SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
/X / Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 2002
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
Commission file number : 0-16567
SANDERSON FARMS, INC.
(Exact name of registrant as specified in its charter)
Mississippi 64-0615843
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
225 North 13th Avenue
Laurel, Mississippi 39440
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 649-4030 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, $1.00 per share par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes ____ No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Aggregate market value (based on the closing sales price in the NASDAQ
National Market System) of the voting stock held by non-affiliates of the
Registrant as of November 29, 2002: approximately $111,959,484.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
X Yes ____ No
Aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant computed by reference to the closing sales
price of the common equity in the NASDAQ National Market System on the last
business day of the Registrant's most recently completed second fiscal quarter:
$134,242,781.
Number of Shares outstanding of the Registrant's common stock as of
November 30, 2002: 13,017,026 shares of common stock, $1.00 per share par value.
Portions of the Registrant's definitive proxy statement filed or to be
filed in connection with its 2003 Annual Meeting of Stockholders are
incorporated by reference into Part III.
EXPLANATORY NOTE
The Registrant amends its Annual Report on Form 10-K for the fiscal year
ended October 31, 2002 to correct errors that resulted when the Form 10-K was
converted to the Edgar format. The only revisions reflected in this amendment
relate to: (i) the "Accounts receivable, less allowance of $663,000 in 2002 and
$303,000 in 2001" and "Prepaid expenses" line items in the Registrant's
Consolidated Balance Sheets and (ii) Column C of Schedule II--Valuation and
Qualifying Accounts. This amendment refiles the entire Item 8 -- Financial
Statements and Supplementary Data, including Schedule II, both of which have
been corrected as indicated above and are reproduced below
PART II
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 41,073 40,187
Inventories 57,964 52,350
Refundable income taxes 2,764 0
Prepaid expenses 12,121 9,452
-------- -------
Total current assets 123,464 126,164
Property, plant and equipment:
Land and buildings 134,076 130,366
Machinery and equipment 255,590 248,621
------- -------
389,666 378,987
Accumulated depreciation (233,183) (216,801)
------- -------
156,483 162,186
Other assets 563 621
------- -------
Total assets $280,510 $288,971
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 25,258 $ 20,309
Accrued expenses 26,511 25,708
Current maturities of long-term debt 3,243 3,178
------- -------
Total current liabilities 55,012 49,195
Long-term debt, less current maturities 49,969 77,212
Claims payable 2,600 2,400
Deferred income taxes 17,038 15,825
Stockholders' equity:
Preferred Stock:
Series A Junior Participating Preferred Stock, $100
par value: authorized shares-500,000; none issued
Par value to be determined by the Board of Directors:
authorized shares-4,500,000; none issued
Common Stock, $1 par value: authorized shares-100,000,000;
issued and outstanding shares-13,051,026 in 2002 and
13,564,955 in 2001 13,051 13,565
Paid-in capital 0 2,945
Retained earnings 142,840 127,829
------- -------
Total stockholders' equity 155,891 144,339
------- -------
Total liabilities and stockholders' equity $280,510 $288,971
======= =======
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31
2002 2001 2000
------- -------- -------
(In thousands, except per share data)
Net sales $743,665 $706,002 $605,911
Cost and expenses:
Cost of sales 663,161 626,693 580,136
Selling, general and administrative 30,527 28,215 26,363
------- ------- -------
693,688 654,908 606,499
------- ------- -------
Operating income (loss) 49,977 51,094 (588)
Other income (expense):
Interest income 185 377 213
Interest expense (3,681) (6,753) (8,195)
Other (1) 54 69
------ ------ ------
(3,497) (6,322) (7,913)
