SANDERSON FARMS INC (Form: 10-K, Received: 12/17/2013 06:37:26)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended October 31, 2013

¨	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: 1-14977

SANDERSON FARMS, INC.

(Exact name of registrant as specified in its charter)


Mississippi		64-0615843
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

127 Flynt Road Laurel, Mississippi		39443
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (601) 649-4030

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class:		Name of exchange on which registered:
Common stock, $1.00 par value per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant computed by reference to the closing sales price of the common equity in The NASDAQ Stock Market on the last business day of the Registrant’s most recently completed second fiscal quarter: $1,172,888,738.

Number of shares outstanding of the Registrant’s common stock as of December 10, 2013: 23,068,220 shares of common stock, $1.00 per share par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement filed or to be filed in connection with its 2014 Annual Meeting of Stockholders are incorporated by reference into Part III.

TABLE OF CONTENTS


PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	22
Item 4A.	Executive Officers of the Registrant	22
PART II		24
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	57
PART III		59
Item 10.	Directors, Executive Officers and Corporate Governance	59
Item 11.	Executive Compensation	59
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	59
Item 13.	Certain Relationships and Related Transactions and Director Independence	60
Item 14.	Principal Accountant Fees and Services	60
PART IV		61
Item 15.	Exhibits and Financial Statement Schedules	61
SIGNATURES		66
EXHIBITS		68

INTRODUCTORY NOTE

Definitions. This Annual Report on Form 10-K is filed by Sanderson Farms, Inc., a Mississippi corporation. Except where the context indicates otherwise, the terms “Registrant,” “Company,” “Sanderson Farms,” “we,” “us,” or “our” refer to Sanderson Farms, Inc. and its subsidiaries and predecessor organizations. The use of these terms to refer to Sanderson Farms, Inc. and its subsidiaries collectively does not suggest that Sanderson Farms and its subsidiaries have abandoned their separate identities or the legal protections given to them as separate legal entities. “Fiscal year” means the fiscal year ended October 31, 2013, which is the year for which this Annual Report is filed.

Presentation and Dates of Information. Except for Item 4A herein, the Item numbers and letters appearing in this Annual Report correspond with those used in Securities and Exchange Commission Form 10-K (and, to the extent that it is incorporated into Form 10-K, those used in SEC Regulation S-K) as effective on the date hereof, which specifies the information required to be included in Annual Reports to the SEC. Item 4A (“Executive Officers of the Registrant”) has been included by the Registrant in accordance with General Instruction G(3) of Form 10-K and Instruction 3 of Item 401(b) of Regulation S-K. The information contained in this Annual Report is, unless indicated to be given as of a specified date or for a specified period, given as of the date of this Report, which is December 17, 2013.

PART I

Item 1.

Business

(a) GENERAL DEVELOPMENT OF THE REGISTRANT’S BUSINESS

The Registrant was incorporated in Mississippi in 1955, and is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products. In addition, the Registrant is engaged in the processing, marketing and distribution of prepared chicken through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division).

The Registrant sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms® brand name to retailers, distributors, and casual dining operators principally in the southeastern, southwestern, northeastern and western United States, and to customers who resell frozen chicken into export markets. During its fiscal year ended October 31, 2013, the Registrant processed 452 million chickens, or over 3.0 billion dressed pounds. According to 2013 industry statistics, the Registrant was the third largest processor of dressed chicken in the United States based on average weekly processed pounds.

The Registrant’s chicken operations presently encompass 8 hatcheries, 7 feed mills and 9 processing plants, which include the facilities at its new Kinston, North Carolina complex. The Registrant began manufacturing feed at the North Carolina feed mill in November 2010, and began operations at the hatchery during the last week of October 2010. The Registrant started processing chickens at the Kinston complex in January 2011, and reached near full capacity during March 2012.

The Registrant has contracts with operators of approximately 613 grow-out farms that provide it with sufficient housing capacity for its current operations. The Registrant also has contracts with operators of 187 breeder farms.

The Company’s prepared chicken product line includes approximately 94 institutional and consumer packaged partially cooked or marinated chicken items that it sells nationally and regionally, primarily to distributors and food service establishments. A majority of the prepared chicken items are made to the specifications of food service users.

Since the Registrant completed the initial public offering of its common stock in May 1987, the Registrant has significantly expanded its operations to increase production capacity, product lines and marketing flexibility. Through 1997, this expansion included the expansion of the Registrant’s Hammond, Louisiana processing facility, the construction of new wastewater facilities at the Hammond, Louisiana and Collins and Hazlehurst, Mississippi processing facilities, the addition of second shifts at the Hammond, Louisiana and the Laurel, Hazlehurst, and Collins, Mississippi processing facilities; the expansion of freezer and production capacity at its prepared chicken facility in Flowood, Mississippi; the expansion of freezer capacity at its Hammond, Louisiana, and its Laurel and Collins, Mississippi processing facilities; the addition of deboning capabilities at all of the Registrant’s poultry

processing facilities; the construction and start-up of its McComb, Mississippi and Bryan, Texas production and processing facilities, including a hatchery, a feed mill, a processing plant, and a wastewater treatment facility for each complex; and the expansion and renovation of the hatchery at its Hazlehurst, Mississippi production facilities.

In the fourth quarter of fiscal 2005, the Registrant began initial operations at a new poultry processing complex in southern Georgia. The complex consists of a feed mill, hatchery, processing plant and wastewater treatment facility. This plant has the capacity to process 1.25 million head of chickens per week for the retail chill pack market.

On August 6, 2007, the Company began initial operations at a new poultry processing complex in Waco and McLennan County, Texas. The complex consists of a hatchery, processing plant and wastewater treatment facility. This complex shares a feed mill located in Robertson County, Texas with our Bryan, Texas complex. The plant has the capacity to process 1.25 million head of chickens per week for the big bird deboning market.

In January 2011, the Company began initial operations at a new poultry processing complex in Kinston, North Carolina. The Kinston facilities comprise a poultry complex consisting of a hatchery, feed mill, processing plant, and wastewater facility with the capacity to process 1.25 million chickens per week for the retail chill pack market. The facility reached near full capacity during March 2012.

On March 29, 2010, the Company announced intentions to construct a potential second poultry complex in North Carolina, subject to various contingencies including, among others, obtaining an acceptable economic incentive package from the state and local governments. On August 28, 2012, the Company announced the selection of Nash County, North Carolina, as the site of the new complex, subject to various contingencies. On November 13, 2012, the Company announced that Nash County, North Carolina, would not be the site of the new complex due to various timing issues, but that alternative sites were under consideration. On February 14, 2013, the Company announced the selection of sites in and near Palestine, Texas, for the construction of its next poultry complex, and construction of the complex began on or about October 1, 2013. The new complex will consist of a feed mill, hatchery, poultry processing plant and wastewater facility with the capacity to process 1.25 million chickens per week for the big bird deboning market. Before the complex can open we will need to enter into contracts with a sufficient number of growers and complete construction. See “The construction and potential benefits of our new facilities are subject to risks and uncertainties” in the Risk Factors Section of this Annual Report.

The Company changed its marketing strategy in 1997 to move away from the small bird markets serving primarily the fast food industry to concentrate its production in the retail and big bird deboning markets serving the retail grocery and food service industries. This market shift resulted in larger average bird weights of the chickens processed by the Company, and substantially increased the number of pounds processed by the Company. In addition, the Registrant continually evaluates internal and external expansion opportunities to continue its growth in poultry and/or related food products.

Capital expenditures for fiscal 2013 were funded by cash on hand at November 1, 2012, and cash provided by operations during fiscal 2013. The Company also had available to it a $500.0 million revolving credit facility during fiscal 2013. On October 24, 2013, the Company entered into a new revolving credit facility to, among other things, increase the total committed credit to $600.0 million. The new facility also increases the annual capital expenditure limitation to $65.0 million for fiscal years 2013 through 2018, plus, for each year, up to $10.0 million carryover from the preceding fiscal year, when it is not actually spent in that year. The capital expenditure limitation for fiscal 2013, with the permitted carry over, was $75.0 million. The new facility permits the Company to spend up to $140.0 million each in capital expenditures on the construction of two new poultry complexes to be located anywhere in the United States, which expenditures are in addition to the annual overall capital expenditure limits. Under the facility, the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a one-time right, at any time during the term of the agreement, to increase the maximum debt to total capitalization ratio then in effect by 5% in connection with the construction of either of the two potential new poultry complexes for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The Company did not exercise this right in fiscal 2013. The amendment also sets a minimum net worth requirement that at October 31, 2013, was $475.3 million. The credit remains unsecured and, unless extended, will expire on October 24, 2018.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Not applicable.

(c) NARRATIVE DESCRIPTION OF REGISTRANT’S BUSINESS

General

The Registrant is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and the preparation, processing, marketing and distribution of processed and prepared chicken items.

The Registrant sells chill pack, ice pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms® brand name to retailers, distributors and casual dining operators principally in the southeastern, southwestern, northeastern and western United States. During its fiscal year ended October 31, 2013, the Registrant processed approximately 452 million chickens, or over 3.0 billion dressed pounds. In addition, the Registrant purchased and further processed 3.4 million pounds of poultry products during fiscal 2013. According to 2013 industry statistics, the Registrant was the third largest processor of dressed chicken in the United States based on average weekly processed pounds.

The Registrant conducts its chicken operations through Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), both of which are wholly-owned subsidiaries of Sanderson Farms, Inc. The production subsidiary, Sanderson Farms, Inc. (Production Division), which has facilities in Laurel, Collins, Hazlehurst and McComb, Mississippi; Bryan, Waco, and Robertson County, Texas; Adel, Georgia and Kinston, North Carolina, is engaged in the production of chickens to the broiler stage. Sanderson Farms, Inc. (Processing Division), which has facilities in Laurel, Collins, Hazlehurst and McComb, Mississippi; Hammond, Louisiana; Bryan and Waco, Texas; Moultrie, Georgia and Kinston, North Carolina, is engaged in the processing, sale and distribution of chickens.

The Registrant conducts its prepared chicken business through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division), which has a facility in Flowood, Mississippi. The Foods Division is engaged in the processing, marketing and distribution of approximately 94 prepared chicken items, which it sells nationally and regionally, principally to distributors and national food service accounts.

Products

The Registrant has the ability to produce a wide range of processed chicken products and prepared chicken items.

Processed chicken is first saleable as an ice packed, whole chicken. The Registrant adds value to its ice packed, whole chickens by removing the giblets, weighing, packaging and labeling the product to specific customer requirements and cutting and deboning the product based on customer specifications. The additional processing steps of giblet removal, close tolerance weighing and cutting increase the value of the product to the customer over whole, ice packed chickens by reducing customer handling and cutting labor and capital costs, reducing the shrinkage associated with cutting, and ensuring consistently sized portions.

The Registrant adds additional value to the processed chicken by deep chilling and packaging whole chickens in bags or combinations of fresh chicken parts, including boneless product, in various sized, individual trays under the Registrant’s brand name, which then may be weighed and pre-priced, based on each customer’s needs. This chill pack process increases the value of the product by extending shelf life, reducing customer weighing and packaging labor, and providing the customer with a wide variety of products with uniform, well designed packaging, all of which enhance the customer’s ability to merchandise chicken products.

To satisfy some customers’ merchandising needs, the Registrant freezes the chicken product, which adds value by meeting the customers’ handling, storage, distribution and marketing needs and by permitting shipment of product overseas where transportation time may be as long as 60 days.

The following table sets forth, for the periods indicated, the contribution, as a percentage of net sales dollars, of each of the Registrant’s major product lines.


	Fiscal Year Ended October 31,
	2009			2010			2011			2012			2013
Registrant processed chicken:
Value added:
Chill pack		31.1	%		28.5	%		32.5	%		33.1	%		34.4	%
Fresh bulk pack		50.3			54.5			48.5			49.0			50.5
Frozen		10.1			9.8			12.4			13.1			10.5

Subtotal		91.5			92.8			93.4			95.2			95.4

Non-value added:
Ice pack		.8			.8			1.2			1.2			1.0
Frozen		.0			.0			.0			.0			.0

Subtotal		.8			.8			1.2			1.2			1.0

Total Company processed chicken		92.3			93.6			94.6			96.4			96.4
Prepared chicken		7.7			6.4			5.4			3.6			3.6

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Market Segments and Pricing

The three largest market segments in the chicken industry are big bird deboning, chill pack and small birds.

The following table sets forth, for each of the Company’s poultry processing plants, the general market segment in which the plant participates, the weekly capacity of each plant at full capacity expressed in number of head processed, and the average industry size of birds processed in the relevant market segment.


Plant Location	Market Segment	Capacity Per Week		Industry Bird Size
Laurel, Mississippi	Big Bird Deboning		625,000		8.31
Hazlehurst, Mississippi	Big Bird Deboning		625,000		8.31
Hammond, Louisiana	Big Bird Deboning		625,000		8.31
McComb, Mississippi	Chill Pack Retail		1,250,000		6.23
Bryan, Texas	Chill Pack Retail		1,250,000		6.23
Collins, Mississippi	Big Bird Deboning		1,250,000		8.31
Moultrie, Georgia	Chill Pack Retail		1,250,000		6.23
Waco, Texas	Big Bird Deboning		1,250,000		8.31
Kinston, North Carolina	Chill Pack Retail		1,250,000		6.23

The Company’s Kinston, North Carolina, facility, which began initial operations in January 2011, processes 1.25 million head of chill pack chickens per week at full capacity. The Kinston, North Carolina, facility reached near full capacity during March 2012.

Those plants that target the big bird deboning market grow a relatively large bird. The dark meat from these birds is sold primarily as frozen leg quarters in the export market or as fresh whole legs to further processors. This dark meat is sold primarily at spot commodity prices, which prices exhibit fluctuations typical of commodity markets. The white meat produced by these plants is generally sold as fresh deboned breast meat, chicken tenders and whole or cut wings, and is likewise sold at spot commodity market prices for wings, tenders and boneless breast meat. As of October 31, 2013, the Company had the capacity to process 4.375 million head per week in its big bird deboning plants, and its results are materially impacted by fluctuations in the commodity market prices for leg quarters, boneless breast meat, chicken tenders and wings.

The Urner Barry spot market price for leg quarters, boneless breast meat, chicken tenders and whole wings for the past five calendar years is set forth below:

LOGO

Those plants that target the chill pack retail grocery market grow a medium sized bird and cut and package the product in various sized individual trays to customers’ specifications. The trays are weighed and pre-priced primarily for customers to resell through retail grocery outlets. While the Company sells some of its chill pack product under store brand names, most of its chill pack production is sold under the Company’s Sanderson Farms® brand name. The Company has long term contracts (one to three years) with most of its chill pack customers, and the pricing of this product is based on a formula that uses the Georgia Dock whole bird price as its base. The Georgia Dock whole bird price is published each week by the Georgia Department of Agriculture and is based on its survey of prices and market conditions during the preceding week. As of October 31, 2013, the Company had the capacity to process 5.0 million head per week at its chill pack plants, and its results are materially impacted by fluctuations in the Georgia Dock price.

The Georgia Dock price for whole birds as published by the Georgia Department of Agriculture for the last five calendar years is set forth below:

LOGO

Those companies with plants dedicated to the small bird market grow and process a relatively small chicken and market the finished product primarily to fast food and food service companies at negotiated flat prices, cost plus formulas or spot market prices. Based on benchmarking services used by the industry, this market segment has been the least profitable of the three primary market segments over most of the last ten years. The Company has no product dedicated to the small bird market.

Sales and Marketing

The Registrant’s chicken products are sold primarily to retailers (including national and regional supermarket chains and local supermarkets) and distributors located principally in the southeastern, southwestern, northeastern and western United States. The Registrant also sells its chicken products to casual dining operators and to United States based customers who resell the products outside of the continental United States. This wide range of customers, together with the Registrant’s product mix, provides the Registrant with flexibility in responding to changing market conditions in its effort to maximize profits. This flexibility also assists the Registrant in its efforts to reduce its exposure to market volatility, although its ability to do so is limited.

Sales and distribution of the Registrant’s chicken products are conducted primarily by sales personnel at the Registrant’s general corporate offices in Laurel, Mississippi, by customer service representatives at each of its processing complexes and one prepared chicken plant and through independent food brokers. Each complex has individual on-site distribution centers and uses the Registrant’s truck fleet, as well as contract carriers, for distribution of its products.

Generally, the Registrant prices much of its chicken products based upon weekly and daily market prices reported by the Georgia Department of Agriculture and by private firms. Consistent with the industry, the Registrant’s profitability is impacted by such market prices, which may fluctuate substantially and exhibit cyclical and seasonal characteristics. The Registrant will adjust base prices depending upon value added, volume, product mix and other factors. While base prices may change weekly and daily, the Registrant’s adjustments are generally negotiated from time to time with the Registrant’s customers. The Registrant’s sales are generally made on an as-ordered basis, and the Registrant maintains some long-term sales contracts with its non-chill pack customers.

From time to time, the Registrant may use television, radio and newspaper advertising, point of purchase material and other marketing techniques to develop consumer awareness of and brand recognition for its Sanderson

Farms® products. The Registrant has achieved a high level of public awareness and acceptance of its products in its core markets. Brand awareness is an important element of the Registrant’s marketing philosophy, and it intends to continue brand name merchandising of its products. During calendar 2004, the Company launched an advertising campaign designed to distinguish the Company’s fresh chicken products from competitors’ products. The campaign noted that the Company’s product is a natural product free from salt, water and other additives that some competitors inject into their fresh chicken. The Company continues to use this campaign today.

The Registrant’s prepared chicken items are sold nationally and regionally, primarily to distributors and national food service accounts. Sales of such products are handled by sales personnel of the Registrant and by independent food brokers. Prepared chicken items are distributed from the Registrant’s plant in Flowood, Mississippi, through arrangements with contract carriers.

Production and Facilities

General. The Registrant is a vertically-integrated producer of fresh and frozen chicken products, controlling the production of hatching eggs, hatching, feed manufacturing, growing, processing and packaging of its product lines.

Breeding and Hatching . The Registrant maintains its own breeder flocks for the production of hatching eggs. The Registrant’s breeder flocks are acquired as one-day old chicks (known as pullets and cockerels) from primary breeding companies that specialize in the production of genetically designed breeder stock. As of October 31, 2013, the Registrant maintained contracts with 48 independent contract pullet producers for the grow-out of pullets (growing the pullet to the point at which it is capable of egg production, which takes approximately six months). Thereafter, the mature breeder flocks are transported by Registrant’s vehicles to breeder farms that are maintained, as of October 31, 2013, by 139 independent contractors under the Registrant’s supervision. Eggs produced by independent contract breeder producers are transported to Registrant’s hatcheries in Registrant’s vehicles.

The Registrant owns and operates eight hatcheries located in Mississippi, Texas, Georgia and North Carolina where eggs are incubated, vaccinated and hatched in a process requiring 21 days. The chicks are vaccinated against common poultry diseases and are transported by Registrant’s vehicles to independent contract grow-out farms. As of October 31, 2013, the Registrant’s hatcheries were capable of producing an aggregate of approximately 10.0 million chicks per week.

Grow-out. The Registrant places its chicks on the farms of 613 independent contract broiler producers, as of October 31, 2013, located in Mississippi, Texas, Georgia and North Carolina where broilers are grown to an age of approximately seven to nine weeks. The farms provide the Registrant with sufficient housing capacity for its operations, and are typically family-owned farms operated under contract with the Registrant. The farm owners provide facilities, utilities and labor; the Registrant supplies the day-old chicks, feed and veterinary and technical services. The farm owner is compensated pursuant to an incentive formula designed to promote production cost efficiency.

Historically, the Registrant has been able to accommodate expansion in grow-out facilities through additional contract arrangements with independent contract producers.

Feed Mills. An important factor in the grow-out of chickens is the rate at which chickens convert feed into body weight. The Registrant purchases primary feed ingredients on the open market. Ingredients include corn and soybean meal, which historically have been the largest cost components of the Registrant’s total feed costs. The quality and composition of the feed are critical to the conversion rate, and accordingly, the Registrant formulates and produces its own feed. As of October 31, 2013, the Registrant operated seven feed mills, four of which are located in Mississippi, one in Texas, one in Georgia and one in North Carolina, which began operations in November 2010. The Registrant’s annual feed requirements for fiscal 2013 were approximately 3,547,000 tons, and it has the capacity to produce approximately 4,773,600 tons of finished feed annually under current configurations.

Feed grains are commodities subject to volatile price changes caused by weather, size of the harvest, transportation and storage costs, domestic and export demand and the agricultural and energy policies of the United States and foreign governments. On October 31, 2013, the Registrant had the capacity to store approximately 2,989,000 bushels of corn at its feed mills, which was sufficient to store all of its weekly requirements for corn.

Generally, the Registrant purchases its corn and other feed ingredients at current prices from suppliers and, to a limited extent, directly from farmers. Feed grains are available from an adequate number of sources. Although the Registrant has not experienced and does not anticipate problems in securing adequate supplies of feed grains, price fluctuations of feed grains have a direct and material effect upon the Registrant’s profitability. Although the Registrant attempts to manage the risk of volatile price changes in grain markets by sometimes purchasing grain at current prices for future delivery, it cannot eliminate the potentially adverse effect of grain price increases.

Processing. Once broilers reach processing weight, they are transported to the Registrant’s processing plants. These plants use modern, highly automated equipment to process and package the chickens. The Registrant’s McComb, Mississippi processing plant operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. The Registrant’s Collins, Mississippi processing plant operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. The Registrant’s Bryan, Texas processing plant operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. The Registrant’s Laurel and Hazlehurst, Mississippi and Hammond, Louisiana processing plants operate on a double shift basis and collectively had the capacity to process approximately 1,875,000 chickens per week on October 31, 2013. The Registrant’s Moultrie, Georgia processing plant operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. The Registrant’s Waco, Texas processing plant operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. The Registrant’s Kinston, North Carolina processing plant, which began initial operations in January 2011, operates two processing lines on a double shift basis and had the capacity to process approximately 1,250,000 chickens per week on October 31, 2013. At October 31, 2013, the Company’s deboning facilities were operating on a double shifted basis and had the capacity to produce approximately 10.4 million pounds of big bird boneless breast product and 8.2 million pounds of chill pack boneless breast product each week.

Sanderson Farms, Inc. (Foods Division). The facilities of Sanderson Farms, Inc. (Foods Division) are located in Flowood, Mississippi in a plant with approximately 75,000 square feet of refrigerated manufacturing and storage space. The plant uses highly automated equipment to prepare, process and freeze food items.

Executive Offices; Other Facilities. The Registrant’s laboratory and corporate offices are located on separate sites in Laurel, Mississippi. The office building houses the Company’s corporate offices, meeting facilities and computer equipment and constitutes the corporate headquarters. As of October 31, 2013, the Registrant operated 11 automotive maintenance shops, which service approximately 953 Registrant over-the-road and farm vehicles. In addition, the Registrant has one child care facility located near its Collins, Mississippi processing plant, serving over 150 children on October 31, 2013.

Quality Control

The Registrant believes that quality control is important to its business and conducts quality control activities throughout all aspects of its operations. The Registrant believes these activities are beneficial to efficient production and in assuring its customers receive wholesome, high quality products.

From its company owned laboratory in Laurel, Mississippi, the Director of Technical Services supervises the operation of a modern, well-equipped laboratory which, among other things, monitors sanitation at the hatcheries, quality and purity of the Registrant’s feed ingredients and feed, the health of the Registrant’s breeder flocks and broilers, and conducts microbiological tests of live chickens, facilities and finished products. The Registrant conducts on-site quality control activities at each of the nine processing plants and the prepared chicken plant.

Regulation

The Registrant’s facilities and operations are subject to regulation by various federal and state agencies, including, but not limited to, the Federal Food and Drug Administration (“FDA”), the United States Department of Agriculture (“USDA”), the Environmental Protection Agency, the Occupational Safety and Health Administration and corresponding state agencies. The Registrant’s chicken processing plants are subject to continuous on-site inspection by the USDA. The Sanderson Farms, Inc. (Foods Division) prepared chicken plant operates under the USDA’s Total Quality Control Program, which is a strict self-inspection plan written in cooperation with and monitored by the USDA. The FDA inspects the production at the Registrant’s feed mills.

Compliance with existing regulations has not had a material adverse effect upon the Registrant’s earnings or competitive position in the past. Management believes that the Registrant is in substantial compliance with existing laws and regulations relating to the operation of its facilities and does not know of any major capital expenditures necessary to comply with such statutes and regulations.

The Registrant takes extensive precautions to ensure that its flocks are healthy and that its processing plants and other facilities operate in a healthy and environmentally sound manner. Events beyond the control of the Registrant, however, such as an outbreak of disease in its flocks or the adoption by governmental agencies of more stringent regulations, could materially and adversely affect its operations.

Competition

The Registrant is subject to significant competition from regional and national firms in all markets in which it competes. Some of the Registrant’s competitors have greater financial and marketing resources than the Registrant.

The primary methods of competition are price, product quality, number of products offered, brand awareness and customer service. The Registrant has emphasized product quality and brand awareness through its advertising strategy. See “Business — Sales and Marketing”. Although poultry is relatively inexpensive in comparison with other meats, the Registrant competes indirectly with the producers of other meats and fish, since changes in the relative prices of these foods may alter consumer buying patterns.

One customer accounted for more than 10% of the Registrant’s consolidated sales for the years ended October 31, 2013, 2012 and 2011. Sales to that customer accounted for 14.2%, 13.0% and 10.6% of the Company’s consolidated net sales in fiscal 2013, 2012 and 2011, respectively. The Company does not believe the loss of any single customer would have a material adverse effect on the Company because it could sell poultry earmarked for any single customer to alternative customers at market prices.

Sources of Supply

During fiscal 2013, the Registrant purchased its pullets and cockerels from a single major breeder. The Registrant has found the genetic breeds or cross breeds supplied by this company produce chickens most suitable to the Registrant’s purposes. The Registrant has no written contracts with this breeder for the supply of breeder stock. Other sources of breeder stock are available, and the Registrant continually evaluates these sources of supply.

Should breeder stock from its present supplier not be available for any reason, the Registrant believes that it could obtain adequate breeder stock from other suppliers.

Other major raw materials used by the Registrant include feed grains and other feed ingredients, cooking ingredients and packaging materials. The Registrant purchases these materials from a number of vendors and believes that its sources of supply are adequate for its present needs. The Registrant does not anticipate any difficulty in obtaining these materials in the future.

Seasonality

The demand for the Registrant’s chicken products generally is greatest during the spring and summer months and lowest during the winter months.

Trademarks

The Registrant has registered with the United States Patent and Trademark Office the trademark Sanderson Farms®, which it uses in connection with the distribution of its prepared chicken and premium grade chill pack products. The Registrant considers the protection of this trademark to be important to its marketing efforts due to

consumer awareness of and loyalty to the Sanderson Farms® label. The Registrant also has registered with the United States Patent and Trademark Office seven other trademarks that are used in connection with the distribution of chicken and other products and for other competitive purposes.

The Registrant, over the years, has developed important non-public proprietary information regarding product related matters. While the Registrant has internal safeguards and procedures to protect the confidentiality of such information, it does not generally seek patent protection for its technology.

Employee and Labor Relations

As of October 31, 2013, the Registrant had 11,271 employees, including 1,327 salaried and 9,944 hourly employees. A collective bargaining agreement with the United Food and Commercial Workers International Union covering 500 hourly employees who work at the Registrant’s processing plant in Hammond, Louisiana expired on November 30, 2013, and has been renegotiated with a new expiration date of November 30, 2016. This collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the Hammond plant.

A collective bargaining agreement with the Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering 435 hourly employees who work at the Registrant’s processing plant in Hazlehurst, Mississippi expires on December 31, 2014. The current collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the Hazlehurst plant.

A collective bargaining agreement with the Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering 919 hourly employees who work at the Registrant’s processing plant in Collins, Mississippi expires on January 10, 2016. The current collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the Collins plant.

The production, maintenance and clean-up employees at the Company’s Bryan, Texas poultry processing facility are represented by the United Food and Commercial Workers Union Local #408, AFL-CIO. A collective bargaining agreement covering 1,266 employees expires on December 31, 2014. The collective bargaining agreement has a grievance procedure and no strike-no lockout clause that should assist in maintaining stable labor relations at the Bryan, Texas processing facility.

(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

All of the Company’s operations are domiciled in the United States. All of the Company’s products sold in the Company’s fiscal years 2013, 2012 and 2011 were produced in the United States and all long-lived assets of the Company are domiciled in the United States. Gross domestic sales for fiscal years 2013, 2012 and 2011 totaled approximately $2,457.8 million, $2,126.5 million and $1,774.8 million, respectively.

The Company sells certain of its products to foreign customers and customers who resell the product in foreign markets. These foreign markets are primarily Russia, Eastern Europe, China, Mexico and the Caribbean. These gross export sales for fiscal years 2013, 2012 and 2011 totaled approximately $292.6 million, $318.7 million and $253.8 million, respectively. The Company’s export sales are facilitated through independent food brokers located in the United States and the Company’s internal sales staff.

(e) AVAILABLE INFORMATION

Our address on the World Wide Web is http://www.sandersonfarms.com. The information on our web site is not a part of this document. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and all amendments to those reports and the Company’s corporate code of conduct are available, free of charge, through our web site as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance matters is also available on the website.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or results of operations in future periods. The risks described below are not the only risks facing our Company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.

Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients and chicken.

Profitability in the poultry industry is materially affected by the commodity prices of feed ingredients, chicken, and, to a lesser extent, alternative proteins. These prices are determined by supply and demand factors, and supply and demand factors in respect of feed ingredients and chicken may not correlate. For example, grain prices during 2011 were high, while prices for chicken products did not increase proportionally, and the Company lost money. During 2012 and 2013, grain prices remained high, but market prices for chicken also increased, and the Company was profitable. As a result, the poultry industry is subject to wide fluctuations that are called cycles. Typically we do well when chicken prices are high and feed prices are low. We do less well, and sometimes have losses, when chicken prices are low and feed prices are high. It is very difficult to predict when these cycles will occur. All we can safely predict is that they do and will occur.

Various factors can affect the supply of corn and soybean meal, which are the primary ingredients of the feed we use. In particular, global weather patterns, including adverse weather conditions that may result from climate change, the global level of supply inventories and demand for feed ingredients, currency fluctuations and the agricultural and energy policies of the United States and foreign governments all affect the supply of feed ingredients. Weather patterns often change agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens or deliver products. For example, historic drought conditions in the Midwestern United States in 2012 had a significant adverse effect on the supply and price of feed grains in fiscal 2012 and the first three quarters of 2013. In recent years, demand for corn from ethanol producers has resulted in sharply higher costs for corn and other grains.

Increases in the prices of feed ingredients will result in increases in raw material costs and operating costs. Because prices for our products are related to the commodity prices of chickens, which depend on the supply and demand dynamics of fresh chicken, we typically are not able to increase our product prices to offset these increased grain costs. We periodically enter into contracts to purchase feed ingredients at current prices for future delivery to manage our feed ingredient costs. This practice could reduce, but does not eliminate, the risk of increased operating costs from commodity price increases. In addition, if we are unsuccessful in our grain buying strategy, we could actually pay a higher cost for feed ingredients than we would if we purchased at current prices for current delivery.

Prepared chicken and poultry inventories, and inventories of feed, eggs, medication, packaging supplies and live chickens, are stated on our balance sheet at the lower of cost (first-in, first-out method) or market value. Our cost of sales is calculated during a period by adding the value of our inventories at the beginning of the period to the cost of growing, processing and distributing products produced during the period and subtracting the value of our inventories at the end of the period. If the market prices of our inventories are below the accumulated cost of those inventories at the end of a period, we would record adjustments to write down the carrying value of the inventory from cost to market value. These write-downs would directly increase our cost of sales by the amount of the write-downs. This risk is greatest when the costs of feed ingredients are high and the market value for finished poultry products is declining.

For example, for the fiscal year ended October 31, 2011, we recorded a charge of $9 million to lower the value of live broiler inventories on hand at that date from cost to estimated market value because the estimated market price for the products to be produced from those live chickens, when sold, was estimated to be below the estimated cost to grow, process and distribute those chickens. The $9 million adjustment to inventory on October 31, 2011,

effectively absorbed into fiscal 2011 a portion of the costs to grow, process and distribute chickens that we would have otherwise incurred in the first quarter of fiscal 2012, thereby benefitting fiscal 2012. Any similar adjustments that we make in the future could be material, and could materially adversely affect our financial condition and results of operations. The Company made no such adjustment during fiscal 2013.

Outbreaks of avian disease, such as avian influenza, or the perception that outbreaks may occur, can significantly restrict our ability to conduct our operations and can significantly affect demand for our products.

We take reasonable precautions to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally sound manner. Nevertheless, events beyond our control, such as the outbreak of avian disease, even if it does not affect our flocks, could significantly restrict our ability to conduct our operations or our sales. An outbreak of disease could result in governmental restrictions on the import and export of fresh and frozen chicken, including our fresh and frozen chicken products, or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks. This could result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our business, reputation and prospects. In addition, world-wide fears about avian disease, such as avian influenza, have, in the past, depressed demand for fresh chicken, which adversely impacted our sales.

In previous years there has been substantial publicity regarding a highly pathogenic Asian strain of avian influenza, or AI, known as H5N1, which has affected Asia since 2002 and which has been found in Europe, the Middle East and Africa. It is widely believed that this strain of AI is spread by migratory birds, such as ducks and geese. There have also been some cases where this strain of AI is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease. During the first calendar quarter of 2013, there was also substantial publicity regarding a low pathogenic strain of avian influenza, known as H7N9, which affected eastern and northern China. It is widely believed that H7N9 circulates in wild birds and may have been transmitted to domestic poultry in live bird markets in and around Shanghai and Beijing. It is also believed that the virus has passed from live birds to humans as humans came into contact with live birds that were infected with the disease. Through May 2013, the virus was believed to have sickened at least 130 people and caused at least 33 deaths. There have been no reported incidents of the virus since May. No human to human transmission of the disease has been proven, and there is no evidence to suggest that the consumption of properly prepared and cooked poultry could transmit the virus to humans. However, fear associated with this outbreak dampened demand for poultry, including our products, in the affected areas of China. A recurrence of this outbreak, or others similar to it, could have a material negative effect on world demand for poultry, including demand for our products.

Although the Asian strains of AI have not been identified in North America, there have been outbreaks of both low and high pathogenic strains of avian influenza in North America, including in the U.S. in 2002 and 2004 and in Mexico in 2005 and 2012. In addition, low pathogenic strains of the AI virus were detected in wild birds in the United States in 2006. During fiscal 2013, a highly pathogenic strain of avian influenza, known as H7N3, affected live poultry in several states in central Mexico. The Company has no operations in Mexico, and our live chickens have not been affected by this outbreak. However, in an effort to prevent the spread of the virus, the Mexican government and poultry industry reportedly culled approximately 27.5 million birds and undertook an extensive vaccination program in the affected areas of the country. These practices reduced the supply of available poultry in Mexico, and increased demand in Mexico for poultry produced in the United States, including our products. Although the outbreaks in North America have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with the Asian strains, they have nevertheless impacted our sales. Accordingly, even if the Asian strains do not spread to North America, we cannot assure you that they will not materially adversely affect domestic or international demand for poultry produced in North America, and, if they were to spread to North America, we cannot assure you that they would not significantly affect our operations or the demand for our products, in each case in a manner having a material adverse effect on our business, reputation or prospects.

A decrease in demand for our products in the export markets could materially and adversely affect our results of operations.

Nearly all of our customers are based in the United States, but some of our product is sold directly to foreign customers, and some of our United States based customers resell poultry products in the export markets. Our

chicken products are sold in Russia and other former Soviet countries, China and Mexico, among other countries. Approximately 10.6% of our gross sales in fiscal 2013 were to export markets, including $49.4 million to Russia, $77.0 million to Mexico and $55.8 million to China. Any disruption to the export markets, such as trade embargos, tariffs, import bans, duties or quotas could materially impact our sales or create an oversupply of chicken in the United States. This, in turn, could cause domestic poultry prices to decline. Any quotas or bans in the future could materially and adversely affect our sales and our results of operations.

