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 July 31, 2004
[ ] 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)
Louisiana 72-0327950
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
P. O. Box 572, Franklin, La. 70538
---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (337) 828 0620
-------------------------
Securities registered pursuant to Section 12(d) of the Act:
Title of each class Name of each exchange on which registered
None None
-------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1 par value
---------------------------
(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. /__/
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
Page 1 of 38 Pages
The aggregate market value of the registrant's voting stock held on July
31, 2004 by non-affiliates of the registrant was $2,719,058. 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.
The number of shares of common stock outstanding as of October 1, 2004 was
2,500,000 shares.
Documents incorporated by reference: Portions of Registrant's Proxy Statement
dated November 18, 2004 are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I PAGE
ITEM 1 - BUSINESS 3
ITEM 2 - PROPERTIES 4
ITEM 3 - LEGAL PROCEEDINGS 6
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 7
ITEM 6 - SELECTED FINANCIAL DATA 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 26
ITEM 9A- CONTROLS AND PROCEDURES 26
PART III
ITEM 10- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 27
ITEM 11- EXECUTIVE COMPENSATION 27
ITEM 12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 27
ITEM 13- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
PART IV
ITEM 15- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8K 29
SIGNATURES 33
-2-
FORM 10-K
PART I
ITEM 1-BUSINESS
Sterling Sugars, Inc. is a 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 mid/late September to late December or early
January. For the fiscal year ended July 31, 2004, the Company processed
901,639 tons of sugarcane and produced 95,237 tons of sugar. The season
began on September 24, 2003 and continued through December 22, 2003. For the
fiscal year ended July 31, 2003 the Company processed 1,046,748 tons of
sugarcane and produced 91,000 tons of sugar. The season began on October
10, 2002 and ended on January 22, 2003. For the fiscal year ended July 31,
2002, the season began on September 18, 2001 and continued through December
23, 2001. The Company processed a total of 1,027,182 tons of cane and
106,244 tons of sugar for that fiscal year.
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 United States is a net
importer of sugar. This allows the U. S. Department of Agriculture to
regulate the price of raw sugar in the United States by limiting or
expanding imports. The Federal Agriculture Improvement and Reform Act of
1996 (FAIR) provided regulations allowing raw sugar manufacturers, such as
the Company, to place sugar under loan at the rate of 18 cents per pound if
the sugar price drops below this level. The Company then has the option of
forfeiting the sugar to the government and retaining the proceeds of the
loan or selling the sugar if the price subsequently exceeds the loan rate.
A loss of a major refiner would probably have a negative impact on the
Company's bottom line but any such impact would be cushioned by FAIR. This
act expired last year and was replaced by the Farm Security and Rural
Investment Act of 2002 (2002 Farm Bill).
In May, 2002 President Bush signed the 2002 Farm Bill. The bill
contains essentially the same provisions as the 1996 bill except that the
one cent per pound penalty assessment for forfeited sugar has been
eliminated and marketing allotments have been implemented for the domestic
sugar industry. Sterling Sugars' allotment for the crop starting in
September, 2002 was 89,881 tons but was subsequently increased so that the
Company was able to market all the sugar produced for the 2002 crop. The
Company was also able to market all sugar produced for the 2003 crop under
the new program. It is expected that the Company's allotment for the
coming 2004 crop will be sufficient to market all sugar produced in a
timely manner.
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 11,000 tons of sugarcane per day.
Sugarcane for processing is supplied to the factory from Company
lands and by independent farmers in St. Mary, Iberia and surrounding
parishes. See Item 2, "Properties" for further information concerning
properties owned and leased by the Company.
I-1 -3-
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 Agriculture
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.
Company employment for the year ended July 31, 2004 was as follows:
Factory
---------------
Year round employees 107
Seasonal and temporary employees 81
--------
188
========
Further information respecting the Company's business is given under
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 2 -PROPERTIES
Land owned by the Company by parishes and suitability of land for
cultivation is as follows:
LaFourche St. Mary Iberia St. Landry Total
-------------------------------------------------------
Cultivable 291 9,861 1,804 - 11,956
Non-cultivable 126 6,010 1,302 121 7,559
Plant site 65 65
--------- -------- -------- ------ --------
417 15,936 3,106 121 19,580
========= ======== ======== ====== ========
The Company no longer has a farming division as all owned cultivable
land has been leased to independent farmers. Approximately 9,861 cultivable
acres in St. Mary Parish, 1,804 cultivable acres in Iberia Parish and 291
cultivable acres in Lafourche Parish are leased to tenants for the growing
of sugarcane. Four of the leases in effect, covering approximately 2,593
cultivable acres expired at the end of the 1999 crop. These leases
were renewed in fiscal 2000 under basically the same terms and conditions.
The Company, in June, 1998, purchased approximately 571 cultivable and
139 non-cultivable acres of land in LaFourche Parish. The Company entered
into lease agreements with two independent farmers in LaFourche Parish. The
lease agreements contain five year terms with an option to renew for an
additional five years. The original five year term expired on December 31,
2002. The farmers exercised their option to renew the lease for an
additional five years. On October 22, 2002, the Company sold 1.955 acres of
this land to the LaFourche Parish Commission District and on November 13,
2002 the Company sold 291 acres to Raceland Raw Sugar Corp.
