-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F5jUT/uIt6W4kiYjxto5yD9vGHlGuI3oD8UMNYHWxhP/eWpi6WR5S+RfZDLumFq+ mCG/tbNIuWNGYVU4fa+Esg== 0000812128-02-000130.txt : 20020822 0000812128-02-000130.hdr.sgml : 20020822 20020822094412 ACCESSION NUMBER: 0000812128-02-000130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDERSON FARMS INC CENTRAL INDEX KEY: 0000812128 STANDARD INDUSTRIAL CLASSIFICATION: POULTRY SLAUGHTERING AND PROCESSING [2015] IRS NUMBER: 640615843 STATE OF INCORPORATION: MS FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14977 FILM NUMBER: 02745300 BUSINESS ADDRESS: STREET 1: 225 N 13TH AVE STREET 2: PO BOX 988 CITY: LAUREL STATE: MS ZIP: 39441 BUSINESS PHONE: 6016494030 MAIL ADDRESS: STREET 1: 225 N 13TH AVENUE STREET 2: PO BOX 988 CITY: LAUREL STATE: MS ZIP: 39441 10-Q 1 form10q3.txt FORM 10-Q FOR JULY 31, 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 July 31, 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) (601) 649-4030 (Registrant's telephone number, including area code) 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-----13,150,276 shares outstanding as of July 31, 2002. INDEX SANDERSON FARMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--July 31, 2002 and October 31, 2001 Condensed consolidated statements of income--Three months ended July 31, 2002 and 2001; Nine months ended July 31, 2002 and 2001 Condensed consolidated statements of cash flows-Nine months ended July 31, 2002 and 2001 Notes to condensed consolidated financial statements-- July 31, 2002 and 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risks PART II OTHER INFORMATION Item 1. Legal Matters Item 6. Exhibits and Reports on Form 8-K SIGNATURES 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31, 2002 2001 ----------- ---------- (Unaudited) (Note 1) (In thousands) Assets Current assets Cash and temporary cash investments $ 18,878 $ 24,175 Accounts receivables, net 41,218 40,187 Inventories - Note 2 59,965 52,350 Refundable income taxes 1,127 0 Other current assets 11,760 9,452 ------ ----- Total current assets 132,948 126,164 Property, plant and equipment 387,389 378,987 Less accumulated depreciation (228,604) (216,801) ------- ------- 158,785 162,186 Other assets 547 621 ------- ------- Total assets $292,280 $288,971 ======== ======== Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 52,266 $ 46,017 Current maturities of long- term debt 3,233 3,178 ------ ------ Total current liabilities 55,499 49,195 Long-term debt, less current maturities 66,199 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 - 13,150,276 and 13,564,955 at July 31, 2002 and October 31, 2001, respectively 13,150 13,565 Paid-in capital 1,356 2,945 Retained earnings 137,851 127,829 ------- ------- Total stockholders' equity 152,357 144,339 ------- ------- Total liabilities and stockholders' equity$292,280 $288,971 ======== ========
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended July 31, July 31, 2002 2001 2002 2001 ----------------- ------------------ (In thousands, except per share data)
Net sales $202,694 $183,692 $542,634 $499,356 Cost and expenses: Cost of sales 179,550 160,409 483,213 452,321 Selling, general and administrative 7,234 6,595 20,632 17,940 ------- ------- ------- ------- 186,784 167,004 503,845 470,261 ------- ------- ------- ------- OPERATING INCOME 15,910 16,688 38,789 29,095 Other income (expense): Interest income 30 101 81 291 Interest expense (950) (1,625) (2,904) (5,532) Other (15) 80 (18) 6 ------- ------- ------- ------- (935) (1,444) (2,841) (5,235) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 14,975 15,244 35,948 23,860 Income tax expense 5,690 5,685 13,660 8,899 ------- ------- ------- ------- NET INCOME $ 9,285 $ 9,559 $ 22,288 $14,961 ====== ====== ======= ======= Earnings per share: Basic $ .71 $ .70 $ 1.69 $ 1.10 ======= ======= ======= ===== Diluted $ .70 $ .70 $ 1.66 $ 1.10 ======= ======= ======= ===== Dividends per share $ .10 $ .05 $ .30 $ .15 ======= ======= ======= ====== Basic weighted average shares outstanding 13,125 13,579 13,217 13,605 ======= ======= ======== ======= Diluted weighted average shares outstanding 13,343 13,653 13,417 13,640 ======= ======= ======== =======
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended July 31, 2002 2001 (In thousands) Operating activities Net income $ 22,288 $14,961 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,358 19,363 Change in assets and liabilities: Accounts receivable, net (1,031) 1,426 Inventories (7,615) (7,661) Refundable income taxes (1,127) 3,783 Other assets (2,380) (1,162) Accounts payable and accrued expenses 6,249 6,371 ------ ------ Total adjustments 12,454 22,120 ------ ------ Net cash provided by operating activities 34,742 37,081 Investing activities Net proceeds from sales of property and equipment 592 59 Capital expenditures (15,403) (10,786) ------ ------ Net cash used in investing activities (14,811) (10,727) Financing activities Principal payments on long-term debt (2,958) (2,954) Net change in revolving credit (8,000) (19,000) Purchase and retirement of common stock (12,935) (599) Net proceeds from common stock issued 2,592 0 Dividends paid (3,927) (2,042) ------ ------ Net cash used in financing activities (25,228) (24,595) ------ ------- Net decrease in cash and temporary cash investments ( 5,297) 1,759 Cash and temporary cash investments at beginning of period 24,175 8,643 ------ ------ Cash and temporary cash investments at end of period $18,878 $10,402 ====== ======
See notes to condensed consolidated financial statements. SANDERSON FARMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) July 31, 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 nine-month periods ended July 31, 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: July 31, October 31, 2002 2001 ---------- ----------- (In thousands) Live poultry-broilers and breeders $34,289 $30,649 Feed, eggs and other 7,602 6,597 Processed poultry 8,655 5,894 Processed food 5,338 4,918 Packaging materials 4,080 4,292 ------- ------- $59,964 $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 as a reduction of cost of sales in the nine-month period ending July 31, 2002. NOTE 4--INCOME TAXES Deferred income taxes relate principally to cash basis temporary differences and depreciation expense that 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 5-LONG-TERM DEBT Effective July 31, 2002, the Company amended its revolving credit agreement with four banks to increase the available credit thereunder from $90 million to $100 million and to extend the maturity date from July 31, 2004 to July 31, 2005. 