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, 2000
/ / 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, 2000: approximately $36,757,718.
Number of Shares outstanding of the Registrant's common stock as of
December 31, 2000: 13,632,955 shares of common stock, $1.00 per share par value.
Portions of the Registrant's definitive proxy statement filed or to be
filed in connection with its 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III.
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,
2000, 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, 2001.
PART I
Item 1. Business
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(a) GENERAL DEVELOPMENT OF THE REGISTRANT'S BUSINESS
The Registrant was incorporated in Mississippi in 1955, and is a
fully-integrated poultry processing company engaged in the production,
processing, marketing and distribution of fresh and frozen chicken products. In
addition, through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods
Division), the Registrant is engaged in the processing, marketing and
distribution of processed and prepared food items.
The Registrant sells ice pack, chill pack and frozen chicken, in whole,
cut-up and boneless form, primarily under the Sanderson Farms(R) 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, 2000 the Registrant processed 247.7 million chickens, or
approximately 1.1 billion dressed pounds. According to 2000 industry statistics,
the Registrant was the 7th largest processor of dressed chickens in the United
States based on estimated average weekly processing.
The Registrant's chicken operations presently encompass five hatcheries,
four feed mills, six processing plants and one by-products plant. The Registrant
has contracts with operators of approximately 495 grow-out farms that provide it
with sufficient housing capacity for its current operations. The Registrant also
has contracts with operators of 152 breeder farms.
The Registrant sells over 200 processed and prepared food items nationally
and regionally, primarily to distributors, national food service accounts,
retailers and club stores. These food items include frozen entrees, such as
chicken and dumplings, lasagna, seafood gumbo, and shrimp creole and specialty
products, such as corn dogs. The Registrant also sells a retail entree line of
six different two-pound frozen entrees including chicken primavera, lasagna with
meat, seafood gumbo and Mexican casserole with beef. This product line is
designed as a convenient, quality product for the family.
Since the Registrant completed the initial public offering of its common
stock through the sale of 1,150,000 shares to an underwriting syndicate managed
by Smith Barney, Harris Upham & Co. Incorporated and Morgan Keegan & Co. Inc. in
May 1987, the Registrant has significantly expanded its operations to increase
production capacity, product lines and marketing flexibility. Through 1995, this
expansion included the expansion of the Registrant's Hammond, Louisiana
processing facility, the construction of new waste water facilities at the
Hammond, Louisiana and Collins and Hazlehurst, Mississippi processing
facilities, the addition of second shifts at the Hammond, Louisiana, Laurel,
Mississippi, Hazlehurst, Mississippi, and Collins, Mississippi processing
facilities, expansion of freezer and production capacity at its prepared foods
facility in Jackson, Mississippi, the expansion of freezer capacity at its
Laurel, Mississippi, Hammond, Louisiana and Collins, Mississippi processing
facilities, the addition of deboning capabilities at all of the Registrant's
poultry processing facilities, and the construction and start-up of its Pike
County, Mississippi, production and processing facilities, including a hatchery,
a feed mill, a processing plant, a waste water treatment facility and a water
treatment facility. During 1997, the Registrant completed the construction and
start-up of its Brazos County, Texas production and processing facilities,
including a hatchery, a feed mill located in Robertson County, Texas, a
processing plant, a waste water treatment facility and a water treatment
facility. In addition, since 1987, the Registrant completed the expansion and
renovation of the hatchery at its Hazlehurst, Mississippi production facilities,
and completed the renovation and expansion of its Collins, Mississippi
by-products facility, allowing for the elimination of a smaller by-products
facility at the Laurel, Mississippi plant.
Capital expenditures for fiscal 2000 were funded by working capital and
borrowings under a revolving credit agreement. Effective July 29, 1999, the
Registrant amended its revolving credit agreement to, among other things,
decrease the revolving credit available to the Registrant thereunder from $130.0
million to $100.0 million. On June 15, 1999, the Registrant entered into a Note
Purchase Agreement with the Lincoln National Life Insurance Company pursuant to
which the Company issued $20 million, 6.65% senior notes due July 7, 2007. The
proceed of such notes were used to pay a portion of the debt outstanding under
the revolving credit agreement. The Registrant anticipates that capital
expenditures for fiscal 2001 will be funded by internally generated working
capital and borrowings under the revolving credit agreement.
During fiscal 1997, the Registrant completed the start-up of its Brazos
County, Texas processing facility. During October 1998, the Registrant began
operating one line of its Brazos County, Texas processing facility on a double
shift basis, and during fiscal 2000 completed the double shifting of the plant,
which is now operating at full capacity. The Registrant currently has additional
processing capacity available to it through the double shifting of the second
line at its Collins, Mississippi processing facility. In addition, the
Registrant continually evaluates internal and external expansion opportunities
to continue its growth in poultry and/or related food products.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Not applicable.
(c) NARRATIVE DESCRIPTION OF BUSINESS
REGISTRANT'S BUSINESS
General
The Registrant is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and the preparation, processing,
marketing and distribution of processed and prepared food items.
The Registrant sells chill pack, ice pack and frozen chicken, both whole
and cut-up, primarily under the Sanderson Farms(R) 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,
2000, the Registrant processed approximately 247.7 million chickens, or
approximately 1.1 billion dressed pounds. In addition, the Registrant purchased
and further processed 17.4 million pounds of poultry products during fiscal
2000. According to 2000 industry statistics, the Registrant was the 7th largest
processor of dressed chicken in the United States based on estimated average
weekly processing.
The Registrant conducts its chicken operations through Sanderson Farms,
Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), both
of which are wholly-owned subsidiaries of Sanderson Farms, Inc. The production
subsidiary, Sanderson Farms, Inc. (Production Division), which has facilities in
Laurel, Collins, Hazlehurst and Pike County, Mississippi, and Bryan, Texas, is
engaged in the production of chickens to the broiler stage. Sanderson Farms,
Inc. (Processing Division), which has facilities in Laurel, Collins, Hazlehurst
and Pike County, Mississippi, Hammond, Louisiana, and Bryan, Texas, is engaged
in the processing, sale and distribution of chickens.
The Registrant conducts its processed and prepared foods business through
its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division), which has a
facility in Jackson, Mississippi. The Foods Division is engaged in the
processing, marketing and distribution of over 200 processed and prepared food
items, which it sells nationally and regionally, principally to distributors,
national food service accounts, retailers and club stores.
Products
The Registrant has the ability to produce a wide range of processed chicken
products and processed and prepared food items thereby allowing it to take
advantage of marketing opportunities as they arise.
Processed chicken is first saleable as an ice packed whole chicken. The
Registrant adds value to its ice packed whole chickens by removing the giblets,
weighing, packaging and labeling the product to specific customer requirements
and cutting the product based on customer specifications. The additional
processing steps of giblet removal, close tolerance weighing and cutting
increase the value of the product to the customer over whole chickens by
reducing customer handling and cutting labor and capital costs, reducing the
shrinkage associated with cutting, and ensuring consistently sized portions.
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,
-----------------------------
1996 1997 1998 1999 2000
----- ----- ------ ----- -----
Value added .............. 98.2% 98.1% 98.6% 99.2 % 99.5%
Non-value added .......... 1.8% 1.9% 1.4% .8 % .5%
----- ----- ----- ----- -----
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,
-----------------------------
1996 1997 1998 1999 2000
----- ----- ----- ----- -----
Registrant processed
chicken:
Value added:
Chill pack ............... 18.6% 20.8% 24.4% 33.2% 36.4%
Fresh bulk pack .......... 49.9 45.9 46.6 46.5 43.3
Frozen ................... 17.0 15.7 11.6 8.0 7.5
----- ----- ----- ----- -----
Subtotal .................. 85.5 82.4 82.6 87.7 87.2
----- ----- ----- ----- -----
Non-value added:
Ice pack ................. 0.9 0.9 0.7 .5 .3
Frozen ................... 0.7 0.7 0.5 .2 .1
----- ----- ----- ----- -----
Subtotal .................. 1.6 1.6 1.2 .7 .4
----- ----- ----- ----- -----
Total Company
processed chicken ....... 87.1 84.0 83.8 88.4 87.6
Processed and
prepared foods ............ 12. 9 16.0 16.2 11.6 12.4
--- - ---- ---- ---- ----
Total ............. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Sales and Marketing
The Registrant's chicken products are sold primarily to retailers
(including national and regional supermarket chains and local supermarkets),
distributors and fast food operators located principally in the southeastern,
southwestern and western United States. The Registrant also sells its chicken
products to governmental agencies and to customers who resell the products
outside of the continental United States. This wide range of customers, together
with the Registrant's broad product mix, provides the Registrant with
flexibility in responding to changing market conditions in its effort to
maximize profits. This flexibility also assists the Registrant in its efforts to
reduce its exposure to market volatility.