I-2 -4-
On January 13, 1999, the Company sold 1,795.31 acres of unimproved land
to the U. S. Corps of Engineers under threat of expropriation. In order to
minimize the tax consequences of the sale, the Company purchased 414.07
acres of like-kind property in Iberia Parish which is leased to an
independent farmer for the production of sugarcane.
The Company purchased 589.85 acres of land on April 17, 2003 from
M. A. Patout & Son, Ltd. This property is located in Iberia and St. Mary
Parishes. The land was leased to an independent farmer on April 17, 2003.
The lease expires on December 31, 2006 with no option to renew.
In addition to Company owned land, about 1,300 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
property.
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 19,580 acres of land owned by the Company, approximately 1,356
acres are being held by production, primarily from the LGS Sterling No. 1
well and by the well Zenor A-16 both located in St. Mary Parish.
The Sterling No. 1 well was completed by the Company's lessee, LGS
Exploration, Inc. in December, 1984 and the Zenor A16 well was completed
on May 3, 2000. During September, 1991 Sterling No. 1 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. The Company also has a twenty-five percent
interest in the Zenor A-16 466 acre unit.
The Company currently has two oil and gas leases in effect covering
662 acres. The leases expire on November 4, 2004. Leases are granted solely
for the purpose of exploring for, developing and producing oil, gas and
other liquid and hydrocarbon minerals of like nature, and engaging in any
activities in reasonable connection with such operations. Lease terms are
generally three years with lease payments due annually unless drilling
commences during the year. 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" for further information on mineral
operations on Company lands.
I-3 -5-
ITEM 3 - LEGAL PROCEEDINGS
The Company, and in some cases one or more of its executive officers,
have been named in eight asbestos complaints filed since November 22, 1997
involving multiple plaintiffs. Six of the eight cases name multiple other
corporate defendants in addition to the Company. The complaints were filed
in Louisiana state court in either St. Mary Parish or East Baton Rouge
Parish. Plaintiffs allege personal injury arising out of alleged exposure
to asbestos. The complaints generally do not contain a specific damage
demand against the Company and there is not sufficient information in the
complaints to fully quantify the allegations set forth in the complaints.
Two of the cases have been settled by the Company for a total of $18,200.
There have been no material developments in the other cases with respect to
the Company since the cases were filed and no significant discovery has been
exchanged in these cases. While the Company believes that the remaining
cases are without merit, given the early stages of these cases the Company
cannot predict the outcome nor is it able to predict whether additional
cases will be filed.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2004.
I-4 -6-
PART II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of September 26, 2004 there were approximately 500 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 611 Irish Bend Road, Franklin, Louisiana 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. Company policy is to reinvest earnings
to expand and modernize the factory and it is unlikely that dividends will
be paid in the foreseeable future.
Range of Prices
------------------------
Fiscal 2004 High Low
------------- ------ ------
First Quarter $ 6.60 $ 6.25
Second Quarter 7.00 6.00
Third Quarter 8.00 6.01
Fourth Quarter 6.25 6.25
Fiscal 2003
-------------
First Quarter $ 6.00 $ 5.75
Second Quarter 5.76 5.75
Third Quarter 5.90 5.76
Fourth Quarter 6.00 5.90
ITEM 6 - SELECTED FINANCIAL DATA
Year ended July 31
-------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ------------ -----------
Revenues $37,016,357 $41,521,770 $44,466,585 $44,466,904 $49,958,679
Net Earnings
(Loss) $ 1,638,202 $(2,234,283) $ 991,792 $ 364,333 $ 916,003
Net Earnings
(Loss per
Share) $ .66 $ (.89) $ .40 $ .15 $ .37
Cash Dividends
Paid per
Share $ - $ - $ - $ - $ -
II-1 -7-
AT YEAR END:
Total assets $37,756,849 $30,440,865 $30,401,591 $28,805,114 $29,610,380
Long-term
Debt $ 4,306,491 $ 3,167,085 $ 3,830,100 $ 1,927,321 $ 7,013,888
Working
Capital $(1,959,807)$(3,650,422) $ (634,899) $(4,830,602) $( 663,079)
Stockholders'
Equity $17,960,193 $16,321,991 $18,556,274 $17,564,482 $17,200,149
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2004
----
QUARTER IV III II I
----------- ----------- ----------- -----------
Sugar and molasses sales $ 3,465,953 $ 2,777,637 $20,503,174 $ 6,422,358
Interest earned 3,971 5,423 3,870 920
Mineral leases and royalties 280,899 166,795 133,892 130,356
Gain (loss) on disposal of
assets 5,645 25,857 - -
Other 255,670 (11,201) 684,884 2,160,254
----------- ------------ ---------- -----------
4,012,138 2,964,511 21,325,820 8,713,888
----------- ----------- ----------- -----------
Cost of products sold 6,614,360 4,293,345 16,142,672 6,082,543
General and administrative 237,256 216,852 328,872 212,984
Interest expense 165,085 178,247 188,831 136,414
----------- ----------- ----------- -----------
7,016,701 4,688,444 16,660,375 6,431,941
----------- ----------- ----------- -----------
Net income (loss) before
income taxes (3,004,563) (1,723,933) 4,665,445 2,281,947
Income taxes (credit) (1,404,220) ( 655,095) 1,772,869 867,140
------------ ----------- ---------- -----------
Net income (loss) $(1,600,343) $(1,068,838) $ 2,892,576 $ 1,414,807
============ ============ =========== ===========