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 ships products. (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 The Company's net sales for the three months ended July 31, 2002 were $202.7 million as compared to $183.7 million for the same three-month period a year ago. The increase of $19.0 million or 10.3% resulted from increased sales of both the Company's poultry products and prepared food products. During the third quarter of fiscal 2002, net sales of poultry products increased $15.7 million or 9.6% when compared to the same quarter during fiscal 2001. This increase was the net result of an increase in the pounds of poultry products sold of 19.6% and a decrease in the average sales price of poultry products of 8.4%. The increase in the pounds of poultry products sold during the quarter ended July 31, 2002 as compared to the quarter ended July 31, 2001 resulted from an increase in the average live weight of chickens produced of 8.6% and an increase in the number of chickens produced of 2.8%. Overall market prices for poultry products were significantly lower during the third quarter of 2002 as compared to the third quarter of 2001. For example, market prices for leg quarters and wings were 37.6% and 48.0% lower and breast tenders were 23.0% lower. However, boneless breast meat during the third quarter of fiscal 2002 averaged $1.45 per pound as compared to $1.34 per pound during the same period in the previous fiscal year. In addition, a simple average of the Georgia Dock whole bird prices reflected an increase of 1.6% over these same periods. During the third quarter of fiscal 2002 as compared to the third quarter of fiscal 2001 the pounds of prepared foods products sold increased 10.7% while the average sales price decreased 5.9% due to a change in mix of products sold. For the nine months ended July 31, 2002, the Company's net sales were $542.6 million, an increase of $43.2 million or 8.7% as compared to net sales of $499.4 million during the nine months ended July 31, 2001. This resulted from an increase in the net sales of poultry products of $35.6 million or 8.0% and a corresponding increase in net sales of prepared food products of $5.4 million or 9.2%. The increase in the net sales of poultry products was the net result of an increase in the pounds of poultry products sold of 11.6% and a decrease in the average sales price of poultry products of 3.2%. During the first nine months of fiscal 2002 the Company and the industry were negatively impacted by significantly lower market prices for leg quarters, wings and breast tenders, which decreased 12.8%, 26.7% and 20.8%, respectively. A simple average of the Georgia Dock whole bird prices increased 1.7% during the nine months ended July 31, 2002 as compared to the nine months ended July 31, 2001. Net sales of prepared food products increased $5.4 million or 9.2% during the nine months ended July 31, 2002 as compared to the nine months ended July 31, 2001. The increase reflects an increase in the pounds of prepared food products sold of 7.6% and an increase in the average sales price of prepared food products sold of 1.5%. Cost of sales for the quarter ended July 31, 2002 as compared to the same quarter a year ago increased $19.1 million or 11.9%. Cost of sales of poultry products during this same period increased $15.3 million or 10.7%. This increase is a net result of an increase in poultry pounds sold of 19.6% and a decrease in the average cost of sales of poultry products of 7.5%. During the third quarter of fiscal 2002 as compared to the third quarter of fiscal 2001 the Company continued to benefit from improved operating performance. The average market prices for corn and soy meal for the three months ended July 31, 2002 as compared to the three months ended July 31, 2001 increased 11.0% and 1.2%, respectively. During the third quarter of fiscal 2002 as compared to the third quarter of fiscal 2001, cost of sales of prepared food products increased $3.8 million or 21.8% due to an increase in pounds of prepared food products sold of 10.7%, an increase in the cost of raw materials and a change in the mix of products sold. For the nine months ended July 31, 2002, cost of sales increased $30.9 million or 6.8% as compared to the same nine month period ended July 31, 2001, which is net of a $2.6 million settlement awarded in April 2002 from a vendor who overcharged the Company for vitamins over a number of years. Cost of sales of poultry products during the nine months ended July 31, 2002 increased $23.5 million or 5.8% when compared to cost of sales during the nine months ended July 31, 2001. 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 5.2% as the Company benefitted from improved operating performance, lower energy costs and the settlement for vitamins discussed above. Cash market prices for corn and soy meal during the nine months ended July 31, 2002 as compared to the nine months ended July 31, 2001 increased 3.2% and decreased 2.9%, respectively. For the nine months ended July 31, 2002 as compared to the same nine-month period during fiscal 2001, cost of sales of prepared food products increased $7.4 million or 15.6% due to an increase in pounds of prepared food products sold of 7.6%, an increase in the cost of raw materials and a change in the mix of products sold. Selling, general and administrative expenses increased $.6 million or 9.7% during the third quarter of fiscal 2002 as compared to the same quarter during fiscal 2001. Selling, general and administrative expenses increased $2.7 million during the nine months ended July 31, 2002 as compared to the same period during fiscal 2001. The increase during the nine months ended July 31, 2002 as compared to the nine months ended July 31, 2001, resulted from additional accruals for contributions to the Company's Employee Stock Ownership Plan and Employee Incentive Plan based on the Company's increased profitability. During the third quarter of fiscal 2002 as compared to the third quarter of fiscal 2001, the Company's operating income decreased $778,000. During the quarter, improvements obtained in the operating performance and marketing execution of the Company's poultry operations were offset by overall lower prices for poultry products. For the nine months ended July 31, 2002 the Company's operating income was $38.8 million as compared to operating income of $29.1 million for the nine months ended July 31, 2001. The improvement of $9.7 million reflects the Company's improved operating performance and marketing strategy, the settlement awarded during the second quarter of fiscal 2002 from a vendor for overcharging the Company and lower energy costs. The Russian embargo of United States poultry products continued to have a significant impact on the Company's export business during the third quarter of fiscal 2002. While shipments have resumed on a limited basis, it is difficult to determine when volumes will return to historical levels until a new protocol governing future shipments is defined. Interest expense during the quarter ended July 31, 2002 was $1.0 million as compared to $1.6 million during the quarter ended July 31 2001. During the nine months ended July 31, 2002, interest expense incurred was $2.9 million, a reduction of $2.6 million or 47.5% as compared to interest expense incurred during the nine months ended July 31, 2001. The 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 $37.0 million. The Company expects interest expense to remain significantly lower through the remainder of fiscal 2002 as compared to fiscal 2001. 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 July 31, 2002, the Company's working capital was $77.5 million and its current ratio was 2.4 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 nine months of fiscal 2002,the Company spent approximately $15.4 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 $24.1 million, and will be funded by internally generated working capital and cash flows from operations. However, if needed, the Company has $64.0 million available under its revolving credit agreement as of July 31, 2002. This revolving credit facility was amended effective July 31, 2002 to, among other things, increase the available credit thereunder from $90 million to $100 million. This line of credit remains unsecured. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the market risks reported in the Company's fiscal 2001 Annual Report on Form 10-K. 