Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-K

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year EndedJUNE 2, 2012MAY 30, 2015

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number:  000-04892

 

CAL-MAINE FOODS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

64-0500378

Delaware

64-0500378

(State or other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

Incorporation or Organization)

 

3320 Woodrow Wilson Avenue, Jackson, Mississippi  39209

(Address of principal executive offices)  (Zip(Zip Code)

 

(601) 948-6813

(Registrant’s telephone number, including area code)

 

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

 

Title of each Class:

Name of exchange on
which registered:

Common Stock,  $0.01 par
value per share

The NASDAQ Global Select Market

   

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.

Yes  ¨No  x

 

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  ¨No  x

 

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  xNo  ¨

 

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  xNo  ¨

 

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.S ( 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):

Large accelerated filer¨  ☒

Accelerated filer  x☐ 

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 Act).

Yes  ¨No  x☒ 

 

The aggregate market value, as reported by The NASDAQ Global Select Market, of the registrant’s Common Stock, $0.01 par value, held by non-affiliates at November 26, 2011,29, 2014, which was the date of the last business day of the registrant’s most recently completed second fiscal quarter, was $447,705,868.$1,267,795,422

 

As of August 1, 2012, 21,521,291July 17, 2015,  43,697,844 shares of the registrant’s Common Stock, $0.01 par value, and 2,400,0004,800,000 shares of the registrant’s Class A Common Stock, $0.01 par value, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

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TABLE OF CONTENTS

 

TABLE OF CONTENTS

Part I

  Page
Item Number
   
FORWARD-LOOKING STATEMENTS3
1.Business3
1A.Risk Factors  8
1B.Unresolved Staff Comments13
2.Properties13
3.Legal Proceedings13
4.Mine Safety Disclosures16
 Part II 
   
5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities17
6.Selected Financial Data18
7.Management’s Discussion and Analysis of Financial Condition and Results of Operations19
7A.Quantitative and Qualitative Disclosures About Market Risk33
8.Financial Statements and Supplementary Data34
9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure70
9A.Controls and Procedures70
9B.Other Information72
   
 Part III 
   
10.Directors, Executive Officers and Corporate Governance73
11.Executive Compensation73
12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.73
13.Certain Relationships and Related Transactions, and Director Independence73
14.Principal Accounting Fees and Services73
   
 Part IV 
   
15.Exhibits, Financial Statement Schedules74
   
 Signatures77

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PART I

 

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PART I

FORWARD-LOOKING STATEMENTS

 

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, expected capital 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, 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 our company and our industry.  These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and maymight 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 and elsewhere in this report as well as those included in other reports that we file from time to time with the Securities and Exchange Commission (the “SEC”) (including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including disease, such as avian influenza, pests, weather conditions and potential for recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv)risks, changes or obligations that could result from our future acquisition of new flocks or businesses, and (v) 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, the forward-lookingforward‑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 as a result of new information, future events or otherwise.

 

ITEM 1.  BUSINESS

 

Our Business

 

Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is the largest producer and marketer of shell eggs in the United States. In fiscal 2012,2015, we sold approximately 884.31,063.1 million dozen shell eggs, which we believe represented approximately 19%23% of domestic shell egg consumption. Our total flock of approximately 26.233.7 million layers and 6.68.4 million pullets and breeders is the largest in the United States.U.S.  Layers are mature female chickens, pullets are young female chickens usually under 2018 weeks of age, and breeders are male orand female chickens used to produce fertile eggs to be hatched for egg production flocks.

 

We operate in a single segment. Our primary business is the production, grading, packaging, marketing and distribution of shell eggs. We sell most of our shell eggs in 29 states, primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.U.S. We market our shell eggs through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product manufacturers.consumers.  Some of our sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of certain products is outsourced to another producer.  The strength of our position is evidenced by the fact that we have the largest market share in the grocery segment for shell eggs, and we sell shell eggs to a majority of the largest food retailers in the United States.U.S.

 

We are also one of the largest producers and marketers of value-added specialty shell eggs in the United States.U.S. Specialty shell eggs include nutritionally enhanced, cage free, organic and organic eggs and arebrown eggs. They have been a rapidly growingsignificant segment of the market.market in recent years.  In fiscal 2012,2015, specialty shell eggs and co-pack specialty shell eggs represented approximately 24%27.2% and 2.8% of our shell egg dollar sales, as compared to 24% for fiscal 2011,respectively, and accounted for approximately 16%19.8% and 2.0%, respectively, of our total shell egg dozen volumes, as compared tovolumes. In fiscal 2014, specialty shell eggs and co-pack specialty shell eggs represented 24.3% and 3.8% of our shell egg dollar sales, respectively, and accounted for approximately 16% in fiscal 2011.17.2% and 2.7%, respectively, of our total shell egg dozen volumes.  Retail prices for specialty eggs are less cyclical than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the perceived increased benefits from those products. We market our specialty shell eggs under the following brands:Egg-Land’s Best(TM)Best®,Land O’ Lakes®, Farmhouse®, and4-Grain®.We.  We are a member of the Egg-Land’s Best, Inc. (“EB”) cooperative which markets the leading brand in the specialty shell egg segment. We haveand produce, market and distribute Egg-Land’s Best® and Land O’ Lakes®  branded eggs, along with our associated joint ventures, under  exclusive license agreements to market and distributeEgg-Land’s Best(TM) specialty shell eggs in major metropolitan areas, including New York City, andfor a number of states in the southeast, south central, and southwest. In April 2012, EB formed Eggland’s Best, LLC by contributingsouthwest U.S. as well as the assets of EB. Subsequent to the formation of Eggland’s Best, LLC, EB sold to Land O’Lakes, Inc. a 50% interest in Eggland’s Best, LLC. Going forward the specialty eggs of EB and Land O’Lakes, Inc. will be marketed through Eggland’s Best, LLC.New York City area.    We market cage free eggs under our trademarkedFarmhouse®brand and distribute those shell eggsthem across the southeast and southwest regions of the United States.U.S.  We market organic, all natural, cage-free, vegetarian, and omega-3 eggs under our4-Grain® brand. We also produce,

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market, and distribute private label specialty shell eggs to several customers.

 

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We are also a leader in industry consolidation. Since 1989, we have completed sixteeneighteen acquisitions ranging in size from 600,000 layers to 7.5 million layers. In July 2012, we announced a pending acquisition of the commercial egg operations of Pilgrim’s Pride Corporation. We estimate that this acquisition will be completed in August 2012.  Despite a market that has been characterized by increasing consolidation, the shell egg production industry remains highly fragmented. According to Egg Industry Magazine, there currently are 52At December 31, 2014, 59 producers, who each ownowning at least one million layers, owned approximately 93% of total industry layers and the ten largest producers ownowned approximately 49%47% of total industry layers. We believe industry consolidation will continue and we plan to capitalize on opportunities as they arise.

 

Industry Background

Based on historical consumption trends, demand for shell eggs increases in line with overall population growth, averaging an increasegrowth of about 1% per year. However, in each of the most recent three years, demand for shell eggs has grown approximately 2% per year.  According to U.S. Department of Agriculture (“USDA”) reports, since 2000,, annual per capita U.S. consumption in the United States has varied between 246248 and 258 eggs.263 eggs, since 2000. In calendar year 2011,2014, per capita U.S. consumption in the United States was estimated to be 246263 eggs, or approximately five eggs per person per week. Per capita consumption is determined by dividing the total supply of eggs for the shell egg industry by the entire population in the U.S. (i.e. all eggs supplied domestically by the shell egg industry are consumed).  

Prices for Shell Eggs

Shell egg prices are a critical component of profitability in the industry. We believe that the majority of shell eggs sold in the United StatesU.S. in the retail and foodservice channels are sold at prices related to the Urner Barry wholesale quotation for shell eggs. We sell the majority of our non-specialty shell eggs at prices related to Urner Barry Spot Egg Market Quotations or formulas related to our costs of production which include the cost of corn and soybean meal.  For fiscal 2012,2015, wholesale large shell egg prices in the southeast region, as quoted by Urner Barry, averaged $1.21$1.53 per dozen compared to an average of $1.15$1.28 per dozen for fiscal years 20092011 to 2011.2014.  According to a USDA report as of JulyJune 1, 2012,2015, the number of layers in the U.S. flock was down 10.6% compared to June 1, 2014.  This decrease is up slightly fromdue to the prior year, whileoutbreak of avian influenza in the upper Midwestern U.S. beginning in April of 2015 and is not expected to be indicative of future flock size.  The number of chicks hatched from January through June of 20122015 was lower year-over-year. Subsequentup 0.4% compared to the July 1, 2012 USDA report, heat related mortalitysame period in egg producing states in2014.  As a result of the mid-western U.S. has resulted in reduced bird numbers, which could lead to slightly higherflock size, egg prices duehave moved significantly higher in recent months and are expected to remain high until the reducednational laying hen supply in the months ahead.flock can be replenished.

 

Feed Costs for Shell Egg Production

 

Feed is a primary cost component in the production of shell eggs and represents over half of industry farm level production costs. Most shell egg producers, including us, are vertically integrated,integrated; manufacturing the majority of the feed they require themselves.for their operations. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources, prices for ingredients can fluctuate and can be affected by weather and by various supply and demand factors. FeedOur feed prices for fiscal 20122015 were 19% higher11% lower than the previous year. While acreage plantedfiscal 2014.    Favorable weather conditions and improved yields for the major grain crops during the 2012-20132014 crop year appeared to be adequate to improve the U.S.increased available supplies of these grain crops, particularlyfor both corn and soybean meal which decreased prices and favorably impacted our results for the upcoming fiscal year drought2015.  Wet conditions in the majorMidwestern U.S. could have an adverse effect on the 2015 crop growing areasand we expect the outlook for feed prices to remain volatile.  However, we expect supplies of the U.S. have significantly reduced expected crop yields. This has led to record prices forboth corn and soybean meal. The prospective outlook is for feed costsmeal to remain high and volatile in the year ahead.be adequate.

 

Growth Strategy and Acquisitions

 

For many years, we have pursued a growth strategy focused on the acquisition of existing shell egg production and processing facilities, as well as the construction of new and more efficient facilities.  Since the beginning of fiscal 1989, we have completed sixteeneighteen acquisitions. In addition, we have built seven newnumerous “in-line” shell egg production and processing facilities and oneas well as pullet growing facilityfacilities which added eight million layers and 1.5 million growing pullets to our capacity.  Each of the new shell egg production facilitiesfacility generally provides for the processing of approximately 400 cases of shell eggs or 12,000 dozen eggs per hour. TheseThe capacity increases in capacity have been accompanied by the retirement of older and less efficient facilities.  The “in-line” facilities result in theprovide gathering, grading and packaging of shell eggs by less labor-intensive, more efficient, mechanical means. As a result of the foregoing, we continue to decrease our reliance on shell eggs produced by contract producers.

 

As a result of our strategy, our total flock, including pullets, layers and breeders, has increased from approximately 28.433.0 million at June 2, 2007May 29, 2010 to approximately 32.842.1 million as of June 2, 2012. Also, the number ofMay 30, 2015.  The dozens of shell eggs sold has increased from approximately 685.3805.4 million in the fiscal year ended June 2, 20072010 to approximately 884.31,063.1 million for the fiscal year ending June 2, 2012.2015.  Net sales amounted to $1,113.1$910.1 million in fiscal 20122010 compared to net sales of $598.1$1,576.1 million in fiscal 2007.2015.  

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We plan to continue to pursue opportunities for the acquisition of otherto acquire companies engaged in the production and sale of shell eggs. For example, in July 2012, we announced a pending acquisition of the commercial egg operations of Pilgrim’s Pride Corporation. We estimate that this acquisition will be completed in August 2012.  We will continue to evaluate and selectively pursue acquisitions that will expand our shell egg production capabilities in existing markets and broaden our geographic reach. We have extensive experience identifying, valuing, executing, and integrating acquisitions and we intend to leverage that experience in the evaluation and execution of future acquisitions. We will seek to acquire regional shell egg businesses that havewith significant market share and long-standing customer relationships. We believe that enhancing our national presence will help us further strengthen our relationships with existing customers, whomany of whom have operations across the United States.U.S.

 

Federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance, and we are subject to federal and state laws prohibiting anti-competitive conduct.   We believe our sales of shell eggs during the last fiscal year represented approximately 23% of domestic shell egg sales, making us the largest producer and distributor of shell eggs in the U.S. However, because the shell egg production and distribution industry is so fragmented, we believe that there are many acquisition opportunities available to us that would not be restricted pursuant to antitrust laws.

Through exclusive license agreements with Eggland’s Best, LLC (formerly EB)EB in several key territories and our trademarkedFarmhouse® and 4Grain®brands, we are one of the leading producers and marketers of value-added specialty shell eggs. We also produce, market, and distribute private label specialty shell eggs to several customers. Since selling prices of specialty shell eggs are generally not asless volatile as genericthan non-specialty shell egg prices, we believe that growing our specialty eggs business will enhance the stability of our margins.  As part of our Tampa Farms acquisition in fiscal 2009, we acquired the4Grain® brand of specialty eggs. We market organic, all natural, cage-free, vegetarian, and omega-3 eggs under our4Grain® brand. We expect that the price of specialty eggs willto remain at a premium to regular shell eggs, and intend to grow our specialty shell egg business.

Federal anti-trust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance. Also, we are subject to federal and state laws generally prohibiting anti-competitive conduct. We believe that our sales of shell eggs during the last fiscal year represented approximately 19% of domestic shell egg sales, making us the largest producer and distributor of shell eggs in the United States. However, because the shell egg production and distribution industry is so fragmented, we believe that either regulatory approval of any future acquisitions will not be required, or, if required, that we are likely to obtain such approvals.

 

The construction of new, more efficient production and processing facilities is an integral part of our growth strategy.  Any such construction will require compliance with applicable environmental laws and regulations, including the receipt of permits that could cause schedule delays, although we have not experienced any significant delays in the past.

 

Shell Eggs

 

Production.Our operations are fully integrated. At our facilities, weWe hatch chicks, grow and maintain flocks of pullets, layers, and breeders, manufacture feed, and produce, process, package, and distribute shell eggs.  Company-owned facilities accounted forWe produce approximately 92%75% of our total fiscal 2012 eggshell eggs sold, with 94% of such production withcoming from company-owned facilities, and the balance attributable toother 6% coming from contract producers.  Under a typical arrangement with a contract producer, we own the entire flock, furnish all feed and critical supplies, own the shell eggs produced and assume market risks. The contract producers own and operate their facilities and are paid a fee based on production with incentives for performance. We purchase approximately 25% of the total shell eggs we sell from outside producers.

 

The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We produce approximately 95%the majority of our chicks in our own hatcheries and obtain the balance from commercial sources. We own breeder and hatchery facilities producing 16.218.5 million pullet chicks per year in a computer-controlled environment. These pullets are distributed to 3643 state-of-the-art laying operations around the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.U.S. The facilities produce an average of 1.82.2 million dozen shell eggs per day and process theday. The shell eggs through gradingare processed, graded and packagingpackaged predominantly without handling by human hands. We have spent a cumulative total of $123.1$215.3 million over the past five years upgradingto expand and upgrade our facilities with the most advanced equipment and technology available in our industry. We believe our constant attention to production efficiencies and focus on automation throughout the supply chain enables us to be a low cost supplier in all the markets in which we compete.

 

Feed cost represents the largest element of our farm egg production cost, ranging from 62% to 67%69% of total farm production cost in the last five fiscal years. Although feed ingredients are available from a number of sources, we have little, if any, control over the prices of the ingredients we purchase, which are affected by weather and by various supply and demand factors.  For example, the severe drought thisin the summer of 2012 and resulting damage to the national corn and soybean crop are expected to resultresulted in feed costs that are high and volatile in the year ahead.feed costs.  Increases in feed costs which are not accompaniedunaccompanied by increases in the selling price of eggs can have a material adverse effect on our operations.  However, higher feed costs maycan encourage shell egg producers to reduce production, possibly resulting in higher egg prices.  Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower egg prices.

After the eggs are produced, they are graded and packaged.  Substantially all of our farms have modern “in-line” facilities thatto mechanically gather, grade and package the eggs produced.  The increased use of in-line facilities has generated significant cost savings as compared to the cost of eggs produced from non-in-line facilities.  In addition to greater efficiency, the in-line facilities produce a higher percentage of gradeUSDA Grade A eggs, which sell at higher prices.  Eggs produced on farms owned by contractors are brought to our processing plants where they areto be graded and packaged. Since shell eggs are perishable, we maintain very low shell egg inventories, usually consisting of approximately four days of production.

 

Our egg

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Egg production activities are subject to risks inherent in the agriculture industry, such as weather conditions and disease factors.disease.  These risks are not withinoutside our control and could have a material adverse effect on our operations.  Also, theThe marketability of our shell eggs is subject to risks such as possible changes in food consumption opinionspreferences and practices reflecting perceived health concerns.

 

We operate in a cyclical industry with total demand that is generally steady and a product that is generally price-inelastic.  Thus, small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa.  However, economic conditions in the egg industry are expected to exhibit less cyclicality in the future.  The industry is concentrating into fewer but stronger hands, which should help lessen the extreme cyclicality of the past.

    

Marketing.Of the 8841,063.1 million dozen shell eggs sold by us in the fiscal year ended June 2, 2012,2015, our flocks produced 663798.8 million.

 

We sell our shell eggs to a diverse group of customers, including national and local grocery store chains, club stores, foodservice distributors, and egg product manufacturers.consumers. We utilize electronic ordering and invoicing systems that enable us to manage inventory for certain of our customers. Our top ten customers accounted for an aggregate of 66.3% of net sales dollars in fiscal 201267.9%, 68.5%, and 65.4%65.8%  of net sales dollars for fiscal 2011.2015, 2014, and 2013, respectively. Two affiliated customers, Wal-Mart Stores and Sam’s Club, on a combined basis, accounted for 31.3%25.7%, 28.2%, and 30.0% of net sales dollars during fiscal 20122015, 2014, and 32.6% of net sales dollars for fiscal 2011. One customer, Publix Super Markets, Inc., accounted for 9.6% of net sales dollars during fiscal 2012 and 10.0% of net sales dollars for fiscal 2011.2013, respectively. 

 

The majority of eggs sold are merchandisedsold based on athe daily or short-term basis.needs of our customers.  Most sales to established accounts are on open account with terms ranging from seven to 30 days.  Although we have established long-term relationships with many of our customers, theymany of them are free to acquire shell eggs from other sources.

 

The shell eggs we sell are either delivered by us to our customers’ warehouse or retail stores either withby our own fleet of owned or contracted refrigerated delivery trucks, or are picked up by our customers at our processing facilities.

 

We sell our shell eggs at prices generally related to independently quoted wholesale market prices or at formulas related to our costs of production. Wholesale prices are subject to wide fluctuations.  The prices of our shell eggs reflect fluctuations in the quoted market and changes in corn and soybean meal prices, and the results of our shell egg operations are materially affected by changes in market quotations and feed costs.  Egg prices reflect a number of economic conditions, such as the supply of eggs and the demand level, of demand, which, in turn, are influenced by a number of factors that we cannot control.  No representation can be made as to the future level of prices.

 

According to USDA reports, for the past five years, U.S. annual per capita consumption has grown from 249 eggs in 2009 to  263 eggs in 2014.  Each of the United Statesmost recent three years has varied between 246 and 258 eggs. Per capita consumption is determined by takingseen an increase of approximately 2% over the total supply of eggs for the shell egg industry divided by the entire population in the United States (i.e. all eggs supplied domestically by the shell egg industry are consumed). While weprevious year.  We believe that fast food restaurant consumption, high protein diet trends, reduced egg cholesterol levels, and industry advertising campaigns may result in the sustainability of current per capita egg consumption levels, however no assurance can be given that per capita consumption will not decline in the future.

 

We sell the majority of our shell eggs in 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.U.S. We are a major factor in egg marketing in a majority of these states.  Many states in our market area are egg deficit regions. Egg deficit regions which are areas where production of fresh shell eggs is less than total consumption.  Competition from other producers in specific market areas is generally based on price, service, and quality of product.  Strong competition exists in each of our markets.

 

Seasonality.Shell eggs are perishable. Consequently, we maintain very low shell egg inventories, usually consisting of approximately four days of production. Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months.  Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring and early summer. We generally experience lower sales and net income in our fourth and first fiscal quarters ending in May and August, respectively. During the past ten fiscal years, fivethree of our first quarters have resulted in net operating losses, and during this same period, two of our fourth quarters have resulted in net operating losses.

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Specialty Eggs.We also produce specialty eggs such asEgg-Land’s BestäBest®, Land O’ Lakes®, 4Grain®, andFarmhouse® branded eggs.  These specialtySpecialty eggs are intended to meet the demands of consumers who are sensitive to environmental, health and/or animal welfare issues.  The statistical data concerning specialtySpecialty shell eggs are becoming a more significant segment of the shell egg sales reflects the upward trend of specialty eggs.market.  For fiscal 2012,2015, specialty eggs accounted for 24.0%27.2% of our shell egg dollar sales and 16.3%19.8% of our shell egg dozens sold, as compared to 24.0%24.3% of shell egg dollar sales and 16.1%17.2% of shell egg dozens sold in fiscal 2011.Egg-Land’s Bestä2014.  Additionally, specialty eggs are patented eggs that are believed by its developers, based on scientific studies, to cause no increasesold through our co-pack arrangements accounted for an additional 2.8% of shell egg dollar sales and 2.0% of shell egg dozens sold in serum cholesterol when eaten as partfiscal 2015, compared with 3.8% of a low fat diet.shell egg dollar sales and 2.7% of shell egg dozens sold in fiscal 2014.  We produce and processEgg-Land’s BestBest® äbranded eggs under license from EB at our facilities under EB guidelines.  The product is marketed to our established base of customers at premium prices that reflect a premium overcompared to non-specialty shell eggs.Egg-Land’s BestBest®ä branded eggs accounted for approximately 15.2%15.5% of our shell egg dollar sales in fiscal 2012, as2015, compared to 15.6%14.4% in fiscal 2011.2014. Based on dozens sold,Egg-Land’s BestBest®ä branded eggs accounted for 10.3%11.4% of dozens sold for fiscal 2012, as2015, compared to 10.4%10.1% in fiscal 2011.2014.  Land O’ Lakes® branded eggs are produced by hens that are fed a whole grain diet, with no animal fat, and no animal by-products.  Farmhouse® brand eggs are produced at our facilities by cage free hens that are not caged, and are provided with a diet of natural grains.all grain, vegetarian feed.  Our4Grain®brand consists of both caged and cage free eggs.  Our hens are fed a diet of four all natural grains, no animal by-products, and all vegetarian feed. As in our other flocks, these hens are provided with drinking water that is free of hormones or other chemical additives.Farmhouse®, Land O’ Lakes®, 4Grain® and other non-EBnon-Egg-Land’s Best® specialty eggs accounted for 8.7%11.7% of our shell egg dollar sales in fiscal 2012, as2015, compared to 8.4%9.9% in fiscal 2011,2014, and for 6.0%8.4% of dozens sold for fiscal 2012, as2015, compared to 5.7%7.1% for fiscal 2011.2014.

Egg Products.  Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. In fiscal 20122015 and 20112014 egg products represented approximately 3% of our net sales.  We sell our egg products primarily into the institutional and food service sectors in the U.S.  Our egg products are sold through our consolidated subsidiaies American Egg Products, LLC located in Blackshear, Georgia and Texas Egg Products, LLC located in Waelder, Texas.  Prices for egg products are directly related to Urner Barry quoted price levels.

Competition.The production, processing, and distribution of shell eggs is an intensely competitive business, which traditionally has attracted large numbers of producers.  Shell egg competition is generally based on price, service, and quality of production.product quality. 

 

The U.S. shell egg industry remains highly fragmented but is characterized by a growing concentration of producers.In 2011, 522014, 59 producers with one million or more layers owned 87%93% of the 285305 million total U.S. layers, compared to 2000, when 63 producers with one million or more layers owned 79% of the 273 million total layers, and 1990, when 56 producers with one million or more layers owningowned 64% of the 232 million total U.S. layers in 1990, and 61 producers with one million or more layers owning 56% of the 248 million total U.S. layers in 1985.layers. We believe that a continuation of thatthe concentration trend maywill result in the reduced cyclicality of shell egg prices, but no assurance can be given in that regard. A continuation of this trend could also create greater competition among fewer producers.

 

Patents and Trade Names.We own the trade namestrademarks Farmhouse®, Rio Grande®, Sunups®, Sunny Meadow®and4Grain®. We do not own any patents or proprietary technologies. We produce and marketEgg-Land's BestTMBest®and Land O’ Lakes® branded eggs under license agreements with EB.  We believe that these trade namestrademarks and license agreements are important to our business.  We do not know of any infringing uses that would materially affect the use of these trade names,trademarks, and we actively defend and enforce them.

 

Government Regulation.Our facilities and operations are subject to regulation by various federal, state, and local agencies, including, but not limited to, the United States Food and Drug Administration (“FDA”), USDA, Environmental Protection Agency, Occupational Safety and Health Administration and corresponding state agencies. The applicable regulations relate to grading, quality control, labeling, sanitary control and waste disposal. Our shell egg facilities are subject to periodic USDA and FDA inspections. Our feed production facilities are subject to FDA regulation and inspections. In addition, we maintain our own inspection program to ensure compliance with our own standards and customer specifications. We are not aware of any major capital expenditures necessary to comply with such statutes and regulations; however, there can be no assurance that we will not be required to incur significant costs for compliance with such statutes and regulations in the future.

 

On July 7, 2011, the Humane Society of the United States (“HSUS”) and United Egg Producers (“UEP”) reached an agreement to work together toward the enactment of comprehensive federal legislation for all of the approximately 280 million hens involved in U.S. egg production. The two groups have jointly asked Congress for federal legislation, which would require egg producers to increase the space per hen in a tiered phase in, with the amount of space hens are given increasing, in intervals, over the next 15 to 18 years. Currently, the majority of hens are each provided 67 square inches of space, with roughly 50 million receiving 48 square inches. The proposed phase-in would culminate with hens nationwide being provided a minimum of 124-144 square inches of space, along with certain other improvements noted in the July 7, 2011 agreement. We cannot predict the likelihood that this legislation will become law, however, if this federal legislation is passed we could incur significant costs to conform our operations to meet the requirements of this proposed legislation. We do not have a current estimate of what these costs will be if this legislation is passed.

Environmental Regulation.Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous materials. Under these laws and regulations, we are also required to obtain permits from governmental authorities, including, but not limited to, wastewater discharge permits. We have made, and will continue to make, capital and other expenditures relating to compliance with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital expenditures necessary to comply with such laws and regulations; however, because environmental, health and safety laws and regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, there can be no assurance that we will not be required to incur significant costs for compliance with such laws and regulations in the future.

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Employees.As of June 2, 2012,May 30, 2015, we had approximately 2,1752,872 employees, 1,875 of whom 2,190 worked in egg production, processing and marketing, 120 of whom were engaged175 worked in feed mill operations and 180 of whom422 were administrative employees, including our executive officers.  Approximately 2.5%4.3% of our personnel are part-time.  None of our employees are covered by a collective bargaining agreement.  We consider our relations with employees to be good.

 

Our Corporate Information

 

We were founded in 1957 in Jackson, Mississippi.  We were incorporated in Delaware in 1969. Our principal executive office is located at 3320 Woodrow Wilson Avenue, Jackson, Mississippi 39209. The telephone number of our principal executive office is (601) 948-6813. We maintain a website atwww.calmainefoods.com where general information about our business is available. The information contained in our website 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, Forms 3, 4 and 45 ownership reports, and all amendments to those reports are available, free of charge, through our website as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance matters is also available on our website.

 

Our Common Stock is listed on The NASDAQ Global Select Market (“NASDAQ”) under the symbol “CALM”.“CALM.”On June 2, 2012,May 29, 2015, the last sale price of our Common Stock on NASDAQ was $34.84$56.69 per share.Our fiscal year 20122015 ended June 2, 2012,May 30, 2015, and the first three fiscal quarters of fiscal 20122015 ended August 27, 2011,30, 2014, November 26, 2011,29, 2014, and February 25, 2012.28, 2015.  All references herein to a fiscal year means our fiscal year and all references to a year mean a calendar year.

 

ITEM 1A. RISK FACTORS

 

Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control.  The following is a description of the known factors that may materially affect our business, financial condition or results of operations.  They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on Form 10-K, including under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in making any investment decisions with respect to our securities.  Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial or that could apply to any company could also materially adversely affect our business, financial condition or results of operations.

 

Market prices of wholesale shell eggs are volatile and changesdecreases in these prices and costs can adversely impact our results of operations.

 

Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside of our control.  As a result, our prior performance should not be presumed to be an accurate indication of future performance. Small increases in production, or small decreases in demand, can have a large adverse effect on shell egg prices. Shell egg prices trended upward from calendar 2002 until late 2003 and early 2004 when they rose to historical highs.  In the early fall of calendar 2004, the demand trend related to the increased popularity of high protein diets faded dramatically and prices fell.  During the time of increased demand, the egg industry had geared up to produce more eggs, resulting in an oversupply of eggs.  Since calendar 2006, supplies appear to behave been more closely balanced with demand and egg prices again reached record levels duringin 2007 and 2008.  Egg prices have since generallyhad subsequently retreated from those record price levels due to small increases in industry supply.supply before reaching new highs in 2014.  In 2015, egg prices rose again due in part to a decrease in supply caused by the avian influenza outbreak in the upper Midwestern United States beginning in April 2015. There can be no assurance that shell egg prices will remain at or near current levels or that the supply of and demand for shell eggs will remain levelbalanced in the future.In general, a 1% increase or decrease in industry supply will translate into a 7% corresponding change in shell egg prices.future

Retail sales of shell eggs are greatest during the fall and winter months and lowest duringin 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. As a result of these seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.

 

Changes

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A decline in consumer demand for shell eggs can negatively impact our business.

 

We believe that fast food restaurant consumption, reports from the medical community regarding the health benefits of shell eggs, reduced shell egg cholesterol levels, high protein diet trends and industry advertising campaigns have all contributed to shell egg demand. However, there can be no assurance that the demand for shell eggs will not decline in the future. Adverse publicity relating to health concerns and changes in the perception of the nutritional value of shell eggs, as well as movement away from high protein diets, could adversely affect demand for shell eggs, which would have a material adverse effect on our future results of operations and financial condition.

 

Feed costs are volatile and changesincreases in these costs can adversely impact our results of operations.

 

Feed cost represents the largest element of our shell egg (farm) production cost, ranging from 62% to 67%69% of total farm production cost in the last five fiscal years. Although feed ingredients are available from a number of sources, we have little, if any, control over the prices of the ingredients we purchase, which are affected by weather, various supply and demand factors, transportation and storage costs, and agricultural and energy policies in the United StatesU.S. and internationally.  For example, the severe drought thisin the summer of 2012 and resulting damage to the national corn crop are expected to resultand soybean crops resulted in feed costs that are high and volatile in the year ahead.feed costs.  Increases in feed costs not accompaniedunaccompanied by increases in the selling price of eggs can have a material adverse effect on the results of our operations.  Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower egg prices.

 

Due to the cyclical nature of our business, our financial results fluctuate from year to year and between different quarters within a single fiscal year may fluctuate.year.

 

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 have tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally has caused a drop in shell egg prices until supply and demand return to balance. As a result, our financial results from year to year may vary significantly.  Additionally, as a result of seasonal fluctuations, our financial results may fluctuate significantly between different quarters within a single fiscal year.

 

We purchase approximately 25% of the shell eggs we sell from outside producers and our ability to obtain such eggs at prices and in quantities acceptable to us could fluctuate.

 

We produce approximately 75% of the total number of shell eggs sold by us and purchase the remaining amount from outside producers. As the wholesale price for shell eggs increases, our cost to acquire shell eggs from outside producers also increases. There can be no assurance that we will be able to continue to acquire shell eggs from outside producers in sufficient quantities and satisfactory prices, that are satisfactory and our inability to do so may have a material adverse effect on our business and profitability.

Our acquisition growth strategy subjects us to various risks.

 

We plan to continue to pursue a growth strategy, which includes acquisitions of other companies engaged in the production and sale of shell eggs. For example,In fiscal year 2014 we completed the purchase of our joint venture partner’s 50% interest in July 2012,Delta Egg Farm, LLC and in fiscal year 2013 we announced a pending acquisition ofacquired the commercial egg operationsassets of Pilgrim’s Pride Corporation. We estimate that this acquisition will be completed in August 2012.Corporation and Maxim Production Co., Inc.  Acquisitions can require capital resources and can divert management’s attention from our existing business. Acquisitions also entail an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct prior to our acquisition of a business that were not knownunknown to us at the time of acquisition. We may alsocould incur significantly greater expenditures in integrating an acquired business than we had anticipated at the time of its purchase. We cannot assure you that we:

 

-

will identify suitable acquisition candidates;

 

-

can consummate acquisitions on acceptable terms; or

 

-

can successfully integrate anyan acquired business into our operationsoperations; or

-

can successfully manage the operations of anyan acquired business.

 

No assurance can be given that companies acquired by us in the future will contribute positively to our results of operations or financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance.

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The consideration we pay in connection with any acquisition also affects our financial results. If we pay cash, we could be required to use a portion of our available cash to consummate the acquisition. To the extent we issue shares of our Common Stock, existing stockholders may be diluted. In addition, acquisitions may result in the incurrence of debt.

 

Our largest customers have historically accounted for a significant portion of our net sales volume. Accordingly, our business may be adversely affected by the loss of, or reduced purchases by, one or more of our large customers.

 

For the fiscal years 2012, 2011,2015, 2014, and 2010,2013, two affiliated customers, Wal-Mart Stores and Sam’s Clubs, on a combined basis, accounted for 31.3%25.7%,  32.6%28.2%, and 36.4%30.0% of our net sales dollars, respectively.  For fiscal years 2012, 20112015, 2014, and 2010, Publix Super Markets, Inc., accounted for 9.6%, 10.0% and 10.1% of net sales dollars, respectively. For fiscal years 2012, 2011, and 2010,2013, our top ten customers accounted for 66.3%67.9%,  65.4%68.5%, and 71.0%65.8% of net sales dollars, during those periods.respectively. Although we have established long-term relationships with most of our customers, who continue to purchase from us based on our ability to service their needs, these customersthey are free to acquire shell eggs from other sources.If, for any reason, one or more of our larger customers were to purchase significantly less of our shell eggs in the future or were to terminate their purchases from us, and we are not able to sell our shell eggs to new customers at comparable levels, it would have a material adverse effect on our business, financial condition, and results of operations.

 

Failure to comply with applicable governmental regulations, including environmental regulations, could harm our operating results, financial condition, and reputation.  Further, we may incur significant costs to comply with any such regulations.

 

We are subject to federal, state and local regulations relating to grading, quality control, labeling, sanitary control, and waste disposal. As a fully-integrated shell egg producer, our shell egg facilities are subject to USDA and FDA regulation, as well as regulation by various state and local health and agricultural agencies. Our shell egg processing facilities are subject to periodic USDA and FDA inspections. All of our shell egg and feed mill facilities are subject to FDA regulation and inspections.

 

Our operations and facilities are also subject to various federal, state and local environmental, health, and safety laws and regulations governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous materials. Under these laws and regulations, we are also required to obtain permits from governmental authorities, including, but not limited to pollution/wastewater discharge permits.

 

If we fail to comply with anyan applicable law or regulation, or fail to obtain any necessary permits, we could be subject to significant fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be materially adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, there can be no assurance that we will not be required to incur significant costs for compliance with such laws and regulations in the future.

Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to or voluntarily recall contaminated products.

 

Shell eggs and shell egg products are vulnerable to contamination by pathogens which are naturally occurring disease-producing organisms such as Salmonella.  Shipment of contaminated products, even if inadvertent, maycould result in a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies.  In addition, products purchased from other producers maycould contain contaminants that may be inadvertently redistributed by us.  As such, we may decide or be required to recall a product if we or regulators believe it poses a potential health risk.  For example, in fiscal 2011, there were two separate occasions where we voluntarily recalled shell eggs that we had purchased from other producers. None of the recalled eggs were produced at Cal-Maine facilities. We do not maintain insurance to cover recall losses.  Recall costs in fiscal 2011 were not material, but there is no guarantee that future costs will not be. Any product recall could also result in a loss of consumer confidence in our products, which could adversely affect our reputation with existing and potential customers and have a material adverse effect on our business, results of operations and financial condition.

Agricultural risks, including outbreaks of avian disease, could harm our business.    

Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute.  The Company maintains controls and procedures to reduce the risk of exposing our flocks to harmful diseases.  Despite our best efforts, outbreaks of avian disease can still occur and may adversely impact the health of our flocks.  An outbreak of avian disease could have a material adverse impact on our financial results by increasing government restrictions on the sale and distribution of our products.  Negative publicity from an outbreak within our industry can negatively impact customer perception, even if the outbreak does not directly impact our flocks.  If a substantial portion of our production facilities are affected by any of these factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely affected.

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Beginning in April of 2015, our industry has experienced a significant avian influenza outbreak, primarily in the upper Midwestern United States.  At the time of this filing, based on several published industry estimates, we believe that approximately 13% of the national flock of laying hens has been affected.  The affected laying hens have either been destroyed by the disease or euthanized.  The effect this outbreak has had on our industry is discussed throughout this filing.  There have been no positive tests for avian influenza at any of our locations, and we are significantly increasing the biosecurity measures at all of our facilities, however we cannot be certain that our flocks will not be affected.

 

Our business is highly competitive.

 

The production and sale of fresh shell eggs, which have accounted for virtually all of our net sales in recent years, is intensely competitive. We compete with a large number of competitors that may prove to be more successful than we are in marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of these companies. In addition, increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market share, which would negatively affect our business, results of operations, and financial condition.

        

Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our practices to comply with developing standards or subject us to marketing costs to defend challenges to our current practices and protect our image with our customers.

