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, 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-----14,363,080 shares
outstanding as of July 31, 1996.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--July 31, 1996 and
October 31, 1995
Condensed consolidated statements of income--Three months
ended July 31, 1996 and 1995; Nine months ended
July 31, 1996 and 1995
Condensed consolidated statements of cash flows--Nine months
ended July 31, 1996 and 1995
Notes to condensed consolidated financial statements--July 31,
1996
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,
1996 1995
(Unaudited) (Note)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 4,340 $ 447
Accounts receivable, net 28,154 22,624
Inventories - Note 2 42,172 33,275
Other current assets 7,770 4,619
Total current assets 82,436 60,965
Property, plant and equipment 259,934 226,204
Less accumulated depreciation (108,468) (94,873)
151,466 131,331
Other assets 941 901
Total assets $234,843 $193,197
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 17,138 $ 13,134
Current maturities of long-
term debt 3,090 226
Total current liabilities 20,228 13,360
Long-term debt, less current
maturities - Note 4 86,767 54,806
Deferred income taxes 10,712 10,712
Stockholders' equity - Note 5
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 - 14,363,080 shares
in 1996 and 13,613,080 in 1995 14,363 13,613
Paid-in capital 11,292 2,871
Retained earnings 91,481 97,835
Total stockholders' equity 117,136 114,319
Total liabilities and stockholders' equity $234,843 $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.
<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net sales $116,419 $101,195 $330,892 $281,213
Cost and expenses:
Cost of sales 111,803 92,237 321,267 257,517
Selling, general and
administrative 4,286 4,268 12,802 11,659
116,089 96,505 334,069 269,176
OPERATING INCOME(LOSS) 330 4,690 (3,177) 12,037
Other income (expense):
Interest income 32 44 107 125
Interest expense (1,471) (985) (3,639) (2,834)
Other (70) (90) (144) (90)
(1,509) (1,031) (3,676) (2,799)
INCOME (LOSS) BEFORE
INCOME TAXES (1,179) 3,659 (6,853) 9,238
Income tax expense (benefit) (436) 1,354 (2,578) 3,450
NET INCOME (LOSS) $ (743) $ 2,305 $ (4,275) $ 5,788
Earnings (loss) per share $ (.05) $ .17 $ (.31) $ .43
Dividends per share $ .05 $ .05 $ .15 $ .15
Weighted average shares
outstanding 13,776,123 13,613,080 13,667,825 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,
1996 1995
(In thousands)
<S> <C> <C>
Operating activities
Net income (loss) $(4,275) $ 5,788
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,862 13,663
Change in assets and liabilities:
(Increase) in accounts
receivable (5,530) (1,476)
(Increase) in inventories (8,897) (2,817)
(Increase) in other assets (3,372) ( 936)
Increase in accounts payable and
accrued expenses 4,004 2,424
Total adjustments 1,067 10,858
Net cash provided by (used in)
operating activities (3,208) 16,646
Investing activities
Net proceeds from sale of equipment 33 238
Capital expenditures (34,849) (18,094)
Net cash used in investing activities (34,816) (17,856)
Financing activities
Principal payments on long-term debt (81) (77)
Additional long-term borrowings 2,406 0
Net borrowings under revolving
line of credit 32,500 1,000
Net proceeds from sale of common stock 9,171 0
Dividends paid (2,079) (2,043)
Net cash provided by (used in)
financing activities 41,917 (1,120)
Net increase (decrease)in cash and temporary
cash investments 3,893 (2,330)
Cash and temporary cash investments
at beginning of period 447 4,125
Cash and temporary cash investments
at end of period $ 4,340 $ 1,795
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 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 nine month period ended July
31, 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
The components of inventories consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
(In thousands)
<S> <C> <C>
Live poultry-broilers and breeders $25,633 $18,484
Feed, eggs and other 5,371 4,974
Processed poultry 5,156 3,999
Processed food 3,922 3,578
Packaging materials 2,090 2,240
$42,172 $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.