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 July 31, 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 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 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 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 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 a November 18, 2002 trial date has been set. Court ordered mediation in this case took place on August 19, 2002, but no settlement was reached. 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 matters described above in this Item 1 of Part II were also discussed in Item 1 of Part II of the Company's Quarterly Reports on Form 10-Q filed by the Company for the quarters ended January 31, and April 30, 2002. 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 "fraudulent and negligently induced into housing, feeding and providing water for Sanderson's breeder flocks and gathering, grading, packaging and storing the hatch eggs produced from said flocks" for Sanderson. Plaintiffs seek unspecified amount of compensatory and punitive damages, as well as various forms of equitable relief. The Company will vigorously defend this lawsuit. On July 25, 2002, a current contract grower and her husband filed suit against the Company and Farmers State Bank, N.A. in the District Court of Milam County, Texas. The Plaintiffs alleged "a conspiracy to defraud Plaintiffs in connection with [Sanderson'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 it 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. The Company will vigorously defend this lawsuit. The Company is also involved in various claims and litigation incidental to its business. Although the outcome of the matters referred to in the preceding sentence cannot be determined with certainty, management, upon the advice of counsel, is of the opinion that the final outcome should not have a material effect on the Company's consolidated results of operation or financial position. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this report. Exhibit 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.) Exhibit 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.) Exhibit 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.) Exhibit 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.) Exhibit 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.) Exhibit 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.) Exhibit 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.) Exhibit 15a* Independent Accountants' Review Report Exhibit 15b* Accountants' Letter re: Unaudited Financial Information. Exhibit 10-E-10* 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 Exhibit 99.01* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.02* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) The Company did not file any reports on Form 8-K during the three months ended July 31, 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: August 22, 2002 By: /s/D. Michael Cockrell Treasurer and Chief Financial Officer Date: August 22, 2002 By: /s/James A. Grimes Secretary and Principal Accounting Officer INDEX TO EXHIBITS Exhibit Number Description of Exhibit 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.) 15a* Independent Accountants' Review Report 15b* Accountants' Letter re: Unaudited Financial Information. 10-E-10* 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 99.01* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.02* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - ----------------- * Filed herewith. EX-15 3 exhibit15a.txt EXHIBIT 15A REVIEW REPORT EXHIBIT 15a INDEPENDENT ACCOUNTANTS' REVIEW REPORT Shareholders and Board of Directors Sanderson Farms, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries as of July 31, 2002, and the related condensed consolidated statements of income for the three-month and nine-month periods ended July 31, 2002 and 2001, and the condensed consolidated statements of cash flows for the nine-month periods ended July 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries as of October 31, 2001, and the related consolidated statements of income, stockholders equity and cash flows for the year then ended (not presented herein) and in our report dated December 12, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ERNST & YOUNG LLP Jackson, Mississippi August 20, 2002 EX-15 4 exhibit15b73102.txt EXHIBIT 15B UNAUDITED FINANCIAL INFORMATION EXHIBIT 15b Shareholders and Board of Directors Sanderson Farms, Inc. We are aware of the incorporation by reference in Registration Statement (Form S-8 No. 333-92412) and Post-Effective Amendment No. 1 to Registration Statement (Form S-8 No. 33-67474) pertaining to the Sanderson Farms, Inc. and affiliates Stock Option Plan of our report dated August 20, 2002 relating to the unaudited condensed consolidated interim financial statements of Sanderson Farms, Inc. that are included in its Form 10-Q for the quarter ended July 31, 2002. /s/ERNST & YOUNG LLP Jackson, Mississippi August 20, 2002 EX-10 5 mccombunion.txt UNION CONTRACT FOR MCCOMB PROD. A G R E E M E N T 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 JULY 1, 2002 - JUNE 30, 2005 TABLE OF CONTENTS ARTICLE PAGE - ------- ---- 1. AGREEMENT 4 2. RECOGNITION 4 3. MANAGEMENT RIGHTS 5 4. SHOP STEWARDS 5 5. UNION BULLETIN BOARD 6 6. NO STRIKE - NO LOCK OUT 6 7. GRIEVANCE PROCEDURE 7 STEP 1 7 STEP 2 7 STEP 3 7 8. ARBITRATION 8 9. SENIORITY 9 10. SENIORITY LIST 10 11. HOURS OF WORK 12 12. LEAVES OF ABSENCE 13 13. VACATIONS 14 14. HOLIDAYS 15 15. INSURANCE 17 16. PROFIT SHARING - RETIREMENT 17 17. WAGES 17 18. MISCELLANEOUS 18 19. NO DISCRIMINATION 19 20. COMPLETE AGREEMENT AND SEPARABILITY 20 21. CHECK-OFF 20 22. SUCCESSORSHIP 21 23. DURATION OF AGREEMENT 21 SIGNATURES 22 ARTICLE 1. AGREEMENT Section 1.1. This Agreement made and entered into this 1st day of July, 2002, by and between SANDERSON FARMS, INC. (McCOMB PRODUCTION DIVISION) at its Fernwood, Mississippi feed mill (hereinafter referred to as "Company"), and United Food and Commercial Workers, Local Union 1529, affiliated with United Food and Commercial Workers International Union, AFL-CIO (hereinafter referred to as the "Union"), representing the bargaining unit employees of the Company at its Feed Mill at Fernwood, Mississippi as certified in NLRB Case. No. 15-RC-8351. Section 1.2. It is the intent and purpose of the Company and the Union to promote and improve labor management relations between them and to set forth herein the terms of agreement covering wages, hours, and conditions of employment to be observed. Section 1.3. In consideration of mutual agreements between the parties hereto, and in consideration of their mutual desire in promoting efficient conduct in business and providing for the orderly settlement of disputes between them, the parties to this Agreement agree as follows: Section 1.4. The Company agrees not to enter into any agreement or contract with its employees covered by this Agreement, individually or collectively, which in any way conflicts with the terms and provisions of this Agreement. Any such agreement shall be null and void. ARTICLE 2. RECOGNITION Section 2.1. The Company recognizes the Union as the certified bargaining representative (NLRB Case No. 15-RC-8351) for all feed mill employees and truck drivers at its Fernwood, Mississippi facility, excluding all guards, office clericals, confidential employees and supervisors as defined in the Act. ARTICLE 