 

We and many of our customers are facing pressure from animal rights groups, such as People for the Ethical Treatment of Animals, or PETA, and the Humane Society of the United States, or HSUS, to require that anyall companies that supply food products operate their business in a manner that treats animals in conformity with certain standards developed or approved by these animal rights groups. As a result, we are reviewing and changing our operating procedures with respect to our flocks of hens to address these concerns. The treatment standards typically require among other things, that we provide increasedminimum cage space for our hens, and modify beak trimming and forced molting practices (the actamong other requirements, but some of putting chickens into a regeneration cycle). Thesethese groups have made legislative efforts to ban any form of caged housing in various states.  California’s Proposition 2 and Assembly Bill 1437 was effective January 1, 2015, and did increase the cost of production in that State.  Changing our procedures and infrastructure to conform to these types of laws or customer demand for these types of guidelines has resulted and will continue to result in additional costs to our internal production of shell eggs, including cost increases from housing and feeding the increased flock population resulting from the modification of moltinghusbandry practices, and the cost for us to purchase shell eggs from our outside suppliers. While some of thesethe increased costs have been passed on to our customers, we cannot provide assurance that we can continue to pass on these costs, or any additional costs we will face, in the future.

 

On July 7, 2011, the Humane Society of the United States (“HSUS”) and United Egg Producers (“UEP”) reached an agreement to work together toward the enactment of comprehensive federal legislation for all of the approximately 280 million hens involved in U.S. egg production. The two groups have jointly asked Congress for federal legislation, which would require egg producers to increase the space per hen in a tiered phase in, with the amount of space hens are given increasing, in intervals, over the next 15 to 18 years. Currently, the majority of hens are each provided 67 square inches of space, with roughly 50 million receiving 48 square inches. The proposed phase-in would culminate with hens nationwide being provided a minimum of 124-144 square inches of space, along with certain other improvements noted in the July 7, 2011 agreement. We cannot predict the likelihood that this legislation will become law, however, if this federal legislation is passed we could incur significant costs to conform our operations to meet the requirements of this proposed legislation. We do not have a current estimate of what these costs will be if this legislation is passed.

We are dependent on our management team, and the loss of any key member of this team may adversely affect the implementation of our business plan in a timely manner.

 

Our success depends largely upon the continued service of our senior management team. The loss or interruption of service of one or more of our key executive officers could adversely affect our ability to manage our operations effectively and/or pursue our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers nor do we carry any significant key-man life insurance coverage on any such persons.

Agricultural risks could harm our business.

Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. If a substantial portion of our production facilities are affected by any of these factors in any given quarter or year, our business, financial condition and results of operations could be materially and adversely affected.

 

We are controlled by a principal stockholder.

 

Fred R. Adams, Jr., our Founder and Chairman Emeritus, and his spouse own 29.1%28.0% of the outstanding shares of our Common Stock, which has one vote per share.  In addition, Mr. Adams owns 74.8%and his spouse own 74.7% and his son-in-law, Adolphus B. Baker, our President, Chief Executive Officer and Chairman of the Board, owns 25.2%and his spouse own 25.3% of the outstanding shares of our Class A Common Stock, which has ten votes per share. Mr. Baker and his spouse also own 1.9%1.7% of the outstanding shares of our Common Stock. As a result, currentlyas of July 1, 2015, Mr. Adams and his spouse possess 53.2%possessed 52.5%, and Messrs. Adams and Baker and their spouses collectively possess 67.4%possessed  66.5%, of the total voting power represented by the outstanding shares of our Common Stock and Class A Common Stock. These stockholdings include shares of our Common Stock accumulated under our employee stock ownership plan for the respective accounts of Messrs. Adams and Baker.Baker and Mr. Baker’s spouse.

 

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The Adams family intends to retain ownership of a sufficient amount of Common Stock and Class A Common Stock to assure its continued ownership of over 50% of the combined voting power of our outstanding shares of capital stock. Such ownership will make an unsolicited acquisition of usthe Company more difficult and discourage certain types of transactions involving a change of control of our company,Company, including transactions in which the holders of Common Stock might otherwise receive a premium for their shares over then current market prices. In addition, certain provisions of our Certificate of Incorporation require that our Class A Common Stock be issued only to Fred R. Adams, Jr. and members of his immediate family, and that if shares of our Class A Common Stock, by operation of law or otherwise, are deemed not to be owned by Mr. Adams or a member of his immediate family, the voting power of any such shares shall be automatically reduced to one vote per share. The Adams family’s controlling ownership of our capital stock may adversely affect the market price of our Common Stock.

 

Based on Mr. Adams’ beneficial ownership of our outstanding capital stock, we are a “controlled company,” as defined in Rule 5615(c)(1) of the NASDAQ’s listing standards. Accordingly, we are exempt from certain requirements of NASDAQ’s corporate governance listing standards, including the requirement to maintain a majority of independent directors on our board of directors and the requirements regarding the determination of compensation of executive officers and the nomination of directors by independent directors.

 

Current and any future litigation could expose us to significant liabilities and adversely affect our business reputation.

 

We and certain of our subsidiaries are involved in various legal proceedings.  Litigation is inherently unpredictable, and although we believe we have meaningful defenses in these matters, we may incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations, cash flow and financial condition.  For example, we are currently the subjecta discussion of several antitrust lawsuits, as further described inlegal proceedings see Item 3 below, the outcome of which we are unable to predict.below.  Such lawsuits are expensive to defend, divert management’s attention, and may result in significant judgments.judgments or settlements.  Legal proceedings may also expose us to negative publicity, which could adversely affect our business reputation and customer preference for our products and brands.

12

 

Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.

 

Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets acquired.  Goodwill is reviewed at least annually for impairment annuallyby assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more frequently should certain impairment indicators arise. likely than not that the fair value of a reporting unit is less than its carrying amount.  As of June 2, 2012,May 30, 2015, we had $22.1$29.2 million of goodwill.  While we believe that the current carrying value of this goodwill is not impaired, any future goodwill impairment charges could materially adversely affect our results of operations in any particular period or our net worth.

 

The loss of any registered trademark or other intellectual property could enable other companies to compete more effectively with us.

 

We utilize intellectual property in our business.  For example, we own the trade namestrademarks Farmhouse®,Rio Grande®,Sunups®,Sunny Meadow® and4Grain®.  We also produce and marketEgg-Land’s Best™Best® and Land O’ Lakes® under license agreements with EB.  We have invested a significant amount of money in establishing and promoting our trademarked brands.  The loss or expiration of any of our intellectual property could enable other companies to compete more effectively with us by allowing our competitors to make and sell products that are substantially similar to those we offer.  This could negatively impact our ability to produce and sell the associated products, thereby adversely affecting our operations.

 

Extreme weather, natural disasters or other events beyond our control could negatively impact our business.

Fire, bioterrorism, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed ingredients, or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have a material adverse effect on our financial results.

Failure of our information technology systems or software, or a security breach of those systems, could adversely affect our day-to-day operations and decision making processes and have an adverse effect on our performance.

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The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, communications, logistics, accounting and other business processes. If we do not allocate and effectively manage the resources necessary to build and sustain an appropriate technology environment, our business or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including systems failures, viruses, security breaches or cyber incidents such as intentional cyber-attacks aimed at theft of sensitive data or inadvertent cyber-security compromises. A security breach of such information could result in damage to our reputation, and could negatively impact our relations with our customers or employees. Any such damage or interruption could have a material adverse effect on our business.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

    

ITEM 2.  PROPERTIES

 

We operate farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties located in Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Utah. TheAs of July 1, 2015, the facilities currently includeincluded three breeding facilities, two hatcheries, fourtwo wholesale distribution centers, 1921 feed mills, 3643 shell egg production facilities, 2627 pullet growing facilities, and 3440 processing and packing facilities.  We also own significant interests in two companies that own egg products facilities, which are consolidated in our financial statements. Most of our operations are conducted from properties we own.

Presently,As of May 30, 2015, we ownowned approximately 19,90025,461 acres of land in various locations throughout our geographic market area. We have the ability to hatch 21.2 million pullet chicks annually, grow 1724.9 million pullets annually, house 3039.5 million laying hens, and control the production of an aggregate total of 2937.9 million layers, with the remainder controlled by contract growers. We also own mills that can produce 650744 tons of feed per hour, and processing facilities capable of processing 12,20013,860 cases of shell eggs per hour (with each case containing 30 dozen shell eggs).

 

Over the past five fiscal years, our capital expenditures, excluding acquisitions of shell egg production and processing facilities from others, have totaled an aggregate amount of approximately $123.1$215.3 million.

 

ITEM 3.  LEGALLEGAL PROCEEDINGS

 

Chicken Litter Litigation

Cal-Maine Farms, Inc. is presently a defendant in two personal injury cases in the Circuit Court of Washington County, Arkansas. Those cases are styled,McWhorter vs. Alpharma, Inc.,et al., andCarroll,et al. vs. Alpharma, Inc.,et al. Cal-Maine Farms, Inc. was named as a defendant in theMcWhorter case on February 3, 2004. It was named as a defendant in theCarroll case on May 2, 2005. Co-defendants in both cases include other integrated poultry companies such as Tyson Foods, Inc., Cargill, Incorporated, George’s Farms, Inc., Peterson Farms, Inc., Simmons Foods, Inc., and Simmons Poultry Farms, Inc. The manufacturers of an additive for broiler feed are also included as defendants. Those defendants are Alpharma, Inc. and Alpharma Animal Health, Co.

Both cases allege that the plaintiffs have suffered medical problems resulting from living near land upon which “litter” from the defendants’ flocks was spread as fertilizer. TheMcWhorter case focuses on mold and fungi allegedly created by the application of litter, and seeks unspecified damages. TheCarroll case also alleges injury from mold and fungi, but focuses primarily on the broiler feed ingredient as the cause of the alleged medical injuries, and seeks unspecified damages. No trial date for either theCarroll orMcWhorter case has been set.

Several other separate, but related, cases were prosecuted in the same venue by the same attorneys. The same theories of liability were prosecuted in all of the cases. Neither the Company nor any of its affiliates were named as a defendant in any of those other cases. The plaintiffs selected one of those cases,Green,et al. vs. Alpharma, Inc.,et al., as a bellwether case to go to trial first. All of the poultry defendants were granted summary judgment in theGreen case in 2006. In 2008, however, the Arkansas Supreme Court reversed the summary judgment in favor of the poultry defendants and remanded the case for trial. The case was retried with a complete defendants’ verdict, and that verdict was upheld by the Arkansas Supreme Court. The court has scheduled a trial beginning October 22, 2012, in another of the related cases. However, the Company and its affiliates are not defendants in that case.

State of Oklahoma Watershed Pollution Litigation

 

On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma, against Cal-Maine Foods, Inc. and Cal-Maine Farms, Inc. as well asTyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and its affiliate, George’s, Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. Cal-Maine Farms, Inc. was dismissed from the case in September 2009. The State of Oklahoma claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma. The Complaintcomplaint seeks injunctive relief and monetary damages, but the claim for monetary damages has been dismissed by the court. Cal-Maine Foods, Inc. discontinued operations in the watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request for injunctive relief unless the court orders substantial affirmative remediation. Since the litigation began, Cal-Maine Foods, Inc. purchased 100% of the membership interests of Benton County Foods, LLC, which is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in the litigation.

 

The trial in the case began in September 2009 and concluded in February 2010. The case was tried to the court without a jury and the court has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.

 

Mississippi Wage and Hour Litigation

13


 

The case was filed in the Circuit Court of Simpson County, Mississippi but was removed to the U.S. District Court for the Southern District of Mississippi. The controlling statutory and regulatory framework of the Fair Labor Standards Act is that agricultural workers are not entitled to overtime pay. On July 26, 2012, the court granted Cal-Maine Farms, Inc.’s Motion for Summary Judgment. The plaintiff has thirty (30) days from the date of the Order to appeal. 

Egg Antitrust Litigation

 

Since September 25, 2008, the Company has been named as one of several defendants in twenty-fivenumerous antitrust cases involving the United States shell egg industry.  In sixteensome of these cases, the named plaintiffs allege that they purchased eggs or egg products directly from a defendant and have sued on behalf of themselves and a putative class of others who claim to be similarly situated.  In fourteen of those putative class actions,other cases, the named plaintiffs allege that they are retailers or distributors that purchased shell eggs and egg products directly from one or more of the defendants.defendants but sue only for their own alleged damages and not on behalf of a putative class.  In the other two putative class actions,remaining cases, the named plaintiffs are individuals or companies who allege that they purchased shell eggs and egg products indirectly from one or more of the defendants - that is, they purchased from retailers that had previously purchased from defendants or other parties. In the remaining nine cases, the plaintiffsparties – and have sued for their own alleged damageson behalf of themselves and are not seekinga putative class of others who claim to certify a class.be similarly situated.

 

The Judicial Panel on Multidistrict Litigation consolidated all of the putative class actions (as well as certain other cases in which the Company was not a named defendant) for pretrial proceedings in the United States District Court for the Eastern District of Pennsylvania. The Pennsylvania court has organized the putative class actions around two groups (direct purchasers and indirect purchasers) and has named interim lead counsel for the named plaintiffs in each group.

Six of the nine non-class suits were filed in the same court that is presiding over the

The Direct Purchaser Putative Class Action. The direct purchaser putative class actions. Another of these non-class cases was filedwere consolidated into In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the WesternEastern District of Pennsylvania, but itPennsylvania.  On November 25, 2014, after approving the parties’ settlement of the case, the Court entered final judgment dismissing all claims against the Company with prejudice and dismissing the Company from this direct purchaser class action.  On January 23, 2015, direct action plaintiffs Kraft Foods Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company filed a motion either to exclude themselves from the settlement between the direct purchaser plaintiffs and the Company or to enlarge their time to opt-out of the settlement between the direct purchaser plaintiffs and the Company and modify the final judgment entered on November 25, 2014.  On February 13, 2015, the Company filed its response in opposition.  On July 1, 2015, the Court held an evidentiary hearing on this motion.  The Court has been transferred to the Eastern District andnot ruled on this motion.

The Indirect Purchaser Putative Class Action.  The indirect purchaser putative class cases were consolidated for pretrial proceedings with the other cases. Another non-class suit was filed in the District Court of Wyandotte County, Kansas, where it remains pending.  The remaining non-class suit was filedinto In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the Northern District of Illinois, but the Judicial Panel on Multidistrict Litigation transferred that case to the Eastern District of Pennsylvania where it has been consolidated with the other cases pending in that court for coordinated pretrial proceedings.  The plaintiffs in two of the non-class suits originally filed in the Eastern District of Pennsylvania voluntarily dismissed their suits without prejudice, and there are thus now seven non-class suits pending.

The Direct Purchaser Putative Class Action.The named plaintiffs in the direct purchaser case filed a consolidated complaint on January 30, 2009. On April 30, 2009, the Company filed motions to dismiss the direct purchasers’ consolidated complaint. The direct purchaser plaintiffs did not respond to those motions. Instead, the direct purchaser plaintiffs announced a potential settlement with one defendant. The final hearing on approval of that settlement has been held, but the court has not yet ruled. If it is approved, the settlement would not require the settling party to pay any money. Instead, the settling defendant, while denying all liability, would provide cooperation in the form of documents and witness interviews to the plaintiffs’ attorneys. After announcing this potential settlement with one defendant, the direct purchaser plaintiffs filed an amended complaint on December 11, 2009. On February 5, 2010, the Company joined with other defendants in moving to dismiss the direct purchaser plaintiffs’ claims for damages outside the four-year statute of limitations period and claims arising from a supposed conspiracy in the egg products sector. On February 26, 2010, the Company filed its answer and affirmative defenses to the direct purchaser plaintiffs’ amended complaint.Pennsylvania.  The court deniedgranted with prejudice the defendants’ renewed motion to dismiss the claims related to the egg products sector.  The court granted the motion to dismiss plaintiffs’ claims for damages outside the four-year statute of limitations but did so without prejudice to the plaintiffs’ right to seek leave to further amend their complaint if they, in good faith, believe they can address the deficiencies noted by the court.  On June 4, 2010, the direct purchaser plaintiffs announced a potential settlement with a second defendant. The final hearing on approval of this settlement has also been held, but the court has not ruled. If this settlement is approved, then the defendant would pay a total of $25 million and would provide other consideration in the form of documents, witness interviews, and declarations. This settling defendant denied all liability in its potential agreement with the direct purchaser plaintiffs and stated publicly that it settled merely to avoid the cost and uncertainty of continued litigation. On January 30, 2012, the direct purchaser plaintiffs filed a motion for leave to file a third amended complaint. The Court has not yet ruled on the motion for leave.

The Indirect Purchaser Putative Class Action.The named plaintiffs in the indirect purchaser case filed a consolidated complaint on February 27, 2009. On April 30, 2009, the Company filed motions to dismiss the indirect purchasers’ consolidated complaint. The indirect purchaser plaintiffs did not respond to those motions. Instead, the indirect purchaser plaintiffs filed an amended complaint on April 8, 2010. On May 7, 2010, the Company joined with other defendants in moving to dismiss the indirect purchaser plaintiffs’ claims for damages outside the four-year statute of limitations period, claims arising from a supposed conspiracy in the egg products sector, claims arising under certain state antitrust and consumer fraud statutes, and common-law claims for unjust enrichment. The court granted the motion to dismiss claims arising outside the limitations period applicable to each causemost causes of action.  The court granted in part and denied in partOn April 20-21, 2015, the motion to dismiss claims arising under certain state antitrust and consumer fraud statutes and common-law claims for unjust enrichment. The court denied without prejudice the motion to dismiss a claim for a supposedly separate conspiracy in the egg products sector. On June 4, 2010, the Company filed its answer and affirmative defenses toCourt held an evidentiary hearing on the indirect purchaser plaintiffs’ amended complaint.motion for class certification.  The Court has not ruled on that motion.  On May 25, 2012,July 2, 2015, the Company filed and joined several motions for summary judgment that sought either dismissal of the entire case or, in the alternative, dismissal of portions of the case.  On July 2, 2015, the indirect purchaser plaintiffs filed a motionmotions for leave to file another amended complaint. The courtsummary judgment seeking dismissal of certain affirmative defenses based on statutory immunities from federal and state antitrust laws.  Briefing on the parties’ respective motions for summary judgment will continue over the next two months, and the Court has not yet ruledindicated when it will rule on that motion. On June 7, 2012, the court ordered the indirect purchasers to submit a brief addressing whether they have standing to assert an injunctive relief claim under federal law.these motions.

 

The Non-Class Cases. TheSix of the cases in which plaintiffs do not seek to certify a class were filed between November 16, 2010 and December 12, 2011. The plaintiffshave been consolidated with the putative class actions into In re: Processed Egg Products Antitrust Litigation,  No. 2:08-md-02002-GP, in the non-class cases pending inUnited States District Court for the Eastern District of Pennsylvania filed amended complaints on February 10, 2012. On March 26, 2012,Pennsylvania.  The court granted with prejudice the Company joined other defendants in filing adefendants’ renewed motion to dismiss all claims barred by the statute of limitations. On May 1, 2012, the non-class plaintiffs responded to that motion. On May 22, 2012, the Company joined other defendants in filing a reply brief in support of that motion. The court has not yet ruled on that motion. The Company filed its answer and affirmative defenses to the six non-class cases pending in Pennsylvania on April 26, 2012.

On January 27, 2012, the Company filed its answer and affirmative defenses to the non-class complaint in the case pending in Kansas state court, and the Company joined other defendants in the Kansas case in moving to dismiss allplaintiffs’ claims for damages arising outsidebefore September 24, 2004.  The parties have completed nearly all fact discovery related to these cases.  On July 2, 2015, the three-year statuteCompany filed and joined several motions for summary judgment that sought either dismissal of limitations period and all of the claims for damages arising from purchasesin all of eggs and egg products outside the state of Kansas. The court took under advisement the limitations motion, pending a ruling in another case that will determine whether the limitations periodthese cases or, in the Kansas case will be three or five years. The court reservedalternative, dismissal of portions of these cases.  On July 2, 2015, the non-class plaintiffs filed a motion for summary judgment seeking dismissal of certain affirmative defenses based on statutory immunities from federal antitrust law.  Briefing on the motion to dismiss claimsparties’ respective motions for damages arising from purchases of eggssummary judgment will continue over the next two months, and egg products outside the state of Kansas until discovery reveals which sales occurred within Kansas. In reserving judgment, the court stated that only sales within Kansas would be relevant to any calculation of alleged damages.Court has not indicated when it will rule on these motions.

 

Allegations in Each Case.Case. In all of the cases described above, the plaintiffs allege that the Company and certain other large domestic egg producers conspired to reduce the domestic supply of eggs in a concerted effort to raise the price of eggs to artificially high levels.  In each case, plaintiffs allege that all defendants agreed to reduce the domestic supply of eggs byby: (a) agreeing to limit production; (b) manipulating egg exportsexports; and (b)(c) implementing industry-wide animal welfare guidelines that reduced the number of hens and eggs.

   

Both groups ofThe named plaintiffs in the remaining indirect purchaser putative class actionsaction seek treble damages and injunctive relief on behalf of themselves and all other putative class members in the United States.  Both groups of namedAlthough plaintiffs in the putative class actions originally allegedallege a class period starting on January 1, 2000 and running “through the present.present,The court has now granted the defendants’ motion to dismissCourt ruled that the direct purchasers’ and the indirect purchasers’ claimsplaintiffs cannot recover damages allegedly incurred outside the state-specific statute of limitations period applicable to most causes of action asserted, with the precise damages period

14


determined on a state-by-state and thus the putative class claims now only relate to a September 2004 to present class period.  The direct purchaser putative class action case alleges two separate sub-classes – one for direct purchasers of shell eggs and one for direct purchasers of egg products. The direct purchaser putative class action case seeks relief under the Sherman Act.claim-by-claim basis.  The indirect purchaser putative class action case seeks injunctive relief under the Sherman Act and thedamages under certain statutes and the common-law of various states and the District of Columbia.states.

 

SevenFive of the nineoriginal six non-class cases remain pending.pending against the Company.  In fivefour of the remaining non-class cases, the plaintiffs seek damages and injunctive relief under the Sherman Act.  In one of the other remaining non-class cases,case, the plaintiff seeks damages and injunctive relief under the Sherman Act and the Ohio antitrust act (known as the Valentine Act). In the other remaining non-class case, the plaintiffs seek damages and injunctive relief under the Kansas Restraint of Trade Act.

 

The Pennsylvania court has entered a series of orders related to case management, discovery, class certification, and scheduling.  The Pennsylvania court has not set a trial date for any of the Company’s remaining consolidated cases. The Kansas state court has entered a schedule for discoverycases (non-class and dispositive motions. The Kansas state court case is set for trial starting February 3, 2014.indirect purchaser cases).

 

The Company intends to continue to defend thesethe remaining cases as vigorously as possible based on defenses which the Company believes are meritorious and provable.  While management believes that the likelihood of a material adverse outcome in the overall egg antitrust litigation has been significantly reduced as a result of the settlements described above, there is still a reasonable possibility of a material adverse outcome in the remaining egg antitrust litigation.  At the present time, however, it is not possible to estimate the amount of monetary exposure, if any, to the Company because of these cases.  Accordingly, adjustments, if any, which might result from the resolution of these remaining legal matters, have not been reflected in the financial statements.

 

Florida civil investigative demandCivil Investigative Demand

 

On November 4, 2008, the Company received an antitrust civil investigative demand from the Attorney General of the State of Florida. The demand seeks production of documents and responses to interrogatories relating to the production and sale of eggs and egg products. The Company is cooperating with this investigation and expectshas, on three occasions, entered into an agreement with the State of Florida tolling the statute of limitations applicable to provide responsive information.any supposed claims the State is investigating. No allegations of wrongdoing have been made against the Company in this matter.

 

Environmental information requestInformation Request

 

In July 2011, the Company received an information request (Request) from the United States Environmental Protection Agency (EPA)(“EPA”) pursuant to Section 308 of the Clean Water Act (Act)(“Act”). The Request stated that the information was sought by the EPA to investigate compliance with the Act and requested information pertaining to facilities involved in animal feeding operations, which are owned or operated by the Company or its affiliates.  On October 19, 2011, theThe Company timely responded to the Request by providing information on each of the subject facilities.  The EPA subsequently sent a notice of noncompliance (Notice)to the Company dated March 29, 2012 to the Company which involved allegations of potential non-compliance with the Request and/or the Act. The Notice related only to the Company’s Edwards, Mississippi facility only.facility. The Company timely respondedpreviously announced a settlement with the EPA and the Mississippi Department of Environmental Quality related to the Noticenotice, and a Consent Decree memorializing the settlement was entered on May 2, 2012, which includedJune 30, 2015 in the submissionUnited States of additional informationAmerica and State of Mississippi, by and through the Mississippi Commission on Environmental Quality v. Cal-Maine Foods, Inc. Civil Action No. 3:15-cv-00278-HTW-LRA, in the U.S. District Court for the Southern District of Mississippi, Northern Division. The terms and conditions of the settlement related only to the EPA. SinceEdwards, Mississippi facility and are not expected to have a material impact to the dateCompany’s results of that response,operations. Management believes the risk of material loss related to non-settled matters relating to the 2011 notice to be remote.

Miscellaneous

In addition to the above, the Company has received no further correspondence fromis involved in various other claims and litigation incidental to its business. Although the EPA regardingoutcome of these matters cannot be determined with certainty, management, upon the Requestadvice 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 Notice andfinancial position.

At this time, it is not aware thatpossible for us to predict the EPA has undertaken, or intends to undertake, any formal enforcement action regarding these matters.ultimate outcome of the matters set forth above.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

15


 

16

PART II.

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock is traded on the NASDAQ Global Select Market under the symbol “CALM”.  The last reported sale price for our Common Stock on July 28, 201216, 2015 was $36.48$53.66 per share. The following table sets forth the high and low daily sale prices and dividends per share for each of the four quarters of fiscal 20112014 and fiscal 2012.2015, as adjusted to reflect the effect of the 2-for-1 stock split effected in October 2014.

 

    Sales Price  Dividends 
Fiscal Year Ended Fiscal Quarter High  Low    
            
May 28, 2011 First Quarter $34.95  $28.68  $0.067 
  Second Quarter  32.15   26.23   0.212 
  Third Quarter  34.16   27.71   0.470 
  Fourth Quarter  30.43   27.20   0.102 
               
June 2, 2012 First Quarter $36.55  $27.86  $0.044 
  Second Quarter  34.83   29.52   0.325 
  Third Quarter  39.73   31.58   0.364 
  Fourth Quarter  42.40   38.33   0.520 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price

 

 

 

Fiscal Year Ended

Fiscal Quarter

 

High

 

Low

 

 

Dividends (1)

 

 

 

 

 

 

 

 

 

 

 

May 31, 2014

First Quarter

 

$

25.94 

 

$

22.35 

 

$

0.034 

 

Second Quarter

 

 

27.48 

 

 

22.92 

 

 

0.181 

 

Third Quarter

 

 

30.31 

 

 

24.71 

 

 

0.296 

 

Fourth Quarter

 

 

34.88 

 

 

27.74 

 

 

0.217 

 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

First Quarter

 

$

39.65 

 

$

34.58 

 

$

0.191 

 

Second Quarter

 

 

47.98 

 

 

39.86 

 

 

0.252 

 

Third Quarter

 

 

44.18 

 

 

34.94 

 

 

0.350 

 

Fourth Quarter

 

 

59.86 

 

 

35.86 

 

 

0.317 

(1)

Represents dividends paid with respect to such quarter, after the end of the quarter. See “Dividends” below.

 

There is no public trading market for the Class A Common Stock, all the outstanding shares of which are owned by Fred R. Adams, Jr., our Founder and Chairman Emeritus, (74.8%and his spouse (74.7%), and his son-in-law Adolphus Baker, our President, Chief Executive Officer and Chairman of the Board (25.2%and his spouse (25.3%).

 

Stockholders

 

At July 18, 2012,16, 2015, there were approximately 245307 record holders of our Common Stock and approximately 10,88027,678 beneficial owners whose shares were held by nominees or broker dealers.

 

Dividends

 

Cal-Maine has a dividend policy adopted by its Board of Directors.  Pursuant to the policy, Cal-Maine 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 70th65th 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.  The Company’s loan agreements also provide that unless otherwise approved by its lenders, the Company must limit dividends paid in any quarter to not exceed an amount equal to one-third of the previous quarter’s consolidated net income, which dividends are allowed to be paid if there are no events of default.

16


 

Recent Sales of Unregistered Securities

 

No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended June 2, 2012.May 30, 2015.

 

Securities Authorized for Issuance under Equity Compensation Plans

17

Equity Compensation Plan Information

(a)

(b)

(c)

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by shareholders

 -

$                       -

935,260 

Equity compensation plans not approved by shareholders

 -

 -

Total

 -

$                       -

935,260 

(a)

There were no outstanding options, warrants or rights as of May 30, 2015.  There were 335,140 shares of restricted stock outstanding under our 2012 Omnibus Long-Term Incentive Plan as of May 30, 2015

(b)

There were no outstanding options, warrants or rights as of May 30, 2015

(c)

Shares available for future issuance as of May 30, 2015 under our 2012 Omnibus Long-Term Incentive Plan (655,260)

 

For additional information, see Note 11 to Notes to the Consolidated Financial Statements.

17


ITEM 6.  SELECTED FINANCIAL DATA

 

  Fiscal Years Ended 
  June 2  May 28  May 29  May 30  May 31 
  2012  2011  2010  2009*  2008 
  53 wks  52 wks  52 wks  52 wks  52 wks 
Statement of Operations Data:                    
Net sales $1,113,116  $941,981  $910,143  $928,812  $915,939 
Cost of sales  911,334   757,050   715,499   724,085   617,383 
Gross profit  201,782   184,931   194,644   204,727   298,556 
Selling, general and administrative  113,130   101,448   92,040   83,253   74,919 
Operating income  88,652   83,483   102,604   121,474   223,637 
Other income (expense):                    
Interest expense (excluding: non cash interest expense, early extinguishment of debt  - includes: interest  income)  (3,758)  (6,022)  (6,640)  (4,565)  (3,152)
Interest expense - non cash  -   -   (88)  (477)  (942)
Loss on early extinguishment of debt  -   (2,648)  -   -   - 
Equity in income of affiliates  7,495   4,701   3,507   2,612   6,324 
Gain on sale of investment inEggland’s BestTM  -   4,829   -   -   - 
Distribution fromEggland’s BestTM (see Note 18)  38,343   -   -   -   - 
Other, net  8,345   7,328   4,110   2,290   5,699 
   50,425   8,188   889   (140)  7,929 
Income before income tax and noncontrolling interest  139,077   91,671   103,493   121,334   231,566 
Income tax expense  49,110   33,403   37,961   41,510   79,530 
Net income including noncontrolling interest  89,967   58,268   65,532   79,824   152,036 
Less: Net income (loss) attributable to noncontrolling interest  232   (2,571)  (2,291)  324   175 
Net income attributable to Cal-Maine Foods, Inc. $89,735  $60,839  $67,823  $79,500  $151,861 
Net income per common share:                    
Basic $3.76  $2.55  $2.85  $3.34  $6.41 
Diluted $3.75  $2.54  $2.84  $3.34  $6.40 
                     
Cash dividends per common share $1.25  $0.85  $0.95  $1.11  $1.34 
                     
Weighted average shares outstanding:                    
Basic  23,875   23,855   23,812   23,769   23,677 
Diluted  23,942   23,942   23,877   23,811   23,733 
Balance Sheet Data:                    
Working capital $301,546  $247,559  $220,186  $137,999  $121,550 
Total assets  726,316   640,843   631,284   582,845   501,236 
Total debt (including current maturities)  76,220   88,161   134,673   129,789   97,150 
Total stockholders’ equity  479,328   418,877   376,956   333,009   277,367 
                     
Operating Data:                    
Total number of layers at period ended (thousands)  26,174   26,819   26,326   27,022   21,853 
Total shell eggs sold (millions of dozens)  884.3   821.4   805.4   777.9   678.5 


*Results for fiscal 2009 include the results of operations of Zephyr Egg, LLC, which was consolidated with our operations as of June 27, 2008, and Tampa Farms, LLC, which was consolidated with our operations as of December 11, 2008.

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

 

May 30

 

May 31

 

June 1

 

June 02

 

May 28

 

 

 

2015

 

2014 *

 

 2013 +

 

2012

 

2011

 

 

 

52 wks

 

52 wks

 

52 wks

 

53 wks

 

52 wks

Statement of Operations Data (in thousands, except per shares data)

 

 

 

 

 

 

 

 

 

 

 

Net sales 

 

$

1,576,128 

$

1,440,907 

$

1,288,104 

$

1,113,116 

$

941,981 

Cost of sales 

 

 

1,180,407 

 

1,138,143 

 

1,073,555 

 

911,334 

 

757,050 

Gross profit 

 

 

395,721 

 

302,764 

 

214,549 

 

201,782 

 

184,931 

Selling, general and administrative 

 

 

160,386 

 

156,712 

 

126,956 

 

113,130 

 

101,448 

Legal settlement expense

 

 

 -

 

 -

 

28,000 

 

 -

 

 -

Operating income

 

 

235,335 

 

146,052 

 

59,593 

 

88,652 

 

83,483 

Other income (expense): 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of interest income

 

 

(515)

 

(2,656)

 

(3,906)

 

(3,758)

 

(6,022)

Loss on early extinguishment of debt

 

 

 -

 

 -

 

 -

 

 -

 

(2,648)

Equity in income of affiliates 

 

 

2,657 

 

3,512 

 

3,480 

 

7,495 

 

4,701 

Gain on sale of investment in Eggland’s Best®

 

 

 -

 

 -

 

 -

 

 -

 

4,829 

Distribution from Eggland’s Best® 

 

 

 -

 

 -

 

 -

 

38,343 

 

 -

Patronage dividends

 

 

6,893 

 

6,139 

 

14,300 

 

6,607 

 

4,885 

Other, net

 

 

2,179 

 

8,795 

 

2,101 

 

1,738 

 

2,443 

Total other income

 

 

11,214 

 

15,790 

 

15,975 

 

50,425 

 

8,188 

Income before income tax and noncontrolling interest 

 

 

246,549 

 

161,842 

 

75,568 

 

139,077 

 

91,671 

Income tax expense

 

 

84,268 

 

52,035 

 

24,807 

 

49,110 

 

33,403 

Net income including noncontrolling interest

 

 

162,281 

 

109,807 

 

50,761 

 

89,967 

 

58,268 

Less: Net income (loss) attributable to noncontrolling interest

 

 

1,027 

 

600 

 

338 

 

232 

 

(2,571)

Net income attributable to Cal-Maine Foods, Inc.

 

$

161,254 

$

109,207 

$

50,423 

$

89,735 

$

60,839 

Net income per common share: 

 

 

 

 

 

 

 

 

 

 

 

Basic 

 

$

3.35 

$

2.27 

$

1.05 

$

1.88 

$

1.28 

Diluted 

 

$

3.33 

$

2.26 

$

1.05 

$

1.88 

$

1.27 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per common share

 

$

1.11 

$

0.73 

$

0.38 

$

0.63 

$

0.43 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding: 

 

 

 

 

 

 

 

 

 

 

 

Basic 

 

 

48,136 

 

48,095 

 

47,967 

 

47,750 

 

47,710 

Diluted 

 

 

48,437 

 

48,297 

 

48,088 

 

47,884 

 

47,884 

Balance Sheet Data (in thousands)

 

 

 

 

 

 

 

 

 

 

 

Working capital 

 

$

377,027 

$

324,292 

$

284,686 

$

301,546 

$

247,559 

Total assets 

 

 

928,653 

 

811,661 

 

745,627 

 

726,316 

 

640,843 

Total debt (including current maturities) 

 

 

50,860 

 

61,093 

 

65,020 

 

76,220 

 

88,161 

Total stockholders’ equity 

 

 

704,562 

 

594,745 

 

518,044 

 

479,328 

 

418,877 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Data:   

 

 

 

 

 

 

 

 

 

 

 

Total number of layers at period-end (thousands) 

 

 

33,696 

 

32,372 

 

30,967 

 

26,174 

 

26,819 

Total shell eggs sold (millions of dozens) 

 

 

1,063.1 

 

1,013.7 

 

948.5 

 

884.3 

 

821.4 

 

*    Results for fiscal 2014 include the results of operations (subsequent to acquisition) of our joint venture partner’s 50% interest in Delta Egg Farm, LLC, which was consolidated with our operations as of March 1, 2014.  Prior to March 1, 2014, our equity in earnings in Delta Egg Farm, LLC are included in Equity in income of affiliates.

+   Results for fiscal 2013 include the results of operations (subsequent to acquisition) of the commercial egg assets acquired from Pilgrim’s Pride Corporation, which were consolidated with our operations as of August 10, 2012, and the commercial egg assets from Maxim Production Co., Inc., which were consolidated with our operations as of November 15, 2012. 

18


ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Risk Factors; Forward-Looking StatementsRISK FACTORS; FORWARD-LOOKING STATEMENTS

 

For information relating to important risks and uncertainties that could materially adversely affect our business, securities, financial condition or operating results, reference is made to the disclosure set forth under Item 1A above under the caption “Risk Factors.” In addition, because the following discussion includes numerous forward-looking statements relating to us, our results of operations, financial condition and business, reference is made to the information set forth in the section of Part I immediately preceding Item 1 above under the caption “Forward-Looking Statements.”

OverviewOVERVIEW

 

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 nearest to May 31 which was June 2, 2012 (53 weeks), May 28, 201130, 2015, May 31, 2014 (52 weeks), and May 29, 2010June 1, 2013 (52 weeks) for the most recent three fiscal years.

 

Our operations are fully integrated.  We hatch chicks, grow and maintain flocks of pullets (young female chickens, usually under 2018 weeks of age), layers (mature female chickens) and breeders (male orand 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 29 states, primarily in the southwestern, southeastern, mid-western,  and mid-Atlantic regions of the United States.U.S.  We market our shell eggs through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product manufacturers.consumers.

 

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 2005-2015 ranged from a low of $0.72 during 2005 to a high of $1.53 during fiscal 2015.  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 have tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally has caused a drop in shell egg prices until supply and demand returnreturned 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.  Our need for working capital generally is highest in the last and first fiscal quarters ending in May and August, respectively, when egg prices are normally at seasonal lows.   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 thesethe seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.

