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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X / Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 2002
/ / 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 November 29, 2002: approximately $111,959,484.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
X Yes ____ No
Aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant computed by reference to the closing sales
price of the common equity in the NASDAQ National Market System on the last
business day of the Registrant's most recently completed second fiscal quarter:
$134,242,781.
Number of Shares outstanding of the Registrant's common stock as of
November 30, 2002: 13,017,026 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 2003 Annual Meeting of Stockholders are
incorporated by reference into Part III.
INTRODUCTORY NOTE
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, 2002, 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 December 27, 2002.
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 Sanderson Farms(R) brand name to
retailers, distributors, and casual dining operators principally in the
southeastern, southwestern and western United States. During its fiscal year
ended October 31, 2002 the Registrant processed 264.7 million chickens, or
approximately 1.3 billion dressed pounds. According to 2002 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 473grow-out farms
that provide it with sufficient housing capacity for its current operations. The
Registrant also has contracts with operators of 143 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.
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,
Hazlehurst, 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 2002 were funded by working capital.
Effective July 31, 2002, the Registrant amended its revolving credit agreement
to, among other things, increase the revolving credit available to the
Registrant thereunder from $90.0 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 proceeds 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 2003 will be funded
by internally generated working capital and, if needed, 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,
2002, the Registrant processed approximately 264.7 million chickens, or
approximately 1.3 billion dressed pounds. In addition, the Registrant purchased
and further processed 14.5 million pounds of poultry products during fiscal
2002. According to 2002 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,
1998 1999 2000 2001 2002
---- ---- ----- ---- ----
Value added 98.6% 99.2% 99.5% 99.5% 99.7%
Non-value added 1.4% .8% .5% .5 % .3%
----- ----- ----- ----- -----
Total Registrant
chicken sales 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
The following table sets forth, for the periods indicated, the contribution, as
a percentage of net sales, of each of the Registrant's major product lines.
Fiscal Year Ended October 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Registrant processed
chicken:
Value added:
Chill pack 24.4% 33.2% 36.4% 40.3% 40.6%
Fresh bulk pack 46.6 46.5 43.3 39.6 38.9
Frozen 11.6 8.0 7.5 9.2 9.2
---- ----- ----- ----- ----
Subtotal 82.6 87.7 87.2 89.1 88.7
---- ---- ---- ----- ----
Non-value added:
Ice pack 0.7 0.5 .3 .2 .2
Frozen 0.5 0.2 .1 .2 .1
----- ---- ---- ----- -----
Subtotal 1.2 .7 .4 .4 .3
----- ----- ---- ----- -----
Total Company
processed chicken 83.8 88.4 87.6 89.5 89.0
Processed and
prepared foods 16.2 11.6 12.4 10.5 11.0
---- ---- ---- ----- -----
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) and
distributors located principally in the southeastern, southwestern and western
United States. The Registrant also sells its chicken products to governmental
agencies, fast food operators 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 has used 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, 2002, 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's
vehicles to breeder farms that are maintained, as of October 31, 2002, by 112
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's vehicles to independent contract grow-out
farms. As of October 31, 2002, 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 473 grow-out farms, as of
October 31, 2002, located in Mississippi, Louisiana and Texas where broilers are
grown to an age of approximately six to eight 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, 2002, 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 2002 were (approximately) 1,735,000 tons, and it has the
capacity to produce approximately 1,900,000 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, 2002, the
Registrant had approximately 739,000 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.
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
1,250,000 chickens per week. The Registrant's Collins, Mississippi processing
plant, which is currently operating one of its two lines on a double shift basis
and one line on a single shift basis, is currently processing approximately
950,000 chickens per week. The Registrant's Brazos County, Texas processing
plant, which is currently operating two lines on a double shift basis, is
currently processing approximately 1,250,000 chickens per week. The Registrant's
Laurel and Hazlehurst, Mississippi and Hammond, Louisiana processing plants,
which currently operate on a double shift basis, are currently processing
approximately 1,875,000 chickens per week. The Registrant also has the
capabilities to produce deboned product at six processing facilities. At October
31, 2002, these deboning facilities were operating on a double shifted basis
resulting in a combined capacity to process approximately 10.8 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, 2002, the Registrant
operated one by-products plant, and six automotive maintenance shops which
service approximately 484 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 240 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 six 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 ("FDA"), the United States Department of
Agriculture ("USDA"), 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 USDA. The Sanderson Farms, Inc. (Foods Division) processing
plant operates under the USDA's Total Quality Control Program which is a strict
self-inspection plan written in cooperation with and monitored by the USDA. The
FDA 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 2002, the Registrant purchased its pullets and its
cockerels from two (2) 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 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 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, 2002, the Registrant had 7,886 employees, including
776 salaried and 7,110 hourly employees. A collective bargaining agreement with
the United Food and Commercial Workers International Union covering 646 hourly
employees who work at the Registrant's processing plant in Hammond, Louisiana
expires on November 30, 2004. 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 566 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 had a expiration date of
December 31, 2002. Negotiations are underway on a new agreement. 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 1,143 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 to
extend the agreement were completed and an extended agreement was reached on
January 13, 2000. The extended agreement has a termination date of December 31,
2003. This collective bargaining agreement has a grievance procedure and no
strike-no lockout clause that should assist in maintaining stable labor
relations at the Collins plant.
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 expired on December 31, 2002. A new contract was negotiated and signed on
November 13, 2002, and the new contract has an expiration date of December 31,
2005. This collective bargaining agreement has a grievance procedure and no
strike-no lockout clause 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. This contract has been extended to January 27, 2003, and negotiations
are underway on a new agreement.
On November 30, 2001, live haul drivers at the Company's McComb,
Mississippi production division voted to be represented by United Food and
Commercial Workers' Union Local #1529 AFL-CIO in collective bargaining. It is
the Company's legal position that the live haul drivers are agricultural
employees exempt from the National Labor Relations Act. The Company is pursing
its legal position before the National Labor Relations Board and the Federal
Courts.
On September 13, 2001, production, maintenance and truck driver
employees at the Company's McComb, Mississippi Feed Mill facility voted to be
represented in collective bargaining by United Food and Commercial Workers'
Union Local #1529 AFL-CIO. A collective bargaining agreement was negotiated and
signed effective July 16, 2002, and has an expiration date of June 30, 2005.
This agreement includes a provision allowing re-opening of bargaining of certain
financial matters on July 1, 2003 and July 1, 2004, and has a grievance
procedure and no strike-no lockout clause that should assist in maintaining
stable labor relations at this facility.
(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.
(e) AVAILABLE INFORMATION
Our address on the world wide web is http://www.sandersonfarms.com.
The information on our web site is not a part of this document. Our annual
reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports
on Form 8-K, and all amendments to those reports are available, free of charge,
through our web site as soon as reasonably practicable after they are filed
with the SEC.
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, Texas
poultry processing plant,
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 $957,000 on October 31, 2002, 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.
On April 5, 2000, thirteen individuals claiming to be former hourly
employees of the Company's processing subsidiary (Sanderson Farms, Inc.
(Processing Division) (the "Processing Division")) filed a lawsuit in the United
States District Court for the Southern District of Texas claiming that the
Processing Division violated requirements of the Fair Labor Standards Act. The
Plaintiffs' lawsuit also purported to represent similarly situated workers who
filed consents to be included as plaintiffs in the suit. A total of 109
individuals consented to join the lawsuit.
The lawsuit alleges that the Processing Division (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 Processing Division 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 sought 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 in the lawsuit. There were 6,476 hourly
workers employed at the Processing Division's plants as of October 31, 2002.
On April 24, 2001, the Court granted the Processing Division's summary
judgment motion and entered a final judgment in favor of the Processing
Division. Plaintiffs appealed that decision to the United States Fifth Circuit
Court of Appeals. On March 7, 2002, the United States Fifth Circuit Court of
Appeals affirmed the decision of the United States District Court granting the
Processing Division's motion for summary judgment. The plaintiffs had 90 days
from March 7, 2002 to request that the United States Supreme Court hear an
appeal of this case, which time has expired.
On May 15, 2000, an employee of the Company's production subsidiary
(Sanderson Farms, Inc. (Production Division) (the "Production Division")), filed
suit against the Production Division 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 26 employees filed consents to join in this lawsuit.
Previously, the United States Department of Labor ("DOL") filed a
similar suit against the Production Division in the United States District Court
for the Southern District of Mississippi, Hattiesburg Division, on behalf of
live-haul employees at the Production Division's Laurel, Mississippi facility.
Both lawsuits were brought under the Fair Labor Standards Act and seek recovery
of overtime compensation, together with an equal amount as liquidated damages,
for live-haul employees (i.e., live-haul drivers, chicken catchers, and
loader-operators) employed by the Production Division. The lawsuits assert that
additional overtime compensation and liquidated damages may be owed to certain
employees. The lawsuits also seek an injunction to prevent the withholding of
overtime compensation to live-haul employees in the future.
