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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, 1994
/ / 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 39440
Laurel, Mississippi (Zip Code)
(Address of principal executive offices)
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, 1994: approximately $82,736,860.18.
Number of Shares outstanding of the Registrant's common stock as of
December 31, 1994: 9,075,427 shares of common stock, $1.00 per share par
value.
Portions of the Registrant' definitive proxy statement filed or to be
filed in connection with its 1995 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, 1994, 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 25, 1995.
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF THE REGISTRANT'S BUSINESS
Sanderson Farms, Inc. was incorporated in Mississippi in 1955. The
Registrant 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 Miss Goldy 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, 1994, the Registrant processed 162.1 million chickens, or
approximately 522.8 million dressed pounds. According to 1994 industry
statistics, the Registrant was the 15th largest processor of dressed chickens
in the United States based on estimated average weekly processing.
The Registrant's chicken operations presently encompass four hatcheries,
three feed mills, five processing plants and one by-products plant. The
Registrant has contracts with operators of approximately 403 grow-out farms
that provide it with sufficient housing capacity for its current operations.
The Registrant also has contracts with operators of 161 breeder farms.
The Registrant sells over 100 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 chicken patties and 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.
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 1993, 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 Hazlehurst, Mississippi processing
facilities, the addition of second shifts at the Hammond, Louisiana, Laurel,
Mississippi and Hazlehurst, 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, and the
addition of deboning capabilities at four of the registrant's five poultry
processing facilities. 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.
During 1993, the Registrant began operations at its Pike County,
Mississippi, production and processing facilities. These facilities include a
hatchery, a feed mill, a processing plant, a waste water treatment facility
and a water treatment facility.
The Registrant continued its expansion during fiscal 1994. In January
1994, the Registrant began operations of a second processing line at its Pike
County, Mississippi processing facility, which increased the Registrant's
processing capacity by 325,000 birds per week to approximately 3,200,000 birds
per week. In addition to expanding the Pike County processing facilities to
include a second line, the Registrant expanded its Collins, Mississippi
processing plant in early fiscal 1994 to allow for the deboning of product.
The Registrant also began operations of a second shift on one of two
processing lines at its Collins, Mississippi processing plant during June
1994. The new shift reached its processing capacity during the fourth quarter
of fiscal 1994, and increased the number of birds the Company is processing to
approximately 3,475,000 birds per week.
Capital expenditures for fiscal 1994 were funded by working capital and
borrowings under a revolving credit agreement. Effective July 28, 1994, the
Registrant amended its revolving credit agreement to, among other things,
increase the revolving credit available to the Registrant thereunder to $70.0
million from $60.0 million. The Registrant anticipates that capital
expenditures for fiscal 1995 will be funded by internally generated working
capital and borrowings under the revolving credit agreement.
The Registrant currently has additional processing capacity available to
it through the double shifting of its Pike County, Mississippi processing
facility and 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.
(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 Miss Goldy 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, 1994, the Registrant processed approximately 162.1 million chickens, or
approximately 522.8 million dressed pounds. In addition, the purchased and
further processed 52.3 million pounds of poultry products during fiscal 1994.
According to 1994 industry statistics, the Registrant was the 15th 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 the Sanderson Farms, Inc.
Sanderson Farms, Inc. (Production Division), which has facilities in Laurel,
Collins, Hazlehurst and Pike County, Mississippi, 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, and Hammond, Louisiana, 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 100 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 labelling 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.
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 net sales of chicken products, of value added
and non-value added chicken products.
Fiscal Year Ended October 31,
1990 1991 1992 1993 1994
Value added . . . . 94.7% 95.7% 96.3% 97.2% 98.3%
Non-value added . . 5.3% 4.3% 3.7% 2.8% 1.7%
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,
1990 1991 1992 1993 1994
Registrant processed
chicken:
Value added:
Chill pack(1) . 28.7% 28.3% 24.3% 20.9% 18.2%
Fresh bulk pack(1) 38.9 37.8 42.2 49.6 56.2
Frozen . . . . 9.5 8.1 9.2 8.8 10.2
Subtotal . . 77.1 74.2 75.7 79.3 84.6
Non-value added:
Ice pack . . . 2.8 2.0 2.1 1.8 0.9
Frozen . . . . 1.5 1.4 .8 0.4 0.6
Subtotal . . 4.3 3.4 2.9 2.2 1.5
Total Company
processed
chicken . . 81.4 77.6 78.6 81.5 86.1
Processed and
prepared
foods . . . . . . 17.5 21.5 20.9 18.4 13.8
Other(2) . . . . . 1.1 0.9 .5 0.1 0.1
Total . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
(1) Vacuum pack poultry products have been restated in 1993 and included in
1994 as fresh bulk pack, which includes ice pack and vacuum pack products.
The vacuum pack products were classified as chill pack products in the 1993
Form 10-K.
