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 November 28, 1998
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 January 4, 1999.
Common Stock, $0.01 par value 11,811,188 shares
Class A Common Stock, $0.01 par value 1,200,000 shares
1
CAL-MAINE FOODS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - November
28, 1998 and May 30, 1998 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended November 28,
1998 and November 29, 1997 4
Condensed Consolidated Statements of Cash Flow -
Six Months Ended November 28, 1998 and November
29, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
November 28, 1998 May 30, 1998
------------------ -------------
(unaudited) (note)
ASSETS
Current assets:
Cash and cash equivalents $ 50,854 $ 41,126
Accounts receivable, net 19,638 13,691
Recoverable federal and state income taxes - 218
Inventories 37,542 41,437
Prepaid expenses and other current assets 480 791
---------- ----------
Total current assets 108,514 97,263
Notes receivable and investments 6,133 5,373
Other assets 1,209 1,183
Property, plant and equipment 167,382 170,912
Less accumulated depreciation (72,006) (71,543)
---------- ----------
95,376 99,369
---------- ----------
TOTAL ASSETS $ 211,232 $ 203,188
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued expenses $ 28,356 $ 25,756
Current maturities of long-term debt 5,049 4,540
Current deferred income taxes 10,376 10,376
---------- ----------
Total current liabilities 43,781 40,672
Long-term debt, less current maturities 74,363 70,958
Deferred expenses 1,655 1,716
Deferred income taxes 10,295 10,295
---------- ----------
Total liabilities 130,094 123,641
Stockholders' equity:
Common stock $0.01 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 17,565,200 at November 28,
1998 and May 30, 1998 176 176
Class A common stock $0.01 par value: authorized, issued
and outstanding 1,200,000 shares 12 12
Paid-in capital 18,784 18,784
Retained earnings 68,924 67,031
Common stock in treasury - 5,671,212 shares at November
28, 1998 and 5,608, 212 shares at May 30, 1998 (6,758) (6,456)
---------- ----------
Total stockholders' equity 81,138 79,547
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 211,232 $ 203,188
========== ==========
See note next page. 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 26 Weeks Ended
November 28, 1998 November 29, 1997 November 28, 1998 November 29, 1997
-------------------------------------- --------------------------------------
Net sales $ 77,948 $ 79,435 $ 146,733 $ 143,158
Cost of sales 60,645 63,999 123,349 122,252
---------- ---------- ---------- ----------
Gross profit 17,303 15,436 23,384 20,906
Selling, general and administrative
9,286 8,122 18,221 15,583
---------- ---------- ---------- ----------
Operating income 8,017 7,314 5,163 5,323
Other income (expense):
Interest expense, net (875) (858) (1,492) (1,700)
Other (346) 232 (155) 255
---------- ---------- ---------- ----------
(1,221) (626) (1,647) (1,445)
---------- ---------- ---------- ----------
Income before income taxes 6,796 6,688 3,516 3,878
Income tax expense 2,542 2,444 1,349 1,371
---------- ---------- ---------- ----------
NET INCOME $ 4,254 $ 4,244 $ 2,167 $ 2,507
========== ========== ========== ==========
Net income per common share:
Basic $ .32 $ .32 $ .17 $ .19
========== ========== ========== ==========
Diluted $ .32 $ .32 $ .16 $ .19
========== ========== ========== ==========
Weighted average shares Outstanding:
Basic 13,115 13,194 13,131 13,191
========== ========== ========== ==========
Diluted 13,252 13,435 13,284 13,443
========== ========== ========== ==========
Note: The consolidated balance sheet at May 30, 1998 has been derived from the
audited consolidated 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.
See notes to condensed consolidated financial statements.
