Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MAY 31, 1997
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
(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
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$0.01 par value
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________
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 registrants 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. (X)
As of August 1, 1997, 11,988,000 shares of the registrant's Common Stock,
$0.01 par value, and 1,200,000 shares of the registrant's Class A Common
Stock, $0.01 par value, were outstanding. The aggregate market value of the
common stock held by non-affiliates of the registrant on that date was
$ 22,523,538, computed at the closing price on that date as reported by the
National Association of Securities Dealers Automated Quotation System.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3), the responses to Items, 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to the
information contained in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders to be held on October 8, 1997, to be filed with
the Securities and Exchange Commission on or about September 5, 1997.
PART I
ITEM 1. BUSINESS
General
-------
Cal-Maine Foods, Inc. ("Cal-Maine" or the "Company") was incorporated
in Delaware in 1969. The Company's primary business is the production,
cleaning, grading, and packaging of fresh shell eggs for sale to shell egg
retailers. The Company is also engaged in the manufacturing and sale of egg
products. Shell egg sales accounted for approximately 92% and egg products
sales for approximately 6% of the Company's net sales in fiscal 1997.
Currently, the Company is the largest producer and distributor of fresh shell
eggs in the United States and during fiscal 1997, had sales of approximately 379
million dozen shell eggs. This volume represents approximately 7.5% of all
shell eggs sold in the United States. The Company markets the majority of
its eggs and egg products in 26 states, primarily in the Southwestern,
Southeastern, Midwestern and Mid-Atlantic regions of the United States.
During the past nine years, the Company has pursued
an aggressive growth strategy, including the acquisition
of existing shell egg production and processing facilities,
as well as the construction of new and more efficient
facilities. See "Growth Strategy and Acquisitions" below.
On December 11, 1996, the Company sold 1,400,000
shares of its Common Stock, $0.01 par value ("Common
Stock"), at a price of $7.00 per share in an underwritten
public offering. On December 30, 1996 and January 9,
1997, the Company sold 330,000 additional shares of Common
Stock, at $7.00 per share, upon the exercise, in full,
by the underwriter's of an overallotment option. The net
proceeds of the offering to the Company, of $10.6 million,
have added to working capital and will be used for
acquisitions and general corporate purposes.
The Company's principal executive offices are
located at 3320 Woodrow Wilson Avenue, Jackson,
Mississippi 39209, and its telephone number is 601-948-6813.
Except as otherwise indicated by the context,
references herein to the Company or Cal-Maine include all
subsidiaries of the Company.
Growth Strategy and Acquisitions
--------------------------------
During the past nine years the Company has pursued
an aggressive growth strategy, including 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, the Company
has consummated seven acquisitions, adding an aggregate
of 15.0 million layers to its capacity, and built four new
in-line shell egg production and processing facilities and
one pullet growing facility, adding 4.0 million layers and
950,000 pullets to its capacity. Each of the new shell egg
production facilities generally provides for the processing
of approximately 300 cases of shell eggs per hour. These
increases in capacity have been accompanied by the
retirement of older and less efficient facilities and a
reduction in eggs produced by contract producers. The new "in-line"
facilities result in the gathering, cleaning, grading and
packaging of shell eggs by less labor-intensive, more
efficient, mechanical means.
As a result of the Company's growth strategy, the
Company's total flock, including pullets, layers and
breeders, has increased from approximately 6.8 million at
May 28, 1988 to an average of approximately 17.7 million
for each of the past five fiscal years. Also, there has
been a three-fold increase in the number of dozens of shell
eggs sold, from approximately 117 million in the fiscal year
ended May 28, 1988 to an average of approximately 394
million for the past five fiscal years. Net sales amounted
to $292.5 million in fiscal 1997, approximately four times
net sales of $69.9 million in fiscal 1988.
The Company's acquisitions and construction of
larger facilities, described in the tables below, reflect
the continuing concentration of shell egg production in the
United States in a decreasing number of shell egg producers.
The Company believes that a continuation of that
concentration trend may result in the reduced cyclicality of
shell egg prices, but no assurance can be given in that regard.
Acquisitions of Egg Production and Processing Facilities
--------------------------------------------------------
Layers Purchase
Fiscal Year(1) Seller Location Acquired Price
- -------------- ------ -------- -------- -----
1989 Egg City,Inc. AR 1,300,000 $ 6,716,000
1990 Sunny Fresh Foods, Inc. (2) 7,500,000 21,629,000
1991 Sunnyside Eggs, Inc. NC 1,800,000 6,000,000
1994 Wayne Detling Farms OH 1,500,000 12,194,000
1995 A & G Farms (3) KY 1,000,000 2,883,000
1997 Sunbest Farms AR 600,000 1,302,000
1997 Southern Empire Egg Farm, Inc. GA 1,300,000 10,654,000
---------- ----------
Total 15,000,000 $61,378,000
(1) The Company's fiscal year ends on the Saturday closest to May 31.
(2) New Mexico, Kansas, Texas, Alabama, Oklahoma, Arkansas and North Carolina
(3) In connection with the purchase, the Company leased substantially all
facilities and certain equipment of the business under an operating lease
with monthly rentals of $79,000.
Construction of Egg Production, Pullet Growing and Processing Facilities (1)
----------------------------------------------------------------------------
Fiscal Year Layer Pullet Approximate
Completed Location Capacity Capacity Cost
- --------- -------- -------- -------- ----
1990 Mississippi 1,000,000 200,000 $ 10,000,000
1992 Louisiana 1,000,000 - 10,000,000
1992 Mississippi - 500,000 3,500,000
1994 Mississippi 1,000,000 - 9,200,000
1996 Texas 1,000,000 250,000 14,000,000
--------- ------- ------------
Total 4,000,000 950,000 $ 46,700,000
(1) Does not include (i) current construction in Chase,
Kansas, expected to be completed in fiscal 1999 at an
estimated cost of approximately $16,000,000, adding
approximately 1,000,000 layer and 250,000 pullet capacity,
and a feed mill and grain storage; or (ii) construction in Waelder,
Texas, expected to commence in fiscal 1998, and to be
completed in fiscal 2000 at an estimated cost of approximately
$13,900,000, adding approximately 1,000,000 layer and
250,000 pullet capacity.
The Company proposes to continue a growth strategy calling
for the acquisition of other companies engaged in the
production and sale of shell eggs and egg products. Federal
anti-trust laws require regulatory approval of acquisitions that
exceed certain threshold levels of significance. Also, the
Company is subject to federal and state laws generally
prohibiting anti-competitive conduct. Because the shell egg production
and distribution industry is so fragmented, the
Company believes that its sales of shell eggs during its last fiscal year
represented only approximately 7.5% of domestic egg sales
notwithstanding that it is the largest producer and distributor of shell
eggs in the United States based on independently prepared
industry statistics. Accordingly, the Company believes that
regulatory approval of any future acquisitions generally
will not be required and, if required, that such approvals will be obtained.
The construction of new, more efficient production and
processing facilities is an integral part of the
Company's growth strategy. Any such construction can be expected to
require compliance with environmental laws and
regulations, including the receipt of permits, that could cause schedule
delays, although the Company has not experienced any significant
delays in the past.
Shell Eggs
----------
Production. The Company's operations are fully
integrated. It owns facilities to hatch chicks, grow
pullets, manufacture feed and produce, manufacture and distribute
shell eggs and egg products. Company-owned facilities
accounted for approximately 65% of its total fiscal 1997 egg
production, with the balance attributable to contract
producers used by the Company.
Under Cal-Maines arrangements with its contract
producers, the Company owns the entire flock, furnishes
all feed and supplies, owns the shell eggs produced, and
assumes all market risks. The contract producers own their
facilities and are paid a fee based on production with
incentives for performance.
The commercial production of shell eggs requires a
source of baby chicks to be used for laying flock
replacement. The Company produces approximately 98% of its
chicks in its own hatcheries and obtains the balance
from commercial sources. Feed for the laying flocks is
produced by Company-owned and operated mills located
in Alabama, Arkansas, Georgia, Louisiana, Mississippi,
Missouri, New Mexico, North Carolina, Ohio, Oklahoma,
South Carolina, and Texas. All ingredients necessary for
feed production are readily available in the open market
and most are purchased centrally from Jackson, Mississippi.