   

Beginning in April of 2015, our industry has experienced a significant avian influenza outbreak, primarily in the upper Midwestern U.S.  At the time of this filing, based on several published industry estimates, we believe that approximately 13% of the national flock of laying hens has been affected.  The affected laying hens have either been destroyed by the disease or euthanized.  As a result, egg prices have increased significantly. The average Thursday prices for the large market (i.e. generic shell eggs) in the southeastern region for the months of April, May and June 2015 were $1.48, $1.56, and $2.46, respectively.  While the warmer summer months seem to have reduced further transmission of avian influenza, we expect egg prices to remain high until the national laying hen flock can be replenished. There have been no positive tests for avian influenza at any of our locations, and we are significantly increasing the biosecurity measures at all of our facilities, however we cannot be certain that our flocks will not be affected.

Additionally, there continues to be uncertainty in the industry surrounding the implementation of California’s Proposition 2 and Assembly Bill 1437, which relate to egg production standards, including minimum cage space, for eggs sold in that state.   This legislation was effective January 1, 2015. During January 2015, egg prices increased sharply and subsequently moderated.  Currently, egg prices in California reflect a premium to other regions that is higher than historical levels.  It is anticipated that future California prices will be higher than other regions of the country to reflect the higher cost of production related to the California standards. These new rules could impact future sales in California, and could also affect national egg production and supply, thereby increasing or decreasing prices throughout the country.  For fiscal 2012,2015, less than 3% of our total egg sales were California sales.  We continue to monitor the effects of this legislation and how it could impact our business.

19


For fiscal 2015, we produced approximately 75% of the total number of shell eggs sold by us, with approximately 8%6% of such shell egg production being provided by contract producers. Contract producers utilize their facilities in the production ofto produce shell eggs byfrom layers owned by us. We own the shell eggs produced under these arrangements. For fiscal 2012,2015, approximately 25% of the total number of shell eggs sold by us was purchased from outside producers for resale.

 

Our cost of production is materially affected by feed costs.costs, which are highly volatile and subject to wide fluctuation.  For fiscal 2012,2015, feed costs averaged about 67%62% of our total farm egg production cost.  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.   For our last five fiscal years, average feed cost per dozen sold ranged from a low of $0.39 in fiscal 2011 to a high of $0.54 in fiscal 2013.  The cost of our primary 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 United StatesU.S. and foreign governments.  The supply/demand balance for cornFavorable weather conditions and soybeans is very tight and should remain so through at least the 2012/13 crop year. Drought conditions in major crop growing regions of the mid-western United States have significantly reduced anticipatedimproved yields for the current crop. This has resulted in record prices for these commodities. Market prices for2014 crop increased supplies of both corn also remain higher in part because of increases in demand from ethanol producers. Market prices forand soybean meal also remain high because of competition for planted acres for other grain production. The prospectivefiscal year 2015; however, we expect the outlook is for feed costsprices to remain highvolatile.

During the fourth quarter of fiscal 2015, the Company entered into the Red River Valley Egg Farm, LLC (“Red River”) joint venture with Rose Acre Farms, Inc.  The joint venture will build and volatileoperate a state of the art shell egg production complex near Bogata, Red River County, Texas.  The plans for the complex provide capacity for approximately 1.8 million cage-free laying hens.  Construction of the complex has commenced, and the initial flocks are expected to be placed in November 2015.  We did not incur material costs associated with the joint venture in fiscal 2015.

The acquisition of our joint venture partner’s 50% interest in Delta Egg Farm, LLC (“Delta Egg”) and the purchases of the commercial egg assets of Pilgrim’s Pride Corporation and Maxim Production Co., Inc. as described in Note 2 of the Notes to the Consolidated Financial Statements are referred to below as the “Acquisitions”.  Our fiscal 2015, 2014 and 2013 financial results include the operations of Delta Egg beginning March 1, 2014, Maxim beginning November 15, 2012, and Pilgrim’s Pride beginning August 10, 2012.  Prior to March 1, 2014, our 50% interest in the year ahead.earnings of Delta Egg was included in equity in earnings of affiliates under the equity method of accounting.

We effected a 2-for-1 stock split for shares of our common stock and Class A common stock in October 2014, and all per share amounts in this report have been adjusted as necessary to reflect the split.

RESULTS OF OPERATIONS

 

The following table sets forth, for the fiscal years indicated, certain items from our consolidated statements of income expressed as a percentage of net sales.

 

  Percentage of Net Sales 
  Fiscal Years Ended 
  June 2, 2012  May 28, 2011  May 29, 2010 
          
Net sales  100.0%  100.0%  100.0%
Cost of sales  81.9   80.4   78.6 
Gross profit  18.1   19.6   21.4 
Selling, general & administrative expenses  10.1   10.8   10.1 
Operating income  8.0   8.8   11.3 
Other income  4.5   0.9   0.1 
Income before taxes  12.5   9.7   11.4 
Income tax expense  4.4   3.5   4.2 
Net income including noncontrolling interests  8.1   6.2   7.2 
Less: Net income (loss) attributable to noncontrolling interests  0.0   (0.3)  (0.3)
Net income attributable to Cal-Maine Foods, Inc  8.1%  6.5%  7.5%

 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

 

May 31, 2014

 

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

Net sales

100.0 

%

 

100.0 

%

 

100.0 

%

Cost of sales

74.9 

 

 

79.0 

 

 

83.3 

 

Gross profit

25.1 

 

 

21.0 

 

 

16.7 

 

Selling, general & administrative expenses

10.2 

 

 

10.9 

 

 

9.9 

 

Legal settlement expense

 -

 

 

 -

 

 

2.2 

 

Operating income 

14.9 

 

 

10.1 

 

 

4.6 

 

Other income

0.7 

 

 

1.1 

 

 

1.2 

 

Income before taxes

15.6 

 

 

11.2 

 

 

5.8 

 

Income tax expense

5.3 

 

 

3.6 

 

 

1.9 

 

Net income including noncontrolling interests

10.3 

 

 

7.6 

 

 

3.9 

 

Less: Net income (loss) attributable to noncontrolling interests

0.1 

 

 

0.0 

 

 

0.0 

 

Net income attributable to Cal-Maine Foods, Inc.

10.2 

%

 

7.6 

%

 

3.9 

%

20


Executive Overview of Results – May 30, 2015, May 31, 2014, and June 2, 2012, May 28, 2011, and May 29, 20101, 2013

 

Our operating results are significantly affected by wholesale shell egg market prices and feed costs, which can fluctuate widely and are outside of our control.  The majority of our shell eggs are sold at prices related to the Urner Barry Spot Egg Market Quotations for the southeastern regionand southcentral regions of the country, or at formulas related to our costs of production which include the cost of corn and soybean meal.  The following table shows our net income, net average shell egg selling price, feed cost per dozen produced, and the average Urner Barry wholesale large shell egg prices in the southeast region, for each of our three most recent fiscal years.

 

Fiscal Year ended June 2, 2012  May 28, 2011  May 29, 2010 
          
Net income attributable to Cal-Maine Foods, Inc. - (in thousands) $89,735  $60,839  $67,823 
Net average shell egg selling price (rounded)  1.21   1.10   1.08 
Feed cost per dozen produced  0.469   0.394   0.349 
Average Urner Barry Spot Egg Market Quotations1  1.22   1.13   1.12 

 

 

 

 

 

 

 

 

Fiscal Year ended

 

May 30, 2015

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

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

 

$          161,254

 

$          109,207

 

$            50,423

Gross profit (in thousands)

 

395,721 

 

302,764 

 

214,549 

Net average shell egg selling price (rounded)

 

1.43 

 

1.36 

 

1.30 

Average Urner Barry Spot Egg Market Quotations1

 

1.53 

 

1.43 

 

1.35 

Feed cost per dozen produced

 

0.439 

 

0.493 

 

0.540 

 

 

 

 

 

 

 

1- Average daily price for the large market (i.e. generic shell egg) in the southeastern region

1-

Average Thursday price for the large market (i.e. generic shell eggs) in the southeastern region

 

The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. The periods of high profitability reflecthave often reflected increased consumer demand relative to supply while the periods of significant loss reflecthave often reflected excess supply for the then prevailing consumer demand.  Historically, demand for shell eggs increases in line with overall population growth. As reflected above, our operating results correspondfluctuate with changes in the spot egg market quote.quote and feed costs.   The net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and undergrades.  In fiscal 2003year 2013, feed costs increased significantly and 2004, shell egg demandour average net selling price increased at higher than normal trend rates due to the increased popularity of high protein diets. This demand imbalance caused shell egg prices to increase. In late fiscal 2004, the popularity of these high protein diets began to diminish, but our egg production had been increased to meet the earlier higher demand levels. Lower egg prices followed, and we experienced net losses in fiscal 2005 and 2006. Beginning in the latter part of fiscal 2006, egg supplies became more aligned with demand. Since that time, the supply-demand balance has generally tightened. In fiscal 2010, egg prices declined as compared to the prior year.  In fiscal 2014 and 2015, our average net selling price continued to increase, reflecting strong demand for shell eggs across our markets, and feed costs decreased each year over the previous year.  Net income for fiscal 2015 increased significantly compared to the prior year, primarily due to an increase in industry supply. Egg sales at the retail level were good,dozens sold and while there was modest improvementselling prices and a decrease in food service and restaurant sales, overall there was continued weakness in food service and restaurant sales. For fiscal 2010, our feed costs decreased, as compared to feed costs in the previous fiscal year. For fiscal 2011, our net average selling price increased slightly, but due to higher feed costs our net income decreased. In fiscal 2012, our net average selling price increased and feed costs increased significantly from the prior year. Our net income increased from the previous year, primarily due to a special patronage dividend received in connection with the formation of a joint venture between EB and Land O’ Lakes, Inc.costs.

Fiscal Year Ended June 2, 2012May 30, 2015 Compared to Fiscal Year Ended May 28, 201131, 2014

Net Sales.NET SALES

In fiscal 2012,2015, approximately 96%97% of our net sales consisted of shell egg saleseggs and approximately 3% was for sales of egg products, with the 1% balance consisting of sales of incidental feed and feed ingredients.products.  Net sales for the fiscal year ended June 2, 2012May 30, 2015 were $1,113.1$1,576.1 million, an increase of $171.1$135.2 million, or 18.2%9.4%, from net sales of $942.0$1,440.9 million for fiscal 2011.2014.  In fiscal 20122015 total dozens of eggs sold increased and egg selling prices increased as compared to fiscal 2011.2014. In fiscal 20122015 total dozens of shell eggs sold were 884.31,063.1 million, an increase of 62.949.4 million dozen, or 7.7%4.9%, compared to 821.41,013.7 million sold in fiscal 2011.2014. Our average selling price of shell eggs increased from $1.098$1.362 per dozen for fiscal 20112014 to $1.205$1.429 per dozen for fiscal 2012,2015, an increase of $0.107$0.067 per dozen, or 9.7%4.9%, reflecting strong demand for shell eggs across our markets and a higher percentage of specialty egg sales.  Our operating results are significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels can have a large effect on shell egg prices. 

21


The table below represents an analysis of our non-specialty and specialty, as well as co-pack specialty, shell egg sales.  Following the table is a discussion of the information presented in the table.  

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

Quarters Ended

 

 

(52 weeks)

 

(13 weeks)

 

 

May 30, 2015

 

May 31, 2014

 

May 30, 2015

 

May 31, 2014

 

 

(Amounts in thousands)

 

(Amounts in thousands)

Total net sales

 

$            1,576,128 

 

$          1,440,907 

 

$        403,011 

 

$        371,582 

 

 

 

 

 

 

 

 

 

Non-specialty shell egg sales

 

1,059,070 

 

990,073 

 

268,625 

 

252,869 

Specialty shell egg sales

 

416,127 

 

337,243 

 

110,696 

 

90,632 

Co-pack specialty shell egg sales

 

43,282 

 

52,786 

 

10,278 

 

13,950 

Other

 

11,769 

 

7,590 

 

2,710 

 

1,759 

Net shell egg sales

 

$            1,530,248 

 

$          1,387,692 

 

$        392,309 

 

$        359,210 

 

 

 

 

 

 

 

 

 

Net shell egg sales as a percent of total net sales

 

97% 

 

96% 

 

97% 

 

97% 

 

 

 

 

 

 

 

 

 

Non- specialty shell egg dozens sold

 

830,770 

 

812,031 

 

204,138 

 

195,555 

Specialty shell egg dozens sold

 

210,606 

 

174,364 

 

55,699 

 

46,681 

Co-pack specialty shell egg dozens sold

 

21,710 

 

27,301 

 

5,046 

 

7,203 

Total dozens sold

 

1,063,086 

 

1,013,696 

 

264,883 

 

249,439 

 

 

 

 

 

 

 

 

 

Net average selling price per dozen

 

$            1.429

 

$           1.362

 

$       1.471

 

$       1.433

Non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell egg sales.   The non-specialty shell egg market is characterized generally by an inelasticity of demand, and small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa.  In fiscal 2015, non-specialty shell eggs represented approximately 69.2% of our shell egg dollar sales, compared to 71.3% for fiscal 2014.   Sales of non-specialty shell eggs accounted for approximately 78.1% of our total shell egg dozen volumes in fiscal 2015, compared to 80.1% in fiscal 2014.

For the thirteen-week period ended May 30, 2015, non-specialty shell eggs represented approximately 68.5% of our shell egg dollar sales, compared to 70.4% for the thirteen-week period ended May 31, 2014.   For the thirteen-week period ended May 30, 2015, non-specialty shell eggs accounted for approximately 77.1% of the total shell egg dozen volume, compared to 78.4% for the thirteen-week period ended May 31, 2014.

Specialty eggs, which include nutritionally enhanced, cage free, organic and brown eggs, continued to make up a larger portion of our total shell egg sales dollars and dozens in fiscal 2015.  For fiscal 2015, specialty eggs accounted for 27.2% of shell egg dollar sales, compared to 24.3% in fiscal 2014, and 19.8% of shell egg dozens sold in fiscal 2015, compared to 17.2% in fiscal 2014.  Additionally, for fiscal 2015, specialty eggs sold through co-pack arrangements accounted for 2.8% of shell egg dollar sales, compared to 3.8% in fiscal 2014, and 2.0% of shell egg dozens sold in fiscal 2015, compared to 2.7% in fiscal 2014.  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 increased benefits from these products.  

For the thirteen-week period ended May 30,  2015, specialty shell eggs and specialty shell eggs sold through co-pack arrangements represented approximately 28.2% and 2.6%, of our shell egg dollar sales, compared to 25.2% and 3.9% for the thirteen-week period ended May 31, 2014, respectively.   For the thirteen-week period ended May 30, 2015, specialty shell eggs and specialty shell eggs sold through co-pack arrangements accounted for approximately 21.0% and 1.9% of the total shell egg dozen volume, compared to 18.7% and 2.9%  for the thirteen-week period ended May 31, 2014, respectively.

The shell egg sales classified as “Other” represent hard cooked eggs, hatching eggs, and/or other egg 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

22


consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC (“TEP”).    For fiscal 2015 our egg product sales were $45.4 million, an increase of $3.6 million, or 8.6%, compared to $41.8 million for fiscal 2014.  Our volume of egg products sold for fiscal 2015 was 51.0 million pounds, an increase of 2.1 million pounds, or 4.3%, compared to 48.9 million pounds for fiscal 2014.   The increases in sales volume and market prices in the current fiscal year were due to increased industry demand for egg products, driven by the quick serve restaurant industry as well as export sales.  In fiscal 2015, the price per pound of egg products sold was $0.891 compared to $0.855 for fiscal 2014, an increase of 4.2%.

COST OF SALES

Cost of sales consists of costs directly related to producing, 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 our cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

Quarter Ended

(Amounts in thousands)

 

May 30, 2015

 

May 31, 2014

 

Percent Change

 

May 30, 2015

 

May 31, 2014

 

Percent Change

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm production

 

$

558,580 

 

$

575,392 

 

(2.9)

%

 

$

138,580 

 

$

171,140 

 

(19.0)

%

Processing and packaging

 

 

173,181 

 

 

156,088 

 

11.0 

%

 

 

45,056 

 

 

41,983 

 

7.3 

%

Outside egg purchases and other

 

 

413,863 

 

 

371,885 

 

11.3 

%

 

 

101,029 

 

 

57,336 

 

76.2 

%

Total shell eggs

 

 

1,145,624 

 

 

1,103,365 

 

3.8 

%

 

 

284,665 

 

 

270,459 

 

5.3 

%

Egg products

 

 

33,886 

 

 

33,509 

 

1.1 

%

 

 

8,640 

 

 

9,436 

 

(8.4)

%

Other

 

 

897 

 

 

1,269 

 

(29.3)

%

 

 

311 

 

 

396 

 

(21.5)

%

Total

 

$

1,180,407 

 

$

1,138,143 

 

3.7 

%

 

$

293,616 

 

$

280,291 

 

4.8 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm production cost (per dozen produced)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feed

 

$

0.44 

 

$

0.49 

 

(10.2)

%

 

$

0.41 

 

$

0.48 

 

(14.6)

%

Other

 

 

0.26 

 

 

0.25 

 

4.0 

%

 

 

0.27 

 

 

0.26 

 

3.8 

%

Total

 

$

0.70 

 

$

0.74 

 

(5.4)

%

 

$

0.68 

 

$

0.74 

 

(8.1)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside egg purchases (average cost per dozen)

 

$

1.41 

 

$

1.37 

 

2.9 

%

 

$

1.43 

 

$

1.44 

 

(0.7)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dozen produced

 

 

798,842 

 

 

750,302 

 

6.5 

%

 

 

201,763 

 

 

195,630 

 

3.1 

%

Dozen sold

 

 

1,063,086 

 

 

1,013,696 

 

4.9 

%

 

 

264,883 

 

 

249,439 

 

6.2 

%

Cost of sales for the fiscal year ended May 30, 2015  was $1,180.4 million, an increase of $42.3 million, or 3.7%, compared to $1,138.1 million for fiscal 2014.  Dozens produced increased and dozens purchased from outside shell egg producers increased for fiscal 2015 while cost of feed ingredients decreased in fiscal 2015 compared to fiscal 2014.  This fiscal year we produced 75.1% of the eggs sold by us, as compared to 74.0% for the previous year. Feed cost for fiscal 2015 was $0.44 per dozen, compared to $0.49 per dozen for the prior fiscal year, a decrease of 10.2%.  Gross profit increased from 21.0% of net sales for fiscal 2014 to 25.1% of net sales for fiscal 2015, primarily as a result of lower feed costs and increased egg selling prices.  

Cost of sales for the thirteen-week period ended May 30, 2015 was $293.6 million, an increase of $13.3 million, or 4.8%, compared to  $280.3 million for the thirteen-week period ended May 31, 2014.  Feed cost per dozen for the fourth quarter of fiscal 2015 was $0.41, compared to $0.48 for comparable fiscal 2014 fourth quarter, a decrease of 14.6%. 

23


SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

52 Weeks

(Amounts in thousands)

 

May 30, 2015

 

May 31, 2014

 

Change

Stock compensation expense

 

$                      2,955 

 

$                      1,794 

 

$          1,161 

Specialty egg expense

 

53,966 

 

46,298 

 

7,668 

Payroll and overhead

 

31,965 

 

29,413 

 

2,552 

Other expenses

 

24,501 

 

36,161 

 

(11,660)

Delivery expense

 

46,999 

 

43,046 

 

3,953 

Total

 

$                  160,386 

 

$                  156,712 

 

$          3,674 

Selling, general and administrative expenses, which include costs of marketing, distribution, accounting and corporate overhead, were  $160.4 million in fiscal 2015, an increase of $3.7 million, or 2.3%, compared to $156.7 million for fiscal 2014.   Stock compensation expense increased $1.2 million for the current fiscal year.  Stock compensation expense is dependent on the closing price of the Company’s Common Stock.  For our stock compensation arrangements classified as equity awards (e.g. restricted stock), we recognized stock compensation expense ratably over the vesting period.  For our stock compensation arrangements classified as liability awards, we recognize increases or decreases in the value of such awards as increases or decreases, respectively, to stock compensation expense. For additional information, see Note 11 to  Notes to Consolidated Financial Statements.  The increase in specialty egg expense for fiscal 2015 compared to fiscal 2014 is attributable to  a 20.8% increase in specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense.  As a percentage of net sales, payroll and overhead is 2.0% for fiscal 2015 and fiscal 2014. Other expenses, which include expenses for repairs, professional fees, and insurance, decreased for fiscal 2015 compared with fiscal 2014 as a result of a 2014 confidential legal settlement and related legal fees as well as decreases in other tax expense.  During fiscal 2015 we recognized $239,000 in expense resulting from the increase in fair value of contingent consideration applicable to acquisitions, compared to $4.4 million in fiscal 2014, both of which are reflected in other expenses.   See Note 16 to Notes to Consolidated Financial Statements for additional information.  As a percentage of net sales, delivery expense is 3.0% for fiscal 2015 and fiscal 2014.  As a percent of net sales, selling, general and administrative expense decreased from 10.9% in fiscal 2014 to 10.2% in fiscal 2015.

 

 

 

 

 

 

 

 

 

Quarters Ended

 

 

13 Weeks

(Amounts in thousands)

 

May 30, 2015

 

May 31, 2014

 

Change

Stock compensation expense

 

$                      1,290 

 

$                         753 

 

$             537 

Specialty egg expense

 

14,217 

 

12,414 

 

1,803 

Payroll and overhead

 

8,920 

 

9,507 

 

(587)

Other expenses

 

6,679 

 

9,499 

 

(2,820)

Delivery expense

 

11,738 

 

11,590 

 

148 

Total

 

$                    42,844 

 

$                    43,763 

 

$            (919)

Selling, general, and administrative expense was $42.8 million for the thirteen-week period ended May 30, 2015, a decrease of $919,000, or 2.1%, compared to $43.8 million for the thirteen-week period ended May 31, 2014.  Other expenses for the thirteen-week period ended May 30, 2015, decreased $2.8 million, or 29.7%, compared to the same period of fiscal 2014, primarily as a result of the previously discussed decrease in expense resulting from the fair value of contingent consideration on our acquisition of Maxim as well as a decrease in other tax expense.  This decrease is partially offset by the increase in specialty egg expense for the thirteen-week period ended May 30, 2015 compared to the same period of fiscal 2014 which is attributable to  a 19.3% increase specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense.    

OPERATING INCOME

As a result of the above, our operating income was $235.3 million for fiscal 2015, compared to $146.1 million for fiscal 2014.  Operating income as a percent of net sales for fiscal 2015 was 14.9%, compared to 10.1% for fiscal 2014. 

24


OTHER INCOME (EXPENSE)

Total other income (expense) consists of income (expenses) not directly charged to, or related to, operations such as interest expense, royalty income, and patronage income, equity in earnings of affiliates, among other items. Total other income for fiscal 2015 was $11.2 million compared to $15.8 million for fiscal 2014.  As a percent of net sales, total other income was 0.7% for fiscal 2015, compared to 1.12% for fiscal 2014.

Other income, net, decreased from $8.8 million in fiscal 2014 to $2.2 million in fiscal 2015 primarily due to a fiscal 2014 non-taxable, non-cash gain of $4.0 million for the remeasurement of our equity interest in Delta Egg to the fair value in connection with the purchase of our joint venture partner’s 50% membership interest on March 1, 2014, as well as a $1.4 million decrease in royalty income related to oil and gas wells located on property we own in Texas.  For additional information see Note 2 to Notes to Consolidated Financial Statements.

INCOME TAXES

For the fiscal year ended May 30, 2015, our pre-tax income was $246.5 million, compared to $161.8 million for fiscal 2014.  Income tax expense of $84.3 million was recorded for fiscal 2015 with an effective income tax rate of 34.3%, compared to $52.0 million for fiscal 2014 with an effective income tax rate of 32.1%.  Included in fiscal 2014 income tax expense are items related to the acquisition of Delta Egg, which resulted in a $3.3 million decrease to deferred income tax expense related to the outside basis of our equity investment in Delta Egg, with a corresponding non-recurring, non-cash $1.5 million reduction to income taxes expense on the non-taxable remeasurement gain associated with the acquisition.

Other items causing our effective rate to differ from the federal statutory income tax rate of 35% are state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, the domestic manufacturers deduction, and net income or loss attributable to noncontrolling interest.

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

Net income attributable to noncontrolling interest in AEP and TEP for fiscal 2015 was $1.0 million as compared to $600,000 for fiscal 2014.

NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.

As a result of the above, net income for fiscal 2015 was $161.3 million, or $3.35 per basic share and $3.33 per diluted share, compared to $109.2 million, or $2.27 per basic share and $2.26 per diluted share for fiscal 2014. 

Fiscal Year Ended May 31, 2014 Compared to Fiscal Year Ended June 1, 2013

NET SALES

In fiscal 2014, approximately 96% of our net sales consisted of shell eggs, approximately 3% was egg products, with the 1% balance consisting of incidental feed and feed ingredients.Net sales for the fiscal year ended May 31, 2014 were $1,440.9 million, an increase of $152.8 million, or 11.9%, from net sales of $1,288.1 million for fiscal 2013.  In fiscal 2014 total dozens of eggs sold increased and egg selling prices increased as compared to fiscal 2013. In fiscal 2014 total dozens of shell eggs sold were 1,013.7 million, an increase of 65.2 million dozen, or 6.9%, compared to 948.5 million sold in fiscal 2013. Our average selling price of shell eggs increased from $1.301 per dozen for fiscal 2013 to $1.362 per dozen for fiscal 2014, an increase of $0.061 per dozen, or 4.7%, reflecting strong demand for shell eggs across our markets and a higher percentage of specialty egg sales.  Our net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and undergrades.  Our operating results are significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels can have a large effect on shell egg prices.

 

On a comparable basis, excluding the Acquisitions, net sales for fiscal 2014 were $1,277.8 million, an increase of $90.7 million, or 7.6%, compared to net sales of $1,187.1 for fiscal 2013.  Dozens sold for fiscal 2014, excluding the Acquisitions, were 884.4 million, an increase of 18.4 million, or 2.1% as compared to 866.0 million for fiscal 2013.

25


The table below represents an analysis of our non-specialty and specialty, as well as co-pack specialty, shell egg sales.  Following the table is a discussion of the information presented in the table.

 

  Fiscal Years Ended  Quarters Ended 
  (53 & 52 weeks)  (14 & 13 weeks) 
  June 2, 2012  May 28, 2011  June 2, 2012  May 28, 2011 
  (Amounts in thousands)  (Amounts in thousands) 
Total net sales $1,113,116  $941,981  $275,245  $242,381 
                 
Non-specialty shell egg sales  809,163   684,470   195,316   174,846 
Specialty shell egg sales  256,559   217,766   68,351   56,923 
Other  4,082   3,501   747   950 
Net shell egg sales $1,069,804  $905,737  $264,414  $232,719 
                 
Net shell egg sales as a                
percent of total net sales  96%  96%  96%  96%
                 
Non- specialty shell egg dozens sold  739,915   689,045   191,151   172,145 
Specialty shell egg dozens sold  144,359   132,375   37,660   34,018 
Total dozens sold  884,274   821,420   228,811   206,163 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

Quarters Ended

 

 

(52 weeks)

 

(13 weeks)

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

(Amounts in thousands)

 

(Amounts in thousands)

Total net sales

 

$      1,440,907 

 

$      1,288,104 

 

$         371,582 

 

$         325,933 

 

 

 

 

 

 

 

 

 

Non-specialty shell egg sales

 

990,073 

 

900,259 

 

252,869 

 

223,518 

Specialty shell egg sales

 

337,243��

 

293,201 

 

90,632 

 

76,868 

Co-pack specialty shell egg sales

 

52,786 

 

40,175 

 

13,950 

 

11,051 

Other

 

7,590 

 

5,733 

 

1,759 

 

1,785 

Net shell egg sales

 

$      1,387,692 

 

$      1,239,368 

 

$         359,210 

 

$         313,222 

 

 

 

 

 

 

 

 

 

Net shell egg sales as a percent of total net sales

 

96% 

 

96% 

 

97% 

 

96% 

 

 

 

 

 

 

 

 

 

Non- specialty shell egg dozens sold

 

812,031 

 

772,140 

 

195,555 

 

197,739 

Specialty shell egg dozens sold

 

174,364 

 

155,569 

 

46,681 

 

39,932 

Co-pack specialty shell egg dozens sold

 

27,301 

 

20,747 

 

7,203 

 

5,609 

Total dozens sold

 

1,013,696 

 

948,456 

 

249,439 

 

243,280 

In fiscal 2014, we identified an additional category of specialty sales that 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 27.3 million and 20.7 million dozen for the fiscal  years 2014 and 2013, respectively.  These dozens were previously reported under non-specialty shell egg sales. 

 

Our non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell egg sales.   The non-specialty shell egg market is characterized generally by an inelasticity of demand, and small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa.  In fiscal 2012,2014, non-specialty shell eggs represented approximately 75.6%71.3% of our shell egg dollar sales, as compared to 75.6%72.6% for fiscal 2011.2013.   Sales of non-specialty shell eggs accounted for approximately 83.7%80.1% of our total shell egg dozen volumes in fiscal 2012, as2014, compared to 83.9%81.4% in fiscal 2011.2013.

 

For the fourteen-weekthirteen-week period ended June 2, 2012,May 31, 2014, non-specialty shell eggs represented approximately 73.9%70.4% of our shell egg dollar sales, as compared to 75.1%71.4% for the thirteen-week period ended May 28, 2011.June 1, 2013.   For the fourteen-weekthirteen-week period ended June 2, 2012,May 31, 2014, non-specialty shell eggs accounted for approximately 83.5%78.4% of the total shell egg dozen volume, as compared to 83.5%81.3% for the thirteen-week period ended May 28, 2011.June 1, 2013.

 

We continue to increase our sales volume of specialtySpecialty eggs, which include nutritionally enhanced, cage free, organic and organic eggs.brown eggs, continued to make up a significant portion of our total shell egg sales dollars and dozens in fiscal 2014.  For fiscal 2014, specialty eggs accounted for 24.3% of shell egg dollar sales, compared to 23.7% in fiscal 2013, and 17.2% of shell egg dozens sold in fiscal 2014, compared to 16.4% in fiscal 2013.  Additionally, for fiscal 2014, specialty eggs sold through co-pack arrangements accounted for 3.8% of shell egg dollar sales, compared to 3.2% in fiscal 2013, and 2.7% of shell egg dozens sold in fiscal 2014, compared to 2.2% in fiscal 2013.  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 increased benefits from these products.  For fiscal 2012, specialty eggs accounted for 24.0% of shell egg dollar sales, as compared to 24.0% in fiscal 2011, and 16.3% of shell egg dozens sold in fiscal 2012, as compared to 16.1% in fiscal 2011. They are a growing part of the shell egg market. Due to healthier eating trends, the volume of specialty eggs sold continues to increase. From fiscal 2011 to fiscal 2012, the dozen volume of specialty eggs sold increased by 9.1%.

 

For the fourteen-weekthirteen-week period ended June 2, 2012,May 31,  2014, specialty shell eggs and specialty shell eggs sold through co-pack arrangements represented approximately 25.8%25.2% and 3.9%, of our shell egg dollar sales, as compared to 24.5% and 3.5% for the thirteen-week period ended May 28, 2011.June 1, 2013, respectively.   For the fourteen-weekthirteen-week period ended June 2, 2012,May 31, 2014, specialty shell eggs and specialty shell eggs sold through co-pack arrangements accounted for approximately 16.5%18.7% and 2.9% of the total shell egg dozen volume, as compared to 16.5%16.4% and 2.3%  for the thirteen-week period ended May 28, 2011.June 1, 2013, respectively.

26


The shell egg sales classified as “Other” represent sales of hard cooked eggs, hatching eggs, and baby chicks,other egg 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.    For fiscal 2012 our egg product sales were $32.9 million, an increase of $6.0 million, or 22.3%, as compared to $26.9 million for fiscal 2011. Our volume of egg products sold for fiscal 2012 was 55.2 million pounds, an increase of 1.4 million pounds, or 2.6%, as compared to 53.8 million pounds for fiscal 2011. This increase is due to a more available supply of eggs for breaking. In fiscal 2012, the price per pound of egg products sold was $0.596 as compared to $0.500 for fiscal 2011, which is an increase of 19.1%. Prices received for our egg products increased in the most recent fiscal year due to a favorable change in the mix of products sold. For the 53 week period ending June 2, 2012 the market prices for unpasteurized liquid whole egg, unpasteurized liquid egg whites and unpasteurized liquid egg yolk were up 21.2%, 16.0% and 4.3%, respectively, compared to the same period last year. Our egg products are sold through our consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC (“TEP”).  For fiscal 2012,2014 our egg product sales for AEP were $15.9$41.8 million, asan increase of $6.5 million, or 18.4%, compared to $13.6$35.3 million for fiscal 2011, an increase of $2.3 million, or 16.9%. For AEP the2013.  Our volume of egg products sold for fiscal 20122014 was 28.048.9 million pounds, a decrease of 200,0003.1 million pounds, or 0.7%6.0%, as compared to 28.252.0 million pounds for fiscal 2011.2013. The egg productdecrease in sales for TEP in fiscal 2012 were $17.0 million, as compared to $13.4 millionvolume for fiscal 2011, an increase of $3.6 million, or 26.9%. For TEP2014 was offset by significantly higher market prices for liquid whole eggs and egg whites due to increased industry demand for egg products, driven by the volumequick serve restaurant industry as well as export sales.  In fiscal 2014, the price per pound of egg products sold was $0.855 compared to $0.679 for fiscal 2012 was 27.2 million pounds,2013, an increase of 1.6 million pounds, or 6.3%, as compared to 25.6 million pounds for fiscal 2011. As described in Note 1 in the notes to the consolidated financial statements, TEP is a variable interest entity of which the Company is the primary beneficiary.25.9%.

22

    Cost of Sales.COST OF SALES

 

Cost of sales consists of costs directly related to production,producing, 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 our cost of sales.sales:

 

  Fiscal Years Ended  Quarter Ended 
  (53 & 52  weeks)  (14 & 13 weeks) 
(Amounts in thousands) June 2, 2012+  May 28, 2011*  June 2, 2012+  May 28, 2011** 
Cost of Sales:                
Farm production $475,774  $381,386  $121,224  $103,449 
Processing and packaging  122,195   114,868   32,316   28,866 
Outside egg purchases and other  284,348   235,664   73,751   62,258 
Total shell eggs $882,317  $731,918  $227,291  $194,573 
Egg products  28,136   22,375   6,474   6,332 
Other  881   2,757   125   76 
Total $911,334  $757,050  $233,890  $200,981 
                 
Farm production cost (cost per dozen produced)                
Feed $0.469  $0.394  $0.480  $0.447 
Other  0.236   0.221   0.242   0.226 
Total $0.705  $0.615  $0.722  $0.673 
                 
Outside egg purchases (average cost per dozen) $1.191  $1.105  $1.145  $1.121 
                 
Dozen Produced  662,975   634,009   171,190   157,621 
Dozen Sold  884,274   821,420   228,811   206,163 

* Cost of sales for fiscal 2011 was reduced by $6.1 million for proceeds received under our business interruption coverage related to the Farwell, Texas fire (See Note 6 in the notes to consolidated financial statements).

** Cost of sales for the thirteen-week period ended May 28, 2011 was reduced by $2.1 million for proceeds received under our business interruption coverage related to the finalization of the Farwell, Texas fire insurance claim in the fourth quarter of fiscal 2011.

+ Cost of sales for the fourteen and fifty three-week periods ended June 2, 2012 was reduced by $1.6 million for proceeds received under our business interruption coverage related to the finalization of the Shady Dale, Georgia fire insurance claim in the fourth quarter of fiscal 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

Quarter Ended

(Amounts in thousands)

 

May 31, 2014

 

June 1, 2013

 

Percent Change

 

May 31, 2014

 

June 1, 2013

 

Percent Change

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm production

 

$

575,392 

 

$

545,253 

 

5.5 

%

 

$

171,140 

 

$

137,827 

 

24.2 

%

Processing and packaging

 

 

156,088 

 

 

137,494 

 

13.5 

%

 

 

41,983 

 

 

36,358 

 

15.5 

%

Outside egg purchases and other

 

 

371,885 

 

 

360,257 

 

3.2 

%

 

 

57,336 

 

 

92,540 

 

(38.0)

%

Total shell eggs

 

 

1,103,365 

 

 

1,043,004 

 

5.8 

%

 

 

270,459 

 

 

266,725 

 

1.4 

%

Egg products

 

 

33,509 

 

 

29,549 

 

13.4 

%

 

 

9,436 

 

 

7,584 

 

24.4 

%

Other

 

 

1,269 

 

 

1,002 

 

26.6 

%

 

 

396 

 

 

135 

 

193.3 

%

Total

 

$

1,138,143 

 

$

1,073,555 

 

6.0 

%

 

$

280,291 

 

$

274,444 

 

2.1 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm production cost (per dozen produced)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feed

 

$

0.49 

 

$

0.54 

 

(9.3)

%

 

$

0.48 

 

$

0.52 

 

(7.7)

%

Other

 

 

0.25 

 

 

0.24 

 

4.2 

%

 

 

0.26 

 

 

0.25 

 

4.0 

%

Total

 

$

0.74 

 

$

0.78 

 

(5.1)

%

 

$

0.74 

 

$

0.77 

 

(3.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside egg purchases (average cost per dozen)

 

$

1.37 

 

$

1.29 

 

6.0 

%

 

$

1.44 

 

$

1.28 

 

12.5 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dozen produced

 

 

750,302 

 

 

704,388 

 

6.5 

%

 

 

195,630 

 

 

181,005 

 

8.1 

%

Dozen sold

 

 

1,013,696 

 

 

948,456 

 

6.9 

%

 

 

249,439 

 

 

243,280 

 

2.5 

%

 

Cost of sales for the fiscal year ended June 2, 2012May 31, 2014 was $911.3$1,138.1 million, an increase of $154.2$64.5 million, or 20.4%6.0%, as compared to cost of sales of $757.1$1,073.6 million for fiscal 2011. On a comparable basis, dozens2013.  Dozens produced increased and dozens purchased from outside shell egg producers increased andfor fiscal 2014 while cost of feed ingredients increaseddecreased in fiscal 2012.2014 compared to fiscal 2013.  This fiscal year we produced 75%74.0% of the eggs sold by us, as compared to 77%74.3% for the previous year. Feed cost for fiscal 20122014 was $0.469$0.49 per dozen, compared to $0.394$0.54 per dozen for the prior fiscal year, an increasea decrease of 19.0%9.3%.  Gross profit decreasedincreased from 19.6%16.7% of net sales for fiscal 20112013 to 18.1%21.0% of net sales for fiscal 2012.2014, primarily as a result of lower feed costs and increased egg prices.

