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, 1999
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-----13,932,455 shares outstanding
as of April 30, 1999.
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INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--April 30, 1999 and
October 31, 1998
Condensed consolidated statements of income (loss)--Three months
ended April 30, 1999 and 1998; Six months ended April 30, 1999
and 1998
Condensed consolidated statements of cash flows--Six months ended
April 30, 1999 and 1998
Notes to condensed consolidated financial statements--
April 30, 1999 and 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and qualitative disclosures of market risks
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
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(Unaudited) (Note 1)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 4,817 $ 3,626
Accounts receivables, net 31,451 31,023
Inventories - Note 2 46,935 42,879
Other current assets 7,152 7,664
Total current assets 90,355 85,192
Property, plant and equipment 347,317 332,985
Less accumulated depreciation (162,099) (153,897)
185,218 179,088
Other assets 949 1,391
Total assets $276,522 $265,671
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 18,228 $ 21,499
Current maturities of long-
term debt 4,033 4,028
Total current liabilities 22,261 25,527
Long-term debt, less current maturities 111,846 95,695
Claims payable 1,100 1,100
Deferred income taxes 13,867 13,867
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 - 13,932,455
and 14,373,580 at April 30, 1999 and
October 31, 1998, respectively 13,932 14,374
Paid-in capital 5,710 11,770
Retained earnings 107,806 103,338
Total stockholders' equity 127,448 129,482
Total liabilities and stockholders' equity $276,522 $265,671
</TABLE>
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<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
(In thousands, except shares and per share data)
<S> <C> <C> <C> <C>
Net sales $134,586 $128,582 $260,815 $242,256
Cost and expenses:
Cost of sales 124,273 118,463 238,481 231,227
Selling, general and
administrative 4,839 4,493 9,838 9,747
129,112 122,956 248,319 240,974
OPERATING INCOME 5,474 5,626 12,496 1,282
Other income (expense):
Interest income 44 48 148 118
Interest expense (1,613) (1,953) (3,205) (4,019)
Other 11 (85) (12) (14)
(1,558) (1,990) (3,069) (3,915)
INCOME (LOSS) BEFORE
INCOME TAXES 3,916 3,636 9,427 (2,633)
Income tax expense (benefit) 1,478 1,344 3,545 (975)
NET INCOME (LOSS) $ 2,438 $ 2,292 $ 5,882 $ (1,658)
Basic and diluted earnings
(loss) per share $ .17 $ .16 $ .41 (.12)
Dividends per share $ .05 $ .05 $ .10 $ .10
Basic weighted average
shares outstanding 14,025 14,368 14,206 14,368
Diluted weighted average
shares outstanding 14,090 14,394 14,296 14,368
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
April 30,
1999 1998
(In thousands)
<S> <C> <C>
Operating activities
Net income (loss) $ 5,882 $(1,658)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 12,158 11,580
Change in assets and liabilities:
Increase in accounts receivable (429) (294)
(Increase) decrease in inventories (4,056) 640
Decrease in refundable income taxes 0 194
Decrease in other assets 686 146
Increase (decrease)in accounts payable
and accrued expenses (3,271) 5,774
Total adjustments 5,088 18,040
Net cash provided by
operating activities 10,970 16,382
Investing activities
Net proceeds from sale of equipment 282 158
Capital expenditures (18,301) (9,825)
Net cash used in investing activities (18,019) (9,667)
Financing activities
Principal payments on long-term debt (3,844) (2,998)
Net borrowings (payments) under revolving
line of credit 20,000 (2,000)
Retirement of common stock (6,916) 0
Principal payment on note receivable-E.S.O.P. 0 125
Net proceeds from issuance of common stock 414 26
Dividends paid (1,414) (1,437)
Net cash provided by (used in)
financing activities 8,240 (6,284)
Net increase in cash and temporary
cash investments 1,191 431
Cash and temporary cash investments
at beginning of period 3,626 1,531
Cash and temporary cash investments
at end of period $ 4,817 $ 1,962
See notes to condensed consolidated financial statements.
</TABLE>
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SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 1999
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 and six-month periods
ended April 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending October 31, 1999. 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, 1998.
The consolidated balance sheet at October 31, 1998 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.
