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EX-32 - EX-32 - CAL-MAINE FOODS INCcalm-20160827xex32.htm
EX-31.2 - EX-31.2 - CAL-MAINE FOODS INCcalm-20160827xex31_2.htm
EX-31.1 - EX-31.1 - CAL-MAINE FOODS INCcalm-20160827xex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549



FORM 10-Q

(mark one)



Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the quarterly period ended August 27, 2016



OR



Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the transition period from ____________ to ____________



Commission File Number:  000-04892                                                                   



CAL-MAINE FOODS, INC.

(Exact name of registrant as specified in its charter)





 

 

Delaware

 

64-0500378

(State or other jurisdiction of incorporation or organization)

 

(I.R.S Employer Identification No.)



3320 Woodrow Wilson Avenue, Jackson, Mississippi  39209

(Address of principal executive offices)(Zip Code)



(601) 948-6813

(Registrant’s telephone number, including area code)



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.

                                                                                 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes       No



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.





 

Large Accelerated filer

Accelerated filer 



Non – Accelerated filer

(Do not check if a smaller reporting company)

 

 

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                                 Yes   No 



There were  43,730,931 shares of Common Stock, $0.01 par value, and 4,800,000 shares of Class A Common Stock, $0.01 par value, outstanding as of September 23, 2016.

 

 


 

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED AUGUST 27, 2016





 

 

 

 

 



 

 

 

 

Page Number

Part I.

 

 

Financial Information

 

 



 

 

 

 

 



Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

 



 

 

 

 

 



 

 

Condensed Consolidated Balance Sheets -
August 27, 2016 and May 28, 2016

 



 

 

 

 

 



 

 

Condensed Consolidated Statements of Operations  -
Thirteen Weeks Ended August 27, 2016 and August 28, 2015
 

 



 

 

 

 

 



 

 

Condensed Consolidated Statements of Comprehensive Income -
Thirteen Weeks Ended August 27, 2016 and  August 28, 2015

 



 

 

 

 

 



 

 

Condensed Consolidated Statements of Cash Flow -
Thirteen Weeks Ended August 27, 2016 and August 28, 2015

 



 

 

 

 

 



 

 

Notes to Condensed Consolidated Financial Statements

 



 

 

 

 

 



Item 2.

 

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

 

12 



 

 

 

 

 



Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20 



 

 

 

 

 



Item 4.

 

Controls and Procedures

 

20 



 

 

 

 

 

Part II.

 

 

Other Information

 

 



 

 

 

 

 



Item 1.

 

Legal Proceedings

 

21 



 

 

 

 

 



Item 1A.

 

Risk Factors

 

23 



 

 

 

 

 



Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23 



 

 

 

 

 



Item 6.

 

Exhibits

 

24 



 

 

 

 

 



Signatures

 

 

 

25 







 

 

 


 



PART I.  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



 

 

 

 

 

 



 

 

 

 

 

 

   

 

August 27, 2016

 

May 28, 2016

   

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,646 

 

$

29,046 

Investment securities available-for-sale

 

 

269,202 

 

 

360,499 

Trade and other receivables (less allowance for doubtful accounts of

 

 

 

 

 

 

$944 and $727 at August 27, 2016 and May 28, 2016, respectively)

 

 

74,099 

 

 

67,448 

Income tax receivable

 

 

34,855 

 

 

11,830 

Inventories

 

 

154,621 

 

 

154,799 

Prepaid expenses and other current assets

 

 

3,530 

 

 

2,661 

Total current assets

 

 

573,953 

 

 

626,283 

   

 

 

 

 

 

 

Property, plant and equipment, net

 

 

404,787 

 

 

392,274 

Goodwill

 

 

29,196 

 

 

29,196 

Other investments

 

 

58,483 

 

 

53,975 

Other intangible assets

 

 

4,642 

 

 

4,958 

Other assets

 

 

4,911 

 

 

5,079 

TOTAL ASSETS

 

$

1,075,972 

 

$

1,111,765 

   

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

59,223 

 

$

67,131 

Current maturities of long-term debt

 

 

15,915 

 

 

16,320 

Total current liabilities

 

 

75,138 

 

 

83,451 

   

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

8,125 

 

 

9,250 

Other noncurrent liabilities

 

 

6,380 

 

 

6,321 

Deferred income taxes

 

 

98,902 

 

 

95,382 

Total liabilities

 

 

188,545 

 

 

194,404 



 

 

 

 

 

 

Commitments and Contingencies - see Note 4

 

 

 

 

