SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X / Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1999
/ / 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 (IRS Employer
incorporation or organization) Identification
No.)
225 North 13th Avenue
Laurel, Mississippi 39440
(Address of principal executive
offices) (Zip Code)
Registrant's telephone number, including area code: (601) 649-4030 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to section 12(g) of the Act:
Common Stock, $1.00 per share par value
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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Aggregate market value (based on the closing sales price in the NASDAQ
National Market System) of the voting stock held by non-affiliates of the
Registrant as of December 31, 1999: approximately $47,064,379.
Number of Shares outstanding of the Registrant's common stock as of
December 31, 1999: 13,787,455 shares of common stock, $1.00 per share par value.
Portions of the Registrant's definitive proxy statement filed or to be
filed in connection with its 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III.
<PAGE>
INTRODUCTORY
Definitions. Except where the context indicates otherwise, the
following terms have the following respective meanings when used in this
Annual Report. "Registrant" and "Company" mean Sanderson Farms, Inc. and its
subsidiaries and predecessor organizations. "Fiscal year" means the fiscal
year ended October 31, 1999, which is the year for which this Annual Report
is filed.
Presentation and Dates of Information. Except for Item 4A herein, the Item
numbers and letters appearing in this Annual Report correspond with those used
in Securities and Exchange Commission Form 10-K (and, to the extent that it is
incorporated into Form 10-K, the letters used in the Commission's Regulation
S-K) as effective on the date hereof, which specifies the information required
to be included in Annual Reports to the Commission. Item 4A ("Executive Officers
of the Registrant") has been included by the Registrant in accordance with
General Instruction G(3) of Form 10-K and Instruction 3 of Item 401(b) of
Regulation S-K. The information contained in this Annual Report is, unless
indicated to be given as of a specified date or for the specified period, given
as of the date of this Report, which is January 26, 2000.
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF THE REGISTRANT'S BUSINESS
The Registrant was incorporated in Mississippi in 1955, and is a
fully-integrated poultry processing company engaged in the production,
processing, marketing and distribution of fresh and frozen chicken products. In
addition, through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods
Division), the Registrant is engaged in the processing, marketing and
distribution of processed and prepared food items.
The Registrant sells ice pack, chill pack and frozen chicken, in whole,
cut-up and boneless form, primarily under the Sanderson Farms7 brand name to
retailers, distributors, and fast food operators principally in the
southeastern, southwestern and western United States. During its fiscal year
ended October 31, 1999 the Registrant processed 242.5 million chickens, or
approximately 986.4 million dressed pounds. According to 1999 industry
statistics, the Registrant was the 7th largest processor of dressed chickens in
the United States based on estimated average weekly processing.
The Registrant's chicken operations presently encompass five hatcheries,
four feed mills, six processing plants and one by-products plant. The Registrant
has contracts with operators of approximately 494 grow-out farms that provide it
with sufficient housing capacity for its current operations. The Registrant also
has contracts with operators of 155 breeder farms.
The Registrant sells over 200 processed and prepared food items nationally
and regionally, primarily to distributors, national food service accounts,
retailers and club stores. These food items include frozen entrees, such as
chicken and dumplings, lasagna, seafood gumbo, and shrimp creole and specialty
products, such as corn dogs. The Registrant also sells a retail entree line of
six different two-pound frozen entrees including chicken primavera, lasagna with
meat, seafood gumbo and Mexican casserole with beef. This product line is
designed as a convenient, quality product for the family.
<PAGE>
Since the Registrant completed the initial public offering of its common
stock through the sale of 1,150,000 shares to an underwriting syndicate managed
by Smith Barney, Harris Upham & Co. Incorporated and Morgan Keegan & Co. Inc. in
May 1987, the Registrant has significantly expanded its operations to increase
production capacity, product lines and marketing flexibility. Through 1995, this
expansion included the expansion of the Registrant's Hammond, Louisiana
processing facility, the construction of new waste water facilities at the
Hammond, Louisiana and Collins and Hazlehurst, Mississippi processing
facilities, the addition of second shifts at the Hammond, Louisiana, Laurel,
Mississippi, Hazlehurst, Mississippi, and Collins, Mississippi processing
facilities, expansion of freezer and production capacity at its prepared foods
facility in Jackson, Mississippi, the expansion of freezer capacity at its
Laurel, Mississippi, Hammond, Louisiana and Collins, Mississippi processing
facilities, the addition of deboning capabilities at all of the Registrant's
poultry processing facilities, and the construction and start-up of its Pike
County, Mississippi, production and processing facilities, including a hatchery,
a feed mill, a processing plant, a waste water treatment facility and a water
treatment facility. During 1997, the Registrant completed the construction and
start-up of its Brazos County, Texas production and processing facilities,
including a hatchery, a feed mill located in Robertson County, Texas, a
processing plant, a waste water treatment facility and a water treatment
facility. In addition, since 1987, the Registrant completed the expansion and
renovation of the hatchery at its Hazlehurst, Mississippi production facilities,
and completed the renovation and expansion of its Collins, Mississippi
by-products facility, allowing for the elimination of a smaller by-products
facility at the Laurel, Mississippi plant.
Capital expenditures for fiscal 1999 were funded by working capital and
borrowings under a revolving credit agreement. Effective July 29, 1999, the
Registrant amended its revolving credit agreement to, among other things,
decrease the revolving credit available to the Registrant thereunder from $130.0
million to $100.0 million. On June 15, 1999, the Registrant entered into a Note
Purchase Agreement with the Lincoln National Life Insurance Company pursuant to
which the Company issued $20 million, 6.65% senior notes due July 7, 2007. The
proceed of such notes were used to pay a portion of the debt outstanding under
the revolving credit agreement. The Registrant anticipates that capital
expenditures for fiscal 2000 will be funded by internally generated working
capital and borrowings under the revolving credit agreement.
During fiscal 1997, the Registrant completed the start-up of its Brazos
County, Texas processing facility. During October 1998, the Registrant began
operating one line of its Brazos County, Texas processing facility on a double
shift basis. The Registrant currently has additional processing capacity
available to it through the double shifting of the second line of the Brazos
County, Texas processing facility and through the double shifting of the second
line at its Collins, Mississippi processing facility. In addition, the
Registrant continually evaluates internal and external expansion opportunities
to continue its growth in poultry and/or related food products.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Not applicable.
<PAGE>
(c) NARRATIVE DESCRIPTION OF BUSINESS
REGISTRANT'S BUSINESS
General
The Registrant is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and the preparation, processing,
marketing and distribution of processed and prepared food items.
The Registrant sells chill pack, ice pack and frozen chicken, both whole
and cut-up, primarily under the Sanderson Farms7 brand name to retailers,
distributors and fast food operators principally in the southeastern,
southwestern and western United States. During its fiscal year ended October 31,
1999, the Registrant processed approximately 242.5 million chickens, or
approximately 986.4 million dressed pounds. In addition, the Registrant
purchased and further processed 3.9 million pounds of poultry products during
fiscal 1999. According to 1999 industry statistics, the Registrant was the 7th
largest processor of dressed chicken in the United States based on estimated
average weekly processing.
The Registrant conducts its chicken operations through Sanderson Farms,
Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), both
of which are wholly-owned subsidiaries of Sanderson Farms, Inc. The production
subsidiary, Sanderson Farms, Inc. (Production Division), which has facilities in
Laurel, Collins, Hazlehurst and Pike County, Mississippi, and Bryan, Texas, is
engaged in the production of chickens to the broiler stage. Sanderson Farms,
Inc. (Processing Division), which has facilities in Laurel, Collins, Hazlehurst
and Pike County, Mississippi, Hammond, Louisiana, and Bryan, Texas, is engaged
in the processing, sale and distribution of chickens.
The Registrant conducts its processed and prepared foods business through
its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division), which has a
facility in Jackson, Mississippi. The Foods Division is engaged in the
processing, marketing and distribution of over 200 processed and prepared food
items, which it sells nationally and regionally, principally to distributors,
national food service accounts, retailers and club stores.
Products
The Registrant has the ability to produce a wide range of processed
chicken products and processed and prepared food items thereby allowing it to
take advantage of marketing opportunities as they arise.
Processed chicken is first saleable as an ice packed whole chicken. The
Registrant adds value to its ice packed whole chickens by removing the giblets,
weighing, packaging and labeling the product to specific customer requirements
and cutting the product based on customer specifications. The additional
processing steps of giblet removal, close tolerance weighing and cutting
increase the value of the product to the customer over whole chickens by
reducing customer handling and cutting labor and capital costs, reducing the
shrinkage associated with cutting, and ensuring consistently sized portions.
<PAGE>
With respect to chill pack products, additional value can be achieved by
deep chilling and packaging whole chickens in bags or combinations of fresh
chicken parts in various sized individual trays under the Registrant's brand
name, which then may be weighed and prepriced, based on each customer's needs.
The chill pack process increases the value of the product by extending shelf
life, reducing customer weighing and packaging labor, and providing the customer
with a wide variety of products with uniform, well designed packaging, all of
which enhance the customer's ability to merchandise chicken products.