On January 19, 2010, Russia banned imports of U.S. poultry, citing its concerns about the practice in the United States of treating poultry meat with chlorinated water during processing. On February 5, 2010, China announced that it would impose anti-dumping duties on U.S. chicken products beginning on February 13, 2010. The duty applicable to Sanderson Farms products was 64.5%. On April 28, 2010, China imposed countervailing duties on United States chicken products, raising the duty applicable to Sanderson Farms’ products by 6.1% to 70.6%. The total duties were later lowered to 59.2%. Following the imposition of the Russian embargo and the Chinese duty, we and our customers who resell our frozen chicken product to Russia and China were able, for a period of time, to sell those products in alternative markets without a significant price disadvantage. However, our customers who resell or previously resold our frozen chicken products in China commenced selling a portion of those products in China and paying the applicable duty. This lowered their return and the price they were willing to pay us, reducing our revenues and profits. A challenge to China’s anti-dumping determination was filed by the U.S. Government with the World Trade Organization (WTO), which ruled in favor of the U.S. on September 25, 2013. China did not appeal the WTO ruling, but it could be several months before the duties are removed. In the case of Russia, an agreement between the governments of the United States and Russia was reached in July 2010 pursuant to which poultry meat processed pursuant to the standards demanded by Russia and incorporated into the agreement may be shipped to Russia.

On August 6, 2012, Mexico imposed anti-dumping duties on chicken drumstick and thigh imports from the United States, establishing the duty applicable to Sanderson Farms’ products at 25.7%. However, Mexico suspended the implementation of the duties amidst concerns that food inflation may occur as a result. While we do not know whether or when Mexico might impose the anti-dumping duties, their implementation could reduce our revenues and profits. On October 2, 2012, pursuant to the North American Free Trade Agreement (NAFTA), the U.S. poultry industry, including Sanderson Farms, Inc., filed a complaint challenging the anti-dumping determination issued by Mexico. The complaint is currently pending.

The poultry industry is highly competitive. Some of our competitors have greater financial and marketing resources than we have.

In general, the competitive factors in the U.S. poultry industry include:

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price;

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product quality;

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brand identification;

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breadth of product line and

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customer service.

Competitive factors vary by major markets. In the food service market, competition is based on consistent quality, product development, service and price. In the U.S. retail grocery market, we believe that competition is based on product quality, brand awareness, price and customer service. Our success depends in part on our ability to manage costs and be efficient in the highly competitive poultry industry.

The loss of our major customers could have a material adverse effect on our results of operations.

Our sales to our top ten customers represented approximately 47.8% of our net sales during the 2013 fiscal year. Our non-chill pack customers, with all of whom we do not have long-term contracts, could significantly reduce or cease their purchases from us with little or no advance notice, which could materially and adversely affect our sales and results of operations.

We must identify changing consumer preferences and develop and offer food products to meet their preferences.

Consumer preferences evolve over time and the success of our food products depends on our ability to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences. We introduce new products and improved products from time to time and incur significant development and marketing cost. If our products fail to meet consumer preference, then our strategy to grow sales and profits with new products will be less successful.

Inclement weather, such as excessive heat or storms, could hurt our flocks, which could in turn have a material adverse effect on our results of operations.

Extreme weather in the Gulf South and Mid-Atlantic regions where we operate, such as extreme temperatures, hurricanes or other storms, could impair the health or growth of our flocks or interfere with our hatching, production or shipping operations. Some scientists believe that climate change could increase the frequency and severity of adverse weather events. Extreme weather, regardless of its cause, could affect our business due to power outages; fuel shortages; damage to infrastructure from powerful winds, rising water or extreme temperatures; disruption of shipping channels; less efficient or non-routine operating practices necessitated by adverse weather or increased costs of insurance coverage in the aftermath of such events, among other things. Any of these factors could materially and adversely affect our results of operations. We may not be able to recover through insurance all of the damages, losses or costs that may result from weather events, including those that may be caused by climate change.

We rely heavily on the services of key personnel.

We depend substantially on the leadership of a small number of executive officers and other key employees. We have employment agreements with only three of these persons (our Chairman of the Board and Chief Executive Officer, our President and Chief Operating Officer, and our Treasurer and Chief Financial Officer), and those with whom we have no agreement would not be bound by non-competition agreements or non-solicitation agreements if they were to leave us. The loss of the services of these persons could have a material adverse effect on our business, results of operations and financial condition. In addition, we may not be able to attract, retain and train the new management personnel we need for our new complexes, or do so at the pace necessary to sustain our significant company growth.

We depend on the availability of, and good relations with, our employees and contract growers.

We have approximately 11,271 employees, approximately 27.7% of which are covered by collective bargaining agreements. In addition, we contract with approximately 800 independent contract poultry producers in Mississippi, Texas, North Carolina and Georgia for the grow-out of our breeder and broiler stock and the production of broiler eggs. Our operations depend on the availability of labor and contract growers and maintaining good relations with these persons and with labor unions. If we fail to maintain good relations with our employees or with the unions, we may experience labor strikes or work stoppages. If we do not attract and maintain contracts with our growers, including new growers for our new poultry complexes, our production operations could be negatively impacted and/or our growth could be restrained.

Failure of our information technology infrastructure or software could adversely affect our day-to-day operations and decision making processes and have an adverse effect on our performance.

We depend on accurate and timely information and numerical data from key software applications to aid our day-to-day business, financial reporting and decision-making and, in many cases, proprietary and custom-designed software is necessary to operate equipment in our feed mills, hatcheries and processing plants. We have put in place disaster recovery plans for our critical systems. However, any disruption caused by the failure of these systems, the underlying equipment, or communication networks could delay or otherwise adversely impact our day-to-day business and decision making, could make it impossible for us to operate critical equipment, and could have a materially adverse effect on our performance, if our disaster recovery plans do not mitigate the disruption. Disruptions could be caused by a variety of factors, such as catastrophic events or weather, power outages, or cyber-attacks on our systems by outside parties.

Immigration legislation and enforcement may affect our ability to hire hourly workers.

Immigration reform continues to attract significant attention in the public arena and the United States Congress. If new immigration legislation is enacted at the federal level or in states in which we do business, such legislation may contain provisions that could make it more difficult or costly for us to hire United States citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, operating results and financial condition. Also, despite our past and continuing efforts to hire only United States citizens and/or persons legally authorized to work in the United States, increased enforcement efforts with respect to existing immigration laws by governmental authorities may disrupt a portion of our workforce or our operations at one or more of our facilities, thereby negatively impacting our business. Officials with the Bureau of Immigration and Customs Enforcement have informally indicated an intent to focus their enforcement efforts on red meat and poultry processors.

If our poultry products become contaminated, we may be subject to product liability claims and product recalls.

Poultry products may contain disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E. coli. These pathogens are generally found in the environment and, as a result, there is a risk that they, as a result of food processing, could be present in our processed poultry products. These pathogens can also be introduced as a result of improper handling by our customers, consumers or third parties after we have shipped the products. We control these risks through careful processing and testing of our finished product, but we cannot entirely eliminate them. We have little, if any, control over proper handling once the product has been shipped. Nevertheless, contamination that results from improper handling by our customers, consumers or third parties, or tampering with our products by those persons, may be blamed on us. Any publicity regarding product contamination or resulting illness or death could adversely affect us even if we did not cause the contamination and could have a material adverse effect on our business, reputation and future prospects. We could be required to recall our products if they are contaminated or damaged and product liability claims could be asserted against us.

We are exposed to risks relating to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate.

Our business operations entail a number of risks, including risks relating to product liability claims, product recalls, property damage and injuries to persons. We currently maintain insurance with respect to certain of these risks, including product liability and recall insurance, property insurance, workers compensation insurance and general liability insurance, but in many cases such insurance is expensive and difficult to obtain. We cannot assure you that we can maintain on reasonable terms sufficient coverage to protect us against losses due to any of these events.

We would be adversely affected if we expand our business by acquiring other businesses or by building new processing plants, but fail to successfully integrate the acquired business or run a new plant efficiently.

We regularly evaluate expansion opportunities such as acquiring other businesses or building new processing plants. Significant expansion involves risks such as additional debt, integrating the acquired business or new plant into our operations, attracting and retaining growers, and identifying customers for the additional product we generate. In evaluating expansion opportunities, we carefully consider the effect that financing the opportunity will have on our financial condition. Successful expansion depends on our ability to integrate the acquired business or efficiently run the new plant. If we are unable to do this, expansion could adversely affect our operations, financial results and prospects.

Governmental regulation is a constant factor affecting our business.

The poultry industry is subject to federal, state, local and foreign governmental regulation relating to the processing, packaging, storage, distribution, advertising, labeling, quality and safety of food products. Unknown

matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect our business or operations in the future. Our failure to comply with applicable laws and regulations could subject us to administrative penalties and civil remedies, including fines, injunctions and recalls of our products. Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency, which pertain to the discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these regulations can have serious consequences, including civil and administrative penalties and negative publicity.

On December 9, 2011, the United States Department of Agriculture, Grain Inspection, Packers and Stockyard Administration, or GIPSA, published new and amending regulations under the Packers and Stockyard Act, or PSA, which apply to all stages of a live poultry dealer’s poultry grow-out, including the pullet, breeder and broiler stages. The new regulations took effect on February 7, 2012. Among other things, the new regulations purport to extend the jurisdiction of GIPSA under the PSA to cover a poultry dealer’s relationship with its pullet and breeder growers rather than simply broiler growers, as has been the case since the adoption of the PSA of 1921. The new regulations impose certain notice requirements when a poultry company determines to suspend the delivery of birds to a grower, impose requirements regarding additional capital investment by growers, impose new requirements of a poultry company when a grower has breached its agreement with the processor, and impose new rules applicable to grower contracts that provide for arbitration to resolve disputes between a grower and the poultry company. The Company amended its grower agreements in 2012 to comply with the new rules. It is uncertain how GIPSA will interpret the new rules and whether the new rules signal a change in the manner in which GIPSA will exercise its jurisdiction over poultry growing agreements.

The removal of federal meat and poultry inspectors from our plants due to federal government budget constraints, or any other reason, could materially and adversely affect our results of operations.

The Poultry Products Inspection Act prohibits the production, processing or interstate distribution of poultry meat without federal inspection. To implement this law, the United States Department of Agriculture (or USDA) stations inspectors at our poultry processing plants to observe our operations.

The Budget Control Act of 2011 mandates mandatory cuts in the budgets of many governmental agencies in the United States. Such cuts, commonly referred to as “sequestration,” took effect on March 1, 2013.

In a letter dated February 12, 2013, Thomas J. Vilsack, the U.S. Secretary of Agriculture, indicated that while furloughing food safety inspectors is the “last option” the USDA would implement to achieve necessary sequestration cuts, such action may be necessary in order to comply with the mandates of the Budget Control Act of 2011. Because applicable law would prohibit us from operating our poultry processing plants without the presence of federal inspectors, we would have to shut down our processing plants and our live chickens would continue to mature, possibly reaching weights that exceed the market standards demanded by our customers. In addition, live chickens would likely experience significantly higher mortality due to the higher live weights. Our inability to process chickens at our poultry processing plants for an extended period of time would materially disrupt our operations and our ability to deliver our product.

To date, funding for meat inspectors has been provided at levels adequate to allow uninterrupted operations. However, if funding for the USDA inspection program is not maintained, we could experience the material adverse effects described above.

Our stock price may be volatile.

The market price of our common stock could be subject to wide fluctuations in response to factors such as the following, many of which are beyond our control:

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market cyclicality and fluctuations in the price of feed grains and chicken products, as described above;

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quarterly variations in our operating results, or results that vary from the expectations of securities analysts and investors;

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changes in investor perceptions of the poultry industry in general, including our competitors; and

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general economic and competitive conditions.

In addition, purchases or sales of large quantities of our stock could have an unusual effect on our market price.

Anti-takeover provisions in our charter and by-laws, as well as certain provisions of Mississippi law, may make it difficult for anyone to acquire us without approval of our board of directors.

Our articles of incorporation and by-laws contain provisions that may discourage attempts to acquire control of our company without the approval of our board of directors. These provisions, among others, include a classified board of directors, advance notification requirements for stockholders to nominate persons for election to the board and to make stockholder proposals, and special stockholder voting requirements. These measures, and any others we may adopt in the future, as well as applicable provisions of Mississippi law, may discourage offers to acquire us and may permit our board of directors to choose not to entertain offers to purchase us, even offers that are at a substantial premium to the market price of our stock. Our stockholders may therefore be deprived of opportunities to profit from a sale of control of our company, and as a result, may adversely affect the marketability and market price of our common stock.

Weak national or global economic conditions could negatively impact our business.

Our business may be adversely affected by weak national or global economic conditions, including inflation, unfavorable currency exchange rates and interest rates, the lack of availability of credit on reasonable terms, changes in consumer spending rates and habits, unemployment and underemployment, and a tight energy supply and rising energy costs. Our business could be negatively impacted if efforts and initiatives of the governments of the United States and other countries to manage and stimulate the economy fail or result in worsening economic conditions. Deteriorating economic conditions could negatively impact consumer demand for protein generally or our products specifically, consumers’ ability to afford our products, or consumer habits with respect to how they spend their food dollars.

Disruptions in credit and other financial markets caused by deteriorating national and international economic conditions could, among other things, make it more difficult for us, our customers or our growers or prospective growers to obtain financing and credit on reasonable terms, cause lenders to change their practice with respect to the industry generally or our company specifically in terms of granting credit extensions and terms, impair the financial condition of our customers, suppliers or growers making it difficult for them to meet their obligations and supply raw material, or impair the financial condition of our insurers, making it difficult or impossible for them to meet their obligations to us.

The construction and potential benefits of our new facilities are subject to risks and uncertainties.

In August 2009, we began construction of a poultry complex in Kinston, North Carolina. The Kinston, North Carolina, complex began initial operations during January 2011 and was at near full capacity in March 2012. In March 2010 we announced plans for a second potential new poultry complex in North Carolina, subject to various contingencies, including our obtaining an acceptable economic incentive package from the State of North Carolina and the local government. On February 24, 2011 we placed this second North Carolina complex on hold until market fundamentals improve, including the global supply and price of feed grains. In August 2012, we announced the selection of Nash County, North Carolina, as the site for the new complex, subject to various contingencies. On November 13, 2012, we announced that Nash County, North Carolina, would not be the site for the new complex due to various timing issues, but that we were actively seeking alternative sites. On February 14, 2013, we announced the selection of sites in and near Palestine, Texas for the construction of the new poultry complex, and construction began on or about October 1, 2013. Our ability to complete its construction on a timely basis and within budget is subject to a number of risks and uncertainties described below. In addition, the new complex may not generate the benefits we expect if demand for the products to be produced by them is different from what we expect.

In order to complete construction of the new facility, we will need to take a significant number of steps and obtain a number of approvals, none of which we can assure you will be obtained. In particular we need to:

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identify and enter into contracts with a sufficient number of growers for the new complex; and

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complete construction.

If we are unable to proceed with or complete construction as planned, attract growers, find customers for the additional product generated by the complex, run the complex efficiently, or otherwise achieve the expected benefits of our new facilities, our business could be negatively impacted.

We cannot assure you that we will be able to complete such steps on a timely basis, or at all, or on terms that are reasonable or consistent with our expectations.

Item 1B.

Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

The Registrant’s principal properties are as follows:


Use		Location (City, State)
Poultry processing plant, hatchery and feedmill		Laurel, Mississippi
Poultry processing plant, hatchery and feedmill		McComb, Mississippi
Poultry processing plant, hatchery and feedmill		Hazlehurst and Gallman, Mississippi
Poultry processing plant, hatchery and feedmill		Bryan and Robertson Counties, Texas
Poultry processing plant, hatchery and feedmill		Moultrie and Adel, Georgia
Poultry processing plant and hatchery		Waco and McLennan County, Texas
Poultry processing plant		Hammond, Louisiana
Poultry processing plant, hatchery, child care facility and feedmill		Collins, Mississippi
Poultry processing plant, hatchery and feedmill		Kinston and Lenoir County, North Carolina
Prepared chicken plant		Flowood, Mississippi
Corporate general offices and technical laboratory		Laurel, Mississippi

The Registrant owns substantially all of its major operating facilities with the following exceptions: one processing plant and feed mill complex is leased on an annual renewal basis through 2063 with an option to purchase at a nominal amount at the end of the lease term. One processing plant complex is leased under four leases, which are renewable annually through 2061, 2063, 2075 and 2073, respectively. Certain infrastructure improvements associated with a processing plant are leased under a lease that expired in 2013 and is thereafter renewable annually through 2091. The lease has been renewed for 2014. All of the foregoing leases are capital leases.

There are no material encumbrances on the major operating facilities owned by the Registrant, except that, under the terms of the Company’s revolving credit agreement, the Registrant may not pledge any additional assets as collateral other than fixed assets not to exceed $5.0 million at any one time.

Management believes that the Company’s facilities are suitable for its current purposes, and believes that current renovations and expansions will enhance present operations and allow for future internal growth.

Item 3.

Legal Proceedings

Sanderson millions of dollars in labor costs because illegal aliens will work for extremely low wages”. The action is brought as a class action lawsuit on behalf of all legally authorized hourly employees that worked at the Moultrie plant in the four years before the filing of the case. The plaintiffs are suing for money damages, injunctive relief and revocation of our license to conduct business in the State of Georgia.

On September 13, 2012, the Court entered an Order granting a motion to dismiss the Complaint, but provided the plaintiffs an opportunity to file an Amended Complaint on one of the alleged violations. After an Amended Complaint was filed by the plaintiffs on October 5, 2012, the Company filed a motion to dismiss the Amended Complaint on October 29, 2012. On February 5, 2013, the Court granted the Company’s motion to dismiss and entered an Order dismissing the Amended Complaint with prejudice. The plaintiffs filed a notice of appeal with the United States Court of Appeals for the Eleventh Circuit on February 8, 2013. The Brief for Plaintiffs-Appellants was filed on March 19, 2013, and the Brief for Defendants-Appellees was filed on April 22, 2013. The Plaintiffs-Appellants’ Reply Brief was filed May 6, 2013. Oral argument was held on November 20, 2013. This matter is pending.

The Company is involved in various other claims and litigation incidental to its business. Although the outcome of these matters 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 operations or financial position.

The Company recognizes the costs of legal defense for the legal proceedings to which it is a party in the periods incurred. After a considerable analysis of each case, the Company determines the amount of reserves required, if any. At this time, the Company has not accrued any reserve for any of these matters. Future reserves may be required if losses are deemed reasonably estimable and probable due to changes in the Company’s assumptions, the effectiveness of legal strategies, or other factors beyond the Company’s control. Future results of operations may be materially affected by the creation of reserves or by accruals of losses to reflect any adverse determinations in these legal proceedings.

Item 4.

Mine Safety Disclosures.

Not Applicable

Item 4A.

Executive Officers of the Registrant.


Name	Age	Office	Executive Officer Since
Joe F. Sanderson, Jr.	66	Chairman of the Board of Directors and Chief Executive Officer		1984	(1)
Lampkin Butts	62	President and Chief Operating Officer, Director		1996	(2)
Mike Cockrell	56	Treasurer and Chief Financial Officer, Director		1993	(3)
Tim Rigney	49	Secretary and Chief Accounting Officer		2012	(4)

(1)

Joe F. Sanderson, Jr. has served as Chief Executive Officer of the Registrant since November 1, 1989, and as Chairman of the Board since January 8, 1998. Mr. Sanderson served as President from November 1, 1989, to October 21, 2004. From January 1984 to November 1989, Mr. Sanderson served as Vice-President, Processing and Marketing of the Registrant.

(2)

Lampkin Butts was elected President and Chief Operating Officer of the Registrant effective October 21, 2004. From November 1, 1996, to October 21, 2004, Mr. Butts served as Vice President — Sales and was elected to the Board of Directors on February 19, 1998. Prior to that time, Mr. Butts served the Registrant in various capacities since 1973.

(3)

Mike Cockrell became Treasurer and Chief Financial Officer of the Registrant effective November 1, 1993, and was elected to the Board of Directors on February 19, 1998. Prior to that time, for more than five years, Mr. Cockrell was a member and shareholder of the Jackson, Mississippi law firm of Wise Carter Child & Caraway, Professional Association.

(4)	Tim Rigney became Secretary of the Registrant effective November 1, 2012. Mr. Rigney also began service as Chief Accounting Officer on that date. Prior to that time, Mr. Rigney served the Registrant in various capacities since 1990.

The Company entered into employment agreements with Messrs. Sanderson, Butts and Cockrell dated as of September 15, 2009. The term of the agreements ends when the officer’s employment terminates under the provisions of the agreement. The agreements provide for severance payments to be paid to the officers if their employment is terminated in certain circumstances, as well as provisions prohibiting them from engaging in certain competitive activity with the Company during their employment and for the two years after their employment with the Company terminates for any reason other than poor performance.

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s common stock is traded on the NASDAQ Stock Market LLC under the symbol SAFM.

The number of stockholders of record as of December 10, 2013, was 3,133.

The following table shows quarterly cash dividends and quarterly high and low sales prices for the common stock for the past two fiscal years. NASDAQ quotations are based on actual sales prices.


	Stock Price
Fiscal Year 2013	High		Low		Dividends
First Quarter	$	50.65	$	45.38	$	0.17
Second Quarter	$	61.26	$	50.32	$	0.17
Third Quarter	$	72.79	$	60.69	$	0.17
Fourth Quarter	$	75.07	$	60.62	$	0.20


	Stock Price
Fiscal Year 2012	High		Low		Dividends
First Quarter	$	52.29	$	47.32	$	0.17
Second Quarter	$	55.01	$	47.54	$	0.17
Third Quarter	$	54.94	$	36.50	$	0.17
Fourth Quarter	$	45.47	$	37.22	$	0.17

On December 10, 2013, the closing sales price for the common stock was $67.87 per share.

During its fourth fiscal quarter, the Company repurchased shares of its common stock as follows:


Period	(a) Total Number of Shares Purchased ¹		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ²		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs ³
Aug. 1, 2013 — Aug. 31, 2013		0	$	—		0		1,000,000
Sept. 1, 2013 — Sept. 30, 2013		1,252	$	65.24		1,252		1,000,000
Oct. 1, 2013 — Oct. 31, 2013		0	$	—		0		1,000,000

Total		1,252	$	65.24		1,252		1,000,000

All purchases were made pursuant to the Company’s Stock Incentive Plan adopted February 17, 2011, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting the Company to withhold shares with a value equal to the amount of the withholding obligation.

On February 16, 2012, the Company’s Board of Directors approved a share repurchase program under which the Company may purchase up to 1 million shares of its common stock in open market transactions or negotiated purchases, subject to market conditions, share price and other considerations. The authorization will expire on February 16, 2014. Unlike the Company’s previous share repurchase programs, the Company’s repurchase of vested restricted stock to satisfy tax withholding obligations of its Stock Incentive Plan participants will not be made under the 2012 general repurchase plan.

3	Does not include vested restricted shares that may yet be repurchased under the Stock Incentive Plan as described in Note 1.

Item 6.

Selected Financial Data.


	Year Ended October 31,
	2013		2012		2011			2010		2009
	(In thousands, except per share data)
Net sales	$	2,682,980	$	2,386,105	$	1,978,085		$	1,925,445	$	1,789,508
Operating income (loss)		205,678		96,316		(188,380	)		209,841		136,610
Net income (loss)		130,617		53,944		(127,077	)		134,820		82,319
Basic earnings (loss) per share		5.68		2.35		(5.74	)		6.07		3.94
Diluted earnings (loss) per share		5.68		2.35		(5.74	)		6.07		3.94
Working capital		269,200		262,193		324,296			238,166		162,663
Total assets		924,645		896,453		948,521			841,620		636,176
Long-term debt, less current maturities		29,414		150,212		273,670			62,075		103,123
Stockholders’ equity		671,599		550,075		506,900			645,713		430,708

Cash dividends declared per share	$	.71	$	.68	$	.68		$	.62	$	.57

Various factors affecting the comparability of the information included in the table above are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE PERFORMANCE

This Annual Report, 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, and the ability of the end user or consumer to afford protein.

(3) Changes in the political or economic climate, trade policies, laws and regulations or the domestic poultry industry of countries to which the Company or other companies in the poultry industry ship product, and other changes that might limit the Company’s or the industry’s access to foreign markets.

(4) Changes in laws, regulations, and other activities in government agencies and similar organizations applicable to the Company and the poultry industry and changes in laws, regulations and other activities in government agencies and similar organizations related to food safety.

(5)Various inventory risks due to changes in market conditions, including, but not limited to, the risk that market values of live and processed poultry inventories might be lower than the cost of such inventories, requiring a downward adjustment to record the value of such inventories at the lower of cost or market as required by generally accepted accounting principles.

(6) Changes in and effects of competition, which is significant in all markets in which the Company competes, and the effectiveness of marketing and advertising programs. 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.

(8) Disease outbreaks affecting the production performance and/or marketability of the Company’s poultry products, or the contamination of its products.

(9) Changes in the availability and cost of labor and growers.

(10) The loss of any of the Company’s major customers.

(11) Inclement weather that could hurt Company flocks or otherwise adversely affect its operations, or changes in global weather patterns that could impact the supply and price of feed grains.

(12)	Failure to respond to changing consumer preferences.

(13)	Failure to successfully and efficiently start up and run a new plant or integrate any business the Company might acquire.

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 annual 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. Examples of forward-looking statements include statements of the Company’s belief about future demand for its products, future production levels, and future grain costs.

GENERAL

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 price for its finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets. Other costs, excluding feed grains, related to the profitability of the Company’s poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices. Over the past three fiscal years, these other normal production costs have averaged approximately 46% of the Company’s total normal production costs.

The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margin than whole chickens ice packed and shipped in bulk form. To reduce its exposure to market cyclicality that has historically characterized commodity chicken market prices, the Company has increasingly concentrated on the production and marketing of value-added product lines with emphasis on product quality, customer service, and brand recognition. However, the Company cannot eliminate its exposure to fluctuations in commodity market prices for chicken since market prices for value added products also exhibit cyclicality. 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, deboning, deep chilling, packaging and labeling the product.

The Company’s prepared chicken product line includes approximately 94 institutional and consumer packaged chicken items that it sells nationally, primarily to distributors and food service establishments. A majority of the prepared chicken items are made to the specifications of food service users.

Whole bird prices per pound, as measured by the Georgia Dock price, fluctuated during the three years ended October 31, 2013, as follows:


	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Fiscal 2013
High	$	.9975		$	1.0300		$	1.0650	*	$	1.0650	*
Low	$	.9625	*	$	.9975		$	1.0325		$	1.0475
Fiscal 2012
High	$	.9075		$	.9325		$	.9475		$	.9625	*
Low	$	.8900	*	$	.9075		$	.9325		$	.9475
Fiscal 2011
High	$	.8625		$	.8650		$	.8750		$	.8900	*
Low	$	.8500	*	$	.8500	*	$	.8650		$	.8750

*	Year High/Low

Sanderson Farms began operations at its new feed mill, poultry processing plant and hatchery on separate sites in Kinston and Lenoir County, North Carolina during the first quarter of fiscal 2011. The Kinston facilities comprise a poultry complex with the capacity to process 1,250,000 birds per week for the retail chill pack market at full capacity. The facility reached near full capacity during March 2012.

On March 29, 2010, the Company announced intentions to construct a potential second new poultry complex in North Carolina, subject to various contingencies including, among others, obtaining an acceptable economic incentive package from the state and local governments. On August 28, 2012, the Company announced the selection of Nash County, North Carolina, as the site of the new complex, subject to various contingencies. On November 13, 2012, the Company announced that Nash County, North Carolina, would not be the site of the new complex due to various timing issues, but that alternative sites were under consideration. On February 14, 2013, the Company announced the selection of sites in and near Palestine, Texas, for the construction of its next poultry complex, and construction of the complex began on or about October 1, 2013. The new complex will consist of a feed mill, hatchery, poultry processing plant and waste water facility with the capacity to process 1.25 million chickens per week for the big bird deboning market. Before the complex can open we will need to enter into contracts with a sufficient number of growers and complete construction. See “The construction and potential benefits of our new facilities are subject to risks and uncertainties” in the Risk Factors Section of this Annual Report.

The Company had available to it a $500.0 million revolving credit facility during fiscal 2013. On October 24, 2013, the Company entered into a new revolving credit facility to, among other things, increase the total committed credit to $600.0 million. The new facility also increases the annual capital expenditure limitation to $65.0 million for fiscal years 2013 through 2018, plus, for each year, up to $10.0 million carryover from the preceding fiscal year, when it is not actually spent in that year. The capital expenditure limitation for fiscal 2013, with the permitted carry over, was $75.0 million. The new facility permits the Company to spend up to $140.0 million each in capital expenditures on the construction of two new poultry complexes to be located anywhere in the United States, which expenditures are in addition to the annual overall capital expenditure limits. Under the facility, the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a one-time right, at any time during the term of the agreement, to increase the maximum debt to total capitalization ratio then in effect by 5% in connection with the construction of either of the two potential new poultry complexes for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The Company did not exercise this right in fiscal 2013. The amendment also sets a minimum net worth requirement that at October 31, 2013, was $475.3 million. The credit remains unsecured and, unless extended, will expire on October 24, 2018.

On October 9, 2008, the Company announced that it filed a Form S-3 “shelf” registration statement with the Securities and Exchange Commission to register for possible future sale of shares of the Company’s common and/or preferred stock at an aggregate offering price not to exceed $1.0 billion. The Company sold 2.3 million shares of its common stock pursuant to this registration statement on April 7, 2010, at $53.00 per share. The registration statement was set to expire on October 23, 2011, therefore, the Company filed a new registration statement on October 4, 2011 to register for possible future sale shares of the Company’s common and/or preferred stock at an aggregate offering price not to exceed $1.0 billion. The stock may be offered by the Company in amounts, at prices and on terms to be determined by the board of directors if and when shares are issued.

EXECUTIVE OVERVIEW OF RESULTS — 2013

The Company’s margins improved during fiscal 2013 as compared to fiscal 2012, reflecting improved market prices for poultry products, partially offset by higher grain prices. Demand for fresh chicken in the retail grocery store and export markets has been stable. The Company expects customer traffic through food service establishments to remain under pressure until employment rates and consumer confidence improve further. However, average market prices for boneless breast meat improved significantly during fiscal 2013 as compared to fiscal 2012 primarily, we believe, due to the high price of competing proteins, especially beef, and the addition of new chicken menu items at several quick serve restaurant chains and chicken promotions at casual dining establishments.

Beginning in July 2012, the Company experienced historically high prices for both corn and soybean meal due to the impact on the quality and quantity of the 2012 corn and soybean crops of drought conditions in the Midwestern United States. During fiscal 2013, both corn and soybean meal stabilized below the highs they set last August, but remained high relative to historical averages. During fiscal 2013, as compared to fiscal 2012, the average feed cost in broiler flocks processed was 5.7% higher. While the 2013 corn and soybean crops in the United States were planted late as a result of wet weather this past spring, cash market prices for both corn and soybean meal moved lower as we moved into the harvest season during our fourth fiscal quarter of 2013, fueled by optimism regarding the quantity and quality of the 2013 grain crops. The Company has priced a significant portion of its grain needs for the remainder of the first fiscal quarter of 2014. Had it priced its remaining needs at December 10, 2013, cash market prices, its costs of feed grains would be approximately $185.0 million lower during fiscal 2014 as compared to fiscal 2013.

In light of challenging market conditions that existed during fiscal 2011 and the beginning of fiscal 2012, the Company reduced production beginning in January 2012 by four percent at all of its facilities except for its new facility in Kinston, North Carolina, which was moving to near full production at that time. The Company announced an additional two percent production cut in August 2012 in light of record high grain costs at the time. The Company returned to full production at all facilities in June 2013.

RESULTS OF OPERATIONS — 2013

Net sales for fiscal 2013 were $2,683.0 million as compared to $2,386.1 million for fiscal 2012, an increase of $296.9 million or 12.4%. Net sales of poultry products for fiscal 2013 and fiscal 2012 were $2,586.0 million and $2,297.0 million, respectively, an increase of $289.0 million or 12.6%. The increase in net sales of poultry products resulted from a 9.6% increase in the average sales price of poultry products sold and a 2.7% increase in the pounds of poultry products sold. During fiscal 2013 the Company sold 3,031.1 million pounds of poultry products, up from 2,951.8 million pounds during fiscal 2012. The additional pounds of poultry products sold resulted from slightly higher bird weights, a 1.0% increase in the number of chickens sold, primarily attributable to the Company’s return to full production at all facilities during fiscal 2013, as well as the new Kinston complex, which began initial operation during the first quarter of fiscal 2011 and reached near full capacity during March 2012. The complex sold 346.6 million pounds, or 11.4% of the total poultry pounds sold by the Company during fiscal 2013, up from 311.5 million pounds of poultry, or 10.6% of the total poultry pounds sold during fiscal 2012. The additional pounds sold by the new complex in Kinston, North Carolina, were partially offset by the Company operating at 6% below full production for the first seven months of fiscal 2013, as described above in the Executive Overview of Results – 2013. Overall, market prices for poultry products increased during fiscal 2013 as compared to fiscal 2012. Urner Barry average market prices increased for boneless breast meat and tenders during fiscal 2013 compared to fiscal 2012 by 15.3% and 4.0%, respectively, while average market prices for jumbo wings and bulk leg quarters decreased by 5.1% and 0.5%, respectively, for the same period. The price for Georgia Dock whole birds, which reached its historical high during the Company’s third fiscal quarter of 2013, averaged 10.4% higher during fiscal 2013 as compared to the average during fiscal 2012. Net sales of prepared chicken products during fiscal 2013 and 2012 were $97.0 million and $89.1 million, respectively, or an increase of 8.9%, resulting from a 3.8% increase in the average sales price of prepared chicken products sold and a 4.9% increase in the pounds of prepared chicken products sold. During fiscal 2013, the Company sold 48.9 million pounds of prepared chicken products, up from 46.6 million pounds sold during fiscal 2012.

Cost of sales for fiscal 2013 was $2,377.0 million as compared to $2,212.7 million during fiscal 2012, an increase of $164.3 million, or 7.4%. Cost of sales of poultry products sold during fiscal 2013 and fiscal 2012 were $2,285.4 million and $2,128.4 million, respectively, an increase of $157.0 million, or approximately 7.4%. As illustrated in the table below, which excludes the reversal of the $9.0 million live inventory adjustment at October 31, 2011, for comparison purposes, the increase in the cost of sales of poultry products sold resulted primarily from an increase in the pounds of poultry products sold of 2.7% and an increase in the cost of feed per pound of broilers processed of $0.0217 or 5.7%.

Poultry Cost of Sales

(In thousands, except percentages and per pound data)


	Year Ended October 31, 2013				Year Ended October 31, 2012					Incr/(Decr)
Description	Dollars		Per Pnd		Dollars			Per Pnd		Dollars			Per Pnd
Beginning Inventory	$	32,196	$	0.5052	$	27,892		$	0.5117	$	4,304		$	(0.0065	)
Feed in broilers processed		1,237,680		0.4070		1,139,994			0.3853		97,686			0.0217
All other cost of sales		1,047,681		0.3446		1,001,692			0.3385		45,989			0.0061
Less: Ending Inventory		32,139		0.4658		32,196			0.5052		(57	)		(0.0394	)


Total poultry cost of sales	$	2,285,418	$	0.7540	$	2,137,382	⁽¹⁾	$	0.7241	$	148,036		$	0.0299


Pounds:
Beginning Inventory		63,729				54,508
Poultry processed		3,040,647				2,958,885
Poultry Sold		3,031,091				2,951,807
Ending Inventory		68,998				63,729

Note (1) – Excludes the reversal of the $9.0 million live inventory adjustment at October 31, 2011.

