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 August 28, 1999
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 1, 1999.
Common Stock, $0.01 par value 11,207,988 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 (Unaudited)
Condensed Consolidated Balance Sheets -
August 28, 1999 (unaudited) and May 29, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended August 28, 1999 (unaudited) and
August 29, 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flow -
Three Months Ended August 28, 1999 (unaudited) and
August 29, 1998 (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
PART II. OTHER INFORMATION
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)
August 28, 1999 May 29, 1999
--------------- ------------
(unaudited) (note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 28,192 $ 36,198
Accounts receivable and notes receivable from affiliate, net 15,781 14,617
Inventories - note 2 37,281 38,353
Prepaid expenses and other current assets 4,213 771
---------- ----------
Total current assets 85,467 89,939
Notes receivable and investments 7,290 7,468
Goodwill 4,190 4,260
Other assets 2,605 2,104
Property, plant and equipment 189,304 184,354
Less accumulated depreciation (77,569) (74,443)
---------- ----------
111,735 109,911
---------- ----------
TOTAL ASSETS $ 211,287 $ 213,682
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued expenses $ 24,324 $ 27,026
Current maturities of long-term debt 4,517 4,118
Current deferred income taxes 10,294 10,294
---------- ----------
Total current liabilities 39,135 41,438
Long-term debt, less current maturities 85,799 79,886
Deferred expenses 1,489 1,489
Deferred income expenses 10,285 10,285
---------- ----------
Total liabilities 136,708 133,098
Stockholders' equity:
Common stock $0.01 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 17,565,200 at August 28,1999
and at May 29, 1999 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 66,006 71,525
Common stock in treasury - 6,352,212 shares at August 28, 1999
and 6,257,712 shares at May 29, 1999 (10,399) (9,913)
---------- ----------
Total stockholders' equity 74,579 80,584
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 211,287 $ 213,682
========== ==========
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
August 28, 1999 August 29, 1998
--------------- ---------------
Net Sales $ 59,055 $ 68,785
Cost of Sales 57,322 62,704
---------- ----------
Gross Profit 1,733 6,081
Selling, general and administrative 9,096 8,935
---------- ----------
Operating loss (7,363) (2,854)
Other income (expense):
Interest expense, net (1,031) (617)
Other (111) 191
---------- ----------
(1,142) (426)
---------- ----------
Loss before income taxes (8,505) (3,280)
Income tax benefit (3,141) (1,193)
---------- ----------
NET LOSS $ (5,364) $ (2,087)
========== ==========
Net loss per common share:
Basic $ (.43) $ (.16)
========== ==========
Diluted $ (.43) $ (.16)
========== ==========
Dividends per common share $ .0125 $ .01
========== ==========
Weighted average shares outstanding:
Basic 12,450 13,147
========== ==========
Diluted 12,458 13,315
========== ==========
See notes to condensed consolidated financial statements.
4
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
13 Weeks Ended
August 28, 1999 August 29, 1998
--------------- ---------------
Cash used in operations $ (8,653) $ (2,719)
Investing Activities:
Purchases of property, plant and equipment (2,387) (1,412)
Construction of production facilities (2,684) (854)
Payments received on notes receivable and from investments 75 393
Increase in notes receivable, investments and other assets (328) -
Net proceeds from sales of property, plant and equipment 14 512
---------- ----------
Net cash used in investing activities (5,310) (1,361)
Financing activities:
Long-term borrowings 7,445 2,850
Principal payments on long-term debt for capital leases (847) (1,077)
Purchases of common stock for treasury (487) (139)
Payments of dividends (154) (11)
---------- ----------
Net cash provided by financing activities 5,957 1,623
---------- ----------
Decrease in cash and cash equivalents (8,006) (2,457)
Cash and cash equivalents at beginning of period 36,198 41,126
Cash and cash equivalents at end of period $ 28,192 $ 38,669
========== ==========
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)
August 28, 1999
(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 August 28, 1999 are not necessarily indicative of the results
that may be expected for the year ended June 3, 2000.
The balance sheet at May 28, 1999 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.'s annual report on
Form 10-K for the fiscal year ended May 28, 1999.
