UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 1, 2001
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number: 000-04892
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware 64-0500378
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3320 Woodrow Wilson Avenue, Jackson, Mississippi 39209
(Address of principal executive offices) (Zip Code)
(601) 948-6813
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock (exclusive of treasury shares), as of October 5, 2001.
Common Stock, $0.01 par value 10,564,388 shares
Class A Common Stock, $0.01 par value 1,200,000 shares
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information Number
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
September 1, 2001 (unaudited) and June 2, 2001 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 1, 2001 (unaudited) and
September 2, 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flow -
Three Months Ended September 1, 2001 (unaudited) and
September 2, 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures of Market
Risk 10
Part II. Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 1,
2001 June 2, 2001
------------ ------------
(unaudited) (note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 6,503 $ 13,129
Trade and other receivables 15,616 16,017
Inventories - note 2 47,845 47,122
Prepaid expenses and other current assets 822 569
---------- ----------
Total current assets 70,786 76,837
Notes receivable and investments 7,390 7,673
Goodwill 3,147 3,147
Other assets 2,420 2,447
Property, plant and equipment 253,310 248,297
Less accumulated depreciation (107,046) (103,649)
---------- ----------
146,264 144,648
---------- ----------
TOTAL ASSETS $ 230,007 $ 234,752
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 2,000 $ -
Accounts payable and accrued expenses 27,426 29,492
Current maturities of long-term debt 8,375 7,184
Deferred income taxes 11,775 11,775
---------- ----------
Total current liabilities 49,576 48,451
Long-term debt, less current maturities 115,478 111,156
Other non-current liabilities 1,450 1,450
Deferred income taxes 4,098 7,499
---------- ----------
Total liabilities 170,602 168,556
Stockholders' equity:
Common stock $0.01 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares -
17,565,200 at September 1, 2001
and June 2, 2001 176 176
Class A common stock $0.01 part value,
authorized, issued and outstanding
1,200,000 shares 12 12
Paid-in capital 18,784 18,784
Retained earnings 53,501 59,752
Common stock in treasury-6,992,812 shares
at September 1, 2001 and 6,863,512 shares
at June 2, 2001 (13,068) (12,528)
---------- ----------
Total stockholders' equity 59,405 66,196
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 230,007 $ 234,752
========== ==========
See notes to condensed consolidated financial statements.
3
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
UNAUDITED
13 Weeks Ended
September 1, September 2,
2001 2000
------------ ------------
Net sales $ 72,428 $ 75,518
Cost of sales 69,731 67,650
---------- ----------
Gross profit 2,697 7,868
Selling, delivery and administrative 10,014 10,112
---------- ----------
Operating loss (7,317) (2,244)
Other income (expense):
Interest expense, net (2,066) (2,156)
Other (118) 325
---------- ----------
(2,184) (1,831)
Loss before income taxes (9,501) (4,075)
Income tax benefit (3,401) (1,453)
---------- ----------
Net loss $ (6,100) $ (2,622)
Net loss per common share:
Basic $ (.52) $ (.22)
========== ==========
Diluted $ (.52) $ (.22)
========== ==========
Dividends per common share $ .0125 $ .0125
========== ==========
Weighted average shares outstanding:
Basic 11,772 12,192
========== ==========
Diluted 11,772 12,192
========== ==========
See notes to condensed consolidated financial statements.
4
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
UNAUDITED
13 Weeks Ended
September 1, September 2,
2001 2000
------------ ------------
Cash used in operations $ (7,546) $ (377)
Investing activities:
Purchases of property, plant and
equipment (2,717) (665)
Construction of production and
processing facilities (3,271) (2,983)
Payments received on notes receivable
and from investments 19 194
Increase in notes receivable and
investments - (2,723)
Net proceeds from disposal of property,
plant and equipment 67 297
---------- ----------
Net cash used in investing activities (5,902) (5,880)
Financing activities:
Net borrowings on note payable to bank 2,000 10,000
Long-term borrowings 7,200 -
Principal payments on long-term debt (1,687) (1,848)
Purchases of common stock for treasury (540) (163)
Payments of dividends (151) (154)
---------- ----------
Net cash provided by financing activities 6,822 7,835
---------- ----------
Increase (decrease) in cash and cash
equivalents (6,626) 1,578
Cash and cash equivalents at beginning of
period 13,129 6,541
---------- ----------
Cash and cash equivalents at end of period $ 6,503 $ 8,119
========== ==========
See notes to condensed consolidated financial statements.
5
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(in thousands, except share amounts)
September 1, 2001
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principals for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal occurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 1,
2001 are not necessarily indicative of the results that may be expected for the
year ended June 1, 2002.
