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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, 1996
[ ] 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
29, 1996 by non-affiliates of the registrant was $2,817,720. 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 62 pages
The number of shares of common stock outstanding as of April 19, 1996 was
2,500,000 shares.
Documents incorporated by reference: Portion of Registrant's Proxy Statement
dated April 26, 1996 are incorporated by reference into Part III.
An exhibit index is located on page 33.
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, 1996 (referred to by the Company as
"fiscal 1996"), the season began on October 9, 1995 and continued through
December 29, 1995. From the crop grown during fiscal 1996 (referred to by
the Company as the "1995 crop"), the factory processed 769,953 tons of
sugarcane. During the previous year (fiscal 1995), the Company processed
a total of 606,112 tons of cane in fiscal 1994, a total of 539,560 tons
of cane were processed by the Company. Sugar production for 1996 is
estimated at 80,696 tons. For fiscal 1995 and 1994 the Company produced
64,190 and 50,159 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 20,509 tons of
cane for the 1995 crop. This compares to 11,611 and 38,564 tons of cane
for the 1994 and 1993 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,
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.
I-2 -3-
On March 10, 1994 the compliance 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 began to
retrofit 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. This project is planned for
fiscal 1998 in accordance with the compliance order. Also for fiscal 1997,
the Company will increase 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. Both projects are expected to be completed prior to 1996
grinding season.
Company employment for the year ended January 31, 1996 was as follows:
Factory Agriculture
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Year round employees 75 11
Seasonal and temporary employees 88 49
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163 60
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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
------------------------------------------
Cultivable 4,684 1,560 - 6,244
Non-cultivable 3,875 1,302 121 5,298
Plant site 65 65
-------- -------- ------ --------
8,624 2,862 121 11,607
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Of the cultivable land, approximately 270 acres are operated by the
Company. Approximately 4,414 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 will expire in 1996 and 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.
In addition to Company owned land, about 9,522 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.
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 11,607 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. The price received per barrel of oil for fiscal 1996, 1995
and 1994 was $17.01, $15.32 and $18.22, respectively. For fiscal 1996,
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, 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. 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.
Also in fiscal 1996, the Company entered into a geophysical option
I-4 -5-
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. 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.
I-5 -6-
PART II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of April 11, 1996 there were approximately 745 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
------------------------
Fiscal 1996 High Low
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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
Fiscal 1995
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First Quarter $4-7/8 $3-7/8
Second Quarter 4-3/4 4-1/8
Third Quarter 4-1/2 4-1/8
Fourth Quarter 5-5/8 4-1/4
II-1 -7-
ITEM 6 - SELECTED FINANCIAL DATA
Year ended January 31
-------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Revenues $29,644,559 $34,250,584 $13,932,753 $19,006,667 $22,444,917
Net Earnings
(Loss) $ 2,119,609 $ 742,783 $ (983,319) $ (552,812) $ 262,413
Net Earnings
(Loss per
Share) $ .85 $ .30 $ (.40) $ (.23) $ .11
Cash Dividends
Paid per
Share $ - $ - $ - $ - $ -
AT YEAR END:
Total assets $27,969,569 $20,879,631 $26,513,324 $20,887,211 $17,517,019
Long-term
Debt $ 4,017,469 $ 4,371,434 $ 4,694,236 $ 4,390,691 $ 816,970
Working
Capital $ 5,169,044 $ 4,493,736 $ 3,121,514 $ 5,840,963 $ 2,692,207
Stockholders'
Equity $13,628,520 $11,346,411 $10,604,028 $11,587,347 $12,140,159
II-2 -8-
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal 1996 (1995 crop) was a very good one for the Company with net
earnings of $2,119,609 or $.85 per share. Net earnings for the fiscal year
ending January 31, 1995 (1994 crop) were $742,383 or $.30 per share. The
Company for fiscal 1994 (1993 crop) had a net loss of $983,319 or $.40 cents
per share. The net earnings for fiscal 1996 are the highest since the fiscal
year ending January 31, 1981 (1980 crop) when the Company had net earnings of
$3,366,192 or $1.37 per share. The earnings in fiscal 1981 were primarily
the result of a significant increase in the selling price for raw sugar
marketed which averaged 33.30 cents per pound.
