SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________to__________________
COMMISSION FILE NUMBER 0-1287
STERLING SUGARS, INC.
____________________________________________________________________
Exact name of registrant as specified in its charter
Delaware 72-0327950
_______________________________ ______________________________
State or other jurisdiction of IRS employer identification
incorporation or organization number
P. O. Box 572, Franklin, La. 70538
____________________________________________________________________
Address of principal executive offices Zip Code
Registrant's telephone number including area code 318 828 0620
Not Applicable
____________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirments for the past 90 days.
YES X NO
There were 2,500,000 common shares outstanding at November 28, 1997.
Total number of pages 16
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STERLING SUGARS, INC.
I N D E X
PAGE
NUMBER
PART I: FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Condensed balance sheets October 31, 1997
(unaudited) and January 31, 1997 I-1
Statements of earnings and retained earnings
Nine months ended October 31, 1997 and 1996
(unaudited) I-2
Statements of earnings and retained earnings I-3
Three months ended October 31, 1997 and 1996
(unaudited)
Statements of cash flows
Nine months ended October 31, 1997 and 1996
(unaudited) I-4
Notes to condensed financial statements
Three & nine months ended October 31, 1997 and I-6
1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS I-8
PART II. OTHER INFORMATION:
ITEM 5. OTHER INFORMATION II-1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K II-1
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STERLING SUGARS, INC.
CONDENSED BALANCE SHEETS
October 31, January 31,
1997 1997
UNAUDITED NOTE
ASSETS: ---------------------------
CURRENT ASSETS:
Cash and short-term investments $( 119,331) $ 110,332
Accounts receivable 3,121,324 1,890,398
Inventories 6,825,615 11,667,948
Expenditures for future crops (Note B) 2,551,999 148,334
Deferred income taxes 102,200 102,200
Other current assets 638,137 557,298
------------- -------------
TOTAL CURRENT ASSETS $ 13,119,944 $ 14,476,510
------------- -------------
Property, plant and equipment - net $ 22,363,297 $ 18,970,789
------------- -------------
Expenditures for future crops $ 1,389,338 $ 1,389,338
------------- -------------
Notes receivable - net of allowance $ 682,441 $ 684,529
------------- -------------
Deferred loan acquisition costs $ 54,190 $ 63,463
------------- -------------
$ 37,609,210 $ 35,584,629
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,540,057 $ 6,728,264
Short-term debt 6,000,000 2,575,000
------------ -------------
TOTAL CURRENT LIABILITIES $ 11,540,057 $ 9,303,264
------------- -------------
Long-term debt $ 9,485,020 $ 9,615,175
------------- -------------
Deferred income taxes $ 1,000,700 $ 1,000,700
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock $ 2,500,000 $ 2,500,000
Additional paid in capital (Note C) 40,455 40,455
Retained earnings 13,042,978 13,125,035
------------- -------------
$ 15,583,433 $ 15,665,490
------------- -------------
$ 37,609,210 $ 35,584,629
============= =============
NOTE: The balance sheet at January 31, 1997 has been taken from the
audited financial statements at that date, and condensed.
See notes to condensed financial statements
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STERLING SUGARS, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31
----------------------------
1997 1996
------ ------
REVENUES:
Sugar and molasses sales $12,290,238 $14,574,935
Interest earned 10,893 42,709
Mineral leases and royalties 131,702 64,914
Loss on sale of depreciable assets (25,921) (894)
Other 160,161 202,583
------------ ------------
$12,567,073 $14,884,247
------------ ------------
COSTS AND EXPENSES:
Cost of products sold $11,370,015 $12,015,435
General and administrative 568,531 524,785
Interest expense 760,877 301,541
------------ ------------
$12,699,423 $12,841,761
------------ ------------
NET EARNINGS (LOSS) BEFORE INCOME TAXES $ (132,350) $ 2,042,486
INCOME TAX EXPENSE (CREDIT) ( 50,293) 776,145
------------ ------------
NET EARNINGS (LOSS) $ ( 82,057) $ 1,266,341
RETAINED EARNINGS AT BEGINNING OF PERIOD 13,125,035 11,088,065
------------ ------------
RETAINED EARNINGS AT END OF PERIOD $13,042,978 $12,354,406
============ ============
NET EARNINGS (LOSS) PER SHARE $ (.03) $ .51
============ ============
See notes to condensed financial statements
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STERLING SUGARS, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED OCTOBER 31
-----------------------------
1997 1996
------ ------
REVENUES:
Sugar and molasses sales $ (6,938) $ 49,063
Interest earned 994 5,979
Mineral leases and royalties 46,724 20,801
Loss on sale of depreciable assets (1,123) -
Other 52,666 40,291
------------ ------------
$ 92,323 $ 116,134
------------ ------------
COSTS AND EXPENSES:
