION:
ITEM 5. OTHER INFORMATION II-1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K II-1
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STERLING SUGARS, INC.
CONDENSED BALANCE SHEETS
October 31, January 31,
1996 1996
UNAUDITED NOTE
ASSETS: ---------------------------
CURRENT ASSETS:
Cash and short-term investments $ 70,443 $ 134,052
Accounts receivable 5,057,801 1,717,048
Inventories 2,902,911 12,359,866
Expenditures for future crops (Note B) 3,268,082 216,967
Deferred income taxes 240,096 160,600
Other current assets 291,134 165,868
------------- -------------
TOTAL CURRENT ASSETS $ 11,830,467 $ 14,754,401
------------- -------------
Property, plant and equipment - net $ 13,925,065 $ 11,980,458
------------- -------------
Expenditures for future crops $ 562,600 $ 487,338
------------- -------------
Notes receivable - net of allowance $ 722,400 $ 677,479
------------- -------------
Deferred loan acquisition costs $ 67,033 $ 69,893
------------- -------------
$ 27,107,565 $ 27,969,569
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,302,186 $ 5,967,246
Short-term debt 3,364,000 3,658,334
------------ -------------
TOTAL CURRENT LIABILITIES $ 7,666,186 $ 9,625,580
------------- -------------
Long-term debt $ 3,848,518 $ 4,017,469
------------- -------------
Deferred income taxes $ 698,000 $ 698,000
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock $ 2,500,000 $ 2,500,000
Additional paid in capital (Note C) 40,455 40,455
Retained earnings 12,354,406 11,088,065
------------- -------------
$ 14,894,861 $ 13,628,520
------------- -------------
$ 27,107,565 $ 27,969,569
============= =============
NOTE: The balance sheet at January 31, 1996 has been taken from the
audited financial statements at that date, and condensed.
See notes to condensed financial statements
I-1 -3-
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STERLING SUGARS, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31
----------------------------
1996 1995
------ ------
REVENUES:
Sugar and molasses sales $14,574,935 $ 5,165,170
Interest earned 42,709 43,501
Mineral leases and royalties 64,914 91,475
Gain (Loss) on sale of depreciable assets (894) 134,250
Other 202,583 441,521
------------ ------------
$14,884,247 $ 5,875,917
------------ ------------
COSTS AND EXPENSES:
Cost of products sold $12,015,435 $ 4,502,500
General and administrative 524,785 489,939
Interest expense 301,541 353,274
------------ ------------
$12,841,761 $ 5,345,713
------------ ------------
NET EARNINGS BEFORE INCOME TAXES $ 2,042,486 $ 530,204
INCOME TAX EXPENSE 776,145 201,478
------------ ------------
NET EARNINGS $ 1,266,341 $ 328,726
RETAINED EARNINGS AT BEGINNING OF PERIOD 11,088,065 8,968,456
------------ ------------
RETAINED EARNINGS AT END OF PERIOD $12,354,406 $ 9,297,182
============ ============
NET EARNINGS PER SHARE $ .51 $ .13
============ ============
See notes to condensed financial statements
I-2 -4-
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STERLING SUGARS, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED OCTOBER 31
-----------------------------
1996 1995
------ ------
REVENUES:
Sugar and molasses sales $ 49,063 $ 1,458,092
Interest earned 5,979 633
Mineral leases and royalties 20,801 32,766
Gain on sale of depreciable assets - 14,250
Other 40,291 91,269
------------ ------------
$ 116,134 $ 1,597,010
------------ ------------
COSTS AND EXPENSES:
Cost of products sold $ -0- $ 1,323,365
General and administrative 124,022 141,233
Interest expense 101,429 141,761
------------ ------------
$ 225,451 $ 1,606,359
------------ ------------
NET EARNINGS (LOSS) BEFORE INCOME TAXES $( 109,317) $ 9,349
INCOME TAX CREDIT ( 41,540) ( 3,552)
------------ ------------
NET LOSS $( 67,777) $( 5,797)
RETAINED EARNINGS AT BEGINNING OF PERIOD 12,422,183 9,302,979
------------ ------------
RETAINED EARNINGS AT END OF PERIOD $12,354,406 $ 9,297,182
============ ============
NET LOSS PER SHARE $( .03) $ .00
============ ============
See notes to condensed financial statements
I-3 -5-
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STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31
----------------------------
1996 1995
------ ------
OPERATING ACTIVITIES:
Net earnings $ 1,266,341 $ 328,726
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Amoritization of loan costs 8,860 8,860
