10-Q 1 form10q02.txt FORM 10Q FOR SECOND QUARTER ENDED APRIL 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2002 ------------------------------------ OR ( ) 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 (I.R.S. Employer incorporation or organization) Identification No.) 225 North Thirteenth Avenue Laurel, Mississippi 39440 ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) [GRAPHIC OMITTED] (601) 649-4030 (Registrant's telephone number, including area code) [GRAPHIC OMITTED] Not Applicable (Former name, former address and former fiscal year, if changed since last report.) 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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No _____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes _____ No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $1 Per Share Par Value-----13,110,276 shares outstanding as of April 30, 2002. INDEX SANDERSON FARMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--April 30, 2002 and October 31, 2001 Condensed consolidated statements of income--Three months ended April 30, 2002 and 2001; Six months ended April 30, 2002 and 2001 Condensed consolidated statements of cash flows--Six months ended April 30, 2002 and 2001 Notes to condensed consolidated financial statements-- April 30, 2002 and 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures of Market Risks PART II OTHER INFORMATION Item 1. Legal Matters Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I. FINANCIAL INFORMATION Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, October 31, 2002 2001 ----------- ---------- (Unaudited) (Note 1) (In thousands) Assets Current assets Cash and temporary cash investments $ 6,585 $ 24,175 Accounts receivables, net 39,223 40,187 Inventories - Note 2 60,373 52,350 Refundable income taxes 1,127 0 Other current assets 12,845 9,452 -------- -------- Total current assets 120,153 126,164 Property, plant and equipment 389,348 378,987 Less accumulated depreciation (227,342) (216,801) -------- -------- 162,006 162,186 Other assets 543 621 -------- -------- Total assets $282,702 $288,971 ======== ======== Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 38,110 $ 46,017 Current maturities of long- term debt 3,233 3,178 ------ ------ Total current liabilities 41,343 49,195 Long-term debt, less current maturities 79,199 77,212 Claims payable 2,400 2,400 Deferred income taxes 15,825 15,825 Stockholders' equity Preferred Stock: Series A Junior Participating Preferred Stock, $100 par value: authorized 500,000 shares; none issued Par value to be determined by the Board of Directors: authorized 4,500,000 shares; none issued Common Stock, $1 par value: authorized 100,000,000 shares; issued and outstanding shares - 13,110,276 and 13,564,955 at April 30, 2002 and October 31, 2001, respectively 13,110 13,565 Paid-in capital 946 2,945 Retained earnings 129,879 127,829 -------- -------- Total stockholders' equity 143,935 144,339 -------- -------- Total liabilities and stockholders' equity $282,702 $288,971 ======== ========
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended April 30, April 30, 2002 2001 2002 2001 ----------------- ------------------ (In thousands, except per share data) Net sales $175,413 $163,583 $339,940 $315,664 Cost and expenses: Cost of sales 155,560 147,352 303,663 291,912 Selling, general and administrative 6,471 6,163 13,398 11,345 ------- ------- ------- ------- 162,031 153,515 317,061 303,257 ------- ------- ------- ------- OPERATING INCOME 13,382 10,068 22,879 12,407 Other income (expense): Interest income 10 59 51 190 Interest expense (953) (1,880) (1,954) (3,907) Other (6) (243) (3) (74) ------- ------- ------- ------- (949) (2,064) (1,906) (3,791) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 12,433 8,004 20,973 8,616 Income tax expense 4,725 2,986 7,970 3 214 ------- ------- ------- ------- NET INCOME $ 7,708 $ 5,018 $ 13,003 $ 5,402 ======= ======= ======= ======= Earnings per share: Basic $ .59 $ .37 $ .98 $ .40 ======= ======= ======= ====== Diluted $ .58 $ .37 $ .97 $ .40 ======= ======= ======= ====== Dividends per share $ .10 $ .05 $ .20 $ .10 ======= ======= ======= ====== Basic weighted average shares outstanding 13,072 13,601 13,264 13,617 ======= ======= ======== ======= Diluted weighted average shares outstanding 13,308 13,636 13,468 13,640 ======= ======= ======== =======
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended April 30, 2002 2001 ---- ---- (In thousands) Operating activities Net income $ 13,003 $ 5,402 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,261 12,994 Change in assets and liabilities: (Increase) decrease in accounts receivable, net 964 (119) Increase in inventories (8,023) (1,917) (Increase)decrease in refundable income taxes (1,127) 3,141 Increase in other assets (3,410) (1,212) Decrease in accounts payable and accrued expenses (7,907) (559) ------ ------ Total adjustments (7,242) 12,328 ------ ------ Net cash provided by operating activities 5,761 17,730 Investing activities Net proceeds from sales of property and equipment 19 57 Capital expenditures (12,005) (6,103) ------ ------ Net cash used in investing activities (11,986) (6,046) Financing activities Principal payments on long-term debt (2,958) (2,954) Net change in revolving credit 5,000 (7,000) Purchase and retirement of common stock (12,935) (406) Net proceeds from common stock issued 2,141 0 Dividends paid (2,613) (1,363) ------ ------ Net cash used in financing activities (11,365) (11,723) ------ ------- Net decrease in cash and temporary cash investments (17,590) (39) Cash and temporary cash investments at beginning of period 24,175 8,643 ------ ------ Cash and temporary cash investments at end of period $ 6,585 $ 8,604 ====== ======
