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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, 1998
[ ] 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, 1998 by non-affiliates of the registrant was $3,015,852. 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 60 pages
The number of shares of common stock outstanding as of April 17, 1998 was
2,500,000 shares.
Documents incorporated by reference: Portion of Registrant's Proxy Statement
dated April 24, 1998 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, 1998 (referred to by the Company as
"fiscal 1998"), the season began on September 29, 1997 and continued
through December 27, 1997. From the crop grown during fiscal 1998
(referred to by the Company as the "1997 crop"), the factory processed
899,989 tons of sugarcane. During the previous year (fiscal 1997), the
Company processed a total of 821,184 tons of cane. In fiscal 1996, a total
of 759,953 tons of cane were processed by the Company. Sugar production
for 1998 is estimated at 94,757 tons. For fiscal 1997 and 1996 the Company
produced 81,822 and 82,141 tons of raw sugar, respectively.
Historically, the Company has had no difficulty in selling, at
competitive prices, all of its raw sugar production to a few major sugar
refiners and a candy manufacturer and all of its molasses production to a
molasses distributor under sales contracts. 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 19,872 tons of
cane for the 1997 crop. This compares to 20,792 and 20,509 tons of cane
for the 1996 and 1995 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.
I-1 -2-
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.
Until now, despite costly remedial actions by the Company,
opacity problems at the Company's factory has 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 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 was 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 retrofited boiler
no. 5 with new spreader-stoker furnaces and ash and air handling systems
including a wet scrubber.
I-2 -3-
Company employment for the year ended January 31, 1998 was as follows:
Factory Agriculture
--------------- -----------------
Year round employees 96 6
Seasonal and temporary employees 102 3
-------- --------
198 9
======== =======
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 9,544 1,560 - 11,104
Non-cultivable 7,533 1,302 121 8,956
Plant site 65 65
-------- -------- ------ --------
17,142 2,862 121 20,125
======== ======== ====== ========
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
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 expired in 1997 and
was renewed for five years with a five year option under basically the same
terms and conditions. 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 obtained 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 an
additional five years.
I-3 -4-
In addition to Company owned land, about 1,190 acres in St. Mary
parish 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 farm division currently
operates on approximately 540 acres of leased land and 270 acres of Company
owned land.
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 located in St. Mary Parish. 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.
For fiscal 1998, the Company's share of royalty income from the unit was
$17,625 compared to $16,839 for fiscal 1997 and $15,249 for fiscal 1996.
In September, 1995 the Company began receiving royalty income from the C.
M. Cremaldi well in St. Mary Parish. 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
1998 and was $13 compared to $2,242 in fiscal 1997 and $10,394 for fiscal
1996.
For fiscal 1998, the Company entered into two seismic agreements
in the first quarter. One agreement for $31,625, was for six months and
covers approximately 710 acres in St. Mary Parish. The second agreement,
for $71,891, contains an eighteen month term and covers 2,396 acres in St.
Mary Parish. This agreement contains an option to lease the subject
property for oil and gas exploration. In the third quarter of fiscal 1998,
the Company entered into an oil and gas lease on approximately 41 acres in
St. Mary Parish for $7,283. The agreement has a three year primary term.
Also in the third quarter, the Company entered into a seismic and lease
option agreement dated August 1, 1997. The agreement covers approximately
320 acres for $40,000. This lease carries a five year primary term. 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 contained 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 was to allow seismic exploration activities. The
agreement expired 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. In 1996 the Company
granted an oil and gas lease for $20,528 on the 274 acres. The lease
I-4 -5-
agreement has a three year primary term. The lease was not renewed for a
second year. 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 contained a
three year primary term. In February, 1996 the lease was extended one
additional year and not renewed.
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.
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
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.
PART II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of April 9, 1998 there were approximately 600 holders of record
of the Company's stock which is traded in the over-the-counter market. The
Company acts as its own stock transfer agent and registrar. The Company's
mailing address is P. O. Box 572, Franklin, Louisiana 70538 and its
physical address is 609 Irish Bend Road, Franklin, Lousisana 70538.