------ ------ ------
Income (loss) before income taxes and cumulative effect
of accounting change 46,480 44,772 (8,501)
Income tax expense (benefit) 17,640 16,988 (3,164)
------ ------ ------
Income (loss) before cumulative effect
of accounting change 28,840 27,784 (5,337)
====== ====== ======
Cumulative effect of accounting change (net of income
taxes of $140,000) 0 0 (234)
------ ------ ------
Net income (loss) $28,840 $27,784 $(5,571)
====== ====== ======
Basic net income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 2.18 $ 2.04 $ (.39)
Cumulative effect of accounting change 0 0 (.02)
------ ------ ------
Net income (loss) per share $ 2.18 $ 2.04 $ (.41)
====== ====== ======
Diluted net income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 2.15 $ 2.04 $ (.39)
Cumulative effect of accounting change 0 0 (.02)
------ ------ ------
Net income (loss) per share $ 2.15 $ 2.04 $ (.41)
====== ====== ======
Weighted average shares outstanding:
Basic 13,200 13,596 13,726
====== ====== ======
Diluted 13,429 13,640 13,726
====== ====== ======
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
(In thousands, except shares and per share amounts)
Balance at November 1, 1999 13,932,455 $13,932 $5,835 $111,077 $130,844
Net loss for year (5,571) (5,571)
Cash dividends ($.20 per share) (2,740) (2,740)
Purchase and retirement of
common stock (299,500) (299) (2,219) (2,518)
----------------------------------------------------------
Balance at October 31, 2000 13,632,955 13,633 3,616 102,766 120,015
Net income for year 27,784 27,784
Cash dividends ($.20 per share) (2,721) (2,721)
Purchase and retirement of
common stock (68,000) (68) (671) (739)
----------------------------------------------------------
Balance at October 31, 2001 13,564,955 13,565 2,945 127,829 144,339
Net income for year 28,840 28,840
Cash dividends ($.40 per share) (5,245) (5,245)
Purchase and retirement of
common stock (736,079) (736) (5,320) (8,584) (14,640)
Issuance of common stock 222,150 222 2,375 2,597
----------------------------------------------------------
Balance at October 31, 2002 13,051,026 $13,051 $ 0 $142,840 $155,891
==========================================================
See accompanying notes.
SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31
2002 2001 2000
----------------------------------------
(In thousands)
Operating activities
Net income (loss) $28,840 $27,784 $(5,571)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change 0 0 374
Depreciation and amortization 24,710 25,722 26,432
Provision for losses on accounts receivable 360 44 1,413
Deferred income taxes 1,340 (178) 340
Change in assets and liabilities:
Accounts receivable (1,246) (3,193) (1,874)
Inventories (5,614) (2,088) (2,628)
Prepaid expenses and refundable income taxes (5,560) 2,791 (3,647)
Other assets (141) (205) 30
Accounts payable 4,949 2,802 5,002
Accrued expenses and claims payable 1,003 11,173 463
------ ------ ------
Total adjustments 19,801 36,868 25,905
------ ------ ------
Net cash provided by operating activities 48,641 64,652 20,334
Investing activities
Capital expenditures (19,704) (14,587) (16,557)
Net proceeds from sale of property and equipment 896 86 217
------ ------ ------
Net cash used in investing activities (18,808) (14,501) (16,340)
Financing activities
Net change in revolving credit (24,000) (28,000) 6,000
Principal payments on long-term debt (2,958) (2,954) (2,950)
Principal payments on capital lease obligation (220) (205) (195)
Dividends paid (5,245) (2,721) (2,740)
Purchase and retirement of common stock (14,640) (739) (2,518)
Net proceeds from common stock issued 2,597 0 0
------ ------ -----
Net cash used in financing activities (44,466) (34,619) (2,403)
------ ------ -----
Net change in cash and cash equivalents (14,633) 15,532 1,591
Cash and cash equivalents
at beginning of year 24,175 8,643 7,052
------ ------ ------
Cash and cash equivalents
at end of year 9,542 $24,175 $ 8,643
====== ====== ======
Supplemental disclosure of cash flow information:
Income taxes paid (refunded), net $18,675 $12,372 $ (67)
====== ====== ======
Interest paid $ 3,993 $ 6,920 $ 8,728
====== ====== ======
See accompanying notes.