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) April 30, 2002 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three- and six-month periods ended April 30, 2002 are not necessarily indicative of the results that may be expected for the year ending October 31, 2002. The consolidated balance sheet at October 31, 2001 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended October 31, 2001. NOTE 2--INVENTORIES Inventories consisted of the following:
April 30, October 31, 2002 2001 ---------- ---------- (In thousands) Live poultry-broilers and breeders $35,267 $30,649 Feed, eggs and other 7,847 6,597 Processed poultry 6,990 5,894 Processed food 6,030 4,918 Packaging materials 4,239 4,292 ------- ------- $60,373 $52,350 ======= =======
NOTE 3--COST OF SALES In April 2002, the Company recognized $2,562,595 in a vendor settlement pertaining to overcharges for vitamins purchased by the Company over a number of years. The settlement is reflected in the accompanying condensed consolidated financial statements in other current assets as of April 30, 2002 and as a reduction of cost of sales in the three- and six-month periods ending April 30, 2002. NOTE 4--INCOME TAXES Deferred income taxes relate principally to cash basis temporary differences and depreciation expense which are 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 the next 20 years 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 2002. NOTE 4-IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following Discussion and Analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Company's Annual Report on Form 10-K for its fiscal year ended October 31, 2001. This Quarterly Report, and other periodic reports filed by the Company under the Securities Exchange Act of 1934, and other written or oral statements made by it or on its behalf, may include forward-looking statements, which are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to the following: (1) Changes in the market price for the Company's finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets. (2) Changes in economic and business conditions, monetary and fiscal policies or the amount of growth, stagnation or recession in the global or U.S. economies, either of which may affect the value of inventories, the collectability of accounts receivable or the financial integrity of customers. (3) Changes in the political or economic climate, trade policies, laws and regulations or the domestic poultry industry of countries to which the Company or other companies in the poultry industry ship product. (4) Changes in laws, regulations, and other activities in government agencies and similar organizations applicable to the Company and the poultry industry. (5) Various inventory risks due to changes in market conditions. (6) Changes in and effects of competition, which is significant in all markets in which the Company competes. The Company competes with regional and national firms, some of which have greater financial and marketing resources than the Company. (7) Changes in accounting policies and practices adopted voluntarily by the Company or required to be adopted by accounting principles generally accepted in the United States. Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of Sanderson Farms. Each such statement speaks only as of the day it was made. The Company undertakes no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by the Company. When used in this quarterly report, the words "believes", "estimates", "plans", "expects", "should", "outlook", and "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. The Company's poultry operations are integrated through its control of all functions relative to the production of its chicken products, including hatching egg production, hatching, feed manufacturing, raising chickens to marketable age ("grow out"), processing, and marketing. Consistent with the poultry industry, the Company's profitability is substantially impacted by the market prices for its finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets. Other costs, excluding feed grains, related to the profitability of the Company's poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices. The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margins 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. Nevertheless, market prices continue to have a significant influence on prices of the Company's chicken products. The Company adds value to its poultry products by performing one or more processing steps beyond the stage where the whole chicken is first saleable as a finished product, such as cutting, deep chilling, packaging and labeling the product. The Company believes that one of its major strengths is its ability to change its product mix to meet customer demands. The Company's processed and prepared foods product line includes over 200 institutional and consumer packaged food items that it sells nationally and regionally, primarily to distributors, food service establishments and retailers. A majority of the prepared food items are made to the specifications of food service users. Results of Operations During the second quarter of fiscal 2002 the Company's nets sales were $175.4 million as compared to $163.6 million during the second quarter of fiscal 2001, an increase of $11.8 million or 7.2%. Net sales of poultry products increased $9.2 million or 6.3%. This increase is the result of an increase in the pounds of poultry products sold of 9.6% and a decrease in the average sale prices of poultry products during the quarter of 3.0%. The increase in the pounds of poultry products sold is due to an increase in the average live weight of chickens sold and an increase in the number of chickens produced. During the