UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
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 0-16567
Sanderson Farms, Inc.
(Exact name of registrant as specified in its charter)
Mississippi 64-0615843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 North Thirteenth Avenue Laurel, Mississippi 39440
(Address of principal executive offices) (Zip Code)
(601) 649-4030
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
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 periods that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90
days.
Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 Per Share Par Value-----13,613,080 shares
outstanding as of July 31, 1995.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--July 31, 1995 and
October 31, 1994
Condensed consolidated statements of income--Three months
ended July 31, 1995 and 1994; Nine months ended
July 31, 1995 and 1994
Condensed consolidated statements of cash flows--Nine months
ended July 31, 1995 and 1994
Notes to condensed consolidated financial statements--July 31,
1995
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
1995 1994
(Unaudited) (Note)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 1,795 $ 4,125
Accounts receivable, net 20,462 18,986
Inventories - Note 2 32,192 29,375
Other current assets 4,258 3,293
Total current assets 58,707 55,779
Property, plant and equipment 219,113 202,877
Less accumulated depreciation (89,885) (78,110)
129,228 124,767
Other assets 866 1,163
Total assets $188,801 $181,709
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 12,283 $ 9,859
Current maturities of long-
term debt 226 77
Total current liabilities 12,509 9,936
Long-term debt, less current 56,950 56,176
maturities - Note 5
Deferred income taxes 9,410 9,410
Stockholders' equity - Note 4
Preferred Stock:
Series A Junior Participating
Preferred Stock, $100 par value:
authorized 500,000 shares; none
issued
Par value to be determined by the
Board of Directors: authorized
4,500,000 shares; none issued
Common Stock, $1 par value: authorized
100,000,000 shares; issued and
outstanding shares - 13,613,080 13,613 9,075
Paid-in capital 2,871 7,410
Retained earnings 93,448 89,702
Total stockholders' equity 109,932 106,187
Total liabilities and stockholders' equity $188,801 $181,709
NOTE: The balance sheet at October 31, 1994 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net sales $101,195 $ 99,382 $281,213 $272,363
Cost and expenses:
Cost of sales 92,237 86,428 257,517 243,869
Selling, general and
administrative 4,268 3,750 11,659 11,008
96,505 90,178 269,176 254,877
OPERATING INCOME 4,690 9,204 12,037 17,486
Other income (expense):
Interest income 44 29 125 71
Interest expense (985) (989) (2,834) (2,700)
Other (90) 50 (90) 188
(1,031) (910) (2,799) (2,441)
INCOME BEFORE INCOME TAXES 3,659 8,294 9,238 15,045
Income tax expense 1,354 3,119 3,450 5,643
NET INCOME $ 2,305 $ 5,175 $ 5,788 $ 9,402
Earnings per share $ .17 $ .38 $ .43 $ .69
Dividends per share $ .05 $ .05 $ .15 $ .15
Weighted average shares
outstanding 13,613,080 13,613,080 13,613,080 13,613,080
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
July 31,
1995 1994
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 5,788 $ 9,402
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,663 11,518
Change in assets and liabilities:
(Increase) in accounts
receivable (1,476) (2,535)
(Increase) in inventories (2,817) (5,295)
(Increase) in other assets (936) ( 822)
Increase in accounts payable and
accrued expenses 2,424 8,069
Total adjustments 10,858 10,935
Net cash provided by operating activities 16,646 20,337
Investing activities
Net proceeds from sale of equipment 238 14
Capital expenditures (18,094) (19,568)
Net cash used in investing activities (17,856) (19,554)
Financing activities
Principal payments on long-term debt (77) (73)
Net borrowings (payments) under revolving
line of credit 1,000 (1,000)
Dividends paid (2,043) (2,042)
Net cash used in
financing activities (1,120) (3,115)
Net decrease in cash and temporary
cash investments (2,330) (2,332)
Cash and temporary cash investments
at beginning of period 4,125 3,979
Cash and temporary cash investments
at end of period $ 1,795 $ 1,647
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1995
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments consisting of normal
recurring accruals considered necessary for a fair presentation have
been included. Operating results for the nine month period ended July
31, 1995, are not necessarily indicative of the results that may be
expected for the year ending October 31, 1995. For further information,
reference is made to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the
year ended October 31, 1994.
NOTE 2--INVENTORIES
The components of inventory consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
(In thousands)
<S> <C> <C>
Live poultry-broilers and breeders $17,687 $16,453
Feed, eggs and other 4,532 3,795
Processed poultry 3,786 3,005
Processed food 3,839 4,149
Packaging materials 2,348 1,973
$32,192 $29,375
</TABLE>
NOTE 3--INCOME TAXES
Deferred income taxes relate principally to cash basis temporary
differences and depreciation expense which are accounted for differently
for financial and income tax purposes. Effective November 1, 1988, the
Company could no longer use cash basis accounting for its farming
subsidiary because of tax law changes. The taxes on the cash basis
temporary differences as of that date will not be payable under current
tax laws provided there are no changes in ownership control and future
annual revenues exceed 1988 revenues. Management does not anticipate
the payment of such taxes related to these cash basis temporary
differences during fiscal 1995.
