SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark(Mark One)
/X /[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 / /2003[ ] 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(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
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[X] Yes____[ ] NoIndicate 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'sregistrant’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[X] Yes____[ ] NoAggregate 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'sRegistrant’s most recently completed second fiscal quarter:$134,242,781.Number$101,728,476.TABLE OF CONTENTSIndicate the number of
Sharesshares outstanding of theRegistrant'sRegistrant’s common stock as ofNovember 30, 2002: 13,017,026December 26, 2003: 13,013,876 shares of common stock, $1.00 per share par value.Portions of the
Registrant'sRegistrant’s definitive proxy statement filed or to be filed in connection with its20032004 Annual Meeting of Stockholders are incorporated by reference into Part III.INTRODUCTORY NOTE
Definitions.This Annual Report on Form 10-K is filed by Sanderson Farms, Inc., a Mississippi corporation. Except where the context indicates otherwise, the
followingtermshave the following respective meanings when used in this Annual Report. "Registrant"“Registrant”, “Company”, and"Company"“Sanderson Farms” mean Sanderson Farms, Inc. and its subsidiaries and predecessor organizations."Fiscal year"The use of these terms to refer to Sanderson Farms, Inc. and its subsidiaries collectively does not suggest that Sanderson Farms has abandoned their separate identities or the legal protections given to them as separate legal entities. “Fiscal year” means the fiscal year ended October 31,2002,2003, 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'sCommission’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 theRegistrant"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 December27, 2002.30, 2003.PART I
Item 1. Business
(a)GENERAL DEVELOPMENT OF THE
REGISTRANT'SREGISTRANT’S BUSINESSThe 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 fooditems.items through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division).The Registrant sells ice pack, chill pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson
Farms(R)Farms® brand name to retailers, distributors, and casual dining operators principally in the southeastern, southwestern and western United States. During its fiscal year ended October 31,20022003 the Registrant processed264.7271.0 million chickens, or approximately1.31.4 billion dressed pounds. According to20022003 industry statistics, the Registrant was the7th6th largest processor of dressed chickens in the United States based on estimated average weekly processing.The
Registrant'sRegistrant’s chicken operations presently encompass five hatcheries, four feed mills and six processingplants and one by-products plant.plants. The Registrant has contracts with operators of approximately473grow-out463 grow-out farms that provide it with sufficient housing capacity for its current operations. The Registrant also has contracts with operators of143142 breeder farms.The Registrant sells over
200100 processed and prepared food items nationally and regionally, primarily to distributors, national food service accounts, retailers and club stores. These food items include further processed chicken products and frozen entrees, such as chicken and dumplings, lasagna, seafood gumbo, and shrimp creole and other specialtyproducts, such as corn dogs.products. 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 theRegistrant'sRegistrant’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 theRegistrant'sRegistrant’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 productionfacilities, 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.facilities.Capital expenditures for fiscal
20022003 were funded by working capital. Effective July 31,2002,2003, the Registrant amended its revolving credit agreement to, among other things,increaseextend the revolving creditavailabletermination date tothe Registrant thereunder from $90.0 million to $100.0 million.July 21, 2006. 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%7.05% 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 fiscal20032004 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 shiftingexpansion of the 2nd shift of the second line at its Collins, Mississippi processingfacility.facility, which is currently at 80% capacity. Since 1997, the Company has also changed its marketing strategy to move away from the small bird markets serving primarily the fast food markets and into the retail and big bird deboning markets serving the retail and food service industries. This market shift has resulted in larger average bird weights of the chickens processed by the Company, and has substantially increased the number of pounds processed by the Company. 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
(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)Farms® brand name to retailers, distributors and fast food operators principally in the southeastern, southwestern and western United States. During its fiscal year ended October 31,2002,2003, the Registrant processed approximately264.7271.0 million chickens, or approximately1.31.4 billion dressed pounds. In addition, the Registrant purchased and further processed14.513.7 million pounds of poultry products during fiscal2002.2003. According to20022003 industry statistics, the Registrant was the7th6th 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
200100 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'sRegistrant’s brand name, which then may be weighed and prepriced, based on eachcustomer'scustomer’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 thecustomer'scustomer’s ability to merchandise chicken products.To satisfy some
customers'customers’ merchandising needs, the Registrant quick freezes the chicken product, which adds value by meeting thecustomers'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% ----- ----- ----- ----- -----
Fiscal Year Ended October 31, 1999 2000 2001 2002 2003 Value added 99.2 99.5 99.5 % 99.7 % 99.5 % Non-value added .8 % .5 % .5 % .3 % .5 % 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'sRegistrant’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% ===== ===== ===== ===== =====
Fiscal Year Ended October 31, 1999 2000 2001 2002 2003 Registrant processed chicken: Value added: Chill pack 33.2 % 36.4 % 40.3 % 40.6 % 34.4 % Fresh bulk pack 46.5 43.3 39.6 38.9 42.5 Frozen 8.0 7.5 9.2 9.2 10.3 Subtotal 87.7 87.2 89.1 88.7 87.2 Non-value added: Ice pack 0.5 0.3 .2 .2 .3 Frozen 0.2 0.1 .2 .1 .1 Subtotal 0.7 .4 .4 .3 .4 Total Company processed chicken 88.4 87.6 89.5 89.0 87.6 Processed and prepared foods 11.6 12.4 10.5 10.5 12.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Sales and Marketing
The
Registrant'sRegistrant’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 theRegistrant'sRegistrant’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'sRegistrant’s chicken products are conducted primarily by sales personnel at theRegistrant'sRegistrant’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 theRegistrant'sRegistrant’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.Agriculture and by private firms. Consistent with the industry, theRegistrant'sRegistrant’s profitability is impacted by such market prices, which may fluctuate substantially and exhibit cyclical characteristics. The Registrantadds a markup towill adjust base priceswhich dependsdepending upon value added, volume, product mix and other factors. While base prices may change weekly, theRegistrant's markupRegistrant’s adjustment is generally negotiated from time to time with theRegistrant'sRegistrant’s customers. TheRegistrant'sRegistrant’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)Farms® products. The Registrant has achieved a high level of public awareness and acceptance of its products through television advertising featuring a celebrity as theRegistrant'sRegistrant’s spokesperson. Brand awareness is an important element of theRegistrant'sRegistrant’s marketing philosophy, and it intends to continue brand name merchandising of its products.The
Registrant'sRegistrant’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 theRegistrant'sRegistrant’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.Hatching. The Registrant maintains its own breeder flocks for the production of hatching eggs. TheRegistrant'sRegistrant’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 31,2002,2003, 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 byRegistrant'sRegistrant’s vehicles to breeder farms that are maintained, as of October 31,2002,2003, by112111 independent contractors under theRegistrant'sRegistrant’s supervision. Eggs produced by independent contract breeders are transported toRegistrant'sRegistrant’s hatcheries inRegistrant'sRegistrant’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'sRegistrant’s vehicles to independent contract grow-out farms. As of October 31,2002,2003, theRegistrant'sRegistrant’s hatcheries were capable of producing an aggregate of approximately 5.6 million chicks per week.Grow-out.The Registrant places its chicks on
473463 grow-out farms, as of October 31,2002,2003, 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'sRegistrant’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 31,2002,2003, the Registrant operated four feed mills, three of which are located in Mississippi and one in Texas. TheRegistrant'sRegistrant’s annual feed requirements for fiscal20022003 were (approximately)1,735,0001,881,000 tons, and it has the capacity to produce approximately1,900,0001,978,000 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,
2002,2003, 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 theRegistrant'sRegistrant’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'sRegistrant’s processing plants. These plants use modern, highly automated equipment to process and package the chickens. TheRegistrant'sRegistrant’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. TheRegistrant'sRegistrant’s Collins, Mississippi processing plant, which is currently operating one of its two lines on a double shift basis and one line on asinglepartial double shift basis, is currently processing approximately950,0001,100,000 chickens per week. TheRegistrant'sRegistrant’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. TheRegistrant'sRegistrant’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 31,2002,2003, these deboning facilities were operating on a double shifted basis resulting in a combined capacity to process approximately10.812.6 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'sRegistrant’s corporate offices are located in Laurel, Mississippi. As of October 31,2002,2003, the Registrant operatedone by-products plant, and sixseven automotive maintenance shops which service approximately484504 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'sRegistrant’s feed ingredients and feed, the health of theRegistrant'sRegistrant’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'sRegistrant’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"(“FDA”), the United States Department of Agriculture("USDA"(“USDA”), the Environmental Protection Agency, the Occupational Safety and Health Administration and corresponding state agencies. TheRegistrant'sRegistrant’s chicken processing plants are subject to continuous on-site inspection by the USDA. The Sanderson Farms, Inc. (Foods Division) processing plant operates under theUSDA'sUSDA’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 theRegistrant'sRegistrant’s feed mills.Compliance with existing regulations has not had a material adverse effect upon the
Registrant'sRegistrant’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'sRegistrant’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 -“Business — Sales andMarketing"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.One customer accounted for 11.7% of consolidated sales for the year ended October 31, 2003. No customer accounted for more than 10% of consolidated sales for the years ended October 31, 2002 and 2001. The Company does not believe the loss of this customer would have a material adverse effect on the Company.