4
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
26 Weeks Ended
November 28, 1998 November 29, 1997
------------------ -----------------
Cash flows provided by operating activities $ 9,631 $ 6,198
Cash flows from investing activities:
Purchases of property, plant and equipment (2,251) (4,022)
Construction of production facilities (3,860) (4,345)
Purchases of shell egg production and processing business - (2,037)
Payments received on notes receivable and from investments 339 62
Increase in note receivable, investments and other assets (1,125) (469)
Net proceeds from sale of property, plant and equipment 3,655 469
--------- ---------
Net cash used in investing activities (3,242) (10,342)
Cash flows from financing activities:
Long-term borrowings 6,350 9,000
Principal payments on long-term debt and capital leases (2,436) (7,654)
Purchases of common stock for treasury (302) (78)
Sale of common stock from treasury - 79
Redemption of fractional shares of common stock - (1)
Payment of dividends (273) -
--------- ---------
Net cash provided by financing activities 3,339 1,346
--------- ---------
Increase (decrease) in cash and cash equivalents 9,728 (2,798)
Cash and cash equivalents at beginning of period 41,126 23,737
--------- ---------
Cash and cash equivalents at end of period $ 50,854 $ 20,939
========= =========
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)
November 28, 1998
(unaudited)
1. Presentation of Interim Information
The accompanying unaudited condensed consolidated financial statements
are presented in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the management of Cal-Maine Foods, Inc. (the
"Company"), the accompanying unaudited condensed consolidated financial
statements include all normal adjustments considered necessary to present
fairly the financial position as of November 28, 1998, and the results of
operations for the thirteen and twenty-six weeks ended November 28, 1998 and
November 29, 1997, and the cash flows for the twenty-six weeks ended November
28, 1998 and November 29, 1997. Interim results are not necessarily indicative
of results for a full year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on form 10-K.
2. Inventories
Inventories consisted of the following:
November 28, 1998 May 30, 1998
---------------------------------------
Flocks $ 24,286 $ 26,866
Eggs and egg products 2,882 2,683
Feed and supplies 7,080 8,736
Livestock 3,294 3,152
---------------------------------------
$ 37,542 $ 41,437
=======================================
6
ITEM 2. MANAGEMENTS'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. It owns facilities to
hatch chicks, grow pullets, manufacture feed, and produce, process and
distribute shell eggs. The Company currently is the largest producer and
distributor of fresh shell eggs in the United States. The shell egg segment
sales, including feed sales to outside egg producers, accounted for 98% of the
Company's net sales. The Company primarily markets its shell eggs in the
southwestern, southeastern, mid-western and mid-Atlanti regions of the United
States. Shell eggs are sold directly by the Company primarily to national and
regional supermarket chains. Egg products operations, which were not material
to the Company's operations, were discontinued in May 1998.
The Company currently uses contract producers for approximately 31% 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, some shell
eggs are purchased, as needed, from outside producers for resale 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 an increase in egg demand
during the winter months.
The Company's cost of production is materially affected by feed costs,
which average about 60% 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.
FORWARD LOOKING STATEMENTS. Management's discussion contains
forward-looking statements which involve risks and uncertainties and the
Company's actual experience may differ materially from that discussed as
follows. 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 as 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 which are beyond the
Company's control. These include adverse changes in shell egg prices and in
the grain market, as well as the number of laying hens in the nation.
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.
7
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.
Percentage of Net Sales
-----------------------
13 Weeks Ended 26 Weeks Ended
Nov. 28, 1998 Nov. 29, 1997 Nov. 28, 1998 Nov. 29, 1997
------------------------------ ------------------------------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 77.8 80.6 84.1 85.4
------------------------------ ------------------------------
Gross profit 22.2 19.4 15.9 14.6
Selling, general & 11.9 10.2 12.4 10.9
administrative
------------------------------ ------------------------------
Operating income 10.3 9.2 3.5 3.7
Other expense (1.6) (.8) (1.1) (1.0)
------------------------------ ------------------------------
Income before taxes 8.7 8.4 2.4 2.7
Income tax expense 3.3 3.1 .9 1.0
------------------------------ ------------------------------
Net income 5.4 % 5.3 % 1.5 % 1.7 %
============================== ==============================
NET SALES
Net sales for the second quarter of fiscal 1999 were $77.9 million, a
decrease of $1.5 million, or 1.9% as compared to net sales for the second
quarter of fiscal 1998. Shell egg sales increased $2.5 million, all due to an
increase in feed sales to outside egg producers. However, the Company's egg
products division, which accounted for $ 2.1 million of consolidated net sales
in the second quarter of fiscal 1998, closed in May 1998, and therefore did
not contribute to net sales for the current second quarter. Dozens of shell
eggs sold for the current quarter were 107.3 million dozen, an increase of 4.0
million dozen, or 3.9%, as compared to the second quarter of fiscal 1998.