Sales and distribution of the Registrant's chicken products are conducted
primarily by sales personnel at the Registrant's general corporate offices in
Laurel, Mississippi and by customer service representatives at each of its six
processing complexes and through independent food brokers. Each complex has
individual on-site distribution centers and uses the Registrant's truck fleet,
as well as contract carriers, for distribution of its products.
Generally, the Registrant prices much of its chicken products based upon
weekly market prices reported by the United States Department of Agriculture.
Consistent with the industry, the Registrant's profitability is impacted by such
market prices, which may fluctuate substantially and exhibit cyclical
characteristics. The Registrant adds a markup to base prices, which depends upon
value added, volume, product mix and other factors. While base prices may change
weekly, the Registrant's markup is generally negotiated from time to time with
the Registrant's customers. The Registrant's sales are generally made on an
as-ordered basis, and the Registrant maintains few long-term sales contracts
with its customers.
The Registrant uses television, radio and newspaper advertising, coupon
promotion, point of purchase material and other marketing techniques to develop
consumer awareness of and brand recognition for its Sanderson Farms(R) 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, 2000, the Registrant maintained contracts with 31
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, 2000, by 121
independent contractors under the Registrant's supervision. Eggs produced by
independent contract breeders are transported to Registrant's hatcheries in
Registrant's vehicles.
The Registrant owns and operates five hatcheries located in Mississippi and
Texas where eggs are incubated and hatched in a process requiring 21 days. Once
hatched, the day-old chicks are vaccinated against common poultry diseases and
are transported by Registrant vehicles to independent contract grow-out farms.
As of October 31, 2000, the Registrant's hatcheries were capable of producing an
aggregate of approximately 5.6 million chicks per week.
Grow-out. The Registrant places its chicks on 495 grow-out farms, as of
October 31, 2000, located in Mississippi, Louisiana and Texas where broilers are
grown to an age of approximately six to seven weeks. The farms provide the
Registrant with sufficient housing capacity for its operations, and are
typically family-owned farms operated under contract with the Registrant. The
farm owners provide facilities, utilities and labor; the Registrant supplies the
day-old chicks, feed and veterinary and technical services. The farm owner is
compensated pursuant to an incentive formula designed to promote production cost
efficiency.
Historically, the Registrant has been able to accommodate expansion in
grow-out facilities through additional contract arrangements with independent
growers.
Feed Mills. An important factor in the grow-out of chickens is the rate at
which chickens convert feed into body weight. The Registrant purchases on the
open market the primary feed ingredients, including corn and soybean meal, which
historically have been the largest cost components of the Registrant's total
feed costs. The quality and composition of the feed are critical to the
conversion rate, and accordingly, the Registrant formulates and produces its own
feed. As of October 31, 2000, the Registrant operated four feed mills, three of
which are located in Mississippi and one in Texas. The Registrant's annual feed
requirements for fiscal 2000 were approximately 1,480,000 tons, and it has the
capacity to produce approximately 1,685,000 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, 2000, the
Registrant had approximately 439,000 bushels of corn storage capacity at its
feed mills, which was sufficient to store all of its weekly requirements for
corn. Generally, the Registrant purchases its corn and other feed supplies at
current prices from suppliers and, to a limited extent, direct from farmers.
Feed grains are available from an adequate number of sources. Although the
Registrant has not experienced and does not anticipate problems in securing
adequate supplies of feed grains, price fluctuations of feed grains can be
expected to have a direct and material effect upon the Registrant's
profitability. Although the Registrant sometimes purchases grains in forward
markets, it cannot eliminate the potentially adverse effect of grain price
increases. During the fall of 1998, market prices for corn and soy meal reached
levels that prompted the Company to buy a significant portion of its 1999
requirements on a forward basis. As a result of these purchases, the Company
substantially reduced its exposure to the risk of material increases in feed
grain prices during its fiscal year ending October 31, 1999.
Processing. Once the chicks reach processing weight, they are transported
to the Registrant's processing plants. These plants use modern, highly automated
equipment to process and package the chickens. The Registrant's Pike County,
Mississippi processing plant, which currently operates two processing lines on a
double shift basis, is currently processing approximately 1,150,000 chickens per
week. The Registrant's Collins, Mississippi processing plant, which is currently
operating one of its two lines on a double shift basis and one line on a single
shift basis, is currently processing approximately 900,000 chickens per week.
The Registrant's Brazos County, Texas processing plant, which is currently
operating one line on a single shift basis and one line on a double shift basis,
is currently processing approximately 1,150,000 chickens per week. The
Registrant's Laurel and Hazlehurst, Mississippi and Hammond, Louisiana
processing plants currently operate on a double shift basis, are currently
processing approximately 1,800,000 chickens per week. The Registrant also has
the capabilities to produce deboned product at six processing facilities. At
October 31, 2000, these deboning facilities were operating on a double shifted
basis resulting in a combined capacity to process approximately 8.5 million
pounds of product per week.
Sanderson Farms, Inc. (Foods Division). The facilities of Sanderson Farms,
Inc. (Foods Division) are located in Jackson, Mississippi in a plant with
approximately 75,000 square feet of refrigerated manufacturing and storage
space. The plant uses highly automated equipment to prepare, process and freeze
food items. The Registrant could increase significantly its production of
processed and prepared food items without incurring significant capital
expenditures or delays.
Executive Offices; Other Facilities. The Registrant's corporate offices are
located in Laurel, Mississippi. As of October 31, 2000, the Registrant operated
one by-products plant, and six automotive maintenance shops which service
approximately 486 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 220 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 2000, the Registrant purchased its pullets and its cockerels
from six (6) 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 Sanderson Farms(R) which it uses in connection with the
distribution of its premium grade chill pack products. The Registrant considers
the protection of this trademark to be important to its marketing efforts due to
consumer awareness of and loyalty to the Sanderson Farms(R) label. The
Registrant also has registered with the United States Patent and Trademark
Office seven other trademarks which are used in connection with the distribution
of chicken and other products and for other competitive purposes.
The Registrant has registered with the United States Patent and Trademark
Office the trademark Sanderson Farms(R) which it uses in connection with the
distribution of its prepared foods and two pound frozen entree products, as well
as in connection with the distribution of its premium grade chill pack chicken
products.
The Registrant, over the years, has developed important non-public
proprietary information regarding product related matters. While the Registrant
has internal safeguards and procedures to protect the confidentiality of such
information, it does not generally seek patent protection for its technology.
Employees and Labor Relations
As of October 31, 2000, the Registrant had 7,863 employees, including 767
salaried and 7,096 hourly employees. A collective bargaining agreement with the
United Food and Commercial Workers International Union covering 582 hourly
employees who work at the Registrant's processing plant in Hammond, Louisiana
expired on November 30, 1998. That contract was renegotiated and executed on
November 1, 1998, and has been extended to November 30, 2001.The collective
bargaining agreement has a grievance procedure and no strike-no lockout clauses
that should assist in maintaining stable labor relations at the Hammond plant.
A collective bargaining agreement with the Laborers' International Union of
North America, Professional Employees Local Union #693, AFL-CIO, covering 468
hourly employees who work at the Registrant's processing plant in Hazlehurst,
Mississippi was negotiated and signed by the union and the Registrant effective
July 15, 1995. This Agreement expired on June 30, 1999, and was renegotiated and
executed on July 26, 1999, and has a new expiration date of December 31, 2002.
This collective bargaining agreement has a grievance procedure and no strike-no
lockout clauses that should assist in maintaining stable labor relations at the
Hazlehurst plant.
A collective bargaining agreement with the Laborers' International Union of
North America, Professional Employees Local Union #693, AFL-CIO, covering 1,115
hourly employees who work at the Registrant's processing plant in Collins,
Mississippi was negotiated and signed by the union and the Registrant effective
September 9, 1995, and expired on December 30, 1999. Negotiations were completed
and a new agreement was reached on January 13, 2000. The new agreement has a
termination date of December 31, 2003.
On June 9, 1999, the production, maintenance and clean-up employees at the
Company's Brazos County, Texas poultry processing facility voted to be
represented by the United Food and Commercial Workers Union Local #408, AFL-CIO.
