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, 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
July 31, 1999.
<PAGE>
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--July 31, 1999 and
October 31, 1998
Condensed consolidated statements of income--Three months ended July
31, 1999 and 1998; Nine months ended July 31, 1999 and 1998
Condensed consolidated statements of cash flows--Nine months ended
July 31, 1999 and 1998
Notes to condensed consolidated financial statements--
July 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosure of Market Risks
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
1999 1998
---------------------------------
(Unaudited) (Note 1)
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 4,588 $ 3,626
Accounts receivables, net 35,122 31,023
Inventories - Note 2 51,508 42,879
Other current assets 7,931 7,664
------- -------
Total current assets 99,149 85,192
Property, plant and equipment 352,985 332,985
Less accumulated depreciation (167,657) (153,897)
------- -------
185,328 179,088
Other assets 1,571 1,391
------- -------
Total assets $286,048 $265,671
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $ 27,761 $ 21,499
Current maturities of long-
term debt 4,033 4,028
------- -------
Total current liabilities 31,794 25,527
Long-term debt, less current maturities 108,846 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 July 31, 1999 and
October 31, 1998, respectively 13,932 14,374
Paid-in capital 5,710 11,770
Retained earnings 110,799 103,338
------- -------
Total stockholders' equity 130,441 129,482
Total liabilities and stockholders' equity $286,048 $265,671
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
July 31, July 31,
1999 1998 1999 1998
------------------ ------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $148,842 $136,287 $409,657 $378,543
Cost and expenses:
Cost of sales 135,809 121,269 374,290 352,496
Selling, general and
administrative 5,683 4,338 15,521 14,085
------- ------- ------- -------
141,492 125,607 389,811 366,581
------- ------- ------- -------
OPERATING INCOME 7,350 10,680 19,846 11,962
Other income (expense):
Interest income 44 53 192 171
Interest expense (1,506) (1,908) (4,711) (5,927)
Other 58 (30) 46 (44)
------- ------- ------- -------
(1,404) (1,885) (4,473) (5,800)
------- ------- ------- -------
INCOME BEFORE INCOME
TAXES 5,946 8,795 15,373 6,162
Income tax expense 2,257 3,255 5,802 2,280
------- ------- ------- -------
NET INCOME $ 3,689 $ 5,540 $ 9,571 $ 3,882
======= ======= ======= =======
Earnings per share:
Basic $ .26 $ .39 $ .68 $ .27
======= ======= ======= =======
Diluted $ .26 $ .38 $ .67 $ .27
======= ======= ======= =======
Dividends per share $ .05 $ .05 $ .15 $ .15
======= ======= ======= =======
Basic weighted average
shares outstanding 13,932 14,370 14,114 14,369
======= ======= ======= =======
Diluted weighted average
shares outstanding 13,996 14,443 14,195 14,419
======= ======= ======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
July 31,
1999 1998
----------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 9,571 $ 3,882
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 18,282 17,292
Change in assets and liabilities:
(Increase) decrease in accounts receivable(4,099) 2,899
(Increase) decrease in inventories (8,629) 315
Decrease in refundable income taxes 0 2,112
Increase in other assets (850) (1,041)
Increase in accounts payable
and accrued expenses 6,262 5,604
------- -------
Total adjustments 10,966 27,181
------- -------
Net cash provided by
operating activities 20,537 31,063
Investing activities
Net proceeds from sales of property
and equipment 379 189
Capital expenditures (24,498) (15,673)
------- -------
Net cash used in investing activities (24,119) (15,484)
Financing activities
Principal payments on long-term debt (3,844) (2,998)
Net change in borrowings under revolving
line of credit (3,000) (11,000)
Retirement of Common Stock (6,916) 0
Long-term borrowings 20,000 0
Principal payments received on note
receivable-E.S.O.P. 0 202
Net proceeds from issuance of Common Stock 414 27
Dividends paid (2,110) (2,156)
------- --------
Net cash provided by (used in)
financing activities 4,544 (15,925)
------- --------
Net increase (decrease) in cash and temporary
cash investments 962 (346)
Cash and temporary cash investments
at beginning of period 3,626 1,531
------- -------
Cash and temporary cash investments
at end of period $ 4,588 $ 1,185
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 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 nine-month periods
ended July 31, 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.