3. MANAGEMENT RIGHTS Section 3.1. Nothing in this Agreement shall be deemed to limit the Employer in any way in the exercise of the customary functions of management which are recognized as the Employer's exclusive responsibility, including, but not limited to, the right to plan, direct, and control operations, to utilize the services of contractors, to determine the number, size and location of its establishments, to close an establishment or departments thereof, to hire, to promote, to demote, and for proper cause to discipline, suspend or discharge, to assign and schedule work and transfer employees from one job or department to another, and to make and enforce reasonable rules and regulations relative to any and all of these matters or to the management of its operation, provided that the reasonableness of rules may be tested in the grievance procedure. The Employer shall be the exclusive judge of all matters pertaining to its operations and their scheduling and the methods, processes, equipment, means of operation and size of workforce. Section 3.2. The Employer retains all prerogatives and rights of management and all privileges and responsibilities not specifically limited by this Agreement. Section 3.3. If the sub-contracting of work usually performed by bargaining unit employees or partial or complete plant relocation will have the foreseeable effect of causing the layoff of any unit employee, the Company will give notice to the Union and the parties will negotiate on the effects of the layoff. It is further understood that none of the provisions of this Article shall have the effect to reduce or waive any rights of unit employees under the Worker Adjustment and Retraining Notification Act (WARN). ARTICLE 4. SHOP STEWARDS Section 4.1. The Company recognizes the Union's right to designate shop stewards, not to exceed four (4) in number, two to a department and two per shift. One steward shall be designated chief steward. Alternates may be designated, but there shall be only one active steward in a department during each shift at any one time. The Union shall notify the Company in writing as to the names of the stewards. Newly hired employees will be introduced to the steward in their department and shift on the first day of employment. Section 4.2. A representative of the Union shall be permitted to enter the Company's premises at reasonable times, provided such representative complies with all safety requirements and does not interfere with the operations of Company's business and shall make arrangements with the mill manager. ARTICLE 5. UNION BULLETIN BOARD Section 5.1. The Company will provide a bulletin board in the breakroom for posting union notices. All matters to be posted shall be of union matters such as meeting notices, information pertaining to union business and must be on union letterhead signed by a union representative. ARTICLE 6. NO STRIKE - NO LOCK OUT Section 6.1. For the duration of this Agreement, there shall be no strikes, stoppages, slowdowns, sympathy strikes, picketing, or other interruption of or interference with Company's operations. Section 6.2. The Company shall not lock out employees for the duration of this Agreement. Section 6.3. Neither the violation of any provisions of the Agreement, nor the commission of any act constituting an unfair labor practice, or otherwise made unlawful, shall excuse the employees, the Union, or the Company from their obligations under the provisions of this Article. Section 6.4. An employee discharged or otherwise disciplined for violation of this Article, may seek review of such discipline through the grievance and arbitration procedures provided herein. In this event, the only question to be reviewed shall be whether or not the employee participated in the prohibited conduct. ARTICLE 7. GRIEVANCE PROCEDURE Section 7.1. Grievances arising under this contract are herein defined as a claim by a party to this Agreement or an employee covered by this Agreement that the Company or the Union has violated a provision of this Agreement. STEP I The employee shall discuss the grievance or complaint with the immediate supervisor within five (5) working days after the event giving rise thereto occurs, or within five (5) working days following the date on which the grievant had or reasonably would have had knowledge thereof. In the event the employee so requests, the appropriate steward shall be present at this step. The supervisor shall give an answer within five (5) working days after the grievance is received. STEP 2 If there is no settlement in Step 1, the grievance may be presented by the employee and/or shop steward within five (5) working days from the date on which the supervisor's answer was given in Step 1. The grievance must be presented in writing to the feed mill manager and must state the following information: (a) name or names of employee or employees on whose behalf the grievance is filed; (b) the department or departments involved; (c) the date and time of the occurrence or discovery of the grievance; (d) the facts of the incident on which the claim is based; (e) the specific provision of this Agreement alleged to have been violated; (f) the remedy requested. The feed mill manager shall give the Company's answer in writing within five (5) working days after the grievance is received by the feed mill manager. The absence of one or more of the above issues shall not prevent consideration of the grievance. STEP 3 In the event the grievance is not settled in Step 2, then the grievance may be appealed in writing to the division manager or a designated representative by the Union to Step 3 within five (5) working days from the Company's answer in Step 2. The division manager or a designated representative shall give an answer in writing within five (5) working days from the date of the appeal. In the event the grievance is not settled then the aggrieved party or parties shall have the right to request arbitration. In the event a grievance arises on behalf of the Company, the matter shall be presented to the Union Business Agent in writing, who shall have seven (7) days from the date of submission within which to endeavor to reconcile the grievance presented and shall give an answer in writing within that time. If not settled within that time, the aggrieved party or parties shall have the right to request arbitration. Section 7.2. Discharge grievances shall be processed initially under Step 3 of the grievance procedure. The written grievance shall be filed with the division manager within five (5) working days following the date of discharge. Section 7.3. A failure to observe the time limit specified herein for original presentation of a grievance or presentation in any subsequent step of the grievance procedure on the part of either the grievant or the Union shall be conclusive evidence that the grievance has been settled and abandoned. Failure on the part of the Company to comply with the time limits for delivering its answer in any step of the grievance procedure shall automatically advance the grievance to the next step of the grievance procedure. The time limits of the grievance procedure may be extended by mutual consent of the Union and the Company. Section 7.4. The term "working days," under this Article, shall not include Saturdays, Sundays, or holidays. Section 7.5. The Executive Board of the Union shall have the right to determine whether or not an employee's grievance is qualified to be submitted to arbitration by the