A collective bargaining agreement was negotiated and signed on October 7, 1999,
and will expire on December 31, 2002. This collective bargaining agreement has a
grievance procedure and no strike - no lockout clauses that should assist in
maintaining stable labor relations at the Brazos County, Texas processing
facility.
On May 28, 1999, truck drivers at the Company's Brazos County, Texas
processing and production facilities voted to be represented in collective
bargaining by the Teamsters International Local #968. Negotiations with this
union were completed in December 1999, and a collective bargaining agreement
effective January 1, 2000 was signed, which agreement will expire on December
31, 2002. Although this agreement includes a provision allowing re-opening of
bargaining during January 2000 on certain economic issues, no changes have been
made to the Agreement, with the last meeting on this matter being held August
21, 2000. No further meetings have been scheduled in this matter.
(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's principal properties are as follows:
Use Location (City, State)
--- ----------------------
Poultry complex, including Laurel, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Pike County, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Hazlehurst, Mississippi
poultry processing plant,
hatchery and feedmill
Poultry complex, including Brazos and Robertson Counties,
poultry processing plant, Texas
hatchery and feedmill
Poultry processing plant Hammond, Louisiana
Poultry processing plant, Collins, Mississippi
hatchery and by-products
plant
Prepared food plant Jackson, Mississippi
Corporate general offices Laurel, Mississippi
The Registrant owns substantially all of its major operating facilities
with the following exceptions: one processing plant and feed mill complex is
leased on an annual renewal basis through 2063 with an option to purchase at a
nominal amount, at the end of the lease term. One processing plant complex is
leased under four leases, which are renewable annually through 2061, 2063, 2075
and 2073, respectively. Certain infrastructure improvements associated with a
processing plant are leased under a lease which expires in 2012 and is
thereafter renewable annually through 2091. All of the foregoing leases are
capital leases.
There are no material encumbrances on the major operating facilities owned
by the Registrant, except that the plant of Sanderson Farms, Inc. (Foods
Division) is encumbered by a mortgage which collateralizes a note with an
outstanding principal balance of $1.1 million on December 31, 2000, which bears
interest at the rate of 5% per annum and is payable in equal annual installments
through 2009. In addition, under the terms of the revolving credit agreement
effective July 29, 1996, as amended, and under the $20 million long-term fixed
rate loan agreements effective in February 1993 and June 1999, the Registrant
may not pledge any additional assets as collateral other than fixed assets up to
15% of its tangible assets.
Management believes that the Company's facilities are suitable for its
current purposes, and believes that current renovations and expansions will
enhance present operations and allow for future internal growth.
Item 3. Legal Proceedings.
-----------------
There are no material pending legal proceedings, other than those described
in Note 8 of the consolidated financial statements and routine litigation
incidental to the Registrant's business, to which the Registrant is a party or
of which its property is the subject, and no such proceedings are known by the
Registrant to be contemplated by governmental authorities.
Item 4. Submission of Matters to
a Vote of Security Holders.
--------------------------
No matters were submitted to a vote of the Registrant's security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the Fiscal Year.
Item 4A. Executive Officers of the Registrant.
Executive
Name Age Office Officer Since
---- ---- ------ -------------
Joe F. Sanderson, Jr ............ 54 Chairman of the Board, 1984 (1)
President and
Chief Executive
Officer
D. Michael Cockrell ............. 43 Treasurer and Chief 1993 (2)
Financial Officer,
Board Member
James A. Grimes ................. 52 Secretary and 1993 (3)
Chief Accounting Officer
Lampkin Butts ................... 49 Vice President - Sales, 1996 (4)
Board Member
(1) Joe F. Sanderson, Jr. has served as President and Chief Executive
Officer of the Registrant since November 1, 1989, and as Chairman of the
Board since January 8, 1998. From January 1984, to November 1989, Mr.
Sanderson served as Vice-President, Processing and Marketing of the
Registrant.
(2) D. Michael Cockrell became Treasurer and Chief Financial Officer of the
Registrant effective November 1, 1993, and was elected to the Board of
Directors on February 19, 1998. Prior to that time, for more than five
years, Mr. Cockrell was a member and shareholder of the Jackson,
Mississippi law firm of Wise Carter Child & Caraway, Professional
Association.
(3) James A. Grimes became Secretary of the Registrant effective November
1, 1993. Mr. Grimes also serves as Chief Accounting Officer, which position
he has held since 1985.
(4) Lampkin Butts became Vice President - Sales of the Registrant effective
November 1, 1996, and was elected to the Board of Directors on February 19,
1998. Prior to that time, Mr. Butts served the Registrant in various
capacities since 1973. 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.
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, 2000, was
1,856.
The following table shows quarterly cash dividends and quarterly high and
low prices for the common stock for the past two fiscal years. National Market
System quotations are based on actual sales prices.
Stock Price
Fiscal Year 2000 High Low Dividends
-----------------------------------------------------------------------
First Quarter $11.25 $ 7.44 $.05
Second Quarter $ 8.94 $ 6.56 $.05
Third Quarter $ 9.06 $ 6.00 $.05
Fourth Quarter $ 8.12 $ 5.94 $.05
Stock Price
Fiscal Year 1999 High Low Dividends
-----------------------------------------------------------------------
First Quarter $17.00 $14.00 $.05
Second Quarter $16.00 $12.00 $.05
Third Quarter $15.00 $12.13 $.05
Fourth Quarter $13.06 $ 9.38 $.05
On December 29, 2000 the closing sales price for the common stock was $7.50 per
share.
Item 6. Selected Financial Data.
Year Ended October 31
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net sales .................................. $ 605,911 $ 559,031 $ 521,394 $ 481,789 $ 455,100
Operating income (loss) .................... (588) 23,008 31,822 7,467
1,189
Income (loss) before
extraordinary gain and cumulative
effect of accounting change ............... (5,337) 10,546 15,256 558
(2,443)
Net income (loss) .......................... (5,571) 10,546 15,256 1,234 (2,443)
Basic and diluted earnings (loss)
per share before extraordinary gain
and cumulative effect of accounting
change ................................... (.39) .75 1.06 .04
(.18)
Basic and diluted earnings (loss)
per share) .......................... (.41) .75 1.06 .09 (.18)
Working capital ............................ 71,334 67,272 59,665 66,751 60,826
Total assets ............................... 281,856 283,510 265,671 264,893 237,226
Long-term debt, less
current maturities ....................... 107,491 104,651 95,695 118,782 90,102
Stockholders' equity ....................... 120,015 130,844 129,482 116,771 118,250
Cash dividends declared
per share ................................ $ .20 $ .20 $ .20 $ .20 $ .20
QUARTERLY FINANCIAL DATA
Fiscal Year 2000
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
(Unaudited)
Net sales .................................. $ 137,008 $ 139,781 $ 158,422 $ 170,700
Operating income (loss) .................... (345) (5,172) (6,558) 11,487
Net income (loss) .......................... (1,416) (4,497) (5,628) 5,970
Basic and diluted earnings (loss)
per share .............................. $ (.10) $ (.33) $ (.41) $ .44
Fiscal Year 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
(Unaudited)
Net sales .................................. $ 126,229 $ 134,586 $ 148,842 $ 149,374
Operating income ........................... 7,022 5,474 7,350 3,162
Net income ................................. 3,444 2,438 3,689 975
Basic and diluted
earnings per share ....................... $ .24 $ .17 $ .26 $ .08
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT
FUTURE PERFORMANCE
This Annual Report contains certain forward-looking statements about the
business, financial condition and prospects of the Company. The actual
performance of the Company could differ materially from that indicated by the
forward-looking statements because of various risks and uncertainties,
including, without limitation, changes in the market price for the Company's
finished products and for feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with commodity
markets, as described below; changes in competition and economic conditions;
various inventory risks due to changes in market conditions; changes in
governmental rules and regulations applicable to the Company and the poultry
industry; and other risks described below. These risks and uncertainties can not
be controlled by the Company. When used in this Annual Report, the words
"believes," "estimates," "plans," "expects," "should," "outlook," and
"anticipates," and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
GENERAL
The Company's poultry operations are integrated through its control of all
functions relative to the production of its chicken products, including hatching
egg production, hatching, feed manufacturing, raising chickens to marketable age
("grow-out"), processing and marketing. Consistent with the poultry industry,
the Company's profitability is substantially impacted by the market price for
its finished products and feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with commodity
markets. Other costs, excluding feed grains, related to the profitability of the
Company's poultry operations, including hatching egg production, hatching,
growing, and processing cost, are responsive to efficient cost containment
programs and management practices. Over the past three fiscal years, these other
production costs have averaged approximately 64.2 % of the Company's total
production costs.