second quarter of fiscal 2002 the Company was negatively impacted by lower market prices for leg quarters, wings, boneless breast meat and breast tenders. Leg quarter prices were approximately 10.6% lower in the second quarter of fiscal 2002 as compared to the second quarter of fiscal 2001. This softening in leg quarter prices was caused in part by the Russian embargo of U.S. poultry meat. Boneless breast meat prices decreased 6.4% during the second quarter while wings and tenders also decreased significantly by 29.7% and 10.2%, respectively. Net sales of prepared food products increased 15.2% due to an increase in the pounds sold of prepared food products of 9.1% and an increase in the average sale price of prepared food products of 5.6%. For the first six months of fiscal 2002 net sales were $339.9 million, an increase of $24.2 million when compared to net sales of $315.7 million for the first six months of fiscal 2001. This increase in net sales was the result of an increase in the pounds of products sold of 7.3%. Pounds of poultry products sold increased 7.4% due to an increase in the average live weight of chickens sold, and to a lesser extent, an increase in the number of chickens produced. The Company's average sales price of poultry products decreased .25% during the six months ended April 30, 2002 as compared to the six months ended April 30, 2001. During the first six months of fiscal 2002 as compared to the first six months of fiscal 2001, the market prices for boneless breast meat and wings were 1.6% and 14.3% lower, respectively, while breast tenders decreased by 19.6%. A simple average of the Georgia dock whole bird prices increased 2.4% during these same periods. Net sales of prepared food products increased $4.4 million or 12.5% during the first six months of fiscal 2002 as compared to the first six months of fiscal 2001. The increase reflects an increase in the average sales price of prepared food products sold of 6.4% and an increase in the pounds of prepared food products sold of 5.7%. For the three months ended April 30, 2002, cost of sales increased $8.2 million or 5.6%, which is net of a $2.6 million settlement awarded in April 2002 from a vendor for overcharging the Company for vitamins, as compared to the same three-month period ended April 30, 2001. Cost of sales of poultry products increased $6.1 million or 4.6%. The average cost of sales of poultry products per pound decreased 4.5% during the second quarter of fiscal 2002 compared to the second quarter of fiscal 2001 as the Company continued to benefit from improved operating performance, lower energy costs and the settlement for vitamins discussed above. The average market prices for corn and soy meal for the three months ended April 30, 2002 as compared to the three months ended April 30, 2001 decreased .6% and increased .7%, respectively. Cost of sales of prepared food products increased $2.1 million or 14.1% due to an increase in the volume of prepared food product sold and a change in mix. Cost of sales during the six months ended April 30, 2002 as compared to the same six months ended April 30, 2001 increased $11.8 million or 4.0%, which is net of a $2.6 million settlement awarded in April 2002 from a vendor for overcharging the Company for vitamins. Cost of sales of poultry products sold increased 3.1%. The increase in the cost of sales of poultry products reflects a decrease in the average cost of sales per pound of poultry products of 4.0% as the Company benefitted from improved operating performance, lower energy costs and the settlement for vitamins discussed above. Corn and soy meal cash market prices for the first six months of fiscal 2002 as compared to the first six months of fiscal 2001 decreased .9% and 5.3%, respectively. Cost of sales of prepared food products increased $3.5 million or 11.9%. Selling, general and administrative expenses increased $308,000 or 5.0% during the second quarter of fiscal 2002 as compared to the same quarter of fiscal 2001. Selling, general and administrative expenses increased $2.1 million during the first half of fiscal 2002 as compared to the first half of fiscal 2001. The increase resulted from additional accruals for contributions to the Company's Employee Stock Ownership Plan based on the Company's increased profitability and for certain phantom stock grants made in fiscal 2000. The Company's operating income for the three months ended April 30, 2002 was $13.4 million. The Company's operating income for the three months ended April 30, 2001 was $10.1 million. During the second quarter of fiscal 2002 as compared to the same quarter during fiscal 2001, an improvement in the operating performance and marketing execution was partially offset by lower average prices for poultry products. For the six months ended April 30, 2002 the Company's operating income was $22.9 million as compared to an operating income of $12.4 million for the first six months ended April 30, 2001. The improvement of $10.5 million reflects steady overall market prices for poultry products, improved operating performance and marketing execution, the settlement awarded from a vendor for overcharging the Company and lower energy costs. The improved performance was partially offset by additional costs and inefficiencies related to the conversion of the Company's Hazlehurst, Mississippi plant from a small bird plant to a big bird plant. During the week of January 21, 2002, the Company shut down the Hazlehurst plant to install the equipment necessary to complete its conversion. Interest expense during the second quarter of fiscal 2002 was $1.0 million as compared to $1.9 million during the same period a year ago. For the first six months ended April 30, 2002, interest expense