On January 18, 2001, the United States District Court for the Southern
District of Texas granted the Production Division's request to move the suit
pending before that court to the Southern District of Mississippi, Hattiesburg
Division. The Production Division later filed its motion with the United States
District Court for the Southern District of Mississippi to have the two cases
consolidated, which motion was granted. On February 4, 2002, the Production
Division reached a settlement with the Department of Labor that fully and
completely compromised and settled the claims of all live-haul employees in the
Production Division, other than certain Production Division employees
represented in a collective bargaining agreement in Texas. The settlement,
approved by the court on March 11, 2002, and pursuant to which the Production
Division paid during its second fiscal quarter (accrued during its first fiscal
quarter) approximately $450,000 in back pay and interest to the involved current
and former employees in the Production Division's Mississippi and Texas
operations, terminates the private rights of these employees under the Fair
Labor Standards Act with respect to the claims made in this suit. With respect
to approximately 74 employees represented under a collective bargaining
agreement in Texas, the court entered its Order Granting Joint Motion for Court
Approval of Settlement on November 4, 2002. The final settlement of this matter
will become effective upon a ruling by the court on the plaintiff's request for
award of attorney's fees. The court is scheduled to hear arguments on the
attorney's fees issue on January 7, 2003. The Production Division will pay
approximately $188,000 in back pay to the Texas employees as part of the
settlement, and this amount is accrued and reflected in the Company's
accompanying consolidated financial statements.
Substantially similar lawsuits to those described above 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 these and the other 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 that 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 and will continue to vigorously
defend this action. On November 22, 2002, the Court denied the Company's motions
to compel arbitration, challenging the jurisdiction of the Chancery Court of
Lawrence County, Mississippi, and seeking to have the case dismissed pursuant to
rule 5(c) of the Mississippi Rules of Civil Procedure. The Company then filed
its motion for interlocutory appeal on these issues with the Mississippi State
Supreme Court. On December 6, 2003, the Mississippi State Supreme Court agreed
to hear this motion and stayed the action in the Chancery Court pending
disposition of this motion. This matter is pending. As with the wage and hour
and donning and doffing lawsuits discussed above, substantially similar lawsuits
have been filed against other integrated poultry companies.
On August 2, 2002, three contract egg producers filed suit against the
Company in the Chancery Court of Jefferson Davis County, Mississippi. The
Plaintiffs filed suit on behalf of "all Mississippi residents who, between June
1993 and the present, [the Company] fraudulently and negligently induced into
housing, feeding and providing water for [the Company's] breeder flocks and
gathering, grading, packaging and storing the hatch eggs generated by said
flocks and who have been compensated under the payment method established by the
[Company]." Plaintiffs alleged that the Company "has defrauded Plaintiffs by
unilaterally imposing and utilizing a method of payment which wrongfully and
arbitrarily penalizes each grower based upon criteria which are under the
control of the [Company] and which were never revealed, explained or discussed
with each Plaintiff." Plaintiffs allege that they were required to accept
breeder hens and roosters which are genetically different, with varying degrees
of healthiness, and feed of dissimilar quantity and quality. Plaintiffs further
allege contamination of and damage to their real property. Plaintiffs alleged
that they were "fraudulently and negligently induced into housing, feeding and
providing water for the Company's breeder flocks and gathering, grading,
packaging and storing the hatch eggs produced from said flocks" for the Company.
Plaintiffs seek unspecified amount of compensatory and punitive damages, as well
as various forms of equitable relief. The Company will vigorously defend this
lawsuit.
On July 25, 2002, a current contract grower and her husband filed suit
against the Company and Farmers State Bank, N.A. in the District Court of Milam
County, Texas. The Plaintiffs alleged "a conspiracy to defraud Plaintiffs in
connection with [the Company's] promotion of a get-rich-quick scheme portrayed
to Plaintiffs as a good investment for Plaintiff's future." The Plaintiffs
further alleged that the Company and Farmers State Bank "conspired to defraud
Plaintiffs by convincing them to purchase farm land, execute loan documents for
the construction of chicken barns, and then forcing them to sign contracts of
adhesion that made Plaintiffs the domestic servants of the defendants." The
Plaintiffs further alleged that the Company and Farmers State Bank violated the
Texas Deceptive Trade Practices-Consumer Protection Act. Plaintiffs seek an
unspecified amount in compensatory damages, treble damages, attorney's fees,
pre- and post-judgement interest and all costs of court. The Plaintiffs also
seek a Permanent Injunction enjoining the Farmers State Bank from foreclosing on
or otherwise taking possession or control of Plaintiff's real estate and the
improvements thereon and other equitable relief. On August 8, 2002, the court
heard arguments on the Plaintiff's motion for permanent injunction and on the
Company's motion to stay the proceeding with respect to its pending arbitration
of the matter as required by the Egg Producers Contract entered into by and
between one of the Plaintiffs and the Company. On August 19, 2002, the court
granted the Company's motion to compel arbitration in this case with respect to
the Company and its grower pursuant to the arbitration provision of the
contract. The case before the District Court of Milam County, Texas will be
stayed pending arbitration between the Company and its grower. No arbitration
date has been set. The Company will vigorously defend this matter.
The Company is also a party to lawsuits against various vitamin
and methionine suppliers arising out of alleged price fixing activities
by the defendants. For more information about these lawsuits, please see the
section of this Report entitled "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations."
The Company is also involved in various claims and litigation
incidental to its business. Although the outcome of the matters referred to in
the preceding sentence 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 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. 56 Chairman of the Board, 1984 (1)
President and
Chief Executive
Officer
D. Michael Cockrell 45 Treasurer and Chief 1993 (2)
Financial Officer,
Board Member
James A. Grimes 54 Secretary and 1993 (3)
Chief Accounting Officer
Lampkin Butts 51 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 November 30,
2002, was 2,240.
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 2002 High Low Dividends
------------------------------------------------------------------------------
First Quarter $22.14 $13.55 $.10
Second Quarter $27.49 $20.93 $.10
Third Quarter $27.50 $18.20 $.10
Fourth Quarter $20.62 $15.83 $.10
Stock Price
Fiscal Year 2001 High Low Dividends
------------------------------------------------------------------------------
First Quarter $10.44 $ 6.75 $.05
Second Quarter $11.50 $ 7.62 $.05
Third Quarter $13.89 $10.62 $.05
Fourth Quarter $14.26 $11.25 $.05
On December 16, 2002 the closing sales price for the common stock was $20.39 per
share.
Item 6. Selected Financial Data.
Year Ended October 31
2002 2001 2000 1999 1998
----- ---- ---- ---- ----
(In thousands, except per share data)
Net sales $743,665 $706,002 $605,911 $559,031 $521,394
Operating income (loss) 49,977 51,094 (588) 23,008 31,822
Net income (loss) 28,840 27,784 (5,571) 10,546 15,256
Basic and diluted earnings (loss)
per share) 2.18 2.04 (.41) .75 1.06
Diluted earnings (loss) per share 2.15 2.04 (.41) .75 1.06
Working capital 68,452 76,969 71,334 67,272 59,665
Total assets 280,510 288,971 281,856 283,510 265,671
Long-term debt, less
current maturities 49,969 77,212 107,491 104,651 95,695
Stockholders' equity 155,891 144,339 120,015 130,844 129,482
Cash dividends declared
per share $ .40 $ .20 $ .20 $ .20 $ .20
QUARTERLY FINANCIAL DATA
Fiscal Year 2002
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- -------
(In thousands, except per share data)
(Unaudited)
Net sales $164,527 $175,413 $202,694 $201,031
Operating income 9,497 13,382 15,910 11,188
Net income 5,295 7,708 9,285 6,552
Basic earnings per share $ .39 $ .59 $ .71 $ .50
Diluted earnings
per share $ .39 $ .58 $ .70 $ .49
Fiscal Year 2001
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- -------
(In thousands, except per share data)
(Unaudited)
Net sales $152,081 $163,583 $183,692 $206,646
Operating income 2,339 10,068 16,668 22,019
Net income 384 5,018 9,559 12,823
Basic and diluted earnings
per share $ .03 $ .37 $ .70 $ .94
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 cannot
be controlled by the Company. When used in this Annual Report, the words
"believes," "estimates," "plans," "expects," "should," "outlook," "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 65.6% 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, 2002 as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Fiscal 2002
High $.6500* $.6300 $.6425 $.6425
Low $.6275 $.6250* $.6250* $.6275
Fiscal 2001
High $.6150* $.6200 $.6250 $.6650*
Low $.6150* $.6175 $.6450 $.6500
Fiscal 2000
High $.5850 $.5800 $.5975 $.6200*
Low $.5800 $.5725* $.5725 $.6000
*Year High/Low
Fiscal 2001 as compared to fiscal 2000 brought significant increases in the
average sales price of whole birds, wings and leg quarters with only modest
decreases in market prices for boneless breast meat. In addition, the average
cost of feed grains, while higher than the fiscal 2000 average, remained at
relatively favorable levels during fiscal 2001. The overall favorable market
conditions during fiscal 2001 were enhanced by the ongoing improvements to the
Company's operations and marketing changes implemented over the past several
years. During fiscal 2002, the Company continued to see improvements in the
Company's sales program and operating performance. These improvements, however,
were offset by overall lower prices for poultry products and higher grain prices
during fiscal 2002 as compared to fiscal 2001.