Sanderson Farms, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Sanderson Farms, Inc. (the "Company") and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Business: The Company is engaged in the production, processing, marketing and
distribution of fresh and frozen chicken and other prepared food items. The
Company's net sales and cost of sales are significantly affected by market price
fluctuations of its principal products sold and of its principal feed
ingredients, corn and other grains.
The Company sells to retailers, distributors and fast food operators primarily
in the southeastern, southwestern and western United States. Revenue is
recognized when product is delivered to customers. Revenue on certain
international sales is recognized upon transfer of title, which may occur after
shipment. Management periodically performs credit evaluations of its customers'
financial condition and generally does not require collateral. Shipping and
handling costs are included as a component of cost of sales.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
maturities of ninety days or less when purchased to be cash equivalents.
Inventories: Processed food and poultry inventories and inventories of feed,
eggs, medication and packaging supplies are stated at the lower of cost
(first-in, first-out method) or market.
Live poultry inventories of broilers are stated at the lower of cost or market
and breeders at cost less accumulated amortization. The costs associated with
breeders, including breeder chicks, feed, medicine and grower pay, are
accumulated up to the production stage and amortized over nine months using the
straight-line method.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is provided by the straight-line
and units of production methods over the estimated useful lives of 19 to 39
years for buildings and 3 to 7 years for machinery and equipment.
Impairment of Long-Lived Assets: The Company continually reevaluates the
carrying value of its long-lived assets for events or changes in circumstances
which indicate that the carrying value may not be recoverable. As part of this
reevaluation, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposal. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized through a charge
to operations.
Income Taxes: Deferred income taxes are accounted for using the liability method
and relate principally to cash basis temporary differences and depreciation
expense accounted for differently for financial and income tax purposes.
Effective November 1, 1988, the Company changed from the cash to the accrual
basis of accounting for its farming subsidiary. The Taxpayer Relief Act of 1997
(the "Act") provides that the taxes on the cash basis temporary differences as
of that date are payable over 20 years beginning in fiscal 1998 or in full in
the first fiscal year in which the Company fails to qualify as a "Family Farming
Corporation." The Company will continue to qualify as a "Family Farming
Corporation" provided there are no changes in ownership control, which
management does not anticipate during fiscal 2003.
Stock Based Compensation: The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Earnings Per Share: Basic earnings per share is based upon the weighted average
number of common shares outstanding during the year. Diluted earnings per share
includes any dilutive effects of options, warrants, and convertible securities.
Fair Value of Financial Instruments: The carrying amounts for cash and temporary
cash investments approximate their fair values. The carrying amounts of the
Company's borrowings under its credit facilities and long-term debt also
approximate the fair values based on current rates for similar debt.
Impact of Recently Issued Accounting Standards: Effective in fiscal 2001, The
Company adopted FASB No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which required all derivatives to be recorded on the balance sheet
at fair value. The adoption of this statement had no effect on the consolidated
earnings and financial position of the Company.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities," which
requires that costs related to start-up activities be expensed as incurred.
Prior to October 31, 1999, the Company capitalized its start-up costs. The
Company adopted the provisions of the Statement of Position 98-5, "Reporting the
Costs of Start-Up Activities," which required that costs related to start-up
activities be expensed as incurred in its consolidated financial statements in
the first quarter of fiscal 2000. The effect of adoption of SOP 98-5 during
fiscal 2000 was to record a charge for the cumulative effect of an accounting
change of $234,000 (net of income taxes of $140,000) or $.02 per basic and
diluted earnings per share.
