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 April 30, 1996
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 April 30, 1996.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--April 30, 1996 and
October 31, 1995
Condensed consolidated statements of income (loss)--Three months
ended April 30, 1996 and 1995; Six months ended April 30, 1996
and 1995
Condensed consolidated statements of cash flows--Six months ended
April 30, 1996 and 1995
Notes to condensed consolidated financial statements--
April 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1996 1995
(Unaudited) (Note)
(In thousands)
<C> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 768 $ 447
Accounts receivables, net 25,283 22,624
Inventories - Note 2 39,004 33,275
Other current assets 7,604 4,619
Total current assets 72,659 60,965
Property, plant and equipment 244,262 226,204
Less accumulated depreciation (103,868) (94,873)
140,394 131,331
Other assets 684 901
Total assets $213,737 $193,197
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 14,041 $13,134
Current maturities of long-
term debt 3,090 226
Total current liabilities 17,131 13,360
Long-term debt, less current maturities 76,468 54,806
Deferred income taxes 10,712 10,712
Stockholders' equity
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 13,613
Paid-in capital 2,871 2,871
Retained earnings 92,942 97,835
Total stockholders' equity 109,426 114,319
Total liabilities and stockholders' equity $213,737 $193,197
</TABLE>
NOTE: The balance sheet at October 31, 1995 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.
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<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
(In thousands, except shares and per share data)
<S> <C> <C> <C> <C>
Net sales $110,719 $ 92,449 $214,473 $180,018
Cost and expenses:
Cost of sales 109,466 84,808 209,464 165,280
Selling, general and
administrative 4,486 4,058 8,516 7,391
113,952 88,866 217,980 172,671
OPERATING INCOME (LOSS) (3,233) 3,583 (3,507) 7,347
Other income (expense):
Interest income 31 38 75 81
Interest expense (1,159) (937) (2,168) (1,849)
Other (32) 35 (74) -0-
(1,160) (864) (2,167) (1,768)
INCOME (LOSS) BEFORE
INCOME TAXES (4,393) 2,719 (5,674) 5,579
Income tax expense (benefit) (1,659) 1,016 (2,142) 2,096
NET INCOME (LOSS) $ (2,734) $ 1,703 $ (3,532) $ 3,483
Earnings (loss) per share $ (.20) $ .13 $ (.26) $ .26
Dividends per share $ .05 $ .05 $ .10 $ .10
Weighted shares outstanding 13,613,080 13,613,080 13,613,080 13,613,080
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
April 30,
1996 1995
(In thousands)
<S> <C> <C>
Operating activities
Net income (loss) $(3,532) $ 3,483
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 9,931 8,908
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (2,659) 546
Increase in inventories (5,729) (1,409)
Increase in other assets (2,916) (736)
Increase (decrease) in accounts payable
and accrued expenses 907 (583)
Total adjustments (466) 6,726
Net cash provided by (used in)
operating activities (3,998) 10,209
Investing activities
Net proceeds from sale of equipment 32 136
Capital expenditures (18,878) (9,847)
Net cash used in investing activities (18,846) (9,711)
Financing activities
Principal payments on long-term debt (81) (77)
Additional long-term borrowings 107 -0-
Net borrowings under revolving
line of credit 24,500 -0-
Dividends paid (1,361) (1,362)
Net cash provided by (used in)
financing activities 23,165 (1,439)
Net increase in cash and temporary
cash investments 321 (941)
Cash and temporary cash investments
at beginning of period 447 4,125
Cash and temporary cash investments
at end of period $ 768 $ 3,184
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
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SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 1996
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 six month
period ended April 30, 1996, are not necessarily indicative of the results
that may be expected for the year ending October 31, 1996. 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, 1995.
NOTE 2--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
(In thousands)
<S> <C> <C>
Live poultry-broilers and breeders $23,086 $18,484
Feed, eggs and other 5,941 4,974
Processed poultry 4,354 3,999
Processed food 3,360 3,578
Packaging materials 2,263 2,240
$39,004 $33,275
</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 1996.
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following Discussion and Analysis should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1995.
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
poultry industry, the Company's profitability is substantially impacted by the
market prices for its finished products and the cost of feed grains, both of
which may fluctuate substantially and exhibit cyclical characteristics
typically associated with commodity markets. Other costs, excluding feed
grains, related to the profitability of the Company's poultry operations,
including hatching egg production, hatching, growing, and processing costs,
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
market prices, 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. Nevertheless, market prices continue
to have a significant influence on prices of the Company's chicken products.