Depreciation 1,128,187 1,307,402
(Gain) loss on sale of depreciable assets 894 ( 134,250)
Changes in operating assets and liabilities:
Increase in accounts receivable (3,340,753) (3,863,378)
Increase in notes receivable ( 44,921) ( 131,139)
Decrease in inventories 9,456,955 1,811,246
Increase in other current assets ( 125,266) ( 90,657)
Increase in expenditures for future crops (3,051,115) ( 915,864)
Decrease in accounts payable
and accrued expenses (1,665,060) ( 108,627)
Other items - net ( 160,758) 155,778
------------ ------------
Net cash provided by (used in) operating $ 3,473,364 $(1,631,903)
activities ------------ ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment $(3,076,188) $(2,144,284)
Proceeds from sale of depreciable assets 2,500 134,250
----------- ------------
Net cash used in investing activities $(3,073,688) $(2,010,034)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from short-term debt $ 4,219,000 $ 6,538,398
Payments on short-term debt (4,513,334) (3,038,398)
Payments on long-term debt ( 168,951) ( 514,713)
Proceeds from sale of treasury stock 111,865
------------ ------------
Net cash provided by (used in) financing
activities $( 463,285) $ 3,097,152
------------ ------------
Decrease in cash and temporary investments $( 63,609) $( 544,785)
Cash and temporary investments at the
beginning of the period 134,052 623,237
------------ ------------
Cash and temporary investments at the
end of the period $ 70,443 $ 78,452
============ ============
Continued
See notes to condensed financial statements
I-4 -6-
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STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Supplemental information:
Interest paid $ 220,124 $ 268,779
=========== ===========
Income taxes paid $ 373,500 $ 439,325
=========== ===========
Non-cash item:
Accrued management fee paid by
issuance of treasury stock $ -0- $ 50,635
=========== ===========
I-5 -7-
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STERLING SUGARS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED) (CONTINUED)
A. CONDENSED FINANCIAL STATEMENTS:
The condensed balance sheets as of October 31, 1996, the
statements of earnings and retained earnings for the three
and nine months ending October 31, 1996 and 1995, and the
condensed statements of cash flows for the nine month periods
then ended have been prepared by the Company, without audit. In
the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and
cash flows at October 31, 1996 and for all periods presented
have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that these condensed financial
statements be read in conjunction with the 1996 annual report
to stockholders. The results of operations for the period
ending October 31, 1996 are not necessarily indicative of the
operating results expected for the full year.
I-6 -8-
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STERLING SUGARS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
B. EXPENDITURES FOR FUTURE CROPS:
Due to the seasonality of the Company's business, recognition
of expenditures incurred and income earned from sugar operations for
the 1996 and 1995 crops have been deferred in order to properly
match revenues and expenses. The deferred items are as follows:
NINE MONTHS ENDED OCTOBER 31
----------------------------
1996 1995
------ ------
Sugar and molasses sales $ 5,006,880 $ 7,402,789
------------ ------------
Costs and expenses:
Factory $ 9,712,677 $10,194,006
Plantations 562,652 508,738
------------ ------------
$10,275,329 $10,702,744
------------ ------------
Excess costs over sales $ 5,268,449 $ 3,299,955
Raw sugar and molasses inventories (2,124,417) (2,390,230)
------------ ------------
$ 3,144,032 $ 909,725
Land preparation and planting costs
1997 and 1996 crops respectively 124,050 164,286
------------ ------------
$ 3,268,082 $ 1,074,011
============ ============
C. ADDITIONAL PAID IN CAPITAL:
As discussed in Form 10-K, filed for the year ended January 31,
1996, the Company entered into a technical service agreement with
M. A. Patout & Son, Ltd. (Patout). The agreement provided an
option for Patout to purchase 50,000 shares of the Company's
treasury stock at a price of $3.25 per share. In April, 1995
Patout exercised its option.