Sources of Supply
During fiscal
2002,2003, 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 theRegistrant'sRegistrant’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'sRegistrant’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)Farms® which it uses in connection with the distribution of its prepared foods, frozen entree products and 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 SandersonFarms(R)Farms® label. The Registrant also has registered with the United States Patent and Trademark Officeseveneight other trademarkswhichthat 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,
2002,2003, the Registrant had7,8868,140 employees, including776793 salaried and7,1107,347 hourly employees. A collective bargaining agreement with the United Food and Commercial Workers International Union covering646809 hourly employees who work at theRegistrant'sRegistrant’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'Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering566556 hourly employees who work at theRegistrant'sRegistrant’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 underwayThis agreement was renegotiated and signed ona new agreement.February 24, 2003, and has an expiration date of December 23, 2005. 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'Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering1,1431,204 hourly employees who work at theRegistrant'sRegistrant’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 31,2003.2003, and negotiations are underway on a new agreement. 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'sCompany’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 dateof 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'sCompany’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 agreementwill expireexpired on December 31, 2002. This contracthas beenwas extended to January 27, 2003, andnegotiations are underway on a new agreement.following its expiration the union withdrew its representation of these drivers.On November 30, 2001, live haul drivers at the
Company'sCompany’s McComb, Mississippi production division voted to be represented by United Food and CommercialWorkers'Workers’ Union Local #1529 AFL-CIO in collective bargaining. Itiswas theCompany'sCompany’s legal position that the live haul drivers are agricultural employees exempt from the National Labor RelationsAct. TheAct, and the Companyis pursingpursed its legal position before the National Labor Relations Board and the Federal Courts. However, on July 3, 2003, the United State Fifth Circuit Court of Appeals ruled that the drivers are not agricultural employees exempt for the National Labor Relations Act, and negotiations are on-going to complete a collective bargaining agreement to cover these employees.On September 13, 2001, production, maintenance and truck driver employees at the
Company'sCompany’s McComb, Mississippi Feed Mill facility voted to be represented in collective bargaining by United Food and CommercialWorkers'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 SALESGEOGRAPHIC AREASAll of the Company’s operations are domiciled in the United States. All of the products sold to the Company’s customers for the Company’s fiscal years 2003, 2002 and 2001 were produced in the United States and all long-lived assets of the Company are domiciled in the United States.
The
Registrant engages in no material foreign operations, and no material portionCompany exports certain of itsrevenues was derived from customersproducts to foreign markets, primarily Mexico, Russia, China, Puerto Rico, and the Caribbean. These exports sales for fiscal years 2003, 2002 and 2001 totaled approximately $45.9 million, $36.8 million and $50.6 million, respectively. The Company’s exports sales are facilitated through independent food brokers located inforeign countries.the United States and the Company’s internal sales staff. For fiscal 2003, 2003 and 2001, the Company made no sales of products produced in a country other than the United States.(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. Information concerning corporate governance matters is also available on the website.
Item 2. Properties.
The
Registrant'sRegistrant’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
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 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$843,000 on October 31,2002,2003, 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'sCompany’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“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'‘ranking system’."” Plaintiffs allege that the Company"has“has defrauded plaintiffs by unilaterally imposing and utilizing the so-called`ranking system'‘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'sCompany’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 6,2003,2002, the Mississippi State Supreme Court agreed to hear this motion and stayed the action in the Chancery Court pending disposition of this motion.ThisThe Company’s motion for interlocutory appeal was granted and this matter ispending. As withpending before thewage and hour and donning and doffing lawsuits discussed above, substantiallyMississippi State Supreme Court. 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“all Mississippi residents who, between June 1993 and the present, [the Company] fraudulently and negligently induced into housing, feeding and providing water for [theCompany's]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“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“fraudulently and negligently induced into housing, feeding and providing water for theCompany'sCompany’s breeder flocks and gathering, grading, packaging and storing the hatch eggs produced from saidflocks"flocks” for the Company. Plaintiffs seek unspecified amount of compensatory and punitive damages, as well as various forms of equitable relief.On September 5, 2002, the Company filed its Motion to Dismiss and/or Transfer Jurisdiction and/or to Compel Arbitration and/or for Change of Venue. Plaintiffs responded to this motion and the Company replied to the Plaintiffs’ response. A hearing of this motion was completed on November 18, 2003. Prior to completion of the hearing, the Company filed a request with the American Arbitration Association to arbitrate the claims made in this lawsuit. In light of the approaching trial date of December 2, 2003, the Company filed a motion with the Mississippi State Supreme Court, on November 14, 2003 requesting, among other things, that the Supreme Court grant an Emergency Stay of the proceedings in the Chancery Court of Jefferson County and vacate the December 2, 2003 trial date. On November 20, 2003, the Supreme Court vacated the trial date and stayed the proceedings pending its response to the Company’s motion. On December 4, 2003, the parties filed a joint request that the Supreme Court relax the stay only insofar as necessary to allow the Chancery Court to rule on the Company’s Motion To Dismiss And/Or To Transfer Jurisdiction And/Or To
Compel Arbitration And/Or For Change Of Venue, and thereafter that the Supreme Court grant a request for interlocutory appeal regarding the issues to be decided by the Chancery Court. The stay entered November 20, 2003, would remain in effect regarding all other proceedings in the Chancery Court, including discovery and trial, and all arbitration proceedings before the AAA would be stayed, pending the final decision of the Supreme Court on the interlocutory appeal. The Company will vigorously defend
this lawsuit.the claims by the contract egg producers whether before a panel of arbitrators appointed by the AAA or before the court.On
July 25, 2002,May 19, 2003, acurrent contract grower and her husbandlawsuit was filedsuit against the Company and Farmers State Bank, N.A.on behalf of 74 individual plaintiffs in the United States District Court for the Southern District ofMilamMississippi alleging an “intentional pattern and practice of race discrimination and hostile environment in violation of Title VII and Section 1981 rights.” This lawsuit alleges that Sanderson Farms, in its capacity as an employer, has “engaged in (and continues to engage in) a pattern and practice of intentional unlawful employment discrimination and intentional unlawful employment practices at its plants, locations, off-premises work sites, offices, and facilities in Pike County,Texas.Mississippi...in violation of Title VII of the Civil Rights Act of 1964 (as amended)... .” ThePlaintiffs alleged "a conspiracy to defraud Plaintiffsaction further alleges that “Sanderson Farms has willfully, deliberately, intentionally, and with malice deprived black workers inconnection with [the Company's] promotionits employ of the full and equal benefits of all laws in violation of the Civil Rights Act.. .” On June 6, 2003, thirteen additional plaintiffs joined in the pending lawsuit by the filing of aget-rich-quick scheme portrayedFirst Amended Complaint. This brought the total number of plaintiffs toPlaintiffs as a good investment for Plaintiff's future."87.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. Plaintiffsplaintiffs in this lawsuit 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 thereonamong other things, back pay and otherequitable relief. On August 8, 2002,compensation in thecourt heard arguments onamount of $500,000 each and unspecified punitive damages. The Company will aggressively defend thePlaintiff's motion for permanent injunction and on the Company's motion to stay the proceedinglawsuit. The Company has a policy of zero tolerance with respect toits pending arbitrationdiscrimination of any type, and preliminarily investigated the complaints alleged in this lawsuit when they were brought as EEOC charges. This investigation, which is ongoing, has substantiated none of thematter as required bycomplaints alleged in theEgg Producers Contractlawsuit, and the Company believes the charges are without merit. On July 21, 2003, the Company filed a Motion to Dismiss or, alternatively, Motion for Summary Judgment or Motion for More Definite Statement. The plaintiffs filed a response to that motion, and the Company filed its rebuttal to the plaintiffs’ response on August 21, 2003. On December 17, 2003, the court enteredinto by and between oneits order denying the Company’s motion for summary judgment, but granting its motion for more definite statement. The court also ordered that the union representing some of thePlaintiffs andplaintiffs be joined as a defendant. The court gave theCompany. On August 19, 2002,plaintiffs until January 26, 2004 to amend their complaint to more specifically set out their claims. Although thecourt granted the Company'sCompany’s motion tocompel arbitration in this case with respect todismiss was denied, the court’s order permits the Companyandto refile itsgrower pursuant todispositive motions after thearbitration 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.plaintiffs file an amended complaint. This matter is pending.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“Item 7.Management'sManagement’s Discussion and Analysis of Financial Condition and Results ofOperations--ResultsOperations—Results of Operations."”Sanderson Farms, Inc. (Production Division) (the “Production Division”) was a party to a lawsuit pending before the United States District Court for the Southern District of Texas brought against the Company under the Fair Labor Standards Act seeking recovery of overtime compensation for live-haul drivers and employees employed by the Production Division. This matter was settled on November 4, 2002, pending a ruling by the court on the plaintiff’s request for an award of attorney’s fees. On September 4, 2003, the court determined the appropriate attorney’s fees award, and the settlement of this issue became final. A complete description of this matter, together with the details of the settlement, is found in Item 3, Legal Proceedings, in the Company’s Annual Report on Form 10-K filed for the Company’s fiscal year ended October 31, 2002. That description is incorporated herein by reference.