The success of the Company over the past year is attributable to several
factors. The Company's management team continues to build a good working
relationship with its' employees and growers. Good relations with employees
translates into good performance in the factory. Also, improved grower
relations has led to increases in cane deliveries to the mill. For fiscal
1996, the Company set a new record for tons of cane processed in one grinding
season. In addition, a new daily grinding rate record was set. The 1995 crop
was also one of the best years in recent history as far as yield of sugarcane
per acre. It is estimated that on average growers yielded approximately 28
tons of cane per acre compared to normal yields of 25 tons per acre. This
past year was one of the best growing seasons in many years due to favorable
weather and improved seed varieties through an industry supported breeding
program.
For the 1995 crop, the Company processed 769,953 tons of cane. This was
a new record for tons processed and exceeded the record set for the 1994 crop
when 606,112 tons of cane were processed. For the 1993 crop, the Company
processed a total of 539,560 tons of cane.
For the 1995 crop, the Company increased its grinding rate to an average
of 9,457 tons of cane per day. This is an increase over the previous year
(1994 crop) when the average grinding rate was 8,159 tons of cane per day.
For the 1993 crop, the average grinding rate was 7,291 tons of cane per day.
The 1995 crop was processed in 81 days compared to 74 days for the 1994 and
1993 crops. The capital additions placed in service since the 1994 crop and
future additions will continue to focus mainly on increasing the daily
grinding capacity of the factory in an effort to create more efficiencies
thereby reducing costs while matching the total cane supply.
Sugar yields per ton of cane for the 1995 crop are estimated at 210
pounds per ton of cane. This yield is slightly less than the 212 pound yield
for the 1994 crop. For the 1993 crop, the sugar yield per ton of cane was
186 pounds. Sugar yields per ton of cane for 1995 and 1994 remained
relatively high. For the four years prior to 1994, the sugar yield averaged
196 pounds per ton of cane.
With the increase in tons of sugarcane processed for the 1995 crop at a
relatively high yield, the Company expects to produce approximately 80,696
tons of raw sugar. This compares to 64,190 and 50,159 tons of raw sugar for
the 1994 and 1993 crops, respectively.
For the 1995 crop, the Company's agricultural division produced 20,509
tons of sugarcane on 798 mill acres compared to 11,611 tons of sugarcane for
the 1994 crop on 681 mill acres. For the 1993 crop, the agricultural division
produced a total of 38,564 tons of sugarcane on 1,852 mill acres. In
February, 1994, the Company leased 1,870 cultivable acres to an independent
farmer which resulted in the reduction in tons of sugarcane produced for the
II-3 -9-
1995 and 1994 crops compared to the 1993 crop. It is Company policy to lease
agricultural lands to independent farmers, where possible, thereby reducing
capital requirements and the risks inherent in farming. Despite the
reduction, the Company still farms approximately 1,192 cultivable acres
consisting primarily of marginal lands. Since 1994, the Company has
continued to incur costs to improve sugarcane yields on these marginal lands.
For the 1995 crop, the sugarcane yield was 25.7 tons per acre compared to 17.0
tons per acre for the 1994 crop. Management continues to negotiate with
possible grower tenants to farm these acres thereby further reducing the
number of acres farmed by the Company.
The Statement of Earnings for the three years ended January 31, 1996,
1995 and 1994 reflect sales of raw sugar and molasses of $28,495,085,
$33,768,134 and $13,435,714, respectively. Sugar marketed for fiscal 1996 was
61,278 tons. This compares to 77,294 and 30,046 tons of sugar marketed during
fiscal 1995 and 1994, respectively. The decrease in sugar marketed for fiscal
1996 is primarily the result of a reduced amount of raw sugar inventory
available for marketing because of the small ending inventory for fiscal 1995.