(2) Consists of sales of poultry products that the Registrant purchases from
other poultry processors for resale, as necessary, to meet customer
demand.
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 Registrants general corporate
offices in Laurel, Mississippi and by customer service representatives at each
of its five 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 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 no 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 Miss Goldy
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.
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, 1994, the Registrant maintained contracts
with 40 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, 1994, by 121 independent contractors under the Registrant's
supervision. Eggs produced by independent contract breeders are transported
to Registrant's hatcheries in Registrant vehicles.
During the beginning of fiscal year 1994, the Registrant supplemented
the production of hatching eggs by outside purchases of eggs for a period of
twelve weeks, to support the second processing line at the Pike County
processing facility.
The Registrant owns and operates four hatcheries located in Mississippi
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 November 1994, the Registrant's hatcheries were capable of producing an
aggregate of approximately 3.6 million chicks per week.
Grow-out. The Registrant places it chicks on 403 grow-out farms, as of
October 31, 1994, located in Mississippi and Louisiana 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 which are 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 is critical to the
conversion rate, and accordingly, the Registrant formulates and produces its
own feed. As of October 31, 1994, the Registrant operated three feed mills,
all of which are located in Mississippi. The Registrant's annual feed
requirements for fiscal 1994 were approximately 752,000 tons, and it has the
capacity to produce approximately 904,800 tons of finished feed annually under
current configurations.
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, 1994, the Registrant had approximately 401,000 bushels of corn
storage capacity at its feed mills, which was sufficient to store all of its
weekly requirements for corn. 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 affect
of grain price increases.
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 single shift basis, is currently processing
approximately 650,000 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 950,000 chickens per week. The Registrant's Laurel
and Hazlehurst, Mississippi and Hammond, Louisiana processing plants currently
operate on a double shift basis, and have the capacity to process an aggregate
of approximately 1,875,000 chickens per week. The Registrant also has the
capabilities to produce deboned product at all its processing facilities. At
October 31, 1994, four of these deboning facilities were operating on a double
shift basis and the fifth was operating on a single shift basis, resulting in
a combined capacity to process approximately 2.9 million pounds of product per
week at all deboning facilities.
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, 1994, the Registrant
operated one by-products plant, and five automotive maintenance shops which
service approximately 308 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 200 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.
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 1994, the Registrant purchased its pullets and its
cockerels from three 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.
During fiscal 1994, the Registrant purchased approximately 1.3% of its
hatching egg requirements from an outside source to supplement the
Registrant's hatching egg production. Purchases from this supplier were
discontinued during the first quarter of fiscal 1994 as sufficient breeder
operators were under contract to support the Registrant's operations.
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.
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 Miss Goldy 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 Miss Goldy label.
The Registrant also has registered with the United States Patent and Trademark
Office six 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 Farms which it uses in connection
with the distribution of its prepared foods and two pound frozen entree
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, 1994, the Registrant had 4,854 employees, including
668 salaried and 4,186 hourly employees. A collective bargaining agreement,
which expired on November 30, 1994, with the United Food and Commercial
Workers International Union covering 483 hourly employees who work at the
Registrant's processing plant in Hammond, Louisiana, was renegotiated and
signed by the union and the Registrant effective November 6, 1994. This
agreement will expire on November 30, 1998. 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.
On June 30, 1994, an election was held by the National Labor Relations
Board at the Registrant's Collins, Mississippi processing plant as a result of
a petition filed by the Laborer's International Union of North America Local
693 seeking recognition as the exclusive collective bargaining representative
of certain employees at that plant. The results of the election were
inconclusive, with 430 votes cast in favor of union representation, 413 votes
cast against union representation, and 29 votes not opened or counted because
of challenges to their eligibility.
On July 7, 1994, the Registrant filed its objections with the National
Labor Relations Board asking that Board to count the ballots challenged by the
union and to set aside the election as a result of improper election activity
on the part of the union. A hearing on these objections and the challenged
ballots was ordered, and was concluded on August 16, 1994. On October 9,
1994, the hearing officer issued his report and recommendation to the National
Labor Relations Board that the Registrant's objectives and challenges be
dismissed and that the appropriate certification of the union be issued. On
November 15, 1994, the Registrant filed its exceptions to the hearing
officer's report and recommendation, and the matter is now pending before the
National Labor Relations Board.
On December 14, 1994, the National Labor Relations Board scheduled an
election at the Registrant's Hazlehurst, Mississippi processing plant as a
result of a petition filed by the Laborer's International Union of North
America Local 693 seeking recognition as the exclusive collective bargaining
representative of certain employees at that plant. The election is scheduled
for January 27, 1995.
(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.
Item 2. Properties.
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, three of 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 $1,609,208 on December 31, 1994, 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 obtained July 29, 1992, and under the $20 million long-term
fixed rate loan obtained in February, 1993, 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.