Net income (loss) per share $ (.64) $ (.43) $ 1.16 $ .57
============ ============ =========== ===========
Average shares outstanding 2,500,000 2,500,000 2,500,000 2,500,000
============ ============ =========== ===========
II-2 -8-
2003
----
QUARTER IV III II I
----------- ----------- ----------- -----------
Sugar and molasses sales $ 2,839,659 $ 5,686,946 $22,739,432 $ 8,440,926
Interest earned 2 1,333 - 781
Mineral leases and royalties 88,016 72,782 65,464 86,274
Gain (loss) on disposal of
assets (1,900) (631) 171,768 -
Other 23,143 71,154 798,251 438,370
----------- ------------ ---------- -----------
2,948,920 5,831,584 23,774,915 8,966,351
----------- ----------- ----------- -----------
Cost of products sold 4,758,287 8,250,659 19,921,672 10,348,164
General and administrative 357,089 158,815 266,958 259,767
Interest expense 89,534 113,116 112,876 81,306
----------- ----------- ----------- -----------
5,204,910 8,522,590 20,301,506 10,689,237
----------- ----------- ----------- -----------
Net income (loss) before
income taxes (2,255,990) (2,691,006) 3,473,409 (1,722,886)
Income taxes (credit) (604,806) (1,022,583) 1,319,896 ( 654,697)
------------ ----------- ---------- -----------
Net income (loss) $(1,651,184) $(1,668,423) $ 2,153,513 $(1,068,189)
============ ============ =========== ===========
Net income (loss) per share $ (.66) $ (.67) $ .86 $ (.43)
============ ============ =========== ===========
Average shares outstanding 2,500,000 2,500,000 2,500,000 2,500,000
============ ============ =========== ===========
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward -Looking Information
----------------------------
This Form 10-K contains certain statements that may be deemed
"forward-looking statements." All statements, other than historical
statements, in this Form 10-K that address activities, events or
developments that the Company intends, expects, projects, believes or
anticipates will or may occur in the future, are forward-looking statements.
Such statements are based on assumptions and analysis made by management of
the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors
it believes are appropriate. The forward-looking statements in the Form
10-K are also subject to a number of material risks and uncertainties,
including weather conditions in south Louisiana during the sugarcane
growing season, the success of sugarcane pest and disease abatement
procedures, the quality and quantity of the sugarcane crops, mechanical
failures at the Company's sugar mill, and prices for sugar and molasses
produced by the Company. Such forward-looking statements are not guarantees
of future performance and actual results. Development and business
decisions may differ from those envisioned by such forward-looking
statements.
II-3 -9-
Critical Accounting Policies
- ----------------------------
For a complete description of the Company's accounting policies, please
refer to Footnotes 1 and 2 to the financial statements.
Results of Operations
- ---------------------
Net income for the year ended July 31, 2004 was $1,638,202. The Company
suffered a loss of $2,234,283 for the year ended July 31, 2003. Earnings for
for the year ended July 31, 2002 were $991,792. The Company ground 901,639
tons of cane for the 2003 crop, 1.046,748 for the 2002 crop and 1,027,182
tons for the 2001 crop. Sugar yield per ton was 215 pounds per ton for the
2003 crop, 175 pounds per ton for the 2002 crop and 207 pounds per ton in
2001. Although sugarcane yield was down for the 2003 crop, sugar per ton
was up dramatically at 215 pounds compared to 175 pounds the previous year.
The dramatic reduction in yield for the 2002 crop was a direct result of
Tropical Storm Isadore and Hurricane Lili. The tropical storm hit this area
right before grinding started then the hurricane hit three days after
grinding had started. These storms severely damaged the cane. That, coupled
with excessive rainfall during the rest of the crop, was the primary cause
of the net loss for the year ended July 31, 2003.
The average price received for raw sugar for the past three (3) years
was 20.93 cents per pound for the 2003 crop, 20.68 cents per pound in 2002,
and 20.45 cents per pound in 2001. The slight increase in price along with
the higher yield resulted in a profitable year for the Company.
Average daily grinding rates remained about the same for the three
years. For the 2003 crop, the average daily grinding rate was 10,027 tons,
for 2002 9,985 and for 2001 10,727.
Income from mineral leases and royalties was $711,942 for the year
ended July 31, 2004, $312,536 and $519,857 for the previous two years,
respectively. The Company has a new well in St. Mary Parish brought in May,
2003 (Zenor A-16). The Company had not received any royalties from this well
as of July 31, 2003. Royalties totaled $596,782 from the Zenor A16 and
Sterling #1 well for the year ended July 31, 2004. The Company had income
of $115,160 and deferred lease income of $42,872 from two oil and gas leases
covering 662 acres. These leases will expire on November 4, 2004 unless
renewed by the lessees.
The company recognized a gain on the disposition of property and
equipment that amounted to $31,502 for the year ended July 31, 2004, a gain
of $169,237 for 2003 and a loss of $217,621 in 2002. The gain in 2004 was
principally from the sale of a sugar warehouse and the gain in 2003 was
mostly from the sale of land. The Company sold 1.955 acres in LaFourche
Parish which resulted in a gain of $107,385 and sold 291 acres in LaFourche
Parish netting a gain of $70,609. The Company sustained a loss on the sale
of equipment totaling $8,757. The loss for the year ending July 31, 2002 was
due to write-offs of obsolete equipment.