Approximately 95% of the feed for Company flocks
is manufactured at feed mills owned and operated by the
Company. Poultry feed is formulated using a computer
model to determine the least-cost ration to meet the
nutritional needs of the flocks. Although most feed
ingredients are purchased on an as-needed basis, from time-to-time, when
deemed advantageous, the Company purchases
ingredients in advance with a delayed delivery of several
weeks.
Feed cost represents the largest element of the
Company's farm egg production cost, ranging from 56%
to 64% of total cost in the last five years, or an average
of approximately 60%. Although feed ingredients are
available from a number of sources, Cal-Maine has little, if
any, control over the prices of the ingredients it
purchases, which are affected by various demand and supply
factors. Increases in feed costs not accompanied by
increases in the selling price of eggs can have a material
adverse effect on the results of the Company's operations.
However, higher feed costs may encourage producers to reduce
production, possibly resulting in higher egg prices.
Alternatively, low feed costs can encourage industry
overproduction, possibly resulting in lower egg prices.
Historically, the Company has tended to have higher profit
margins when feed costs are higher. However, this may
not be the case in the future.
After the eggs are produced, they are cleaned,
graded and packaged. Substantially all of the Company-
owned farms have modern in-line facilities that mechanically
gather, clean, grade and package the eggs that are
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
efficiency, the in-line facilities produce a higher
percentage of grade A eggs, which sell at higher prices. Eggs produced
on farms owned by contractors are brought to the
Company's processing plants where they are cleaned, graded
and packaged. Some eggs are sold unprocessed to
other processors.
The Company's egg production activities are subject
to risks to which the agriculture industry, in general,
is exposed. These include, among others, risks associated
with weather conditions and disease factors that could
have a material adverse effect on the Company's operations.
These risks are not within the Company's control
and could have a material adverse effect on its operations.
Also, the marketability of the Company's shell eggs
and egg products is subject to risks such as possible
changes in food consumption opinions and practices
reflecting perceived health concerns.
The Company operates in an industry which is
cyclical, with total demand that is generally level and with
a product which is 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 dampen the extreme cyclicality of the past. New practices, such as
more efficient molting programs, should help contribute
to profitability.
Marketing. Of the approximately 379 million dozen
shell eggs sold by the Company in the fiscal year ended
May 31, 1997, 93% were cleaned, graded and packed in the
Company's processing facilities and sold by the
Company, 5% were used by the Company in its manufacture of
egg products, and 2% were sold direct from the
Company's farms to other shell egg users.
Sales of shell eggs primarily are made to national
and regional supermarket chains that buy direct from the
Company. During fiscal 1997, Cal-Maines largest customer,
H.E. Butt Grocery Company, headquartered in San
Antonio, Texas, accounted for 10.1% of net sales, and the
top 10 customers accounted for slightly more than 50%
of net sales in the aggregate. The majority of eggs sold
are merchandised on a daily or short-term basis. Most sales
to established accounts are on open account with terms
ranging from seven to 30 days. Although the Company has
established a long-term relationship with many of its
customers, such customers are free to acquire shell eggs
from other sources.
The Company sells its shell eggs at prices generally
related to independently quoted wholesale market prices.
The prices of its shell eggs reflect fluctuations in the
quoted market, and the results of the Company's shell egg
operations are materially affected by changes in market
quotations. Egg prices reflect a number of economic
conditions, such as the supply of eggs and the level of
demand, which, in turn, are influenced by a number of
factors that the Company cannot control. No representation can be
made as to the future level of prices, which are subject
to wide fluctuations.
Shell eggs are perishable. Consequently, the
Company maintains 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. Consequently, the Company
generally experiences lower sales and net income in its
first and fourth fiscal quarters ending in August and May,
respectively.
The annual per capita consumption of shell eggs
since 1990 has ranged from 234 to 239, averaging 236.
While the Company believes that increased fast food
restaurant consumption, reduced egg cholesterol levels and
industry advertising campaigns may result in a continuance
of, or possible increase in, current per capita egg
consumption levels, no assurance can be given that per
capita consumption will not decline in the future.
The Company sells the majority of its shell eggs in
approximately 26 states, ranging across the southwest,
southeast, mid-west and mid-Atlantic regions of the United
States. Cal-Maine is a major factor in egg marketing
in a majority of these states. Many states in Cal-Maine's
market area are egg deficit regions; that is, 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 competitors of Cal-Maine exist in each of the
Company's markets.
Egg Products. Egg products produced by the Company
include liquid egg whites, liquid egg yolks, liquid
whole eggs, salt yolk, sugar yolk, and similar products sold
in frozen form, and various forms of dried whole eggs,
egg whites and yolks. The Company's production facility is
located in Jackson, Mississippi. Sales are made
primarily to national accounts which consist principally of
manufacturers of baked goods, mayonnaise and
confections. The Company manufactures and distributes egg
products in liquid, frozen and dried forms and also
processes egg products according to customer specifications
for use in special baking and manufacturing applications.
Egg products are sold on a direct basis to major
institutional users or with the assistance of egg product
brokers. Egg products accounted for approximately 6% of the Company's
net sales in fiscal year 1997.
Of the 25 million dozen of shell eggs used in the
Company's egg products operations in the fiscal year 1997,
approximately 70% were produced by the Company's flocks, and
the balance was purchased by the Company from
outside sources.
Egg product sales are somewhat seasonal, with peak
demands occurring prior to holiday seasons. The
Company's plant is operated at its highest capacity during
periods when egg prices are at their lowest. These
periods normally do not coincide with the high demand
periods for egg products. As a result, the Company's egg
product inventories can be significant, requiring high
working capital. The Company tends to build egg product
inventories during periods of shell egg surpluses and reduce
inventories when demand for shell eggs is stronger.
Egg product inventories vary between two and four months of
sales.
Specialty Eggs. The Company also produces specialty
eggs such as Egg*lands Best and Farmhouse eggs.
Egg*lands Best eggs are patented eggs that are believed by
its developers, based on scientific studies, to cause
no increase in serum cholesterol when eaten as part of a low fat
diet. Cal-Maine produces and processes Egg*lands
Best eggs, under license from Egg*lands Best, Inc. ("EB"), at
its existing facilities, under EB guidelines. The
product is marketed to the Company's established base of
customers at prices that reflect a premium over ordinary
shell eggs. Egg*lands Best eggs accounted for less than 1%
of the Company's net sales in fiscal 1997.
Farmhouse brand eggs are produced at Company facilities by
hens that are not caged, and are provided with a
diet of natural grains and drinking water that is free of
hormones or other chemical additives. Although Farmhouse
eggs account for only a small part of net sales, they meet
the demands of consumers who are sensitive to
environmental and animal welfare issues.
Livestock. The Company's livestock operations
currently consist of the operation of a 1,440 head dairy
facility, from which milk sales are made to a major milk
processor. Milk and cattle sales were approximately 2%
of the Company's net sales in fiscal year 1997.
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. Although the Company is
the largest combined producer, processor and
distributor of shell eggs in the United States, it does not
occupy a controlling market position in any area where its
eggs are sold. The Company competes with approximately 50
other manufacturers of egg products. Egg Products
competition is not limited by geographic boundaries and is
predicated primarily on quality, price, product availability
and terms of sale.
The shell egg production and processing industry has
been characterized by a growing concentration of
production. In 1996, 61 producers with one million or more
layers owned 75.2% of the 253.3 million total U.S.
layers, compared with the 56 producers with one million or
more layers owning 63.6% of the 231.9 million total U.S.
layers in 1990, and 61 producers with one million or more
layers owning 56.2% of the 248.0 million total U.S. layers
in 1985. The Company believes that a continuation of that
concentration trend may result in the reduced cyclicality
of shell egg prices, but no assurance can be given in that
regard.
