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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, 1995
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number : 0-16567
SANDERSON FARMS, INC.
(Exact name of registrant as specified in its charter)
Mississippi 64-0615843
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
225 North 13th Avenue
Laurel, Mississippi 39440
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 649-4030
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 per share par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
Aggregate market value (based on the closing sales price in the NASDAQ
National Market System) of the voting stock held by non-affiliates of the
Registrant as of December 31, 1995: approximately $57,833,651.97.
Number of Shares outstanding of the Registrant's common stock as of
December 31, 1995: 13,613,080 shares of common stock, $1.00 per share par
value.
Portions of the Registrant's definitive proxy statement filed or to be
filed in connection with its 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III.
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, 1995, which is the year for which this Annual Report is
filed.
Presentation and Dates of Information. Except for Item 4A herein, the
Item numbers and letters appearing in this Annual Report correspond with those
used in Securities and Exchange Commission Form 10-K (and, to the extent that
it is incorporated into Form 10-K, the letters used in the Commission's
Regulation S-K) as effective on the date hereof, which specifies the
information required to be included in Annual Reports to the Commission. Item
4A ("Executive Officers of the Registrant") has been included by the
Registrant in accordance with General Instruction G(3) of Form 10-K and
Instruction 3 of Item 401(b) of Regulation S-K. The information contained in
this Annual Report is, unless indicated to be given as of a specified date or
for the specified period, given as of the date of this Report, which is
January 26, 1996.
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF THE REGISTRANT'S BUSINESS
The Registrant was incorporated in Mississippi in 1955, and is a fully-
integrated poultry processing company engaged in the production, processing,
marketing and distribution of fresh and frozen chicken products. In addition,
through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division),
the Registrant is engaged in the processing, marketing and distribution of
processed and prepared food items.
The Registrant sells ice pack, chill pack and frozen chicken, in whole,
cut-up and boneless form, primarily under the 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, 1995, the Registrant processed 174.2 million chickens, or
approximately 571.0 million dressed pounds. According to 1995 industry
statistics, the Registrant was the 14th 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 407 grow-out farms
that provide it with sufficient housing capacity for its current operations.
The Registrant also has contracts with operators of 127 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 1994, this expansion included the expansion of the Registrant's
Hammond, Louisiana processing facility, the construction of new waste water
facilities at the Hammond, Louisiana and Collins and Hazlehurst, Mississippi
processing facilities, the addition of second shifts at the Hammond,
Louisiana, Laurel, Mississippi, Hazlehurst, Mississippi, and Collins,
Mississippi processing facilities, expansion of freezer and production
capacity at its prepared foods facility in Jackson, Mississippi, the expansion
of freezer capacity at its Laurel, Mississippi, Hammond, Louisiana and
Collins, Mississippi processing facilities, the addition of deboning
capabilities at all of the Registrant's poultry processing facilities, and the
construction and start-up of its Pike County, Mississippi, production and
processing facilities, including a hatchery, a feed mill, a processing plant,
a waste water treatment facility and a water treatment facility. In addition,
since 1987, the Registrant completed the expansion and renovation of the
hatchery at its Hazlehurst, Mississippi production facilities, and completed
the renovation and expansion of its Collins, Mississippi by-products facility,
allowing for the elimination of a smaller by-products facility at the Laurel,
Mississippi plant.
Capital expenditures for fiscal 1995 were funded by working capital and
borrowings under a revolving credit agreement. Effective April 17, 1995, the
Registrant amended its revolving credit agreement to, among other things,
increase the revolving credit available to the Registrant thereunder to $100.0
million from $70.0 million. On November 16, 1995, the Registrant entered into
a loan agreement with the Robertson County, Texas Industrial Development
Corporation (the "Issuer") pursuant to which the Issuer loaned to the
Registrant the proceeds of the issuance of $7.2 million Variable Rate Demand
Industrial Development Bonds (Sanderson Farms, Inc. Project) Series 1995 (the
"Bonds"), for use by the Registrant in the construction of its feed
manufacturing facility to be located in Robertson County, Texas. The Bonds
are secured by a letter of credit issued pursuant to the Registrant's
revolving credit agreement. The credit otherwise available to the Registrant
under the revolving credit agreement is reduced by the amount available to be
drawn under the letter of credit. The Registrant anticipates that capital
expenditures for fiscal 1996 will be funded by internally generated working
capital, borrowings under the revolving credit agreement, and the proceeds of
the Bonds.