2. Inventories
Inventories consisted of the following:
October 31
2002 2001
-----------------------------
(In thousands)
Live poultry-broilers and breeders $33,392 $30,649
Feed, eggs and other 7,389 6,597
Processed poultry 8,423 5,894
Processed food 4,507 4,918
------ ------
Packaging materials 4,253 4,292
------ ------
$57,964 $52,350
====== ======
3. Long-term Credit Facilities and Debt
Long-term debt consisted of the following:
October 31
2002 2001
---- ----
(In thousands)
Revolving credit agreement with banks
(weighted average rate of 5.1% at
October 31, 2002) $20,000 $44,000
Term loan with an insurance company,
accruing interest at 7.49%; due in
annual principal installments of $2,850,000 2,900 5,750
Term loan with an insurance company,
accruing interest at 6.65%; due in annual
principal installments of $2,857,000,
beginning in July 2004 20,000 20,000
Note payable, accruing interest at 5%;
due in annual installments of $161,400,
including interest, maturing in 2009 957 1,065
6% Mississippi Business Investment Act
bond-capital lease obligation, due
November 1, 2012 3,055 3,275
Robertson County, Texas, Industrial
Revenue Bonds accruing interest
at a variable rate, 2.4% at October
31, 2002; with optional annual principal
installments of $900,000, due
November 1, 2005 6,300 6,300
------ ------
53,212 80,390
Less current maturities of long-term debt 3,243 3,178
------ ------
$49,969 $77,212
====== ======
The Company has a $100.0 million ($80.0 million available at October 31, 2002)
revolving credit agreement with four banks, which extends to fiscal 2005.
Borrowings are at prime or below and may be prepaid without penalty. A
commitment fee of .25% is payable quarterly on the unused portion of the
revolver. Covenants related to the revolving credit and the term loan agreements
include requirements for maintenance of minimum consolidated net working
capital, tangible net worth, debt to total capitalization and current ratio. The
agreements also establish limits on dividends, assets that can be pledged and
capital expenditures.
Property, plant and equipment with a carrying value of approximately $4,127,933
million is pledged as collateral to a note payable and the capital lease
obligation.
The aggregate annual maturities of long-term debt at October 31, 2002 are as
follows (in thousands):
Fiscal Year Amount
2003 $ 3,243
2004 6,264
2005 11,285
2006 11,306
2007 11,333
Thereafter 9,781
-------
$53,212
=======
4. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended October 31
2002 2001 2000
-----------------------------
(In thousands)
Current:
Federal $14,670 $15,518 $(3,600)
State 1,630 1,450 (44)
-------------------------------
16,300 16,968 (3,644)
Deferred:
Federal 1,226 (264) 325
State 114 284 15
-------------------------------
1,340 20 340
-------------------------------
17,640 16,988 (3,304)
Less income tax expense applicable
to cumulative effect of accounting
change 0 0 140
-------------------------------
Income tax expense (benefit) applicable
to income (loss) before cumulative
effect of accounting change $17,640 $16,988 $(3,164)
===============================
Significant components of the Company's deferred tax assets and liabilities were
as follows:
October 31,
2002 2001
-----------------------
(In thousands)
Deferred tax liabilities:
Cash basis temporary differences $2,994 $ 3,193
Property, plant and equipment 14,986 13,937
Prepaid and other assets 1,066 278
------ ------
Total deferred tax liabilities 19,046 17,408
Deferred tax assets:
Accrued expenses and accounts receivable 3,736 3,156
State net operating loss and credit carryforwards 0 282
------ ------
Total deferred tax assets 3,736 3,438
------ ------
Net deferred tax liabilities $15,310 $13,970
====== ======
Current deferred tax assets
(included in prepaid expenses) $ 1,728 $ 1,855
Long-term deferred tax liabilities 17,038 15,825
------ ------
Net deferred tax liabilities $15,310 $13,970
====== ======
The differences between the consolidated effective income tax rate and the
federal statutory rate are as follows:
Years ended
October 31
2002 2001 2000
--------------------------
(In thousands)
Income taxes (benefit) at statutory rate $16,268 $15,670 $(3,018)
State income taxes (benefit) 1,511 1,754 (19)
State income tax credit 0 (627) 0
Increase in deferred taxes
for change in income tax rate 0 367 0
Other, net (139) (176) (267)
----------------------------
Income tax expense (benefit) $17,640 $16,988 $(3,304)
============================
5. Employee Benefit Plans
The Company has an Employee Stock Ownership Plan ("ESOP") covering substantially
all employees. Contributions to the ESOP are determined at the discretion of the
Company's Board of Directors. Total contributions to the ESOP were $2,500,000
and $2,300,000 in fiscal 2002 and 2001, respectively. The Company did not make a
contribution to the ESOP in fiscal 2000.