Inventories for fiscal 1996, 1995 and 1994 were 30,250, 10,238 and 24,209,
respectively. Average prices received for sugar marketed have increased over
the past three years which is attributable, in part, to management's
aggressive marketing policies. Average prices of sugar for the 1995, 1994
and 1993 crops were $22.47, $22.00 and $21.73 cwt., respectively.
Interest earned has continued to increase over the past three years and
was $45,864, $29,350 and $26,198 for fiscal 1996, 1995 and 1994, respectively.
The increases 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 was $114,926, $37,393 and
$49,988 for fiscal 1996, 1995 and 1994, respectively. The increase in income
for the current fiscal year is attributable to an option executed on February
1, 1995 whereby an oil and gas lease was granted on 555 acres for $55,461.
Also in February, 1995, an oil and gas lease was granted for $20,528 on 274
acres. Both of these leases have a three year primary term. Also 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 had entered into a geophysical option
agreement covering approximately 1,200 acres of land and received $12,002
for the option.
For fiscal 1996, the Company recognized a gain on the disposition of
property and equipment of $145,076. This compared to gains recognized in
fiscal 1995 and 1994 of $11,331 and $80,820, 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 $843,608. For the two
previous fiscal years, other revenues totaled $404,376 and $340,033,
respectively. For the last two fiscal years, other revenues have increased
primarily because of cane land rental income. For fiscal 1996, 1995 and
1994, cane land rental income was $602,185, $368,848 and $249,748,
respectively. During fiscal 1996 and 1995, the Company had no seismic
permitting income. Seismic permitting income was $9,800 for fiscal 1994.
Cost of products sold for each of the three years ending in 1996, 1995
and 1994 were $24,952,455, $31,558,282 and $13,923,827, respectively. The
cost of products sold in each of these years are relative to the sale of
sugar and molasses for the three years.
II-4 -10-
General and administrative expenses for fiscal 1996 totaled $954,809.
These expenses in fiscal 1995 were $802,768 and in fiscal 1994 were
$1,372,865. Although the Company has taken measures to reduce these expenses
over the last two years, the current fiscal year's expenses increased
primarily because of incentive payments to employees and key management
personnel. The increase in fiscal 1994 was the result of an accrual, for
financial reporting purposes, the present value of all future payments
required under an amended employment agreement with a retired executive
officer of the Company. Also in fiscal 1994, the Company recorded a reserve
of $84,911 for amounts due from growers under cane purchase agreements.
Interest and loan expenses for each of the three fiscal years ending in
1996, 1995 and 1994 totaled $522,667, $591,650 and $534,380, respectively.
For each of these years, the majority of these expenses were for interest
incurred on a $4,000,000 long-term loan made in April, 1992. These amounts
also include interest on short-term borrowings each year to cover working
capital requirements. The increase for fiscal 1995 resulted from $37,721 of
interest expense incurred on $7,529,003 short-term debt outstanding at January
31, 1994 but retired in fiscal 1995.
For fiscal 1996 and 1995, the Company recognized income tax expenses
of $1,095,019 and $555,501, respectively. For fiscal 1994, the Company
recognized an income tax credit of $715,000. The income tax expense and
credit are explained in Footnote 4, Notes to Financial Statements, on pages
22 and 23 of this report.
During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, effective February,
1993. This statement supersedes Accounting Principles Board Opinion No. 11.
The cumulative effect of adopting SFAS No. 109 was to decrease the fiscal 1994
loss by $200,000 or $.08 per share.
Over the last two years, the liquidity of the Company has continued to
improve. The current ratio at January 31, 1996 was 1.5 to 1 compared to 2.0
to 1 and 1.3 to 1 at January 31, 1995 and 1994, respectively. The decline in
the current ratio for the current fiscal year is primarily the result of
maintaining short-term debt of $3,658,334 at January 31, 1996 because of an
increase in the amounts paid to growers for the additional volume of sugarcane
processed for the 1995 crop. Subsequent to January 31, 1996, the short-term
debt was paid as the raw sugar inventory was sold.