I-7 -9-
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STERLING SUGARS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
General Information:
The Company's 1996 sugarcane grinding season (1996 crop) began on
October 11, 1996. Generally, the Company plans to begin operations on
or about October 1st of each year. This year the start of grinding was
delayed because excessive rainfall prevented many growers from
completing planting operations prior to October 1st. At the present time,
the Company anticipates processing approximately 825,000 tons of cane
and expects to end the processing season on or about January 4, 1997.
Initially the Company anticipated processing about 740,000 tons of cane.
However as the grinding season progressed, growers recognized higher
than normal yields of sugarcane per acre due to favorable weather
conditions during the cane growing season. For the 1995 crop,
the Company processed a total of 759,953 tons of cane. Thus far, this
years' grinding operations have progressed fairly well. At present, the
average daily grinding rate is 9,586 tons of cane compared to 9,457 tons
of cane per day last year. Sugar yields per ton of cane for the 1996
crop are estimated at 200 pounds per ton of cane. For the 1995 crop,
the sugar yield was 213 pounds per ton of cane.
The market price received from sales of raw sugar produced from
the 1995 crop was $22.52 cwt. For the 1996 crop, the market price is
projected to be about .50 cwt. less than the 1995 crop.
Sugar and Molasses Sales:
Sugar and molasses sales for the nine months ended October 31,
1996 and 1995 were as follows:
1996 1995
------ ------
Raw sugar sales $14,232,243 $ 4,909,831
Molasses sales 342,692 255,339
------------ -------------
$14,574,935 $ 5,165,170
============ =============
For the first nine months of the Company's fiscal year ending
January 31, 1997 (fiscal 1997), sales of raw sugar (1995 crop)
increased compared to the same period ending in fiscal 1996 (1994
crop). This increase is the result of the Company having more sugar
available to market during the current period. At January 31, 1996, the
Company had on hand approximately 31,545 tons of raw sugar available for
sale to refiners compared to 10,238 tons of raw sugar at January 31,
1995. As of July 31, 1996, the Company had sold and shipped the 31,545
tons of raw sugar held in inventory. The raw sugar on hand at January
31, 1995, 7,542 tons, was marketed during the first two quarters of
fiscal 1996. The remaining 2,696 tons were marketed during the quarter
ended October 31, 1995.
I-8 -10-
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As of January 31, 1996, the Company had on hand approximately
715,711 gallons of molasses all of which had been sold as of April 30,
1996. At January 31, 1995, the Company had approximately 691,383
gallons of molasses on hand all of which had been sold as of April 30,
1995. For the 1995 molasses crop, the Company received $.40 per gallon
compared to $.35 per gallon for the 1994 crop. There were no sales
of molasses during the third quarters of both years.
Interest Earned:
Interest earned for the nine month periods ending October 31, 1996
and 1995 was $42,709 and $43,501, respectively. The decrease in the
current period is primarily attributable to the Company receiving
$25,528 in April, 1995 from the Sugarcane Safety Group for its
share of interest earned on workers compensation reserve funds held by
the group. The decrease, however, is offset by interest earned in the
current period from short-term investments. For the three month period
ended October 31, 1996, interest earnings from short-term investments
were $5,979 compared to $633 for the three month period ending October
31, 1995.
Mineral Leases and Royalties:
For the three and nine month periods ended October 31, 1996,
income from mineral leases and royalties decreased and were $64,914
for the nine month period ending Ocober 31, 1996 compared to $91,475,
for the same period ending in 1995. The decrease is primarily
attributable to an oil and gas lease orginally granted in February, 1995
on 274 acres for $20,528 and not renewed for a second year. Also in
April, 1995, the Company had entered into a geophysical option agreement
dated April 1, 1995 for $10,166 covering 985 acres. The agreement
expired March 31, 1996 and was not renewed.