NOTE 4--CREDIT FACILITY
Effective August 1, 1996, the Company amended its existing revolving
credit agreement to, among other things, increase the number of
participating banks from four to five, increase the available credit
thereunder from $100.0 million to $125.0 million and change the
requirement that the Company's debt to capitalization ratio could not
exceed 55% to 65%. The revolver has been extended to fiscal 1999, when
the outstanding borrowings may be converted to a term loan payable over
four years.
NOTE 5--ISSUANCE OF COMMON STOCK
Effective July 12, 1996, the Company issued 750,000 shares of its common
stock at $13 per share to the Sanderson Farms, Inc. and Affiliates
Employee Stock Ownership Plan ("the Plan") in a private placement
transaction. Net proceeds from the issuance of the common shares were
$9,171,000 plus a $500,000 note receivable from the Plan.
<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 product and
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 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 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
Net sales for the quarter ended July 31, 1996 increased $15.2 million or
15.0% as compared to the quarter ended July 31, 1995. Net sales of
poultry products increased $11.8 million or 13.5% during the third
quarter of fiscal 1996 as compared to the third quarter of fiscal 1995.
The increase in net sales of poultry products resulted from an increase
in the pounds of poultry products sold of 15.2 million or 9.7%. 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 the first line and the addition during the third quarter of
fiscal 1996 of a second shift to the second 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 $.5675 per pound to a high of $.6650 during the third quarter of
fiscal 1996, as compared to a low of $.5125 per pound to a high of
$.5675 in the third quarter of fiscal 1995. Net sales of prepared foods
products increased $3.4 million or 25.1% during the three months ended
July 31, 1996, as compared to the same period during fiscal 1995. The
primary reason for the increase in net sales of prepared food products
was an increase in pounds of prepared food products sold of 25.4%.
During the first nine months of fiscal 1996, net sales increased $49.7
million or 17.7% as compared to the first nine months of fiscal 1995. A
comparison of net sales of poultry products during the same periods
reflects an increase of $46.6 million or 19.3% as a result of an
increase in the pounds of poultry products sold of 12.6% and an increase
in the average sale price of poultry products of 6.0%. As discussed in
the preceding paragraph, the double shifting of both lines at the
Company's Pike County complex during fiscal 1996 resulted in the
additional volume of poultry products. For the nine months ended July
31, 1996 as compared to the nine months ended July 31, 1995, net sales
of prepared foods products increased $3.1 million or 7.8%. This
increase is primarily due to an increase in the pounds of prepared food
products sold of 9.4%.
For the third quarter of fiscal 1996, cost of sales increased $19.6
million or 21.2% as compared to the third quarter of fiscal 1995. Cost
of sales of poultry products increased $16.4 million or 20.3% during the
three months ended July 31, 1996, as compared to the three months ended
July 31, 1995. The increase in cost of sales of poultry products was
the result of the additional pounds of poultry products sold and
increases in the cost of feed grains. A simple average of the corn and
soy meal cash market prices for the three months ended July 31, 1996
reflected increases of 68.1% and 48.2%, respectively, when compared to
the same period during fiscal 1995. Cost of sales of prepared food
products increased $3.2 million or 27.6% during the third quarter of
fiscal 1996 as compared to the third quarter of fiscal 1995.
During the first nine months of fiscal 1996, cost of sales increased
$63.8 million or 24.8% as compared to the first nine months of fiscal
1995. Cost of sales of poultry products during the same period
increased $60.0 or 26.8%. The increase in cost of sales of poultry
products was the result of increased pounds of poultry products sold and
higher average feed grain prices. A simple average of the corn and soy
meal cash market prices for the first nine months of fiscal 1996
increased 57.3% and 45.3%, respectively, when compared to the same
period during fiscal 1995. Cost of sales of prepared food products sold
increased $3.8 million or 11.3% during the first nine months of fiscal
1996 as compared to the first nine months of fiscal 1995.
During the three months and the nine months ended July 31, 1996 when
compared to the same periods in the previous fiscal year, the Company's
operating income decreased $4.4 million and $15.2 million, respectively.