Purchases from outside egg producers accounted for the increase in the number
of dozens sold. For the current quarter of fiscal 1999, the Company's net
customer average selling price per dozen was $ .660, compared to $ .717 per
dozen for the comparable quarter last fiscal year, a decrease of $ .057 per
dozen, or 8%. The selling price decrease is due to increased production and
egg supply within the industry and reduced export demand.
Net sales for the twenty-six weeks ended November 28, 1998 were $146.7
million, an increase of $3.6 million, or 2.5%, as compared to the same period
last fiscal year. Shell egg sales increased $10.5 million, with outside feed
sales accounting for $7.5 million of the increase. The closed egg products
division accounted for $ 3.4 million of consolidated net sales for the
comparable 26 week period last fiscal year. Dozens sold for the current 26
week period were 213.6 million as compared to 201.4 million for last fiscal
year, an increase of 6.0%. The increase in dozens sold was provided by
purchases from outside producers. For the current twenty-six week period, the
Company's net average selling price per dozen was $.617, compared to $.658 per
dozen last fiscal year, a decrease of $.041 per dozen, or 6.2%. As discussed
above, increased egg supply and weaker export demand were the primary cause of
reduced egg market prices.
COST OF SALES
Total cost of sales for the second quarter ended November 28, 1998 was
$60.6 million, a decrease of $3.4 million, or 5.2%, over a cost of sales of
$64.0 million for the comparable period last year. The closed egg products
division accounted for $2.3 million of the decrease. Lower cost of feed
ingredients and lower cost of outside dozens purchased made up the balance of
the decrease. Feed cost per dozen for the second quarter ended November 28,
1998 was $.189 as compared to last fiscal years cost per dozen of $.266, a
decrease of 28.9%. According to industry reports, the 1998 corn and soybean
harvest was one of the largest in recent years which has resulted in lower
cost of feed ingredients. The current outlook calls for continuing favorable
feed prices. As mentioned in the net sales discussion above, the number of
dozens purchased from outside producers increased to meet the Company's
8
customer requirements. During weaker egg markets, such as in the current
period, the Company is able to purchase outside eggs at more favorable net
prices. The decrease in egg selling prices, offset by improvements in egg
production and purchased egg costs, resulted in an increase in gross profit
from 19.4% of net sales in the quarter ended November 29, 1997 to 22.2 % of
net sales for the current quarter .
For the twenty-six week period ended November 28, 1998, total cost of
sales was $123.3 million, an increase of $1.1 million, or .9%, over a cost of
sales of $122.2 million for last year. The closing of egg products division
accounted for a decrease of $ 3.5 million ,offset by higher shell egg
operations cost of sales. The increase in shell egg cost of sales is primarily
from an increase in dozens sold at lower cost per dozen of eggs produced and
purchased from other producers. For the current twenty-six week period,
purchases of eggs from outside producers totaled 52.6 million dozen, an
increase of 12.8 million dozen, or 32%, over last fiscal year's outside
purchases. As discussed above, these eggs were purchased at more favorable
prices for the current fiscal year. Feed cost per dozen for the current
twenty-six week period was $ .198 per dozen, compared to $ .258 per dozen, a
decrease of 23.3%. As discussed above, the decrease in feed ingredient cost
was due to a larger crops in 1998. Although egg selling prices declined,
improved egg production and lower purchased egg costs were sufficient for an
increase in gross profits to 15.9% of net sales from 14.6% for the twenty-six
week period ended November 27,1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense for the second quarter ended
November 28, 1998 was $9.3 million, an increase of $1.2 million, or 14.3%, as
compared to the $8.1 million for last fiscal year's second quarter. The
increase is due to an impairment charge on a production facility that was
closed during the period, and increased payroll and employee benefit costs.
Under FASB Statement 121 "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF", the Company incurred a charge of
$500,000 in costs to phase out and prepare for disposition a production
facility. The facility includes a feed mill as well as production and
distribution facilities. With the acquisitions made in November 1997 and the
increase in sales volume the second quarter of the current fiscal year,
payroll and overhead costs have increased approximately $300,000 as compared
to the same period in last fiscal year. Employee health benefit costs have
increased approximately $300,000 due to an increase in the number of employees
and increased cost of claims. As a percent of sales, selling, general and
administrative expenses have increased from 10.2% for last year's second
quarter to 11.9% for the second quarter of the current fiscal year.