The Registrant currently has additional processing capacity available to
it through the double shifting of its Pike County, Mississippi processing
facility, which is scheduled to occur on March 1, 1996, and the double
shifting of the second line at its Collins, Mississippi processing facility.
During 1995 the Company announced that it will construct a new state-of-the-
art poultry complex consisting of a feedmill, hatchery, processing plant and
wastewater treatment facility in Brazos and Robertson Counties, Texas. At
full capacity this facility will have the capacity to process 1.2 million
birds per week and will employ approximately 1,400 people. Construction of
the new facility began during the fall of 1995 with initial operations
expected to begin in the Spring of 1997. 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, 1995, the Registrant processed approximately 174.2 million chickens, or
approximately 571.0 million dressed pounds. In addition, the Registrant
purchased and further processed 52.4 million pounds of poultry products during
fiscal 1995. According to 1995 industry statistics, the Registrant was the
14th largest processor of dressed chicken in the United States based on
estimated average weekly processing.
The Registrant conducts its chicken operations through Sanderson Farms,
Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division),
both of which are wholly-owned subsidiaries of Sanderson Farms, Inc. The
production subsidiary, Sanderson Farms, Inc. (Production Division), which has
facilities in Laurel, Collins, Hazlehurst and Pike County, Mississippi, and a
field office in Bryan, Texas, is engaged in the production of chickens to the
broiler stage. Sanderson Farms, Inc. (Processing Division), which has
facilities in Laurel, Collins, Hazlehurst and Pike County, Mississippi, 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 sales of chicken products, of value added
and non-value added chicken products.
Fiscal Year Ended October 31,
1991 1992 1993 1994 1995
Value added 95.7% 96.3% 97.2% 98.3% 98.2%
Non-value added 4.3% 3.7% 2.8% 1.7% 1.8%
Total Registrant
chicken sales . 100.0% 100.0%100.0% 100.0% 100.0%
The following table sets forth, for the years indicated, the contribution, as a percentage of net sales, of
each of the Registrant's major product lines.
Fiscal Year Ended October 31,
1991 1992 1993 1994 1995
Registrant processed
chicken:
Value added:
Chill pack(1) 28.3% 24.3% 20.9% 18.2% 19.3%
Fresh bulk pack(1) 37.8 42.2 49.6 56.2 51.6
Frozen 8.1 9.2 8.8 10.2 13.5
Subtotal 74.2 75.7 79.3 84.6 84.4
Non-value added:
Ice pack 2.0 2.1 1.8 0.9 0.7
Frozen 1.4 .8 0.4 0.6 0.8
Subtotal 3.4 2.9 2.2 1.5 1.5
Total Company
processed
chicken 77.6 78.6 81.5 86.1 85.9
Processed and
prepared
foods 21.5 20.9 18.4 13.8 14.1
Other(2) 0.9 .5 0.1 0.1 0.0
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 and 1995 as fresh bulk pack, which includes ice pack and vacuum
pack products. The vacuum packproducts 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 Registrant's 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 much of its chicken products based
upon weekly market prices reported by the United States Department of
Agriculture. Consistent with the industry, the Registrant's
profitability is impacted by such market prices, which may fluctuate
substantially and exhibit cyclical characteristics. The Registrant
adds a markup to base prices, which depends upon value added, volume,
product mix and other factors. While base prices may change weekly,
the Registrant's markup is generally negotiated from time to time with
the Registrant's customers. The Registrant's sales are generally made
on an as-ordered basis, and the Registrant maintains 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, 1995, the Registrant maintained contracts
with 26 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, 1995, by 101 independent contractors under the Registrant's
supervision. Eggs produced by independent contract breeders are transported
to Registrant's hatcheries in Registrant vehicles.