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 1998 High Low
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First Quarter $ 6-5/8 $ 6-1/2
Second Quarter 8 6-1/2
Third Quarter 9 7
Fourth Quarter 7 7
I-5 -6-
Fiscal 1997
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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
ITEM 6 - SELECTED FINANCIAL DATA
Year ended January 31
-------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Revenues $39,746,442 $38,748,102 $29,644,559 $34,250,584 $13,932,753
Net Earnings
(Loss) $ 839,569 $ 2,036,970 $ 2,119,609 $ 742,783 $ (983,319)
Net Earnings
(Loss per
Share) $ .34 $ .81 $ .85 $ .30 $ (.40)
Cash Dividends
Paid per
Share $ - $ - $ - $ - $ -
AT YEAR END:
Total assets $41,389,416 $35,584,629 $27,969,569 $20,879,631 $26,513,324
Long-term
Debt $ 9,160,422 $ 9,615,175 $ 4,017,469 $ 4,371,434 $ 4,694,236
Working
Capital $ 2,716,133 $ 5,204,946 $ 5,169,044 $ 4,493,736 $ 3,121,514
Stockholders'
Equity $16,505,059 $15,665,490 $13,628,520 $11,346,411 $10,604,028
II-1 -7-
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For fiscal 1998 (1997 crop), the Company had net earnings of
$839,569 or $.34 per share. Net earnings for the fiscal year ending
January 31, 1997 (1996 crop) were $2,036,970 or $.81 per share. The
Company for fiscal 1996 (1995 crop) had net earnings of $2,119,609 or
$.85 per share.
Net earnings for fiscal 1998 are reduced compared to the two
previous fiscal years for primarily two reasons. First, the trend
among sugarcane farmers in our area to convert harvesting practices from
whole stalk to billet combines has led to increased factory costs.
Second, the Company has incurred an increased amount of interest and
loan expenses. In December, 1996 additional long-term debt was acquired
to purchase cane land to secure and maintain the Company's cane supply.
Also as the Company processes larger volumes of cane, working capital
requirements increase resulting in additional short-term borrowings and
interest costs.
For the fourth consecutive year, the Company was able to set a new
record for tons of cane processed. The Company processed 899,989 tons of
cane for the 1997 crop. This is compared to 821,184, 769,953 and 606,112
tons of cane for 1996, 1995 and 1994, respectively.
The Company's average daily grinding rate was increased again this
grinding season. For the 1997 crop, the average daily grinding rate was
10,112. For the 1996 and 1995 crops, the average daily grinding rates were
9,803 and 9,457 tons of cane per day, respectively. The 1997 crop was
processed in 89 days. This is compared to 84 days to process the 1996 crop
and 81 days to process the 1995 crop. The factory capital additions over
the past four years have allowed the factory 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 result in more efficiencies
thereby reducing costs while matching the total cane supply available for
processing.
For the 1997 crop, sugar yields per ton of cane are estimated at
211 pounds. This is a 12 pound increase over the 1996 crop yield. For the
1996 and 1995 crops, sugar yields were 199 and 213 pounds per ton of cane,
respectively.
Raw sugar production is up considerably for the 1997 crop and is
estimated at 94,757 tons. For the 1996 and 1995 crops, raw sugar production
was 81,822 and 82,141 tons, respectively. The increased production for the
1997 crop primarily results from the Company processing an additional 78,805
tons of cane for the 1997 crop over 1996 coupled with increased sugar yields
from crop year 1996 to 1997.
The Company's agricultural division produced 19,872 tons of cane on
609 mill acres for the 1997 crop. For the 1996 and 1995 crops, the
agricultural division produced 20,792 and 20,509 tons of cane on 730 and 798
mill acres, respectively. For the 1997 crop the sugarcane yield was 32.6
tons per acre compared to 28.5 tons per acre for the 1996 crop and 25.7 tons
per acre for the 1995 crop. During February, 1997 the Company was
successful in leasing to an independent farmer approximately 383 cultivable
acres of its farm division. The Company now farms approximately 817 acres
compared to approximately 1,200 acres the two previous years.
II-2 -8-
The Statement of Earnings for the three years ended January 31,
1998, 1997 and 1996 reflect sales of raw sugar and molasses of $39,746,442,
$38,748,102 and $28,495,085, respectively. Sugar marketed for fiscal 1998
was 90,434 tons. This compares to 85,749 and 61,278 tons of raw sugar
marketed during fiscal 1997 and 1996, respectively. The increase in sales
over the past three years is primarily the result of increased raw sugar
production from processing greater volumes of sugarcane. The increase in
sales, however, is offset by the continued reduction in the sugar price.