Results of Operations
Fiscal 2002 Compared to Fiscal 2001
For the fiscal year ended October 31, 2002, net sales were $743.7 million, a
5.3% increase compared with net sales of $ 706.0 million for the prior year. Net
sales of poultry products increased $24.2 million or 3.8%. This increase in the
net sales of poultry products resulted from an increase in the pounds of poultry
product sold of 10.9%, which was partially offset by a decrease in the average
sales price of poultry products of 6.3%. The increase in the pounds of poultry
products sold during fiscal 2002 as compared to fiscal 2001 resulted from an
increase in the average live weight of chickens produced of 8.2%. Overall market
prices for poultry products were significantly lower during fiscal 2002 as
compared to fiscal 2001 as leg quarters, wings and breast tenders were 23.9%,
33.1% and 19.1% lower, respectively. The softness in leg quarter prices resulted
from the Russian embargo of United States poultry meat on March 10, 2002.
Shipments to Russia resumed during the fourth quarter of fiscal 2002. However,
these shipments resumed only on a limited basis, and it may be some time before
volumes return to previous levels. As a result leg quarter prices will remain
under pressure in the near term. Net sales of prepared food products increased
$13.0 million or 16.9% during fiscal 2002 as compared to fiscal 2001. The
increase reflects an increase in the pounds of prepared food products sold of
12.0% and an increase in the average sales price of prepared food products sold
of 4.4%.
Cost of sales during fiscal 2002 increased $36.5 million or 5.8% as compared to
fiscal 2001, which is net of $5.0 million in awards received from lawsuits
against vitamin and methionine vendors. The Registrant is a party to lawsuits
against various vitamin and methionine suppliers arising out of alleged price
fixing activities by the defendants. During fiscal 2002 and through December 26,
2002, the Registrant recognized $5.0 million as partial settlement of these
lawsuits with various defendants. Settlement discussions are ongoing with the
remaining defendants, and, based on prior settlement discussions and the results
thereof and developments that have occurred subsequent to October 31, 2002,
management believes it is likely that material settlement payments will be made
to the Company by certain defendants during fiscal 2003.
Cost of sales of poultry products during the same period increased $24.1 million
or 4.3%. The increase in cost of sales of poultry products reflects a decrease
in the average cost of sales per pound of poultry products of 5.9% as the
Company benefitted from improved operating performance, lower energy costs and
the awards mentioned above. Cash market prices for corn and soy meal during
fiscal 2002 as compared to fiscal 2001 increased 9.0%, and decreased 0.9%,
respectively. However, during the fourth quarter of fiscal 2002 as compared to
the fourth quarter of fiscal 2001 the cash market prices for corn and soy meal
increased 25.4% and 4.9%, respectively. The Company expects corn and soy meal
prices to be higher during fiscal 2003 than during fiscal 2002. Cost of sales of
prepared food products during fiscal 2002 as compared to fiscal 2001 increased
$12.4 million or 19.0% due to an increase in pounds of prepared food products
sold of 12.0%, an increase in the cost of raw materials and a change in the mix
of products sold.
Selling, general and administration expenses for fiscal 2002 increased $2.3
million compared to fiscal 2001. This increase was primarily due to expenses
associated with the Company's employee incentive plan, an increase in allowance
for doubtful accounts and increased contributions to the Company's Employee
Stock Ownership Plan.
The Company's operating income during fiscal 2002 as compared to fiscal 2001 was
approximately the same despite the challenging market environment the poultry
industry experienced during fiscal 2002. The Company's operating income for
fiscal 2002 was approximately $50.0 million as compared to operating income
during fiscal 2001 of $51.1 million. The fiscal 2002 operating income reflects
improved plant efficiency and live grow-out performance and the $5.0 million in
awards from the lawsuits against vitamin and methionine suppliers. Excluding
these awards, the Company's operating income for fiscal 2002 was $45.0 million.
As in fiscal 2001, the Company continued to decrease its outstanding debt during
fiscal 2002. The Company decreased its debt during fiscal 2002 by $27.2 million,
which, along with lower interest rates, resulted in significantly lower interest
expense. Interest expense for fiscal 2002 was $3.7 million as compared to $6.8
million for fiscal 2001, a decrease of $3.1 million or 45.6%. The Company
expects interest expense to be lower during the first quarter of fiscal 2003 as
compared to the first quarter of fiscal 2002.
The Company's effective tax rates for fiscal 2002 and fiscal 2001 were 38.0% and
37.9%, respectively.
Fiscal 2001 Compared to Fiscal 2000
The Company's net sales during fiscal 2001 were $706.0 million, an increase of
$100.1million or 16.5% over fiscal 2000 net sales of $605.9 million. This
increase in the Company's net sales resulted from an increase in pounds of
poultry products sold of 9.6% and an increase in the average sales price of
poultry products of 8.9%. The increase in the pounds of poultry products sold
resulted from an increase in the number of chickens processed primarily from the
expansion of the Brazos, Texas processing plant during the second half of fiscal
2000 and an increase in the average live weight of chickens processed. During
fiscal 2001 the Company benefited from improved market prices for wings and leg
quarters of 66.8% and 27.9%, respectively. In addition, a simple average of the
Georgia Dock prices for whole birds for fiscal 2001 increased 7.3% as compared
to fiscal 2000. These improvements were partially offset by lower average market
prices for boneless breast meat. Net sales of prepared food products decreased
$1.6 million or 2.0%, which is the net result of a decrease in the pounds of
prepared food products sold of 4.5% partially offset by an increase in the
average sale price of prepared food products of 2.6%.
During fiscal 2001 as compared to fiscal 2000, cost of sales increased $46.6 or
8.0%. Cost of sales of poultry products increased $47.5 million or 9.2% during
fiscal 2001 as compared to fiscal 2000. The increase in the Company's cost of
sales resulted from the increase in the pounds of poultry products sold of 9.6%,
and to a lesser extent, increases in the average cost of feed grains. Corn and
soybean meal cash market prices for fiscal 2001 as compared to fiscal 2000
increased 3.0% and 2.2%, respectively. Cost of sales of prepared food products
during the fiscal year ended October 31, 2001 as compared to the fiscal year
ended October 31, 2000 decreased approximately $900,000 or 1.4% as the Company
eliminated less profitable prepared food sales.
Selling, general and administrative expenses for fiscal 2001 increased $1.9
million, or 7.0%, as compared to fiscal 2000. This increase resulted from
contributions during fiscal 2001 to the Company's Employee Stock Ownership Plan
and increased contributions to the Company's 401(k) Plan. The Company did not
make contributions to the Employee Stock Ownership Plan in fiscal 2000 because
of operating losses. Also, the increase reflects a charge during fiscal 2001 for
the employee incentive program. These increases were partially offset by a
planned reduction in the Company's advertising expenditures during fiscal 2001
as compared to fiscal 2000 and a nonrecurring bad debt expense of $1.2 million
during the second quarter of fiscal 2000 resulting from the bankruptcy filing by
AmeriServe Food Distribution, Inc. on February 1, 2000.
The Company's operating income for fiscal 2001 was $51.1 million as compared to
an operating loss for fiscal 2000 of $600,000, an improvement of $52.5 million.
The improvement in the Company's operating income reflects a continued strong
performance by our prepared foods division, a significant increase in market
prices for leg quarters and wings, and marketing changes the Company implemented
over the past several years as well as ongoing improvements to the Company's
operations.
During fiscal 2001 the Company was able to reduce its outstanding debt by
approximately 31.2 million. As a result, interest expense for fiscal 2001 was
$6.8 million as compared to $8.2 million for fiscal 2000, a decrease of $1.4
million most of which decrease came in the fourth fiscal quarter. During the
fourth quarter of fiscal 2001 as compared to the fourth quarter of fiscal 2000
the Company's interest expense decreased $1.0 million.
The Company's effective tax rates for fiscal 2001 and fiscal 2000 were 37.9%
and 37.2%, respectively.
Liquidity and Capital Resources
The Company's working capital at October 31, 2002 was $68.4 million and its
current ratio was 2.2 to 1. This compares to working capital of $77.0 million
and a current ratio of 2.6 to 1 as of October 31, 2001. During fiscal 2002 the
Company spent approximately $19.7 million on planned capital projects and $14.6
million to repurchase 736,000 shares of its common stock under its existing
stock repurchase plan.
The Company's capital budget for fiscal 2003 is approximately $19.4 million. The
fiscal 2003 capital budget includes cost of renovations and changes and
additions to existing processing facilities to allow better product flows and
product mix for more product flexibility. The Company expects that working
capital and cash flows from operations will be sufficient in fiscal 2003 to fund
the anticipated capital expenditures. However, if needed, the Company has
available $80.0 million under its revolving credit agreement as of October 31,
2002.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting standards
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Management suggests that the Company's Summary of Significant Accounting
Policies, as described in Note 1 of the Notes to the Consolidated Financial
Statements, be read in conjunction with this Management's Discussion and
Analysis of Financial Condition and Results of Operations. The Company believes
the critical accounting policies and estimates that most impact the Company's
Consolidated Financial Statements are described below.