II-4 -10-
Other revenues generally consist primarily of miscellaneous income
items and cane land rental income. Other revenues were $3,089,607 for the
year ended July 31, 2004, $1,330,918 for 2003, and $1,702,370 for 2002.
These amounts include rental income (substantially all from cane land) of
$1,299,204, $1,166,320, $1,259,683 for 2003, 2002 and 2001 respectively.
Other revenues for the year ended July 31, 2004 also include a disaster
payment received or receivable from the Commodity Credit Corporation as
explained below.
Under the Agricultural Assistance Act of 2003, the Commodity
Credit Corporation (CCC) has been directed to pay $60,000,000 in
compensation to Louisiana sugarcane producers and processors
suffering economic losses from the effects of Tropical Storm
Isadore, Hurricane Lili and excessive rains in October, 2002.
Under the plan, the CCC paid, in October, 2003, the
processors a calculated portion of the total based on a
predetermined formula, less a 7% holdback for appeals purposes.
The processors paid the cane suppliers based on existing contracts
between the mills and the farmers. The 7% holdback will be
disbursed at the conclusion of the appeals process.
Management estimates the gross amount to be paid to the Company
to be $4,386,000 before the 7% holdback and payments to farmers of
65%. After farmer payments, the Company's portion of the proceeds
was $1,526,946. These amounts are before rentals to be received
from producers on Company owned land. These rentals, including the
7% holdback, are estimated to be $106,875 resulting in a total due
the Company of $1,633,821.
Cost of products sold for the year ended July 31, 2004, 2003 and 2002
was $33,132,920, $43,278,782, and $41,228,895 respectively. Charges relating
to the sale and manufacture of raw sugar and blackstrap molasses are charged
to this category of accounts. Sales were down substantially for the year
ended July 31, 2004 primarily because of the short crop. As would be
expected, cost of sales is also down substantially.
General and administrative expenses were $995,964 for the year ended
July 31, 2004. For the same period ending the previous two years, general
and administrative expenses were $1,042,629 and $959,335, respectively.
The higher cost in 2003 is almost entirely related to an increase in
the Company's portion of hospitalization cost. For 2004 and 2002, general
and administrative costs remained approximately the same.
Interest expenses were $668,577 for the year ended July 31, 2004,
$396,832 in 2003 and $685,800 in 2002. The increase in interest expense
over the previous year results from the average aggregate short-term
borrowings and weighted average interest rate shown in Footnote 3 to the
financial statements. These amounts were $7,655,617 for the year ended July
31, 2004, $2,331,640 for 2003 and $6,942,653 for 2002. The weighted average
interest rate for those years was 3.93% for 2004, 4.02% for 2003, and 4.41%
for 2002.
The Company recorded income taxes of $580,694 for the year ended July
31, 2004, a tax credit of $962,190 for the year ended July 31, 2003 and a
tax expense of $600,763 for 2002. Footnote 5 to the financial statements
explains in detail the differences in actual and statutory tax rates,
deferred taxes and tax carry forwards.
II-5 -11-
Off-Balance Sheet Arrangements and Contractual Obligations
----------------------------------------------------------
The Company does not enter into nor does it have any off-balance sheet
arrangements with third parties. Contractual obligations, other than in
the normal course of business, are limited to the Company's long-term debt.
Please refer to Footnote 3 and 4 to the financial statements for a detailed
schedule of current debt and future payments.
Liquidity and Capital Resources
-------------------------------
The current ratio at July 31, 2004 was .86 to 1 compared to .57 to 1
for the previous year. The lower current ratio in 2003 is generally
attributable to the loss for the year ended July 31, 2003. In addition, the
Company has installed a new boiler at a cost of approximately $3,459,148.
The boiler was put on line on October 17, 2003. Short-term borrowings were
used to finance a major portion of the cost of the new boiler. The
Company made arrangements with a bank and financed $3,000,000 of the cost
of the boiler long term. The Company continues to apply the proceeds from
oil and gas royalties to pay down principal on its long-term debt.
The Company reinvests earnings toward the modernization and
expansion of the factory believing this to be in the Company's best interest
for the long term. For the period February 1, 2004 to September 30, 2004,
the Company budgeted $3,848,550 for repairs and maintenance and $1,775,000
for capital improvements.
The Company has in place a line of credit with a bank for $12,000,000.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
II-6 -12-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 July 31, 2004 and 2003, and the related statements of
income and retained earnings and cash flows for each of the three
years in the period ended July 31, 2004. 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 the standards of the
Public Company Accounting Oversight Board (United States). 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 referred to above present
fairly, in all material respects, the financial position of Sterling Sugars,
Inc. as of July 31, 2004 and 2003, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 2004, in
conformity with accounting principles generally accepted in the United
States of America.
/s/ Broussard, Poche', Lewis & Breaux, L.L.P.
Lafayette, Louisiana
September 13, 2004
II-7 -13-
STERLING SUGARS, INC.