The average price received for sugar marketed in fiscal 1998 is estimated at
$21.99 cwt. whereas the fiscal 1997 average price was $22.15 and the fiscal
1996 price averaged $22.52.
Interest earned for fiscal 1998 was $25,154. For fiscal 1997 and
1996, interest earned was $43,959 and $45,864, respectively. The reduction
in fiscal 1998 is principally the result of the Company having less funds
available for short-term investment because of the aforementioned increased
working capital requirements during fiscal 1998.
Income from mineral leases and royalties increased significantly in
fiscal 1998 and was $167,695. This compares to mineral lease and royalty
income of $89,948 for fiscal 1997 and $114,926 for fiscal 1996. The
increase for fiscal 1998 is primarily attributable to the Company entering
into two seismic agreements in the first quarter of the fiscal year. One
agreement, for $31,625, was for six months and covers approximately 710
acres in St. Mary Parish. The second agreement, for $71,891, contains an
eighteen month term and covers 2,396 acres in St. Mary Parish. This
agreement contains an option to lease the subject property for oil and gas
exploration. In the third quarter of fiscal 1998, the Company entered into
an oil and gas lease on approximately 41 acres in St. Mary Parish for
$7,283. The agreement has a three year primary term. Also in the third
quarter, the Company entered into a seismic and lease option agreement dated
August 1, 1997. The agreement covers approximately 320 acres for $40,000.
This lease carries a five year primary term. The decrease from fiscal 1996
to 1997 is primarily the result of 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. Oil and gas royalties have declined over the three year period
and were $20,613, $25,708 and $30,188 for fiscal 1998, 1997 and 1996,
respectively.
For fiscal 1998, the Company recognized a loss of $164,700 on the
disposition of property and equipment. For the two previous fiscal years,
the Company recognized gains of $14,795 and $145,076 on the disposition of
property and equipment. The loss recognized in fiscal 1998 is primarily
attributable to the sale or scrapping of obsolete machinery and equipment.
Other revenues consist primarily of miscellaneous income items which
include amounts received from cane land rentals and permitting seismic
surveys conducted for oil and gas exploration. For the current fiscal year,
other revenues were $942,459. For the two previous years, revenues totaled
$518,370 and $843,608, respectively.
Cane land rentals for fiscal 1998, 1997 and 1996 were $796,180,
$565,401 and $602,185, respectively. Other revenue also includes amounts
received from the Sugar Cane Safety Group representing a return of capital
from workers compensation reserve funds for years closed out. For fiscal
1998, the amount received was $89,698. For fiscal 1997 and 1996, the
amounts received were $141,127 and $318,032, respectively.
II-3 -9-
Cost of products sold for each of the three years ending in 1998,
1997 and 1996 were $37,184,172, $34,703,495 and $24,952,455, 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 remained relatively consistent
over the three years. These expenses were $942,896, $975,779 and $954,809
for fiscal years ending 1998, 1997 and 1996, respectively.
The Company's interest and loan expenses for fiscal 1998 totaled
$1,142,248 up from $504,260 for fiscal 1997. For fiscal 1996, these
expenses were $522,667. The increase in the current year results primarily
from the Company making a long-term loan of $6,500,000 in December, 1996 to
finance the total purchase price of approximately 8,519 acres of land in St.
Mary Parish of which 4,863 acres is cultivable cane land. The acquisition
was viewed as good for the Company in that it will secure and maintain the
Company's current cane supply. For the 1997 crop, the Company processed
121,750 tons of cane from this land which is approximately 14 percent of the
total cane processed. The loan agreement contains a ten year pay out.
Interest expense for each of the three years also includes interest incurred
on a $4,000,000 long-term loan made in April, 1992 and interest cost on
lines of credit utilized.
For fiscal 1998, 1997 and 1996, the Company is recognizing income
tax expenses of $608,165, $1,194,670 and $1,095,019, respectively. The
income tax expenses are explained in Footnote 5, Notes to Financial
Statements, on pages 12 and 13 of this report.
The liquidity of the Company over the last three years has been
fairly good. The current ratio at January 31, 1998 was 1.2 to 1. For the
two previous fiscal years ending January 31, 1997 and January 31, 1996, the
current ratios were 1.6 to 1 and 1.5 to 1, respectively. The decrease in
the current ratio for the 1998 period primarily results from the Company
maintaining a higher amount of short-term debt at January 31, 1998 compared
to January 31, 1997. At January 31, 1998, debt was $6,776,000 compared to
$2,575,000 at January 31, 1997. The increase in short-term debt primarily
results from decreases in working capital available during the 1997 idle and
grinding seasons.