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'sCompany’s consolidated results of operation or financial position.Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of the
Registrant'sRegistrant’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)
Executive Name Age Office Officer Since Joe F. Sanderson, Jr. 57 Chairman of the Board, 1984 (1) President and Chief Executive Officer D. Michael Cockrell 46 Treasurer and Chief 1993 (2) Financial Officer, Board Member James A. Grimes 55 Secretary and 1993 (3) Chief Accounting Officer Lampkin Butts 52 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'sperson’s service or prospective service as an executive officer of the Registrant.
PART II
Item 5. Market for the Registrant's
| Item 5. | Market for the Registrant’s Common Equity and Related Stockholder Matters. |
The Company'sCompany’s common stock is traded on the NASDAQ National Market System under the symbol SAFM.
The number of stockholders as of November 30, 2002,2003, was 2,240.2,369.
The following table shows quarterly cash dividends and quarterly high and low closing 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
| Stock Price | ||||||||||||
| Fiscal Year 2003 | High | Low | Dividends | |||||||||
| First Quarter | $ | 21.31 | $ | 17.99 | $ | .10 | ||||||
| Second Quarter | $ | 20.39 | $ | 18.27 | $ | .10 | ||||||
| Third Quarter | $ | 30.57 | $ | 19.47 | $ | .10 | ||||||
| Fourth Quarter | $ | 35.14 | $ | 28.36 | $ | .62 | ||||||
| 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 | ||||||
On December 16, 200219, 2003 the closing sales price for the common stock was $20.39$38.20 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.
| Year Ended October 31 | ||||||||||||||||||||
| 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Net sales | $ | 872,235 | $ | 743,665 | $ | 706,002 | $ | 605,911 | $ | 559,031 | ||||||||||
| Operating income (loss) | 90,522 | 49,977 | 51,094 | (588 | ) | 23,008 | ||||||||||||||
| Net income (loss) | 54,061 | 28,840 | 27,784 | (5,571 | ) | 10,546 | ||||||||||||||
| Basic earnings (loss) per share) | 4.17 | 2.18 | 2.04 | (.41 | ) | .75 | ||||||||||||||
| Diluted earnings (loss) per share | 4.12 | 2.15 | 2.04 | (.41 | ) | .75 | ||||||||||||||
| Working capital | 82,236 | 68,452 | 76,969 | 71,334 | 67,272 | |||||||||||||||
| Total assets | 298,905 | 280,510 | 288,971 | 281,856 | 283,510 | |||||||||||||||
| Long-term debt, less current maturities | 21,604 | 49,969 | 77,212 | 107,491 | 104,651 | |||||||||||||||
| Stockholders’ equity | 197,099 | 155,891 | 144,339 | 120,015 | 130,844 | |||||||||||||||
| Cash dividends declared per share | $ | .92 | $ | .40 | $ | .20 | $ | .20 | $ | .20 | ||||||||||
| 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'sCompany’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,"“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'sCompany’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"(“grow-out”), processing and marketing. Consistent with the poultry industry, the Company'sCompany’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'sCompany’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%64.4% of the Company'sCompany’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'sCompany’s processed and prepared foods product line includes approximately 200100 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, 20022003 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
| 1st | 2nd | 3rd | 4th | ||||||||||||||
| Quarter | Quarter | Quarter | Quarter | ||||||||||||||
| Fiscal 2003 | |||||||||||||||||
| High | $ | .6250 | $ | .6400 | $ | .6775 | $ | .6925 | * | ||||||||
| Low | $ | .6125 | * | $ | .6250 | $ | .6350 | $ | .6800 | ||||||||
| Fiscal 2002 | |||||||||||||||||
| High | $ | .6500 | * | $ | .6300 | $ | .6425 | $ | .6425 | ||||||||
| Low | $ | .6275 | $ | .6250 | * | $ | .6250 | * | $ | .6275 | |||||||
| Fiscal 2001 | |||||||||||||||||
| High | $ | .6150 | * | $ | .6200 | $ | .6250 | $ | .6650 | * | |||||||
| Low | $ | .6150 | * | $ | .6175 | $ | .6450 | $ | .6500 | ||||||||
*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'sCompany’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 2003 Compared to Fiscal 2002
During fiscal 2003 net sales were $872.2 million, an increase of 17.3% when compared to net sales of $743.7 million for fiscal 2002. Net sales of poultry products increased $105.8 million or 16.2% and net sales of prepared food products increased $22.7 million or 25.3%. The increase in net sales of poultry products resulted from favorable market prices for poultry products and an increase in the pounds of poultry products sold of 9.6%. The additional volume of poultry products resulted from an increase in the live weight of chickens processed of 5.3%, an increase in the number of chickens processed of 2.4% and an improved processing yield. Overall market prices during fiscal 2003 for the Company’s poultry products were higher when compared to fiscal 2002. The Company’s average sale price of poultry products increased 6.1% during fiscal 2003 as compared to fiscal 2002. A simple average of the Georgia dock whole bird prices was 2.4% higher for the year ended October 31, 2003 as compared to the year ended October 31, 2002. In addition, market prices for boneless breast, breast tenders and bulk leg quarters were 17.2%, 17.9% and 12.8% higher, respectively. Net sales of prepared food products increased $22.7 million or 25.3% primarily from an increase in pounds of prepared food products sold of 26.0%.
The Company’s cost of sales for fiscal 2003 increased $78.3 million or 11.8% as compared to cost of sales for fiscal 2002. This increase is primarily due to increases in the pounds of poultry and prepared food products sold and increases in the cost of feed grains. Cost of sales of poultry products increased $53.2 million or 9.1%. However, the average cost of sales of poultry products per pound decreased .4% as the Company benefitted from proceeds from lawsuits against vitamin and methionine suppliers and improved performance from the Company’s poultry operations. A simple average of corn and soy meal cash market prices for the year ended October 31, 2003 as compared to the year ended October 31, 2002 reflected increases of 6.9% and 11.2%, respectively. During fiscal 2003 and fiscal 2002 the Company’s cost of sales were reduced by $12.4 million and $5.0 million, respectively, from proceeds related to lawsuits against vitamin and methionine suppliers. Cost of sales of prepared food products increased $25.1 million or 32.4% due to an increase in the volume of prepared food products sold and increased cost of chicken products.