Allowance for Doubtful Accounts
In the normal course of business, the Company extends credit to its customers on
a short-term basis. Although credit risks associated with our customers are
considered minimal, the Company routinely reviews its accounts receivable
balances and makes provisions for probable doubtful accounts. In circumstances
where management is aware of a specific customer's inability to meet its
financial obligations to the Company, a specific reserve is recorded to reduce
the receivable to the amount expected to be collected.
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. If market prices for poultry or feed grains move
substantially lower, the Company would record adjustments to write down the
carrying values of processed poultry and feed inventories to fair market value.
Live poultry inventories of broilers are stated at the lower of cost or market
and breeders at cost less accumulated amortization. The cost associated with
broiler inventories, consisting principally of chicks, feed, medicine and grower
payments, are accumulated during the growing period. The cost associated with
breeder inventories, consisting principally of breeder chicks, feed, medicine
and grower payments are accumulated during the growing period. Capitalized
breeder costs are then amortized over nine months using the straight-line
method. Mortality of broilers and breeders is charged to cost of sales as
incurred. High mortality from disease or extreme temperatures would result in
abnormal charges to cost of sales to write-down live poultry inventories.
Long-Lived Assets
Depreciable long-lived assets are primarily comprised of buildings and machinery
and equipment. Depreciation is provided by the straight-line method over the
estimated useful lives, which are 19 to 39 years for buildings and 3 to 7 years
for machinery and equipment. An increase or decrease in the estimated useful
lives would result in changes to depreciation expense.
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 to reduce the carrying value of the long-lived asset to the
estimated fair value of the asset.
Accrued Self Insurance
Insurance expense for workers' compensation benefits and employee-related health
care benefits are estimated using historical experience and actuarial estimates.
Stop-loss coverage is maintained with third party insurers to limit the
Company's total exposure. Management regularly reviews the assumptions used to
recognize periodic expenses. However, actual expenses could differ significantly
from these estimates.
Income Taxes
The Company determines its effective tax rate by estimating its permanent
differences resulting from differing treatment of items for financial and income
tax purposes. The Company is periodically audited by taxing authorities. Any
audit adjustments affecting permanent differences could have an impact on the
Company's effective tax rate.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Market Risk
The Company is a purchaser of certain commodities, primarily corn and soybean
meal. As a result, the Company's earnings are affected by changes in the price
and availability of such feed ingredients. As market conditions dictate, the
Company from time to time will lock-in future feed ingredient prices using
forward purchase agreements with suppliers. The Company does not use such
instruments for trading purposes and is not a party to any leverage derivatives.
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,
2002. 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
2002 2001
----------------------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 9,542 $ 24,175
Accounts receivable, less allowance of $663,000 in
2002 and $303,000 in 2001 1,073 40,187
Inventories 57,964 52,350
Refundable income taxes 2,764 0
Prepaid expenses 2,121 9,452
--------- ---------
Total current assets 123,464 126,164
Property, plant and equipment:
Land and buildings 134,076 130,366
Machinery and equipment 255,590 248,621
------- -------
389,666 378,987
Accumulated depreciation (233,183) (216,801)
-------- -------
156,483 162,186
Other assets 563 621
-------- ----------
Total assets $280,510 $288,971
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 25,258 $ 20,309
Accrued expenses 26,511 25,708
Current maturities of long-term debt 3,243 3,178
-------- ---------
Total current liabilities 55,012 49,195
Long-term debt, less current maturities 49,969 77,212
Claims payable 2,600 2,400
Deferred income taxes 17,038 15,825
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-13,051,026 in 2002 and
13,564,955 in 2001 13,051 13,565
Paid-in capital 0 2,945
Retained earnings 142,840 127,829
------- -------
Total stockholders' equity 155,891 144,339
------- -------
Total liabilities and stockholders' equity $280,510 $288,971
======= =======
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
2002 2001 2000
------- -------- -------
(In thousands, except per share data)
Net sales $743,665 $706,002 $605,911
Cost and expenses:
Cost of sales 663,161 626,693 580,136
Selling, general and administrative 30,527 28,215 26,363
------- ------- -------
693,688 654,908 606,499
------- ------- -------
Operating income (loss) 49,977 51,094 (588)
Other income (expense):
Interest income 185 377 213
Interest expense (3,681) (6,753) (8,195)
Other (1) 54 69
------ ------ ------
(3,497) (6,322) (7,913)
------ ------ ------
Income (loss) before income taxes and cumulative effect
of accounting change 46,480 44,772 (8,501)
Income tax expense (benefit) 17,640 16,988 (3,164)
------ ------ ------
Income (loss) before cumulative effect
of accounting change 28,840 27,784 (5,337)
====== ====== ======
Cumulative effect of accounting change (net of income
taxes of $140,000) 0 0 (234)
------ ------ ------
Net income (loss) $28,840 $27,784 $(5,571)
====== ====== ======
Basic net income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 2.18 $ 2.04 $ (.39)
Cumulative effect of accounting change 0 0 (.02)
------ ------ ------
Net income (loss) per share $ 2.18 $ 2.04 $ (.41)
====== ====== ======
Diluted net income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 2.15 $ 2.04 $ (.39)
Cumulative effect of accounting change 0 0 (.02)
------ ------ ------
Net income (loss) per share $ 2.15 $ 2.04 $ (.41)
====== ====== ======
Weighted average shares outstanding:
Basic 13,200 13,596 13,726
====== ====== ======
Diluted 13,429 13,640 13,726
====== ====== ======
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, 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
Net income for year 27,784 27,784
Cash dividends ($.20 per share) (2,721) (2,721)
Purchase and retirement of
common stock (68,000) (68) (671) (739)
----------------------------------------------------------
Balance at October 31, 2001 13,564,955 13,565 2,945 127,829 144,339
Net income for year 28,840 28,840
Cash dividends ($.40 per share) (5,245) (5,245)
Purchase and retirement of
common stock (736,079) (736) (5,320) (8,584) (14,640)
Issuance of common stock 222,150 222 2,375 2,597
----------------------------------------------------------
Balance at October 31, 2002 13,051,026 $13,051 $ 0 $142,840 $155,891
==========================================================
See accompanying notes.
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
2002 2001 2000
----------------------------------------
(In thousands)
Operating activities
Net income (loss) $28,840 $27,784 $(5,571)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change 0 0 374
Depreciation and amortization 24,710 25,722 26,432
Provision for losses on accounts receivable 360 44 1,413
Deferred income taxes 1,340 (178) 340
Change in assets and liabilities:
Accounts receivable (1,246) (3,193) (1,874)
Inventories (5,614) (2,088) (2,628)
Prepaid expenses and refundable income taxes (5,560) 2,791 (3,647)
Other assets (141) (205) 30
Accounts payable 4,949 2,802 5,002
Accrued expenses and claims payable 1,003 11,173 463
------ ------ ------
Total adjustments 19,801 36,868 25,905
------ ------ ------
Net cash provided by operating activities 48,641 64,652 20,334
Investing activities
Capital expenditures (19,704) (14,587) (16,557)
Net proceeds from sale of property and equipment 896 86 217
------ ------ ------
Net cash used in investing activities (18,808) (14,501) (16,340)
Financing activities
Net change in revolving credit (24,000) (28,000) 6,000
Principal payments on long-term debt (2,958) (2,954) (2,950)
Principal payments on capital lease obligation (220) (205) (195)
Dividends paid (5,245) (2,721) (2,740)
Purchase and retirement of common stock (14,640) (739) (2,518)
Net proceeds from common stock issued 2,597 0 0
------ ------ -----
Net cash used in financing activities (44,466) (34,619) (2,403)
------ ------ -----
Net change in cash and cash equivalents (14,633) 15,532 1,591
Cash and cash equivalents
at beginning of year 24,175 8,643 7,052
------ ------ ------
Cash and cash equivalents
at end of year 9,542 $24,175 $ 8,643
====== ====== ======
Supplemental disclosure of cash flow information:
Income taxes paid (refunded), net $18,675 $12,372 $ (67)
====== ====== ======
Interest paid $ 3,993 $ 6,920 $ 8,728
====== ====== ======
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 feed
ingredients, corn and other grains.
The Company sells to retailers, distributors and fast food operators primarily
in the southeastern, southwestern and western United States. Revenue is
recognized when product is delivered 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.
Cash Equivalents: The Company considers all highly liquid investments with
maturities of ninety days or less when purchased to be cash equivalents.
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 2003.
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, The
Company adopted FASB No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which required all derivatives to be recorded on the balance sheet
at fair value. The adoption of this statement had no effect on the consolidated
earnings and financial position of the Company.