To satisfy some customers' merchandising needs, the Registrant quick
freezes the chicken product, which adds value by meeting the customers'
handling, storage, distribution and marketing needs and by permitting shipment
of product overseas where transportation time may be as long as 25 days.
Value added products usually generate higher sale prices per pound,
exhibit less finished price volatility and generally result in higher and more
consistent profit margins over the long-term than non-value added product forms.
Selling fresh chickens as a prepackaged brand name product has been a
significant step in the development of the value added, higher margin consumer
business. The Registrant evaluates daily the potential profitability of all
product lines and attempts to maximize its profits on a short-term basis by
making strategic changes in its product mix to meet customer demand.
The following table sets forth, for the periods indicated, the
contribution, as a percentage of sales of chicken products, of value added and
non-value added chicken products.
Fiscal Year Ended October 31,
-----------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Value added 98.2% 98.2% 98.1% 98.6% 99.2%
Non-value added 1.8% 1.8% 1.9% 1.4% .8%
Total Registrant
chicken sales . 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The following table sets forth, for the years indicated, the contribution, as a
percentage of net sales, of each of the Registrant's major product lines.
Fiscal Year Ended October 31,
1995 1996 1997 1998 1999
Registrant processed
chicken:
Value added:
Chill pack 19.3% 18.6% 20.8% 24.4% 33.2%
Fresh bulk pack 51.6 49.9 45.9 46.6 46.5
Frozen 13.5 17.0 15.7 11.6 8.0
---- ---- ---- ---- -----
Subtotal 84.4 85.5 82.4 82.6 87.7
---- ---- ---- ---- ----
Non-value added:
Ice pack 0.7 0.9 0.9 .7 .5
Frozen 0.8 0.7 0.7 .5 .2
--- --- --- -- --
Subtotal 1.5 1.6 1.6 1.2 .7
--- --- --- --- --
Total Company
processed chicken 85.9 87.1 84.0 83.8 88.4
Processed and
prepared foods 14.1 12.9 16.0 16.2 11.6
---- ---- ---- ---- ----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
<PAGE>
Sales and Marketing
The Registrant's chicken products are sold primarily to retailers
(including national and regional supermarket chains and local supermarkets),
distributors and fast food operators located principally in the southeastern,
southwestern and western United States. The Registrant also sells its chicken
products to governmental agencies and to customers who resell the products
outside of the continental United States. This wide range of customers, together
with the Registrant's broad product mix, provides the Registrant with
flexibility in responding to changing market conditions in its effort to
maximize profits. This flexibility also assists the Registrant in its efforts to
reduce its exposure to market volatility.
Sales and distribution of the Registrant's chicken products are conducted
primarily by sales personnel at the Registrant's general corporate offices in
Laurel, Mississippi and by customer service representatives at each of its six
processing complexes and through independent food brokers. Each complex has
individual on-site distribution centers and uses the Registrant's truck fleet,
as well as contract carriers, for distribution of its products.
Generally, the Registrant prices much of its chicken products based upon
weekly market prices reported by the United States Department of Agriculture.
Consistent with the industry, the Registrant's profitability is impacted by such
market prices, which may fluctuate substantially and exhibit cyclical
characteristics. The Registrant adds a markup to base prices, which depends upon
value added, volume, product mix and other factors. While base prices may change
weekly, the Registrant's markup is generally negotiated from time to time with
the Registrant's customers. The Registrant's sales are generally made on an
as-ordered basis, and the Registrant maintains few long-term sales contracts
with its customers.
The Registrant uses television, radio and newspaper advertising, coupon
promotion, point of purchase material and other marketing techniques to develop
consumer awareness of and brand recognition for its Sanderson Farms7 products.
The Registrant has achieved a high level of public awareness and acceptance of
its products through television advertising featuring a celebrity as the
Registrant's spokesperson. Brand awareness is an important element of the
Registrant's marketing philosophy, and it intends to continue brand name
merchandising of its products.
The Registrant's processed and prepared food items are sold nationally and
regionally, primarily to distributors, national food service accounts, retailers
and club stores. Sales of such products are handled by independent food brokers
located throughout the United States, primarily in the southeast and southwest
United States, and by sales personnel of the Registrant. Processed and prepared
food items are distributed from the Registrant's plant in Jackson, Mississippi,
through arrangements with contract carriers.
<PAGE>
Production and Facilities
General. The Registrant is a vertically-integrated producer of fresh and
frozen chicken products, controlling the production of hatching eggs, hatching,
feed manufacturing, growing, processing and packaging of its product lines.
Breeding and Hatching. The Registrant maintains its own breeder flocks for
the production of hatching eggs. The Registrant's breeder flocks are acquired as
one-day old chicks (known as pullets or cockerels) from primary breeding
companies that specialize in the production of genetically designed breeder
stock. As of October 31, 1999, the Registrant maintained contracts with 33
pullet farm operators for the grow-out of pullets (growing the pullet to the
point at which it is capable of egg production, which takes approximately six
months). Thereafter, the mature breeder flocks are transported by Registrant
vehicles to breeder farms that are maintained, as of October 31, 1999, by 122
independent contractors under the Registrant's supervision. Eggs produced by
independent contract breeders are transported to Registrant's hatcheries in
Registrant's vehicles.
The Registrant owns and operates five hatcheries located in Mississippi
and Texas where eggs are incubated and hatched in a process requiring 21 days.
Once hatched, the day-old chicks are vaccinated against common poultry diseases
and are transported by Registrant vehicles to independent contract grow-out
farms. As of October 31, 1999, the Registrant's hatcheries were capable of
producing an aggregate of approximately 5.6 million chicks per week.
Grow-out. The Registrant places its chicks on 494 grow-out farms, as of
October 31, 1999, located in Mississippi, Louisiana and Texas where broilers are
grown to an age of approximately six to seven weeks. The farms provide the
Registrant with sufficient housing capacity for its operations, and are
typically family-owned farms operated under contract with the Registrant. The
farm owners provide facilities, utilities and labor; the Registrant supplies the
day-old chicks, feed and veterinary and technical services. The farm owner is
compensated pursuant to an incentive formula designed to promote production cost
efficiency.
Historically, the Registrant has been able to accommodate expansion in
grow-out facilities through additional contract arrangements with independent
growers.
Feed Mills. An important factor in the grow-out of chickens is the rate at
which chickens convert feed into body weight. The Registrant purchases on the
open market the primary feed ingredients, including corn and soybean meal, which
historically have been the largest cost components of the Registrant's total
feed costs. The quality and composition of the feed are critical to the
conversion rate, and accordingly, the Registrant formulates and produces its own
feed. As of October 31, 1999, the Registrant operated four feed mills, three of
which are located in Mississippi and one in Texas. The Registrant's annual feed
requirements for fiscal 1999 were approximately 1,192,000 tons, and it has the
capacity to produce approximately 1,685,000 tons of finished feed annually under
current configurations.
<PAGE>
Feed grains are commodities subject to volatile price changes caused by
weather, size of harvest, transportation and storage costs and the agricultural
policies of the United States and foreign governments. On October 31, 1999, the
Registrant had approximately 737,000 bushels of corn storage capacity at its
feed mills, which was sufficient to store all of its weekly requirements for
corn. Generally, the Registrant purchases its corn and other feed supplies at
current prices from suppliers and, to a limited extent, direct from farmers.
Feed grains are available from an adequate number of sources. Although the
Registrant has not experienced and does not anticipate problems in securing
adequate supplies of feed grains, price fluctuations of feed grains can be
expected to have a direct and material effect upon the Registrant's
profitability. Although the Registrant sometimes purchases grains in forward
markets, it cannot eliminate the potentially adverse effect of grain price
increases. During the fall of 1998, market prices for corn and soy meal reached
levels that prompted the Company to buy a significant portion of its 1999
requirements on a forward basis. As a result of these purchases, the Company
substantially reduced its exposure to the risk of material increases in feed
grain prices during its fiscal year ending October 31, 1999.
Processing. Once the chicks reach processing weight, they are transported
to the Registrant's processing plants. These plants use modern, highly automated
equipment to process and package the chickens. The Registrant's Pike County,
Mississippi processing plant, which currently operates two processing lines on a
double shift basis, is currently processing approximately 1,200,000 chickens per
week. The Registrant's Collins, Mississippi processing plant, which is currently
operating one of its two lines on a double shift basis and one line on a single
shift basis, is currently processing approximately 900,000 chickens per week.
The Registrant's Brazos County, Texas processing plant, which is currently
operating one line on a single shift basis and one line on a double shift basis,
is currently processing approximately 900,000 chickens per week. The
Registrant's Laurel and Hazlehurst, Mississippi and Hammond, Louisiana
processing plants currently operate on a double shift basis, are currently
processing approximately 1,800,000 chickens per week. The Registrant also has
the capabilities to produce deboned product at six processing facilities. At
October 31, 1999, these deboning facilities were operating on a double shifted
basis resulting in a combined capacity to process approximately 7.5 million
pounds of product per week.