Union. ARTICLE 8. ARBITRATION Section 8.1. If a party to this Agreement desires to take a grievance to arbitration, it shall within fifteen (15) calendar days after the denial of the grievance, give written notice of his intention to the other party, together with a written statement of the specific provision or provisions of this Agreement at issue. If the matter is not scheduled with an arbitrator within 120 days after the Union's expression of its intent to arbitrate, the grievance shall be deemed waived and settled on the basis of the Company's last answer. Section 8.2. The parties shall attempt to select an impartial arbitrator. If they are unable to agree upon a choice within seven (7) calendar days after the receipt of Notice of Intent to Arbitrate, either party may request the Federal Mediation and Conciliation Service to submit a list of seven (7) arbitrators, from which the arbitrator will be selected. Selection shall be made by the parties alternately striking any name from the list (the first to strike shall alternate from grievance to grievance) until only one (1) name remains. The final name remaining shall be the arbitrator of the grievance. Section 8.3. The jurisdiction and the decision of the arbitrator of the grievance shall be confined to a determination of the facts and the interpretation or application of the specific provision or provisions of this Agreement at issue. The Arbitrator shall be bound by terms and provisions of the Agreement and shall have the authority to consider only grievances representing solely an arbitration issue under this Agreement. The arbitrator shall have no authority to add to, alter, amend, or modify any provision of this Agreement. The decision of the arbitrator in writing on any issue properly before the arbitrator in accordance with the provisions of this Agreement, shall be final and binding on the aggrieved employee or employees, the Union, and the Company. Section 8.4. Multiple grievances shall not be heard before one arbitrator at the same hearing except by mutual agreement of the parties. Section 8.5. The Union and the Company shall each bear its own costs in these arbitration proceedings, except that they shall share equally the fee and other expenses of the arbitrator in connection with the grievance. ARTICLE 9. SENIORITY Section 9.1. Seniority is defined as the length of an employee's continuous employment in the bargaining unit at the Company's Fernwood, Mississippi feed mill since the last permanent date of employment. For those employed on the date of this Agreement, this shall include all continuous service with the Company. Section 9.2. All newly hired or rehired employees shall be considered as probationary employees for a period of ninety (90) days during which period they shall not acquire seniority, and during which they may be discharged without recourse to the grievance and arbitration procedures provided herein. If retained as a regular employee upon satisfactory completion of the probationary period, seniority shall be retroactive to the first day of employment. Section 9.3 In matters of promotion, consideration will be given to an employee's skill, ability, attendance, and seniority; and when, in the opinion of the Company, the factors other than seniority are relatively equal, seniority will be the deciding factor. In layoffs and recalls, seniority will prevail, provided the employees involved are relatively equal in ability and fitness to immediately perform the available work. Section 9.4. An employee's seniority shall be lost and employment considered terminated by: (a) discharge for just cause; (b) failure to return from layoff within five (5) working days after written notice by certified mail is sent by the Company to the employee's last known address on the Company's books. Actual notice to the employee of recall by any other means shall satisfy the terms of this provision; (c) voluntary termination of employment; (d) failure to report after termination of a leave of absence approved by the Company in writing on the first scheduled day following the expiration of such leave of absence; (e) engaging in a gainful occupation while on leave of absence; (f) absence from work for three (3) consecutive working days without notice to the Company, which shall be considered as a voluntary quit, unless notice was prevented by a cause beyond the control of the employee; (g) separation from the Company's active payroll for any reason, exclusive of leaves of absence approved by the Company, for a period exceeding an employee's length of service in the Fernwood feed mill, or three (3) months, whichever is less. Section 9.5. For the purposes of this Agreement, layoffs shall be classified as (a) "short term" and (b) "long term". A short term layoff is a layoff which will not exceed ten (10) workdays in length. Short term layoffs may be made without regard to seniority. A long term layoff is a layoff which will exceed ten (10) workdays in length. Long term layoffs shall be made subject to Section 3 of this Article. Section 9.6. All permanent job vacancies in premium rated classifications in the feed mill shall be posted for three (3) consecutive working days on the feed mill bulletin board. Employees in lower rated classifications desiring promotion to such jobs shall sign a bid sheet posted on the bulletin board. An employee who does not sign such bid sheet shall have no right to consideration for the vacancy. However, the fact that an employee did not sign the bid sheet will not preclude that employee's selection for the job by the Company if none of the signers is determined to be qualified. If no qualified employee bids on the posted position, the Company may fill the position in its discretion. If, after a reasonable period not to exceed thirty (30) days, the employee selected for the posted position achieves an acceptable level of performance, the employee shall receive the rate of the new position. If the employee fails to perform in an acceptable manner, such employee shall return to a job in their former classification, and the premium job shall be posted again. An employee who self-disqualifies shall not be eligible for bidding on a premium job for a period of six (6) months. ARTICLE 10. SENIORITY LIST Section 10.1. Upon request at any reasonable time, the Company shall furnish to the Union a current seniority list. The list shall be seniority by department and shall include social security number, date of hire, rate of pay, current address, telephone number, and first and last names. ARTICLE 11. HOURS OF WORK Section 11.1. The regular work week shall consist of five (5) days or forty (40) hours. This shall not be construed as a guarantee of any amount of hours or work. The basic work week shall be the seven (7) day period from 12:01 a.m. Sunday until midnight the following Saturday. Employees will be given at least one (1) calendar week's notice of any change by the Company of the payroll week. Section 11.2. An employee who works more than forty (40) hours in any one week shall be paid at time and one-half the computed regular rate of pay for all hours in excess of forty (40). Section 11.3. When employees are called to work a shift outside their regularly scheduled shift and report for work, or when they report to work at their regularly scheduled time, they shall be given the opportunity to work a minimum of three (3) hours or receive pay for same at the applicable hourly rate, except that no such pay shall be made when the plant