<PAGE>
NOTE 2--INVENTORIES
Inventories consisted of the following:
JULY 31, October 31,
1999 1998
(In thousands)
Live poultry-broilers and breeders $30,664 $26,970
Feed, eggs and other 6,954 5,676
Processed poultry 5,663 3,522
Processed food 3,767 3,029
Packaging materials 4,460 3,682
------- -------
$51,508 $42,879
======= =======
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 AAct@) provides that the taxes on the cash basis
temporary differences as of that date are payable over 20 years beginning in
fiscal 1998 or in the first fiscal year in which the Company fails to qualify as
a AFamily Farming Corporation@ provided there are no changes in ownership
control. The Company will continue as a "Family Farming Corporation" provided
there are no changes in ownership control, which management does not anticipate
during fiscal 1999.
<PAGE>
NOTE 4--LONG-TERM CREDIT FACILITIES AND DEBT
During the quarter ended July 31, 1999, the Company completed a private
placement of $20 million in unsecured debt at 6.65% that matures in 2007. In
addition, the Company extended the maturity date of its revolving credit
agreement to July 31, 2002 and reduced the availability from $130 million to
$100 million.
NOTE 5--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
AAgreement@) with similar terms. Under the terms of the Agreement a one share
purchase (Aright@) 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 employee benefit 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.
<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, 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.
(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
Abelieves,@ Aestimates,@ Aplans,@ Aexpects,@ Ashould,@ Aoutlook,@ and
Aanticipates@ 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 products 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.
<PAGE>
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
During the third quarter of fiscal 1999 net sales were $148.8 million, an
increase of $12.6 million or 9.2% as compared to net sales during the third
quarter of fiscal 1998. The increase in the Company's net sales during the third
quarter resulted from an increase in the pounds of products sold of 24.6% and a
decrease in the average sale price of products of 12.4%. The increase in the
Company's pounds of products sold was the result of an increase in the pounds of
poultry products sold of 28.6% and a decrease in the pounds of prepared food
products sold of 26.1%. The additional pounds of poultry products resulted from
a planned increase in the average live weight of chickens processed as the
Company shifted certain of its chicken production from the fast food market to
the chill pack and big bird deboning markets. The Company expects the pounds of
poultry products sold during the fourth quarter of fiscal 1999 to be higher than
during the fourth quarter of fiscal 1998. The average sale price of poultry
products decreased 8.3% during the fourth quarter of fiscal 1999 as the poultry
industry experienced weak chicken prices due to an over supply of chicken and
other meats. During fiscal 1999 management reduced or eliminated sales of
certain less profitable prepared food items resulting in fewer pounds sold.
Net sales for the nine months ended July 31, 1999 as compared to the nine months
ended July 31, 1998 increased $31.1 million or 8.2% to $409.7 million. Net sales
of poultry products increased $50.9 million or 16.6%, while the net sales of
prepared food products decreased $19.8 million or 27.6%. During the nine months
ended July 31, 1999 the Company increased the pounds of chicken products sold
22.7% by increasing the average live weight of chickens and by increasing the
number of birds processed at the Company's processing facility in Brazos, Texas.
As discussed above, the Company's average sale price of poultry products was
adversely affected during the nine months ended July 31, 1999 as compared to the
nine months ended July 31, 1998 by an over supply of chicken and other meats in
the market place. The decrease in the net sales of prepared food products for
the nine months ended July 31, 1999 resulted from a decrease in the pounds of
prepared food products sold of 23.9% and a decrease in the average sale price of
prepared food products sold of 4.9%.
Cost of sales for the three months ended July 31, 1999 increased $14.5 million
or 12.0% as compared to the three months ended July 31, 1998. The cost of sales
of poultry products increased 23.5% due to the increased sales of poultry pounds
and decreases in the cash market prices of corn and soybean meal of 14.0% and
19.4%, respectively. Cost of sales of prepared food products sold during the
third quarter of fiscal 1999 as compared to the third quarter of fiscal 1998
decreased approximately $8.4 million or 35.6%, primarily from the decrease in
the pounds of prepared food products sold and lower chicken prices.
For the nine months ended July 31, 1999 as compared to the same period a year
ago, cost of sales increased $21.8 million or 6.2%. The Company's cost of sales
of poultry products increased $43.9 million or 15.4% due to the increase in the
pounds of poultry products sold and a decrease in the cash market prices of corn
and soybean meal of 15.9% and 24.5%, respectively. Cost of sales of prepared
food products for the nine months ended July 31, 1999 as compared to the nine
months ended July 31, 1998 decreased $22.1 million or 33.3% due to the reduction
or elimination of sales of certain less profitable prepared food items.
