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.