-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KpaN2pCODMGTRLc7WTB5UPHaGV4slufyu7cLCsjin2uJjzVcWniR1r3uWWQlT4nP x9xRS50dU9Lojh0dN48l4Q== 0000812128-96-000016.txt : 19960916 0000812128-96-000016.hdr.sgml : 19960916 ACCESSION NUMBER: 0000812128-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960827 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDERSON FARMS INC CENTRAL INDEX KEY: 0000812128 STANDARD INDUSTRIAL CLASSIFICATION: 2015 IRS NUMBER: 640615843 STATE OF INCORPORATION: MS FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16567 FILM NUMBER: 96620923 BUSINESS ADDRESS: STREET 1: 225 N 13TH AVE STREET 2: PO BOX 988 CITY: LAUREL STATE: MS ZIP: 39441 BUSINESS PHONE: 6016494030 MAIL ADDRESS: STREET 1: 225 N 13TH AVENUE STREET 2: PO BOX 988 CITY: LAUREL STATE: MS ZIP: 39441 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________to_______________ Commission file number 0-16567 Sanderson Farms, Inc. (Exact name of registrant as specified in its charter) Mississippi 64-0615843 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 North Thirteenth Avenue Laurel, Mississippi 39440 (Address of principal executive offices) (Zip Code) (601) 649-4030 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No _____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes _____ No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $1 Per Share Par Value-----14,363,080 shares outstanding as of July 31, 1996. INDEX SANDERSON FARMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--July 31, 1996 and October 31, 1995 Condensed consolidated statements of income--Three months ended July 31, 1996 and 1995; Nine months ended July 31, 1996 and 1995 Condensed consolidated statements of cash flows--Nine months ended July 31, 1996 and 1995 Notes to condensed consolidated financial statements--July 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I. FINANCIAL INFORMATION Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS July 31, October 31, 1996 1995 (Unaudited) (Note) (In thousands) Assets Current assets Cash and temporary cash investments $ 4,340 $ 447 Accounts receivable, net 28,154 22,624 Inventories - Note 2 42,172 33,275 Other current assets 7,770 4,619 Total current assets 82,436 60,965 Property, plant and equipment 259,934 226,204 Less accumulated depreciation (108,468) (94,873) 151,466 131,331 Other assets 941 901 Total assets $234,843 $193,197 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 17,138 $ 13,134 Current maturities of long- term debt 3,090 226 Total current liabilities 20,228 13,360 Long-term debt, less current maturities - Note 4 86,767 54,806 Deferred income taxes 10,712 10,712 Stockholders' equity - Note 5 Preferred Stock: Series A Junior Participating Preferred Stock, $100 par value: authorized 500,000 shares; none issued Par value to be determined by the Board of Directors: authorized 4,500,000 shares; none issued Common Stock, $1 par value: authorized 100,000,000 shares; issued and outstanding shares - 14,363,080 shares in 1996 and 13,613,080 in 1995 14,363 13,613 Paid-in capital 11,292 2,871 Retained earnings 91,481 97,835 Total stockholders' equity 117,136 114,319 Total liabilities and stockholders' equity $234,843 $193,197
NOTE: The balance sheet at October 31, 1995 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements.
SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended Nine Months Ended July 31, July 31, 1996 1995 1996 1995 (In thousands, except share and per share data) Net sales $116,419 $101,195 $330,892 $281,213 Cost and expenses: Cost of sales 111,803 92,237 321,267 257,517 Selling, general and administrative 4,286 4,268 12,802 11,659 116,089 96,505 334,069 269,176 OPERATING INCOME(LOSS) 330 4,690 (3,177) 12,037 Other income (expense): Interest income 32 44 107 125 Interest expense (1,471) (985) (3,639) (2,834) Other (70) (90) (144) (90) (1,509) (1,031) (3,676) (2,799) INCOME (LOSS) BEFORE INCOME TAXES (1,179) 3,659 (6,853) 9,238 Income tax expense (benefit) (436) 1,354 (2,578) 3,450 NET INCOME (LOSS) $ (743) $ 2,305 $ (4,275) $ 5,788 Earnings (loss) per share $ (.05) $ .17 $ (.31) $ .43 Dividends per share $ .05 $ .05 $ .15 $ .15 Weighted average shares outstanding 13,776,123 13,613,080 13,667,825 13,613,080 See notes to condensed consolidated financial statements.
SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended July 31, 1996 1995 (In thousands) Operating activities Net income (loss) $(4,275) $ 5,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,862 13,663 Change in assets and liabilities: (Increase) in accounts receivable (5,530) (1,476) (Increase) in inventories (8,897) (2,817) (Increase) in other assets (3,372) ( 936) Increase in accounts payable and accrued expenses 4,004 2,424 Total adjustments 1,067 10,858 Net cash provided by (used in) operating activities (3,208) 16,646 Investing activities Net proceeds from sale of equipment 33 238 Capital expenditures (34,849) (18,094) Net cash used in investing activities (34,816) (17,856) Financing activities Principal payments on long-term debt (81) (77) Additional long-term borrowings 2,406 0 Net borrowings under revolving line of credit 32,500 1,000 Net proceeds from sale of common stock 9,171 0 Dividends paid (2,079) (2,043) Net cash provided by (used in) financing activities 41,917 (1,120) Net increase (decrease)in cash and temporary cash investments 3,893 (2,330) Cash and temporary cash investments at beginning of period 447 4,125 Cash and temporary cash investments at end of period $ 4,340 $ 1,795 See notes to condensed consolidated financial statements.
SANDERSON FARMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) July 31, 1996 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the nine month period ended July 31, 1996, are not necessarily indicative of the results that may be expected for the year ending October 31, 1996. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended October 31, 1995. NOTE 2--INVENTORIES The components of inventories consisted of the following:
July 31, October 31, 1996 1995 (In thousands) Live poultry-broilers and breeders $25,633 $18,484 Feed, eggs and other 5,371 4,974 Processed poultry 5,156 3,999 Processed food 3,922 3,578 Packaging materials 2,090 2,240 $42,172 $33,275
NOTE 3--INCOME TAXES Deferred income taxes relate principally to cash basis temporary differences and depreciation expense which are accounted for differently for financial and income tax purposes. Effective November 1, 1988, the Company could no longer use cash basis accounting for its farming subsidiary because of tax law changes. The taxes on the cash basis temporary differences as of that date will not be payable under current tax laws provided there are no changes in ownership control and future annual revenues exceed 1988 revenues. Management does not anticipate the payment of such taxes related to these cash basis temporary differences during fiscal 1996. NOTE 4--CREDIT FACILITY Effective August 1, 1996, the Company amended its existing revolving credit agreement to, among other things, increase the number of participating banks from four to five, increase the available credit thereunder from $100.0 million to $125.0 million and change the requirement that the Company's debt to capitalization ratio could not exceed 55% to 65%. The revolver has been extended to fiscal 1999, when the outstanding borrowings may be converted to a term loan payable over four years. NOTE 5--ISSUANCE OF COMMON STOCK Effective July 12, 1996, the Company issued 750,000 shares of its common stock at $13 per share to the Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan ("the Plan") in a private placement transaction. Net proceeds from the issuance of the common shares were $9,171,000 plus a $500,000 note receivable from the Plan. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following Discussion and Analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Company's Annual Report on Form 10-K for its fiscal year ended October 31, 1995. The Company's poultry operations are integrated through its control of all functions relative to the production of its chicken products, including hatching egg production, hatching, feed manufacturing, raising chickens to marketable age ("grow out"), processing, and marketing. Consistent with the poultry industry, the Company's profitability is substantially impacted by the market prices for its finished product and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets. Other costs, excluding feed grains, related to the profitability of the Company's poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices. The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margins than whole chickens ice packed and shipped in bulk form. To reduce its exposure to market cyclicality that has historically characterized commodity chicken market prices, the Company has increasingly concentrated on the production and marketing of value-added product lines with emphasis on product quality, customer service and brand recognition. Nevertheless, market prices continue to have a significant influence on prices of the Company's chicken products. The Company adds value to its poultry products by performing one or more processing steps beyond the stage where the whole chicken is first saleable as a finished product, such as cutting, deep chilling, packaging and labeling the product. The Company believes that one of its major strengths is its ability to change its product mix to meet customer demands. The Company's processed and prepared foods product line includes over 100 institutional and consumer packaged food items that it