Patents and Tradenames. The Company does not own
any patents or proprietary technologies, but does
market products under tradenames including Rio Grande,
Farmhouse and Sunups. Cal-Maine produces and
processes Egglands*Best eggs, under license from EB, as
indicated above.
Government Regulation. The Company is subject to
federal and state regulations relating to grading, quality
control, labeling, sanitary control, and waste disposal. As
a fully-integrated egg producer, the Company's shell egg
facilities are subject to USDA and FDA regulation. The
Company's shell egg facilities are subject to periodic
USDA inspections, and its egg products plant is subject to
continuous on-site USDA inspection. Cal-Maine
maintains its own inspection program to assure compliance
with the Company's own standards and customer
specifications.
Cal-Maine is subject to federal and state
environmental laws and regulations and has all necessary
permits.
Employees. As of May 31, 1997, the Company had a
total of approximately 1,500 employees of whom 1,353
worked in egg production, processing and marketing, 66 were
engaged in feed mill operations, 45 in dairy activities,
and 36 were administrative employees, including officers, at
the Company's executive offices. About 20% of the
Company's personnel is part-time. None of the Company's
employees are covered by a collective bargaining
agreement. The Company considers its relations with
employees to be good.
ITEM 2. PROPERTIES
- -------------------
The Company owns or leases farms, processing plants,
hatcheries, feed mills, warehouses, offices and other
property located in Alabama, Arkansas, Georgia, Kansas,
Kentucky, Louisiana, Mississippi, Missouri, New Mexico,
North Carolina, Ohio, Oklahoma, South Carolina, and Texas,
as follows: two breeding facilities, two hatcheries,
15 feed mills, 12 production facilities, 10 pullet growing
facilities, 20 processing and packing facilities, two
wholesale distribution facilities, one egg products plant and a dairy
farm. Most of the Company's property is owned and
encumbered. See Notes 6, 7 and 8 of the Notes to
Consolidated Financial Statements of the Company.
The Company operates 226 over-the-road tractors and
259 trailers, of which 82 and 153 are owned,
respectively, and the balance are leased.
At May 31, 1997, the Company owned approximately
11,438 acres of land and owned facilities to:
Operation Capacity
--------- --------
Hatch 13,000,000- pullet chicks per year
Grow (1) 5,865,000- pullets per year
House (2) 12,000,000- hens
Produce 542- tons of feed per hour
Process (3) 4,865- cases of eggs per hour
Break (3) 500- cases of eggs per hour
Dry (4) 8,000- lbs. per hour liquid whites
5,500- lbs. per hour liquid whole eggs
5,500- lbs. per hour liquid yolk
(1) The Company uses contract growers for the production of
an additional 2.8 million pullets.
(1) The Company controls approximately 15.6 million layers,
of which 5.4 million are cared for by contract producers.
(1) One case equals 30 dozen eggs.
(1) One case of large eggs yields approximately 40 lbs. of
liquid egg or approximately 10 lbs. of dried egg.
Over the past five fiscal years, Cal-Maine's capital
expenditures have been approximately $92 million,
including the acquisition of the operations of other
businesses. The Company's facilities currently are
maintained in good operable condition and are insured to an
extent the Company deems adequate.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security
holders, through the solicitation of proxies or otherwise,
during the fourth quarter ended May 31, 1997.
PART II.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
-------------------
The Company's Common Stock commenced trading on the
NASDAQ National Market on December 11,
1996 under the symbol CALM. Prior thereto, there had been
no public market for the Common Stock. The
following table sets forth the high and low daily sale
prices for the third quarter beginning December 11, 1996 and
the fourth quarter of fiscal year 1997.
Fiscal Year 1997 High Low
---------------- ---- ---
Third Quarter $ 9 3/8 $ 6 5/8
Fourth Quarter 8 1/2 5
As of May 31, 1997, there were approximately 130
record holders of the Company's Common Stock and
approximately 1,170 beneficial owners whose shares were held
by nominees or broker dealers.
On September 24, 1996, the shareholders approved an
amendment to the Company's certificate of
incorporation to authorize capital stock consisting of
30,000,000 shares of Common Stock and 1,200,000 shares of
Class A Common Stock, each class having a par value of $0.01
per share, and to reclassify and change each
previously outstanding share of Class A Common Stock, $1.00
par value per share, and each previously outstanding
share of Class B Common Stock, $1.00 par value per share,
into 1,200 shares each of Common Stock and Class A
Common Stock, respectively, each class with a par value of
$0.01 per share. The Company's Amended and
Restated Certificate of Incorporation, which reflects such
authorized capital stock, was effective as of October 3,
1996. Unless otherwise indicated, all references to
historical earnings per share, and number and class of
shares outstanding, are as adjusted for the aforesaid
recapitalization, reclassification and stock split of the
Company's capital stock.
There is no public trading market for the Class A
Common Stock, all the outstanding shares of which are
owned by Fred A. Adams, Jr., Chairman of the Board or
Directors and Chief Executive Officer of the Company.
Although the Company has not paid any cash dividends
on its Common Stock, the Board of Directors will
consider the possible declaration of cash dividends in the
future in the light of the Company's results of operations,
financial condition, capital requirements for possible
acquisitions and new construction, and other relevant
economic factors. Under the terms of the Company's agreements with
its principal lenders, Cal-Maine is subject to various
financial covenants limiting its ability to pay dividends.
The Company is required to maintain minimum levels of
working capital and net worth, to limit capital
expenditures, leasing transactions and additional long-term
borrowings, and to maintain various current and cash-flow
coverage ratios, among other restrictions. For the
foreseeable future, the Company expects to retain earnings
for use in its business.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The income statement data presented below for each
of the fiscal years, which end on the Saturday
closest to May 31, have been derived from the Company's
financial statements, which have been audited by
Ernst & Young, LLP, independent auditors. The selected
financial data should be read in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and with the
consolidated financial statements of the Company and notes
thereto included elsewhere in this report.
(Amounts in thousands, except per share data)
Fiscal Years Ended
------------------
May 31, June 1, June 3, May 28, May 29,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Statement of Operations Data:
Net sales $292,526 $282,844 $242,649 $254,713 $235,908
Cost of sales 236,273 230,850 223,965 225,227 204,115
-------- -------- -------- -------- --------
Gross profit 56,253 51,994 18,684 29,486 31,793
Selling, general and
administrative 28,930 29,653 27,934 26,094 24,776
-------- -------- -------- -------- --------
Operating income (loss) 27,323 22,341 (9,250) 3,392 7,017
Other income (expense):
Interest expense (4,277) (5,487) (5,052) (4,318) (3,034)
Equity in income of affiliate 524 721 24 283 506
Other 783 (190) 993 1,238 674
-------- -------- -------- -------- --------
(2,970) (4,956) (4,035) (2,797) (1,854)
-------- -------- -------- -------- --------
Income (loss) before
income taxes 24,353 17,385 (13,285) 595 5,163
Income tax expense (benefit) 9,508 6,460 (4,600) 371 2,060
-------- -------- -------- -------- --------
Net income (loss) $ 14,845 $ 10,925 $ (8,685) $ 224 $ 3,103
======== ======== ======== ======== ========
Net income (loss) per
common share (1) $ 1.21 $ 0.94 $ (0.74) $ 0.02 $ 0.26
======== ======== ======== ======== ========
Weighted average shares
outstanding (1) 12,285 11,584 11,700 11,760 11,821
Balance Sheet Data:
Working capital $ 45,390 $ 26,742 $ 10,092 $ 41,920 $ 24,991
Total assets 182,294 149,991 147,402 123,018 100,806
Total debt (including
current portion) 64,436 63,426 64,211 43,440 36,966
Total stockholders equity 74,642 47,900 37,472 46,208 32,296
(1) Reflects the 1,200-for-1 stock split October 3, 1996 as
if the split had occurred in the earliest period presented.