Sanderson Farms, Inc. (Foods Division). The facilities of Sanderson Farms,
Inc. (Foods Division) are located in Jackson, Mississippi in a plant with
approximately 75,000 square feet of refrigerated manufacturing and storage
space. The plant uses highly automated equipment to prepare, process and freeze
food items. The Registrant could increase significantly its production of
processed and prepared food items without incurring significant capital
expenditures or delays.
Executive Offices; Other Facilities. The Registrant's corporate offices
are located in Laurel, Mississippi. As of October 31, 1999, the Registrant
operated one by-products plant, and six automotive maintenance shops which
service approximately 466 Registrant over-the-road and farm vehicles. In
addition, the Registrant has one child care facility located near its Collins,
Mississippi, processing plant currently serving over 185 children.
Quality Control
The Registrant believes that quality control is important to its business
and conducts quality control activities throughout all aspects of its
operations. The Registrant believes these activities are beneficial to efficient
production and in assuring its customers wholesome, high quality products.
From the corporate offices, the Director of Technical Services supervises
the operation of a modern, well-equipped laboratory which, among other things,
monitors sanitation at the hatcheries, quality and purity of the Registrant's
feed ingredients and feed, the health of the Registrant's breeder flocks and
broilers, and conducts microbiological tests of live chickens, facilities and
finished products. The Registrant conducts on-site quality control activities at
each of the five processing plants and the processed and prepared food plant.
<PAGE>
Regulation
The Registrant's facilities and operations are subject to regulation by
various federal and state agencies, including, but not limited to, the federal
Food and Drug Administration ("F.D.A."), the United States Department of
Agriculture ("U.S.D.A."), the Environmental Protection Agency, the Occupational
Safety and Health Administration and corresponding state agencies. The
Registrant's chicken processing plants are subject to continuous on-site
inspection by the U.S.D.A. The Sanderson Farms, Inc. (Foods Division) processing
plant operates under the U.S.D.A.'s Total Quality Control Program which is a
strict self-inspection plan written in cooperation with and monitored by the
U.S.D.A. The F.D.A. inspects the production of the Registrant's feed mills.
Compliance with existing regulations has not had a material adverse effect
upon the Registrant's earnings or competitive position in the past and is not
anticipated to have a materially adverse effect in the future. Management
believes that the Registrant is in substantial compliance with existing laws and
regulations relating to the operation of its facilities and does not know of any
major capital expenditures necessary to comply with such statutes and
regulations.
The Registrant takes extensive precautions to ensure that its flocks are
healthy and that its processing plants and other facilities operate in a healthy
and environmentally sound manner. Events beyond the control of the Registrant,
however, such as an outbreak of disease in its flocks or the adoption by
governmental agencies of more stringent regulations, could materially and
adversely affect its operations.
Competition
The Registrant is subject to significant competition from regional and
national firms in all markets in which it competes. Some of the Registrant's
competitors have greater financial and marketing resources than the Registrant.
The primary methods of competition are price, product quality, number of
products offered, brand awareness and customer service. The Registrant has
emphasized product quality and brand awareness through its advertising strategy.
See "Business - Sales and Marketing". Although poultry is relatively inexpensive
in comparison with other meats, the Registrant competes indirectly with the
producers of other meats and fish, since changes in the relative prices of these
foods may alter consumer buying patterns.
Sources of Supply
During fiscal 1999, the Registrant purchased its pullets and its cockerels
from four (4) major breeders. The Registrant has found the genetic cross of the
breeds supplied by these companies to produce chickens most suitable to the
Registrant's purposes. The Registrant has no written contracts with these
breeders for the supply of breeder stock. Other sources of breeder stock are
available, and the Registrant continually evaluates these sources of supply.
Should breeder stock from its present suppliers not be available for any reason,
the Registrant believes that it could obtain adequate breeder stock from other
suppliers.
Other major raw materials used by the Registrant include feed grains,
cooking ingredients and packaging materials. The Registrant purchases these
materials from a number of different vendors and believes that its sources of
supply are adequate for its present needs. The Registrant does not anticipate
any difficulty in obtaining these materials in the future.
<PAGE>
Seasonality
The demand for the Registrant's chicken products generally is greatest
during the spring and summer months and lowest during the winter months.
Trademarks
The Registrant has registered with the United States Patent and Trademark
Office the trademark Sanderson Farms7 which it uses in connection with the
distribution of its premium grade chill pack products. The Registrant considers
the protection of this trademark to be important to its marketing efforts due to
consumer awareness of and loyalty to the Sanderson Farms7 label. The Registrant
also has registered with the United States Patent and Trademark Office seven
other trademarks which are used in connection with the distribution of chicken
and other products and for other competitive purposes.
The Registrant has registered with the United States Patent and Trademark
Office the trademark Sanderson Farms7 which it uses in connection with the
distribution of its prepared foods and two pound frozen entree products, as well
as in connection with the distribution of its premium grade chill pack chicken
products.
The Registrant, over the years, has developed important non-public
proprietary information regarding product related matters. While the Registrant
has internal safeguards and procedures to protect the confidentiality of such
information, it does not generally seek patent protection for its technology.
Employees and Labor Relations
As of October 31, 1999, the Registrant had 8,224 employees, including 751
salaried and 7,473 hourly employees. A collective bargaining agreement with the
United Food and Commercial Workers International Union covering 579 hourly
employees who work at the Registrant's processing plant in Hammond, Louisiana
expired on November 30, 1998. That contract was renegotiated and executed on
November 1, 1998, and has been extended to November 30, 2001.The collective
bargaining agreement has a grievance procedure and no strike-no lockout clauses
that should assist in maintaining stable labor relations at the Hammond plant.
A collective bargaining agreement with the Laborers' International Union
of North America, Professional Employees Local Union #693, AFL-CIO, covering 322
hourly employees who work at the Registrant's processing plant in Hazlehurst,
Mississippi was negotiated and signed by the union and the Registrant effective
July 15, 1995. This Agreement expired on June 30, 1999, and was renegotiated and
executed on July 26, 1999, and has a new expiration date of December 31, 2002.
This collective bargaining agreement has a grievance procedure and no strike-no
lockout clauses that should assist in maintaining stable labor relations at the
Hazlehurst plant.
A collective bargaining agreement with the Laborers' International Union of
North America, Professional Employees Local Union #693, AFL-CIO, covering 1126
hourly employees who work at the Registrant's processing plant in Collins,
Mississippi was negotiated and signed by the union and the Registrant effective
September 9, 1995, and expired on December 30, 1999. Negotiations were completed
and a new agreement was reached on January 13, 2000. The new agreement has a
termination date of December 31, 2003. A petition was filed with the National
Labor Relations Board on January 3, 1999 by two employees at the Collins plant
seeking to decertify the union as collective bargaining representative for the
employees at the Collins, Mississippi processing plant. The petition is pending,
although no date has been set for a hearing on the petition, or an election
thereon.
On June 9, 1999, the production, maintenance and clean-up employees at the
Company's Brazos County, Texas poultry processing facility voted to be
represented by the United Food and Commercial Workers Union Local #408, AFL-CIO.
A collective bargaining agreement was negotiated and signed on October 7, 1999,
and will expire on December 31, 2002. This collective bargaining agreement has a
grievance procedure and no strike - no lockout clauses that should assist in
maintaining stable labor relations at the Brazos County, Texas processing
facility.
On May 28, 1999, truck drivers at the Company's Brazos County, Texas
processing and production facilities voted to be represented in collective
bargaining by the Teamsters International Local #968. Negotiations with this
union were completed in December 1999, and a collective bargaining agreement
effective January 1, 2000 was signed, which agreement will expire on December
31, 2002. This agreement includes a provision allowing re-opening of bargaining
during January 2000 on certain economic issues, and the Company anticipates
further negotiation on certain economic issues in this contract.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
The Registrant engages in no material foreign operations, and no material
portion of its revenues was derived from customers in foreign countries.
<PAGE>
Item 2. Properties.
The Registrant's principal properties are as follows:
Use Location (City, State)
Poultry complex, including Laurel, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Pike County, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Hazlehurst, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Brazos and Robertson Counties,
poultry processing plant, Texas
hatchery and feedmill
Poultry processing plant Hammond, Louisiana
Poultry processing plant, Collins, Mississippi
hatchery and by-products
plant
Prepared food plant Jackson, Mississippi
Corporate general offices Laurel, Mississippi
The Registrant owns substantially all of its major operating facilities
with the following exceptions: one processing plant and feed mill complex is
leased on an annual renewal basis through 2063 with an option to purchase at a
nominal amount, at the end of the lease term. One processing plant complex is
leased under four leases, which are renewable annually through 2061, 2063, 2075
and 2073, respectively. Certain infrastructure improvements associated with a
processing plant are leased under a lease which expires in 2012 and is
thereafter renewable annually through 2091. All of the foregoing leases are
capital leases.
There are no material encumbrances on the major operating facilities owned
by the Registrant, except that the plant of Sanderson Farms, Inc. (Foods
Division) is encumbered by a mortgage which collateralizes a note with an
outstanding principal balance of $1.2 on December 31, 1999, which bears interest
at the rate of 5% per annum and is payable in equal annual installments through
2009. In addition, under the terms of the revolving credit agreement effective
July 29, 1996, as amended, and under the $20 million long-term fixed rate loan
agreements effective in February 1993 and June 1999, the Registrant may not
pledge any additional assets as collateral other than fixed assets up to 15% of
its tangible assets.