For the coming year, the Company expects the volume of cane it will
grind to increase over that of fiscal 1998. It's anticipated that billet
cane deliveries will approach 55% of total cane processed. For the 1997
crop, billet cane deliveries were approximately 47% of the total cane
processed. This year the Company will focus on a good repair season in an
effort to reduce lost time during grinding operations and become more
efficient in handling and processing billet cane. For fiscal 1999, the
Company has budgeted capital improvements of $1,522,000. These additions
are directed to improve existing areas of plant operations. The additions
include upgrading the mud filter station, rebuilding the water cooling
towers and the installation of a wet scrubber on boiler #1 to improve
emissions. The Company expects to fund the capital additions from working
capital and short-term borrowings through lines of credit available to the
Company.
The current farm bill referred to as the Federal Agriculture
Improvement and Reform Act (FAIR) otherwise known as the Freedom to Farm
Bill has been in effect for nearly two years. 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.
II-4 -10-
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.
The sugar program is intended to maintain price levels in the market
place that will not lead to forfeitures by domestic producers. The USDA
administers a foreign country quota system which allocates import quotas to
forty foreign countries to supply the deficiencies between domestic
production and consumer demand. As a result of recent trade agreements in
Geneva, regardless of supply/demand requirements to fill the gap, foreign
country quota holders are guaranteed a minimum quota of approximately
1,250,000 short tons per year.
For the last couple of years the system has centered around estimates
from the World Agriculture Supply and Demand Estimates (WASDE) of the stocks
to use ratio which would lead to automatic quota increases. For the quota
years 1996/1997 and 1997/1998, if the stocks to use ratio percentage
estimate as of September 30 of each year was 15.5% or lower, an automatic
increase in the quota of 200,000 metric tons would be triggered. The
scheduled quota increases of 200,000 tons each are automatically triggered
if the estimate of the stocks to use ratio is 15.5% lower in WASDE estimates
announced January, March and May.
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 to be
profitable. It is believed by most in the industry that the recent decline
in sugar prices will not improve in the very near future. Therefore it is
very important that the Company strive to become more efficient and become
competitive in the global market place.
II-5 -11-
March 10, 1998
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, 1998 and 1997, and the related statements of
income and retained earnings and cash flows for each of the three
years in the period ended January 31, 1998. 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 financial statements present fairly, in all
material respects, the financial position of Sterling Sugars, Inc. as of
January 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 1998, in
conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ LeGlue & Company
(A Professional Corporation)
II-6 -12-
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1998 AND 1997
ASSETS
CURRENT ASSETS:
1998 1997
------------ ------------
Cash $ 103,511 $ 16,611
Temporary cash investments 107,212 93,721
------------ ------------
Total cash and temporary cash investments 210,723 110,332
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 2,609,757 1,890,398
Sugar inventory - at cost 12,617,812 10,583,250
Molasses inventory - at market 256,852 261,269
Expenditures for future crops 58,440 148,334
Operating supplies - at cost 761,637 823,429
Deferred income taxes 253,400 102,200
Prepaid expenses and other assets 304,847 588,998
------------ ------------
TOTAL CURRENT ASSETS 17,073,468 14,508,210
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 6,886,838 6,886,838
Buildings 3,293,695 3,146,195
Machinery and equipment 35,668,731 31,015,481
------------ ------------
45,849,264 41,048,514
Less accumulated depreciation 23,138,907 22,077,725
------------ ------------
22,710,357 18,970,789
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 34,002 31,763
Expenditures for future crops 999,994 1,389,338
Notes receivable, net of allowance for
doubtful accounts, 1998 $17,232; 1997 $38,000 571,595 684,529
------------ ------------
Total investments and other assets 1,605,591 2,105,630
------------ ------------
$41,389,416 $35,584,629
============ ============
See notes to financial statements
II-7 -13-
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
-------------- -------------
CURRENT LIABILITIES:
Notes payable $ 6,776,000 $ 2,575,000
Accounts payable 875,330 1,171,467
Due to cane growers 5,708,816 4,654,502
Current portion of long-term debt
and capital leases 997,189 902,295
-------------- --------------