Although market prices for poultry products were higher during the third
quarter and the first nine months of fiscal 1996, the cost of feed
grains was substantially higher and reduced operating margins.
Selling, general and administrative expenses were substantially
unchanged for the third quarter of fiscal 1996 as compared to the third
quarter of fiscal 1995. For the nine months ended July 31, 1996,
selling, general and administrative expenses increased $1.1 million or
9.8% as compared to the nine months ended July 31, 1995. The increase
in selling, general and administrative expenses resulted primarily from
costs associated with start-up of the new poultry complex in Texas and
from increased advertising expenses.
Interest expense increased $.5 million during the three months ended
July 31, 1996 as compared to the three months ended July 31, 1995.
During the first nine months of fiscal 1996 interest expense increased
$.8 million as compared to the first nine months of fiscal 1995. The
increase in interest expense was primarily the result of additional
long-term borrowings to finance the construction of the new poultry
processing plant and hatchery in Brazos County, Texas and the new feed
mill in Robertson County, Texas.
The Company's effective tax rate was 37.0% for the three months ended
July 31, 1996 and 1995. The Company's effective tax rate for the nine
months ended July 31, 1996 was 37.6% as compared to 37.4% for the first
nine months ended July 31, 1995.
Liquidity and Capital Resources
The Company sold 750,000 shares of its common stock at $13 per share to
the Sanderson Farms, Inc. Employee Stock Option Plan on July 12, 1996 in
a private placement. The net proceeds from the sale were $9,171,000
plus a $500,000 note receivable from the Plan.
On July 31, 1996, the Company's working capital was $62.2 million and
its current ratio was 4.1 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 nine months ended July 31, 1996, the Company expended
$34.8 million on planned capital projects, including approximately $25.4
million on the new poultry complex in Texas.
The fiscal 1996 capital budget, as of July 31, 1996, has been increased
to $48.0 million from $46.1 as of November 1, 1995. The increase of
$1.9 million pertains to items not approved at the beginning of fiscal
1996 pending justification, field trial and alternate closing . Capital
expenditures are primarily for the 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 revolving credit agreement was amended in the quarter
ended July 31, 1996 to increase the available credit thereunder from
$100.0 million to $125.0 million. The maturity date of the revolver was
extended to fiscal 1999, when the outstanding borrowings may be
converted to a term loan payable over four years. The Company's
revolving credit agreement ($61.1 million available at July 31, 1996)
and term loan agreement ($20 million borrowed at July 31, 1996) contain
various covenants, including a requirement that the Company's debt to
capitalization ratio not exceed 65% (55% prior to the amendment), 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 July 31, 1996. Management does not believe that the
effect on the Company's financial position and operations will be
material when or if adopted.
<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
Exhibit 15a Independent Accountants' Review
Exhibit 15b Accountants' 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, 1996.
<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 27, 1996 By: /s/D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: August 27, 1996 By: /s/James A. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
<PAGE>
<PAGE>
EXHIBIT 15a
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, 1996, and the
related condensed consolidated statements of income for the three-month
and nine-month periods ended July 31, 1996 and 1995, and the condensed
consolidated statements of cash flows for the nine-month periods ended
July 31, 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 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 15,
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
August 22, 1996
<PAGE>
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 August 22, 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 July 31, 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
August 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 4340
<SECURITIES> 0
<RECEIVABLES> 28154
<ALLOWANCES> 158
<INVENTORY> 42172
<CURRENT-ASSETS> 7770
<PP&E> 259934
<DEPRECIATION> 108468
<TOTAL-ASSETS> 234843
<CURRENT-LIABILITIES> 20228
<BONDS> 86767
0
0
<COMMON> 14363
<OTHER-SE> 102773
<TOTAL-LIABILITY-AND-EQUITY> 234843
<SALES> 116419
<TOTAL-REVENUES> 116419
<CGS> 111803
<TOTAL-COSTS> 111803
<OTHER-EXPENSES> 4286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1471
<INCOME-PRETAX> (1179)
<INCOME-TAX> (436)
<INCOME-CONTINUING> (743)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (743)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