The Company has a 401(k) Plan which covers substantially all employees after six
months of service. Participants in the Plan may contribute up to the maximum
allowed by IRS regulations. Effective July 1, 2000, the Company matches 100% of
employee contributions to the 401(k) Plan up to 3% of each employee's
compensation and 50% of employee contributions between 3% and 5% of each
employee's compensation. The Company's contributions to the 401(k) Plan totaled
$1,463,000 in fiscal 2002, $1,411,000 in fiscal 2001 and $457,000 in fiscal
2000.
6. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options.
Under the Company's Stock Option Plan, 750,000 shares of Common Stock have been
reserved for grant to key management personnel. Options granted in fiscal 2002,
2001 and 2000 have ten-year terms and vest over four years beginning one year
after the date of grant.
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 3.5% in fiscal 2002 and 5.0% in fiscal
2001 and 6.6% in fiscal 2000; dividend yields of 2.0% for fiscal 2002 and fiscal
2001and 2.7% for fiscal 2000; volatility factors of the expected market price of
the Company's Common Stock of .325 for fiscal 2002, .350 for fiscal 2001 and
..302 for fiscal 2000; and a weighted-average expected life of the options of
four years.
The weighted-average fair value of options granted was $4.73 in fiscal 2002,
$3.24 in fiscal 2001 and $1.94 in fiscal 2000. The pro forma effect of the
estimated fair value of the options granted was insignificant to the Company's
net income (loss) and net income (loss) per share in fiscal 2002, 2001, and
2000.
A summary of the Company's stock option activity and related information is as
follows:
Weighted-Average
Shares Exercise Price
-------------------------------
Outstanding at November 1, 1999 582,000 $12.90
Granted 141,000 7.47
Forfeited (84,000) 11.60
-------
Outstanding at October 31, 2000 639,000 11.83
Granted 71,500 11.10
Forfeited (87,500) 11.11
Outstanding at October 31, 2001 623,000 11.81
Granted 322,886 18.05
Exercised (222,150) 11.79
Forfeited (2,000) 7.47
------- -----
Outstanding at October 31, 2002 721,736 $14.41
======= =====
The exercise price of the options outstanding as of October 31, 2002 ranged from
$7.19 to $18.55 per share. At October 31, 2002, the weighted average remaining
contractual life of the options outstanding was 8 years and 305,537 options were
exercisable.
In fiscal 2000, the Company granted 141,000 "phantom shares" to certain key
management personnel. Upon exercise of a phantom share, the holder will receive
a cash payment or an equivalent number of shares of the Company's Common Stock,
at the Company's option, equal to the excess of the fair market value of the
Company's Common Stock over the phantom share award value of $7.47 per share.
The phantom shares have a ten-year term and vest over four years beginning one
year after the date of grant. Compensation expense of $421,000 and $555,000 is
included in selling, general and administrative expense in the accompanying
consolidated statement of income for fiscal 2002 and fiscal 2001, respectively.
No compensation expense was recognized applicable to the phantom shares in
fiscal 2000 because the award value exceeded the fair market value of the
Company's Common Stock.