Gain (loss) on the Sale of Depreciable Assets:
The Company, for the nine month period ending October 31, 1996
recognized a loss of $894 on the sale of obsolete machinery and
equipment compared to a gain of $134,250 for the same period in 1995.
For the three month period ending in 1995, a gain of $14,250 was
recognized on these obsolete items. For the three month period ending
October 31, 1996, there were no sales of obsolete items.
Other Revenues:
Other revenues which consist mainly of miscellaneous income items,
were $202,583 for the nine month period ended October 31, 1996 and
$441,521 for the same period ending in 1995. These revenues, which can
vary considerably from year to year, generally include amounts received
for the sale of scrap, permitting seismic surveys conducted for oil and
gas exploration on Company owned land and other miscellaneous items.
The sharp decrease for the current period is the result of the Company
receiving $318,032 in April, 1995 from the Sugarcane Safety Group
representing a return of capital from workers compensation reserve funds
for years that had been closed out. The decrease in 1996, however, is
I-9 -11-
<Page 12>
offset by $141,127 received in May, 1996 from the Sugarcane Safety
Group as a return of capital from closing prior year workers compensation
reserve funds. Other revenues for the three month period ending October
31, 1996 decreased and was $40,291 compared to $91,269 for the three
month period ending October 31, 1995.
Cost of Products Sold:
Cost of products sold increased for the nine month period ending
October 31, 1996 and was $12,015,435 compared to $4,502,500 for the
same period ending October 31, 1995. Cost of products sold were not
recognized for the three month period ending October 31, 1996 but were
$1,323,365 for the same period in 1995. Costs relating to sales are
charged to cost of products sold. Accordingly, costs have increased for
1996 as would be expected with the increase in sales.
General and Administrative Expenses:
General and administrative expenses for the nine months ended
October 31, 1996 increased and were $524,785 and for the period ending
October 31, 1995 were $489,939. The increase in the current period
is primarily attributable to expense accruals totaling $33,319 for
contributions due the Company's pension and 401(K) plans. The general
and administrative expenses for the three month period ending October
31, 1996 and 1995 were $124,022 and $141,233. This decrease is
primarily attributable to decreases in miscellaneous expense items.
Interest Expense:
Interest expense decreased for the three and nine month periods
ending October 31, 1996 compared to the same periods in 1995 and were
$301,541 for the nine month period ending in 1996 and $353,274 for the
nine month period ending October 31, 1995. The decrease in interest
expense is primarily the result of increases in working capital from
the sale of sugar inventory on hand at January 31, 1996, which delayed
the need to make short-term borrowings in the 1996 period until September
,1996. In the 1995 period, the Company began making short-term loans in
May, 1995.
Income Taxes:
The income tax expense (credit) for the three and nine month periods
ending October 31, 1996 and 1995 was recorded at the statutory rate of
38 percent which reflects the 34 percent federal corporate rate plus 4
percent state income taxes.
Liquidity and Capital Resources:
At October 31, 1996, the Company had working capital of $7,548,939
compared to $5,128,821 at January 31, 1996. The working capital ratios
were 1.5 to 1 and 1.5 to 1, respectively.
I-10 -12-
<Page 13>
For the 1996 crop, the Company incurred approximately $3,000,000
for capital improvements. These additions are expected to increase the
average daily grinding rate to 10,000 tons. These additions include
expansion of the raw house on the pan floor and centrifugal stations.
Also improvements were made to steam boilers #4 and #6 including
installation of wet scrubbers to improve air emissions. Thus far, the
Company has sustained a 9,586 ton per day average daily grinding rate
after 62 days of the grinding season. The Company predicts the season
will go 85 days and process about 825,000 tons of cane up from 769,953
tons of cane processed for the 1995 crop which was processed in 81 days.