Selling, general and administrative expenses for fiscal 2003 were $40.3 million, an increase of $9.8 million or 32.0% as compared to selling, general and administrative expenses during fiscal 2002 of $30.5 million. The increase during fiscal 2003 resulted from increased expenses related to the Company’s phantom stock options, bonus award program, employee stock ownership plan, bad debt reserves and certain marketing and administrative costs. The Company plans a renewal of its fresh chicken advertising program in most of its markets beginning in January 2004. This program will cost approximately $12.0 million.
During fiscal 2003 the Company’s operating income was $ 90.5 million, an increase of $40.5 million as compared to $50.0 million for fiscal 2002. During fiscal 2003 as compared to fiscal 2002, the Company benefitted from higher market prices for poultry products, improvements in the operating performance and marketing execution of both the Company’s poultry and prepared foods operations and proceeds from vitamin and methionine litigation. These factors more than offset increases in average cost of feed grains during fiscal 2003 as compared to fiscal 2002. Overall market prices for poultry products were lower during the first half of fiscal 2003 as compared to the same period during fiscal 2002. During the third and fourth quarters of fiscal 2003 as compared to the same quarters in fiscal 2002 market prices for the Company’s poultry
products improved significantly, and was reflected in the increase in the Company’s average sale price of poultry products during fiscal 2003 as compared to fiscal 2002 of 6.1%. The Company’s average sales price of its poultry products during the third and fourth quarter of fiscal 2003 were 7.5% and 21.0% higher than the third and fourth quarter of fiscal 2002. This improved market environment during the second half of the Company’s fiscal year was in part a result of the stabilization of the export market for poultry products, including the Russian market. Higher market prices for competing meats such as beef and pork also contributed to improved market conditions. The Company anticipates this trend will continue during the first quarter of fiscal 2004 as compared to the first quarter of fiscal 2003, however, the Company also anticipates higher feed cost during at least the first half of fiscal 2004 due to the tight supply of soybean meal. During fiscal 2003 and fiscal 2002, the Company’s operating income included $12.4 million and $5.0 million, respectively, from vitamin and methionine litigation. The Company does not expect to receive any additional proceeds from vitamin and methionine litigation during fiscal 2004.
Interest expense during the fiscal year ended October 31, 2003 was approximately $2.5 million as compared to $3.7 million for the year ended October 31, 2002. This reduction in interest expense during fiscal 2003 as compared to fiscal 2002 resulted from less debt outstanding.
The Company’s effective tax rate for the fiscal year ended October 31, 2003 and October 31, 2002 was 38.7% and 38.0%, respectively. The increase pertains to lower state tax credits available as a percentage of taxable income.
Net income for fiscal 2003 was $54.1 million as compared to $28.8 million during fiscal 2002. Included in the Company’s net income are proceeds from vitamin and methionine litigation of $7.6 million or $.58 per diluted share during fiscal 2003 and $3.1 million or $.23 per diluted share during fiscal 2002.
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 induring the near term.remainder of fiscal 2002. 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'sCompany’s employee incentive plan, an increase in allowance for doubtful accounts and increased contributions to the Company'sCompany’s Employee Stock Ownership Plan.
The Company'sCompany’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'sCompany’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'sCompany’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'sCompany’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'sCompany’s working capital at October 31, 20022003 was $68.482.2 million and its current ratio was 2.22.3 to 1. This compares to working capital of $77.0$68.4 million and a current ratio of 2.62.2 to 1 as of October 31, 2001.2002. During fiscal 20022003 the Company spent approximately $19.7$23.4 million on planned capital projects and $14.6$5.2 million to repurchase 736,000219,000 shares of its common stock under its existing stock repurchase plan.
The Company'sCompany’s capital budget for fiscal 20032004 is approximately $19.4$27.3 million. The fiscal 20032004 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.flexibility, $4.5 million for construction of a new General Office and $4.5 million for an operating lease to replace an existing aircraft. The Company expects that working capital and cash flows from operations will be sufficient in fiscal 20032004 to fund the anticipated capital expenditures. However, if needed, the Company has available $80.0$100 million under its revolving credit agreement as of October 31, 2002.
2003.
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'sCompany’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'sManagement’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'sCompany’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'scustomer’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'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'sCompany’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'sCompany’s effective tax rate.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51.” Interpretation No. 46 requires consolidation of entities when an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The consolidation requirements of this pronouncement will be effective for the first reporting period ending after December 15, 2003. The Company is in the process of evaluating the implications of Interpretation No. 46.
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'sCompany’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'sCompany’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'sCompany’s fixed rate debt approximates the carrying amount at October 31, 2002.2003. Management believes the potential effects of near-term changes in interest rates on the Company'sCompany’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 BALANCE SHEETS
| October 31 | ||||||||||
| 2003 | 2002 | |||||||||
| (In thousands) | ||||||||||
Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 22,224 | $ | 9,542 | ||||||
| Accounts receivable, less allowance of $1,390,000 in 2003 and $663,000 in 2002 | 46,195 | 41,073 | ||||||||
| Inventories | 61,753 | 57,964 | ||||||||
| Refundable income taxes | 0 | 2,764 | ||||||||
| Prepaid expenses | 13,001 | 12,121 | ||||||||
| Total current assets | 143,173 | 123,464 | ||||||||
| Property, plant and equipment: | ||||||||||
| Land and buildings | 135,865 | 134,076 | ||||||||
| Machinery and equipment | 240,369 | 255,590 | ||||||||
| 376,234 | 389,666 | |||||||||
| Accumulated depreciation | (221,010 | ) | (233,183 | ) | ||||||
| 155,224 | 156,483 | |||||||||
| Other assets | 508 | 563 | ||||||||
| Total assets | $ | 298,905 | $ | 280,510 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 19,033 | $ | 25,258 | ||||||
| Accrued expenses | 37,540 | 26,511 | ||||||||
| Current maturities of long-term debt | 4,364 | 3,243 | ||||||||
| Total current liabilities | 60,937 | 55,012 | ||||||||
| Long-term debt, less current maturities | 21,604 | 49,969 | ||||||||
| Claims payable | 2,600 | 2,600 | ||||||||
| Deferred income taxes | 16,665 | 17,038 | ||||||||
| 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-13,013,876 in 2003 and 13,051,026 in 2002 | 13,014 | 13,051 | ||||||||
| Paid-in capital | 1,949 | 0 | ||||||||
| Retained earnings | 182,136 | 142,840 | ||||||||
| Total stockholders’ equity | 197,099 | 155,891 | ||||||||
| Total liabilities and stockholders’ equity | $ | 298,905 | $ | 280,510 | ||||||
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INCOME
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
==========================================================
| Years Ended October 31 | ||||||||||||||
| 2003 | 2002 | 2001 | ||||||||||||
| (In thousands, except per share data) | ||||||||||||||
| Net sales | $ | 872,235 | $ | 743,665 | $ | 706,002 | ||||||||
| Cost and expenses: | ||||||||||||||
| Cost of sales | 741,420 | 663,161 | 626,693 | |||||||||||
| Selling, general and administrative | 40,293 | 30,527 | 28,215 | |||||||||||
| 781,713 | 693,688 | 654,908 | ||||||||||||
| Operating income (loss) | 90,522 | 49,977 | 51,094 | |||||||||||
| Other income (expense): | ||||||||||||||
| Interest income | 80 | 185 | 377 | |||||||||||
| Interest expense | (2,484 | ) | (3,681 | ) | (6,753 | ) | ||||||||
| Other | 43 | (1 | ) | 54 | ||||||||||
| (2,361 | ) | (3,497 | ) | (6,322 | ) | |||||||||
| Income before income taxes | 88,161 | 46,480 | 44,772 | |||||||||||
| Income tax expense | 34,100 | 17,640 | 16,988 | |||||||||||
| Net income | $ | 54,061 | $ | 28,840 | $ | 27,784 | ||||||||
| Earnings per share: | ||||||||||||||
| Basic | $ | 4.17 | $ | 2.18 | $ | 2.04 | ||||||||
| Diluted | 4.12 | 2.15 | 2.04 | |||||||||||