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 October 31, 1995, 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 407 grow-out farms,
as of October 31, 1995, 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 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, 1995, the
Registrant operated three feed mills, all of which are located in
Mississippi. The Registrant's annual feed requirements for fiscal 1995
were approximately 802,300 tons, and it has the capacity to produce
approximately 936,000 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, 1995, the Registrant had approximately 396,500 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 has
announced its plans to double shift both lines of its Pike County,
Mississippi processing plant during 1996, increasing its production to
1.2 million birds 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 five processing
facilities. At October 31, 1995, all five of these deboning facilities were
operating on a double shifted basis resulting in a combined capacity to
process approximately 3.5 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 processedand 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, 1995,
the Registrant operated one by-products plant, and five automotive
maintenance shops which service approximately 361 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 1995, the Registrant purchased its pullets and its
cockerels from four major breeders. The Registrant has found the genetic
cross of the breeds supplied by these companies to produce chickens
most suitable to the Registrant's purposes. The Registrant has no
written contracts with these breeders for the supply of breeder stock.
Other sources of breeder stock are available, and the Registrant
continually evaluates these sources of supply. Should breeder
stock from its present suppliers not be available for any reason,
the Registrant believes that it could obtain adequate breeder
stock from other suppliers.
Other major raw materials used by the Registrant include feed grains,
cooking ingredients and packaging materials. The Registrant purchases
these materials from a number of different vendors and believes that its
sources of supply are adequate for its present needs. The Registrant does
not anticipate any difficulty in obtaining these materials in the future.
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, 1995, the Registrant had 5,278 employees, including 721
salaried and 4,557 hourly employees. A collective bargaining agreement with
the United Food and Commercial Workers International Union covering 651
hourly employees who work at the Registrant's processing plant in
Hammond, Louisiana 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.
A collective bargaining agreement with the Laborers' International
Union of North America, Professional Employees Local Union #693, AFL-CIO,
covering 536 hourly employees who work at the Registrant's processing plant
in Hazlehurst, Mississippi was negotiated and signed by the union and the
Registrant effective July 15, 1995. This Agreement will expire on June 30,
1999. This collective bargaining agreement has a grievance procedure
and no strike-no lockout clauses that should assist in
maintaining stable labor relations at the Hazlehurst plant.
A collective bargaining agreement with the Laborers' International Union
of North America, Professional Employees Local Union #693, AFL-CIO, covering
1,218 hourly employees who work at the Registrant's processing plant in
Collins, Mississippi was negotiated and signed by the union and the
Registrant effective September 9, 1995, and will expire on December 30, 1999.
This collective bargaining agreement also has a grievance procedure and no
strike-no lockout clauses that should assist in maintaining stable labor
relations at the Collins, Mississippi processing plant.
(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 $1,536,499 on December 31, 1995,
which bears interest at the rate of 5% per annum and is payable in equal
annual installments through 2009. In addition, under the terms of the
revolving credit agreement effective July 29, 1992, and under the
$20 million long-term fixed rate loan agreement effective 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 70 Chairman of the 1955 (1)
Board
Joe F. Sanderson, Jr. 48 President and 1984 (2)
Chief Executive
Officer
D. Michael Cockrell 38 Treasurer and Chief 1994 (3)
Financial Officer
James A. Grimes 47 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,
1995, was 628.
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 1995 High Low Dividends
First Quarter $14.83 $11.83 $.05
Second Quarter $14.00 $11.125 $.05
Third Quarter $12.75 $10.00 $.05
Fourth Quarter $12.25 $10.50 $.05
Stock Price
Fiscal Year 1994 High Low Dividends
First Quarter $12.33 $9.33 $.05
Second Quarter $11.83 $9.83 $.05
Third Quarter $13.16 $11.00 $.05
Fourth Quarter $13.50 $12.33 $.05
All dividends and stock prices have been adjusted to reflect a 3 for 2
stock split effected in the form of a stock dividend in February 1995.
On December 30, 1995, the closing sales price for the common stock was
$10 5/8 per share.
Item 6. Selected Financial Data.
Year Ended October 31
1995 1994 1993 1992 1991
(In thousands, except per share data)
Net sales $ 392,896 $371,502 $269,059 $210,057 $186,077
Income from operations 21,239 28,184 20,767 8,033 10,058
Net income 10,856 15,479 11,938 5,253 7,552
Earnings per share(1) 0.80 1.14 .88 .39 .55
Working capital 47,605 45,843 42,548 33,371 43,545
Total assets 193,197 181,709 169,006 126,339 94,198
Long-term debt, less
current maturities 54,806 56,176 60,253 29,826 1,931
Stockholders' equity 114,319 106,187 93,431 84,216 81,686
Cash dividends declared
per share(1) $ .20 $ .20 $ .20 $ .20 $ .20
QUARTERLY FINANCIAL DATA
Fiscal Year 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
(Unaudited)
Net sales $87,569 $92,449 $101,195 $111,683
Operating income 3,764 3,583 4,690 9,202
Net income 1,780 1,703 2,305 5,068
Earnings per share(1) $ .13 $ .13 $ .17 $ 0.37
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(1) $ .09 $ .22 $ .38 $ .45
(1)All per share numbers have been adjusted to reflect a 3 for 2 stock split
effected in the form of a stock dividend in February 1995.