Management believes that the Company's facilities are suitable for its
current purposes, and believes that current renovations and expansions will
enhance present operations and allow for future internal growth.
<PAGE>
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than routine
litigation incidental to the Registrant's business, to which the Registrant is a
party or of which its property is the subject, and no such proceedings are known
by the Registrant to be contemplated by governmental authorities.
Item 4. Submission of Matters to
a Vote of Security Holders.
No matters were submitted to a vote of the Registrant's security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the Fiscal Year.
Item 4A. Executive Officers of the Registrant.
Executive
Name Age Office Officer Since
----------------------------------------------------------------
Joe F. Sanderson, Jr. 53 Chairman of the Board, 1984 (1)
President and
Chief Executive
Officer
D. Michael Cockrell 42 Treasurer and Chief 1993 (2)
Financial Officer,
Board Member
James A. Grimes 51 Secretary and 1993 (3)
Chief Accounting
Officer
Lampkin Butts 48 Vice President - Sales, 1996 (4)
Board Member
(1) Joe F. Sanderson, Jr. has served as President and Chief Executive Officer
of the Registrant since November 1, 1989, and as Chairman of the Board
since January 8, 1998. From January 1984, to November 1989, Mr. Sanderson
served as Vice-President, Processing and Marketing of the Registrant.
(2) D. Michael Cockrell became Treasurer and Chief Financial Officer of the
Registrant effective November 1, 1993, and was elected to the Board of
Directors on February 19, 1998. Prior to that time, for more than five
years, Mr. Cockrell was a member and shareholder of the Jackson,
Mississippi law firm of Wise Carter Child & Caraway, Professional
Association.
(3) James A. Grimes became Secretary of the Registrant effective November 1,
1993. Mr. Grimes also serves as Chief Accounting Officer, which position
he has held since 1985.
(4) Lampkin Butts became Vice President - Sales of the Registrant effective
November 1, 1996, and was elected to the Board of Directors on February
19, 1998. Prior to that time, Mr. Butts served the Registrant in various
capacities since 1973.
<PAGE>
Executive officers of the Company serve at the pleasure of the Board of
Directors. There are no understandings or agreements relating to any person's
service or prospective service as an executive officer of the Registrant.
<PAGE>
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.
The Company's common stock is traded on the NASDAQ National Market System
under the symbol SAFM. The number of stockholders as of December 31, 1999, was
1,434.
The following table shows quarterly cash dividends and quarterly high and
low prices for the common stock for the past two fiscal years. National Market
System quotations are based on actual sales prices.
Stock Price
Fiscal Year 1999 High Low Dividends
---------------------------------------------------
First Quarter $17.00 $14.00 $.05
Second Quarter $16.00 $12.00 $.05
Third Quarter $15.00 $12.13 $.05
Fourth Quarter $13.06 $ 9.38 $.05
Stock Price
Fiscal Year 1998 High Low Dividends
---------------------------------------------------
First Quarter $15.50 $11.88 $.05
Second Quarter $14.00 $10.50 $.05
Third Quarter $15.38 $11.44 $.05
Fourth Quarter $17.13 $11.88 $.05
On December 31, 1999 the closing sales price for the common stock was $8.5625
per share.
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended October 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $559,031 $521,394 481,789 $455,100 $392,896
Operating income 23,008 31,822 7,467 1,189 21,239
Income (loss) before
extraordinary gain 10,546 15,256 558 (2,443) 10,856
Net income (loss) 10,546 15,256 1,234 (2,443) 10,856
Basic and diluted earnings (loss)
per share before extraordinary gain .75 1.06 .04 (.18) .80
Basic and diluted earnings (loss)
per share .75 1.06 .09 (.18)
.80
Working capital 67,272 59,665 66,751 60,826 47,605
Total assets 283,510 265,671 264,893 237,226 193,197
Long-term debt, less
current maturities 104,651 95,695 118,782 90,102 54,806
Stockholders' equity 130,844 129,482 116,771 118,250 114,319
Cash dividends declared
per share $ .20 $ .20 $ .20 $ .20 $ .20
</TABLE>
QUARTERLY FINANCIAL DATA
Fiscal Year 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
(Unaudited)
Net sales $126,229 $134,586 $148,842 $149,374
Operating income 7,022 5,474 7,350 3,162
Net income 3,444 2,438 3,689 975
Basic and diluted
earnings per share $ .24 $ .17 $ .26 $ .08
Fiscal Year 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
(Unaudited)
Net sales $ 113,674 $ 128,582 $ 136,287 $ 142,851
Operating income (loss) (4,344) 5,687 10,680 19,799
Net income (loss) (3,950) 2,292 5,540 11,374
Basic and diluted
earnings (loss) per share $ (.27) $ .16 $ .39 $ .79
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
PERFORMANCE
This Annual Report contains certain forward-looking statements about the
business, financial condition and prospects of the Company. The actual
performance of the Company could differ materially from that indicated by the
forward-looking statements because of various risks and uncertainties,
including, without limitation, changes in the market price for the Company's
finished products and for feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with commodity
markets, as described below; changes in competition and economic conditions;
various inventory risks due to changes in market conditions; changes in
governmental rules and regulations applicable to the Company and the poultry
industry; and other risks described below. These risks and uncertainties can not
be controlled by the Company. When used in this Annual 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.
GENERAL
The Company's poultry operations are integrated through its control of all
functions relative to the production of its chicken products, including hatching
egg production, hatching, feed manufacturing, raising chickens to marketable age
("grow-out"), processing and marketing. Consistent with the poultry industry,
the Company's profitability is substantially impacted by the market price 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. Over the past three fiscal years, these other
production costs have averaged approximately 16.4 % of the Company's total
production costs.
The Company believes that value-added products are subject to less price
volatility and generate higher, more consistent profit margin 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. 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,
primarily to distributors, food service establishments and retailers. A majority
of the prepared food items are made to the specifications of food service users.
<PAGE>
Poultry prices per pound, as measured by the Georgia dock price, fluctuated
during the three years ended October 31, 1999 as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 1999
High $.6825* $.6275 $.6150 $.6150
Low $.6275 $.5750* $.5825 $.5850
Fiscal 1998
High $ .5850 $.5775 $.6825 $.7150*
Low $ .5550* $.5550 $.5775 $.6875
Fiscal 1997
High $.6600* $.6325 $.6275 $.6325
Low $.6375 $.6125 $.6075 $.5900*
*Year High/Low
During fiscal 1998, the Company benefitted from favorable grain prices, improved
market prices for poultry products during the second half of fiscal 1998 and the
expansion program as compared to fiscal 1997. For the year ended October 31,
1999 as compared to the year ended October 31, 1998, lower prices for poultry
products more than offset an advantage in the cost of feed grains. The decrease
in net income for the fourth quarter of fiscal 1999 from the fourth quarter of
fiscal 1998 resulted primarily from lower prices for poultry and slightly higher
grain prices.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
The Company's net sales for fiscal 1999 were $559.0 million, an increase of
$37.6 million or 7.2% over fiscal 1998. The increase in the Company's net sales
resulted from a 24.0% increase in the pounds of poultry products sold which was
partially offset by decreases in the average sale price of poultry products and
prepared food products of 8.1% and 4.4%, respectively, and a decrease in the
pounds of prepared food products sold of 21.1%. The additional pounds of poultry
products sold resulted primarily from an 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. During
fiscal 1999 as compared to fiscal 1998, the poultry industry experienced lower
average sale prices for poultry products due to an over supply of chicken and
other meats in the market place. A decrease in the sales of prepared food
products for fiscal 1999 as compared to fiscal 1998 was the result of decreases
in the pounds of prepared food products sold of 21.1% and the decrease in the
average sale price of prepared food products of 4.4%. During fiscal 1999
management reduced or eliminated sales of certain less profitable prepared food
items resulting in fewer pounds of prepared food products sold.
<PAGE>
The Company's cost of sales for fiscal 1999 as compared to fiscal 1998 increased
$44.7 million to $514.2 million. Cost of sales of poultry products increased
$70.2 million or 18.2% during fiscal 1999. The increase in pounds of poultry
products sold of 24.0% and decreases in the cash market prices for corn and
soybean meal of 13.0% and 17.7%, respectively, were the primary factors
resulting in the net increase in cost of sales of poultry products during fiscal
1999 as compared to fiscal 1998. Cost of sales of prepared food products sold
decreased approximately $25.5 million or 30.5% during fiscal 1999 as compared to
fiscal 1998. This decrease is primarily from the planned decrease in the pounds
of prepared food products sold and lower prices of chicken products which are a
major ingredient in many of the products sold by the prepared foods division.
Selling, general and administrative expenses for fiscal 1999 increased $1.7
million, or 8.5%, as compared to fiscal 1998. This increase reflects the
additional advertising and marketing costs incurred during fiscal 1999 as the
Company shifted poultry production from the fast food market segments to the
chill pack and big bird debone market segments. In addition, the increase
reflects certain of the Company's cost of modifications to its information
technology systems that were expensed during fiscal 1999.
