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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Form 10K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 31, 1997
[ ] 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
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STERLING SUGARS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 72-0327950
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(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
P. O. Box 572, Franklin, La. 70538
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (318) 828 0620
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Securities registered pursuant to Section 12d of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(G) of the Act:
Common Stock $1 par value
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(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. /__/
The aggregate market value of the registrant's voting stock held on February
28, 1997 by non-affiliates of the registrant was $3,155,900. Such value has
been computed on the basis of the average bid and asked prices of the stock
and by excluding, from the 2,500,000 shares outstanding on that date, all
stock beneficially owned by officers and directors of the registrant and by
beneficial owners of more than five percent of its stock, even though all
such persons may not be affiliates as defined in SEC rule 405.
Page 1 of 34 pages
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The number of shares of common stock outstanding as of April 18, 1997 was
2,500,000 shares.
Documents incorporated by reference: Portion of Registrant's Proxy Statement
dated April 25, 1997 are incorporated by reference into Part III.
An exhibit index is located on page 32.
FORM 10-K
PART I
ITEM 1-BUSINESS
Sterling Sugars, Inc. is grower and processor of sugarcane from which
it produces raw sugar and blackstrap molasses, a by-product. Cane residue
(bagasse), also a by-product, is used as the primary fuel for the Company's
steam boilers. The business is highly seasonal in that the processing
season usually extends from early October to mid December or early January.
For the fiscal year ended January 31, 1997 (referred to by the Company as
"fiscal 1997"), the season began on October 11, 1996 and continued through
January 02, 1997. From the crop grown during fiscal 1997 (referred to by
the Company as the "1996 crop"), the factory processed 821,184 tons of
sugarcane. During the previous year (fiscal 1996), the Company processed
a total of 769,953 tons of cane, in fiscal 1995, a total of 606,112 tons
of cane were processed by the Company. Sugar production for 1997 is
estimated at 80,881 tons. For fiscal 1996 and 1995 the Company produced
82,141 and 64,190 tons of raw sugar, respectively.
Historically, the Company has had no difficulty in selling, at
competitive prices, all of its raw sugar production to several refiners
and all of its molasses production to two molasses distributors. The
Company expects these marketing avenues to be open in the future.
The raw sugar factory operated by the Company is situated on sixty-
five acres of land outside the city of Franklin, Louisiana on Bayou Teche.
The factory is one of the largest and most modern in the state with a
grinding capacity of 10,500 tons of sugarcane per day.
Sugarcane for processing is supplied to the factory from Company
operated lands and by independent farmers in St. Mary, Iberia and surround-
ing parishes. See Item 2, "Properties," incorporated herein by reference,
for further information concerning properties owned and leased by the
Company.
The Company's farming operations produced a total of 20,792 tons of
cane for the 1996 crop. This compares to 20,509 and 11,611 tons of cane
for the 1995 and 1994 crops, respectively. During the year, the Company
maintained its policy of leasing and subleasing farm lands to independent
growers. This program has proven to be a success since being implemented
in 1988. Further information on this subject is provided under Item 2,
"Properties," incorporated herein by reference.
The United States is a net importer of raw sugar, importing about
one-fifth of its raw sugar requirements each year. In 1981, the Congress
included sugar in the Food and Agriculture Act (the Farm Bill). The Act
provided for a loan program which began in October, 1982. The loan
program provided a support price that rose incrementally from 17 cents per
pound for fiscal 1983 to 18 cents per pound for fiscal 1986, excluding
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transportation and other costs. This Farm Bill expired on December 31,
1985. However, the 18 cents per pound price support program was continued
with enactment of the Food Security Act of 1985 signed into law by the
President on December 23, 1985. This Act continued the support level on
domestically grown sugarcane through 1990. The most significant new
provision not in the previous farm bill was the requirement that the
government operate the sugar portion of the bill "at no cost to the Federal
Government by preventing the accumulation of sugar acquired by the
Commodity Credit Corportation." In order to comply with this provision,
it was necessary to reduce the amount of foreign sugar imported into this
country so that the domestic price would be more attractive than the
forfeiture of sugar to the Commodity Credit Corporation.
On November 28, 1990 President Bush signed into law the Food,
Agriculture, Conservation and Trade Act of 1990 (New Farm Bill). Major
provisions of the sugar section of this Farm Bill include (1) an 18 cents
per pound loan rate, (2) a nine month loan period, and (3) a minimum
foreign import quota of 1.25 million short tons of raw sugar with marketing
controls on domestic cane and beet production under certain conditions.
The New Farm Bill, which took affect in 1991, has not had any significant
impact on the domestic sugar industry and none is expected. Also in 1991
Congress passed the Omnibus Budget Reconciliation Act of 1990 which amended
the Agricultural Act of 1949 and requires that a marketing assessment be
imposed on sugar processed from domestically grown sugarcane at one percent
of the loan rate. The assessment, which began with the 1991 crop, is .18
cents per pound and increased to .198 cents per pound for the 1994 and 1995
crops. The Food, Agriculture, Conservation and Trade Act of 1990 expired on
December 31, 1995. On April 4, 1996 President Clinton signed the new Federal
Agricultural Improvement and Reform Act (FAIR) otherwise known as the Freedom
to Farm Bill. This seven year farm bill, starting with the 1996 crop, is
more risky to producers and includes an 18 cent loan rate with loans not to
exceed nine months. The no cost provision to the Federal Treasury is
retained and marketing allotments have been suspended through the year 2002.
The marketing assessment, currently at 1.10% of the loan rate, is increased
to 1.375%. Loans become non-recourse if the sugar import quota rises above
1.5 million short tons. Also, a one cent per pound penalty assessment is
made on sugar pledged as collateral and forfeited to the government for
non-recourse loans. After the year 2002, the domestic sugar industry may
be without a sugar program and consequently will have to compete in a global
market to produce and sell raw sugar.
The Company does not engage in research activities itself, but
numerous experiments and research activities are conducted for the benefit
of the sugar industry as a whole by the American Sugar Cane League,
Louisiana State University and the United States Department of Agriculuture
Experiment Station in Houma, Louisiana. The Company supports these agencies
by providing land for some of the research and experimentation. The
agencies have released several improved varieties of sugarcane in recent
years which have proved beneficial to the farmers.
Over the years, despite costly remedial actions by the Company,
opacity problems at the Company's factory have not been completely resolved
resulting in citations from the Air Quality Control Division of the
Louisiana State Office of Environmental Protection (the Agency) for exceeding
opacity limits for stack emissions. The most recent notice violation was
issued in November, 1992 and resulted in the issuance of an amended
compliance order dated June 4, 1993. On March 10, 1994, the compliance
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order was amended a second time to delay the requirements of the order by
one year because of the Company's poor financial results of fiscal 1994.