TOTAL CURRENT LIABILITIES 14,357,335 9,303,264
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 9,160,422 9,615,175
-------------- --------------
DEFERRED INCOME TAXES 1,366,600 1,000,700
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 9) - -
-------------- --------------
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 13,964,604 13,125,035
------------ --------------
16,505,059 15,665,490
------------ --------------
$41,389,416 $35,584,629
============ ==============
See notes to financial statements
II-8 -14-
STERLING SUGARS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JANUARY 31,
1998 1997 1996
---------- ----------- -----------
REVENUES:
Sugar and molasses sales $39,746,442 $38,748,102 $28,495,085
Interest earned 25,154 43,959 45,864
Mineral leases and royalties 167,695 89,948 114,926
Gain (loss) on disposition of property
and equipment (164,700) 14,795 145,076
Other 942,459 518,370 843,608
----------- ----------- -----------
40,717,050 39,415,174 29,644,559
----------- ----------- -----------
COST AND EXPENSES:
Cost of products sold 37,184,172 34,703,495 24,952,455
General and administrative 942,896 975,779 954,809
Interest and loan expenses 1,142,248 504,260 522,667
----------- ----------- -----------
39,269,316 36,183,534 26,429,931
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,447,734 3,231,640 3,214,628
INCOME TAXES 608,165 1,194,670 1,095,019
----------- ----------- -----------
NET INCOME 839,569 2,036,970 2,119,609
RETAINED EARNINGS AT BEGINNING OF YEAR 13,125,035 11,088,065 8,968,456
----------- ----------- -----------
RETAINED EARNINGS AT END OF YEAR $13,964,604 $13,125,035 $11,088,065
=========== =========== ===========
WEIGHTED AVERAGE EARNINGS PER
COMMON SHARE:
Net income $.34 $.81 $ .85
=========== ========== ===========
CASH DIVIDENDS PAID $ 0 $ 0 $ 0
=========== =========== ===========
See notes to financial statements
II-9 -15-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 839,569 $ 2,036,970 $ 2,119,609
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation 2,120,443 1,793,012 1,533,946
Deferred income taxes 214,700 361,100 271,600
Bad debts 38,000 - -
(Gain) loss on dispositions of property
and equipment 164,700 (14,795) (145,076)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (719,359) (173,350) 559,929
(Increase) decrease in sugar and
molasses inventories (2,030,145) 817,603 (7,458,169)
Increase in accounts payable and
accrued expenses and due to cane
growers 758,177 30,480 2,190,846
Increase (decrease) in interest
and income taxes payable (31,833) 59,406 (326,541)
Other items - net 854,775 (1,344,052) 117,908
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,209,027 3,566,374 (1,135,948)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on notes receivable 147,596 224,589 415,184
Issuance of Notes receivable (72,662) (231,639) (431,738)
Purchases of property, plant and
equipment (5,514,397) (8,842,848) (2,739,294)
Proceeds from dispositions of
property and equipment 125,478 74,300 217,462
------------ ----------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES (5,313,985) (8,775,598) (2,538,386)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 20,168,000 27,309,300 20,568,778
Sale of treasury stock - - 111,625
Payments on short-term notes
payable and long-term debt (16,962,651) (22,123,796) (17,495,254)
------------ ------------ -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,205,349 5,185,504 3,185,149
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 100,391 (23,720) (489,185)
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 110,332 134,052 623,237
----------- ----------- -----------
(Continued)
II-10 -16-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
------------------------------------
1998 1997 1996
------------ ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 210,723 $ 110,332 $ 134,052
============ =========== ===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $1,162,716 $ 415,053 $ 509,421
============ ============ ==========
INCOME TAXES PAID $ 225,000 $1,226,919 $ 1,152,704
============ ============ ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment financed by
notes payable and capital lease $ 635,792 $ - $ -
============= ============ ===========
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-
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Raw sugar produced by the Company included in inventory was valued at
lower of cost or market. Molasses 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.
2. NATURE OF OPERATIONS, RISK AND UNCERTAINTIES
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. Molasses is sold to a major
molasses distributor under sales contracts.
The cane supply, which the Company processes into raw sugar and
blackstrap molasses, is provided by approximately fifty growers located
primarily in St. Mary and Iberia Parishes, some of which are on Company
owned land.
The Company maintains, at a regional financial instituion, 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.