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 eggs 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, and including hatching eggs
production, hatching, growing, and processing costs, are responsive to
efficient cost containment programs and management practices. Over the
past three fiscal years, these other production costs have averaged
approximately 61% of the Company's total production costs.
The Company believes that value-added products are subject to less price
volatility and generate higher, more consistent profit margin than whole
chickens ice-packed and shipped in bulk form. To reduce its exposure to
market cyclicality that has historically characterized commodity chicken
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's strengths is its ability to change its
product mix to meet the 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.
On January 26, 1995, the Company announced plans to add a second shift at
its poultry processing plant in Pike County, Mississippi. The addition of
the second shift will increase the plant's total processing capacity by
600,000 birds per week and will increase Sanderson Farms' total processing
capacity to more than 4 million birds per week. Following the development
of production capacity to support the expanded processing level,
the second shift is expected to begin operations in the spring of 1996.
The Company also announced plans to construct a new poultry complex in Texas
at the annual stockholders meeting on February 23, 1995. The
state-of-the-art complex will include a feed mill, hatchery and poultry
processing plant with capacity to process 1.2 million birds per week. At
full capacity, it will employ approximately 1,400 people and require 280
contract growers. Initial operations are scheduled to begin in the
spring of 1997.
Poultry prices per pound, as measured by the Georgia dock price, fluctuated
during the three years ended October 31, 1995, as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 1995
High $ .5300 $.5200 $.5675 $.6150*
Low $ .5125* $.5125* $.5125 $.5775
Fiscal 1994
High $ .5525 $.5625 $.6025* $.5650
Low $ .5250* $.5300 $.5650 $.5375
Fiscal 1993
High $ .5325 $.5425 $.5675 $.5875*
Low $ .4850* $.5075 $.5525 $.5525
*Year High/Low
Market prices for whole birds, as measured by the Georgia dock price,
remained relatively strong through the Thanksgiving holiday at $.5975
per pound. Market prices for whole birds steadily decreased after the
Thanksgiving holiday to $.5825 per pound at the end of December 1995.
During fiscal 1994, 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. For the year ended
October 31, 1995, the Company experienced lower poultry
prices and higher feed costs as compared to the year ended October 31, 1994.
Although market prices for poultry products are higher during the beginning
of fiscal 1996 as compared to the beginning of fiscal 1995, the cost of feed
grain continues to increase and place pressure on margins. 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 1995 Compared to Fiscal 1994
For the year ended October 31, 1995, net sales increased to $392.9 million,
an increase of $21.4 million, or 5.8%. The increase in net sales resulted
from an increase in the pounds of product sold of 7.2%, while the average
sales price of products decreased by 1.3%. During fiscal 1995, net sales
of poultry products increased 6.5% as compared to fiscal 1994. The increase
in the net sales of poultry products resulted from an increase
in the pounds of poultry products sold of 7.8% and a decrease in the average
sale price of poultry products of 1.2% during fiscal 1995 as compared to
fiscal 1994. For the year ended October 31, 1995 as compared to the
year ended October 31, 1994, net sales of prepared foods products
increased approximately 1.2%. This increase in the net sales of prepared
foods products resulted from an increase in the average sale price of
prepared foods products of 3.3%, which was partially offset by a decrease
in the pounds of prepared foods products sold of 2.1%.
Cost of sales for fiscal 1995 as compared to fiscal 1994 increased $26.6
million, or 8.1%. Costs of sales of poultry products increased $26.9
million, or 9.5%, due to the increase in pounds of poultry products sold
and higher average feed grain prices. A simple average of corn cash market
prices for fiscal 1995 reflected an increase of 2.0% as compared to fiscal
1994. Cost of sales of prepared food products sold decreased $.3
million, or .6%, during the year ended October 31, 1995 as compared to the
year ended October 31, 1994 primarily due to the decrease in pounds of
prepared food products sold.