| Dividends per share | $ | .92 | $ | .40 | $ | .20 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||
| Basic | 12,975 | 13,200 | 13,596 | |||||||||||
| Diluted | 13,126 | 13,429 | 13,640 | |||||||||||
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Total | ||||||||||||||||||||
| Paid-In | Retained | Stockholders’ | |||||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | |||||||||||||||||
| (In thousands, except shares and per share amounts) | |||||||||||||||||||||
| 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 | ||||||||||||
| Net income for year | 54,061 | 54,061 | |||||||||||||||||||
| Cash dividends ($.42 per share) | (5,449 | ) | (5,449 | ) | |||||||||||||||||
| Special cash dividends ($.50 per share) | (6,508 | ) | (6,508 | ) | |||||||||||||||||
| Purchase and retirement of common stock | (219,000 | ) | (219 | ) | (2,133 | ) | (2,808 | ) | (5,160 | ) | |||||||||||
| Issuance of common stock | 181,850 | 182 | 4,082 | 4,264 | |||||||||||||||||
| Balance at October 31, 2003 | 13,013,876 | 13,014 | 1,949 | 182,136 | 197,099 | ||||||||||||||||
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
====== ====== ======
| Years Ended October 31 | |||||||||||||||
| 2003 | 2002 | 2001 | |||||||||||||
| (In thousands) | |||||||||||||||
Operating activities | |||||||||||||||
| Net income (loss) | $ | 54,061 | $ | 28,840 | $ | 27,784 | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
| Depreciation and amortization | 24,485 | 24,710 | 25,722 | ||||||||||||
| Provision for losses on accounts receivable | 727 | 360 | 44 | ||||||||||||
| Deferred income taxes | (920 | ) | 1,340 | (178 | ) | ||||||||||
| Change in assets and liabilities: | |||||||||||||||
| Accounts receivable | (5,849 | ) | (1,246 | ) | (3,193 | ) | |||||||||
| Inventories | (3,789 | ) | (5,614 | ) | (2,088 | ) | |||||||||
| Prepaid expenses and refundable income taxes | 2,431 | (5,560 | ) | 2,791 | |||||||||||
| Other assets | (135 | ) | (141 | ) | (205 | ) | |||||||||
| Accounts payable | (6,225 | ) | 4,949 | 2,802 | |||||||||||
| Accrued expenses and claims payable | 11,029 | 1,003 | 11,173 | ||||||||||||
| Total adjustments | 21,754 | 19,801 | 36,868 | ||||||||||||
| Net cash provided by operating activities | 75,815 | 48,641 | 64,652 | ||||||||||||
Investing activities | |||||||||||||||
| Capital expenditures | (23,430 | ) | (19,704 | ) | (14,587 | ) | |||||||||
| Net proceeds from sale of property and equipment | 394 | 896 | 86 | ||||||||||||
| Net cash used in investing activities | (23,036 | ) | (18,808 | ) | (14,501 | ) | |||||||||
Financing activities | |||||||||||||||
| Net change in revolving credit | (20,000 | ) | (24,000 | ) | (28,000 | ) | |||||||||
| Principal payments on long-term debt | (7,014 | ) | (2,958 | ) | (2,954 | ) | |||||||||
| Principal payments on capital lease obligation | (230 | ) | (220 | ) | (205 | ) | |||||||||
| Dividends paid | (11,957 | ) | (5,245 | ) | (2,721 | ) | |||||||||
| Purchase and retirement of common stock | (5,160 | ) | (14,640 | ) | (739 | ) | |||||||||
| Net proceeds from common stock issued | 4,264 | 2,597 | 0 | ||||||||||||
| Net cash used in financing activities | (40,097 | ) | (44,466 | ) | (34,619 | ) | |||||||||
| Net change in cash and cash equivalents | 12,682 | (14,633 | ) | 15,532 | |||||||||||
| Cash and cash equivalents at beginning of year | 9,542 | 24,175 | 8,643 | ||||||||||||
| Cash and cash equivalents at end of year | $ | 22,224 | $ | 9,542 | $ | 24,175 | |||||||||
Supplemental disclosure of cash flow information: | |||||||||||||||
| Income taxes paid | $ | 20,093 | $ | 18,675 | $ | 12,372 | |||||||||
| Interest paid | $ | 2,569 | $ | 3,993 | $ | 6,920 | |||||||||
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"“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'sCompany’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'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.
Advertising and Marketing Costs:The Company expenses advertising costs as incurred.
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"“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“Family Farming Corporation." The” During fiscal 2003, the Company will continue to qualifyno longer qualified as a "Family“Family Farming Corporation" provided there are no changes in ownership control, which
management does not anticipate during fiscal 2003.
Corporation” and accordingly, recorded the taxes on the cash basis temporary differences of $2,994,000 as a current deferred tax liability.
Stock Based Compensation:At October 31, 2003, the company has a stock-based employee compensation plan, which is described more fully in Note 8. The Companycompany accounts for stock option grants in
accordance withthis plan under the recognition and measurement principles of APB Opinion No. 25, "AccountingAccounting for Stock Issued to Employees."
Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
| Year Ended October 31 | |||||||||||||
| 2003 | 2002 | 2001 | |||||||||||
| (In thousands) | |||||||||||||
| Net income, as reported | $ | 54,061 | $ | 28,840 | $ | 27,784 | |||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (60 | ) | (15 | ) | (5 | ) | |||||||
| Pro forma net income | $ | 54,001 | $ | 28,825 | $ | 27,779 | |||||||
| Earnings per share: | |||||||||||||
| Basic—as reported | $ | 4.17 | $ | 2.18 | $ | 2.04 | |||||||
| Basic—pro forma | $ | 4.17 | $ | 2.18 | $ | 2.04 | |||||||
| Diluted—as reported | $ | 4.12 | $ | 2.15 | $ | 2.04 | |||||||
| Diluted—pro forma | $ | 4.12 | $ | 2.15 | $ | 2.04 | |||||||
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'sCompany’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: EffectiveIn January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51.” Interpretation No. 46 requires consolidation of entities when an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in fiscal 2001,the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The consolidation requirements of this pronouncement will be effective for the first reporting period ending after December 15, 2003. 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 statementsis in the first quarterprocess of fiscal 2000. The effectevaluating the implications 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.
Interpretation No. 46.
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
====== ======
| October 31 | ||||||||
| 2003 | 2002 | |||||||
| (In thousands) | ||||||||
| Live poultry–broilers and breeders | $ | 35,938 | $ | 33,392 | ||||
| Feed, eggs and other | 6,821 | 7,389 | ||||||
| Processed poultry | 8,939 | 8,423 | ||||||
| Processed food | 5,653 | 4,507 | ||||||
| Packaging materials | 4,402 | 4,253 | ||||||
| $ | 61,753 | $ | 57,964 | |||||
3. Prepaid expenses
Prepaid expenses consisted of the following:
| October 31, | ||||||||
| 2003 | 2002 | |||||||
| (In thousands) | ||||||||
| Parts and supplies | $ | 5,323 | $ | 5,279 | ||||
| Current deferred tax asset | 2,275 | 1,728 | ||||||
| Other prepaid expenses | 5,406 | 5,114 | ||||||
| $ | 13,001 | $ | 12,121 | |||||
4. Accrued expenses
Accrued expenses consisted of the following:
| October 31, | ||||||||
| 2003 | 2002 | |||||||
| (In thousands) | ||||||||
| Income taxes payable | $ | 7,243 | $ | 0 | ||||
| Accrued bonuses | 11,419 | 6,985 | ||||||
| Accrued rebates | 3,600 | 3,144 | ||||||
| Workers’ compensation claims | 3,540 | 3,750 | ||||||
| Accrued property taxes | 2,319 | 2,004 | ||||||
| Accrued wages | 3,332 | 4,893 | ||||||
| Accrued vacation | 2,214 | 2,358 | ||||||
| Other accrued expenses | 3,873 | 3,377 | ||||||
| $ | 37,540 | $ | 26,511 | |||||
5. 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
====== ======
| October 31 | ||||||||
| 2003 | 2002 | |||||||
| (In thousands) | ||||||||
| Revolving credit agreement with banks (weighted average rate of 5.1% at October 31, 2002) | $ | 0 | $ | 20,000 | ||||
| Term loan with an insurance company, accruing interest at 7.49%; final principal installment made in February 2003 of $2,850,000 | 0 | 2,900 | ||||||
| Term loan with an insurance company, accruing interest at 7.05%; due in annual principal installments of $4,000,000, due in July 2007 | 16,000 | 20,000 | ||||||
| Note payable, accruing interest at 5%; due in annual installments of $161,400, including interest, maturing in 2009 | 843 | 957 | ||||||
| 6% Mississippi Business Investment Act bond–capital lease obligation, due November 1, 2012 | 2,825 | 3,055 | ||||||
| Robertson County, Texas, Industrial | ||||||||
| October 31 | ||||||||
| 2003 | 2002 | |||||||
| (In thousands) | ||||||||
| Revenue Bonds accruing interest at a variable rate, 1.2% at October 31, 2003; with optional annual principal installments of $900,000, due November 1, 2005 | 6,300 | 6,300 | ||||||
| 25,968 | 53,212 | |||||||
| Less current maturities of long-term debt | 4,364 | 3,243 | ||||||
| $ | 21,604 | $ | 49,969 | |||||
The Company has a $100.0 million ($80.0 million available at October 31, 2002)
revolving credit agreement with four banks, whichbanks. As of October 31, 2003, all of the credit is available and the revolver extends tountil fiscal 2005.2006. 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$4,494,354 is pledged as collateral to a note payable and the capital lease obligation.