NOTE 2--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(In thousands)
<S> <C> <C>
Live poultry-broilers and breeders $28,936 $26,970
Feed, eggs and other 5,599 5,676
Processed poultry 4,522 3,522
Processed food 3,875 3,029
Packaging materials 4,003 3,682
$46,935 $42,879
</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 changed from the
cash to the accrual basis of accounting for its farming subsidiary. The Taxpayer
Relief Act of 1998 (the "Act") provides that the taxes on the cash basis
temporary differences as of that date are payable over the next 20 years or in
the firstfiscal year in which the Company fails to qualify as a "Family Farming
Corporation" provided there are no changes in ownership control. Management
does not anticipate the payment of such taxes related to these cash basis
temporary differences during fiscal 1999.
NOTE 4--SHAREHOLDER RIGHTS AGREEMENT
The Company's shareholder rights agreement expired on April 21, 1999. On April
22, 1999, the Company adopted a new shareholder rights agreement (the
6
"Agreement") with similar terms. Under the terms of the Agreement a one share
purchase ("right") was declared as a dividend for each share of the Company's
Common Stock outstanding on May 4, 1999. The rights do not become exercisable
and certificates for the rights will not be issued until ten business days after
a person or group acquires or announces a tender offer for the beneficial
ownership of 20% or more of the Company's Common Stock. Special rules set forth
in the Agreement apply beneficial ownership for members of the Sanderson family.
Under these rules, such a member will not be considered to beneficially own
certain shares of Common Stock, the economic benefit of which is received by any
member of the Sanderson family, and certain shares of Common Stock acquired
pursuant to profit sharing plans of the Company.
The exercise price of a right has been established at $75. Once exercisable,
each right would entitle the holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $100 per share. The
rights may be redeemed by the Board of Directors at $.01 per right prior to an
acquisition, through open market purchases, a tender offer or otherwise, of the
beneficial ownership of 20% or more of the Company's Common Stock, or by two-
thirds of the Directors who are not the acquirer, or an affiliate of the
acquirer prior to the acquisition of 50% or more of the Company's common stock
by such acquirer. The rights expire on May 4, 2009.
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, 1998.
This Quarterly Report, and other periodic reports filed by the Company under the
Securities and Exchange Act of 1934, and other written and oral statements made
by it or on its behalf, may include forward-looking statements, which are based
on a number of assumptions about future events and are subject to various risks,
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs and estimates expressed in such statements.
These risks, uncertainties and other factors include, but are not limited to the
following:
(1) Changes in the market price for the Company's finished products and feed
grains, both of which may fluctuate substantially and exhibit cyclical
characteristics typically associated with commodity markets.
(2) Changes in economic and business conditions, monetary and fiscal policies or
the amount of growth, stagnation or recession in the global or U.S. economies,
either of which may affect the demand for the Company's finished products, the
value of inventories, the collectability of accounts receivable or the financial
integrity of customers.
(3) Changes in laws, regulations, and other activities in government agencies
and similar organizations applicable to the Company and the poultry industry.
(4) Various inventory risks due to changes in market conditions.
(5) Changes in and effects of competition, which is significant in all markets
in which the Company competes, with regional and national firms, some of which
have greater financial and marketing resources than the Company.
7
(6) Changes in accounting policies and practices adopted voluntarily by the
Company or required to be adopted by generally accepted accounting principles.
Readers are cautioned not to place undue reliance on forward-looking statements
made by or on behalf of Sanderson Farms. Each such statement speaks only as of
the day it was made. The Company undertakes no obligation to update or to revise
any forward-looking statements. The factors described above can not be
controlled by the Company. When used in this Quarterly Report, the words
"believes," "estimates," "plans," "expects," "should," "outlook," and
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
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 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.
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 1999 were $134.6 million as
compared to net sales for the second quarter of fiscal 1998 of $128.6 million.
The increase in net sales of $6.0 million or 4.7% reflects an increase in the
pounds of products sold of 18.0% and a decrease in the average sale price of
products of 11.3%. Net sales of poultry products increased $15.2 million or
15.0% during the second quarter of fiscal 1999 as compared to the second quarter
of fiscal 1998 due to an increase of 21.7% in the pounds of poultry products
sold and a decrease of 5.5% in the average sale price of poultry products. The
additional pounds of poultry products resulted from an increase in the number
of chickens processed at the Company's processing facility in Brazos, Texas and
a planned increase in the Company's average live weight of chickens as compared
to the quarter ended April 30, 1998. The additional live weight is from the
Company's shift of certain of its chicken production from the fast food market
to the chill pack and big bird deboning markets. With the additional capacity
at the Brazos, Texas facility and the shift of more production to these market
segments, the Company expects the pounds of poultry products sold for the third
quarter ended
8
July 31, 1999 and the fiscal year ended October 31, 1999 to be higher than the
same periods during fiscal 1998. The average sale price of poultry products
continues to be affected by low prices for leg quarters. During the second
quarter of fiscal 1999, average leg quarter prices were approximately 48% lower
than during the second quarter of fiscal 1998. Net sales for prepared food
products sold decreased $9.2 million or 34.2% due primarily to a reduction in
the pounds of prepared food products sold of 27.5%. During fiscal 1999
management reduced or eliminated sales of certain less profitable prepared food
items resulting in fewer pounds sold.