The requirments of the amended compliance order are as follows: (1) install
a wet scrubber on boiler No. 2 by October 1, 1995 or the beginning of the
1995 grinding operation, whichever comes first (2) retrofit boiler No. 5
with new Spreader-Stoker furnaces and ash and air handling systems to
include a wet scrubber, that will be sized to service both boiler No. 4 and
No. 5 by October 1, 1996, (3) retrofit boiler No. 4 with new Spreader-Stoker
furnaces and ash and air handling systems to be connected to the wet
scrubber (to be installed in 1996) by October 1, 1997, and (4) increase the
No. 6 boiler induced draft system by installing a larger fan and drive by
October 1, 1998. Requirement number one was completed prior to the 1995
grinding season. For fiscal 1997, to comply with requirements 2 and 3, the
Company retrofited boiler no. 4 with new speader stoker furnaces and ash and
air handling systems including a wet scrubber. Retrofitting boiler no. 4
prior to boiler no. 5 is more feasible since it is closest to the existing
boilers. Furthermore, the plans for retrofitting boiler no. 5 includes
installation of its own wet scrubber for better performance. Also for
fiscal 1997, the Company increased the no. 6 boiler induced draft system
capacity by installing a new and larger fan and drive (compliance order no.
4) along with a wet scrubber. For fiscal 1998, to complete the requirements
of the compliance order, the Company is retrofitting boiler no. 5 with new
spreader stoker furnaces and ash and air handling systems including a wet
scrubber. The project is expected to be completed prior to the 1997
grinding season.
Company employment for the year ended January 31, 1996 was as follows:
Factory Agriculture
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Year round employees 96 6
Seasonal and temporary employees 90 49
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186 55
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Further information respecting the Company's business is given under Item
7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," incorporated herein by reference.
ITEM 2 -PROPERTIES
Land owned by the Company by parishes and suitability of land for
cultivation is as follows:
St. Mary Iberia St. Landry Total
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Cultivable 9,544 1,560 - 11,104
Non-cultivable 7,533 1,302 121 8,956
Plant site 65 65
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17,142 2,862 121 20,125
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Of the cultivable land, approximately 270 acres are operated by the
Company. Approximately 9,274 acres in St. Mary Parish and 1,560 acres in
Iberia Parish (Peebles Plantation) are leased to tenants for the growing of
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sugarcane. Of the leases in effect, one covering 1,560 acres (Peebles
Plantation) expired in 1995 and was renewed under basically the same terms
and conditions as the previous lease. Another lease covering 818 acres
also expired in 1995 but contained an option to renew for five years. The
option on this lease was exercised by the tenant. One lease covering 169
acres expired in 1996 and was extended for an additional five years with a
five year renewal option. A lease covering 424 acres will expire in 1997.
During 1998, one lease on 410 acres will expire but contains an
option to renew for an additional five years. In 1999 two leases covering
308 acres will expire. Also in 1999, two leases covering 2,285 acres will
expire but contain options to renew for additional five year periods. One
of the leases expiring in 1999 includes 1,870 acres formerly part of
Sterling's farm division now leased to an independent grower.
The Company, in December, 1996, purchased approximately 8,519 acres of
land in St. Mary Parish of which 4,863 acres in cultivable cane land. The
acquisition is viewed as good for the Company in that it will secure and
maintain the Company's current cane supply. The Company is presently
obtaining leases with the existing tenants of these lands. The lease
agreements will contain five year terms beginning in 1997 with an option to
renew for additional five year periods.
In addition to Company owned land, about 2,496 acres in St. Mary,
Iberia and surrounding parishes are leased to the Company for growing
sugarcane. The land currently leased by the Company is subleased to
independent growers. Past experience indicates that small independent
growers do a better job of farming than can be done by a very large
agricultural operation. Arrangements have been made for the Company to
process the sugarcane grown from the subleased premises. Over the last
three years the Company has made attempts to have farmers lease land
directly from landlords in an effort to minimize the Company's liability
exposures.
The Company's plant site, consisting of a factory compound and main
office, is located on Bayou Teche just outside the city of Franklin,
Louisiana. The factory compound is comprised of the raw sugar mill,
warehouses, shipping and receiving facilities, truck and tractor repair
garage and large areas for the storage of sugarcane.
Of the 20,125 acres of land owned by the Company, approximately 890
acres are being held by production, primarily from the LGS Sterling No. 1
well and C. M. Cremaldi No. 2 well. The Sterling No. 1 well was completed
by the Company's lessee, LGS Exploration, Inc. during December, 1984.
During September, 1991 the well experienced production problems and in
January 1992 production was restored but at significantly reduced rates.
On July 31, 1992 the Company entered into a unitization agreement for the
Sterling No. 1 well whereby several individual units existing at the 6,800'
sand Charenton Field would operate as one unit. As part of the agreement
the Company maintained a twenty-five percent interest in the 34.5 acre unit.
Prior to unitization, oil production from the well for fiscal 1993 was only
345 barrels compared to 2,820 and 7,172 barrels of oil in fiscal 1992 and
1991, respectively. In the fourth quarter of 1993, the Company collected
$39,274 for its share of oil and gas production from November, 1991 through
November, 1992 from the new unit. During fiscal 1995, oil production from
the unit declined and was approximately 18,423 barrels compared to 30,038
barrels in fiscal 1994. In fiscal 1996, oil production from the unit was
14,881 barrels which is slightly higher than the 13,288 barrels of oil
produced during fiscal 1997. The price received per barrel of oil for
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fiscal 1997, 1996 and 1995 was $20.45, $17.01 and $15.32, respectively.
For fiscal 1996 and 1997 there was no gas production from the unit. For
fiscal 1995 and 1994, the Company had income from gas production from the
unit. In September, 1995 the Company began receiving royalty income from
the C. M. Cremaldi well. Although some income is derived from oil production
at the beginning, the primary income thus far has been from gas production.
Sterling maintains approximately 274 acres in the 4,000 acre unit. The site
is a re-completion unit that was inactive since December, 1986. Income from
the well decreased in fiscal 1997 and was $2,242 compared to $10,394 in
fiscal 1996. In February, 1995 the Company granted an oil and gas lease for
$20,528 on the 274 acres. The lease agreement has a three year primary term.
The lease was not renewed for a second year.
In fiscal 1997, the Company entered into geophysical option agreement
on 1,000 acres for $20,000. The agreement is dated September 25, 1996 and
expires after one year. The agreement does contain an option to acquire an
oil and gas lease. Also on February 3, 1997, the Company entered into a
seismic agreement covering approximately 1,395 acres for $28,184. The sole
purpose of the agreement is to allow seismic exploration activities. The
agreement expires December 31, 1997. In fiscal 1996, the Company entered
into a geophysical option agreement dated April 1, 1995 for $10,166 covering
985 acres. This agreement expired March 31, 1996. During fiscal 1995, the
Company entered into a geophysical agreement on approximately 1,200 acres of
land for $12,002 whereby the Company granted an option for one year to
acquire an oil and gas lease. On February 1, 1995, the option was exercised
and a lease granted for a one year term on approximately 555 acres for
$55,461. The lease contains a three year primary term. In February, 1996
the lease was extended one additional year and not renewed. During fiscal
1994, the Company had no income from oil and gas lease activities.
The Company's activities with respect to oil and gas are limited to
the granting of leases and the collection of bonuses, delay rentals and
landowner royalties thereunder. Accordingly only limited information,
furnished primarily by the Company's lessees, has been included with respect
to oil and gas operations affecting Company lands. Complete information
respecting these and related matters, such as proved reserves, are unavail-
able to the Company and cannot be obtained without unreasonable effort and
expense.