II-12 -18-
3. NOTES PAYABLE
Notes payable at January 31, 1998 included $6,776,000 of short-term
unsecured notes payable to a bank with interest at 8.50%.
Notes payable at January 31, 1997 included $2,575,000 of short-term
unsecured notes payable to a bank with interest at 8.25%
The maximum aggregate short-term borrowings outstanding were $20,168,000
in 1998, $20,809,900 in 1997 and $20,568,800 in 1996. The average aggregate
amount of short-term borrowings and the weighted average interest rate was
approximately $2,795,550 and 8.34% in 1998, $924,300 and 6.18% in 1997, and
$1,640,280 and 6.97% in 1996. Short-term borrowings occur primarily during
the months of September through December.
4. LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease at January 31, 1998 and 1997 consisted
of the following:
1998 1997
----------- -----------
8.50% mortgage note collateralized by first
mortgage on approximately 10,186 acres of
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. $ 3,668,820 $ 3,740,829
8.95% capital lease collateralized by equipment,
payable in monthly payments of $16,500 including
imputed interest beginning October 1, 1995 with
a final payment of $16,500 due October 1, 1998. 96,355 276,641
8.25% mortgage note collateralized by a 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, 1998 and 1997. An
additional covenant of the loan is that no
dividends are to be paid. 5,850,000 6,500,000
8.9% note collateralized by equipment, payable
in twenty-four monthly installments of $10,345
including interest, beginning May 1, 1997 168,305 -
8.5% note collateralized by equipment, payable
in four annual installments of $18,760,
including interest, and one installment for
balance of $61,142, beginning February 2, 1998 118,097 -
II-13 -19-
10% capital lease collateralized by equipment,
payable in thirty-six monthly payments of
$7,782, including imputed interest, beginning
November 1, 1997 with a final payment of
$42,500 due October 1, 2000 256,034 -
----------- -----------
10,157,611 10,517,470
Less portion due within one year (997,189) (902,295)
------------ -------------
$ 9,160,422 $ 9,615,175
============ =============
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended January 31, 1999 $ 997,189
Year ended January 31, 2000 909,434
Year ended January 31, 2001 888,237
Year ended January 31, 2002 4,081,833
Year ended January 31, 2003 680,918
Thereafter 2,600,000
-------------
$ 10,157,611
=============
The Company had a line of credit with a bank at January 31, 1998 and 1997
in the amount of $8,600,000 and $3,500,000, respectively. There was
$6,776,000 and $2,575,000 borrowed against this line of credit as of
January 31, 1998 and 1997, respectively.
5. 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, 1998 and 1997 are as follows:
1998 1997
------------ ------------
Deferred tax assets:
Tax credit carryforwards $ 190,500 $ 404,800
Other 62,900 119,000
------------ -------------
Total 253,400 523,800
------------ -------------
Deferred tax liabilities:
Differences between book and tax basis of
property (1,366,600) (1,405,500)
Other - (16,800)
------------ -------------
Total (1,366,600) (1,422,300)
------------ -------------
Net $(1,113,200) $ (898,500)
============ =============
II-14 -20-
The foregoing net amounts were included in the accompanying balance sheet
as follows:
1998 1997
--------- -----------
Deferred tax assets - Current $ 253,400 $ 102,200
Deferred tax liability - Non-current (1,366,600) (1,000,700)
------------ -----------
Net $(1,113,200) $ (898,500)
============ ===========
There was no valuation allowance required at January 31, 1998 and 1997.
Income taxes consist of the following components:
1998 1997 1996
---------- ---------- -----------
Currently payable $ 393,465 $ 833,570 $ 823,419
Deferred 214,700 361,100 271,600
---------- ---------- -----------
$ 608,165 $1,194,670 $1,095,019
========== ========== ===========
State income taxes included in income tax expense amounted to approximately
$56,600, $156,800 and $83,600 in 1998, 1997 and 1996, respectively.