 

 

   

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 120,000 and 70,261 shares authorized and issued

 

 

 

 

 

 

    at August 27,  2016 and May 28, 2016, respectively

 

 

 

 

 

 

   43,733 and 43,737 shares outstanding at August 27, 2016 and May 28, 2016, respectively 

 

 

703 

 

 

703 

Class A convertible common stock, $.01 par value, 4,800 shares authorized, issued

 

 

 

 

 

 

    and outstanding at August 27, 2016 and May 28, 2016, respectively 

 

 

48 

 

 

48 

Paid-in capital

 

 

47,254 

 

 

46,404 

Retained earnings

 

 

859,504 

 

 

890,440 

Accumulated other comprehensive income (loss), net of tax

 

 

263 

 

 

(48)

Common stock in treasury at cost – 26,527 and 26,524 shares at August 27, 2016

 

 

 

 

 

 

and May 28, 2016, respectively

 

 

(22,314)

 

 

(22,272)

Total Cal-Maine Foods, Inc. stockholders’ equity

 

 

885,458 

 

 

915,275 

Noncontrolling interest in consolidated entities

 

 

1,969 

 

 

2,086 

Total stockholders’ equity

 

 

887,427 

 

 

917,361 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,075,972 

 

$

1,111,765 

See Notes to Condensed Consolidated Financial Statements.

2

 


 

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

13 Weeks Ended

   

 

August 27, 2016

 

August 29, 2015

Net sales

 

$

239,845 

 

$

609,895 

Cost of sales

 

 

249,414 

 

 

346,824 

Gross profit (loss)

 

 

(9,569)

 

 

263,071 

Selling, general, and administrative expense

 

 

40,256 

 

 

42,963 

Operating income (loss)

 

 

(49,825)

 

 

220,108 

Other income (expense):

 

 

 

 

 

 

Interest income, net

 

 

1,091 

 

 

27 

Royalty income

 

 

406 

 

 

606 

Equity in income of affiliates

 

 

191 

 

 

730 

Other, net

 

 

(403)

 

 

(814)

   

 

 

1,285 

 

 

549 

   

 

 

 

 

 

 

Income (loss) before income taxes and noncontrolling interest

 

 

(48,540)

 

 

220,657 

Income tax expense (benefit)

 

 

(17,560)

 

 

76,567 

Net income (loss) before noncontrolling interest

 

 

(30,980)

 

 

144,090 

Less: Net income (loss) attributable to noncontrolling interest

 

 

(44)

 

 

1,067 

Net income (loss) attributable to Cal-Maine Foods, Inc.

 

$

(30,936)

 

$

143,023 

   

 

 

 

 

 

 

Net income (loss) per common share attributable to Cal-Maine Foods, Inc.:

 

 

 

 

 

 

    Basic

 

$

(0.64)

 

$

2.97 

    Diluted

 

$

(0.64)

 

$

2.95 

Dividends per common share

 

$

 -

 

$

0.983 

Weighted average shares outstanding:

 

 

 

 

 

 

    Basic

 

 

48,249 

 

 

48,163 

    Diluted

 

 

48,249 

 

 

48,498 







See Notes to Condensed Consolidated Financial Statements.



3

 


 

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

Net income (loss), including noncontrolling interests

 

$

(30,980)

 

$

144,090 



 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 



 

 

 

 

 

 

Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments

 

 

502 

 

 

(300)



 

 

 

 

 

 

Income tax benefit (expense) related to items of other comprehensive income

 

 

(191)

 

 

120 



 

 

 

 

 

 

Other comprehensive income (loss), net of  tax

 

 

311 

 

 

(180)



 

 

 

 

 

 

Comprehensive income (loss)

 

 

(30,669)

 

 

143,910 



 

 

 

 

 

 

Less: comprehensive income (loss) attributable to the noncontrolling interest

 

 

(44)

 

 

1,067 



 

 

 

 

 

 

Comprehensive income (loss) attributable to Cal-Maine Foods, Inc.

 

$

(30,625)

 

$

142,843 







See Notes to Condensed Consolidated Financial Statements.