See also Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," incorporated herein by reference, for
further information on mineral operations on Company lands.
ITEM 3 - LEGAL PROCEEDINGS
Although no material legal proceedings are pending or known to
comtemplated by governmental authorities, attention is invited to Item 1,
"Business," incorporated herein by reference, for information respecting
citations issued to the Company by the Air Quality Control Division of the
Louisiana State Office of Environmental Protection.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of April 10, 1997 there were approximately 720 holders of record
of the Company's stock which is traded in the over-the-counter market. The
Company's stock transfer agent and registrar is Boatmen's Trust Company, P.
O. Box 14737, St. Louis, Missouri 63178.
The following table shows the range of high and low bid quotations for
the Company's stock for each quarterly period during the last two years, as
quoted by the National Quotation Bureau, Inc. Such quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions, and may not
necessarily reflect actual transactions. No dividends were declared by the
Company during the two year period.
Range of Prices
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Fiscal 1997 High Low
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First Quarter $ 6-1/2 $ 6-1/2
Second Quarter 6-3/4 6-1/2
Third Quarter 6-5/8 6-5/8
Fourth Quarter 6-1/2 6-1/2
Fiscal 1996
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First Quarter $ 5-1/2 $ 4-3/4
Second Quarter 6 5
Third Quarter 5-3/4 5-1/8
Fourth Quarter 6-1/8 5-1/8
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ITEM 6 - SELECTED FINANCIAL DATA
Year ended January 31
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1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Revenues $38,748,102 $29,644,559 $34,250,584 $13,932,753 $19,006,667
Net Earnings
(Loss) $ 2,036,970 $ 2,119,609 $ 742,783 $ (983,319) $ (552,812)
Net Earnings
(Loss per
Share) $ .81 $ .85 $ .30 $ (.40) $ (.23)
Cash Dividends
Paid per
Share $ - $ - $ - $ - $ -
AT YEAR END:
Total assets $35,584,629 $27,969,569 $20,879,631 $26,513,324 $20,887,211
Long-term
Debt $ 9,615,175 $ 4,017,469 $ 4,371,434 $ 4,694,236 $ 4,390,691
Working
Capital $ 5,204,946 $ 5,169,044 $ 4,493,736 $ 3,121,514 $ 5,840,963
Stockholders'
Equity $15,665,490 $13,628,520 $11,346,411 $10,604,028 $11,587,347
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ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For fiscal 1997 (1996 crop), the Company net earnings of $2,036,970 or
$.81 per share. Net earnings for the fiscal year ending January 31, 1996
(1995 crop) were $2,119,609 or $.85 per share. The Company for fiscal 1995
(1994 crop) had net earnings of $742,383 or $.30 per share.
In fiscal 1997, the Company set a new record for total tons of cane
processed in one grinding season. Also, a new daily grinding rate was set.
Overall, the Company's profitability was good despite an eight percent or
sixteen pounds per ton of cane decrease in sugar yields. The 1996 crop harvest
season experienced above normal rainfall. Also, freezing temperatures in late
December significantly reduced sugar recoveries the last five days of the
grinding season by as much as fifty percent.
For the 1996 crop, the Company processed 821,184 tons of cane. This is
the third consecutive year the Company has set a new record for tons of cane
processed. For the 1995 crop the Company processed 769,953 tons of cane and
for the 1994 crop, 606,112 tons of cane were processed.
The Company's efforts to continue increasing its average daily grinding
rate were achieved for the 1996 grinding season. The average grinding rate
was 9,803 tons of cane. For the 1995 and 1994 crops, the average daily
grinding rates were 9,457 and 8,159 tons of cane per day, respectively. The
1996 crop was processed in 84 days compared to 81 days for the 1995 crop. The
1994 crop was processed in 74 days. The factory capital additions over the
past three years have allowed the Company to increase its daily grinding
capacity substantially. In the future, the Company plans to continue to focus
on capital expansion projects which will further increase the daily grinding
capacity of the factory which will create more efficiencies thereby reducing
costs while matching the total cane supply available for processing.
Sugar yields per ton of cane for the 1996 crop are estimated at 197 pounds
per ton of cane. This yield is considerably less than the 213 pound yield for
the 1995 crop. For the 1994 crop the sugar yield per ton of cane was 212
pounds. The 1996 crop was not a favorable one for sugar yields when compared
to the two preceding years. For the 1993 crop, the yield per ton of cane was
186 pounds.
For the 1996 crop, the Company estimates sugar production at 80,881 tons
of raw sugar. This compares to 82,141 and 64,190 tons of raw sugar for the
1995 and 1994 crops, respectively. The Company processed an additional 51,231
tons of cane for the 1996 crop compared to the 1995 crop. However, raw sugar
production is expected to be 1,260 tons less for 1996 because of the decrease
of sixteen pounds per ton in the sugar yield from 1995 to 1996.
For the 1996 crop, the Company's agricultural division produced 20,792
tons of sugarcane on 730 mill acres compared to 20,509 tons of sugarcane for
the 1995 crop on 798 mill acres. For the 1994 crop, the agricultural division
produced a total of 11,611 tons of sugarcane on 681 mill acres. Over the last
three years the Company has farmed approximately 1,200 cultivable acres
consisting primarily of marginal lands. Since then the Company has continued
to incur costs to improve sugarcane yields on these marginal lands. For the
1996 crop, the sugarcane yield was 28.5 tons per acre compared to 25.7 tons
per acre for the 1995 crop. Management, over the past three years, has
attempted to negotiate with individual farmers to lease these lands but these
efforts have not yet been successful.
The Statement of Earnings for the three years ended January 31, 1997,
1996 and 1995 reflect sales of raw sugar and molasses of $38,748,102,
$28,495,085 and $33,768,134, respectively. Sugar marketed for fiscal 1997 was
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85,749 tons. This compares to 61,278 and 77,294 tons of raw sugar marketed
during fiscal 1996 and 1995, respectively. The increase in sugar marketed for
fiscal 1997 is primarily the result of an increased amount of raw sugar
available for marketing because of the increase in ending inventory for fiscal
1996. Inventories for fiscal 1997, 1996 and 1995 were 26,812, 31,545 and
10,238 tons of raw sugar, respectively. The average prices received for sugar
marketed have decreased for the 1996 crop and is estimated at $22.19 cwt.
Average prices of sugar for the 1995 and 1994 crops were $22.52 and $22.00
cwt., respectively.
Interest earned for fiscal 1997 decreased slightly from fiscal 1996 and
was $43,959 for fiscal 1997 and $45,864 for fiscal 1996. For fiscal 1995,
interest earned was $29,350. The increases over the past two years are
primarily the result of the Company having more funds available for short-term
investments because of increases in net earnings and working capital.
Income from mineral leases and royalties were $89,948, $114,926 and
$37,393 for fiscal 1997, 1996 and 1995, respectively. The decrease is
primarily attributable to an oil and gas lease and a geophysical option
agreement not being renewed for a second year. The oil and gas lease was
originally granted in February, 1995 for $20,528 on 274 acres. The geophysical
option agreement was dated April 1, 1995 for $10,166 covering 985 acres. This
agreement expired March 31, 1996 and was not renewed. The oil and gas lease
and option executed on February 1, 1995 on 555 acres for $55,461 was extended
for a second year. Oil and gas royalties were $25,708, $30,188 and $25,140
for fiscal 1997, 1996 and 1995, respectively.