2. Inventories
Inventories consisted of the following:
August 28, 1999 May 29, 1999
--------------- ------------
Flocks $ 24,400 $ 24,662
Eggs 2,441 2,471
Feed and supplies 7,036 7,847
Livestock 3,404 3,373
----------------------------------
$ 37,281 $ 38,353
==================================
3. Subsequent Event
On September 30, 1999, the Company purchased substantially all of the
assets and assumed certain liabilities of Smith Farms, Inc. and certain
related companies ("Smith Farms") for a net purchase price of approximately
$36.2 million. The assets purchased are Smith Farms' egg production and
processing businesses in Texas and Arkansas, and include approximately 3.9
million laying hens and growing pullets, two feed mills located in Texas and
Arkansas, two egg production complexes in Texas and one egg production complex
in Arkansas, as well as certain equipment for feed and egg delivery. The
acquisition will be accounted for by the purchase method of accounting.
Accordingly, the purchase price will be allocated based on the fair value of
the assets acquired and liabilities assumed.
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 egg sales,
including feed sales to outside egg producers, 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 30% 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 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.
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
August 28, 1999 August 29, 1998
--------------- ---------------
Net sales 100.0 % 100.0 %
Cost of sales 97.1 91.2
--------------------------------------
Gross profit 2.9 8.8
Selling, general & administrative 15.4 12.9
--------------------------------------
Operating loss (12.5) (4.1)
Other expense (1.9) (.6)
--------------------------------------
Loss before taxes (14.4) (4.7)
Income tax benefit (5.3) (1.7)
--------------------------------------
Net loss (9.1)% (3.0)%
======================================
7
NET SALES
Net sales for the first quarter of fiscal 2000 were $59.1 million, a
decrease of $9.7 million, or 14.1% as compared to the first quarter of fiscal
1999. Although total eggs sold increased in the current quarter, egg selling
prices were down sharply as compared with prices a year ago. Dozens sold for
the current quarter were 109.3 million dozen, an increase of 3.0 million
dozen, or 2.8 %, as compared to the first quarter of last year. The Company's
net average selling price per dozen for the fiscal 2000 first quarter was
$.493, compared to $.574 for the first quarter of last year, a decrease of
14.1%. The Company's net average selling price is the average selling price
for all sizes and grades of shell eggs, including non-graded egg sales,
breaking stock and undergrades. Although domestic demand was good, increased
egg supply and weak export demand caused egg prices to decrease during the
first quarter of this fiscal year. Feed sales to outside producers also
decreased for the current quarter as a result of lower cost of feed
ingredients which brought market prices for feed down.
COST OF SALES
Total cost of sales for the first quarter ended August 28, 1999 was
$57.3 million, a decrease of $5.4 million, or 8.6%, as compared to the cost of
sales of $62.7 million for last year's first quarter. The decrease is
primarily due to lower feed cost per dozen produced. Feed cost for the first
quarter ended August 28, 1999 was $.184 per dozen, compared to $.220 per dozen
for the comparable fiscal 1999 first quarter, a decrease of 16.4%. Other
operating costs were favorable for the current first quarter compared to the
same quarter in the prior year. The Company purchased more dozens from outside
sources during this first quarter, 30.5 million dozen compared to 26.5 million
for last year. However, during weak egg market conditions, such as the current
first quarter, the Company is able to purchase outside eggs at more favorable
net prices which mitigates the additional cost of purchasing eggs from outside
sources. Although cost of sales decreased, the sharp drop in egg selling
prices resulted in a decrease in gross profit from 8.8% of net sales for the
quarter ended August 29, 1998, to 2.9% of net sales for the current quarter
ended August 28, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense for the first quarter ended
August 28, 1999 was $9.1 million, an increase of $160,000, or 1.8%, as
compared to the expense of $8.9 million for the comparable period last year.
The increase is mostly in payroll and payroll related expenses. Other costs,
including delivery, remained approximately the same for both fiscal quarters.
Although the expenses increased only $160,000 for the current quarter, lower
net sales resulted in a higher percent of net sales comparison. As a percent
of net sales, general and administrative expense increased from 12.9% for
fiscal 1999 to 15.4% for the current fiscal year.
OPERATING LOSS
As the result of the above, an operating loss of $7.4 million was
incurred for the first quarter ended August 28, 1999, as compared to an
operating loss of $2.9 million for last fiscal year's first quarter. As a
percent of sales, the current fiscal 2000 quarter had a 12.5% operating loss,
compared to 4.1% operating loss for last year.
