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, 1996
/ / 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, 1996: approximately $93,280,714.
Number of Shares outstanding of the Registrant's common stock as of
December 31, 1996: 14,363,080 shares of common stock, $1.00 per share par
value.
Portions of the Registrant's definitive proxy statement filed or to be
filed in connection with its 1997 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, 1996, 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 23, 1997.
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF THE REGISTRANT'S BUSINESS
The Registrant was incorporated in Mississippi in 1955, and is a fully-
integrated poultry processing company engaged in the production, processing,
marketing and distribution of fresh and frozen chicken products. In addition,
through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division),
the Registrant is engaged in the processing, marketing and distribution of
processed and prepared food items.
The Registrant sells ice pack, chill pack and frozen chicken, in whole,
cut-up and boneless form, primarily under the Miss Goldy brand name to
retailers, distributors, and fast food operators principally in the
southeastern, southwestern and western United States. During its fiscal year
ended October 31, 1996, the Registrant processed 191.1 million chickens, or
approximately 644.1 million dressed pounds. According to 1996 industry
statistics, the Registrant was the 13th largest processor of dressed chickens
in the United States based on estimated average weekly processing.
The Registrant's chicken operations presently encompass four hatcheries,
three feed mills, five processing plants and one by-products plant. The
Registrant has contracts with operators of approximately 417 grow-out farms
that provide it with sufficient housing capacity for its current operations.
The Registrant also has contracts with operators of 134 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 chicken patties and corn dogs. The Registrant
also sells a retail entree line of six different two-pound frozen entrees
including chicken primavera, lasagna with meat, seafood gumbo and mexican
casserole with beef. This product line is designed as a convenient, quality
product for the family.
Since the Registrant completed the initial public offering of its common
stock through the sale of 1,150,000 shares to an underwriting syndicate
managed by Smith Barney, Harris Upham & Co. Incorporated and Morgan Keegan &
Co. Inc. in May 1987, the Registrant has significantly expanded its operations
to increase production capacity, product lines and marketing flexibility.
Through 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. 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 1996 were funded by working capital,
borrowings under a revolving credit agreement, and the proceeds of the Bonds
(as defined below). Effective July 29, 1996, the Registrant amended and
restated its revolving credit agreement to, among other things, increase the
revolving credit available to the Registrant thereunder to $125.0 million from
$100.0 million. On November 16, 1995, the Registrant entered into a loan
agreement with the Robertson County, Texas Industrial Development Corporation
(the "Issuer") pursuant to which the Issuer loaned to the Registrant the
proceeds of the issuance of $7.2 million Variable Rate Demand Industrial
Development Bonds (Sanderson Farms, Inc. Project) Series 1995 (the "Bonds"),
for use by the Registrant in the construction of its feed manufacturing
facility to be located in Robertson County, Texas. The Bonds are secured by a
letter of credit issued pursuant to the Registrant's revolving credit
agreement. The Registrant anticipates that capital expenditures for fiscal
1997 will be funded by internally generated working capital, borrowings under
the revolving credit agreement, and the proceeds of the Bonds.
During fiscal 1996, the Registrant completed the double shifting of its
Pike County, Mississippi processing facility. The Registrant currently has
additional processing capacity available to it through the double shifting of
the second line at its Collins, Mississippi processing facility. During 1995
the Company announced that it would construct a new state-of-the-art poultry
complex consisting of a feedmill, hatchery, processing plant and wastewater
treatment facility in Brazos and Robertson Counties, Texas. At full capacity
this facility will have the capacity to process 1.2 million birds per week and
will employ approximately 1,400 people. Construction of the new facility
began during the fall of 1995 with initial operations expected to begin in the
Spring of 1997. The first eggs were set in the hatchery and feed production
begins at the feed mill in January 1997. In addition, the Registrant
continually evaluates internal and external expansion opportunities to
continue its growth in poultry and/or related food products.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Not applicable.
(c) NARRATIVE DESCRIPTION OF BUSINESS
REGISTRANT'S BUSINESS
General
The Registrant is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and the preparation, processing,
marketing and distribution of processed and prepared food items.
The Registrant sells chill pack, ice pack and frozen chicken, both whole
and cut-up, primarily under the Miss Goldy brand name to retailers,
distributors and fast food operators principally in the southeastern,
southwestern and western United States. During its fiscal year ended October
31, 1996, the Registrant processed approximately 191.1 million chickens, or
approximately 644.1 million dressed pounds. In addition, the Registrant
purchased and further processed 51.7 million pounds of poultry products during
fiscal 1996. According to 1996 industry statistics, the Registrant was the
13th 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 labelling the product to specific customer
requirements and cutting the product based on customer specifications. The
additional processing steps of giblet removal, close tolerance weighing and
cutting increase the value of the product to the customer over whole chickens
by reducing customer handling and cutting labor and capital costs, reducing
the shrinkage associated with cutting, and ensuring consistently sized
portions.
With respect to chill pack products, additional value can be achieved by
deep chilling and packaging whole chickens in bags or combinations of fresh
chicken parts in various sized individual trays under the Registrant's brand
name, which then may be weighed and prepriced, based on each
customer's needs. The chill pack process increases the value of the product
by extending shelf life, reducing customer weighing and packaging labor, and
providing the customer with a wide variety of products with uniform, well
designed packaging, all of which enhance the customer's ability to merchandise
chicken products.
To satisfy some customers' merchandising needs, the Registrant quick
freezes the chicken product, which adds value by meeting the customers'
handling, storage, distribution and marketing needs and by permitting shipment
of product overseas where transportation time may be as long as 25 days.
Value added products usually generate higher sale prices per pound,
exhibit less finished price volatility and generally result in higher and more
consistent profit margins over the long-term than non-value added product
forms. Selling fresh chickens as a prepackaged brand name product has been a
significant step in the development of the value added, higher margin consumer
business. The Registrant evaluates daily the potential profitability of all
product lines and attempts to maximize its profits on a short-term basis by
making strategic changes in its product mix to meet customer demand.
The following table sets forth, for the periods indicated, the
contribution, as a percentage of sales of chicken products, of value added
and non-value added chicken products.
Fiscal Year Ended October 31,
1992 1993 1994 1995 1996
Value added 96.3% 97.2% 98.3% 98.2% 98.2%
Non-value added 3.7% 2.8% 1.7% 1.8% 1.8%
Total Registrant
chicken sales 100.0% 100.0% 100.0% 100.0% 100.0%
The following table sets forth, for the years indicated, the contribution, as
a percentage of net sales, of each of the Registrant's major product lines.