Other costs of sales of poultry products include labor, contract grower pay, packaging, freight and certain fixed costs, among other costs. During fiscal 2013, other costs of sales of poultry products also include approximately $12.8 million of charges related to the Company’s bonus award program. These non-feed related costs of poultry products sold increased $0.0061 per pound processed, or 1.8%, during fiscal 2013 as compared to fiscal 2012. During fiscal 2013 costs of sales of the Company’s prepared chicken products were $91.6 million as compared to $84.3 million during fiscal 2012, an increase of $7.3 million, or 8.7%, primarily attributable to a 4.9% increase in the pounds of prepared chicken products sold and a 1.5% increase in the per pound costs of raw materials purchased.

The Company recorded the value of live broiler inventories on hand at October 31, 2013, at cost. When market conditions are favorable, the Company values the broiler inventories on hand at cost, and accumulates costs as the birds are grown to a marketable age subsequent to the balance sheet date. In periods where the Company estimates that the cost to grow live birds in inventory to a marketable age and then process and distribute those birds will be higher than the anticipated sales price, the Company will make an adjustment to lower the value of live birds in inventory to the market value. No such charge was required at October 31, 2013, or October 31, 2012.

Selling, general and administrative costs during fiscal 2013 and fiscal 2012 were $100.2 million and $77.1 million, respectively, an increase of $23.1 million. The following table shows the components of selling, general and administrative costs for the twelve months ended October 31, 2013 and 2012.

Selling, General and Administrative Costs

(in thousands)


Description	Year Ended October 31, 2013		Year Ended October 31, 2012
Administrative salaries	$	24,950	$	24,227
ESOP expense		8,400		3,800
Stock compensation expense		7,776		4,785
Bonus award program expense		8,248		26
Trainee expense		5,897		4,201
Amortization of Loan Closing Costs		1,018		576
Sanderson Farms Championship expense		2,333		0
Nash County, North Carolina expense		1,795		0
Marketing expense		1,007		1,268
Uncollectible accounts		415		412
All other S, G & A		38,408		37,802

Total S, G & A	$	100,247	$	77,097

As illustrated in the table above, the $23.1 million increase in selling, general and administrative costs during fiscal 2013 as compared to fiscal 2012 resulted from a $4.6 million increase in the accrual related to the Company’s Employee Stock Ownership Plan, $3.0 million in additional stock compensation expense related to restricted stock and performance share agreements, as described in Note 3 – Stock Compensation Plans, and $8.2 million in additional expense for the Company’s bonus award program. Contributions in these areas are based on profitability, and accordingly, the accruals recorded for fiscal 2012 were less than those recorded for fiscal 2013. Selling, general and administrative costs also increased as a result of a $0.4 million increase in the amortization of loan closing costs. The Company was amortizing the loan closing costs attributable to its previously existing revolving credit facility through February 2016, when it was scheduled to expire. The Company entered into a new revolving credit facility, which replaced the previously existing agreement, in October 2013, and the Company expensed a portion of the balance of unamortized loan closing costs attributable to the previous agreement. The remaining balance, together with fees incurred related to the new agreement, will be deferred and amortized over the life of the new agreement. Additionally, the Company’s sponsorship of the Sanderson Farms Championship golf tournament held during July 2013 resulted in approximately $2.3 million in expenses recognized in fiscal 2013 that were absent during fiscal 2012. The increase in selling, general and administrative costs is also attributable to the $1.8 million write-off of legal and other costs incurred related to the planned expansion in Nash County, North Carolina. Regarding the planned construction of a new facility in Nash County, North Carolina, the Company previously capitalized approximately $800,000 in various charges. On November 13, 2012, the Company announced that Nash County, North Carolina, would no longer be considered as a potential site for the new facility. Accordingly, the Company expensed the related charges in the first quarter of fiscal 2013. Additionally, upon determining that Nash County would no longer be considered as a potential site for the new facility, the Company chose to reimburse Nash County and its related economic development organization approximately $1.0 million in legal fees incurred by those entities during the planning phase of the expansion, and those fees were also expensed in the first quarter of fiscal 2013.

The Company’s operating income during fiscal 2013 was $205.7 million as compared to an operating income during fiscal 2012 of $96.3 million. The improvement in the Company’s operating margin resulted primarily from improved market prices of poultry products during fiscal 2013 as compared to fiscal 2012, partially offset by higher costs of feed grains, as described above.

Interest expense during fiscal 2013 and fiscal 2012 was $6.1 million and $9.2 million, respectively. The decrease in interest expense during fiscal 2013 as compared to fiscal 2012 resulted primarily from lower outstanding debt during fiscal 2013 as compared to fiscal 2012. During the fourth quarter of fiscal 2013, the Company capitalized interest of $75,236 related to the construction of the new complex in Palestine, Texas. The Company did not capitalize any interest during fiscal 2012.

The Company’s effective tax rate for fiscal 2013 was 34.7% as compared to 37.7% for fiscal 2012. The effective tax rate for fiscal 2013 includes an approximate 0.3% discrete favorable benefit recognized in the period related to legislation enacted during the first quarter. The Company’s effective tax rate differs from the statutory federal rate due to state income taxes, certain nondeductible expenses for federal income tax purposes and certain state and federal tax credits.

The Company’s net income during fiscal 2013 was $130.6 million, or $5.68 per share, as compared to net income during fiscal 2012 of $53.9 million or $2.35 per share.

EXECUTIVE OVERVIEW OF RESULTS — 2012

The Company’s margins improved during fiscal 2012 as compared to fiscal 2011 reflecting improved market prices for poultry products partially offset by higher grain prices. While demand for fresh chicken in the retail grocery store and export markets was stable, market prices for boneless breast meat remained under pressure during fiscal 2012, even in the face of lower production levels, reflecting continued weak demand from casual dining and food service customers. Beginning in July 2012, the Company experienced historically high prices for both corn and soybean meal due to the impact on the quality and quantity of the 2012 corn and soybean crops of drought conditions in the Midwestern United States. As we moved through the fourth quarter of fiscal 2012, market prices for feed grains decreased from those highs reached during July and August 2012; however, grain costs remained high relative to historical averages. In light of those costs, we reduced our egg sets beginning August 6, 2012, by two percent across all divisions in our Company to lessen the impact of the higher grain costs we were facing. This reduction was in addition to the four percent reduction started January 1, 2012, and we operated our plants at six percent below capacity until June 2013, when we returned all our facilities to full production.

RESULTS OF OPERATIONS — 2012

Net sales for fiscal 2012 were $2,386.1 million as compared to $1,978.1 million for fiscal 2011, an increase of $408.0 million or 20.6%. Net sales of poultry products for fiscal 2012 and fiscal 2011 were $2,297.0 million and $1,871.7 million, respectively, an increase of $425.3 million or 22.7%. The increase in net sales of poultry products resulted from a 16.2% increase in the average sales price of poultry products sold and a 5.6% increase in the pounds of poultry products sold. During fiscal 2012 the Company sold 2,951.8 million pounds of poultry products, up from 2,794.2 million pounds during fiscal 2011. The additional pounds of poultry products sold resulted from a 3.3% increase in the number of chickens sold, primarily attributable to the new Kinston complex, which began initial operation during the first quarter of fiscal 2011 and reached near full capacity during March 2012. The complex sold 311.5 million pounds, or 10.6% of the total poultry pounds sold by the Company during fiscal 2012, up from 126.0 million pounds of poultry, or 4.5% of the total poultry pounds sold during fiscal 2011. The additional pounds sold by the new complex in Kinston, North Carolina and slightly higher bird weights, were partially offset by the planned reduction in eggs set of 4.0% on January 1, 2012, and 2.0% on August 6, 2012, as described above. Overall market prices for poultry products increased during fiscal 2012 as compared to fiscal 2011. Urner Barry market prices increased for boneless breast meat, bulk leg quarters, tenders and jumbo wings during fiscal 2012 compared to fiscal 2011 by 9.1%, 16.7%, 23.3% and 81.2%, respectively. The price for Georgia Dock whole birds averaged 7.3% higher during fiscal 2012 as compared to the average during fiscal 2011. Net sales of prepared chicken products during fiscal 2012 and 2011 were $89.1 million and $106.4 million, respectively, or a decrease of 16.3%, resulting from a 1.6% decrease in the average sales price of prepared chicken products sold and a 15.0% decrease in the pounds of prepared chicken products sold. During fiscal 2012, the Company sold 46.6 million pounds of prepared chicken products, down from 54.8 million pounds sold during fiscal 2011.

Cost of sales for fiscal 2012 was $2,212.7 million as compared to $2,085.2 million during fiscal 2011, an increase of $127.5 million or 6.1%. Cost of sales of poultry products sold during fiscal 2012 and fiscal 2011 were $2,128.4 million and $1,989.1 million, respectively, an increase of $139.3 million or approximately 7.0%. As illustrated in the table below, which excludes the reversal of the $9.0 million live inventory adjustment at October 31, 2011, for comparison purposes, the increase in the cost of sales of poultry products sold resulted primarily from an increase in the pounds of poultry products sold of 5.6% and an increase in the cost of feed per pound of broilers processed of $0.0054 or 1.4%.

Poultry Cost of Sales

(In thousands, except percentages and per pound data)


	Year Ended October 31, 2012					Year Ended October 31, 2011				Incr/(Decr)
Description	Dollars			Per Pnd		Dollars		Per Pnd		Dollars		Per Pnd
Beginning Inventory	$	27,892		$	0.5117	$	14,255	$	0.3004	$	13,637	$	0.2113
Feed in broilers processed		1,139,994			0.3853		1,065,737		0.3799		74,257		0.0054
All other cost of sales		1,001,692			0.3385		936,986		0.3340		64,706		0.0045
Less: Ending Inventory		32,196			0.5052		27,892		0.5117		4,304		(0.0065	)


Total poultry cost of sales	$	2,137,382	⁽¹⁾	$	0.7241	$	1,989,086	$	0.7119	$	148,296	$	0.0122


Pounds:
Beginning Inventory		54,508					47,456
Poultry processed		2,958,885					2,805,218
Poultry Sold		2,951,807					2,794,208
Ending Inventory		63,729					54,508

Note (1) – Excludes the reversal of the $9.0 million live inventory adjustment at October 31, 2011.

Other costs of sales of poultry products include labor, contract grower pay, packaging, freight and certain fixed costs, among other costs. These non-feed related costs of poultry products sold increased $.0045 per pound processed or 1.3% during fiscal 2012 as compared to fiscal 2011. During fiscal 2012, costs of sales of the Company’s prepared chicken products were $84.3 million as compared to $96.2 million during fiscal 2011, a decrease of $11.9 million, or 12.3%, resulting primarily from a 15.0% decrease in the pounds of prepared chicken products sold.

The Company recorded the value of live broiler inventories on hand at October 31, 2012, at cost. When market conditions are favorable, the Company values the broiler inventories on hand at cost, and accumulates costs as the birds are grown to a marketable age subsequent to the balance sheet date. In periods where the Company estimates that the cost to grow live birds in inventory to a marketable age and then process and distribute those birds will be higher than the anticipated sales price, the Company will make an adjustment to lower the value of live birds in inventory to the market value. At October 31, 2011, the Company recorded a charge of $9.0 million to lower the value of live broiler inventories on hand from cost to market value, which resulted primarily from the significant increase in costs for corn and soybean meal and relatively low market prices for poultry products. No such charge was required at October 31, 2012.

Selling, general and administrative costs during fiscal 2012 and fiscal 2011 were $77.1 million and $72.2 million, respectively, an increase of $4.9 million. The following table shows the components of selling, general and administrative costs for the twelve months ended October 31, 2012 and 2011.

Selling, General and Administrative Costs

(in thousands)


Description	Year Ended October 31, 2012		Year Ended October 31, 2011
Administrative salaries	$	24,227	$	22,357
Stock compensation expense		4,785		5,204
Trainee expense		4,201		4,798
ESOP expense		3,800		0
Marketing expense		1,268		875
Amortization of loan closing costs		576		655
Uncollectible accounts		412		0
Bonus award program expense		26		0
Start-up expense		0		4,502
All other S, G & A		37,802		33,826

Total S, G & A	$	77,097	$	72,217

During fiscal 2012 as compared to fiscal 2011, selling, general and administrative costs increased $4.9 million, reflecting a $3.8 million contribution to the Company’s Employee Stock Ownership Plan during fiscal 2012, higher wages and various other administrative costs, offset by a decrease of $4.5 million in start-up costs at the Kinston, North Carolina complex during the first quarter of fiscal 2011. The Company began operations at the new Kinston complex during January 2011, at which time all Kinston costs, excluding customer service department costs, were included in cost of sales.

The Company’s operating income during fiscal 2012 was $96.3 million as compared to an operating loss during fiscal 2011 of $188.4 million. The improvement in the Company’s operating margin resulted primarily from improved market prices of poultry products during fiscal 2012 as compared to fiscal 2011, as described above. In addition, the Company recorded a charge of $9.0 million during fiscal 2011 to lower the value of the Company’s inventory of live broilers at October 31, 2011, from cost to market value. At October 31, 2012, market conditions did not warrant such an adjustment, and the Company’s inventory of live broilers was recorded at cost.

Interest expense during fiscal 2012 and fiscal 2011 was $9.2 million and $6.4 million, respectively. The increase in interest expense during fiscal 2012 as compared to 2011 resulted primarily from higher average outstanding debt during fiscal 2012 as compared to fiscal 2011. During the first quarter of fiscal 2011, the Company capitalized interest of $630,000 related to the construction of the new complex in Kinston, North Carolina. The Company did not capitalize any interest in fiscal 2012.

The Company’s effective tax rate for fiscal 2012 was 37.7% as compared to 34.6% during fiscal 2011. The Company’s effective tax rate differs from the statutory federal rate due to state income taxes, certain nondeductible expenses for federal income tax purposes and certain state and federal tax credits.

The Company’s net income during fiscal 2012 was $53.9 million, or $2.35 per share, as compared to a net loss during fiscal 2011 of $127.1 million, or $5.74 per share.

Liquidity and Capital Resources

The Company’s working capital, calculated by subtracting current liabilities from current assets, at October 31, 2013, was $269.2 million, and its current ratio, calculated by dividing current assets by current liabilities, was 2.7 to 1. The Company’s working capital and current ratio at October 31, 2012, were $262.2 million and 2.9 to 1, respectively. These measures reflect the Company’s ability to meet its short term obligations and are included here as a measure of the Company’s short term market liquidity. The Company’s principal sources of liquidity during fiscal 2013 included cash on hand at November 1, 2012, cash flows from operations, and funds available under the Company’s revolving credit facility. As described below, the Company entered into a new revolving credit facility dated October 24, 2013, to, among other things, increase the available credit to $600.0 million from $500.0 million, and to extend the term from February 2016 to October 2018. As of October 31, 2013, the Company had no outstanding draws under the facility and had approximately $10.8 million outstanding in letters of credit. As of December 10, 2013, the Company had no outstanding draws under the revolving credit facility and had approximately $13.9 million outstanding in letters of credit, leaving $586.1 million available.

The Company’s cash position at October 31, 2013, and October 31, 2012, consisted of $85.6 million and $27.8 million, respectively, in cash and cash equivalents. The Company’s ability to invest cash is limited by covenants in its revolving credit agreement to short term investments. All of the Company’s cash at October 31, 2013, and October 31, 2012, was held in checking accounts and highly liquid, overnight investment accounts maintained at two banks. There were no restrictions on the Company’s access to its cash and cash investments, and such cash and cash investments were available to the Company on demand to fund its operations.

Cash flows provided by operating activities during fiscal 2013 and fiscal 2012 were $252.9 million and $205.9 million, respectively. The increase in cash flows from operating activities of $47.0 million resulted primarily from improved market prices for poultry products during fiscal 2013 as compared to fiscal 2012, and a $27.2 million decrease in live chicken, feed, and egg inventories attributable to the declining costs of feed grains experienced as we moved through the fourth quarter of fiscal 2013. These items were partially offset by the receipt of an $82.7 million federal income tax refund in the second quarter of fiscal 2012, which was absent during fiscal 2013.

Cash flows provided by (used in) operating activities during fiscal 2012 and fiscal 2011 were $205.9 million and $(201.3) million, respectively. The increase in cash flows from operating activities of $407.2 million resulted primarily from improved market prices for poultry products during fiscal 2012 as compared to fiscal 2011, the receipt of an $82.7 million federal income tax refund on February 27, 2012, and the absence during fiscal 2012 of the increase in inventory of live and processed chicken at the new Kinston, North Carolina complex that occurred during fiscal 2011.

Cash flows provided by (used in) operating activities during fiscal 2011 and fiscal 2010 were $(201.3) million and $178.4 million, respectively. The decrease in cash flows from operating activities of $379.7 million resulted primarily from higher prices for feed grains, lower overall market prices for poultry products, and funds required to pay for additional inventories of live and processed poultry at the new Kinston facility during fiscal 2011 as compared to fiscal 2010.

Cash flows used in investing activities during fiscal 2013, 2012 and 2011, were $54.4 million, $49.2 million and $62.8 million, respectively. The Company’s capital expenditures during fiscal 2013 of $54.5 million included $5.5 million for the early stages of construction at the Company’s new Palestine, Texas complex. The Company’s capital expenditures during fiscal 2012 were $49.2 million and included $2.0 million for a new Company aircraft. Capital expenditures during fiscal 2011 were $63.0 million and included $18.6 million to complete construction of the Company’s Kinston, North Carolina complex. Excluding expenditures related to the Palestine complex during fiscal 2013, and the Kinston complex during fiscal 2011, the Company’s capital expenditures for those years were $49.0 million and $44.4 million, respectively.

Cash flows provided by (used in) financing activities during fiscal 2013, 2012 and 2011 were $(140.7) million, $(140.0) million and $201.8 million, respectively. During fiscal 2013, the Company reduced net outstanding borrowings under its revolving credit facility by $110.0 million and made the second of five $10.0 million annual installments on its $50.0 million outstanding term loan with Northwest Farm Credit Services, PCA, the final installment on which is due in the second fiscal quarter of 2016. During fiscal 2012, the Company reduced net outstanding borrowings under its revolving credit facility by $112.7 million and made the first of five $10.0 million annual installments on the $50.0 million term loan. During fiscal 2011, the Company borrowed $222.7 million under its revolving credit facility to fund operations, primarily higher inventories caused by grain cost and the Kinston, North Carolina expansion, capital budgets and payment of dividends.

As of December 10, 2013, the Company’s fiscal 2014 capital budget, excluding operating leases, is approximately $167.5 million. The 2014 capital budget will be funded by cash on hand at October 31, 2013, internally generated working capital, cash flows from operations and, as needed, draws under the Company’s revolving credit facility. The Company had $589.2 million available under the revolving line of credit at October 31, 2013. The fiscal 2014 capital budget includes approximately $110.0 million for construction of the Company’s new Palestine, Texas, complex and approximately $6.9 million for a new Company aircraft. Excluding the budget for the new complex, the fiscal 2014 capital budget is $57.5 million.

On October 9, 2008, the Company announced that it filed a Form S-3 “shelf” registration statement with the Securities and Exchange Commission to register, for possible future sale, shares of the Company’s common and/or preferred stock at an aggregate offering price not to exceed $1.0 billion. The Company sold 2.3 million shares of its common stock pursuant to this registration statement on April 7, 2010, at $53.00 per share, as more fully described below. The registration statement was set to expire on October 23, 2011, therefore, the Company filed a new registration statement on October 4, 2011 to register, for possible future sale, shares of the Company’s common and/or preferred stock at an aggregate offering price not to exceed $1.0 billion. The stock may be offered by the Company in amounts, at prices and on terms to be determined by the board of directors if and when shares are issued.

On September 19, 2013, the Company announced plans to invest approximately $140.0 million for construction of a new feed mill, hatchery, poultry processing plant and waste water facility on separate sites in Palestine, Anderson county, and Freestone county, Texas. Selection of these sites was announced on February 14, 2013, but plans for construction had been on hold due to uncertainty surrounding grain prices, as well as other contingencies, including obtaining approval from the board of directors to move forward with the project. The new facilities will have the capacity to process 1,250,000 birds per week for the big bird deboning market. At full capacity, the complex will employ approximately 1,150 people, will require approximately 100 contract growers, and will be equipped to process and sell 9.7 million dressed poultry pounds per week. Construction of the complex began in October 2013, and the Company expects initial operations to commence in the first calendar quarter of 2015. Before the complex can open we will need to enter into contracts with a sufficient number of growers and complete construction. See “The construction and potential benefits of our new facilities are subject to risks and uncertainties” in the Risk Factors Section of this Annual Report.

The Company entered into the new revolving credit facility dated October 24, 2013, to, among other things, increase the available credit to $600.0 million from $500.0 million. The new facility increases the annual capital expenditure limitation from $55.0 million to $65.0 million for fiscal years 2013 through 2018, plus, for each year, up to $10.0 million carryover from the preceding fiscal year, when it is not actually spent in that year. The capital expenditure limitation for fiscal 2013, with the permitted carry over, was $75.0 million, and the limit for fiscal 2014 is also $75.0 million. The new facility also permits the Company to spend up to $140.0 million each in capital expenditures on the construction of two new poultry complexes to be located anywhere in the United States, which expenditures are in addition to the annual overall capital expenditure limits. The $140.0 million limit represents an increase from the $125.0 million limit available under the previous agreement. Under the facility, the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a one-time right, at any time during the term of the agreement, to increase the maximum debt to total capitalization ratio then in effect by 5% in connection with the construction of either of the two potential new poultry complexes for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The Company did not exercise this right in fiscal 2013. The amendment also sets a minimum net worth requirement that at October 31, 2013, was $475.3 million. The total committed credit under the facility is $600.0 million. The credit is unsecured and, unless extended, will expire on October 24, 2018. As of October 31, 2013, the Company had no outstanding draws under the facility, and had approximately $10.8 million outstanding in letters of credit. As of December 10, 2013, the Company had no outstanding draws under the revolving credit facility and had approximately $13.9 million outstanding in letters of credit, leaving $586.1 million available.

The Company regularly evaluates both internal and external growth opportunities, including acquisition opportunities and the possible construction of new production assets, and conducts due diligence activities in connection with such opportunities. The cost and terms of any financing to be raised in conjunction with any growth opportunity, including the Company’s ability to raise debt or equity capital on terms and at costs satisfactory to the Company, and the effect of such opportunities on the Company’s balance sheet, are critical considerations in any such evaluation.

Contractual Obligations

Obligations under long-term debt, long-term capital leases, non-cancelable operating leases, purchase obligations relating to feed grains, other feed ingredients and packaging supplies and claims payable relating to the Company’s workers’ compensation insurance policy at October 31, 2013, were as follows (in thousands):


	Payments Due By Period
			Less than		1-3		3-5		More than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Long-term debt	$	30,000	$	10,000	$	20,000	$	0	$	0
Capital lease obligations		10,213		799		9,414		0		0
Interest on long-term debt		3,555		2,075		1,480		0		0


	Payments Due By Period
			Less than		1-3		3-5		More than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Operating leases		16,814		5,657		8,594		2,563		0
Purchase obligations:
Feed grains, feed ingredients and packaging supplies		77,209		77,209		0		0		0
Construction contracts		52,182		52,182		0		0		0
Repair and maintenance contracts		800		800		0		0		0
Claims payable		14,531		5,531		9,000		0		0

Total	$	205,304	$	154,253	$	48,488	$	2,563	$	0

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, and the differences could be material.

Allowance for Doubtful Accounts

In the normal course of business, the Company extends credit to its customers on a short-term basis. Although credit risks associated with customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts based on an individual assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve is recorded to reduce the receivable to the amount expected to be collected. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company), estimates of the recoverability of amounts due could be reduced by a material amount, and the allowance for doubtful accounts and related bad debt expense would increase by the same amount.

Inventories

Processed and prepared inventories and inventories of feed, eggs, medication and packaging supplies are stated at the lower of cost (first-in, first-out method) or market value. When market prices for poultry are low and feed grains are high, the Company may be required to write down the carrying values of processed poultry and live inventories to fair market value, which would increase the Company’s cost of sales.

Live poultry inventories of broilers are stated at the lower of cost or market and breeders at cost less accumulated amortization. The cost associated with broiler inventories, consisting principally of chicks, feed, medicine and payments to the growers who raise the chicks for us, are accumulated during the growing period. The cost associated with breeder inventories, consisting principally of breeder chicks, feed, medicine and grower payments are accumulated during the growing period. Capitalized breeder costs are then amortized over nine months using the straight-line method. Mortality of broilers and breeders is charged to cost of sales as incurred. If market prices for chicks, feed or medicine or if grower payments increase (or decrease) during the period, the Company could have an increase (or decrease) in the market value of its inventory as well as an increase (or decrease) in cost of sales. Should the Company decide that the nine month amortization period used to amortize the breeder costs is no longer appropriate as a result of operational changes, a shorter (or longer) amortization period could increase (or decrease) the cost of sales recorded in future periods. High mortality from disease or extreme temperatures would result in abnormal charges to cost of sales to write-down live poultry inventories.

The Company made an adjustment to the value of its live inventories at October 31, 2011. As with processed inventories, the value of live chickens, the costs for which are accumulated during the life of a flock as each flock is fed and cared for, must be recorded on the Company’s financial statements at the lower of cost or market value. Because of relatively low market prices for poultry during November and December 2011 and high feed grains, the projected cost to complete, process and sell broilers included in live inventory at October 31, 2011, was expected to exceed the market value for the finished product. Accordingly, the Company’s results for the year ended October 31, 2011, include a charge of $9.0 million before income taxes to reduce the value of live inventories from cost to market. The Company’s live broiler inventories are recorded at cost at October 31, 2013 and 2012, because the estimated market value was higher than the estimated cost to complete those live broiler inventories. Breeders are generally not subject to lower of cost or market reserves due to their longer production lives.

Long-Lived Assets

Depreciable long-lived assets are primarily comprised of buildings and machinery and equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 39 years for buildings and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to depreciation expense.

The Company continually reevaluates the carrying value of its long-lived assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the asset. If the Company’s assumptions with respect to the future expected cash flows associated with the use of long-lived assets currently recorded change, then the Company’s determination that no impairment charges are necessary may change and result in the Company recording an impairment charge in a future period.

Accrued Self Insurance

Insurance expense for workers’ compensation benefits and employee-related health care benefits are estimated using historical experience and actuarial estimates. The Company accrues expenses in its workers’ compensation and employee benefit plans for both known claims as well as claims incurred but not reported. Stop-loss coverage is maintained with third party insurers to limit the Company’s total exposure. Management regularly reviews the assumptions used to recognize periodic expenses. Any resulting adjustments to accrued claims are reflected in current operating results. There are no material adjustments to expenses accrued in prior periods in current expenses. If historical experience proves not to be a good indicator of future expenses, if management were to use different actuarial assumptions, or if there is a negative trend in the Company’s claims history, there could be a significant increase or decrease in cost of sales depending on whether these expenses increased or decreased, respectively.

Performance Share Bonus Plans

The Company enters into performance share agreements that grant certain officers and key employees the right to receive shares of the Company’s common stock, subject to the Company’s achievement of certain performance measures. The performance measures in the outstanding agreements relate to the Company’s average return on equity and average return on sales over a two year performance period. The holder has a three year service period as the holder must be employed by the company at the end of the third year to be eligible to receive the shares that met the performance measures. The Company must estimate, at the end of each reporting period, the probability that all or some portion of the shares will be earned at the end of the three year service period. In making this estimate, the Company considers, among other factors, the current and projected grain costs and chicken volumes and pricing, as well as the amount of commitments to procure grain at a fixed price throughout the performance period. Due to the high level of volatility of these commodity prices and the impact that the change in pricing can have on the Company’s results, the Company’s assessment of probability can change from period to period and can result in a significant revision to the amounts accrued related to the arrangements. The accounting for these arrangements requires the Company to accrue over the three year service period the estimated amounts of the shares that will be earned with changes made during the service period adjusted using the cumulative catch up method. The Company has accrued $3.4 million related to open agreements as of October 31, 2013, with an additional amount of $3.1 million that could be accrued if the Company determined that it was probable that the maximum amount of the outstanding awards that could be earned would be earned at the end of the requisite service period. Because of the volatility of the factors previously discussed, the Company was unable to determine that it was probable that outstanding awards would be earned as of October 31, 2013.

Income Taxes

The Company determines its effective tax rate by estimating its permanent differences resulting from differing treatment of items for financial and income tax purposes. The Company is periodically audited by taxing authorities and considers any adjustments made as a result of the audits in computing the Company’s income tax expense. Any audit adjustments affecting permanent differences could have an impact on the Company’s effective tax rate.

Deferred income taxes are accounted for using the liability method and relate principally to depreciation expense, stock based compensation programs and self-insurance programs accounted for differently for financial and income tax purposes.

Valuation allowances are recorded when it is more likely than not some portion or all of the deferred tax asset will not be realized.

Contingencies

New Accounting Pronouncements

In May 2011, FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. This update is effective for annual and interim periods beginning after December 15, 2011, and was adopted in the three month period ending January 31, 2013. This update did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk.

The Company is a purchaser of certain commodities, primarily corn and soybean meal, for use in manufacturing feed for its chickens. As a result, the Company’s earnings are affected by changes in the price and availability of such feed ingredients. Feed grains are subject to volatile price changes caused by factors described below that include weather, size of harvest, transportation and storage costs and the agricultural policies of the United States and foreign governments. The price fluctuations of feed grains have a direct and material effect on the Company’s profitability.

Generally, the Company commits to purchase feed ingredients for deferred delivery from one month to six months after the time of the commitment. The Company sometimes purchases its feed ingredients for prompt delivery to its feed mills at market prices at the time of such purchases. The grain purchases are made directly with our usual grain suppliers, which are companies in the business of regularly supplying grain to end users, and do not involve options to purchase. Such purchases occur when senior management concludes that market factors indicate that prices at the time the grain is needed are likely to be higher than current prices, or where, based on current and expected market prices for the Company’s poultry products, management believes it can purchase feed ingredients at prices that will allow the Company to earn a reasonable return for its shareholders. Market factors considered by management in determining whether or not and to what extent to buy grain for deferred delivery include:

•

Current market prices;

•

Current and predicted weather patterns in the United States, South America, China and other grain producing areas, as such weather patterns might affect the planting, growing, harvesting and yield of feed grains;

•

The expected size of the harvest of feed grains in the United States and other grain producing areas of the world as reported by governmental and private sources;

•

Current and expected changes to the agricultural policies of the United States and foreign governments;

•

The relative strength of United States currency and expected changes therein as it might impact the ability of foreign countries to buy United States feed grain commodities;

•

The current and expected volumes of export of feed grain commodities as reported by governmental and private sources;

•

The current and expected use of available feed grains for uses other than as livestock feed grains (such as the use of corn for the production of ethanol, which use is impacted by the price of crude oil); and

•

Current and expected market prices for the Company’s poultry products.

The Company purchases physical grain, not financial instruments such as puts, calls or straddles that derive their value from the value of physical grain. Thus, the Company does not use derivative financial instruments as defined in ASC 815, “Accounting for Derivatives for Instruments and Hedging Activities,” or any market risk sensitive instruments of the type contemplated by Item 305 of Regulation S-K. The Company does not enter into any derivative transactions or purchase any grain-related contracts other than the physical grain contracts described above.

Although the Company does not use derivative financial instruments as defined in ASC 815 or purchase market risk sensitive instruments of the type contemplated by Item 305 of Regulation S-K, the commodities that the Company does purchase for physical delivery, primarily corn and soybean meal, are subject to price fluctuations that have a direct and material effect on the Company’s profitability as mentioned above. During fiscal 2013, the Company purchased approximately 87.4 million bushels of corn and approximately 801,000 tons of soybean meal for use in manufacturing feed for its live chickens. Thus, a $1.00 change in the average market price paid per bushel for corn would have impacted the Company’s cash outlays for corn by approximately $87.4 million in fiscal 2013. Likewise, a $10.00 change in the price paid per ton for soybean meal would impact the Company’s cash outlays by approximately $8.0 million.

Although changes in the market price paid for feed grains impact cash outlays at the time the Company purchases the grain, such changes do not immediately impact cost of sales. The cost of feed grains is recognized in cost of sales, on a first-in-first-out basis, at the same time that the sales of the chickens that consume the feed grains are recognized. Thus, there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold. For example, corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week. However, the chickens that eat that feed might not be processed and sold for another 48-62 days, and only at that time will the costs of the feed consumed by the chicken become included in cost of goods sold.

During fiscal 2013, the Company’s average feed cost per pound of broilers processed totaled $0.4070 per pound. Feed costs per pound of broilers processed consist primarily of feed grains, but also include other feed ingredients such as vitamins, fat and mineral feed supplements. The average feed cost per pound is influenced not only by the price of feed ingredients, but also by the efficiency with which live chickens convert feed into body weight. Factors such as weather, poultry husbandry, quality of feed ingredients and the quality and health of the bird, among others, affect the quantity of feed necessary to mature chickens to the target live weight and the efficiency of that process. Generally, however, a $1.00 change in the average price paid per bushel of corn fed to a chicken during its life would have impacted average feed cost per pound of broilers processed by $0.0287, based on the quantity of grain used during fiscal 2013. Similarly, a $10.00 change in the average price paid per ton of soybean meal would have influenced the average feed cost per pound of broilers processed by $0.0026 during fiscal 2013.

The following table shows the impact of hypothetical changes in the price of corn and soybean meal on both the Company’s cash flow and cost of goods sold, based on quantities actually purchased in fiscal 2013:

Feed Ingredient

Quantity Purchased
during Fiscal 2013

Hypothetical Price
Change

Impact on Cash
Outlay

Ultimate Impact on
Feed Cost per
Pound of broilers
Processed

Corn

87.4 million bushels

1.00 per bushel

87.4 million

0.0287/lb processed

Soybean meal

801,000 tons

10.00 per ton

8.0 million

0.0026/lb processed

The Company’s interest expense is sensitive to changes in the general level of interest rates in the United States. The Company maintains certain of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. The fair value of the Company’s fixed rate debt approximates the carrying amount at October 31, 2013. Management believes the potential effects of near-term changes in interest rates on the Company’s debt are not material.

The Company is a party to no other market risk sensitive instruments requiring disclosure.

Item 8.

Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Sanderson Farms, Inc.

We have audited the accompanying consolidated balance sheets of Sanderson Farms, Inc. and subsidiaries as of October 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2013. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sanderson Farms, Inc. and subsidiaries at October 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sanderson Farms, Inc.’s internal control over financial reporting as of October 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 17, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

December 17, 2013

Sanderson Farms, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	October 31,
	2013			2012
	(In thousands,
	except share data)
Assets
Current assets:
Cash and cash equivalents	$	85,563		$	27,802
Accounts receivable, less allowance of $2,200 in 2013 and $1,785 in 2012		108,980			98,022
Inventories		205,855			235,912
Refundable income taxes		0			4,467
Deferred income taxes		478			3,945
Prepaid expenses		29,867			27,639

Total current assets		430,743			397,787
Property, plant and equipment:
Land and buildings		437,864			435,412
Machinery and equipment		597,180			549,786

		1,035,044			985,198
Accumulated depreciation		(546,578	)		(489,885	)

		488,466			495,313
Other assets		5,436			3,353

Total assets	$	924,645		$	896,453

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	81,418		$	82,755
Accrued expenses		58,271			42,082
Accrued income taxes		11,055			0
Current maturities of long-term debt		10,799			10,757

Total current liabilities		161,543			135,594
Long-term debt, less current maturities		29,414			150,212
Claims payable		9,000			4,000
Deferred income taxes		53,089			56,572
Commitments and contingencies
Stockholders’ equity:
Preferred Stock:
Series A Junior Participating Preferred Stock, $100 par value: authorized shares-500,000; none issued - Par value to be determined by the Board of Directors: authorized shares-4,500,000; none issued
Common Stock, $1 par value: authorized shares-100,000,000; issued and outstanding shares- 23,016,241 in 2013 and 22,968,832 in 2012		23,016			22,969
Paid-in capital		142,482			135,283
Retained earnings		506,101			391,823

Total stockholders’ equity		671,599			550,075

Total liabilities and stockholders’ equity	$	924,645		$	896,453

See accompanying notes.