sells nationally and regionally, primarily to distributors, food service establishments and retailers. A majority of the prepared food items are made to the specifications of food service users. Results of Operations Net sales for the quarter ended July 31, 1996 increased $15.2 million or 15.0% as compared to the quarter ended July 31, 1995. Net sales of poultry products increased $11.8 million or 13.5% during the third quarter of fiscal 1996 as compared to the third quarter of fiscal 1995. The increase in net sales of poultry products resulted from an increase in the pounds of poultry products sold of 15.2 million or 9.7%. The increase in pounds of poultry products sold was attributable primarily to the addition during the second quarter of fiscal 1996 of a second shift to the first line and the addition during the third quarter of fiscal 1996 of a second shift to the second line of the Company's Pike County, Mississippi processing plant. Market prices for finished poultry products, as measured by the Georgia dock prices, ranged from a low of $.5675 per pound to a high of $.6650 during the third quarter of fiscal 1996, as compared to a low of $.5125 per pound to a high of $.5675 in the third quarter of fiscal 1995. Net sales of prepared foods products increased $3.4 million or 25.1% during the three months ended July 31, 1996, as compared to the same period during fiscal 1995. The primary reason for the increase in net sales of prepared food products was an increase in pounds of prepared food products sold of 25.4%. During the first nine months of fiscal 1996, net sales increased $49.7 million or 17.7% as compared to the first nine months of fiscal 1995. A comparison of net sales of poultry products during the same periods reflects an increase of $46.6 million or 19.3% as a result of an increase in the pounds of poultry products sold of 12.6% and an increase in the average sale price of poultry products of 6.0%. As discussed in the preceding paragraph, the double shifting of both lines at the Company's Pike County complex during fiscal 1996 resulted in the additional volume of poultry products. For the nine months ended July 31, 1996 as compared to the nine months ended July 31, 1995, net sales of prepared foods products increased $3.1 million or 7.8%. This increase is primarily due to an increase in the pounds of prepared food products sold of 9.4%. For the third quarter of fiscal 1996, cost of sales increased $19.6 million or 21.2% as compared to the third quarter of fiscal 1995. Cost of sales of poultry products increased $16.4 million or 20.3% during the three months ended July 31, 1996, as compared to the three months ended July 31, 1995. The increase in cost of sales of poultry products was the result of the additional pounds of poultry products sold and increases in the cost of feed grains. A simple average of the corn and soy meal cash market prices for the three months ended July 31, 1996 reflected increases of 68.1% and 48.2%, respectively, when compared to the same period during fiscal 1995. Cost of sales of prepared food products increased $3.2 million or 27.6% during the third quarter of fiscal 1996 as compared to the third quarter of fiscal 1995. During the first nine months of fiscal 1996, cost of sales increased $63.8 million or 24.8% as compared to the first nine months of fiscal 1995. Cost of sales of poultry products during the same period increased $60.0 or 26.8%. The increase in cost of sales of poultry products was the result of increased pounds of poultry products sold and higher average feed grain prices. A simple average of the corn and soy meal cash market prices for the first nine months of fiscal 1996 increased 57.3% and 45.3%, respectively, when compared to the same period during fiscal 1995. Cost of sales of prepared food products sold increased $3.8 million or 11.3% during the first nine months of fiscal 1996 as compared to the first nine months of fiscal 1995. During the three months and the nine months ended July 31, 1996 when compared to the same periods in the previous fiscal year, the Company's operating income decreased $4.4 million and $15.2 million, respectively. Although market prices for poultry products were higher during the third quarter and the first nine months of fiscal 1996, the cost of feed grains was substantially higher and reduced operating margins. Selling, general and administrative expenses were substantially unchanged for the third quarter of fiscal 1996 as compared to the third quarter of fiscal 1995. For the nine months ended July 31, 1996, selling, general and administrative expenses increased $1.1 million or 9.8% as compared to the nine months ended July 31, 1995. The increase in selling, general and administrative expenses resulted primarily from costs associated with start-up of the new poultry complex in Texas and from increased advertising expenses. Interest expense increased $.5 million during the three months ended July 31, 1996 as compared to the three months ended July 31, 1995. During the first nine months of fiscal 1996 interest expense increased $.8 million as compared to the first nine months of fiscal 1995. The increase in interest expense was primarily the result of additional long-term borrowings to finance the construction of the new poultry processing plant and hatchery in