Gains on the disposition of property and equipment were $14,795, $145,076
and $11,331 for fiscal 1997, 1996 and 1995, respectively. These gains are
primarily attributable to sales of obsolete machinery and equipment.
Other revenues consist primarily of amounts received from cane land
rentals and permitting seismic surveys conducted for oil and gas exploration.
For the current fiscal year, other revenues were $518,370. For the two
previous fiscal years, other revenues totaled $843,608 and $404,376,
respectively. Cane land rentals for fiscal 1997, 1996 and 1995 were $565,401,
$602,185 and $368,848, respectively. The decrease in other revenue in the
current year is the result of the Company receiving in April, 1995 $318,032
from the Sugar Cane Safety Group representing a return of capital from workers
compensation reserve funds for years closed out. The current year decrease,
however, was offset by $141,127 received in May, 1996 from closed out reserve
funds.
Cost of products sold for each of the three years ending in 1997, 1996
and 1995 were $34,703,495, $24,952,455 and $31,558,282, respectively. The
cost of products sold in each of these years are relative to the sales of raw
sugar and molasses for the three years.
General and administrative expenses for fiscal 1997 totaled $975,779.
These expenses were $954,809 in fiscal 1996 and $802,768 in fiscal 1995. The
increase in these expenses during the past two years is primarily due to
incentive payments made to employees and key management personnel in the form
of bonuses.
Interest and loan expense decreased to $504,260 for fiscal 1997 from
$522,667 in fiscal 1996 and $591,650 in fiscal 1995. The decrease in interest
expense in the current period 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 until September, 1996 for
fiscal 1997. For fiscal 1996, the Company began making short-term loans in
May, 1995. The decrease in the current year is offset, however, by an increase
in interest on long-term debt of $6,500,000. The Company, in December, 1996,
made a long-term loan to finance the purchase of approximately 8,519 acres of
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land in St. Mary Parish of which 4,863 acres is cultivable cane land. The
acquisition is viewed as good for the Company in that it will secure and
maintain the Company's current cane supply. The loan agreement contains a
ten year payout with all annual cane land rental income derived from the land
applied to the loan. Interest expense in each of these years include interest
incurred on a $4,000,000 long-term loan made in April, 1992.
For fiscal 1997 and 1996, the Company is recognizing income tax expenses
of $1,194,670 and $1,095,019, respectively. For fiscal 1995, the Company
recognized an income tax expense of $555,501. The income tax expenses are
explained in Footnote 4, Notes to Financial Statements, on pages 20 and 21 of
this report.
Over the last three years, liquidity of the Company has been good. The
current ratio at January 31, 1997 was 1.6 to 1. For the two previous fiscal
years ending January 31, 1996 and January 31, 1995, the current ratios were
1.5 to 1 and 2.0 to 1, respectively. For the current year short-term debt
decreased at January 31, 1997 and was $2,575,000 compared to $3,658,334 for
the same period ended January 31, 1996. The slight increase in the current
ratio for fiscal 1997 is primarily attributable to the decrease in outstanding
short-term debt at fiscal years' end. The decrease in short-term debt
primarily results from increased working capital during the 1996 crop idle
season.
For the coming year, with a good growing season, it is quite possible the
Company's volume of cane to grind will increase. Along with this increase is
a trend among sugarcane farmers in Louisiana, including our area, to convert
harvesting practices from whole stalk to billet combines. Most factory
managers would agree the combine system at this time is more favorable to
farmers than factories. Despite this fact, it is important the Company
accomodate its' farmers and as a result, the Company has budgeted $750,000 in
capital additions for handling billet cane on the cane yard. The Company has
also budgeted $2,700,000 in other capital additions which include improvements
to steam boiler No. 5, various improvements to steam boilers Nos. 1, 2, 4 and
6, installation of two 1,500KW generators, a cane wash table and installation
of one vacuum pan for the raw house. The improvements for the coming year
other than the billet cane handling improvements, will aid the Company in
becoming more efficient in operating the factory. The additions for handling
billet cane is expected to increase the factory cost of cane yard operations.
As in the past, the Company expects to fund the cost of the capital additions
from working capital and short-term borrowings through lines of credit
available to the Company.
The 1996 crop was the first under the new farm legislation, Federal
Agriculture Improvement and Reform Act (FAIR) otherwise known as the Freedom
to Farm Bill. This seven year farm bill is more risky for producers and
includes an 18 cent loan rate with loans not to exceed nine months. The no
cost provision to the federal treasury is retained and marketing allotments
have been suspended through the year 2002. The bill contains a recourse loan
provision when imports fall below 1.5 million tons and mandates a 1 cent
penalty for forfeited sugar. The marketing assessment was raised to 1.375%
from 1.10% of the loan rate. Sugar industry officials believe the legislation
is satisfactory. However after the year 2002, the domestic sugar industry may
be without a sugar program and consequently will have to compete in a global
market to produce and sell sugar.
In looking ahead, it is very important for the Company to continue to
expand the size of the factory and increase its volume of cane supply. In
addition, the Company must strive to become more efficient in order to become
competitive in a global market place.
II-5 -11-
<PAGE>
March 19, 1997
To the Stockholders and Board of Directors
Sterling Sugars, Inc.