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 Frank Sanderson 69 Chairman of the 1955 (1)
Board
Joe F. Sanderson, Jr. 47 President and 1984 (2)
Chief Executive
Officer
D. Michael Cockrell 37 Treasurer and Chief 1994 (3)
Financial Officer
James A. Grimes 46 Secretary and 1994 (4)
Chief Accounting
Officer
(1) Joe Frank Sanderson, a founder of the Registrant, has served as Chairman
of the Board for more than five years. Prior to November 1, 1989, Mr.
Sanderson also served as Chief Executive Officer and Treasurer of the
Registrant.
(2) Joe F. Sanderson, Jr. has served as President and Chief Executive Officer
of the Registrant since November 1, 1989. From January 1984, to November
1989, Mr. Sanderson served as Vice-President, Processing and Marketing of the
Registrant.
(3) D. Michael Cockrell became Treasurer and Chief Financial Officer of the
Registrant effective November 1, 1993. 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.
(4) 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.
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. Joe
F. Sanderson, Jr. is the son of Joe Frank Sanderson. Joe Frank Sanderson and
Joe F. Sanderson, Jr. are also Directors of the Registrant.
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,
1994, was 606.
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 quotations are based on actual sales prices.
Stock Price
Fiscal Year 1994 High Low Dividends
First Quarter $18.50 $14.00 $.075
Second Quarter $17.75 $14.75 $.075
Third Quarter $19.75 $16.50 $.075
Fourth Quarter $20.25 $18.50 $.075
Stock Price
Fiscal Year 1993 High Low Dividends
First Quarter $20.50 $13.50 $.075
Second Quarter $22.75 $18.75 $.075
Third Quarter $24.50 $15.50 $.075
Fourth Quarter $18.75 $14.75 $.075
On December 30, 1994, the closing sales price for the common stock was $22.25
per share.
Item 6. Selected Financial Data.
Year Ended October 31
1994 1993 1992 1991 1990
(In thousands, except per share data)
Net sales $371,502 $269,059 $210,057 $186,077 $175,837
Income from operations 28,184 20,767 8,033 10,058 11,769
Net income 15,479 11,938 5,253 7,552 9,127
Earnings per share 1.71 1.32 .58 .83 1.01
Working capital 45,843 42,548 33,371 43,545 48,242
Total assets 181,709 169,006 126,339 94,198 87,745
Long-term debt, less
current maturities 56,176 60,253 29,826 1,931 2,032
Stockholders' equity 106,187 93,431 84,216 81,686 76,857
Cash dividends declared
per share $ .30 $ .30 $ .30 $ .30 $ .30
QUARTERLY FINANCIAL DATA
Fiscal Year 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
(Unaudited)
Net sales $81,445 $91,536 $99,382 $99,139
Operating income 2,578 5,704 9,204 10,698
Net income 1,186 3,041 5,175 6,077
Earnings per share $ .13 $ .34 $ .57 $ .67
Fiscal Year 1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
(Unaudited)
Net sales $55,819 $62,057 $70,875 $80,308
Operating income 3,807 4,297 5,263 7,400
Net income 2,388 2,432 2,862 4,256
Earnings per share $ .26 $ .27 $ .32 $ .47
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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
industry, its profitability is substantially impacted by the market price for
finished product and feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with commodity
markets. Other costs, excluding feed, related to the profitability of its
poultry operations, including hatching egg production, hatching, growing, and
processing cost, are responsive to efficient cost containment programs and
management practices. Over the past three fiscal years, these other
production costs have averaged approximately 60% 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 margins than whole
chickens ice packed and shipped in bulk form. To reduce its exposure to
market cyclicality that has historically characterized commodity chicken
sales, the Company has increasingly concentrated on the production and
marketing of value-added product lines with emphasis on product quality,
customer service, and brand recognition. The Company adds value to its
poultry products by performing one or more processing steps beyond the stage
where the whole chicken is first saleable as a finished product, such as
cutting, deep chilling, packaging and labelling 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 which 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.
On February 24, 1994, the Company announced plans to add a second shift to one
of two processing lines at its Collins, Mississippi processing plant. The new
shift began operations during June 1994 and reached its processing capacity
during the fourth quarter of fiscal 1994. This additional shift increased the
number of birds the Company is processing to approximately 3,475,000 birds per
week.
Poultry prices per pound, as measured by the Georgia dock price, fluctuated
during the three years ended October 31, 1994 as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 1994
High $.5525 $.5625 $.6025* $.5650
Low $.5250* $.5300 $.5650 $.5375
Fiscal 1993
High $.5325 $.5425 $.5675 $.5875*
Low $.4850* $.5075 $.5525 $.5525
Fiscal 1992
High $.4800 $.4875 $.5475 $.5625*
Low $.4675* $.4700 $.4950 $.5125
*Year High/Low
Market prices, as measured by the Georgia dock price, have decreased from
October 31, 1994 through the Thanksgiving holiday to $.5125 per pound. Market
prices have remained stable at $.5125 per pound from Thanksgiving through the
Christmas season.