The Company's operating income during fiscal 1999 decreased $8.8 million as
compared to fiscal 1998. The weakness in the poultry market during the second
half of fiscal 1999 as compared to the same period during fiscal 1998 more than
offset the advantage of the lower cost of feed grains. 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. Because the Company expects this trend of over supply of chicken and
certain other meats to continue, the Company cut back chicken production in
October 1999 and plans to continue the cutback at least through the end of our
first fiscal quarter of 2000. Despite the challenges in the marketplace, the
Company believes that it will continue to benefit from relatively low grain
prices.
Interest expense decreased $1.3 million as a result of lower outstanding debt
during fiscal 1999 as compared to fiscal 1998.
The effective tax rate during fiscal 1999 was approximately 37.8% as compared to
37.4% during fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
For the year ended October 31, 1998, net sales were $521.4 million, an increase
of $39.6 million or 8.2% over fiscal 1997. Increases in the pounds of poultry
products sold and prepared food products sold of 8.0% and 9.2%, respectively,
were the primary reasons for the increase in net sales. The additional poultry
pounds were produced by the Company's new complex in Brazos and Robertson
counties, Texas. The Company's average sale price of poultry products decreased
1.6% during fiscal 1998 as compared to fiscal 1997. A simple average of the
Georgia dock prices for fiscal 1998 as compared to fiscal 1997 decreased 1.7%.
Net sales of prepared food products increased $14.4 million or 18.9% over the
previous fiscal year. This increase resulted from an of increase of 9.2% in the
pounds of prepared food products sold and an increase in the pounds sold of
cooked chicken products, which have a higher average selling price than the
prepared food division's average product mix during fiscal 1997.
During fiscal 1998, cost of sales increased $14.2 million, or 3.1%, as compared
to fiscal 1997. Cost of sales of poultry products decreased $1.5 million or .4%
despite an increase in the pounds of poultry products sold of 8.0%. During
fiscal 1998, the Company benefitted from lower cost of feed grains. A simple
average of the corn and soybean meal cash market prices reflected decreases of
11.0% and 33.3%, respectively. Cost of sales of prepared food products increased
$15.7 million or 23.1% during the twelve months ended October 31, 1998 as
compared to the twelve months ended October 31, 1997. This increase in cost of
sales of prepared food products was the result of the additional pounds of
prepared food products sold and the change in the product mix.
<PAGE>
Selling, general and administrative expenses for fiscal 1998 increased $1.1
million, or 5.7%, as compared to fiscal 1997. During fiscal 1998 the Company
contributed $1.1 million to the Employees Stock Ownership Plan. The Company did
not contribute to the Employees Stock Ownership Plan during fiscal 1997.
The Company's operating income for fiscal 1998 was $31.8 million, an increase of
$24.4 million over the fiscal 1997 operating income of $7.5 million. The strong
results for the fiscal year reflected favorable grain prices, a much improved
poultry market in the second half of fiscal 1998 and the benefits of our ongoing
expansion program.
Interest expense increased approximately $1.1 million during fiscal 1998 as
compared to fiscal 1997. During fiscal 1997, the Company capitalized interest
cost of approximately $0.5 million associated with the construction of the new
complex in Texas. The Company did not capitalize any interest cost during fiscal
1998.
The effective tax rate during fiscal 1998 was approximately 37.4% as compared to
39.5% during fiscal 1997. The decreased effective rate is the result of the
change in nondeductible expenses as a percentage of pretax income.
Liquidity and Capital Resources
The Company's working capital at October 31, 1999 was $67.3 million and its
current ratio was 3.1 to 1, as compared to working capital of $59.7 million and
a current ratio or 3.3 to 1 at October 31, 1998. The Company expended
approximately $28.6 million during fiscal 1999 on planned capital projects. Also
during fiscal 1999, the Company repurchased and retired 478,000 shares of its
common stock at a cost of approximately $6.9 million. Under the plan approved by
the Company's Board of Directors on January 21, 1999, the Company may repurchase
a total of 1.0 million shares of its common stock prior to 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.
The Company's capital budget for fiscal 2000 is approximately $15.8 million.
Included in the fiscal 2000 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's capital
expenditures for fiscal 2000 are expected to be funded from working capital and
cash flows from operations; however, if needed the Company has $34.0 million
available under its revolving credit facility as of October 31, 1999.
During the third quarter of fiscal 1999, the Company completed a private
placement of $20.0 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 $130.0 million to $100.0 million.
<PAGE>
Impact of Year 2000 Issues
The Company completed its preparations for the Year 2000 issue and experienced
no significant Year 2000 problems. The Company believes no continued exposure to
Year 2000 issues exists. The cost of modifications to existing software and
conversions to new software for the Year 2000 issues totaled approximately $.5
million and was substantially completed by January 31, 1999. In addition,
approximately $.4 million was capitalized because certain personal computers
were replaced in the normal course of business.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Market Risk
The Company's interest expense is sensitive to changes in the general level of
U.S. interest rates. The Company maintains certain of its debt as fixed rate in
nature to mitigate the impact of fluctuations in interest rates. The fair value
of the Company's fixed rate debt approximates the carrying amount at October 31,
1999. Management believes the potential effects of near-term changes in interest
rates on the Company's fixed rate debt is not material.
The Company is a party to no other market risk sensitive instruments requiring
disclosure.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31
1999 1998
---- ----
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and temporary cash investments $ 7,052 $ 3,626
Accounts receivable, less allowance of $249,000 in
1999 and 1998 36,577 31,023
Inventories 47,634 42,879
Refundable income taxes 426 -0-
Prepaid expenses 7,503 7,664
-------- ---------
Total current assets 99,192 85,192
Property, plant and equipment:
Land and buildings 125,337 122,209
Machinery and equipment 230,939 202,863
Construction in process -0- 7,913
356,276 332,985
Accumulated depreciation (173,204) (153,897)
------- -------
183,072 179,088
Other assets 1,246 1,391
--------- --------
Total assets $283,510 $265,671
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,505 $ 5,893
Income taxes payable -0- 4,210
Accrued expenses 15,372 11,396
Current maturities of long-term debt 4,043 4,028
--------- ---------
Total current liabilities 31,920 25,527
Long-term debt, less current maturities 104,651 95,695
Claims payable 1,100 1,100
Deferred income taxes 14,995 13,867
Stockholders' equity:
Preferred Stock:
Series A Junior Participating Preferred Stock, $100
par value: authorized shares-500,000; none issued
Par value to be determined by the Board of Directors:
authorized shares-4,500,000; none issued
Common Stock, $1 par value: authorized shares-100,000,000;
issued and outstanding shares-13,932,455 in 1999 and
14,373,580 in 1998 13,932 14,374
Paid-in capital 5,835 11,770
Retained earnings 111,077 103,338
------- -------
Total stockholders' equity 130,844 129,482
------- -------
Total liabilities and stockholders' equity $283,510 $265,671
======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended October 31
1999 1998 1997
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales $ 559,031 $ 521,394 $ 481,789
Cost and expenses:
Cost of sales 514,162 469,429 455,274
Selling, general and administrative 21,861 20,143 19,048
--------- --------- ---------
536,023 489,572 474,322
Operating income
23,008 31,822 7,467
Other income (expense):
Interest income 266 341 156
Interest expense (6,384) (7,721) (6,652)
Other 56 (86) (13)
--------- --------- ---------
(6,062) (7,466) (6,509)
--------- --------- ---------
Income before income taxes and extraordinary gain 16,946 24,356 958
Income tax expense 6,400 9,100 400
--------- --------- ---------
Income before extraordinary gain 10,546 15,256 558
Extraordinary gain (net of income
taxes of $406,000) -0- -0- 676
--------- --------- ---------
Net income $ 10,546 $ 15,256 $ 1,234
Basic and diluted net income per share:
Income per share before
extraordinary gain $ .75 $ 1.06 $ .04
Extraordinary gain per share -0- -0- .05
-------- -------- --------
Net income per share $ .75 $ 1.06 $ .09
========= ========= =========
Weighted average shares outstanding:
Basic 14,068 14,369 14,365
========= ========= =========
Diluted 14,121 14,426 14,453
========= ========= =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
-----------------------------------------------------------------
(In thousands, except shares and per shares amounts)
<S> <C> <C> <C> <C> <C>
Balance at November 1, 1996 14,363,080 $14,363 $11,292 $92,595 $118,250
Net income for year 1,234 1,234
Cash dividends ($.20 per share) (2,873) (2,873)
Issuance of common stock 4,500 5 45 50
Principal payments received on note
receivable from ESOP 110 110
--------------------------------------------------------------
Balance at October 31, 1997 14,367,580 14,368 11,447 90,956 116,771
Net income for year 15,256 15,256
Cash dividends ($.20 per share) (2,874) (2,874)
Issuance of common stock 6,000 6 58 64
Principal payments received on note
receivable from ESOP 265 265
-------------------------------------------------------------
Balance at October 31, 1998 14,373,580 14,374 11,770 103,338 129,482
Net income for year 10,546 10,546
Cash dividends ($.20 per share) (2,807) (2,807)
Issuance of common stock 36,875 36 378 414
Purchase and retirement of
common stock (478,000) (478) (6,438) (6,916)
Principal payments received on note
receivable from ESOP 125 125
-------------------------------------------------------------
Balance at October 31, 1999 13,932,455 $ 13,932 $ 5,835 $ 111,077 $130,844
=============================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $10,546 $15,256 $1,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,736 23,241 21,367
Provision for losses on accounts receivable 124 240 142
Deferred income taxes 600 2,710 200
Change in assets and liabilities:
Increase in accounts receivable (5,678) (329) (3,415)
Decrease (increase) in inventories (4,755) 1,331 (5,150)
Decrease (increase) in prepaid expenses 263 63 (1,370)
Decrease (increase) in other assets (422) 329 (1,756)
Increase in accounts payable 6,612 281 644
Increase (decrease) in accrued expenses
and claims payable (234) 7,161 75
Total adjustments 21,246 35,027 10,737
------ ------ ------
Net cash provided by operating activities 31,792 50,283 11,971
Investing activities
Capital expenditures (28,627) (23,673) (42,147)
Net proceeds from sale of property and equipment 474 202 846
-------- -------- ------
Net cash used in investing activities (28,153) (23,471) (41,301)
Financing activities
Long-term borrowings 20,000 -0- 4,794
Net change in revolving credit (7,000) (19,000) 27,000
Principal payments on long-term debt (3,844) (2,998) (2,934)
Principal payments on capital lease (185) (174) (165)
Principal payments received on note
receivable from ESOP 125 265 110
Dividends paid (2,807) (2,874) (2,873)
Purchase and retirement of common stock (6,916) -0- -0-
Net proceeds from common stock issued 414 64 50
----- ------- -------
Net cash provided by (used in)
financing activities (213) (24,717) 25,982
---- ------- ------
Net increase (decrease) in cash
and temporary cash investments 3,426 2,095 (3,348)
Cash and temporary cash investments
at beginning of year 3,626 1,531 4,879
----- -------- -------
Cash and temporary cash investments
at end of year $7,052 $3,626 $1,531
===== ====== ======
Supplemental disclosure of cash flow information:
Income taxes paid $10,459 $2,834 $2,940
====== ====== ======
Income taxes refunded $ -0- $2,474 $1,368
------- ====== ======
Interest paid $ 5,844 $7,880 $7,378
======= ====== ======
See accompanying notes.