Deferred income taxes relate primarily to the following items:
1998 1997 1996
----------- ---------- -----------
Depreciation $ 92,900 $ (8,200) $ 37,500
Alternative minimum tax carryover 214,300 311,000 (167,500)
Deferred compensation (15,000) (43,830) (40,900)
Net operating loss carryforward - - 412,400
Other (77,500) 102,130 30,100
----------- ---------- ------------
$ 214,700 $ 361,100 $ 271,600
=========== ========== ============
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:
1998 1997 1996
------------ ------------ ---------------
Amount % Amount % Amount %
------------- ------------ ---------------
Income taxes at statutory
rate of pretax earnings $ 492,200 34 $1,098,800 34 $1,093,000 34
Increase (decrease) in taxes
resulting from:
State income taxes 115,800 8 258,500 8 257,200 8
Other items - net 165 - (162,630)(5) (255,181)(8)
------------- ------------- --------------
Actual income taxes $ 608,165 42 $1,194,670 37 $1,095,019 34
============= ============= =============
II-15 -21-
At January 31, 1998 the Company had alternative minimum tax credit
carryforwards of approximately $190,500 available to reduce future income
taxes payable under certain circumstances. The alternative minimum tax
credit carryover period is unlimited.
6. 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,
1998, 1997 and 1996 was $39,000, $34,000 and $35,000, respectively.
Data relative to the Plan were as follows (in thousands):
January 31,
---------------------
1998 1997
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,268 $ 1,203
========== ========
Accumulated benefit obligation $ 1,292 $ 1,229
========== ========
Projected benefit obligation for service rendered
to date $ (1,480) $ (1,390)
Plan assets at fair value 1,441 1,375
---------- --------
Plan assets in excess of projected benefit
obligation (39) (15)
Remaining unrecognized portion of net assets at
February 1, 1987 (82) (98)
Unrecognized net loss from past experience
different from that assumed 139 157
---------- --------
Prepaid pension cost included in other assets $ 18 $ 44
========== ========
The net pension expense for 1998, 1997 and 1996 included the
following (income) expense components:
1998 1997 1996
------- ------- -------
Service cost - benefits earned during the period $ 54 $ 52 $ 51
Interest cost on projected benefit obligation 104 97 90
Actual return on plan assets (109) (105) (96)
Net amortization and deferrals (10) (10) (10)
--------- ------- -------
NET PENSION EXPENSE $ 39 $ 34 $ 35
========= ======= =======
II-16 -22-
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% in 1998, 1997 and 1996.
The projected rate of increase in future compensation levels used was 5.5%
in 1998, 1997 and 1996. The expected rate of return on plan assets was 8%
in 1998, 1997 and 1996. The plan's assets consist primarily of deposits in
the general funds of an insurance company.
7. 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 $45,000 for the year ended January 31, 1998 and
$42,000 for the year ended January 31, 1997 and $39,000 for the year ended
January 31, 1996.
8. REVENUES
Sugar and molasses sales are comprised of the following:
1998 1997 1996
----------- ----------- -----------
Sugar $38,622,246 $37,274,463 $26,896,616
Molasses 1,124,196 1,473,639 1,598,469
----------- ----------- -----------
$39,746,442 $38,748,102 $28,495,085
============ =========== ===========
Sugar sales to individual major customers amounted to $17,243,478,
$11,413,502, $6,962,764, $1,488,453, $787,115 and $684,182 in 1998,
$15,750,889, $9,088,903, $8,419,174,$3,637,474 and $305,782 in 1997,
$9,934,094, $7,916,007, $4,189,733 and $3,427,134 in 1996.
Income from mineral leases and royalties is comprised of the following:
1998 1997 1996
--------- -------- ---------
Oil and gas royalties $ 20,613 $ 25,708 $ 30,188
Mineral leases 147,082 64,240 84,739
--------- -------- ---------
$167,695 $ 89,948 $114,927
========= ======== =========
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:
1998 1997 1996
--------- --------- ---------
Rental property $ 815,881 $ 575,566 $ 607,672
Other 126,578 (57,196) 235,963
--------- --------- ---------
$ 942,459 $ 518,370 $ 843,635
========= ========= =========
II-17 -23-
9. 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
and 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 expired May 31, 1997.
At January 31, 1998 the Company had guaranteed a $202,000 collateralized
note of a cane grower. The outstanding note balance at January 31, 1998
was $65,659.
The Company had guaranteed a $100,000 collateralized note and a $415,000
collateralized note for a grower and a harvesting company, respectively.
The Company is also contingently liable or co-maker of a collateralized
note in the amount of $1,150,000 for Patout Equipment Co., Inc., an
affiliated corporation.
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
consideration for this option the Company pledged a certificate of
deposit in the amount of $82,160.