7. Shareholder Rights Agreement
On April 22, 1999, the Company adopted a shareholder rights agreement (the
"Agreement") with similar terms as the previous one. Under the terms of the
Agreement a one share purchase ("right") was declared as a dividend for each
share of the Company's Common Stock outstanding on May 4, 1999. The rights do
not become exercisable and certificates for the rights will not be issued until
ten business days after a person or group acquires or announces a tender offer
for the beneficial ownership of 20% or more of the Company's Common Stock.
Special rules set forth in the Agreement apply to determine beneficial ownership
for members of the Sanderson family. Under these rules, such a member will not
be considered to beneficially own certain shares of Common Stock, the economic
benefit of which is received by any member of the Sanderson family, and certain
shares of Common Stock acquired pursuant to employee benefit plans of the
Company.
The exercise price of a right has been established at $75. Once exercisable,
each right would entitle the holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $100 per share. The
rights may be redeemed by the Board of Directors at $.01 per right prior to an
acquisition, through open market purchases, a tender offer or otherwise, of the
beneficial ownership of 20% or more of the Company's Common Stock, or by
two-thirds of the Directors who are not the acquirer, or an affiliate of the
acquirer prior to the acquisition of 50% or more of the Company's Common Stock
by such acquirer. The rights expire on May 4, 2009.
8. Other Matters
On April 5, 2000, thirteen individuals claiming to be former hourly employees of
the Company's processing subsidiary (Sanderson Farms, Inc. (Processing Division)
(the "Processing Division")) filed a lawsuit in the United States District Court
for the Southern District of Texas claiming that the Processing Division
violated requirements of the Fair Labor Standards Act. The Plaintiffs' lawsuit
also purported to represent similarly situated workers who filed consents to be
included as plaintiffs in the suit. A total of 109 individuals consented to join
the lawsuit.
The lawsuit alleges that the Processing Division (1) failed to pay its hourly
employees "for time spent donning and doffing sanitary and safety equipment,
obtaining and sharpening knives and scissors, working in the plant and elsewhere
before and after the scheduled end of the shift, cleaning safety equipment and
sanitary equipment, and walktime," and (2) altered employee time records by
using an automated time keeping system. Plaintiffs further claim that the
Processing Division concealed the alteration of time records and seek on that
account an equitable tolling of the statute of limitations beyond the three-year
limitation period back to the date the automated time-keeping system was
allegedly implemented.
Plaintiffs sought an unspecified amount of unpaid hourly and overtime wages plus
an equal amount as liquidated damages, for present and former hourly employees
who file consents to join in the lawsuit. There were 6,476 hourly workers
employed at the Processing Division's plants as of October 31, 2002.
On April 24, 2001, the Court granted the Processing Division's summary judgment
motion and entered a final judgment in favor of the Processing Division.
Plaintiffs appealed that decision to the United States Fifth Circuit Court of
Appeals. On March 7, 2002, the United States Fifth Circuit Court of Appeals
affirmed the decision of the United States District Court granting the
Processing Division's motion for summary judgment. The plaintiffs had 90 days
from March 7, 2002 to request that the United States Supreme Court hear an
appeal of this case, which time has expired.
On May 15, 2000, an employee of the Company's production subsidiary (Sanderson
Farms, Inc. (Production Division) (the "Production Division")), filed suit
against the Production Division in the United States District Court for the
Southern District of Texas on behalf of live-haul drivers to recover an
unspecified amount of overtime compensation and liquidated damages.
Approximately 26 employees filed consents to join in this lawsuit.
Previously, the United States Department of Labor ("DOL") filed a similar suit
against the Production Division in the United States District Court for the
Southern District of Mississippi, Hattiesburg Division, on behalf of live-haul
employees at the Production Division's Laurel, Mississippi facility. Both
lawsuits were brought under the Fair Labor Standards Act and seek recovery of
overtime compensation, together with an equal amount as liquidated damages, for
live-haul employees (i.e., live-haul drivers, chicken catchers, and
loader-operators) employed by the Production Division. The lawsuits assert that
additional overtime compensation and liquidated damages may be owed to certain
employees. The lawsuits also seek an injunction to prevent the withholding of
overtime compensation to live-haul employees in the future.