4

 


 

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

Operating activities:

 

 

 

 

 

 

Net income (loss) including noncontrolling interest

 

$

(30,980)

 

$

144,090 

Depreciation and amortization

 

 

11,159 

 

 

11,061 

Other adjustments, net

 

 

(25,626)

 

 

(1,036)

Net cash provided by (used in) operations

 

 

(45,447)

 

 

154,115 



 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchase of investments

 

 

(9,008)

 

 

(80,668)

Sales of investments

 

 

92,833 

 

 

43,942 

Investment in joint ventures

 

 

(5,500)

 

 

(18,000)

Purchases of property, plant and equipment

 

 

(23,895)

 

 

(15,266)

Payments received on notes receivable and from affiliates

 

 

1,250 

 

 

107 

Net proceeds from disposal of property, plant and equipment

 

 

10 

 

 

171 

Net cash provided by (used in) investing activities

 

 

55,690 

 

 

(69,714)



 

 

 

 

 

 

Financing activities:  

 

 

 

 

 

 

Purchase of common stock by treasury

 

 

(40)

 

 

 -

Distributions to noncontrolling interests

 

 

(73)

 

 

(10)

Principal payments on long-term debt

 

 

(1,530)

 

 

(8,310)

Payments of dividends

 

 

 -

 

 

(15,380)

Net cash used in financing activities

 

 

(1,643)

 

 

(23,700)

Net change in cash and cash equivalents

 

 

8,600 

 

 

60,701 



 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

29,046 

 

 

8,667 

Cash and cash equivalents at end of period

 

$

37,646 

 

$

69,368 





See Notes to Condensed Consolidated Financial Statements.



5

 


 



CAL-MAINE FOODS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

August 27, 2016

(unaudited)

1.   Presentation of Interim Information



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affected reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.  Operating results for the thirteen weeks ended August 27, 2016 are not necessarily indicative of the results that may be expected for the year ending June 3, 2017.  



The condensed consolidated balance sheet at May 28, 2016 has been derived from the audited consolidated financial statements at that date.  It does not include all of the information and footnotes required by GAAP for complete financial statements. 



For further information, refer to the consolidated financial statements and footnotes thereto included in Cal-Maine Foods, Inc.'s annual report on Form 10-K for the fiscal year ended May 28, 2016. References to “we,” “us,” “our,” or the “Company” refer to Cal-Maine Foods, Inc.



2.   Stock Based Compensation



Total stock based compensation expense for the thirteen weeks ended August 27, 2016 and August 29, 2015 was $848,000 and $700,000, respectively. 



Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at August 27, 2016 was $4.8 million and will be recorded over a weighted average period of 1.9 years.  Refer to Note 11 of our May 28, 2016 audited financial statements for further information on our stock compensation plans.



At August 27, 2016, there were 283,800 restricted shares outstanding, with a weighted average grant date fair value of $35.99 per share.    A summary of the Company’s restricted share activity for the  thirteen weeks ended August 27, 2016 follows:





 

 

 

 

 



Number of Shares

 

Weighted Average Grant Date Fair Value

Outstanding, May 28, 2016

 

288,900 

 

$

35.97 

Vested

 

(2,960)

 

 

29.41 

Forfeited

 

(2,140)

 

 

41.64 

Outstanding, August 27, 2016

 

283,800 

 

$

35.99 



















6

 


 



3.   Inventories



Inventories consisted of the following (in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

August 27, 2016

 

May 28, 2016

Flocks

 

$

98,355 

 

$

94,312 

Eggs

 

 

12,072 

 

 

11,519 

Feed and supplies

 

 

44,194 

 

 

48,968 



 

$

154,621 

 

$

154,799 









4.   Contingencies



Financial Instruments

The Company maintained cash collateralized standby letters of credit (“LOC”) for the benefit of certain insurance companies totaling $3.7 million at August 27, 2016.  The cash collateralizing the LOCs is included in the line item “Other assets” in the Condensed Consolidated Balance Sheets.    As a result, none of the LOCs are recorded as a liability on the consolidated balance sheets.



Legal Contingencies

The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions.  If the Company’s assessment of a contingency indicates it is probable a material loss has been incurred and the amount of the liability can be reasonably estimated, the estimated liability is accrued in the Company’s financial statements.    If the assessment indicates a potential material loss contingency is not probable, but is reasonably possible, or probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the possible loss or range of possible loss will be disclosed, or a statement will be made that such an estimate cannot be made.



These legal actions are discussed in detail at Part II, Item 1, of this report.



7

 


 

5.   Net Income per Common Share  



Basic net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period.  Diluted net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus the dilutive effects of options and restricted stockDue to the net loss in the first quarter of fiscal 2017, restricted shares in the amount of 140,551 were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive.  The computations of basic and diluted net income per share attributable to the Company are as follows (in thousands, except per share data):





 

 

 

 

 

 



 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

Net income (loss) attributable to

 

 

 

 

 

 

Cal-Maine Foods, Inc.