Cost of products sold $ -0- $ -0-
General and administrative 184,890 124,022
Interest expense 290,630 101,429
------------ ------------
$ 475,520 $ 225,451
------------ ------------
NET LOSS BEFORE INCOME TAXES $( 383,197) $( 109,317)
INCOME TAX CREDIT ( 145,615) ( 41,540)
------------ ------------
NET LOSS $( 237,582) $( 67,777)
RETAINED EARNINGS AT BEGINNING OF PERIOD 13,280,560 12,422,183
------------ ------------
RETAINED EARNINGS AT END OF PERIOD $13,042,978 $12,354,406
============ ============
NET LOSS PER SHARE $( .10) $( .03)
============ ============
See notes to condensed financial statements
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STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31
----------------------------
1997 1996
------ ------
OPERATING ACTIVITIES:
Net earnings (Loss) $( 82,057) $ 1,266,341
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Amoritization of loan costs 9,273 8,860
Depreciation 2,108,356 1,128,187
Loss on sale of depreciable assets 25,921 894
Changes in operating assets and liabilities:
Increase in accounts receivable (1,230,926) (3,340,753)
(Increase) decrease in notes receivable 2,088 ( 44,921)
Decrease in inventories 4,842,333 9,456,955
Increase in other current assets ( 80,839) ( 125,266)
Increase in expenditures for future crops (2,403,665) (3,051,115)
Decrease in accounts payable
and accrued expenses (1,294,578) (1,665,060)
Other items - net - ( 160,758)
------------ ------------
Net cash provided by operating activities $ 1,895,906 $ 3,473,364
------------ ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment $(5,652,263) $(3,076,188)
Proceeds from sale of depreciable assets 125,478 2,500
----------- ------------
Net cash used in investing activities $(5,526,785) $(3,073,688)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from short-term debt $10,168,000 $ 4,219,000
Payments on short-term debt (6,743,000) (4,513,334)
Proceeds from long-term debt 492,317 -
Payments on long-term debt ( 516,101) ( 168,951)
------------ ------------
Net cash provided by (used in) financing
activities $ 3,401,216 $( 463,285)
------------ ------------
Decrease in cash and temporary investments $( 229,663) $( 63,609)
Cash and temporary investments at the
beginning of the period 110,332 134,052
------------ ------------
Cash and temporary investments at the
end of the period $( 119,331) $ 70,443
============ ============
Continued
See notes to condensed financial statements
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STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Supplemental information:
Interest paid $ 725,340 $ 220,124
=========== ===========
Income taxes paid $ - $ 373,500
=========== ===========
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STERLING SUGARS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED) (CONTINUED)
A. CONDENSED FINANCIAL STATEMENTS:
The condensed balance sheets as of October 31, 1997, the
statements of earnings and retained earnings for the three
and nine months ending October 31, 1997 and 1996, and the
condensed statements of cash flows for the nine month periods
then ended have been prepared by the Company, without audit. In
the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and
cash flows at October 31, 1997 and for all periods presented
have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that these condensed financial
statements be read in conjunction with the 1997 annual report
to stockholders. The results of operations for the period
ending October 31, 1997 are not necessarily indicative of the
operating results expected for the full year.
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STERLING SUGARS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
B. EXPENDITURES FOR FUTURE CROPS:
Due to the seasonality of the Company's business, recognition
of expenditures incurred and income earned from sugar operations for
the 1997 and 1996 crops have been deferred in order to properly
match revenues and expenses. The deferred items are as follows:
NINE MONTHS ENDED OCTOBER 31
----------------------------
1997 1996
------ ------
Sugar and molasses sales $ 7,175,800 $ 5,006,880
------------ ------------
Costs and expenses:
Factory $15,183,511 $ 9,712,677
Plantations 458,836 562,652
------------ ------------
$15,642,347 $10,275,329
------------ ------------
Excess costs over sales $ 8,466,547 $ 5,268,449
Raw sugar and molasses inventories (5,942,386) (2,124,417)
------------ ------------
$ 2,524,161 $ 3,144,032
Land preparation and planting costs
1998 and 1997 crops respectively 27,838 124,050
------------ ------------
$ 2,551,999 $ 3,268,082
============ ============
C. ADDITIONAL PAID IN CAPITAL:
As discussed in Form 10-K, filed for the year ended January 31,
1996, the Company entered into a technical service agreement with
M. A. Patout & Son, Ltd. (Patout). The agreement provided an
option for Patout to purchase 50,000 shares of the Company's
treasury stock at a price of $3.25 per share. In April, 1995
Patout exercised its option.