Sanderson Farms, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years ended October 31,
	2013			2012			2011
	(In thousands, except per share data)
Net sales	$	2,682,980		$	2,386,105		$	1,978,085
Cost and expenses:
Cost of sales		2,377,055			2,212,692			2,085,248
Live inventory adjustment		0			0			9,000
Selling, general and administrative		100,247			77,097			72,217

		2,477,302			2,289,789			2,166,465

Operating income (loss)		205,678			96,316			(188,380	)
Other income (expense):
Interest income		27			17			41
Interest expense		(6,136	)		(9,201	)		(6,413	)
Other		544			(560	)		510

		(5,565	)		(9,744	)		(5,862	)

Income (loss) before income taxes		200,113			86,572			(194,242	)
Income tax expense (benefit)		69,496			32,628			(67,165	)

Net income (loss)	$	130,617		$	53,944		$	(127,077	)

Earnings (loss) per share:
Basic	$	5.68		$	2.35		$	(5.74	)

Diluted	$	5.68		$	2.35		$	(5.74	)

Dividends per share	$	.71		$	.68		$	.68

See accompanying notes.

Sanderson Farms, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock				Paid-In			Retained			Total Stockholders’
	Shares		Amount		Capital			Earnings			Equity
	(In thousands, except shares and per share amounts)
Balance at October 31, 2010		22,654,680	$	22,655	$	127,003		$	496,055		$	645,713
Net loss for year									(127,077	)		(127,077	)
Cash dividends ($.68 per share)									(15,478	)		(15,478	)
Issuance of stock under stock compensation plans		216,908		217		(1,978	)					(1,761	)
Amortization of unearned compensation						5,503						5,503

Balance at October 31, 2011		22,871,588	$	22,872	$	130,528		$	353,500		$	506,900
Net income for year									53,944			53,944
Cash dividends ($.68 per share)									(15,621	)		(15,621	)
Issuance of stock under stock compensation plans		97,244		97		(26	)					71
Amortization of unearned compensation						4,781						4,781

Balance at October 31, 2012		22,968,832	$	22,969	$	135,283		$	391,823		$	550,075
Net income for year									130,617			130,617
Cash dividends ($.71 per share)									(16,339	)		(16,339	)
Issuance of stock under stock compensation plans		47,409		47		(912	)					(865	)
Amortization of unearned compensation						8,111						8,111

Balance at October 31, 2013		23,016,241	$	23,016	$	142,482		$	506,101		$	671,599

See accompanying notes.

Sanderson Farms, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended October 31,
	2013			2012			2011
	(In thousands)
Operating activities
Net income (loss)	$	130,617		$	53,944		$	(127,077	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		62,225			59,979			51,661
Amortization of unearned compensation		8,111			4,781			5,503
Live inventory adjustment		0			(9,000	)		9,000
Provision for losses on accounts receivable		415			412			0
Deferred income taxes		(16	)		7,995			21,462
Change in assets and liabilities:
Accounts receivable		(11,373	)		(4,413	)		(1,554	)
Inventories		30,057			(15,159	)		(67,464	)
Refundable income taxes		4,467			84,045			(88,512	)
Prepaid expenses and other assets		(2,546	)		354			(2,345	)
Accounts payable		(1,337	)		15,994			17,324
Accrued expenses and claims payable		32,244			6,987			(19,322	)

Total adjustments		122,247			151,975			(74,247	)

Net cash provided by (used in) operating activities		252,864			205,919			(201,324	)
Investing activities
Capital expenditures		(54,529	)		(49,249	)		(62,958	)
Net proceeds from sale of property and equipment		169			39			174

Net cash used in investing activities		(54,360	)		(49,210	)		(62,784	)
Financing activities
Borrowings from revolving line of credit		15,000			45,000			222,701
Payments on revolving line of credit		(125,000	)		(157,701	)		0
Principal payments on long-term debt		(10,000	)		(10,000	)		0
Principal payments on capital lease obligations		(756	)		(1,106	)		(1,048	)
Payments for debt issuance costs		(2,783	)		(625	)		(2,650	)
Dividends paid		(16,339	)		(15,621	)		(15,478	)
Tax benefit from stock incentive plans		145			706			70
Proceeds from issuance of restricted stock under stock compensation plans		827			758			945
Payments from issuance of common stock under stock compensation plans		(1,837	)		(1,393	)		(2,776	)

Net cash provided by (used in) financing activities		(140,743	)		(139,982	)		201,764

Net change in cash and cash equivalents		57,761			16,727			(62,344	)
Cash and cash equivalents at beginning of year		27,802			11,075			73,419

Cash and cash equivalents at end of year	$	85,563		$	27,802		$	11,075

Supplemental disclosure of cash flow information:
Income taxes paid (refunded) net	$	54,969		$	(60,142	)	$	4,391

Interest paid	$	6,489		$	9,433		$	6,581

See accompanying notes.

Sanderson Farms, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the accounts of Sanderson Farms, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Business: The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared chicken items. The Company’s net sales and cost of sales are significantly affected by market price fluctuations of its principal products sold and of its principal feed ingredients, corn and other grains.

The Company sells to retailers, distributors and casual dining operators primarily in the southeastern, southwestern, northeastern and western United States. Management periodically performs credit evaluations of its customers’ financial condition and generally does not require collateral. One customer accounted for more than 10% of consolidated sales for each of the years ended October 31, 2013, 2012 and 2011. Sales to that customer accounted for 14.2%, 13.0%, and 10.6% of the Company’s consolidated net sales in fiscal 2013, 2012, and 2011, respectively. Shipping and handling costs are included as a component of cost of sales.

Generally, revenue is recognized in connection with a transaction when the Company has agreed to sell, and our customer has agreed to purchase, a specific quantity of product, when delivery has occurred, when the price to the buyer has been fixed, and when collectability is reasonably assured. For most customers, this occurs when the product is delivered to customers, which for domestic sales usually occurs at the time of shipment. Revenue on certain international sales is recognized upon transfer of title, which may occur after shipment. Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for discounts, cooperative advertising allowances, product terms and other items.

RECONCILIATION OF GROSS SALES TO NET SALES DOLLARS (in millions)


Product Category	Description	Fiscal Year 2013			Fiscal Year 2012			Fiscal Year 2011
Fresh Ice Packed Chicken	Gross Sales	$	367.4		$	308.4		$	263.9
	Commissions		(4.1	)		(4.3	)		(3.9	)
	Sales and Customer Allowances		(11.2	)		(9.8	)		(8.5	)
	Other ⁽¹⁾		(9.8	)		(6.9	)		(5.3	)

	Net Sales		342.3			287.4			246.2


Chill Pack Chicken	Gross Sales		955.0			821.3			670.1
	Commissions		(6.5	)		(6.8	)		(6.0	)
	Sales and Customer Allowances		(9.5	)		(10.2	)		(8.5	)
	Other ⁽¹⁾		(6.3	)		(5.2	)		(3.2	)

	Net Sales		932.7			799.1			652.4


Frozen Chicken	Gross Sales		282.0			314.1			272.0
	Commissions		(0.2	)		(0.1	)		(0.0	)
	Sales and Customer Allowances		(0.0	)		(0.3	)		(0.0	)
	Other ⁽¹⁾		(0.8	)		(0.8	)		(1.8	)

	Net Sales		281.0			312.9			270.2


Fresh Vacuum Sealed Chicken	Gross Sales		1,009.6			875.7			690.8
	Commissions		(1.8	)		(1.9	)		(1.8	)
	Sales and Customer Allowances		(8.3	)		(6.4	)		(6.0	)
	Other ⁽¹⁾		(7.5	)		(5.1	)		(4.0	)

	Net Sales		992.0			862.3			679.0


Partially Cooked Chicken	Gross Sales		98.3			90.4			107.9
	Commissions		(0.8	)		(0.8	)		(1.0	)
	Sales and Customer Allowances		(0.4	)		(0.4	)		(0.4	)
	Other ⁽¹⁾		(0.2	)		(0.1	)		(0.1	)

	Net Sales		96.9			89.1			106.4


Mechanically Deboned Chicken	Gross Sales		38.1			35.3			23.9
	Commissions		(0.0	)		(0.0	)		(0.0	)
	Sales and Customer Allowances		(0.0	)		(0.0	)		(0.0	)
	Other ⁽¹⁾		(0.0	)		(0.0	)		(0.0	)

	Net Sales		38.1			35.3			23.9


Totals	Gross Sales		2,750.4			2,445.2			2,028.6
	Commissions		(13.4	)		(13.9	)		(12.7	)
	Sales and Customer Allowances		(29.4	)		(27.1	)		(23.4	)
	Other ⁽¹⁾		(24.6	)		(18.1	)		(14.4	)

	Net Sales	$	2,683.0		$	2,386.1		$	1,978.1

⁽¹⁾	Other deductions include short weights, credit memos, rebates and other items, none of which, individually, is material.

Sales of offal to rendering companies are considered by-products; accordingly, these amounts reduce cost of sales and totaled $47.6 million, $43.1 million and $35.4 million in fiscal 2013, 2012 and 2011, respectively.

The Company sells certain of its products either directly to foreign markets or to U.S. based customers who resell the product in foreign markets. These foreign markets are primarily Russia, Eastern Europe, China, Mexico and the Caribbean. These export sales for fiscal years 2013, 2012 and 2011 totaled approximately $292.6 million, $318.7 million and $253.8 million, respectively. The Company does not believe that the amount of sales attributable to any single foreign country is material to its total sales during any of the periods presented. The Company’s export sales are facilitated through independent food brokers located in the United States and the Company’s internal sales staff.

Use of Estimates: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents: The Company considers all highly liquid investments with maturities of ninety days or less when purchased to be cash equivalents.

Allowance for Doubtful Accounts: In the normal course of business, the Company extends credit to its customers on a short-term basis. Although credit risks associated with our customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts based on an individual assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve is recorded to reduce the receivable to the amount expected to be collected. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due us could be reduced by a material amount and the allowance for doubtful accounts and related bad debt expense would increase by the same amount.

Inventories: Processed and prepared inventories and inventories of feed, eggs, medication and packaging supplies are stated at the lower of cost (first-in, first-out method) or market value.

Live poultry inventories of broilers are stated at the lower of cost or market value and breeders at cost less accumulated amortization. The costs associated with breeders, including breeder chicks, feed, medicine and grower pay, are accumulated up to the production stage and amortized over nine months using the straight-line method.

When the projected cost to complete, process and sell broilers exceeds the expected market value for the finished product, the Company reduces the value of live inventories from cost to market.

Property, Plant and Equipment: Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is provided by the straight-line method over the estimated useful lives of 15 to 39 years for buildings and 3 to 12 years for machinery and equipment. During fiscal 2013 and 2011, the Company capitalized interest of $75,000 and $630,000, respectively, to the new complexes under construction at the time in Palestine, Texas and Kinston, North Carolina. With the absence of a major construction project, the Company did not capitalize any interest during fiscal 2012.

Impairment of Long-Lived Assets: The Company continually reevaluates the carrying value of its long-lived assets based on events or changes in circumstances which indicate that the carrying value may not be recoverable. As part of this reevaluation and when indicators are present, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, based on the fair value of the assets, is recognized through a charge to operations.

Self-Insurance Programs: Insurance expense for workers’ compensation benefits and employee-related health care benefits are estimated using historical experience and actuarial estimates. The Company accrues expenses in its workers’ compensation and employee benefit plans for both known claims as well as claims incurred but not

reported. Stop-loss coverage is maintained with third party insurers to limit the Company’s total exposure. Management regularly reviews the assumptions used to recognize periodic expenses. Any resulting adjustments to accrued claims are reflected in current operating results. There are no material adjustments to expenses accrued in prior periods in current expenses. If historical experience proves not to be a good indicator of future expenses, if management were to use different actuarial assumptions, or if there is a negative trend in the Company’s claims history, there could be a significant increase or decrease in cost of sales depending on whether these expenses increased or decreased, respectively.

Advertising and Marketing Costs: The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative expenses and totaled $3,340,000, $1,268,000 and $875,000 for fiscal 2013, 2012 and 2011, respectively.

Income Taxes: Deferred income taxes are accounted for using the liability method and relate principally to depreciation expense, stock based compensation programs and self-insurance programs accounted for differently for financial and income tax purposes.

Valuation allowances are recorded when it is more likely than not some or all of a deferred tax asset will not be realized.

The Company is periodically audited by taxing authorities and considers any adjustments, interest, and penalties incurred as a result of the audits in computing income tax expense. Any audit adjustments affecting permanent differences could have an impact on the Company’s effective tax rate. Tax periods for fiscal years 2009 through 2013 remain open to examination by federal and state taxing jurisdictions to which the Company is subject.

Share-Based Compensation: The Company accounts for all share-based payments to employees, including grants of employee stock options, restricted stock and performance-based shares in the income statement based on their fair values. For performance-based shares, the Company recognizes expense when management determines the performance criteria are probable of being met.

Earnings Per Share: Basic earnings per share is based upon the weighted average number of common shares outstanding during the year. Share-based payment awards entitling holders to receive non-forfeitable dividends before vesting are considered participating securities and thus included in the calculation of basic earnings per share. These awards are included in the calculation of basic earnings per share under the two-class method. The two-class method allocates earnings for the period between common shareholders and other security holders. The participating awards receiving dividends are allocated the same amount of income as if they were outstanding shares. Diluted earnings per share includes any dilutive effects of options, warrants, restricted stock and convertible securities.

Fair Value of Financial Instruments: The Company holds certain items that are required to be disclosed at fair value, primarily cash equivalents representing overnight investments and debt instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements:

Level 1 – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2 – Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3 – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At October 31, 2013 and 2012, the fair value of the Company’s cash and short-term cash investments of approximately $85.6 million and $27.8 million, respectively, approximated their carrying value due to the short maturity of these financial instruments and were categorized as a Level 2 measurement. Inputs used to measure fair value were primarily recent trading prices and prevailing market interest rates.

Fair values for debt are based on quoted market prices or published forward interest rate curves and were categorized as Level 2 measurements. The fair value and carrying value of the Company’s borrowings under its credit facilities, long-term debt and capital lease obligations were as follows (in millions):


	October 31, 2013				October 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
Total Debt (In millions)	$	43	$	40	$	163	$	161

Reclassifications: The Company has made reclassifications to prior year financial statements to conform with the presentation for the current year financial statements. The reclassifications are for consistency of presentation and do not affect previously reported net income (loss), stockholders’ equity or total assets.

Impact of Recently Issued Accounting Standards: In May 2011, FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. This update is effective for annual and interim periods beginning after December 15, 2011, and was adopted in the three month period ending January 31, 2013. This update did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

2. Inventories

Inventories consisted of the following:


	October 31,
	2013		2012
	(In thousands)
Live poultry-broilers and breeders	$	124,260	$	147,102
Feed, eggs and other		34,949		39,343
Processed poultry		32,139		32,196
Prepared chicken		6,483		9,894
Packaging materials		8,024		7,377

	$	205,855	$	235,912

3. Prepaid expenses

Prepaid expenses consisted of the following:


	October 31,
	2013		2012
	(In thousands)
Parts and supplies	$	16,880	$	15,598
Prepaid insurance		9,450		8,675
Other prepaid expenses		3,537		3,366

	$	29,867	$	27,639

4. Accrued expenses

Accrued expenses consisted of the following:


	October 31,
	2013		2012
	(In thousands)
Accrued bonuses	$	21,574	$	0
Workers’ compensation claims		5,531		9,894
Accrued wages		9,708		7,957
Accrued rebates		6,618		6,193
Accrued vacation		5,174		5,179
Accrued property taxes		4,484		4,796
Accrued commissions		1,464		1,772
Accrued payroll taxes		842		1,728
Post-retirement benefit		1,244		1,273
Deferred revenue		400		1,100
Other accrued expenses		1,232		2,190

	$	58,271	$	42,082

5. Long-Term debt and capital lease obligations

Long-term debt and capital lease obligations consisted of the following:


	October 31,
	2013		2012
	(In thousands)
Revolving credit agreement with banks	$	0	$	110,000
Term loan, accruing interest at 6.12%, maturing in 2016		30,000		40,000
Capital lease obligation, imputed interest at 5.53%, due in monthly installments of $112,015, including interest, maturity in 2015		10,213		10,969

		40,213		160,969
Less current maturities of long-term debt and capital leases		10,799		10,757

	$	29,414	$	150,212

The Company entered into a new revolving credit facility on October 24, 2013, to, among other things, increase the available credit to $600.0 million from $500.0 million. The new facility increases the annual capital expenditure limitation from $55.0 million to $65.0 million for fiscal years 2013 through 2018, plus, for each year, up to $10.0 million carryover from the preceding fiscal year, when it is not actually spent in that year. The capital expenditure limitation for fiscal 2013, with the permitted carry over, was $75.0 million. The new facility also permits the Company to spend up to $140.0 million each in capital expenditures on the construction of two new poultry complexes to be located anywhere in the United States, which expenditures are in addition to the annual overall capital expenditure limits. The $140.0 million limit represents an increase from the $125.0 million limit available under the previous agreement. Under the facility, the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a one-time right, at any time during the term of the agreement, to increase the maximum debt to total capitalization ratio then in effect by 5% in connection with the construction of either of the two potential new poultry complexes for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The Company did not exercise this right in fiscal 2013. The amendment also sets a minimum net worth requirement that at October 31, 2013, was $475.3 million. The total committed credit under the facility is $600.0 million. The credit is unsecured and, unless extended, will expire on October 24, 2018. As of October 31, 2013, the Company had no outstanding draws under the facility, and had approximately $10.8 million outstanding in letters of credit. As of December 10, 2013, the Company had no outstanding draws under the revolving credit facility and had approximately $13.9 million outstanding in letters of credit, leaving $586.1 million available.

The Company has the option to borrow funds under the revolving line of credit based on the Prime interest rate or the Libor interest rate plus a spread ranging from 0.50% to 2.25%. The spread on Libor borrowings and the commitment fee for the unused balance of the revolving credit agreement are determined based upon the Company’s leverage ratio as follows:


*Level*	Leverage Ratio	Spread			Commitment Fee
1	< 25%		0.50	%		0.25	%
2	³ 25% and < 35%		0.75	%		0.30	%
3	³ 35% and < 45%		1.25	%		0.35	%
4	³ 45% and < 55%		1.75	%		0.40	%
5	³ 55%		2.25	%		0.50	%

The term loan consists of a private placement of $30.0 million in unsecured debt. The term loan matures in 2016 with annual principal installments of $10.0 million which began in 2012. The term loan has net worth, current ratio and debt to capitalization covenants comparable to that of the Company’s revolving credit facility. The Company was in compliance with all covenants at October 31, 2013.

The aggregate annual maturities of long-term debt and capital lease obligations at October 31, 2013, are as follows (in thousands):


Fiscal Year	Amount
2014	$	10,799
2015		19,414
2016		10,000

	$	40,213

6. Income Taxes

Income tax expense (benefit) consisted of the following:


	Years Ended October 31,
	2013			2012			2011
	(In thousands)
Current:
Federal	$	63,923		$	23,641		$	(84,207	)
State		5,589			992			(4,420	)

		69,512			24,633			(88,627	)
Deferred:
Federal		(1,389	)		6,435			23,656
State		(5,450	)		(40	)		(11,869	)
Change in valuation allowance		6,823			1,600			9,675

		(16	)		7,995			21,462

	$	69,496		$	32,628		$	(67,165	)

Significant components of the Company’s deferred tax assets and liabilities were as follows:


	October 31,
	2013			2012
	(In thousands)
Deferred tax liabilities:
Property, plant and equipment	$	69,942		$	66,957
Prepaid and other assets		1,765			1,374

Total deferred tax liabilities		71,707			68,331
Deferred tax assets:
Accrued expenses and accounts receivable		9,187			7,742
Inventory		85			670
Compensation on restricted stock		7,514			6,523
State income tax credits		18,098			11,275
Other		2,310			769
Valuation allowance		(18,098	)		(11,275	)

Total deferred tax assets		19,096			15,704

Net deferred tax liabilities	$	52,611		$	52,627


Current deferred tax assets	$	(478	)	$	(3,945	)
Long-term deferred tax liabilities		53,089			56,572

Net deferred tax liabilities	$	52,611		$	52,627

The differences between the consolidated effective income tax rate and the federal statutory rate of 35.0% are as follows:


	Years Ended October 31,
	2013			2012			2011
	(In thousands)
Income taxes at statutory rate	$	70,040		$	30,300		$	(67,985	)
State income taxes		4,525			1,659			(4,299	)
State income tax credits		(6,823	)		(1,600	)		(9,675	)
Federal income tax credits		(715	)		(130	)		(748	)
Federal manufacturers (deduction) recapture		(6,469	)		(2,191	)		5,281
Nondeductible expenses		2,353			3,008			678
Other, net		(238	)		(18	)		(92	)
Change in valuation allowance		6,823			1,600			9,675

Income tax expense (benefit)	$	69,496		$	32,628		$	(67,165	)

Included in the deferred tax assets at October 31, 2013, are North Carolina Investing in Business Property Credit and North Carolina Jobs Credits totaling $13,676,000, as well as Georgia Job Tax Credits totaling $4,422,000. The North Carolina Investing in Business Property Credit provides a 7% investment tax credit for property located in a North Carolina development area, the North Carolina Creating Jobs Credit provides a tax credit for increased employment in North Carolina, and the Georgia Job Tax Credit provides a tax credit for creation and retention of qualifying jobs in Georgia. It is management’s opinion that the North Carolina and Georgia income tax credits will not be utilized before they expire, and an $18,098,000 gross valuation allowance has been recorded. These credits expire between fiscal years 2017 and 2023.

7. Earnings Per Share

Certain share-based payment awards entitling holders to receive non-forfeitable dividends before vesting are considered participating securities and thus included in the calculation of basic earnings per share, to the extent they are dilutive. These awards are included in the calculation of basic earnings per share under the two-class method. The two-class method allocates earnings for the period between common shareholders and other security holders. The participating awards receiving dividends are allocated the same amount of income as if they were outstanding shares.

The following table presents earnings per share.


	For the years ended
	October 31, 2013			October 31, 2012			October 31, 2011
Net income (loss)	$	130,617		$	53,944		$	(127,077	)
Distributed and undistributed (earnings) losses to unvested restricted stock		(3,704	)		(1,612	)		0

Distributed and undistributed earnings (losses) to common shareholders — Basic		126,913			52,332			(127,077	)

Weighted average shares outstanding — Basic		22,363			22,280			22,130
Weighted average shares outstanding — Diluted		22,363			22,282			22,130

Earnings per common share — Basic	$	5.68		$	2.35		$	(5.74	)
Earnings per common share — Diluted	$	5.68		$	2.35		$	(5.74	)

8. Employee Benefit Plans

The Company has an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. Contributions to the ESOP are made at the discretion of the Company’s Board of Directors. Total contributions to the ESOP were $8,400,000, $3,800,000, and $0 in fiscal 2013, 2012, and 2011, respectively. The Company did not make a contribution to the ESOP during fiscal 2011, as contributions are dependent upon profitability.

The Company has a 401(k) Plan which covers substantially all employees after one year of service. Participants in the Plan may contribute up to the maximum allowed by IRS regulations. The Company matches 100% of employee contributions to the 401(k) Plan up to 3% of each employee’s salary, and 50% of employee contributions between 3% and 5% of each employee’s salary. The Company’s contributions to the 401(k) Plan totaled $5,717,000 in fiscal 2013; $5,481,000 in fiscal 2012; and $4,992,000 in fiscal 2011.

9. Stock Compensation Plans

On February 17, 2005, the shareholders of the Company approved the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan (the “Plan”). The Plan allows the Company’s Board of Directors to grant certain incentive awards including stock options, stock appreciation rights, restricted stock, and other similar awards. The Company was authorized to award up to 2,250,000 shares under the Plan. On February 17, 2011, the shareholders approved changes to the plan to increase the shares that may be issued under the plan from 2,250,000 to 3,500,000 shares and to increase the number of shares that may be granted in the form of restricted stock from 562,500 to 1,562,500 shares.

Pursuant to the Plan, the Company’s Board of Directors approves agreements for the issuance of restricted stock to directors, executive officers and other key employees. Restricted stock granted in fiscal 2011, 2012 and 2013, vests three to four years from the date of grant. In some cases, the vesting schedule is accelerated upon death, disability, the participant’s termination of employment after reaching retirement eligibility, or upon a change in control, as defined. Restricted stock grants are valued based upon the closing market price of the Company’s common stock on the date of grant and are recognized as compensation expense over the vesting period. Compensation expense related to restricted stock grants totaled $4,487,000; $4,588,000; and $3,816,000 during fiscal 2013, 2012 and 2011, respectively.

A summary of the Company’s restricted stock activity and related information is as follows:


	Number of Shares			Weighted Average Grant Price
Outstanding at October 31, 2006		379,000		$	43.81
Granted during fiscal 2007		15,000		$	33.70
Vested during 2007		0		$	0.00
Forfeited during 2007		(5,050	)	$	42.62

Outstanding at October 31, 2007		388,950		$	42.79
Granted during fiscal 2008		45,209		$	35.00
Vested during 2008		(21,000	)	$	44.56
Forfeited during 2008		(3,485	)	$	41.36

Outstanding at October 31, 2008		409,674		$	41.86
Granted during fiscal 2009		78,826		$	36.12
Vested during 2009		(9,000	)	$	25.53
Forfeited during 2009		0		$	0.00

Outstanding at October 31, 2009		479,500		$	41.22
Granted during fiscal 2010		127,150		$	40.80
Vested during 2010		(96,838	)	$	36.93
Forfeited during 2010		(16,864	)	$	38.99

Outstanding at October 31, 2010		492,948		$	41.98
Granted during fiscal 2011		112,025		$	43.70
Vested during 2011		(35,193	)	$	40.21
Forfeited during 2011		(3,267	)	$	40.10

Outstanding at October 31, 2011		566,513		$	42.44
Granted during fiscal 2012		118,175		$	48.50
Vested during 2012		(81,819	)	$	39.97
Forfeited during 2012		(14,669	)	$	43.32

Outstanding at October 31, 2012		588,200		$	43.98
Granted during fiscal 2013		78,700		$	48.50
Vested during 2013		(87,431	)	$	42.26
Forfeited during 2013		(10,844	)	$	45.30

Outstanding at October 31, 2013		568,625		$	44.85

As reflected in the schedule above, 331,281 shares of the restricted stock awards were vested as of October 31, 2013. Of the 331,281 shares vested as of October 31, 2013, 92,463 were withheld by the Company to satisfy the tax withholding obligations of the recipients. The Company had $6.2 million in unrecognized share-based compensation costs as of October 31, 2013, that will be recognized over a weighted average period of 1.5 years.

Also pursuant to the Plan, the Company’s Board of Directors approves Management Share Purchase Plan agreements (the “Purchase Plan”) that authorize the issuance of shares of restricted stock to the Company’s directors, executive officers and other key employees. Pursuant to the Purchase Plan, non-employee directors may elect to receive up to 100 percent of their annual retainer and meeting fees in the form of restricted stock. Other participants may elect to receive up to 15 percent of their salary and up to 75 percent of any bonus earned in the form of restricted stock. The purchase price of the restricted stock is the closing market price of the Company’s common stock on the date of purchase. The Company makes matching contributions of 25 percent of the restricted shares purchased by participants. Restricted stock issued pursuant to the Purchase Plan vests after three years or immediately upon death, disability, or change in control, as defined. If an employee terminates employment after attaining eligibility for retirement, or a non-employee director retires upon the expiration of his or her board term, the participant’s Purchase Plan shares vest immediately. If a participant’s employment or service as a director is terminated for any other reason prior to the three-year vesting period, the participant forfeits the matching contribution and the Company may, at its option, repurchase restricted stock purchased by the participant at the price paid by the participant. Matching contributions are recognized as compensation expense over the vesting period. During fiscal 2013, 2012 and 2011, the participants purchased a total of 14,431, 16,359, and 21,497 shares of restricted stock pursuant to the Purchase Plan, valued at an average $57.30, $48.13, and $43.97 per share, respectively, and the Company issued 3,514, 4,005, and 5,277 matching shares, valued at an average $57.30, $48.13, and $43.97 per share, respectively. Compensation expense related to the Company’s matching contribution totaled approximately $199,000, $197,000 and $201,000 in fiscal 2013, 2012 and 2011, respectively.

During fiscal 2013, 2012 and 2011 the Company entered into performance share agreements that grant certain officers and key employees the right to receive shares of the Company’s common stock, subject to the Company’s achievement of certain performance measures. The performance share agreements specify a target number of shares that a participant can receive based upon the Company’s average return on equity and average return on sales, as defined, during a two-year performance period beginning November 1 of each performance period. Although the performance share agreements have a two year performance period, they are subject to an additional one year holding period before they are paid out. If the Company’s average return on equity and average return on sales exceed certain threshold amounts for the performance period, participants will receive 50 percent to 200 percent of the target number of shares, depending upon the Company’s level of performance. The target number of shares specified in the performance share agreements executed during fiscal 2008 totaled 67,820, during fiscal 2009 totaled 60,500, during fiscal 2010 totaled 70,000, during fiscal 2011 totaled 86,725, during fiscal 2012 totaled 95,175, and during fiscal 2013 totaled 98,950. The Company recorded compensation cost of $1,485,000 and $3,190,000 during fiscal 2011 and 2010, respectively, related to the performance share agreements entered into during fiscal 2008 and 2009. During fiscal 2012, no compensation cost was recorded related to performance share agreements entered into during fiscal 2012, fiscal 2011 and fiscal 2010. The Company recorded compensation cost of $3,425,000 during fiscal 2013, related to the performance share agreements entered into during fiscal 2012, but the Company recorded no compensation cost related to the performance share agreements entered into during fiscal 2013. In estimating the compensation expense to record in a period, the Company considers, among other factors, the current and projected grain costs and chicken volumes and pricing, as well as the amount of commitments to procure grain at a fixed price throughout the performance period. Due to the high level of volatility of these commodity prices and the impact that

the change in pricing can have on the Company’s results, the Company’s assessment of probability can change from period to period and can result in a significant revision to the amounts accrued related to the arrangements. The accounting for these arrangements requires the Company to accrue over the three year service period the estimated amounts of the shares that will be earned with changes made during the service period adjusted using the cumulative catch up method.

Under the Company’s Stock Option Plan, 2,250,000 shares of common stock were reserved for grant to key management personnel. Options outstanding at October 31, 2008, were granted in fiscal 2002, have ten-year terms and vest over four years beginning one year after the date of grant. The Company did not grant any options during fiscal 2013, 2012 or 2011. The Stock Option Plan has been superseded by the Plan described above and no further options may be issued under the Stock Option Plan.

A summary of the Company’s stock option activity and related information is as follows:


	Shares			Weighted-Average Exercise Price
Outstanding at October 31, 2010		7,501		$	12.37
Granted		0			—
Exercised		(1,500	)		12.37
Forfeited		0			—

Outstanding at October 31, 2011		6,001			12.37
Granted		0			—
Exercised		(6,000	)		12.37
Forfeited		(1	)		12.37

Outstanding at October 31, 2012		0		$	—

During the fiscal year ended October 31, 2012, 6,000 options were exercised with an intrinsic value of $197,600 and 1 option was forfeited with an intrinsic value of $32.93.

10. Other Matters

The Company has approximately 11,271 employees, approximately 27.7% of which are covered by collective bargaining agreements. Each collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the respective facility.

The Company has vehicle and equipment operating leases that expire at various dates through fiscal 2018. Rental expense under these leases totaled $7.0 million, $6.8 million, and $7.7 million during fiscal 2013, 2012 and 2011, respectively. The minimum lease payments of obligations under non-cancelable operating leases at October 31, 2013 were as follows (in millions):


Fiscal Year	Amount
2014	$	5.7
2015		5.5
2016		3.1
2017		1.7
2018		0.8

	$	16.8

At October 31, 2013, the Company’s estimated contractual obligations for feed grains, feed ingredients, and packaging supplies totaled $77.2 million, with the entire amount due in less than one year.

As reported in Item 3 of the Company’s Form 10-K for the fiscal year ended October 31, 2012, two of our former employees filed a complaint on February 16, 2012, alleging violations of the federal and State of Georgia’s Racketeer Influenced and Corrupt Organizations (“RICO”) Acts against us and seven of our current and former employees in the United States District Court for the Middle District of Georgia. The plaintiffs contend in their complaint that the Company conspired to knowingly hire undocumented immigrants at the Moultrie plant to “save Sanderson millions of dollars in labor costs because illegal aliens will work for extremely low wages”. The action is brought as a class action lawsuit on behalf of all legally authorized hourly employees that worked at the Moultrie plant in the four years before the filing of the case. The plaintiffs are suing for money damages, injunctive relief and revocation of our license to conduct business in the State of Georgia.

11. Quarterly Financial Data (unaudited)


	Fiscal Year 2013
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
	(In thousands, except per share data)
				(Unaudited)
Net sales	$	595,760		$	621,195	$	738,964	$	727,061
Gross profit		10,893			58,962		133,946		102,124
Net income (loss)		(6,943	)		24,371		67,919		45,270
Diluted earnings (loss) per share	$	(0.31	)	$	1.06	$	2.95	$	1.97


	Fiscal Year 2012
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
	(In thousands, except per share data)
				(unaudited)
Net sales	$	517,826		$	595,046	$	624,854	$	648,379
Gross profit		8,822			59,145		69,614		35,832
Net income (loss)		(7,989	)		23,865		28,721		9,347
Diluted earnings (loss) per share	$	(0.36	)	$	1.05	$	1.25	$	0.41

Sanderson Farms, Inc. and Subsidiaries

Valuation and Qualifying Accounts

Schedule II


COL. A	COL. B		COL. C		COL. D	COL. E		COL. F
Classification	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts	Deductions Describe(1)		Balance at End of Period
	(In Thousands)
Year ended October 31, 2013
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	1,785	$	470		$	55	$	2,200
Year ended October 31, 2012
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	1,373	$	412		$	0	$	1,785
Year ended October 31, 2011
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	1,373	$	0		$	0	$	1,373

(1)	Uncollectible accounts written off, net of recoveries

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.

Controls and Procedures.

Disclosure Controls

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of October 31, 2013, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2013. There have been no changes in the Company’s internal control over financial reporting during the fourth quarter ended October 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2013. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment we have concluded that, as of October 31, 2013, the Company’s internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm, Ernst & Young LLP, has provided an attestation report on the Company’s internal control over financial reporting as of October 31, 2013.

Item 9B.

Other Information.

Not applicable.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders

Sanderson Farms, Inc.

We have audited Sanderson Farms, Inc.’s internal control over financial reporting as of October 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sanderson Farms, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exits, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sanderson Farms, Inc. maintained, in all material respects, effective internal control over financial reporting as of October 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sanderson Farms, Inc. and subsidiaries as of October 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2013, of Sanderson Farms, Inc. and subsidiaries, and our report dated December 17, 2013, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

December 17, 2013

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning the Directors of the Registrant and the nominees for election as Directors appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

Information concerning the executive officers of the Registrant is set forth in Item 4A of Part I of this Annual Report.

The Registrant also incorporates by reference, as permitted by General Instruction G(3) to Form 10-K, information appearing in its definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b) related to the filing of reports under Section 16 of the Securities Exchange Act of 1934.