The aggregate annual maturities of long-term debt at October 31, 20022003 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.
| Fiscal Year | Amount | |||
| 2004 | $ | 4,364 | ||
| 2005 | 5,285 | |||
| 2006 | 5,306 | |||
| 2007 | 5,333 | |||
| 2008 | 1,355 | |||
| Thereafter | 4,325 | |||
| $ | 25,968 | |||
6. 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)
===============================
| Years Ended October 31 | |||||||||||||||
| 2003 | 2002 | 2001 | |||||||||||||
| (In thousands) | |||||||||||||||
| Current: | |||||||||||||||
| Federal | $ | 29,940 | $ | 14,670 | $ | 15,518 | |||||||||
| State | 5,080 | 1,630 | 1,450 | ||||||||||||
| 35,020 | 16,300 | 16,968 | |||||||||||||
| Deferred: | |||||||||||||||
| Federal | (800 | ) | 1,226 | (264 | ) | ||||||||||
| State | (120 | ) | 114 | 284 | |||||||||||
| (920 | ) | 1,340 | 20 | ||||||||||||
| 34,100 | 17,640 | 16,988 | |||||||||||||
Significant components of the Company'sCompany’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
====== ======
| October 31, | |||||||||
| 2003 | 2002 | ||||||||
| (In thousands) | |||||||||
| Deferred tax liabilities: | |||||||||
| Cash basis temporary differences | $ | 0 | $ | 2,994 | |||||
| Property, plant and equipment | 17,515 | 14,986 | |||||||
| Prepaid and other assets | 910 | 1,066 | |||||||
| Total deferred tax liabilities | 18,425 | 19,046 | |||||||
| Deferred tax assets: | |||||||||
| Accrued expenses and accounts receivable | 4,035 | 3,736 | |||||||
| State net operating loss and credit carryforwarding | 0 | 0 | |||||||
| Total deferred tax assets | 4,035 | 3,736 | |||||||
| Net deferred tax liabilities | $ | 14,390 | $ | 15,310 | |||||
| Current deferred tax assets (included in prepaid expenses) | $ | 2,275 | $ | 1,728 | |||||
| Long-term deferred tax liabilities | 16,665 | 17,038 | |||||||
| Net deferred tax liabilities | $ | 14,390 | $ | 15,310 | |||||
The differences between the consolidated effective income tax rate and the federal statutory rate of 35% 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.
| Years Ended October 31 | ||||||||||||||||||
| 2003 | 2002 | 2001 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||
| Income taxes at statutory rate | $ | 30,856 | $ | 16,268 | $ | 15,670 | ||||||||||||
| State income taxes | 3,224 | 1,511 | 1,754 | |||||||||||||||
| State income tax credit | 0 | 0 | (627 | ) | ||||||||||||||
| Increase in deferred taxes for change in income tax rate | 0 | 0 | 367 | |||||||||||||||
| Other, net | 20 | (139 | ) | (176 | ) | |||||||||||||
| Income tax expense (benefit) | $ | 34,100 | $ | 17,640 | $ | 16,988 | ||||||||||||
7. Employee Benefit Plans
The Company has an Employee Stock Ownership Plan ("ESOP"(“ESOP”) covering substantially all employees. Contributions to the ESOP are determined at the discretion of the Company'sCompany’s Board of Directors. Total contributions to the ESOP were $4,000,000, $2,500,000 and $2,300,000 in fiscal 2003, 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'semployee’s compensation and 50% of employee contributions between 3% and 5% of each employee'semployee’s compensation. The Company'sCompany’s contributions to the 401(k) Plan totaled $1,551,000 in fiscal 2003, $1,463,000 in fiscal 2002 and $1,411,000 in fiscal 2001 and $457,000 in fiscal
2000.
6.2001.
8. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting“Accounting for Stock Issued to Employees"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“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'sCompany’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 20002001 have ten-year terms and vest over four years beginning one year after the date of grant. The Company did not grant any options during fiscal 2003.
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;2001; dividend yields of 2.0% for fiscal 2002 and fiscal 2001and 2.7% for fiscal 2000;2001; volatility factors of the expected market price of the Company'sCompany’s Common Stock of .325 for fiscal 2002 and .350 for fiscal 2001 and
..302 for fiscal 2000;2001; 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 and $3.24 in fiscal 2001 and $1.94 in fiscal 2000.2001. The pro forma effect of the estimated fair value of the options granted was insignificant to the Company'sCompany’s net income (loss) and net income (loss) per share in fiscal 2002 2001, and 2000.
2001.
A summary of the Company'sCompany’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
======= =====
| Weighted-Average | |||||||||
| Shares | Exercise Price | ||||||||
| 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 | |||||||
| Weighted-Average | |||||||||
| Shares | Exercise Price | ||||||||
| Granted | 322,886 | 18.05 | |||||||
| Exercised | (222,150 | ) | 11.79 | ||||||
| Forfeited | 2,000 | ) | 7.47 | ||||||
| Outstanding at October 31, 2002 | 721,736 | 14.41 | |||||||
| Granted | 0 | 0.00 | |||||||
| Exercised | (181,850 | ) | 12.85 | ||||||
| Forfeited | (6,750 | ) | 18.55 | ||||||
| Outstanding at October 31, 2003 | 533,136 | $ | 15.00 | ||||||
The exercise price of the options outstanding as of October 31, 20022003 ranged from $7.19 to $18.55 per share. At October 31, 2002,2003, the weighted average remaining contractual life of the options outstanding was 8 years and 305,537232,606 options were exercisable.
In fiscal 2000, the Company granted 141,000 "phantom shares"“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'sCompany’s Common Stock, at the Company'sCompany’s option, equal to the excess of the fair market value of the Company'sCompany’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 $1,942,000, $421,000 and $555,000 is included in selling, general and administrative expense in the accompanying consolidated statement of income for fiscal 2003, 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
A summary of the Company's Common Stock.
7.Company’s phantom stock option activity and related information is as follows:
| Exercise | |||||||||
| Shares | Price | ||||||||
| Outstanding at October 31, 2002 | 141,000 | 7.47 | |||||||
| Granted | 0 | 0.00 | |||||||
| Forfeited | 0 | 0.00 | |||||||
| Exercised | (94,500 | ) | 7.47 | ||||||
| Outstanding at October 31, 2003 | 46,500 | 7.47 | |||||||
9. Shareholder Rights Agreement
On April 22, 1999, the Company adopted a shareholder rights agreement (the "Agreement"“Agreement”) with similar terms as the previous one. Under the terms of the Agreement a one share purchase ("right"(“right”) was declared as a dividend for each share of the Company'sCompany’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'sCompany’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'sCompany’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'sCompany’s Common Stock by such acquirer. The rights expire on May 4, 2009.
8.