The Company, in keeping with its pledge to be cost efficient and prepare
itself for business in a global economy, has budgeted $2,525,000 in capital
additions to the factory for fiscal 1997. These additions are expected to
increase the average daily grinding rate to in excess to 10,000 tons. These
additions include expansion to the raw house on the pan floor and centrifugal
stations areas. Also improvements are being made to steam boilers No. 4 and
No. 6 including installation of wet scrubbers to improve air emissions. 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.
On April 4, 1996, President Clinton signed the new Federal Improvement
and Reform Act (FAIR) otherwise known as the Freedom to Farm Bill. This seven
year farm bill, starting with the 1996 crop, 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%. 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.
II-5 -11-
For the future, 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-6 -12-
March 8, 1996
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, 1996 and 1995, and the related statements of
operations and retained earnings and cash flows for the years then ended.
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. The financial statements of Sterling Sugars,
Inc. as of January 31, 1994 were audited by other auditors whose report,
dated March 11, 1994, expressed an unqualified opinion on those statements.
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 1996 and 1995 financial statements present
fairly, in all material respects, the financial position of Sterling Sugars,
Inc. as of January 31, 1996 and 1995, and the results of its operations and
its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, on February 1,
1993 the Company changed its method of accounting for income taxes to
conform to Statement of Financial Accounting Standards No. 109.
Respectfully submitted,
/s/ LeGlue & Company
(A Professional Corporation)
II-7 -13-
To the Stockholders and Board of Directors
Sterling Sugars, Inc.
Franklin, Louisiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying statements of operations
and retained earnings and cash flows of Sterling Sugars Inc. for the year
ended January 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such 1994 financial statements present fairly, in all
material respects, the results of operations and cash flows of Sterling
Sugars, Inc. for the year ended January 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, on February 1,
1993 the Company changed its method of accounting for income taxes to
conform to Statement of Financial Accounting Standards No. 109.
Respectfully submitted,
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 11, 1994
II-8 -14-
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1996 AND 1995
ASSETS
CURRENT ASSETS:
1996 1995
------------ ------------
Cash $ 30,169 $ 184,896
Temporary cash investments 103,883 438,341
------------ ------------
Total cash and temporary cash investments 134,052 623,237
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 1,717,048 2,276,977
Sugar inventory - at cost 11,361,574 3,975,144
Molasses inventory - at market 300,548 228,809
Expenditures for future crops 216,967 158,147
Operating supplies - at cost 697,744 762,307
Deferred income taxes 160,600 562,200
Prepaid expenses and other assets 206,091 240,701
------------ ------------
TOTAL CURRENT ASSETS 14,794,624 8,827,522
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,815,620 1,815,620
Buildings 2,621,179 2,621,179
Machinery and equipment 27,937,538 25,739,778
------------ ------------
32,374,337 30,176,577
Less accumulated depreciation (20,393,879) (19,149,381)
------------ ------------
11,980,458 11,027,196
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 29,670 27,691
Expenditures for future crops 487,338 382,938
Notes receivable, net of allowance for
doubtful accounts, 1996 $38,000; 1995 $84,911 677,479 614,284
------------ ------------
1,194,487 1,024,913
------------ ------------
$27,969,569 $20,879,631
============ ============
See notes to financial statements
II-9 -15-
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
-------------- -------------
CURRENT LIABILITIES:
Notes payable $ 3,658,334 $ -
Accounts payable 1,402,683 808,911
Due to cane growers 4,316,481 2,719,407
Income taxes payable 16,919 343,460
Current portion of long-term debt
and capital leases 231,163 462,008
-------------- --------------
CURRENT LIABILITIES 9,625,580 4,333,786
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 4,017,469 4,371,434
-------------- --------------
DEFERRED INCOME TAXES 698,000 828,000
-------------- --------------
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 -
Retained earnings 11,088,065 8,968,456
------------ --------------
13,628,520 11,468,456
Less common stock in treasury,
at cost (50,000 shares) - 122,045
------------ --------------