During fiscal 1993, the poultry industry experienced a favorable finished
product environment and an overall decline in feed grain prices. These
factors, together with the Company's expansion, favorably impacted income from
operations. During fiscal 1994, as in fiscal 1993, the poultry industry
experienced higher prices for poultry products as compared to the previous
fiscal year. However, the positive effect of improved prices of poultry
products was partially offset by higher costs of feed grains. Although feed
costs were higher overall for fiscal 1994 than for fiscal 1993, they declined
significantly during the last months of fiscal 1994. The Company is unable to
predict how long current conditions will continue or to what extent cyclical
pressures will affect operations.
RESULTS OF OPERATIONS:
Fiscal 1994 Compared to Fiscal 1993
Net sales for the year ended October 31, 1994, increased to $371.5 million, an
increase of $102.4 million, or 38.1%. The increase in net sales resulted from
a 35.2% increase in the total pounds of products sold and a 2.1% increase in
the average sale price of products. Net sales of poultry products sold
increased $100.0 million, or 45.8%, when compared to fiscal 1993. The
increase in the net sales of poultry products was due to an increase in the
pounds of poultry products sold of 38.3% and an increase in the average net
sales price of poultry products of 5.5%. Net sales of prepared food products
increased $2.4 million, or 4.7%. The pounds of prepared food products sold
increased 3.2% as the average sale price of prepared food products increased
1.5% during fiscal 1994 as compared to fiscal 1993.
Cost of sales for fiscal 1994 increased approximately $94.6 million, or 40.3%,
as compared to fiscal 1993. Cost of sales of poultry products sold increased
$92.6 million, or 46.1%, during fiscal 1994 as compared to fiscal 1993. The
increase in cost of sales for fiscal 1994 as compared to fiscal 1993, resulted
primarily from the increased pounds of poultry products sold and an increase
in the overall costs of feed grains. A simple average of the corn and soybean
meal cash market prices reflected an increase of 10.4% and a decrease of 3.5%,
respectively, during fiscal 1994 as compared to the previous fiscal year.
Cost of sales of prepared food products increased $2.0 million, or 6.1%,
during the year ended October 31, 1994 as compared to the year ended October
31, 1993.
Selling, general and administrative expenses in fiscal 1994 increased $.4
million, or 3.1%, as compared to fiscal 1993. Measured as a percentage of net
sales, selling, general and administrative expenses for fiscal 1994 were 3.8%
as compared to 5.1% during fiscal 1993.
Interest expense increased approximately $1.6 million during fiscal 1994 as
compared to fiscal 1993. The increase in interest expense is due primarily to
higher interest rates and reflects interest incurred on borrowed funds for the
financing of the Pike County complex and other major construction projects for
the entire year of fiscal 1994.
The Company's effective tax rate increased in fiscal 1994 to approximately
37.7% as compared to approximately 37.1% in fiscal 1993. The increase is
primarily due to higher earnings in fiscal 1994 as compared to fiscal 1993,
which resulted in tax calculations using higher tax rates.
Fiscal 1993 Compared to Fiscal 1992
For the year ended October 31, 1993, net sales increased $59.0 million or
28.1% as compared to the year ended October 31, 1992. The increase in net
sales resulted from a 24.4% increase in the total pounds of products sold and
a 3.0% increase in the average sale price of products sold during fiscal 1993
as compared to fiscal 1992. Net sales of poultry products sold increased
$53.6 million, or 32.5%, when compared to fiscal 1992. The increase in net
sales of poultry during fiscal 1993 as compared to fiscal 1992 is a result of
an increase in the pounds of poultry products sold and an increase in the
average sale price of poultry products of 26.2% and 5.0%, respectively. Net
sales of prepared food products increased $5.4 million, or 11.9%. The pounds
of prepared food products sold increased 7.9% as the average sale price of
prepared food products increased 3.7%.
Cost of sales for fiscal 1993 increased approximately $45.8 million, or 24.2%,
over the prior fiscal year. Of the increase, approximately $42.6 million was
associated with poultry products and was due primarily to the increase in
pounds of poultry products sold. A simple average of the corn and soy meal
cash market prices reflected a decrease of 6.3% and an increase of 4.1%,
respectively, when compared to fiscal 1992. Cost of sales of prepared food
products sold increased $3.2 million, or 10.4%, during fiscal 1993 as compared
to fiscal 1992, primarily as a result of an increase in the pounds of prepared
food products sold.
Selling, general and administrative expenses in fiscal 1993 increased $.5
million, or 3.6%, as compared to fiscal 1992. Selling, general and
administrative expenses for fiscal 1993 were 5.1% of net sales as compared to
6.2% of net sales in fiscal 1992.