The balance sheet at June 2, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Cal-Maine Foods, Inc. and Subsidiaries annual
report on Form 10-K for the fiscal year ended June 2, 2001.
2. Inventories
Inventories consisted of the following:
September 1, 2001 June 2, 2001
----------------- -------------
Flocks $ 33,541 $ 31,920
Eggs 3,024 3,149
Feed and supplies 8,397 9,459
Livestock 2,883 2,594
-------- --------
$ 47,845 $ 47,122
======== ========
3. Goodwill
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets, effective June 3, 2001. Under
SFAS No. 142, goodwill is no longer amortized but reviewed for impairment
annually, or more frequently if certain indicators arise. The Company is
required to complete the initial step of a transitional impairment test within
six months of adoption of SFAS No. 142 and to complete the final step of the
transitional impairment test by the end of the fiscal year. Any impairment loss
resulting from the transitional impairment test would be recorded as a
cumulative effect of a change in accounting principle for the quarter ended
September 1, 2001. Subsequent impairment losses will be reflected in operating
income or loss in the consolidated statements of operations. Had the Company
been accounting for its goodwill under SFAS No. 142 for all periods presented,
the Company's net loss and loss per share would have been as follows:
Thirteen Weeks Ended
September 1 September 2
2001 2000
----------- -----------
Reported net loss $ (6,100) $ (2,622)
Add back goodwill amortization, net
of tax - 39
-------- --------
Pro forma adjusted net loss $ (6,100) $ (2,583)
======== ========
Basic and diluted net loss per share:
Reported net loss $ (.52) $ (.22)
Goodwill amortization, net of tax - .01
-------- --------
Pro forma adjusted basic and diluted
net loss per share $ (.52) $ (.21)
======== ========
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is primarily engaged in the production, cleaning, grading,
packing and sale of fresh shell eggs. The Company's fiscal year end is the
Saturday closest to May 31.
The Company's operations are fully integrated. At its facilities it hatches
chicks, grows pullets, manufactures feed, and produces, processes, and
distributes shell eggs. The Company currently is the largest producer and
distributor of fresh shell eggs in the United States. Shell eggs account for 98%
of the Company's net sales. The Company primarily markets its shell eggs in the
southwestern, southeastern, mid-western and mid-Atlantic regions of the United
States. Shell eggs are sold directly by the Company primarily to national and
regional supermarket chains.
The Company currently uses contract producers for approximately 16% of its
total egg production. Contract producers operate under agreements with the
Company for the use of their facilities in the production of shell eggs by
layers owned by the Company, which owns the eggs produced. Also, shell eggs are
purchased from outside producers for resale, as needed, by the Company.
The Company's operating income or loss is significantly affected by
wholesale shell egg market prices, which can fluctuate widely and are outside of
the Company's control. 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 factors and a natural increase in egg
production during the spring and early summer.
The Company's cost of production is materially affected by feed costs,
which average about 58% of Cal-Maine's total farm egg production cost. Changes
in feed costs result in changes in the Company's cost of goods sold. The cost of
feed ingredients is affected by a number of supply and demand factors such as
crop production and weather, and other factors, such as the level of grain
exports, over which the Company has little or no control.
According to U.S. Department of Agriculture reports, the egg industry has
placed more baby chicks during the first six months of calendar 2001 than
previously forecasted. This could result in increased egg production and
downward pressure on egg prices. Current egg demand is very good for domestic
use. Current agricultural grain reports indicate a potentially good 2001 crop
for corn and soy. Cost of feed is projected to continue at slightly higher, but
moderate, price levels for the fiscal year ahead.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Condensed Consolidated Statements of Operations expressed as
a percentage of net sales.
Thirteen Weeks Ended
September 1 September 2
2001 2000
----------- -----------
Net sales 100.0 % 100.0 %
Cost of sales 96.3 89.6
------- -------
Gross profit 3.7 10.4
Selling, delivery & administrative 13.8 13.4
------- -------
Operating loss (10.1) (3.0)
Other expense (3.0) (2.4)
------- -------
Loss before taxes (13.1) (5.4)
Income tax benefit (4.7) (1.9)
------- -------
Net loss (8.4)% (3.5)%
======= =======
7
NET SALES
Net sales for the first quarter of fiscal 2002 were $72.4 million, a
decrease of $3.1 million, or 4.1%, as compared to net sales of $75.5 million for
the first quarter of fiscal 2001. Total eggs sold increased in the current
quarter and egg selling prices decreased as compared with prices a year ago.