13,628,520 11,346,411
------------ --------------
$27,969,569 $20,879,631
============ ==============
See notes to financial statements
II-10 -16-
STERLING SUGARS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED JANUARY 31,
1996 1995 1994
----------- ----------- -----------
REVENUES:
Sugar and molasses sales $28,495,085 $33,768,134 $13,435,714
Interest earned 45,864 29,350 26,198
Mineral leases and royalties 114,926 37,393 49,988
Gain on dispositions of property
and equipment 145,076 11,331 80,820
Other 843,608 404,376 340,033
------------ ----------- -----------
29,644,559 34,250,584 13,932,753
------------ ----------- -----------
COST AND EXPENSES:
Cost of products sold 24,952,455 31,558,282 13,923,827
General and administrative 954,809 802,768 1,372,865
Interest and loan expenses 522,667 591,650 534,380
------------ ----------- -----------
26,429,931 32,952,700 15,831,072
------------ ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 3,214,628 1,297,884 (1,898,319)
INCOME TAXES (CREDIT) 1,095,019 555,501 (715,000)
------------ ----------- -----------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 2,119,609 742,383 (1,183,319)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - 200,000
------------ ----------- -----------
NET EARNINGS (LOSS) 2,119,609 742,383 (983,319)
RETAINED EARNINGS AT BEGINNING OF YEAR 8,968,456 8,226,073 9,209,392
------------ ----------- -----------
RETAINED EARNINGS AT END OF YEAR $11,088,065 $ 8,968,456 $ 8,226,073
=========== =========== ============
WEIGHTED AVERAGE EARNINGS (LOSS) PER
COMMON SHARE:
Before cumulative effect of change
in accounting principle $.85 $.30 $ (.48)
Cumulative effect of change in
accounting principle - - .08
----------- ----------- -----------
Net earnings (loss) $.85 $.30 $ (.40)
=========== =========== ===========
CASH DIVIDENDS PAID $ 0 $ 0 $ 0
=========== =========== ===========
See notes to financial statements
II-11 -17-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
1996 1995 1994
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 2,119,609 $ 742,383 $ (983,319)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation 1,533,946 1,517,693 1,543,875
Deferred income taxes 271,600 219,684 (743,884)
Gain on dispositions of property and
equipment (145,076) (11,331) (80,820)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable 559,929 (1,035,279) 4,176,658
(Increase) decrease in sugar and
molasses inventories (7,458,169) 6,341,971 (8,485,867)
Increase in accounts payable and
accrued expenses and due to cane
growers 2,190,846 271,436 551,497
Increase (decrease) in interest
and income taxes payable (326,541) 308,866 -
Other items - net 117,908 153,325 192,477
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,135,948) 8,508,748 (3,829,383)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection/Issuance of notes
receivable - Net (16,554) (264,702) -
Purchases of property, plant and
equipment (2,739,294) (482,307) (2,145,039)
Proceeds from dispositions of
property and equipment 217,462 195,003 142,822
------------ ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (2,538,386) (552,006) (2,002,217)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 20,568,778 6,649,300 9,529,003
Sale of treasury stock 111,625 - -
Payments on short-term notes
payable and long-term debt (17,495,254) (14,526,768) (3,531,221)
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,185,149 (7,877,468) 5,997,782
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS (489,185) 79,274 166,182
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 623,237 543,963 377,781
----------- ----------- -----------
(Continued)
II-12 -18-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
------------------------------------
1996 1995 1994
------------ ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 134,052 $ 623,237 $ 543,963
============ =========== ===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $ 509,421 $ 589,869 $ 497,807
============ ============ ==========
INCOME TAXES PAID (RECEIVED) $ 1,152,704 $ (147,643) $ (329,000)
============ ============ ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment financed by
notes payable and capital lease $ - $ 139,206 $ 806,641
============= =========== ===========
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-13 -19-
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
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 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, 1996 included $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 $20,568,800
in 1995, $10,780,000 in 1994. The average aggregate amount of short-term
borrowings and the weighted average interest rate was approximately $1,640,200
and 6.97% in 1996, $2,724,300 and 5.17% in 1995 and $2,576,000 and 5.21% in
1994. Short-term borrowings occur primarily during the months of September
through December.