 

$

(30,936)

 

$

143,023 



 

 

 

 

 

 

Basic weighted-average common shares

 

 

48,249 

 

 

48,163 

Effect of dilutive securities:

 

 

 

 

 

 

Restricted shares

 

 

 -

 

 

335 

Dilutive potential common shares

 

 

48,249 

 

 

48,498 



 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

attributable to Cal-Maine Foods, Inc.:

 

 

 

 

 

 

Basic

 

$

(0.64)

 

$

2.97 

Diluted

 

$

(0.64)

 

$

2.95 











6.   Accrued Dividends Payable and Dividends per Common Share



We make an accrual of dividends payable at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors. According to the policy, the Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with generally accepted accounting principles in an amount equal to one-third (1/3) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day following the last day of such quarter, except for the fourth fiscal quarter.  For the fourth quarter, the Company will pay dividends to shareholders of record on the 65th day after the quarter end. Dividends are payable on the 15th day following the record date. Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. At August 27, 2016, cumulative losses that must be recovered prior to paying a dividend were $31.3 million.    When applicable, the amount of the accrual appears on the Condensed Consolidated Balance Sheets as “Accrued dividends payable.”



8

 


 

On our condensed consolidated statement of income, we determine dividends per common share in accordance with the computation in the following table (in thousands, except per share data):





 

 

 

 

 

 



 

 

 

 

 

 



13 Weeks Ended

 



August 27, 2016

 

August 29, 2015

 

Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend

$

(30,936)

 

$

143,023 

 



 

 

 

 

 

 

1/3 of net income attributable to Cal-Maine Foods, Inc.

 

 -

 

 

47,674 

 



 

 

 

 

 

 

Common stock outstanding (shares)

 

43,733 

 

 

43,698 

 

Class A common stock outstanding (shares)

 

4,800 

 

 

4,800 

 

Total common stock outstanding (shares)

 

48,533 

 

 

48,498 

 



 

 

 

 

 

 

Dividends per common share*

$

 -

 

$

0.983 

 



*Dividends per common share = 1/3 of Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend ÷ Total common stock outstanding (shares)











7.   Fair Value Measurements



The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy.  The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.



·

Level 1 - Quoted prices in active markets for identical assets or liabilities

·

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly

·

Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:

Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.



Long-term debt: The carrying value of the Company’s long-term debt is at its stated value.  We have not elected to carry our long-term debt at fair value.  Fair values for debt are based on quoted market prices or published forward interest rate curves, which are level 2 inputs.  Estimated fair values are management’s estimate, which is a level 3 input; however, when there is no readily available market data, the estimated fair values may not represent the amounts that could be realized in a current transaction, and the fair values could change significantly. The fair value and carrying value of the Company’s borrowings under its long-term debt were as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



August 27, 2016

 

May 28, 2016



Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

5.4%6.4% Notes payable

$

24,040 

 

$

24,192 

 

$

25,570 

 

$

25,824 



$

24,040 

 

$

24,192 

 

$

25,570 

 

$

25,824 



9

 


 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In accordance with the fair value hierarchy described above, the following table shows the fair value of financial assets and liabilities measured at fair value on a recurring basis as of August 27, 2016 and May 28, 2016 (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total

August 27, 2016

 

Level 1

 

Level 2

 

Level 3

 

Balance

Assets

 

 

 

 

 

 

 

 

 

 

 

 

US government and agency obligations

 

$

 -

 

$

18,596 

 

$

 -

 

$

18,596 

Municipal bonds

 

 

 -

 

 

68,049 

 

 

 -

 

 

68,049 

Corporate bonds

 

 

 -

 

 

168,421 

 

 

 -

 

 

168,421 

Foreign government obligations

 

 

 -

 

 

2,035 

 

 

 -

 

 

2,035 

Asset backed securities

 

 

 -

 

 

12,101 

 

 

 -

 

 

12,101 

Mutual funds

 

 

2,011 

 

 

 -

 

 

 -

 

 

2,011 

Total assets measured at fair value

 

$

2,011 

 

269,202 

 

$

 -

 

$  

271,213 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total

May 28, 2016

 

Level 1

 

Level 2

 

Level 3

 

Balance

Assets

 

 

 

 

 

 

 

 

 

 

 

 

US government and agency obligations

 

$

 -

 

$

18,814 

 

$

 -

 

$

18,814 

Municipal bonds

 

 

 -

 

 

79,643 

 

 

 -

 

 