The Registrant has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, whose members are John H. Baker, III (Vice Chairman), Fred Banks, Jr., Robert C. Khayat, Phil K. Livingston, Dianne Mooney, Gail J. Pittman and Charles W. Ritter, Jr. (Chairman). All members of the audit committee are independent directors under the listing standards of the NASDAQ Stock Market LLC. The Registrant’s Board of Directors has determined that Phil K. Livingston is an audit committee financial expert.

The Registrant has adopted a code of ethics that applies to its senior financial personnel, including its chief executive officer, chief financial officer and chief accounting officer. The Registrant will provide a copy of the code of ethics free of charge to any person upon request to:

Sanderson Farms, Inc.

P.O. Box 988

Laurel, Mississippi 39441

Attn.: Chief Financial Officer

Requests can also be made by phone at (601) 649-4030.

Item 11.

Executive Compensation.

As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning remuneration of Directors and executive officers of the Registrant appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning beneficial ownership of the Registrant’s Common Stock, which is the only class of the Registrant’s voting securities, appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

The following table provides information as of October 31, 2013, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Registrant are authorized for issuance. The Registrant has no equity compensation plan not approved by security holders. All outstanding awards were issued under the Registrant’s Stock Incentive Plan approved by shareholders on February 17, 2005, and amended and approved by shareholders on February 17, 2011. No further options or other awards may be granted under the Stock Option Plan. There are 3,500,000 shares of common stock authorized for issuance under the Stock Incentive Plan.


Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		(b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)(2)
Equity compensation plans approved by security holders		297,061		849,667
Equity compensation plans not approved by security holders		0		0

Total		297,061		849,667

(1)

This column reflects 104,111 performance shares outstanding at October 31, 2013, that are expected to be earned and that are subject to an additional one year holding period ending on October 31, 2014, and 192,950 unearned performance shares outstanding at October 31, 2013, at the maximum level. However, management currently believes that it is not probable that we will achieve the minimum performance criteria for those unearned performance shares, such that none of those performance shares will be earned.

(2)

This column reflects the 904,852 shares of restricted stock granted to participants under the Stock Incentive Plan, the 230,793 shares of restricted stock purchased by or granted to participants under the MSPP provisions of the Stock Incentive Plan, and the 244,114 performance shares that have been earned or are expected to be earned under the Stock Incentive Plan, in each case since the inception of the plan and net of forfeitures, but including shares withheld at the election of the participants to satisfy tax obligations.

Item 13.

Certain Relationships and Related Transactions and Director Independence.

As permitted by General Instruction G(3) to Form 10-K, information, if any, required to be reported by Item 13 of Form 10-K, with respect to transactions with management and others, certain business relationships, indebtedness of management, and transactions with promoters, is set forth in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information, if any, is incorporated herein by reference to the definitive proxy statement.

Item 14.

Principal Accounting Fees and Services.

As permitted by General Instruction G(3) to Form 10-K, information required to be reported by Item 14 of Form 10-K is set forth in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). That information is incorporated by reference into this Form 10-K.

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

(a)	1. FINANCIAL STATEMENTS:

The following consolidated financial statements of the Registrant are included in Item 8:

Consolidated Balance Sheets — October 31, 2013 and 2012

Consolidated Statements of Operations — Years ended October 31, 2013, 2012 and 2011

Consolidated Statements of Stockholders’ Equity — Years ended October 31, 2013, 2012 and 2011

Consolidated Statements of Cash Flows — Years ended October 31, 2013, 2012 and 2011

Notes to Consolidated Financial Statements — October 31, 2013

(a)	2. FINANCIAL STATEMENT SCHEDULES:

The following consolidated financial statement schedules of the Registrant are included in Item 8:

Schedule II — Valuation and Qualifying Accounts

All other schedules are omitted as they are not required, are not applicable or the required information is set forth in the Financial Statements or notes thereto.

(a)	3. EXHIBITS:

The following exhibits are filed with this Annual Report or are incorporated herein by reference:


Exhibit Number		Description

3.1		Articles of Incorporation of the Registrant dated October 19, 1978. (Incorporated by reference to Exhibit 4.1 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.2		Articles of Amendment, dated March 23, 1987, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.2 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.3		Articles of Amendment, dated April 21, 1989, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.3 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of the Registrant dated April 21, 1989. (Incorporated by reference to Exhibit 4.4 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.5		Article of Amendment, dated February 20, 1992, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.5 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.6		Article of Amendment, dated February 27, 1997, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.6 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.7		By-Laws of the Registrant, amended and restated as of April 23, 2009. (Incorporated by reference to Exhibit 3 filed with the Registrant’s Current Report on Form 8-K on April 28, 2009.)

10.1		Contract dated July 31, 1964, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)


Exhibit Number		Description

10.2		Contract Amendment dated December 1, 1970, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-1 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.3		Contract Amendment dated June 11, 1985, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-2 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.4		Contract Amendment dated October 7, 1986, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-3 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.5+*		Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan, as amended and restated effective November 1, 2013.

10.6+		Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, as amended and restated on February 17, 2011. (Incorporated by reference to Appendix A to the Registrant’s definitive proxy statement filed on January 14, 2011, for its annual meeting held February 17, 2011.)

10.7+		Sanderson Farms, Inc. Bonus Award Program effective November 1, 2012. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed January 29, 2013.)

10.8+		Sanderson Farms, Inc. Supplemental Disability Plan effective September 1, 2008. (Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K filed by the Registrant on October 1, 2008).

10.9+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a ten-year resting period, as amended. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2009.)

10.10+		Form of Share Purchase Agreement between the Registrant and its non-employee directors who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2007.)

10.11+		Form of Share Purchase Agreement between the Registrant and its officers and employees who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended April 30, 2008.)

10.12+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period, as amended (for awards granted before August 2009). (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2009.)

10.13+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period (for awards granted after August 2009 through fiscal 2013). (Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2009.)

10.14+*		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period (for awards granted on or after November 1, 2013).

10.15+		Form of Restricted Stock Agreement between the Registrant and its non-employee directors who are granted restricted stock, as amended. (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2007.)

10.16+		Form of Amendment Number 1 dated as of December 13, 2010, to Restricted Stock Agreement dated January 29, 2009, Restricted Stock Agreement dated November 1, 2009, and Restricted Stock Agreement dated December 21, 2009. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed December 23, 2010.)


Exhibit Number		Description

10.17+		Form of Restricted Stock Agreement for restricted stock granted to officers and employees on February 17, 2011. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed February 22, 2011.)

10.18+		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2012). (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2011.)

10.19+		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2013). (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2012.)

10.20+*		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2014).

10.21+		Employment Agreement dated as of September 15, 2009, between the Registrant and Joe F. Sanderson, Jr. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.22+		Employment Agreement dated as of September 15, 2009, between the Registrant and Lampkin Butts (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.23+		Employment Agreement dated as of September 15, 2009, between the Registrant and D. Michael Cockrell (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.24		Memorandum of Agreement dated June 13, 1989, between Pike County, Mississippi and the Registrant. (Incorporated by reference to Exhibit 10-L filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1990.)

10.25		Wastewater Treatment Agreement between the City of Magnolia, Mississippi and the Registrant dated August 19, 1991. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)

10.26		Memorandum of Agreement and Purchase Option between Pike County, Mississippi and the Registrant dated May 1991. (Incorporated by reference to Exhibit 10-N filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)

10.27		Lease Agreement between Pike County, Mississippi and the Registrant dated as of November 1, 1992. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1993.)

10.28		Lease Agreement dated as of December 1, 2004, between Moultrie-Colquitt County Development Authority, as Lessor, and Sanderson Farms, Inc. (Processing Division) as Lessee. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)

10.29		Bond Purchase Loan Agreement between Moultrie-Colquitt County Development Authority, as Issuer, and Sanderson Farms, Inc. (Processing Division), as Purchaser. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)

10.30		Credit Agreement dated February 23, 2011, among Sanderson Farms, Inc. and Harris, N.A. as Agent for the Banks defined therein. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed February 25, 2011.)

10.31		Guaranty Agreement dated February 23, 2011, of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed February 25, 2011.)

10.32		First Amendment to Credit Agreement dated October 4, 2012, among Sanderson Farms, Inc., the banks party thereto and BMO Harris Bank N.A., as agent for the banks. (Incorporated by reference to Exhibit 10.1 filed with the Registrants’ Current Report on Form 8-K filed October 9, 2012.)

10.33		Credit Agreement dated October 24, 2013 among Sanderson Farms, Inc. and BMO Harris Bank N.A. as Agent for the Banks defined herein. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed October 28, 2013.)


Exhibit Number		Description

10.34		Guaranty Agreement dated October 24, 2013 of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K filed October 28, 2013.)

10.35		Note Purchase Agreement dated as of April 28, 2006, between Sanderson Farms, Inc. and Northwest Farm Credit Services, PCA. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.36		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Foods Division). (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.37		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Production Division). (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.38		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.39		Intercreditor Agreement dated as of April 28, 2006, among The Lincoln National Life Insurance Company, Northwest Farm Credit Services, PCA, Harris N.A., SunTrust Bank, AmSouth Bank, U.S. Bank National Association, Regions Bank, and Trustmark National Bank. (Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.40		Lease Agreement dated as of July 1, 2006, between Adel Industrial Development Authority as Lessor, and Sanderson Farms, Inc. (Production Division) as Lessee. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2006.)

10.41		Bond Purchase Agreement dated as of July 31, 2006, between Sanderson Farms, Inc. (Production Division) as Purchaser and Adel Industrial Development Authority as Issuer. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2006.)

21		List of Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)

23*		Consent of Independent Registered Public Accounting Firm.

31.1*		Certification of Chief Executive Officer.

31.2*		Certification of Chief Financial Officer.

32.1**		Section 1350 Certification.

32.2**		Section 1350 Certification.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

*	Filed herewith.

**	Furnished herewith.

+	Management contract or compensatory plan or arrangement.

(b)	Agreements Available Upon Request by the Commission.

The Registrant’s credit agreement with the banks for which BMO Harris Bank N.A. acts as agent is filed or incorporated by reference as an exhibit to this report. The Registrant is a party to various other agreements defining the rights of holders of long-term debt of the Registrant, but, of those other agreements, no single agreement authorizes securities in an amount which exceeds 10% of the total assets of the Company. Upon request of the Commission, the Registrant will furnish a copy of any such agreement to the Commission. Accordingly, such agreements are omitted as exhibits as permitted by Item 601(b)(4)(iii) of Regulation S-K.

QUALIFICATION BY REFERENCE

Any statement contained in this Annual Report concerning the contents of any contract or other document filed as an exhibit to this Annual Report or incorporated herein by reference is not necessarily complete, and in each instance reference is made to the copy of the document filed.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SANDERSON FARMS, INC.

By:		/s/ Joe F. Sanderson, Jr.
		Chairman of the Board and Chief Executive Officer

Date: December 17, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the dates indicated.


/s/ Joe F. Sanderson, Jr.				12/17/13
Joe F. Sanderson, Jr.,
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)

/s/ John H. Baker, III John H. Baker, III,				12/17/13
Director

/s/ Fred Banks, Jr.				12/17/13
Fred Banks, Jr.
Director

/s/ John Bierbusse				12/17/13
John Bierbusse,
Director

/s/ Lampkin Butts				12/17/13
Lampkin Butts, Director,
President and Chief Operating Officer

/s/ D. Michael Cockrell				12/17/13
D. Michael Cockrell,
Director, Treasurer and Chief Financial Officer

/s/ Ms. Toni Cooley				12/17/13
Toni Cooley
Director

/s/ Tim Rigney				12/17/13
Tim Rigney,
Secretary and Chief Accounting Officer
(Principal Accounting Officer)

/s/ Beverly Wade Hogan				12/17/13
Beverly Wade Hogan,
Director

/s/ Robert C. Khayat				12/17/13
Robert C. Khayat
Director



/s/ Phil K. Livingston				12/17/13
Phil K. Livingston,
Director

/s/ Dianne Mooney				12/17/13
Dianne Mooney
Director

/s/ Gail Jones Pittman				12/17/13
Gail Jones Pittman,
Director

/s/ Charles W. Ritter, Jr.				12/17/13
Charles W. Ritter, Jr.,
Director

EXHIBITS:

The following exhibits are filed with this Annual Report or are incorporated herein by reference:


Exhibit Number		Description

3.1		Articles of Incorporation of the Registrant dated October 19, 1978. (Incorporated by reference to Exhibit 4.1 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.2		Articles of Amendment, dated March 23, 1987, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.2 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.3		Articles of Amendment, dated April 21, 1989, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.3 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of the Registrant dated April 21, 1989. (Incorporated by reference to Exhibit 4.4 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.5		Article of Amendment, dated February 20, 1992, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.5 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.6		Article of Amendment, dated February 27, 1997, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.6 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

3.7		By-Laws of the Registrant, amended and restated as of April 23, 2009. (Incorporated by reference to Exhibit 3 filed with the Registrant’s Current Report on Form 8-K on April 28, 2009.)

10.1		Contract dated July 31, 1964, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.2		Contract Amendment dated December 1, 1970, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-1 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.3		Contract Amendment dated June 11, 1985, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-2 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.4		Contract Amendment dated October 7, 1986, between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-3 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)

10.5+*		Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan, as amended and restated effective November 1, 2013.

10.6+		Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, as amended and restated on February 17, 2011. (Incorporated by reference to Appendix A to the Registrant’s definitive proxy statement filed on January 14, 2011, for its annual meeting held February 17, 2011.)

10.7+		Sanderson Farms, Inc. Bonus Award Program effective November 1, 2012. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed January 29, 2013.)

10.8+		Sanderson Farms, Inc. Supplemental Disability Plan effective September 1, 2008. (Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K filed by the Registrant on October 1, 2008).

10.9+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a ten-year resting period, as amended. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2009.)


Exhibit Number		Description

10.10+		Form of Share Purchase Agreement between the Registrant and its non-employee directors who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2007.)

10.11+		Form of Share Purchase Agreement between the Registrant and its officers and employees who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended April 30, 2008.)

10.12+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period, as amended (for awards granted before August 2009). (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2009.)

10.13+		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period (for awards granted after August 2009 through fiscal 2013). (Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2009.)

10.14+*		Form of Restricted Stock Agreement between the Registrant and its officers and employees who are granted restricted stock with a four-year vesting period (for awards granted on or after November 1, 2013).

10.15+		Form of Restricted Stock Agreement between the Registrant and its non-employee directors who are granted restricted stock, as amended. (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2007.)

10.16+		Form of Amendment Number 1 dated as of December 13, 2010, to Restricted Stock Agreement dated January 29, 2009, Restricted Stock Agreement dated November 1, 2009, and Restricted Stock Agreement dated December 21, 2009. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed December 23, 2010.)

10.17+		Form of Restricted Stock Agreement for restricted stock granted to officers and employees on February 17, 2011. (Incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form 8-K filed February 22, 2011.)

10.18+		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2012). (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2011.)

10.19+		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2013). (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2012.)

10.20+*		Form of Performance Share Agreement between the Registrant and its employees who are granted performance shares (for fiscal 2014).

10.21+		Employment Agreement dated as of September 15, 2009, between the Registrant and Joe F. Sanderson, Jr. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.22+		Employment Agreement dated as of September 15, 2009, between the Registrant and Lampkin Butts (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.23+		Employment Agreement dated as of September 15, 2009, between the Registrant and D. Michael Cockrell (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 15, 2009.)

10.24		Memorandum of Agreement dated June 13, 1989, between Pike County, Mississippi and the Registrant. (Incorporated by reference to Exhibit 10-L filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1990.)

10.25		Wastewater Treatment Agreement between the City of Magnolia, Mississippi and the Registrant dated August 19, 1991. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)


Exhibit Number		Description

10.26		Memorandum of Agreement and Purchase Option between Pike County, Mississippi and the Registrant dated May 1991. (Incorporated by reference to Exhibit 10-N filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)

10.27		Lease Agreement between Pike County, Mississippi and the Registrant dated as of November 1, 1992. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1993.)

10.28		Lease Agreement dated as of December 1, 2004, between Moultrie-Colquitt County Development Authority, as Lessor, and Sanderson Farms, Inc. (Processing Division) as Lessee. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)

10.29		Bond Purchase Loan Agreement between Moultrie-Colquitt County Development Authority, as Issuer, and Sanderson Farms, Inc. (Processing Division), as Purchaser. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)

10.30		Credit Agreement dated February 23, 2011, among Sanderson Farms, Inc. and Harris, N.A. as Agent for the Banks defined therein. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed February 25, 2011.)

10.31		Guaranty Agreement dated February 23, 2011, of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed February 25, 2011.)

10.32		First Amendment to Credit Agreement dated October 4, 2012, among Sanderson Farms, Inc., the banks party thereto and BMO Harris Bank N.A., as agent for the banks. (Incorporated by reference to Exhibit 10.1 filed with the Registrants’ Current Report on Form 8-K filed October 9, 2012.)

10.33		Credit Agreement dated October 24, 2013 among Sanderson Farms, Inc. and BMO Harris Bank N.A. as Agent for the Banks defined herein. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed October 28, 2013.)

10.34		Guaranty Agreement dated October 24, 2013 of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K filed October 28, 2013.)

10.35		Note Purchase Agreement dated as of April 28, 2006, between Sanderson Farms, Inc. and Northwest Farm Credit Services, PCA. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.36		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Foods Division). (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.37		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Production Division). (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.38		Guarantee Agreement dated as of April 28, 2006, of Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.39		Intercreditor Agreement dated as of April 28, 2006, among The Lincoln National Life Insurance Company, Northwest Farm Credit Services, PCA, Harris N.A., SunTrust Bank, AmSouth Bank, U.S. Bank National Association, Regions Bank, and Trustmark National Bank. (Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed May 3, 2006.)

10.40		Lease Agreement dated as of July 1, 2006, between Adel Industrial Development Authority as Lessor, and Sanderson Farms, Inc. (Production Division) as Lessee. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2006.)


Exhibit Number		Description

10.41		Bond Purchase Agreement dated as of July 31, 2006, between Sanderson Farms, Inc. (Production Division) as Purchaser and Adel Industrial Development Authority as Issuer. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2006.)

21		List of Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)

23*		Consent of Independent Registered Public Accounting Firm.

31.1*		Certification of Chief Executive Officer.

31.2*		Certification of Chief Financial Officer.

32.1**		Section 1350 Certification.

32.2**		Section 1350 Certification.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

*	Filed herewith.

**	Furnished herewith.

+	Management contract or compensatory plan or arrangement.

Exhibit 10.5

SANDERSON FARMS, INC. AND AFFILIATES

EMPLOYEE STOCK OWNERSHIP PLAN

(As Amended and Restated Effective November 1, 2013)

TABLE OF CONTENTS


ARTICLE 1	NAME AND EFFECTIVE DATE		6

	Section 1.1	Name.	6
	Section 1.2	Effective Date .	6
	Section 1.3	Intent .	6

ARTICLE 2	DEFINITIONS		7

	Section 2.1	“ Account ”.	7
	Section 2.2	“ Administrative Committee ”.	7
	Section 2.3	“ Affiliate ”.	7
	Section 2.4	“ Annual Additions ”.	7
	Section 2.5	“ Beneficiary ”.	7
	Section 2.6	“ Board ”.	7
	Section 2.7	“ Break in Service ”.	7
	Section 2.8	“ Cash Account ”.	7
	Section 2.9	“ Code ”.	7
	Section 2.10	“ Company ”.	7
	Section 2.11	“ Compensation ”.	7
	Section 2.12	“ Contribution ”.	8
	Section 2.13	“ Disqualifying Break in Service ”.	8
	Section 2.14	“ Distribution Date ”.	8
	Section 2.15	“ Eligible Participant ”.	8
	Section 2.16	“ Employee ”.	8
	Section 2.17	“ Employer ”.	8
	Section 2.18	“ ERISA ”.	8
	Section 2.19	“ Exempt Loan ”.	8
	Section 2.20	“ Forfeiture ”.	8
	Section 2.21	“ Excess Amount ”.	8
	Section 2.22	“ Hour of Service ”.	8
	Section 2.23	“ Leased Employee ”.	8
	Section 2.24	“ Limitation Year ”.	9
	Section 2.25	“ Maximum Permissible Amount ”.	10
	Section 2.26	“ Named Fiduciary ”.	10
	Section 2.27	“ Normal Retirement Age ”.	10
	Section 2.28	“ Participant ”.	10
	Section 2.29	“ Plan ”.	10
	Section 2.30	“ Plan Year ”.	10
	Section 2.31	“ Qualifying Employer Security or Securities ”.	10
	Section 2.32	“ Related Plan ”.	10
	Section 2.33	“ Section 415 Compensation ”.	10
	Section 2.34	“ Share ”.	10
	Section 2.35	“ Stock Account ”.	11


	Section 2.36	“ Suspense Account ”.	11
	Section 2.37	“ Termination of Employment ” or “ Terminates Employment ”.	11
	Section 2.38	“ Total and Permanent Disability ”.	12
	Section 2.39	“ Trust Agreement ”.	12
	Section 2.40	“ Trustee ”.	12
	Section 2.41	“ Trust Fund ”.	12
	Section 2.42	“ Year of Service ”.	12
	Section 2.43	“ Valuation Date ”.	12

ARTICLE 3	ELIGIBILITY AND PARTICIPATION		13

	Section 3.1	Participation .	13
	Section 3.2	Termination of Participation .	13

ARTICLE 4	EMPLOYER CONTRIBUTIONS		14

	Section 4.1	By Employers .	14
	Section 4.2	Amount of Contribution .	14
	Section 4.3	Limitation on Annual Additions .	14

ARTICLE 5	ACCOUNTS; ALLOCATIONS; AND ACCOUNTING		15

	Section 5.1	Accounts .	15
	Section 5.2	Allocation of Contributions and Forfeitures Among Eligible Participants .	16
	Section 5.3	Allocation of Income, Losses and Expenses .	16
	Section 5.4	Allocation of Dividends .	17
	Section 5.5	Accounting Procedures .	17
	Section 5.6	Voting and Tender Rights - Qualifying Employer Securities .	17
	Section 5.7	Annual Statements .	18

ARTICLE 6	VESTING		18

	Section 6.1	General .	18
	Section 6.2	Retirement, Death and Disability .	19
	Section 6.3	Breaks in Service; Forfeitures .	19
	Section 6.4	Increase in Vesting .	20

ARTICLE 7	DISTRIBUTIONS		21

	Section 7.1	Entitlement to Distribution .	21
	Section 7.2	Method and Time of Distribution .	21
	Section 7.3	Mandatory Distributions .	21
	Section 7.4	Designation of Beneficiary .	21
	Section 7.5	Required Beginning Date .	22


	Section 7.6	Distributions of General Employees’ Profit Sharing Plan Accounts .	23
	Section 7.7	Rollover Treatment .	23
	Section 7.8	30-Day Notice of Distribution Rights .	24
	Section 7.9	Hardship Distributions .	24
	Section 7.10	Missing Persons .	26
	Section 7.11	Diversification of Investments .	26
	Section 7.12	In-Service Distributions at Age 62 .	27

ARTICLE 8	SPECIAL PROVISIONS RELATING TO LOANS		28

	Section 8.1	Exempt Loans .	28
	Section 8.2	Release of Shares from Suspense Account .	29
	Section 8.3	Exempt Loan Repayments .	29
	Section 8.4	Allocation of Released Shares .	29
	Section 8.5	Nonterminable Rights .	30
	Section 8.6	Valuation of Qualifying Employers Securities .	31
	Section 8.7	More than One Class of Qualifying Employer Securities .	31

ARTICLE 9	TRUST FUND		32

	Section 9.1	Trust Agreement .	32
	Section 9.2	Non-Reversion; Exclusive Benefit Clause .	32
	Section 9.3	Powers of the Trustee .	32
	Section 9.4	Trust Agreement Part of the Plan .	32
	Section 9.5	Trustee Purchase of Stock .	32

ARTICLE 10	ADMINISTRATIVE COMMITTEE		32

	Section 10.1	Named Fiduciaries .	32
	Section 10.2	Appointment of Administrative Committee .	33
	Section 10.3	Organization and Operation of Administrative Committee .	33
	Section 10.4	Responsibilities and Powers of Administrative Committee .	33
	Section 10.5	Individual and Shared Responsibilities of Named Fiduciaries .	34
	Section 10.6	Employment of Advisers .	34
	Section 10.7	Fiduciary in More Than One Capacity .	34
	Section 10.8	Power to Construe and Interpret Plan .	34
	Section 10.9	Indemnity Agreement .	34
	Section 10.10	Costs .	35
	Section 10.11	Application and Forms for Benefits .	35
	Section 10.12	Claims for Benefits .	35
	Section 10.13	Denial of Claims .	35
	Section 10.14	Appeal of Denied Claim .	36
	Section 10.15	Claims, Notices, Etc .	37


ARTICLE 11	MODIFICATIONS FOR TOP HEAVY PLANS		37

	Section 11.1	Application of Article .	37
	Section 11.2	Definitions .	37
	Section 11.3	Amounts Included for Computation Purposes .	38
	Section 11.4	Accelerated Vesting .	38
	Section 11.5	Minimum Contributions .	39
	Section 11.6	Modification of Top-Heavy Rules .	39

ARTICLE 12	AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS; TERMINATION OR DISCONTINUANCE		40

	Section 12.1	Amendment .	40
	Section 12.2	Merger, Consolidation, or Transfer of Assets .	40
	Section 12.3	Termination; Discontinuance of Contributions .	41

ARTICLE 13	MISCELLANEOUS		41

	Section 13.1	Nonalienation of Benefits .	41
	Section 13.2	Qualified Domestic Relations Order .	41
	Section 13.3	No Guarantee of Employment .	42
	Section 13.4	Authorization to Withhold Taxes .	42
	Section 13.5	Delegation of Authority by Employer .	42
	Section 13.6	Number and Gender .	42
	Section 13.7	Legal Actions .	42
	Section 13.8	Delays in Distribution .	42
	Section 13.9	Plan Document Location .	43
	Section 13.10	Plan Terms Control .	43
	Section 13.11	Severability .	43
	Section 13.12	Governing Law .	43

ARTICLE 14	VETERANS RIGHTS		43

	Section 14.1	Veterans’ Rights .	43
	Section 14.2	Death or Disability During Qualified Military Service .	43
	Section 14.3	Differential Wage Payments .	44
	Section 14.4	Definitions .	44

ARTICLE 15	MINIMUM DISTRIBUTION REQUIREMENTS		44

	Section 15.1	General Rules .	44
	Section 15.2	Time and Manner of Distribution .	45
	Section 15.3	Required Minimum Distributions During Participant’s Lifetime .	46
	Section 15.4	Required Minimum Distributions After Participant’s Death .	46
	Section 15.5	Definitions.	48
	Section 15.6	Suspension of RMDs unless otherwise elected by a Participant .	49
	Section 15.7	Direct Rollovers .	49

SANDERSON FARMS, INC. AND AFFILIATES

EMPLOYEE STOCK OWNERSHIP PLAN

(As Amended and Restated Effective November 1, 2013)

PREAMBLE

The Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan (formerly, the Profit Sharing Retirement Plan and Trust) (the “Plan”) was adopted by Sanderson Farms, Inc. effective January 1, 1972. Effective January 1, 1972, the Plan was converted into a stock bonus plan and an employee stock ownership plan, within the meaning of Section 4975(e)(7) of the Internal Revenue Code.

Effective November 1, 1989, the Plan was amended and restated to effect numerous technical changes and to ensure the Plan’s qualification under the applicable provisions of the Internal Revenue Code, including the Tax Reform Act of 1986, and the Employee Retirement Income Security Act of 1974.

Effective November 1, 1993, the General Employees’ Profit Sharing - Retirement Plan and Trust of Sanderson Farms, Inc. and Affiliates (the “General Employees Profit Sharing Plan”) was merged into this Plan, and this Plan was amended to reflect the merger.

Effective November 1, 1997, the Plan was amended and restated, to comply with certain changes in federal law.

Effective August 1, 2006, the Plan was again amended and restated to make certain design and technical changes.

Effective November 1, 2013, the Plan is amended and restated as set forth herein to comply with certain changes in federal law.

ARTICLE 1

NAME AND EFFECTIVE DATE

Section 1.1 Name. This Plan shall be known as the Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan.

Section 1.2 Effective Date . The original effective date of the Plan is January 1, 1972. The effective date of this amendment and restatement is November 1, 2013.

Section 1.3 Intent . The Plan is intended to be a stock bonus plan and an employee stock ownership plan within the meaning of Code Section 4975(e)(7). The Plan is designed to invest primarily in qualifying employer securities within the meaning of Code Section 409(l).

ARTICLE 2

DEFINITIONS

The following terms have the meanings herein which are specified below unless the context otherwise requires:

Section 2.1 “ Account ” means a Participant’s Cash Account or Stock Account.

Section 2.2 “ Administrative Committee ” means the Administrative Committee appointed by the Company as provided in Section 10.1 hereof. The persons constituting the Administrative Committee are herein referred to as “Administrative Committee Members.”

Section 2.3 “ Affiliate ” means the Employer and any corporation under common control (as defined in Code Section 414(b)) with the Employer; any trade or business (whether or not incorporated) under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Code Section 414(m)) that includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Treasury Regulations under Code Section 414(o).

Section 2.4 “ Annual Additions ” means the sum of the following amounts credited to a Participant’s Accounts and to any accounts of the Participant under a Related Plan for any Limitation Year:

(a)

Employer contributions (including any contributions hereunder used to repay an Exempt Loan);

(b)

Employee contributions;

(c)

Forfeitures; and

(d)

Amounts described at Code Sections 415(l)(1) and 419(A)(d)(2).

Section 2.5 “ Beneficiary ” means a person who is entitled to a distribution hereunder upon the death of a Participant.

Section 2.6 “ Board ” means the Board of Directors of the Company.

Section 2.7 “ Break in Service ” means a Plan Year during which an Employee fails to complete more than 500 Hours of Service. For purposes of determining an Employee’s vested percentage hereunder, the computation period shall be the Plan Year.

Section 2.8 “ Cash Account ” means the Account of a Participant that reflects his interest under the Plan attributable to Trust Fund assets other than Qualifying Employer Securities.

Section 2.9 “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

Section 2.10 “ Company ” means Sanderson Farms, Inc.

Section 2.11 “ Compensation ” means, with respect to an Employee, all taxable remuneration received, except performance incentive awards, from the Employer in the whole or part of a Plan Year in which the Employee is a Participant hereunder, increased by any amounts that are not currently included in the Employee’s gross income by reason of Code Sections 125, 132(f), 402(a)(8) or 402(h)(1)(B). Compensation of any Employee shall not include any part of the Contributions to the Trust Fund hereunder, or to any other employee pension benefit plan or employee welfare benefit plan or trust in connection therewith, now or hereafter adopted or any amounts in respect of any options to purchase stock granted Employees. No Employee shall be deemed to have Compensation for a Plan Year in excess of two hundred fifty five thousand dollars ($255,000), as adjusted in accordance with the provisions of Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year shall apply to the annual compensation limit of Code Section 401(a)(17)(B) for the Plan Year that begins with or within such calendar year.

Section 2.13 “ Contribution ” means any Employer contribution made hereunder pursuant to Article 4 hereof.

Section 2.14 “ Disqualifying Break in Service ” means a consecutive number of Breaks in Service equal to the greater of (a) five (5), or (b) the number of an Employee’s Years of Service prior to such consecutive Breaks in Service (excluding any Years of Service disregarded hereunder because of prior Breaks in Service).

Section 2.15 “ Distribution Date ” means each January 31, April 30, July 31 or October 31.

Section 2.16 “ Eligible Participant ” means, with respect to a Plan Year, a Participant who is an Employee on the last day of the Plan Year.

Section 2.17 “ Employee ” means each person who is employed as a common law employee by the Employer. For purposes of Sections 2.19, 2.20, 2.24, and 2.35 hereof, the term “Employee” means each person employed as a common law employee of any Affiliate.

Section 2.18 “ Employer ” means the Company, Sanderson Farms, Inc. (Production Division), Sanderson Farms, Inc. (Processing Division) and Sanderson Farms, Inc. (Foods Division), all of which are Mississippi corporations, and any domestic Affiliate that adopts this Plan with the consent of the Board. As the context requires, the term “Employer” as used herein shall apply collectively to all Employers under the Plan or singly to an Employer.

Section 2.19 “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

Section 2.20 “ Exempt Loan ” means a loan described in Article 8 hereof.

Section 2.21 “ Forfeiture ” means the nonvested portion of a Participant’s Account balances forfeited under Section 6.3 hereof.

Section 2.22 “ Excess Amount ” means the excess of the amount of a Participant’s Annual Additions for a Limitation Year over the Maximum Permissible Amount for the Limitation Year.

Section 2.23 “ Hour of Service ” means:

(a)

Each hour:

(1)

For which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or any Affiliate during the applicable computation period;

(2)

For which an Employee is paid, or entitled to payment, by the Employer or any Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

Notwithstanding the preceding sentence, no more than five hundred one (501) Hours of Service are required to be credited under this paragraph to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period).

(3)

For which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or any Affiliate. The same Hours of Service shall not be credited both under paragraph (a)(1) or (2) above, as the case may be, and under this paragraph (a)(3).

(b)

Where an Employee is credited with Hours of Service under (a)(2) above, the number of Hours of Service to be credited and the computation period to which such Hours of Service shall be credited shall be determined under Title 29, Code of Federal Regulations, Sections 2530.200b-2(b) and (c), which regulation is hereby incorporated into this Plan by reference.

(c)

Solely for purposes of determining whether an Employee has incurred a Break in Service, each hour of such Employee’s customary work period during an absence that begins after December 31, 1984, and that is due to (1) pregnancy of the Employee; (2) birth of a child of the Employee; (3) placement of a child in connection with the adoption of a child by the Employee; or (4) caring for a child by the Employee during the period of birth or placement for adoption, shall be considered an Hour of Service. Notwithstanding the foregoing provisions:

(1)

Hours of Service described in this paragraph (c) shall be credited to the Plan Year in which a maternity or paternity absence begins if necessary to prevent a Break in Service in that Plan Year, otherwise all such Hours of Service to be credited pursuant to this paragraph (c) shall be credited to the next following Plan Year to the extent, if any, necessary to assure that the Employee will not suffer a Break in Service in such following Plan Year;

(2)

The Administrative Committee shall have the right as a condition precedent to providing credit under this paragraph (c) to require the Employee to certify, on such written form as may be provided by the Administrative Committee, that the Employer’s absence was for a reason permitted under this paragraph (c), to require the Employee to supply information relating to the number of normal work days for which there was an absence under this paragraph (c), and to verify the correctness of such certification by any reasonable means; and

(3)

The total number of Hours of Service required to be credited under this paragraph (c) shall not exceed five hundred one (501) Hours of Service.

Section 2.24 “ Leased Employee ” means any individual (other than a common law employee of the Employer) who, pursuant to an agreement between the Employer and another person (the “leasing organization”), (a) has performed services for the Employer (or for the Employer and any related person determined in accordance with Code Section 414(n)(6)), (b) the services are performed on a substantially full-time basis for a period of at least one year, and (c) the services are performed under the primary direction and control of the Employer.

Section 2.25 “ Limitation Year ” means the twelve (12)-month period ending each October 31. All qualified plans maintained by the Employer shall use the same Limitation Year.

Section 2.26 “ Maximum Permissible Amount ” means:

(a)

With respect to a Participant, except to the extent permitted under Code Section 414(v), if applicable, the lesser of:

(1)

$40,000, as adjusted for increases in the cost-of-living under Code Section 415(d); or

(2)

100% of the Participant’s Section 415 Compensation.

(b)

The compensation limit referred to in paragraph (a)(2) above shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Sections 401(h) or 419A(f)(2)) that is otherwise treated as an Annual Addition.

Section 2.27 “ Named Fiduciary ” means a named fiduciary, within the meaning of Section 402(a)(2) of ERISA.

Section 2.28 “ Normal Retirement Age ” means age sixty five (65). Notwithstanding any provision of the Plan to the contrary, a Participant shall be 100% vested in his Accounts upon attainment of Normal Retirement Age while an Employee.