Interest expense increased approximately $1.9 million during fiscal 1993 as
compared to fiscal 1992. Interest costs of $.4 million and $.3 million were
capitalized as a result of additional borrowings incurred in connection with
the construction of the Pike County, Mississippi complex and other major
construction projects in fiscal 1993 and 1992, respectively. Interest income
decreased approximately $.2 million during fiscal 1993 as compared to fiscal
1992 as a result of reduced amounts available for investments and lower
interest rates.
The Company's effective tax rate increased in fiscal 1993 to approximately
37.1% as compared to approximately 36.0% in fiscal 1992. The increase is
primarily due to reduced tax-free interest income as a percentage of
net income before taxes. The effect of the retroactive tax rate increase
incorporated into the Revenue Reconciliation Act of 1993 was insignificant.
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1994, the Company's working capital totaled $45.8 million and
its current ratio was 5.6 to 1, as compared to working capital of $42.5
million and a current ratio of 6.6 to 1 at October 31, 1993. During fiscal
1994, the Company expended $22.4 million on planned capital projects and $4.0
million to reduce the outstanding debt under its revolving credit agreement.
During the third quarter of fiscal 1994, the credit agreement was amended
to, among other things, increase the revolving credit available to
the Company thereunder to $70.0 million from $60.0 million. The same group of
banks that were parties to the original revolving credit agreement were
parties to the amendment.
The Company's capital budget for fiscal 1995 is approximately $23.2 million.
The original capital budget for fiscal 1994 was approximately $21.6 million,
which was increased to approximately $26.7 million due to the addition of
items not approved at the beginning of fiscal 1994 pending justification,
field trial and alternate costing. Included in the fiscal 1995 budget is
approximately $3.9 million relating to fiscal 1994 budget items that were not
completed or started in fiscal 1994. Also included in the fiscal 1995 budget
are renovations to offices at three processing facilities and other major
capital projects for changes and additions to existing processing facilities
to allow better product flow and product mix for more market flexibility.
The Company anticipates that the capital expenditures for fiscal 1995 will be
funded by working capital and additional borrowings under its $70.0 million
revolving credit agreement.
Item 8. Financial Statements and Supplementary Data.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31
1994 1993
(In thousands)
Assets
Current assets:
Cash and temporary cash investments $ 4,125 $ 3,979
Accounts receivables, less allowance of
$100,000 in 1994 and $80,000 in 1993 18,986 17,014
Inventories (Note 2) 29,375 26,425
Prepaid expenses 3,293 2,752
Total current assets 55,779 50,170
Property, plant and equipment (Note 3):
Land and buildings 70,176 58,843
Machinery and equipment 126,060 106,275
Construction in process 6,641 15,637
202,877 180,755
Accumulated depreciation (78,110) (63,161)
124,767 117,594
Other assets 1,163 1,242
Total assets $181,709 $169,006
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,837 $ 3,356
Accrued expenses 5,399 3,687
Accrued income taxes 1,623 506
Current maturities of long-term debt 77 73
Total current liabilities 9,936 7,622
Long-term debt, less current maturities (Note 3) 56,176 60,253
Deferred income taxes (Note 4) 9,410 7,700
Stockholders' equity (Note 6):
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 9,075,427 9,075 9,075
Paid-in capital 7,410 7,410
Retained earnings 89,702 76,946
Total stockholders' equity 106,187 93,431
Total liabilities and stockholders' equity $181,709 $169,006
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
1994 1993 1992
(In thousands, except per share data)
Net sales $371,502 $269,059 $210,057
Cost and expenses:
Cost of sales 329,294 234,691 188,900
Selling, general and administrative 14,024 13,601 13,124
343,318 248,292 202,024
Operating income 28,184 20,767 8,033
Other income (expense):
Interest income 109 158 365
Interest expense (3,655) (2,090) (163)
Other 195 158 (37)
(3,351) (1,774) 165
Income before income taxes 24,833 18,993 8,198
Income tax expense (Note 4) 9,354 7,055 2,945
Net income $15,479 $11,938 $5,253
Net income per share $ 1.71 $ 1.32 $ .58
See accompanying notes.