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 Statement of Position 98-5, "Reporting the
Costs of Start-Up Activities," which required that costs related to start-up
activities be expensed as incurred in its consolidated financial statements in
the first quarter of fiscal 2000. The effect of adoption of SOP 98-5 during
fiscal 2000 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
2002 2001
-----------------------------
(In thousands)
Live poultry-broilers and breeders $33,392 $30,649
Feed, eggs and other 7,389 6,597
Processed poultry 8,423 5,894
Processed food 4,507 4,918
------ ------
Packaging materials 4,253 4,292
------ ------
$57,964 $52,350
====== ======
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
2002 2001
---- ----
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 5.1% at
October 31, 2002) $20,000 $44,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments of $2,850,000 2,900 5,750
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 957 1,065
6% Mississippi Business Investment Act
bond-capital lease obligation, due
November 1, 2012 3,055 3,275
Robertson County, Texas, Industrial
Revenue Bonds accruing interest
at a variable rate, 2.4% at October
31, 2002; with optional annual principal
installments of $900,000, due
November 1, 2005 6,300 6,300
------ ------
53,212 80,390
Less current maturities of long-term debt 3,243 3,178
------ ------
$49,969 $77,212
====== ======
The Company has a $100.0 million ($80.0 million available at October 31, 2002)
revolving credit agreement with four banks, which extends to fiscal 2005.
Borrowings are at prime or below and may be prepaid without penalty. A
commitment fee of .25% 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 $4,127,933
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, 2002 are as
follows (in thousands):
Fiscal Year Amount
2003 $ 3,243
2004 6,264
2005 11,285
2006 11,306
2007 11,333
Thereafter 9,781
-------
$53,212
=======
4. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended October 31
2002 2001 2000
-----------------------------
(In thousands)
Current:
Federal $14,670 $15,518 $(3,600)
State 1,630 1,450 (44)
-------------------------------
16,300 16,968 (3,644)
Deferred:
Federal 1,226 (264) 325
State 114 284 15
-------------------------------
1,340 20 340
-------------------------------
17,640 16,988 (3,304)
Less income tax expense applicable
to cumulative effect of accounting
change 0 0 140
-------------------------------
Income tax expense (benefit) applicable
to income (loss) before cumulative
effect of accounting change $17,640 $16,988 $(3,164)
===============================
Significant components of the Company's deferred tax assets and liabilities were
as follows:
October 31,
2002 2001
-----------------------
(In thousands)
Deferred tax liabilities:
Cash basis temporary differences $2,994 $ 3,193
Property, plant and equipment 14,986 13,937
Prepaid and other assets 1,066 278
------ ------
Total deferred tax liabilities 19,046 17,408
Deferred tax assets:
Accrued expenses and accounts receivable 3,736 3,156
State net operating loss and credit carryforwards 0 282
------ ------
Total deferred tax assets 3,736 3,438
------ ------
Net deferred tax liabilities $15,310 $13,970
====== ======
Current deferred tax assets
(included in prepaid expenses) $ 1,728 $ 1,855
Long-term deferred tax liabilities 17,038 15,825
------ ------
Net deferred tax liabilities $15,310 $13,970
====== ======
The differences between the consolidated effective income tax rate and the
federal statutory rate are as follows:
Years ended
October 31
2002 2001 2000
--------------------------
(In thousands)
Income taxes (benefit) at statutory rate $16,268 $15,670 $(3,018)
State income taxes (benefit) 1,511 1,754 (19)
State income tax credit 0 (627) 0
Increase in deferred taxes
for change in income tax rate 0 367 0
Other, net (139) (176) (267)
----------------------------
Income tax expense (benefit) $17,640 $16,988 $(3,304)
============================
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 $2,500,000
and $2,300,000 in fiscal 2002 and 2001, 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
$1,463,000 in fiscal 2002, $1,411,000 in fiscal 2001 and $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 2002,
2001 and 2000 have ten-year terms and vest over four years beginning one year
after the date of grant.
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 3.5% in fiscal 2002 and 5.0% in fiscal
2001 and 6.6% in fiscal 2000; dividend yields of 2.0% for fiscal 2002 and fiscal
2001and 2.7% for fiscal 2000; volatility factors of the expected market price of
the Company's Common Stock of .325 for fiscal 2002, .350 for fiscal 2001 and
..302 for fiscal 2000; and a weighted-average expected life of the options of
four years.
The weighted-average fair value of options granted was $4.73 in fiscal 2002,
$3.24 in fiscal 2001 and $1.94 in fiscal 2000. 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 2002, 2001, and
2000.
A summary of the Company's stock option activity and related information is as
follows:
Weighted-Average
Shares Exercise Price
-------------------------------
Outstanding at November 1, 1999 582,000 $12.90
Granted 141,000 7.47
Forfeited (84,000) 11.60
-------
Outstanding at October 31, 2000 639,000 11.83
Granted 71,500 11.10
Forfeited (87,500) 11.11
Outstanding at October 31, 2001 623,000 11.81
Granted 322,886 18.05
Exercised (222,150) 11.79
Forfeited (2,000) 7.47
------- -----
Outstanding at October 31, 2002 721,736 $14.41
======= =====
The exercise price of the options outstanding as of October 31, 2002 ranged from
$7.19 to $18.55 per share. At October 31, 2002, the weighted average remaining
contractual life of the options outstanding was 8 years and 305,537 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. Compensation expense of $421,000 and $555,000 is
included in selling, general and administrative expense in the accompanying
consolidated statement of income for fiscal 2002 and fiscal 2001, respectively.
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
On April 5, 2000, thirteen individuals claiming to be former hourly employees of
the Company's processing subsidiary (Sanderson Farms, Inc. (Processing Division)
(the "Processing Division")) filed a lawsuit in the United States District Court
for the Southern District of Texas claiming that the Processing Division
violated requirements of the Fair Labor Standards Act. The Plaintiffs' lawsuit
also purported to represent similarly situated workers who filed consents to be
included as plaintiffs in the suit. A total of 109 individuals consented to join
the lawsuit.
The lawsuit alleges that the Processing Division (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
Processing Division 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 sought 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 in the lawsuit. There were 6,476 hourly workers
employed at the Processing Division's plants as of October 31, 2002.
On April 24, 2001, the Court granted the Processing Division's summary judgment
motion and entered a final judgment in favor of the Processing Division.
Plaintiffs appealed that decision to the United States Fifth Circuit Court of
Appeals. On March 7, 2002, the United States Fifth Circuit Court of Appeals
affirmed the decision of the United States District Court granting the
Processing Division's motion for summary judgment. The plaintiffs had 90 days
from March 7, 2002 to request that the United States Supreme Court hear an
appeal of this case, which time has expired.
On May 15, 2000, an employee of the Company's production subsidiary (Sanderson
Farms, Inc. (Production Division) (the "Production Division")), filed suit
against the Production Division 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 26 employees filed consents to join in this lawsuit.
Previously, the United States Department of Labor ("DOL") filed a similar suit
against the Production Division in the United States District Court for the
Southern District of Mississippi, Hattiesburg Division, on behalf of live-haul
employees at the Production Division's Laurel, Mississippi facility. Both
lawsuits were brought under the Fair Labor Standards Act and seek recovery of
overtime compensation, together with an equal amount as liquidated damages, for
live-haul employees (i.e., live-haul drivers, chicken catchers, and
loader-operators) employed by the Production Division. The lawsuits assert that
additional overtime compensation and liquidated damages may be owed to certain
employees. The lawsuits also seek an injunction to prevent the withholding of
overtime compensation to live-haul employees in the future.
On January 18, 2001, the United States District Court for the Southern District
of Texas granted the Production Division's request to move the suit pending
before that court to the Southern District of Mississippi, Hattiesburg Division.
The Production Division later filed its motion with the United States District
Court for the Southern District of Mississippi to have the two cases
consolidated, which motion was granted. On February 4, 2002, the Production
Division reached a settlement with the Department of Labor that fully and
completely compromised and settled the claims of all live-haul employees in the
Production Division, other than certain Production Division employees
represented in a collective bargaining agreement in Texas. The settlement,
approved by the court on March 11, 2002, and pursuant to which the Production
Division paid during its second fiscal quarter (accrued during its first fiscal
quarter) approximately $450,000 in back pay and interest to the involved current
and former employees in the Production Division's Mississippi and Texas
operations, terminates the private rights of these employees under the Fair
Labor Standards Act with respect to the claims made in this suit. With respect
to approximately 74 employees represented under a collective bargaining
agreement in Texas, the court entered its Order Granting Joint Motion for Court
Approval of Settlement on November 4, 2002. The final settlement of this matter
will become effective upon a ruling by the court on the plaintiff's request for
award of attorney's fees. The court is scheduled to hear arguments on the
attorney's fees issue on January 7, 2003. The Production Division will pay
approximately $188,000 in back pay to the Texas employees as part of the
settlement, and this amount is accrued and reflected in the Company's
accompanying consolidated financial statements.
Substantially similar lawsuits to those described above 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 these
and the other 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 that 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 and will continue to vigorously defend this
action. On November 22, 2002, the Court denied the Company's motions to compel
arbitration, challenging the jurisdiction of the Chancery Court of Lawrence
County, Mississippi, and seeking to have the case dismissed pursuant to rule
5(c) of the Mississippi Rules of Civil Procedure. The Company then filed its
motion for interlocutory appeal on these issues with the Mississippi State
Supreme Court. On December 6, 2002, the Mississippi State Supreme Court agreed
to hear this motion and stayed the action in the Chancery Court pending
disposition of this motion. This matter is pending. As with the wage and hour
and donning and doffing lawsuits discussed above, substantially similar lawsuits
have been filed against other integrated poultry companies.