79,643 

Corporate bonds

 

 

 -

 

 

240,537 

 

 

 -

 

 

240,537 

Foreign government obligations

 

 

 -

 

 

2,046 

 

 

 -

 

 

2,046 

Asset backed securities

 

 

 -

 

 

15,893 

 

 

 -

 

 

15,893 

Mutual funds

 

 

5,503 

 

 

 -

 

 

 -

 

 

5,503 

Total assets measured at fair value

 

$

5,503 

 

356,933 

 

$

 -

 

$  

362,436 



 

 

 

 

 

 

 

 

 

 

 

 



Investment securities – available-for-sale, classified as level 2, consist of U.S. government and agency obligations, taxable and tax exempt municipal bonds, zero coupon municipal bonds, foreign government obligations, asset backed securities and corporate bonds with maturities of three months or longer when purchased. We classify these securities as current, because amounts invested are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.











8.   Investment Securities



The following represents the Company’s investment securities as of August 27, 2016 and May 28, 2016 (in thousands):





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

August 27, 2016

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Estimated Fair Value

US government and agency obligations

$

18,583 

 

$

13 

 

$

 -

 

$

18,596 

Municipal bonds

 

67,806 

 

 

243 

 

 

 -

 

 

68,049 

Corporate bonds

 

168,145 

 

 

276 

 

 

 -

 

 

168,421 

Foreign government obligations

 

2,032 

 

 

 

 

 -

 

 

2,035 

Asset backed securities

 

12,099 

 

 

 

 

 -

 

 

12,101 

Total current investment securities

$

268,665 

 

$

537 

 

$

 -

 

$

269,202 



 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

1,458 

 

 

553 

 

 

 -

 

 

2,011 

Total noncurrent investment securities

$

1,458 

 

$

553 

 

$

 -

 

$

2,011 





10

 


 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

May 28, 2016

Amortized Cost

 

Unrealized Gains

 

Unrealized Losses

 

Estimated Fair Value

US government and agency obligations

$

18,809 

 

$

 

$

 -

 

$

18,814 

Municipal bonds

 

79,481 

 

 

162 

 

 

 -

 

 

79,643 

Corporate bonds

 

240,593 

 

 

 -

 

 

56 

 

 

240,537 

Foreign government obligations

 

2,044 

 

 

 

 

 -

 

 

2,046 

Asset backed securities

 

15,908 

 

 

 -

 

 

15 

 

 

15,893 

Mutual funds

 

3,565 

 

 

 

 

 -

 

 

3,566 

Total current investment securities

$

360,400 

 

$

170 

 

$

71 

 

$

360,499 



 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

1,448 

 

 

489 

 

 

 -

 

 

1,937 

Total noncurrent investment securities

$

1,448 

 

$

489 

 

$

 -

 

$

1,937 



Proceeds from sales of available-for-sale securities were $92.8 million and $43.9 million during the thirteen weeks ended August 27, 2016 and August 29, 2015, respectively. Gross realized gains on those sales during the thirteen weeks ended August 27, 2016 and August 29, 2015 were $108,000 and $4,000, respectively.  Gross realized losses on those sales during the thirteen weeks ended August 27, 2016 and August 29, 2015 were zero and $28,000, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.



Unrealized holding gains, net of tax, on available-for-sale securities classified as current in the amount of  $271,000 for the thirteen weeks ended August 27, 2016 compared with unrealized holding losses, net of tax, of $125,000 for the same period of fiscal 2016.    Unrealized holding gains, net of tax, on long-term available-for-sale securities of $40,000 were recorded for the thirteen weeks ended August 27, 2016 compared with unrealized holding losses, net of tax, on long-term available-for-sale securities of $55,000 for the same period of fiscal 2016.



Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.  Contractual maturities at August 27, 2016, are as follows (in thousands):



 

 



 

 



 

Estimated Fair Value

Within one year       

$

133,357 

1-5 years

 

135,845 

Total

$

269,202 











9.   Equity



The following reflects the equity activity, including our noncontrolling interest, for the thirteen weeks ended August 27, 2016:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cal-Maine Foods, Inc. Stockholders

 

 

 

 



 

Common Stock

 

 

 

 

 

 

 

 



 

 

 

Class A

 

Treasury

 

Paid In

 

Accum. Other

 

Retained

 

Noncontrolling

 

 



 

Amount

 

Amount

 

Amount

 

Capital

 

Comp. Loss

 

Earnings

 

Interest

 

Total

Balance at May 28, 2016

$

703 

$

48 

$

(22,272)