ITEM 7. MANAGEMENTS' 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
and in the manufacture and sale of egg products. 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, manufacture and distribute shell
eggs and egg products. The Company currently is the
largest producer and distributor of fresh shell eggs in the
United States. Shell eggs account for over 90% 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. Egg products are sold both
on a direct basis and through egg product brokers
to institutional users, including manufacturers of baked
goods, mayonnaise and confections.
The Company currently uses contract producers for
approximately 35% 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, as needed, for
resale by the Company from outside producers.
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 Income expressed as a percentage
of net sales.
Percentage of Net Sales
Fiscal Years Ended
------------------
May 31, 1997 June 1, 1996 June 3, 1995
------------ ------------ ------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 80.8 81.6 92.3
------ ------ ------
Gross profit 19.2 18.4 7.7
Selling, general & administrative
expenses 9.9 10.5 11.5
------ ------ ------
Operating income (loss) 9.3 7.9 (3.8)
Other income (expense) (1.0) (1.8) (1.7)
------ ------ ------
Income (loss) before taxes 8.3 6.1 (5.5)
Income tax expense (benefit) 3.2 2.2 (1.9)
------ ------ ------
Net income (loss) 5.1% 3.9% (3.6)%
====== ====== ======
Fiscal Year Ended May 31, 1997 Compared to Fiscal Year Ended June 1, 1996
- -------------------------------------------------------------------------
Net Sales. Net sales in the fiscal year ended May
31, 1997 were $292.5 million, an increase of $9.7 million,
or 3.4%, over net sales of $282.8 million in the fiscal year
ended June 1, 1996. The increase was due to higher shell
egg market prices. With improved average shell egg market
prices, Cal-Maines net average selling price during
fiscal 1997 was $.722 per dozen shell eggs, as compared to
$.684 per dozen shell eggs for fiscal 1996, an increase
of 5.6%. During fiscal 1997, the number of dozens sold
decreased due to reduced customer demand. The Company
produced 309.8 million dozens of eggs in fiscal 1997,
compared with 308.8 million dozens in fiscal 1996. The
Company purchased approximately 73.4 million dozens of eggs
from outside sources during fiscal 1997, compared
to 80.2 million dozens of eggs in fiscal 1996. During
fiscal 1997, the Company completed two acquisitions. In the
second quarter of fiscal 1997, the shell egg production
facilities of Sunbest Farms were purchased. Approximately
2% of fiscal 1997 dozens of eggs sold were attributed to
this facility. As a production facility only, the eggs
produced were transferred to other company locations for
processing and marketing. In April 1997, mid-fourth
quarter, the shell egg production and processing facilities
of Southern Empire Egg Farm, Inc. were acquired. Due
to the late fiscal purchase date, these facilities accounted
for approximately 1% of the dozens of eggs sold and net
sales for fiscal 1997.
Cost of Sales. The cost of sales in fiscal 1997 was
$236.3 million, an increase of $5.4 million, or 2.3%, above
the fiscal 1996 cost of sales of $230.9 million. The
increase was due to an increase in feed ingredient cost.
The increase in ingredient cost began in fiscal 1996 and
continued through the second quarter of fiscal 1997. Feed
cost per dozen eggs produced during fiscal 1997 was $.284,
compared to $.266 per dozen in fiscal 1996, an increase of
6.8%. As mentioned above in the sales discussion, the
number of outside eggs purchased decreased for fiscal 1997.
The potential dollar decrease for fewer dozens purchased was
offset by the higher per dozen price paid, due to the
improved shell egg market prices. With increases in sales
exceeding increases in cost of sales, the gross profit
increased from 18.4% of net sales for fiscal 1996 to 19.2%
for fiscal 1997.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses in fiscal 1997
were $28.9 million, a decrease of $700,000, or 2.4%, as compared
to the $29.6 million for fiscal 1996. For the current
fiscal year, a decrease in health insurance expenses was the
major reason for the lower dollar costs. As a percent
of net sales, selling, general and administrative expenses
have decreased from 10.5% for fiscal 1996 to 9.9% for the
current fiscal year.
Operating Income. As a result of the above, the
Company's operating income was $27.3 million in fiscal
1997, an increase of $5.0 million, or 22.3%, as compared to
an operating income of $22.3 million for fiscal 1996.
As a percent of net sales, operating income for fiscal 1997
increased to 9.3%, as compared to 7.9% for fiscal 1996.
Other Income (Expense). Other expense for fiscal
1997 was $3.0 million, a decrease of $2.0 million, or 40%,
as compared to other expense of $5.0 million for fiscal
1996. Interest expense for fiscal 1997 was $4.3 million, a
decrease of $1.2 million, or 22.1%, as compared to an
interest expense of $5.5 million for fiscal 1996. Higher
interest expense for fiscal 1996 was due to borrowings under
lines of credit from banks that were repaid by fiscal
1996 year end. Interest income was $597,000 for fiscal 1997,
compared to $141,000 for fiscal 1996. As a percent of
net sales, other expenses were 1.0% for fiscal 1997,
compared to 1.8% for fiscal 1996.
Income Taxes. As a result of the above, the
Company's pre-tax income was $24.4 million in fiscal 1997,
compared to pre-tax income of $17.4 million for fiscal 1996.
For fiscal 1997, an income tax expense of $9.5 million
was recorded with an effective rate of 39.0% as compared to
an income tax expense of $6.5 million with an effective
rate of 37.2% for fiscal 1996. The increase in the
effective rate is due primarily to the increase to the
maximum statutory federal rate of 35% from 34% because the Company's
taxable income exceeded the amount for which
the maximum rate is required. The Company also increased
the deferred tax liability for the increased federal
statutory rate.
Net Income. As a result of the above, net income
for fiscal 1997 was $14.8 million, or $1.21 per share,
compared to net income of $10.9 million, or $.94 per share,
for fiscal 1996.
Fiscal Year Ended June 1, 1996 Compared to Fiscal Year Ended June 3, 1995
- -------------------------------------------------------------------------
Net Sales. Net sales in the fiscal year ended June
1, 1996 were $282.8 million, an increase of $40.2 million,
or 16.6%, over net sales of $242.6 million in the fiscal
year ended June 3, 1995. The increase was due to higher
shell egg prices. Apart from the impact of acquisitions and new
facilities construction, the sale price of shell eggs is the
most important factor in year-to-year changes in the
Company's net sales. Cal-Maines net average selling price
during fiscal 1996 was $.684 per dozen shell eggs, as
compared to $.528 per dozen shell eggs for fiscal 1995.
During fiscal 1996, the Company experienced a decrease in the
number of eggs sold because of a slight reduction in flock
size and fewer purchases from outside sources. The Company
produced 308.8 million dozens of eggs in fiscal 1996,
compared with 322.7 million dozens in fiscal 1995. The
Company purchased approximately 80.2 million dozens of
eggs from outside sources during fiscal 1996, compared to
105.0 million in fiscal 1995. Approximately 12.9% of net
sales in fiscal 1996 were attributable to shell egg
production and processing facilities acquired from Wayne
Detling Farm in 1994 and A & G Farms in 1995, and approximately 8.6%
of fiscal 1996 net sales were attributable to new
facilities constructed by the Company in Edwards,
Mississippi in 1994 and Waelder, Texas in 1995. Such
acquired facilities and constructed facilities accounted for 11.6%
and 5.4%, respectively, of fiscal 1995 net sales.
Cost of Sales. The total cost of sales in fiscal
1996 was $230.9 million, an increase of $6.9 million, or
3.1%, above the 1995 fiscal cost of sales of $224.0 million. The
increase was primarily due to an increase in feed
ingredient cost from $.211 per dozen eggs in fiscal 1995 to
$.266 per dozen eggs in fiscal 1996. The gross profit
margin increased to 18.4% in fiscal 1996 from 7.7% in fiscal
1995, as a result of the increase in shell egg prices,
which more than offset the decrease in the number of eggs
produced and the increase in feed cost. Cost of sales,
as a percentage of net sales, sharply declined in the fiscal
year ended June 1, 1996, primarily as a result of increases
in shell egg prices.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses in fiscal 1996
were $29.7 million, an increase of $1.8 million, or 6.2%, from
$27.9 million for fiscal 1995. Selling, general and
administrative expenses, as a percent of net sales, were
10.5% in fiscal 1996, a decrease from 11.5% in fiscal 1995.