On August 2, 2002, three contract egg producers filed suit against the Company
in the Chancery Court of Jefferson Davis County, Mississippi. The Plaintiffs
filed suit on behalf of "all Mississippi residents who, between June 1993 and
the present, [the Company] fraudulently and negligently induced into housing,
feeding and providing water for [the Company's] breeder flocks and gathering,
grading, packaging and storing the hatch eggs generated by said flocks and who
have been compensated under the payment method established by the [Company]."
Plaintiffs alleged that the Company "has defrauded Plaintiffs by unilaterally
imposing and utilizing a method of payment which wrongfully and arbitrarily
penalizes each grower based upon criteria which are under the control of the
[Company] and which were never revealed, explained or discussed with each
Plaintiff." Plaintiffs allege that they were required to accept breeder hens and
roosters which are genetically different, with varying degrees of healthiness,
and feed of dissimilar quantity and quality. Plaintiffs further allege
contamination of and damage to their real property. Plaintiffs alleged that they
were "fraudulently and negligently induced into housing, feeding and providing
water for the Company's breeder flocks and gathering, grading, packaging and
storing the hatch eggs produced from said flocks" for the Company. Plaintiffs
seek an unspecified amount of compensatory and punitive damages, as well as
various forms of equitable relief. The Company will vigorously defend this
lawsuit.
On July 25, 2002, a current contract grower and her husband filed suit against
the Company and Farmers State Bank, N.A. in the District Court of Milam County,
Texas. The Plaintiffs alleged "a conspiracy to defraud Plaintiffs in connection
with [the Company's] promotion of a get-rich-quick scheme portrayed to
Plaintiffs as a good investment for Plaintiff's future." The Plaintiffs further
alleged that the Company and Farmers State Bank "conspired to defraud Plaintiffs
by convincing them to purchase farm land, execute loan documents for the
construction of chicken barns, and then forcing them to sign contracts of
adhesion that made Plaintiffs the domestic servants of the defendants." The
Plaintiffs further alleged that the Company and Farmers State Bank violated the
Texas Deceptive Trade Practices-Consumer Protection Act. Plaintiffs seek an
unspecified amount in compensatory damages, treble damages, attorney's fees,
pre- and post-judgement interest and all costs of court. The Plaintiffs also
seek a Permanent Injunction enjoining the Farmers State Bank from foreclosing on
or otherwise taking possession or control of Plaintiff's real estate and the
improvements thereon and other equitable relief. On August 8, 2002, the court
heard arguments on the Plaintiff's motion for permanent injunction and on the
Company's motion to stay the proceeding with respect to its pending arbitration
of the matter as required by the Egg Producers Contract entered into by and
between one of the Plaintiffs and the Company. On August 19, 2002, the court
granted the Company's motion to compel arbitration in this case with respect to
the Company and its grower pursuant to the arbitration provision of the
contract. The case before the District Court of Milam County, Texas will be
stayed pending arbitration between the Company and its grower. No arbitration
date has been set. The Company will vigorously defend this matter.
The Company is also a party to lawsuits against various vitamin and methionine
suppliers arising out of alleged price fixing activities by the defendants. For
more information about these lawsuits, please see the section of this Report
entitled "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations."
The Company is also involved in various claims and litigation incidental to its
business. Although the outcome of the matters referred to in the preceding
sentence 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.
The following table provides information as of October 31, 2002 with
respect to compensation plans (including individual compensation arrangements)
under which equity securities of the Registrant are authorized for issuance. The
Registrant has no equity compensation plan not approved by security holders. The
equity compensation plan reflected in the following table is the Registrant's
Stock Option Plan approved by shareholders on February 28, 2002.
Plan category(1) (a) Number of securities (b) Weighted-average (c) Number of securities
to be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans
approved by security holders
721,736 $14.49 437,114
Equity compensation plans not
approved by security holders
0 0 0
Total 721,736 $14.49 437,114
(1) The table above does not include information concerning the Registrant's
Phantom Stock Agreements dated April 21, 2000 with certain of its executive
officers and key employees. These agreements permit the respective holders to
claim a cash award from the Registrant at specified times prior to April 21,
2010, equal to a number of shares selected by the holder, but not exceeding in
the aggregate the number of shares specified in the agreement, multiplied by the
difference between the market value of a share of the Registrant's common stock
at that time and $7.46875. The Company has the option to issue shares of its
common stock in lieu of the cash payable to a phantom stock holder upon the
exercise of such holder's phantom stock. Because the value of a share of phantom
stock upon conversion depends on the value of the Registrant's common stock on
the conversion date, the number of shares of the Registrant's common stock that
would be issuable upon conversion of the outstanding phantom stock in lieu of a
cash payment, should the Registrant exercise its option to issue shares in lieu
of paying cash, cannot be determined. Information concerning the amount of the
Registrant's phantom stock awards is contained in the Registrant's revised
definitive proxy statement on Schedule 14A filed on January 28, 2002.
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. Controls and Procedures.
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Securities Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
During the 90-day period prior to the date of this report, an
evaluation was performed under the supervision and with the participation of our
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. Subsequent to the
date of this evaluation, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls.
Item 15. 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, 2002, 2001 and 2000
Consolidated Statements of Income - Years ended October 31, 2002, 2001 and
2000
Consolidated Statements of Stockholders' Equity -Years ended October 31,
2002, 2001 and 2000
Consolidated Statements of Cash Flows - Years ended October 31, 2002, 2001
and 2000
Notes to Consolidated Financial Statements - October 31, 2002
(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
Number Description
3.1 Articles of Incorporation of the Registrant dated October 19,
1978. (Incorporated by reference to Exhibit 4.1 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
3.2 Articles of Amendment, dated March 23, 1987, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.2 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.3 Articles of Amendment, dated April 21, 1989, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.3 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.4 Certificate of Designations of Series A Junior Participating
Preferred Stock of the Registrant dated April 21, 1989.
(Incorporated by reference to Exhibit 4.4 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
3.5 Article of Amendment, dated February 20, 1992, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.5 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.6 Article of Amendment, dated February 27, 1997, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.6 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.7 By-Laws of the Registrant, amended and restated as of July 27,
2000. (Incorporated by reference to Exhibit 4.7 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
10.1 Contract dated July 31, 1964 between the Registrant and the City
of Laurel, Mississippi. (Incorporated by reference to Exhibit
10-D filed with the registration statement on Form S-1 filed by
the Registrant on April 3, 1987, Registration No. 33-13141.)
10.2 Contract Amendment dated December 1, 1970 between the Registrant
and the City of Laurel, Mississippi. (Incorporated by reference
to Exhibit 10-D-1 filed with the registration statement on Form
S-1 filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.3 Contract Amendment dated June 11, 1985 between the Registrant and
the City of Laurel, Mississippi. (Incorporated by reference to
Exhibit 10-D-2 filed with the registration statement on Form S-1
filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.4 Contract Amendment dated October 7, 1986 between the Registrant
and the City of Laurel, Mississippi. (Incorporated by reference
to Exhibit 10-D-3 filed with the registration statement on Form
S-1 filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.5 Agreement dated November 1, 2001 between Sanderson Farms, Inc.
(Hammond Processing Division) and United Food and Commercial
Workers Local Union 455 affiliated with the United Food and
Commercial Workers International Union. (Incorporated by
reference to Exhibit 10c to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 31, 2002.)
10.6 Agreement dated July 26, 1999 between Sanderson Farms, Inc.
(Hazlehurst Processing Division) and Laborers' International
Union of North America, Professional Employees Local Union #693,
AFL-CIO. (Incorporated by reference to Exhibit 10-E-6 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000.)
10.7 Agreement dated January 13, 2000 between Sanderson Farms, Inc.
(Collins Processing Division) and Laborers' International Union
of North America, Professional Employees Local Union #693,
AFL-CIO. (Incorporated by reference to Exhibit 10-E-7 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000.)
10.8 Agreement dated as of December 27, 1999 between Sanderson Farms,
Inc. (Brazos Production Division), Sanderson Farms, Inc. (Brazos
Processing Division) and Teamsters Local Union No. 968,
affiliated with the International Brotherhood of Teamsters.
(Incorporated by reference to Exhibit 10-E-9 to the Registrant's
Annual Report on Form 10-K for the year ended October 31, 2000.)
10.9 Agreement dated as of July 1, 2002 between Sanderson Farms, Inc.
(McComb Production Division) and United Food and Commercial
Workers, Local 1529, AFL-CIO, affiliated with United Food and
Commercial Workers International Union, AFL-CIO. (Incorporated by
reference to Exhibit 10-E-10 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended July 31, 2002.)
10.10* Agreement dated November 13, 2002 between Sanderson Farms, Inc.
(Brazos Processing Division) and the United Food and Commercial
Workers Union, Local 408, AFL-CIO, charted by the United Food and
Commercial Workers International Union, AFL-CIO, CLC.
