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 January 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-----13,613,080 shares
outstanding as of January 31, 1996.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--January 31, 1996 and
October 31, 1995
Condensed consolidated statements of income (loss) --Three months
ended January 31, 1996 and 1995
Condensed consolidated statements of cash flows--Three months ended
January 31, 1996 and 1995
Notes to condensed consolidated financial statements--January 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION> January 31, October 31,
1996 1995
(Unaudited) (Note)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 598 $ 447
Accounts receivables, net 25,108 22,624
Inventories - Note 2 37,697 33,275
Other current assets 5,347 4,619
Total current assets 68,750 60,965
Property, plant and equipment 231,449 226,204
Less accumulated depreciation (99,030) (94,873)
132,419 131,331
Other assets 845 901
Total assets $202,014 $193,197
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 15,903 $13,134
Current maturities of long-
term debt 240 226
Total current liabilities 16,143 13,360
Long-term debt, less current maturities 62,318 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 96,357 97,835
Total stockholders' equity 112,841 114,319
Total liabilities and stockholders' equity $202,014 $193,197
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.
</TABLE>
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<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
<CAPTION>
Three Months Ended
January 31,
1996 1995
(In thousands, except shares and per share data)
<S> <C> <C>
Net sales $103,754 $ 87,569
Cost and expenses:
Cost of sales 99,998 80,472
Selling, general and
administrative 4,030 3,333
104,028 83,805
OPERATING INCOME (LOSS) (274) (3,764)
Other income (expense):
Interest income 44 43
Interest expense (1,009) (912)
Other (42) (35)
(1,007) (904)
INCOME (LOSS) BEFORE INCOME TAXES (1,281) 2,860
Income tax expense (credit) (483) 1,080
NET INCOME (LOSS) $ (798) $ 1,780
Earnings per share $ (.06) $ .13
Dividends per share $ .05 $ .05
Weighted average shares outstanding 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>
Three Months Ended
January 31,
1996 1995
(In thousands)
<S> <C> <C>
Operating activities
Net income (Loss) $ (798) $ 1,780
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,945 4,380
Change in assets and liabilities:
Increase in accounts receivable (2,484) (150)
Increase in inventories (4,422) (407)
Increase in other assets (754) (745)
Increase in accounts payable and
accrued expenses 2,769 1,736
Total adjustments 54 4,814
Net cash provided by (used in) operating activities (744) 6,594
Investing activities
Net proceeds from sale of equipment 21 10
Capital expenditures (5,972) (4,028)
Net cash used in investing activities (5,951) (4,018)
Financing activities
Principal payments on long-term debt (81) (77)
Additional long-term borrowings 107 -0-
Net borrowings under revolving
line of credit 7,500 -0-
Dividends paid (680) (682)
Net cash provided by (used in)
financing activities 6,846 (759)
Net increase in cash and temporary
cash investments 151 1,817
Cash and temporary cash investments
at beginning of period 447 4,125
Cash and temporary cash investments
at end of period $ 598 $ 5,942
See notes to condensed consolidated financial statements.
</TABLE>
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SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
January 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 three month period ended
January 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 inventory consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
(In thousands)
<S> <C> <C>
Live poultry-broilers and breeders $21,271 $18,484
Feed, eggs and other 4,988 4,974
Processed poultry 5,797 3,999
Processed food 3,206 3,578
Packaging materials 2,435 2,240
$37,697 $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>
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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
For the first quarter of fiscal 1996, net sales increased $16.2 million
or 18.5% as compared to the first quarter of fiscal 1995. Net sales of
poultry products increased $18.1 million or 24.6% during the three months
ended January 31, 1996 as compared to the three months ended January 31,
1995. The increase in net sales of poultry products resulted from an
increase in the pounds of poultry products sold of 11.7% and an increase
in the average sale price of poultry products. Market prices
for poultry, as measured by the Georgia dock prices, ranged from a low
of $.5825 to a high of $.6000 during the first quarter of fiscal 1996,
as compared to a low of $.5125 to a high of $.5300 in the first quarter
of fiscal 1995. For the first quarter of fiscal 1996 as compared to the
first quarter of fiscal 1995 net sales of prepared foods products decreased
$1.9 million or 13.0%.
For the three months ended January 31, 1996 as compared to
the three months ended January 31, 1995, increased $19.5 million or 24.3%.
Costs of sales of poultry products increased $20.0 million or 29.1%
during the first quarter of fiscal 1996 as compared to the first quarter
of fiscal 1995. The increase in cost of sales of poultry products was
the result of the increased pounds of poultry products sold of 11.7%
and an increase in the costs of feed grains. A simple average of the
corn and soy meal cash market prices for the first quarter of fiscal
1996 reflected increases of 46.2% and 39.6%, respectively, when
compared to the same period a year ago. Cost of sales of prepared food
products decreased $.5 million or 4.1% during the three months ended
January 31, 1996 as compared to the three months ended January 31, 1995.
During the first quarter of fiscal 1996 as compared to the first quarter
of fiscal 1995 the Company's operating income decreased approximately
$4.0 million. Although market prices for poultry products were higher during
the first quarter of fiscal 1995, the costs of feed grains were substantially
higher and reduced operating margins.
Selling, general and administrative expenses increased $.7 million or 20.9%
during the quarter ended January 31, 1996 as compared to the quarter ended
January 31, 1995. The increase in selling, marketing, general and
administrative expenses resulted primarily from increased advertising expenses.
Interest expense increased $.1 million during the first quarter of fiscal
1996 as compared to the first quarter 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 January 31, 1996 was
37.70% as compared to 37.76% during the same period in fiscal 1995.
Liquidity and Capital Resources
The Company's working capital on January 31, 1996 was $52.6 million and its
current ratio was 4.3 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 January 31, 1996 the Company invested $6.0 million on
planned capital projects, including approximately $2.3 million on the new
poultry complex in Texas.
The fiscal 1996 capital budget, as of January 31, 1996, has been increased to
$46.5 million from $46.1 million. The increase of $.4 million pertains
to items not approved at the beginning of fiscal 1996 pending justification,
field trial and alternate costing.
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 January 31, 1996. Management does not believe that the effect on
the Company's financial position and operations will be material when
adopted.
<PAGE>
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PART II. 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 January 31, 1996
<PAGE>
<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: February 26, 1996 By: D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: February 26, 1996 By: James A. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
<PAGE>
<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
January 31, 1996, and the related condensed consolidated statements
of income for the three-month periods ended January 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 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.
ERNST & YOUNG LLP
Jackson, Mississippi
February 23, 1996<PAGE>
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 February
23, 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 January 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are
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.
ERNST & YOUNG LLP
Jackson, Mississippi
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 598
<SECURITIES> 0
<RECEIVABLES> 25108
<ALLOWANCES> 139
<INVENTORY> 37697
<CURRENT-ASSETS> 5347
<PP&E> 231449
<DEPRECIATION> 99030
<TOTAL-ASSETS> 202014
<CURRENT-LIABILITIES> 16143
<BONDS> 62318
<COMMON> 13613
0
0
<OTHER-SE> 99228
<TOTAL-LIABILITY-AND-EQUITY> 202014
<SALES> 103754
<TOTAL-REVENUES> 103754
<CGS> 99998
<TOTAL-COSTS> 99998
<OTHER-EXPENSES> 4030
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 1009
<INCOME-PRETAX> (1281)
<INCOME-TAX> (483)
<INCOME-CONTINUING> (798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