cannot operate for reasons beyond the control of the Company, such as, but not limited to, strikes, utility failure, fire, flood, storms or other acts of God interfering with work, or a breakdown of machinery or equipment when the Company notifies the employees not to report to work at least four (4) hours prior to the scheduled time to work. Section 11.4. When Saturday work will be required, employees shall be notified by the beginning of first shift on the Friday immediately preceding the Saturday work, or as soon as the Company knows such work will be required. Section 11.5. Call in schedules for the weekend will be posted and rotated among all drivers on a weekly basis. Each week there will be 2 (two) drivers on the posted list. The first driver listed must call the Feed Mill by approximately 9:00 a.m. At this time, he will be advised of whether there are any loads to be delivered. The second driver on the list must call the Feed Mill by approximately 9:05 a.m. At this time, he will be advised of whether there are any loads to be delivered. If there are no loads to be delivered when the drivers call in, there will be no further requirement to call in by these drivers for the day. ARTICLE 12. LEAVES OF ABSENCE Section 12.1. An employee who has completed the probationary period may be granted, at the Company's discretion, a leave of absence without pay for a reasonable period of time, not to exceed one (1) month, for the following reasons: (a) emergency personal business; and (b) Union business, upon written request by the Union's Representative, provided that no more than three (3) employees shall be on such leave simultaneously.. Section 12.2. Employees who have completed their probationary period are eligible for up to thirteen (13) weeks per year of unpaid family and medical treatment leave for the following reasons: (a) Employee's serious health condition -- a medical certification will be required which states that the employee is unable to perform the functions of the employee's position. (b) Family serious health condition -- spouse, parent, or child. A medical certification will be required stating the employee is "needed to care for the individual." (c) New child leave -- the birth, adoption or foster care placement by a state agency of a child, and, the need to care for the child; such leave may be prior to the actual birth or placement. The provisions of this Section shall be administered in accordance with the Family and Medical Leave Act of 1993 (FMLA). Section 12.3. Employees who have completed their probationary period who lose actual work time in order to attend the funeral of a family member shall receive a paid funeral leave for time necessarily lost during the employee's regularly scheduled shift, provided the employee would have been scheduled and at work during that day. Said leave shall be up to three (3) days with pay for a deceased parent, spouse, child, brother, or sister and one (1) day for a deceased father-in-law, mother-in-law, grandparent, brother-in-law, sister-in-law, or grandchild. In order to receive pay under this Section, an employee must be actively working, must make application for such paid leave, and must attend the funeral. The Company may require satisfactory evidence of attendance at the funeral and the relationship of the deceased. Each day of paid funeral leave shall be computed in the same manner as holiday pay. Section 12.4. If the Company has knowledge that an employee will be on family and medical leave, military leave, or an industrial injury leave for more than thirty (30) calendar days, the job will be posted and filled on a temporary basis within the department. When employees on leave under this Section return, they shall be immediately assigned to their old job; employees temporarily filling the job shall return to their regular jobs Section 12.5. The Company shall pay each active employee who reports for jury duty the difference between pay up to eight times the hourly rate, as computed for holiday pay, for time actually lost and the juror's daily fee for each day the employee is required to serve on a jury. The employee must report to work during those days of his regularly scheduled shift during which the employee is not required to report for jury duty or be available at court for jury service. The employee must present proof of jury service and the amount of compensation received from the court. Section 12.6. An employee who voluntarily enlists or is called into military service of the United States shall be reinstated upon the termination of his service in accordance with the laws of the United State and applicable state law in force at the time of such reinstatement. ARTICLE 13. VACATIONS Section 13.1. Regular full-time employees shall be eligible for one (1) week's vacation after the first anniversary date of continuous employment, and after the anniversary date of each succeeding year. Employees shall be eligible for a second week of vacation after the second anniversary date of continuous employment, and after the anniversary date of each succeeding year of continuous employment. Employees shall be eligible for a third week of vacation after the tenth anniversary date of continuous employment, and after the anniversary date of each succeeding year of continuous employment. Employees shall be eligible for a fourth week of vacation after the twentieth anniversary date of continuous employment and after the anniversary date of each succeeding year of continuous employment. Section 13.2. To be eligible for a vacation, an employee must have worked sixteen hundred (1,600) hours during the preceding twelve (12) months or eighty (80) percent of available hours for that period, whichever is less. Vacations and holidays not worked shall be considered time worked for purposes of this Section. Section 13.3. Vacation pay shall be computed at forty (40) times feed mill employee's regular straight time hourly rate and forty (40) times $10.85 for drivers. Section 13.4. Due consideration will be given employees' choice of vacation time, but all vacations scheduled are subject to the final approval of the Company in keeping with the Company's scheduling needs. In the event that two or more employees cannot be released at the same time, the employee with the longest service with the Company will be given preference. An employee who notifies the Company of a vacation choice thirty (30) days in advance shall not lose that vacation choice to another employee. Vacations may not be scheduled for periods of less than a week, except as provided herein, and all vacations must be taken within an anniversary year. An employee eligible for two or more weeks may schedule one week of that employee's vacation entitlement in increments of less than one week; provided, however, such time off must be scheduled at least two working days in advance and may not be used to excuse an absence on the day before or the day after a holiday. Section 13.5. The Company reserves the right to schedule a shutdown for one (l) week in any year, which shall be treated as a vacation week for those employees entitled to vacation. ARTICLE 14. HOLIDAYS Section 14.1. The following shall be considered holidays: New Year's Day Labor Day Martin Luther King's Birthday Thanksgiving Day Memorial Day Christmas Day July Fourth Birthday Holiday The birthday holiday shall be taken on the employee's birthday. If the birthday falls on a Saturday or Sunday, the holiday shall be taken on a day agreed upon by