On a comparable basis, excluding the Acquisitions, cost of sales for the fiscal year ended May 31, 2014 were $1,005.6 million, an increase of $21.6 million, or 2.2%, compared to cost of sales of $984.0 million for the fiscal year ended June 1, 2013. 

 

Cost of sales for the fourteen-weekthirteen-week period ended June 2, 2012May 31, 2014 was $233.9$280.3 million, an increase of $32.9$5.9 million, or 16.4%2.1%, as compared to cost of sales of $201.0$274.4 million for the thirteen-week period ended May 28, 2011.June 1, 2013.  Feed cost per dozen for the fourth quarter of fiscal 2014 was $0.48, compared to $0.52 for comparable fiscal 2013 fourth quarter, a decrease of 7.7%. 

23

27


SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, General and Administrative Expenses.

  Fiscal Years Ended 
  (53 & 52 weeks) 
  June 2, 2012  May 28, 2011  Change 
Category (Amounts in thousands) 
Stock compensation expense $502  $(151) $653 
Specialty egg expenses  33,541   28,736   4,805 
Payroll and overhead  23,784   22,059   1,725 
Other expenses  20,094   19,109   985 
Delivery expense  35,209   31,695   3,514 
Total $113,130  $101,448  $11,682 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

52 Weeks

 

 

Actual

 

Adjusted for Acquisitions

(Amounts in thousands)

 

May 31, 2014

 

June 1, 2013

 

Change

 

May 31, 2014

 

June 1, 2013

 

Change

Stock compensation expense

 

$                      1,794 

 

$                         603 

 

$          1,191 

 

$                      1,794 

 

$                         603 

 

$          1,191 

Specialty egg expense

 

46,298 

 

36,926 

 

9,372 

 

45,667 

 

36,490 

 

9,177 

Payroll and overhead

 

29,413 

 

27,003 

 

2,410 

 

26,683 

 

25,201 

 

1,482 

Other expenses

 

36,161 

 

24,309 

 

11,852 

 

26,131 

 

22,223 

 

3,908 

Delivery expense

 

43,046 

 

38,115 

 

4,931 

 

36,934 

 

35,080 

 

1,854 

Total

 

$                  156,712 

 

$                  126,956 

 

$        29,756 

 

$                  137,209 

 

$                  119,597 

 

$        17,612 

Selling, general and administrative expenses include costs of marketing, distribution, accounting and corporate overhead.  Selling, general and administrative expense was $113.1$156.7 million in fiscal 2012,2014, an increase of $11.7$29.8 million, or 11.5%23.4%, as compared to $101.4$127.0 million for fiscal 2011.2013. Excluding the Acquisitions, selling, general, and administrative expense for fiscal year 2014 was $137.2 million, an increase of $17.6 million, or 14.7%, compared to $119.6 million in fiscal year 2013.  Stock compensation expense increased $653,000$1.2 million for the current fiscal year.  Stock compensation expense is dependent on the closing price of the Company’s Common Stock.  OurFor our stock compensation arrangements classified as equity awards have been fully amortized.(e.g. restricted stock), we recognized stock compensation expense ratably over the vesting period.  For our stock compensation arrangements classified as liability awards, we recognize increases or decreases in the value of such awards as increases or decreases, respectively, to stock compensation expense. We also classify exercises under liability awards as stock compensation expense. expenseThe increase in specialty egg expense for fiscal 2014 compared to fiscal 2013 is attributable to thea 12.1% increase in specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense.  Excluding the dozens of specialty eggs sold this year as compared to last fiscal year. PayrollAcquisitions, payroll and overhead increased as compared to the same period the prior year due to the hiring of additional administrative personnel and general salary increases. OtherAs a percentage of net sales, payroll and overhead is 2.1% for fiscal 2014 and fiscal 2013.Excluding the Acquisitions, other expenses, which include expenses for repairs, professional fees, and insurance, increased primarilyas a result of a confidential legal settlement and related legal fees as well as increases in audit and other tax expense.  During fiscal 2014 we recognized $4.4 million in expense resulting from the increase in fair value of contingent consideration applicable to acquisitions compared to fiscal 2013 when we recognized $1.3 million in income from the decrease in the fair value of the contingent consideration, both of which are reflected in other expenses.   See Note 16 to Notes to Consolidated Financial Statements for additional information.  Delivery expense increased compared to fiscal 2013 due to an increase in insurance, temporary labor, consultant, and bad debt expense. Delivery expense increased due to increased fuel costs and the increased costs paid for the use of outside trucking companies.contract trucking.  As a percent of net sales, selling, general and administrative expense decreasedincreased from 10.8% for10.1% in fiscal 20112013 to 10.1% for10.9% in fiscal 2012.2014.

 

  Fiscal Years Ended 
  (14 & 13 weeks) 
  June 2, 2012  May 28, 2011  Change 
Category (Amounts in thousands) 
Stock compensation expense $(120) $156  $(276)
Specialty egg expenses  7,448   8,207   (759)
Payroll and overhead  7,462   6,240   1,222 
Other expenses  4,949   4,578   371 
Delivery expense  9,533   8,521   1,012 
Total $29,272  $27,702  $1,570 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

 

13 Weeks & 14 Weeks

 

 

Actual

 

Adjusted for Acquisitions

(Amounts in thousands)

 

May 31, 2014

 

June 1, 2013

 

Change

 

May 31, 2014

 

June 1, 2013

 

Change

Stock compensation expense

 

$                         753 

 

$                       (109)

 

$             862 

 

$                         753 

 

$                       (109)

 

$             862 

Specialty egg expense

 

12,414 

 

8,864 

 

3,550 

 

12,230 

 

8,727 

 

3,503 

Payroll and overhead

 

9,507 

 

8,898 

 

609 

 

8,444 

 

8,279 

 

165 

Other expenses

 

9,499 

 

3,624 

 

5,875 

 

4,806 

 

3,683 

 

1,123 

Delivery expense

 

11,590 

 

9,493 

 

2,097 

 

9,644 

 

8,291 

 

1,353 

Total

 

$                    43,763 

 

$                    30,770 

 

$        12,993 

 

$                    35,877 

 

$                    28,871 

 

$          7,006 

28


Selling, general, and administrative expense was $29.3 million for the fourteen-week period ended June 2, 2012, an increase of $1.6 million, or 5.7%, as compared to $27.7$43.8 million for the thirteen-week period ended May 28, 2011.31, 2014, an increase of $13.0 million, or 42.2%, compared to $30.8 million for the thirteen-week period ended June 1, 2013.  Excluding the Acquisitions, selling, general, and administrative expense for the thirteen-week period ended May 31, 2014 was $35.9 million, an increase of $7.0 million, or 24.3%, compared to $28.9 million for the thirteen-week period ended June 1, 2013.  The increase in specialty egg expense for the thirteen-week period ended May 31, 2014 compared to the same period of fiscal 2013 is attributable to a 16.9% increase specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense.

 

Operating Income.OPERATING INCOME

As a result of the above, our operating income was $88.7$146.1 million for fiscal 2012, as2014, compared to operating income of $83.5$59.6 million for fiscal 2011.2013.  Operating income as a percent of net sales for fiscal 20122014 was 8.0%10.1%, as compared to operating income as a percent of net sales of 8.8%4.6% for fiscal 2011.2013.  In fiscal 2013 we recorded legal settlement expense of $28.0 million related to the previously disclosed settlement reached in the In re Processed Egg Products Antitrust litigation.

OTHER INCOME (EXPENSE)

 

Other Income (Expense).OtherTotal other income or expense(expense) consists of income or costs(expenses) not directly charged to, or related to, operations such as interest expense, royalty income, and patronage income, equity in incomeearnings of affiliates, patronage dividends, and interest expense.among other items.Other Total other income for fiscal 20122014 was $50.4$15.8 million as compared to other income of $8.2$16.0 million for fiscal 2011. Net interest expense decreased by $2.3 million as compared to fiscal 2011. In fiscal 2011, we recorded a loss of $2.6 million on the early extinguishment of debt with John Hancock Life Insurance Company. Rates earned on invested cash balances were lower in the current year.  In fiscal 2012, we recorded patronage refunds and dividends from EB in the amount of $44.9 million, as compared to $5.3 million in fiscal 2011. In fiscal 2012 we received a special patronage dividend in connection with the formation of a joint venture between EB and Land O’ Lakes, Inc. In fiscal 2011, we recorded a gain of $4.8 million from the sale of non-voting stock in EB. We account for our investment in EB under the cost method. Our equity in income of affiliates increased due to similar amounts being paid by EB to Specialty Eggs, LLC, an affiliated entity which is also a franchisee and cooperative owner of EB. Our ownership interest in Specialty Eggs, LLC is 50%. We account for our investment in Specialty Eggs, LLC using the equity method. Specialty Eggs, LLC received dividends and patronage refunds of $10.3 million during fiscal 2012, as compared to $1.2 million in the prior year, and in fiscal 2011, it also recognized a gain of $1.6 million from the sale of non-voting stock in EB. In fiscal 2012, we finalized our insurance claim on the Shady Dale, Georgia fire and recorded a gain of $1.1 million on the fixed assets that were destroyed in this fire. In fiscal 2011, we finalized our insurance claim on the Farwell, Texas fire and recorded a gain of $1.8 million on the fixed assets that were destroyed in this fire. We recorded royalty income of $580,000 related to oil and gas wells located on property we own in Texas.2013.  As a percent of net sales, total other income was 4.5%1.1% for fiscal 2012, as2014, compared to 0.9%1.2% for fiscal 2011.2013.

Income Taxes.

Patronage income was $6.1 million for fiscal 2014, a decrease of $8.2 million, compared to $14.3 million for fiscal 2013 primarily due to a decrease in patronage refunds received from Eggland’s Best, Inc.

Other income, net, increased from $2.1 million in fiscal 2013 to $8.8 million in fiscal 2014 primarily due to a non-taxable, non-cash gain of $4.0 million for the remeasurement of our equity interest in Delta Egg to the fair value in connection with the purchase of our joint venture partner’s 50% membership interest on March 1, 2014. 

INCOME TAXES

For the fiscal year ended June 2, 2012,May 31, 2014, our pre-tax income was $139.1$161.8 million, as compared to $91.7$75.6 million for fiscal 2011.2013.  Income tax expense of $49.1$52.0 million was recorded for fiscal 20122014 with an effective income tax rate of 35.3%32.1%, as compared to $33.4$24.8 million for fiscal 20112013 with an effective income tax rate of 36.4%32.8%.   Included in fiscal 2014 income tax expense are items related to the acquisition of Delta Egg, which resulted in a $3.3 million decrease to deferred income tax expense related to the outside basis of our equity investment in Delta Egg, with a corresponding non-recurring, non-cash $1.5 million reduction to income taxes expense on the non-taxable remeasurement gain associated with the acquisition.

 

OurOther items causing our effective rate differsto differ from the federal statutory income tax rate of 35% due toare state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, the domestic manufacturers deduction, and net income or loss attributable to noncontrolling interest.

Net income (loss) attributable to noncontrolling interest.NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

Net income attributable to noncontrolling interest in AEP and TEP for fiscal 20122014 was $232,000$600,000 as compared to net loss attributable to noncontrolling interest of $2.6 million$338,000 for fiscal 2011.2013.

 

Net Income.NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.

As a result of the above, net income for fiscal 20122014 was $89.7$109.2 million, or $3.76$2.27 per basic share and $3.75$2.26 per diluted share, as compared to $60.8$50.4 million, or $2.55$1.05 per basic share and $2.54 per diluted share for fiscal 2011.2013. 

Fiscal Year Ended May 28, 2011 Compared to Fiscal Year Ended May 29, 2010

Net Sales.In fiscal 2011, approximately 96% of our net sales consisted of shell egg sales and approximately 3% was for sales of egg products, with the 1% balance consisting of sales of incidental feed and feed ingredients.Net sales for the fiscal year ended May 28, 2011 were $942.0 million, an increase of $31.8 million, or 3.5%, from net sales of $910.1 million for fiscal 2010. In fiscal 2011 total dozens of eggs sold increased and egg selling prices increased as compared to fiscal 2010. In fiscal 2011 total dozens of shell eggs sold were 821.4 million, an increase of 16.0 million dozen, or 2.0%, compared to 805.4 million sold in fiscal 2010. Our average selling price of shell eggs increased from $1.079 per dozen for fiscal 2010 to $1.098 per dozen for fiscal 2011, an increase of $0.019 per dozen, or 1.8%. Our net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and undergrades. Our operating results are significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels can have a large effect on shell egg prices.CAPITAL RESOURCES AND LIQUIDITY

 

The table below represents an analysis of our non-specialty and specialty shell egg sales. Following the table is a discussion of the information presented in the table.

  Fiscal Years Ended
(52 weeks)
  Quarter Ended
(13 weeks)
 
  May 28, 2011  May 29, 2010  May 28, 2011  May 29, 2010 
  (Amounts in thousands)  (Amounts in thousands) 
Total net sales $941,981  $910,143  $242,381  $222,088 
                 
Non-specialty shell egg sales  684,470   682,601   174,846   163,941 
Specialty shell egg sales  217,766   186,507   56,923   48,110 
Other  3,501   2,605   950   601 
Net shell egg sales $905,737  $871,713  $232,719  $212,652 
                 
Net shell egg sales as a                
percent of total net sales  96%  96%  96%  96%
                 
Non-specialty shell egg dozens sold  689,045   689,316   172,145   165,216 
Specialty shell egg dozens sold  132,375   116,083   34,018   29,964 
Total dozens sold  821,420   805,399   206,163   195,180 

Our 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, and small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa. In fiscal 2011, non-specialty shell eggs represented approximately 75.6% of our shell egg dollar sales, as compared to 78.3% for fiscal 2010. Sales of non-specialty shell eggs accounted for approximately 83.9% of our total shell egg dozen volumes in fiscal 2011, as compared to 85.6% in fiscal 2010.

For the thirteen-week period ended May 28, 2011, non-specialty shell eggs represented approximately 75.1% of our shell egg dollar sales, as compared to 77.1% for the thirteen-week period ended May 29, 2010. For the thirteen-week period ended May 28, 2011, non-specialty shell eggs accounted for approximately 83.5% of the total shell egg dozen volume, as compared to 84.6% for the thirteen-week period ended May 29, 2010.

We continue to increase our sales volume of specialty eggs, which include nutritionally enhanced, cage free and organic eggs. 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 increased benefits from these products. For fiscal 2011, specialty eggs accounted for 24.0% of shell egg dollar sales, as compared to 21.4% in fiscal 2010, and 16.1% of shell egg dozens sold in fiscal 2011, as compared to 14.4% in fiscal 2010. They are a growing part of the shell egg market. Due to healthier eating trends, the volume of specialty eggs continues to increase. From fiscal 2010 to fiscal 2011, the volume of specialty eggs sold increased by 14.0%.

For the thirteen-week period ended May 28, 2011, specialty shell eggs represented approximately 24.5% of our shell egg dollar sales, as compared to 22.6% for the thirteen-week period ended May 29, 2010. For the thirteen-week period ended May 28, 2011, specialty shell eggs accounted for approximately 16.5% of the total shell egg dozen volume, as compared to 15.4% for the thirteen-week period ended May 29, 2010.

The shell egg sales classified as “Other” represent sales of hard cooked eggs, hatching eggs, and baby chicks, which are included with our shell egg operations.

Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. For fiscal 2011 our egg product sales were $26.9 million, a decrease of $500,000 or 1.8%, as compared to $27.4 million for fiscal 2010. Our volume of egg products sold for fiscal 2011 was 53.8 million pounds, a decrease of 5.7 million pounds, or 9.6%, as compared to 59.5 million pounds for fiscal 2010. This decrease is due to reduced production at our AEP facility from reduced levels of shell eggs provided to AEP from the Company’s shell egg operations.In fiscal 2011, the price per pound of egg products sold was $0.500 as compared to $0.461 for fiscal 2010, an increase of 8.6%. Prices received for our egg products increased in fiscal 2011 as compared to fiscal 2010 to a favorable change in the mix of products sold. Our egg products are sold through AEP and TEP. For fiscal 2011, egg product sales for AEP were $13.6 million, as compared to $15.5 million for fiscal 2010, a decrease of $1.9 million, or 12.3%. For AEP the volume of egg products sold for fiscal 2011 was 28.2 million pounds, a decrease of 7.0 million pounds, or 19.9%, as compared to 35.2 million pounds for fiscal 2010. The egg product sales for TEP in fiscal 2011 were $13.4 million, as compared to $11.9 million for fiscal 2010, an increase of $1.5 million or 12.5%. For TEP the volume of egg products sold for fiscal 2011 was 25.6 million pounds, an increase of 1.3 million pounds, or 5.4%, as compared to 24.3 million pounds for fiscal 2010. As described in Note 1 in the notes to the consolidated financial statements, TEP is a variable interest entity of which the Company is the primary beneficiary.

   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 our cost of sales.

  Fiscal Years Ended
(52  weeks)
  Quarter Ended
(13 weeks)
 
(Amounts in thousands) May 28, 2011*  May 29, 2010  May 28, 2011**  May 29, 2010 
Cost of Sales:            
Farm production $381,386  $362,338  $103,449  $86,464 
Processing and packaging  114,868   110,885   28,866   27,004 
Outside egg purchases and other  235,664   216,242   62,258   47,761 
Total shell eggs $731,918  $689,465  $194,573  $161,229 
Egg products  22,375   24,177   6,332   5,880 
Other  2,757   1,857   76   303 
Total $757,050  $715,499  $200,981  $167,412 
                 
Farm production cost (cost per dozen produced)                
Feed $0.394  $0.349  $0.447  $0.327 
Other  0.221   0.217   0.226   0.223 
Total $0.615  $0.566  $0.673  $0.550 
                 
Outside egg purchases (average cost per dozen) $1.105  $1.167  $1.121  $1.183 
                 
Dozen Produced  634,009   640,174   157,621   157,207 
Dozen Sold  821,420   805,399   206,163   195,180 

*Cost of sales for fiscal 2011 was reduced by $6.1 million for proceeds received under our business interruption coverage related to the Farwell, Texas fire (See Note 6 in the notes to consolidated financial statements).

**Cost of sales for the thirteen-week period ending May 28, 2011 was reduced by $2.1 million for proceeds received under our business interruption coverage related to the finalization of the Farwell, Texas fire insurance claim in the fourth quarter of fiscal 2011.

Cost of sales for the fiscal year ended May 28, 2011 was $757.1 million, an increase of $41.6 million, or 5.8%, as compared to cost of sales of $715.5 million for fiscal 2010. On a comparable basis, dozens produced decreased, dozens purchased from outside shell egg producers increased and cost of feed ingredients increased in fiscal 2011. Although the cost per dozen for outside egg purchases declined, the cost of shell eggs purchased from outside producers increased due to the increased volume of shell eggs purchased. In fiscal 2011 we produced 77% of the eggs sold by us, as compared to 79% for fiscal 2010. Feed cost for fiscal 2011 was $0.394 per dozen, compared to $0.349 per dozen for the prior fiscal year, an increase of 12.9%. Gross profit decreased from 21.4% of net sales for fiscal 2010 to 19.6% of net sales for fiscal 2011.

Cost of sales for the thirteen-week period ended May 28, 2011 was $201.0 million, an increase of $33.6 million, or 20.1%, as compared to cost of sales of $167.4 million for the thirteen-week period ended May 29, 2010.

27

Selling, General and Administrative Expenses.

  Fiscal Years Ended
(52 weeks)
 
  May 28, 2011  May 29, 2010  Change 
Category (Amounts in thousands) 
Stock compensation expense $(151) $2,186  $(2,337)
Specialty egg expenses  28,736   21,362   7,374 
Payroll and overhead  22,059   19,927   2,132 
Other expenses  19,109   20,055   (946)
Delivery expense  31,695   28,510   3,185 
Total $101,448  $92,040  $9,408 

Selling, general and administrative expenses include costs of marketing, distribution, accounting and corporate overhead.  Selling, general and administrative expense was $101.4 million in fiscal 2011, an increase of $9.4 million, or 10.2%, as compared to $92.0 million for fiscal 2010. Stock compensation expense decreased $2.3 million for fiscal 2011. The calculation of stock compensation expense is dependent on the closing stock price of the Company’s Common Stock. From the fiscal year ended May 30, 2009 to May 29, 2010, the Common Stock price increased from $24.37 at May 30, 2009 to $32.37 at May 29, 2010, a 32.8% increase. From the fiscal year ended May 29, 2010 to May 28, 2011, the Common Stock price decreased from $32.37 at May 29, 2010 to $28.93 at May 28, 2011, a 10.6% decrease.   Specialty egg expenses represent advertising, commissions, royalties, and franchise fees as they are incurred with sales of our specialty eggs.  The expense increase is attributable to the increase in the dozens of specialty eggs sold in fiscal 2011 as compared to fiscal 2010 as well as increased promotional activities. Payroll and overhead increased in fiscal 2011 as compared to the same period the prior year due to higher performance based bonuses paid in fiscal 2011.  Other expenses decreased due to decreases in legal, audit, and general insurance expenses. Delivery expense increased due to higher fuel costs and increased costs for the use of outside trucking. As a percent of net sales, selling, general and administrative expense increased from 10.1% for fiscal 2010 to 10.8% for fiscal 2011.

  Fiscal Years Ended
(13 weeks)
 
  May 28, 2011  May 29, 2010  Change 
Category (Amounts in thousands) 
Stock compensation expense $156  $170  $(14)
Specialty egg expenses  8,207   5,228   2,979 
Payroll and overhead  6,240   5,426   814 
Other expenses  4,578   4,253   325 
Delivery expense  8,521   7,066   1,455 
Total $27,702  $22,143  $5,559 

Selling, general and administrative expense was $27.7 million for the thirteen-week period ended May 28, 2011, an increase of $5.6 million or 25.1%, as compared to $22.1 million for the thirteen-week period ending May 29, 2010.

Operating Income.As a result of the above, our operating income was $83.5 million for fiscal 2011, as compared to operating income of $102.6 million for fiscal 2010. Operating income as a percent of net sales for fiscal 2011 was 8.8%, as compared to operating income as a percent of net sales of 11.3% for fiscal 2010.

Other Income (Expense).Other income or expense consists of income or costs not directly charged or related to operations such as equity in income of affiliates, patronage dividends, and interest expense.Other income for fiscal 2011 was $8.2 million as compared to other income of $889,000 for fiscal 2010. Net interest expense decreased by $706,000 as compared to fiscal 2010. We recorded a loss of $2.6 million on the early extinguishment of debt with John Hancock Life Insurance Company in fiscal 2011. Rates earned on invested cash balances were lower in fiscal 2011.  In fiscal 2011, we recorded patronage refunds and dividends from EB in the amount of $5.3 million, as compared to $3.3 million in fiscal 2010. In addition to the patronage refund and dividend, we recorded a gain of $4.8 million from the sale of non-voting stock in EB. We account for our investment in EB under the cost method. Our equity in income of affiliates increased due to similar amounts being paid by EB to Specialty Eggs, LLC, an affiliated entity which is also a franchisee and cooperative owner of EB. Our ownership interest in Specialty Eggs, LLC is 50%. We account for our investment in Specialty Eggs, LLC using the equity method. Specialty Eggs, LLC received dividends and patronage refunds of $1.2 million during fiscal 2011, as compared to $769,000 in the prior year, and it also recognized a gain of $1.6 million from the sale of non-voting stock in EB. Our one-half portion of the amounts received by Specialty Eggs, LLC from EB is $1.4 million. In fiscal 2011, we finalized our insurance claim on the Farwell, Texas fire and recorded a gain of $1.8 million on the fixed assets that were destroyed in this fire. As a percent of net sales, other income was 0.9% for fiscal 2011, as compared to 0.1% for fiscal 2010.

Income Taxes. For the fiscal year ended May 28, 2011, our pre-tax income was $91.7 million, as compared to $103.5 million for fiscal 2010. Income tax expense of $33.4 million was recorded for fiscal 2011 with an effective income tax rate of 36.4%, as compared to $38.0 million for fiscal 2010 with an effective income tax rate of 36.7%.

Our effective rate differs from the federal statutory income tax rate of 35% due to state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, the domestic manufacturers deduction, and net income or loss attributable to noncontrolling interest.

Net loss attributable to noncontrolling interest.Net loss attributable to noncontrolling interest for fiscal 2011 was $2.6 million as compared to net loss attributable to noncontrolling interest of $2.3 million for fiscal 2010.

Net Income.As a result of the above, net income for fiscal 2011 was $60.8 million, or $2.55 per basic share and $2.54 per diluted share, as compared to $67.8 million, or $2.85 per basic share and $2.84 per diluted share, for fiscal 2010.

Capital Resources and Liquidity.Our working capital at June 2, 2012May 30, 2015 was $301.5$377.0 million, compared to $247.6$324.3 million at May 28, 2011.31, 2014. The calculation of working capital is defined as current assets less current liabilities.  Our current ratio was 3.14 at June 2, 2012 as compared with 3.303.86 at May 28, 2011.30, 2015 compared to 3.68 at May 31, 2014. The current ratio is calculated by dividing current assets by current liabilities.  Our need for working capital generally

29


is highest in the last and first fiscal quarters ending in May and August, respectively, when egg prices are normally at seasonal lows.  We have $5.1$3.7 million in outstanding standby letters of credit, which are collateralized with cash.  Our long-term debt at June 2, 2012,May 30, 2015, including current maturities, amounted to $76.2$50.9 million, as compared to $88.2$61.1 million at May 28, 2011.31, 2014.  See Note 89 in the notes to consolidated financial statements for information regarding our long-term debt instruments.

 

Net cash provided by operating activities was $195.3 million and $123.9 million for the fiscal years 2015 and 2014, respectively.  Improved operating income as a result of improved gross profit margins contributed greatly to our positive cash flow from operations in fiscal 2015 compared to fiscal 2014,  as well as fiscal 2014 payment of a $28.0 million legal settlement described in Note 14 to Notes to Consolidated Financial Statements. As discussed above, our gross profit margins increased in fiscal 2015 primarily as a result of an increase in egg prices and dozens sold and a decrease in feed costs compared to fiscal 2014. 

For fiscal 2015, approximately $146.8 million was provided from the sale of short-term investments, $202.5 million was used for the purchase of short-term investments and net payments of $2.0 million were received from notes receivable and investments in affiliates.   We used $8.2 million for our investment in Southwest Specialty Egg LLC joint venture.  For additional information see Note 3 to Notes to Consolidated Financial Statements.  Approximately $82.3 million was used for purchases of property, plant and equipment.  Refer to the table of material construction projects presented below for additional information on purchases of property, plant and equipment.  Approximately $48.9 million was used for payment of dividends on common stock and $10.2 million was used for principal payments on long-term debt.  The net result of these activities was a decrease in cash of $5.9 million from May 31, 2014.

For the fiscal year ended June 2, 2012, $98.1May 31, 2014, $123.9 million in net cash was provided by operating activities. This compares to $62.3$57.5 million of net cash provided by operating activities for the fiscal year ended May 28, 2011. June 1, 2013.  Improved operating income as a result of improved gross profit margins contributed greatly to our positive cash flow from operations, which increased despite the payment in the first quarter of fiscal 2014 of a $28.0 million legal settlement described in Note 14 to the Notes to the Consolidated Financial Statements.  As discussed above, our gross profit margins increased in fiscal 2014 primarily as a result of an increase in egg prices and dozens sold and a decrease in feed costs compared to fiscal 2013. 

For fiscal 2012,2014, approximately $115.8$108.1 million was provided from the sale of short-term investments, $160.6$142.6 million was used for the purchase of short-term investments and net payments of $5.2$5.0 million were received from notes receivable and investments in affiliates.   We received $38.3used $11.5 million in connection withfor the formationpurchase of Eggland’s Best, LLC (EBLLC), aour joint venture between EB and Land O’Lakes, Inc. (LOL). EB formed EBLLC by contributing all of the assets of EB. Subsequent to the formation of EBLLC, LOL acquired apartner’s 50% interest in EBLLC. EB, which is a cooperative, distributed these proceeds to the members of EB as a special patronage dividend.Delta Egg.  Approximately $1.1 million was provided from disposal of property, plant and equipment and $26.8$59.2 million was used for purchases ofto purchase property, plant and equipment.  Approximately $19.9$24.5 million was used for payment of dividends on common stock and $11.9$10.7 million was used for principal payments on long-term debt. Approximately $260,000 was received from the issuance of Common Stock from treasury after the exercise of 19,200 stock options having a strike price of $2.125 per share and the exercise of 37,000 stock options having a strike price of $5.93 per share. We also had a tax benefit of $58,000 from nonqualifying dispositions of incentive stock options. The net result of these activities was an increase in cash of approximately $39.4 million since May 28, 2011.

For the fiscal year ended May 28, 2011, $62.3 million in net cash was provided by operating activities. This compares to $116.7 million of net cash provided by operating activities for the fiscal year ended May 29, 2010. For fiscal 2011, approximately $137.2 million was provided from the sale of short-term investments, $156.9 million was used for the purchase of short-term investments and net $3.1 million was provided by notes receivable and investments in nonconsolidated subsidiaries. We received $4.8 million from the sale of non-voting stock in EB. Approximately $1.9 million was provided from disposal of property, plant and equipment and $20.7 million was used for purchases of property, plant and equipment. Approximately $24.9 million was used for payment of dividends on common stock, $46.5 million was used for principal payments on long-term debt, and $2.6 million was used for payment of a fee connected with the early extinguishment of debt. Approximately $143,000 was received from the issuance of Common Stock from treasury after the exercise of 24,000 stock options having a strike price of $5.93 per share. Approximately $421,000 was used for an equity contribution to South Texas Protein, LLC.  The net result of these activities was a decrease in cash of approximately $41.8$10.5 million since May 29, 2010.from June 1, 2013.

Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes.  Unless otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum levels of working capital (ratio(current ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth, plus 45% of cumulative net income)income since the fiscal year ended May 28, 2005); (2) limit dividends paid in any given quarter to not exceed an amount equal to one third of the previous quarter’s consolidated net income (allowed if no events of default), capital expenditures to an amount not to exceed $60.0 million in any twelve month period, and lease obligations and additional long-term borrowings (total; (3) maintain minimum total funded debt to total capitalization (debt to total tangible capitalization ratio not to exceed 55%); and (3)(4) maintain various current and cash-flow coverage ratios (1.25 to 1), among other restrictions. At June 2, 2012,May 30, 2015, we were in compliance with the financial covenant requirements of all loan agreements. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control, as defined in the applicable loan agreement. Our debt agreements also require Fred R. Adams, Jr., our Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing not less than 50% of the outstanding voting power of the Company.

 

30


The Company finalized the Shady Dale, Georgia insurance claim in the fourth quarterexpects to fund its 50% share of fiscal 2012. The insurance claim was related to a fire which damaged the Shady Dale, Georgia complex in the first quarterapproximately $73 million of fiscal 2011. The fire destroyed one of the twelve layer houses, which was empty at the time. There was an additional loss of laying hens at three adjoining layer houses due to smoke inhalation. Insurance recoveries received for property damageconstruction and business interruption in excess of the net book value of damaged assets, clean-up and demolitionstartup costs and post-event costs are recognized as income in the period received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are recorded within “Cost of sales” and any gains related to property damage will be recorded within “Other income (expense).” Insurance recoveries related to business interruption are classified as operating cash flows and recoveries related to property damage are classified as investing cash flows in the statement of cash flows. The Company has received $3.7 million from insurance carriers as full settlement of the Shady Dale claim. The Company recorded total business interruption losses of $1.6 million as a reduction to “Cost of sales.” The Company recorded a gain of $1.0 million due to the property damage claim, which was recorded in “Other income (expense).” The remaining portion of the insurance proceeds, $1.1 million, was used to reimburse the Company for the book valuepreviously discussed Red River joint venture during fiscal 2016.  Additionally, the following table represents material construction projects approved  as of damaged inventory written off and other out of pocket expenses.July 17, 2015 (in thousands):

 

The Company is in the process of constructing a new integrated cage-free production complex at its existing location in Bremen, Kentucky, which will replace contract production at other locations. The project will include a processing plant and layer and pullet houses to accommodate approximately 400,000 laying hens. The project is expected to cost approximately $15.3 million and should be completed by August 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location

Project

Projected Completion

 

Projected Cost

 

Spent as of
May 30, 2015

 

Remaining Projected Cost

Okeechobee, FL

Layer House Expansions

August 2015

$

12,400 

$

11,226 

$

1,174 

South Texas

Cage Free Layer & Pullet Houses

August 2015

 

50,910 

 

47,475 

 

3,435 

Bremen, KY

Cage Free Layer & Pullet Houses

October 2015

 

16,470 

 

14,686 

 

1,784 

Wharton, TX

Layer House Expansions

August 2015

 

5,910 

 

5,370 

 

540 

Shady Dale, GA

Pullet Houses & Layer Houses

October 2015

 

7,872 

 

6,234 

 

1,638 

Chase, KS

Organic Facility Expansion

May 2016

 

17,175 

 

9,518 

 

7,657 

Delta, UT

California Compliant Layer House Expansions

April 2017

 

10,700 

 

 -

 

10,700 

 

 

 

$

121,437 

$

94,509 

$

26,928 

 

The Company has begun construction of an expansion of its production facilities in south Texas. The project consists of the demolition of existing caged production facilities and construction of layer and pullet houses to accommodate approximately 200,000 cage-free laying hens. The project is expected to cost approximately $7.3 million and should be completed in fiscal 2013.

We currently have a $1.0 million deferred tax liability due to a subsidiary’s change from a cash basis to an accrual basis taxpayer on May 29, 1988. The Taxpayer Relief Act of 1997 provides that this liability is payable ratably over the 20 years beginning in fiscal 1999. However, such taxes will be due in their entirety in the first fiscal year in which there is a change in ownership control. We are currently making annual payments of approximately $163,000 related to this liability. However, while these current payments reduce cash balances, payment of the $1.0 million deferred tax liability would not affect our consolidated statement of income or stockholders’ equity, as these taxes have been accrued and are reflected on our consolidated balance sheet.

Looking forward to the next fiscal year, we believe that our current cash balances, investments, borrowing capacity, and cash flows from operations will be sufficient to fund our current and projected capital needs.

   

Off-Balance Sheet ArrangementsCONTRACTUAL OBLIGATIONS         

 

The Company owns 50% of the membership interests in Delta Egg Farm, LLC (“Delta Egg”). The Company is a guarantor of 50% of Delta Egg’s long-term debt, which totaled approximately $9.3 million at June 2, 2012. Delta Egg’s long-term debt is secured by substantially all of the fixed assets of Delta Egg and is due in monthly installments through July 2018. Delta Egg is engaged in the production, processing, and distribution of shell eggs. The other 50% owner also guarantees 50% of the debt. The guarantee arose when Delta Egg borrowed funds to construct its production and processing facility in 1999. Payment under the guarantee would be required if Delta Egg is not able to pay the debt. Management of the Company believes that payment under the guarantee is unlikely because Delta Egg is now well capitalized.

Contractual Obligations

The following table summarizes future estimated cash payments, in thousands, to be made under existing contractual obligations. Further information on debt obligations is contained in Note 8,9, and on lease obligations in Note 7,8, in the notesNotes to the consolidated financial statements.Consolidated Financial Statements.    

  Total  2013  2014  2015  2016  2017  Over 5 years 
Long-Term Debt (Principal) $76,220  $11,458  $10,116  $8,695  $8,526  $18,726  $18,699 
Long-Term Debt (Interest)  17,465   4,380   3,555   2,904   2,596   2,150   1,880 
Operating Leases  3,174   1,117   595   506   379   345   232 
Total $96,859  $16,955  $14,266  $12,105  $11,501  $21,221  $20,811 

Impact

 

 

 

 

 

 

 

 

 

Total

Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Fiscal 2020

Over 5 years

Long-Term Debt (Principal)

$               50,860 

$               10,065 

$               20,265 

$                 8,439 

$                 5,091 

$                 3,300 

$                 3,700 

Long-Term Debt (Interest)

6,876 
2,784 
2,106 
996 
583 
307 
100 

Operating Leases

1,308 
493 
441 
310 
57 

 -

       Total

$               59,044 

$               13,342 

$               22,812 

$                 9,745 

$                 5,731 

$                 3,614 

$                 3,800 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

For information on changes in accounting principles and new accounting principles, see “Impact of Recently Issued Accounting Standards.

In May 2011,Standards” in Note 1 to the Consolidated Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 was effective beginning with the Company’s fourth quarter of fiscal 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s consolidated financial statements. The amendments in ASU 2011-04 are to be applied prospectively.Statements.

 

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Early adoption of ASU 2011-05 is permitted. The Company adopted ASU 2011-05 in the first quarter of fiscal 2012. The adoption of ASU 2011-05 did not have a material effect on the Company’s condensed consolidated financial statements, but requires a change in the presentation of the Company’s comprehensive income from the statement of stockholder’s equity, where it was previously disclosed, to the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The Company chose to present comprehensive income in two separate but consecutive statements.CRITICAL ACCOUNTING POLICIES

 

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. Early adoption of ASU 2011-08 is permitted. The Company adopted ASU 2011-08 in the fourth quarter of fiscal 2012. Adoption of ASU 2011-08 did not have a material impact on our consolidated financial statements.