BALANCE SHEETS
JULY 31, 2004 AND 2003
ASSETS
CURRENT ASSETS:
2004 2003
------------ ------------
Cash $ 2,378 $ 1,110
Temporary cash investments 1,548,348 -
------------ ------------
Total cash and temporary cash investments 1,550,726 1,110
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 1,405,538 195,943
Raw sugar inventory - cost 7,661,336 1,935,312
Operating supplies - at cost 744,670 702,819
Deferred income taxes - 1,576,000
Prepaid expenses and other assets 504,470 415,183
------------ ------------
TOTAL CURRENT ASSETS 11,866,740 4,826,367
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 8,206,881 8,206,881
Buildings 3,732,326 3,732,326
Machinery and equipment 47,074,623 44,229,109
------------ ------------
59,013,830 56,168,316
Less accumulated depreciation 33,542,331 31,239,701
------------ ------------
25,471,499 24,928,615
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 56,344 50,583
Deferred Compensation Investment 27,222 -
Expenditures for future crops 106,870 379,654
Notes receivable, no allowance for
doubtful accounts considered necessary 228,174 255,646
------------ ------------
Total investments and other assets 418,610 685,883
------------ ------------
$37,756,849 $30,440,865
============ ============
See notes to financial statements
II-8 -14-
STERLING SUGARS, INC.
BALANCE SHEETS
JULY 31, 2004 AND 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2003
-------------- -------------
CURRENT LIABILITIES:
Notes payable $ 8,404,000 $ 4,207,023
Accounts payable and accrued expenses 420,446 1,449,124
Due to cane growers 3,872,774 2,202,392
Current portion of long-term debt
and capital leases 1,129,327 618,250
-------------- --------------
TOTAL CURRENT LIABILITIES 13,826,547 8,476,789
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 4,306,491 3,167,085
-------------- --------------
DEFERRED INCOME TAXES 1,663,618 2,475,000
-------------- --------------
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 15,419,738 13,781,536
------------ --------------
17,960,193 16,321,991
------------ --------------
$37,756,849 $30,440,865
============ ==============
See notes to financial statements
II-9 -15-
STERLING SUGARS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JULY 31,
-------------------------------------
2004 2003 2002
----------- ----------- -----------
REVENUES:
Sugar and molasses sales $33,169,122 $39,706,963 $42,458,071
Interest earned 14,184 2,116 3,908
Mineral leases and royalties 711,942 312,536 519,857
Gain (loss) on disposition of property
and equipment 31,502 169,237 (217,621)
Other 3,089,607 1,330,918 1,702,370
----------- ----------- -----------
37,016,357 41,521,770 44,466,585
----------- ----------- -----------
COST AND EXPENSES:
Cost of products sold 33,132,920 43,278,782 41,228,895
General and administrative 995,964 1,042,629 959,335
Interest and loan expenses 668,577 396,832 685,800
----------- ----------- -----------
34,797,461 44,718,243 42,874,030
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 2,218,896 ( 3,196,473) 1,592,555
INCOME TAXES (CREDIT) 580,694 ( 962,190) 600,763
----------- ----------- -----------
NET INCOME (LOSS) 1,638,202 ( 2,234,283) 991,792
RETAINED EARNINGS AT BEGINNING OF YEAR 13,781,536 16,015,819 15,024,027
----------- ----------- -----------
RETAINED EARNINGS AT END OF YEAR $15,419,738 $13,781,536 $16,015,819
=========== =========== ===========
WEIGHTED AVERAGE EARNINGS PER
COMMON SHARE:
Net income (Loss) $.66 ($.89) $.40
=========== ========== ===========
CASH DIVIDENDS PAID $ 0 $ 0 $ 0
=========== =========== ===========
See notes to financial statements
II-10 -16-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31,
--------------------------------------
2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,638,202 $ (2,234,283) $ 991,792
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation 2,589,338 1,975,176 2,043,711
Deferred income taxes 764,618 ( 980,000) 379,740
(Gain) loss on dispositions of property
and equipment ( 31,502) ( 169,237) 217,621
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (1,209,595) 1,085,599 (292,129)
(Increase) decrease in inventories (5,767,875) 529,478 (2,406,962)
(Increase) decrease in prepaid expenses ( 89,287) ( 34,882) 91,123
Increase (decrease) in accounts payable
and accrued expenses and due to cane
growers 641,704 1,990,204 695,836
Decrease in expenditures future crops 272,784 379,655 379,654
Other items - net (97,998) 77,339 102,230
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,289,611) 2,619,049 2,202,616
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (32,596) (63,928) (53,817)
Collection on notes receivable 60,068 56,508 88,605
Purchases of property, plant and
equipment (3,541,153) (3,227,642) (1,843,521)
Proceeds from dispositions of
property and equipment 505,448 634,610 70,185
------------ ----------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES (3,008,233) (2,600,452) (1,738,548)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 13,439,772 7,971,005 9,179,523
Payments on short-term notes
payable and long-term debt (7,592,312) (7,992,358) (9,673,674)
------------ ------------ -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 5,847,460 ( 21,353) ( 494,151)
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 1,549,616 ( 2,756) ( 30,083)
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 1,110 3,866 33,949
----------- ----------- -----------
(Continued)
II-11 -17-
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31,
------------------------------------
2004 2003 2002
------------ ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $1,550,726 $ 1,110 $ 3,866
============ =========== ===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $ 622,914 $ 398,323 $ 722,519
============ ============ ===========
INCOME TAXES PAID $ 80,495 $ 127,435 $ 132,591
============ ============ ===========
See notes to financial statements
II-12 -18-
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Sales are recognized when deliveries are made.
Cash equivalents include all highly liquid temporary cash investments
with a maturity of three months or less at the date of purchase.