Operating Income. As the result of the above, the
Company's operating income was $22.3 million in fiscal
1996, compared to an operating loss of $9.3 million in
fiscal 1995.
Other Income (Expense). Other expense increased
from $4.0 million in fiscal 1995 to $5.0 million in fiscal
1996. An increase of approximately $1.0 million in the
Company's equity in the income of BCM Egg Company
(BCM), a partnership in which Cal-Maine is a 50% owner, was
more than offset by an increase in interest expense
of $400,000 and a $1.2 million reduction in other income.
Income Taxes. As a result of above, the Company's
pre-tax income was $17.4 million in fiscal 1996,
compared to a $13.3 million loss before income taxes in
fiscal 1995. Income tax expense was $6.5 million in fiscal
1996 compared to an income tax benefit of $4.6 million in
fiscal 1995. The effective income tax rate is 37.2% for
the year ended June 1, 1996, compared to 34.6% for the year
ended June 3, 1995. This increase was principally a
result of the increased effective tax rate for state income
taxes.
Net Income. As a result of the above, the Company
had net income of $10.9 million, or $.94 per share, in
fiscal 1996, compared to a net loss of $8.7 million, or $.74
per share, in fiscal 1995.
Capital Resources and Liquidity. The Company's
working capital at May 31, 1997 was $45.4 million
compared to $26.7 million at June 1, 1996. The Company's
current ratio was 2.26 at May 31, 1997 as compared
with 1.79 at June 1, 1996. 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 May 31, 1997.
The Company's long-term debt at that date, including
current maturities and capitalized lease obligations,
amounted to $64.4 million, as compared to $63.4 million at
June 1, 1996.
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 May
31, 1997.
On December 11, 1996, the Company sold 1,400,000
shares of Common Stock at a price of $7.00 per share
in an underwritten public offering. On December 30, 1996
and January 9, 1997, the Company sold, at $7.00 per
share, a total of 330,000 additional shares of Common Stock
in connection with the public offering upon exercise
of the underwriter over-allotment option. The $10.6 million
of net proceeds from the public offering provide the
Company additional funds for possible future acquisitions of
shell egg operations and related facilities, for working
capital requirements and for general corporate purposes.
The Chairman of the Board of Directors and Chief
Executive Officer of the Company also sold certain of his
shares of Common Stock in the public offering and used
$1.7 million of the proceeds received by him to pay, in
full, his non-interest bearing note held by the Company.
For the fiscal year ended May 31, 1997, $32.5
million of net cash was provided by operating activities, of
which $16.2 million was used for construction and purchases
of property, plant and equipment and $7.0 million was
used for the purchase of shell egg production and processing
businesses. The Company has expended $11.5 million
in the construction of new shell egg production, processing
and feed mill facilities in Chase, Kansas. The Company
is financing approximately $13.5 million of the estimated
$16.0 million total project cost through industrial revenue
bonds maturing in 2011. Borrowings under the industrial
revenue bond agreement totaled $1.0 million at May 31,
1997. Long-term debt of $5.0 million was assumed in
connection with the purchase of a shell egg production and
processing business in fiscal 1997. In fiscal 1998, the
Company plans to commence construction of new shell egg
production and processing facilities in Waelder, Texas. The
estimated cost of construction is approximately $13.9
million with financing plans of approximately $10.4 million
in borrowings from an insurance company.
In fiscal 1997, $7.0 million was used to repay
long-term debt and $3.3 million was received on notes
receivable and from investments.
The net result of these activities was an increase
in cash and equivalents of $19.8 million for fiscal 1997.
The Company has $3.2 million of deferred tax
liability due to a subsidiarys change from a cash basis to
an accrual basis taxpayer on May 29, 1988. This liability
will become payable with respect to the first fiscal year in
which the Company fails to qualify as a family farming
corporation within the meaning of Section 447 of the
Internal Revenue Code (the Code). The Company could lose
such tax status as a result of a change in the tax
laws, and will lose such tax status if its annual revenues
from farming are less than $111.5 million, or if the members
of a single family fail to own at least 50% of the voting
power of all voting stock and at least 50% of all other
classes of stock. The Company had farming revenues of
$258.6 million for fiscal 1997. The Company's farming
revenues and the ownership of its stock by Fred Adams, Jr.
and other members of his family presently qualify the
corporation as a family farming corporation. If family
farming corporation status is lost, 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 stockholders equity, as these taxes
have been accrued and are reflected on the Company's
balance sheet. See Note 11 of Notes to Consolidated
Financial 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 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
managements 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 which are 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
- --------------------------------------------------------
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements, schedules and
supplementary data required by this item are listed in Item
14(a) of this report and included at pages F-1 through F-15.
Quarterly Financial Data: (unaudited)
Fiscal Year 1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $ 65,563 $ 78,629 $ 79,649 $ 68,685
Operating income 2,711 10,744 11,631 2,237
Net income 1,097 5,931 6,937 880
Net income per share $ .10 $ .52 $ .54 $ .07
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information called for by this item with respect
to directors and executive officers is incorporated by
reference to the Company's definitive proxy statement which
is to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 in connection with the
Company's 1997 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information called for by this item is
incorporated by reference to the Company's definitive proxy
statement which is to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in
connection with the Company's 1997 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------------
The information called for by this item is
incorporated by reference to the Company's definitive proxy
statement which is to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in
connection with the Company's 1997 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information called for by this item is
incorporated by reference to the Company's definitive proxy
statement which is to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in
connection the Company's 1997 Annual Meeting of
Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
AND REPORTS ON FORM 8-K
- -------------------------------------------------------
(a) Documents Filed as Part of this Report
(1) Financial Statements-filed at pages
F-1 through F-15 of this Report.
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of May 31, 1997 and June 1, 1996
Consolidated Statements of Operations for the Years Ended
May 31, 1997, June 1, 1996 and June 3, 1995
Consolidated Statements of Shareholders Equity for the
Years Ended May 31, 1997, June 1, 1996 and June 3, 1995
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1997, June 1, 1996 and June 3, 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules - filed at page S-1 of this Report.
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules not included have been omitted
because they are either not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
(3) Exhibits
The following exhibits are filed herewith or incorporated by
reference:
Exhibit
Number Exhibit
- ------ -------
3.1 Amended and Restated Certificate of Incorporation of
the Registrant.*
3.2 By-Laws of the Registrant, as amended.*
4.1 See Exhibits 3.1 and 3.2 as to be the rights of
holders of the Registrants common stock.
4.2 Form of Warrant Agreement (including form of Common
Stock Purchase Warrant).*
10.1 Amended and Restated Term Loan Agreement, dated as
of May 29, 1990, between Cal-Maine Foods,
Inc. and Cooperative Centrale Raiffeisen -
Boerenleenbank B.A., Rabobank Nederland, New York
Branch, and Amended and Restated Revolving Credit
Agreement among Cal-Maine Foods, Inc., and
Barclays Banks PLD (New York) and Cooperatieve
Centrale Raiffeisen-Borenleenbank B.A., dated as of
29 May 1990, and amendments thereto (without
exhibits).*
10.1(A) Amendment to Term Loan Agreement (see Exhibit 10.1)
dated as of June 3, 1997 (without exhibits).
10.2 Note Purchase Agreement, dated as of November 10,
1993, between John Hancock Mutual Life
Insurance Company and Cal-Maine Foods, Inc., and
amendments thereto (without exhibits).*
10.3 Loan Agreement, dated as of May 1, 1991, between
Metropolitan Life Insurance Corporation and Cal-
Maine Foods, Inc., and amendments thereto (without
exhibits).*
10.4 Employee Stock Ownership Plan, as Amended and
Restated.* +
10.5 1993 Stock Option Plan, as Amended.* +
10.6 Wage Continuation Plan, dated as of July 1, 1986,
among R.K. Looper, B.J. Raines and the Registrant.*+
10.7 Wage Continuation Plan, dated as of July 1, 1986,
between Jack Self and the Registrant, as amended on
September 2, 1994.* +
10.8 Wage Continuation Plan, dated as of April 15, 1988,
between Joe Wyatt and the Registrant.* +
10.9 Redemption Agreement, dated March 7, 1994, between
the Registrant and Fred R. Adams, Jr.*
11 Statement regarding computation of earnings per share.
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
*Incorporated by reference to the same exhibit number in
Registrants Form S-1 Registration Statement No. 333-14809.