Selling, general and administrative expense for the three months and the nine
months ended July 31, 1999 as compared to the same periods during the previous
fiscal year increased $1.3 million and $1.4 million, respectively. This increase
is primarily from increased advertising expense related to the Company's shift
of poultry production from the fast food market segment to the chill pack and
big bird deboning market segments.
The Company's operating income for the quarter and the nine months ended July
31, 1999 decreased $3.3 million and increased $7.8 million, respectively. The
weakness in the poultry market during the third quarter of fiscal 1999 as
compared to the third quarter of fiscal 1998 more than offset the advantage of
lower feed grains. The Company's improved operating income for the nine months
ended July 31, 1999 as compared to the same period a year ago, reflect an
improved cost structure and lower cost of feed grains offset by lower prices for
poultry products. Leg quarter prices remain under pressure as a result of a
decrease in export demand, primarily from Russia, and lower breast meat prices
reflect an over supply of that product as well. As the Company expects this
trend of over supply of chicken and certain other meats to continue, the Company
will cut back chicken production beginning in October 1999 and continue through
the first fiscal quarter of fiscal 2000. This cutback, which includes our normal
holiday cutback, will reduce the Company's weekly production by approximately
12%. In addition to this cutback, the Company will delay the double shifting of
the second line at the Company's Brazos County, Texas processing facility until
the second quarter of fiscal 2000. Despite the challenges in the marketplace,
the Company and our industry continue to benefit from relatively low grain
prices. In light of predictions regarding this years corn and soybean harvest,
the Company should benefit from continued relatively low feed grain prices
during its next fiscal year.
For the three months ended July 31, 1999 as compared to the same period in
fiscal 1998 interest expense decreased $.4 million. For the nine months ended
July 31, 1999 as compared to the same period in fiscal 1998 interest expense
decreased $1.2 million. The Company's debt was lower during the first nine
months of fiscal 1999 as compared to the first nine months of fiscal 1998
resulting 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 nine months ended July 31,
1999 was 38.0% and 37.7%, respectively. The effective tax rate for the three
months and nine months ended July 31, 1998 was 37.0%.
Liquidity and Capital Resources
The Company=s current ratio and working capital at July 31, 1999 was 3.1 to 1
and $67.4 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 nine months
ended July 31, 1999 the Company spent approximately $24.5 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 through January 21, 2001. 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 nine months ended July 31, 1999 the Company
expended $6.9 million to repurchase and retire 478,000 shares of the Company=s
Common Stock.
The capital budget for fiscal 1999 was increased to $27.0 million from $21.5
million. The increase of $5.5 million 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 $30.0 million available under its revolving
credit agreement as of July 31, 1999.
During the quarter ended July 31, 1999, the Company completed a private
placement of $20 million in unsecured debt at 6.65% that matures in 2007.
Proceeds from the private placement were used to reduce borrowings under the
Company's revolving line of credit. The Company extended the due date of its
revolving line of credit to July 31, 2002 and reduced its available borrowings
under the revolver from $130 million to $100 million.
Impact of Year 2000 Issues
<PAGE>
The AYear 2000 problemA 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 A00")
and the year 2000 (also written A00@). 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 (AIT systems@), meaning those systems that deal with business and
financial information; and non-information technology systems (Anon-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. The cost of modifications to its
existing non-IT systems is not expected to exceed $.7 million of which $.6
million was expended through July 31, 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
July 31, 1999 of which $.6 million was capitalized and $.1 million was expensed
as incurred. Such modifications and conversions were substantially completed as
of January 31, 1999 and tested 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 occurrence 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.
<PAGE>
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
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 Disclosure of Market Risks
There have been no material changes in the market risks reported in the
Company's fiscal 1998 Annual Report on Form 10K.
<PAGE>
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 Report
Exhibit 15b Accountants' Letter re: Unaudited Financial
Information
(b) The Company did not file any reports on Form 8-K during the three
months ended July 31, 1999.
<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 26, 1999 By: /s/D. Michael Cockrell
D. Michael Cockrell
Treasurer and Chief
Financial Officer
Date: August 26, 1999 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 July 31, 1999, and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended July 31, 1999 and 1998, and the condensed consolidated statements
of cash flows for the nine-month periods ended July 31, 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 8, 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
August 23, 1999
<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 August 23, 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
July 31, 1999.
Ernst & Young LLP
Jackson, Mississippi
August 23, 1999
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FDS for 3rd Quarter 10Q FYE 10/31/99
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