$

46,404 

$

(48)

$

890,440 

$

2,086 

$

917,361 

Other comprehensive loss, net of tax

 

 -

 

 -

 

 -

 

 -

 

311 

 

 -

 

 -

 

311 

Forfeiture of restricted stock

 

 -

 

 -

 

(2)

 

 

 -

 

 -

 

 -

 

 -

Buyback of 920 shares to satisfy withholding obligation in connection with the vesting of restricted stock

 

 -

 

 -

 

(40)

 

 -

 

 -

 

 -

 

 

 

(40)

Distribution to noncontrolling interest partners

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

(73)

 

(73)

Restricted stock compensation

 

 -

 

 -

 

 -

 

848 

 

 -

 

 -

 

 -

 

848 

Net income

 

 -

 

 -

 

 -

 

 -

 

 -

 

(30,936)

 

(44)

 

(30,980)

Balance at August 27, 2016

$

703 

$

48 

$

(22,314)

$

47,254 

$

263 

$

859,504 

$

1,969 

$

887,427 







11

 


 



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business, including estimated production data, expected operating schedules, projected construction costs, and other operating data, including anticipated results of operations and financial condition.  Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words.  Actual production, operating schedules, capital costs, results of operations, and other projections and estimates could differ materially from those projected in the forward-looking statements.  The forward-looking statements are based on management’s current intent, belief, expectations, estimates, and projections regarding the Company and its industry.  These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control.  The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 28, 2016, as updated by our subsequent Quarterly Reports on Form 10-Q, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, and (vi) adverse results in pending litigation matters.  Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate.  Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof.  Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.



OVERVIEW



Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packaging, marketing, and distribution of fresh shell eggs.  Our fiscal year end is the Saturday closest to May 31.

 

Our operations are fully integrated.  At our facilities we hatch chicks, grow and maintain flocks of pullets (young female chickens, under 18 weeks of age), layers (mature female chickens) and breeders (male and female birds used to produce fertile eggs to be hatched for egg production flocks), manufacture feed, and produce, process, and distribute shell eggs. We are the largest producer and marketer of shell eggs in the United States (U.S.).  We market the majority of our shell eggs in the southwestern, southeastern, mid-western, and mid-Atlantic regions of the U.S.  We market shell eggs through an extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product consumers.    



The Company has one operating segment,  which is the production, grading, packaging, marketing and distribution of shell eggs.  The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products.  We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as non-specialty products.  While we report separate sales information for these types of eggs, we note there are a number of cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers.

 

Our operating results are directly tied to egg prices, which are highly volatile and subject to wide fluctuations, and are outside of our control. For example, the annual average Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs, for our fiscal 2005-2016 ranged from a low of $0.72 during fiscal 2005 to a high of $2.97 during fiscal 2016.  The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices until supply and

12

 


 

demand returned to balance.  As a result, our financial results from year to year may vary significantly.   Shorter term, retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months.  Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production during the spring and early summer.  Shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas, and Easter.  Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in August and May, respectively. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.  



From April through June 2015, our industry experienced a significant avian influenza (“AI”) outbreak, primarily in the upper Midwestern U.S.  Based on several published industry estimates, we believe approximately 12% of the national flock of laying hens was affected.  The affected laying hens were either destroyed by the disease or euthanized.  During April through June 2015, the supply of laying hens decreased substantially, and then began to recover gradually. As of August 1, 2016, the national laying hen flock according to the U.S. Department of Agriculture was approximately 8.4% higher than the AI reduced flock on August 1, 2015, but remained 3.3% below the number of layers on August 1, 2014.  Egg prices increased significantly during the summer and fall of 2015. The average Urner-Barry Thursday prices for the large market (i.e. generic shell eggs) in the southeastern region for the months of June through November 2015 was $2.32 per dozen, with a peak of $2.97 in August.  Subsequent to November 2015, shell egg prices declined.  The Urner Barry price index hit a decade-low level during our fiscal 2016 fourth quarter, and has remained at significantly lower levels in the first quarter of fiscal 2017 than the corresponding period of last year.  Accordingly, our net average selling prices for eggs for the first quarter of fiscal 2017  was $0.952 compared with $2.243 in the fiscal 2016 first quarter. Retail demand has remained favorable; however, lower institutional demand for egg products and reduced egg exports have pushed inventory levels higher and created additional pricing pressure.  Based on USDA reports, the laying flock is expected to increase through the end of calendar 2016, creating more supply and the potential for further price declines. Egg prices will likely remain volatile and future prices will depend on levels of supply and the recovery of institutional demand for eggs which was adversely impacted as a result of the 2015 shortages caused by AI. 