Fiscal Year Ended October 31,
1992 1993 1994 1995 1996
Registrant processed
chicken:
Value added:
Chill pack(1) 24.3% 20.9% 18.2% 19.3% 18.6%
Fresh bulk pack(1) 42.2 49.6 56.2 51.6 49.9
Frozen 9.2 8.8 10.2 13.5 17.0
Subtotal 75.7 79.3 84.6 84.4 85.5
Non-value added:
Ice pack 2.1 1.8 0.9 0.7 0.9
Frozen .8 0.4 0.6 0.8 0.7
Subtotal 2.9 2.2 1.5 1.5 1.6
Total Company
processed chicken 78.6 81.5 86.1 85.9 87.1
Processed and
prepared foods 20.9 18.4 13.8 14.1 12.9
Other(2) .5 0.1 0.1 0.0 0.0
Total 100.0% 100.0% 100.0% 100.0 %100.0%
(1) Vacuum pack poultry products have been restated in 1993 and included in
1994, 1995 and 1996 as fresh bulk pack, which includes ice pack and
vacuum pack products. The vacuum pack products were classified as chill
pack products in the 1993 Form 10-K.
(2) Consists of sales of poultry products that the Registrant purchases from
other poultry processors for resale, as necessary, to meet customer
demand.
Sales and Marketing
The Registrant's chicken products are sold primarily to retailers
(including national and regional supermarket chains and local supermarkets),
distributors and fast food operators located principally in the southeastern,
southwestern and western United States. The Registrant also sells its chicken
products to governmental agencies and to customers who resell the products
outside of the continental United States. This wide range of customers,
together with the Registrant's broad product mix, provides the Registrant with
flexibility in responding to changing market conditions in its effort to
maximize profits. This flexibility also assists the Registrant in its efforts
to reduce its exposure to market volatility.
Sales and distribution of the Registrant's chicken products are
conducted primarily by sales personnel at the Registrant's general corporate
offices in Laurel, Mississippi and by customer service representatives at each
of its five processing complexes and through independent food brokers. Each
complex has individual on-site distribution centers and uses the Registrant's
truck fleet, as well as contract carriers, for distribution of its products.
Generally, the Registrant prices much of its chicken products based upon
weekly market prices reported by the United States Department of Agriculture.
Consistent with the industry, the Registrant's profitability is impacted by
such market prices, which may fluctuate substantially and exhibit cyclical
characteristics. The Registrant adds a markup to base prices, which depends
upon value added, volume, product mix and other factors. While base prices
may change weekly, the Registrant's markup is generally negotiated from time
to time with the Registrant's customers. The Registrant's sales are generally
made on an as-ordered basis, and the Registrant maintains 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 Miss Goldy
products. The Registrant has achieved a high level of public awareness and
acceptance of its products through television advertising featuring a
celebrity as the Registrant's spokesperson. Brand awareness is an important
element of the Registrant's marketing philosophy, and it intends to continue
brand name merchandising of its products.
The Registrant's processed and prepared food items are sold nationally
and regionally, primarily to distributors, national food service accounts,
retailers and club stores. Sales of such products are handled by independent
food brokers located throughout the United States, primarily in the southeast
and southwest United States, and by sales personnel of the Registrant.
Processed and prepared food items are distributed from the Registrant's plant
in Jackson, Mississippi, through arrangements with contract carriers.
Production and Facilities
General. The Registrant is a vertically-integrated producer of fresh
and frozen chicken products, controlling the production of hatching eggs,
hatching, feed manufacturing, growing, processing and packaging of its product
lines.
Breeding and Hatching. The Registrant maintains its own breeder flocks
for the production of hatching eggs. The Registrant's breeder flocks are
acquired as one-day old chicks (known as pullets or cockerels) from primary
breeding companies that specialize in the production of genetically designed
breeder stock. As of October 31, 1996, the Registrant maintained contracts
with 28 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, 1996, by 106 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 four hatcheries located in Mississippi
where eggs are incubated and hatched in a process requiring 21 days. In
addition, the first eggs were set in the Registrant's new hatchery in Brazos
County, Texas, in January 1997. 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, 1996, the
Registrant's hatcheries were capable of producing an aggregate of
approximately 4.2 million chicks per week. The new hatchery in Brazos County,
Texas, will have the capacity to produce an additional 1.3 million chicks per
week at full capacity.
Grow-out. The Registrant places it chicks on 417 grow-out farms, as of
October 31, 1996, located in Mississippi and Louisiana where broilers are
grown to an age of approximately six to seven weeks. The farms provide the
Registrant with sufficient housing capacity for its operations, and are
typically family-owned farms operated under contract with the Registrant. The
farm owners provide facilities, utilities and labor; the Registrant supplies
the day-old chicks, feed and veterinary and technical services. The farm
owner is compensated pursuant to an incentive formula designed to promote
production cost efficiency.
Historically, the Registrant has been able to accommodate expansion in
grow-out facilities through additional contract arrangements with independent
growers.
Feed Mills. An important factor in the grow-out of chickens is the rate
at which chickens convert feed into body weight. The Registrant purchases on
the open market the primary feed ingredients, including corn and soybean meal,
which historically have been the largest cost components of the Registrant's
total feed costs. The quality and composition of the feed is critical to the
conversion rate, and accordingly, the Registrant formulates and produces its
own feed. As of October 31, 1996, the Registrant operated three feed mills,
all of which are located in Mississippi. In addition, feed production begins
at the Registrant's new feed mil in Robertson County, Texas, in January 1997.
The Registrant's annual feed requirements for fiscal 1996 were approximately
897,000 tons, and it has the capacity to produce approximately 936,000 tons of
finished feed annually under current configurations.
Feed grains are commodities subject to volatile price changes caused by
weather, size of harvest, transportation and storage costs and the
agricultural policies of the United States and foreign governments. On
October 31, 1996, the Registrant had approximately 396,500 bushels of corn
storage capacity at its feed mills, which was sufficient to store all of its
weekly requirements for corn. The Registrant purchases its corn and other
feed supplies at current prices from suppliers and, to a limited extent,
direct from farmers. Feed grains are available from an adequate number of
sources. Although the Registrant has not experienced and does not anticipate
problems in securing adequate supplies of feed grains, price fluctuations of
feed grains can be expected to have a direct and material effect upon the
Registrant's profitability. Although the Registrant sometimes purchases
grains in forward markets, it cannot eliminate the potentially adverse affect
of grain price increases.
Processing. Once the chicks reach processing weight, they are
transported to the Registrant's processing plants. These plants use modern,
highly automated equipment to process and package the chickens. The
Registrant's Pike County, Mississippi processing plant, which currently
operates two processing lines on a double shift basis, is currently processing
approximately 1.2 million chickens per week. The Registrant's Collins,
Mississippi processing plant, which is currently operating one of its two
lines on a double shift basis and one line on a single shift basis, is
currently processing approximately 950,000 chickens per week. The
Registrant's Laurel and Hazlehurst, Mississippi and Hammond, Louisiana
processing plants currently operate on a double shift basis, and have the
capacity to process an aggregate of approximately 1,875,000 chickens per week.
The Registrant also has the capabilities to produce deboned product at all
five processing facilities. At October 31, 1996, all five of these deboning
facilities were operating on a double shifted basis resulting in a combined
capacity to process approximately 3.5 million pounds of product per week at
all deboning facilities.