Inventories consist of raw sugar, molasses, parts and supplies and
deferred crop expenditures for future crops. Parts and supplies are stated
at the lower of first-in, first-out (FIFO) cost or market. Expenditures
relating to the cost of growing crops are deferred and expensed as crops are
sold. Raw sugar is stated at lower of average cost or market. Molasses is
a by product of producing raw sugar and is stated at market value less
estimated disposal costs.
Receivables are written off using the direct method. This method does
not differ materially from that which is required for financial reporting
purposes. There were no trade receivables 90 days or more past due for
fiscal years ended July 31, 2004 and 2003.
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 institution, cash which
may exceed federally insured amounts at times.
II-13 -19-
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.
3. NOTES PAYABLE
The Company had $8,404,000 short-term outstanding notes payable at
July 31, 2004 and $4,207,023 short-term notes payable outstanding at
July 31, 2003.
The maximum aggregate short-term borrowings outstanding were $27,620,900
in 2004, $32,110,900 in 2003 and $32,005,668 in 2002. The average aggregate
amount of short-term borrowings and the weighted average interest rate was
approximately $7,655,617 and 3.93% in 2004, $2,331,640 and 4.02% in 2003,
and $6,942,653 and 4.41% in 2002.
4. LONG-TERM DEBT
Long-term debt at July 31, 2004 and 2003 consisted
of the following:
2004 2003
----------- -----------
6.50% note collateralized by equipment
payable in four annual payments of
$68,250 each, including interest with
final payment due in December, 2005. $ 123,416 $ 180,290
7.00% mortgage note collateralized by
substantially all assets of the Company;
payable in semi-annual payments of
$275,000, interest payable quarterly, with the
unpaid balance due December 31, 2006. $ 2,610,332 $ 3,605,045
5.75% mortgage note collateralized by
substantially all assets of the Company;
payable in semi-annual payments of $250,000,
interest payable quarterly, with the unpaid
balance due in September, 2009 $ 2,602,375 -
5.00% note payable annually with the unpaid
balance due in March, 2013 $ 99,695 -
------------ ------------
$ 5,435,818 $ 3,785,335
Less portion due within one year (1,129,327) (618,250)
------------ ------------
$ 4,306,491 $ 3,167,085
============ ============
II-14 -20-
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended July 31, 2005 $ 1,129,327
Year ended July 31, 2006 1,116,243
Year ended July 31, 2007 2,021,409
Year ended July 31, 2008 511,077
Year ended July 31, 2009 511,077
Thereafter 146,685
-------------
$ 5,435,818
=============
The Company has a line of credit of $12,000,000 with a bank. As of
July 31, 2004 and 2003 the Company had borrowed $8,404,000 and $4,207,023
respectively, against the line and was in compliance with all debt
covenants relating to the line of credit.
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 July 31, 2004 and 2003 are as follows:
2004 2003
------------ ------------
Deferred tax assets:
Tax credit carryforwards $ 153,257 $ 153,000
Operating loss carryovers 1,527,684 1,602,000
Other 10,230 -
------------ -------------
Total 1,691,171 1,755,000
------------ -------------
Deferred tax liabilities:
Differences between book and tax basis of
property (3,353,366) (2,654,000)
Other (1,423) -
------------ -------------
(3,354,789) (2,654,000)
----------- -------------
Net $(1,663,618) $( 899,000)
============ =============
The foregoing net amounts were included in the accompanying balance sheet
as follows:
2004 2003
------------ -----------
Deferred tax assets - Current $ - $ 1,576,000
Deferred tax liability - Non-current (1,663,618) (2,475,000)
------------ -----------
Net $(1,663,618) $( 899,000)
============ ===========
II-15 -21-
There was no valuation allowance required at July 31, 2004 and 2003.
Income taxes (benefits) consist of the following components:
2004 2003 2002
---------- ---------- -----------
Current tax liability $ 15,082 $ 17,810 $ 174,763
Deferred 565,612 ( 980,000) 426,000
---------- ---------- -----------
$ 580,694 $( 962,190) $ 600,763
========== ========== ===========
State income taxes included in income tax expense amounted to approximately
$15,082 in 2004, $0 in 2003 and $78,550 in 2002.
Deferred income taxes relate primarily to the following items:
2004 2003 2002
----------- ---------- -----------
Depreciation $ 699,126 $ 262,000 $ 426,000
Net operating loss carryforward 74,316 (1,242,000) -
Other (207,830) - -
----------- ---------- ------------
$ 565,612 $( 980,000) $ 426,000
=========== ========== ============
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:
2004 2003 2002
---------------- ------------ ---------------
Amount % Amount % Amount %
---------------- ------------ ---------------
Income taxes at statutory
rate of pretax earnings $ 754,425 34 (1,086,801)-34 $ 522,212 34
Increase (decrease) in taxes
resulting from:
State income taxes 15,082 1 0 0 78,551 5
Other items - net (188,813) -8 124,611 4 0 0
---------------- ------------- --------------
Actual income taxes $ 580,694 26 $ (962,190)-30 $ 600,763 39
================ ============== =============
At July 31, 2004 the Company had alternative minimum tax credit
carryforwards of approximately $153,257 available to reduce future income
taxes payable under certain circumstances. The alternative minimum tax
credit carryover period is unlimited. The Company had a net operating loss
carryover of approximately $4,065,151 of which $342,152 will expire in
2018 and $3,723,009 will expire in 2023.