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)
Balance at November 1, 1991 9,075,427 $9,075 $7,410 $65,201 $81,686
Net income for year 5,253 5,253
Cash dividends ($.30 per share) (2,723) (2,723)
Balance at October 31, 1992 9,075,427 9,075 7,410 67,731 84,216
Net income for year 11,938 11,938
Cash dividends ($.30 per share) (2,723) (2,723)
Balance at October 31, 1993 9,075,427 9,075 7,410 76,946 93,431
Net income for year 15,479 15,479
Cash dividends ($.30 per share) (2,723) (2,723)
Balance at October 31, 1994 9,075,427 $9,075 $7,410 $89,702 $106,187
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
1994 1993 1992
(In thousands)
Operating activities
Net income $15,479 $11,938 $5,253
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 15,604 11,370 7,935
Provision for losses on accounts
receivable 36 43 45
Deferred income taxes 1,500 1,300 500
Change in assets and liabilities:
Increase in accounts receivable (2,008) (5,332) (535)
Increase in inventories (2,950) (8,059) (1,832)
Increase in prepaid expenses (331) (798) (138)
Increase in other assets (269) (737) (405)
Increase (decrease) in accounts payable (519) 1,356 193
Increase in accrued expenses 2,829 201 1,019
Total adjustments 13,892 (656) 6,782
Net cash provided by
operating activities 29,371 11,282 12,035
Investing activities
Net proceeds from sale of
property and equipment 15 83 18
Capital expenditures (22,444) (38,181) (48,647)
Net cash used in investing activities (22,429) (38,098) (48,629)
Financing activities
Long-term borrowings -0- 20,000 -0-
Net change in revolving credit (4,000) 6,000 28,000
Principal payments on long-term debt (73) (105) (101)
Dividends paid (2,723) (2,723) (2,723)
Net cash provided by (used in)
financing activities (6,796) 23,172 25,176
Net increase in cash and temporary
cash investments 146 (3,644) (11,418)
Cash and temporary cash investments
at beginning of year 3,979 7,623 19,041
Cash and temporary cash investments
at end of year $ 4,125 $ 3,979 $7,623
Supplemental disclosure of
cash flow information:
Cash paid for income taxes $ 6,736 $ 6,229 $2,329
Cash paid for interest $ 3,945 $ 2,301 $ 89
Non-cash financing activities
related to capital lease $ -0- $ 4,500 $ -0-
See accompanying notes.
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.
Temporary Cash Investments: Temporary cash investments are stated at cost
which approximates market. Included are investment agreements for securities
purchased under agreements to resell with a maturity of one day.
Accounts Receivable: The Company sells fresh and frozen chicken and other
prepared food items to retailers, distributors and fast food operators in the
southern, southwestern and western United States. 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.
Inventories: Processed food and poultry inventories and inventories of feed,
egg, 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 are accumulated up to the production stage and amortized over the
productive lives 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.
Income Taxes: Deferred income taxes 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 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 of the farming subsidiary exceed
1988 revenues. Management does not anticipate the payment of such taxes
related to these cash bases timing differences during fiscal 1995. (See Note
4).
Effective October 31, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." The effect of
adopting the statement was insignificant on the Company's financial position
and operations.
Earnings Per Share: Earnings per share are based upon the weighted average
number of shares outstanding during each year. The weighted average shares
outstanding were 9,075,427 in 1994, 1993 and 1992.
2. Inventories
Inventories consisted of the following:
October 31
1994 1993
(In thousands)
Live poultry broilers and breeders $16,453 $13,658
Feed, eggs and other 3,795 3,775
Processed poultry 3,005 2,288
Processed food 4,149 4,831
Packaging materials 1,973 1,873
$29,375 $26,425
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
1994 1993
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 6.3% at
October 31, 1994) $30,000 $34,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments
of $2,850,000 beginning in 1997 20,000 20,000
Note payable, accruing interest at 5%;
due in annual installments of $161,400,
including interest, maturing in 2009 1,694 1,767
6% Mississippi Business Investment Act
bond capital lease obligation 4,500 4,500
Notes payable to an insurance company,
accruing interest at 5% 59 59
56,253 60,326
Less current maturities of long-term
debt 77 73
$56,176 $60,253
The Company has a $70.0 million ($40.0 million available at October 31, 1994)
revolving credit agreement with four banks. The revolver extends to 1997,
when the outstanding borrowings may be converted to a term loan payable in
equal semiannual installments over four years. Borrowings are at prime or
below and may be prepaid without penalty. A commitment fee of .375% 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
$7,941,000 is pledged as collateral to a note payable and the capital lease
obligation.
Interest costs of $0, $416,000 and $250,000 were capitalized in 1994, 1993 and
1992, respectively.
The aggregate annual maturities of long-term debt at October 31, 1994 are as
follows (in thousands):
Fiscal Year Amount
1995 $ 77
1996 226
1997 10,590
1998 10,604
1999 10,618
Thereafter 24,138
$56,253
4. Income Taxes
Income tax expense consisted of the following:
Years Ended October 31
1994 1993 1992
(In thousands)
Current:
Federal $7,150 $5,233 $2,039
State 704 522 406
Deferred
Federal 1,370 1,200 470
State 130 100 30
$9,354 $7,055 $2,945
Significant components of the Company's deferred tax assets and liabilities at
were as follows (in thousands):
Deferred tax assets (included in prepaid expenses):
October 31,
1994 1993
Accrued expenses $ 550 $330
Prepaid expenses (140) (130)
$ 410 $200
Deferred tax liabilities:
Cash basis temporary differences $3,900 $3,900
Property, plant and equipment 5,510 3,800
$9,410 $7,700
The differences between the consolidated effective income tax rate and the
federal statutory rate were as follows:
Years Ended October 31
1994 1993 1992
Taxes at statutory rate 34.9% 34.3% 34.0%
State income taxes 3.1 3.8 3.3
State income tax credit (.8) (1.5) -0-
Tax exempt interest -0- -0- (1.0)
Other, net .5 .5 (.3)
37.7% 37.1% 36.0%
5. Employee Benefit Plans
The Company has a defined contribution profit sharing plan that covers all
employees and an employee stock ownership plan that is restricted to salaried
employees. As of October 31, 1994, the Company is waiting to receive approval
from the Internal Revenue Service to merge the employee profit sharing plan
into the employee stock ownership plan. Annual contributions are made at the
discretion of the Board of Directors. Total contributions to the profit
sharing plan were $1,200,000 in 1994, $750,000 in 1993 and $350,000 in 1992.