+Management contract or compensatory plan.
The Company agrees to file with the Securities and
Exchange Commission, upon request, copies of any instrument
defining the rights of the holders of its consolidated long-term debt.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by the
Company covering an event during the fourth quarter
of fiscal 1997. No amendments to previously filed Forms
8-K were filed during the fourth quarter of 1997.
(c) Exhibits Required by Item 601 of Regulation S-K
The exhibits listed in Item 14(a)(3) of this
report, and not incorporated by reference to a separate
file, follow page S-1.
(d) Financial Statement Schedules Required by
Regulation S-X
The financial statement schedule required by
Regulation S-X is filed at page S-1.
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 21st day of August, 1997.
CAL-MAINE FOODS, INC.
/s/ Fred R. Adams, Jr.
-----------------------
Fred R. Adams, Jr.
Chairman of the Board and
Chief Executive Officer
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
- --------- ----- ----
/s/ Fred R. Adams, Jr. Chairman of the Board and August 21, 1997
- ----------------------- Chief Executive Officer
Fred R. Adams, Jr. (Principal Executive Officer)
/s/ Richard K. Looper Vice Chairman of the Board August 21, 1997
- ----------------------- and Director
Richard K. Looper
/s/ Adolphus B. Baker President and Director August 21, 1997
- -----------------------
Adolphus B. Baker
/s/ Bobby J. Raines Vice President, Chief Financial August 21, 1997
- ----------------------- Officer, Treasurer, Secretary
Bobby J. Raines and Director
(Principal Financial Officer)
/s/ Charles F. Collins Vice President, Controller August 21, 1997
- ----------------------- and Director
Charles F. Collins (Principal Accounting Officer)
/s/ Jack B. Self Vice President and Director August 21, 1997
- -----------------------
Jack B. Self
/s/ Joe M. Wyatt Vice President and Director August 21, 1997
- -----------------------
Joe M. Wyatt
/s/ W. D. Cox Director August 21, 1997
- -----------------------
W. D. Cox
/s/ R. Faser Triplett Director August 21, 1997
- -----------------------
R. Faser Triplett
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets as of May 31, 1997 and June 1, 1996 F-3
Consolidated Statements of Operations for the years ended
May 31, 1997, June 1, 1996 and June 3, 1995 F-4
Consolidated Statements of Shareholders' Equity for the
years ended May 31, 1997, June 1, 1996 and June 3, 1995 F-5
Consolidated Statements of Cash Flows for the years ended
May 31, 1997, June 1, 1996 and June 3, 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders Cal-Maine Foods, Inc.
We have audited the accompanying consolidated balance sheets
of Cal-Maine Foods, Inc. and subsidiaries as of May
31, 1997 and June 1, 1996, and the related consolidated
statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended May 31,
1997. Our audit also includes the financial statement
schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the 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 that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Cal-Maine Foods, Inc. and subsidiaries
at May 31, 1997 and June 1, 1996, and the consolidated
results of their operations and their cash flows for each
of the three years in the period ended May 31, 1997, in
conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Jackson, Mississippi
July 10, 1997
F-2
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
May 31, 1997 June 1, 1996
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 23,737 $ 3,959
Receivables:
Trade receivables, less allowance for doubtful
accounts of $62 in 1997 and $31 in 1996 (Note 8) 12,779 13,387
Other 307 160
--------- ---------
13,086 13,547
Recoverable federal and state income taxes 1,137 460
Inventories (Notes 5 and 8) 42,594 40,969
Prepaid expenses and other current assets 986 1,513
--------- ---------
Total current assets 81,540 60,448
Other assets:
Notes receivable and investments 4,747 5,318
Other 661 529
--------- ---------
5,408 5,847
Property, plant and equipment, less
accumulated depreciation (Notes 6 and 8) 94,454 82,426
Leased property under capital leases, less
accumulated amortization (Note 7) 892 1,270
--------- ---------
Total assets $ 182,294 $ 149,991
========= =========
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 15,267 $ 13,780
Accrued wages and benefits 4,314 4,077
Accrued expenses and other liabilities 2,114 2,237
Current maturities of:
Long-term debt 4,302 3,807
Capitalized lease obligations 238 450
--------- ---------
4,540 4,257
Deferred income taxes (Note 11) 9,915 9,355
--------- ---------
Total current liabilities 36,150 33,706
Long-term debt, less current maturities (Note 8) 59,177 58,214
Capitalized lease obligations, less
current maturities (Note 7) 719 955
Deferred expenses (Note 9) 1,655 1,561
Deferred income taxes (Note 11) 9,951 7,655
--------- ---------
Total liabilities 107,652 102,091
Commitments and contingencies (Notes 8 and 12)
Stockholders' equity (Note 2):
Common stock, $.01 par value (Notes 9 and 10):
Authorized shares-30,000,000 at May 31, 1997
and 18,000,000 at June 1, 1996
Issued and outstanding shares-17,565,200 at
May 31, 1997 and 17,035,200 at June 1, 1996 176 170
Class A common stock, $.01 par value
Authorized shares-1,200,000 at May 31, 1997
and none at June 1, 1996
Issued and outstanding shares-1,200,000 at
May 31, 1997 and none at June 1, 1996 12 -
Paid-in capital 18,785 8,229
Retained earnings 61,903 47,058
Common stock in treasury (5,583,200 shares in
1997 and 5,522,400 shares in 1996) (6,234) (5,863)
Note receivable - stockholder - (1,694)
--------- ---------
Total stockholders' equity 74,642 47,900
--------- ---------
Total liabilities and stockholders' equity $ 182,294 $ 149,991
========= =========
See accompanying notes.
F-3
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
Fiscal year ended
-----------------
May 31 June 1 June 3
1997 1996 1995
------ ------ ------
Net sales $292,526 $282,844 $242,649
Cost of sales 236,273 230,850 223,965
-------- -------- --------
Gross profit 56,253 51,994 18,684
Selling, general and administrative 28,930 29,653 27,934
-------- -------- --------
Operating income (loss) 27,323 22,341 (9,250)
Other income (expense):
Interest expense (Note 8) (4,277) (5,487) (5,052)
Equity in income of affiliates (Note 4) 524 721 24
Other 783 (190) 993
-------- -------- --------
(2,970) (4,956) (4,035)
-------- -------- --------
Income (loss) before income taxes 24,353 17,385 (13,285)
Income tax expense (benefit) (Note 11) 9,508 6,460 (4,600)
-------- -------- --------
Net income (loss) $ 14,845 $ 10,925 $ (8,685)
======== ======== ========
Net income (loss) per common share $ 1.21 $ .94 $ (.74)
======== ======== ========
See accompanying notes.