II-16 -22-
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 July 31,
2004 was $0 and $70,000 for the year ended July 31, 2003. The plan
was fully funded for 2004 and no contributions were necessary.
Data relative to the Plan were as follows (in thousands):
July 31,
---------------------
2004 2003
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,303 $ 1,461
========== =========
Projected benefit obligation for service rendered
to date $ (1,857) $ (1,776)
Plan assets at fair value 1,634 1,630
---------- ---------
Plan assets in excess of projected benefit
obligation ( 223) ( 146)
Remaining unrecognized portion of net assets at
February 1, 1987 16 16
Unrecognized net loss from past experience
different from that assumed 94 74
---------- --------
Prepaid pension cost included in other assets $ ( 113) $( 56)
========== ========
The net pension expense for 2002, 2001 and 2000 included the
following (income) expense components:
2004 2003
--------- -------
Service cost - benefits earned during the period $ 27 $ 78
Interest cost on projected benefit obligation 93 109
Actual return on plan assets (73) (110)
Net amortization and deferrals (10) ( 10)
--------- -------
NET PENSION EXPENSE $ 37 $ 67
========= =======
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0% in 2004 and 6.25% in 2003. The
projected rate of increase in future compensation levels used was 3.0% in
2004 and 4.5% in 2003. The expected rate of return on plan assets was
7.0% in 2004 and 2003. The plan's assets consist primarily of deposits in
the general funds of an insurance company.
II-17 -23-
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 for the years ended July 31, 2004, 2003 and 2002
was $26,552, $32,215 and $42,221, respectively.
8. REVENUES
Sugar and molasses sales are comprised of the following:
2004 2003 2002
----------- ----------- -----------
Sugar $31,982,403 $38,375,874 $40,405,488
Molasses 1,186,719 1,331,089 2,052,583
----------- ----------- -----------
$33,169,122 $39,706,963 $42,458,071
=========== =========== ============
Sugar sales to individual major customers were $6,648,698, $17,805,033 and
$7,528,672 in 2004 and $2,298,791, $10,411,317 $10,155,535, $9,708,478 and
$5,801,753 in 2003 and $23,699,550, $10,663,573 and $5,866,641 in 2002.
Income from mineral leases and royalties is comprised of the following:
2004 2003 2002
--------- -------- ---------
Oil and gas royalties $596,782 $278,843 $485,186
Mineral leases 115,160 33,693 34,671
--------- -------- ---------
$711,942 $312,536 $519,857
========= ======== =========
A well was discovered on Company property and production began on May
3, 2000. The Company's share of production from the well as of July 31,
2003 was $278,843 and for July 31, 2002 $472,462. Production from the
well has declined substantially from the approximately $933,000 collected
for the year ended July 31, 2001. A new well was brought in on Company
property in May, 2003 named Zenor A-16. As of July 31, 2003, the Company
had not received royalties from production on the well. The Company began
receiving royalties on this well in the first quarter of 2004 hence the
increase for the current year in oil and gas royalties. Oil and gas
royalties consist entirely of landowners overrides which management
considers incidental to the operations of the Company. Reserve information
relating to production has not been made available to the Company.
Other revenues is comprised of the following:
2004 2003 2002
--------- --------- ---------
Rental property $1,299,204 $1,166,320 $1,259,683
Disaster payment 1,633,821 - -
Other 156,582 164,598 442,687
--------- ---------- ----------
$3,089,607 $1,330,918 $1,702,370
========== ========== ==========
II-18 -24-
9. COMMITMENTS AND CONTINGENCIES
The Company has certain lease obligations under which a total of
approximately 789 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 zero in all years. The subleases have
the same payment and option terms as the Company's leases.
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 years ended July 31, 2004, 2003 and 2002 the Company was
involved in the following related party transactions:
The Company reimbursed M. A. Patout & Son, Ltd. and Patout Equipment (a
subsidiary M. A. Patout & Son, Ltd) for certain expenses paid by
them on behalf of the Company and repairs to equipment made by Patout
Equipment. Reimbursements were $45,256 in 2004, $900,743 in 2003 and
$40,466 in 2002. In 2004, consulting fees were paid to two persons
totaling $44,766. Both persons are affiliated with M. A. Patout & Son,
Ltd. At July 31, 2004 M. A. Patout owed Sterling $11,461. The majority
of the reimbursements for 2003 were for differences in swapped raw sugar
sales whereby M. A. Patout sold and delivered sugar for the Company and
vice versa. The Company also purchased, in 2003, 589.85 acres of land
from M. A. Patout & Son, Ltd. at fair market value. In 2004, the Company
sold a sugar warehouse to M. A. Patout & Son, Ltd. at fair market value.
The price received for the warehouse was $505,448.
11. VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of the Company's financial instruments were as
follows (in thousands):
July 31, 2004 July 31, 2003
--------------- ---------------
Carrying Fair Carrying Fair
value value value value
--------- ---------- ------- ------
Cash and cash equivalents $ 1,551 $ 1,551 $ 1 $ 1
Accounts receivable 1,406 1,406 196 196
Notes receivable 228 178 256 200
Short-term debt 8,404 8,404 4,207 4,207
Accounts payable 420 420 1,449 1,449
Due to growers 3,873 3,873 2,202 2,202
Long-term debt (including current
portion) 5,436 5,436 3,785 3,785
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.