10. RELATED PARTIES
During the year ended January 31, 1998 and 1997, 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.
delivered 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 tons of cane for the year ended January 31,
1997. The reimbursement due M. A. Patout & Son, Ltd. for the year ended
January 31, 1997 for payments made by them to shippers under this agreement
was $970,816. Amounts payable at January 31, 1997 were $172,490. The
Company did not enter into a cane swap agreement for the year ended January
31, 1998.
II-18 -24-
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
$39,111 and $219,305 for the years ended January 31, 1998 and 1997,
respectively.
The Company reimbursed M. A. Patout & Son, Ltd. certain expenses paid by
them on behalf of the Company. Reimbursements for the year ended January
31, 1998 were $301,126.
The Company reimbursed Raceland Sugars, Inc. certain expenses paid by
them on behalf of the Company. Reimbursements for the year ended January
31, 1998 were $459.
The Company obligated itself a co-maker of a collateralized equipment note
for Patout Equipment Co., Inc. in the amount of $1,150,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of the Company's financial instruments were as
follows (in thousands):
1/31/98 1/31/97
Carrying Fair Carrying Fair
value value value value
--------- ----- -------- ------
Cash and cash equivalents $ 211 $ 211 $ 110 $ 110
Accounts receivable 2,610 2,610 1,890 1,890
Notes receivable 572 385 685 466
Short-term debt 6,776 6,776 2,575 2,575
Accounts payable 875 875 1,171 1,171
Due to growers 5,709 5,709 4,655 4,655
Long-term debt (including current
portion) 10,158 10,158 10,517 10,517
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-19 -25-
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 24, 1998 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 15, 1997, expires on May 21, 1998, 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. 36
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. Mr. Legendre resigned from the
Company on January 31, 1998 37
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. 63
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 24, 1998 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 24, 1998 under the caption "Information Concerning
Management-Executive Compensation," incorporated herein by reference.
III-1 -26-
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 24, 1998 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 24, 1998 under the caption "Information Concerning
Management-Certain Transactions," incorporated herein by reference.
III-2 -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 1998 and 1997)
Balance Sheets as of January 31, 1998 and 1997
Statements of Income and Retained Earnings for years ended
January 31, 1998, 1997 and 1996
Statements of Cash Flows for years ended January 31, 1998,
1997 and 1996
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 (p)
(4) (a) Specimen Stock Certificate (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)
(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)
(q) Lease-Calumet Plantation (Frank Martin Farms) (k)
(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)
(ss) Agricultural agreement-Advanced Agriculture, Inc. (p)
(tt) Amendment to agriculture agreement-Advanced Ag. (p)
(uu) Agricultural lease renewal-Daniel Gonsoulin (q)
(vv) Agricultural lease renewal-Baker Plantation, Inc. (q)
(ww) Agricultural lease renewal-Bolton Cane Company (34)
(xx) Agricultural lease-Northside Planting (35)
(yy) Agricultural lease-S & S Farms (41)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (47)
(aaa) Lease Agreement-Myette Point Boat Landing (53)
(bbb) Lease Agreement-Myette Point Dock (57)
(11) Computation of earnings per share (60)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the year ended January 31,
1998.
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.*
(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.*
IV-3 -30-
FORM 10-K
PART IV
(Continued)
(k) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1991.*
(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*
(q) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1997*
* 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 24, 1998 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 24, 1998
--------------------- Director
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
---------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) April 24, 1998
/s/ William S. Patout III Director April 24, 1998
------------------------
William S. Patout III
/s/ Peter V. Guarisco Director April 24, 1998
------------------------
Peter V. Guarisco
/s/ J. Patout Burns, Jr. Director April 24, 1998
----------------------
J. Patout Burns, Jr.
/s/ Rivers Patout Director April 24, 1998
----------------------
Rivers Patout
/s/ Victor Guarisco, II Director April 24, 1998
-----------------------
Victor Guarisco, II
IV-5 -32-
INDEX TO EXHIBITS
(10) Material Contracts
(ww) Agricultural lease renewal-Bolton Cane Co. (34)
(xx) Agricultural lease-Northside Planting Co. (35)
(yy) Agricultural lease-S & S Farms (41)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (47)
(aaa) Lease Agreement-Myette Point Boat Landing (53)
(bbb) Lease Agreement-Myette Point Dock (57)
(11) Computation of Earnings per Common Share (60)
IV-6 -33-