NOTE 4-COMMON STOCK
During the quarter ended January 31, 1995, the Company's Board of
Directors declared a 3 for 2 stock split effected in the form of a stock
dividend. All share and per share data presented herein have been
restated for the effect of the stock split.
<PAGE>
NOTE 5-CREDIT FACILITY
The Company amended its existing revolving credit agreement with four
banks to, among other things, increase the available credit thereunder
from $70.0 million to $100.0 million effective April 17, 1995. The
revolver has been extended to fiscal 1998, when the outstanding
borrowings may be converted to a term loan payable over four years.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's poultry operations are integrated through its control of
all functions relative to the production of its chicken products,
including hatching egg production, hatching, feed manufacturing, raising
chickens to marketable age ("grow out"), processing, and marketing.
Consistent with the industry, its profitability is substantially
impacted by the market price for finished product and feed grains, both
of which may fluctuate substantially and exhibit cyclical
characteristics typically associated with commodity markets. Other
costs, excluding feed, related to the profitability of its poultry
operations, including hatching egg production, hatching, growing, and
processing cost, are responsive to efficient cost containment programs
and management practices.
The Company believes that value-added products are subject to less price
volatility and generate higher, more consistent profit margins than
whole chickens ice packed and shipped in bulk form. To reduce its
exposure to market cyclicality that has historically characterized
commodity chicken sales, the Company has increasingly concentrated on
the production and marketing of value-added product lines with emphasis
on product quality, customer service and brand recognition. The Company
adds value to its poultry products by performing one or more processing
steps beyond the stage where the whole chicken is first saleable as a
finished product, such as cutting, deep chilling, packaging and labeling
the product. The Company believes that one of its major strengths is
its ability to change its product mix to meet
customer demands.
The Company's processed and prepared foods product line includes over
100 institutional and consumer packaged food items that it sells
nationally and regionally, primarily to distributors, food service
establishments and retailers. A majority of the prepared food items are
made to the specifications of food service users.
Results of Operations
Net sales for the quarter ended July 31, 1995 increased $1.8 million or
1.8% as compared to the quarter ended July 31, 1994. Net sales of
poultry products increased $1.2 million or 1.4% during the three months
ended July 31, 1995 as compared to the same period during fiscal 1994.
The increase in the net sales of poultry products resulted from an
increase in the pounds of poultry products sold of 6.3%, while the
average sales price of poultry products decreased 4.6%. Market prices
for poultry, as measured by the Georgia dock price, ranged from a low of
$.5125 to a high of $.5675 during the third quarter of fiscal 1995, as
compared to a low of $.5625 to a high of $.6025 during the third quarter
of fiscal 1994. A simple average of the Georgia dock prices for whole
birds for the third quarter of fiscal 1995 decreased 8.3% as compared to
the same quarter during fiscal 1994. The prepared foods operation
reported an increase in the average sale price of prepared food products
of 2.9% and a corresponding increase in the pounds of prepared food
products sold of 1.8% during the third quarter of fiscal 1995 as
compared to the third quarter of fiscal 1994.
<PAGE>
For the nine months ended July 31, 1995, net sales increased $8.9
million or 3.2% as compared to the nine months ended July 31, 1994. The
increase in net sales was due to a 7.6% increase in the pounds of
products sold, while the average sale price of products sold decreased
4.0%. For the first nine months of fiscal 1995 as compared to the first
nine months of fiscal 1994 the pounds of poultry products sold increased
8.2%, while the average sale price of poultry products decreased 4.6%.
A simple average of the Georgia dock prices for whole birds for the nine
months ended July 31, 1995 decreased 6.4% as compared to the nine months
ended July 31, 1994. For the nine months ended July 31, 1995, the prepared
foods operations reported a decrease in the pounds of prepared food
products sold of 1.3% and an increase in the average sale price of
prepared food products of 5.0%.
Cost of sales for the third quarter of fiscal 1995 increased $5.8
million or 6.7%, as compared to the same period during fiscal 1994.
Cost of sales of poultry products for the three months ended July 31,
1995, increased $5.8 million or 7.7% as compared to the three months
ended July 31, 1994. The increase in cost of sales of poultry products
resulted from increases in the pounds of poultry products sold and
higher average feed grain prices. A simple average of the corn and
soybean meal cash market prices reflected an increase of 7.5% and a
decrease of 13.5%, respectively, during the third quarter of fiscal 1995
as compared to the third quarter of fiscal 1994. For the three months
ended July 31, 1995, the average cost of sales per pound of prepared
foods products decreased 1.7% as compared to the three months ended July
31, 1994.