II-19 -25-
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.
ITEM 9 -CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A - CONTROLS AND PROCEDURES
Our management, with the participation of our principal executive
officer and principal financial officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) as of the end of the period covered by
this report. Based on such evaluation, our principal executive officer
and principal financial officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in recording,
processing, summarizing and reporting on a timely basis, information
required to be disclosed by us in reports that it files or submits under
the Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13-15(f) and 15d-15(f) under
the Exchange Act) during the fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
II-18 -26-
PART III
ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors required under this item is contained
in the registrant's Proxy Statement dated November 18, 2004 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 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 November 20, 2003, expires on the date of the annual stockholders
meeting in 2004, 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. 42
Rivers Patout* Vice President and General
Manager since February 16, 2003; Vice
President Property Development
March, 1998 - February 15, 2003 39
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. 69
*Rivers Patout is the son of William S. Patout, III, director of the Company.
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 November 18, 2004 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 November 18, 2004 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 November 18, 2004 under the captions "Voting Securities and
Principal Holders Thereof" and "Election of Directors," incorporated herein
by reference.
III-1 -27-
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the registrant's Proxy
Statement dated November 18, 2004 under the caption "Information Concerning
Management-Certain Transactions," incorporated herein by reference.
III-2 -28-
FORM 10-K
PART IV
ITEM 15-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 2004 and 2003)
Balance Sheets as of July 31, 2004 and 2003
Statements of Income and Retained Earnings for years ended
July 31, 2004, 2003, and 2002
Statements of Cash Flows for years ended July 31, 2004,
2003, and 2002
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 -29-
FORM 10-K
PART IV
(Continued)
(a) 3. Exhibits
Footnote
(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)
(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 -30-
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 (r)
(xx) Agricultural lease-Northside Planting (r)
(yy) Agricultural lease-S & S Farms (r)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (r)
(aaa) Lease Agreement-Myette Point Boat Landing (r)
(bbb) Lease Agreement-Myette Point Dock (r)
(ccc) Agricultural lease - Ellender Farms (s)
(ddd) Agricultural lease - Gravois Farms (s)
(II) Computation of earnings per share (*)
31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002 (*)
31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002 (*)
32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 (*)
(b) Reports on Form 8K
None
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 -31-
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*
(r) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1998*
(s) Incorporated by reference from registrant's Transition Form 10-K for the
six months ended July 31, 1998*
(*) Filed herewith
* Commission File Number 0-1287
IV-4 -32-
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 October 15, 2004 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 October 15, 2004
---------------------------
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
--------------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) October 15, 2004
/s/ Bernard E. Boudreaux Chairman of Board October 15, 2004
---------------------------
Bernard E. Boudreaux
/s/ Robert Patout Director October 15, 2004
---------------------------
Robert Patout
/s/ Peter V. Guarisco Director October 15, 2004
---------------------------
Peter V. Guarisco
/s/ James Keys Director October 15, 2004
---------------------------
James Keys
/s/ Victor Guarisco, II Director October 15, 2004
---------------------------
Victor Guarisco, II
/s/ William S. Patout, III Director October 15, 2004
---------------------------
William S. Patout, III
/s/ Frank William Patout Director October 15, 2004
----------------------------
Frank William Patout
IV-5 -33-
EXHIBIT II
STERLING SUGARS, INC.
COMPUTATION OF EARNINGS PER SHARE
Years Ended July 31,
---------------------------------
2004 2003 2002
---------------------------------
Primary
Income (Loss) $1,638,202 $(2,234,283) $ 991,792
============ ========= =========
Shares
Weighted average number of common
shares outstanding 2,500,000 2,500,000 2,500,000
---------- ----------- ----------
Primary earnings (loss) per share $.66 ($.89) $.40
========== =========== ==========
IV-6 -34-
EXHIBIT 31.1
CERTIFICATIONS
I, Craig P. Caillier, certify that:
1. I have reviewed this annual report on Form 10-K of Sterling Sugars,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report if being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
IV-7 -35-
Date: October 15, 2004
----------------
/s/ Craig P. Caillier
----------------------
Craig P. Caillier
President and Chief Executive Officer
EXHIBIT 31.2
I, Stanley H. Pipes, certify that:
1. I have reviewed this annual report on Form 10-K of Sterling Sugars,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report if being prepared;
b) Evaluated the effectiveness of the restrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
IV-8 -36-
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: October 15, 2004
----------------
/s/ Stanley H. Pipes
--------------------
Stanley H. Pipes
Vice President and Treasurer
(Principal Financial and Accounting Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Sterling Sugars, Inc.
(the "Company") on Form 10-K for the fiscal year ending July 31, 2004 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Craig P. Caillier, President and Chief Executive Officer
of the Company, and I, Stanley H. Pipes, Vice President and Treasurer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Craig P. Caillier
Date: October 15, 2004 ---------------------
Craig P. Caillier
President and Chief Executive Officer
Date: October 15, 2004 /s/ Stanley H. Pipes
____________________
Stanley H. Pipes
Vice President & Treasurer
IV-9 -37-
INDEX TO EXHIBITS
(10) Material Contracts
None
Page
(II) Computation of Earnings per Common Share 34
(31.1) Certification 35
(31.2) Certification 36
(32.1) Certification 37
IV-10 -38-