Franklin, Louisiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Sterling Sugars,
Inc. as of January 31, 1997 and 1996, and the related statements of
income and retained earnings and cash flows for each of the three
years in the period ended January 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements present
fairly, in all material respects, the financial position of Sterling Sugars,
Inc. as of January 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended January 31,
1997, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ LeGlue & Company
(A Professional Corporation)
II-6 -12-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND 1996
ASSETS
CURRENT ASSETS:
1997 1996
------------ ------------
Cash $ 16,611 $ 30,169
Temporary cash investments 93,721 103,883
------------ ------------
Total cash and temporary cash investments 110,332 134,052
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 1,890,398 1,717,048
Sugar inventory - at cost 10,583,250 11,361,574
Molasses inventory - at market 261,269 300,548
Expenditures for future crops 148,334 216,967
Operating supplies - at cost 823,429 697,744
Deferred income taxes 102,200 160,600
Prepaid expenses and other assets 588,998 206,091
------------ ------------
TOTAL CURRENT ASSETS 14,508,210 14,794,624
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 6,886,838 1,815,620
Buildings 3,146,195 2,621,179
Machinery and equipment 31,015,481 27,937,538
------------ ------------
41,048,514 32,374,337
Less accumulated depreciation (22,077,725) (20,393,879)
------------ ------------
18,970,789 11,980,458
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 31,763 29,670
Expenditures for future crops 1,389,338 487,338
Notes receivable, net of allowance for
doubtful accounts, 1997 and 1996 $38,000 684,529 677,479
------------ ------------
2,105,630 1,194,487
------------ ------------
$35,584,629 $27,969,569
============ ============
See notes to financial statements
II-7 -13-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
-------------- -------------
CURRENT LIABILITIES:
Notes payable $ 2,575,000 $ 3,658,334
Accounts payable 1,171,467 1,402,683
Due to cane growers 4,654,502 4,316,481
Income taxes payable - 16,919
Current portion of long-term debt
and capital leases 902,295 231,163
-------------- --------------
TOTAL CURRENT LIABILITIES 9,303,264 9,625,580
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 9,615,175 4,017,469
-------------- --------------
DEFERRED INCOME TAXES 1,000,700 698,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 8) - -
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share:
Authorized and issued 2,500,000 shares 2,500,000 2,500,000
Additional paid-in capital 40,455 40,455
Retained earnings 13,125,035 11,088,065
------------ --------------
15,665,490 13,628,520
------------ --------------
$35,584,629 $27,969,569
============ ==============
See notes to financial statements
II-8 -14-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JANUARY 31,
1997 1996 1995
---------- ----------- -----------
REVENUES:
Sugar and molasses sales $38,748,102 $28,495,085 $33,768,134
Interest earned 43,959 45,864 29,350
Mineral leases and royalties 89,948 114,926 37,393
Gain on dispositions of property
and equipment 14,795 145,076 11,331
Other 518,370 843,608 404,376
----------- ----------- -----------
39,415,174 29,644,559 34,250,584
----------- ----------- -----------
COST AND EXPENSES:
Cost of products sold 34,703,495 24,952,455 31,558,282
General and administrative 975,779 954,809 802,768
Interest and loan expenses 504,260 522,667 591,650
----------- ----------- -----------
36,183,534 26,429,931 32,952,700
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,231,640 3,214,628 1,297,884
INCOME TAXES 1,194,670 1,095,019 555,501
----------- ----------- -----------
NET INCOME 2,036,970 2,119,609 742,383
RETAINED EARNINGS AT BEGINNING OF YEAR 11,088,065 8,968,456 8,226,073
----------- ----------- -----------
RETAINED EARNINGS AT END OF YEAR $13,125,035 $11,088,065 $ 8,968,456
=========== =========== ===========
WEIGHTED AVERAGE EARNINGS PER
COMMON SHARE:
Net income $.81 $.85 $ .30
=========== ========== ===========
CASH DIVIDENDS PAID $ 0 $ 0 $ 0
=========== =========== ===========
See notes to financial statements
II-9 -15-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,036,970 $ 2,119,609 $ 742,383
Adjustments to reconcile net earnings
to net cash provided by (used
in) operating activities:
Depreciation 1,793,012 1,533,946 1,517,693
Deferred income taxes 361,100 271,600 219,684
Gain on dispositions of property and
equipment (14,795) (145,076) (11,331)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (173,350) 559,929 (1,035,279)
(Increase) decrease in sugar and
molasses inventories 817,603 (7,458,169) 6,341,971
Increase in accounts payable and
accrued expenses and due to cane
growers 30,480 2,190,846 271,436
Increase (decrease) in interest
and income taxes payable 59,406 (326,541) 308,866
Other items - net (1,344,052) 117,908 153,325
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,566,374 (1,135,948) 8,508,748
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection/Issuance of notes
receivable - Net (7,050) (16,554) (264,702)
Purchases of property, plant and
equipment (8,842,848) (2,739,294) (482,307)
Proceeds from dispositions of
property and equipment 74,300 217,462 195,003
------------ ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (8,775,598) (2,538,386) (552,006)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 27,309,300 20,568,778 6,649,300
Sale of treasury stock - 111,625 -
Payments on short-term notes
payable and long-term debt (22,123,796) (17,495,254) (14,526,768)
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,185,504 3,185,149 (7,877,468)
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS (23,720) (489,185) 79,274
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 134,052 623,237 543,963
----------- ----------- -----------
(Continued)
II-10 -16-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
------------------------------------
1997 1996 1995
------------ ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 110,332 $ 134,052 $ 623,237
============ =========== ===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $ 415,053 $ 509,421 $ 589,869
============ ============ ==========
INCOME TAXES PAID (RECEIVED) $1,226,919 $ 1,152,704 $ (147,643)
============ ============ ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment financed by
note payable $ - $ - $ 139,206
============= ============ ===========
Corporation issued common stock for
the payment of management fee due
to M. A. Patout & Son, Ltd. $ - $ 50,875 $ -
============= =========== ===========
See notes to financial statements
II-11 -17-
<PAGE>
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sterling Sugars, Inc. is a grower and processor of sugarcane from which
it produces raw sugar and blackstrap molasses in St. Mary Parish, Louisiana.
All sugar produced by the Company is sold to a few major sugar refiners and
candy manufacturers under sales contracts and the portion which is not
shipped is included in inventory at the lower of cost or market. Molasses is
sold to two major molasses distributors and the amounts on hand are recorded
at an average of the estimated weekly market price during the pricing period
as specified in the sales contracts. Sales are recognized when deliveries
are made.
Allowance for doubtful accounts was based on management's evaluation of
the individual accounts and notes receivable.
Property, plant and equipment are recorded at cost. Depreciation is
computed principally by the declining balance method, and is primarily on
average lives of 40 years for buildings, 15 years for machinery and
equipment, 10 years for furniture and fixtures and 6 years for vehicles.
Income taxes were accounted for using the liability method.
Expenditures for future crops relate to subsequent years' crops and have
been deferred. These costs will be charged against earnings as the income is
received from these crops. The amounts related to land leased to others on
which the leases do not expire within one year of the balance sheet date have
been classified as non-current assets.
Cash equivalents include all highly liquid temporary cash investments
with a maturity of three months or less at the date of purchase. The
Company maintains, at a regional financial institution, cash which may
exceed federally insured amounts at times.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. NOTES PAYABLE
Notes payable at January 31, 1997 included $2,575,000 of short-term
notes payable to a bank with interest at 8.25%.
Notes payable at January 31, 1996 $3,078,334 of short-term notes which
were payable to a government agency and were collateralized by inventory.
The notes had interest rates of 5.75% and 5.50%. Notes payable at
January 31, 1996 also included $580,000 of unsecured notes payable to a bank
with interest at 8.50%.
The maximum aggregate short-term borrowings outstanding were $20,809,900
in 1997, $20,568,800 in 1996 and $14,178,300 in 1995. The average aggregate
amount of short-term borrowings and the weighted average interest rate was
approximately $924,380 and 6.18% in 1997, $1,640,200 and 6.97% in 1996 and
$2,724,300 and 5.17% in 1995. Short-term borrowings occur primarily during
the months of September through December.
II-12 -18-
<PAGE>
3. LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease at January 31, 1997 and 1996 consisted
of the following:
1997 1996
----------- -----------
8.50% mortgage note collateralized by first
mortgage on substantially all land owned by
the Company; payable in semi-annual payments
of $194,240, including interest with the
balance of $3,360,000 due January 1, 2002. $ 3,740,829 $ 3,807,085
8.95% capital lease collateralized by equipment,
payable in monthly payments of $16,500 including
imputed interest beginning October 1, 1993 with
a final payment of $16,500 due October 1, 1998. 276,641 441,547
8.25% mortgage note collateralized by first
mortgage on 8,519 acres of land and a second
mortgage on 10,186 acres of land owned by the
Company; payable in semi-annual payments of
$325,000, interest payable quarterly, with a
final payment due October, 31, 2006. This mortgage
note provides for additional principal payments
equal to fifty percent of the net income before
depreciation reduced by capital expenditures.