Under the Company's Stock Option Plan, 500,000 shares of Common Stock have
been reserved for grant to key management personnel. Options to purchase an
aggregate of 30,000 shares at $16 per share and 57,000 shares at $16.50 are
outstanding at October 31, 1994. Options to purchase 6,000 shares were
exercisable at October 31, 1994.
6. Shareholder Rights Agreement
On April 21, 1989, the shareholders of the Company approved a shareholders
rights agreement (the "Agreement") under which one share purchase right
("right") was declared as a dividend for each share of the Company's Common
Stock outstanding on May 31, 1989. 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 profit sharing plans of the Company.
The exercise price of a right has been established at $53. 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 April 21, 1999.
7. Other Matters
One customer accounted for 10.4% and 11.6% of consolidated sales for the years
ended October 31, 1993 and 1992. No customer accounted for more than 10% of
consolidated sales for the year ended October 31, 1994. Export sales were
less than 10% of consolidated sales in each year presented.
The effects of adopting in 1994 FASB Statement No. 106 "Employers' Accounting
for Postretirment Benefits other than Pension" was insignificant to the
Company's financial position and operation for the year ended October 31,
1994.
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 required 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(c). 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 required 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(c).
Such information is incorporated herein by reference to the definitive proxy
statement.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
As required 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(c). Such information is
incorporated herein by reference to the definitive proxy statement.
Item 13. Certain Relationships
and Related Transactions.
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a)1. FINANCIAL STATEMENTS:
The following consolidated financial statements of the Registrant
are included in Item 8:
Consolidated Balance Sheets - October 31, 1994 and 1993
Consolidated Statements of Income - Years ended October 31, 1994,
1993 and 1992
Consolidated Statements of Shareholders' Equity - Years
ended October 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended
October 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements - October 31, 1994
(a)2. FINANCIAL STATEMENT SCHEDULES:
The following consolidated financial statement schedules of the
Registrant are included in Item 8:
Schedule V - Property, Plant and Equipment.
Schedule VI - Accumulated Depreciation of
Property, Plant and Equipment.
Schedule VIII - Valuation and Qualifying Accounts.
Schedule IX - Short-Term Borrowings.
Schedule X - Supplementary Income Statement
Information.
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(i). 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 October 27, 1994.
(1) 4 - Copy of Certificate of Designations of
Series A Junior Participating Preferred
Stock of the Registrant
(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.
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).
(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.
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.
(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 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.
10-H-3 - Copy of Sanderson Farms, Inc. Bonus
Award Program effective November 1,
1993.
(7) 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.
10-M - Copy of Lease Agreement between Pike
County, Mississippi and the Registrant
dated as of November 1, 1992.
13 - Copy of the Registrants definitive proxy
statement related to the 1995 Annual
Meeting of Shareholders.
22 - List of subsidiaries of the Registrant.
24 - 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".
(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.
(a)(3)(ii) 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.
(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, 1994.
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.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sanderson Farms, Inc.
We have audited the accompanying consolidated balance sheets of Sanderson
Farms, Inc. and subsidiaries as of October 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 1994. Our audit also
included the financial statements listed in the index under Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/Ernst & Young LLP
Jackson, Mississippi
December 15, 1994
Sanderson Farms, Inc. and Subsidiaries
Property, Plant and Equipment
Schedule V
______________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E COL. F
Other
Balance at Changes Balance
Beginning Additions Add Deduct at End
Classification of Period at Cost Retirements Describe of Period
(In thousands)
Year ended
October 31, 1994
Land $1,067 $ 46 $(248)(3) $ 865
Building and
improvements 57,776 478 11,057(3) 69,311
Machinery and
equipment 106,275 5,222 $ 322 14,885(3) 126,060
Construction-in-
process 15,637 16,698 - (25,694)(3) 6,641
Totals $180,755 $22,444 $ 322 $ - $202,877
Year ended
October 31, 1993
Land $ 1,067 $ 1,067
Building and
improvements 30,787 $ 410 $ 5 $26,584(3) 57,776
Machinery and
equipment 70,818 10,656(1) 1,184 25,985(3) 106,275
Construction-in-
process 36,836 31,370(2) - (52,569)(3) 15,637
Totals $139,508 $42,436 $1,189 $ - $180,755
Year ended
October 31, 1992
Land $ 912 $ 155 $ 1,067
Building and
improvements 25,875 269 $ 1 $ 4,644(3) 30,787
Machinery and
equipment 57,764 3,457 819 10,416(3) 70,818
Construction-in-
process 7,130 44,766(2) - (15,060)(3) 36,836
Totals $ 91,681 $48,647 $ 820 $ - $139,508
(1) Includes capital lease assets.