10. 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“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'‘ranking system’."” Plaintiffs allege that the Company "has“has defrauded plaintiffs by unilaterally imposing and utilizing the so-called `ranking system'‘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'sCompany’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. ThisThe Company’s motion for interlocutory appeal was granted and this matter is pending. As withpending before the wage and hour
and donning and doffing lawsuits discussed above, substantiallyMississippi State Supreme Court. 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“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]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“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“fraudulently and negligently induced into housing, feeding and providing water for the Company'sCompany’s breeder flocks and gathering, grading, packaging and storing the hatch eggs produced from said flocks"flocks” for the Company. Plaintiffs seek an unspecified amount of compensatory and punitive damages, as well as various forms of equitable relief.
On September 5, 2002, the Company filed its Motion to Dismiss and/or Transfer Jurisdiction and/or to
Compel Arbitration and/or for Change of Venue. Plaintiffs responded to this motion and the Company replied to the Plaintiffs’ response. A hearing of this motion was completed on November 18, 2003. Prior to completion of the hearing, the Company filed a request with the American Arbitration Association to arbitrate the claims made in this lawsuit. In light of the approaching trial date of December 2, 2003, the Company filed a motion with the Mississippi State Supreme Court, on November 14, 2003 requesting, among other things, that the Supreme Court grant an Emergency Stay of the proceedings in the Chancery Court of Jefferson County and vacate the December 2, 2003 trial date. On November 20, 2003, the Supreme Court vacated the trial date and stayed the proceedings pending its response to the Company’s motion. On December 4, 2003, the parties filed a joint request that the Supreme Court relax the stay only insofar as necessary to allow the Chancery Court to rule on the Company’s Motion To Dismiss And/Or To Transfer Jurisdiction And/Or To Compel Arbitration And/Or For Change Of Venue, and thereafter that the Supreme Court grant a request for interlocutory appeal regarding the issues to be decided by the Chancery Court. The stay entered November 20, 2003, would remain in effect regarding all other proceedings in the Chancery Court, including discovery and trial, and all arbitration proceedings before the AAA would be stayed, pending the final decision of the Supreme Court on the interlocutory appeal. The Company will vigorously defend this
lawsuit.the claims by the contract egg producers whether before a panel of arbitrators appointed by the AAA or before the court.
On July 25, 2002,May 19, 2003, a current contract grower and her husbandlawsuit was filed suit against
the Company and Farmers State Bank, N.A.on behalf of 74 individual plaintiffs in the United States District Court for the Southern District of MilamMississippi alleging an “intentional pattern and practice of race discrimination and hostile environment in violation of Title VII and Section 1981 rights.” This lawsuit alleges that Sanderson Farms, in its capacity as an employer, has “engaged in (and continues to engage in) a pattern and practice of intentional unlawful employment discrimination and intentional unlawful employment practices at its plants, locations, off-premises work sites, offices, and facilities in Pike County, Texas.Mississippi...in violation of Title VII of the Civil Rights Act of 1964 (as amended)... .” The Plaintiffs alleged "a conspiracy to defraud Plaintiffsaction further alleges that “Sanderson Farms has willfully, deliberately, intentionally, and with malice deprived black workers in connection
with [the Company's] promotionits employ of the full and equal benefits of all laws in violation of the Civil Rights Act.. .” On June 6, 2003, thirteen additional plaintiffs joined in the pending lawsuit by the filing of a get-rich-quick scheme portrayedFirst Amended Complaint. This brings the total number of plaintiffs to Plaintiffs as a good investment for Plaintiff's future."87.
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. Plaintiffsplaintiffs in this lawsuit 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 thereonamong other things, back pay and other equitable relief. On August 8, 2002,compensation in the court
heard arguments onamount of $500,000 each and unspecified punitive damages. The Company will aggressively defend the Plaintiff's motion for permanent injunction and on the
Company's motion to stay the proceedinglawsuit. The Company has a policy of zero tolerance with respect to its pending arbitrationdiscrimination of any type, and preliminarily investigated the complaints alleged in this lawsuit when they were brought as EEOC charges. This investigation, which is ongoing, has substantiated none of the matter as required bycomplaints alleged in the Egg Producers Contractlawsuit, and the Company believes the charges are without merit. On July 21, 2003, the Company filed a Motion to Dismiss or, alternatively, Motion for Summary Judgment or Motion for More Definite Statement. The plaintiffs filed a response to that motion, and the Company filed its rebuttal to the plaintiffs’ response on August 21, 2003. On December 17, 2003, the court entered into by and
between oneits order denying the Company’s motion for summary judgment, but granting its motion for more definite statement. The court also ordered that the union representing some of the Plaintiffs andplaintiffs be joined as a defendant. The court gave the Company. On August 19, 2002,plaintiffs until January 26, 2003 to amend their complaint to more specifically set out their claims. Although the court
granted the Company'sCompany’s motion to compel arbitration in this case with respect todismiss was denied, court’s order permits the Company andto refile its grower pursuant todispositive motions after 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.plaintiffs file an amended complaint. This matter is pending.
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“Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations--ResultsOperations—Results of Operations."”
Sanderson Farms, Inc. (Production Division) (the “Production Division”) was a party to a lawsuit pending before the United States District Court for the Southern District of Texas brought against the Company under the Fair Labor Standards Act seeking recovery of overtime compensation for live-haul drivers and employees employed by the Production Division. This matter was settled on November 4, 2002, pending a ruling by the court on the plaintiff’s request for an award of attorney’s fees. On September 4, 2003, the court determined the appropriate attorney’s fees award, and the settlement of this issue became final. A complete description of this matter, together with the details of the settlement, is found in Item 3, Legal Proceedings, in the Company’s Annual Report on Form 10-K filed for the Company’s fiscal year ended October 31, 2002. That description is incorporated herein by reference.
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'sCompany’s consolidated results of operation or financial position.
QUARTERLY FINANCIAL DATA
| Fiscal Year 2003 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Net sales | $ | 184,188 | $ | 201,184 | $ | 232,151 | $ | 254,712 | ||||||||
| Operating income | 9,404 | 21,322 | 25,726 | 34,070 | ||||||||||||
| Net income | 5,337 | 12,816 | 15,408 | 20,500 | ||||||||||||
| Diluted earnings per share | $ | .40 | $ | .98 | $ | 1.17 | $ | 1.58 | ||||||||
| 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 | ||||||||
| Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. | ||
Not applicable.
| Item 9A. 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 Disagreements With Accountantsreported 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.
As of October 31, 2003, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on Accountingthat evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Disclosure.
Not applicable.
Officer, concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2003. There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended October 31, 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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'sRegistrant’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.
The Registrant also incorporates by reference, as permitted by General Instruction G(3) to Form 10-K, information appearing in its definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b) related to the filing of delinquent reports under Section 16 of the Securities Exchange Act of 1934.
The Registrant has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, whose members are Charles W. Ritter, Jr., Phil K. Livingston and Donald W. Zacharias. All members of the audit committee are independent directors under the listing standards of the National Association of Securities Dealers. The Registrant’s Board of Directors has determined that Phil K. Livingston is an audit committee financial expert.
The Registrant has adopted a code of ethics that applies to its senior financial personnel, including its chief executive officer, chief financial officer and chief accounting officer. The Registrant will provide a copy of the code of ethics free of charge to any person upon request to:
Sanderson Farms, Inc.
P.O. Box 988
Laurel, Mississippi 39440
Attn.: Chief Financial Officer
Requests can also be made by phone at (601) 649-4030.
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'sRegistrant’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.
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | ||
As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning beneficial ownership of the Registrant'sRegistrant’s Common Stock, which is the only class of the Registrant'sRegistrant’s voting securities, appearing in the Registrant'sRegistrant’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, 20022003 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'sRegistrant’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
| (c) Number of | |||||||||||||||||||||||||
| securities remaining | |||||||||||||||||||||||||
| (a) Number of | available for future | ||||||||||||||||||||||||
| securities to be issued | (b) Weighted-average | issuance under equity | |||||||||||||||||||||||
| upon exercise of | exercise price of | compensation plans | |||||||||||||||||||||||
| outstanding options, | outstanding options, | (excluding securities | |||||||||||||||||||||||
| Plan category(1) | warrants and rights | warrants and rights | reflected in column (a)) | ||||||||||||||||||||||
| Equity compensation plans approved by security holders | 533,136 | $ | 15.00 | 437,114 | |||||||||||||||||||||
| Equity compensation plans not approved by security holders | 0 | 0 | 0 | ||||||||||||||||||||||
| Total | 533,136 | $ | 15.00 | 437,114 | |||||||||||||||||||||
| 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'sRegistrant’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 reference to the definitive proxy statement.