II-14 -20-
3. LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease at January 31, 1996 and 1995 consisted
of the following:
1996 1995
----------- -----------
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. $ 3,807,085 $ 3,868,050
8.95% capital lease collateralized by equipment,
payable in monthly payments of $16,500 including
imputed interest beginning October 1, 1994 with
a final payment of $16,500 due October 1, 1998. 441,547 592,385
Unsecured note payable in annual principal
installments of $100,000 beginning February 15,
1991 with a final payment of $125,000 due
February 15, 1995. Interest at the bank's prime
rate is payable quarterly. - 125,000
6.25% unsecured note payable in annual principal
installments of $54,400 beginning April 24, 1992,
with a final payment of $54,400 due April 24,
1996. Interest payments are due annually. - 108,800
8.90% capital lease collateralized by equipment,
payable in annual payments of $21,067 including
imputed interest beginning April 1, 1995 with a
final payment of $21,067 due April 1, 1999. - 82,157
Non-interest bearing, unsecured note payable in
one principal installment of $57,050 due March
15, 1995. - 57,050
------------ -------------
4,248,632 4,833,442
Less portion due within one year (231,163) (462,008)
------------ -------------
$ 4,017,469 $ 4,371,434
============ =============
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended January 31, 1998 $ 252,295
Year ended January 31, 1999 174,614
Year ended January 31, 2000 85,052
Year ended January 31, 2001 92,436
Thereafter 3,413,072
-------------
$ 4,017,469
=============
The Company had a line of credit with a bank at January 31, 1996 in the
amount of $3,500,000. There was $580,000 borrowed against this line of
credit as of January 31, 1996.
II-15 -21-
4. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," effective February 1, 1993. This
statement supersedes Accounting Principles Board Opinion No. 11. The
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements was to decrease the loss by $200,000 ($.08 per share) for the
year ended January 31, 1994.
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, 1996 and 1995 are as follows:
1996 1995
------------ ------------
Deferred tax assets:
Operating loss carryforwards $ - $ 412,400
Tax credit carryforwards 715,800 548,300
Other 190,000 192,300
------------ -------------
Totals 905,800 1,153,000
------------ -------------
Deferred tax liabilities:
Differences between book and tax basis of
property (1,413,800) (1,376,300)
Other (29,400) (42,500)
------------ -------------
Total (1,443,200) (1,418,800)
------------ -------------
Net $ (537,400) $ (265,800)
============ =============
The foregoing net amounts were included in the accompanying balance sheet
as follows:
1996 1995
--------- -----------
Deferred tax assets - Current $ 160,600 $ 562,200
Deferred tax liability - Non-current (698,000) (828,000)
----------- -----------
Net $ (537,400) $ (265,800)
=========== ===========
There was no valuation allowance required at January 31, 1996 and 1995.
Income taxes (credit) consist of the following components:
1996 1995 1994
---------- ---------- -----------
Currently payable (refundable) $ 823,419 $ 343,460 $ (171,116)
Deferred 271,600 212,041 (543,884)
---------- ---------- -----------
$1,095,019 $ 555,501 $ (715,000)
========== ========== ===========
State income taxes (credit) included in income tax expense (credit) amounted
to approximately $83,600, $-0-, and $(110,000) in 1996, 1995 and 1994,
respectively.