</TABLE>
<PAGE>
Sanderson Farms, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Sanderson Farms, Inc. (the "Company") and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
Business: The Company is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and other prepared food items. The
Company's net sales and cost of sales are significantly affected by market price
fluctuations of its principal products sold and of its principal ingredients,
corn and other grains.
The Company sells to retailers, distributors and fast food operators primarily
in the southern and western United States. Revenue is recognized when product is
shipped to customers. Management periodically performs credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses have consistently been within management's expectations.
Use of Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Temporary Cash Investments: Temporary cash investments include investment
agreements for securities purchased under agreements to resell with a
maturity of one day.
Inventories: Processed food and poultry inventories and inventories of feed,
eggs, medication and packaging supplies are stated at the lower of cost
(first-in, first-out method) or market.
Live poultry inventories of broilers are stated at the lower of cost or market
and breeders at cost less accumulated amortization. The costs associated with
breeders, including breeder chicks, feed, medicine and grower pay, are
accumulated up to the production stage and amortized over nine months using the
straight-line method.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is provided by the straight-line
and units of production methods over the estimated useful lives of 19 to 39
years for buildings and 3 to 7 years for machinery and equipment.
Impairment of Long-Lived Assets: The Company continually reevaluates the
carrying value of its long-lived assets for events or changes in circumstances
which indicate that the carrying value may not be recoverable. As part of this
reevaluation, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposal. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized through a charge
to operations.
<PAGE>
Income Taxes: Deferred income taxes are accounted for using the liability method
and relate principally to cash basis temporary differences and depreciation
expense 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 1997
(the "Act") 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 full in
the first fiscal year in which the Company fails to qualify as a "Family Farming
Corporation." The Company will continue to qualify as a "Family Farming
Corporation" provided there are no changes in ownership control, which
management does not anticipate during fiscal 2000.
Stock Based Compensation: The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to or above the fair value of
the shares at the date of the grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the stock
option grants.
Earnings Per Share: Basic earnings per share is based upon the weighted average
number of common shares outstanding during the year. Diluted earnings per share
includes any dilutive effects of options, warrants, and convertible securities.
Fair Value of Financial Instruments: The carrying amounts for cash and temporary
cash investments approximate their fair values. The carrying amounts of the
Company's borrowings under its credit facilities and long-term debt also
approximate the fair values based on current rates for similar debt.
Impact of Recently Issued Accounting Standards: In fiscal 1999, the Company
adopted FASB No. 130, "Reporting Comprehensive Income", which requires that
items recognized as components of comprehensive income be reported in a
financial statement displayed with the same prominence as other financial
statements and FASB No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which requires that companies report financial and
descriptive information about their reportable operating segments. Neither of
these pronouncements had any impact on the consolidated financial statements of
the Company in fiscal 1999.
Effective in fiscal 2001, FASB No. 133, "Accounting for Derivative Instruments
and Hedging Activities", requires all derivatives to be recorded on the balance
sheet at fair value. Management has not determined the effect of adopting this
statement on the consolidated earnings and financial position of the Company
when it become effective in fiscal 2001.
In April 1998, the AICPA issued SOP 98-5, Reporting the Costs of Start-up
Activities. The SOP is effective beginning November 1, 1999, and requires that
start-up costs capitalized prior to November 1, 1999 be written-off and any
future start-up costs be expensed as incurred. The unamortized balance of
start-up costs ($411,000 as of October 1999) will be written off as a cumulative
effect of an accounting change as of November 1, 1999. The Company estimates the
impact of adopting this SOP will result in a reduction of fiscal 2000 earnings
of approximately $256,000.
<PAGE>
2. Inventories
Inventories consisted of the following:
October 31
1999 1998
---- ----
(In thousands)
Live poultrynbroilers and breeders $29,323 $26,970
Feed, eggs and other 6,494 5,676
Processed poultry 3,037 3,522
Processed food 4,900 3,029
Packaging materials 3,880 3,682
-------- -------
$47,634 $42,879
====== ======
3. Long-term Credit Facilities and Debt Long-term debt consisted of the
following:
<TABLE>
<CAPTION>
October 31
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Revolving credit agreement with banks
(weighted average rate of 6.57% at
October 31, 1999) $66,000 $73,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments of $2,850,000 11,450 14,300
Term loan with an insurance company,
accruing interest at 6.65%; due in annual
principal installments of $2,857,000,
beginning in July 2001 20,000 -0-
Note payable, accruing interest at 5%;
due in annual installments of $161,400,
including interest, maturing in 2009 1,269 1,363
6% Mississippi Business Investment Act
bondncapital lease obligation 3,675 3,860
Robertson County, Texas, Industrial
Revenue Bonds accruing interest at a
variable rate, 3.6% at October 31, 1999
and 1998); due in annual principal
installments of $900,000 6,300 7,200
----- -----
108,694 99,723
Less current maturities of long-term debt 4,043 4,028
-------- -------
$104,651 $95,695
</TABLE>
<PAGE>
The Company has a $100.0 million ($34.0 million available at October 31, 1999)
revolving credit agreement with five banks. The revolver extends to fiscal 2002,
when the outstanding borrowings may be converted to a term loan payable in equal
semi-annual installments over four years. Borrowings are at prime or below and
may be prepaid without penalty. A commitment fee of .20% is payable quarterly on
the unused portion of the revolver. Covenants related to the revolving credit
and the term loan agreements include requirements for maintenance of minimum
consolidated net working capital, tangible net worth, debt to total
capitalization and current ratio. The agreements also establish limits on
dividends, assets that can be pledged and capital expenditures.
Property, plant and equipment with a carrying value of approximately $5,640,000
is pledged as collateral to a note payable and the capital lease obligation.
Interest cost of $480,000 was capitalized in fiscal 1997. No interest cost was
capitalized in fiscal 1999 or 1998.