the Company and the employee within one week of the birthday. In the event any other holiday falls on a Saturday or Sunday, the Company will announce whether it will be observed on the Friday preceding or the Monday following the holiday. Such notice shall be given at least four (4) days in advance. Section 14.2. All regular full-time employees who have completed their probationary period shall be paid holiday pay for each holiday enumerated above, provided they report for work and work all scheduled hours on the workday preceding and the workday next following the holiday, unless the employee was necessarily absent due to personal illness, supported by a doctor's certificate, or because of an emergency occurring to the employee or the employee's immediate family (meaning only spouse, children, or parents). No employee shall lose holiday pay because of missing no more than thirty (30) minutes on the workday before or the workday following the holiday. In any event, an employee must work at least one (1) day during the calendar week in which a holiday falls in order to be eligible for holiday pay, except the employee who is on vacation. Section 14.3. Holiday pay shall be computed for feed mill employees at eight (8) hours at their regular straight time rate and for drivers eight (8) hours at $10.85 per hour. Section 14.4. Employees required to work on a holiday shall be paid the amount provided above, in addition to their regular earnings for that day. Hours not worked on a holiday shall not be considered as work time in computing any additional compensation due under the overtime provisions of this contract. Section 14.5. If an employee is required to work and fails to report or fails to work scheduled hours on a holiday, the employee shall forfeit holiday pay for that day. Section 14.6. Employees on vacation during the week in which a holiday falls shall receive holiday pay. ARTICLE 15. INSURANCE Section 15.1. The Company will provide a group insurance program for employees covered by this Agreement. The Company will continue to make contributions toward group health insurance premiums in the proportions described hereinafter. Employees shall pay the remaining costs of the insurance. Premium changes shall be shared in the proportion in effect at the time of change. Section 15.2. Beginning on the effective date of this Agreement, the Company shall pay sixty (60%) percent of the cost of employee coverage only under the group insurance plan elected by an employee. On January 1, 2003, this contribution on employee coverage will increase to seventy (70%) percent and on January 1, 2004, it shall increase to seventy-five (75%) percent of the premium for employee coverage. Monthly contributions by the Company to family coverage shall remain at fifty (50%) percent of the premium for family coverage. ARTICLE 16. PROFIT SHARING - RETIREMENT Section 16.1. ESOP - Employees covered by this Agreement will continue to be covered by the Employee Stock Ownership Plan of Sanderson Farms, Inc. and Affiliates. Participation and benefits in the plan shall be in accordance with the provisions of that plan. Section 16.2. 401(k) Plan - Employees covered by this Agreement shall continue to be eligible for participation in the Sanderson Farms, Inc. and Affiliates 401(k) Plan, as provided in the Plan, and shall be subject to the conditions provided by said Plan. ARTICLE 17. WAGES Section 17.1. Wages shall be paid as provided in Appendix A attached hereto and made a part of this Agreement. Section 17.2. Whenever a new job classification is created by the Company, or there is a change or merger of job classifications or the job content of job classifications, the Company will discuss the appropriate wage rate with the Union. If a mutually satisfactory rate cannot be agreed upon, the Company will set the rate. The Union may file a grievance on the rate, and the dispute shall be settled in accordance with the grievance and arbitration procedures of this contract Section 17.3. In addition to the wage rates as provided in Appendix A, feed mill employees who have been continuously employed for five (5) or more years shall receive seniority pay of twenty (20) cents per hour, effective on their respective anniversary dates. Maintenance employees and drivers continuously employed for five (5) or more years will receive seniority pay of fifty (50) cents per hour. In computing incentive pay for drivers, seniority pay shall be an additional two (2) cents per mile on the appropriate mileage rate. Section 17.4. Employees who have completed their probationary period and are temporarily assigned for one or more consecutive hours to perform the duties of an absent employee in a higher paid classification shall receive the rate of that classification while performing the duties of the classification. Employees who work at more than one pay rate during a week in which they earn overtime, shall receive overtime pay based upon an average of the rates earned during that week. ARTICLE 18. MISCELLANEOUS Section 18.1. The Company shall maintain safe, sanitary, and healthy working conditions at all times, and employees will be required to cooperate in maintaining such conditions. Any complaints regarding safety or health shall be processed through the grievance and arbitration provisions of this Agreement. Section 18.2. Employees shall follow all safety standards, rules and regulations, wear and use all prescribed protective equipment while at work, and report unsafe or hazardous conditions to supervisors. Section 18.3. Any physical or mental examination request shall be promptly complied with by all employees covered by this Agreement; provided, however, the Company shall pay for all such examinations it requests of employees. Section 18.4. The Feed Mill Safety Committee shall consist of members selected by the Company from both within and outside the bargaining unit. Length of service may be staggered to insure continued experienced participation. The Chief Steward of the Union shall be a permanent member. The Safety Committee shall perform whatever functions are assigned to help maintain effective communication of safety policies to employees and create and maintain active employee interests in safety. Duties shall include periodic meetings; on the job injuries, and safety related suggestions from any source; assistance in planning activities to stimulate employee interest in safety; and recommending corrective actions to facilitate safety related changes in work environment and work practices. Section 18.5. It shall be the responsibility of all employees to keep the Company apprised of their current address, telephone number, marital status and number of dependents. Section 18.6. It is the intent of the parties hereto that no provisions of this Agreement shall require either party to perform any act which shall be unlawful under any state or Federal statute. ARTICLE 19.. NO DISCRIMINATION Section 19.1. The Company and the Union agree they will not discriminate against any person with regard to employment or Union membership or because of race, creed, color, sex, religion, age (within the meaning of the Age Discrimination in Employment Act), national origin, or disability (as defined in the Americans With Disabilities Act). Section 19.2. Whenever masculine gender is used in this Agreement, it shall apply to the feminine gender. ARTICLE 20. COMPLETE AGREEMENT AND SEPARABILITY Section 20.1. Complete Agreement: The parties expressly declare that they have