II-16 -22-
Deferred income taxes relate primarily to the following items:
1996 1995 1994
----------- ---------- -----------
Depreciation $ 37,500 $ (2,000) $ 27,000
Alternative minimum tax carryover (167,500) (335,000) 140,000
Deferred compensation (40,900) (38,000) (133,000)
Net operating loss carryforward 412,400 553,000 (602,000)
Other 30,100 34,041 24,116
----------- ---------- ------------
$ 271,600 $ 212,041 $ (543,884)
=========== ========== ============
Income taxes (credit) as a percentage of pretax earnings (loss) vary from
the effective Federal statutory rate of 34%. The reasons for these
differences are shown below:
1996 1995 1994
------------ ----------- --------------
Amount % Amount % Amount %
------------ ----------- --------------
Income taxes (credit) at statutory
rate of pretax earnings (loss) $1,093,000 34 $441,000 34 $(645,000)(34)
Increase (decrease) in taxes
resulting from:
state income taxes 257,200 8 104,000 8 (75,000)( 4)
other items - net (255,181)(8) 10,501 1 5,000 -
------------- ----------- ---------------
Actual income taxes (credit) $1,095,019 34 $555,501 43 $ (715,000)(38)
============= =========== ===============
At January 31, 1996 the Company had alternative minimum tax credit
carryforwards of approximately $715,800 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 (credit) for the years ended January
31, 1996, 1995 and 1994 was $35,000, $34,000 and $4,000, respectively.
Data relative to the Plan were as follows (in thousands):
January 31,
---------------------
1996 1995
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,162 $ 1,145
========== ========
Accumulated benefit obligation $ 1,170 $ 1,154
========== ========
II-17 -23-
Projected benefit obligation for service rendered
to date $ (1,289) $(1,329)
Plan assets at fair value 1,287 1,243
---------- --------
Plan assets in excess of projected benefit
obligation (2) (86)
Remaining unrecognized portion of net assets at
February 1, 1987 (114) (130)
Unrecognized net loss from past experience
different from that assumed 193 283
---------- --------
Prepaid pension cost included in other assets $ 77 $ 67
========== ========
The net pension expense for 1996, 1995 and 1994 included the
following (income) expense components:
1996 1995 1994
------- ------- -------
Service cost - benefits earned during the period $ 51 $ 61 $ 47
Interest cost on projected benefit obligation 90 86 83
Actual return on plan assets (96) (105) (117)
Net amortization and deferrals (10) (8) (9)
--------- ------- -------
NET PENSION EXPENSE $ 35 $ 34 $ 4
========= ======= =======
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% in 1996 and 1995 and 6.5% in 1994.
The projected rate of increase in future compensation levels used was 5.5%
in 1996, 1995 and 1994. The expected rate of return on plan assets was 8%
in 1996 and 1995 and 9% in 1994. 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 $39,000 for the year ended January 31, 1996 and
$31,000 for the year ended January 31, 1995 and $26,000 for the year ended
January 31, 1994.
7. REVENUES
Sugar and molasses sales are comprised of the following:
1996 1995 1994
----------- ----------- -----------
Sugar $26,896,616 $32,801,189 $12,568,323
Molasses 1,598,469 966,945 867,391
----------- ----------- -----------
$28,495,085 $33,768,134 $13,435,714
=========== =========== ===========
Sugar sales to individual major customers amounted to $9,934,094,
$7,916,007, $4,189,733 and $3,427,134 in 1996, $15,533,226, $13,466,455,
$2,545,286 and $1,250,333 in 1995 and $6,782,661, $2,078,953, $2,454,273
and $1,252,436 in 1994.