OTHER EXPENSE
Other expenses for the first quarter ended August 28, 1999 were $1.1
million, compared to $426,000 for last year's first quarter. The current
quarter increase of $716,000 is due to an increase in net interest expense of
approximately $414,000 and a decrease in other income of $302,000. Net
interest expense increased as the result of increased long-term borrowing and
a decrease in interest income due to lower cash equivalent investments. Other
income decreased primarily due to decreases in equity in income of affiliates.
As a percent of net sales, other expense increased from .6% for last year's
first quarter to 1.9% for the current first quarter.
8
INCOME TAXES
As a result of the above, the Company had a pre-tax loss of $8.5 million
for the quarter ended August 28, 1999, compared to pre-tax loss of $3.3
million for the quarter ended August 29, 1998. For the first quarter, an
income tax benefit of $3.1 million was recorded with an effective tax rate of
36.9%, as compared to an income tax benefit of $1.2 million with an effective
tax rate of 36.4% .
NET LOSS
As a result of the above, the net loss for the first quarter ended
August 28, 1999 was $5.4 million, or $.43 per basic and diluted share,
compared to net loss of $2.1 million, or $.16 per basic and diluted share for
the quarter ended August 29, 1998.
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at August 28, 1999 was $46.3 million
compared to $48.5 million at May 29, 1999. 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 August 28, 1999. The Compan s long-term debt at
that date, including current maturities and capitalized lease obligations,
totaled $90.3 million.
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. The Company was in
compliance with these provisions at August 28, 1999.
For the thirteen weeks ended August 28, 1999, $8.7 million in net cash
was used in operating activities. This compares to net cash used of $2.7
million for the comparable period last year. In the current fiscal quarter,
$2.4 million was used for purchases of property, plant, and equipment, and
$2.7 million used for a construction project in Waelder, Texas. Approximately
$487,000 was used for purchase of common stock for the treasury, and $154,000
was used for payment of dividends on the common stock. Additional long-term
borrowings of $7.4 million were received and repayments of $847,000 were made.
The net result of these current activities was a decrease in cash of $8.0
million since May 29, 1999.
In the first quarter ended August 29, 1998, $1.4 million was used for
purchases of property, plant, and equipment and $900,000 was used for
construction projects. Net cash of $900,000 was received from sales of
property, plant, and equipment, and from notes receivable. Additional
long-term borrowings of $2.8 million were received and repayments of $1.1
million were made. The net result was a decrease in cash from May 30, 1998 to
August 29, 1998.
At August 28, 1999, the Company had expended, since the start of the
project, approximately $9.8 million for construction of new shell egg
production, processing and feed mill facilities in Waelder, Texas. The
estimated cost of construction is approximately $18.7 million with anticipated
borrowings in fiscal 2000 of approximately $10.4 million from an insurance
company.
The Company has $2.9 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 20
years beginning in fiscal 1999 or in the first fiscal year in which there is a
change in ownership control. Payment of the $2.9 million deferred tax
liability would reduce the Company's cash, but would not impact the Company's
statement of operations or reduce stockholders' equity, as these taxes have
been accrued and are reflected on the Company's balance sheet.
9
YEAR 2000 ISSUE
The Company has a program underway to ensure that all of its significant
computer systems are Year 2000 compliant. 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 review phase has been 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 finished and the Company is continuing to review Non-IT
Systems that may 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 the Company's major
systems are substantially 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 in calendar 1999.
Part (3), testing, is substantially complete, and will continue until vendors
have completed all upgrades and patches. Testing will be ongoing throughout
calendar 1999.
The Company has been contacting key suppliers and business partners
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. The Company, like other businesses, is dependent upon Year 2000
compliance with the utilities, transportation, and financial industries.
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. As of August 29, 1999, the Company has expended under
$50,000 in the project. Significantly, all of these costs will be 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. While the Company is in the final testing part
of its program, the risks from potential Year 2000 failures cannot be fully
assessed at this time. Thus, the Company cannot finalize contingency plans
until all testing is complete. These contingency plans will be developed as
potential Year 2000 failures are identified in the final testing stages.
---------------------------------
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.
10
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 1999 annual report on Form 10-K.
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 first quarter of fiscal 2000.
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 6, 1999 /s/BOBBY J. RAINES
------------------
Bobby J. Raines
Vice President/Treasurer
(Principal Financial Officer)
Date: October 6, 1999 /s/CHARLES F. COLLINS
---------------------
Charles F. Collins
Vice President/Controller
(Principal Accounting Officer)