bargained between themselves on all phases of hours, wages, rate of pay, conditions of employment and working conditions, and that this contract represents their full and complete agreement without reservations or unexpressed understanding. Any aspect of hours, rates of pay, wages, conditions of employment and working conditions not covered by a particular provision of this agreement is declared to have been expressly eliminated as a subject for bargaining and during the life of this Agreement may not be raised for further bargaining in negotiations without written consent of all parties hereto. It is further understood and agreed that neither party hereto has been induced to enter into this Agreement by any representations or promises made by the other which are not expressly set forth herein, and that this document correctly sets forth the effect of all preliminary negotiations, understandings, and agreements, and supersedes any previous agreements, whether written or verbal. This contract constitutes the entire Agreement and understanding between the parties and shall not be modified, altered, change, or amended in any respect except on mutual agreement set forth in writing and signed by both parties. Section 20.2. Separability: In the event any of the provisions of this Agreement are held to be in conflict with or in violation of any state or federal statute or other applicable law, administrative rule or regulation, such decision shall not affect the validity of the remaining provisions of the Agreement. The parties further agree that they will meet within thirty (30) days to re-negotiate the provisions of the Agreement held to be invalid, provided that Article 6 shall remain in full force and effect during all such negotiations. ARTICLE 21. CHECK-OFF Section 21.1. Payroll Deductions. The Company agrees to deduct regular weekly dues and/or initiation fees from the wages of the employees who individually and voluntarily authorize the Company in writing. The Company shall remit on a monthly basis the said dues to the Secretary-Treasurer of LOCAL UNION 1529, UNITED FOOD AND COMMERCIAL WORKERS UNION, AFL-CIO. A list showing the names of all employees (alphabetically) and their social security numbers from whom deductions were due, the amount deducted from each, and the date on which deductions were made will accompany the remittance of money collected. Such deductions shall be made from each weekly paycheck and shall be remitted to the Local Union within fifteen (15) calendar days after the last weekly deduction in the current month. If an employee has no wages due him on any weekly payday in any month, the deductions shall be made based upon the instructions received by the Company from the Union. Section 21.2. The Company will make deductions from employees according to the signed Active Ballot Club check-off card, and the monies collected will be forwarded to the Secretary-Treasurer of U.F.C.W., Local 1529 by a separate check. Section 21.3. The Union shall save the Company harmless against and from all claims, demands, suits or other forms of liability that arise out of or by reason of action taken or not taken by the Company in reliance upon or compliance with any provisions of this Article. ARTICLE 22. SUCCESSORSHIP Section 22.1. In the event of a transfer, sale or assignment of the Company's facility, the Union will be notified no less than 90 days after completion of a transfer, sale or assignment or in accordance with federal laws. Section 22.2. If a prospective buyer inquires, the Company will advise the prospective buyer of the existence of the collective bargaining agreement, and, upon request, furnish it a copy of the Agreement. ARTICLE 23. DURATION OF AGREEMENT Section 23.1. This Agreement shall remain in full force and effect from the 1st day of July, 2002 until the 30th day of June, 2005, and shall continue thereafter from year to year until either party to this Agreement desires to terminate this Agreement by giving written notice at least ninety (90) days prior to June, 2005, or at least ninety (90) days' written notice prior to any anniversary date thereafter. The parties to this Agreement shall endeavor to satisfactorily negotiate any contemplated change or execute a new Agreement during the ninety (90) day period, after proper notice in writing has been given as provided herein and above. Notice, as specified in this Article, shall be mailed via United States Certified Mail. Section 23.2. Either party to this Agreement may reopen it for the purpose of negotiation of wages only as of July 1, 2003, and July 1, 2004. Said reopening shall be by giving written notice of the intent to reopen for such purpose to the other party at least sixty (60) days prior to July 1,2003, and July 1, 2004, respectively. Such notice shall be as provided in Section 1 of this Article.. In the event the parties have not reached agreement on wages on or before July 1, 2003, or July 1, 2004, respectively , the provisions of Article 6, Sections 6.1 and 6.2 shall be suspended and either party may resort to whatever economic sanctions it deems necessary to enforce its bargaining position on wages. IN WITNESS WHEREOF, the parties have hereunto signed their names this 16th day of July, 2002. SANDERSON FARMS, INC. UNITED FOOD AND COMMERCIAL (McCOMB PRODUCTION DIVISION) WORKERS, LOCAL 1529, AFL-CIO /s/Edward Putnam /s/Rick Slayton /s/Grady L. Cutrer, Jr. /s/Bill Johnson /s/George Varnado /s/Brian K. White /s/Richard E. Nobles, Sr. APPENDIX "A" WAGE SCHEDULE EFFECTIVE JUNE 30, 2002 FEED MILL Master Maintenance $ 12.00 Unloader - Mill $ 9.30 Control Room Technician $ 9.30 Utility - Mill $ 8.40 Newly hired employees shall receive a training rate of $6.35 per hour, which shall increase as follows: after 60 days, $7.25; after 6 months, $7.75; and, after one year, the amount shown above. Newly hired employees in premium classifications shall receive the rate of that classification when the employee demonstrates the ability to perform satisfactorily all the duties of the job. FEED MILL DRIVERS Payment by Load and Mileage By Mile Load Round trip miles Per Trip $12.61 - to 30 0.2436 Per Trip - Split $14.61 31 to 60 0.2317 61 to 90 0.2209 91 to 120 0.2111 121 to 150 0.2065 151 to 180 0.2011 181 and above 0.1979 Reclaim Driver $10.35 Holidays and vacations $10.85 Downtime (when downtime event exceeds one hour) $ 9.25 Training rate (until driver reaches incentive or end of probation, whichever is sooner) $ 9.25 Seniority Pay: Load/Mile Pay - Additional $ .02 per mile Seniority Pay: Hourly Pay - Additional $ .50 per hour Call In Pay - Weekend - Additional Load EX-99 6 exhibit9901.txt EXHIBIT 99.01 CERTIFICATION OF OFFICER Exhibit 99.01 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Sanderson Farms, Inc. (the "Company") on Form 10-Q for the quarter ended July 31, 2002 (the "Report"), I, Joe F. Sanderson, Jr., Chief Executive Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company. /s/Joe F. Sanderson, Jr. Joe F. Sanderson, Jr. Chief Executive Officer August 22, 2002 EX-99 7 exhibit9902.txt EXHIBIT 99.02 CERTIFICATION OF OFFICERS Exhibit 99.02 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Sanderson Farms, Inc. (the "Company") on Form 10-Q for the quarter ended July 31, 2002 (the "Report"), I, D. Michael Cockrell, Chief Financial Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company. /s/D. Michael Cockrell D. Michael Cockrell Chief Financial Officer August 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----