Selling, general and administrative expenses during fiscal 1995 as compared
to fiscal 1994 increased $1.7 million, or 12.3%. Measured as a percentage
of net sales, selling, general and administrative expenses for fiscal 1995
were 4.0% as compared to 3.8% during fiscal 1994.
Interest expense during fiscal 1995 was approximately $3.8 million as
compared to approximately $3.7 million during fiscal 1994.
The Company's effective tax rate increased in fiscal 1995 to approximately
38.1% as compared to approximately 37.7% for fiscal 1994, primarily from
state income taxes.
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 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 was 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 was
primarily due to higher earnings in fiscal 1994 as compared to fiscal 1993,
which resulted in tax calculations using higher tax rates.
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1995, the Company's working capital totaled $47.6 million and
its current ratio was 4.6 to 1 as compared to working capital of $45.8
million and a current ratio of 5.6 to 1 at October 31, 1994. During fiscal
1995, the Company expended $24.9 million on planned capital projects and
$1.0 million to reduce the outstanding debt under its revolving credit
agreement.
The Company's original capital budget for fiscal 1995 was approximately
$23.2 million. The fiscal 1995 budget was increased to $30.5 million
at October 31, 1995. This increase of $7.3 million relates to the addition
of items not approved at the beginning of fiscal 1995 pending justification,
field trial and alternate costing.
The Company's capital budget for fiscal 1996 is approximately $46.1 million,
which includes approximately $5.2 million relating to fiscal 1995 budget
items that were not completed or started during fiscal 1995. Also included
in the fiscal 1996 budget is approximately $36.2 million pertaining to the
poultry processing plant and hatchery under construction in Brazos County,
Texas, and the feed mill under construction in Robertson County, Texas.
Construction at this new poultry complex began during the fall of 1995 with
initial operations scheduled to begin during the spring of 1997. Other
major capital projects for fiscal 1996 include renovations, changes and
additions to existing processing facilities to allow better product flow
and product mix for more market flexibility.
On November 16, 1995, the Company borrowed $7.2 million in connection with
the issuance of Industrial Revenue Bonds to be used to construct the feed
mill in Robertson County, Texas. The banks participating in the revolving
credit agreement provided a letter of credit in connection with the issuance
of the Industrial Revenue Bonds and the credit otherwise available to be
drawn under the letter of credit. The capital requirements for fiscal
1996 will be funded by working capital, proceeds of the Industrial Revenue
Bonds loaned to the Company, and borrowings under the revolving credit
agreement.
Item 8. Financial Statements and Supplementary Data.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31
1995 1994
(In thousands)
Assets
Current assets:
Cash and temporary cash investments $ 447 $ 4,125
Accounts receivables, less allowance of $130,000 in
1995 and $100,000 in 1994 22,624 18,986
Inventories (Note 2) 33,275 29,375
Prepaid expenses 4,619 3,293
Total current assets 60,965 55,779
Property, plant and equipment (Note 3):
Land and buildings 76,529 70,176
Machinery and equipment 140,678 126,060
Construction in process 8,997 6,641
226,204 202,877
Accumulated depreciation (94,873) (78,110)
131,331 124,767
Other assets 901 1,163
Total assets $ 193,197 $181,709
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,205 $2,837
Accrued expenses 7,372 5,399
Accrued income taxes 1,557 1,623
Current maturities of long-term debt 226 77
Total current liabilities 13,360 9,936
Long-term debt, less current maturities (Note 3) 54,806 56,176
Deferred income taxes (Note 4) 10,712 9,410
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
13,618,080 13,613 9,075
Paid-in capital 2,871 7,410
Retained earnings 97,835 89,702
Total stockholders' equity 114,319 106,187
Total liabilities and stockholders' equity $193,197 $181,709
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
1995 1994 1993
(In thousands, except per share data)
Net sales $ 392,896 $ 371,502 $ 69,059
Cost and expenses:
Cost of sales 355,907 329,294 234,691
Selling, general and administrative 15,750 14,024 13,601
371,657 343,318 248,292
Operating income 21,239 28,184 20,767
Other income (expense):
Interest income 180 109 158
Interest expense (3,774) (3,655) (2,090)
Other (99) 195 158
(3,693) (3,351) (1,774)
Income before income taxes 17,546 24,833 18,993
Income tax expense (Note 4) 6,690 9,354 7,055
Net income $ 10,856 $ 15,479 $11,938
Net income per share $ .80 $ 1.14 $ .88
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, 1992 9,075,427 $9,075 $7,410 $ 67,731 $ 84,216
Net income for year 11,938 11,938
Cash dividends ($.20 per share) (2,723) (2,723)
Balance at October 31, 1993 9,075,427 9,075 7,410 76,946 93,431
Net income for year 15,479 15,479
Cash dividends ($.20 per share) (2,723) (2,723)
Balance at October 31, 1994 9,075,427 9,075 7,410 89,702 106,187
Net income for year 10,856 10,856
Cash dividends ($.20 per share) (2,723) (2,723)
Stock split (3 for 2) effected in the
form of stock dividend 4,537,653 4,538 (4,538)
Redemption of fractional shares (1) (1)
Balance at October 31, 1995 13,613,080 13,613 2,871 $ 97,835 $ 114,319
See accompanying notes.