There were no required additional payments of
principal at January 31, 1997. An additional
covenant of the loan is that no dividends are to
be paid. 6,500,000 -
------------ -------------
10,517,470 4,248,632
Less portion due within one year (902,295) (231,163)
------------ -------------
$ 9,615,175 $ 4,017,469
============ =============
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended January 31, 1998 $ 902,295
Year ended January 31, 1999 824,714
Year ended January 31, 2000 735,052
Year ended January 31, 2001 742,436
Year ended January 31, 2002 4,063,073
Thereafter 2,347,605
-------------
$ 9,615,175
=============
The Company had a line of credit with a bank at January 31, 1997 in the
amount of $3,500,000. There was $2,575,000 borrowed against this line of
credit as of January 31, 1997.
II-13 -19-
<PAGE>
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
liability as of January 31, 1997 and 1996 are as follows:
1997 1996
------------ ------------
Deferred tax assets:
Tax credit carryforwards $ 404,800 $ 715,800
Other 119,000 190,000
------------ -------------
Totals 523,800 905,800
------------ -------------
Deferred tax liabilities:
Differences between book and tax basis of
property (1,405,500) (1,413,800)
Other (16,800) (29,400)
------------ -------------
Total (1,422,300) (1,443,200)
------------ -------------
Net $ (898,500) $ (537,400)
============ =============
The foregoing net amounts were included in the accompanying balance sheet
as follows:
1997 1996
--------- -----------
Deferred tax assets - Current $ 102,200 $ 160,600
Deferred tax liability - Non-current (1,000,700) (698,000)
----------- -----------
Net $ (898,500) $ (537,400)
=========== ===========
There was no valuation allowance required at January 31, 1997 and 1996.
Income taxes consist of the following components:
1997 1996 1995
---------- ---------- -----------
Currently payable $ 833,570 $ 823,419 $ 335,817
Deferred 361,100 271,600 219,684
---------- ---------- -----------
$1,194,670 $1,095,019 $ 555,501
========== ========== ===========
State income taxes included in income tax expense amounted to approximately
$156,000, $83,600, and $-0- in 1997, 1996 and 1995, respectively.
II-14 -20-
<PAGE>
Deferred income taxes relate primarily to the following items:
1997 1996 1995
----------- ---------- -----------
Depreciation $ (8,200) $ 37,500 $ (2,000)
Alternative minimum tax carryover 311,000 (167,500) (335,000)
Deferred compensation (43,830) (40,900) (38,000)
Net operating loss carryforward - 412,400 553,000
Other 102,130 30,100 41,684
----------- ---------- ------------
$ 361,100 $ 271,600 $ 219,684
=========== ========== ============
Income taxes as a percentage of pretax earnings vary from the effective
Federal statutory rate of 34%. The reasons for these differences are shown
below:
1997 1996 1995
------------ ----------- --------------
Amount % Amount % Amount %
------------ ----------- --------------
Income taxes at statutory
rate of pretax earnings $1,098,800 34 $1,093,000 34 $441,000 34
Increase (decrease) in taxes
resulting from:
state income taxes 258,500 8 257,200 8 104,000 8
other items - net (162,630)(5) (255,181)(8) 10,501 1
------------- ----------- ---------------
Actual income taxes $1,194,670 37 $1,095,019 34 $555,501 43
============= =========== ===============
At January 31, 1997 the Company had alternative minimum tax credit
carryforwards of approximately $404,900 available to reduce future income
taxes payable under certain circumstances. The alternative minimum tax
credit carryover period is unlimited.
5. RETIREMENT PLAN
The Company has a defined benefit non-contributory retirement plan in
force covering eligible salaried and factory hourly employees. The
Company's current policy is to contribute annually the amount that can
be deducted for federal income tax purposes. The benefits are based upon
years of service and employee's compensation during the best five years of
employment. The total pension expense for the years ended January 31,
1997, 1996 and 1995 was $33,000, $35,000, $34,000, respectively.
Data relative to the Plan were as follows (in thousands):
January 31,
---------------------
1997 1996
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,203 $ 1,162
========== ========
Accumulated benefit obligation $ 1,229 $ 1,170
========== ========
II-15 -21-
<PAGE>
Projected benefit obligation for service rendered
to date $ (1,390) $ (1,289)
Plan assets at fair value 1,375 1,287
---------- --------
Plan assets in excess of projected benefit
obligation (15) (2)
Remaining unrecognized portion of net assets at
February 1, 1987 (98) (114)
Unrecognized net loss from past experience
different from that assumed 157 193
---------- --------
Prepaid pension cost included in other assets $ 44 $ 77
========== ========
The net pension expense for 1997, 1996 and 1995 included the
following (income) expense components:
1997 1996 1995
------- ------- -------
Service cost - benefits earned during the period $ 52 $ 51 $ 61
Interest cost on projected benefit obligation 96 90 86
Actual return on plan assets (105) (96) (105)
Net amortization and deferrals (10) (10) (8)
--------- ------- -------
NET PENSION EXPENSE $ 33 $ 35 $ 34
========= ======= =======
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% in 1997, 1996 and 1995.
The projected rate of increase in future compensation levels used was 5.5%
in 1997, 1996 and 1995. The expected rate of return on plan assets was 8%
in 1997, 1996 and 1995. The plan's assets consist primarily of deposits in
the general funds of an insurance company.
6. EMPLOYEE SAVINGS PLAN
The Company established, effective February 1, 1992, an Employee Savings
Plan under Section 401(k) of the Internal Revenue Code. The Plan, which
covers eligible salaried and factory hourly employees, provides that the
Company match up to 50% of the first 6% of employee contributions. The
Company's contribution was $42,000 for the year ended January 31, 1997 and
$39,000 for the year ended January 31, 1996 and $31,000 for the year ended
January 31, 1995.
7. REVENUES
Sugar and molasses sales are comprised of the following:
1997 1996 1995
----------- ----------- -----------
Sugar $37,274,463 $26,896,616 $32,801,189
Molasses 1,473,639 1,598,469 966,945
----------- ----------- -----------
$38,748,102 $28,495,085 $33,768,134
=========== =========== ===========
Sugar sales to individual major customers amounted to $15,750,889,
$9,088,903, $8,419,174 and $3,637,474 and $305,782 in 1997, $9,934,094,
$7,916,007, $4,189,733 and $3,427,134 in 1996 and $15,533,226, $13,466,455,
$2,545,286 and $1,250,333 in 1995.
II-16 -22-
<PAGE>
Income from mineral leases and royalties is comprised of the following:
1997 1996 1995
--------- -------- ---------
Oil and gas royalties $ 25,708 $ 30,188 $ 25,140
Mineral leases 64,240 84,739 12,253
--------- -------- ---------
$ 89,948 $114,927 $ 37,393
========= ======== =========
Oil and gas royalties consist entirely of landowners overrides which
management considers incidental to the operations of the Company. Reserve
information relating to this production has not been made available to the
Company.