Sanderson Farms, Inc. (Foods Division). The facilities of Sanderson
Farms, Inc. (Foods Division) are located in Jackson, Mississippi in a plant
with approximately 75,000 square feet of refrigerated manufacturing and
storage space. The plant uses highly automated equipment to prepare, process
and freeze food items. The Registrant could increase significantly its
production of 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, 1996, the Registrant
operated one by-products plant, and five automotive maintenance shops which
service approximately 407 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 172 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 1996, the Registrant purchased its pullets and its
cockerels from seven (7) major breeders. The Registrant has found the
genetic cross of the breeds supplied by these companies to produce chickens
most suitable to the Registrant's purposes. The Registrant has no written
contracts with these breeders for the supply of breeder stock. Other sources
of breeder stock are available, and the Registrant continually evaluates these
sources of supply. Should breeder stock from its present suppliers not be
available for any reason, the Registrant believes that it could obtain
adequate breeder stock from other suppliers.
Other major raw materials used by the Registrant include feed grains,
cooking ingredients and packaging materials. The Registrant purchases these
materials from a number of different vendors and believes that its sources of
supply are adequate for its present needs. The Registrant does not anticipate
any difficulty in obtaining these materials in the future.
Seasonality
The demand for the Registrant's chicken products generally is greatest
during the spring and summer months and lowest during the winter months.
Trademarks
The Registrant has registered with the United States Patent and
Trademark Office the trademark Miss Goldy which it uses in connection with
the distribution of its premium grade chill pack products. The Registrant
considers the protection of this trademark to be important to its marketing
efforts due to consumer awareness of and loyalty to the Miss Goldy label.
The Registrant also has registered with the United States Patent and Trademark
Office 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 which it uses in connection
with the distribution of its prepared foods and two pound frozen entree
products.
The Registrant, over the years, has developed important non-public
proprietary information regarding product related matters. While the
Registrant has internal safeguards and procedures to protect the
confidentiality of such information, it does not generally seek patent
protection for its technology.
Employees and Labor Relations
As of October 31, 1996, the Registrant had 5,526 employees, including
761 salaried and 4,765 hourly employees. A collective bargaining agreement
with the United Food and Commercial Workers International Union covering 641
hourly employees who work at the Registrant's processing plant in Hammond,
Louisiana will expire on November 30, 1998. The collective bargaining
agreement has a grievance procedure and no strike-no lockout clauses that
should assist in maintaining stable labor relations at the Hammond plant.
A collective bargaining agreement with the Laborers' International
Union of North America, Professional Employees Local Union #693, AFL-CIO,
covering 475 hourly employees who work at the Registrant's processing plant in
Hazlehurst, Mississippi was negotiated and signed by the union and the
Registrant effective July 15, 1995. This Agreement will expire on June 30,
1999. This collective bargaining agreement has a grievance procedure and no
strike-no lockout clauses that should assist in maintaining stable labor
relations at the Hazlehurst plant.
A collective bargaining agreement with the Laborers' International Union
of North America, Professional Employees Local Union #693, AFL-CIO, covering
1,147 hourly employees who work at the Registrant's processing plant in
Collins, Mississippi was negotiated and signed by the union and the Registrant
effective September 9, 1995, and will expire on December 30, 1999. This
collective bargaining agreement also has a grievance procedure and no strike-
no lockout clauses that should assist in maintaining stable labor relations at
the Collins, Mississippi processing plant.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
The Registrant engages in no material foreign operations, and no
material portion of its revenues was derived from customers in foreign
countries.
Item 2. Properties.
The Registrant owns substantially all of its major operating facilities
with the following exceptions: one processing plant and feed mill complex is
leased on an annual renewal basis through 2063 with an option to purchase at a
nominal amount, at the end of the lease term. One processing plant complex is
leased under four leases, three of which are renewable annually through 2061,
2063, 2075 and 2073, respectively. Certain infrastructure improvements
associated with a processing plant are leased under a lease which expires in
2012 and is thereafter renewable annually through 2091. All of the foregoing
leases are capital leases.
There are no material encumbrances on the major operating facilities
owned by the Registrant, except that the plant of Sanderson Farms, Inc. (Foods
Division) is encumbered by a mortgage which collateralizes a note with an
outstanding principal balance of $1,452,055 on December 31, 1996, 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, and under the $20 million long-term
fixed rate loan agreement effective in February 1993, the Registrant may not
pledge any additional assets as collateral other than fixed assets up to 15%
of its tangible assets.
Management believes that the Company's facilities are suitable for its
current purposes, and believes that current renovations and expansions will
enhance present operations and allow for future internal growth.
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than routine
litigation incidental to the Registrant's business, to which the Registrant is
a party or of which its property is the subject, and no such proceedings are
known by the Registrant to be contemplated by governmental authorities.
Item 4. Submission of Matters to
a Vote of Security Holders.
No matters were submitted to a vote of the Registrant's security
holders, through the solicitation of proxies or otherwise, during the fourth
quarter of the Fiscal Year.
Item 4A. Executive Officers of the Registrant.
Executive
Name Age Office Officer Since
Joe Frank Sanderson 71 Chairman of the 1955 (1)
Board
Joe F. Sanderson, Jr. 49 President and 1984 (2)
Chief Executive
Officer
D. Michael Cockrell 39 Treasurer and Chief 1994 (3)
Financial Officer
James A. Grimes 48 Secretary and 1994 (4)
Chief Accounting Officer
Lampkin Butts 45 Vice President - Sales 1996 (5)
(1) Joe Frank Sanderson, a founder of the Registrant, has served as Chairman
of the Board for more than five years. Prior to November 1, 1989, Mr.
Sanderson also served as Chief Executive Officer and Treasurer of the
Registrant.
(2) Joe F. Sanderson, Jr. has served as President and Chief Executive
Officer of the Registrant since November 1, 1989. From January 1984, to
November 1989, Mr. Sanderson served as Vice-President, Processing and
Marketing of the Registrant.
(3) D. Michael Cockrell became Treasurer and Chief Financial Officer of the
Registrant effective November 1, 1993. Prior to that time, for more than
five years, Mr. Cockrell was a member and shareholder of the Jackson,
Mississippi law firm of Wise Carter Child & Caraway, Professional
Association.
(4) James A. Grimes became Secretary of the Registrant effective November 1,
1993. Mr. Grimes also serves as Chief Accounting Officer, which
position he has held since 1985.
(5) Lampkin Butts became Vice President - Sales of the Registrant effective
November 1, 1996. 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. Joe
F. Sanderson, Jr. is the son of Joe Frank Sanderson. Joe Frank Sanderson and
Joe F. Sanderson, Jr. are also Directors of the Registrant.
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.
The Company's common stock is traded on the NASDAQ National Market
System under the symbol SAFM. The number of stockholders of record as of
December 31, 1996, was 594.
The following table shows quarterly cash dividends and quarterly high
and low prices for the common stock for the past two fiscal years. National
Market quotations are based on actual sales prices.
Stock Price
Fiscal Year 1996 High Low Dividends
First Quarter $11.25 $10.125 $.05
Second Quarter $12.75 $10.50 $.05
Third Quarter $14.25 $10.625 $.05
Fourth Quarter $13.50 $10.875 $.05
Stock Price
Fiscal Year 1995 High Low Dividends
First Quarter $14.875 $11.875 $.05
Second Quarter $14.00 $11.125 $.05
Third Quarter $12.75 $10.00 $.05
Fourth Quarter $12.25 $10.50 $.05
All dividends and stock prices have been adjusted to reflect a 3 for 2 stock
split effected in the form of a stock dividend in February 1995.