For the six months ended April 30, 1999 net sales increased $18.6 million or
7.7% as compared to net sales for the six months ended April 30, 1998. The
increase in net sales resulted from an increase in the pounds of poultry
products sold of 19.6%, a decrease in the net sales price of poultry products
of 3.1% and a decrease in the pounds of prepared food products sold of 22.7%.
As discussed in the previous paragraph, the additional pounds of poultry
products resulted from an increase in the number of chickens processed at the
Company's processing facility in Brazos, Texas and a planned increase in the
Company's average live weight of chickens as compared to the quarter ended
April 30, 1998. Low market prices for leg quarters during the six months ended
April 30, 1999 as compared to market prices for leg quarters during the six
months ended April 30, 1998 continue to pressure the overall average sale price
of poultry products. Net sales for prepared food products for the first six
months of fiscal 1999 as compared to the first six months of fiscal 1998
decreased $12.5 million to $34.2 million as a result of the decrease in the
pounds of prepared food products sold and a decrease in the average sale price
of prepared food products sold of 5.4%.
Cost of sales for the second quarter of fiscal 1999 increased $5.8 million or
4.9% as compared to cost of sales for the second quarter of fiscal 1998. The
average cost of sales during these same periods decreased 11.1%. Cost of sales
of poultry products increased 16.9% during the second quarter of fiscal 1999 as
compared to the second quarter of fiscal 1998 as a result of an increase in the
pounds of poultry products sold, partially offset by lower average feed cost.
A simple average of the corn and soybean meal cash market prices reflected a
decrease of 15.8% and 21.3%, respectively. Cost of sales of prepared food
products decreased $10.1 million or 40.1% during the second quarter of fiscal
1999 as compared to the second quarter of fiscal 1998, primarily due to the
decrease in the pounds of prepared food products sold.
Cost of sales for the six months ended April 30, 1999 as compared to cost of
sales for the six months ended April 30, 1998 increased $7.3 million or 3.1%.
The increase in the Company's cost of sales resulted from the increase in the
pounds of poultry products sold of 19.6%, partially offset by lower feed costs
and a decrease in the pounds of prepared food products sold of 22.7%. Cost of
sales of poultry products increased 21.0 million or 11.2% for the six months
ended April 30, 1999 as compared to the six months ended April 30, 1998. A
simple average of the corn and soy meal cash market prices reflect a decrease of
17.0% and 27.4%, respectively. Cost of sales of prepared food products for the
first six months of fiscal 1999 as compared to the same period during fiscal
1998 decreased $13.7 million or 32.1%.
Selling, general and administrative expenses for the three months and the six
months ended April 30, 1999 as compared to the same periods during fiscal 1998
increased $.3 million and $.1 million, respectively.
The Company's operating income for the second quarter of fiscal 1999 was $5.5
million as compared to $5.6 million during the second quarter of fiscal 1998.
During the second quarter of fiscal 1999 as compared to the second quarter of
fiscal 1998 lower prices for poultry products were mostly by lower prices for
feed grains. Profitability during the second quarter was negatively impacted by
the planned shut down of our Laurel, Mississippi processing facility for one
week during the second quarter of fiscal 1999 to allow that plant to transition
from
9
processing a fast food size bird to a larger bird targeting a different market
segment. For the six months ended April 30, 1999 as compared to the six months
ended April 30, 1998, the Company's operating income increased $11.2 million.
This improvement during the first six months of fiscal 1999 resulted primarily
from favorable grain prices. During the first six months of fiscal 1999 let
quarter prices were at their lowest point in recent history because Russia, the
most significant buyer of leg quarters, continued to experience economic
problems.
For the three months ended April 30, 1999 as compared to the same period in
fiscal 1998 interest expense decreased $.3 million. For the six months ended
April 30, 1999 as compared to the same period in fiscal 1998 interest expense
decreased $.8 million. The Company's debt was lower during the first six months
of fiscal 1999 as compared to the first six months of fiscal 1998 and resulted
in lower interest expense. The Company expects interest expense for the
remainder of fiscal 1999 to remain below the level of interest expense incurred
during fiscal 1998.
