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, 1997
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 January 31, 1997.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--January 31, 1997 and
October 31, 1996
Condensed consolidated statements of income (loss)--Three months
ended January 31, 1997 and 1996
Condensed consolidated statements of cash flows--Three months ended
January 31, 1997 and 1996
Notes to condensed consolidated financial statements--
January 31, 1997
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
PAGE
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, October 31,
1997 1996
(Unaudited) (Note)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 2,140 $ 4,879
Accounts receivables, net 25,965 27,661
Inventories - Note 2 38,068 39,060
Refundable income taxes 1,155 1,148
Other current assets 6,951 5,616
Total current assets 74,279 78,364
Property, plant and equipment 288,813 270,930
Less accumulated depreciation (117,887) (112,974)
170,926 157,956
Other assets 1,113 906
Total assets $246,318 $237,226
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 16,755 $14,438
Current maturities of long-
term debt 3,104 3,100
Total current liabilities 19,859 17,538
Long-term debt, less current maturities 94,013 90,102
Deferred income taxes 11,336 11,336
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 - 14,363,080
and 13,613,080 at January 31, 1997 and
October 31, 1996, respectively 14,363 14,363
Paid-in capital 11,292 11,292
Retained earnings 95,455 92,595
Total stockholders' equity 121,110 118,250
Total liabilities and stockholders' equity $246,318 $237,226
</TABLE>
NOTE: The balance sheet at October 31, 1996 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>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
<CAPTION>
Three Months Ended
January 31,
1997 1996
(In thousands, except shares
and per share data)
<S> <C> <C>
Net sales $115,647 $103,754
Cost and expenses:
Cost of sales 103,629 99,998
Selling, general and
administrative 5,261 4,030
108,890 104,028
OPERATING INCOME (LOSS) 6,757 (274)
Other income (expense):
Interest income 42 44
Interest expense (1,123) (1,009)
Other 49 (42)
(1,032) (1,007)
INCOME (LOSS) BEFORE INCOME TAXES 5,725 (1,281)
Income tax expense (benefit) 2,147 (483)
NET INCOME (LOSS) $ 3,578 $ (798)
Earnings (loss) per share $ .25 $ (.06)
Dividends per share $ .05 $ .05
Weighted average shares outstanding 14,363,040 13,613,080
</TABLE>
See notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
January 31,
1997 1996
(In thousands)
<S> <C> <C>
Operating activities
Net income (loss) $ 3,578 $ (798)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,070 4,945
Change in assets and liabilities:
(Increase) decrease in accounts
receivable 1,696 (2,484)
(Increase) decrease in inventories 992 (4,422)
Increase in other assets (1,605) (754)
Increase in accounts payable and
accrued expenses 2,317 2,769
Total adjustments 8,470 54
Net cash provided by (used in)
operating activities 12,048 (744)
Investing activities
Net proceeds from sale of equipment -0- 21
Capital expenditures (17,984) (5,972)
Net cash used in investing activities (17,984) (5,951)
Financing activities
Principal payments on long-term debt (85) (81)
Additional long-term borrowings -0- 107
Net borrowings under revolving
line of credit 4,000 7,500
Dividends paid (718) (680)
Net cash provided by
financing activities 3,197 6,846
Net increase (decrease) in cash and
temporary cash investments (2,739) 151
Cash and temporary cash investments
at beginning of period 4,879 447
Cash and temporary cash investments
at end of period $ 2,140 $ 598
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
January 31, 1997
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, 1997, are not necessarily indicative of the
results that may be expected for the year ending October 31, 1997. 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, 1996.
NOTE 2--INVENTORIES
The components of inventories consisted of the following:
<TABLE>
January 31, October 31,
1997 1996
(In thousands)
<CAPTION>
<S> <C> <C>
Live poultry-broilers and breeders $23,574 $23,505
Feed, eggs and other 5,628 5,412
Processed poultry 3,653 3,951
Processed food 3,533 3,908
Packaging materials 1,680 2,284
$38,068 $39,060
</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 1997.
NOTE 4--OTHER MATTERS
On July 12, 1996, the Company sold 750,000 shares of its common stock at $13
per share (based on an independent valuation of the stock as of that date) to
the Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan (the
"Plan") in a private placement. Net proceeds from the issuance of the common
shares were $9,171,000 plus a $500,000 note receivable from the Plan.
The Company had a fire at its processing plant in McComb, Mississippi on
January 29, 1997. The fire was confined primarily to an area of the plant
housing packaging materials and supplies. Management believes that
substantially all of the costs, which have not been determined, of repair and
reconstruction of the plant will be covered by the Company's property
insurance carried on the plant. Certain costs associated with the McComb
plant's downtime and processing of additional chickens at the Company's other
processing plants are covered by the Company's business interruption insurance
coverage. Management's estimates of such costs, net of the amounts
recoverable from the insurance company, for the three days affected in the
first quarter of fiscal 1997 were not material to the Company's financial
position or operations.
The Company adopted the FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed" in
the first quarter of fiscal 1997. The affect of the adoption was not material
to the Company's financial position or operations.
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, 1996.
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 200
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.
As of January 31, 1997, construction of the new poultry complex in Brazos and
Robertson Counties, Texas was substantially complete. The first birds will be
processed on March 3, 1997, with the initial single shift processing capacity
of 650,000 birds per week to be reached during the third quarter of fiscal
1997. The new shift will increase the Company's overall processing capacity
under current configurations to 4,700,000 birds per week.