F-4
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
Common Stock Note
------------------------------------ Rec-
Cls A Cls A Treas Treas Pd-in Ret Stock-
Shrs Amt Shrs Amt Shrs Amt Cap Erngs holder Total
----- ---- ----- ----- ----- ------- ------ ------ ------- -------
Balance at
May 28, 1994 17035 $170 - $ - 5290 $(5036) $ 8231 $44818 $(1694) $46489
Redemption
of fractional
shares of
common stock - - - - - - (1) - - (1)
Purchases of
common stock
for treasury - - - - 90 (331) - - - (331)
Net loss for
fiscal 1995 - - - - - - - (8685) - (8685)
----- ---- ----- ----- ----- ------- ------ ------ ------- ------
Balance at
June 3, 1995 17035 170 - - 5380 (5367) 8230 36133 (1694) 37472
Redemption
of fractional
shares of
common stock - - - - - - (1) - - (1)
Purchases of
common stock
for treasury - - - - 142 (496) - - - (496)
Net income for
fiscal 1996 - - - - - - - 10925 - 10925
----- ---- ----- ----- ----- ------- ------ ------ ------- -------
Balance at
June 1, 1996 17035 170 - - 5522 (5863) 8229 47058 (1694) 47900
Exchange of
common stock
for Class
A common
stock (1200) (12) 1200 12 - - - - - -
Issuance of
common
stock 1730 18 - - - - 10562 - - 10580
Redemption
of fractional
shares of
common stock - - - - - - (6) - - (6)
Purchase of
common stock
for treasury - - - - 61 (371) - - - (371)
Repayment of
note rec-
stockholder - - - - - - - - 1694 1694
Net income for
fiscal 1997 - - - - - - - 14845 - 14845
----- ---- ----- ----- ----- ------- ------ ------ ------- -------
Balance at
May 31, 1997 17565 $176 1200 $ 12 5583 $(6234) $18785 $61903 $ - $74642
===== ==== ===== ===== ===== ======= ====== ====== ======= =======
See accompanying notes.
F-5
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
-----------------------------
May 31 June 1 June 3
1997 1996 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $14,845 $10,925 $(8,685)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 10,550 10,444 9,894
Provision for doubtful accounts 52 41 4
Provision for deferred income taxes 2,856 4,660 (3,210)
Equity in income of affiliates (524) (721) (24)
(Gain) loss on sales of property,
plant and equipment 69 956 (873)
Increase in deferred compensation 60 60 60
Change in operating assets and liabilities,
net of effects from purchases of shell
egg production and processing businesses
in 1997 and 1995:
(Increase) decrease in receivables and
other assets 1,702 (2,220) 2,388
(Increase) decrease in inventories 1,238 (2,599) 2,205
Increase (decrease) in accounts payable,
accrued expenses and deferred expenses 1,635 3,728 (2,033)
-------- -------- --------
Net cash provided by (used in) operating
activities 32,483 25,274 (274)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (16,189) (8,768) (15,944)
Purchases of shell egg production and
processing businesses (6,956) - (2,883)
Payments received on notes receivable and
from investments 1,634 513 136
Increase in note receivable and investments (15) (13) (40)
Net proceeds from sales of property, plant
and equipment 914 687 1,292
-------- -------- --------
Net cash used in investing activities (20,612) (7,581) (17,439)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 10,580 - -
Net borrowings (payments) under line of credit - (15,500) 15,500
Long-term borrowings 3,000 5,050 6,000
Principal payments on long-term debt and
capital leases (6,990) (5,835) (5,432)
Payments received on note receivable-stockholder 1,694 - -
Purchases of common stock for treasury (371) (497) (332)
Redemption of fractional shares of common stock (6) (2) (1)
-------- -------- --------
Net cash provided by (used in) financing
activities 7,907 (16,784) 15,735
-------- -------- --------
Increase (decrease) in cash and cash equivalents 19,778 909 (1,978)
Cash and cash equivalents at beginning of year 3,959 3,050 5,028
-------- -------- --------
Cash and cash equivalents at end of year $23,737 $ 3,959 $ 3,050
======== ======== ========
Non-cash investing and financing activities:
Note payable for purchase of shell egg
production and processing business $ 5,000 $ - $ -
======== ======== ========
Notes received from sales of properties $ 88 $ 664 $ 330
======== ======== ========
Capital lease obligations for equipment $ - $ - $ 676
======== ======== ========
See accompanying notes.
F-6
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
May 31, 1997
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Cal-Maine Foods, Inc. and its subsidiaries (the Company")
all of which are wholly-owned. All significant intercompany
transactions and accounts have been eliminated in
consolidation.
Business
The Company is engaged in the production, processing and
distribution of shell eggs and egg products and livestock
operations. The Company's operations are significantly affected by the
market price fluctuation of its principal products sold,
shell eggs, and the costs of its principal ingredients, corn and other
grains. In fiscal years 1997 and 1996, corn prices were
historically high, which adversely affected cost of goods sold. Management
anticipates lower corn prices in fiscal year 1998 which will
have a positive effect on the fiscal 1998 cost of goods sold.
Primarily all of the Company's sales are to wholesale egg
and egg products buyers in the southwestern, southeastern,
midwestern and mid-Atlantic regions of the United States. Revenue is
recognized when shell eggs and products are shipped to
customers. 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. One customer accounted
for 10.1% of the Company's net sales in fiscal 1997. No single
customer accounted for more than 10% of the Company's net
sales in fiscal years 1996 and 1995.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amount 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.
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 18
weeks. Flock costs are amortized over the productive lives
of the flocks, generally one to two years.
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation is provided by the straight-line method over
the estimated useful lives, which is 15 to 25 years for buildings and
improvements and 3 to 8 years for machinery and equipment.
F-7
2. Significant Accounting Policies (contd.)
Income Taxes
Income taxes have been 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.
Stock Based Compensation
The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to or
above the fair value of the shares at the date of the grant. The Company
accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for the
stock option grants.
Net Income Per Common Share
Net income per common share is based upon the weighted
average number of common shares outstanding of 12,285,000,
11,584,000, and 11,700,000 during fiscal 1997, 1996 and
1995, respectively.
Impact of Recently Issued Accounting Standards
Effective June 2, 1996, the Company adopted FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. Statement No. 121
also addresses the accounting for long-lived assets that are
expected to be disposed of. The effect of this adoption was
not material to the Company's financial position or results
of its operations.
In February 1997, the FASB Statement No. 128, Earnings per
Share, was issued. Effective in the third quarter of fiscal
1998, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating
earnings per share, the dilutive effect of stock options
will be excluded. The impact of Statement 128 on the calculation of earnings
per share is not expected to be material.
Fiscal Year
The Company's fiscal year-end is on the Saturday nearest May
31 which was May 31, 1997 (52 weeks), June 1, 1996 (52
weeks), and June 3, 1995 (53 weeks) for the most recent fiscal
three years.
2. Initial Public Offering
During December 1996 and January 1997, the Company sold
1,730,000 shares in aggregate of its common stock at $7 per
share in an underwritten initial public offering (the "Offering").
Net proceeds from the Offering were $10,580.
3. Acquisitions
In April 1997, the Company purchased certain operating
assets of a shell egg production and processing business for
$10,654, which included a $5,000 note payable to the seller. The
transaction was accounted for as a purchase.
In January 1997, the Company purchased, for $1,302, certain
operating assets of a shell egg production business and
accounted for the transaction as a purchase.
In June 1994, the Company purchased, for $2,883, certain
inventories, land and equipment of a shell egg production
and processing
F-8
3. Acquisitions (contd.)
business and accounted for the transaction as a purchase. In
connection with the purchase, the Company leased
substantially all facilities and certain equipment of the business under
an operating lease with monthly rentals of $79 through May
1998. The Company may renew the lease for three years with monthly
rentals of $79 through May 2001. The Company has the option
to purchase the facilities and equipment for approximately
$3,820 after fiscal 1999 or $1,750 after fiscal 2002.
The operating results of these assets acquired are included
in the consolidated statements of operations of the Company
for the periods subsequent to the acquisition dates. Prior
operations of these assets acquired are immaterial to the
Company's net sales, net income (loss) and net income (loss) per common
share for the fiscal years ended May 31, 1997, June 1, 1996
and June 3, 1995.
4. Investment in Affiliates
The Company owns 50% of BCM Egg Company ("BCM"), a
partnership. Equity in earnings of $681, $721, and $24,
from BCM have been included in the consolidated statements of
operations in fiscal 1997, 1996 and 1995, respectively. The
Company purchased approximately $9,831, $9,929, and $7,492 of eggs
from BCM during each of those fiscal years, which
represented a significant percentage of BCM's sales.
The Company owns 32.5% of American Egg Products, Inc.
("AEP"). Equity in losses of $157 from AEP have been
included in the consolidated statement of operations in fiscal 1997.