The effective tax rate for the three months and the six months ended April 30,
1999 was 37.7% and 37.6%, respectively. The effective tax rate for the three
months and the six months ended April 30, 1998 was 37.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio and working capital at April 30, 1999 was 4.1 to 1
and $68.1 million, respectively, compared to a current ratio of 3.3 to 1 and
working capital of $59.7 million as of October 31, 1998. During the six months
ended April 30, 1999 the Company spent approximately $18.3 million on planned
capital projects. On January 21, 1999, the Company announced that its Board of
Directors had approved a plan under which the Company may repurchase up to 1.0
million shares of its common stock over the next two years. Under the stock
repurchase program, shares may be purchased from time to time at prevailing
prices in open market transactions, subject to market conditions, share price
and other considerations. During the six months ended April 30, 1999 the
Company expended $6.9 million to retire 478,000 shares of the Company's common
stock.
The capital budget for fiscal 1999 was increased to $24.0 million from $21.5
million. The increase of $2.5 pertains to items not approved at the beginning
of fiscal 1999, pending justification, field trial and alternate costing.
Included in the fiscal 1999 budget is approximately $.8 million relating to
fiscal 1998 budget items that were not completed or started during fiscal 1998.
Also included in the fiscal 1999 budget are items that include cost of
renovations, changes and additions to existing processing facilities to allow
better product flows and product mix for more product flexibility.
The Company believes that remaining anticipated capital expenditures for fiscal
1999 will be funded from working capital and by cash flows from operations;
however, if needed, the Company has $37.0 million available under its revolving
credit agreement as of April 30, 1999.
Impact of Year 2000 Issues
The "Year 2000 problem" arises because many existing computer programs use only
the last two digits (for example, 99) to refer to a year (for example, 1999).
Such programs are not able to distinguish between the year 1900 (written "00")
and the year 2000 (also written "00"). That inability could result in the
failure of applications using such programs, or in the generation of business
and financial misinformation. The Year 2000 problem could potentially affect
the Company due to its own systems, and also due to the systems of its customers
and of suppliers that provide goods and/or services to it. For purposes of this
discussion, such systems are divided into two types: information technology
systems ("IT systems"), meaning those systems that deal with business and
10
financial information; and non-information technology systems ("non-IT
systems"), meaning systems, like microcontrollers, that are embedded in
machinery and equipment and control or affect their function.
The Company has assessed the impact of the Year 2000 on its IT systems and
believes that the modifications to software and replacements necessary to make
the IT systems Year 2000 compliant have been substantially completed. In
addition, the Company is continuing to assess possible problems with its non-IT
systems, particularly those embedded within operating equipment in its
hatcheries, feed mills and processing plants, which is expected to be completed
by June 30, 1999. The cost of modifications to its existing non-IT systems is
not expected to exceed $.7 of which $.6 was expended through April 30, 1999.
The Company's cost of modifications to its existing IT systems software and
conversions to new IT systems software were approximately $.7 million through
April 30, 1999 of which $.6 million was capitalized and $.1 million was expensed
as incurred. Such modifications and conversions were substantially completed,
but not yet fully tested, as of January 31, 1999. Testing of these
modifications and conversions were completed as of April 30, 1999, and
accordingly, the Company believes that the Year 2000 issue will not pose
significant operational problems for the Company's IT systems.
The Company is evaluating the impact of the Year 2000 problem on suppliers
(including vendors and equipment manufacturers) by requesting that they report
to the Company on their readiness for Year 2000. Presently, the Company has no
reason to believe that such parties will not be Year 2000 compliant, but the
Company has not yet completed its inquiry and, even where it has, the Company is
not normally in a position to test or challenge the information provided by such
third parties. If the responses of such parties are not satisfactory to it, the
Company will consider new business relationships with alternate suppliers to the
extent alternatives are available. The Company anticipates that this evaluation
will be on-going through the remainder of calendar 1999.
The Company believes that its most significant exposure from third parties lies
in the availability of transportation facilities that deliver feed grains, and
of utilities like electricity, natural gas and water that are necessary for
operating the Company's plants. The Company's supply of feed grains on-hand
does not usually exceed that used in a matter of days. Shipping routes normally
involve, at one or more points, rail transportation for which alternate
suppliers are not readily available. Similarly, there are no effective
alternate suppliers of utilities. Disruption of more than a few days in these
transportation and utilities services used by the Company would begin to have a
material adverse effect that would expand as any such disruption continued.