As in past years, the Company began making short-term loans during the
idle season to fund idle season costs, capital additions, as well as,
the first weeks of grinding operations. The short-term funding
requirement has not exceeded $3,500,000 for the 1996 crop and is
expected to be paid in full by the end of the fiscal year.
Expenditures for Future Crops - Note B:
In order to match revenue and expenses, sugar and molasses sales
relating to the 1996 crop of $5,006,880 have been deferred. Sales
of $7,402,789 relating to the 1995 crop were deferred last year.
Processing for the 1996 crop began October 11, 1996 and for the 1995
crop processing began October 9, 1995. The decrease in deferred
sales in 1996 is attributable to the Company shipping less raw sugar
during the month of October, 1996 compared to the same period in 1995.
In October, 1996, the Company had 20 grinding days compared to 23
grinding days in 1995.
Factory Deferred Costs:
Factory deferred costs decreased to $9,712,677 for the nine months
ended October 31, 1996 from $10,194,006 for the nine months ended
October 31, 1995. The decrease in deferred costs is primarily
attributable to a decrease in the amount of sugarcane processed as of
October 31, 1996 as compared to October 31, 1995. For the 1996 crop,
the Company has processed a total of 176,450 tons of cane compared to
199,126 tons of cane for the 1995 crop as of October 31, 1995.
Plantation Deferred Costs:
Plantation deferred costs were $562,652 for the nine month period
ending October 31, 1996 compared to $508,738 for the same period in
1995. The increase in the current period primarily results from the
Company incurring an increase in cultivation costs to improve the
cane crop on 1,192 acres of land farmed by the Company.
Land Preparation and Deferred Planting Costs:
Land preparation and deferred planting costs for the 1997 and 1996
crops have decreased for the nine month period ending in 1996 and were
$124,050 for the period ending October 31, 1996 and $164,286 for the
period ending October 31, 1995. For the 1996 crop, the Company
maintained approximately 354 acres of fallow land. For the 1997 crop,
I-11 -13-
<Page 14>
fallow land totals approximately 423 acres. Although fallow acreage
has increased from 1996 to 1997, the deferred land preparation and
planting costs have decreased in the current period primarily because
during the two preceeding years the Company incurred costs to improve
drainage systems and improve all lands farmed by the Company, including
the fallow lands.
I-12 -14-
<Page 15>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On December 16, 1996, Sterling Sugars, Inc. (the Company) will
execute a loan agreement for $6,500,000 to finance the purchase of
approximately 8,519 acres of cane land commonly referred to as
Oaklawn and Oakhill plantations. The loan repayment is based on a
ten year amortization with principal payments semi-annually and
interest paid quarterly. The interest rate is fixed at 8.25% for
the term of the loan. The loan is collaterlized with a first
mortgage on a total of 8,519 acres of property being purchased and a
second mortgage on 10,186 acres of land currently owned by the
Company. The agreement includes the assignment of rents collected
from the Oaklawn and Oakhill properties and includes several
convenants.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits - None
(b) Reports on Form 8K
No reports on Form 8K have been filed during the
quarter for which this report is filed.
II-1 -15-
<Page 16>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
STERLING SUGARS, INC.
---------------------
(REGISTRANT)
DATE December 13, 1996 By /s/ Craig P. Caillier
--------------------------- ------------------------
CRAIG P. CAILLIER
PRESIDENT AND CEO
DATE December 13, 1996 By /s/ Stanley H. Pipes
---------------------------- -------------------------
STANLEY H. PIPES
VICE PRESIDENT AND TREASURER
II-2 -16-
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<PERIOD-END> OCT-31-1996
<CASH> 70443
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<RECEIVABLES> 5057801
<ALLOWANCES> 0
<INVENTORY> 2902911
<CURRENT-ASSETS> 11830467
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<COMMON> 2500000
0
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<OTHER-SE> 12394861
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<CGS> 12015435
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<OTHER-EXPENSES> 826326
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