<PAGE>
Results of Operations
Net sales increased $11.9 million or 11.5% during the first quarter of fiscal
1997 as compared to the first quarter of fiscal 1996. During the same
periods, net sales of poultry products increased $7.2 million or 7.9%. This
increase in net sales of poultry products was the result of an increase in the
pounds of poultry products sold of 7.4%. Market prices for finished poultry
products, as measured by the Georgia dock prices, ranged from a low of $.6375
to a high of $.6600 during the first quarter of fiscal 1997, as compared to a
low of $.5825 to a high of $.6000 during the first quarter of fiscal 1996.
Net sales of prepared food products increased $4.7 million or 37.9% during the
three months ended January 31, 1997, as compared to the first quarter of
fiscal 1996. The increase in net sales of prepared food products resulted
from an increase in pounds of prepared food products sold of 28.8% and an
increase in the average sale price of prepared food products of 7.0%. The
increase in the average sale price of prepared food products resulted from an
increase in sales of cooked chicken products which have a higher average sale
price and higher average production costs than the prepared food products sold
during the first quarter of fiscal 1996.
Cost of sales increased $3.6 million or 3.6% during the three months ended
January 31, 1997, as compared to the three months ended January 31, 1996.
Cost of sales of poultry products decreased $.4 million or .5% during the same
periods, despite an increase in the pounds of poultry products sold of 7.4%.
A reduction in the pounds of outside poultry products purchased and further
processed and a decrease in the costs of feed grains resulted in the lower
average cost of sales during the first quarter of fiscal 1997 as compared to
the first quarter of fiscal 1996. A simple average of the corn and soy meal
cash market prices for the first quarter of fiscal 1997 reflected a decrease
of 19.7% and an increase 11.8%, respectively. Cost of sales of prepared food
products increased $4.0 million or 36.3% primarily due to the increase in the
pounds of prepared food products sold and a change in mix.
Selling, general and administrative expenses increased $1.2 million during the
quarter ended January 31, 1997, as compared to the same quarter in fiscal
1996, as a result of increased administrative cost associated with the
construction of the new poultry complex in Brazos and Robertson Counties,
Texas. Measured as a percentage of net sales, selling, general and
administrative expenses for the first quarter of fiscal 1997 and 1996 were
4.6% and 3.9%, respectively.
During the first quarter of fiscal 1997 as compared to the first quarter of
fiscal 1996, the Company's operating income increased $7.0 million. The
increase in the Company's operating income was obtained from the improved sale
prices of poultry products and the lower average prices of feed grains. In
addition, the Company's operating income improved due to the increased sales
of prepared food products during the three months ended January 31, 1997, as
compared to the three months ended January 31, 1996.
Interest expense increased approximately $.1 million during the three months
ended January 31, 1997, as compared to the same three months in fiscal 1996.
Interest cost of approximately $.5 million was capitalized during the first
quarter of fiscal 1997 as a result of additional borrowings incurred in
connection with the construction of the new poultry complex in Brazos and
Robertson Counties.
The Company's effective tax rate for the first quarter of fiscal 1997 was
37.5%. For the first quarter in fiscal 1996, the Company recorded a tax
benefit of approximately 37.7%.
Liquidity and Capital Resources
The Company's working capital on January 31, 1997, was $54.4 million and its
current ratio was 3.7 to 1 as compared to working capital of $60.8 million and
a current ratio of approximately 4.5 to 1 at October 31, 1996. During the
three months ended January 31, 1997, the Company invested $18.0 million on
planned capital projects, including approximately $15.8 million on the new
poultry complex in Texas.
The capital budget for fiscal 1997, as of January 31, 1997, has been increased
to $35.0 million from $34.2 million at October 31, 1996. The increase of $.8
million pertains to items not approved at the beginning of fiscal 1997 pending
justification, field trial and alternate costing.
On January 29, 1997, the Company had a fire at its processing plant in McComb,
Mississippi. Management believes that the property insurance maintained on
the plant will substantially cover all repair and reconstruction costs.
PART II. 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 January 31, 1997.
<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 25, 1997 By: /s/D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: February 25 1997 By: /s/James A. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
<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 January 31, 1997, and the
related condensed consolidated statements of income for the three-month
periods ended January 31, 1997 and 1996. 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, 1996, 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 11, 1996, 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, 1996, 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 21, 1997
<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 February 21, 1997 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, 1997.
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 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 2140
<SECURITIES> 0
<RECEIVABLES> 25965
<ALLOWANCES> 178
<INVENTORY> 38068
<CURRENT-ASSETS> 74279
<PP&E> 288813
<DEPRECIATION> 117887
<TOTAL-ASSETS> 246318
<CURRENT-LIABILITIES> 19859
<BONDS> 94013
0
0
<COMMON> 14363
<OTHER-SE> 106747
<TOTAL-LIABILITY-AND-EQUITY> 246318
<SALES> 115647
<TOTAL-REVENUES> 115647
<CGS> 103629
<TOTAL-COSTS> 103629
<OTHER-EXPENSES> 5261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1123
<INCOME-PRETAX> 5725
<INCOME-TAX> 2147
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<CHANGES> 0
<NET-INCOME> 3578
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