Section 2.29 “ Participant ” means each Employee who has become a participant in the Plan under Article 3 hereof and any former Employee who has an Account balance hereunder.

Section 2.30 “ Plan ” means this Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan, as amended from time to time. The Plan is a stock bonus plan intended to be qualified under Code Section 401(a) and an employee stock ownership plan, within the meaning of Code Section 4975(e)(7).

Section 2.31 “ Plan Year ” means the fiscal year ending October 31.

Section 2.32 “ Qualifying Employer Security or Securities ” means any share of capital stock now or hereafter issued by the Company.

Section 2.33 “ Related Plan ” means a defined contribution plan intended to be qualified plan under Code Section 401(a) maintained or established by an Affiliate.

Section 2.34 “ Section 415 Compensation ” means:

(a)

Wages within the meaning of Code Section 3401(a) (for the purposes of income tax withholding at the source) but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 340(a)(2)). Section 415 Compensation shall include any elective deferral (within the meaning of Code Section 402(g)(3)) made by the Employer on behalf of an Employee and any amount contributed or deferred by the Employer at

the election of the Employee which is not includable in the Employee’s gross income by reason of Code Section 125 or 132(f)(4). Section 415 Compensation shall include only that compensation which is actually paid to an Employee during a Plan Year and shall exclude any amount in excess of $200,000, as adjusted by the Secretary in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year shall apply to the annual compensation limit of Code Section 401(a)(17)(B) for the Limitation Year that begins with or within such calendar year.

(b)

For Limitation Years beginning on and after November 1, 2007, the term “Section 415 Compensation” shall also include compensation paid by the later of 2 1/2 months after an Employee’s severance from employment with the Employer and the Affiliates or the end of the Limitation Year that includes the date of the Employee’s severance from employment with the Employer and the Affiliates if the payment is (i) for regular compensation during the Employee’s regular working hours, or compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or similar payments, and absent a severance from employment, the payments would have been paid to the Employee while the Employee continued in employment with the Employer and the Affiliates, (ii) for unused accrued bona fide sick, vacation or other leave that the Employee would have been able to use if employment had continued, or (iii) received by the Employee pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid to the employee at the same time if the Employee had continued in employment with the Employer and only to the extent that the payment is includible in the Employee’s gross income.

(c)

Any payments not described in Section 2.30(a) and (b) hereof shall not be considered “Section 415 Compensation” if paid after severance from employment with the Employer and the Affiliates, even if they are paid by the later of 2 1/2 months after the date of severance from employment or the end of the Limitation Year that includes the date of severance from employment, except (i) payments to an individual who does not currently perform services for the Employer and the Affiliates by reason of qualified military service (within the meaning of Code Section 414(u)(1)) to the extent the payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer and the Affiliates rather than entering qualified military service, or (ii) compensation paid to an Employee who is permanently and totally disabled (within the meaning of Code Section 22(e)(3)); provided that salary continuation applies to all Participants who are permanently and totally disabled for a fixed or determinable period or the Employee was not a “highly compensated employee” (within the meaning of Code Section 414(q)) immediately before becoming disabled.

Section 2.35 “ Share ” means a share of a Qualifying Employer Security.

Section 2.36 “ Stock Account ” means the Account of a Participant that reflects his interest under the Plan attributable to Trust Fund assets that are Qualifying Employer Securities.

Section 2.37 “ Suspense Account ” means the account established pursuant to Article 8 hereof to which shall be credited unallocated Shares acquired with the proceeds of an Exempt Loan.

Section 2.38 “ Termination of Employment ” or “ Terminates Employment ” means an Employee’s termination of employment with the Employer and the Affiliates.

Section 2.39 “ Total and Permanent Disability ” means a physical or mental condition of a Participant resulting from a bodily injury or disease or mental disorder suffered while an Employee which renders the Participant eligible to receive Social Security total disability benefits. Determination of eligibility to receive Social Security total disability benefits must have an effective date of disability on or before the date of the Participant’s Termination of Employment, and the Participant must give notice to the Employer of such determination within ninety (90) days after the Participant receives official notice of the determination from the Social Security Administration.

Section 2.40 “ Trust Agreement ” means the agreement between the Trustee named therein and the Company, made and entered into for the establishment of a trust to receive all Contributions that may be made to the order of the Trustee under the Plan, and any and all amendments of the Trust Agreement.

Section 2.41 “ Trustee ” mean the trustee(s) named under the Trust Agreement and its duly appointed successors.

Section 2.42 “ Trust Fund ” means all cash, securities and other property held by the Trustee pursuant to the terms of the Trust Agreement, together with any income therefrom.

Section 2.43 “ Year of Service ” means a computation period in which an Employee completes at least one thousand (1,000) Hours of Service.

(a)

For purposes of determining an Employee’s eligibility to participate hereunder, an Employee’s first computation period shall be the twelve (12)-month period beginning on the Employee’s date of hire by the Employer. The second and all subsequent computation periods shall be the Plan Year, beginning with the first Plan Year beginning after the Employee’s employment commencement date.

(b)

For purposes of determining an Employee’s vested percentage under Section 6.1 hereof, the computation period shall be the Plan Year. If, however, an Employee does not complete one thousand (1,000) Hours of Service during the Plan Year in which he was first hired by the Employer or during the next following Plan Year, but completes one thousand (1,000) Hours of Service during the twelve (12) month period beginning on his date of hire by the Employer, the Employee shall be credited with one (1) Year of Service under this paragraph (b) for such twelve (12) month period.

Section 2.44 “ Valuation Date ” means the last day of each Plan Year and any other date on which a special valuation is made, as designated by the Administrative Committee. Notwithstanding the foregoing, the Valuation Date of any transaction between the Plan and a disqualified person (within the meaning of Code Section 4975(e)(2)) shall be the date of the transaction.

ARTICLE 3

ELIGIBILITY AND PARTICIPATION

Section 3.1 Participation .

(a)

Each Employee or former Employee who was a Participant on July 31, 2006, shall be a Participant on August 1, 2006, if he is an Employee or has an Account balance on such date.

(b)

Each other Employee who has completed one (1) Year of Service and has attained twenty-one (21) years of age shall become a Participant on the date on which the Employee satisfies the foregoing age and service requirements, provided that he is an Employee on such date.

(c)

Notwithstanding (a) and (b) above, the following individuals shall not be eligible to participate in the Plan:

(1)

An Employee who is included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer if there is evidence that retirement benefits were the subject of good faith bargaining between such Employee representatives and such one or more of the Employers, unless the collective bargaining agreement expressly permits the Employee’s participation hereunder.

(2)

A Leased Employee; or

(3)

Any individual who is classified as an independent contractor by an Employer, regardless of the classification placed on such person by the Internal Revenue Service or other governmental agency or a court of competent jurisdiction.

Section 3.2 Termination of Participation .

(a) Each Participant shall remain a Participant until he Terminates Employment and receives a distribution of the entire amount of his Account balances. In the event that a Participant Terminates Employment and is subsequently re-employed as an Employee by the Employer, subject to Section 3.1(c) hereof, he shall resume active participation in the Plan on the date of his re-employment. Notwithstanding the preceding, if a Participant Terminates Employment when he has a vested percentage of zero under Section 6.1 hereof and is reemployed as an Employee of the Employer after incurring a Disqualifying Break in Service, he shall be required to satisfy the service requirement of Section 3.1 hereof before he can resume active participation in the Plan.

(b) If an Employee Terminates Employment prior to becoming a Participant and is subsequently re-employed by the Employer, the Employee must satisfy the eligibility requirements of 3.1 hereof to become a Participant. The Employee’s prior Years of Service shall be counted in determining whether the Employee satisfies the service requirements of Section 3.1(b) hereof if the Employee is re-employed before incurring a Disqualifying Break in Service.

ARTICLE 4

EMPLOYER CONTRIBUTIONS

Section 4.1 By Employers . All Contributions under the Plan shall be made by the Employer, and no Contributions shall be required or permitted of any Employee.

Section 4.2 Amount of Contribution .

(a)

Subject to the conditions and limitations of the Plan, including Section 4.3 hereof, Contributions shall be made by the Employer to the Trust Fund for each Plan Year in cash or in Qualifying Employer Securities in an amount equal to the sum of the following:

(1)

Such amount, if any, as shall be determined by the Boards of Directors of the Company and the Employers; and

(2)

Such amount, if any, as shall be required to permit the Trustee to meet the obligations of the Plan under any Exempt Loan.

(b)

Contributions, if any, under the Plan for each Plan Year shall be paid to the Trust Fund not later than the due date for filing the Employer’s federal income tax return for the Plan Year, including any extensions on such due date; provided, however, that Contributions shall be made at such times as to permit the Trustee to meet the Plan’s repayment obligations under any Exempt Loan.

(c)

In the event that a Contribution is paid to the Trust Fund by reason of a mistake of fact as determined in good faith by the Employer, upon the Employer’s request made within one (1) year after the payment to the Trust Fund, the Administrative Committee shall promptly direct the Trustee to return the Contribution to the Employer.

(d)

All Contributions to the Plan are conditioned upon their deductibility under Code Section 404. If a deduction for a Contribution is disallowed, upon the Employer’s request made within one (1) year after the disallowance, the Administrative Committee shall promptly direct the Trustee to return the Contribution to the Employer.

Section 4.3 Limitation on Annual Additions .

(a)

If a Participant does not participate in a Related Plan, then the amount of Annual Additions that may be credited to the Participant’s Accounts for any Limitation Year shall not exceed the Maximum Permissible Amount. If a Contribution otherwise allocable to the Participant’s Accounts would cause the Participant’s Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, then the amount of the Contribution otherwise allocable to the Participant’s Accounts shall be reduced so that the Participant’s Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.

(b)

If a Participant hereunder is a participant under one or more Related Plans during a Limitation Year, the Annual Additions which may be credited to a Participant’s Accounts hereunder for the Limitation Year shall not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to the Participant’s account(s) under the Related Plan(s) for the same Limitation Year. If the Annual

Additions with respect to the Participant under the Related Plan(s) are less than the Maximum Permissible Amount and the Contributions that would otherwise be allocable to the Participant’s Account under this Plan would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, then the Contribution otherwise allocable to the Participant’s Accounts hereunder shall be reduced so that the Annual Additions under this Plan and the Related Plan(s) for the Limitation Year shall equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such Related Plan(s) in the aggregate are equal to or greater than the Maximum Permissible Amount, then no Contribution will be allocated to the Participant’s Accounts hereunder for the Limitation Year.

(c)

If no more than one-third ( ¹ ⁄ ₃ ) of the Contributions for a Plan Year which are deductible under Code Section 404(a)(9) are allocated to the Accounts of highly compensated employees (within the meaning of Code Section 414(q)) of the Employer, the Maximum Permissible Amount shall not apply to:

(1)

Forfeitures of Qualifying Employer Securities if such Securities were acquired with the proceeds of an Exempt Loan, or

(2)

Contributions which are deductible under Code Section 404(a)(9)(B) and charged against Participant Accounts.

(d)

No portion of the Trust Fund attributable to (or allocable in lieu of) Qualifying Employer Securities acquired by the Plan in a sale to which Code Section 1042 applies may accrue (or be allocated directly or indirectly under any Related Plan during the nonallocation period (as defined in Code Section 409(n)(3)(C)), for the benefit of (1)(A) any taxpayer who makes an election under Code Section 1042(a) with respect to Qualifying Employer Securities, or (B) any individual who is related to the taxpayer or the decedent (within the meaning of Code Section 267(b)), or (2) any other person who owns (after application of Code Section 318(a) applied without regard to the Employee trust exception) more than twenty-five (25) percent of any class of outstanding stock of the Company or of any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 409(1)(4)) as the Company, or the total value of any class of outstanding stock of the Company or any such corporation.

ARTICLE 5

ACCOUNTS; ALLOCATIONS; AND ACCOUNTING

Section 5.1 Accounts .

(a)

The Administrative Committee shall establish a separate Cash Account and Stock Account in the name of each Participant.

(b)

Cash credited to a Participant’s Cash Account may at any time be used to purchase Qualifying Employer Securities from any source, subject to Section 9.5 hereof. Upon the purchase of Shares of Qualifying Employer Securities with such cash, such Shares shall be credited to the Participant’s Stock Account, and the Participant’s Cash Account shall be charged by the amount of such cash.

(c)

The Administrative Committee and/or the Trustee may maintain such accounts and subaccounts as they deem necessary or appropriate for administration of the Plan

and Trust Fund, including a “contribution account” to which cash and/or Qualifying Employer Securities contributed to the Plan are allocated pending allocation to Participants’ Accounts.

Section 5.2 Allocation of Contributions and Forfeitures Among Eligible Participants .

(a)

Subject to the limitation of Section 4.3 hereof, as of the last Valuation Date of each Plan Year, the Stock Account maintained for each Eligible Participant shall be credited with the Participant’s proportionate share of (1) any Contributions for the Plan Year made in the form of, or invested in (as of the Valuation Date), Qualifying Employer Securities, including any shares of Qualifying Employer Securities released from the Suspense Account pursuant to Sections 8.2 and 8.4 hereof, and (2) any Forfeitures of Qualifying Employer Securities arising during the Plan Year.

(b)

Subject to the limitation of Section 4.3 hereof, as of the last Valuation Date of each Plan Year, the Cash Account maintained for each Eligible Participant shall be credited with the Participant’s proportionate share of (1) any Contributions for the Plan Year made or held in the form of cash, and (2) any Forfeitures of cash arising during the Plan Year.

(c)

An Eligible Participant’s proportionate share of Contributions and Forfeitures for a Plan Year shall equal the ratio that such Eligible Participant’s Compensation for the Plan Year bears to the aggregate Compensation of all Eligible Participants for the Plan Year.

Section 5.3 Allocation of Income, Losses and Expenses .

(a)

As of each Valuation Date, the Cash Account maintained for each Participant shall be credited with the Participant’s proportionate share of any net income (or loss) of the Trust Fund since the preceding Valuation Date. It shall be debited for all distributions and payments properly made from the Cash Account since the preceding Valuation Date, including but not limited to, its proportionate share of any cash payments made under the Plan for the purchase of shares of Qualifying Employer Securities or for the repayment of principal and interest on any Exempt Loan since such date.

(b)

The net income (or loss) of the Trust Fund for any valuation period will be determined as of the relevant Valuation Date. Each Participant’s share of the Trust Fund’s net income (other than dividends allocated in accordance with Section 5.4 hereof) or loss for the valuation period in question shall be allocated to the Participant’s Cash Account in the ratio that the Participant’s aggregate Account balances as of the preceding Valuation Date, less any distributions and payments therefrom since such date, bears to the aggregate of all Participant Account balances as of the preceding Valuation Date, less all distributions and payments therefrom since such date. The net income (or loss) of the Trust Fund includes the increase (or decrease) in the fair market value of Trust Fund (other than Shares of Qualifying Employer Securities), interest income, dividends and other income and gains (or losses) attributable to the Trust Fund (other than any dividends allocated in accordance with Section 5.4 hereof since the preceding Valuation Date. The computation of net income (or loss) of the Trust Fund shall not take into account any interest paid by the Trust Fund on an Exempt Loan. For this purpose, the term “valuation period” means a period beginning with the Valuation Date immediately preceding the Valuation Date in question and ending on the Valuation Date in question.

Section 5.4 Allocation of Dividends .

(a)

Any cash dividend received on shares of Qualifying Employer Securities allocated to a Participant’s Stock Account as of the record date of the dividend shall, in the sole discretion of the Administrative Committee, either be:

(1)

Allocated to the Participant’s Cash Account;

(2)

Used by the Trustee to make payments on an Exempt Loan; provided, however, that no cash dividend paid on Shares of Qualifying Employer Securities allocated to a Participant’s Stock Account shall be applied to make payments on an Exempt Loan unless Qualifying Employer Securities with a fair market value of not less than the amount of the cash dividend are allocated to the Participant’s Stock Account.

(b)

Any cash dividends received on unallocated shares of Qualifying Employer Securities shall, in the sole discretion of the Administrative Committee, either be:

(1)

Allocated among Participant Cash Accounts in the ratio (determined as of the record date of the dividend) that the number of Shares of Qualifying Employer Securities allocated to each Participant’s Stock Account as of the preceding Valuation Date, less any distributions therefrom since such date, bears to the total number of Shares of Qualifying Employer Securities allocated to all Participants’ Stock Accounts as of the preceding Valuation Date, less all distributions therefrom since such date;

(2)

Used by the Trustee to make payments on an Exempt Loan.

(c)

As of each Valuation Date, the Stock Account maintained for each Participant shall be credited with any stock dividend received on Shares of Qualifying Employer Securities allocated to the Participant’s Stock Account. Any stock dividends received on unallocated shares of Qualifying Employer Securities during a valuation period (as defined in Section 5.3 hereof) shall be allocated to each Participant’s Stock Account in the ratio that the Participant’s aggregate Account balances as of the preceding Valuation Date, less any distributions therefrom since such date, bear to the aggregate Account balances of all Participants as of the preceding Valuation Date, less any distributions therefrom since such date.

Section 5.5 Accounting Procedures .

The Administrative Committee shall establish accounting procedures for the purpose of making the allocations to Participants’ Accounts provided for in this Article 5. The Administrative Committee shall maintain adequate records of the cost basis of shares of Qualifying Employer Securities allocated to each Participant’s Stock Account. From time to time, the Administrative Committee may modify its accounting procedures for the purposes of achieving equitable and nondiscriminatory allocations among Participant Accounts, in accordance with the provisions of this Article 5 and the applicable requirements of the Code and ERISA.

Section 5.6 Voting and Tender Rights - Qualifying Employer Securities .

(a)

For so long as the Qualifying Employer Securities are a class of securities which are required to be registered under Section 12 of the Securities Exchange Act of 1934, or a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of Section 12 of said Act, each Participant shall be entitled to direct the Trustee as to the manner in which Qualifying Employer Securities allocated to his Stock Account is to be voted.

(b)

The Trustee shall vote Shares of Qualifying Employer Securities allocated to Participant Stock Accounts in accordance with the directions received from the Participants. If the Trustee does not receive timely and proper directions from one or more Participants regarding the voting of any Shares of Qualifying Employer Securities held in the Trust Fund (including unallocated Shares), the Trustee shall vote those Shares in the same proportion, for and against propositions submitted to the vote of the shareholders, as the Trustee votes Shares for which it receives timely and proper directions.

(c)

Each Participant shall be entitled to direct the Trustee whether to tender the Shares of Qualifying Employer Securities allocated to the Participant’s Stock Account in response to a tender offer. After the Participants have had an opportunity to cast votes on such matter as provided herein and said votes are counted, the Trustee shall tender only those Shares on such matter for which the Trustee receives timely and proper tender instructions. The Trustee shall not tender any Shares (including unallocated Shares) for which it does not receive timely and property directions.

(d)

Notwithstanding anything contained herein to the contrary, any voting or tender direction given by a Participant pursuant to this Section 5.6 shall not be disclosed to the Employers and shall be held confidential by the Trustee.

(e)

This Section 5.6 shall be implemented by such rules and regulations as may be adopted by the Trustee and the Administrative Committee from time to time. Not in limitation of the foregoing, such rules and regulations may set time limits for Participants to cast votes or give tender instructions on any matter.

Section 5.7 Annual Statements . On or before the expiration of four (4) calendar months after each Valuation Date which is the last day of the Plan Year, or as soon as administratively feasible thereafter, the Administrative Committee shall upon information furnished by the Trustee, or the Trustee shall upon direction of the Administrative Committee, make reports to each Participant as of the Valuation Date showing the opening and closing balances in each of the Participant’s Accounts for the Plan Year and all transactions involving the Participant’s Accounts for the Plan Year.

ARTICLE 6

VESTING

Section 6.1 General .

(a)

Subject to 6.2 hereof, a percentage of the amounts credited to a Participant’s Accounts shall become vested and nonforfeitable on the basis of his completed Years of Service with the Affiliates according to the following schedule:


Completed Years of Service	Vested Percentage
1-2		0	%
3		20	%
4		40	%
5		60	%
6		80	%
7		100	%

(b)

Subject to 6.2 hereof and notwithstanding (a) above, a percentage of the amounts credited to the Accounts of a Participant who is credited with at least one Hour of Service on or after November 1, 2007, shall become vested and nonforfeitable on the basis of his completed Years of Service with the Affiliates according to the following schedule:


Completed Years of Service	Vested Percentage
Less than 2		0	%
2		20	%
3		40	%
4		60	%
5		80	%
6		100	%

(c)

If the Plan’s vesting schedule is amended, or the Plan is amended in any way that directly or indirectly affects the computation of the Participant’s nonforfeitable percentage or if the Plan is deemed amended by an automatic change to or from a Top-Heavy vesting schedule under Article 11 hereof, then each Participant with at least three (3) Years of Service may elect, within a reasonable period after the adoption of the amendment or change, to have the nonforfeitable percentage computed under the Plan without regard to such amendment or change. The period during which the election may be made shall commence with the date the amendment is adopted or deemed to be made and shall end on the latest of

(1)

Sixty (60) days after the amendment is adopted;

(2)

Sixty (60) days after the amendment becomes effective; or

(3)

Sixty (60) days after the Participant is issued written notice of the amendment by the Employer.

Section 6.2 Retirement, Death and Disability . Upon the death or Total and Permanent Disability of a Participant while he is an Employee, or upon his Retirement, the Participant shall become 100% vested in the entire amount credited to the Participant’s Accounts.

Section 6.3 Breaks in Service; Forfeitures .

(a)

In the case of a Participant who incurs one or more consecutive Breaks in Service, but not a Disqualifying Break in Service, all of the Participant’s Years of Service prior to and after such Breaks in Service shall be taken into account in determining the Participant’s vested percentage under Section 6.1 hereof.

(b)

Notwithstanding (a) above, in the case of a Participant who incurs a Break in Service, the Participant’s Years of Service before such Break in Service shall not

be taken into account for purposes of determining the Participant’s vested percentage under Section 6.1 hereof until the Participant has completed one (1) Year of Service after his return.

(c)

In the case of a Participant who Terminates Employment when he is partially vested in his Accounts, incurs a Disqualifying Break in Service, but does not take a distribution of his vested Account balances, the Participant’s nonvested Account balances shall be forfeited on the last day of the Plan Year in which the Participant incurs such a Disqualifying Break in Service and shall be reallocated in accordance with Section 5.2 hereof. The Participant’s Years of Service, if any, after such Disqualifying Break in Service shall not be taken into account in determining his or her vested percentage in the amounts credited to his Accounts prior to such Disqualifying Break in Service.

(d)

In the case of a Participant who Terminates Employment and receives a distribution of his vested Account balances pursuant to Section 7.1 hereof when the Participant is partially vested in his Accounts, the Participant’s nonvested Account balances shall be forfeited upon such distribution and reallocated in accordance with Section 5.2 hereof. If the Participant again becomes an Employee prior to incurring a Disqualifying Break in Service, the Participant’s forfeited Account balances (without earnings) shall be restored if the Participant repays to the Plan the full amount of the foregoing distribution prior to the expiration of the five-year period beginning on the day after the date on which the Participant again becomes an Employee.

(e)

Notwithstanding paragraphs (b) and (c) above, in the case of a Participant who Terminates Employment when he has a vested percentage of zero under Section 6.1 hereof, the Participant shall be deemed to have received a distribution of his vested Account balances, and his nonvested Account balances shall be forfeited, as of the last day of the Plan Year in which his Termination of Employment occurs, and the Participant’s forfeited Account balances shall be reallocated in accordance with Section 5.2 hereof. If the Participant is reemployed by the Employer prior to incurring a Disqualifying Break in Service, his forfeited Account balances (without earnings) shall be restored to him.

(f)

If a portion of a Participant’s Accounts are forfeited under (c) or (d) above, Qualifying Employer Securities allocated to the Participant’s Stock Account pursuant to Section 8.4 hereof must be forfeited only after other Account assets.

(g)

If a Participant’s forfeited Account balances are restored under paragraph (c) or (d) above, the source of such restoration shall be other Forfeitures arising under paragraphs (b), (c) and (d) above. If such Forfeitures are insufficient to restore the Account balances under paragraph (c) or (d) above, the Employer shall contribute the amount required to restore the Account balances.

(h)

Forfeitures arising under this Section 6.3 shall be held in a suspense account pending reallocation under Section 5.2(f) hereof.

Section 6.4 Increase in Vesting .

An Account balance with respect to which a Participant’s vested percentage may increase under Code Section 411 shall be computed such that at any relevant time an Employee’s vested percentage is not less than an amount (“X”) determined by the formula: X=P(AB+D)-D. For purposes of applying the formula: P is the vested percentage at the relevant time; AB is the Account Balance at the relevant time; D is the amount of the distribution; and the relevant time is the time at which, under the Plan, the vested percentage of the Participant’s Account cannot increase.

ARTICLE 7

DISTRIBUTIONS

Section 7.1 Entitlement to Distribution . A Participant (or his Beneficiary) shall be entitled to a distribution of the Participant’s vested Account balances upon the Participant’s Retirement Date, Total and Permanent Disability or other Termination of Employment.

Section 7.2 Method and Time of Distribution .

(a)

Distribution of a Participant’s vested Account balances shall be in the form of (i) Qualifying Employer Securities, with the value of any fractional share paid in cash, to the extent of the shares of Qualifying Employer Securities allocated to the Participant’s vested Stock Account, and (ii) cash, to the extent of cash allocated to the Participant’s vested Cash Account; provided, however, that the Participant shall have the right to demand that his Account balances be distributed in whole shares of Qualifying Employer Securities, with the value of any fractional shares paid in cash.

(b)

A Participant (or his Beneficiary) may elect a distribution of the Participant’s vested Accounts as of any Distribution Date coincident with or next following the Participant’s Termination of Employment. The Administrative Committee shall make such distribution on, or as soon as practicable after, the elected Distribution Date, provided, however, that the Participant (or his Beneficiary) files his distribution election with the Administrative Committee with such advance notice as the Administrative Committee shall prescribe. All distribution elections shall be made in accordance with rules prescribed by the Administrative Committee.

(c)

Except as provided in Section 7.3 hereof, or unless a Participant otherwise elects, distribution of the Participant’s vested Account balances will be made not later than the 60th day after the latest of the close of the Plan Year in which occurs: (1) the date on which he attains Normal Retirement Age; (2) the 10th anniversary of the date on which he became a Participant, or (3) his Termination of Employment. This paragraph (d) shall not apply to any Shares of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which the Exempt Loan is repaid in full.

Section 7.3 Mandatory Distribution s . If, upon Termination of Employment for any reason, a Participant’s vested Account balances do not exceed one thousand dollars ($1,000), then the Administrative Committee shall direct the Trustee to distribute the vested Account balances to the Participant as soon as practicable after the Distribution Date coincident with or next following the Participant’s Termination of Employment.

Section 7.4 Designation of Beneficiary .

(a)

Each Participant may designate a person or persons who shall receive a distribution payable hereunder on the death of the Participant, and shall, subject to paragraph (b) below, have the right to revoke any such designation. Any such designation shall be evidenced by a written instrument filed with the Administrative Committee and signed by the Participant. The designation by a Participant of a

Beneficiary who is not the Participant’s spouse shall require a consent (made in accordance with paragraph (b) below) thereto by the Participant’s surviving spouse, or a demonstration that such consent may not be obtained or that there is no surviving spouse, as described further in paragraph (b) below. If a Participant designates a trust as Beneficiary, the beneficiaries of the trust with respect to the Participant’s interest in the Plan shall be treated as designated Beneficiaries for purposes of Article 15 hereof, if such beneficiaries are individuals and the requirements of Treasury Regulations Section 1.401(a)(9)-4, Q&A 5 are met. If no Beneficiary designation is on file with the Administrative Committee at the time of the death of a Participant, or if such designation is not effective for any reason as determined by the Administrative Committee, then payment of the distribution shall be made to the Participant’s estate.

(b)

A Participant may designate as his Beneficiary a person who is not his spouse if either (1) (A) his spouse consents in writing to such designation, (B) the designation provides that it may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the Participant without further consent by the spouse), and (C) the spouse’s consent acknowledges the effect of such election and is witnessed by a representative of the Plan or a notary public, or (2) it is established to the satisfaction of the Administrator that such consent may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as are prescribed by Treasury Regulations. Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse.

(c)

Notwithstanding paragraphs (a) and (b) above, upon the dissolution of the marriage of a Participant, the Administrator shall treat the Participant’s former spouse as having predeceased the Participant with respect to any designation of the former spouse as the Participant’s Beneficiary under paragraph (a) above unless either (1) after the dissolution of the marriage, the Participant files with the Administrator another written instrument executed by the Participant explicitly designating the former spouse as the Participant’s Beneficiary, or (2) a qualified domestic relations order, within the meaning of Code Section 414(p), explicitly requires the Participant to maintain the former spouse as his Beneficiary. In any case in which the Participant’s former spouse is treated as having predeceased the Participant, no heir or other beneficiary of the former spouse shall be entitled to receive any benefits from the Plan as a Beneficiary except as otherwise provided in the Participant’s written Beneficiary designation.

Section 7.5 Required Beginning Date . Notwithstanding any other provision of the Plan, the entire interest of each Participant (a) shall be distributed not later than the Required Beginning Date, or (b) shall be distributed, beginning not later than the Required Beginning Date, in accordance with regulations prescribed by the Secretary over the life of such Participant or over the lives of such Participant and a designated Beneficiary (or over a period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and a designated beneficiary). The term “Required Beginning Date” means April 1 of the calendar year following the later of (a) the calendar year in which the Participant attains age seventy and one-half (70 ¹ ⁄ ₂ ), or (b) the calendar year in which the Participant retires, except that clause (a) shall not apply in the case of a Participant who is a five percent (5%) owner (as defined in Code Section 416) with respect to the Plan Year ending in the calendar year in which the Participant attains the age of seventy and one-half (70 ¹ ⁄ ₂ ). Notwithstanding the above, any Participant (other than a five-percent owner) who attains age seventy and one-half (70 ¹ ⁄ ₂ ) before 1999 may elect to commence

distributions by April 1 of the calendar year following the calendar year in which he attains age seventy and one-half (70 ¹ ⁄ ₂ ), or elect to defer payment until April 1 of the calendar year following the calendar year in which the Participant retires.

Section 7.6 Distributions of General Employees’ Profit Sharing Plan Accounts . Notwithstanding any other provisions of this Article 7, if a Participant (or his Beneficiary) elected prior to August 1, 2006, to receive that portion of the Participant’s Accounts attributable to the Participant’s account balance under the General Employees’ Profit Sharing Plan as of October 31, 1993, in the form of an annuity, the Participant (or his Beneficiary) shall continue to receive annuity payments on and after August 1, 2006.

Section 7.7 Rollover Treatment .

(a)

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Section 7.7, a Distributee may elect, at the time and in the manner prescribed by the Administrative Committee to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

(b)

(1) An “Eligible Rollover Distribution” is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten (10) years or more; (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Shares of Qualifying Employer Securities), and (iv) any amount that is distributed as a “hardship distribution” as that term is described in Code Section 401(k)(2)(B)(i)(IV).

(2) Notwithstanding (b)(1) above, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includable in gross income. However, such portion may be transferred only to (i) an individual retirement account or annuity described in Code Section 408(a) or (b), or (ii) to a qualified trust described in Code Section 401(a) or an annuity contract described in Code Section 403(b) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includable in gross income and the portion of such distribution which is not so includable.

(c)

An Eligible Retirement Plan is any of the following that accepts a Distributee’s Eligible Rollover Distribution: (1) an individual retirement account described in Code Section 408(a), (2) an individual retirement annuity described in Code Section 408(b), (3) an annuity plan described in Code Section 403(a), (4) a qualified trust described in Code Section 401(a), (5) an annuity contract described in Code Section 403(b), and (6) an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. An Eligible Retirement Plan includes a Roth IRA described in Code Section 408A. A Distributee shall not be eligible to elect a Direct Rollover to a Roth IRA if the Distributee’s modified adjusted gross income exceeds $100,000 or the Distributeee is a married individual filing a separate return. Notwithstanding anything to the contrary herein, the Administrative Committee shall not be responsible for ensuring that a Distributee is eligible to make a Direct Rollover to a Roth IRA.

(d)

A Distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse.

(e)

A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

(f)

A nonspouse Beneficiary who is eligible to receive a distribution of a Participant’s Account that would otherwise constitute an Eligible Rollover Distribution, and who is a designated Beneficiary (within the meaning of Treasury Regulation Section 1.401(a)(9)-4), is also a Distributee with respect to his interest hereunder, and the nonspouse Beneficiary may direct a trustee to trustee transfer of the distribution of the Participant’s Account only to an individual retirement account or an individual retirement annuity described in Code Section 408(a) or 408(b) (other than an endowment contract) established for the purpose of receiving the distribution on behalf of the nonspouse Beneficiary. Such transfer shall be treated as a Direct Rollover of an Eligible Rollover Distribution (solely for purposes of Code Section 402(c)), and such individual retirement account or individual retirement annuity shall be treated as an inherited individual retirement account or inherited individual retirement annuity (within the meaning of Code Section 408(d)(3)(C)).

Section 7.8 30-Day Notice of Distribution Rights . If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than thirty (30) days after the notice required under Treasury Regulation Section 1.411(a)-11(c) is given, provided that:

(a)

The Administrative Committee clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider (i) whether or not to defer the distribution, if applicable, and the consequences of the failure to defer the distribution, and (ii) the form of distribution, if applicable, and

(b)

The Participant, after receiving the notice, affirmatively elects a distribution.

Section 7.9 Hardship Distributions .

(a)

A Participant who is fully vested in his Accounts may make written application to the Administrative Committee to withdraw all or part of the Participant’s Account balances. Such an application shall be approved by the Administrative Committee only if the Administrative Committee shall determine that the withdrawal is necessary to satisfy an immediate and heavy financial need of the Participant. Distribution of such withdrawal shall be made to the Participant in a lump sum payment of whole shares of Qualifying Employer Securities, plus cash for fractional shares, as soon as practicable after the withdrawal is approved by the Administrative Committee.

(b)

A Withdrawal from a Participant’s Account pursuant this Section 7.9 shall not exceed the lesser of:

(1)

The Participant’s Account balances; or

(2)

Such amount as the Administrative Committee determines to be necessary to relieve the immediate and heavy financial need established by the Participant, including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from such withdrawal.

(c)

The Administrative Committee shall promulgate (and may from time to time amend) rules and regulations prescribing the procedures to be followed in requesting a hardship withdrawal and the circumstances which will be deemed to warrant a withdrawal to meet an immediate and heavy financial need.

(d)

Determinations of the existence of an immediate and heavy financial need shall be made by the Administrative Committee on the basis of all relevant facts and circumstances. Without limiting the circumstances which will be deemed to constitute immediate and heavy financial needs, a withdrawal shall be deemed to be made on account of an immediate and heavy financial need of a Participant if the withdrawal is on account of the following:

(1)

Expenses for (or necessary to obtain) medical care that would be deductible by the Participant under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);

(2)

Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);

(3)

Payment of tuition, related educational fees, and room and board expenses, for up to the next 12 months of post-secondary education for the Participant, or the Participant’s spouse, children, or dependents (as defined in Code Section 152 and without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B));

(4)

Payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence;

(5)

Payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Code Section 152 and without regard to Code Section 152(d)(1)(B));

(6)

Expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income); or

(7)

Such other circumstances as the Commissioner of Internal Revenue may, through the publication of revenue rulings, notices, and other documents of general applicability, determine constitute immediate and heavy financial needs for purposes of Code Section 401(k).