On December 31, 1996, the closing sales price for the common stock was $16.75
per share.
Item 6. Selected Financial Data.
Year Ended October 31
1996 1995 1994 1993 1992
(In thousands, except per share data)
Net sales $ 455,100 $392,896 $371,502 $269,059 $210,057
Operating Income 1,189 21,239 28,184 20,767 8,033
Net income (loss) (2,443) 10,856 15,479 11,938 5,253
Earnings per share(1 ) (.18) 0.80 1.14 .88 .39
Working capital 60,826 47,605 45,843 42,548 33,371
Total assets 237,226 193,197 181,709 169,006 126,339
Long-term debt, less
current maturities 90,102 54,806 56,176 60,253 29,826
Stockholders' equity 118,250 114,319 106,187 93,431 84,216
Cash dividends declared
per share(1) $ .20 $ .20 $ .20 $ .20 $ .20
QUARTERLY FINANCIAL DATA
Fiscal Year 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
(Unaudited)
Net sales 103,754 110,719 116,419 124,208
Operating income (loss) (274) (3,233) 330 4,366
Net income (loss) (798) (2,734 (743) 1,832
Earnings (loss) per share(1) $ (.06) (.20) (.05) .13
Fiscal Year 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
(Unaudited)
Net sales $87,569 $92,449 $101,195 $111,683
Operating income 3,764 3,583 4,690 9,202
Net income 1,780 1,703 2,305 5,068
Earnings per share(1) $.13 $ .13 $ .17 $ .37
(1)All per share numbers have been adjusted to reflect a 3 for 2 stock split
effected in the form of a stock dividend in February 1995.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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/or 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 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 eggs 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 finished products and feed grains, both of which may
fluctuate substantially and exhibit cyclical characteristics typically
associated with commodity markets. Other costs, excluding feed, related to
the profitability of the Company's poultry operations, and including hatching
eggs production, hatching, growing, and processing costs, are responsive to
efficient cost containment programs and management practices. Over the past
three fiscal years, these other production costs have averaged approximately
60.3% of the Company's total production costs.
The Company believes that value-added products are subject to less price
volatility and generate higher, more consistent profit margin than whole
chickens ice-packed and shipped in bulk form. To reduce its exposure to
market cyclicality that has historically characterized commodity chicken
sales, the Company has increasingly concentrated on the production and
marketing of value-added product lines with emphasis on product quality,
customer service and brand recognition. The Company adds value to its poultry
products by performing one or more processing steps beyond the stage where the
whole chicken is first saleable as a finished product, such as cutting, deep
chilling, packaging and labelling the product. The Company believes that one
of its major's strengths is its ability to change its product mix to meet the
customer demands.
The Company's processed and prepared foods product line includes over 200
institutional and consumer packaged food items that it sells nationally and
regionally, primarily to distributors, food service establishments and
retailers. A majority of the prepared food items are made to the
specifications of food service users.
The new poultry complex under construction in Brazos and Robertson Counties,
Texas, consists of a feed mill, hatchery and processing plant. The first eggs
were set in the hatchery and feed production begins at the feed mill during
January 1997. The processing plant is anticipated to start initial operations
during March 1997 with an initial single shift processing capacity of 650,000
birds per week. The new shift at the Texas complex will increase the
Company's overall processing capacity under current configurations to
4,700,000 birds per week.
Poultry prices per pound, as measured by the Georgia dock price, fluctuated
during the three years ended October 31, 1996, as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 1996
High $.6000 $.5825 $.6650 $.6675*
Low $.5825 $.5500* $.5675 $.6525
Fiscal 1995
High $.5300 $.5200 $.5675 $.6150*
Low $.5125* $.5125* $.5125* $.5775
Fiscal 1994
High $.5525 $.5625 $.6025* $.5650
Low $.5250* $.5300 $.5650 $.5375
*Year High/Low
Market prices for whole birds, as measured by the Georgia dock price, remained
strong through the Thanksgiving holiday at $.6600 per pound. Market prices
for whole birds decreased after the Thanksgiving holiday to $.6450 per pound
at the end of December 1996.
For the year ended October 31, 1995, the Company experienced lower poultry
prices and higher feed costs as compared to the year ended October 31, 1994.
Although market prices for poultry products were higher during fiscal 1996 as
compared to fiscal 1995, the costs of feed grains were significantly higher
and reduced margins. During the final months of fiscal 1996 and continuing
into fiscal 1997, the cost of feed grains have steadily decreased. The
Company expects the lower prices for feed grains and the strong market prices
for poultry products the industry experienced during November and December
1996 to increase margins during the first quarter of fiscal 1997 as compared
to the first quarter of fiscal 1996. The Company is unable to predict how
long current conditions will continue or to what extent cyclical pressures
will affect operations.
RESULTS OF OPERATIONS:
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 increased to $455.1 million, an increase of $62.2
million, or 15.8%. The increase in net sales resulted from an increase in the
net sales price of 3.7% and an increase in the pounds of products sold of
11.8%. Net sales of poultry products increased $55.7 million, or 16.4%,
during fiscal 1996 as compared to fiscal 1995. This increase in net sales of
poultry products was the result of an increase in the average sales price of
poultry products of 4.2% and a corresponding increase in the pounds of poultry
products sold of 11.7%. The increase in pounds of poultry products sold was
attributable primarily to the addition during the second quarter of fiscal
1996 of a second shift to the first line and the addition during the third
quarter of fiscal 1996 of a second shift to the second line of the Company's
Pike County, Mississippi, processing plant. Net sales of prepared food
products increased $6.5 million, or 12.2%, during fiscal 1996 as compared to
fiscal 1995, due primarily to an increase in the pounds of prepared food
products sold of 12.8%.
During fiscal 1996, cost of sales increased $80.9 million, or 22.7%, as
compared to fiscal 1995. Cost of sales of poultry products increased $74.6
million, or 24.1%, during the year ended October 31, 1996, as compared to the
year ended October 31, 1995. The additional pounds of poultry products sold
and a substantial increase in the cost of feed grains were responsible for the
increase in cost of sales of poultry products during fiscal 1996. A simple
average of the corn and soybean meal cash market prices reflected an increase
of 46.5% and 43.8%, respectively, during fiscal 1996 as compared to fiscal
1995. During fiscal 1996, cost of sales of prepared food products increased
$6.3 million, or 13.8%, as compared to the previous fiscal year.
Selling, general and administrative expenses in fiscal 1996 increased $1.4
million, or 8.7%, as compared to fiscal 1995 primarily as a result of
increased administrative cost associated with the new poultry complex in
Brazos and Robertson Counties, Texas. Measured as a percentage of net sales,
selling, general and administrative expenses for fiscal 1996 and 1995 were
3.8% and 4.0%, respectively.
Interest expense increased approximately $.6 million during the year ended
October 31, 1996, as compared to the year ended October 31, 1995. Interest
cost of approximately $.8 million was capitalized during fiscal 1996 as a
result of additional borrowings incurred in connection with the construction
of the new poultry complex in Brazos and Robertson Counties, Texas.