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
1995 1994 1993
(In thousands)
Operating activities
Net income $10,856 $15,479 $11,938
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 18,439 15,604 11,370
Provision for losses on accounts receivable 54 36 43
Deferred income taxes 950 1,500 1,300
Change in assets and liabilities:
Increase in accounts receivable (3,692) (2,008) (5,332)
Increase in inventories (3,900) (2,950) (8,059)
Increase in prepaid expenses (974) (331) (798)
Increase in other assets (93) (269) (737)
Increase (decrease) in accounts payable 1,368 (519) 1,356
Increase in accrued expenses 1,907 2,829 201
Total adjustments 14,059 13,892 (656)
Net cash provided by operating activities 24,915 29,371 11,282
Investing activities
Net proceeds from sale of property
and equipment 286 15 83
Capital expenditures (24,934) (22,444) (38,181)
Net cash used in investing activities (24,648) (22,429) (38,098)
Financing activities
Long-term borrowings -0- -0- 20,000
Net change in revolving credit (1,000) (4,000) 6,000
Principal payments on long-term debt (77) (73) (105)
Principal payments on Capital Lease (144) -0- -0-
Dividends paid (2,723) (2,723) (2,723)
Redemption of fractional shares (1) -0- -0-
Net cash provided by (used in)
financing activities (3,945) (6,796) 23,172
Net increase (decrease) in cash and
temporary cash investments (3,678) 146 (3,644)
Cash and temporary cash investments
at beginning of year 4,125 3,979 7,623
Cash and temporary cash investments
at end of year $ 447 $4,125 $3,979
Supplemental disclosure of cash flow information:
Cash paid for income taxes $5,807 $6,736 $6,229
Cash paid for interest $3,492 $3,945 $2,301
Non-cash financing activities
related to capital lease $ -0- $ -0- $4,500
See accompanying notes.
/TABLE
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 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 are accounted for using the liability
method and relate principally to cash basis temporary differences and
depreciation expense accounted for differently for financial and income tax
purposes. Effective November 1, 1988, the Company 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
1996. (See Note 4).
Earnings Per Share: During fiscal 1995, the Company's Board of Directors
declared a 3 for 2 stock split effected in the form of a stock dividend.
As a result, $4,538,000 was transferred from paid-in-capital to
common stock. All historical shares and per share data presented herein
have been restated for the effect of the stock split. Earnings per
share are based upon the weighted average number of shares outstanding
during each year. The weighted average shares outstanding used in
the calculation of earnings per share were 13,613,080 in 1995, 1994 and 1993.
2. Inventories
Inventories consisted of the following:
October 31
1995 1994
(In thousands)
Live poultry broilers and breeders $18,484 $16,453
Feed, eggs and other 4,974 3,795
Processed poultry 3,999 3,005
Processed food 3,578 4,149
Packaging materials 2,240 1,973
$33,275 $29,375
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
1995 1994
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 6.8% at
October 31, 1995) $29,000 $30,000
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 1,617 1,694
6% Mississippi Business Investment Act
bond capital lease obligation 4,356 4,500
Notes payable to an insurance company,
accruing interest at 5% 59 59
55,032 56,253
Less current maturities of long-term debt 226 77
$54,806 $56,176
The Company has a $100.0 million ($71.0 million available at October 31,
1995) revolving credit agreement with four banks. The revolver extends
to 1998, 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 .20% is payable quarterly on the unused portion of the revolver.