(e)

A distribution will not be treated as necessary to satisfy an immediate and heavy financial need of a Participant to the extent that the amount of the distribution exceeds the amount required to relieve the financial need or such need may be satisfied from other resources that are reasonably available to the Participant. The determination of whether a distribution is necessary to satisfy a financial need shall be made on the basis of all relevant facts and circumstances by the Administrative Committee. In making such determination with respect to any hardship distribution to be made, the Administrative Committee may rely upon a Participant’s representation that the need cannot be relieved by the following:

(1)

Reimbursement or compensation by insurance or otherwise;

(2)

Reasonable liquidation of the Participant’s assets, to the extent that such liquidation would not itself cause an immediate and heavy financial need;

(3)

Other distributions or nontaxable (at the time of the loan) loans from Related Plans; or

(4)

Borrowing from commercial sources on reasonable commercial terms.

(f)

A Participant may make a hardship withdrawal under this Section 7.9 for expenses described in (d)(1), (3), or (5) above incurred by the Participant’s primary Beneficiary, provided that all other applicable requirements of this Section 7.9 are satisfied. For this purpose, a Participant’s primary Beneficiary is an individual who is designated as the Participant’s Beneficiary and has an unconditional right to all or a portion of the Participant’s Account balances upon the Participant’s death.

Section 7.10 Missing Persons . In the event the whereabouts of a person entitled to benefits under the Plan cannot be determined after diligent search by the Administrative Committee or the Trustee, and the person’s whereabouts continue to be unknown for a period of five (5) years, then the Accounts of the person shall be forfeited. Notwithstanding the foregoing, if the amount to be distributed to such person is a mandatory distribution made pursuant to Section 7.3 hereof, then the amount distributable may, in the sole discretion of the Administrative Committee, be treated as a Forfeiture at the time it is determined that the whereabouts of the person cannot be determined. If the person is subsequently located, his Accounts shall be restored to him without earnings.

Section 7.11 Diversification of Investments .

(a)

With respect to all Qualifying Employer Securities acquired after 1986, each Qualified Participant may elect under the provisions of Code Section 401(a)(28)(B) within ninety (90) days after the close of each Plan Year in the Qualified Election Period to receive a distribution of at least twenty-five (25) percent of the Participant’s Accounts hereunder (to the extent such portion exceeds the amount to which a prior election under this Section applies). In the case of the election year in which the Participant can make his last election, the preceding sentence shall be applied by substituting “fifty (50) percent” for “twenty-five (25) percent”.

(b)

The term “Qualified Participant” means any employee who has completed at least ten (10) years of participation under the Plan and has attained age fifty-five (55).

(c)

The term “Qualified Election Period” means the six (6) Plan Years beginning with the Plan Year after the Plan Year in which the Participant attains age fifty-five (55) (or, if later, beginning with the Plan Year after the first Plan Year in which the individual first became a Qualified Participant).

(d)

In the event a Qualified Participant makes a diversification election with respect to his Accounts under the provisions of this Section, the Trustee shall distribute to the Participant the portion of the Participant’s Accounts covered by the election within ninety (90) days after the period during which the election may be made.

(e)

All distributions under this Section shall be made in whole shares of Qualifying Employer Securities, plus cash for fractional shares.

Section 7.12 In-Service Distributions at Age 62 .

(a)

Notwithstanding the preceding provisions of this Article 7 to the contrary, any Participant who has completed ten (10) or more Years of Service and has attained age sixty- two (62) may elect to receive a distribution of the entire amount of his vested Accounts or in two or more payments depending upon the age of the Participant at the end of the Plan Year in which an election is made. An election under this Section may be made in writing on a form provided by the Administrative Committee no later than the end of the Plan Year during which the election for distribution is made. Once made, an election under this Section shall be binding and irrevocable. The first payment shall be made to the Participant within ninety (90) days after the end of the Plan Year in which an election to receive a distribution is made or as soon as administratively feasible thereafter, and any successive payments shall be made within similar time periods after the end of the immediately succeeding Plan Year(s) if more than one (1) payment is made.

(b)

The schedule of payments shall be as follows:


Age of Participant at the end of the Plan Year in which an election to receive a distribution is made		Distribution shall be made in

62		Four (4) annual installments calculated as one-fourth ( ¹ ⁄ ₄ ), one-third ( ¹ ⁄ ₃ ), one-half ( ¹ ⁄ ₂ ) and one (1) respectively, times the Participant’s Account balances at the end of the Plan Year.

63		Three (3) annual installments calculated as one-third ( ¹ ⁄ ₃ ), one-half ( ¹ ⁄ ₂ ) and one (1), respectively, times the Participant’s Account balances at the end of the Plan Year.

64		Two (2) annual installments, calculated as one-half ( ¹ ⁄ ₂ ) and one (1), respectively, times the Participant’s Account balances at the end of the Plan Year.

65 and older		One (1) installment of the entire amount in the Participant’s Account balances at the end of the Plan Year.

(c)

An in-service distribution under this Section shall be distributed in whole shares of Qualifying Employer Securities, with the value of any fractional share paid in cash, and cash in proportion to the Participant’s Stock Account balance and Cash Account balance; provided, however, that the Participant shall have the right to demand that his Account balances be distributed in whole shares of Qualifying Employer Securities, with the value of any fractional share paid in cash. An election for distribution of Accounts pursuant to this Section shall not terminate the Participant’s right to participate in allocations of Contributions or Forfeitures hereunder.

(d)

Notwithstanding paragraphs (a), (b) and (c) above, (1) if a Participant who has elected in-service distributions pursuant to this Section Terminates Employment prior to receiving the entire amount of his Account balances, the Participant’s remaining Account balances shall be distributed in accordance with Section 7.2 hereof; and (2) if a Participant who has elected in-service distributions pursuant to this Section has previously made or subsequently makes a diversification election pursuant to Section 7.11 hereof, then for each Plan Year with respect to which both elections are effective, there shall be distributed to such Participant the greater of the amount required to be distributed to him under the Section 7.11 election or the amount required to be distributed to him under this Section 7.12.

(e)

The amount of each payment made in accordance with the preceding schedule shall be calculated by multiplying the Participant’s Account balances, determined as of the end of the Plan Year immediately preceding the installment payment, by the appropriate installment fraction.

ARTICLE 8

SPECIAL PROVISIONS RELATING TO LOANS

Section 8.1 Exempt Loans .

(a)

The Trustee may incur an Exempt Loan on behalf of the Plan in a manner and under conditions which will cause the loan to be an Exempt Loan within the meaning of Code Section 4975(d)(3) and regulations thereunder.

(b)

An Exempt Loan shall be used primarily for the benefit of Participants and their Beneficiaries. The proceeds of each Exempt Loan shall be used, within a reasonable time after the Loan is obtained, only to purchase Qualifying Employer Securities, to repay the Exempt Loan or to repay any prior Exempt Loan. At the time that an Exempt Loan is made, the interest rate for the Exempt Loan and the price of Qualifying Employer Securities to be acquired with the Exempt Loan proceeds should not be such that Plan assets might be drained off.

(c)

Any Exempt Loan shall (i) provide for a reasonable rate of interest and an ascertainable period of maturity, (ii) be without recourse against the Plan, and (iii) not be payable at the demand of any person, except in the case of default.

(d)

Any Exempt Loan shall be secured solely by shares of Qualifying Employer Securities acquired with the proceeds of the Exempt Loan and shares of such securities that were used as collateral on a prior Exempt Loan which was repaid with the proceeds of the current Exempt Loan. Such securities pledged as collateral shall be placed in a Suspense Account and released pursuant to Section 8.2 hereof as the Exempt Loan is repaid. Qualifying Employer Securities released from the Suspense Account shall be allocated among Participant Accounts in the manner described in Section 5.2 hereof.

(e)

No person entitled to payment under an Exempt Loan shall have recourse against (i) any Trust Fund assets other than the (i) Qualifying Employer Securities used as collateral for the Loan, (ii) Contributions of cash that are available to meet obligations under the Exempt Loan and (iii) earnings attributable to such collateral and the investment of such Contributions. The payments made with respect to an Exempt Loan by the plan during a Plan Year shall not exceed an amount equal to (x) the sum of such Contributions and earnings received during or prior to the Plan Year, less (y) such payments in prior Plan Years. Such Contributions and earnings must be accounted for separately in the books of account of the Plan until the Exempt Loan is repaid. Contributions made with respect to any Plan Year during which the Exempt Loan remains unpaid, and earnings on such Contributions, shall be deemed available to meet obligations under the Exempt Loan.

(f)

In the event of default of an Exempt Loan, the value of Plan assets transferred in satisfaction of the Exempt Loan must not exceed the amount of the default. If the lender is a disqualified person (within the meaning of Code Section 4975(e)(2)), the Exempt Loan shall provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan. For purposes of this subparagraph, the making of a guarantee does not make a person a lender.

Section 8.2 Release of Shares from Suspense Account . An Exempt Loan shall provide for the release of Shares of Qualifying Employer Securities used as collateral for the Loan from the Suspense Account. For each Plan Year during the duration of the Exempt Loan, the number of Shares released shall equal the number of Shares held in the Suspense Account immediately before release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid for the Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future Plan Years. The number of future years under the Exempt Loan shall be definitely ascertainable and shall be determined without taking into account any possible extensions or renewal periods. If the interest rate under the Exempt Loan is variable, the interest to be paid in future years shall be computed by using the interest rate applicable as of the end of the Plan Year. If collateral includes more than one class of Qualifying Employer Securities, the number of shares of each class to be released for a Plan Year shall be determined by applying the same fraction to each class.

Section 8.3 Exempt Loan Repayments . Payments of principal and interest on any Exempt Loan hereunder shall be made by the Trustee at the direction of the Administrative Committee solely from: (i) Contributions available to meet obligations under the Exempt Loan, (ii) earnings from the investment of such Contributions, (iii) earnings attributable to Shares of Qualifying Employer Securities pledged as collateral for the Exempt Loan, (iv) other dividends on stock to the extent permitted by law, (v) the proceeds of a subsequent Exempt Loan made to repay the Exempt Loan, and (vi) the proceeds of the same of any Shares pledged as collateral for the Exempt Loan. The Contributions and earnings available to pay the Exempt Loan shall be accounted for separately by the Administrative Committee until the Exempt Loan is repaid.

Section 8.4 Allocation of Released Shares . Subject to the limitations on Annual Additions to a Participant’s Accounts under Section 4.3 hereof, Shares of Qualifying Employer Securities

released from a Suspense Account by reason of a payment made on an Exempt Loan shall be allocated to the Stock Accounts of Eligible Participants (i) in Shares of Qualifying Employer Securities representing Participants’ interests in assets withdrawn from the Suspense Account, and (ii) in accordance with the allocation formula under Section 5.2 hereof as if such payment had been made on the last day of the Plan Year. The assets of the Trust Fund attributable to Shares acquired by the Plan in a sale to which Code Section 1042 applies shall not accrue or be allocated for the benefit of persons specified in Code Section 409(n) during the nonallocation period as restricted by Section 4.3(d) hereof.

Section 8.5 Nonterminable Rights . There shall be certain protections and rights provided to Participants with respect to Shares of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan. These protections and rights are as follows:

(a)

No Shares acquired with the proceeds of an Exempt Loan may be subject to a put, call or other option, or buy-sell or similar arrangement, while held by, and when distributed from, the Plan, whether or not the Plan is then an employee stock ownership plan, except that:

(1)

Shares acquired with the proceeds of an Exempt Loan may, but need not, be subject to a right of first refusal. Shares subject to such right must be stock or an equity security, or a debt security convertible into stock or an equity security. Also, such Shares must not be publicly traded at the time the right may be exercised. The right of first refusal must be in favor of the Employer, the Plan, or both in any order of priority. The selling price and other terms under the right must not be less favorable to the seller than the greater of the: fair market value of the Shares, or the purchase price and other terms offered by a buyer, other than the Employers or the Plan, making a good faith offer to purchase a security. The right of first refusal shall lapse no later than fourteen (14) days after the security holder gives written notice to the holder of the right that an offer of a third party to purchase the Shares has been received.

(2)

Shares acquired with the proceeds of an Exempt Loan shall be subject to a put option if the Shares are not publicly traded or are subject to a trading limitation when distributed. For purposes of this paragraph, a “trading limitation” on Shares is a restriction under any federal or state securities law, any regulation thereunder, or an agreement, not prohibited by Treasury Regulations Section 54.4975-7(b), affecting the Shares which would make the Shares not as freely tradable as one not subject to such restriction. The put option shall be exercisable only by a Participant, by the Participant’s donees, or by a person (including an estate or its distributees) to whom the Shares pass by reason of a Participant’s death. (Under this paragraph, “Participant” means a Participant and his Beneficiaries.) The put option shall permit a Participant to put the Shares to the Employer. Under no circumstances may the put option bind the Plan. However, it may grant the Plan an option to assume the rights and obligations of the Employer at the time the put option is exercised. If it is known at the time an Exempt Loan is made that federal or state law would be violated by the Employer honoring such put option, the put option must permit the Shares to be put, in a manner consistent with such law, to a third party ( e.g ., an Affiliate or a Company shareholder other than the Plan) that has substantial net worth at the time the Exempt Loan is made and whose net worth is reasonably expected to remain substantial.

(3)

A put option shall be exercisable for a period of sixty (60) days following the date of distribution of Shares subject to the put option are distributed by the Plan, and if the put option is not exercised during such sixty (60) day period, for an additional period of at least sixty (60) days in the following Plan Year. A put option shall be exercised by the holder by notifying the Employer in writing that the put option is being exercised. The period during which a put option is exercisable shall not include any time when a distributee is unable to exercise it because the party bound by the put option is prohibited from honoring it by applicable federal or state law. The price at which a put option shall be exercisable is the fair market value of the Shares. The provisions of payment under a put option shall be reasonable. The deferral of payment is reasonable if adequate security and a reasonable interest rate are provided for any credit extended, and if the cumulative payments at any time are no less than the aggregate of reasonable periodic payments as of such time. Periodic payments are reasonable if annual installments, beginning thirty (30) days after the date the put option is exercised, are substantially equal. The payment period shall not end more than five (5) years after the date the put option is exercised. Payment under a put option may be restricted by the terms of an Exempt Loan, including one used to acquire Shares subject to a put option. Otherwise, payment under a put option shall not be restricted by the provisions of an Exempt Loan or any other arrangement, including the terms of the Employers’ articles of incorporation, unless so required by applicable state law.

(b)

T he protections and rights set forth in this Section 8.5 are nonterminable. If the Plan holds or has distributed Qualifying Employer Securities acquired with the proceeds of an Exempt Loan and either the Exempt Loan is repaid or the Plan ceases to be an employee stock ownership plan, these protections and rights shall continue to exist hereunder. Notwithstanding the foregoing, these protections and rights shall not fail to be nonterminable merely because they are not exercisable under Treasury Regulations Sections 54.4975(b)(11) and (12)(ii).

Section 8.6 Valuation of Qualifying Employers Securities . T he fair market value of Qualifying Employer Securities that are not readily tradable on an established securities market shall be determined as of each Valuation Date by an independent appraiser who meets requirements similar to the requirements of the regulations prescribed under Code Section 170(a)(1).

Section 8.7 More than One Class of Qualifying Employer Securities .

(a)

If Qualifying Employer Securities acquired with the proceeds of an Exempt Loan that are available for distribution to a Participant consist of more than one class, the Participant shall receive substantially the same proportion of each class.

(b)

If more than one class of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan are allocated to a Participant’s Stock Account, and any such Qualifying Employer Securities are subsequently forfeited, each class of Qualifying Employer Securities shall be forfeited in the same proportion.

ARTICLE 9

TRUST FUND

Section 9.1 Trust Agreement . The Company has entered into a Trust Agreement with the Trustee to hold the funds set aside pursuant to this Plan.

Section 9.2 Non-Reversion; Exclusive Benefit Clause . The Trust Fund shall be received, held in trust and disbursed by the Trustee in accordance with the provisions of the Trust Agreement and this Plan. Except as provided in Section 4.2(c) or (d) hereof, no part of the Trust shall be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries or defraying the reasonable administrative expenses of the Plan. No person shall have any interest in, or right to, the Trust Fund or any part thereof, except as specifically provided for in this Plan or the Trust Agreement. Notwithstanding the above, nothing in this Section nor the Plan shall preclude the Trustee from complying with a qualified domestic relations order, within the meaning of Code Section 414(p).

Section 9.3 Powers of the Trustee . The Trustee shall have such powers to hold, invest, reinvest, control, and disburse Trust Funds as at that time shall be set forth in the Trust Agreement.

Section 9.4 Trust Agreement Part of the Plan . The Trust Agreement shall be deemed to form a part of the Plan and all the rights of Participants or others under this Plan shall be subject to the provisions of the Trust Agreement to the extent such provisions are not contradicted by specific provisions of this Plan.

Section 9.5 Trustee Purchase of Stock . As soon as practicable after the Trustee receives cash Contributions, dividends or other amounts on behalf of the Plan or any Participant, and to the extent not prohibited by applicable law, the Trustee shall invest such cash in Qualifying Employer Securities. Pending such investment in Qualifying Employer Securities, however, the Trustee may retain cash uninvested without liability for interest, or may invest all or any part thereof in suitable investments and securities. Notwithstanding the foregoing, the Trustee may hold Trust Fund assets in cash or other liquid investments to the extent the Trustee deems reasonable or appropriate for Plan liquidity purposes.

ARTICLE 10

ADMINISTRATIVE COMMITTEE

Section 10.1 Named Fiduciaries . The following persons shall be Named Fiduciaries under the Plan.

(a)

The Trustee: Subject to the direction of the Administrative Committee, as described in this Article 10, the Trustee shall have exclusive authority and discretion to manage and control the assets of the Trust, as provided in the Trust Agreement, and shall have no responsibilities other than those provided in such Agreement.

(b)

Administrative Committee: The Administrative Committee shall be the “Administrator,” as that term is defined under ERISA Section 3(16)(A), of the Plan. The Administrative Committee shall consist of at least three persons appointed by the Board of Directors.

Section 10.2 Appointment of Administrative Committee . The Board shall appoint the Administrative Committee consisting of officers or other Employees. The Administrative Committee shall be composed of no more than five (5) members, as determined from time to time by the Board. The Administrative Committee Members shall serve at the pleasure of the Board, and vacancies in the Administrative Committee arising by reason of resignation, death, removal, or otherwise shall be filled by the Board. Any Administrative Committee Member may resign of his own accord by delivering his written resignation to the Board.

Section 10.3 Organization and Operation of Administrative Committee . The Administrative Committee shall appoint a Chairman and a Secretary and such other officers as it shall deem advisable. The Administrative Committee shall act by a majority of the Administrative Committee Members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Administrative Committee may by such majority action authorize any one or more of the Administrative Committee Members to execute any document or documents on behalf of the Administrative Committee.

Section 10.4 Responsibilities and Powers of Administrative Committee .

(a) The Administrative Committee shall have responsibility and authority to control the operation and administration of the Plan in accordance with the terms of the Plan, including, without limiting the generality of the foregoing,

(1)

All functions assigned to the Administrative Committee under the terms of the Plan;

(2)

Determination of benefit eligibility;

(3)

Determination of any questions arising in connection with the interpretation, application or administration of the Plan (including any questions of fact relating to age, service, compensation or eligibility of Employees);

(4)

Hiring of persons to provide necessary services to the Plan, including a recordkeeper and the Trustee;

(5)

Issuance of directions to the Trustee as to (i) the payment of any fees, taxes, charges or other costs incidental to the operation and management by the Administrative Committee of the Plan; (ii) the payment of benefits to Participants; (iii) the allocation, payment and distribution of the Trust Fund, including interest thereon; or (iv) any other matter; and

(6)

Maintenance of all records of the Plan other than those required to be maintained by the Trustee or any recordkeeper.

(b)

The Administrative Committee’s decisions and actions shall be conclusive and binding upon any and all persons and parties;

(c)

Administrative Committee Members shall serve without compensation for their services in the administration and operation of the Plan unless compensation therefrom is fixed by the Board in its appointment of the Administrative Committee or thereafter.

(d)

The Administrative Committee shall enact such rules and regulations as it may deem proper and necessary to facilitate the administration and operation of the Plan.

Section 10.5 Individual and Shared Responsibilities of Named Fiduciaries .

This Article 10 is intended to allocate to each Named Fiduciary the individual responsibility for the prudent execution of the functions assigned to the Named Fiduciary, and none of such responsibilities or any other responsibility shall be shared by the Named Fiduciaries unless such sharing shall be provided by a specific provision of the Plan or the Trust Agreement. Whenever one Named Fiduciary is required by the Plan or the Trust Agreement to follow the directions of another Named Fiduciary, the two Named Fiduciaries shall not be deemed to have been assigned a shared responsibility, but the responsibility of the Named Fiduciary giving the directions shall be deemed his sole responsibility, and the responsibility of the Named Fiduciary receiving those directions shall be to follow them insofar as such instructions are on their face proper under applicable law.

Section 10.6 Employment of Advisers . A Named Fiduciary may employ one or more persons to render advice concerning any responsibility such Named Fiduciary has under the Plan or Trust Agreement.

Section 10.7 Fiduciary in More Than One Capacity . Any person serving as a fiduciary may serve in more than one fiduciary capacity.

Section 10.8 Power to Construe and Interpret Plan .

(a)

The Administrative Committee shall have the sole, absolute and exclusive right, power, and discretionary authority to construe and interpret the provisions of the Plan, and all parts thereof, and then administer the Plan for the best interests of the Participants and the Beneficiaries. It may construe any ambiguity, or supply any omission, or reconcile any inconsistencies in such manner and to such extent as it deems proper. The Administrative Committee shall have further discretionary authority to determine all questions with respect to the individual rights of the Employees under the Plan, including, but not by way of limitation, all issues with respect to any Employee’s or Beneficiary’s eligibility for benefits and Employee’s earnings, compensation, service and retirement, as may be reflected by the records of the Employer, and such other information on which these decisions shall be based. It is the intent of this Plan that any court reviewing an action of the Administrative Committee shall apply the arbitrary and capricious standard of review.

(b)

The Administrative Committee shall be entitled to rely upon all certificates and reports made by any duly appointed accountant, and upon all opinions given by any duly appointed legal counsel.

Section 10.9 Indemnity Agreement .

(a)

The Employer shall indemnify and hold harmless each Administrative Committee Member from any and all claims, losses, damages, expenses (including accounting, consulting and legal fees approved by the Administrative Committee), and liabilities (including any amounts paid in settlement with the Administrative

Committee’s approval) arising from any act or omission of such member, except, when the same is determined to be due to the gross negligence or willful misconduct of such member.

(b)

The Employer shall indemnify the Administrative Committee Members, the Trustee and any employee of any Affiliate to whom the Administrative Committee or the Trustee has delegated fiduciary duties against any and all claims, losses, damages, expenses and liabilities arising from their responsibilities in connection with the Plan, unless the same is determined to be due to gross negligence or willful misconduct.

Section 10.10 Costs . The Trust Fund shall be used to pay all expenses, costs and fees of the Administrative Committee, to the extent such expenses, costs and fees are not paid by the Employer.

Section 10.11 Application and Forms for Benefits .

The Administrative Committee may require a Participant or Beneficiary to complete and file with the Administrative Committee an Application for Benefits and all other forms approved by the Administrative Committee, and to furnish all pertinent information requested by the Administrative Committee. The Administrative Committee may rely upon all such information so furnished it, including the Participant’s current mailing address.

Section 10.12 Claims for Benefits .

It shall not be necessary for a Participant or Beneficiary who has become entitled to receive a benefit hereunder to file a claim for such benefit with any person as a condition precedent to receiving a distribution of such benefit. However, any Participant or Beneficiary who believes that he has become entitled to a benefit hereunder in excess of the benefit which he has received, or commenced receiving, may file a written claim for such benefit with the Administrative Committee. Such written claim shall set forth the Participant’s or Beneficiary’s name and address and a statement of the facts and a reference to the pertinent provisions for the Plan on which such claim is based.

Section 10.13 Denial of Claims .

(a)

If the claim of any person (a “Claimant”) to all or any part of any payment or benefit under this Plan shall be denied, the Administrative Committee shall provide to the Claimant, within 90 days after receipt of such claim, a written notice setting forth:

(1)

the specific reason or reasons for the denial;

(2)

the specific references to the pertinent Plan provisions on which the denial is based;

(3)

a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation as to why such material or information is necessary; and

(4)

a description of the Plan’s review procedures and the time limits applicable to those procedures, including a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse decision on review by the Administrative Committee.

(b)

If the Administrative Committee determines that special circumstances require an extension of time beyond the initial 90-day period, the Administrative Committee shall provide to the Claimant, within the initial 90-day period, a written notice of such extension stating the special circumstances requiring the extension and the date by which the Administrative Committee expects to make its determination (which date will not be later than 90 days after the end of the initial 90-day period).

Section 10.14 Appeal of Denied Claim .

(a)

Within 60 days after receipt of a notice of denial of his claim for benefits, a Claimant may request, upon written application to the Administrative Committee, a review by the Administrative Committee of its decision denying the Claimant’s claim. The Administrative Committee shall provide the Claimant the opportunity to submit written comments, documents, records and other information relating to his claim for benefits, and shall provide the Claimant, upon request and free of charge, reasonable access to and copies of pertinent documents. The Administrative Committee shall make a full and fair review, and shall make its decision on review by taking into account all comments, documents, records and other information submitted by the Claimant, regardless of whether such comments, documents, records and other information were considered by the Administrative Committee when it initially denied the Claimant’s claim for benefits.

(b)

The Administrative Committee shall issue its decision on review of a Claimant’s denied claim for benefits within a reasonable period of time, but not later than 60 days after the Plan receives the Claimant’s request for a review. If the Administrative Committee determines that special circumstances require an extension of time for processing a Claimant’s review request beyond the initial 60-day period, the Administrative Committee shall provide the Claimant, within the initial 60-day period, a written notice of such extension stating the special circumstances requiring the extension and the date by which the Administrative Committee expects to make its decision on review (which date will not be later than 60-days after the end of the initial 60-day period). If the Administrative Committee grants an extension due to the Claimant’s failure to submit information necessary to decide the Claimant’s claim, the period for making the decision on review shall be tolled from the date on which the Administrative Committee sends the notice of extension to the Claimant until the date on which the Claimant responds to the request for additional information.

(c)

The Administrative Committee shall notify a claimant of its decision on review in writing, and if the decision is adverse, the notice shall set forth:

(1)

the specific reasons for the decision;

(2)

the specific references to the pertinent Plan provisions on which the decision on review is based;

(3)

a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents and other information relevant to his claim for benefits; and

(4)

a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.

Section 10.15 Claims, Notices, Etc .

(a)

Any claim, notice, application or other writing permitted or required to be filed with or given to a party under this Article 12 shall be deemed to have been filed or given when deposited in the U.S. mail, certified, postage prepaid, and properly addressed to the party to whom it is to be given or with whom it is to be filed. Any such claim, notice, application, or other writing deemed filed or given pursuant to the next foregoing sentence shall, in the absence of clear and convincing evidence to the contrary, be deemed to have been received on the fifth business day following the date upon which it was filed or given. Any such claim, notice, application or other writing directed to the Administrative Committee shall be deemed properly addressed if addressed as follows:

Administrative Committee

Sanderson Farms, Inc.

127 Flynt Road

Laurel, Mississippi 39441

(b)

Any such notice, application, or other writing directed to a Participant or Beneficiary shall be deemed properly addressed if directed to the address set forth in the written claim filed by such Participant or Beneficiary.

ARTICLE 11

MODIFICATIONS FOR TOP HEAVY PLANS

Section 11.1 Application of Article .

Prior to the allocation of Contributions for a Plan Year pursuant to Article 5 hereof, the Administrative Committee shall determine whether the Plan constitutes a Top Heavy Plan during the preceding Plan Year. If a determination is made that this Plan constitutes a Top Heavy Plan, then the provisions of this Article 11 shall be applicable notwithstanding any other provisions of this Plan to the contrary.

Section 11.2 Definitions .

(a)

Top Heavy Plan : This Plan shall constitute a Top Heavy Plan for a Plan Year if, as of the Determination Date (i) the aggregate of the Account balances of Key Employees exceeds sixty percent (60%) of the aggregate of the Account balances of all Employees under the Plan, or (ii) if the Plan is part of a Top Heavy Group.

(b)

Top Heavy Group: This Plan shall be deemed to be a part of a Top Heavy Group if the plans which make up the group of which this Plan is considered a part are such that, when aggregated, the sum of (i) the present value of the cumulative accrued benefits of Key Employees under all defined benefit plans in the group, and (ii) the aggregate of the accounts of Key Employees under all defined contribution plans in the group, exceed sixty percent (60%) of the sum of such amounts for all employees who participate in the plans of such group. The group of plans of which this Plan shall be considered a part includes: (i) all plans of the Employer and Affiliates in which a Key Employee participates; (ii) all plans which enable a plan in which a Key Employee participates to meet the qualification requirements of Code Section 401(a)(4) or Code Section 410; and (iii) all plans which the Employer, in its discretion, decides to include, provided that the inclusion of such plan or plans would not prevent the group of plans from meeting the qualification requirements of Code Section 401 (a)(4) and Code Section 410.

(c)

Key Employee: The term “Key Employee” means any Employee who, at any time during the Plan Year in question or during any of the four (4) preceding Plan Years is (i) an officer of the Employer having Annual Compensation which exceeds fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year (not to exceed the greater of three (3) Employees or ten percent (10%) of the Employees), (ii) one (1) of the ten (10) Employees having an annual compensation from the Employer of more than the limitation in effect under Code Section 415(c)(1)(A) and owning (or considered as owning within the meaning of Code Section 318) the largest interest in the Employer, (iii) a five percent (5%) (or greater) owner of the Employer, or (iv) a one percent (1%) owner of the Employer having an Annual Compensation from the Employer of more than two hundred thousand dollars ($200,000). For the purposes of applying the terms of the preceding sentence; the provisions of Code Section 416(i) are incorporated herein by reference.

(d)

Determination Date: The term “Determination Date” means the last day of the Plan Year immediately preceding the Plan Year for which a Top Heavy determination is made.

(e)

Annual Compensation: The term “Annual Compensation” means compensation within the meaning of Code Section 415(c)(3).

Section 11.3 Amounts Included for Computation Purposes . For the purposes of this Section 11.3, in determining the present value of the cumulative accrued benefit for any Employee or the amount of the Account of any Employee, there shall be included therein the aggregate of all distributions made with respect to such Employee within the five (5) year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group described in Section 11.2(b) hereof. If an individual has not received any Annual Compensation from any Employer (other than benefits under the Plan) at any time during the five (5)-year period ending on the Determination Date, any accrued benefit for such individual (and the Account of such individual) shall not be taken into account. Furthermore, the accrued benefits and Account balances of any Employee who is not a Key Employee for the Plan Year in question, but was a Key Employee in any previous Plan Year, shall not be taken into consideration in making any of the computations required in this Section 11.3.

Section 11.4 Accelerated Vesting .

(a)

For any Plan Year in which this Plan is deemed to be a Top Heavy Plan, the vesting schedule contained in Section 6.1 hereof shall be modified as follows:


COMPLETE YEARS OF SERVICE	VESTED PERCENTAGE
1		0	%
2		20	%
3		40	%
4		60	%
5		80	%
6		100	%

(b)

If this Plan is not deemed to be a Top-Heavy Plan after previously being so categorized, then the vesting schedule contained in Section 6.1 hereof shall again

be effective, except that the vested percentage attained by Participants shall not be reduced thereby and Participants with three (3) or more Years of Service for vesting shall have the right to select the vesting schedule under which their vested accrued benefit will be determined.

Section 11.5 Minimum Contributions .

(a)

For any Plan Year in which this Plan is determined to be a Top Heavy Plan, a minimum Employer contribution shall be made, under this Plan or another defined contribution plan maintained by the Employers, to the account of each non-Key Employee with a Year of Service for accrual of benefits.

(b)

For the purposes of the first sentence of this Section 11.5, the minimum Employer contribution provided to each non-Key Employee with a Year of Service for accrual of benefits shall be equal to three percent (3%) of such non-Key Employee’s Annual Compensation. If, however, the Employer contribution under this and any other defined contribution plan required to be included in the Top-Heavy Group and maintained by the Employer for any Key Employee for such Plan Year is less than three percent (3%) of such Key Employee’s total Annual Compensation, then the Employer contribution for each Employee with a Year of Service for accrual of benefits shall equal the amount which results from multiplying such Employee’s Annual Compensation times the highest contribution rate for the purpose of the preceding sentence. For purposes of this Section 11.5, a non-Key Employee who is a Participant and is employed on the last day of the Plan Year shall be deemed to have a Year of Service for purposes of accrual of benefits for that Plan Year.

Section 11.6 Modification of Top-Heavy Rules .

(a)

Effective date. This Section shall apply for purposes of determining whether the plan is a Top-Heavy Plan for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code Section 416(c) for such years. This Section amends this Article 11.

(b)

Determination of Top-Heavy status.

(1)

Key Employee. Key Employee means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having Annual Compensation greater than $130,000 (as adjusted under Code Section 416(1)(1) for Plan Years beginning after December 31, 2002), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having Annual Compensation of more than $150,000. The determination of who is a Key Employee will be made in accordance with Code Section 416(1)(1) and the applicable regulations and other guidance of general applicability issued thereunder.

(c)

Determination of present values and amounts. This Section 11.6 shall apply for purposes of determining the present values of accrued benefits and the amounts of Account balances of Employees as of the Determination Date.

(1)

Distributions during Plan Year ending on the Determination Date. The present values of accrued benefits and the amounts of Account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Code Section 416(g)(2) during the 1- year

period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

(2)

Employees not performing services during year ending on the Determination Date. The accrued benefits and Accounts of any individual who has not performed services for the Employers during the 1-year period ending on the Determination Date shall not be taken into account.

(d)

Minimum benefits; Matching contributions. Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m).

(e)

A plan shall not be considered a Top-Heavy Plan if the plan consists solely of (i) a cash or deferred arrangement meeting the requirements of Code Section 401(k)(12) or 401(k)(13), and (ii) matching contributions with respect to which the requirements of Code Section 401(m)(11) or (12) are met. If, but for the preceding sentence, such a plan would be treated as a Top-Heavy Plan because it is a member of a Top-Heavy Group, contributions under the plan may be taken into account in determining whether any other plan in the Top-Heavy Group meets the requirements of Section 11.5 hereof.

ARTICLE 12

AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS;

TERMINATION OR DISCONTINUANCE

Section 12.1 Amendment .

The Company shall have the right at any time, and from time to time, to amend, in whole or in part, any or all of the provisions of this Plan by action of the Board. No amendment to the Plan shall reduce the Account balance of any Participant prior to the amendment. Furthermore, no amendment to the Plan shall have the effect of decreasing a Participant’s vested interest determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective. For purposes of determining whether or not any Participant’s Account balance is decreased, all the provisions of the Plan affecting directly or indirectly the computation of Account balances which are amended with the same adoption and effective dates shall be treated as one Plan amendment.

Section 12.2 Merger, Consolidation, or Transfer of Assets . In the case of any merger or consolidation with or transfer of assets or liabilities to, or any other plan, each Participant would or shall (if the Plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had been terminated).

Section 12.3 Termination; Discontinuance of Contributions .

(a)

The Company through action of its Board shall have the right at any time to terminate the Plan in whole or in part or to permanently or temporarily discontinue Contributions hereunder. A certified copy of such resolutions shall be delivered to the Administrative Committee and to the Trustee.

(b)

Upon termination of the Plan or discontinuance of Contributions hereunder, each affected Participant shall immediately vest in his Accounts hereunder. Upon such termination or discontinuance of Contributions, the Trust Fund shall nevertheless continue, and the Trustee is authorized to continue to hold and administer the Trust Fund for the benefits, rights, and privileges as hereinabove provided. The Trustee may distribute to the Participants or their Beneficiaries their vested Account balances, if the Participants or their Beneficiaries so request, or make distributions at some future dates pursuant to the provisions of Article 7 hereof, provided that the method or methods of distribution adopted do not discriminate in favor of highly compensated employees of the Employer, within the meaning of Code Section 414(q).