During fiscal 1996, the Company recorded a tax benefit of approximately 23.9%.
For the preceding fiscal year the Company's effective tax rate was 38.1%. The
change in the effective rate is principally from non-deductible expenses as a
percentage of pretax income (loss) being higher in fiscal 1996 as compared to
fiscal 1995.
Fiscal 1995 Compared to Fiscal 1994
For the year ended October 31, 1995, net sales increased to $392.9 million, an
increase of $21.4 million, or 5.8%. The increase in net sales resulted from
an increase in the pounds of product sold of 7.2%, while the average sales
price of products decreased by 1.3%. During fiscal 1995, net sales of poultry
products increased 6.5% as compared to fiscal 1994. The increase in the net
sales of poultry products resulted from an increase in the pounds of poultry
products sold of 7.8% and a decrease in the average sale price of poultry
products of 1.2% during fiscal 1995 as compared to fiscal 1994. For the year
ended October 31, 1995 as compared to the year ended October 31, 1994, net
sales of prepared foods products increased approximately 1.2%. This increase
in the net sales of prepared foods products resulted from an increase in the
average sale price of prepared foods products of 3.3%, which was partially
offset by a decrease in the pounds of prepared foods products sold of 2.1%.
Cost of sales for fiscal 1995 as compared to fiscal 1994 increased $26.6
million, or 8.1%. Costs of sales of poultry products increased $26.9 million,
or 9.5%, due to the increase in pounds of poultry products sold and higher
average feed grain prices. A simple average of corn cash market prices for
fiscal 1995 reflected an increase of 2.0% as compared to fiscal 1994. Cost of
sales of prepared food products sold decreased $.3 million, or .6%, during the
year ended October 31, 1995 as compared to the year ended October 31, 1994
primarily due to the decrease in pounds of prepared food products sold.
Selling, general and administrative expenses during fiscal 1995 as compared to
fiscal 1994 increased $1.7 million, or 12.3%. Measured as a percentage of net
sales, selling, general and administrative expenses for fiscal 1995 were 4.0%
as compared to 3.8% during fiscal 1994.
Interest expense during fiscal 1995 was approximately $3.8 million as compared
to approximately $3.7 million during fiscal 1994.
The Company's effective tax rate increased in fiscal 1995 to approximately
38.1% as compared to approximately 37.7% for fiscal 1994, primarily from state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1996, the Company's current ratio was 4.5 to 1 and its
working capital was $60.8 million, as compared to a current ratio of 4.6 to 1
and working capital of $47.6 million at October 31, 1995. During the year
ended October 31, 1996, the Company invested $46.2 million on planned capital
projects, including $35.3 million on the new poultry complex in Texas.
The fiscal 1996 capital budget, as of October 31, 1996, was increased to $48.3
million from $46.1 million as of November 1, 1995. The increase of $2.2
million pertains to items not approved at the beginning of fiscal 1996 pending
justification, field trail and alternate costing.
The capital budget for fiscal 1997 is approximately $34.2 million, which
includes approximately $29.2 million pertaining to the new poultry processing
plant and hatchery under construction in Brazos County, Texas, and the new
feed mill under construction in Robertson county, Texas. Also included in the
budget for the year ended October 31, 1997, is approximately $.5 million
relating to fiscal 1996 budget items that were not completed or started during
fiscal 1996. Other major capital projects for fiscal 1997 include
renovations, changes and additions to existing processing facilities to allow
better product flow and product mix for more market flexibility.
On July 12, 1996, the Company sold 750,000 shares of its common stock at $13
per share to the Sanderson Farms, Inc. Employee Stock Option Plan (the "ESOP")
in a private placement. The net proceeds from the sale were $9,171,000 plus a
$500,000 note receivable from the plan. The proceeds from the sale of the
stock to the ESOP, additional long-term borrowings under the Revolving Credit
Agreement and the Robertson County Industrial Revenue Bonds and funds from
operations provided the funds for the capital investment during fiscal 1996.
The capital requirements for fiscal 1997 will be funded by working capital,
proceeds of the Industrial Revenue Bonds and additional borrowing under the
Revolving Credit Agreement.
Item 8. Financial Statements and Supplementary Data.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31
1996 1995
(In thousands)
Assets
Current assets:
Cash and temporary cash investments $ 4,879 $ 447
Accounts receivables, less allowance of
$167,000 in 1996 and $130,000 in 1995 27,661 22,624
Inventories (Note 2) 39,060 33,275
Refundable income taxes 1,148 0
Prepaid expenses 5,616 4,619
Total current assets 78,364 60,965
Property, plant and equipment (Note 3):
Land and buildings 81,689 76,529
Machinery and equipment 151,861 140,678
Construction in process 37,380 8,997
270,930 226,204
Accumulated depreciation (112,974) (94,873)
157,956 131,331
Other assets 906 901
Total assets $237,226 $193,197
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,968 $ 4,205
Accrued expenses 9,470 7,372
Accrued income taxes 0 1,557
Current maturities of long-term debt 3,100 226
Total current liabilities 17,538 13,360
Long-term debt, less current maturities (Note 3) 90,102 54,806
Deferred income taxes (Note 4) 11,336 10,712
Stockholders' equity (Note 6):
Preferred Stock:
Series A Junior Participating Preferred Stock, $100
par value: authorized shares 500,000; none issued
Par value to be determined by the Board of Directors:
authorized shares 4,500,000; none issued
Common Stock, $1 par value: authorized shares 100,000,000;
issued and outstanding shares 14,363,080 in 1996
and 13,613,080 in 1995 14,363 13,613
Paid-in capital 11,292 2,871
Retained earnings 92,595 97,835
Total stockholders' equity 118,250 114,319
Total liabilities and stockholders' equity $237,226 $ 193,197
See accompanying notes.
<CAPTION
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
1996 1995 1994
(In thousands, except per share data)
Net sales $455,100 $392,896 $371,502
Cost and expenses:
Cost of sales 436,799 355,907 329,294
Selling, general and administrative 17,112 15,750 14,024
453,911 371,657 343,318
Operating income 1,189 21,239 28,184
Other income (expense):
Interest income 157 180 109
Interest expense (4,383) (3,774) (3,655)
Other (173) (99) 195
(4,399) (3,693) (3,351)
Income (loss) before income taxes (3,210) 17,546 24,833
Income tax expense (benefit) (Note 4) (767) 6,690 9,354
Net income (loss) $ (2,443) $ 10,856 $ 15,479
Net income (loss)per share $ (.18) $ .80 $ 1.14
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
(In thousands, except shares)
Balance at October 31, 1993 9,075,427 9,075 7,410 76,946 93,431
Net income for year 15,479 15,479
Cash dividends ($.20 per share) (2,723) (2,723)
Balance at October 31, 1994 9,075,427 9,075 7,410 89,702 106,187
Net income for year 10,856 10,856
Cash dividends ($.20 per share) (2,723) (2,723)
Stock split (3 for 2) effected
in the form of stock
dividend 4,537,653 4,538 (4,538)
Redemption of fractional shares (1) (1)
Balance at October 31, 1995 13,613,080 13,613 2,871 97,835 114,319
Net loss for year (2,443) (2,443)
Cash dividends ($.20 per share) (2,797) (2,797)
Common Stock issued to ESOP 750,000 750 8,421 9,171
Balance at October 31, 1996 14,363,080 $14,363 $11,292 $92,595 $118,250
See accompanying notes.