The aggregate annual maturities of long-term debt at October 31, 1999 (assuming
borrowings under the revolver will be converted to a term loan in fiscal 2002)
are as follows (in thousands):
Fiscal Year Amount
----------- ------
2000 4,043
2001 6,915
2002 14,435
2003 14,501
2004 11,621
Thereafter 57,179
---------
$108,694
========
4. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended October 31
1999 1998 1997
-----------------------------------
(In thousands)
Current:
Federal $5,200 $5,900 $ 216
State 600 490 390
------ ------ ------
5,800 6,390 606
Deferred:
Federal 486 2,197 470
State 114 513 (270)
------ -------- ------
600 2,710 200
------ -------- ------
6,400 9,100 806
Less income tax expense applicable to
extraordinary gain -0- -0- 406
----- ------ -----
Income tax expense applicable
to income before extraordinary gain $6,400 $9,100 $ 400
====== ====== =====
<PAGE>
Significant components of the Company's deferred tax assets and liabilities were
as follows:
October 31,
1999 1998
--------------------
(In thousands)
Deferred tax liabilities:
Cash basis temporary differences $3,503 $ 3,698
Property, plant and equipment 12,371 10,002
Prepaid and other assets 250 746
-------- --------
Total deferred tax liabilities 16,124 14,446
Deferred tax
assets:
Accrued expenses 2,017 1,407
State net operating loss
and credit carryforwards 497 29
Total deferred tax assets 2,514 1,436
------- --------
Net deferred tax liabilities $13,610 $13,010
======= =======
Current deferred tax assets
(included in prepaid expenses) $1,385 $ 857
------ -------
Long-term deferred tax liabilities 14,995 13,867
------ ------
Net deferred tax liabilities $13,610 $13,010
================
The differences between the consolidated effective income tax rate and the
federal statutory rate are as follows:
Years Ended October 31
1999 1998 1997
---- ---- ----
(In thousands)
Taxes at statutory rate $5,762 $8,525 $694
State income taxes 731 1,041 79
State income tax credit (260) (389) (91)
Other, net 167 (77) 124
----- ------ ---
Income tax expense $6,400 $9,100 $806
====== ====== ===
5. Employee Benefit Plans
The Company has an Employee Stock Ownership Plan ("ESOP") covering substantially
all employees. Contributions to the ESOP are determined at the discretion of the
Company's Board of Directors. Total contributions to the ESOP were $840,000 and
$1,100,000 in fiscal 1999 and 1998, respectively. The Company did not contribute
to the ESOP during fiscal 1997.
The Company has a 401(k) plan which covers substantially all employees after six
months of service. Participants in the plan may contribute up to the maximum
allowed by IRS regulations.
<PAGE>
6. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Under the Company's Stock Option Plan, 750,000 shares of Common Stock have been
reserved for grant to key management personnel. All options granted prior to
fiscal 1997 have six-year terms and vest over four years beginning one year from
the date of grant. Options granted in fiscal 1997 and 1998 have ten-year terms
and vest over four years beginning one year after the date of grant. No options
were granted in fiscal 1999.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 4.4% in fiscal 1998 and 6% in fiscal 1997 and 1996; dividend
yields of 1.54% for fiscal 1998 and 1.33% for fiscal 1997; volatility factors of
the expected market price of the Company's common stock of .260 for fiscal 1998
and .235 for fiscal 1997; and a weighted-average expected life of the options of
four years.
The weighted-average fair value of options granted in fiscal 1998 and 1997 was
$3.14 and $3.76, respectively. The pro forma effect of the estimated fair value
of the options granted was insignificant to the Company's net income and net
income per share in fiscal 1999, 1998 and 1997.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at November 1, 1996 359,500 $10.99
Granted 207,500 15.00
Exercised (3,500) 11.15
Forfeited (25,500) 11.47
-------
Outstanding at October 31, 1997 538,000 12.51
Granted 194,000 13.00
Exercised (7,000) 10.77
Forfeited (29,000) 12.87
-------
Outstanding at October 31, 1998 696,000 12.64
Exercised (69,375) 10.82
Forfeited (44,625) 12.92
-------
Outstanding at October 31, 1999 582,000 12.90
</TABLE>
<PAGE>
The exercise price of the options outstanding as of October 31, 1999 ranged from
$10.67 to $15.00 per share. At October 31, 1999, the weighted average remaining
contractual life of the options outstanding was 5.7 years and 337,125 options
were exercisable.
7. 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
"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 to determine 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.
8. Other Matters
The Company self-insures for losses related to workers= compensation claims with
excess coverage by underwriters on a per claim and aggregate basis. Claims
payable are based upon estimates of the ultimate cost of reported claims by the
Company's claims administrator and totaled $4,227,000 and $3,140,000 at October
31, 1999 and 1998, respectively. Claims payable of $3,127,000 and $2,040,000 at
October 31, 1999 and 1998, respectively, are included in accrued expenses in the
accompanying consolidated balance sheets because the amounts are expected to be
paid within one year from the respective balance sheet dates. The ultimate cost
for outstanding claims may vary significantly from current estimates.
No customer accounted for more than 10% of consolidated sales for the years
ended October 31, 1999, 1998 and 1997. Export sales were less than 10% of
consolidated sales in each year presented.
In January 1997, the Company had a fire in an area of the Pike County,
Mississippi processing plant housing packaging and supplies. Substantially all
of the cost of repairs and reconstruction of the plant were covered by
insurance. Certain costs associated with the plant's downtime were also covered
by insurance. The excess of $1,082,000 of the insurance proceeds received over
the book value of the assets destroyed, before income taxes of $406,000, has
been accounted for as an extraordinary gain in the accompanying consolidated
statements of income.
See Item 6 for Quarterly Financial Data.
<PAGE>
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive
Officers of the Registrant.
As permitted by General Instruction G(3) to Form 10-K, reference is
made to the information concerning the Directors of the Registrant and the
nominees for election as Directors appearing in the Registrant's definitive
proxy statement filed or to be filed with the Commission pursuant to Rule
14a-6(b). Such information is incorporated herein by reference to the definitive
proxy statement.
Information concerning the executive officers of the Registrant is
set forth in Item 4A of Part I of this Annual Report.
Item 11. Executive Compensation.
As permitted by General Instruction G(3) to Form 10-K, reference is
made to the information concerning remuneration of Directors and executive
officers of the Registrant appearing in the Registrant's definitive proxy
statement filed or to be filed with the Commission pursuant to Rule 14a-6(b).
Such information is incorporated herein by reference to the definitive proxy
statement.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
As permitted by General Instruction G(3) to Form 10-K, reference is
made to the information concerning beneficial ownership of the Registrant's
Common Stock, which is the only class of the Registrant's voting securities,
appearing in the Registrant's definitive proxy statement filed or to be filed
with the Commission pursuant to Rule 14a-6(b). Such information is incorporated
herein by reference to the definitive proxy statement.
Item 13. Certain Relationships
and Related Transactions.
As permitted by General Instruction G(3) to Form 10-K, information,
if any, required to be reported by Item 13 of Form 10-K, with respect to
transactions with management and others, certain business relationships,
indebtedness of management, and transactions with promoters, is set forth in the
Registrant's definitive proxy statement filed or to be filed with the Commission
pursuant to Rule 14a-6(b). Such information, if any, is incorporated herein by
references to the definitive proxy statement.
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
<PAGE>
(a)1. FINANCIAL STATEMENTS:
The following consolidated financial statements of the Registrant
are included in Item 8:
Consolidated Balance Sheets - October 31, 1999 and 1998
Consolidated Statements of Income - Years ended October 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended
October 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended October 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements - October 31, 1999
(a)2. FINANCIAL STATEMENT SCHEDULES:
The following consolidated financial statement schedules of the
Registrant are included in Item 8:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as they are not applicable or the
required information is set forth in the Financial Statements or notes thereto.
(a)3. EXHIBITS:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
Exhibit Brief
Number Description
(1) 3-A - Copy of Articles of Incorporation of
the Registrant, as amended.
3-B - Copy of Restated By-Laws of the
Registrant as of January 8, 1998.
(1) 4 - Copy of Certificate of Designations of
Series A Junior Participating Preferred
Stock of the Registrant
<PAGE>
(2) 10-A - Copy of Agreement of Purchase and Sale
of Assets dated March 10, 1986 among
the Registrant, National Prepared
Foods, Inc., Trend Line Corporation,
Business Advisors and Investor, Inc.,
W. T. Hogg, Jr., W. T. Hogg, Jr. Trust
for Grandchildren, Noreen Mary Hogg
Case Trust Under Agreement December 20,
1972 and Sherri Ann Hogg Ford Trust
Under Agreement December 20, 1972.
(2) 10-B - Copy of Contract dated July 31, 1964
between the Registrant and the City of
Laurel, Mississippi.
(2) 10-B-1 - Copy of Contract Amendment dated
December 1, 1970 between the Registrant
and the City of Laurel, Mississippi.
(2) 10-B-2 - Copy of Contract Amendment dated June
11, 1985 between the Registrant and the
City of Laurel, Mississippi.
(2) 10-B-3 - Copy of Contract Amendment dated
October 7, 1986 between the Registrant
and the City of Laurel, Mississippi.
(8) 10-B-4 - Copy of Contract Amendment dated August
16, 1994 between the Registrant and the
City of Laurel, Mississippi.
(2) 10-C - Copy of Lease Agreement dated May 19,
1964 among the Town of Collins,
Covington County, Mississippi and
Mississippi Federated Cooperatives AAL.
(2) 10-C-1 - Copy of Assignment of Lease and
Leasehold Estate, and Conveyance of
Leaseholder Improvements and Other
Properties, Reserving a Purchase Money
Security Interest, dated December 21,
1981 between MFC Services (AAL) and
Sanderson Farms, Inc. (Processing
Division).
(2) 10-D - Copy of Lease Agreement dated November
28, 1962 between the Board of
Supervisors of Covington County,
Mississippi acting for and on behalf of
Supervisors Districts 1, 2, 3 and 5 of
Covington County, Mississippi and
Mississippi Federated Cooperatives, AAL.