Critical Accounting Policies.The preparation of financial statements in accordance with U.S. generally accepted accounting standards 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.

 

Management suggests that our Summary of Significant Accounting Policies, as described in Note 1 of the notes to consolidated financial statements, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. We believe the critical accounting policies that most impact our consolidated financial statements are described below.

 

AllowanceINVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE

Our investment securities are accounted for Doubtful Accounts.in accordance with ASC 320, “Investments-Debt and Equity Securities” (“ASC 320”).  The Company considers all of its investment securities for which there is a determinable fair market value and there are no restrictions on the Company's ability to sell within the next 12 months as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses

31


are included in other income. The cost basis for realized gains and losses on available-for-sale securities is determined on the specific identification method.

ALLOWANCE FOR DOUBTFUL ACCOUNTS    

In the normal course of business, we extend credit to our customers on a short-term basis.  Although credit risksrisk associated with our customers areis considered minimal, we routinely review our accounts receivable balances and make provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to us (e.g. bankruptcy filings), a specific reserve is recorded to reduce the receivable to the amount expected to be collected.  For all other customers, we recognize reserves for bad debtsdebt based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due.

Inventories.

INVENTORIES  

Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method) or market.  If market prices for eggs and feed grains move substantially lower, we would record adjustments to write-down the carrying values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 22 weeks.  Capitalized flock costs are then amortized over the productive lives of the flocks, generally one to two years.  Flock mortality is charged to cost of sales as incurred.  High mortality from disease or extreme temperatures would result in abnormal adjustments to write-down flock inventories.  Management continually monitors each flock and attempts to take appropriate actions to minimize the risk of mortality loss.

 

Long-Lived Assets.LONG-LIVED ASSETS

Depreciable long-lived assets are primarily comprised of buildings and improvements and machinery and equipment.  Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements 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.  When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. We continually reevaluate the carrying value of our long-lived assets, for events or changes in circumstances which indicate that the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.  If the sum of the expected future cash flows (undiscounted and without interest charges) are 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.

 

InvestmentINTANGIBLE ASSETS

Included in Affiliates. other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees, non-compete agreements and customer relationship intangibles, and are amortized over their estimated useful lives of 3 to 25 years.   The gross cost and accumulated amortization of intangible assets are removed when the recorded amounts have been fully amortized and the asset is no longer in use.  Included in other long-lived assets are loan acquisition costs, which are amortized over the life of the related loan.

INVESTMENT IN AFFILIATES

We have invested in other companies engaged in the production, processing and distribution of shell eggs and egg products.  Our ownership percentages in these companies range from less than 20% to 50%.  Therefore, theseThese investments are recorded using the cost or the equity method, and accordingly, not consolidated in our financial statements.  Changes in the ownership percentages of these investments might alter the accounting methods currently used. Our investment in these companies amounted to $22.3$13.1 million at June 2, 2012.May 30, 2015. The combined total assets and total liabilities of these companies were approximately $128.3$357.4 million and $80.2$57.1 million, respectively, at June 2, 2012. We are a guarantor of approximately $4.6 million of long-term debt of one of our affiliates.May 30, 2015.

 

Goodwill.

32


GOODWILL

At June 2, 2012, ourMay 30, 2015, goodwill balance represented 3.0%3.1% of total assets and 4.6%4.1% of stockholders’ equity.  Goodwill relates to the following:

 

Fiscal Period Description Amount 

 

 

 

 

Fiscal Year

 

Description

 

Amount

1999 Acquisition of Hudson Brothers, Inc. $3,147 

 

Acquisition of Hudson Brothers, Inc.

 

$
3,147 
2006 Acquisition of Hillandale Farms, LLC  869 

 

Acquisition of Hillandale Farms, LLC

 

869 
2007 Acquisition of Green Forest Foods, LLC  179 

 

Acquisition of Green Forest Foods, LLC

 

179 
2008 Revision to purchase price for incremental purchase of Hillandale  9,257 

 

Revised Hillandale incremental purchase price

 

9,257 
2009 Revision to purchase price for incremental purchase of Hillandale  2,527 

 

Revised Hillandale incremental purchase price

 

2,527 
2009 Acquisition of Zephyr Egg, LLC  1,876 

 

Acquisition of Zephyr Egg, LLC

 

1,876 
2009 Acquisition of Tampa Farms, LLC  4,600 

 

Acquisition of Tampa Farms, LLC

 

4,600 
2010 Revision to purchase price for incremental purchase of Hillandale  (338)

 

Revised Hillandale incremental purchase price

 

(338)

2013

 

Acquisition of Maxim Production Co., Inc.

 

2,300 

2014

 

Purchase of joint venture partner’s 50% in Delta Egg

 

4,779 
 Total Goodwill $22,117 

 

Total Goodwill

 

$
29,196 

 

Goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually or more frequently if impairment indicators arise, for impairment. An impairment loss would be recorded if the recorded goodwill exceeds its implied fair value. We have only one operating segment, which is our sole reporting unit. Accordingly, goodwill is testedevaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary.  After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of any impairment.

REVENUE RECOGNITION AND DELIVERY COSTS

The Company recognizes revenue only when all of the following criteria have been met:

·

Persuasive evidence of an arrangement exists;

·

Delivery has occurred;

·

The fee for the arrangement is determinable; and

·

Collectability is reasonably assured.

The Company believes the above criteria are met upon delivery and acceptance of the product by our customers. Costs to deliver product to customers are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and totaled $47.0 million, $43.0 million, and $38.1 million in fiscal years 2015,  2014, and 2013, respectively.  Sales revenue reported in the accompanying consolidated statements of income is reduced to reflect estimated returns and allowances.  The Company records an estimated sales allowance for returns and discounts at the entity level. Significant adverse industry or economic changes, ortime of sale using historical trends based on actual sales returns and sales.

SALES INCENTIVES PROVIDED TO CUSTOMERS

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future discounts subject to a minimum current purchase), and other factors not anticipated could resultsimilar offers. Current discount offers, when accepted by customers, are treated as a reduction to the sales price of the related transaction, while inducement offers, when accepted by customers, are treated as a reduction to sales price based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. Current discount and inducement offers are presented as a net amount in an impairment charge‘‘Net sales.’’

STOCK BASED COMPENSATION

We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”).  ASC 718 requires all share-based payments to reduce recorded goodwill.employees, including grants of employee stock options, restricted stock and performance-based shares to be recognized in the income statement based on their fair values. ASC 718 requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.  See Note 11: Stock Compensation Plans in the notes to the consolidated financial statements for more information.

Income Taxes.

33


INCOME TAXES

We determine our effective tax rate by estimating our permanent differences resulting from differing treatment of items for tax and accounting purposes.  We are periodically audited by taxing authorities.  Any audit adjustments affecting permanent differences could have an impact on our effective tax rate.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

Commodity Price RiskCOMMODITY PRICE RISK

 

Our primary exposure to market risk arises from changes in the prices of eggs, corn and soybean meal, which are commodities that are subject to significant price fluctuations due to market conditions that are largely beyond our control.  For example, feed costs, which during fiscal 20122015 averaged 67%62% of our total farm egg production cost, increased 19%decreased 11% per dozen produced year-over-year.    We are focused on growing our specialty shell egg business because the selling prices of specialty shell eggs are generally not as volatile as generic shell egg prices.  The following table outlines the impact of price changes for corn and soybean meal on feed cost per dozen:

 

 

 

 

 

 

 

 

 

 

 

 

Feed ingredient

 

 

Approximate change in
feed ingredient cost

Approximate impact on feed costs per dozen

Approximate dollar impact on farm production cost for the current fiscal year

Corn

$

0.25 

change in the average market price per bushel

$                0.01 

$                      7,988,420 

Soybean Meal

$

25.00 

change in the average market price per ton

$                0.01 

$                      7,988,420 

We generally do not enter into long-term contracts to purchase corn and soybean meal or hedge against increases in the price of corn and soybean meal, except to the limited extent described in Note 20 to Consolidated Financial Statements.

 

Interest Rate RiskINTEREST RATE RISK

 

Our interest expenseThe fair value of our debt is sensitive to changes in the general level of U.S. interest rates.  We maintain certainall of our debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates.  Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes.  A 1% adverse move (decrease) in interest rates would adversely affect the net fair value of our debt by $2.7$1.1 million at June 2, 2012.May 30, 2015. 

 

We are a party to no other material market risk sensitive instruments requiring disclosure.

34


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Cal-Maine Foods, Inc. and Subsidiaries

Jackson, Mississippi

 

We have audited the accompanying consolidated balance sheetsheets of Cal-Maine Foods, Inc. and Subsidiaries as of June 2, 2012May 30, 2015 and May 28, 2011,31, 2014, and the related consolidated statements of income, comprehensive income, (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended June 2, 2012.May 30, 2015.  Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(a).  These consolidated financial statements are the responsibility of the Company’sentity’s management.  Our responsibility is to express an opinion on these consolidated financial statements 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cal-Maine Foods, Inc. and Subsidiaries as of June 2, 2012May 30, 2015 and May 28, 2011,31, 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended June 2, 2012May 30, 2015, in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated 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), Cal-Maine Foods, Inc. and Subsidiaries internal control over financial reporting as of June 2, 2012,May 30, 2015, based on criteria established in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 6, 2012,July 17, 2015, expressed an unqualified opinion.

 

/S/ FROST,s/Frost, PLLC

 

Little Rock, Arkansas

August 6, 2012July 17, 2015

35


Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for par value amounts)

 

 

 

 

 

 June 2 May 28 

 

May 30

 

May 31

 2012 2011 

 

2015

 

2014

Assets        

 

 

 

 

Current assets:        

 

 

 

 

Cash and cash equivalents $97,128  $57,679 

$

8,667 

 

$

14,521 
Investment securities available-for-sale  163,623   118,750 

 

249,961 

 

194,738 
Receivables:        

 

 

 

 

Trade receivables, less allowance for doubtful accounts of $589 in 2012 and $686 in 2011  58,630   54,774 
Insurance claims receivable  -   5,008 

Trade receivables, less allowance for doubtful

 

 

 

 

accounts of $513 in 2015 and $430 in 2014

 

99,013 

 

82,978 
Other  4,138   3,008 

 

2,964 

 

 

4,538 
  62,768   62,790 

 

101,977 

 

87,516 
        

 

 

 

 

Inventories  117,158   110,021 

 

146,260 

 

146,117 
Prepaid expenses and other current assets  1,525   5,801 

 

2,099 

 

 

2,501 
Total current assets  442,202   355,041 

 

508,964 

 

445,393 
        

 

 

 

 

Other assets:        

 

 

 

 

Other investments  22,330   19,142 

 

18,843 

 

6,786 
Notes receivable – noncurrent  2,583   3,049 

 

 -

 

211 
Goodwill  22,117   22,117 

 

29,196 

 

29,196 
Other intangible assets  8,028   10,063 

 

7,560 

 

10,423 
Other long-lived assets  6,441   6,544 

 

5,300 

 

 

4,717 
  61,499   60,915 

 

60,899 

 

51,333 
Property, plant and equipment, less accumulated depreciation  222,615   224,887 

Property, plant and equipment, less accumulated

 

 

 

 

depreciation

 

358,790 

 

 

314,935 
Total assets $726,316  $640,843 

$

928,653 

 

$

811,661 
        

 

 

 

 

Liabilities and stockholders' equity        

 

 

 

 

Current liabilities:        

 

 

 

 

Trade accounts payable $55,227  $50,122 

$

44,709 

 

$

38,974 
Accrued dividends payable  12,419   2,424 

 

15,372 

 

10,497 
Accrued wages and benefits  12,434   10,802 

 

16,939 

 

15,205 
Accrued income taxes payable  12,092   - 

 

5,288 

 

2,983 
Accrued expenses and other liabilities  11,552   8,621 

 

9,173 

 

12,775 
Current maturities of long-term debt  11,458   11,743 

 

10,065 

 

10,216 
Deferred income taxes  25,474   23,770 

 

30,391 

 

 

30,451 
Total current liabilities  140,656   107,482 

 

131,937 

 

121,101 
        

 

 

 

 

Long-term debt, less current maturities  64,762   76,418 

 

40,795 

 

50,877 
Other noncurrent liabilities  3,165   3,346 

 

5,745 

 

4,436 
Deferred income taxes  38,405   34,720 

 

45,614 

 

 

40,502 
Total liabilities  246,988   221,966 

 

224,091 

 

216,916 
        

 

 

 

 

Commitments and contingencies – See Notes 2, 7, 8, and 13        

Commitments and contingencies – See Notes 8, 9, and 14

 

 

 

 

        

 

 

 

 

 

Stockholders' equity:        

 

 

 

 

 

Common stock, $.01 par value
Authorized shares - 60,000 in 2012 and 2011
Issued 35,130 shares in 2012 and 2011 with 21,521 and 21,465 shares outstanding respectively
  351   351 
Class A common stock, $.01 par value
Authorized shares - 2,400 in 2012 and 2011
Issued and outstanding shares - 2,400 in 2012 and 2011
  24   24 

Common stock, $.01 par value

 

 

 

 

Authorized shares - 120,000 in 2015 and 2014

 

 

 

 

Issued 70,261 shares in 2015 and 2014 with

 

 

 

 

43,698 and 43,562 shares outstanding, respectively

 

703 

 

 

351 

Class A convertible common stock, $.01 par value

 

 

 

 

Authorized shares - 4,800 in 2015 and 2014

 

 

 

 

Issued and outstanding shares - 4,800 in 2015 and 2014

 

48 

 

24 
Paid-in capital  33,651   33,419 

 

43,304 

 

40,476 
Retained earnings  466,164   406,361 

 

679,969 

 

572,874 
Accumulated other comprehensive loss, net of tax  (222)  (320)
Common stock in treasury, at cost –13,609 shares in 2012 and 13,665 in 2011  (20,843)  (20,929)

Accumulated other comprehensive income, net of tax

 

22 

 

561 

Common stock in treasury, at cost –26,563 shares in 2015

 

 

 

 

and 26,699 in 2014

 

(20,482)

 

(20,453)
Total Cal-Maine Foods, Inc. stockholders' equity  479,125   418,906 

 

703,564 

 

 

593,833 
Noncontrolling interest in consolidated entities  203   (29)

 

998 

 

912 
Total stockholders’ equity  479,328   418,877 

 

704,562 

 

594,745 
Total liabilities and stockholders' equity $726,316  $640,843 

$

928,653 

 

$

811,661 

See accompanying notes.

35

36


Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal years ended

 

 

May 30

 

May 31

 

June 1

 

 

2015

 

2014

 

2013

Net sales

$

1,576,128 

$

1,440,907 

$

1,288,104 

Cost of sales

 

1,180,407 

 

1,138,143 

 

1,073,555 

Gross profit

 

395,721 

 

302,764 

 

214,549 

Selling, general and administrative

 

160,386 

 

156,712 

 

126,956 

Legal settlement expense (see Note 14)

 

 -

 

 -

 

28,000 

Operating income

 

235,335 

 

146,052 

 

59,593 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

  Interest expense

 

(2,313)

 

(3,755)

 

(4,488)

  Interest income

 

1,798 

 

1,099 

 

582 

  Patronage dividends

 

6,893 

 

6,139 

 

14,300 

  Equity in income of affiliates

 

2,657 

 

3,512 

 

3,480 

  Other, net

 

2,179 

 

8,795 

 

2,101 

Total other income

 

11,214 

 

15,790 

 

15,975 

Income before income taxes and noncontrolling interest

 

246,549 

 

161,842 

 

75,568 

Income tax expense

 

84,268 

 

52,035 

 

24,807 

Net income including noncontrolling interest

 

162,281 

 

109,807 

 

50,761 

Less:  Net income attributable to noncontrolling interest

 

1,027 

 

600 

 

338 

Net income attributable to Cal-Maine Foods, Inc.

$

161,254 

$

109,207 

$

50,423 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

  Basic

$

3.35 

$

2.27 

$

1.05 

  Diluted

$

3.33 

$

2.26 

$

1.05 

Weighted average shares outstanding:

 

 

 

 

 

 

  Basic

 

48,136 

 

48,095 

 

47,967 

  Diluted

 

48,437 

 

48,297 

 

48,088 

See accompanying notes.

37


Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal years ended

 

 

 

May 30

 

 

May 31

 

 

June 1

 

 

 

2015

 

 

2014

 

 

2013

Net income, including noncontrolling interests

 

$

162,281 

 

$

109,807 

 

$

50,761 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(143)

 

 

392 

 

 

724 

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in accumulated postretirement benefits obligation, net of reclassification adjustments

 

 

(741)

 

 

255 

 

 

(89)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

 

(884)

 

 

647 

 

 

635 

 

 

 

 

 

 

 

 

 

 

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

 

 

(345)

 

 

252 

 

 

247 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of  tax

 

 

(539)

 

 

395 

 

 

388 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

161,742 

 

 

110,202 

 

 

51,149 

 

 

 

 

 

 

 

 

 

 

Less: comprehensive income attributable to the noncontrolling interest

 

 

1,027 

 

 

600 

 

 

338 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Cal-Maine Foods, Inc.

 

$

160,715 

 

$

109,602 

 

$

50,811 

See accompanying notes.

38


Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of IncomeStockholders' Equity

(in thousands, except per share amounts)thousands)

  Fiscal years ended 
  June 2  May 28  May 29 
  2012  2011  2010 
Net sales $1,113,116  $941,981  $910,143 
Cost of sales  911,334   757,050   715,499 
Gross profit  201,782   184,931   194,644 
Selling, general and administrative  113,130   101,448   92,040 
Operating income  88,652   83,483   102,604 
             
Other income (expense):            
Interest expense  (5,047)  (6,856)  (7,616)
Interest income  1,289   834   888 
Loss on early extinguishment of debt  -   (2,648)  - 
Gain on sale of investment inEggland’s BestTM  -   4,829   - 
Distribution fromEggland’s BestTM (see Note 18)  38,343   -   - 
Equity in income of affiliates  7,495   4,701   3,507 
Other, net  8,345   7,328   4,110 
   50,425   8,188   889 
Income before income taxes and noncontrolling interest  139,077   91,671   103,493 
Income tax expense  49,110   33,403   37,961 
Net income including noncontrolling interest  89,967   58,268   65,532 
Less:  Net income (loss) attributable to noncontrolling interest  232   (2,571)  (2,291)
Net income attributable to Cal-Maine Foods, Inc. $89,735  $60,839  $67,823 
             
Net income per share:            
Basic $3.76  $2.55  $2.85 
Diluted $3.75  $2.54  $2.84 
Weighted average shares outstanding:            
Basic  23,875   23,855   23,812 
Diluted  23,942   23,942   23,877 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

Class A

Class A

Treasury

Treasury

Paid-In

Retained

Accum. Other

Noncontrolling

 

 

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Comp. Income

Interests

Total

Balance at June 2, 2012

35,130 

$        351 

2,400 

$           24 

13,609 

$        (20,843)

$         33,651 

$          466,164 

$             (222)

$                       203 

$         479,328 

Dividends

 

 

 

 

 

 

 

(18,105)

 

 

(18,105)

Issuance of common stock from treasury

 

 

 

 

(114)
174 
4,826 

 

 

 

5,000 

Issuance of restricted stock from treasury, net of forfeitures

 

 

 

 

(63)
97 
(97)

 

 

 

 -

Restricted stock compensation expense

 

 

 

 

 

 

292 

 

 

 

292 

Tax benefit on nonqualifying disposition of incentive stock options

 

 

 

 

 

 

380 

 

 

 

380 

Reclassification equity of Texas Egg Products, LLC in connection with acquisitions  - see Note 2

 

 

 

 

 

 

 

229 

 

(229)

 -

Net income for fiscal 2013

 

 

 

 

 

 

 

50,423 

 

338 
50,761 

Other comprehensive income

 

 

 

 

 

 

 

 

388 

 

388 

Balance at June 1, 2013

35,130 

$        351 

2,400 

$            24 

13,432 

$        (20,572)

$         39,052 

$          498,711 

$               166 

$                       312 

$         518,044 

Dividends

 

 

 

 

 

 

 

(35,044)

 

 

(35,044)

Issuance of restricted stock from treasury, net of forfeitures

 

 

 

 

(63)
98 
(98)

 

 

 

 -

Purchase of company stock - shares withheld to satisfy withholding obligation in connection with the vesting of restricted stock

 

 

 

 

(9)

 

 

 

 

(9)

Proceeds from stock option exercise

 

 

 

 

(20)
30 
88 

 

 

 

118 

Restricted stock compensation expense

 

 

 

 

 

 

1,274 

 

 

 

1,274 

Tax benefit on nonqualifying disposition of incentive stock options

 

 

 

 

 

 

160 

 

 

 

160 

Net income for fiscal 2014

 

 

 

 

 

 

 

109,207 

 

600 
109,807 

Other comprehensive income

 

 

 

 

 

 

 

 

395 

 

395 

Balance at May 31, 2014

35,130 

$        351 

2,400 

$           24 

13,350 

$        (20,453)

$         40,476 

$          572,874 

$               561 

$                       912 

$         594,745 

Dividends

 

 

 

 

 

 

 

(53,784)

 

 

(53,784)

2-for-1 stock split effected in the form of a dividend

35,131 
352 
2,400 
24 
13,340 
(133)
132 
(375)

 

 

 -

Issuance of restricted stock from treasury, net of forfeitures

 

 

 

 

(91)
70 
(70)

 

 

 

 -

Purchase of company stock - shares withheld to satisfy withholding obligation in connection with the vesting of restricted stock

 

 

 

 

 

(2)

 

 

 

 -

Proceeds from stock option exercise

 

 

 

 

(36)
36 
101 

 

 

 

137 

Restricted stock compensation expense

 

 

 

 

 

 

2,268 

 

 

 

2,268 

Tax benefit on nonqualifying disposition of incentive stock options

 

 

 

 

 

 

395 

 

 

 

395 

Distribution to noncontrolling interest partners

 

 

 

 

 

 

 

 

 

(941)
(940)

Net income for fiscal 2015

 

 

 

 

 

 

 

161,254 

 

1,027 
162,281 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

(539)

 

(539)

Balance at May 30, 2015

70,261 

$        703 

4,800 

$            48 

26,563 

$        (20,482)

$         43,304 

$          679,969 

$                22 

$                       998 

$         704,562 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

36

39


Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

  Fiscal years ended 
  June 2  May 28  May 29 
  2012  2011  2010 
Net income, including noncontrolling interests $89,967  $58,268  $65,532 
             
Other comprehensive income (loss), before tax:            
             
Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments  157   (520)  - 
             
Other comprehensive income (loss), before tax  157   (520)  - 
             
Income tax expense (benefit) related to items of other comprehensive income (loss)  59   (200)  - 
             
Other comprehensive income (loss), net of  tax  98   (320)  - 
             
Comprehensive income  90,065   57,948   65,532 
             
Less: comprehensive income (loss) attributable to the noncontrolling interest  232   (2,571)  (2,291)
             
Comprehensive income attributable to Cal-Maine Foods, Inc. $89,833  $60,519  $67,823 

See accompanying notes.

37

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(in thousands)

  Common Stock                
        Class A  Class A  Treasury  Treasury  Paid In  Retained  Accum. Other  Noncontrolling    
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Earnings  Comp. Loss  Interests  Total 
Balance at May 30, 2009  35,130  $351   2,400  $24   13,741  $(21,045) $32,098  $320,623  $-  $958  $333,009 
                                             
Dividends                              (22,625)          (22,625)
Distributions                                      (1,137)  (1,137)
Contributions                                      1,497   1,497 
Issuance of common stock from treasury                  (52)  79   383               462 
Vesting of stock based compensation                          218               218 
Net income (loss) for fiscal 2010                              67,823       (2,291)  65,532 
                                             
Balance at May 29, 2010  35,130  $351   2,400  $24   13,689  $(20,966) $32,699  $365,821  $-  $(973) $376,956 
                                             
Dividends                              (20,299)          (20,299)
Capital contributions - South Texas Protein, LLC                                      4,544   4,544 
Deconsolidation of South Texas Protein, LLC                                      (1,029)  (1,029)
Issuance of common stock from treasury                  (24)  37   106               143 
Vesting of stock based compensation                          218               218 
Tax benefit on nonqualifying disposition of incentive stock options                          396               396 
Net income (loss) for fiscal 2011                              60,839       (2,571)  58,268 
Unrealized loss on securities, net of tax                                  (320)      (320)
                                             
Balance at May 28, 2011  35,130  $351   2,400  $24   13,665  $(20,929) $33,419  $406,361  $(320) $(29) $418,877 
                                             
Dividends                              (29,932)          (29,932)
Issuance of common stock from treasury                  (56)  86   174               260 
Vesting of stock based compensation                                          - 
Tax benefit on nonqualifying disposition of incentive stock options                          58               58 
Net income for fiscal 2012                              89,735       232   89,967 
Unrealized loss on securities, net of tax                                  98       98 
                                             
Balance at June 2, 2012  35,130  $351   2,400  $24   13,609  $(20,843) $33,651  $466,164  $(222) $203  $479,328 

See accompanying notes.

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

  Fiscal year ended 
  June 2  May 28  May 29 
  2012  2011  2010 
Cash flows from operating activities            
Net income including noncontrolling interests $89,967  $58,268  $65,532 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  30,752   30,754   31,785 
Deferred income taxes  5,330   10,354   2,066 
Equity in income of affiliates  (7,495)  (4,701)  (3,507)
Property and equipment impairment charge  736   1,524    
Gain on sale ofEggland’s BestTM investment     (4,829)   
Distribution fromEggland’s BestTM (see Note 18)  (38,343)      
Gain on deconsolidation of variable interest entity     (1,067)   
Gain on disposal of property, plant and equipment  (1,247)  (2,219)  (67)
Loss on early extinguishment of debt     2,648    
Stock compensation (benefit) expense, net of amounts paid  (702)  (2,392)  (533)
Interest on purchase obligation        88 
Change in operating assets and liabilities, net of effects from acquisitions            
Receivables and other assets  4,305   (22,200)  13,106 
Inventories  (7,137)  (16,112)  5,311 
Accounts payable, accrued expenses and other liabilities  21,892   12,282   2,887 
Net cash provided by operating activities  98,058   62,310   116,668 
             
Cash flows from investing activities            
Purchases of investments  (160,630)  (156,906)  (82,824)
Sales of investments  115,796   137,238   31,537 
Acquisition of businesses, net of cash acquired        (508)
Payments received from sale ofEggland’s BestTM investment     4,829    
Distribution fromEggland’s BestTM (see Note 18)  38,343       
Payments received on notes receivable and from investments in affiliates  5,352   3,587   4,785 
Purchases of property, plant and equipment  (26,845)  (20,742)  (20,786)
Increase in notes receivable and investments in affiliates  (138)  (516)  (705)
Net proceeds from disposal of property, plant and equipment  1,073   1,905   6,950 
Net cash used in investing activities  (27,049)  (30,605)  (61,551)
             
Cash flows from financing activities            
Long-term borrowings        30,000 
Principal payments on long-term debt  (11,941)  (46,512)  (25,667)
Payment for early extinguishment of debt     (2,648)   
Equity contribution to South Texas Protein, LLC     421    
Payment of purchase obligation        (8,149)
Proceeds from issuance of common stock from treasury (including tax benefit on nonqualifying disposition of incentive stock options)  318   143   308 
Payments of dividends  (19,937)  (24,883)  (19,039)
Net cash used in financing activities  (31,560)  (73,479)  (22,547)
Increase (decrease) in cash and cash equivalents  39,449   (41,774)  32,570 
   57,679   99,453   66,883 
Cash and cash equivalents at beginning of year            
Cash and cash equivalents at end of year $97,128  $57,679  $99,453 
             
Supplemental cash flow information:            
Cash paid during the year for:            
Income taxes, net of refunds received $27,075  $28,934  $14,381 
Interest (net of amount capitalized and extinguishment fees)  4,407   6,449   6,876 
             
Supplemental schedule of non-cash investing and financing activity:            
Notes receivable from noncontrolling interest holders in South Texas Protein, LLC, for capital contribution $-  $4,123  $ 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended

 

 

May 30

 

May 31

 

June 1

 

 

2015

 

2014

 

2013

Cash flows from operating activities

 

 

 

 

 

 

Net income including noncontrolling interests

$

162,281 

$

109,807 

$

50,761 

Adjustments to reconcile net income

 

 

 

 

 

 

to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

40,708 

 

37,203 

 

34,173 

Deferred income taxes

 

5,108 

 

7,625 

 

(5,747)

Equity in income of affiliates

 

(2,657)

 

(3,512)

 

(3,480)

Non-cash gain on Delta Egg acquisition

 

 —

 

(3,976)

 

 —

Loss on disposal of property, plant and equipment

 

568 

 

651 

 

1,496 

Stock compensation expense, net of amounts paid

 

2,268 

 

1,273 

 

411 

Impairment (recovery) of note receivable

 

(584)

 

 —

 

912 

(Gain) loss on fair value adjustment of contingent consideration

 

256 

 

4,359 

 

(1,250)

Change in operating assets and liabilities, net

 

 

 

 

 

 

of effects from acquisitions:

 

 

 

 

 

 

Increase in receivables and other assets

 

(18,961)

 

(2,282)

 

(21,670)

(Increase) decrease in inventories

 

(143)

 

8,909 

 

(6,377)

Decrease in accrued expenses for payment of legal settlement expense

 

 —

 

(28,000)

 

 —

Increase (decrease) in accounts payable, accrued expenses and other liabilities

 

6,486 

 

(8,137)

 

8,309 

Net cash provided by operating activities

 

195,330 

 

123,920 

 

57,538 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments

 

(202,506)

 

(142,585)

 

(181,721)

Sales of investments

 

146,779 

 

108,117 

 

188,110 

Acquisition of businesses, net of cash acquired

 

 —

 

(11,548)

 

(74,907)

Investment in Southwest Specialty Egg LLC

 

(8,160)

 

 —

 

 —

Payments received on notes receivable and

 

 

 

 

 

 

  from investments in affiliates

 

2,019 

 

5,003 

 

6,640 

Purchases of property, plant and equipment

 

(82,263)

 

(59,188)

 

(26,290)

Increase in notes receivable and investments in affiliates

 

 —

 

 —

 

(294)

Net proceeds from disposal of property,

 

 

 

 

 

 

  plant and equipment

 

2,499 

 

818 

 

124 

Net cash used in investing activities

 

(141,632)

 

(99,383)

 

(88,338)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Principal payments on long-term debt

 

(10,233)

 

(10,745)

 

(11,200)

Distributions to noncontrolling interest partners

 

(940)

 

 —

 

 —

Proceeds from issuance of common stock from treasury (including tax benefit on nonqualifying disposition of incentive stock options)

 

531 

 

279 

 

380 

Payments of dividends

 

(48,910)

 

(24,534)

 

(30,524)

Net cash used in financing activities

 

(59,552)

 

(35,000)

 

(41,344)

Decrease in cash and cash equivalents

 

(5,854)

 

(10,463)

 

(72,144)

Cash and cash equivalents at beginning of year

 

14,521 

 

24,984 

 

97,128 

Cash and cash equivalents at end of year

$

8,667 

$

14,521 

$

24,984 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Income taxes, net of refunds received

$

75,533 

$

41,626 

$

42,667 

Interest (net of amount capitalized)

 

2,313 

 

3,152 

 

3,543 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activity:

 

 

 

 

 

 

Issuance of stock from treasury (see Note 2)

 

 —

 

 —

 

5,000 

Contingent consideration recognized in acquisition of business

 

 —

 

 —

 

2,500 

See accompanying notes.

39

40


Cal-Maine Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

June 2, 2012

May 30, 2015

1. Significant Accounting Policies

 

Principles of Consolidation

The consolidated financial statements include the accounts of Cal-Maine Foods, Inc. and its subsidiaries (“we,” “us,” “our,” or the “Company”) and variable interest entities in which the Company is the primary beneficiary..  All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Business

The Company is principally engaged in the production, processing and distribution of shell eggs. The Company’s operations are significantly affected by the market price fluctuation of its principal products sold,product, shell eggs, and the costs of its principal feed ingredients, corn, soybean meal, and other grains.

 

The Company sells shell eggs to a diverse group of customers, including national and local grocery store chains, club stores, foodservice distributors, and egg product consumers.  Primarily all of the Company’s sales are to wholesale egg buyers in the southeastern, southwestern, mid-western and mid-Atlantic regions of the United States. Credit is extended based upon an evaluation of each customer’s financial condition and credit history and generally collateral is not required. Credit losses have consistently been within management’s expectations. Two affiliated customers, Wal-Mart and Sam’s Club, on a combined basis, accounted for 31.3%25.7%,  32.6%28.2% and 36.4%30.0% of the Company’s net sales in fiscal years 2012, 20112015,  2014, and 2010, respectively. Another customer accounted for 9.6%, 10.0% and 10.1% of the Company’s net sales in fiscal years 2012, 2011 and 2010,2013, respectively.

 

Fiscal Year

The Company’s fiscal year-end is on the Saturday nearest May 31, which was May 30, 2015, May 31, 2014,  and June 2, 2012 (53 weeks), May 28, 2011 (52 weeks), May 29, 2010 (52 weeks),1, 2013 for the most recent three fiscal years.

Variable Interest Entities

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 (Consolidation) (“ASC 810”) requires variable interest entities (“VIEs”) to be consolidated if a party with ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary. Our risk of loss in our VIE is not considered material to the Company’s overall financial statements. .

At June 2, 2012, the Company had a variable interest in one entity in which it was the primary beneficiary and accordingly consolidated the statements of financial position, results of operations and cash flows of this entity pursuant to ASC 810. The Company has a 37% ownership interest in Texas Egg Products, LLC (“TEP”) and leases to TEP its operating facility. TEP processes shell eggs into liquid and frozen egg products that are sold primarily to food manufacturers and to the food service industry. Pending the finalization of the acquisition of the egg operations of Pilgrim’s Pride Corporation’s commercial egg operation as disclosed in Note 19, we will own 50.3% of the equity interest in TEP, upon which TEP will no longer be accounted for as a VIE.

The Company had a 43% ownership interest in South Texas Protein, LLC (“STP”), a spent hen processing facility. We had a variable interest in STP and consolidated their financial statements in prior periods in accordance with ASC 810 as we All three years fiscal years were the primary beneficiary. Through April 2011, we leased the primary operating facility to STP and provided STP certain financial support. In April 2011, we terminated the operating lease and STP ceased operations. After STP ceased operations in April 2011, we are no longer the primary beneficiary, and we no longer consolidate their financial results. Subsequent to the deconsolidation, STP is accounted for under the equity method of accounting.52 week years.

In fiscal 2011, during the course of the Company’s strategic review of STP, the Company assessed the recoverability of the carrying value of STP’s primary operating facility and certain special purpose equipment, which resulted in impairment losses of $1,524. These losses reflect the amounts by which the carrying values of these assets exceeded their estimated fair values. The impairment loss is recorded as a component of ‘‘Cost of sales’’ in the Consolidated Statements of Income for fiscal 2011.

Total assets of the VIE for which the Company is the primary beneficiary totaled $2,057 for fiscal 2012 and $1,689 for fiscal 2011, net of elimination of intercompany balances. The total assets of the VIE for which the Company is the primary beneficiary represent 0.3% of the total assets shown in the Consolidated Balance Sheets for fiscal periods 2012 and 2011.

Assets and liabilities of the VIE included in the Company’s consolidated balance sheets are as follows at June 2, 2012 and May 28, 2011:

  June 2, 2012  May 28, 2011 
Current assets        
Cash $313  $38 
Receivables        
Trade receivables, less allowance for doubtful accounts of $8 and $10, respectively  1,253   1,240 
Inventories  326   189 
Prepaid expenses and other current assets  66   116 
Total current assets  1,958   1,583 
         
Other long-lived assets  -   3 
Property, plant and equipment, less accumulated depreciation  99   103 
Total assets $2,057  $1,689 
         
Current liabilities        
Accounts payable $411  $353 
Accrued expenses  40   34 
Notes payable  552   552 
Total current liabilities  1,003   939 
         
Total liabilities  1,003   939 
         
Equity $1,054  $750 

41

 

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 a maturity of three months or less when purchased to be cash equivalents. We maintain bank accounts that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250.$250,000.  At May 30, 2015,  May 31, 2014, and at various times throughout these years, the Company maintained cash balances may bewith certain financial institutions in excess of the FDIC insurance limits.federally insured amounts. The Company has not experienced any losses in such accounts.  The Company manages this risk through maintaining cash deposits and other highly liquid investments in high quality financial institutions.

 

We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts where funds are moved to, and several zero-balance disbursement accounts for funding payroll and accounts payable. Checks issued, but not presented to the banks for payment, may result in negative book cash balances, which are included in accounts payable and other current liabilities. AtMay 30, 2015, andMay 31, 2014, checks outstanding in excess of related book cash balances totaled approximately$1.8million and$1.5 million, respectively.

41


Investment Securities

Our investment securities are accounted for in accordance with ASC 320, “Investments-Debt and Equity Securities” (“ASC 320”).  Under ASC 320, theThe Company considers all of its investment securities for which there is a determinable fair market value and for which there are no restrictions on the Company's ability to sell within the next 12 months as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity. At June 2, 2012We had unrealized gains, net of tax, of $372,000 and $460,000 at May 30, 2015 and May 28, 2012, we had unrealized losses of $222 and $320, net of tax,31, 2014, respectively, which are included in the line item “Accumulated other comprehensive income (loss), net of tax” on our Consolidated Balance Sheet. Realized gains and losses are included in other income. The cost basis for realized gains and losses on available-for-sale securities is determined on athe specific identification basis.

We previously held auction rate securities (“ARS”) which were purchased from UBS Financial Services Inc. (“UBS”). During the first quarter of fiscal 2011, on June 30, 2010, we exercised a put option that allowed us to sell our ARS back to UBS at par. The par value of these securities was $22,900. These ARS served as collateral for a $14,799 line of credit with UBS. Proceeds received from the sale of the ARS to UBS were used to pay this debt.method.