For the twenty-six weeks ended November 28, 1998, selling, general and
administrative expense was $18.2 million, an increase of $2.6 million, or
16.9%, as compared to $15.6 million for the same period last fiscal year. The
increase follows the same expense categories as in the current quarter
discussed above, including the $500,000 FASB Statement 121 charge. Payroll and
overhead increased $460,000, employee health benefits are up $650,000, and
delivery costs are up $600,000. In addition to these costs, franchise and
promotional expenses increased $300,000 over the same twenty-six week period
in the last fiscal year. In the second quarter of fiscal 1998, the Company
began opening new markets for specialty brand eggs, primarily THE EGG-LAND'S
BEST franchise in New York City. Sales of these specialty brand eggs increased
from 3.1% of egg sales last fiscal year to 5.3% of egg sales this fiscal year.
As a percent of net sales, selling, general and administrative expenses was
12.4% for the current twenty-six weeks, as compared to 10.9% for the same
period in the last fiscal year.
OPERATING INCOME
As the result of the above, operating income was $8.0 million for the
second quarter ended November 28, 1998, as compared to $7.3 million for last
fiscal year's comparable quarter. As a percent of net sales, the fiscal 1999
quarter had a 10.3% operating profit, compared to 9.2% for last fiscal year.
For the twenty-six weeks ended November 28, 1998, operating income was
$5.2 million, compared to $5.3 million for last fiscal year. As a percent of
net sales, operating income decreased to 3.5% for the current fiscal year,
from 3.7% for the same twenty-six week period in last fiscal year.
9
OTHER EXPENSE
Other expense for the second quarter ended November 28, 1998 was $ 1.2
million, an increase of $600,000 as compared to the second quarter last year.
For the current quarter there were uninsured losses and deductibles of
$200,000 and a $400,000 loss on disposals of property, plant and equipment. As
a percent of net sales, other expense increased from .8% for the second
quarter of last fiscal year to 1.6% for the same quarter in this fiscal year.
For the twenty-six weeks ended November 28, 1998, other expense was $1.6
million, an increase of $200,000, as compared to $ 1.4 million for last fiscal
year. Net interest expense decreased $200,000 and loss on disposals of
property, plant and equipment increased $400,000. As a percent of net sales,
other expenses was 1.1% for the first twenty-six week period of this fiscal
year, as compared to 1.0% for last year's comparable period.
INCOME TAXES
As a result of the above, the Company's pre-tax income was $6.8 million
for the quarter ended November 28, 1998, compared to pre-tax income of $6.7
million for last year's quarter. For the current quarter, an income tax
expense of $2.5 million was recorded with an effective tax rate of 37.4%, as
compared to an income tax expense of $2.4 million with and effective rate of
36.5% for last year's comparable quarter.
The Company's pre-tax income for the twenty-six week period ended
November 28, 1998 was $3.5 million, compared to $3.9 million for last year.
For the current twenty-six week period, an income tax expense of $1.3 million
was recorded with an effective rate of 38.4%, as compared to an income tax
expense of $1.4 million with an effective rate of 35.4% for last year's
comparable period.
The increase in the Company's effective rate for the current year's
quarter and year-to-date, as compared to the effective rate for the Company's
comparable period, is due primarily to the decrease in tax exempt interest
income.
NET INCOME
Net income for the second quarter ended November 28, 1998 was $4.3
million, or $.32 per basic share, compared to net income of $4.2 million, or
$.32 per basic share for last fiscal year's second quarter.
For the twenty-six week period ended November 28, 1998, net income was
$2.2 million, or $.17 per basic share, compared to last fiscal year's net
income of $2.5 million, or $.19 per basic share for the same period.
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at November 28, 1998 was $64.7 million,
compared to $56.6 million at May 30, 1998. The Company's need for working
capital generally is highest in the first and last fiscal quarters ending in
August and May, respectively, when egg prices are normally at seasonal lows.
Seasonal borrowing needs frequently are higher during these periods than
during other fiscal periods. The Company had an unused $35 million line of
credit with three banks at November 28, 1998. The Company's long-term debt at
that date, including current maturities and capitalized lease obligations,
totaled $79.4 million.
Substantially all trade receivables 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
10
long-term borrowings; and (3) maintain various current and cash-flow coverage
ratios, among other restrictions. The Company was in compliance with these
provisions at November 28, 1998.