The Company believes that value-added products are subject to less price
volatility and generate higher, more consistent profit margin than whole
chickens ice packed and shipped in bulk form. To reduce its exposure to market
cyclicality that has historically characterized commodity chicken market prices,
the Company has increasingly concentrated on the production and marketing of
value-added product lines with emphasis on product quality, customer service,
and brand recognition. The Company adds value to its poultry products by
performing one or more processing steps beyond the stage where the whole chicken
is first saleable as a finished product, such as cutting, deep chilling,
packaging and labeling the product. The Company believes that one of its major
strengths is its ability to change its product mix to meet customer demands.
The Company's processed and prepared foods product line includes approximately
200 institutional and consumer packaged food items that it sells nationally,
primarily to distributors, food service establishments and retailers. A majority
of the prepared food items are made to the specifications of food service users.
Poultry prices per pound, as measured by the Georgia dock price, fluctuated
during the three years ended October 31, 2000 as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 2000
High .................... $.5850 $.5800 $.5975 $.6200*
Low ..................... $.5800 $.5725* $.5725 $.6000
Fiscal 1999
High .................... $.6825* $.6275 $.6150 $.6150
Low ..................... $.6275 $.5750* $.5825 $.5850
Fiscal 1998
High .................... $.5850 $.5775 $.6825 $.7150*
Low ..................... $.5550* $.5550 $.5775 $.6875
*Year High/Low
For the year ended October 31, 1999 as compared to the year ended October 31,
1998, lower prices for poultry products more than offset an advantage in the
cost of feed grains. The decrease in net income for the fourth quarter of fiscal
1999 from the fourth quarter of fiscal 1998 resulted primarily from lower prices
for poultry products and slightly higher grain prices. During fiscal 2000
compared to fiscal 1999, the average market prices for whole chickens and
boneless breast meat decreased approximately 4.0% and 15.0% respectively. In
addition, slightly higher average feed grain costs and bad debt expense of $1.2
million during fiscal 2000 from the bankruptcy filing by AmeriServe Food
Distribution, Inc. ("AmeriServe") reduced the Company's operating margin.
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
The Company's net sales for fiscal 2000 were $605.9 million compared to $559.0
million during fiscal 1999, an increase of $46.9 million. A majority of the
increase in net sales was derived from an increase in pounds of poultry products
sold of 10.0%. The additional pounds of poultry products sold resulted primarily
from an increase in the average live weight of chickens processed. However, the
effect of the increase in pounds of poultry products sold on net sales was
partially offset by a decrease in the average sales price per pound of poultry
products of 2.3%. During fiscal 2000 as compared to fiscal 1999, a simple
average of the Georgia dock whole bird prices reflected a decrease of 4.0%. In
addition to the price decrease for whole birds, average boneless breast meat
prices were approximately 15.0% lower during fiscal 2000 as compared to fiscal
1999. Net sales of prepared food products during fiscal 2000 increased $10.0
million or 14.7% as compared to net sales during fiscal 1999. This increase
resulted from an increase in the pounds of prepared food products sold of 8.8%
and an increase in the average sales price of prepared food products of 5.4%.
Cost of sales for fiscal 2000 as compared to fiscal 1999 increased $66.0 million
or 12.8%. Cost of sales of poultry products increased $58.3 million or 12.8%.
This increase in the cost of sales of poultry products was the result of an
increase in the pounds of poultry products sold of 10.0%, an increase in the
processing cost of poultry products related to the Company's increased presence
in the chill pack market and higher cost of soybean meal. Corn and soybean meal
cash market prices reflected a decrease of 3.1% and an increase of 17.9%,
respectively. Cost of sales of prepared food products during fiscal 2000 as
compared to fiscal 1999 increased $7.7 million or 13.2% due primarily to the
increase in the pounds of prepared food products sold.
Selling, general and administrative expenses for the year ended October 31, 2000
increased $4.5 million as compared to the year ended October 31, 1999. This
increase reflects the additional advertising and marketing costs related to the
Company's change of certain of its production from the fast food market to the
chill pack market. In addition, the Company recorded additional bad debt expense
of $1.2 million during the second quarter of fiscal 2000 resulting from the
bankruptcy filing by AmeriServe on February 1, 2000.
The Company's operating loss for fiscal 2000 was $588,000 as compared to
operating income during fiscal 1999 of $23.0 million. The Company's operating
margin during fiscal 2000 as compared to fiscal 1999 was adversely affected by
lower prices for poultry products and the additional bad debt expense from the
bankruptcy filing by AmeriServe. The Company expects the current weakness in the
poultry market to continue through the first quarter of fiscal 2001.
Interest expense for the year ended October 31, 2000 was $8.2 million as
compared to the year ended October 31, 1999 of $6.4 million, an increase of $1.8
million.
The Company adopted the AICPA Statement of Position 98-5, "Reporting the Costs
of Start-up Activities" in the first quarter of fiscal 2000. The effect of
adopting SOP 98-5 was to record a charge for the cumulative effect of an
accounting change of $234,000 (net of income taxes of $140,000).
The effective tax rate for the years ended October 31, 2000 and October 31, 1999
were 37.2% and 37.8%, respectively.
Fiscal 1999 Compared to Fiscal 1998
The Company's net sales for fiscal 1999 were $559.0 million, an increase of
$37.6 million or 7.2% over fiscal 1998. The increase in the Company's net sales
resulted from a 24.0% increase in the pounds of poultry products sold which was
partially offset by decreases in the average sale price of poultry products and
prepared food products of 8.1% and 4.4%, respectively, and a decrease in the
pounds of prepared food products sold of 21.1%. The additional pounds of poultry
products sold resulted primarily from an increase in the average live weight of
chickens processed as the Company shifted certain of its chicken production from
the fast food market to the chill pack and big bird deboning markets. During
fiscal 1999 as compared to fiscal 1998, the poultry industry experienced lower
average sale prices for poultry products due to an over supply of chicken and
other meats in the market place. A decrease in the sales of prepared food
products for fiscal 1999 as compared to fiscal 1998 was the result of decreases
in the pounds of prepared food products sold of 21.1% and the decrease in the
average sale price of prepared food products of 4.4%. During fiscal 1999
management reduced or eliminated sales of certain less profitable prepared food
items resulting in fewer pounds of prepared food products sold.
The Company's cost of sales for fiscal 1999 as compared to fiscal 1998 increased
$44.7 million to $514.2 million. Cost of sales of poultry products increased
$70.2 million or 18.2% during fiscal 1999. The increase in pounds of poultry
products sold of 24.0% and decreases in the cash market prices for corn and
soybean meal of 13.0% and 17.7%, respectively, were the primary factors
resulting in the net increase in cost of sales of poultry products during fiscal
1999 as compared to fiscal 1998. Cost of sales of prepared food products sold
decreased approximately $25.5 million or 30.5% during fiscal 1999 as compared to
fiscal 1998. This decrease is primarily from the planned decrease in the pounds
of prepared food products sold and lower prices of chicken products which are a
major ingredient in many of the products sold by the prepared foods division.
Selling, general and administrative expenses for fiscal 1999 increased $1.7
million, or 8.5%, as compared to fiscal 1998. This increase reflects the
additional advertising and marketing costs incurred during fiscal 1999 as the
Company shifted poultry production from the fast food market segments to the
chill pack and big bird debone market segments. In addition, the increase
reflects certain of the Company's cost of modifications to its information
technology systems that were expensed during fiscal 1999.
The Company's operating income during fiscal 1999 decreased $8.8 million as
compared to fiscal 1998. The weakness in the poultry market during the second
half of fiscal 1999 as compared to the same period during fiscal 1998 more than
offset the advantage of the lower cost of feed grains.
Interest expense decreased $1.3 million as a result of lower outstanding debt
during fiscal 1999 as compared to fiscal 1998.
The effective tax rate during fiscal 1999 was approximately 37.8% as compared to
37.4% during fiscal 1998.
Liquidity and Capital Resources
As of October 31, 2000, the Company's working capital was $71.3 million and its
current ratio was 2.9 to 1, as compared to working capital of $67.3 million and
a current ratio of 3.1 to 1 at October 31, 1999. During the year ended October
31, 2000, the Company spent approximately $16.6 million on planned capital
projects and $2.5 million to purchase 299,500 shares of its Common Stock under
its existing stock repurchase plan.