10.11+ Employee Stock Ownership Plan and Trust Agreement of Sanderson
Farms, Inc. and Affiliates. (Incorporated by reference to Exhibit
10-I filed with the registration statement on Form S-1 filed by
the Registrant on April 3, 1987, Registration No. 33-13141.)
10.12+ Amendment One to the Employee Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and Affiliates. (Incorporated
by reference to Exhibit 10-I-1 filed with Amendment No. 3 to the
registration statement on Form S-1 filed by the Registrant on May
19, 1987, Registration No. 33-13141.)
10.13+ Amendment Two to the Employee Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and Affiliates. (Incorporated
by reference to Exhibit 10-I-2 to the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1987.)
10.14+ Sanderson Farms, Inc. and Affiliates Stock Option Plan (Amended
and Restated as of February 28, 2002). (Incorporated by reference
to Exhibit 4.8 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
10.15+ Form of Nonstatutory Stock Option Agreement. (Incorporated by
reference to Exhibit 4.9 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration
No. 333-92412.)
10.16+ Form of Incentive Stock Option Agreement. (Incorporated by
reference to Exhibit 4.10 filed with the registration statement
on Form S-8 filed by the Registrant on July 15, 2002,
Registration No. 333-92412.)
10.17+ Form of Alternate Stock Appreciation Rights Agreement.
(Incorporated by reference to Exhibit 4.11 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
10.18*+ Form of Phantom Stock Agreement.
10.19*+ Sanderson Farms, Inc. Bonus Award Program effective November
1, 2001.
10.20 Memorandum of Agreement dated June 13, 1989, between Pike
County, Mississippi and the Registrant. (Incorporated by
reference to Exhibit 10-L filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1990.)
10.21 Wastewater Treatment Agreement between the City of Magnolia,
Mississippi and the Registrant dated August 19, 1991.
(Incorporated by reference to Exhibit 10-M filed with the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1991.)
10.22 Memorandum of Agreement and Purchase Option between Pike County,
Mississippi and the Registrant dated May 1991. (Incorporated by
reference to Exhibit 10-N filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1991.)
10.23 Lease Agreement between Pike County, Mississippi and the
Registrant dated as of November 1, 1992. (Incorporated by
reference to Exhibit 10-M filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1993.)
10.24 Credit Agreement dated as of July 31, 1996 among Sanderson
Farms, Inc.; Harris Trust and Savings Bank, Individually and as
Agent; SunTrust Bank, Atlanta; Deposit Guaranty National Bank;
Caisse National de Credit Agricole, Chicago Branch; and Trustmark
National Bank. (Incorporated by reference to Exhibit10-N to
Amendment No. 1 to the Quarterly Report of the Registrant for the
quarter ended July 31, 1996.)
10.25* First Amendment to Credit Agreement, dated as of October
23,1997, by and among Sanderson Farms, Inc.; Harris Trust and
Savings Bank, Individually and as Agent; SunTrust Bank; Deposit
Guaranty National Bank; Caisse Nationale De Credit Agricole,
Chicago Branch; and Trustmark National Bank.
10.26* Second Amendment to Credit Agreement, dated as of July 23 ,1998,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty
National Bank; Caisse Nationale De Credit Agricole, Chicago
Branch; and Trustmark National Bank.
10.27* Third Amendment to Credit Agreement, dated as of July 29, 1999,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; First American
National Bank, D/B/A Deposit Guaranty National Bank; Caisse
Nationale De Credit Agricole, Chicago Branch; and Trustmark
National Bank.
10.28* Fourth Amendment to Credit Agreement, dated as of March 17, 2000,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; Credit Agricole
Indosuez, Chicago Branch; and Trustmark National Bank.
10.29* Fifth Amendment to Credit Agreement, dated as of February 16,
2001, by and among Sanderson Farms, Inc.; Harris Trust and
Savings Bank, Individually and as Agent; SunTrust Bank; Credit
Agricole Indosuez, Chicago Branch; and Trustmark National Bank.
10.30 Sixth Amendment to Credit Agreement dated as of July 2, 2001, by
and among Sanderson Farms, Inc.; Harris Trust and Savings Bank,
Individually and as Agent; SunTrust Bank; AmSouth Bank; Credit
Agricole Indosuez, Chicago Branch; and Trustmark National Bank.
(Incorporated by reference to Exhibit 10d to the Quarterly Report
of the Registrant for the quarter ended January 31, 2002.)
10.31 Seventh Amendment to Credit Agreement dated as of July 29, 2002,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; and
Trustmark National Bank. (Incorporated by reference to
Exhibit10.1 to Amendment No. 1 to the Quarterly Report of the
Registrant for the quarter ended July 31, 2002.)
10.32 Stock Purchase Agreement dated January 3, 2002, by and between
Sanderson Farms, Inc. and the executors of the Estate of Joe
Frank Sanderson. (Incorporated by reference to Exhibit 10.1 filed
with the Registrant's Current Report on Form 8-K dated January 3,
2002.)
10.33 Stock Purchase Agreement dated January 3, 2002, by and between
Sanderson Farms, Inc. and the executors of the Estate of Dewey R.
Sanderson, Jr. (Incorporated by reference to Exhibit 10.2 filed
with the Registrant's Current Report on Form 8-K dated January 3,
2002.)
10.34 Agreement dated as of April 22, 1999 between Sanderson Farms,
Inc. and Chase Mellon Shareholder Services, L.L.C. (Incorporated
by reference to Exhibit 4.1 filed with the Registrant's current
report on Form 8-K dated April 22, 1999.)
21* List of subsidiaries of the Registrant.
23* Consent of Ernst & Young, LLP.
99.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2* Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
- -----------
* Filed herewith.
+Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of the Fiscal Year
ended October 31, 2002.
(c) Agreements Available Upon Request by the Commission.
The Registrant's credit agreement with the banks for which Harris Trust and
Savings Bank acts as agent is filed or incorporated by reference as an exhibit
to this report. The Registrant is a party to various other agreements defining
the rights of holders of long-term debt of the Registrant, but, of those other
agreements, 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, 2002 and 2001 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 2002. 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, 2002 and 2001, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 2002, 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 10, 2002
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, 2002
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $303 $36 $0 $663
Year ended October 31, 2001
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $460 $44 $201 $303
Year ended October 31, 2000
Deducted from accounts
receivable:
Allowance for doubtful
Accounts
Totals $249 $1,413 $1,202 $460
(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.
/s/Joe F. Sanderson, Jr.
Chairman of the Board,
President and Chief Executive
Officer
Date: December 27, 2002
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 and as of the dates indicated.
/s/ Joe F. Sanderson, Jr. 12/27/02 /s/ John H. Baker, III 12/27/02
- ------------------------- -----------------------------
Joe F. Sanderson, Jr., John H. Baker, III,
Chairman of the Board, President Director
and Chief Executive Officer
(Principal Executive Officer)
/s/ William R. Sanderson 12/27/02 /s/ Charles W. Ritter, Jr. 12/27/02
- ------------------------- -----------------------------
William R. Sanderson, Director, Charles W. Ritter, Jr.,
Director of Marketing Director
/s/Hugh V. Sanderson . 12/27/02 /s/ Rowan H. Taylor 12/27/02
- ------------------------- -----------------------------
Hugh V. Sanderson, Director, Rowan H. Taylor,
Manager of Customer Relations Director
/s/ Donald W. Zacharias 12/27/02 /s/ Robert Buck Sanderson 12/27/02
- ------------------------- -----------------------------
Donald W. Zacharias, Robert Buck Sanderson, Director,
Director Corporate Live Production Assistant
/s/ Phil K. Livingston 12/27/02 /s/ Lampkin Butts 12/27/02
- ------------------------- -----------------------------
Phil K. Livingston, Lampkin Butts, Director,
Director Vice President - Sales
/s/ D. Michael Cockrell 12/27/02 /s/James A. Grimes 12/27/02
- ------------------------- -----------------------------
D. Michael Cockrell, James A. Grimes, Secretary
Director, Treasurer and Chief and Chief Accounting Officer
Financial Officer (Principal (Principal Accounting Officer)
Financial Officer)
/s/ Gail Pittman 12/27/02
- -------------------------
Gail Pittman
Director
CERTIFICATION
I, Joe F. Sanderson, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Sanderson Farms,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 27, 2002
/s/ Joe F. Sanderson, Jr.
-------------------------
Joe F. Sanderson, Jr.
President, Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
CERTIFICATION
I, D. Michael Cockrell, certify that:
1. I have reviewed this annual report on Form 10-K of Sanderson Farms,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 27, 2002
/s/ D. Michael Cockrell
-----------------------
D. Michael Cockrell
Treasurer, Chief Financial Officer and
Director (Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Incorporation of the Registrant dated October 19,
1978. (Incorporated by reference to Exhibit 4.1 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
3.2 Articles of Amendment, dated March 23, 1987, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.2 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.3 Articles of Amendment, dated April 21, 1989, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.3 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.4 Certificate of Designations of Series A Junior Participating
Preferred Stock of the Registrant dated April 21, 1989.