 

At June 2, 2012May 30, 2015 and May 28, 2011,31, 2014, we had $163,623$250.0 million and $118,750,$194.7 million, respectively, of current investment securities available-for-sale consisting of commercial paper, certificates of deposit, time deposits, United States treasury bills, United StatesU.S. government obligations, government agency bonds, taxable municipal bonds, tax-exempt municipal bonds, zero coupon municipal bonds and corporate bonds with maturities of three months or longer when purchased. We classified these securities as current, because the amounts invested are available for current operations.  At May 30, 2015 and May 31, 2014, we had $1.7 million and $1.5 million, respectively, of investments in mutual funds which are considered long term and are a part of “Other Investments” in the Consolidated Balance Sheet. 

Investment in Affiliates

The equity method of accounting is used when the Company has a 20% to 50% interest in other entities or when the Company exercises significant influence over the entity. Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities. Nonmarketable investments in which the Company has less than a 20% interest and in which it does not have the ability to exercise significant influence over the investee are initially recorded at cost, and periodically reviewed for impairment.

 

Trade Receivables and Allowance for Doubtful Accounts

Trade receivables are comprised primarily of amounts owed to the Company from customers, which amounted to $58,630 at June 2, 2012 and $54,774$99.0 million at May 28, 2011. Trade receivables30, 2015 and $83.0 million at May 31, 2014.  They are presented net of an allowance for doubtful accounts of $589 at June 2, 2012 and $686$513,000 at May 28, 2011.30, 2015 and $430,000 at May 31, 2014. The Company extends credit to customers based upon an evaluation of each customer’s financial condition and credit history. Although credit risks associated with our customers are considered minimal, we routinely review our accounts receivable balances and make provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings), a reserve is recorded to reduce the receivable to the amount expected to be collected. For all other customers, we recognize reserves for bad debtsdebt based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due. Collateral is generally not required. Credit losses have consistently been within management’s expectations. At June 2, 2012both May 30, 2015 and May 28, 2011,31, 2014 two affiliated customers accounted for approximately 32%24% and 28% of the Company’s trade accounts receivable.

Notes Receivable

In April 2011, the Company received $3,811 in notes from the noncontrolling members in STP. Since it has ceased operations, we deconsolidated STP in April 2011. Upon the deconsolidation of STP, amounts owed to the Company by STP were apportioned to the members according to their ownership percentage. These notes are payable to the Company, have a maturity of five years and bear interest at 2.46%. We also have a note receivable, of $660 due from one of our trade customers at June 2, 2012. We had a note receivable of $262 due from one of our trade customers at May 28, 2011. Notes receivable from our trade customers are non-interest bearing, except in the event of default whereby the interest rate becomes 18%. The notes are recorded at amortized cost. We recognize interest income on these notes receivable based upon whether the amount and timing of collections are both probable and reasonably estimable. We assess the collectability of notes receivable on a periodic basis, which assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We update our cash flow projections of the borrowers annually. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. In management’s opinion, these notes are collectible. The notes receivable are due as follows:

Year Amount 
2012 $1,422 
2013  1,059 
2014  762 
2015  762 
Total $4,005 

The current amount due is included in the “Receivables” section of our Consolidated Balance Sheet in the line item “Other.” The current amount due was $1,422 and $1,025 for fiscal years 2012 and 2011, respectively. The non-current portion is included in the “Other assets” section of our Consolidated Balance Sheet in the line item “Notes receivable – noncurrent.” The non-current amount due was $2,583 and $3,049 for fiscal years 2012 and 2011, respectively.

 

Inventories

Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method) or market.

 

The cost associated with flocks, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during a growing period of approximately 22 weeks. Flock costs are amortized to cost of sales over the productive lives of the flocks, generally one to two years. Flock mortality is charged to cost of sales as incurred.

 

The Company does not disclose the gross cost and accumulated amortization with respect to its flock inventories since this information is not utilized by management in the operation of the Company.

42


Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and equipment. Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property, plant, and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost incurred on funds used to construct property, plant, and equipment. The capitalized interest is recordedequipment as part of the asset to which it relates, and is amortized over the asset’s estimated useful life.

 

Impairment of Long-Lived Assets

The Company reviews the carrying value of long-lived assets, other than goodwill, for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where expected future cash flows (undiscounted and without interest charges) are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

 

Intangible Assets

Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees, non-compete agreements and customer relationship intangibles, and are amortized over their estimated useful lives of 3 to 25 years.   The gross cost and accumulated amortization of intangible assets are removed when the recorded amounts have been fully amortized and the asset is no longer in use or the contract has expired.  Included in other long-lived assets are loan acquisition costs, which are amortized over the life of the related loan. Separable intangible assets, which include franchise fees, non-compete agreements and customer relationship intangibles, are amortized over their estimated useful lives of 3 to 25 years.

Goodwill

Goodwill represents the excess of cost of business acquisitionsthe purchase price over the fair value of the identifiable net assets acquired. Goodwill is reviewed at least annuallyevaluated for impairment annually by assessingfirst performing a qualitative factorsassessment to determine whether a quantitative goodwill test is necessary.  After assessing the existencetotality of events or circumstances, leads to a determination thatif we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events or circumstances, if we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount;amount, then we do not perform additional quantitative tests to determine the magnitude of any impairment.

 

Accrued Self Insurance

We use a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for health and welfare, workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks retained are estimated, in part, by considering claims experience, demographic factors, severity factors and other actuarial assumptions.

 

Dividends

Cal-Maine 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 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 7065th 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, 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 June 2, 2012Dividends payable were  $15.4 million and $10.5 million at May 30, 2015 and May 28, 2011, we had dividends payable of $12,419 and $2,424, respectively, which31, 2014, respectively. These amounts represent accrued unpaid dividends applicable to the Company’s fourth quarter net income for each fiscal year.

43


 

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.  The grant of restricted stock through the Company’s share-based compensation plans is funded through the issuance of treasury stock.  Gains and losses on the subsequent reissuance of shares in accordance with the Company’s share-based compensation plans are credited or charged to paid-in capital in excess of par value using the average-cost method.

 

Revenue Recognition and Delivery Costs

The Company recognizes revenue only when all of the following criteria have been met:

·

Persuasive evidence of an arrangement exists;

·

Delivery has occurred;

·

The fee for the arrangement is determinable; and

·

Collectability is reasonably assured.

 

The Company believes the above criteria are met upon delivery and acceptance of the product by our customers. Costs to deliver product to customers are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and totaled $35,209, $31,695$47.0 million, $43.0 million, and $28,510,$38.1 million in fiscal years 2012, 20112015,  2014, and 2010,2013, respectively.  Sales revenue reported in the accompanying consolidated statements of income is reduced to reflect estimated returns and allowances.  The Company records an estimated sales allowance for returns and discounts at the time of sale using historical trends based on actual sales returns and sales.

Sales Incentives provided to Customers

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future discounts subject to a minimum current purchase), and other similar offers. Current discount offers, when accepted by customers, are treated as a reduction to the sales price of the related transaction, while inducement offers, when accepted by customers, are treated as a reduction to sales price based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. Current discount offers and inducement offers are presented as a net amount in ‘‘Net sales.’’

 

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs totaled $4,245, $5,768,$9.3 million, $8.5 million, and $2,098$5.1 million in fiscal 2012, 2011,2015,  2014, and 2010,2013, respectively.

 

Income Taxes

Income taxes have beenare provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. See Note 11: Income Taxes forThe Company’s policy with respect to evaluating uncertain tax positions is based upon whether management believes it is more likely than not the uncertain tax positions will be sustained upon review by the taxing authorities.  The tax positions must meet the more-likely-than-not recognition threshold with consideration given to the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information aboutat the reporting date.  The Company will reflect only the portion of the tax benefit that will be sustained upon resolution of the position and applicable interest on the portion of the tax benefit not recognized. The Company shall initially and subsequently measure the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.    Based upon management’s assessment, there are no uncertain tax positions expected to have a material impact on the Company’s income taxes.consolidated financial statements.

 

44


Stock Based Compensation

We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”).  ASC 718 requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance-based shares to be recognized in the income statement based on their fair values. ASC 718 also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.  See Note 11: Stock Compensation Plans for more information.

 

Net Income per Common Share

Basic net income per share is based on the weighted average common and Class A shares outstanding. Diluted net income per share includes any dilutive effects of stock options outstanding.outstanding and unvested restricted shares.

 

Basic net income per share was calculated by dividing net income by the weighted-average number of common and Class A 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 stock options.options and unvested restricted shares.  The computations of basic net income per share and diluted net income per share are as follows:follows (in thousands):

 

  June 2, 2012  May 28, 2011  May 29, 2010 
Net income $89,735  $60,839  $67,823 
             
Basic weighted-average common shares (including Class A)  23,875   23,855   23,812 
             
Effect of dilutive securities:            
Common stock options  67   87   65 
Dilutive potential common shares  23,942   23,942   23,877 
             
Net income per common share:            
Basic $3.76  $2.55  $2.85 
             
Diluted $3.75  $2.54  $2.84 

 

 

 

 

 

 

 

May 30, 2015

 

May 31, 2014

 

June 1, 2013

Net income attributable to Cal-Maine Foods, Inc.

$          161,254 

 

$        109,207 

 

$          50,423 

 

 

 

 

 

 

Basic weighted-average common shares (including Class A)

48,136 

 

48,095 

 

47,967 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

    Common stock options and restricted stock

301 

 

202 

 

121 

Dilutive potential common shares

48,437 

 

48,297 

 

48,088 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

    Basic

$                3.35 

 

$              2.27 

 

$              1.05 

 

 

 

 

 

 

    Diluted

$                3.33 

 

$              2.26 

 

$              1.05 

Contingencies

Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

 

The Company accruesexpenses the costs of litigation where our obligation is probable and such costs can be reasonably estimated. In instances where costs cannot be reasonably estimated these costsas they are expensed as incurred.

 

Impact of Recently Issued Accounting Standards

 

In May 2011,2014, the FASB issued ASU 2011-04, AmendmentsAccounting Standard Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to Achieve Common Fair Value Measurement and Disclosure Requirementsrecognize revenue when control of the goods or services transfers to the customer in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifiesan amount that reflects the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 was effective beginning with the Company’s fourth quarter of fiscal 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s consolidated financial statements. The amendments in ASU 2011-04 areconsideration that is expected to be applied prospectively.

In June 2011, the FASB issuedreceived for those goods or services.  ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early adoption of ASU 2011-05 is not permitted. The Company adopted ASU 2011-05guidance permits companies to either apply the

45


requirements retrospectively to all prior periods presented, or apply the requirements in the first quarteryear of fiscal 2012. The adoption, of ASU 2011-05 did not havethrough a material effect on the Company’s condensed consolidated financial statements, but requires a change in the presentation of the Company’s comprehensive income from the statement of stockholder’s equity, where it was previously disclosed, to the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.cumulative adjustment. The Company chosedoes not expect ASU 2014-09 to present comprehensive income in two separate but consecutive statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. Early adoption of ASU 2011-08 is permitted. The Company adopted ASU 2011-08 in the fourth quarter of fiscal 2012. Adoption of ASU 2011-08 did not have a material impact on ourthe consolidated financial statements.statement presentation.

 

2.  Acquisition

On August 10, 2012, the Company purchased substantially all of the commercial egg assets of Pilgrim’s Pride Corporation (“PPC”) for approximately $16.3 million in cash at closing, plus contingent cash consideration of $1.4 million.  The assets acquired included two production complexes with capacity for approximately 1.4 million laying hens and PPC’s 13.6% interest in Texas Egg Products, LLC (“TEP”), which gave us a majority ownership interest in TEP. 

On November 15, 2012, the Company acquired the commercial egg assets of Maxim Productions Co. Inc. (“MPC”).    The Company acquired the MPC assets for approximately $64.9 million consisting of approximately $58.6 million in cash and 114,103 shares of common stock.  The assets included a feed mill, two production complexes with capacity for 3.5 million laying hens and a pullet grow out facility, and MPC’s 21.8% interest in TEP, which gave us a 72.1% interest in TEP.  The MPC acquisition included an earn-out contingency of $4.4 million, the fair value of which is remeasured at each reporting date until the contingency is settled in the second quarter of fiscal year 2016. 

Effective March 1, 2014, the Company purchased our joint venture partner’s 50% interest in Delta Egg Farm, LLC (“Delta Egg”) for $17.0 million.  The Company previously owned 50% of Delta Egg through a joint venture with Moark, LLC.  In conjunction with the acquisition, the Company recognized a non-recurring, non-cash gain of $4.0 million for the excess in purchase price over the carrying value of the 50% investment in the unconsolidated joint venture.  This gain was recorded in “Other Income” in the Company’s Consolidated Statements of Income for fiscal 2014.  The gain is non-taxable, and therefore resulted in a $1.5 million reduction to the Company’s income tax expense for fiscal 2014.  Additionally, the Company recorded a $3.3 million decrease to deferred income tax liabilities related to the outside basis of our equity investment in Delta Egg.  Delta Egg’s assets include a feed mill and a production complex with capacity for approximately 1.2 million laying hens near Delta, Utah, as well as an organic complex with capacity for approximately 400,000 laying hens near Chase, Kansas. 

The results of the Company’s operation of these assets are included in the Company’s consolidated financial statements since the respective dates of acquisition. Included in the Company’s consolidated financial statements for fiscal 2014 are revenues and net income from Delta Egg of $4.7 million and $1.3 million, respectively.  Prior to the acquisition date the Company’s 50% share of net income was recorded “Equity in income of affiliates”.

The following unaudited pro forma information was prepared assuming the acquisition of the commercial egg assets of PPC and MPC had taken place at the beginning of fiscal year 2013.  In preparing pro forma information, various assumptions were made; therefore, the Company does not imply that the future results will be indicative of the following pro forma information (in thousands):

Year Ended

June 1, 2013

Net sales

$

1,344,279 

Net income attributable to Cal-Maine Foods, Inc.

$

50,053 

Net income per share attributable to Cal-Maine Foods, Inc.:

Basic net income per share

$

1.05 

Diluted net income per share

$

1.04 

46


3.  Investment in Affiliates

On April 9, 2015, the Company entered into the Red River Valley Egg Farm, LLC (“Red River”) joint venture with Rose Acre Farms, Inc.  The joint venture will build and operate a state of the art shell egg production complex near Bogata, Red River County, Texas.  The plans for the complex provide capacity for approximately 1.8 million cage-free laying hens.  Constuction of the complex has commenced, and the initial flocks are expected to be placed in November 2015.  The company did not incur material costs associated with the joint venture in fiscal 2015. The Company expects to fund its 50% share of approximately $73 million of construction and startup costs for the Red River joint venture during fiscal 2016. 

On July 25, 2014, the Company entered into the Southwest Specialty Eggs, LLC (“SWS”) joint venture with Hickman’s Egg Ranch.  The SWS joint venture subsequently acquired the Egg-Land’s Best franchise for Arizona,  southern California and Clark County (including Las Vegas), Nevada.  The Company owns 50% of the SWS joint venture.

 

The Company owns 50% of each of Specialty Eggs LLC and Delta Egg Farm, LLC (“Delta Egg”) and 33.3% of Dallas Reinsurance, Co., LTD. as of May 30, 2015.  At June 1, 2013, the Company also owned 50% of Delta Egg Farm.  During fiscal 2014 the Company purchased our joint venture partner’s 50% interest in Delta Egg Farm (Refer to Note 2 2012.– Acquisitions).  Investment in affiliates, recorded using the equity method of accounting, isare included in “Other Investments” in the accompanying Consolidated Balance Sheets and totaled $20,090$13.1 million and $17,438$3.5 million at June 2, 2012May 30, 2015 and at May 28, 2011,31, 2014, respectively. 

Equity in income of $7,495, $4,701,$2.7 million, $3.5 million, and $3,507$3.5 million from these entities has been included in the Consolidated Statements of Income for fiscal 2012, 2011,2015,  2014, and 2010,2013, respectively.

 

The Company is a guarantormember of 50% of Delta Egg’s long-term debt,Eggland’s Best, Inc. (“EB”), which totaled approximately $9,250 at June 2, 2012. Delta Egg’s long-term debt is secured by substantially all fixed assets of Delta Egg and is due in monthly installments through fiscal 2018. Delta Egg is engaged in the production, processing and distribution of shell eggs. The other 50% owner also guarantees 50% of the debt. The guarantee arose when Delta Egg borrowed funds to construct its production and processing facility in 1999. The guarantee would be required if Delta Egg is not able to pay the debt. Management of the Company believes that payment under the guarantee is unlikely because Delta Egg is now well capitalized.

a cooperative.  At June 2, 2012May 30, 2015 and May 28, 2011,31, 2014, “Other Investments” as shown on the Company’s Consolidated Balance Sheet includes the cost of anthe Company’s investment in Egg-Land’s Best, Inc., which is a cooperative.EB plus any qualified written allocations.  The Company cannot exert significant influence over Egg-Land’s Best, Inc.’sEB’s operating and financial activities; therefore, the Company accounts for this investment using the cost method.   The carrying value of this investment at June 2, 2012May 30, 2015 and May 28, 201131, 2014 was $768.$3.1 million and $768,000, respectively.

 

The Company regularly transacts business with its affiliates. The following relates to the Company’s transactions with these unconsolidated affiliates for the fiscal years indicated:(in thousands):  

 

  June 2, 2012  May 28, 2011  May 29, 2010 
Sales to affiliates $37,930  $31,968  $21,025 
Purchases from affiliates  69,108   59,216   43,453 

 

  June 2, 2012  May 28, 2011 
Accounts receivable from affiliates $4,536  $2,362 
Accounts payable to affiliates  3,292   2,089 

 

 

 

 

 

 

 

 

 

 

 

 

For the fiscal year ended

 

 

May 30, 2015

 

May 31, 2014

 

June 1, 2013

Sales to affiliates

 

$  

40,746 

 

$  

44,798 

 

$  

43,270 

Purchases from affiliates

 

 

62,659 

 

 

74,325 

 

 

71,325 

Dividends from affiliates

 

 

1,250 

 

 

4,650 

 

 

5,875 

3.

 

 

 

 

 

 

 

 

  

 

 

 

 

 

May 30, 2015

  

May 31, 2014

Accounts receivable from affiliates

  

$

4,253 

  

$

2,619 

Accounts payable to affiliates

  

 

2,118 

  

 

3,720 

 

 

 

 

 

 

 

47


4.  Inventories

 

Inventories consisted of the following:following (in thousands):

 

  June 2, 2012  May 28, 2011 
Flocks $71,071  $69,251 
Eggs  9,856   8,346 
Feed and supplies  36,231   32,424 
  $117,158  $110,021 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

 

May 31, 2014

Flocks, net of accumulated amortization

 

$

87,280

 

$

90,152

Eggs

 

 

15,507

 

 

11,747

Feed and supplies

 

 

43,473

 

 

44,218

 

 

$

146,260

 

$

146,117

 

4.

The Company charged amortization and mortality expense associated with the flocks to cost of sales as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

For the fiscal year ended

 

May 30, 2015

 

May 31, 2014

 

June 1, 2013

Amortization

$

108,570 

 

$

98,556 

 

$

88,601 

Mortality

 

3,803 

 

 

3,818 

 

 

3,667 

Total flock costs charge to cost of sales

$

112,373 

 

$

102,374 

 

$

92,268 

5. Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following at June 2, 2012 and May 28, 2011:(in thousands):

 

  June 2, 2012  May 28, 2011 
Refundable income taxes $-  $4,554 
Prepaid insurance  763   531 
Other prepaid expenses  622   530 
Other current assets  140   186 
  $1,525  $5,801 

 

5.

 

 

 

 

 

 

 

May 30, 2015

 

May 31, 2014

Prepaid insurance

 

$          1,526

 

$          1,029

Other prepaid expenses

 

420 

 

116 

Other current assets

 

153 

 

1,356 

 

 

$          2,099

 

$          2,501

6.  Goodwill and Other Intangible Assets

 

Goodwill and other intangibles consisted of the following:following (in thousands):

 

     Other Intangibles 
     Franchise  Customer  Non-compete  Total other 
  Goodwill  rights  relationships  agreements  intangibles 
Balance May 29, 2010 $22,117  $3,357  $8,628  $538  $12,523 
Amortization  -   (484)  (1,476)  (500)  (2,460)
Balance May 28, 2011 $22,117  $2,873  $7,152  $38  $10,063 
Amortization  -   (521)  (1,476)  (38)  (2,035)
Balance June 2, 2012 $22,117  $2,352  $5,676  $-  $8,028 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise

 

Customer

 

Non-compete

 

Right of use

 

Water

 

Total other

 

 

Goodwill

 

rights

 

relationships

 

agreements

 

intangible

 

rights

 

intangibles

Balance June 1, 2013

 

$         24,417

 

$           1,831

 

$         10,407

 

$                88

 

$                   -

 

$                   -

 

$         12,326

Additions

 

4,779 

 

 -

 

 -

 

 -

 

191 

 

720 

 

911 

Amortization

 

 -

 

(477)

 

(2,317)

 

(20)

 

 -

 

-

 

(2,814)

Balance May 31, 2014

 

29,196 

 

1,354 

 

8,090 

 

68 

 

191 

 

720 

 

10,423 

Additions

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Amortization

 

 -

 

(484)

 

(2,317)

 

(20)

 

(42)

 

 -

 

(2,863)

Balance May 30, 2015

 

$         29,196

 

$              870

 

$           5,773

 

$                48

 

$              149

 

$              720

 

$           7,560

48


For the Other Intangibles listed above, the gross carrying amounts and accumulated amortization are as follows:follows (in thousands):

 

  June 2, 2012  May 28, 2011 
  Gross carrying  Accumulated  Gross carrying  Accumulated 
  amount  amortization  amount  amortization 
Amortized intangible assets:                
Franchise Rights $5,284  $(2,932) $5,284  $(2,411)
Customer Relationships  10,900   (5,224)  10,900   (3,748)
Non-compete agreements  1,500   (1,500)  1,500   (1,462)
Total $17,684  $(9,656) $17,684  $(7,621)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

May 31, 2014

 

 

Gross carrying

 

Accumulated

 

Gross carrying

 

Accumulated

 

 

amount

 

amortization

 

amount

 

amortization

Other intangible assets:

 

 

 

 

 

 

 

 

Franchise rights

 

$             5,284

 

$            (4,414)

 

$             5,284

 

$            (3,930)

Customer relationships

 

17,644 

 

(11,871)

 

17,644 

 

(9,554)

Non-compete agreements

 

100 

 

(52)

 

100 

 

(32)

Right of use intangible

 

191 

 

(42)

 

191 

 

 -

Water rights *

 

720 

 

 -

 

720 

 

 -

Total

 

$           23,939

 

$          (16,379)

 

$           23,939

 

$          (13,516)

* Water rights are an indefinite life intangible asset.

 

No significant residual value is estimated for these intangible assets. Aggregate amortization expense for the fiscal years ended June 2, 2012, May 28, 2011,2015,  2014, and May 29, 20102013 totaled $2,035, $2,460,$2.9 million, $2.8 million, and $2,533,$2.5 million, respectively. The following table represents the total estimated amortization of intangible assets for the five succeeding years:years (in thousands):

 

For fiscal period Estimated amortization expense 
2013 $1,883 
2014  1,883 
2015  1,850 
2016  1,804 
2017  443 
Thereafter  165 
Total $8,028 

 

 

 

For fiscal period

 

Estimated amortization expense

2016

 

$                                     2,623

2017

 

1,076 

2018

 

939 

2019

 

897 

2020

 

873 

Thereafter

 

432 

Total

 

$                                     6,840

 

6.

7. Property, Plant and Equipment

 

Property, plant and equipment consisted of the following:following (in thousands):

 

  June 2  May 28 
  2012  2011 
Land and improvements $61,149  $57,924 
Buildings and improvements  207,617   201,172 
Machinery and equipment  248,655   234,276 
Construction-in-progress  12,084   11,023 
   529,505   504,395 
Less: accumulated depreciation  306,890   279,508 
  $222,615  $224,887 

 

 

 

 

 

 

 

 

 

 

May 30

 

 

May 31

 

 

 

2015

 

 

2014

Land and improvements

 

$

77,064 

 

$

74,999 

Buildings and improvements

 

 

270,076 

 

 

244,782 

Machinery and equipment

 

 

364,209 

 

 

323,117 

Construction-in-progress

 

 

42,893 

 

 

32,826 

 

 

 

754,242 

 

 

675,724 

Less: accumulated depreciation

 

 

395,452 

 

 

360,789 

 

 

$

358,790 

 

$

314,935 

 

DepreciationexpenseDepreciation expense was $28,329, $28,036$37.3 million, $33.5 million and $29,252$31.2 million in fiscal years 2012, 20112015,  2014 and 2010,2013, respectively.

Farwell, TX

 

The Company maintains insurance for both property damage and business interruption relating to catastrophic events, such as the fire at the Farwell, Texas complex on July 9, 2009. Business interruption insurance covers lost profits and other costs incurred during the loss period.

fires.  Insurance recoveries received for property damage and business interruption in excess of the net book value of damaged assets, clean-up and demolition costs, and post-event costs are recognized as income in the period received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are recorded within “Cost of sales” and any gains or losses related to property damage are recorded within “Other income (expense).” Insurance

49


recoveries related to business interruption are classified as operating cash flows and recoveries related to property damage are classified as investing cash flows in the statement of cash flows.  Insurance claims incurred or finalized during the fiscal years ended 2015, 2014, and 2013 are discussed below.

 

The Company has received $16,407 from insurance carriers as full settlement ofIn the Farwell claim.  Of the total amount received from insurance carriers $4,549 is included in the line item “Insurance claims receivable” as shown on the May 28, 2011 Consolidated Balance Sheet.  We received these proceeds in June 2011.  The Company recorded total business interruption losses of $6,097 as a reduction to “Cost of sales.” The Company recorded a gain of $1,801 due to the property damage claim, which was recorded in “Other income (expense).” Due to the loss of inventory and other out of pocket expenses, net of insurance proceeds received, the Company recorded a loss of $698 as an increase to “Cost of sales.” The Company finalized the insurance claim in the fourthsecond quarter of fiscal 2011.

Shady Dale, GA

2014, a contract producer owned pullet complex in Florida was damaged by fire.  The fire destroyed two contract producer owned pullet houses that contained the Company’s flocks.  In firstthe third quarter of fiscal 2011,2014, the Company’s Shady Dale, Georgia complex was damaged by a fire.  The fire destroyed onetwo pullet houses.  These claims were resolved in fiscal 2015 and did not have a material impact on the Company’s results of the twelve layer houses, which was empty at the time. There was an additional loss of laying hens at three adjoining layer houses due to smoke inhalation.operations.

    

Insurance recoveries received for property damage and business interruption in excess of the net book value of damaged assets, clean-up and demolition costs, and post-event costs are recognized as income in the period received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are recorded within “Cost of sales” and any gains related to property damage will be recorded within “Other income (expense).” Insurance recoveries related to business interruption are classified as operating cash flows and recoveries related to property damage are classified as investing cash flows in the statement of cash flows.

The Company has received $3,684 from insurance carriers as full settlement of the Shady Dale claim.  The Company recorded total business interruption losses of $1,579 as a reduction to “Cost of sales.” The Company recorded a gain of $1,021 during fiscal year 2012 due to the property damage claim, which was recorded in “Other income (expense).” The remaining portion of the insurance proceeds, $1,084, was used to reimburse the Company for the book value of damaged inventory written off and other out of pocket expenses. The Company finalized the insurance claim in the fourth quarter of fiscal year 2012.

7.8.  Leases

 

Future minimum payments under noncancelablenon-cancelable operating leases that have initial or remaining noncancelablenon-cancelable terms in excess of one year at June 2, 2012May 30, 2015 are as follows:follows (in thousands):

 

2013 $1,117 
2014  595 
2015  506 
2016  379 
2017  345 
Thereafter  232 
Total minimum lease payments $3,174 

 

 

 

2016

$

493 

2017

 

441 

2018

 

310 

2019

 

57 

2020

 

Total minimum lease payments

$

1,308 

 

Substantially all of the leases provide that the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased assets.  The Company has guaranteed under certain operating leases the residual value of transportation equipment at the expiration of the leases.Vehicle rent expense totaled $101,000,  $174,000 and $382,000 in fiscal 2015,  2014 and 2013, respectively. Rent expense excluding vehicle rent was $2,937, $3,446,$3.0 million, $2.7 million, and $4,872$2.9 million in fiscal 2012, 20112015,  2014 and 2010,2013, respectively, primarily for the lease of certain operating facilities equipment and transportation equipment.  Included in rent expense are vehicle rents totaling $538, $479 and $693 in fiscal 2012, 2011 and 2010, respectively.

 

8.9.  Credit Facilities and Long-Term Debt

Long-term debt consisted of the following:following (in thousands except interest rate and installment data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 30

 

May 31

 

 

2015

 

2014

 

 

 

Note payable at 6.20%, due in monthly principal installments of $250,000, plus interest, maturing in 2019

 

$

13,500 

 

$

16,500 

Note payable at 5.99%, due in monthly principal installments of $150,000, plus interest, maturing in 2021

 

 

12,700 

 

 

14,500 

Note payable at 6.35%, due in monthly principal installments of $100,000, plus interest, maturing in 2017

 

 

10,300 

 

 

11,500 

Series A Senior Secured Notes at 5.45%, due in monthly principal installments of $175,500, plus interest, maturing in 2018

 

 

6,311 

 

 

8,417 

Note payable at 5.40%, due in monthly principal installments of $125,000, plus interest, maturing in 2018

 

 

4,750 

 

 

6,250 

Note payable at 6.40%, due in monthly principal installments of $35,000, plus interest, maturing in 2018

 

 

3,140 

 

 

3,560 

Note payable at 2.00%, due in semi-annual principal and interest payments of $20,790, maturing in 2019

 

 

159 

 

 

197 

Note payable at 6.07%, due in monthly principal installments of $33,300, plus interest, maturing in 2015

 

 

 -

 

 

169 

Total debt

 

 

50,860 

 

 

61,093 

Less: current maturities

 

 

10,065 

 

 

10,216 

Long-term debt, less current maturities

 

$

40,795 

 

$

50,877 

 

  June 2  May 28 
  2012  2011 
       
Note payable at 6.20%, due in monthly principal installments of $250, plus interest, maturing in 2019 $22,500  $25,500 
Note payable at 5.99%, due in monthly principal installments of $150, plus interest, maturing in 2021  18,100   19,900 
Note payable at 6.35%, due in monthly principal installments of $100, plus interest, maturing in 2017  13,900   15,100 
Series A Senior Secured Notes at 5.45%, due in monthly installments of $176, plus interest, beginning in January 2009 through 2018  12,629   14,735 
Note payable at 6.40%, due in monthly principal installments of $35, plus interest, maturing in 2018  4,400   4,820 
Note payable at 6.80%, due in monthly principal installments of $165, plus interest, maturing in 2014  3,170   5,150 
Note payable at 6.07%, due in monthly principal installments of $33, plus interest, maturing in 2015  969   1,368 
Note payable at 5.80%, due in annual principal installments of $250 beginning in April 2006 through 2015 with interest due quarterly  -   1,000 
Note payable-Texas Egg Products, LLC (payable to non-affiliate equity members)  552   552 
Note payable at 7.5%, due in monthly installments of $36, including interest, maturing in 2012  -   36 
Total debt $76,220  $88,161 
Less: current portion  11,458   11,743 
Long-term debt, less current portion $64,762  $76,418 

50


The aggregate annual fiscal year maturities of long-term debt at June 2, 2012May 30, 2015 are as follows:follows (in thousands):

 

2013 $11,458 
2014  10,116 
2015  8,695 

 

 

 

2016  8,526 

$

10,065 
2017  18,726 

 

20,265 

2018

 

8,439 

2019

 

5,091 

2020

 

3,300 
Thereafter  18,699 

 

3,700 
 $76,220 

$

50,860 

 

Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes. Unless otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum levels of working capital (ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth, plus 45% of cumulative net income); (2) limit dividends paid in any given quarter to not exceed an amount equal to one third of the previous quarter’s consolidated net income (allowed if no events of default), capital expenditures to an amount not to exceed $60.0 million in any twelve month period, and lease obligations and additional long-term borrowings (total(3) maintain minimum total funded debt to total capitalization (debt to total tangible capitalization not to exceed 55%); and (3)(4) maintain various current and cash-flow coverage ratios (1.25 to 1), among other restrictions. At June 2, 2012,May 30, 2015, we were in compliance with the financial covenant requirements of all loan agreements. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control, as defined in the applicable loan agreement. Our debt agreements also require Fred R. Adams, Jr., the Company’s Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing not less than 50% of the outstanding voting power of the Company. We are in compliance with those covenants at May 30, 2015.

 

Interest, net of $4,557, $9,310,amount capitalized, of $2.3 million, $3.2 million, and $7,175$3.5 million was paid during fiscal 2012, 20112015,  2014 and 2010,2013, respectively.  Interest paid in fiscal 2011 includes the $2,648 paid for the early extinguishment of debt.  Interest of $150, $213,$1.2 million,  $603,000, and $299$383,000 was capitalized for construction of certain facilities during fiscal 2012, 20112015,  2014 and 2010,2013, respectively.

 

9.10.  Employee Benefit Plans

 

The Company maintains a medical plan that is qualified under Section 401(a) of the Internal Revenue Code and is not subject to tax under present income tax laws.  The plan is funded by contributions from the Company and its employees.  Under its plan, the Company self-insures in part, coverageits portion of medical claims for substantially all full-time employees with coverage byemployees.  The Company uses stop-loss insurance carriers for certain stop-loss provisions for losses greater than $200 for eachto limit its portion of medical claims to $225,000 per occurrence.  The Company's expenses including accruals for incurred but not reported claims were approximately $7,269, $6,457,$9.6 million, $9.8 million, and $5,115$7.4 million in fiscal years 2012, 20112015,  2014 and 2010,2013, respectively.  The liability recorded for incurred but not reported claims was $700,000 as of both May 30, 2015 and  May 31, 2014.

 

The Company hadhas a 401(k)KSOP plan which coveredthat covers substantially all employees.  Participants in employees (“the 401(k) plan could contribute up to the maximum allowed by Internal Revenue Service regulations.Plan”).  The Company did not make contributions to the 401(k) plan.  The 401(k) plan was merged into a KSOP in fiscal 2012.  A KSOP is a combination employee stock ownership plan (ESOP) and 401(k) plan.  

The Company had an ESOP that covered substantially all employees.  The Company mademakes cash contributions to the ESOPPlan at a rate of 3% of participants' compensation, plus an additional amount determined at the discretion of the Board of Directors.  Contributions couldcan be made in cash or the Company's Common Stock.  Company contributions to the ESOP vestedStock, and vest immediately.   The Company's cash contributions to the planPlan were $1,563, $1,849,$2.8 million, $3.0 million, and $1,439$1.8 million in fiscal years 2012, 20112015,  2014 and 2010,2013, respectively. The Company did not make direct contributions of the Company’s Common Stockcommon stock in fiscal years 2012, 20112015,  2014, or 2010.2013. Dividends on the Company’s common stock are paid to the Plan in cash.  The ESOPPlan acquires the Company’s Common Stockcommon stock, which is listed on the NASDAQ, by using the dividends and the Company’s cash contribution to purchase shares in the Company’s Common Stock which is listed on the NASDAQ.public markets.  The ESOP sells Common StockPlan sold common stock on the NASDAQ to pay benefits to ESOPPlan participants.  Dividends are paid to the ESOP in cash. The ESOP uses the dividends to acquire additional Common Stock.  The ESOP was merged into the KSOP in fiscal 2012.

In April of 2012, the company adopted a KSOP. The plan is available to all employees meeting certain eligibility requirements.  The Company makesParticipants may make contributions to the KSOP at a rate of 3% of the participants’ compensation, plus an additional amount determined at the discretion of the Board of Directors.  The Company’s cash contributionPlan up to the KSOP plan was $307 in fiscal 2012. The KSOP acquiresmaximum allowed by the Company’s Common Stock by using the Company’s cash contribution to purchase the Company’s Common Stock which is listed on the NASDAQ.  The KSOP sells Common Stock on the NASDAQ to pay benefits to KSOP participants.  Dividends are paid to the KSOP in cash. The KSOP uses the dividends to acquire additional Common Stock.Internal Revenue Service regulations.  The Company does not make contributions to the 401(k) part of the plan.  match participant contributions.

 

The Company has deferred compensation agreements with certain officers for payments to be made over specified periods beginning when the officers reach age 65 or over as specified in the agreements.  Amounts accrued for thesethe agreements are based upon deferred compensation earned over the estimated remaining service period of each officer.  Deferred compensation expense totaled approximately $193, $138Payments made under the plan were $97,000,  $50,000, and $184$50,000 in fiscal 2012, 2011years 2015,  2014, and 2010,2013, respectively.  The liability recorded related to these agreements was $1.6 million at May 30, 2015 and $1.7 million at May 31, 2014. 

 

51


In December 2006, the Company adopted an additional deferred compensation plan to provide deferred compensation to named officers of the Company.  As of June 2, 2012, theThe awards issued under this plan were $129, $138,$241,000, $202,000, and $127$156,000 in fiscal 2012, 20112015,  2014 and 2010,2013, respectively.  Payments made under the plan were $116,000 and zero in fiscal 2015 and 2014, respectively.  The liability recorded related to these agreements was $1.7 million and $1.5 million at May 30, 2015 and May 31, 2014, respectively.

 

Additionally, theDeferred compensation expense for both plans totaled $470,000, $425,000 and $786,000 in fiscal 2015,  2014 and 2013, respectively.

Postretirement Medical Plan

The Company maintains an unfunded postretirement medical plan that providesto provide limited health benefits to certain qualified retired employees and officers.  Retired non-officers and spouses are eligible for coverage until attainment of Medicare eligibility, at which time coverage ceases.  Retired officers and spouses are eligible for lifetime benefits under the plan.  Officers and their spouses, who retired prior to May 1, 2012, must participate in Medicare Plans A and B.  Officers, and their spouses, who retire on or after May 1, 2012 must participate in Medicare Plans A, B, and D. 