On January 18, 2001, the United States District Court for the Southern District
of Texas granted the Production Division's request to move the suit pending
before that court to the Southern District of Mississippi, Hattiesburg Division.
The Production Division later filed its motion with the United States District
Court for the Southern District of Mississippi to have the two cases
consolidated, which motion was granted. On February 4, 2002, the Production
Division reached a settlement with the Department of Labor that fully and
completely compromised and settled the claims of all live-haul employees in the
Production Division, other than certain Production Division employees
represented in a collective bargaining agreement in Texas. The settlement,
approved by the court on March 11, 2002, and pursuant to which the Production
Division paid during its second fiscal quarter (accrued during its first fiscal
quarter) approximately $450,000 in back pay and interest to the involved current
and former employees in the Production Division's Mississippi and Texas
operations, terminates the private rights of these employees under the Fair
Labor Standards Act with respect to the claims made in this suit. With respect
to approximately 74 employees represented under a collective bargaining
agreement in Texas, the court entered its Order Granting Joint Motion for Court
Approval of Settlement on November 4, 2002. The final settlement of this matter
will become effective upon a ruling by the court on the plaintiff's request for
award of attorney's fees. The court is scheduled to hear arguments on the
attorney's fees issue on January 7, 2003. The Production Division will pay
approximately $188,000 in back pay to the Texas employees as part of the
settlement, and this amount is accrued and reflected in the Company's
accompanying consolidated financial statements.
Substantially similar lawsuits to those described above have been filed against
other integrated poultry companies. In addition, organizing activity conducted
by the representatives or affiliates of the United Food and Commercial Workers
Union against the poultry industry has encouraged worker participation in these
and the other lawsuits.
On September 26, 2000, three current and former contract growers filed suit
against the Company in the Chancery Court of Lawrence County, Mississippi. The
plaintiffs filed suit on behalf of "all Mississippi residents to whom, between
on or about November 1981 and the present, the Company induced into growing
chickens for it and paid compensation under the so-called `ranking system'."
Plaintiffs allege that the Company "has defrauded plaintiffs by unilaterally
imposing and utilizing the so-called `ranking system' which wrongfully places
each grower into a competitive posture against other growers and arbitrarily
penalizes each less successful grower based upon criteria which were never
revealed, explained or discussed with plaintiffs." Plaintiffs further allege
that they are required to accept chicks that are genetically different and with
varying degrees of healthiness, and feed of dissimilar quantity and quality.
Finally, plaintiffs allege that they are ranked against each other although they
possess dissimilar facilities, equipment and technology. Plaintiffs seek an
unspecified amount in compensatory and punitive damages, as well as varying
forms of equitable relief.
The Company is vigorously defending and will continue to vigorously defend this
action. On November 22, 2002, the Court denied the Company's motions to compel
arbitration, challenging the jurisdiction of the Chancery Court of Lawrence
County, Mississippi, and seeking to have the case dismissed pursuant to rule
5(c) of the Mississippi Rules of Civil Procedure. The Company then filed its
motion for interlocutory appeal on these issues with the Mississippi State
Supreme Court. On December 6, 2002, the Mississippi State Supreme Court agreed
to hear this motion and stayed the action in the Chancery Court pending
disposition of this motion. This matter is pending. As with the wage and hour
and donning and doffing lawsuits discussed above, substantially similar lawsuits
have been filed against other integrated poultry companies.
On August 2, 2002, three contract egg producers filed suit against the Company
in the Chancery Court of Jefferson Davis County, Mississippi. The Plaintiffs
filed suit on behalf of "all Mississippi residents who, between June 1993 and
the present, [the Company] fraudulently and negligently induced into housing,
feeding and providing water for [the Company's] breeder flocks and gathering,
grading, packaging and storing the hatch eggs generated by said flocks and who
have been compensated under the payment method established by the [Company]."