We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. For accounting and tax purposes, we classify nutritionally enhanced, cage-free, organic and brown eggs as specialty shell eggs. They have been a significant and growing segment of the market in recent years. During our fiscal 2016 an increasing number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to a cage-free egg supply chain by specified future dates. We are working with our customers to achieve smooth progress in meeting their goals, and our focus for future expansion at our farms will be with environments that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline that meets our customer’s needs.



For the thirteen weeks ended August 27, 2016, we produced approximately 82% of the total number of shell eggs we sold.  This compares to 78% in the comparable prior year periodFor both periods, approximately 4% of such production was provided by contract producers utilizing their facilities in the production of shell eggs by layers owned by us. We own the shell eggs produced under these arrangements.



Our cost of production is materially affected by feed costs.  Feed costs averaged approximately 60% of our total farm egg production cost for the thirteen weeks ended August 27, 2016.    Changes in market prices for corn and soybean meal, the primary ingredients in the feed we use, result in changes in our cost of goods sold.   The cost of our feed ingredients, which are commodities, are subject to factors over which we have little or no control such as volatile price changes caused by weather, size of harvest, transportation and storage costs, demand and the agricultural and energy policies of the U.S. and foreign governments.  Increased U.S. acreage and large per acre yields for both corn and soybeans in 2016 should provide adequate domestic supplies for both of our primary feed ingredients.  Domestic corn supplies could be particularly robust, although domestic soybean stocks could be negatively impacted by increased exports due to reduced supplies from South America.



As previously disclosed on August 2, 2016, we are in the process of acquiring substantially all of the assets of Foodonics International, Inc. and its related entities doing business as Dixie Egg Company.  The assets to be acquired include commercial egg production and processing facilities with capacity for approximately 1.6 million laying hens and related feed production, milling and distribution facilities in Georgia, Alabama and Florida, as well as contract grower arrangements for an additional 1.5 million laying hens.  In addition, the assets to be acquired include the Egg-Land’s Best, Inc. franchise

13

 


 

with licensing rights for portions of certain markets in Alabama, Florida and Georgia as well as Puerto Rico, Bahamas and Cuba.  We expect to close this transaction in the second quarter of fiscal 2017.



RESULTS OF OPERATIONS



The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Income expressed as a percentage of net sales.



 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

Net sales

 

100.0 

%

 

100.0 

%

Cost of sales

 

104.0 

 

 

56.9 

 

Gross profit (loss)

 

(4.0)

 

 

43.1 

 

Selling, general, and administrative expense

 

16.7 

 

 

7.0 

 

Operating income (loss)

 

(20.7)

 

 

36.1 

 

Other income (expense):

 

 

 

 

 

 

Interest income, net

 

0.4 

 

 

0.0 

 

Royalty income

 

0.2 

 

 

0.1 

 

Equity in income of affiliates

 

0.1 

 

 

0.1 

 

Other

 

(0.2)

 

 

(0.1)

 



 

0.5 

 

 

0.1 

 



 

 

 

 

 

 

Income (loss) before income taxes and noncontrolling interest

 

(20.2)

 

 

36.2 

 

Income tax expense (benefit)

 

(7.3)

 

 

12.6 

 

Net income (loss) before noncontrolling interest

 

(12.9)

 

 

23.6 

 

Less: Net income (loss) attributable to noncontrolling interest

 

0.0 

 

 

0.1 

 

Net income (loss) attributable to Cal-Maine Foods, Inc.

 

(12.9)

%

 

23.5 

%



NET SALES



Approximately 98% of our net sales for the first quarter of fiscal 2017 were shell eggs and approximately 2%  were egg products.  Net sales for the thirteen weeks ended August 27, 2016 were $239.8 million, a decrease of $370.1 million, or 60.7%, compared to net sales of $609.9 million for the thirteen weeks ended August 29, 2015, primarily due to the decrease in egg selling pricesTotal dozens of shell eggs sold and egg selling prices decreased for the current thirteen-week period compared to the same period in fiscal 2016.    Dozens sold for the first quarter of fiscal year 2017  were 242.3 million, a decrease of 16.5 million, or 6.4%, compared to 258.8 million for the first quarter of fiscal 2016 resulting in a decrease in net sales of $36.9 million. 