The Company's capital budget for fiscal 2001 is approximately $11.7 million.
Included in the fiscal 2001 budget are items that include cost of renovations,
changes and additions to existing processing facilities to allow better product
flows and product mix for more product flexibility. The Company's capital
expenditures for fiscal 2001 are expected to be funded from working capital and
cash flows from operations; however, if needed the Company has $28.0 million
available under its revolving credit facility as of October 31, 2000.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Market Risk
The Company's interest expense is sensitive to changes in the general level of
U.S. interest rates. The Company maintains certain of its debt as fixed rate in
nature to mitigate the impact of fluctuations in interest rates. The fair value
of the Company's fixed rate debt approximates the carrying amount at October 31,
2000. Management believes the potential effects of near-term changes in interest
rates on the Company's fixed rate debt is not material.
The Company is a party to no other market risk sensitive instruments requiring
disclosure.
Item 8. Financial Statements and Supplementary Data.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31
2000 1999
- -----------------------------------------------------------------------------------------------
(In thousands)
Assets
Current assets:
Cash and temporary cash investments ............................$ 8,643 $ 7,052
Accounts receivable, less allowance of $460,000 in
2000 and $249,000 in 1999 .................................... 37,038 36,577
Inventories .................................................... 50,262 47,634
Refundable income taxes ....................................... 3,783 426
Prepaid expenses .............................................. 8,308 7,503
--------- ---------
Total current assets ................................................ 108,034 99,192
Property, plant and equipment:
Land and buildings ............................................. 128,738 125,337
Machinery and equipment ....................................... 240,106 230,939
--------- ---------
368,844 356,276
Accumulated depreciation ....................................... (195,689) (173,204)
- ------------------------------------------------------------------------------ ---------
173,155 183,072
Other assets ........................................................ 667 1,246
---------
Total assets ........................................................$ 281,856 $ 283,510
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ...............................................$ 17,507 $ 12,505
Accrued expenses ............................................... 15,135 15,372
Current maturities of long-term debt ........................... 4,058 4,043
--------- ---------
Total current liabilities ........................................... 36,700 31,920
Long-term debt, less current maturities ............................. 107,491 104,651
Claims payable ...................................................... 1,800 1,100
Deferred income taxes ............................................... 15,850 14,995
Stockholders' equity:
Preferred Stock:
Series A Junior Participating Preferred Stock, $100
par value: authorized shares-500,000; none issued
Par value to be determined by the Board of Directors:
authorized shares-4,500,000; none issued
Common Stock, $1 par value: authorized shares-100,000,000;
issued and outstanding shares-13,632,955 in 2000 and
13,932,455 in 1999 ...................................... 13,633 13,932
Paid-in capital ................................................ 3,616 5,835
Retained earnings .............................................. 102,766 111,077
---------
Total stockholders' equity .......................................... 120,015 130,844
--------- ---------
Total liabilities and stockholders' equity ..........................$ 281,856 $ 283,510
========= =========
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
2000 1999 1998
(In thousands, except per share data)
Net sales .....................................................$ 605,911 $ 559,031 $ 521,394
Cost and expenses:
Cost of sales ............................................... 580,136 514,162 469,429
Selling, general and administrative ......................... 26,363 21,861 20,143
------ ------ ------
606,499 536,023 489,572
------- ------- -------
Operating income (loss) ....................................... (588) 23,008 31,822
Other income (expense):
Interest income ............................................. 213 266 341
Interest expense ............................................ (8,195) (6,384) (7,721)
Other ....................................................... 69 56 (86)
-- -- ---
(7,913) (6,062) (7,466)
------ ------ ------
Income (loss) before income taxes and cumulative effect
of accounting change ........................................ (8,501) 16,946 24,356
Income tax expense (benefit) .................................. (3,164) 6,400 9,100
------ ----- -----
Income (loss) before cumulative effect of accounting change ... (5,337) 10,546 15,256
Cumulative effect of accounting change (net of income
taxes of $140,000) .......................................... (234) 0 0
-------- ---- - -
Net income (loss) .............................................$ (5,571) $ 10,546 $ 15,256
========= ========= ========
Basic and diluted net income (loss) per share:
Income (loss) before cumulative
effect of accounting change ...............................$ (.39) $ .75 $ 1.06
Cumulative effect of accounting change ...................... (.02) 0 0
---- - -
Net income (loss) per share .................................$ (.41) $ .75 $ 1.06
========= ========= =========
Weighted average shares outstanding:
Basic ....................................................... 13,726 14,068 14,369
====== ====== ======
Diluted ..................................................... 13,726 14,121 14,426
====== ====== ======
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 and per share amounts)
Balance at November 1, 1997 14,367,580 $14,368 $11,447 $ 90,956 $116,771
Net income for year 15,256 15,256
Cash dividends ($.20 per share) (2,874) (2,874)
Issuance of common stock 6,000 6 58 64
Principal payments received on note
receivable from ESOP 265 265
--------------------------------------------------------------------------------
Balance at October 31, 1998 14,373,580 14,374 11,770 103,338 129,482
Net income for year 10,546 10,546
Cash dividends ($.20 per share) (2,807) (2,807)
Issuance of common stock 36,875 36 378 414
Purchase and retirement of
common stock (478,000) (478) (6,438) (6,916)
Principal payments received on note
receivable from ESOP 125 125
--------------------------------------------------------------------------------
Balance at October 31, 1999 13,932,455 13,932 5,835 111,077 130,844
Net loss for year (5,571) (5,571)
Cash dividends ($20 per share) (2,740) (2,740)
Purchase and retirement of
common stock (299,500) (299) (2,219) (2,518)
---------------------------------------------------------------------------------
Balance at October 31, 2000 $13,632,955 $13,633 $ 3,616 $102,766 $120,015
=================================================================================
See accompanying notes.
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
2000 1999 1998
(In thousands)
Operating activities
Net income (loss) $ (5,571) $ 10,546 $ 15,256
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change 374 0 0
Depreciation and amortization 26,432 24,736 23,241
Provision for losses on accounts receivable 1,413 124 240
Deferred income taxes 340 600 2,710
Change in assets and liabilities:
Increase in accounts receivable (1,874) (5,678) (329)
(Increase) decrease in inventories (2,628) (4,755) 1,331
(Increase) decrease in prepaid expenses (3,647) 263 63
(Increase) decrease in other assets 30 (422) 329
Increase in accounts payable 5,002 6,612 281
Increase (decrease) in accrued expenses and claims payable 463 (234) 7,161
--- ---- -----
Total adjustments 25,905 21,246 35,027
------ ------ ------
Net cash provided by operating activities 20,334 31,792 50,283
Investing activities
Capital expenditures (16,557) (28,627) (23,673)
Net proceeds from sale of property and equipment 217 474 202
--- --- ---
Net cash used in investing activities (16,340) (28,153) (23,471)
Financing activities
Long-term borrowings 0 20,000 0
Net change in revolving credit 6,000 (7,000) (19,000)
Principal payments on long-term debt (2,950) (3,844) (2,998)
Principal payments on capital lease (195) (185) (174)
Principal payments received on note
receivable from ESOP 0 125 265
Dividends paid (2,740) (2,807) (2,874)
Purchase and retirement of common stock (2,518) (6,916) 0
Net proceeds from common stock issued 0 414 64
- --- --
Net cash used in financing activities (2,403) (213) (24,717)
------ ---- -------
Net increase in cash and temporary cash investments 1,591 3,426 2,095
Cash and temporary cash investments
at beginning of year 7,052 3,626 1,531
----- ----- -----
Cash and temporary cash investments
at end of year $ 8,643 $ 7,052 $ 3,626
======== ======== ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 397 $ 10,459 $ 2,834
======== ======== ========
Income taxes refunded $ 464 $ 0 $ 2,474
======== ======== ========
Interest paid $ 8,728 $ 5,844 $ 7,880
======== ======== ========
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.
Business: The Company is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and other prepared food items. The
Company's net sales and cost of sales are significantly affected by market price
fluctuations of its principal products sold and of its principal ingredients,
corn and other grains.