Cost of sales increased $13.6 million or 5.6% during the nine months
ended July 31, 1995 as compared to the nine months ended July 31, 1994.
Cost of sales of poultry products increased $13.8 million or 6.6% during
the first nine months of fiscal 1995 as compared to the first nine
months of fiscal 1994. The increase in cost of sales of poultry
products resulted from the additional pounds of poultry products sold
which were partially offset by lower costs of feed grains. A simple
average of the corn and soy meal cash market prices for the nine months
ended July 31, 1995 reflected decreases of 7.8% and 18.4%, respectively.
Cost of sales of prepared food products decreased $.2 million or .6%
during the first nine months of fiscal 1995 as compared to the first
nine months of fiscal 1994.
For the third quarter of fiscal 1995 as compared to the third quarter of
fiscal 1994 the Company's gross profit was adversely affected by lower
prices for poultry products and higher average cost of feed grains. For
the nine months ended July 31, 1995 as compared to the nine months ended
July 31, 1994 the positive effect of lower costs of feed grains on the
Company's gross profit was more than offset by the lower sale prices of
poultry products.
Selling, general and administrative expenses increased $.5 million or
13.8% during the third quarter of fiscal 1995 as compared to the third
quarter of fiscal 1994. For the nine months ended July 31, 1995,
selling, general and administrative expenses increased $.7 million or
5.9% as compared to the same period during fiscal 1994. Selling,
general and administrative expenses remained at approximately 4.0% of
net sales for the first nine months of fiscal 1995 as compared to the
first nine months of fiscal 1994.
Interest expense for the three months and the nine months ended July 31,
1995 was approximately the same as compared to the three months and the
nine months ended July 31, 1994.
<PAGE>
For the third quarter of fiscal 1995 the Company's effective tax rate
was 37.0% as compared to 37.6% for the third quarter of fiscal 1994.
The Company's effective tax rate for the nine months ended July 31, 1995
was 37.3% as compared to 37.5% for the same period during fiscal 1994.
Liquidity and Capital Resources
On July 31, 1995, the Company's working capital was $46.2 million and
its current ratio was 4.7 to 1 as compared to working capital of $45.8
million and a current ratio of approximately 5.6 to 1 at October 31,
1994. During the nine months ended July 31, 1995, the Company expended
$18.1 million on planned capital projects. The Company's outstanding
debt on its $100.0 million revolving credit agreement was $31.0 million
at July 31, 1995.
As of July 31, 1995, the Company's capital budget for fiscal 1995 has
been increased to $30.0 million from $23.2 as of October 31, 1994. This
increase of $6.8 million pertains to items not approved at the end of
the fiscal year pending justification, field trial and alternate
costing.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report
(15)Letter re: Unaudited financial information
(b) The Company is a party of various agreements defining
the rights of holders of long-term debt of the Company,
but no single agreement authorized securities in an
amount which exceeds 10% of the total assets of the
Company. Upon request of the Commission, the Company
will furnish a copy of such agreements to the Commission.
Such agreements are therefore omitted as exhibits as
permitted by Item 601(b)(4)(v) of Regulation S-K.
(c) The Company did not file any reports on Form 8-K during
the three months ended July 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
_____ SANDERSON FARMS, INC. _______
(Registrant)
Date: August 24, 1995 By: D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: August 24, 1995 By: James A. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
<PAGE>
EXHIBIT 15
INDEPENDENT AUDITORS' REPORT ON REVIEW OF INTERIM
FINANCIAL INFORMATION
Shareholders and
Board of Directors
Sanderson Farms, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
of Sanderson Farms, Inc. and subsidiaries as of July 31, 1995, and the
related condensed consolidated statements of income for the three-month
and nine-month periods ended July 31, 1995 and 1994, and the condensed
consolidated statements of cash flows for the nine-month periods ended
July 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, which will be performed for the full year with the
objective of expressing an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Sanderson Farms, Inc. and
subsidiaries as of October 31, 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the year
then ended (not presented herein) and in our report dated December 15,
1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of October 31,
1994, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Jackson, Mississippi
August 24, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 1795
<SECURITIES> 0
<RECEIVABLES> 2462
<ALLOWANCES> 121
<INVENTORY> 32192
<CURRENT-ASSETS> 58707
<PP&E> 219113
<DEPRECIATION> 89885
<TOTAL-ASSETS> 188801
<CURRENT-LIABILITIES> 12509
<BONDS> 56950
<COMMON> 13613
0
0
<OTHER-SE> 96319
<TOTAL-LIABILITY-AND-EQUITY> 188801
<SALES> 101195
<TOTAL-REVENUES> 101195
<CGS> 92237
<TOTAL-COSTS> 92237
<OTHER-EXPENSES> 4268
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 985
<INCOME-PRETAX> 3659
<INCOME-TAX> 1354
<INCOME-CONTINUING> 2305
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2305
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