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
For the second quarter of fiscal 1996, net sales increased $18.3 million or
19.8% as compared to the second quarter of fiscal 1995. Net sales of poultry
products increased $16.7 million or 20.8% during the second quarter of fiscal
1996 as compared to the second quarter of fiscal 1995. The increase in net
sales of poultry products resulted from an increase in the pounds of poultry
products sold of 16.4% and an increase of 3.8% in the average sales price of
poultry products. The increase in pounds of poultry products sold was
attributable primarily to the addition during the second quarter of fiscal
1996 of a second shift to one line of the Company's Pike County, Mississippi
processing plant. Market prices for finished poultry products, as measured by
the Georgia dock prices, ranged from a low of $.5500 per pound to a high of
$.5825 during the second quarter of fiscal 1996, as compared to a low of
$.5125 per pound to a high of $.5200 in the second quarter of fiscal 1995.
For the second quarter of fiscal 1996 as compared to the second quarter of
fiscal 1995, net sales of prepared foods products increased $1.6 million or
13.3%.
For the six months ended April 30, 1996, net sales increased $34.5 million or
19.1% as compared to the six months ended April 30, 1995. The increase in net
sales was due to a 13.3% increase in the pounds of products sold and an
increase in the average sales price of products sold of 5.2%. During the
first half of fiscal 1996 as compared to the first half of fiscal 1995 the
pounds of poultry products sold increased 14.1%, while the average sales price
of poultry products increased 7.5%. For the first six months of fiscal 1996
as compared to the first half of fiscal 1995, net sales of prepared foods were
substantially unchanged. For the six months ended April 30, 1996, the
prepared foods operations reported a increase in the pounds of prepared food
products sold of 1.3% and a decrease in the average sales price of prepared
food products of 2.2%.
For the second quarter of fiscal 1996 as compared to the second quarter of
fiscal 1995, cost of sales increased $24.7 million or 29.1%. Cost of sales of
poultry products increased $23.6 million or 31.7% during the second quarter of
fiscal 1996 as compared to the second quarter of fiscal 1995. The increase in
cost of sales of poultry products was a result of an increase in pounds of
poultry products sold of 16.4% and an increase in the cost of feed grains. A
simple average of the corn and soy meal cash market prices for the second
quarter of fiscal 1996 reflected increases of 60.6% and 47.5%, respectively,
when compared to the same period a year ago. Cost of sales of prepared food
products increased $1.1 million or 10.3% during the three months ended April
30, 1996 as compared to the three months ended April 30, 1995.
Cost of sales for the six months ended April 30, 1996, increased $44.2 million
or 26.7% as compared to the same period during fiscal 1995. Cost of sales of
poultry products increased $43.6 million or 30.4% during the first half of
fiscal 1996 as compared to the first half of fiscal 1995. The increase in
cost of sales of poultry products resulted from the additional pounds of
poultry products sold and an increase in the cost of feed grains. A simple
average of the corn and soy meal cash market prices for the six months ended
April 30, 1996 reflected an increase of 53.6% and 43.5%, respectively, when
compared to the six months ended April 30, 1995. During the six months ended
April 30, 1996 as compared to the six months ended April 30, 1995, cost of
sales of prepared food products sold increased $.6 million or 2.6%, primarily
as a result of an increase in pounds of prepared foods sold of 1.3%.
During the second quarter of fiscal 1996 the Company's operating income
decreased $6.8 million when compared to the second quarter of fiscal 1995.
During the first half of fiscal 1996 the Company's operating income decreased
$10.9 million when compared to the first half of fiscal 1995. Although
market prices for poultry products were higher during the second quarter and
the first half of fiscal 1996, the cost of feed grains was substantially
higher and reduced operating margins.
The Company anticipates the average cost of feed grains will continue to
increase during the third quarter of fiscal 1996, resulting in substantially
higher feed grain costs when compared to the third quarter of fiscal 1995.
The impact of higher feed grain prices during the second quarter of fiscal
1996, together with anticipated higher feed grain costs during the third
quarter of fiscal 1996, are expected to increase the Company's cost of sales
as these higher ingredient costs flow through inventories. The Company is
unable to predict what impact these higher costs will have on the Company's
operating income, since the Company's operating income is also dependent upon
the market prices for finished poultry products. The market prices for
finished poultry products as measured by the Georgia Dock prices have been
higher, on average, during May 1996 when compared to May 1995, although these
prices may not be indicative of the average price for poultry products for the
third quarter of fiscal 1996.
Selling, general and administrative expenses increased $.4 million or 10.6%
during the quarter ended April 30, 1996 as compared to the quarter ended April
30, 1995. For the six months ended April 30, 1996, selling, general and
administrative expenses increased $1.1 million or 15.2% as compared to the
same period during fiscal 1995. The increase in selling, general and
administrative expenses resulted primarily from increased advertising
expenses.
Interest expense increased $.2 million during the second quarter of fiscal
1996 as compared to the second quarter of fiscal 1995. For the first six
months of fiscal 1996, interest expense increased $.3 million as compared to
the same six months of fiscal 1995. The increase in interest expense resulted
primarily from additional long-term borrowings.