(c)

Until the final distribution of the Trust Fund, the Trustee shall continue to have all the powers provided under this Plan and the Trust Agreement as are necessary and expedient for the orderly administration, liquidation and distribution of the Trust Fund.

ARTICLE 13

MISCELLANEOUS

Section 13.1 Nonalienation of Benefits .

(a)

Except with respect to federal income tax withholding, benefits payable under this Plan shall not be subject- in any. manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder.

(b)

The preceding paragraph shall also apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a qualified domestic relations order, as defined in Code Section 414(p). A domestic relations order shall not fail to be a qualified domestic relations order solely because (i) the order is issued after, or revises, another domestic relations order to qualified domestic relations order, or (ii) of the date on which the domestic relations order is issued, including issuance after a Participant’s annuity starting date or death. A domestic relations order described in the foregoing sentence shall be subject to the same requirements and protections that apply to a qualified domestic relations order, including the provisions of Code Section 414(p)(7).

Section 13.2 Qualified Domestic Relations Order . The Administrative Committee shall comply with the terms of any judgment, decree or order (including approval of a property settlement agreement) which is a qualified domestic relations order, within the meaning of Code Section 414(q)

(“QDRO”). Notwithstanding any other provision hereof, the Plan may make a distribution to an alternate payee pursuant to a QDRO prior to the time the Plan may make a distribution to the respective Participant (i.e., the Participant’s Total and Permanent Disability, Termination of Employment, hardship or attainment of age 62).

Section 13.3 No Guarantee of Employment . Except as otherwise provided by law and as provided herein, the adoption of this Plan shall not be construed as giving any Employee or any other person any legal or equitable right against the Employers, or any officer or Employee thereof, the Administrative Committee established in connection herewith, the Trustee or the principal and income of the Trust Fund or any equity or interest in the assets, business or affairs of the Employer, unless such right, equity or interest is specifically provided for in this Plan, nor shall it be construed as giving any Employee the right to be retained in the service of the Employer.

Section 13.4 Authorization to Withhold Taxes . The Trustee is authorized in accordance with applicable law to withhold from distribution to any payee such sums as may be necessary to cover federal and state taxes which may be due with respect to such distributions.

Section 13.5 Delegation of Authority by Employer . Whenever the Employer under the terms of this Plan is permitted or required to do or perform any action or matter or thing, it shall be done and performed by any of the Employer’s officers thereunto duly authorized by the Employer’s Boards of Directors.

Section 13.6 Number and Gender . Whenever any words are used herein in the singular number or masculine gender, they shall be construed as though they were also used in the plural number or feminine gender in all cases where they would so apply.

Section 13.7 Legal Actions .

(a)

Except as may be specifically provided for by law, in any action or proceeding involving this Plan and the Trust Fund, or any property constituting part or all thereof, or the administration thereof, the Employer and the Trustee shall be the only necessary parties and no Employees or former Employees of the Employer or their Beneficiaries or any other person having or claiming to have an interest in the Trust Fund or under this Plan shall be entitled to any notice of process. Service of process for any actions relation to the Plan and Trust Fund may be made on the Employer.

(b)

Except as may be specifically provided for by law, any final judgment which is not appealed or appealable that may be entered in any such action or proceeding shall be binding and conclusive on the parties hereto and all persons having or claiming to have any interest under this Plan or in the Trust Fund.

Section 13.8 Delays in Distribution . Notwithstanding any other provisions of this Plan and the Trust Agreement, the Trustee may delay distribution to a Participant or, his Beneficiary or Beneficiaries of Shares of Qualifying Employer Securities pursuant to this Plan until one of the following conditions shall have been satisfied:

(a)

The shares with respect to which distribution of an Account is to be made are at the time of distribution effectively registered under the Securities Act of 1933 as now in force or hereafter amended.

(b)

A no-action letter in respect of the distribution of such shares shall have been obtained by the Employer from the Securities Exchange Commission; or

(c)

Counsel for the Employer shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such shares are exempt from registration under the Securities Act of 1933 as now in force or hereafter amended, and are nonrestricted upon transfer.

Section 13.9 Plan Document Location . Official copies of this Plan and the Trust Agreement shall be available for inspection by Participants, their Beneficiaries and other persons with a legal or equitable interest under the Plan or in the Trust Fund, at the principal offices of the Employer located at 127 Flynt Road, Laurel, Mississippi 39443,

Section 13.10 Plan Terms Control . In any instances where the provisions or terms of this Plan are inconsistent with or conflict with the terms of the Trust Agreement, the provisions or terms of this Plan shall, govern or control the matter to be interpreted or resolved.

Section 13.11 Severability . Each provision of this Plan maybe severed. If any provision is determined to be invalid- or unenforceable, that determination shall not affect the validity or enforceability of any other provision.

Section 13.12 Governing Law . The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Mississippi and, to the extent applicable, by the laws and regulations of the United States.

ARTICLE 14

VETERANS RIGHTS

Section 14.1 Veterans’ Rights . Notwithstanding the provisions of this Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service shall be provided in accordance with Code Section 414(u).

Section 14.2 Death or Disability During Qualified Military Service .

(a)

In the case of a Participant who dies while performing Qualified Military Service with respect to the Employer, the survivors of the Participant shall be entitled to any additional benefits (other than benefit accruals relating to the period of Qualified Military Service, except as provided under (b) below) provided under the Plan to which they would have been entitled had the Participant resumed employment with the Employer on the day before his date of death and then Terminated Employment on account of death the next day. In addition, the period of such a deceased Participant’s Qualified Military Service (through his date of death) shall be treated as service with the Employer for purposes of determining his Years of Service under Section 6.1 hereof.

(b)

If an individual dies or becomes Totally and Permanently Disabled while performing Qualified Military Service with respect to the Employer, the individual shall be treated for purposes of receiving an allocation of Contributions hereunder as if the individual had resumed employment with the Employer in accordance with his employment rights under Section 14.1 hereof and Code Section 414(u) on the day preceding death or becoming Totally and Permanently Disabled, as the case may be, and Terminated Employment on the actual date of death or becoming Totally and Permanently Disabled.

Section 14.3 Differential Wage Payments .

(a)

If the Employer makes a Differential Wage Payment to an individual, (i) the individual shall be treated as an Employee of the Employer making the payment, (ii) the Differential Wage Payment shall be treated as Section 415 Compensation and Compensation hereunder, and (iii) the Plan shall not be treated as failing to meet the requirements of any provision described in Code Section 414(u)(1)(C) by reason of any Contribution that is based on the Differential Wage Payment. The foregoing clause (iii) shall apply (taking into account Code Section 410(b)(3), (4) and (5)) only if all employees of the Employer and the Affiliates performing Qualified Military Service are entitled to receive Differential Wage Payments on reasonably equivalent terms and, if eligible to participate in a retirement plan maintained by the Employer or an Affiliate, to make contributions based on Differential Wage Payments on reasonably equivalent terms.

(b)

If an individual who receives Differential Wage Payments from the Employer returns to employment with the Employer, or dies or becomes Permanently and Totally Disabled while performing Qualified Military Service with respect to the Employer, and consequently is entitled to an allocation of Contributions under Section 14.1 or 14.2(b) hereof, the amount of such Contributions to be allocated to the individual’s Accounts shall be offset by the amount of Contributions previously allocated to the individual’s Accounts based on the individual’s Differential Wage Payments.

Section 14.4 Definitions . For purposes of this Article 14, (i) the term “Differential Wage Payment” means any payment made by the Employer to an individual with respect to any period during which the individual is performing service in the uniformed services (as defined in chapter 43 of title 38, United States Code) while on active duty for a period of more than 30 days, and represents all or a portion of the wages the individual would have received from the Employer if the individual were performing services for the Employer; and (ii) the term “Qualified Military Service” means any service in the uniformed services (as defined in chapter 43 of title 38, United States Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service and the Employer.

ARTICLE 15

MINIMUM DISTRIBUTION REQUIREMENTS

Section 15.1 General Rules .

(a)

Effective Date . The provisions of this Article 15 will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

(b)

Precedence . The requirements of this Article will take precedence over any inconsistent provisions of the Plan.

(c)

Requirements of Treasury Regulations Incorporated . All distributions required under this Article will be determined and made in accordance with the Treasury regulations under Code Section 401(a)(9).

(d)

TEFRA Section 242(b)(2) Elections . Notwithstanding the other provisions of this Article, distributions may be made under a designation trade before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

Section 15.2 Time and Manner of Distribution .

(a)

Required beginning . The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date which for Plan Years commencing after October 30, 1999 shall be:

(1)

For a Participant who is a 5% owner (as defined in Code Section 416), the required beginning date is April 1 following the calendar year in which the Participant attains age 70 ¹ ⁄ ₂ .

(2)

For a Participant who is not a 5% owner, the required beginning date is April 1 following the later of (i) the calendar year in which the Participant attains age 70 ¹ ⁄ ₂ , and (ii) the calendar year in which the Participant retires; however, such Participant who attains age 70 ¹ ⁄ ₂ before 1999 may elect to commence distributions by April 1 of the calendar year following the calendar year in which he attains age 70 ¹ ⁄ ₂ , or elect to defer payment until April 1 of the calendar year following the calendar year in which the Participant retires.

(b)

Death of Participant Before Distributions Begin . If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(1)

If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 ¹ ⁄ ₂ , if later.

(2)

If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, distributions to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(3)

If there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(4)

If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary and the surviving spouse dies after the Participant but before

distributions to the surviving spouse begin, this Section 15.2, other than Section 15.2(b)(1), will apply as if the surviving spouse were the Participant.

For purposes of this Section 15.2(b) and 15.4 hereof, unless Section 15.2(b)(4) applies, distributions are considered to begin on the Participant’s required beginning date. If Section 15.2(b)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 15.2(b)(1). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 15.2(b)(1)), the date distributions are considered to begin is the date distributions actually commence.

(c) Forms of Distribution . Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 15.3 and 15.4 of this Article. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury regulations thereunder.

Section 15.3 Required Minimum Distributions During Participant’s Lifetime .

(a)

Amount of Required Minimum Distributions for Each Distribution Calendar Year . During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(1)

The quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table tier fourth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(2)

If the Participant’s sole designated Beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

(b)

Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death . Required minimum distributions will be determined under this Section 15.3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

Section 15.4 Required Minimum Distributions After Participant’s Death .

(a)

Death On or After Date Distributions Begin .

(1)

Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated Beneficiary, determined as follows:

(A)

The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(B)

If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(C)

If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, the designated Beneficiary’s remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(2)

No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for cash subsequent year.

(b)

Death Before Date Distributions Begin .

(1)

Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a Designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated Beneficiary, determined as provided in Section 15.4(a) hereof.

(2)

No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(c)

Death of Surviving Spouses Before Distributions to Surviving Spouse Are Required to Begin . If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 15.2(a)(1), this Section 15.4(b) will apply as if the surviving spouse were the Participant.

Section 15.5 Definitions .

(a)

Designated Beneficiary . The individual who is designated as the Beneficiary under Article 7 thereof and is the designated Beneficiary under Code Section 401(a)(9) and Section 1.401(a)(9)-4 of the Treasury regulations.

(b)

Distribution calendar year . A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 15.2(b) hereof. The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

(c)

Life expectancy . Life expectancy as computed by use of the Single Life Table in Section 1.401(x)(9)-9 of the Treasury regulations.

(d)

Participant’s account balance . The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

Section 15.6 Suspension of RMDs unless otherwise elected by a Participant . Notwithstanding the provisions of the Plan relating to required minimum distributions under Code Section 401(a)(9), a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of Code Section 401(a)(9)(H) (“2009 RMDs”), and who would have satisfied that requirement by receiving distributions that are (1) equal to the 2009 RMDs or (2) one or more payments in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life (or life expectancy) of the Participant, the joint lives (or joint life expectancy) of the Participant and the Participant’s designated Beneficiary, or for a period of at least 10 years (“Extended 2009 RMDs”), will not receive those distributions for 2009 unless the Participant or Beneficiary chooses to receive such distributions. Participants and Beneficiaries described in the preceding sentence will be given the opportunity to elect to receive the distributions described in the preceding sentence.

Section 15.7 Direct Rollovers . Notwithstanding the provisions of the Plan relating to require minimum distributions under Code Section 401(a)(9), and solely for purposes of applying the direct rollover provisions of the Plan, 2009 RMDs and Extended 2009 RMDs (as defined in Section 15.6) will be treated as eligible rollover distributions.

EXECUTED on the day of , 2013.


SANDERSON FARMS, INC.

By

Its

Exhibit 10.14

SANDERSON FARMS, INC.

RESTRICTED STOCK AGREEMENT

(Management Employee)

This RESTRICTED STOCK AGREEMENT (this “Agreement”), made and entered into as of the 1st day of November 2013 (the “Grant Date”), by and between (the “Participant”) and Sanderson Farms, Inc. (together with its subsidiaries and affiliates, the “Company”), sets forth the terms and conditions of a Restricted Stock Award issued pursuant to the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, as amended and restated on February 17, 2011 (the “Plan”) and this Agreement. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.

Grant and Vesting of Restricted Stock.

(a) As a reward for past service or in consideration of and as an incentive to the Participant’s performance of future services on behalf of the Company, and for no additional consideration, the Company hereby grants to the Participant, as of the Grant Date, shares of the Company’s common stock, par value $1.00 per share (the “Restricted Stock”), subject to the terms and conditions set forth herein and in the Plan. The Restricted Stock is subject to forfeiture as provided herein and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of by the Participant, other than by will or by the laws of descent and distribution of the state in which the Participant resides on the date of his death. The period during which the Restricted Stock is not vested and is subject to transfer restrictions is referred to herein as the “Restriction Period.”

(b) Except as otherwise provided in this Agreement or the Plan, the Restricted Stock shall vest and no longer be subject to forfeiture or any transfer restrictions hereunder on November 1, 2017, so long as the Participant has remained continuously employed by the Company from the Grant Date through such date.

(c) In the event of (i) the Participant’s termination of employment with the Company by reason of death or Disability or (ii) a Change in Control, all Restricted Stock that has not vested shall immediately vest and no longer be subject to forfeiture or any transfer restrictions hereunder. In the event of the Participant’s termination of employment with the Company after his attainment of eligibility for retirement (as determined by the Board from time to time), by reason of retirement, that portion of the number of shares of Restricted Stock that has not vested, determined in accordance with the ratio that the number of complete years the Participant was employed during the Restriction Period bears to the total number of years in the Restriction Period, shall immediately vest and no longer be subject to forfeiture or any transfer restrictions hereunder, and the remaining unvested shares of Restricted Stock shall be forfeited. If the Participant’s employment with the Company is terminated for any other reason, voluntarily or involuntarily, prior to the expiration of the Restriction Period (not withstanding that such Participant may have been eligible for retirement at the time of such termination), then the Restricted Stock that has not vested as of the termination date shall immediately be forfeited, ownership shall be transferred back to the Company and the Restricted Stock shall become authorized but unissued Shares.

(d) If the Board determines in good faith that the Participant has engaged in any Detrimental Activity during the period that the Participant is employed by the Company or during the two-year period following the Participant’s voluntary termination of employment or his termination by the Company for Cause, then the Restricted Stock that has not vested as of the date of the Board determination shall immediately be forfeited, ownership shall be transferred back to the Company and the Restricted Stock shall become authorized but unissued Shares or, if the Restricted Stock has already vested, the Participant shall repay to the Company the fair market value of the Shares as of the Grant Date. For purposes of this Section 1(d), the parties hereto agree that the fair market value of the Shares as of the Grant Date is $65.63 per share.

Issuance of Shares.

Certificates representing the Restricted Stock shall be registered in the Participant’s name (or an appropriate book entry shall be made). Certificates, if issued, may, at the Company’s option, either be held by the Company in escrow until the Restriction Period expires or until the restrictions thereon otherwise lapse and/or be issued to the Participant and registered in the name of the Participant, bearing an appropriate restrictive legend that refers to this Agreement and remaining subject to appropriate stop-transfer orders. The Participant agrees to deliver to the Board, upon request, one or more stock powers endorsed in blank relating to the Restricted Stock. If and when the Restricted Stock vests and is no longer subject to forfeiture or transfer restrictions, unlegended certificates for such Restricted Stock shall be delivered to the Participant (subject to Section 6 pertaining to the withholding of taxes and Section 14 pertaining to the Securities Act of 1933, as amended (the “Securities Act”)); provided, however, that the Board may cause such legend or legends to be placed on any such certificates as it may deem advisable under Applicable Law.

Rights as a Stockholder.

Except as otherwise provided in this Agreement or the Plan, from the Grant Date, including during the Restriction Period, the Participant shall have, with respect to the Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the Restricted Stock and the right to receive any dividends or other distributions with respect thereto.

Adjustments.

If any change in corporate capitalization, such as a stock split, reverse stock split, stock dividend, or any corporate transaction such as a reorganization, reclassification, merger or consolidation or separation, including a spin-off of the Company or sale or other disposition by the Company of all or a portion of its assets, any other change in the Company’s corporate structure, or any distribution to stockholders (other than a cash dividend) results in the outstanding Shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of shares or other securities of the Company, or for shares of stock or other securities of any other corporation, or new, different or additional shares or other securities of the Company or of any other corporation being received by the holders of outstanding Shares, then the shares of Restricted Stock granted pursuant to this Agreement shall be treated in the same manner as other outstanding Shares of the Company.

Validity of Share Issuance.

The shares of Restricted Stock have been duly authorized by all necessary corporate action of the Company and are validly issued, fully paid and non-assessable.

Taxes and Withholding.

As soon as practicable on or after the date as of which an amount first becomes includible in the gross income of the Participant for federal income tax purposes with respect to this Award of Restricted Stock, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, or the Company may deduct or withhold from any cash or property payable to the Participant, an amount equal to all federal, state, local and foreign taxes that are required by Applicable Law to be withheld with respect to such includible amount. Notwithstanding anything to the contrary contained herein, the Participant may, if the Company consents, discharge this withholding obligation by directing the Company to withhold shares of Restricted Stock having a Fair Market Value on the date that the withholding obligation is incurred equal to the amount of tax required to be withheld in connection with such vesting, as determined by the Board.

Notices.

Any notice to the Company provided for in this Agreement shall be in writing and shall be addressed to it in care of its Secretary at its principal executive offices, and any notice to the Participant shall be addressed to the Participant at the current address shown on the payroll records of the Company. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid.

Legal Construction.

Severability . If any provision of this Agreement is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law with respect to which the Plan or this Agreement is intended to qualify, or would cause compensation deferred under the Plan to be includible in a Plan participant’s gross income pursuant to Section 409A(a)(1) of the Internal Revenue Code of 1986, as amended, as determined by the Board, such provision shall be construed or deemed amended to conform to Applicable Law or, if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Agreement, it shall be stricken and the remainder of this Agreement shall remain in full force and effect.

Gender and Number . Where the context admits, words in any gender shall include the other gender, words in the singular shall include the plural and words in the plural shall include the singular.

Governing Law . To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Mississippi.

Incorporation of Plan.

This Agreement and the Restricted Stock Award made pursuant hereto are subject to, and this Agreement hereby incorporates and makes a part hereof, all terms and conditions of the Plan that are applicable to Agreements and Awards generally and to Restricted Stock Awards in particular. The Board has the right to interpret, construe and administer the Plan, this Agreement and the Restricted Stock Award made pursuant hereto. All acts, determinations and decisions of the Board made or taken pursuant to grants of authority under the Plan or with respect to any questions arising in connection with the administration and interpretation of the Plan, including the severability of any and all of the provisions thereof, shall be in the Board’s sole discretion and shall be conclusive, final and binding upon all parties, including the Company, its stockholders, Participants, Eligible Participants and their estates, beneficiaries and successors. The Participant acknowledges that he has received a copy of the Plan.

10.

No Implied Rights.

Neither this Agreement nor the issuance of any Restricted Stock shall confer on the Participant any right with respect to continuance of employment or other service with the Company. Except as may otherwise be limited by a written agreement between the Company and the Participant, and acknowledged by the Participant, the right of the Company to terminate at will the Participant’s employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company.

11.

Integration.

This Agreement and the other documents referred to herein, including the Plan, or delivered pursuant hereto, contain the entire understanding of the parties with respect to their subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and restrictions imposed by the Securities Act and applicable state securities laws. This Agreement, including the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.

12.

Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together constitute one and the same instrument.

13.

Amendments.

The Board may, at any time, without consent of or receiving further consideration from the Participant, amend this Agreement and the Restricted Stock Award made pursuant hereto in response to, or to comply with changes in, Applicable law. To the extent not inconsistent with the terms of the Plan, the Board may, at any time, amend this Agreement in a manner that is not unfavorable to the Participant without the consent of the Participant. The Board may amend this Agreement and the Restricted Stock Award made pursuant hereto otherwise with the written consent of the Participant.

14.

Securities Act.

(a) The issuance and delivery of the Restricted Stock to the Participant have been registered under the Securities Act by a Registration Statement on Form S-8 that has been filed with the Securities and Exchange Commission (“SEC”) and has become effective. The Participant acknowledges receipt from the Company of its Prospectus dated February 17, 2011, relating to the Restricted Stock.

(b) If the Participant is an “affiliate” of the Company, which generally means a director, executive officer or holder of 10% or more of its outstanding shares, at the time certificates representing Restricted Stock are delivered to the Participant, such certificates shall bear the following legend, or other similar legend then being generally used by the Company for certificates held by its affiliates:

“THESE SHARES MUST NOT BE OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL FOR THE ISSUER, IS EXEMPT FROM REGISTRATION THROUGH COMPLIANCE WITH RULE 144 OR WITH ANOTHER EXEMPTION FROM REGISTRATION.”

The Company shall remove such legend upon request by the Participant if, at the time of such request, the shares are eligible for sale under SEC Rule 144(b)(1), or any provision that has replaced it, in the opinion of the Company’s counsel.

15.

Arbitration.

Any controversy or claim arising out of or relating to this Restricted Stock Agreement shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

IN WITNESS WHEREOF, the Participant has executed this Agreement on his own behalf, thereby representing that he has carefully read and understands this Agreement and the Plan as of the day and year first written above, and the Company has caused this Agreement to be executed in its name and on its behalf, all as of the day and year first written above.


SANDERSON FARMS, INC.

By:
	Name:	Mike Cockrell
	Title:	CFO and Treasurer
	PARTICIPANT’S NAME

Exhibit 10.20

SANDERSON FARMS, INC.

PERFORMANCE SHARE AGREEMENT

This PERFORMANCE SHARE AGREEMENT (this “Agreement”), made and entered into as of the 1st day of November, 2013 (the “Grant Date”), by and between (the “Participant”) and Sanderson Farms, Inc. (together with its subsidiaries and affiliates, the “Company”), sets forth the terms and conditions of a Performance Share Award issued pursuant to the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, as amended and restated on February 17, 2011 (the “Plan”) and this Agreement. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.

Grant and Issuance of Performance Shares; Definition of Restricted Period.

(a) As a reward for past service and in consideration of and as an incentive to the Participant’s performance of future services on behalf of the Company, and for no additional consideration, the Company hereby grants to the Participant, as of the Grant Date, the right to receive at the end of the Restricted Period (hereinafter defined) that certain number of shares of the Company’s common stock, par value $1.00 per share (the “Performance Shares”), determined in accordance with Section 2 below, subject to the further terms and conditions set forth herein and in the Plan. The right to receive Performance Shares is subject to forfeiture as provided herein and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of by the Participant, other than by will or by the laws of descent and distribution of the state in which the Participant resides on the date of his death. The “Performance Period” means the two fiscal years of the Company commencing November 1, 2013. The “Restricted Period” means the three fiscal years of the Company commencing November 1, 2013.

(b) Except as otherwise provided in this Agreement or the Plan, the right to receive Performance Shares shall vest and no longer be subject to forfeiture or any transfer restrictions hereunder at the end of the Restricted Period, so long as the Participant has remained continuously employed by the Company from the Grant Date through such date.

(c) In the event of (i) the Participant’s termination of employment with the Company by reason of death or Disability, (ii) his termination of employment with the Company after his attainment of eligibility for retirement (as determined by the Board from time to time) by reason of retirement, or (iii) a Change of Control prior to the end of the Restricted Period, the Participant shall be entitled to receive, at the end of the Restricted Period, a pro rata portion of the number of Performance Shares to which he otherwise would have been entitled, determined in accordance with the ratio that the number of months the Participant was employed with the Company during the Performance Period bears to the total number of months in the Performance Period. If the Participant’s employment with the Company is terminated for any other reason, voluntarily or involuntarily, prior to the expiration of the Restricted Period, then the right to receive Performance Shares at the end of the Restricted Period shall immediately be forfeited.

(d) If the Board determines in good faith that the Participant has engaged in any Detrimental Activity during the period that the Participant is employed by the Company or during the two-year period following the Participant’s voluntary termination of employment or his termination by the Company for Cause, then as of the date of the Board determination the Participant’s right to receive Performance Shares shall be forfeited or, if the Performance Shares have already been issued, the Participant shall repay to the Company the fair market value of the Performance Shares as of their issue date.

Issuance of Performance Shares.

(a) The Participant’s Performance Share Award is a function of his “Target ROE Award” and his “Target ROS Award,” calculated as set forth below. The Participant’s Target ROE Award is Shares. The Participant’s Target ROS Award is Shares.

(b) At the end of the Performance Period, the Board (or its permitted delegate) will calculate the Company’s Return on Equity for each of its fiscal years during the Performance Period and divide the sum by that number of years (the “Average ROE”). “Return on Equity” means (i) the Company’s net after-tax income for the fiscal year in question, divided by (ii) the average of the shareholders’ equity as of the end of the preceding fiscal year and the shareholders’ equity as of the end of the fiscal year in question, in each case as shown in the Company’s audited financial statements (provided that if there is any change in accounting standards used by the Company after the Grant Date, Return on Equity will be calculated without regard to such change). The Participant’s “Threshold ROE” is 9.3 percent; his “Target ROE” is 10.7 percent; and his “Maximum ROE” is 21.4 percent. If, at the end of the Performance Period, the Company’s Average ROE is equal to the Threshold ROE, the Participant will be entitled to receive 50 percent of the Target ROE Award; if the Company’s Average ROE is equal to the Target ROE, the Participant will be entitled to receive 100 percent of the Target ROE Award; and if the Company’s Average ROE is equal to or greater than the Maximum ROE, the Participant will be entitled to receive 200 percent of the Target ROE Award. If the Company’s Average ROE is otherwise between the Threshold ROE and the Maximum ROE, the number of Performance Shares that the Participant is entitled to receive will be calculated using a straight-line interpolation. If the Company’s Average ROE is less than the Threshold ROE, the Participant will not be entitled to receive any Shares as part of his Target ROE Award. In no event will the Participant be entitled to receive pursuant to this Agreement more than 200 percent of the Target ROE Award.

(c) Likewise, at the end of the Performance Period, the Board (or its permitted delegate) will calculate the Company’s Return on Sales for each of its fiscal years during the Performance Period and divide the sum by that number of years (the “Average ROS”). “Return on Sales” means the Company’s net after-tax income for the fiscal year in question divided by its net sales for such fiscal year, in each case as shown in the Company’s audited financial statements (provided that if there is any change in accounting standards used by the Company after the Grant Date, Return on Sales will be calculated without regard to such change). The Participant’s “Threshold ROS” is 2.6 percent; his “Target ROS” is 3.5 percent; and his “Maximum ROS” is 4.8 percent. If, at the end of the Performance Period, the Company’s Average ROS is equal to the Threshold ROS, the Participant will be entitled to receive 50 percent of the Target ROS Award; if the Company’s Average ROS is equal to the Target ROS, the Participant will be entitled to receive 100 percent of the Target ROS Award; and if the Company’s Average ROS is equal to or greater than the Maximum ROS, the Participant will be entitled to receive 200 percent of the Target ROS Award. If the Company’s Average ROS is otherwise between the Threshold ROS and the Maximum ROS, the number of Performance Shares that the Participant is entitled to receive will be calculated using a straight-line interpolation. If the Company’s Average ROS is less than the Threshold ROS, the Participant will not be entitled to receive any Shares as part of his Target ROS Award. In no event will the Participant be entitled to receive pursuant to this Agreement more than 200 percent of the Target ROS Award.

(d) Within 30 days of the end of the Restricted Period, certificates representing the Performance Shares that the Participant is entitled to receive shall be registered in the Participant’s name and be delivered to the Participant (or an appropriate book entry shall be made), subject to Section 6 pertaining to the withholding of taxes and Section 14 pertaining to the Securities Act of 1933, as amended (the “Securities Act”); provided, however, that the Board may cause such legend or legends to be placed on any such certificates as it may deem advisable under Applicable Law. Fractional shares will be issued where necessary. Upon issuance, Performance Shares will be fully vested and transferable, except to the extent that their transfer is restricted by Applicable Law.

(e) If this Performance Share Award is intended to satisfy the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), then prior to the issuance of the Performance Shares, the Compensation Committee of the Board shall certify in writing that the performance goals and any other material terms of the Award were in fact satisfied.

No Rights as a Stockholder.

Except as otherwise provided in this Agreement or the Plan, until the issuance of Performance Shares to him, the Participant shall have, with respect to the Performance Shares, none of the rights of a stockholder of the Company, including the right to vote the Performance Shares and the right to receive any dividends or other distributions with respect thereto.

Adjustments.

If any change in corporate capitalization, such as a stock split, reverse stock split, stock dividend, or any corporate transaction such as a reorganization, reclassification, merger or consolidation or separation, including a spin-off of the Company or sale or other disposition by the Company of all or a portion of its assets, any other change in the Company’s corporate structure, or any distribution to stockholders (other than a cash dividend) results in the outstanding Shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of shares or other securities of the Company, or for shares of stock or other securities of any other corporation, or new, different or additional shares or other securities of the Company or of any other corporation being received by the holders of outstanding Shares, then the number of Performance Shares to which the Participant is entitled pursuant to this Agreement shall be adjusted in the same manner as other outstanding Shares of the Company.

Validity of Share Issuance.

The Performance Shares have been duly authorized by all necessary corporate action of the Company and when issued will be validly issued, fully paid and non-assessable.

Taxes and Withholding.

As soon as practicable on or after the date as of which an amount first becomes includible in the gross income of the Participant for federal income tax purposes with respect to this Award of Performance Shares, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, or the Company may deduct or withhold from any cash or property payable to the Participant, an amount equal to all federal, state, local and foreign taxes that are required by Applicable Law to be withheld with respect to such includible amount. Notwithstanding anything to the contrary contained herein, the Participant may, if the Company consents, discharge this withholding obligation by directing the Company to withhold Performance Shares having a Fair Market Value on the date that the withholding obligation is incurred equal to the amount of tax required to be withheld in connection therewith, as determined by the Board.

Notices.

Legal Construction.

Severability . If any provision of this Agreement is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law with respect to which the Plan or this Agreement is intended to qualify, or would cause compensation deferred under the Plan to be includible in a Plan participant’s gross income pursuant to Section 409A(a)(1) of the Code, as determined by the Board, such provision shall be construed or deemed amended to conform to Applicable Law or, if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Agreement, it shall be stricken and the remainder of this Agreement shall remain in full force and effect.

Gender and Number . Where the context admits, words in any gender shall include the other gender, words in the singular shall include the plural and words in the plural shall include the singular.

Governing Law . To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Mississippi.

Incorporation of Plan.

This Agreement and the Performance Share Award made pursuant hereto are subject to, and this Agreement hereby incorporates and makes a part hereof, all terms and conditions of the Plan that are applicable to Agreements and Awards generally and to Performance Share Awards in particular. The Board has the right to interpret, construe and administer the Plan, this Agreement and the Performance Share Award made pursuant hereto. All acts, determinations and decisions of the Board (including its Compensation Committee) made or taken pursuant to grants of authority under the Plan or with respect to any questions arising in connection with the administration and interpretation of the Plan, including the severability of any and all of the provisions thereof and the calculation of the Average ROE, Average ROS and the number of Performance Shares that the Participant is entitled to receive pursuant to this Agreement, shall be in the Board’s sole discretion and shall be conclusive, final and binding upon all parties, including the Company, its stockholders, Participants, Eligible Participants and their estates, beneficiaries and successors. The Participant acknowledges that he has received a copy of the Plan.

10.

No Implied Rights.

Neither this Agreement nor the issuance of any Performance Shares shall confer on the Participant any right with respect to continuance of employment or other service with the Company. Except as may otherwise be limited by a written agreement between the Company and the Participant, and acknowledged by the Participant, the right of the Company to terminate at will the Participant’s employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company.

11.

Integration.

This Agreement and the other documents referred to herein, including the Plan, or delivered pursuant hereto, contain the entire understanding of the parties with respect to their subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and restrictions imposed by the Securities Act and applicable state securities laws . This Agreement, including the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.

12.

Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together constitute one and the same instrument.

13.

Amendments.

The Board may, at any time, without consent of or receiving further consideration from the Participant, amend this Agreement and the Performance Share Award made pursuant hereto in response to, or to comply with changes in, Applicable law. To the extent not inconsistent with the terms of the Plan, the Board may, at any time, amend this Agreement in a manner that is not unfavorable to the Participant without the consent of the Participant. The Board may amend this Agreement and the Performance Share Award made pursuant hereto otherwise with the written consent of the Participant.

14.

Securities Act.

(a) The issuance and delivery of the Performance Share Award to the Participant have been registered under the Securities Act by a Registration Statement on Form S-8 that has been filed with the Securities and Exchange Commission (“SEC”) and has become effective. The Participant acknowledges receipt from the Company of its Prospectus dated February 17, 2011, relating to the Performance Share Award.

(b) If the Participant is an “affiliate” of the Company, which generally means a director, executive officer or holder of 10% or more of its outstanding shares, at the time certificates representing Performance Shares are delivered to the Participant, such certificates shall bear the following legend, or other similar legend then being generally used by the Company for certificates held by its affiliates:

15.

Arbitration.

Any controversy or claim arising out of or relating to this Performance Share Agreement shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.


SANDERSON FARMS, INC.

By:
	Name:	Mike Cockrell
	Title:	CFO and Treasurer

PARTICIPANT

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-67474 and Form S-8 No. 333-92412) pertaining to the Sanderson Farms, Inc. and Affiliates Stock Option Plan, the Registration Statements (Form S-8 No. 333-123099 and Form S-8 No. 333-172315) pertaining to the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, and the Registration Statement (Form S-3 No. 333-177162) of our reports dated December 17, 2013, with respect to the consolidated financial statements and schedule of Sanderson Farms, Inc., and the effectiveness of internal control over financial reporting of Sanderson Farms, Inc., included in the Annual Report (Form 10-K) for the year ended October 31, 2013.

/s/ Ernst & Young LLP

New Orleans, Louisiana

December 17, 2013

EXHIBIT 31.1

CERTIFICATION

I, Joe F. Sanderson, Jr., certify that:

1.	I have reviewed this annual report on Form 10-K of Sanderson Farms, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 17, 2013

/s/ Joe F. Sanderson, Jr.

Chief Executive Officer

and Chairman of the Board

(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION

I, D. Michael Cockrell, certify that:

1.	I have reviewed this annual report on Form 10-K of Sanderson Farms, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 17, 2013

/s/ D. Michael Cockrell

Treasurer and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. 1350

In connection with the Annual Report of Sanderson Farms, Inc. (the “Company”) on Form 10-K for the year ended October 31, 2013 (the “Report”), I, Joe F. Sanderson, Chairman and 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 financial condition and results of operations of the Company.

/s/ Joe F. Sanderson, Jr.

Joe F. Sanderson, Jr.

Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

December 17, 2013

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. 1350

In connection with the Annual Report of Sanderson Farms, Inc. (the “Company”) on Form 10-K for the year ended October 31, 2013 (the “Report”), I, D. Michael Cockrell, Treasurer and 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 financial condition and results of operations of the Company.

/s/ D. Michael Cockrell

D. Michael Cockrell

Treasurer and Chief Financial Officer

December 17, 2013