(2) Primarily construction of Pike County, Mississippi facilities.
(3) Reclassification.
Sanderson Farms, Inc. and Subsidiaries
Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
Schedule VI
_______________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E COL. F
Additions Other
Balance at Charged to Changes Balance
Beginning Costs and Add (Deduct) at End
Classification of Period Expenses Retirements Describe of Period
(In thousands)
Year ended
October 31, 1994
Building and
improvements $ 12,977 $ 2,660 $ 15,637
Machinery and
equipment 50,184 12,590 $ 301 68,473
Totals $ 63,161 $15,250 $ 301 $ 78,110
Year ended
October 31, 1993
Building and
improvements $ 11,089 $ 1,921 $ 3 $ 12,977
Machinery and
equipment 70,818 10,656(1) 1,184 50,184
Totals $139,508 $42,436 $1,189 $ 63,161
Year ended
October 31, 1992
Building and
improvements $ 9,640 $ 1,420 $ 1 $ 11,059
Machinery and
equipment 56,622 6,441 815 42,248
Totals $ 46,262 $ 7,861 $ 816 $ 53,307
Sanderson Farms, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule VIII
________________________________________________________________________________
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)
Year ended
October 31, 1994
Deducted from accounts
receivable:
Allowance for
doubtful
accounts
Totals $80 $34 $14 $100
Year ended
October 31, 1993
Deducted from accounts
receivable:
Allowance for
doubtful
accounts
Totals $50 $43 $13 $80
Year ended
October 31, 1992
Deducted from accounts
receivable:
Allowance for
doubtful
accounts $40 $45 $35 $50
Totals
(1) Uncollectible accounts written off, net of recoveries.
Sanderson Farms, Inc. and Subsidiaries
Short-Term Borrowings
Schedule IX
_____________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E COL. F
Maximum Average Weighted
Category of Weighted Amount Out- Amount Out- Average
Aggregate Balance at Average standing standing Int. Rate
Short-Term End of Interest During During the During the
Borrowings Period Rate the Period Period (1) Period (2)
(In Thousands)
Year ended
October 31, 1992
Bank Borrowings -0- N/A $10,500 $719 4.9%
(1) The average amount during the period is the weighted average by day of
bank borrowings outstanding during the year.
(2) The weighted average interest rate is computed by dividing interest
expense by the average amount outstanding during the period.
Sanderson Farms, Inc. and Subsidiaries
Supplementary Income Statement Information
Schedule X
_____________________________________________________________________________
COL. A COL. B
Item Charged to Costs and Expenses
Year ended October 31
1994 1993 1992
(In Thousands)
Maintenance and repairs $ 7,636 $ 5,755 $4,475
Depreciation and amortization of intangible
assets, preoperating costs and similar
deferrals 15,604 11,370 7,935
Advertising costs 2,801 3,327 1,921
Amounts for royalties and taxes other than
payroll and income taxes are not presented
as they total less than 1% of total sales
for all periods presented
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 25, 1995 By:/s/Joe Frank Sanderson
Joe Frank Sanderson
Chairman of the Board
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 Frank Sanderson 1/25/95 /s/ John H. Baker, III 1/25/95
Joe Frank Sanderson, John H. Baker, III,
Chairman of the Board Director
/s/ Joe F. Sanderson, Jr. 1/25/95 /s/ Charles W. Ritter, Jr. 1/25/95
Joe F. Sanderson, Jr., Charles W. Ritter, Jr.,
President, Chief Executive Director
Officer and Director
/s/ Dewey R. Sanderson, Jr. 1/25/95 /s/ Rowan H. Taylor 1/25/95
Dewey R. Sanderson, Jr., Rowan H. Taylor,
Director Director
/s/Donald W. Zacharias 1/25/95 /s/ Robert Buck Sanderson 1/25/95
Donald W. Zacharias, Robert Buck Sanderson,
Director Director
/s/ Phil K. Livingston 1/25/95 /s/ James A. Grimes 1/25/95
Phil K. Livingston, James A. Grimes,
Director Secretary and
Chief Accounting Officer
/s/ D. Michael Cockrell 1/25/95
D. Michael Cockrell,
Treasurer and Chief
Financial Officer