II-18 -24-
Income from mineral leases and royalties is comprised of the following:
1996 1995 1994
--------- -------- ---------
Oil and gas royalties $ 30,188 $ 25,140 $ 42,813
Mineral leases 84,739 12,253 7,175
--------- -------- ---------
$114,927 $ 37,393 $ 49,988
========= ======== =========
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:
1996 1995 1994
-------- -------- --------
Rental property $607,672 $374,337 $260,514
Other 235,963 30,039 79,519
-------- --------- --------
$843,635 $404,376 $340,033
======== ======== =========
8. COMMITMENTS AND CONTINGENCIES
The Company has certain lease obligations under which a total of 10,000
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 has employment agreements with two executive officers with one
of the agreements expiring 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
.
At January 31, 1996 the Company had guaranteed a $202,000 collateralized
note of a cane grower.
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, 1996 and 1995, the Company was involved
in the following related party transactions: 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
II-19 -25-
their cane processed by Sterling Sugars, Inc. The net effect of this cane
swap agreement was that Sterling Sugars, Inc. ground an additional 33,275
and 27,420 tons of cane for the years ended January 31, 1996 and 1995,
respectively. The reimbursement due M. A. Patout & Son, Ltd. for the
years ended January 31, 1996 and 1995 for payments made by them to
shippers under this agreement was $976,962 and $820,439, respectively.
Amounts payable at January 31, 1996 and 1995 were $62,196 and $88,458,
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
$187,350 and $50,635 for the years ended January 31, 1996 and 1995,
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 and $18,170 for the years ended
January 31, 1996 and 1995, respectively.
9. ITEM 9 -DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
II-20 -26-
PART III
ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As repects directors information required under this item is contained
in the registrant's Proxy Statement dated April 26, 1996 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 18, 1995, expires on May 16, 1996, 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. 34
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. 61
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 26, 1996 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 26, 1996 under the caption "Information Concerning
Management-Executive Compensation," incorporated herein by reference.
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 26, 1996 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 26, 1996 under the caption "Information Concerning
Management-Certain Transactions," incorporated herein by reference.
III-1 -27-
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 1996 and 1995)
Independent Auditors Report (Fiscal Year 1994)
Balance Sheets as of January 31, 1996 and 1995
Statements of Operations and Retained Earnings for years ended
January 31, 1996, 1995 and 1994
Statements of Cash Flows for years ended January 31, 1996,
1995 and 1994
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 -28-
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 (54)
(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)
(m) Employment contract (J. Adalberto Roig, Sr.) (k)
(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 -29-
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)
(pp) Sublease cancellation-Leroy & Wayne LeBlanc (o)
(qq) Agricultural lease cancellation-Jed Robison (o)
(rr) Agricultural lease cancellation-L.J. Grezaffi (o)
(ss) Agricultural agreement-Advanced Agriculture, Inc. (34)
(tt) Amendment to agriculture agreement-Advanced Ag. (51)
(uu) Agricultural lease renewal-Daniel Gonsoulin (53)
(11) Computation of earnings per share (62)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the year ended January 31,
1996.
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-4 -30-
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*
* Commission File Number 0-1287
IV-4 -31-
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 19, 1996 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 19, 1996
--------------------- Director
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
---------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) April 19, 1996
/s/ Carl W. Bauer Director April 19, 1996
------------------------
Carl W. Bauer
/s/ John R. Browne Director April 19, 1996
----------------------
John R. Browne
/s/ Peter V. Guarisco Director April 19, 1996
------------------------
Peter V. Guarisco
/s/ J. Patout Burns, Jr. Director April 19, 1996
----------------------
J. Patout Burns, Jr.
/s/ Rivers Patout Director April 19, 1996
----------------------
Rivers Patout
/s/ Victor Guarisco, II Director April 19, 1996
-----------------------
Victor Guarisco, II
IV-5 -32-
INDEX TO EXHIBITS
(10) Material Contracts
(ss) Agricultural agreement-Advanced Agriculture, Inc. (34)
(tt) Amendment to agriculture agreement-Advanced
Agriculture, Inc. (51)
(uu) Agriculture lease renewal-Daniel Gonsoulin (53)
(11) Computation of Earnings per Common Share (62)
IV-6 -33-