The Company sells to retailers, distributors and fast food operators primarily
in the southern and western United States. Revenue is recognized when product is
shipped to customers. Revenue on certain international sales is recognized upon
transfer of title, which may occur after shipment. Management periodically
performs credit evaluations of its customers' financial condition and generally
does not require collateral. Shipping and handling costs are included as a
component of cost of sales.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Temporary Cash Investments: Temporary cash investments include investment
agreements for securities purchased under agreements to resell with a maturity
of one day.
Inventories: Processed food and poultry inventories and inventories of feed,
eggs, medication and packaging supplies are stated at the lower of cost
(first-in, first-out method) or market.
Live poultry inventories of broilers are stated at the lower of cost or market
and breeders at cost less accumulated amortization. The costs associated with
breeders, including breeder chicks, feed, medicine and grower pay, are
accumulated up to the production stage and amortized over nine months using the
straight-line method.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is provided by the straight-line
and units of production methods over the estimated useful lives of 19 to 39
years for buildings and 3 to 7 years for machinery and equipment.
Impairment of Long-Lived Assets: The Company continually reevaluates the
carrying value of its long-lived assets for events or changes in circumstances
which indicate that the carrying value may not be recoverable. As part of this
reevaluation, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposal. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized through a charge
to operations.
Income Taxes: Deferred income taxes are accounted for using the liability method
and relate principally to cash basis temporary differences and depreciation
expense accounted for differently for financial and income tax purposes.
Effective November 1, 1988, the Company changed from the cash to the accrual
basis of accounting for its farming subsidiary. The Taxpayer Relief Act of 1997
(the "Act") provides that the taxes on the cash basis temporary differences as
of that date are payable over 20 years beginning in fiscal 1998 or in full in
the first fiscal year in which the Company fails to qualify as a "Family Farming
Corporation." The Company will continue to qualify as a "Family Farming
Corporation" provided there are no changes in ownership control, which
management does not anticipate during fiscal 2001.
Stock Based Compensation: The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Earnings Per Share: Basic earnings per share is based upon the weighted average
number of common shares outstanding during the year. Diluted earnings per share
includes any dilutive effects of options, warrants, and convertible securities.
Fair Value of Financial Instruments: The carrying amounts for cash and temporary
cash investments approximate their fair values. The carrying amounts of the
Company's borrowings under its credit facilities and long-term debt also
approximate the fair values based on current rates for similar debt.
Impact of Recently Issued Accounting Standards: Effective in fiscal 2001, FASB
No. 133, "Accounting for Derivative Instruments and Hedging Activities",
requires all derivatives to be recorded on the balance sheet at fair value. The
effect of adopting this statement on the consolidated earnings and financial
position of the Company will be immaterial.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities," which
requires that costs related to start-up activities be expensed as incurred.
Prior to October 31, 1999, the Company capitalized its start-up costs. The
Company adopted the provisions of the SOP in its consolidated financial
statements in the first quarter of fiscal 2000. The effect of adoption of SOP
98-5 was to record a charge for the cumulative effect of an accounting change of
$234,000 (net of income taxes of $140,000) or $.02 per basic and diluted
earnings per share.
2. Inventories
Inventories consisted of the following:
October 31
2000 1999
---- ----
(In thousands)
Live poultry-broilers and breeders $30,004 $29,323
Feed, eggs and other 6,651 6,494
Processed poultry 5,924 3,037
Processed food 3,785 4,900
Packaging materials 3,898 3,880
-------- -------
$50,262 $47,634
====== ======
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
2000 1999
---- ----
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 7.6% at
October 31, 2000) $72,000 $66,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments of $2,850,000 8,600 11,450
Term loan with an insurance company,
accruing interest at 6.65%; due in annual
principal installments of $2,857,000,
beginning in July 2004 20,000 20,000
Note payable, accruing interest at 5%;
due in annual installments of $161,400,
including interest, maturing in 2009 1,169 1,269
6% Mississippi Business Investment Act
bond-capital lease obligation 3,480 3,675
Robertson County, Texas, Industrial
Revenue Bonds accruing interest
at a variable rate, 3.6% at October
31, 2000; due in annual principal
installments of $900,000 6,300 6,300
-------- ----- -----
111,549 108,694
Less current maturities of long-term debt 4,058 4,043
----- -----
$107,491 $104,651
======== ========
The Company has a $100.0 million ($28.0 million available at October 31, 2000)
revolving credit agreement with five banks. The revolver extends to fiscal 2004,
when the outstanding borrowings may be converted to a term loan payable in equal
semi-annual installments over four years. Borrowings are at prime or below and
may be prepaid without penalty. A commitment fee of .20% is payable quarterly on
the unused portion of the revolver. Covenants related to the revolving credit
and the term loan agreements include requirements for maintenance of minimum
consolidated net working capital, tangible net worth, debt to total
capitalization and current ratio. The agreements also establish limits on
dividends, assets that can be pledged and capital expenditures.
Property, plant and equipment with a carrying value of approximately $3.1
million is pledged as collateral to a note payable and the capital lease
obligation.
The aggregate annual maturities of long-term debt at October 31, 2000 are as
follows (in thousands):
Fiscal Year Amount
2001 $ 4,058
2002 4,078
2003 4,144
2004 24,264
2005 24,285
Thereafter 50,720
--------
$111,549
========
4. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended October 31
2000 1999 1998
------------------------------
(In thousands)
Current:
Federal $(3,600) $ 5,200 $ 5,900
State (44) 600 490
-----------------------------
(3,644) 5,800 6,390
Deferred:
Federal 325 486 2,197
State 15 114 513
-----------------------------
340 600 2,710
-----------------------------
(3,304) 6,400 9,100
Less income tax expense applicable
to cumulative effect of accounting
change 140 0 0
-----------------------------
Income tax expense (benefit) applicable
to income (loss) before cumulative
effect of accounting change $(3,164) $ 6,400 $ 9,100
=============================
Significant components of the Company's deferred tax assets and liabilities were
as follows:
October 31,
2000 1999
-------------------
(In thousands)
Deferred tax liabilities:
Cash basis temporary differences $ 3,309 $ 3,503
Property, plant and equipment 13,694 12,371
Prepaid and other assets 143 250
-------------------
Total deferred tax liabilities 17,146 16,124
Deferred tax assets:
Accrued expenses and accounts receivable 2,921 2,017
State net operating loss and credit carryforwards 275 497
-------------------
Total deferred tax assets 3,196 2,514
-------------------
Net deferred tax liabilities $13,950 $13,610
===================
Current deferred tax assets
(included in prepaid expenses) $ 1,900 $ 1,385
-------------------
Long-term deferred tax liabilities 15,850 14,995
-------------------
Net deferred tax liabilities $13,950 $13,610
===================
The differences between the consolidated effective income tax rate and the
federal statutory rate are as follows:
Years Ended October 31
2000 1999 1998
---------------------------
(In thousands)
Income taxes (benefit) at statutory rate $(3,018) $ 5,762 $ 8,525
State income taxes (benefit) (19) 731 1,041
State income tax credit 0 (260) (389)
Other, net (267) 167 (77)
------------------------------
Income tax expense (benefit) $(3,304) $ 6,400 $ 9,100
==============================
5. Employee Benefit Plans
The Company has an Employee Stock Ownership Plan ("ESOP") covering substantially
all employees. Contributions to the ESOP are determined at the discretion of the
Company's Board of Directors. Total contributions to the ESOP were $840,000 and
$1,100,000 in fiscal 1999 and 1998, respectively. The Company did not make a
contribution to the ESOP in fiscal 2000.
The Company has a 401(k) plan which covers substantially all employees after six
months of service. Participants in the plan may contribute up to the maximum
allowed by IRS regulations. Effective July 1, 2000, the Company matches 100% of
employee contributions to the 401(k) plan up to 3% of each employee's
compensation and 50% of employee contributions between 3% and 5% of each
employee's compensation. The Company's contributions to the 401(k) plan totaled
$457,000 in fiscal 2000.
6. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options.
Under the Company's Stock Option Plan, 750,000 shares of Common Stock have been
reserved for grant to key management personnel. Options granted in fiscal 2000
and 1998 have ten-year terms and vest over four years beginning one year after
the date of grant. No options were granted in fiscal 1999.
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.6% in fiscal 2000 and 4.4% in fiscal
1998; dividend yields of 2.7% for fiscal 2000 and 1.5% for fiscal 1998;
volatility factors of the expected market price of the Company's Common Stock of
.302 for fiscal 2000 and .260 for fiscal 1998; and a weighted-average expected
life of the options of four years.