(2) 10-D-1 - Copy of Contract dated October 2, 1972
between the Board of Supervisors of
Covington County, Mississippi, acting
for and on behalf of Covington County,
Mississippi and MFC Services (AAL).
(2) 10-D-2 - Copy of Lease Agreement dated May 1,
1976 between Supervisors Districts One,
Two, Three and Five of Covington
County, Mississippi and MFC Services
(AAL).
(2) 10-D-3 - Copy of Assignment of Leases and
Leasehold Estate, and Conveyance of
Leasehold Improvements and Other
Properties, Reserving a Purchase Money
Security Interest, dated December 21,
1981 between MFC Services (AAL) and
Sanderson Farms, Inc. (Processing
Division).
<PAGE>
(2) 10-E - Copy of Agreement dated December 1,
1986, between Sanderson Farms, Inc.
(Hammond Processing Division) and
United Food and Commercial Workers
Local Union 210 affiliated with the
United Food and Commercial Workers
International Union.
(5) 10-E-1 - Copy of Agreement dated February 14,
1990 between Sanderson Farms, Inc.
(Hammond Processing Division) and
United Food and Commercial Workers
Local Union 210, affiliated with the
United Food and Commercial Workers
International Union.
(8) 10-E-2 - Copy of Agreement effective November 6,
1994 between Sanderson Farms, Inc.
(Hammond Processing Division) and
United Food and Commercial Workers
Local Union 210, affiliated with the
United Food and Commercial Workers
International Union.
(9) 10-E-3 - Copy of Agreement effective July 15,
1995 between Sanderson Farms, Inc.
(Hazlehurst Processing Division) and
Laborers' International Union of North
America, Professional Employees Local
Union #697, AFL-CIO.
(9) 10-E-4 - Copy of Agreement effective September
9, 1995 between Sanderson Farms, Inc.
(Collins Processing Division) and
Laborers' International Union of North
America, Professional Employees Local
Union #697, AFL-CIO.
(2) 10-F - Copy of Employee Stock Ownership Plan
and Trust Agreement of Sanderson Farms,
Inc. and Affiliates.
(2) 10-F-1 - Copy of Amendment One to the Employee
Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and
Affiliates.
(3) 10-F-2 - Copy of Amendment Two to the Employee
Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and
Affiliates.
(2) 10-G - Copy of the General Employee's Profit
Sharing-Retirement Trust Agreement of
Sanderson Farms, Inc. and Affiliates.
(6) 10-H - Copy of Sanderson Farms, Inc.
Performance Incentive Program effective
January 1, 1991.
(6) 10-H-1 - Copy of Sanderson Farms, Inc.
Performance Incentive Program for
Sanderson Farms, Inc. (Foods Division)
effective November 1, 1990.
(6) 10-H-2 - Copy of Sanderson Farms, Inc.
Performance Incentive Program for
Sanderson Farms, Inc. (Foods Division)
Retail Entree effective November 1,
1990.
<PAGE>
(8) 10-H-3 - Copy of Sanderson Farms, Inc. Bonus
Award Program effective November 1,
1993.
(10) 10-I - Copy of Sanderson Farms, Inc. and
Affiliates Stock Option Plan.
(5) 10-J - Copy of Memorandum of Agreement dated
as of June 13, 1989, between Pike
County, Mississippi and the Registrant.
(6) 10-K - Copy of Wastewater Treatment Agreement
between the City of Magnolia,
Mississippi and the Registrant dated
August 19, 1991.
(6) 10-L - Copy of Memorandum of Agreement and
Purchase Option between Pike County,
Mississippi and the Registrant dated May,
1991.
(7) 10-M - Copy of Lease Agreement between Pike
County, Mississippi and the Registrant
dated as of November 1, 1992.
21 - List of subsidiaries of the Registrant.
23 - Consent of Independent Auditors
27 - Copy of Financial Data Schedule
(2) 28-A - Copy of Certificate of Registration of
Trademark "Miss Goldy".
(2) 28-B - Copy of Certificate of Registration of
Trademark "Wise Choice".
(2) 28-C - Copy of Certificate of Registration of
Trademark "Buttercup Farms".
(2) 28-D - Copy of Certificate of Registration of
Trademark "Collinswood".
(2) 28-E - Copy of Certificate of Registration of
Trademark "Covington Farms".
(2) 28-F - Copy of Certificate of Registration of
Trademark "Smart Cuts".
(4) 28-G - Copy of Certificate of Registration of
Trademark "Kettle Classics".
(5) 28-H - Copy of Certificate of Registration of
Trademark "Sanderson Farms".
<PAGE>
(1) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1989, and incorporated herein by
reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Commission File No. 33-13141) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1987, and incorporated herein by
reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1988, and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1990, and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1991, and incorporated herein by
reference.
(7) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992, and incorporated herein by reference.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
No reports on From 8-K were filed during the fourth quarter of the Fiscal Year
ended October 31, 1999.
(c) Agreements Available Upon Request by the Commission.
The Registrant is a party to various agreements defining the rights of holders
of long-term debt of the Registrant, but no single agreement authorizes
securities in an amount which exceeds 10% of the total assets of the Company.
Upon request of the Commission, the Registrant will furnish a copy of any such
agreement to the Commission. Accordingly, such agreements are omitted as
exhibits as permitted by Item 601(b)(4)(iii) of Regulation S-K.
<PAGE>
QUALIFICATION BY REFERENCE
Information contained in this Annual Report as to the contents of any contract
or other document referred to or evidencing a transaction referred to is
necessarily not complete, and in each document filed as an exhibit to this
Annual Report or incorporated herein by reference, all such information being
qualified in its entirety by such reference.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sanderson Farms, Inc.
We have audited the accompanying consolidated balance sheets of Sanderson Farms,
Inc. and subsidiaries as of October 31, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 1999. Our audit also included
the financial statement schedule listed in the index under item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sanderson Farms,
Inc. and subsidiaries at October 31, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also in our opinion the related
financial statement schedule when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young LLP
Jackson, Mississippi
December 8, 1999
<PAGE>
Sanderson Farms, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Classification of Period Expenses Accounts Describe(1) Period
- --------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Year ended October 31, 1999
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $249 $124 $124 $249
Year ended October 31, 1998
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $233 $240 $224 $249
Year ended October 31, 1997
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $167 $142 $76 $233
(1) Uncollectible accounts written off, net of recoveries.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: January 26, 2000 /s/Joe F. Sanderson, Jr.
Joe F. Sanderson, Jr.
Chairman of the Board
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities as of the dates indicated.
/s/Joe F. Sanderson, Jr. 1/26/00 /s/John H. Baker, III 1/26/00
Joe F. Sanderson, Jr., John H. Baker, III
Chairman of the Board, President Director
and Chief Executive Officer
/s/William R. Sanderson 1/26/00 /s/Charles W. Ritter, Jr. 1/26/00
William R. Sanderson, Director Charles W. Ritter, Jr.,
Director of Marketing Director
/s/Hugh V. Sanderson 1/26/00 /s/Rowan H. Taylor 1/26/00
Hugh V. Sanderson, Rowan H. Taylor,
Director Director
/s/Donald W. Zacharias 1/26/00 /s/Robert Buck Sanderson 1/26/00
Donald W. Zacharias, Robert Buck Sanderson, Director
Director Corporate Live Production Assistant
/s/Phil K. Livingston 1/26/00 /s/Lampkin Butts 1/26/00
Phil K. Livingston, Lampkin Butts, Director
Director Vice President - Sales
/s/D. Michael Cockrell 1/26/00 /s/James A. Grimes 1/26/00
D. Michael Cockrell, James A. Grimes,
Director, Treasurer and Chief Secretary and Chief Accounting
Financial Officer Officer
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in Post Effective Amendment No.
1 to Registration Statement (Form S-8 No. 33-67474) pertaining to the
Sanderson Farms, Inc. and Affiliates Stock Option Plan of our report dated
December 8, 1999 with respect to the consolidated financial statements and
schedule of Sanderson Farms, Inc. included in the Annual Report (Form 10-K)
for the year ended October 31, 1999
/s/Ernst & Young LLP
Jackson, Mississippi
January 26, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812128
<NAME> Sanderson Farms, Inc.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 7052
<SECURITIES> 0
<RECEIVABLES> 36826
<ALLOWANCES> 249
<INVENTORY> 47634
<CURRENT-ASSETS> 99192
<PP&E> 356276
<DEPRECIATION> 173204
<TOTAL-ASSETS> 283510
<CURRENT-LIABILITIES> 31920
<BONDS> 104651
0
0
<COMMON> 13932
<OTHER-SE> 116912
<TOTAL-LIABILITY-AND-EQUITY> 283510
<SALES> 559031
<TOTAL-REVENUES> 559031
<CGS> 514162
<TOTAL-COSTS> 514162
<OTHER-EXPENSES> 22183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6384
<INCOME-PRETAX> 16946
<INCOME-TAX> 6400
<INCOME-CONTINUING> 10546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10546
<EPS-BASIC> .75
<EPS-DILUTED> .75
</TABLE>