The Company's effective tax rate for the three months ended April 30, 1996 was
37.8% as compared to 37.4% during the same period in fiscal 1995. For the six
months ended April 30, 1996, the Company's effective tax rate was 37.8% as
compared to 37.6% during the first half of fiscal 1995.
Liquidity and Capital Resources
The Company's working capital on April 30, 1996 was $55.5 million and its
current ratio was 4.2 to 1 as compared to working capital of $47.6 million and
a current ratio of approximately 4.6 to 1 at October 31, 1995. During the
quarter ending April 30, 1996 the Company invested $18.9 million on planned
capital projects, including approximately $12.0 million on the new poultry
complex in Texas.
The fiscal 1996 capital budget, as of April 30, 1996, has been increased to
$47.6 million from $46.1 million. The increase of $1.5 million pertains to
items not approved at the beginning of fiscal 1996 pending justification,
field trial and alternate costing. Capital expenditures are primarily for
completion of a new poultry complex in Brazos and Robertson Counties, Texas.
The Company's foreseeable cash needs for operations and capital expenditures
are expected to continue to be met through cash flows from operations and
borrowings under the Company's revolving credit agreement. The Company's
revolving credit agreement ($46.4 million available at April 30, 1996) and
term loan agreement ($20 million borrowed at April 30, 1996) contain various
covenants, including a requirement that the Company's debt to capitalization
ratio not exceed 55%, and other covenants that require maintenance of a
minimum tangible net worth, minimum working capital and minimum current ratio.
The Company is in compliance with these covenants.
Recently Issued Accounting Standards
The Company has not adopted FAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed," nor determined whether
to adopt FAS 123, "Accounting for Stock-based Compensation" as of April 30,
1996. Management does not believe that the effect on the Company's financial
position and operations will be material when or if adopted.
<PAGE>
<TABLE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the 1996 Annual Meeting of Shareholders of Sanderson Farms, Inc.
held February 22, 1996, the shareholders elected the following persons to the
Company's Board of Directors by the votes indicated below:
Name For Withheld
<CAPTION>
<S> <C> <C>
Phil K. Livingston 12,699,779 14,835
Charles W. Ritter, Jr. 12,699,929 14,685
Joe F. Sanderson, Jr. 12,655,379 59,235
</TABLE>
By a vote of 12,732,434 for, 6,060 against, and 6,803 abstaining,
the shareholders ratified the Board's selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending October 31, 1996.
No other items were voted upon at the annual shareholders' meeting
or during the quarter ended April 30, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report
Exhibit 15a Independent Accountants' Review Report
Exhibit 15b Accountants' Letter re: unaudited financial
information
(b) The Company is a party to an agreement that defines the rights
of holders of long-term debt of the Company, but such agreement does not
authorize 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 agreement to the Commission. Such agreement is therefore omitted as
an exhibit 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 April 30, 1996.
<PAGE>
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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: May 28, 1996 By: /s/D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: May 28, 1996 By: /s/James A. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
<PAGE>
<PAGE>
EXHIBIT 15a
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
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 April 30, 1996, and the related
condensed consolidated statements of income (loss) for the three-month and
six-month periods ended April 30, 1996 and 1995, and the condensed
consolidated statements of cash flows for the six-month periods ended April
30, 1996 and 1995. 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 have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Sanderson Farms, Inc. and
subsidiaries as of October 31, 1995, 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 8, 1995, 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, 1995, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Jackson, Mississippi
May 24, 1996
<PAGE>
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EXHIBIT 15b
Shareholders and Board of Directors
Sanderson Farms, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8) of Sanderson Farms, Inc. for the registration of 500,000 shares
Of its common stock of our report dated May 24, 1996 relating to the unaudited
condensed consolidated interim financial statements of Sanderson Farms, Inc.
that are included in its Form 10-Q for the quarter ended April 30, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Jackson, Mississippi
May 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 768
<SECURITIES> 0
<RECEIVABLES> 25283
<ALLOWANCES> 148
<INVENTORY> 39004
<CURRENT-ASSETS> 72659
<PP&E> 244262
<DEPRECIATION> 103868
<TOTAL-ASSETS> 213737
<CURRENT-LIABILITIES> 17131
<BONDS> 76468
<COMMON> 13613
0
0
<OTHER-SE> 95813
<TOTAL-LIABILITY-AND-EQUITY> 213737
<SALES> 110719
<TOTAL-REVENUES> 110719
<CGS> 109466
<TOTAL-COSTS> 109466
<OTHER-EXPENSES> 4486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1159
<INCOME-PRETAX> (4393)
<INCOME-TAX> (1659)
<INCOME-CONTINUING> (2734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2734)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