The weighted-average fair value of options granted was $1.94 in fiscal 2000 and
$3.14 in fiscal 1998. The pro forma effect of the estimated fair value of the
options granted was insignificant to the Company's net income (loss) and net
income (loss) per share in fiscal 2000, 1999 and 1998.
A summary of the Company's stock option activity and related information is as
follows:
Weighted-Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------
Outstanding at November 1, 1997 538,000 $12.51
Granted 194,000 13.00
Exercised (7,000) 10.77
Forfeited (29,000) 12.87
Outstanding at November 1, 1998 696,000 12.64
Exercised (69,375) 10.82
Forfeited (44,625) 12.92
------
Outstanding at October 31, 1999 582,000 12.90
Granted 141,000 7.47
Forfeited (84,000) 11.60
Outstanding at October 31, 2000 639,000 11.83
The exercise price of the options outstanding as of October 31, 2000 ranged from
$7.47 to $15.00 per share. At October 31, 2000, the weighted average remaining
contractual life of the options outstanding was 5 years and 371,500 options were
exercisable.
In fiscal 2000, the Company granted 141,000 "phantom shares" to certain key
management personnel. Upon exercise of a phantom share, the holder will receive
a cash payment or an equivalent number of shares of the Company's Common Stock,
at the Company's option, equal to the excess of the fair market value of the
Company's Common Stock over the phantom share award value of $7.47 per share.
The phantom shares have a ten-year term and vest over four years beginning one
year after the date of grant. No compensation expense was recognized applicable
to the phantom shares in fiscal 2000 because the award value exceeded the fair
market value of the Company's Common Stock.
7. Shareholder Rights Agreement
On April 22, 1999, the Company adopted a shareholder rights agreement (the
"Agreement") with similar terms as the previous one. Under the terms of the
Agreement a one share purchase ("right") was declared as a dividend for each
share of the Company's Common Stock outstanding on May 4, 1999. The rights do
not become exercisable and certificates for the rights will not be issued until
ten business days after a person or group acquires or announces a tender offer
for the beneficial ownership of 20% or more of the Company's Common Stock.
Special rules set forth in the Agreement apply to determine beneficial ownership
for members of the Sanderson family. Under these rules, such a member will not
be considered to beneficially own certain shares of Common Stock, the economic
benefit of which is received by any member of the Sanderson family, and certain
shares of Common Stock acquired pursuant to employee benefit plans of the
Company.
The exercise price of a right has been established at $75. Once exercisable,
each right would entitle the holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $100 per share. The
rights may be redeemed by the Board of Directors at $.01 per right prior to an
acquisition, through open market purchases, a tender offer or otherwise, of the
beneficial ownership of 20% or more of the Company's Common Stock, or by
two-thirds of the Directors who are not the acquirer, or an affiliate of the
acquirer prior to the acquisition of 50% or more of the Company's Common Stock
by such acquirer. The rights expire on May 4, 2009.
8. Other Matters
The Company self-insures for losses related to workers' compensation claims with
excess coverage by underwriters on a per claim and aggregate basis. Claims
payable are based upon estimates of the ultimate cost of reported claims by the
Company's claims administrator and totaled $5,193,000 and $4,227,000 at October
31, 2000 and 1999, respectively. Claims payable of $3,393,000 and $3,127,000 at
October 31, 2000 and 1999, respectively, are included in accrued expenses in the
accompanying consolidated balance sheets because the amounts are expected to be
paid within one year from the respective balance sheet dates. The ultimate cost
for outstanding claims may vary significantly from current estimates.
No customer accounted for more than 10% of consolidated sales for the years
ended October 31, 2000, 1999 and 1998. Export sales were less than 10% of
consolidated sales in each year presented.
On June 15, 2000, the Company delivered to two banks a guaranty of $3.2 million
on a $13.5 million loan (the "Loan") under a credit agreement from those banks
to the Estate of Joe Frank Sanderson, a co-founder and former member of the
Company's Board of Directors. The Estate collateralized the Loan with 3,229,672
shares of Common Stock of the company and agreed to indemnify the Company
against any loss from such guaranty.
On April 5, 2000, thirteen individuals claiming to be former hourly employees of
the Company filed a lawsuit in the United States District Court for the Southern
District of Texas claiming that the Company violated requirements of the Fair
Labor Standards Act. The Plaintiffs' lawsuit also purported to represent
similarly situated workers who have filed or will file consents to join the
suit. At filing, 109 individuals had consented to join the lawsuit.
The lawsuit alleges that the Company (1) failed to pay its hourly employees "for
time spent donning and doffing sanitary and safety equipment, obtaining and
sharpening knives and scissors, working in the plant and elsewhere before and
after the scheduled end of the shift, cleaning safety equipment and sanitary
equipment, and walktime," and (2) altered employee time records by using an
automated time keeping system. Plaintiffs further claim that the Company
concealed the alteration of time records and seek on that account an equitable
tolling of the statute of limitations beyond the three-year limitation period
back to the date the automated time-keeping system was allegedly implemented.
Plaintiffs seek an unspecified amount of unpaid hourly and overtime wages plus
an equal amount as liquidated damages, for present and former hourly employees
who file consents to join the lawsuit. There were 7,267 hourly workers employed
at the Company's processing plants as of October 31, 2000.
On May 15, 2000, an employee of the Company filed suit against the Company in
the United States District Court for the Southern District of Texas on behalf of
live-haul drivers to recover an unspecified amount of overtime compensation and
liquidated damages. Approximately 18 employees have filed consents to this
lawsuit.
Previously, the United States Department of Labor ("DOL") filed suit against the
Company in the United States District Court for the Southern District of
Mississippi, Hattiesburg Division. The lawsuit was brought under the Fair Labor
Standards Act and seeks recovery of overtime compensation, together with an
equal amount as liquidated damages, for thirty-two live-haul employees (i.e.,
live-haul drivers, chicken catchers, and loader-operators) employed by the
Company. The lawsuit asserted that additional overtime compensation and
liquidated damages may be owed to certain employees. The lawsuit also seeks an
injunction to prevent the withholding of overtime compensation to live-haul
employees in the future.
The Company is vigorously defending both suits, and has denied any and all
liability. Numerous affirmative defenses have been asserted against the
plaintiff(s) in these matters, including the Company's reliance upon, and
compliance with, the DOL's longstanding policy and practice of treating
live-haul workers as exempt under the Fair Labor Standards Act. Both cases are
in the early stages of discovery. Docket call concerning trial of the employees'
suit has been set for July 27, 2001, while no trial date has been set for the
DOL suit.
Substantially similar lawsuits have been filed against other integrated poultry
companies. In addition, organizing activity conducted by the representatives or
affiliates of the United Food and Commercial Workers Union against the poultry
industry has encouraged worker participation in this and the other lawsuits. The
Company believes it has substantial defenses and is vigorously defending these
lawsuits.
On September 26, 2000, three current and former contract growers filed suit
against the Company in the Chancery Court of Lawrence County, Mississippi. The
plaintiffs filed suit on behalf of "all Mississippi residents to whom, between,
on or about November 1981 and the present, the Company induced into growing
chickens for it and paid compensation under the so called `ranking system'."
Plaintiffs allege that the Company "has defrauded plaintiffs by unilaterally
imposing and utilizing the so called `ranking system' which wrongfully places
each grower into a competitive posture against other growers and arbitrarily
penalizes each less successful grower based upon criteria which were never
revealed, explained or discussed with plaintiffs." Plaintiffs further allege
that they are required to accept chicks which are genetically different and with
varying degrees of healthiness, and feed of dissimilar quantity and quality.
Finally, plaintiffs allege that they are ranked against each other although they
possess dissimilar facilities, equipment and technology. Plaintiffs seek an
unspecified amount in compensatory and punitive damages, as well as varying
forms of equitable relief.
The Company is vigorously defending this action, and has removed the case to the
United States District Court for the Southern District of Mississippi. The
plaintiffs have filed a motion to remand, which is currently pending before the
Court. The Company has invoked the arbitration provision present in the
contracts signed by each of the plaintiffs.
The Company is also involved in various claims and litigation incidental to its
business. Although the outcome of such matters cannot be determined with
certainty, management, upon the advice of counsel, is of the opinion that the
final outcome should not have a material effect on the Company's consolidated
results of operation or financial position.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive
Officers of the Registrant.
As permitted by General Instruction G(3) to Form 10-K,
reference is made to the information concerning the Directors of the
Registrant and the nominees for election as Directors appearing in the
Registrant's definitive proxy statement filed or to be filed with the
Commission pursuant to Rule 14a-6(b). Such information is incorporated herein
by reference to the definitive proxy statement.