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
1996 1995 1994
(In thousands)
Operating activities
Net income (loss) $(2,443) $10,856 $15,479
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation an amortization 19,744 18,439 15,604
Provision for losses on accounts receivable 172 54 36
Deferred income taxes 150 950 1,500
Change in assets and liabilities:
Increase in accounts receivable (5,209) (3,692) (2,008)
Increase in inventories (5,785) (3,900) (2,950)
Increase in prepaid expenses (1,671) (974) (331)
Increase in other assets (240) (93) (269)
Increase (decrease) in accounts payable 763 1,368 (519)
Increase in accrued expenses 541 1,907 2,829
Total adjustments 8,465 14,059 13,892
Net cash provided by operating activities 6,022 24,915 29,371
Investing activities
Net proceeds from sale of property
and equipment 96 286 15
Capital expenditures (46,230) (24,934) (22,444)
Net cash used in investing activities (46,134) (24,648) (22,429)
Financing activities
Long-term borrowings 2,406 -0- -0-
Net change in revolving credit 36,000 (1,000) (4,000)
Principal payments on long-term debt (236) (77) (73)
Principal payments on capital lease -0- (144) -0-
Dividends paid (2,797) (2,723) (2,723)
Net proceeds from common stock issued
to ESOP 9,171 -0- -0-
Redemption of fractional shares -0- (1) -0-
Net cash provided by (used in)
financing activities 44,544 (3,945) (6,796)
Net increase (decrease) in cash and
temporary cash investments 4,432 (3,678) 146
Cash and temporary cash investments
at beginning of year 447 4,125 3,979
Cash and temporary cash investments
at end of year $4,879 $ 447 $4,125
Supplemental disclosure of cash flow information:
Cash paid for income taxes $1,991 $ 5,807 $6,736
Cash paid for interest $4,600 $ 3,492 $3,945
See accompanying notes.
/TABLE
Sanderson Farms, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Sanderson Farms, Inc. (the "Company") and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
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 operations are significantly affected by market price fluctuations
of its principal products sold and of its principal ingredients, corn and
other grains. During fiscal 1996, corn prices were historically high, which
adversely affected cost of goods sold.
The Company sells to retailers, distributors and fast food operators in the
southern and western United States. Management periodically performs credit
evaluations of its customers' financial condition and generally does not
require collateral. Credit losses have consistently been within management's
expectations.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Temporary Cash Investments: Temporary cash investments are stated at cost
which approximates market. Included are 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,
egg, medication and packaging supplies are stated at the lower of cost (first-
in, first-out method) or market.
Live poultry inventories of broilers are stated at the lower of cost or market
and breeders at cost less accumulated amortization. The costs associated with
breeders are accumulated up to the production stage and amortized over the
productive lives using the straight-line method.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. Depreciation of property, plant and equipment is provided by the
straight-line and units of production methods over the estimated useful lives
of 19 to 39 years for buildings and 3 to 7 years for machinery and equipment.
Income Taxes: Deferred income taxes are accounted for using the liability
method and relate principally to cash basis temporary differences and
depreciation expense accounted for differently for financial and income tax
purposes. Effective November 1, 1988, the Company could no longer use cash
basis accounting for its farming subsidiary because of tax law changes. The
taxes on the cash basis temporary differences as of that date will not be
payable under current tax laws provided there are no changes in ownership
control and future annual revenues of the farming subsidiary exceed 1988
revenues. Management does not anticipate the payment of such taxes related to
these cash bases timing differences during fiscal 1997. (See Note 4).
Stock Based Compensation: The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to or above the fair value
of the shares at the date of the grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the stock
option grants.
Earnings Per Share: Earnings per share are based upon the weighted average
number of shares outstanding during each year, including shares issuable under
the stock option plan when dilutive. The weighed average shares outstanding
used in the calculation of earnings per share were 13,842,588 in 1996 and
13,613,080 in 1996 and 1995.
Fair Value of Financial Instruments: The carrying amounts for cash and
temporary cash investments approximate their fair values. The carrying
amounts of the Company's borrowings under its credit facilities and long-term
debt also approximate the fair values based on current rates for similar debt.
Impact of Recently Issued Accounting Standards: In March 1995, the FASB
issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed," which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimate to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed. The Company will adopt Statement 121 in the first
quarter of fiscal 1997 and, based upon current circumstances, does not believe
the effect of adoption will be material.
2. Inventories
Inventories consisted of the following:
October 31
1996 1995
(In thousands)
Live poultry broilers and breeders $23,505 $18,484
Feed, eggs and other 5,412 4,974
Processed poultry 3,951 3,999
Processed food 3,908 3,578
Packaging materials 2,284 2,240
$39,060 $33,275
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
1996 1995
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 6.4% at
October 31, 1996) $65,000 $29,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments of $2,850,000
beginning in February 1997 20,000 20,000
Note payable, accruing interest at 5%;
due in annual installments of $161,400,
including interest, maturing in 2009 1,537 1,617
6% Mississippi Business Investment Act
bond capital lease obligation 4,200 4,356
Robertson County, Texas, Industrial
Revenue Bonds (variable rate, 3.85%
at October 31, 1996) 2,406 -0-
Notes payable to an insurance company,
accruing interest at 5% 59 59
93,202 55,032
Less current maturities of long-term debt 3,100 226
$90,102 $54,806
The Company has a $125.0 million ($52.8 million available at October 31, 1996)
revolving credit agreement with five banks. The revolver extends to 1999,
when the outstanding borrowings may be converted to a term loan payable in
equal semiannual installments over four years. Borrowings are at prime or
below and may be prepaid without penalty. A commitment fee of .20% is payable
quarterly on the unused portion of the revolver. The Company intends to renew
beyond one year of October 31, 1996 the amount of its borrowings at year-end
under the revolver. Covenants related to the revolving credit and the term
loan agreements include requirements for maintenance of minimum consolidated
net working capital, tangible net worth, debt to total capitalization and
current ratio. The agreements also establish limits on dividends, assets that
can be pledged and capital expenditures.
On November 16, 1995, the Company obtained $7.2 million in industrial revenue
bond financing to finance the construction of a feed mill in Robertson County,
Texas. The banks participating in the revolving credit agreement provided a
letter of credit in connection with the issuance of the Industrial Revenue
Bonds. As of October 31, 1996, the Company has borrowed $2.4 million of the
$7.2 million available.
Property, plant and equipment with a carrying value of approximately
$7,123,000 is pledged as collateral to a note payable and the capital lease
obligation.
Interest costs of $775,000 was capitalized in 1996.