Dozens sold for the current quarter were 134.0 million dozen, an increase of 2.7
million dozen, or 2.1%, as compared to the first quarter of last year. The
Company's net average selling price per dozen for the fiscal 2002 first quarter
was $.507, compared to $.546 for the first quarter of last year, a decrease of
7.1%. The Company's net average selling price is the blended price for all sizes
and grades of shell eggs, including non-graded egg sales, breaking stock and
undergrades. Although domestic demand for eggs was good, an increase in the
supply of eggs weakened egg selling prices. Usually, the first quarter of the
Company's fiscal year is a weak quarter as to egg price and volume of sales.
COST OF SALES
Total cost of sales for the first quarter ended September 1, 2001 was $69.7
million, an increase of $2.1 million, or 3.1%, as compared to the cost of sales
of $67.6 million for last year's first quarter. The increase is due to an
increase in dozens sold and an increase in cost of feed. Feed cost per dozen for
the current first quarter was $.194, compared to $.186 per dozen for the
comparable fiscal 2001 first quarter, an increase of 4.3%. Other operating costs
remained in the same ranges for both the current and last year first fiscal
quarters. The decrease in egg selling prices and increase in cost of sales
resulted in a decrease in gross profit from 10.4% for the quarter ended
September 2, 2000 to 3.7% of net sales for the current quarter ended September
1, 2001.
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES
Selling, delivery and administrative expense for the first quarter ended
September 1, 2001 was $10.0 million, a decrease of $98,000, compared to the
expense of $10.1 million for the comparable period last year. Most of the
decrease is due to general cost reductions in delivery expenses. On a cost per
dozen sold basis, selling, delivery and administrative expense decreased from
$.077 per dozen for the first quarter of fiscal 2001 to $.075 per dozen for the
current quarter, a decrease of almost 3.0%. Due to a decrease in net sales,
selling, delivery and administrative expense increased from 13.4% for fiscal
2001 to 13.8% of net sales for the current fiscal year.
OPERATING LOSS
As a result of the above, an operating loss of $7.3 million was incurred
for the first quarter ended September 1, 2001, as compared to an operating loss
of $2.2 million for last fiscal year's first quarter. As a percent of net sales,
the current fiscal 2002 quarter had a 10.1% operating loss, compared to an
operating loss of 3.0% for last year.
OTHER EXPENSE
Other expenses for the first quarter ended September 1, 2001 were $2.2
million, compared to $1.8 million for last year's first quarter. Other income
decreased $443,000 for the current fiscal quarter. In last year's fiscal first
quarter, other income included $400,000 from an insurance claim pertaining to
fire damage at a production and processing facility. Net interest expense
decreased from $2.2 million for the first quarter of last fiscal year to $2.1
million for the current quarter. As a percent of net sales, other expense
increased from 2.4% for last years first quarter to 3.0% for the current first
quarter.
INCOME TAXES
As a result of the above, the Company had a pre-tax loss of $9.5 million
for the quarter ended September 1, 2001, compared to pre-tax loss of $4.1
million for the quarter ended September 2, 2000. For the current first quarter,
an income tax benefit of $3.4 million was recorded with an effective tax rate of
35.8%, as compared to an income tax benefit of $1.5 million with an effective
tax rate of 35.7% for last year's first quarter.
NET LOSS
As a result of the above, the net loss for the first quarter ended
September 1, 2001 was $6.1 million, or $.52 per basic and diluted share,
compared to net loss of $2.6 million, or $.22 per basic and diluted share for
the quarter ended September 2, 2000.
8
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at September 1, 2001 was $21.2 million
compared to $28.4 million at June 2, 2001. The Company's current ratio was 1.43
at September 1, 2001 as compared with 1.59 at June 2, 2001. The Company's 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. Seasonal borrowing needs frequently are higher during these quarters than
during other fiscal quarters. The Company has a $35.0 million line of credit
with three banks of which $2.0 million was outstanding at September 1, 2001. The
Company's long-term debt at September 1, 2001, including current maturities,
amounted to $123.9 million, as compared to $118.3 million at June 2, 2001.
For the thirteen weeks ended September 1, 2001, $7.5 million in net cash
was used in operating activities. This compares to net cash used of $377,000 for
the comparable period last year. In the current fiscal quarter, $2.7 million was
used for purchases of property, plant and equipment and $3.3 million used for
construction projects. Approximately $540,000 was used for purchase of common
stock for the treasury and $151,000 used for payments of dividends on the common
stock. Additional net borrowings of $2.0 million was received on the note
payable to bank, $7.2 million received in additional long-term borrowings, and
$1.7 million was used for repayments on long-term debt. The net result of these
current activities was an decrease in cash of $6.6 million since June 2, 2001.