(Incorporated by reference to Exhibit 4.4 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
3.5 Article of Amendment, dated February 20, 1992, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.5 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.6 Article of Amendment, dated February 27, 1997, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.6 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
3.7 By-Laws of the Registrant, amended and restated as of July 27,
2000. (Incorporated by reference to Exhibit 4.7 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
10.1 Contract dated July 31, 1964 between the Registrant and the City
of Laurel, Mississippi. (Incorporated by reference to Exhibit
10-D filed with the registration statement on Form S-1 filed by
the Registrant on April 3, 1987, Registration No. 33-13141.)
10.2 Contract Amendment dated December 1, 1970 between the Registrant
and the City of Laurel, Mississippi. (Incorporated by reference
to Exhibit 10-D-1 filed with the registration statement on Form
S-1 filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.3 Contract Amendment dated June 11, 1985 between the Registrant and
the City of Laurel, Mississippi. (Incorporated by reference to
Exhibit 10-D-2 filed with the registration statement on Form S-1
filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.4 Contract Amendment dated October 7, 1986 between the Registrant
and the City of Laurel, Mississippi. (Incorporated by reference
to Exhibit 10-D-3 filed with the registration statement on Form
S-1 filed by the Registrant on April 3, 1987, Registration No.
33-13141.)
10.5 Agreement dated November 1, 2001 between Sanderson Farms, Inc.
(Hammond Processing Division) and United Food and Commercial
Workers Local Union 455 affiliated with the United Food and
Commercial Workers International Union. (Incorporated by
reference to Exhibit 10c to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 31, 2002.)
10.6 Agreement dated July 26, 1999 between Sanderson Farms, Inc.
(Hazlehurst Processing Division) and Laborers' International
Union of North America, Professional Employees Local Union #693,
AFL-CIO. (Incorporated by reference to Exhibit 10-E-6 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000.)
10.7 Agreement dated January 13, 2000 between Sanderson Farms, Inc.
(Collins Processing Division) and Laborers' International Union
of North America, Professional Employees Local Union #693,
AFL-CIO. (Incorporated by reference to Exhibit 10-E-7 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000.)
10.8 Agreement dated as of December 27, 1999 between Sanderson Farms,
Inc. (Brazos Production Division), Sanderson Farms, Inc. (Brazos
Processing Division) and Teamsters Local Union No. 968,
affiliated with the International Brotherhood of Teamsters.
(Incorporated by reference to Exhibit 10-E-9 to the Registrant's
Annual Report on Form 10-K for the year ended October 31, 2000.)
10.9 Agreement dated as of July 1, 2002 between Sanderson Farms, Inc.
(McComb Production Division) and United Food and Commercial
Workers, Local 1529, AFL-CIO, affiliated with United Food and
Commercial Workers International Union, AFL-CIO. (Incorporated by
reference to Exhibit 10-E-10 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended July 31, 2002.)
10.10* Agreement dated November 13, 2002 between Sanderson Farms, Inc.
(Brazos Processing Division) and the United Food and Commercial
Workers Union, Local 408, AFL-CIO, charted by the United Food and
Commercial Workers International Union, AFL-CIO, CLC.
10.11+ Employee Stock Ownership Plan and Trust Agreement of Sanderson
Farms, Inc. and Affiliates. (Incorporated by reference to Exhibit
10-I filed with the registration statement on Form S-1 filed by
the Registrant on April 3, 1987, Registration No. 33-13141.)
10.12+ Amendment One to the Employee Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and Affiliates. (Incorporated
by reference to Exhibit 10-I-1 filed with Amendment No. 3 to the
registration statement on Form S-1 filed by the Registrant on May
19, 1987, Registration No. 33-13141.)
10.13+ Amendment Two to the Employee Stock Ownership Plan and Trust
Agreement of Sanderson Farms, Inc. and Affiliates. (Incorporated
by reference to Exhibit 10-I-2 to the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1987.)
10.14+ Sanderson Farms, Inc. and Affiliates Stock Option Plan (Amended
and Restated as of February 28, 2002). (Incorporated by reference
to Exhibit 4.8 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
10.15+ Form of Nonstatutory Stock Option Agreement. (Incorporated by
reference to Exhibit 4.9 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration
No. 333-92412.)
10.16+ Form of Incentive Stock Option Agreement. (Incorporated by
reference to Exhibit 4.10 filed with the registration statement
on Form S-8 filed by the Registrant on July 15, 2002,
Registration No. 333-92412.)
10.17+ Form of Alternate Stock Appreciation Rights Agreement.
(Incorporated by reference to Exhibit 4.11 filed with the
registration statement on Form S-8 filed by the Registrant on
July 15, 2002, Registration No. 333-92412.)
10.18*+ Form of Phantom Stock Agreement.
10.19*+ Sanderson Farms, Inc. Bonus Award Program effective November
1, 2001.
10.20 Memorandum of Agreement dated June 13, 1989, between Pike
County, Mississippi and the Registrant. (Incorporated by
reference to Exhibit 10-L filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1990.)
10.21 Wastewater Treatment Agreement between the City of Magnolia,
Mississippi and the Registrant dated August 19, 1991.
(Incorporated by reference to Exhibit 10-M filed with the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1991.)
10.22 Memorandum of Agreement and Purchase Option between Pike County,
Mississippi and the Registrant dated May 1991. (Incorporated by
reference to Exhibit 10-N filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1991.)
10.23 Lease Agreement between Pike County, Mississippi and the
Registrant dated as of November 1, 1992. (Incorporated by
reference to Exhibit 10-M filed with the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1993.)
10.24 Credit Agreement dated as of July 31, 1996 among Sanderson
Farms, Inc.; Harris Trust and Savings Bank, Individually and as
Agent; SunTrust Bank, Atlanta; Deposit Guaranty National Bank;
Caisse National de Credit Agricole, Chicago Branch; and Trustmark
National Bank. (Incorporated by reference to Exhibit10-N to
Amendment No. 1 to the Quarterly Report of the Registrant for the
quarter ended July 31, 1996.)
10.25* First Amendment to Credit Agreement, dated as of October
23,1997, by and among Sanderson Farms, Inc.; Harris Trust and
Savings Bank, Individually and as Agent; SunTrust Bank; Deposit
Guaranty National Bank; Caisse Nationale De Credit Agricole,
Chicago Branch; and Trustmark National Bank.
10.26* Second Amendment to Credit Agreement, dated as of July 23 ,1998,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty
National Bank; Caisse Nationale De Credit Agricole, Chicago
Branch; and Trustmark National Bank.
10.27* Third Amendment to Credit Agreement, dated as of July 29, 1999,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; First American
National Bank, D/B/A Deposit Guaranty National Bank; Caisse
Nationale De Credit Agricole, Chicago Branch; and Trustmark
National Bank.
10.28* Fourth Amendment to Credit Agreement, dated as of March 17, 2000,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; Credit Agricole
Indosuez, Chicago Branch; and Trustmark National Bank.
10.29* Fifth Amendment to Credit Agreement, dated as of February 16,
2001, by and among Sanderson Farms, Inc.; Harris Trust and
Savings Bank, Individually and as Agent; SunTrust Bank; Credit
Agricole Indosuez, Chicago Branch; and Trustmark National Bank.
10.30 Sixth Amendment to Credit Agreement dated as of July 2, 2001, by
and among Sanderson Farms, Inc.; Harris Trust and Savings Bank,
Individually and as Agent; SunTrust Bank; AmSouth Bank; Credit
Agricole Indosuez, Chicago Branch; and Trustmark National Bank.
(Incorporated by reference to Exhibit 10d to the Quarterly Report
of the Registrant for the quarter ended January 31, 2002.)
10.31 Seventh Amendment to Credit Agreement dated as of July 29, 2002,
by and among Sanderson Farms, Inc.; Harris Trust and Savings
Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; and
Trustmark National Bank. (Incorporated by reference to
Exhibit10.1 to Amendment No. 1 to the Quarterly Report of the
Registrant for the quarter ended July 31, 2002.)
10.32 Stock Purchase Agreement dated January 3, 2002, by and between
Sanderson Farms, Inc. and the executors of the Estate of Joe
Frank Sanderson. (Incorporated by reference to Exhibit 10.1 filed
with the Registrant's Current Report on Form 8-K dated January 3,
2002.)
10.33 Stock Purchase Agreement dated January 3, 2002, by and between
Sanderson Farms, Inc. and the executors of the Estate of Dewey R.
Sanderson, Jr. (Incorporated by reference to Exhibit 10.2 filed
with the Registrant's Current Report on Form 8-K dated January 3,
2002.)
10.34 Agreement dated as of April 22, 1999 between Sanderson Farms,
Inc. and Chase Mellon Shareholder Services, L.L.C. (Incorporated
by reference to Exhibit 4.1 filed with the Registrant's current
report on Form 8-K dated April 22, 1999.)
21* List of subsidiaries of the Registrant.
23* Consent of Ernst & Young, LLP.
99.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2* Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
- -----------
* Filed herewith.
+Management contract or compensatory plan or arrangement.