Other income is comprised of the following:
1997 1996 1995
-------- -------- --------
Rental property $575,566 $607,672 $374,337
Other (57,196) 235,963 30,039
-------- --------- --------
$518,370 $843,635 $404,376
======== ======== =========
8. COMMITMENTS AND CONTINGENCIES
The Company has certain lease obligations under which a total of
approximately 3,000 acres of agricultural land are being leased. At the
present time, substantially all of these properties are being subleased
which resulted in net payments of approximately zero in all years. The
subleases have the same payment and option terms as the Company's leases.
The Company had employment agreements with two executive officers. One
of the agreements expired in 1996. During the year ended January 31,
1994, the Company amended the terms of the second agreement due to the
retirement of one of the executive officers. The Company accrued the
present value of all future payments required under the amended agreement.
This agreement expires May 31, 1997.
.
At January 31, 1997 the Company had guaranteed a $202,000 collateralized
note of a cane grower. The outstanding note balance at January 31, 1997
was $58,969.
The Company entered into a technical service contract which provides for a
fee payable to M. A. Patout & Son, Ltd. equal to ten percent of net income
before income taxes from the manufacture, production and sale of raw sugar
and molasses each year provided that net income from the foregoing exceeds
$500,000. This agreement expires January 31, 1999.
The Company has an option to purchase approximately 238 acres of
agricultural land in St. Mary Parish for approximately $357,000. As a
consideration for this option the Company pledged a certificate of
deposit in the amount of $82,160.
9. RELATED PARTIES
During the year ended January 31, 1997 and 1996, the Company was involved
in the following related party transactions:
II-17 -23-
<PAGE>
The Company entered into a cane swap agreement with M. A. Patout & Son
Ltd. whereby some shippers of sugarcane to M. A. Patout & Son, Ltd. would
deliver their cane to Sterling Sugars, Inc. because of their proximity to
the Sterling Sugars, Inc.'s factory. The agreement was reciprocal for
some shippers normally having their cane processed by Sterling Sugars, Inc.
The net effect of this cane swap agreement was that Sterling Sugars, Inc.
ground an additional 29,662 and 33,275 tons of cane for the years ended
January 31, 1997 and 1996, respectively. The reimbursement due M. A.
Patout & Son, Ltd. for the years ended January 31, 1997 and 1996 for
payments made by them to shippers under this agreement was $970,816 and
$976,962, respectively. Amounts payable at January 31, 1997 and 1996 were
$172,409 and $62,196, respectively.
The Company entered into a technical service agreement with M. A.
Patout & Son, Ltd. This agreement provides for an option to acquire
50,000 shares of treasury stock owned by the Company on or before December
31, 1998, at a price of $3.25 per share. M. A. Patout & Son, Ltd.
exercised its option on April 12, 1995 and acquired the 50,000 shares of
treasury stock for $162,500. Additionally, the amounts due by the Company
to M. A. Patout & Son, Ltd. under the technical service agreement were
$219,305 and $187,350 for the years ended January 31, 1997 and 1996,
respectively.
The Company leased approximately 3,000 acres of agricultural land
from related parties, substantially all of which were sub-leased
resulting in net payments of $32,024 for the year ended January 31, 1996.
The Company had no leases with related parties during the year ended
January 31, 1997.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of the Company's financial instruments were as
follows (in thousands):
1/31/97 1/31/96
Carrying Fair Carrying Fair
value value value value
--------- ----- -------- ------
Cash and cash equivalents $ 110 $ 110 $ 134 $ 134
Accounts receivable 1,890 1,890 1,717 1,717
Notes receivable 685 466 677 469
Short-term debt 2,575 2,575 3,658 3,658
Accounts payable 1,171 1,171 1,403 1,403
Due to growers 4,655 4,655 4,316 4,316
Long-term debt (including current
portion) 10,517 10,517 4,249 4,249
The carrying value of cash and cash equivalents, accounts receivable,
short-term debt, accounts payable and due to growers approximate fair
value due to short-term maturities of these assets and liabilities.
The fair value of the Company's notes receivable was estimated based on
discounting the future cash flows using current interest rates at which
similar loans would be made.
The fair value of the Company's long-term debt (including current
maturities) was based on current rates at which the Company could borrow
funds with similar remaining maturities.
9. ITEM 9 -DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None II-18 -24-
<PAGE>
PART III
ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As respects directors information required under this item is contained
in the registrant's Proxy Statement dated April 25, 1997 under the captions
"Election of Directors" and "Information Concerning Management-Business
Experience of Directors," incorporated herein by reference.
The following table sets forth information concerning the Company's
executive officers, including their principal occupation for the the past
five years and all positions and offices held with the Company by such
executive officers. The term of each of the below named executive officers,
elected May 16, 1996, expires on May 15, 1997, or when their successors have
been chosen.
NAME CAPACITY AGE
----------------------------------------------------------------------
Craig P. Caillier President and CEO February 2,
1996 to present; Senior Vice
President and General Manager
January 1994 - February 1, 1996.
For five years prior to his
association with the Company, was
assistant General Manager and
Secretary/Treasurer of M. A. Patout
& Son, Ltd., Jeanerette, La. 35
Willard E. Legendre Vice President, Plant Operations since
February, 1997; Plant manager January,
1994 - February, 1997. For five years
prior to his association with the
Company, was Assistant Engineer for
M. A. Patout & Son, Ltd., Jeanerette,
La. 36
Stanley H. Pipes Vice President from 1977 until August
1989; Senior Vice President from
August 1989 until January 1994; Vice
President since that date; Treasurer
since 1971. 62
Information required under this item as respects compliance with Section 16
(a) of the Securities Exchange Act of 1934 is contained in the registrant's
Proxy Statement dated April 25, 1997 under the caption "Information
Concerning Management-Certain Transactions," incorporated herein by
reference.
ITEM 11-EXECUTIVE COMPENSATION
Information required under this item is contained in the registrant's Proxy
Statement dated April 25, 1997 under the caption "Information Concerning
Management-Executive Compensation," incorporated herein by reference.
III-1 -25-
<PAGE>
ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the registrant's Proxy
Statement dated April 25, 1997 under the captions "Voting Securities and
Principal Holders Thereof" and "Election of Directors," incorporated herein
by reference.
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the registrant's Proxy
Statement dated April 25, 1997 under the caption "Information Concerning
Management-Certain Transactions," incorporated herein by reference.
III-2 -26-
<PAGE>
FORM 10-K
PART IV
ITEM 14-EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8K
(a) 1. Financial Statements
The following financial statements of Sterling Sugars, Inc. are
included in Part II, Item 8:
Independent Auditors Report (Fiscal Years 1997 and 1996)
Balance Sheets as of January 31, 1997 and 1996
Statements of Income and Retained Earnings for years ended
January 31, 1997, 1996 and 1995
Statements of Cash Flows for years ended January 31, 1997,
1996 and 1995
Notes to Financial Statements
(a) 2. Financial Statement Schedules
Not Applicable
All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the financial
statements or notes thereto.