I-7 -9-
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STERLING SUGARS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
General Information:
The Company's 1997 sugarcane grinding season (1997 crop) began on
September 30, 1997. Generally, the Company plans to begin operations
on or about October 1st of each year. At the present time,
the Company anticipates processing approximately 905,000 tons of cane
and expects to end the processing season on or about December 28, 1997.
For the 1996 crop, the Company processed a total of 821,184 tons of cane.
Thus far, this years' grinding operations have progressed fairly well.
At present, the average daily grinding rate is 10,123 tons of cane
compared to 9,803 tons of cane per day last year. Sugar yields per ton
of cane for the 1997 crop are estimated at 210 pounds per ton of cane.
For the 1996 crop, the sugar yield was 198 pounds per ton of cane.
The market price received from sales of raw sugar produced from
the 1996 crop was $22.15 cwt. For the 1997 crop, the market price is
projected to be about $21.90 cwt. or about $.25 cwt.less than the price
received for the 1996 crop.
Sugar and Molasses Sales:
Sugar and molasses sales for the nine months ended October 31,
1997 and 1996 were as follows:
1997 1996
------ ------
Raw sugar sales $12,082,853 $14,232,243
Molasses sales 207,385 342,692
------------ -------------
$12,290,238 $14,574,935
============ =============
For the first nine months of the Company's fiscal year ending
January 31, 1998 (fiscal 1998), sales of raw sugar (1996 crop)
decreased compared to the same period ending in fiscal 1997 (1995
crop). This decrease is the result of the Company having less sugar
available to market during the current period. At January 31, 1996, the
Company had on hand approximately 31,545 tons of raw sugar available for
sale to refiners compared to 27,713 tons of raw sugar at January 31,
1997. As of July 31st of both years, the Company had sold and shipped
its' raw sugar held in inventory.
I-8 -10-
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As of January 31, 1996, the Company had on hand approximately
714,343 gallons of molasses all of which had been sold as of April 30,
1996. At January 31, 1997, the Company had approximately 767,096
gallons of molasses on hand all of which had been sold as of April 30,
1997. Although slightly more molasses was sold in the 1997 period, the
price per gallon decreased for the 1996 molasses crop. The Company
received $.40 per gallon from the sale of 1995 molasses crop compared to
$.32 per gallon for the sale of the 1996 molasses crop.
Interest Earned:
Interest earned for the quarter and nine month periods ending
October 31, 1997 decreased compared to the same periods ending October
31, 1996. Interest earned for the nine month period ending October 31,
1997 was $10,893. For the nine month period ending October 31, 1996,
interest earned was $42,709. The decrease for the current periods is
primarily attributable to the decrease in short-term investments.
At January 31, 1997, the Company had short-term investments of $10,154
compared to $3,186,145 at January 31, 1996.
Mineral Leases and Royalties:
For the nine month period ended October 31, 1997, income from
mineral leases and royalties increased to $131,702 compared to
$64,914 for the period ending in 1996. The increase is attributable
to the Company entering into two seismic agreements in the first quarter
of fiscal 1998 and one oil and gas lease and one seismic lease option
agreement in the third quarter of fiscal 1998. One agreement, for
$31,625, is 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.
Loss on the Sale of Depreciable Assets:
The Company recognized a loss on the sale of obsolete machinery
and equipment for the nine month period ending October 31, 1997 of
$25,921. For the same period ending in 1996, the Company recognized\
a loss of $894. For the three month period ending October 31, 1997,
a loss of $1,123 was recognized from the sale of obsolete equipment.
Other Revenues:
Other revenues which consist mainly of miscellaneous income items,
were $52,666 and $160,161 for the three and nine month periods ending
October 31, 1997, respectively. For the three and nine month periods
ending October 31, 1996, other revenues were $40,291 and $202,583,
respectively. These revenues, which can vary considerably from year to
year, generally include amounts received for the sale of scrap and other
miscellaneous items.
I-9 -11-
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Cost of Products Sold:
Cost of products sold decreased for the nine month period ending
October 31, 1997 and was $11,370,015. For the same nine month period
in 1996, cost of products sold was $12,015,435. Costs relating to sales
are charged to cost of products sold. Accordingly, costs have decreased
for 1997 as would be expected with the decrease in sales.
General and Administrative Expenses:
General and administrative expenses for the three and nine month
periods ending October 31, 1997 have increased compared to the same
periods ending in 1996. These expenses were $568,531 and $524,785 for
the nine month periods ending October 31, 1997 and 1996, respectively.
were $489,939. The increase is primarily attributable to increases in
expense accruals for the Company's retirement plans and other
miscellaneous expense items.
Interest Expense:
Interest expense increased for the three and nine month periods
ending October 31, 1997 compared to the same periods in 1996. The
increase in interest expense is primarily the result of the interest
expense incurred on long-term debt of $6,500,000. The Conpany, in
December, 1996, made a long-term loan to finance the purchase of
approximately 8,519 acres of land in St. Mary Parish of which 4,863
acres is cultivable cane land. The acquisition is viewed as good for
the Company in that it will secure and maintain the Company's current
cane supply. The loan agreement contains a ten year payout with all
annual cane rental income derived from the land applied to the loan.