The Company intends to renew beyond one year of October 31, 1995 the amount
of its borrowings at year-end under 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
$7,631,000 is pledged as collateral to a note payable and the capital
lease obligation.
Interest costs of $416,000 was capitalized in 1993.
The aggregate annual maturities of long-term debt at October 31, 1995
(assuming borrowings under the revolver will be converted to a term loan
in 1998) are as follows (in thousands):
Fiscal Year Amount
1996 226
1997 3,090
1998 10,604
1999 10,618
2000 10,633
Thereater 19,861
$55,032
On November 16, 1995, the Company borrowed $7.2 million in connection
with the issuance of Industrial Revenue Bonds to be used to construct
a feed mill in Texas. The banks participating in the revolving credit
agreement provided a letter of credit in connection with the issuance of
the Industrial Revenue Bonds, and the credit otherwise available to the
Company under the revolving credit agreement is reduced by the amount
available to be drawn under the letter of credit.
4. Income Taxes
Income tax expense consisted of the following:
Years Ended October 31
1995 1994 1993
(In thousands)
Current:
Federal $ 5,110 $ 7,150 $ 5,233
State 630 704 522
5,740 7,854 5,755
Deferred
Federal 780 1,370 1,200
State 170 130 100
950 1,500 1,300
$ 6,690 $ 9,354 $ 7,055
/TABLE
Significant components of the Company's deferred tax assets and
liabilities were as follows:
October 31
1995 1994
Deferred tax assets (In thousands)
(included in prepaid expenses):
Accrued expenses $ 898 $ 550
Prepaid expenses (136) (140)
$ 762 $ 410
Deferred tax liabilities:
Cash basis temporary differences $3,900 $3,900
Property, plant and equipment 6,812 5,510
$10,712 $9,410
The differences between the consolidated effective income tax rate and the
federal statutory rate were as follows:
Years Ended October 31
1995 1994 1993
Taxes at statutory rate 34.3% 34.9% 34.3%
State income taxes 3.6 3.1 3.8
State income tax credit (.6) (.8) (1.5)
Other, net .8 .5 .5
38.1% 37.7% 37.1%
5. Employee Benefit Plans
The Company had a defined contribution profit sharing plan covering all
employees and an employee stock ownership plan that was restricted to
salaried employees. During fiscal 1995, the profit sharing plan was
merged into the employee stock ownership plan. The resulting defined
contribution employee stock ownership plan was expanded to cover all
employees. Total contributions under the employee stock ownership plan were
$850,000 in 1995. Total contributions under both plans were $1,200,000
in 1994 and $750,000 in 1993.
Under the Company's Stock Option Plan, 750,000 shares of Common Stock
have been reserved for grant to key management personnel. Options to
purchase an aggregate of 45,000 shares at $10.67 per share, 82,500
shares at $11.00 per share and 108,000 shares at $11.25 per share are
outstanding at October 31, 1995.
Options for 43,875 shares are exercisable at October 31, 1995.
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 $35 3/8. 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 of consolidated sales for the year
ended October 31, 1993. No customer accounted for more than 10% of
consolidated sales for the years ended October 31, 1995 and 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" were insignificant
to the Company's financial position and operation.
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.
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, 1995 and 1994
Consolidated Statements of Income - Years ended October 31, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity - Years ended
October 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended October 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements - October 31, 1995
(a)2. FINANCIAL STATEMENT SCHEDULES:
The following consolidated financial statement schedules of the Registrant
are included in Item 8:
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted as they are not applicable or the required
information is set forth in the Financial Statements or notes thereto.
(a)3(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.
(8) 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.
(8) 10-B-4 - Copy of Contract Amendment dated August 16, 1994
between the Registrant and the City of Laurel,
Mississippi.
(2) 10-C - Copy of Lease Agreement dated May 19, 1964 among the
Town of Collins, Covington County, Mississippi and
Mississippi Federated Cooperatives AAL.