The aggregate annual maturities of long-term debt at October 31, 1996
(assuming borrowings under the revolver will be converted to a term loan in
1999) are as follows (in thousands):
Fiscal Year Amount
1997 $ 3,100
1998 4,004
1999 20,268
2000 19,989
2001 19,398
Thereafter 26,443
$93,202
4. Income Taxes
Income tax expense consisted of the following:
Years Ended October 31
1996 1995 1994
(In thousands)
Current:
Federal $ (692) $5,110 $7,150
State (225) 630 704
(917) 5,740 7,854
Deferred
Federal 115 780 1,370
State 35 170 130
150 950 1,500
$ (767) $6,690 $9,354
/TABLE
Significant components of the Company's deferred tax assets and liabilities
were as follows:
October 31,
1996 1995
Deferred tax assets (In thousands)
(included in prepaid expenses):
Accrued expenses $ 1,144 $ 898
Alternative Minimum tax credit
carry forward 230 0
Prepaid expenses (138) (13)
$ 1,236 $ 762
Deferred tax liabilities:
Cash basis temporary differences $ 3,900 $ 3,900
Property, plant and equipment 7,436 6,812
$11,336 $10,712
The differences between the consolidated income taxes and the amounts computed
at the federal statutory rate are as follows:
Years Ended October 31
1996 1995 1994
(In thousands)
Taxes at statutory rate $(1,091) $6,012 $8,666
State income taxes (113) 671 769
State income tax credit 60 (140) (218)
Other, net 377 147 137
$(7,767) $6,690 $9,354
5. Employee Benefit Plans
The Company had a defined contribution profit sharing plan covering all
employees and an employee stock ownership plan that was restricted to salaried
employees. During fiscal 1995, the profit sharing plan was merged into the
Employee Stock Ownership Plan ("ESOP"). The resulting defined contribution
employee stock ownership plan was expanded to cover all employees. The
Company did not contribute to the ESOP during 1996. Total contributions under
both plans were $850,000 in 1995 and $1,200,000 in 1994.
Under the Company's Stock Option Plan, 750,000 shares of Common Stock have
been reserved for grant to key management personnel. Options to purchase an
aggregate of 45,000 shares at $10.67 per share, 82,500 shares at $11.00 per
share, 108,000 shares at $11.25 per share and 124,000 shares at $10.87 are
outstanding at October 31, 1996. Options to purchase 102,000 shares are
exercisable at October 31, 1996.
6. Shareholder Rights Agreement
On April 21, 1989, the shareholders of the Company approved a shareholders
rights agreement (the "Agreement") under which one share purchase right
("right") was declared as a dividend for each share of the Company's Common
Stock outstanding on May 31, 1989. The rights do not become exercisable and
certificates for the rights will not be issued until ten business days after a
person or group acquires or announces a tender offer for the beneficial
ownership of 20% or more of the Company's Common Stock. Special rules set
forth in the Agreement apply to determine beneficial ownership for members of
the Sanderson family. Under these rules, such a member will not be considered
to beneficially own certain shares of Common Stock, the economic benefit of
which is received by any member of the Sanderson family, and certain shares of
Common Stock acquired pursuant to profit sharing plans of the Company.
The exercise price of a right has been established at $35 3/8. Once
exercisable, each right would entitle the holder to purchase one one-hundredth
of a share of Series A Junior Participating Preferred Stock, par value $100
per share. The rights may be redeemed by the Board of Directors at $.01 per
right prior to an acquisition, through open market purchases, a tender offer
or otherwise, of the beneficial ownership of 20% or more of the Company's
Common Stock, or by two-thirds of the Directors who are not the acquirer, or
an affiliate of the acquirer, prior to the acquisition of 50% or more of the
Company's Common Stock by such acquirer. The rights expire on April 21, 1999.
7. Other Matters
No customer accounted for more than 10% of consolidated sales for the years
ended October 31, 1996 1995 or 1994. Export sales were less than 10% of
consolidated sales in each year presented.
The Company has commitments of approximately $29.2 million to complete
construction of the new complex in Brazos and Robertson Counties, Texas.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive
Officers of the Registrant.
As required by General Instruction G(3) to Form 10-K, reference is
made to the information concerning the Directors of the Registrant and the
nominees for election as Directors appearing in the Registrant's definitive
proxy statement filed or to be filed with the Commission pursuant to Rule
14a-6(c). Such information is incorporated herein by reference to the
definitive proxy statement.
Information concerning the executive officers of the Registrant is
set forth in Item 4A of Part I of this Annual Report.
Item 11. Executive Compensation.
As required by General Instruction G(3) to Form 10-K, reference is
made to the information concerning remuneration of Directors and executive
officers of the Registrant appearing in the Registrant's definitive proxy
statement filed or to be filed with the Commission pursuant to Rule 14a-6(c).
Such information is incorporated herein by reference to the definitive proxy
statement.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
As required by General Instruction G(3) to Form 10-K, reference is
made to the information concerning beneficial ownership of the Registrant's
Common Stock, which is the only class of the Registrant's voting securities,
appearing in the Registrant's definitive proxy statement filed or to be filed
with the Commission pursuant to Rule 14a-6(c). Such information is
incorporated herein by reference to the definitive proxy statement.
Item 13. Certain Relationships
and Related Transactions.
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a)1. FINANCIAL STATEMENTS:
The following consolidated financial statements of the Registrant
are included in Item 8:
Consolidated Balance Sheets - October 31, 1996 and 1995
Consolidated Statements of Income - Years ended October 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity - Years ended
October 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended October 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements - October 31, 1996
(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(i). EXHIBITS:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
Exhibit Brief
Number Description
(1) 3-A - Copy of Articles of Incorporation of the
Registrant, as amended.
3-B - Copy of Restated By-Laws of the
Registrant as of January 8, 1997.
(1) 4 - Copy of Certificate of Designations of
Series A Junior Participating Preferred
Stock of the Registrant
(2) 10-A - Copy of Agreement of Purchase and Sale
of Assets dated March 10, 1986 among the
Registrant, National Prepared Foods,
Inc., Trend Line Corporation, Business
Advisors and Investor, Inc., W.T. Hogg,
Jr., W.T. Hogg, Jr. Trust for
Grandchildren, Noreen Mary Hogg Case
Trust Under Agreement December 20, 1972
and Sherri Ann Hogg Ford Trust Under
Agreement December 20, 1972.
(2) 10-B - Copy of Contract dated July 31, 1964
between the Registrant and the City of
Laurel, Mississippi.
(2) 10-B-1 - Copy of Contract Amendment dated
December 1, 1970 between the Registrant
and the City of Laurel, Mississippi.
(2) 10-B-2 - Copy of Contract Amendment dated June
11, 1985 between the Registrant and the
City of Laurel, Mississippi.
(2) 10-B-3 - Copy of Contract Amendment dated October
7, 1986 between the Registrant and the
City of Laurel, Mississippi.
(8) 10-B-4 - Copy of Contract Amendment dated August
16, 1994 between the Registrant and the
City of Laurel, Mississippi.
(2) 10-C - Copy of Lease Agreement dated May 19,
1964 among the Town of Collins,
Covington County, Mississippi and
Mississippi Federated Cooperatives AAL.