Interest incurred is paid quarterly.
Income Taxes:
The income tax expense (credit) for the three and nine month periods
ending October 31, 1997 and 1996 were recorded at the statutory rate of
38 percent which reflects the 34 percent federal corporate rate plus 4
percent state income taxes.
Liquidity and Capital Resources:
At October 31, 1997, the Company had working capital of $1,579,887
compared to $5,173,246 at January 31, 1997. The working capital ratios
were 1.1 to 1 and 1.6 to 1, respectively.
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<Page 13>
For the 1997 grinding season, crop estimates show an increase in
cane supply primarily because of an excellent growing season. Along
with this increase is a trend among sugarcane farmers in Louisiana,
including our area, to convert harvesting practices from whole stalk
to billet combines. Most factory managers would agree the combine
system at this time is more favorable to farmers than factories.
Despite this fact, it is important that the Company accomodate its'
farmers and as a result, the Company has budgeted $750,000 in capital
additions for handling billet cane on the cane yard. The Company has
also budgeted $2,700,000 in other capital additions which include
improvements to steam boiler #5, various improvements to steam boilers
nos. 1, 2, 4 and 6, installation of two 1,500 kw generators, a cane
wash table and installation of one vacuum pan for the raw house.
The improvements this year, other than the billet cane handling
improvements, will aid the Company in becoming more efficient in
operating the factory. The additions for handling billet cane is
expected to increase the factory cost of yard operations.
Thus far, the Company has sustained a 10,123 ton per day average
daily grinding rate after 75 days of the grinding season. The Company
predicts the season will go 89 days and process about 905,000 tons of
cane up from 821,184 tons of cane processed for the 1996 crop which
was processed in 84 days.
As in past years, the Company began making short-term loans during
the idle season to fund idle season costs, capital additions, as well
as, the first weeks of grinding operations. The short-term funding
requirement has not exceeded $6,000,000 for the 1997 crop.
Expenditures for Future Crops - Note B:
In order to match revenue and expenses, sugar and molasses sales
relating to the 1997 crop of $7,175,800 have been deferred. Sales
of $5,006,880 relating to the 1996 crop were deferred last year.
Processing for the 1997 crop began September 30, 1997 and for the 1996
crop processing began October 11, 1996. The increase in deferred
sales in 1997 is attributable to the Company shipping more raw sugar
during the month of October, 1997 compared to the same period in 1996.
In October, 1997, the Company had 31 grinding days compared to 20
grinding days in 1996.
Factory Deferred Costs:
Factory deferred costs increased to $15,183,511 for the nine months
ended October 31, 1997 from $9,712,677 for the nine months ended
October 31, 1996. The increase in deferred costs is primarily
attributable to a increase in the amount of sugarcane processed as of
October 31, 1997 as compared to October 31, 1996. For the 1997 crop,
the Company has processed a total of 295,123 tons of cane compared to
176,450 tons of cane for the 1996 crop as of October 31, 1996.
Plantation Deferred Costs:
Plantation deferred costs were $458,836 for the nine month period
ending October 31, 1997 compared to $562,652 for the same period in
1996. The decrease in the current period primarily results from the
Company in February, 1997 leasing to an independent farmer
approximately 383 acres of agricultural land that had been farmed by
the Company.
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<Page 14>
Land Preparation and Deferred Planting Costs:
Land preparation and deferred planting costs for the 1998 and 1997
crops have decreased for the nine month period ending in 1997 and were
$27,838 for the period ending October 31, 1997 and $124,050 for the
period ending October 31, 1996. For the 1998 crop, the Company
maintained approximately 200 acres of fallow land. For the 1997 crop,
fallow land totaled approximately 423 acres. The decrease in
deferred land preparation and planting costs is primarily attributable
to the Company in February, 1997 leasing to an independent farmer
approximately 383 acres of agricultural land that had been farmed by
the Company. The decrease is also attributable to the Company during
1997 incurring costs to improve drainage systems and improve all
lands farmed by the Company, including fallow lands.
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<Page 15>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits - None
(b) Reports on Form 8K
No reports on Form 8K have been filed during the
quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
STERLING SUGARS, INC.
---------------------
(REGISTRANT)
DATE December 12, 1997 By /s/ Craig P. Caillier
--------------------------- ------------------------
CRAIG P. CAILLIER
PRESIDENT AND CEO
DATE December 12, 1997 By /s/ Stanley H. Pipes
---------------------------- -------------------------
STANLEY H. PIPES
VICE PRESIDENT AND TREASURER
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