Brazos County, Texas and the new feed mill in Robertson County, Texas. The Company's effective tax rate was 37.0% for the three months ended July 31, 1996 and 1995. The Company's effective tax rate for the nine months ended July 31, 1996 was 37.6% as compared to 37.4% for the first nine months ended July 31, 1995. Liquidity and Capital Resources The Company sold 750,000 shares of its common stock at $13 per share to the Sanderson Farms, Inc. Employee Stock Option Plan on July 12, 1996 in a private placement. The net proceeds from the sale were $9,171,000 plus a $500,000 note receivable from the Plan. On July 31, 1996, the Company's working capital was $62.2 million and its current ratio was 4.1 to 1 as compared to working capital of $47.6 million and a current ratio of approximately 4.6 to 1 at October 31, 1995. During the nine months ended July 31, 1996, the Company expended $34.8 million on planned capital projects, including approximately $25.4 million on the new poultry complex in Texas. The fiscal 1996 capital budget, as of July 31, 1996, has been increased to $48.0 million from $46.1 as of November 1, 1995. The increase of $1.9 million pertains to items not approved at the beginning of fiscal 1996 pending justification, field trial and alternate closing . Capital expenditures are primarily for the completion of a new poultry complex in Brazos and Robertson Counties, Texas. The Company's foreseeable cash needs for operations and capital expenditures are expected to continue to be met through cash flows from operations and borrowings under the Company's revolving credit agreement. The revolving credit agreement was amended in the quarter ended July 31, 1996 to increase the available credit thereunder from $100.0 million to $125.0 million. The maturity date of the revolver was extended to fiscal 1999, when the outstanding borrowings may be converted to a term loan payable over four years. The Company's revolving credit agreement ($61.1 million available at July 31, 1996) and term loan agreement ($20 million borrowed at July 31, 1996) contain various covenants, including a requirement that the Company's debt to capitalization ratio not exceed 65% (55% prior to the amendment), and other covenants that require maintenance of a minimum tangible net worth, minimum working capital and minimum current ratio. The Company is in compliance with these covenants. Recently Issued Accounting Standards The Company has not adopted FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed," nor determined whether to adopt FAS 123, "Accounting for Stock-based Compensation" as of July 31, 1996. Management does not believe that the effect on the Company's financial position and operations will be material when or if adopted. PART II. OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this report Exhibit 15a Independent Accountants' Review Exhibit 15b Accountants' Letter re: Unaudited Financial Information (b) The Company is a party of various agreements defining the rights of holders of long-term debt of the Company, but no single agreement authorized securities in an amount which exceeds 10% of the total assets of the Company. Upon request of the Commission, the Company will furnish a copy of such agreements to the Commission. Such agreements are therefore omitted as exhibits as permitted by Item 601(b)(4)(v) of Regulation S-K. (c) The Company did not file any reports on Form 8-K during the three months ended July 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. _____ SANDERSON FARMS, INC. _______ (Registrant) Date: August 27, 1996 By: /s/D. Michael Cockrell D. Michael Cockrell Treasurer and Chief Financial Officer Date: August 27, 1996 By: /s/James A. Grimes James A. Grimes Secretary and Principal Accounting Officer EXHIBIT 15a INDEPENDENT AUDITORS' REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION Shareholders and Board of Directors Sanderson Farms, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries as of July 31, 1996, and the related condensed consolidated statements of income for the three-month and nine-month periods ended July 31, 1996 and 1995, and the condensed consolidated statements of cash flows for the nine-month periods ended July 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries as of October 31, 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein) and in our report dated December 15, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 31, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Jackson, Mississippi August 22, 1996 EXHIBIT 15b Shareholders and Board of Directors Sanderson Farms, Inc. We are aware of the incorporation by reference in the Registration Statement (Form S-8) of Sanderson Farms, Inc. for the registration of 500,000 shares of its common stock of our report dated August 22, 1996 relating to the unaudited condensed consolidated interim financial statements of Sanderson Farms, Inc. that are included in its Form 10-Q for the quarter ended July 31, 1996. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Jackson, Mississippi August 27, 1996 EX-27 2
5 9-MOS OCT-31-1996 JUL-31-1996 4340 0 28154 158 42172 7770 259934 108468 234843 20228 86767 0 0 14363 102773 234843 116419 116419 111803 111803 4286 0 1471 (1179) (436) (743) 0 0 0 (743) (.05) (.05)
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