(2) 10-C-1 - Copy of Assignment of Lease and
Leasehold Estate, and Conveyance of
Leaseholder Improvements and Other
Properties, Reserving a Purchase Money
Security Interest, dated December 21,
1981 between MFC Services (AAL) and
Sanderson Farms, Inc. (Processing
Division).
(2) 10-D - Copy of Lease Agreement dated November
28, 1962 between the Board of
Supervisors of Covington County,
Mississippi acting for and on behalf of
Supervisors Districts 1, 2, 3 and 5 of
Covington County, Mississippi and
Mississippi Federated Cooperatives, AAL.
(2) 10-D-1 - Copy of Contract dated October 2, 1972
between the Board of Supervisors of
Covington County, Mississippi, acting
for and on behalf of Covington County,
Mississippi and MFC Services (AAL).
(2) 10-D-2 - Copy of Lease Agreement dated May 1,
1976 between Supervisors Districts One,
Two, Three and Five of Covington County,
Mississippi and MFC Services (AAL).
(2) 10-D-3 - Copy of Assignment of Leases and
Leasehold Estate, and Conveyance of
Leasehold Improvements and Other
Properties, Reserving a Purchase Money
Security Interest, dated December 21,
1981 between MFC Services (AAL) and
Sanderson Farms, Inc. (Processing
Division).
(2) 10-E - Copy of Agreement dated December 1,
1986, between Sanderson Farms, Inc.
(Hammond Processing Division) and United
Food and Commercial Workers Local Union
210 affiliated with the United Food and
Commercial Workers International Union.
(5) 10-E-1 - Copy of Agreement dated February 14,
1990 between Sanderson Farms, Inc.
(Hammond Processing Division) and United
Food and Commercial Workers Local Union
210, affiliated with the United Food and
Commercial Workers International Union.
(8) 10-E-2 - Copy of Agreement effective November 6,
1994 between Sanderson Farms, Inc.
(Hammond Processing Division) and United
Food and Commercial Workers Local Union
210, affiliated with the United Food and
Commercial Workers International Union.
(9) 10-E-3 - Copy of Agreement effective July 15,
1995 between Sanderson Farms, Inc.
(Hazlehurst Processing Division) and
Laborers' International Union of North
America, Professional Employees Local
Union #697, AFL-CIO.
(9) 10-E-4 - Copy of Agreement effective September 9,
1995 between Sanderson Farms, Inc.
(Collins Processing Division) and
Laborers' International Union of North
America, Professional Employees Local
Union #697, AFL-CIO.
(2) 10-F - Copy of Employee Stock Ownership Plan
and Trust Agreement of Sanderson Farms,
Inc. and Affiliates.
(2) 10-F-1 - Copy of Amendment One to the Employee
Stock Ownership Plan and Trust Agreement
of Sanderson Farms, Inc. and Affiliates.
(3) 10-F-2 - Copy of Amendment Two to the Employee
Stock Ownership Plan and Trust Agreement
of Sanderson Farms, Inc. and Affiliates.
(2) 10-G - Copy of 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-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.
13 - Copy of the Registrant's definitive
proxy statement related to the 1996
Annual Meeting of Shareholders.
22 - List of subsidiaries of the Registrant.
24 - Consent of Independent Auditors
27 - Copy of Financial Data Schedule
(2) 28-A - Copy of Certificate of Registration of
Trademark "Miss Goldy".
(2) 28-B - Copy of Certificate of Registration of
Trademark "Wise Choice".
(2) 28-C - Copy of Certificate of Registration of
Trademark "Buttercup Farms".
(2) 28-D - Copy of Certificate of Registration of
Trademark "Collinswood".
(2) 28-E - Copy of Certificate of Registration of
Trademark "Covington Farms".
(2) 28-F - Copy of Certificate of Registration of
Trademark "Smart Cuts".
(4) 28-G - Copy of Certificate of Registration of
Trademark "Kettle Classics".
(5) 28-H - Copy of Certificate of Registration of
Trademark "Sanderson Farms".
(1) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1989, and incorporated herein by
reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Commission File No. 33-13141) and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1987, and incorporated herein by
reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1988, and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1990, and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1991, and incorporated herein by
reference.
(7) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992, and incorporated herein by
reference.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1994 and incorporated herein by
reference.
(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.
(a)(3)(ii) Agreements Available Upon Request by the Commission.
The Registrant is a party to various agreements defining the rights of
holders of long-term debt of the Registrant, but no single agreement
authorizes securities in an amount which exceeds 10% of the total assets of
the Company. Upon request of the Commission, the Registrant will furnish a
copy of any such agreement to the Commission. Accordingly, such agreements
are omitted as exhibits as permitted by Item 601(b)(4)(iii) of Regulation S-K.
(b) REPORTS ON FORM 8-K:
No reports on From 8-K were filed during the fourth quarter of the
Fiscal Year ended October 31, 1996.
QUALIFICATION BY REFERENCE
Information contained in this Annual Report as to the contents of any contract
or other document referred to or evidencing a transaction referred to is
necessarily not complete, and in each document filed as an exhibit to this
Annual Report or incorporated herein by reference, all such information being
qualified in its entirety by such reference.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sanderson Farms, Inc.
We have audited the accompanying consolidated balance sheets of Sanderson
Farms, Inc. and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 1996. Our audit also
included the financial statement schedule listed in the index under Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sanderson Farms,
Inc. and subsidiaries at October 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/Ernst & Young LLP
Jackson, Mississippi
December 11, 1996
Sanderson Farms, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
____________________________________________________________________________ _
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Classification of Period Expenses Accounts Describe(1) Period
(In Thousands)
Year ended October 31, 1996
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $130 $172 $135 $167
Year ended October 31, 1995
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $100 $54 $24 $130
Year ended October 31, 1994
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $80 $36 $16 $100
(1) Uncollectible accounts written off, net of recoveries.
/TABLE
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 23, 1997 /s/Joe Frank Sanderson
Joe Frank Sanderson
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities as of the dates indicated.
/s/Joe Frank Sanderson 1/23/97 /s/John H. Baker, III 1/23/97
Joe Frank Sanderson, John H. Baker, III.
Chairman of the Board Director
/s/Joe F. Sanderson, Jr. 1/23/97 /s/Charles W. Ritter, Jr. 1/23/97
Joe F. Sanderson, Jr., Charles W. Ritter, Jr.,
President, Chief Executive Director
Officer and Director
/s/Dewey R. Sanderson, Jr. 1/23/97 /s/Rowan H. Taylor 1/23/97
Dewey R. Sanderson, Jr., Rowan H. Taylor,
Director Director
/s/Donald W. Zacharias 1/23/97 /s/Robert Buck Sanderson 1/23/97
Donald W. Zacharias, Robert Buck Sanderson,
Director Director
/s/Phil K. Livingston 1/23/97 /s/James A. Grimes 1/23/97
Phil K. Livingston, James A. Grimes,
Director Secretary and Chief Accounting
Officer
/s/D. Michael Cockrell 1/23/97
D. Michael Cockrell,
Treasurer and Chief
Financial Officer