For the twenty-six weeks ended November 28, 1998, $9.6 million in net
cash was provided by operating activities. This compares to net cash of $6.2
million provided by operating activities for the comparable period last fiscal
year. For the current twenty-six week period, $2.3 million was used for
purchases of property, plant and equipment, and $3.9 million used for
construction projects in Chase, Kansas and Waelder, Texas. The Company, as a
50% member, invested $900,000 in construction of a joint venture egg operation
in Utah, Delta Egg Farm, LLC. Net cash of $3.9 million was received from sales
of property, plant and equipment, and from notes receivable. Additional
long-term borrowings of $6.4 million were received and repayments of $2.4
million were made. Approximately $600,000 was used in payment of stock
dividends and purchases of treasury stock. The net result was an increase in
cash of $9.7 million.
At November 28, 1998, the Company had expended, since the start of the
project, approximately $19.4 million in the construction of new shell egg
production, processing and feed mill facilities in Chase, Kansas. The Company
is financing $13.5 million of the estimated $21.5 million total project cost
through fixed rate industrial revenue bonds maturing in fiscal 2011. Also, as
of that date, the Company had expended, since the start of the project,
approximately $2.5 million for construction of new shell egg production and
processing facilities in Waelder, Texas. The estimated cost of construction is
approximately $15.2 million with anticipated borrowings of approximately $10.4
million from an insurance company.
The Company has $3.2 million of 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 the taxes on the cash
basis temporary differences as of that date are generally payable over the
next 20 years beginning in fiscal 1999 or in the first fiscal year in which
there is a change in ownership control. Payment of the $3.2 million deferred
tax liability would reduce the Company's cash, but would not impact the
Company's statement of operations or reduce the stockholders' equity, as these
taxes have been accrued and reflected on the Company's balance sheet.
YEAR 2000 ISSUE
The Company currently has a program underway to ensure that all
significant computer systems are substantially Year 2000 compliant by fiscal
year ending May 29, 1999. The program is divided into three major components:
(1) identification of all information technology systems ("IT Systems") and
non-information technology systems ("Non-IT Systems") that are not Year 2000
compliant; (2) repair or replacement of the identified non-compliant systems;
and (3) testing of the repaired or replaced systems. The Company has no "in
house" developed or proprietary IT Systems. The Company uses commercially
developed software, the majority of which is periodically upgraded through
existing maintenance contracts. For part (1), identification , the initial
review phase has completed. Identification will continue as new equipment,
software and upgrades are installed and as the Company goes through the
testing phase of the program. Review of accounting and financial reporting
systems is substantially finished and the Company is continuing to review
Non-IT Systems that have embedded microprocessors in various types of
equipment. Part (2), repairing and replacing, continues primarily under
maintenance contracts with the Company's software vendors. While most of the
Company's major systems are year 2000 compliant, the software vendors continue
to send new programs, upgrades and patches as they get into final testing
stages of their product. None of the vendors have, to date, indicated any
serious problems or delays in becoming Year 2000 compliant. Part (3), testing,
has begun and should be finished in the fiscal fourth quarter ending May 29,
1999.
The Company has been contacting key suppliers and customers about the
Year 2000 issue. While no assurances can be given that key suppliers and
business partners will remedy their own Year 2000 issues, the Company, to
date, has not identified any material impact on its ability to continue normal
business operations with suppliers or other third parties who fail to address
the issue.
Actual costs associated with implementation of the Company's Year 2000
program are expected to be insignificant to the Company's operations and
financial condition. Costs of $50,000 to $100,000, primarily for hardware, are
expected to be incurred. Significantly all of these costs are expected to be
11
capitalized since the hardware would have been replaced even if there were no
Year 2000 issue.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company is into the final testing part
of its program, the risks for potential Year 2000 failures cannot be fully
assessed. Thus, the Company cannot now finalize contingency plans until such
testing is complete. These plans will be developed as potential Year 2000
failures are identified in the final testing stages.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following Part I exhibit is filed herewith:
Exhibit
Number Exhibit
------- -------
27 Financial data schedule
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company covering an event
during the second quarter of fiscal 1999.
12
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: January 7, 1999 /s/BOBBY J. RAINES
------------------
Bobby J. Raines
Vice President/Treasurer
(Principal Financial Officer)
Date: January 7, 1999 /s/CHARLES F. COLLINS
---------------------
Charles F. Collins
Vice President/Controller
(Principal Accounting Officer)
13