(2) 10-C-1 - Copy of Assignment of Lease and Leasehold Estate,
and Conveyance of Leaseholder Improvements and Other
Properties, Reserving a Purchase Money Security
Interest, dated December 21, 1981 between MFC
Services (AAL) and Sanderson Farms, Inc.
(Processing Division).
(2) 10-D - Copy of Lease Agreement dated November 28, 1962
between the Board of Supervisors of Covington County,
Mississippi acting for and on behalf of Supervisors
Districts 1, 2, 3 and 5 of Covington County,
Mississippi and Mississippi Federated Cooperatives,
AAL.
(2) 10-D-1 - Copy of Contract dated October 2, 1972 between
the Board of Supervisors of Covington County,
Mississippi, acting for and on behalf of Covington
County, Mississippi and MFC Services (AAL).
(2) 10-D-2 - Copy of Lease Agreement dated May 1, 1976 between
Supervisors Districts One, Two, Three and Five
of Covington County, Mississippi and MFC Services
(AAL).
(2) 10-D-3 - Copy of Assignment of Leases and Leasehold Estate,
and Conveyance of Leasehold Improvements and Other
Properties, Reserving a Purchase Money Security
Interest, dated December 21, 1981 between MFC
Services (AAL) and Sanderson Farms, Inc.
(Processing Division).
(2) 10-E - Copy of Agreement dated December 1, 1986, between
Sanderson Farms, Inc. (Hammond Processing Division)
and United Food and Commercial Workers Local
Union 210 affiliated with the United Food and
Commercial Workers International Union.
(5) 10-E-1 - Copy of Agreement dated February 14, 1990 between
Sanderson Farms, Inc. (Hammond Processing Division)
and United Food and Commercial Workers Local
Union 210, affiliated with the United Food and
Commercial Workers International Union.
(8) 10-E-2 - Copy of Agreement effective November 6, 1994 between
Sanderson Farms, Inc. (Hammond Processing Division)
and United Food and Commercial Workers Local
Union 210, affiliated with the United Food and
Commercial Workers International Union.
10-E-3 - Copy of Agreement effective July 15, 1995 between
Sanderson Farms, Inc. (Hazlehurst Processing
Division) and Laborers' International Union of
North America, Professional Employees Local
Union #697, AFL-CIO.
10-E-4 - Copy of Agreement effective September 9, 1995 between
Sanderson Farms, Inc. (Collins Processing Division)
and Laborers' International Union of North America,
Professional Employees Local Union #697, AFL-CIO.
(2) 10-F - Copy of Employee Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and Affiliates.
(2) 10-F-1 - Copy of Amendment One to the Employee Stock
Ownership Plan and Trust Agreement of Sanderson
Farms, Inc. and Affiliates.
(3) 10-F-2 - Copy of Amendment Two to the Employee Stock
Ownership Plan and Trust Agreement of Sanderson
Farms, Inc. and Affiliates.
(2) 10-G - Copy of 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.
(8) 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 Registrant's definitive proxy statement
related to the 1996 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.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1994 and incorporated herein by reference.
(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,
1995.
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, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended October 31, 1995.
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, 1995 and
1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
October 31, 1995, 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 18, 1995
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, 1995
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $100 $54 $24 $130
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
(1) Uncollectible accounts written off, net of recoveries.
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 22, 1996 /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 1/22/96 /s/John H. Baker, III. 1/22/96
Joe Frank Sanderson, John H. Baker, III.
Chairman of the Board Director
/s/Joe F. Sanderson, Jr. 1/22/96 /s/Charles W. Ritter, Jr. 1/22/96
Joe F. Sanderson, Jr., Charles W. Ritter, Jr.,
President, Chief Executive Director
Officer and Director
/s/Dewey R. Sanderson, Jr. 1/22/96 /s/Rowan H. Taylor 1/22/96
Dewey R. Sanderson, Jr., Rowan H. Taylor,
Director Director
/s/Donald W. Zacharias 1/22/96 /s/Robert Buck Sanderson 1/22/96
Donald W. Zacharias, Robert Buck Sanderson,
Director Director
/s/Phil K. Livingston 1/22/96 /s/James A. Grimes 1/22/96
Phil K. Livingston, James A. Grimes,
Director Secretary and Chief Accounting Officer
/s/D. Michael Cockrell 1/22/96
D. Michael Cockrell,
Treasurer and Chief
Financial Officer