Our net average selling price per dozen of shell eggs for the thirteen weeks ended August 27, 2016 was $0.952, compared to $2.243 for the thirteen weeks ended August 29 2015, a decrease of 57.6%, resulting in a corresponding decrease in net shell egg sales of $312.9 million.  Net average selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock, and undergrades.    



Egg products and other revenues resulted in a decrease in net sales of $20.4 million for the thirteen weeks ended August 27, 2016 compared to the same period of last year.



14

 


 

The table below represents an analysis of our non-specialty and specialty shell egg sales (in thousands, except percentage data).  Following the table is a discussion of the information presented in the table.



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

Total net sales

 

$

239,845 

 

 

$

609,895 

 



 

 

 

 

 

 

 

 

Non-specialty shell egg sales

 

$

113,504  48.4% 

 

$

422,921  72.6% 

Specialty shell egg sales

 

 

109,312  46.7% 

 

 

143,953  24.7% 

Co-pack specialty shell egg sales

 

 

8,455  3.6% 

 

 

13,999  2.4% 

Other

 

 

2,997  1.3% 

 

 

1,785  0.3% 

Net shell egg sales

 

$

234,268  100.0% 

 

$

582,658  100.0% 



 

 

 

 

 

 

 

 

Net shell egg sales as a percent  of total net sales

 

 

98% 

 

 

 

96% 

 



 

 

 

 

 

 

 

 

Dozens sold:

 

 

 

 

 

 

 

 

Non-specialty shell egg

 

 

182,730  75.4% 

 

 

195,352  75.5% 

Specialty shell egg

 

 

55,399  22.9% 

 

 

58,035  22.4% 

Co-pack specialty shell egg

 

 

4,196  1.7% 

 

 

5,387  2.1% 

Total dozens sold

 

 

242,325  100.0% 

 

 

258,774  100.0% 



 

 

 

 

 

 

 

 

Net average selling price

 

 

$        0.952 

 

 

 

$        2.243 

 





Non-specialty shell eggs include all shell egg sales not specifically identified as specialty shell egg sales.   The non-specialty shell egg market is characterized by an inelasticity of demand.   Small increases or decreases in production or demand can have a large positive or adverse effect on selling prices.  For the thirteen weeks ended August 27, 2016, non-specialty shell egg dozens sold decreased approximately 6.5% and the average selling price decreased 70.7% to $0.638 from $2.174 for the same period of the prior year.



Specialty shell eggs, which include nutritionally enhanced, cage-free, organic and brown eggs, continue to make up a larger portion of our total shell egg revenue and dozens sold.  Specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the perceived benefits from these products.  This was particularly evident in recent quarters as non-specialty egg prices declined more than specialty egg prices.  However, as non-specialty egg prices declined, we experienced some margin and volume pressures on specialty egg sales.  For the thirteen weeks ended August 27, 2016, specialty shell egg dozens sold decreased approximately 4.5% and the average selling price decreased 20.5% to $1.973 from $2.481 for the same period of the prior year. 



Co-pack specialty shell eggs are sold primarily through co-pack arrangements, a common practice in the industry whereby production and processing of certain products is outsourced to another producer.  Shell egg sales in this category represented 4.2 million and 5.4 million dozen for the quarters ended August 27, 2016 and August 29, 2015, respectively,  primarily reflecting the loss of a portion of a major customer’s co-pack business



The shell egg sales classified as “Other” represent sales of hard cooked eggs, hatching eggs, and/or other miscellaneous products, which are included with our shell egg operations. 



Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form.  Our egg products are sold through our consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC (“TEP”).  For the first quarter of fiscal 2017, egg product sales were $5.6 million, a decrease of $21.7 million, or 79.5%, compared to $27.2 million for the same period of 2016. Pounds sold for the first quarter of fiscal year 2017 were 14.4 million pounds, an increase of

15

 


 

253,000 pounds, or 1.8%, compared to 14.1 million pounds for the same quarter of fiscal 2016.  Selling prices for liquid and frozen egg products were down 79.3% for the first quarter of 2017 compared with the same period of last year.



COST OF SALES

Cost of sales consists of costs directly related to production, processing and packing shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products, and other non-egg costs.  Farm production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs.



The following table presents the key variables affecting cost of sales (in thousands, except cost per dozen data).











 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

13 Weeks Ended



 

August 27, 2016

 

August 29, 2015

 

Percent Change

Cost of Sales:

 

 

 

 

 

 

 

 

 

Farm production

 

$

142,871 

 

$

139,035 

 

2.8 

%

Processing and packaging

 

 

46,302