Plaintiffs alleged that the Company "has defrauded Plaintiffs by unilaterally
imposing and utilizing a method of payment which wrongfully and arbitrarily
penalizes each grower based upon criteria which are under the control of the
[Company] and which were never revealed, explained or discussed with each
Plaintiff." Plaintiffs allege that they were required to accept breeder hens and
roosters which are genetically different, with varying degrees of healthiness,
and feed of dissimilar quantity and quality. Plaintiffs further allege
contamination of and damage to their real property. Plaintiffs alleged that they
were "fraudulently and negligently induced into housing, feeding and providing
water for the Company's breeder flocks and gathering, grading, packaging and
storing the hatch eggs produced from said flocks" for the Company. Plaintiffs
seek an unspecified amount of compensatory and punitive damages, as well as
various forms of equitable relief. The Company will vigorously defend this
lawsuit.
On July 25, 2002, a current contract grower and her husband filed suit against
the Company and Farmers State Bank, N.A. in the District Court of Milam County,
Texas. The Plaintiffs alleged "a conspiracy to defraud Plaintiffs in connection
with [the Company's] promotion of a get-rich-quick scheme portrayed to
Plaintiffs as a good investment for Plaintiff's future." The Plaintiffs further
alleged that the Company and Farmers State Bank "conspired to defraud Plaintiffs
by convincing them to purchase farm land, execute loan documents for the
construction of chicken barns, and then forcing them to sign contracts of
adhesion that made Plaintiffs the domestic servants of the defendants." The
Plaintiffs further alleged that the Company and Farmers State Bank violated the
Texas Deceptive Trade Practices-Consumer Protection Act. Plaintiffs seek an
unspecified amount in compensatory damages, treble damages, attorney's fees,
pre- and post-judgement interest and all costs of court. The Plaintiffs also
seek a Permanent Injunction enjoining the Farmers State Bank from foreclosing on
or otherwise taking possession or control of Plaintiff's real estate and the
improvements thereon and other equitable relief. On August 8, 2002, the court
heard arguments on the Plaintiff's motion for permanent injunction and on the
Company's motion to stay the proceeding with respect to its pending arbitration
of the matter as required by the Egg Producers Contract entered into by and
between one of the Plaintiffs and the Company. On August 19, 2002, the court
granted the Company's motion to compel arbitration in this case with respect to
the Company and its grower pursuant to the arbitration provision of the
contract. The case before the District Court of Milam County, Texas will be
stayed pending arbitration between the Company and its grower. No arbitration
date has been set. The Company will vigorously defend this matter.
The Company is also a party to lawsuits against various vitamin and methionine
suppliers arising out of alleged price fixing activities by the defendants. For
more information about these lawsuits, please see the section of this Report
entitled "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations."
The Company is also involved in various claims and litigation incidental to its
business. Although the outcome of the matters referred to in the preceding
sentence cannot be determined with certainty, management, upon the advice of
counsel, is of the opinion that the final outcome should not have a material
effect on the Company's consolidated results of operation or financial position.
Sanderson Farms, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
-----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
-----------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Classification of Period Expenses Accounts Describe(1) Period
-----------------------------------------------------------------------------------------------------
(In Thousands)
Year ended October 31, 2002
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $303 $360 $0 $663
Year ended October 31, 2001
Deducted from accounts
receivable:
Allowance for doubtful
accounts
Totals $460 $44 $201 $303
Year ended October 31, 2000
Deducted from accounts
receivable:
Allowance for doubtful
Accounts
Totals $249 $1,413 $1,202 $460
(1) Uncollectible accounts written off, net of recoveries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment 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 30, 2002
CERTIFICATION
I, Joe F. Sanderson, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Sanderson Farms,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 30, 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 30, 2002
/s/ D. Michael Cockrell
-----------------------
D. Michael Cockrell
Treasurer, Chief Financial Officer and
Director (Principal Financial Officer)