The plan is accounted for in accordance with ASC 715, “Compensation – Retirement Benefits”, under which an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability, and recognizes changes in that funded status in the year the change occurs through comprehensive income.  Additionally, this expense is recognized on an accrual basis over the employees’ approximate period of employment. The liability at year end 2012associated with the plan was $641.$1.5 million and $683,000 as of May 30, 2015 and May 31, 2014, respectively.  The remaining disclosures associated with ASC 715 are immaterial to the company’s financial statements.

 

10.11.  Stock Compensation Plans

 

On July 28, 2005, the Company’s Board of Directors approved the Cal-Maine Foods, Inc. 2005 Incentive Stock Option Plan (the "ISO Plan") and reserved 500,0001,000,000 shares for issuance upon exercise of options granted under the ISO Plan. Options issued pursuant to the ISO Plan may be granted to any of the Company’s employees. The options may have a term of up to ten years and generally will vest ratably over five years. On August 17, 2005, the Company issued 360,000720,000 options with an exercise price of $5.93.$2.97. The options have ten-year terms and vest over five years beginning from the date of grant. The ISO Plan was ratified by the Company’s shareholders at the annual meeting of shareholders on October 13, 2005.  No options were outstanding under the ISO Plan as of May 30, 2015.

On July 28, 2005, the Company’s Board of Directors also approved the Cal-Maine Foods, Inc. Stock Appreciation Rights Plan (the "Rights Plan"). The Rights Plan covers 1,000,0002,000,000 shares of Common Stock of the Company. Stock Appreciation Rights ("SARs") may be granted to any employee or non-employee member of the Board of Directors. Upon exercise of a SAR, the holder will receive cash equal to the difference between the fair market value of a single share of Common Stock at the time of exercise and the strike price which is equal to the fair market value of a single share of Common Stock on the date of the grant. The SARs have a ten-year term and vest over five years. On August 17, 2005, the Company issued 592,5001,185,000 SARs under the Rights Plan with a strike price of $5.93$2.97 and, on August 26, 2005, the Company issued 22,50090,000 SARs with a strike price of $6.71.$3.36. On August 24, 2006, the Company issued 15,00030,000 SARs with a strike price of $6.93.$3.47. The Rights Plan was ratified by the Company’s shareholders at the annual meeting of shareholders on October 13, 2005.

 

On October 5, 2012, shareholders approved the Cal-Maine Foods, Inc. 2012 Omnibus Long-Term Incentive Plan (“2012 Plan”). The purpose of the 2012 Plan is to assist us and our subsidiaries in attracting and retaining selected individuals who, serving as our employees, outside directors and consultants, are expected to contribute to our success and to achieve long-term objectives which will benefit our shareholders through the additional incentives inherent in the awards under the 2012 Plan. The maximum number of shares of common stock that are available for awards under the 2012 Plan is 1,000,000 shares issuable from the Company’s treasury stock.  Awards may be granted under the 2012 Plan to any employee, any non-employee member of the Company’s Board of Directors, and any consultant who is a natural person and provides services to us or one of our subsidiaries (except for incentive stock options which may be granted only to our employees).

On January 15, 2013, January 15, 2014, and January 15, 2015, the Company granted restricted shares from treasury in the amounts of 126,000,  127,200,  and 91,540,  respectively.  The restricted shares vest three years from the grant date, or upon death or disability, change in control, or retirement (subject to certain requirements). The restricted shares contain no other service or performance conditions.  Restricted stock is awarded in the name of the recipient and except for the right of disposal, constitutes

52


issued and outstanding shares of the Company’s common stock for all corporate purposes during the period of restriction including the right to receive dividends.  Compensation expense is a fixed amount based on the grant date closing price and is amortized over the vesting period.  Our unrecognized compensation expense as a result of non-vested shares at May 30, 2015 and May 31, 2014 was $5.6 million and $4.3 million, respectively.  The unrecognized compensation expense will be amortized to stock compensation expense over a period of 1.9 years.

The Company recognized stock based compensation expense (benefit) of $0$2.3 million for equity awards and $502$749,000 for liability awards in fiscal 2012.2015.  In fiscal 2011,2014 the Company recognized stock based compensation expense of $218$1.3 million for equity awards and ($370)$521,000 for liability awards. In fiscal 2010,2013, the Company recognized stock based compensation expense of $218$291,000 for equity awards and $1,968$312,000 for liability awards.

 

A summary of our equity award activity and related information for our stock options is as follows:

 

     Weighted   

 

 

 

 

 

 

 

 

 

 

 

 

   Weighted Average   

 

 

 

 

 

 

 

 

 

 

 

 

 Number Exercise Remaining Aggregate 

 

 

 

 

 

Weighted

 

 

 of Price Contractual Intrinsic 

 

 

 

Weighted

 

Average

 

 

 Options Per Share Life (in Years) Value 

 

Number

 

Exercise

 

Remaining

 

Aggregate

Outstanding, May 29, 2010  123,200  $5.34         

 

of

 

Price

 

Contractual

 

Intrinsic

 

Options

 

Per Share

 

Life (in Years)

 

Value

Outstanding, June 1, 2013

 

 

86,000 

 

$

2.97 

 

 

 

 

 

 

Granted  -   -         

 

 

 -

 

 

 -

 

 

 

 

 

 

Exercised  24,000   5.93         

 

 

(40,000)

 

 

2.97 

 

 

 

 

 

 

Forfeited  -   -         

 

 

 -

 

 

 -

 

 

 

 

 

 

Outstanding, May 28, 2011  99,200  $5.19         

Outstanding, May 31, 2014

 

 

46,000 

 

$

2.97 

 

 

 

 

 

 

Granted  -   -         

 

 

 -

 

 

 -

 

 

 

 

 

 

Exercised  56,200   4.63         

 

 

(46,000)

 

 

2.97 

 

 

 

 

 

 

Forfeited  -   -         

 

 

 -

 

 

 -

 

 

 

 

 

 

Outstanding, June 2, 2012  43,000  $5.93   3.21  $1,243 
Exercisable, June 2, 2012  43,000  $5.93   3.21  $1,243 

Outstanding, May 30, 2015

 

 

 -

 

$

 -

 

 

 -

 

$

 -

Exercisable, May 30, 2015

 

 

 -

 

$

 -

 

 

 -

 

$

 -

 

The intrinsic value of stock options exercised totaled $1,808, $604$1.6 million, $911,000, and $1,693zero in fiscal years 2012, 2011,2015, 2014, and 2010,2013, respectively.

 

A summary of our equity award activity and related information for our restricted stock is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted

 

 

Number

 

Average

 

 

of

 

Grant Date

 

 

Shares

 

Fair Value

Outstanding, June 1, 2013

 

 

126,000 

 

$

20.54 

Granted

 

 

127,200 

 

 

26.77 

Vested

 

 

(5,940)

 

 

22.85 

Forfeited

 

 

(2,060)

 

 

20.54 

Outstanding, May 31, 2014

 

 

245,200 

 

$

27.24 

Granted

 

 

91,540 

 

 

36.63 

Vested

 

 

(400)

 

 

23.65 

Forfeited

 

 

(1,200)

 

 

23.65 

Outstanding, May 30, 2015

 

 

335,140 

 

$

27.24 

53


A summary of our liability award activity and related information is as follows:

 

        Weighted    
     Weighted  Average    
  Number  Average  Remaining  Aggregate 
  Of  Strike Price  Contractual  Intrinsic 
  Rights  Per Right  Life (in Years)  Value 
Outstanding, May 29, 2010  157,350  $6.03         
Granted              
Exercised  84,675   5.97         
Forfeited              
Outstanding, May 28, 2011  72,675  $6.10         
Granted              
Exercised  41,075   5.93         
Forfeited              
Outstanding, June 2, 2012  31,600  $6.31   3.60  $902 
Exercisable, June 2, 2012  31,600  $6.31   3.60  $902 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

Number

 

Average

 

Remaining

 

Aggregate

 

 

Of

 

Strike Price

 

Contractual

 

Intrinsic

 

 

Rights

 

Per Right

 

Life (in Years)

 

Value

Outstanding, June 1, 2013

 

 

53,000 

 

$

3.19 

 

 

 

 

 

 

Granted

 

 

 -

 

 

 -

 

 

 

 

 

 

Exercised

 

 

(16,400)

 

 

2.97 

 

 

 

 

 

 

Forfeited

 

 

 -

 

 

 -

 

 

 

 

 

 

Outstanding, May 31, 2014

 

 

36,600 

 

$

3.29 

 

 

 

 

 

 

Granted

 

 

 -

 

 

 -

 

 

 

 

 

 

Exercised

 

 

(9,700)

 

 

2.97 

 

 

 

 

 

 

Forfeited

 

 

 -

 

 

 -

 

 

 

 

 

 

Outstanding, May 30, 2015

 

 

26,900 

 

$

3.40 

 

 

1.13 

 

$

1,414 

Exercisable, May 30, 2015

 

 

26,900 

 

$

3.40 

 

 

1.13 

 

$

1,414 

We determined that the fair value of our obligation related to unexercised liability awards as of June 2, 2012May 30, 2015 and May 28, 201131, 2014 was $866$1.4 million and $1,568,$1.1 million, respectively.  Total payments for liability awards exercised totaled $1,204, $2,023,$407,000, $373,000, and $1,968,$192,000 for fiscal 2012, 20112015, 2014 and 2010,2013, respectively.

 

The fair value of liability awards was estimated as of May 30, 2015, May 31, 2014, and June 2, 2012, May 28, 2011, and May 29, 20101, 2013, using a Black-Scholes option pricing model using the following weighted-average assumptions:

 

  June 2, 2012  May 28,2011  May 29,2010 
Risk-free interest rate  0.17%  0.18%  0.76%
Dividend yield  3.35%  4.39%  1.00%
Volatility factor of the expected            
market price of our stock  14.70%  16.25%  33.47%
Weighted-avg. expected life of the rights  1 yr.   1 yr.   1.5 yrs. 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

May 31, 2014

 

June 1, 2013

Risk-free interest rate

 

0.26%

 

0.10%

 

0.13%

Dividend yield

 

1.25%

 

1.66%

 

2.66%

Volatility factor of the expected market price of our stock

 

36.59%

 

37.36%

 

23.65%

Weighted-avg. expected life of the rights

 

1 yr.

 

1 yr.

 

1 yr.

 

11.

12.  Income Taxes

 

Income tax expense (benefit) consisted of the following: 

 

  Fiscal year ended 
  June 2  May 28  May 29 
  2012  2011  2010 
Current:            
Federal $37,770  $21,970  $30,765 
State  6,010   1,079   5,130 
   43,780   23,049   35,895 
Deferred:            
Federal  4,300   8,528   2,292 
State  1,030   1,826   (226)
   5,330   10,354   2,066 
  $49,110  $33,403  $37,961 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended

 

 

May 30

 

May 31

 

June 1

 

 

2015

 

2014

 

2013

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

70,900 

 

$

38,940 

 

$

28,144 

State

 

 

8,260 

 

 

5,470 

 

 

2,410 

 

 

 

79,160 

 

 

44,410 

 

 

30,554 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

4,503 

 

 

6,474 

 

 

(4,937)

State

 

 

605 

 

 

1,151 

 

 

(810)

 

 

 

5,108 

 

 

7,625 

 

 

(5,747)

 

 

$

84,268 

 

$

52,035 

 

$

24,807 

54


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 June 2 May 28 

 

May 30

 

May 31

 2012 2011 

 

2015

 

2014

Deferred tax liabilities:        

 

 

 

 

 

 

Property, plant and equipment $32,871  $31,691 

 

$

48,117 

 

$

41,393 
Cash basis temporary differences  981   1,144 

 

 

478 

 

 

637 
Inventories  27,383   26,788 

 

 

32,689 

 

 

34,163 
Investment in affiliates  6,501   4,535 

 

 

240 

 

 

487 

Other comprehensive income

 

 

238 

 

 

294 
Other  2,096   1,752 

 

 

3,379 

 

 

3,800 
Total deferred tax liabilities  69,832   65,910 

 

 

85,141 

 

 

80,774 
        

 

 

 

 

 

 

Deferred tax assets:        

 

 

 

 

 

 

Accrued expenses  2,353   3,311 

 

 

2,553 

 

 

3,122 
Other  3,459   3,909 

 

 

6,583 

 

 

6,699 
Other comprehensive loss  141   200 
Total deferred tax assets  5,953   7,420 

 

 

9,136 

 

 

9,821 
Net deferred tax liabilities $63,879  $58,490 

 

$

76,005 

 

$

70,953 

Effective May 29, 1988, the Company could no longer use cash basis accounting for its farming subsidiary because of tax law changes. The  Taxpayer Relief Act of 1997 provides that taxes on the cash basis temporary differences as of that date are generally payable over 20 years beginning in fiscal 1999 or in full in the first fiscal year in which there is a change in ownership control. The Company uses the farm-price method for valuing inventories for income tax purposes.

 

The differences between income tax expense (benefit) at the Company’s effective income tax rate and income tax expense (benefit) at the statutory federal income tax rate were as follows:

 

  Fiscal year end 
  June 2  May 28  May 29 
  2012  2011  2010 
          
Statutory federal income tax $48,595  $32,985  $37,024 
State income taxes, net  4,576   1,889   3,187 
Domestic manufacturers deduction  (3,596)  (2,371)  (2,017)
Tax exempt interest income  (267)  (220)  (265)
Other, net  (198)  1,120   32 
  $49,110  $33,403  $37,961 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fiscal year end

 

 

May 30

 

May 31

 

June 1

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

Statutory federal income tax

 

$

85,933 

 

$  

56,435 

 

$  

26,331 

State income taxes, net

 

 

5,762 

 

 

4,303 

 

 

1,040 

Domestic manufacturers deduction

 

 

(7,308)

 

 

(3,810)

 

 

(2,860)

Reversal of outside basis in equity investment-Delta Egg

 

 

 -

 

 

(3,295)

 

 

 -

Non-taxable remeasurement gain upon consolidation of Delta Egg

 

 

 -

 

 

(1,392)

 

 

 -

Tax exempt interest income

 

 

(184)

 

 

(143)

 

 

(76)

Other, net

 

 

65 

 

 

(63)

 

 

372 

 

 

$

84,268 

 

$

52,035 

 

$

24,807 

 

Federal and state income taxes of $27,585, $32,755,$75.5 million, $41.6 million,  and $28,344$42.7 million were paid in fiscal years 2012, 2011,2015, 2014, and 2010,2013, respectively. Federal and state income taxes of $510, $3,821,zero,  zero, and $13,963$12,000 were refunded in fiscal years 2012, 2011,2015, 2014, and 2010,2013, respectively.

 

We had no significant unrecognized tax benefits at June 2, 2012May 30, 2015 or at May 28, 2011.31, 2014. Accordingly, we do not have any accrued interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for all years after fiscal year 20072011 remain open to examination by the federal and state taxing jurisdictions to which we are subject.

12. Other Matters

55


 

The carrying amounts in the Consolidated Balance Sheet for cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values. The fair value of the Company’s long-term debt is estimated to be $79,845.  The fair value for long-term debt is estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rate.  

The Company’s interest expense is sensitive to changes in the general level of U.S. interest rates.  The Company maintains certain of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates.  Under its current policies, the Company does not use interest rate derivative instruments to manage its exposure to interest rate changes.  A one percent (1%) adverse move (i.e. decrease) in interest rates would adversely affect the net fair value of the Company’s debt by $2,708 at June 2, 2012.  The Company is a party to no other market risk sensitive instruments requiring disclosure.

13. Contingencies

Financial Instruments

The Company maintains standby letters of credit (“LOC”) with a bank totaling $5,086$3.7 million at June 2, 2012.May 30, 2015.  These LOCs are collateralized with cash. The cash that collateralizes the LOCs is included in the line item “Other assets” in the consolidated balance sheets.  The outstanding LOCs are for the benefit of certain insurance companies. None of the LOCs are recorded as a liability on the Consolidated Balance Sheets.

Litigation

The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions. In management’s opinion,The Company assesses the likelihood of material adverse judgments or outcomes to the extent losses are reasonably estimable.  If the assessment of a contingency indicates it is probable that a material adverse outcomeloss has been incurred and the amount of the liability can be reasonably estimated, the estimated liability is remoteaccrued in regards to all matters except the egg antitrust litigation.

Management believes thatCompany’s financial statements.  If the likelihood ofassessment indicates a potentially material adverse outcomeloss contingency is not probable, but is reasonably possible, inor is probable but cannot be estimated, then the egg antitrust litigation. Twonature of the defendants in the case have reached a settlement agreementcontingent liability, together with the plaintiffs, subject to court approval. Neither settlement agreement admits any liability on the partan estimate of the defendants. Since the inceptionrange of this litigation, the Company has denied the allegations of wrongdoing by the plaintiffspossible loss if determinable and has vigorously defended the case. The Company’s decision to defend was not altered by settlement by two of our co-defendants. The Company will continue to defend the case based on defenses, which we believe are meritorious and provable. At the present time, it is not possible to estimate the amount of monetary exposure, if any, to the Company because of this case.material, would be disclosed.

 

Accordingly, adjustments, if any, which might result from the resolution of these legal matters, have not been reflected in the financial statements. These legal actions are discussed below.

Chicken Litter Litigation

Cal-Maine Farms, Inc. is presently a defendant in two personal injury cases in the Circuit Court of Washington County, Arkansas. Those cases are styled,McWhorter vs. Alpharma, Inc.,et al., andCarroll,et al. vs. Alpharma, Inc.,et al. Cal-Maine Farms, Inc. was named as a defendant in theMcWhorter case on February 3, 2004. It was named as a defendant in theCarroll case on May 2, 2005. Co-defendants in both cases include other integrated poultry companies such as Tyson Foods, Inc., Cargill, Incorporated, George’s Farms, Inc., Peterson Farms, Inc., Simmons Foods, Inc., and Simmons Poultry Farms, Inc. The manufacturers of an additive for broiler feed are also included as defendants. Those defendants are Alpharma, Inc. and Alpharma Animal Health, Co.

Both cases allege that the plaintiffs have suffered medical problems resulting from living near land upon which “litter” from the defendants’ flocks was spread as fertilizer. TheMcWhorter case focuses on mold and fungi allegedly created by the application of litter, and seeks unspecified damages. TheCarroll case also alleges injury from mold and fungi, but focuses primarily on the broiler feed ingredient as the cause of the alleged medical injuries, and seeks unspecified damages. No trial date for either theCarroll orMcWhorter case has been set.

Several other separate, but related, cases were prosecuted in the same venue by the same attorneys. The same theories of liability were prosecuted in all of the cases. Neither the Company nor any of its affiliates were named as a defendant in any of those other cases. The plaintiffs selected one of those cases,Green,et al. vs. Alpharma, Inc.,et al., as a bellwether case to go to trial first. All of the poultry defendants were granted summary judgment in theGreen case in 2006. In 2008, however, the Arkansas Supreme Court reversed the summary judgment in favor of the poultry defendants and remanded the case for trial. The case was retried with a complete defendants’ verdict, and that verdict was upheld by the Arkansas Supreme Court. The court has scheduled a trial beginning October 22, 2012, in another of the related cases. However, the Company and its affiliates are not defendants in that case.

State of Oklahoma Watershed Pollution Litigation

 

On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma, against Cal-Maine Foods, Inc. and Cal-Maine Farms, Inc. as well asTyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and its affiliate, George’s, Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. Cal-Maine Farms, Inc. was dismissed from the case in September 2009. The State of Oklahoma claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma. The Complaintcomplaint seeks injunctive relief and monetary damages, but the claim for monetary damages has been dismissed by the court. Cal-Maine Foods, Inc. discontinued operations in the watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request for injunctive relief unless the court orders substantial affirmative remediation. Since the litigation began, Cal-Maine Foods, Inc. purchased 100% of the membership interests of Benton County Foods, LLC, which is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in the litigation.

 

The trial in the case began in September 2009 and concluded in February 2010. The case was tried to the court without a jury and the court has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.

 

Mississippi Wage and Hour Litigation

On August 9, 2010, a former Mississippi employee of Cal-Maine Farms, Inc., Sic Bynum, filed a wage and hour claim alleging that he was wrongfully denied overtime pay for work in excess of forty hours per week seeking recovery of overtime wages not paid, liquidated damages equal to overtime wages not paid, and attorney’s fees. The plaintiff requested that he be considered a representative employee and that the case be expanded to cover all similarly situated employees and former employees.

The case was filed in the Circuit Court of Simpson County, Mississippi but was removed to the U.S. District Court for the Southern District of Mississippi. The controlling statutory and regulatory framework of the Fair Labor Standards Act is that agricultural workers are not entitled to overtime pay.  On July 26, 2012, the court granted Cal-Maine Farms, Inc.’s Motion for Summary Judgment.  The plaintiff has thirty (30) days from the date of the Order to appeal.

Egg Antitrust Litigation

 

Since September 25, 2008, the Company has been named as one of several defendants in twenty-fivenumerous antitrust cases involving the United States shell egg industry.  In sixteensome of these cases, the named plaintiffs allege that they purchased eggs or egg products directly from a defendant and have sued on behalf of themselves and a putative class of others who claim to be similarly situated.  In fourteen of those putative class actions,other cases, the named plaintiffs allege that they are retailers or distributors that purchased shell eggs and egg products directly from one or more of the defendants.defendants but sue only for their own alleged damages and not on behalf of a putative class.  In the other two putative class actions,remaining cases, the named plaintiffs are individuals or companies who allege that they purchased shell eggs and egg products indirectly from one or more of the defendants - that is, they purchased from retailers that had previously purchased from defendants or other parties. In the remaining nine cases, the plaintiffsparties – and have sued for their own alleged damageson behalf of themselves and are not seekinga putative class of others who claim to certify a class.be similarly situated.

The Judicial Panel on Multidistrict Litigation consolidated all of the putative class actions (as well as certain other cases in which the Company was not a named defendant) for pretrial proceedings in the United States District Court for the Eastern District of Pennsylvania. The Pennsylvania court has organized the putative class actions around two groups (direct purchasers and indirect purchasers) and has named interim lead counsel for the named plaintiffs in each group.

 

Six of the nine non-class suits were filed in the same court that is presiding over theThe Direct Purchaser Putative Class Action. The direct purchaser putative class actions. Another of these non-class cases was filedwere consolidated into In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the WesternEastern District of Pennsylvania, but itPennsylvania.  On November 25, 2014, after approving the parties’ settlement of the case, the Court entered final judgment dismissing all claims against the Company with prejudice and dismissing the Company from this direct purchaser class action.  On

56


January 23, 2015, direct action plaintiffs Kraft Foods Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company filed a motion either to exclude themselves from the settlement between the direct purchaser plaintiffs and the Company or to enlarge their time to opt-out of the settlement between the direct purchaser plaintiffs and the Company and modify the final judgment entered on November 25, 2014.  On February 13, 2015, the Company filed its response in opposition.  On July 1, 2015, the Court held an evidentiary hearing on this motion.  The Court has been transferred to the Eastern District andnot ruled on this motion.

The Indirect Purchaser Putative Class Action.  The indirect purchaser putative class cases were consolidated for pretrial proceedings with the other cases. Another non-class suit was filed in the District Court of Wyandotte County, Kansas, where it remains pending.  The remaining non-class suit was filedinto In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the Northern District of Illinois, but the Judicial Panel on Multidistrict Litigation transferred that case to the Eastern District of Pennsylvania where it has been consolidated with the other cases pending in that court for coordinated pretrial proceedings.  The plaintiffs in two of the non-class suits originally filed in the Eastern District of Pennsylvania voluntarily dismissed their suits without prejudice, and there are thus now seven non-class suits pending.

The Direct Purchaser Putative Class Action.The named plaintiffs in the direct purchaser case filed a consolidated complaint on January 30, 2009. On April 30, 2009, the Company filed motions to dismiss the direct purchasers’ consolidated complaint. The direct purchaser plaintiffs did not respond to those motions. Instead, the direct purchaser plaintiffs announced a potential settlement with one defendant. The final hearing on approval of that settlement has been held, but the court has not yet ruled. If it is approved, the settlement would not require the settling party to pay any money. Instead, the settling defendant, while denying all liability, would provide cooperation in the form of documents and witness interviews to the plaintiffs’ attorneys. After announcing this potential settlement with one defendant, the direct purchaser plaintiffs filed an amended complaint on December 11, 2009. On February 5, 2010, the Company joined with other defendants in moving to dismiss the direct purchaser plaintiffs’ claims for damages outside the four-year statute of limitations period and claims arising from a supposed conspiracy in the egg products sector. On February 26, 2010, the Company filed its answer and affirmative defenses to the direct purchaser plaintiffs’ amended complaint.Pennsylvania.  The court deniedgranted with prejudice the defendants’ renewed motion to dismiss the claims related to the egg products sector.  The court granted the motion to dismiss plaintiffs’ claims for damages outside the four-year statute of limitations but did so without prejudice to the plaintiffs’ right to seek leave to further amend their complaint if they, in good faith, believe they can address the deficiencies noted by the court.  On June 4, 2010, the direct purchaser plaintiffs announced a potential settlement with a second defendant. The final hearing on approval of this settlement has also been held, but the court has not ruled. If this settlement is approved, then the defendant would pay a total of $25 million and would provide other consideration in the form of documents, witness interviews, and declarations. This settling defendant denied all liability in its potential agreement with the direct purchaser plaintiffs and stated publicly that it settled merely to avoid the cost and uncertainty of continued litigation. On January 30, 2012, the direct purchaser plaintiffs filed a motion for leave to file a third amended complaint. The Court has not yet ruled on the motion for leave.

The Indirect Purchaser Putative Class Action.The named plaintiffs in the indirect purchaser case filed a consolidated complaint on February 27, 2009. On April 30, 2009, the Company filed motions to dismiss the indirect purchasers’ consolidated complaint. The indirect purchaser plaintiffs did not respond to those motions. Instead, the indirect purchaser plaintiffs filed an amended complaint on April 8, 2010. On May 7, 2010, the Company joined with other defendants in moving to dismiss the indirect purchaser plaintiffs’ claims for damages outside the four-year statute of limitations period, claims arising from a supposed conspiracy in the egg products sector, claims arising under certain state antitrust and consumer fraud statutes, and common-law claims for unjust enrichment. The court granted the motion to dismiss claims arising outside the limitations period applicable to each causemost causes of action.  The court granted in part and denied in partOn April 20-21, 2015, the motion to dismiss claims arising under certain state antitrust and consumer fraud statutes and common-law claims for unjust enrichment.  The court denied without prejudice the motion to dismiss a claim for a supposedly separate conspiracy in the egg products sector.  On June 4, 2010, the Company filed its answer and affirmative defenses toCourt held an evidentiary hearing on the indirect purchaser plaintiffs’ amended complaint.motion for class certification.  The Court has not ruled on that motion.  On May 25, 2012,July 2, 2015, the Company filed and joined several motions for summary judgment that sought either dismissal of the entire case or, in the alternative, dismissal of portions of the case.  On July 2, 2015, the indirect purchaser plaintiffs filed a motionmotions for leave to file another amended complaint.  The courtsummary judgment seeking dismissal of certain affirmative defenses based on statutory immunities from federal and state antitrust laws.  Briefing on the parties’ respective motions for summary judgment will continue over the next two months, and the Court has not yet ruledindicated when it will rule on that motion.  On June 7, 2012, the court ordered the indirect purchasers to submit a brief addressing whether they have standing to assert an injunctive relief claim under federal law.these motions.

 

The Non-Class Cases. TheSix of the cases in which plaintiffs do not seek to certify a class were filed between November 16, 2010 and December 12, 2011. The plaintiffshave been consolidated with the putative class actions into In re: Processed Egg Products Antitrust Litigation,  No. 2:08-md-02002-GP, in the non-class cases pending inUnited States District Court for the Eastern District of Pennsylvania filed amended complaints on February 10, 2012.  On March 26, 2012,Pennsylvania.  The court granted with prejudice the Company joined other defendants in filing adefendants’ renewed motion to dismiss all claims barred by the statute of limitations.  On May 1, 2012, the non-class plaintiffs responded to that motion.  On May 22, 2012, the Company joined other defendants in filing a reply brief in support of that motion.  The court has not yet ruled on that motion.  The Company filed its answer and affirmative defenses to the six non-class cases pending in Pennsylvania on April 26, 2012.  

On January 27, 2012, the Company filed its answer and affirmative defenses to the non-class complaint in the case pending in Kansas state court, and the Company joined other defendants in the Kansas case in moving to dismiss allplaintiffs’ claims for damages arising outsidebefore September 24, 2004.  The parties have completed nearly all fact discovery related to these cases.  On July 2, 2015, the three-year statuteCompany filed and joined several motions for summary judgment that sought either dismissal of limitations period and all of the claims for damages arising from purchasesin all of eggs and egg products outside the state of Kansas.  The court took under advisement the limitations motion, pending a ruling in another case that will determine whether the limitations periodthese cases or, in the Kansas case will be three or five years.  The court reservedalternative, dismissal of portions of these cases.  On July 2, 2015, the non-class plaintiffs filed a motion for summary judgment seeking dismissal of certain affirmative defenses based on statutory immunities from federal antitrust law.  Briefing on the motion to dismiss claimsparties’ respective motions for damages arising from purchases of eggssummary judgment will continue over the next two months, and egg products outside the state of Kansas until discovery reveals which sales occurred within Kansas.  In reserving judgment, the court stated that only sales within Kansas would be relevant to any calculation of alleged damages.Court has not indicated when it will rule on these motions.

 

Allegations in Each Case.Case. In all of the cases described above, the plaintiffs allege that the Company and certain other large domestic egg producers conspired to reduce the domestic supply of eggs in a concerted effort to raise the price of eggs to artificially high levels.  In each case, plaintiffs allege that all defendants agreed to reduce the domestic supply of eggs byby: (a) agreeing to limit production; (b) manipulating egg exportsexports; and (b)(c) implementing industry-wide animal welfare guidelines that reduced the number of hens and eggs.

Both groups of

The named plaintiffs in the remaining indirect purchaser putative class actionsaction seek treble damages and injunctive relief on behalf of themselves and all other putative class members in the United States.  Both groups of namedAlthough plaintiffs in the putative class actions originally allegedallege a class period starting on January 1, 2000 and running “through the present.present,The court has now granted the defendants’ motion to dismissCourt ruled that the direct purchasers’ and the indirect purchasers’ claimsplaintiffs cannot recover damages allegedly incurred outside the state-specific statute of limitations period applicable to most causes of action asserted, with the precise damages period determined on a state-by-state and thus the putative class claims now only relate to a September 2004 to present class period.  The direct purchaser putative class action case alleges two separate sub-classes – one for direct purchasers of shell eggs and one for direct purchasers of egg products. The direct purchaser putative class action case seeks relief under the Sherman Act.claim-by-claim basis.  The indirect purchaser putative class action case seeks injunctive relief under the Sherman Act and thedamages under certain statutes and the common-law of various states and the District of Columbia.states.

 

SevenFive of the nineoriginal six non-class cases remain pending.pending against the Company.  In fivefour of the remaining non-class cases, the plaintiffs seek damages and injunctive relief under the Sherman Act.  In one of the other remaining non-class cases,case, the plaintiff seeks damages and injunctive relief under the Sherman Act and the Ohio antitrust act (known as the Valentine Act). In the other remaining non-class case, the plaintiffs seek damages and injunctive relief under the Kansas Restraint of Trade Act.

 

The Pennsylvania court has entered a series of orders related to case management, discovery, class certification, and scheduling.  The Pennsylvania court has not set a trial date for any of the Company’s remaining consolidated cases.  The Kansas state court has entered a schedule for discoverycases (non-class and dispositive motions.  The Kansas state court case is set for trial starting February 3, 2014.  indirect purchaser cases).

 

The Company intends to continue to defend thesethe remaining cases as vigorously as possible based on defenses which the Company believes are meritorious and provable.  While management believes that the likelihood of a material adverse outcome in the overall egg antitrust litigation has been significantly reduced as a result of the settlements described above, there is still a reasonable possibility of a material adverse outcome in the remaining egg antitrust litigation.  At the present time, however, it is not possible to estimate the amount of monetary exposure, if any, to the Company because of these cases.  Accordingly, adjustments, if any, which might result from the resolution of these remaining legal matters, have not been reflected in the financial statements.

 

57


Florida civil investigative demandCivil Investigative Demand

 

On November 4, 2008, the Company received an antitrust civil investigative demand from the Attorney General of the State of Florida. The demand seeks production of documents and responses to interrogatories relating to the production and sale of eggs and egg products. The Company is cooperating with this investigation and expectshas, on three occasions, entered into an agreement with the State of Florida tolling the statute of limitations applicable to provide responsive information.any supposed claims the State is investigating. No allegations of wrongdoing have been made against the Company in this matter.

 

Environmental information requestInformation Request

 

In July 2011, the Company received an information request (Request) from the United States Environmental Protection Agency (EPA)(“EPA”) pursuant to Section 308 of the Clean Water Act (Act)(“Act”). The Request stated that the information was sought by the EPA to investigate compliance with the Act and requested information pertaining to facilities involved in animal feeding operations, which are owned or operated by the Company or its affiliates.  On October 19, 2011, theThe Company timely responded to the Request by providing information on each of the subject facilities.  The EPA subsequently sent a notice of noncompliance (Notice)to the Company dated March 29, 2012 to the Company which involved allegations of potential non-compliance with the Request and/or the Act.  The Notice related only to the Company’s Edwards, Mississippi facility only.facility. The Company timely respondedpreviously announced a settlement with the EPA and the Mississippi Department of Environmental Quality related to the Noticenotice, and a Consent Decree memorializing the settlement was entered on May 2, 2012, which includedJune 30, 2015 in the submissionUnited States of additional informationAmerica and State of Mississippi, by and through the Mississippi Commission on Environmental Quality v. Cal-Maine Foods, Inc. Civil Action No. 3:15-cv-00278-HTW-LRA, in the U.S. District Court for the Southern District of Mississippi, Northern Division. The terms and conditions of the settlement related only to the EPA. SinceEdwards, Mississippi facility and are not expected to have a material impact to the dateCompany’s results of that response,operations. Management believes the risk of material loss related to non-settled matters relating to the 2011 notice to be remote.

Miscellaneous

In addition to the above, the Company has received no further correspondence fromis involved in various other claims and litigation incidental to its business. Although the EPA regardingoutcome of these matters cannot be determined with certainty, management, upon the Requestadvice 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 Notice andfinancial position.

At this time, it is not aware thatpossible for us to predict the EPA has undertaken, or intends to undertake, any formal enforcement action regarding these matters.ultimate outcome of the matters set forth above.

14.Description of Rights and Privileges of Capital Stock—Capital Structure Consists of Common Stock

14.   Description of Rights and Privileges of Capital Stock—Capital Structure Consists of Common Stock

 

The Company has two classes of capital stock: Common Stock and Class A Common Stock. Holders of shares of the Company’s capital stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Common Stock entitled to one vote and each share of Class A Common Stock entitled to ten votes. The Common Stock and Class A Common Stock have equal liquidation rights and the same dividend rights.  In the case of any stock dividend, holders of Common Stock are entitled to receive the same percentage dividend (payable only in shares of Common Stock) as the holders of Class A Common Stock receive (payable only in shares of Class A Common Stock). Upon liquidation, dissolution, or winding-up of the Company, the holders of Common Stock are entitled to share ratably with the holders of Class A Common Stock in all assets available for distribution after payment in full of creditors. The Class A Common Stock may only be issued to Fred R. Adams, Jr., the Company’s Founder and Chairman Emeritus, and members of his immediate family, as defined. In the event any share of Class A Common Stock, by operation of law or otherwise is, or shall be deemed to be owned by any person other than Mr. Adams or a member of his immediate family, the voting power of such stock will be reduced from ten votes per share to one vote per share. Also, shares of Class A Common Stock shall be automatically converted into Common Stock on a share per share basis in the event the beneficial or record ownership of any such share of Class A Common Stock is transferred to any person other than Mr. Adams or a member of his immediate family. Each share of Class A Common Stock is convertible, at the option of its holder, into one share of Common Stock at any time. The holders of Common Stock and Class A Common Stock are not entitled to preemptive or subscription rights. In any merger, consolidation or business combination, the consideration to be received per share by holders of Common Stock must be identical to that received by holders of Class A Common Stock, except that if any such transaction in which shares of Capital Stock are distributed, such shares may differ as to voting rights to the extent that voting rights now differ among the classes of capital stock. No class of capital stock may be combined or subdivided unless the other classes of capital stock are combined or subdivided in the same proportion. No dividend may be declared and paid on Class A Common Stock unless the dividend is payable only to the holders of Class A Common Stock and a dividend payable to Common Stock is declared and paid concurrently in respectconcur

On July 25, 2014, the Board of outstandingDirectors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to authorize an additional 60,000,000 shares of Common Stockcommon stock and an additional 2,400,000 shares of Class A common

58


stock.  The primary purpose of the amendment was to provide a sufficient number of authorized shares in order to effect a 2-for-1 stock split of the Company’s common stock and Class A common stock.  The amendment was approved by the Company’s stockholders at the Company’s annual meeting on October 3, 2014 and the Board of Directors approved the 2-for-1 stock split on the same numberday.  The new shares were distributed on October 31, 2014 to shareholders of sharesrecord at the close of Common Stock per outstanding share.business on October 17, 2014. 

 

63

Unless otherwise noted, all prior period share and per share information contained in this report was adjusted to reflect the effect of the stock split.

 

15.  Fair Value Measures

 

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 liabilitiesliabilities.

·

Level 2 - Quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active, or inputsInputs 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 liabilitiesliabilities.