While the Company has no information that causes it to expect a prolonged
disruption that would have a material adverse effect, the Company cannot give
any assurance that such a disruption will not occur, because the Company will
have no control over such an accurrence or its duration. The Company does not
believe that it can develop adequate contingency plans for any prolonged
disruption. The Company considers disruptions of this nature to be its worst
case Year 2000 problem, but the Company cannot predict the likelihood of such
disruptions or, if they occur, the duration. As to minor disruptions, the
Company expects to address remedial action when and if such a minor disruption
arises. The Company believes that other risks created by the failure of third
persons to make their IT systems and/or non-IT systems Year 2000 ready would be
less substantial in that they would not likely affect the Company's ability to
operate its plants. The Company plans to address those problems when and if
they arise and has not developed a contingency plan with respect to them.
The Company routinely receives inquiries from its suppliers and customers as to
the Company's state of readiness for the Year 2000 problem, just as the Company
seeks such information from others. The Company believes, and therefore
responds, that its own systems (IT and non-IT) will be ready. The Company could
11
incur liability to persons to whom it responds if its response turns out to be
incorrect and the persons who sought the response are damaged thereby. Such
liability, if any, is not expected to be material, but there can be no assurance
that it will not be. The Company is not insured against losses of this type
and, even if it were not ultimately held liable, could be subjected to
significant costs for defense.
The foregoing discussion about the timetable and cost of Year 2000 readiness
involves forward-looking estimates that the Company believes are reasonable but
which it cannot guarantee. Those estimates could be affected by the Company's
failure to identify IT, or more likely non-IT, systems that are affected by the
Year 2000 problem or by the Company's miscalculation as to the time or expense
required to remedy identified deficiencies. With respect to the systems of
third parties, the Company cannot possibly verify all of the information it has
gathered or will gather, and cannot compel third parties even to respond at all.
Nor can the Company actually predict the extent to which the Company's financial
condition and operations could be adversely affected if third persons are not
ready for the Year 2000 on a timely basis.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
There have been no material changes in the market risks reported in the
Company's 1998 Annual Report on Form 10-K
12
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the 1999 Annual Meeting of Shareholders of Sanderson Farms, Inc. held
February 25, 1999, the shareholders elected the following persons to the
Company's Board of Directors by the votes indicated below:
Name For Withheld
Joe F. Sanderson, Jr. 13,602,614 39,560
Charles W. Ritter 13,605,338 36,836
Phil K. Livingston 13,605,108 37,066
Lampkin Butts 13,605,010 37,164
By a vote of 13,633,188 for, 2,151 against, and 6,835 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, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report
Exhibit 10N Shareholders' rights agreement:
Agreement, dated as of April 22, 1999, between
Sanderson Farms, Inc. and ChaseMellon Shareholder
Services L.L.C. (Incorporated by reference to exhibit
4.1 of the Company's current report on Form 8-K,
filed with the Service and Exchange Commission on
April 30, 1999).
Exhibit 15a Independent Accountants' Review Report
Exhibit 15b Accountants' Letter re: Unaudited Financial
Information
(b) Reports on Form 8-K:
On April 30, 1999 the Company filed a Current Report
on Form 8-K reporting that on April 22, 1999, the
Board of Directors of Sanderson Farms, Inc. declared
a regular quarterly cash dividend of $0.05 per each
outstanding share of common stock of the Company
payable on May 18, 1999 to shareholders of record on
May 4, 1999.
The Form 8-K also reported that on April 22, 1999,
the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a
"Right") for each outstanding Common Share. The
dividend is payable on May 18, 1999 to the
shareholders of record on May 4, 1999 (the "Record
Date"). The description and terms of the Rights are
set forth in the Agreement between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, dated as of April 22, 1999.
13
<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: May 21, 1999 By: /s/D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: May 21, 1999 By: /s/James a. Grimes
James A. Grimes
Secretary and Principal
Accounting Officer
14
<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 April 30, 1999, and the related
condensed consolidated statements of income (loss) for the three-month and six-
month periods ended April 30, 1999 and 1998, and the condensed consolidated
statements of cash flows for the six-month periods ended April 30, 1999 and
1998. 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, 1998, 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 08, 1998, 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, 1998, 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
May 20, 1999
15
<PAGE>
EXHIBIT 15b
Shareholders and Board of Directors
Sanderson Farms, Inc.
We are aware of the incorporation by reference in Post-Effective Amendment No.
1 to the Registration Statement (Form S-8, No. 33-67474) of Sanderson Farms,
Inc. for the registration of 750,000 shares of its common stock of our report
dated May 20, 1999 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, 1999.
Ernst & Young LLP
Jackson, Mississippi
May 20, 1999
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