Item 14. Principal Accountant Fees and Services.
As permitted by General Instruction G(3) to Form 10-K, information required to be reported by Item 14 of Form 10-K is set forth in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). SuchThat 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:
| 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, 2003, 2002 and 2001 | ||
| Consolidated Statements of Income - Years ended October 31, 2003, 2002 and 2001 | ||
| Consolidated Statements of Stockholders’ Equity -Years ended October 31, 2003, 2002 and 2001 | ||
| Consolidated Statements of Cash Flows - Years ended October 31, 2003, 2002 and 2001 | ||
| Notes to Consolidated Financial Statements - October 31, 2003 | ||
| (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
| 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 January 23, 2003 (Incorporated by reference to Exhibit 3.7 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2003.) | |
| 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 |
| Exhibit | ||
| Number | Description | |
| 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.) |
| Exhibit | ||
| Number | Description | |
| 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. (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 10.19+ | Sanderson Farms, Inc. Bonus Award Program effective November 1, 2001. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report for the year ended October 31, 2002.) | |
| Exhibit | ||
| Number | Description | |
| 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 Exhibit 10-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. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) |
| Exhibit | ||
| Number | Description | |
| 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. (Incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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 Exhibit 10.1 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.) |
| Exhibit | ||
| Number | Description | |
| 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.) | |
| 10.35 | Agreement dated January 19, 2003 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 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2003.) | |
| 10.36 | Eighth Amendment to Credit Agreement dated as of July 31, 2003, 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 Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) | |
| 10.37 | Amendment dated July 20, 2003 to Agreement 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 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) | |
| 21 | List of subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 23* | Consent of Ernst & Young LLP. | |
| 31.1* | Certification of Chief Executive Officer. | |
| 31.2* | Certification of Chief Financial Officer. | |
| 32.1** | Section 1350 Certification. | |
| 32.2** | Section 1350 Certification. |
| * | Filed herewith. | |
| ** | Furnished herewith. | |
| + | Management contract or compensatory plan or arrangement. |
(b) REPORTS ON FORM 8-K:
On August 25, 2003, the Company filed a current report on Form 8-K dated that date furnishing, pursuant to Item 12, the Company’s press release announcing its earnings for the quarter ended July 31, 2002.)
10.10* Agreement dated November 13, 2002 between Sanderson Farms, Inc.
(Brazos Processing Division)2003, and containing 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 Agreementfollowing unaudited financial statements:
| • | Condensed consolidated balance sheets — July 31, 2003 and October 31, 2002 | ||
| • | Condensed consolidated statements of income — Three months ended July 31, 2003 and 2002; Nine months ended July 31, 2003 and 2002 | ||
| On August 28, 2003, the Company filed a current report on Form 8-K dated August 25, 2003 furnishing, pursuant to Item 12, a transcript of the Company’s conference call discussing its earnings for the quarter ended July 31, 2003. | |||
| On December 11, 2003, the Company filed a current report on Form 8-K dated December 9, 2003 furnishing, pursuant to Item 9, a press release related to its reaction to a revised earnings estimate for its fiscal year ending October 31, 2004, and furnishing, pursuant to Item 12, the Company’s press release announcing its earnings for the quarter and fiscal year ended October 31, 2003 and a transcript of the Company’s conference call discussing its earnings for the quarter and fiscal year ended October 31, 2003. The report contained the following unaudited financial statements: | |||
| • | Condensed consolidated balance sheets — October 31, 2003 and October 31, 2002 | ||
| • | Condensed consolidated statements of income — Three months ended October 31, 2003 and 2002; Twelve months ended October 31, 2003 and 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
| Any statement contained in this Annual Report concerning the contents of any contract or other document filed as an exhibit to this Annual Report or incorporated herein by reference is not necessarily complete, and in each instance reference is made to the copy of the document filed. |
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, 2003 and 2002 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2003. 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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2003, 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 | ||
| New Orleans, Louisiana | ||
| December 9, 2003 |
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 PlanSubsidiaries
Valuation 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
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, 2003 | |||||||||||||||||||||
| Deducted from accounts receivable: | |||||||||||||||||||||
| Allowance for doubtful accounts | |||||||||||||||||||||
| Totals | $ | 663 | $ | 727 | $ | 0 | $ | 1,390 | |||||||||||||
| Year ended October 31, 2002 | |||||||||||||||||||||
| Deducted from accounts receivable: | |||||||||||||||||||||
| Allowance for doubtful accounts | |||||||||||||||||||||
| Totals | $ | 303 | $ | 360 | $ | 0 | $ | 663 | |||||||||||||
| Year ended October 31, 2001 | |||||||||||||||||||||
| Deducted from accounts receivable: | |||||||||||||||||||||
| Allowance for doubtful accounts | |||||||||||||||||||||
| Totals | $ | 460 | $ | 44 | $ | 201 | $ | 303 | |||||||||||||
| (1) | Uncollectible accounts written off, net of |
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
| SANDERSON FARMS, INC. | ||
| /s/ Joe F. Sanderson, Jr. | ||
| Chairman of the Board, | ||
| President and Chief Executive | ||
| Officer | ||
| Date: December 30, 2003 | ||
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.
| /s/ Joe F. Sanderson, Jr. | 12/30/03 | /s/ John H. Baker, III 12/30/03 | ||
| 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 | 12/30/03 | /s/ Charles W. Ritter, Jr. 12/30/03 | ||
| William R. Sanderson, Director, | Charles W. Ritter, Jr., | |||
| Director of Marketing | Director | |||
| /s/Hugh V. Sanderson | 12/30/03 | /s/ Rowan H. Taylor 12/30/03 | ||
| Hugh V. Sanderson, Director, | Rowan H. Taylor, | |||
| Manager of Customer Relations | Director | |||
| /s/ Donald W. Zacharias | 12/30/03 | /s/ Robert Buck Sanderson 12/30/03 | ||
| Donald W. Zacharias, | Robert Buck Sanderson, Director, | |||
| Director | Corporate Live Production Assistant | |||
| /s/ Phil K. Livingston | 12/30/03 | /s/ Lampkin Butts 12/30/03 | ||
| Phil K. Livingston, | Lampkin Butts, Director, | |||
| Director | Vice President - Sales | |||
| /s/ D. Michael Cockrell | 12/30/03 | /s/James A. Grimes 12/30/03 | ||
| 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 Gail Pittman, Director | 12/30/03 |
EXHIBITS:
The registrant's other certifying officers and Ifollowing exhibits 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'sthis 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. (Incorporatedor are incorporated herein 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.
| 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 January 23, 2003 (Incorporated by reference to Exhibit 3.7 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2003.) | |
| 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, |
| Exhibit | ||
| Number | Description | |
| 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. (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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 |
| Exhibit | ||
| Number | Description | |
| 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. (Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 10.19+ | Sanderson Farms, Inc. Bonus Award Program effective November 1, 2001. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report for the year ended October 31, 2002.) | |
| 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 |
| Exhibit | ||
| Number | Description | |
| 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 Exhibit 10-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. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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. (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 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 |
| Exhibit | ||
| Number | Description | |
| Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.1 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.) | |
| 10.35 | Agreement dated January 19, 2003 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 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2003.) | |
| 10.36 | Eighth Amendment to Credit Agreement dated as of July 31, 2003, 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 Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) | |
| 10.37 | Amendment dated July 20, 2003 to Agreement 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 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) | |
| 21 | List of subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.) | |
| 23* | Consent of Ernst & Young LLP. | |
| 31.1* | Certification of Chief Executive Officer. | |
| 31.2* | Certification of Chief Financial Officer. | |
| 32.1** | Section 1350 Certification. | |
| 32.2** | Section 1350 Certification. |
| * | Filed herewith. | |
| ** | Furnished herewith. | |
| + | Management contract or compensation plan or arrangement. |