Substantially all trade receivables and inventories collateralize the
Company's line of credit, and property, plant and equipment collateralize the
Company's long-term debt. The Company is required by certain provisions of these
loan agreements to (1) maintain minimum levels of working capital and net worth;
(2) limit dividends, capital expenditures, lease obligations and additional
long-term borrowings; and (3) maintain various current and cash-flow coverage
ratios, among other restrictions. At June 2, 2001, the Company did not meet
certain of these provisions on its long-term debt agreements and obtained
waivers of these requirements through fiscal 2002. As of September 2, 2001, the
Company did not meet certain provisions on loan agreements with two financial
institutions and received waivers of the covenants. The Company is in compliance
with the amended provisions 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 of a change in the control of the Company.
In fiscal 2001, the Company began construction of a new shell egg
production and processing facility in Guthrie, Kentucky, with completion of the
facility expected in fiscal 2003. The total cost of the facility is
approximately $18.0 million, of which $2.0 million was incurred through
September 1, 2001. The Company has commitments from an insurance company to
receive $10.0 million in long-term borrowings and from a leasing company to
receive $7.5 million applicable to the Guthrie facility. Including the
construction project, the Company has projected capital expenditures of $15.5
million fiscal 2002, which will be funded by cash flows from operations and
additional long-term borrowings.
As part of the Smith Farms purchase in September 1999, the Company is
continuing the construction of egg production and processing facilities in
Searcy, Arkansas and Flatonia, Texas. The projects are being funded by a leasing
company. The Searcy facility was completed in the current first quarter at cost
of approximately $20.0 million. Total cost of the Flatonia facility is
approximately $16.0 million and completion is anticipated in the second quarter
of fiscal 2002. These facilities will be leased with seven year terms and
accounted for as operating leases.
Impact of Recently Issued Accounting Standards. Effective June 3, 2001, the
Company adopted Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141). SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. SFAS No. 141 also includes new
criteria to recognize intangible assets separately from goodwill. The
requirements of SFAS 141 are effective for any business combination accounted
for by the purchase method that is completed after June 30, 2001.
The Company also adopted Statement of Financial Accounting Standards
No.142, "Goodwill and Other Intangible Assets"(SFAS No 142), effective June 3,
2001. Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually, or more frequently if certain indicators arise. The Company
is required to complete the initial step of a transitional impairment test
within six months of adoption of SFAS No. 142 and to complete the final step of
the transitional impairment test by the end of the fiscal year. Any impairment
loss resulting from the transitional impairment test would be recorded as a
cumulative effect of a change in accounting principle for the quarter ended
September 1, 2001. Subsequent impairment losses will be reflected in operating
income or loss in the consolidated statements of operations.
9
Forward Looking Statements. The foregoing statements contain
forward-looking statements, which involve risks, and uncertainties and the
Company's actual experience may differ materially from that discussed above.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Factors Affecting Future Performance" below, as well as future
events that have the effect of reducing the Company's available cash balances,
such as unanticipated operating losses or capital expenditures related to
possible future acquisitions. Readers are cautioned not to place undue reliance
on forward-looking statements, which reflect management's analysis only as the
date hereof. The Company assumes no obligation to update forward-looking
statements. See also the Company's reports to be filed from time to time with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934.
Factors Affecting Future Performance. The Company's future operating
results may be affected by various trends and factors beyond the Company's
control. These include adverse changes in shell egg prices and in the grain
markets. Accordingly, past trends should not be used to anticipate future
results and trends. Further, the Company's prior performance should not be
presumed to be an accurate indication of future performance.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There have been no material changes in the market risk reported in the
Company's fiscal 2001 annual report on Form 10-K.
10
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On Tuesday, September 11, 2001, the Company announced that at a special
meeting of its Board of Directors held Monday, September 10, 2001, the Directors
unanimously voted to explore the possibility of the Company becoming privately
held. While no final decision has been made, a special committee of three
independent directors has been appointed to investigate the feasibility of such
action and to ensure that the best interests of the Company and its shareholders
are served.
An investment banking firm will be retained to assist the special committee
of Directors in evaluating the alternatives available to accomplish the
transaction and to advise the committee as to the value of the Cal-Maine Common
Stock. Should the special committee recommend that the Company become privately
held, such action would require the approval of the full Board of Directors and
shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company covering an
event during the first quarter of fiscal 2002.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAL-MAINE FOODS, INC.
(Registrant)
Date: October 10, 2001 /s/ Bobby J. Raines
-----------------------------------------
Bobby J. Raines
Vice President/Treasurer
(Principal Financial Officer)
Date: October 10, 2001 /s/ Charles F. Collins
-----------------------------------------
Charles F. Collins
Vice President/Controller
(Principal Accounting Officer)
12