was $2.0 million as compared to $3.9 million. This reduction in interest expense during fiscal 2002 as compared to fiscal 2001 resulted from less debt outstanding and lower interest rates. Since January 31, 2001 the Company has reduced its outstanding debt by $24.0 million. The Company expects interest expense to remain significantly lower through the remainder of fiscal 2002 as compared to the same periods a year ago. The Company's effective tax rates for fiscal 2002 and fiscal 2001 were 38.0% and 37.3%, respectively. LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2002, the Company's working capital was $78.8 million and its current ratio was 2.9 to 1. The Company's working capital at October 31, 2001 was $77.0 million and its current ratio was 2.6 to 1. During the first six months of fiscal 2002,the Company spent approximately $12.0 million on planned capital projects, including approximately $4.8 million to convert facilities to accommodate big bird production at Hazlehurst, Mississippi. In addition, during the first quarter of fiscal 2002 the Company spent approximately $12.7 million to purchase and retire 621,079 shares, or 4.5% of the Company's outstanding common stock, from two major shareholders, the estates of Joe Frank Sanderson and Dewey R. Sanderson, Jr. The Company's capital budget for fiscal 2002 is approximately $22.1 million, and will be funded by internally generated working capital and cash flows from operations. However, if needed, the Company has $41.0 million available under its revolving credit agreement as of April 30, 2002. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK There have been no material changes in the market risks reported in the Company's fiscal 2001 Annual Report on 10K. PART II. OTHER INFORMATION Item 1. 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 purports to represent similarly situated workers who have filed or will file consents to be included as plaintiffs in the suit. A total of 109 individuals have 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 seek an unspecified amount of unpaid hourly and overtime wages plus an equal amount as liquidated damages, for present and former hourly employees who file consents to join in the lawsuit. There were 5,887 hourly workers employed at the Processing Division's plants as of April 30, 2002. On April 21, 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, where oral argument was heard on March 5, 2002. 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 14 days from March 7, 2002 to file a petition for rehearing, which time has expired. The plaintiffs have 90 days from March 7, 2002 to request that the United States Supreme Court hear an appeal of this case. 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 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 as a liability and expensed during the 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 case is still pending and the court has indicated it will set the case for trial during March 2003. 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 and will continue to vigorously defend this action. The Company's motions to compel arbitration and challenging the jurisdiction of the Chancery Court of Lawrence County, Mississippi are currently pending, and no trial date has been set. Until the court rules on the Company's pending motions regarding arbitration and jurisdiction, the Company will conduct no discovery in the matter, unless directed to do so by Court Order. As with the wage and hour and donning and doffing lawsuits discussed above, substantially similar lawsuits have been filed against other integrated poultry companies. 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. The matters described above in this Item 1 of Part II were also discussed in Item 1 of Part II of the Company's Quarterly Report on Form 10-Q filed by the Company for its first quarter ended January 31, 2002 Item 4: Submission of Matters to a Vote of Security Holders At the 2002 Annual Meeting of Shareholders of Sanderson Farms, Inc. held February 28, 2002, the shareholders elected the following persons to the Company's Board of Directors by the votes indicated below: Name For Withheld --------------------------------------------------------- Joe F. Sanderson, Jr. 11,649,582 1,094,789 Charles W. Ritter, Jr. 11,805,865 938,506 Phil K. Livingston 11,805,548 938,823 Lampkin Butts 11,649,257 1,095,114 By a vote of 12,728,475 for, 11,600 against, and 4,296 abstaining, the shareholders ratified the Board's selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending October 31, 2002. By a vote of 10,002,205 for, 1,723,661 against and 23,476 abstaining, the shareholders approved amending and restating the Sanderson Farms, Inc. and affiliates Stock Option Plan. By a vote of 10,551,948 for, 1,168,869 against and 28,525 abstaining, the shareholders ratified and approved the April 20, 2000 award of Phantom Stock to certain executive officers and key employees. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this report. Exhibit 15a* Independent Accountants' Review Report Exhibit 15b* Accountants' Letter re: Unaudited Financial Information. (b) The Company did not file any reports on Form 8-K during the three months ended April 30, 2002. -------------- * Filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officers. _____ SANDERSON FARMS, INC. _______ (Registrant) Date: May 28, 2002 By: /s/D. Michael Cockrell Treasurer and Chief Financial Officer Date: May 28, 2002 By: /s/James A. Grimes Secretary and Principal Accounting Officer INDEX TO EXHIBITS Exhibit Number Description of Exhibit 15a* Independent Accountants' Review Report 15b* Accountants' Letter re: Unaudited Financial Information. -------------- * Filed herewith.