 

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

Cash and cash equivalents:equivalents, accounts receivable, and accounts payable: 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. Except for the “Note payable-Texas Egg Products, LLC,” fairFair values for debt are based on quoted market prices or published forward interest rate curves. We believe that cost approximates fair value for the “Note payable-Texas Egg Products, LLC.”curves, which are level 2 inputs. Estimated fair values are management’s estimates;estimates, which is a level 3 input; however, when there is no readily available market data, the estimated fair values may not necessarily represent the amounts that could be realized in a current transaction, and the fair values could change significantly. ThereThe fair value of the Company’s debt is no readily available market data forsensitive to changes in the “Note payable-Texas Egg Products, LLC.”general level of U.S. interest rates.  The Company maintains all of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates.  Under its current policies, the Company does not use interest rate derivative instruments to manage its exposure to interest rate changes.  A one percent (1%) adverse move (i.e. decrease) in interest rates would adversely affect the net fair value of the Company’s debt by $1.0 million at May 30, 2015.  The fair value and carrying value of the Company’s long-term debt were as follows:follows (in thousands):

 

  June 2, 2012  May 28, 2011 
  Carrying Value  Fair Value  Carrying Value  Fair Value 
5.8 – 6.8% Notes payable $63,039  $66,388  $72,874  $74,280 
Series A Senior Secured Notes at 5.45%  12,629   12,905   14,735   14,634 
Note payable-Texas Egg Products, LLC (payable to non-affiliate equity members)*  552   552   552   552 
  $76,220  $79,845  $88,161  $89,466 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

May 31, 2014

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

2.00 – 6.80% Notes payable

$

44,549 

 

$

45,158 

 

$

52,676 

 

$

53,387 

Series A Senior Secured Notes at 5.45%

 

6,311 

 

 

6,312 

 

 

8,417 

 

 

8,396 

 

$

50,860 

 

$

51,470 

 

$

61,093 

 

$

61,783 

 

* -Cost approximates fair value for the Note payable – Texas Egg Products, LLC

59


Assets and Liabilities Measured at Fair Value on a Recurring Basis

AssetsIn accordance with the fair value hierarchy described above, the following table shows the fair value of our financial assets and liabilities that are required to be measured at fair value on a recurring basis consisted of the following types of instruments as of June 2, 2012:

  Fair Value Measurements at Reporting Date Using 
  Quoted Prices          
  in Active  Significant       
  Markets for  Other  Significant    
  Identical  Observable  Unobservable    
  Instruments  Inputs  Inputs  Total 
  (Level 1)  (Level 2)  (Level 3)  Balance 
Investment securities available-for-sale                
State municipal bonds $-  $104,866  $-  $104,866 
US government obligations  -   20,783   -   20,783 
Corporate bonds  -   16,244   -   16,244 
Certificates of deposit  -   11,514   -   11,514 
Government agency bonds  -   10,216   -   10,216 
                 
Total assets measured at fair value $-  $163,623  $-  $163,623 

Assets measured at fair value on a recurring basis consisted of the following types of instruments as of May 28, 2011:30, 2015 and May 31, 2014 (in thousands):

 

  Fair Value Measurements at Reporting Date Using 
  Quoted Prices          
  in Active  Significant       
  Markets for  Other  Significant    
  Identical  Observable  Unobservable    
  Instruments  Inputs  Inputs  Total 
  (Level 1)  (Level 2)  (Level 3)  Balance 
Investment securities available-for-sale                
State municipal bonds $-  $70,528  $-  $70,528 
US government obligations  -   15,207   -   15,207 
Corporate bonds  -   13,387   -   13,387 
Certificates of deposit  -   10,224   -   10,224 
Government agency bonds  -   8,904   -   8,904 
US treasury bills  -   500   -   500 
                 
Total assets measured at fair value $-  $118,750  $-  $118,750 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

May 30, 2015

   

 

Quoted Prices

 

 

 

 

 

 

   

 

in Active

 

Significant

 

 

 

 

   

 

Markets for

 

Other

 

Significant

 

 

   

 

Identical

 

Observable

 

Unobservable

 

 

   

 

Instruments

 

Inputs

 

Inputs

 

Total

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Balance

Assets

 

 

 

 

 

 

 

 

 

 

 

 

US government and agency obligations

 

$

 -

 

$

9,630 

 

$

 -

 

$

9,630 

Municipal bonds

 

 

 -

 

 

76,311 

 

 

 -

 

 

76,311 

Certificates of deposit

 

 

 -

 

 

2,002 

 

 

 -

 

 

2,002 

Commercial paper

 

 

 -

 

 

7,496 

 

 

 -

 

 

7,496 

Corporate bonds

 

 

 -

 

 

136,364 

 

 

 -

 

 

136,364 

Foreign government obligations

 

 

 -

 

 

1,045 

 

 

 -

 

 

1,045 

Asset backed securities

 

 

 -

 

 

14,352 

 

 

 -

 

 

14,352 

Mutual Funds

 

 

4,508 

 

 

 -

 

 

 -

 

 

4,508 

Commodity contracts

 

 

 -

 

 

82 

 

 

 -

 

 

82 

Total assets measured at fair value

 

$

4,508 

 

247,282 

 

$

 -

 

$  

251,790 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 -

 

 

 -

 

 

1,024 

 

 

1,024 

Total liabilities measured at fair value

 

$

 -

 

$

 -

 

$

1,024 

 

$

1,024 

 

Level 2:We classified our current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

May 31, 2014

   

 

Quoted Prices

 

 

 

 

 

 

   

 

in Active

 

Significant

 

 

 

 

   

 

Markets for

 

Other

 

Significant

 

 

   

 

Identical

 

Observable

 

Unobservable

 

 

   

 

Instruments

 

Inputs

 

Inputs

 

Total

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Balance

Assets

 

 

 

 

 

 

 

 

 

 

 

 

US government and agency obligations

 

$

 -

 

$

8,859 

 

$

 -

 

$

8,859 

Municipal bonds

 

 

 -

 

 

71,834 

 

 

 -

 

 

71,834 

Certificates of deposit

 

 

 -

 

 

351 

 

 

 -

 

 

351 

Commercial paper

 

 

 -

 

 

3,930 

 

 

 -

 

 

3,930 

Corporate bonds

 

 

 -

 

 

102,685 

 

 

 -

 

 

102,685 

Foreign government obligations

 

 

 -

 

 

1,066 

 

 

 -

 

 

1,066 

Variable rate demand notes

 

 

 -

 

 

2,000 

 

 

 -

 

 

2,000 

Mutual Funds

 

 

5,464 

 

 

 -

 

 

 -

 

 

5,464 

Commodity contracts

 

 

 -

 

 

1,255 

 

 

 -

 

 

1,255 

Total assets measured at fair value

 

$

5,464 

 

191,980 

 

$

 -

 

$  

197,444 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 -

 

 

 -

 

 

2,985 

 

 

2,985 

Total liabilities measured at fair value

 

$

 -

 

$

 -

 

$

2,985 

 

$

2,985 

Our investment securities – available-for-sale classified as level 2.   These securities2 consist of certificates of deposit, time deposits, United StatesU.S. government and agency obligations, government agency bonds, taxable municipal bonds,and tax exempt municipal bonds, zero coupon municipal bonds, and corporate bonds with maturities of three months or longer when purchased. We classified 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.

16.   Available-for-Sale Securities - Classified

60


The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with business acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation and are subject to recurring revaluations. The fair value of non-financial assets acquired is determined internally.  Our internal valuation methodology for non-financial assets takes into account the remaining estimated life of the assets acquired and what management believes is the market value for those assets.  Liabilities for contingent consideration (earn-outs) take into account commodity prices based on published forward commodity price curves, projected future egg prices as Current Assetsof the date of the estimate, and projected future cash flows expected to be received as a result of business acquisitions (Refer to Note 2 – Acquisitions). Given the unobservable nature of these inputs, they are deemed to be Level 3fair value measurements.  During fiscal 2015 we recognized a $239,000 loss resulting from the increase in fair value of the contingent consideration. In fiscal 2014 we recognized a $4.4 million loss.  Both the losses were recognized in earnings as an increase of selling, general, and administrative expenses.  Changes in the fair value of contingent consideration obligations for fiscal 2015 were as follows (in thousands):

 

  June 2, 2012 
     Gains in  Losses in    
     Accumulated  Accumulated    
     Other  Other  Estimated 
  Amortized  Comprehensive  Comprehensive  Fair 
  Cost  Income  Income  Value 
State municipal bonds $105,029  $-  $163  $104,866 
US government obligations  20,681   102   -   20,783 
Corporate bonds  16,405   -   161   16,244 
Certificates of deposit  11,591   -   77   11,514 
Government agency bonds  10,291   -   75   10,216 
Total available-for-sale securities $163,997  $102  $476  $163,623 

Year ended

May 30, 2015

Balance at beginning of year

$

2,985 

(Gains)/Losses recognized in earnings

239 

Payments

(2,200)

Balance at end of year

$

1,024 

 

  May 28, 2011 
     Gains in  Losses in    
     Accumulated  Accumulated    
     Other  Other  Estimated 
  Amortized  Comprehensive  Comprehensive  Fair 
  Cost  Income  Income  Value 
State municipal bonds $70,932  $-  $404  $70,528 
US government obligations  15,279   -   72   15,207 
Corporate bonds  13,367   20   -   13,387 
Certificates of deposit  10,156   68   -   10,224 
Government agency bonds  9,036   -   132   8,904 
US treasury bills  500   -   -   500 
Total available-for-sale securities $119,270  $88  $608  $118,750 

61


16.   Investment Securities

Investment securities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

May 30, 2015

 

 

Gains in

Losses in

 

 

 

Accumulated

Accumulated

Estimated

 

Amortized

Other

Other

Fair

 

Cost

Comprehensive

Comprehensive

Value

 

 

Income

Income

 

US government and agency obligations

$                9,609 

$                     21 

$                       - 

$                9,630 

Municipal bonds

76,225 
83 

 -

76,308 

Certificates of deposit

2,001 

 -

2,002 

Commercial paper

7,491 

 -

7,496 

Corporate bonds

136,411 

 -

47 
136,364 

Foreign government obligations

1,042 

 -

1,045 

Asset backed securities

14,356 

 -

14,352 

Mutual funds

2,761 

 -

2,764 

Total current investment securities

$            249,896 

$                   116 

$                     51 

$            249,961 

 

 

 

 

 

Mutual funds

1,199 
548 

 -

1,747 

Total noncurrent investment securities

$                1,199 

$                   548 

$                       - 

$                1,747 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2014

 

 

Gains in

Losses in

 

 

 

Accumulated

Accumulated

Estimated

 

Amortized

Other

Other

Fair

 

Cost

Comprehensive

Comprehensive

Value

 

 

Income

Income

 

US government and agency obligations

$                8,847 

$                     12 

$                       - 

$                8,859 

Municipal bonds

71,659 
175 

 -

71,834 

Certificates of deposit

350 

 -

351 

Commercial paper

3,927 

 -

3,930 

Corporate bonds

102,587 
98 

 -

102,685 

Foreign government obligations

1,064 

 -

1,066 

Variable rate demand notes

2,000 

 -

 -

2,000 

Mutual funds

4,000 
13 

 -

4,013 

Total current investment securities

$            194,434 

$                   304 

$                       - 

$            194,738 

 

 

 

 

 

Mutual funds

999 
452 

 -

1,451 

Total noncurrent investment securities

$                   999 

$                   452 

$                       - 

$                1,451 

 

Proceeds from the sales of available-for-sale securities were $115,796$146.8 million, $108.1 million, and $114,338$188.1 million during fiscal 20122015, 2014,  and 2011,2013, respectively. Gross realized gains on those sales during 2012fiscal 2015, 2014, and 20112013 were $24$82,000, $8,000, and $0,$24,000, respectively. Gross realized losses on those sales during 2012fiscal 2015, 2014, and 20112013 were $825$7,000, $2,000, and $248,$676,000, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on average cost.the specific identification method. Unrealized holding gains (losses) net of tax on available-for-sale securities classified as current in the amount of $98$(149,000), $149,000, and ($320)$256,000 for the years ended May 30, 2015, May 31, 2014, and June 2, 2012 and May 28, 2011,1, 2013, respectively, have been included in accumulated other comprehensive income (loss).  Unrealized holding gains net of tax on long term available-for-sale securities in the amount of $59,000 and $90,000 for the years ended May 30, 2015 and May 31, 2014 have been included in other comprehensive income (loss).

62


 

Contractual maturities of available-for-sale debtinvestment securities at June 2, 2012,May 30, 2015, are as follows:follows (in thousands):

 

  Estimated Fair Value 
Within one year $90,171 
After 1-5 years  61,938 
After 5-10 years  - 
     
  $152,109 

Estimated Fair Value

Within one year       

$                  129,297

1-3 years

117,900 

$                  247,197

 

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.

 

66

17.   Quarterly Financial Data:  (unaudited, amount in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fiscal Year 2012 

Fiscal Year 2015

 First Second Third Fourth 

 

First

 

Second

 

Third

 

Fourth

 Quarter Quarter Quarter Quarter 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

Net sales $243,842  $290,369  $303,660  $275,245 

$

356,944 

$

378,617 

$

437,556 

$

403,011 
Gross profit  33,786   61,492   65,149   41,355 

 

81,101 

 

92,709 

 

112,517 

 

109,394 
Net income attributable to Cal-Maine Foods, Inc.  3,117   23,260   26,102   37,256 

 

27,655 

 

36,603 

 

50,882 

 

46,114 
Net income per share:                

 

 

 

 

 

 

 

 

Basic $0.13  $0.97  $1.09  $1.57 

$

0.57 

$

0.76 

$

1.06 

$

0.96 
Diluted $0.13  $0.97  $1.09  $1.56 

$

0.57 

$

0.76 

$

1.05 

$

0.95 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fiscal Year 2011 

Fiscal Year 2014

 First Second Third Fourth 

 

First

 

Second

 

Third

 

Fourth

 Quarter Quarter Quarter Quarter 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

Net sales $190,403  $234,523  $274,674  $242,381 

$

319,528 

$

354,275 

$

395,522 

$

371,582 
Gross profit  32,736   45,215   65,580   41,400 

 

44,911 

 

74,667 

 

91,895 

 

91,291 
Net income attributable to Cal-Maine Foods, Inc.  4,763   15,186   33,619   7,271 

 

8,756 

 

26,106 

 

42,853 

 

31,492 
Net income per share:                

 

 

 

 

 

 

 

 

Basic $0.20  $0.64  $1.41  $0.30 

$

0.18 

$

0.54 

$

0.89 

$

0.66 
Diluted $0.20  $0.63  $1.40  $0.30 

$

0.18 

$

0.54 

$

0.89 

$

0.65 

 

18. Distribution from Unconsolidated SubsidiaryDerivative Financial Instruments

 

In April 2012 Eggland’s Best, Inc. (“EB”) entered into a joint venture with Land O’Lakes, Inc. (“LOL”) whereby EB contributed substantially allThe Company holds commodity futures contracts in the form of call options, the cost of which is paid for by customers, to protect against increases in the price of corn and soybean meal purchases required to support that portion of its assets and business intoshell egg production sold on a new limited liability company, Eggland’s Best, LLC (“LLC”),cost of production formula.  The contracts are generally for durations of less than six months.  The Company elected to mark the unrealized changes in which LOL purchased a 50% ownership interest for approximately $126,131 (the “Purchase Price”) andderivative instrument fair value to market; however, the licensenet realized cost of the LOL trademarksthese contracts is paid by customers, so there is no net impact to the LLC.Company’s Consolidated Statement of Income.  The intentionfair value of this joint ventureall derivative instruments outstanding is to combine the operations of EB’s and LOL’s specialty shell egg business in order to market and sell both EB’s and LOL’s specialty shell eggs.  EB distributed the proceeds from LOL to the EB members pursuant to EB’s articles of incorporation and bylaws on a patronage basis, subject to EB retaining funds to pay transaction costs.  

In the fourth fiscal quarter of 2012, Cal-Maine received $38,343 in proceeds from the above described transaction and Specialty Eggs, LLC (50% equity method investee of Cal-Maine) received $8,851.  For cash flow statement purposes, we evaluated the specific distribution to Cal-Maine on a stand-alone basis to determine the appropriate classification of the proceeds.  Since the entire proceeds effectively represent the sale of a 50% interest in the assets and business of EB, the entire amount was reported as an investing cash flow for fiscal 2012.

Since we account for our investment in EB under the cost method, the specific distribution to Cal-Maine was recorded as income in the fourth quarter of fiscal 2012.  In accordance with the equity method, we recorded 50% of the distribution to Specialty Egg, LLCincluded as a component of equity in income of affiliates.“Prepaid Expenses and Other Current Assets” on the Consolidated Balance Sheets as follows (in thousands):

 

 

 

 

Contracts outstanding at period end

Commodity

Units

Fair Value

Corn

3,410 

bushels

$
57 

Soybean meal

36 

tons

$
26 

 

19. Subsequent Event - Purchase of Assets

 

On July 18, 2012, the Company announced that it reached an agreement to acquire the commercial egg operations

63


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Years ended May 30, 2015, May 31, 2014, and June 2, 2012, May 28, 2011, and May 29, 20101, 2013

(in thousands)

 

  Balance at  Charged to     Balance at 
  Beginning of  Cost  and  Write-off  End of 
Description Period  Expense  of Accounts  Period 
             
Year ended June 2, 2012                
Allowance for doubtful accounts $686  $849  $946  $589 
                 
Year ended May 28, 2011                
Allowance for doubtful accounts $595  $967  $876  $686 
                 
Year ended May 29, 2010                
Allowance for doubtful accounts $394  $921  $720  $595 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Charged to

 

 

 

Balance at

 

 

Beginning of

 

Cost  and

 

Write-off

 

End of

Description

 

Period

 

Expense

 

of Accounts

 

Period

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended May 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

430 

 

$

432 

 

$

349 

 

$

513 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended May 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

771 

 

$

(323)

 

$

18 

 

$

430 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

589 

 

$

1,410 

 

$

1,228 

 

$

771 

64


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer and Chief Financial Officer, together with other financial officers, such officers concluded that our disclosure controls and procedures were effective as of June 2, 2012May 30, 2015 at the reasonable assurance level.

 

Internal Control Over Financial Reporting

 

(a)Management’s Report on Internal Control Over Financial Reporting

(a)Management’s Report on Internal Control Over Financial Reporting

 

The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308 of the Securities and Exchange Commission’s Regulation S-K, the report of management on our internal control over financial reporting.

 

1.Our management is responsible for establishing and maintaining adequate internal control over financial reporting. “Internal control over financial reporting” is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, together with other financial officers, and effected by our Board of Directors, management and other personnel, 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 and includes those policies and procedures that:

 

·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

2.Our management, in accordance with Rule 13a-15(c) under the Exchange Act and with the participation of our Chief Executive Officer and Chief Financial Officer, together with other financial officers, evaluated the effectiveness of our internal control over financial reporting as of June 2, 2012.May 30, 2015.  The framework on which management’s evaluation of our internal control over financial reporting is based is the “Internal Control – Integrated Framework”published in 19922013 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.

 

3.Management has determined that our internal control over financial reporting as of June 2, 2012May 30, 2015 is effective. It is noted that internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives, but rather reasonable assurance of achieving such objectives.

4.The attestation report of FROST, PLLC on our internal control over financial reporting, which includes that firm’s opinion on the effectiveness of our internal control over financial reporting, is set forth below.

 

(b)AttestationReport of the Registrant’s Public Accounting Firm

(b)AttestationReport of the Registrant’s Public Accounting Firm

65


 

Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting

 

Board of Directors and Stockholders

Cal-Maine Foods, Inc. and Subsidiaries

Jackson, Mississippi

 

We have audited Cal-Maine Foods, Inc. and Subsidiaries’ internal control over financial reporting as of June 2, 2012,May 30, 2015, based on criteria established in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Cal-Maine Foods, Inc. and SubsidiariesSubsidiaries’ 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 in Item 9A.  Our responsibility is to express an opinion on the Company’sentity’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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe our audit provides a reasonable basis for our opinion.

 

A company’sAn entity’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 accounting principles generally accepted accounting principles.  A company’sin the United States of America.  An entity’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;entity; (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 Companyentity are being made only in accordance with authorizations of management and directors of the Company;entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sentity’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, Cal-Maine Foods, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 2, 2012,May 30, 2015, based on criteria established in 2013 Internal Control-Integrated Frameworkissued by the COSO. 

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsheets and the related consolidated statements of income, comprehensive income, (loss), stockholders’ equity and cash flows of Cal-Maine Foods, Inc. and Subsidiaries, and our report dated August 6, 2012July 17, 2015, expressed an unqualified opinion.

 

/S/ FROST, PLLC

/s/Frost, PLLC

 

Little Rock, Arkansas

August 6, 2012July 17, 2015

66

 

(c)Changes in Internal Control Over Financial Reporting

 (c)Changes in Internal Control Over Financial Reporting

 

In connection with its evaluation of the effectiveness, as of June 2, 2012,May 30, 2015, of our internal control over financial reporting, management determined that there was no change in our internal control over financial reporting that occurred during the fourth quarter ended June 2, 2012,May 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.      OTHER INFORMATION

                    

Not applicable.

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Except as set forth below, the information concerning directors, executive officers and corporate governance is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 20122015 Annual Meeting of Shareholders.

 

We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees, including the chief executive and principal financial and accounting officers of the Company. We will provide a copy of the code free of charge to any person that requests a copy by writing to:

 

Cal-Maine Foods, Inc.

P.O. Box 2960

Jackson, Mississippi 39207

Attn.:  Investor Relations

 

Requests can be made by phone at (601) 948-6813

 

A copy is also available at our websitewww.calmainefoods.com. www.calmainefoods.com.  We intend to disclose any amendments to, or waivers from, the Code of Conduct and Ethics for Directors, Officers and Employees on our website promptly following the date of any such amendment or waiver.  Information contained on our website is not a part of this report.

 

ITEM 11.  EXECUTIVE COMPENSATION

 

The information concerning executive compensation is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 20122015 Annual Meeting of Shareholders.

 

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER   MATTERS

 

The information concerning security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 20122015 Annual Meeting of Shareholders.

 

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information concerning certain relationships and related transactions, and director independence is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 20122015 Annual Meeting of Shareholders.

 

67


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information concerning principal accounting fees and services is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 20122015 Annual Meeting of Shareholders.

68


PART IV

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1)Financial Statements

(a)(1)Financial Statements

 

The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item 8 and are filed herewith:

 

 

 All other schedules are omitted either because they are not applicable or required, or because the required information is included in the financial statements or notes thereto.

 

(a)(3)Exhibits Required by Item 601 of Regulation S-K

 

See Part (b) of this Item 15.

 

(b)     Exhibits Required by Item 601 of Regulation S-K

 

The following exhibits are filed herewith or incorporated by reference:

69


Exhibit
Number

Exhibit

3.1

Amended and Restated

Exhibit Number

Exhibit

3.1

Composite Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 in the Registrant’s Form S-1 Registration Statement No. 333-14809,10-Q for the quarter ended November 29, 2014, filed October 25, 1996)December 29, 2014).

3.1(a)

3.2

Amendment to Article 4 of the Certificate of Incorporation

Composite Bylaws of the Registrant (incorporated by reference to Exhibit 3.1(a) in the Registrant’s Form 10-K for the fiscal year ended May 29, 2004, filed August 18, 2004).

3.2By-Laws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 in the Registrant’s Form 8-K, filed August 17, 2007).
3.2(a)Amendment of Bylaws of the Registrant, approved by the Board of Directors July 27, 2012 (incorporated by reference to Exhibit 3.1 in the Registrant’s Form 8-K, filed July 30, 2012).
Exhibit
Number
Exhibit
10.1Amended and Restated Term Loan Agreement, dated as of May 29, 1990, between the Registrant and Cooperative Centrale Raiffeisen - Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, and Amended and Restated Revolving Credit Agreement among the Registrant, and Barclays Banks PLD (New York) and Cooperatieve Centrale Raiffeisen-Borenleenbank B.A., dated as of  May 29, 1990, and amendments thereto (incorporated by reference to Exhibit 10.1 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
10.1(a)Amendment to Term Loan Agreement dated as of June 3, 1997 (incorporated by reference to Exhibit 10.1(a) in the Registrant’s Form 10-K for fiscal year ended May 31, 1997, filed August 26, 1997).
10.1(b)Amendment to Term Loan Agreement dated as of April 14, 2004 (incorporated by reference to Exhibit 10.1(b) in the Registrant’s Form 10-K for fiscal year ended May 29, 2004, filed August 18, 2004).
10.1(c)Amendment to Term Loan Agreement dated as of April 14, 2004 (incorporated by reference to Exhibit 10.1(c) in the Registrant’s Form 10-K for fiscal year ended May 29, 2004, filed August 18, 2004).
10.1(d)Amendment to Term Loan Agreement dated as of August 6, 2004 (incorporated by reference to Exhibit 10.1(d) in the Registrant’s Form 10-K for fiscal year ended May 28, 2005, filed August 11, 2005).
10.1(e)Amendment to Term Loan Agreement dated as of March 15, 2005 (incorporated by reference to Exhibit 10.1(e) in the Registrant’s Form 10-K for fiscal year ended May 28, 2005, filed August 11, 2005).
10.1(f)Amendment to Term Loan Agreement dated as of October 13, 2005 (incorporated by reference to Exhibit 10.1(f) in the Registrant’s Form 10-K for fiscal year ended June 3, 2006, filed August 17, 2006).
10.1(g)Second Amendment and Restated [through Ninth Amendment] Revolving Credit Agreement dated as of February 6, 2002, among the Registrant and First South, Rabobank and Harris (incorporated by reference to the Exhibit 10.2(b) in the Registrant’s Form 8-K, filed March 15, 2007).
10.1(h)Tenth Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of March 15, 2007, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.2(a) in the Registrant’s Form 8-K, filed March 15, 2007).
10.1(i) Eleventh Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of November 30, 2007, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.2(c) in the Registrant’s Form 10-Q for the quarter ended December 1, 2007,March 2, 2013, filed January 4, 2008)April 5, 2013).

10.1(j)

10.1*

Twelfth Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of January 30, 2008, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.1(j) in the Registrant’s Form 10-K for the year ended May 31, 2008, filed August 5, 2008).
10.2*

Wage Continuation Plan, dated as of July 1, 1986, between Jack Self and the Registrant, as amended on September 2, 1994 (incorporated by reference to Exhibit 10.7 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).

10.3*

10.2*

Wage Continuation Plan, dated as of April 15, 1988, between Joe Wyatt and the Registrant (incorporated by reference to Exhibit 10.8 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).

10.4*

10.3*

Redemption Agreement, dated March 7, 1994, between the Registrant and Fred R. Adams, Jr. (incorporated by reference to Exhibit 10.9 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).

10.5*

10.4*

Wage Continuation Plan, dated as of January 14, 1999, among Stephen Storm, Charles F. Collins, Bob Scott and the Registrant (incorporated by reference to Exhibit 10.11 in the Registrant’s Form 10-K for fiscal year ended May 29, 1999, filed August 25, 1999).

10.6*

10.5*

2005 Incentive Stock Option Plan (incorporated by reference to Appendix B to the Registrant’s Proxy Statement for the Annual Meeting held October 13, 2005, filed September 9, 2005).

10.7*

10.6*

2005 Stock Appreciation Rights Plan (incorporated by reference to Appendix C to the Registrant’s Proxy Statement for the Annual Meeting held October 13, 2005, filed September 9, 2005).

10.8*

10.7*

Deferred Compensation Plan, dated December 28, 2006 (incorporated by reference to Exhibit 10.15 in the Registrant’s Form 8-K, filed January 4, 2007).

10.9  

10.8  

Loan Agreement, dated as of November 13, 2006, between Metropolitan Life Insurance Company and the Registrant (incorporated by reference to Exhibit 10.15 in the Registrant’s Form 10-Q for the quarter ended December 2, 2006, filed January 9, 2007).

10.10   

10.9   

Loan Agreement, dated as of November 12, 2009, between the Registrant and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.3(e) in the Registrant’s Form 8-K, filed November 17, 2009).

10.11*

10.10*

Cal-Maine Foods, Inc. KSOP, as amended and restated, effective April 1, 2012 (incorporated by reference to Exhibit 4.4 in the Registrant’s Form S-8, filed March 30, 2012).

10.12*

10.11*

Cal-Maine Foods, Inc. KSOP Trust, as amended and restated, effective April 1, 2012 (incorporated by reference to Exhibit 4.5 in the Registrant’s Form S-8, filed March 30, 2012).

Exhibit
Number
Exhibit

10.12*

2012 Omnibus Long-Term Incentive Plan (incorporated by reference to Appendix B to the Registrant’s Proxy Statement for the Annual Meeting held October 5, 2012, filed September 6, 2012).

10.13*

Form of Restricted Stock Agreement for 2012 Omnibus Long-Term Incentive Plan

21**

Subsidiaries of the Registrant

23.1**

Consent of FROST, PLLC

31.1**

Rule 13a-14(a) Certification of Chief Executive Officer

31.2** 

Rule 13a-14(a) Certification of Chief Financial Officer

32***

Section 1350 Certifications of the Chief Executive Officer and the Chief Financial Officer

99.1

Press release dated July 30, 201220, 2015 announcing interim and annual financial information (incorporated by reference to Exhibit 99.1 in the Company’s Form 8-K, filed July 30, 2012)20, 2015).

101.INS***+

XBRL Instance Document Exhibit

101.SCH***+

XBRL Taxonomy Extension Schema Document Exhibit

101.CAL***+

XBRL Taxonomy Extension Calculation Linkbase Document Exhibit

101.DEF***+

XBRL Taxonomy Extension Definition Linkbase Document Exhibit

101.LAB***+

XBRL Taxonomy Extension Label Linkbase Document Exhibit

101.PRE***+

XBRL Taxonomy Extension Presentation Linkbase Document

 

*Management contract or compensatory plan or arrangement
**Filed herewith as an Exhibit
***Furnished herewith as an Exhibit
+Submitted electronically with this Annual Report on Form 10-K

*Management contract or compensatory plan or arrangement

**Filed herewith as an Exhibit

***Furnished herewith as an Exhibit

+Submitted electronically with this Annual Report on Form 10-K

 

The Company has not filed instruments with respect to long-term debt where the total amount of securities authorized thereunder does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis.  The Company agrees to file withfurnish to the Securities and Exchange Commission, upon request, copies of any such instrument.

70


(c)Financial Statement Schedules Required by Regulation S-X

 

The financial statement schedule required by Regulation S-X is filed at page 70.78. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

 

76

71

 


SIGNATURES

 

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, in Jackson, Mississippi, on this  6th20thday of August 2012.July 2015.

 

CAL-MAINE FOODS, INC.

CAL-MAINE FOODS, INC.

/s/ Adolphus B. Baker

Adolphus B. Baker

President, Chief

Executive Officer and
Chairman of the Board

 

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 on the dates indicated:

 

Signature

Title

Date

Signature

Title

Date

/s/  Adolphus B. Baker

President, Chief Executive

August 6, 2012

July 20, 2015

Adolphus B. Baker

Officer and Chairman of the Board

(Principal Executive Officer)

/s/  Timothy A. Dawson

Vice President, Chief Financial

August 6, 2012

July 20, 2015

Timothy A. Dawson

Officer and Director

(Principal Financial Officer)

/s/  Charles F. CollinsMichael D. Castleberry

Vice President, Controller

August 6, 2012

July 20, 2015

Charles F. Collins

Michael D. Castleberry

(Principal Accounting Officer)

/s/  Sherman Miller

Vice President, Chief Operating

August 6, 2012

July 20, 2015

Sherman Miller

Officer and Director

/s/  Letitia C. Hughes

Director

August 6, 2012

July 20, 2015

Letitia C. Hughes

/s/  James E. Poole

Director

August 6, 2012

July 20, 2015

James E. Poole

/s/  Steve W. Sanders

Director

August 6, 2012

July 20, 2015

Steve W. Sanders

CAL-MAINE FOODS, INC.

Form 10-K for the fiscal year

Ended June 2, 2012

EXHIBIT INDEX

 

Exhibit
Number
Exhibit

3.1Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
3.1(a)Amendment to Article 4 of the Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1(a) in the Registrant’s Form 10-K for the fiscal year ended May 29, 2004, filed August 18, 2004).
3.2By-Laws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 in the Registrant’s Form 8-K, filed August 17, 2007).
3.2(a)Amendment of Bylaws of the Registrant, approved by the Board of Directors July 27, 2012 (incorporated by reference to Exhibit 3.1 in the Registrant’s Form 8-K, filed July 30, 2012).
10.1Amended and Restated Term Loan Agreement, dated as of May 29, 1990, between the Registrant and Cooperative Centrale Raiffeisen - Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, and Amended and Restated Revolving Credit Agreement among the Registrant, and Barclays Banks PLD (New York) and Cooperatieve Centrale Raiffeisen-Borenleenbank B.A., dated as of  May 29, 1990, and amendments thereto (incorporated by reference to Exhibit 10.1 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
10.1(a)Amendment to Term Loan Agreement dated as of June 3, 1997 (incorporated by reference to Exhibit 10.1(a) in the Registrant’s Form 10-K for fiscal year ended May 31, 1997, filed August 26, 1997).
10.1(b)Amendment to Term Loan Agreement dated as of April 14, 2004 (incorporated by reference to Exhibit 10.1(b) in the Registrant’s Form 10-K for fiscal year ended May 29, 2004, filed August 18, 2004).
10.1(c)Amendment to Term Loan Agreement dated as of April 14, 2004 (incorporated by reference to Exhibit 10.1(c) in the Registrant’s Form 10-K for fiscal year ended May 29, 2004, filed August 18, 2004).
10.1(d)Amendment to Term Loan Agreement dated as of August 6, 2004 (incorporated by reference to Exhibit 10.1(d) in the Registrant’s Form 10-K for fiscal year ended May 28, 2005, filed August 11, 2005).
10.1(e)Amendment to Term Loan Agreement dated as of March 15, 2005 (incorporated by reference to Exhibit 10.1(e) in the Registrant’s Form 10-K for fiscal year ended May 28, 2005, filed August 11, 2005).
10.1(f)Amendment to Term Loan Agreement dated as of October 13, 2005 (incorporated by reference to Exhibit 10.1(f) in the Registrant’s Form 10-K for fiscal year ended June 3, 2006, filed August 17, 2006).
10.1(g)Second Amendment and Restated [through Ninth Amendment] Revolving Credit Agreement dated as of February 6, 2002, among the Registrant and First South, Rabobank and Harris (incorporated by reference to the Exhibit 10.2(b) in the Registrant’s Form 8-K, filed March 15, 2007).
10.1(h)Tenth Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of March 15, 2007, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.2(a) in the Registrant’s Form 8-K, filed March 15, 2007).
10.1(i) Eleventh Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of November 30, 2007, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.2(c) in the Registrant’s Form 10-Q for the quarter ended December 1, 2007, filed January 4, 2008).
10.1(j)Twelfth Amendment to Second Amendment and Restated Revolving Credit Agreement, dated as of January 30, 2008, among the Registrant and First South, Rabobank and Harris (incorporated by reference to Exhibit 10.1(j) in the Registrant’s Form 10-K for the year ended May 31, 2008, filed August 5, 2008).
10.2*Wage Continuation Plan, dated as of July 1, 1986, between Jack Self and the Registrant, as amended on September 2, 1994 (incorporated by reference to Exhibit 10.7 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
10.3*Wage Continuation Plan, dated as of April 15, 1988, between Joe Wyatt and the Registrant (incorporated by reference to Exhibit 10.8 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
10.4*Redemption Agreement, dated March 7, 1994, between the Registrant and Fred R. Adams, Jr. (incorporated by reference to Exhibit 10.9 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October 25, 1996).
10.5*Wage Continuation Plan, dated as of January 14, 1999, among Stephen Storm, Charles F. Collins, Bob Scott and the Registrant (incorporated by reference to Exhibit 10.11 in the Registrant’s Form 10-K for fiscal year ended May 29, 1999, filed August 25, 1999).
10.6*2005 Incentive Stock Option Plan (incorporated by reference to Appendix B to the Registrant’s Proxy Statement for the Annual Meeting held October 13, 2005, filed September 9, 2005).
Exhibit
Number
Exhibit
10.7*2005 Stock Appreciation Rights Plan (incorporated by reference to Appendix C to the Registrant’s Proxy Statement for the Annual Meeting held October 13, 2005, filed September 9, 2005).
10.8*Deferred Compensation Plan, dated December 28, 2006 (incorporated by reference to Exhibit 10.15 in the Registrant’s Form 8-K, filed January 4, 2007).
10.9  Loan Agreement, dated as of November 13, 2006, between Metropolitan Life Insurance Company and the Registrant (incorporated by reference to Exhibit 10.15 in the Registrant’s Form 10-Q for the quarter ended December 2, 2006, filed January 9, 2007).
10.10   Loan Agreement, dated as of November 12, 2009, between the Registrant and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.3(e) in the Registrant’s Form 8-K, filed November 17, 2009).
10.11*Cal-Maine Foods, Inc. KSOP, as amended and restated, effective April 1, 2012 (incorporated by reference to Exhibit 4.4 in the Registrant’s Form S-8, filed March 30, 2012).
10.12*Cal-Maine Foods, Inc. KSOP Trust, as amended and restated, effective April 1, 2012 (incorporated by reference to Exhibit 4.5 in the Registrant’s Form S-8, filed March 30, 2012).
21**Subsidiaries of the Registrant
23.1**Consent of FROST, PLLC
31.1**Rule 13a-14(a) Certification of Chief Executive Officer
31.2** Rule 13a-14(a) Certification of Chief Financial Officer
32***Section 1350 Certifications of the Chief Executive Officer and the Chief Financial Officer
99.1Press release dated July 30, 2012 announcing interim and annual financial information (incorporated by reference to Exhibit 99.1 in the Company’s Form 8-K, filed July 30, 2012).
101.INS***+XBRL Instance Document Exhibit
101.SCH***+XBRL Taxonomy Extension Schema Document Exhibit
101.CAL***+XBRL Taxonomy Extension Calculation Linkbase Document Exhibit
101.DEF***+XBRL Taxonomy Extension Definition Linkbase Document Exhibit
101.LAB***+XBRL Taxonomy Extension Label Linkbase Document Exhibit
101.PRE***+XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Management contract or compensatory plan or arrangement

**

Filed herewith as an Exhibit
***Furnished herewith as an Exhibit
+Submitted electronically with this Annual Report on Form 10-K

 

79

 

72