IV-1 -27-
<PAGE>
FORM 10-K
PART IV
(Continued)
(a) 3. Exhibits
(3) Page
(a) Articles of Incorporation (a)
(b) By-laws (a)
(c) Amendments to By-laws (b)
(d) Amendments to By-laws (e)
(e) Amended By-laws (e)
(f) Amendment to Certificate of Incorporation (j)
(g) Amended by-laws (p)
(4) (a) Specimen Stock Certificate (b)
(a) Katy Plantation lease (b)
(b) Maryland Plantation lease (b)
(c) Rosebud Plantatin lease (b)
(d) Pension Plan (b)
(e) Income Sharing Plan (b)
(f) 1987 employment contract (Fred Y. Clark) (c)
(g) 1986 Peebles lease (f)
(h) Employment contract (Fred Y. Clark) (g)
(i) Sublease-portions of Maryland Plantation (h)
(j) Lease-West Camperdown (Bolton Cane Company) (i)
(k) Sublease-Katy Plantation (Bolton Cane Company) (i)
(l) Lease-portions of Sterling Plantation
(Baker Plantation, Inc.) (i)
(n) Employment contract (Stanley H. Pipes) (k)
(o) Addendum to employment contract dated January
31, 1987 (Fred Y. Clark) (k)
(p) Sublease-portions of Maryland Plantation
(Pontiff Farms, Inc.) (k)
(q) Lease-Calumet Plantation (Frank Martin Farms) (k)
(r) Sublease-Rosebud Plantation (l)
(s) Sublease-Maryland Plantation (l)
(t) Lease-Belleview Golf and Country Club (m)
(u) Agricultural lease with option to purchase
(Adeline Plantation) (m)
(v) Amendment to agricultural lease (Adeline Plt.) (m)
(w) Sublease-(Adeline Plantation) (m)
(x) Agricultural lease (Shadyside Plantation) (n)
(y) Sublease-Shadyside (C.J. Hebert) (n)
(z) Sublease-Shadyside (Frank Martin Farms) (n)
(aa) Agriculture lease-Shaffer Plantatin (Teche
Planting Company) (n)
(bb) Agriculture lease-West Belleview (Teche
Planting Company) (n)
(cc) Amendment to employment contract of January 31,
1987 (Fred Y. Clark) (n)
(dd) Techincal Services Agreement-M.A. Patout & Son (o)
(ee) Sublease-Teche Planting Company (o)
(ff) Lease extension-Franklin Realty (o)
(gg) Agricultural lease-Theodore Broussard (o)
(hh) Agricultural lease-Kevin Breaux (o)
(ii) Agricultural lease-Sun Operating Limited P. (o)
IV-2 -28-
<PAGE>
FORM 10-K
PART IV
(Continued)
(jj) Agricultural lease - Mildred Buckner (o)
(kk) Sublease - C. J. Hebert (o)
(ll) Sublease - Merrill Smith (o)
(nn) Lease Purchase Agreement-Michael Champagne (o)
(oo) Hunting lease - Richard McGoff (o)
(ss) Agricultural agreement-Advanced Agriculture, Inc. (p)
(tt) Amendment to agriculture agreement-Advanced Ag. (p)
(uu) Agricultural lease renewal-Daniel Gonsoulin (p)
(vv) Agricultural lease renewal-Baker Plantation, Inc. (33)
(11) Computation of earnings per share (34)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the year ended January 31,
1997.
Footnotes
(a) Incorporated by reference from registrant's Form 10-K filed May 21,
1965.*
(b) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1981.*
(c) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1982.*
(e) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1984.*
(f) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1986.*
(g) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1987.*
(h) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1988.*
(i) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1989.*
(j) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1990.*
(k) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1991.*
IV-3 -29-
<PAGE>
FORM 10-K
PART IV
(Continued)
(l) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1992.*
(m) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1993.*
(n) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1994.*
(o) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1995*
(p) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1996*
* Commission File Number 0-1287
IV-4 -30-
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
STERLING SUGARS, INC.
Date April 25, 1997 BY /s/ Craig P. Caillier
---------------- ------------------------
Craig P. Caillier
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which includes the
Chief Executive Officer, the Chief Financial and Accounting Officer and a
majority of the Board of Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ Craig P. Caillier President & CEO and April 25, 1997
--------------------- Director
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
---------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) April 25, 1997
/s/ Carl W. Bauer Director April 25, 1997
------------------------
Carl W. Bauer
/s/ Peter V. Guarisco Director April 25, 1997
------------------------
Peter V. Guarisco
/s/ J. Patout Burns, Jr. Director April 25, 1997
----------------------
J. Patout Burns, Jr.
/s/ Rivers Patout Director April 25, 1997
----------------------
Rivers Patout
/s/ Victor Guarisco, II Director April 25, 1997
-----------------------
Victor Guarisco, II
IV-5 -31-
<PAGE>
INDEX TO EXHIBITS
(10) Material Contracts
(vv) Agricultural lease renewal-Baker Plantation, (33)
Inc.
(11) Computation of Earnings per Common Share (34)
IV-6 -32-
<PAGE>
AGREEMENT
April 2, 1997
Gary Luke
Baker Plantation, Inc.
P. O. Box 144
Centerville, La. 70522
Dear Gary:
By mutual agreement, the agricultural lease dated January 1, 1988 and
expired on January 1, 1997 is extended for an additional five years with a
five year renewal option by written agreement of both parties by January 1,
2001, one year before expiration of the first five year period. All terms
remain the same, except Section 2 to be revised to reflect most current
values of planted acreage in sugar cane, as follows:
Compensation for the difference in acreage shall be
determined by a mutually agreed upon 3rd party knowledgeable
of such values of sugar cane.
As per the lease agreement, please forward to this office, current
Certificates of Insurance for proof of Workmen's Compensation and General
Liability Insurance in the amount of $1,000,000 with Sterling Sugars, Inc.
named as additional insured.
Sincerely,
Craig P. Caillier
Agreed: /s/ Craig P. Caillier
------------------------
Sterling Sugars, Inc.
Agreed: /s/ Gary J. Luke
------------------------
Baker Plantation, Inc.
IV-7 -33-
<PAGE>
STERLING SUGARS, INC.
COMPUTATION OF EARNINGS PER SHARE (1)
Year Ended January 31,
1997 1996 1995
----------------------------------
Primary
Income $2,036,970 $ 2,119,609 $ 742,383
========== =========== ==========
Shares
Weighted average number of common
shares outstanding 2,500,000 2,500,000 2,450,000
Assuming exercise of option to purchase
50,000 shares of treasury stock - - 10,685
---------- ----------- ----------
Weighted average number of common shares
outstanding as adjusted 2,500,000 2,500,000 2,460,685
=========== =========== ==========
Primary earnings (loss) per common share
Before cumulative effect of change in
accounting principle $.81 $.85 $.30
======= ======== ===========
(1) See Note 9 of the Notes to Financial Statements
IV-8 -34-
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<PAGE>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 110332
<SECURITIES> 0
<RECEIVABLES> 1890398
<ALLOWANCES> 0
<INVENTORY> 10844519
<CURRENT-ASSETS> 14508210
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<DEPRECIATION> 22077725
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<BONDS> 9615175
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0
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<OTHER-SE> 13165490
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<SALES> 38748102
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<CGS> 34703495
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