Information concerning the executive officers of the Registrant is set forth in
Item 4A of Part I of this Annual Report.
Item 11. Executive Compensation.
As permitted by General Instruction G(3) to Form 10-K,
reference is made to the information concerning remuneration of Directors and
executive officers of the Registrant appearing in the Registrant's definitive
proxy statement filed or to be filed with the Commission pursuant to Rule
14a-6(b). Such information is incorporated herein by reference to the definitive
proxy statement.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
As permitted by General Instruction G(3) to Form 10-K,
reference is made to the information concerning beneficial ownership of the
Registrant's Common Stock, which is the only class of the Registrant's voting
securities, appearing in the Registrant's definitive proxy statement filed or to
be filed with the Commission pursuant to Rule 14a-6(b). Such information is
incorporated herein by reference to the definitive proxy statement.
Item 13. Certain Relationships and Related Transactions.
As permitted by General Instruction G(3) to Form 10-K,
information, if any, required to be reported by Item 13 of Form 10-K, with
respect to transactions with management and others, certain business
relationships, indebtedness of management, and transactions with promoters, is
set forth in the Registrant's definitive proxy statement filed or to be filed
with the Commission pursuant to Rule 14a-6(b). Such information, if any, is
incorporated herein by references to the definitive proxy statement.
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a)1. FINANCIAL STATEMENTS:
The following consolidated financial statements of the
Registrant are included in Item 8:
Consolidated Balance Sheets - October 31, 2000 and 1999
Consolidated Statements of Income - Years ended October 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years ended October 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended October 31, 2000, 1999
and 1998
Notes to Consolidated Financial Statements - October 31, 2000
(a)2. FINANCIAL STATEMENT SCHEDULES:
The following consolidated financial statement schedules of the
Registrant are included in Item 8:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as they are not applicable or
the required information is set forth in the Financial Statements or notes
thereto.
(a)3. EXHIBITS:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
Exhibit Brief
Number Description
(1) 3-A - Copy of Articles of Incorporation of the Registrant, as amended.
3-B - Copy of Restated By-Laws of the Registrant as of January 8, 1998.
3-B-1 - Copy of Restated By-Laws of the Registrant as of October 23, 2000.
(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 Sherrie 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 ALL.
(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 M.C. Services (ALL) 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, ALL.
(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 M.C. Services (ALL).
(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 M.C. Services (ALL).
(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 M.C. Services (ALL) 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.
(9) 10-E-3 - Copy of Agreement effective July 15, 1995 between Sanderson Farms, Inc. (Hazlehurst
Processing Division) and Laborers' International Union of North America,
Professional Employees Local Union #697, AFL-CIO.
(9) 10-E-4 - Copy of Agreement effective September 9, 1995 between Sanderson Farms, Inc. (Collins
Processing Division) and Laborers' International Union of North America,
Professional Employees Local Union #697, AFL-CIO.
10-E-5 - Copy of Agreement effective November 1, 1998 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-6 - Copy of Agreement effective July 26, 1999 between Sanderson Farms, Inc.
(Hazlehurst Processing Division) and Laborers' International Union of North
America, Professional Employees Local Union #697, AFL-CIO.
10-E-7 - Copy of Agreement effective January 13, 2000 between Sanderson Farms, Inc.
(Collins Processing Division) and Laborers' International Union of North
America, Professional Employees Local Union #697, AFL-CIO.
10-E-8 - Copy of Agreement effective October 7, 1999 between Sanderson Farms, Inc.
(Brazos Processing Division) and the United Food and Commercial Workers
Local Union #408, AFL-CIO.
10-E-9 - Copy of Agreement effective January 1, 2001 between Sanderson Farms,
Inc. (Brazos Production Division) and the Teamsters International
Local #968.
(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.
(10) 10-I - Copy of Sanderson Farms, Inc. and Affiliates Stock Option Plan.
(5) 10-J - Copy of Memorandum of Agreement dated as of June 13, 1989, between Pike
County, Mississippi and the Registrant.
(6) 10-K - Copy of Wastewater Treatment Agreement between the City of Magnolia,
Mississippi and the Registrant dated August 19, 1991.
(6) 10-L - Copy of Memorandum of Agreement and Purchase Option between Pike County,
Mississippi and the Registrant dated May, 1991.
(7) 10-M - Copy of Lease Agreement between Pike County, Mississippi and the Registrant
dated as of November 1, 1992.
21 - List of subsidiaries of the Registrant.
23 - Consent of Independent Auditors
27 - Copy of Financial Data Schedule
(2) 28-A - Copy of Certificate of Registration of Trademark "Miss Goldy".
(2) 28-B - Copy of Certificate of Registration of Trademark "Wise Choice".
(2) 28-C - Copy of Certificate of Registration of Trademark "Buttercup Farms".
(2) 28-D - Copy of Certificate of Registration of Trademark "Collinswood".
(2) 28-E - Copy of Certificate of Registration of Trademark "Covington Farms".
(2) 28-F - Copy of Certificate of Registration of Trademark "Smart Cuts".
(4) 28-G - Copy of Certificate of Registration of Trademark "Kettle Classics".
(5) 28-H - Copy of Certificate of Registration of Trademark "Sanderson Farms".
(1) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989, and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Commission File No. 33-13141) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1987, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1988, and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990, and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991, and incorporated herein by reference.
(7) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992, and incorporated herein by reference.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
No reports on From 8-K were filed during the fourth quarter of the Fiscal Year
ended October 31, 1999.
(c) Agreements Available Upon Request by the Commission.
---------------------------------------------------
The Registrant is a party to various agreements defining the rights of holders
of long-term debt of the Registrant, but no single agreement authorizes
securities in an amount which exceeds 10% of the total assets of the Company.
Upon request of the Commission, the Registrant will furnish a copy of any such
agreement to the Commission. Accordingly, such agreements are omitted as
exhibits as permitted by Item 601(b)(4)(iii) of Regulation S-K.
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 and Stockholders
Sanderson Farms, Inc.
We have audited the accompanying consolidated balance sheets of Sanderson Farms,
Inc. and subsidiaries as of October 31, 2000 and 1999 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 2000. Our audit also included
the financial statement schedule listed in the index under item 14(a).These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes accessing 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, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also in our opinion the related
financial statement schedule when considered in relation to the basic financial
statements as a whole, presents fairly in all material respects the information
set forth therein.
/s/Ernst & Young LLP
Jackson, Mississippi
December 7, 2000
Sanderson Farms, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
COL. A COL. B COL. C COL. D COL. E COL. F
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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, 2000
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $ 249 $1,413 $1,242 $ 420
Year ended October 31, 1999
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $ 249 $ 124 $ 124 $ 249
Year ended October 31, 1998
Deducted from accounts
receivable:
Allowance for doubtful
accounts $ 233 $ 240 $ 224 $ 249
Totals
(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 25, 2001 /s/Joe F. Sanderson, Jr.
Joe F. Sanderson, Jr.
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 F. Sanderson, Jr. 1/25/01 /s/ John H. Baker, III 1/25/01
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Joe F. Sanderson, Jr., John H. Baker, III,
Chairman of the Board, President Director
and Chief Executive Officer
/s/ William R. Sanderson 1/25/01 /s/ Charles W. Ritter, Jr. 1/25/01
- ------------------------------------- -----------------------------------
William R. Sanderson, Director, Charles W. Ritter, Jr.,
Director of Marketing Director
/s/Hugh V. Sanderson 1/25/01 /s/ Rowan H. Taylor 1/25/01
- ------------------------------------- -----------------------------------
Hugh V. Sanderson, Director, Rowan H. Taylor,
Manager of Customer Relations Director
/s/ Donald W. Zacharias 1/25/01 /s/ Robert Buck Sanderson 1/25/01
- ------------------------------------ ------------------------------------
Donald W. Zacharias, Robert Buck Sanderson, Director,
Director Corporate Live Production Assistant
/s/ Phil K. Livingston 1/25/01 /s/ Lampkin Butts 1/25/01
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Phil K. Livingston, Lampkin Butts, Director,
Director Vice President - Sales
/s/ D. Michael Cockrell 1/25/01 /s/James A. Grimes 1/25/01
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D. Michael Cockrell, James A. Grimes, Secretary
Director, Treasurer and Chief and Chief Accounting Officer
Financial Officer