The Company did not record equity in income or losses from
AEP in fiscal 1996 or 1995 because its ownership interest in AEP was
less than 20%.
5. Inventories
Inventories consisted of the following:
May 31 June 1
1997 1996
------- -------
Flocks $26,674 $23,501
Eggs and egg products 4,030 3,127
Feed and supplies 8,377 10,424
Livestock 3,513 3,917
------- -------
$42,594 $40,969
======= =======
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
May 31 June 1
1997 1996
------- -------
Land and improvements $ 19,752 $ 18,854
Buildings and improvements 53,593 48,830
Machinery and equipment 75,069 68,836
Construction-in-progress 10,603 3,617
------- -------
159,017 140,137
Less accumulated depreciation
and amortization 64,563 57,711
------- -------
$ 94,454 $ 82,426
======== ========
F-9
7. Leases
Leased property under capital leases consisted of the
following:
May 31 June 1
1997 1996
------ ------
Machinery and equipment $ 2,100 $ 2,100
Less accumulated amortization 1,208 830
------ ------
$ 892 $ 1,270
====== ======
Future minimum payments under capital leases and
noncancelable operating leases that have initial or
remaining noncancelable terms in excess of one year at
May 31, 1997 are as follows:
Capital Operating
Leases Leases
------- -------
1998 $ 303 $ 2,746
1999 303 1,600
2000 322 1,179
2001 151 756
2002 - 417
Thereafter - 144
------- -------
Total minimum lease payments 1,079 $6,842
=======
Less amount representing interest
(rates from7.25% to 9.0%) 122
-------
Present value of minimum lease payments 957
Less amounts due within one year 238
-------
Amounts due after one year $ 719
=======
Substantially all of the leases provide that the Company pay
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. Rent expense was
$ 3,849, $3,901, and $3,726 in fiscal 1997, 1996, and 1995,
respectively. Included in rent expense are vehicle rents
totaling $1,837, $1,718, and $1,726 in fiscal 1997, 1996 and
1995, respectively.
F-10
8. Credit Facilities and Long-Term Debt
Long-term debt consisted of the following:
May 31 June 1
1997 1996
Note payable at 6.62%; due in monthly installments
of $130, plus interest, maturing in 2000 $14,075 $15,890
Note payable at 7.64%; due in monthly installments
of $114, including interest, maturing in 2003 10,503 11,053
Note payable at federal funds rate plus 1.50%; due
in quarterly installments of $298, plus interest,
maturing in 2000 8,884 10,079
Note payable at 9.625%; due in monthly installments
of $60, plus interest, maturing in 2001 6,780 7,485
Note payable at 7.75%; due in monthly installments
of $55, plus interest, maturing in 2003 7,995 8,655
Note payable at 8.25%; due in monthly installments
of $79, including interest, maturing in 2004 4,911 -
Note payable, federal funds rate plus 1.50%; due in
monthly installments of $24, plus interest,
maturing in 2004 1,976 -
Note payable, federal funds rate plus 1.5%; due in
quarterly installments of $36, plus interest,
maturing in 2000 - 643
Note payable at 8.69%; due in monthly installments
of $8, including interest, maturing in 2001 329 392
Note payable at 6.61%; due in monthly installments
of $7, including interest, maturing in 2000 266 335
Note payable at 4%; due in monthly installments of
$4, including interest, maturing in 1999 105 149
Adjustable rate industrial revenue bonds 6,655 7,340
Fixed rate industrial revenue bonds 1,000 -
------- -------
63,479 62,021
Less current maturities 4,302 3,807
------- -------
$59,177 $58,214
======= =======
The adjustable rate industrial revenue bonds with principal
balances of $4,670 and $1,985 are due November 1, 2005 and
May 1, 2006, respectively, with interest due monthly at variable
rates (5.65% at May 31, 1997 and 5.60% at June 1, 1996).
The bonds are redeemable at the option of the Company on a monthly
basis subject to certain mandatory redemption requirements.
The bonds are collateralized by letters of credit of
approximately $7,000.
The Company has available to borrow $13,500 of fixed rate
industrial revenue bonds for the construction of certain
operating facilities, of which $1,000 has been borrowed as of May 31,
1997. The estimated total construction cost of the
facilities is $16,000, of which $11,500 was expended as of May 31, 1997.
Principal payments consist of monthly principal payments
equal to the outstanding borrowings on September 30, 1998 divided
by 150 beginning November 1, 1998. Interest is payable
monthly at a fixed rate based upon the average-life US Treasury rate
plus 2% (8.84% weighted average rate at May 31, 1997) at the
date the funds are advanced to the Company.
F-11
8. Credit Facilities and Long-Term Debt (contd.)
The aggregate annual maturities of long-term debt at May 31,
1997 are as follows:
1998 $4,302
1999 5,452
2000 16,005
2001 15,590
2002 3,375
Thereafter 18,755
-------
$63,479
=======
The Company has a $35,000 line of credit with three banks
all of which was unused at May 31, 1997. The line of credit
is limited in availability based upon the levels of accounts
receivable and inventories. Borrowings under the line of
credit bear interest at 1.5% above the federal funds rate or LIBOR, at
the Company's option. Facilities fees of .25% per annum are
payable quarterly on the unused portion of the line.
Substantially all trade receivables and inventories
collateralize the line of credit and property, plant and
equipment collateralize the long-term debt. The Company is required, by certain
provisions of the loan agreements, to maintain minimum
levels of working capital and net worth; to limit dividends, capital
expenditures and additional long-term borrowings; and to
maintain various current and debt-to-equity ratios. Additionally,
the chief executive officer of the Company, or his family,
must maintain ownership of not less than 50% of the outstanding voting
stock of the Company. The Company was in compliance with
these provisions as of May 31, 1997.
Interest of $4,614, $5,910, and $5,594 was paid during
fiscal 1997, 1996, and 1995, respectively. Interest of $337,
$305, and $438 was capitalized for construction of certain facilities
during fiscal 1997, 1996, and 1995, respectively.
9. Employee Benefit Plans
The Company maintains a medical plan that is qualified under
Section 401(a) of the Internal Revenue Code and not subject
to tax under present income tax laws. Under its plan, the
Company self-insures, in part, coverage for substantially
all full-time employees with coverage by insurance carriers for certain
stop-loss provisions for losses greater than $60 for each
occurrence. The Company's expenses, including accruals for incurred but
not reported claims, were approximately $2,110, $3,130, and
$2,100 in fiscal 1997, 1996 and 1995, respectively.
The Company has a 401(k) plan which covers substantially all
employees. Participants in the Plan may contribute up to
the maximum allowed by Internal Revenue Service regulations.
The Company has an employee stock ownership plan (ESOP) that
covers substantially all employees. The Company has
historically made contributions to the ESOP of 3% of
participants' compensation, plus an additional amount
determined at the discretion of the Board of Directors. Contributions may be
made in cash or the Company's common stock. The
contributions vest 20% annually beginning with the participant's third
year of service. The Company's contributions to the plan
were approximately $1,416, $992, and $808 in fiscal 1997, 1996
and 1995, respectively.
The Company has deferred compensation agreements with
certain officers for payments to be made over specified
periods beginning when the officers reach age 65. Amounts accrued
for these agreements are based upon deferred compensation
earned, discounted over the estimated remaining service life
of each officer. Deferred compensation expense totaled $60
in fiscal 1997, 1996 and 1995, respectively.
F-12
10. Stock Option Plan
The Company has elected to follow APB No. 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation
models that were not developed for use in valuing employee
stock options.
The Company has reserved 800,000 shares under its 1993
Stock Option Plan. The options have ten-year terms and vest
annually over five years beginning one year from the grant date. At
May 31, 1997 and June 1, 1996, 272,000 and 296,000 shares,
respectively, were available for grant under the 1993 plan.
Pro forma information regarding net income and net income
per share is required by FASB Statement No. 123, and has
been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for fiscal 1997: risk-free
interest rate of 6.5%; no dividend yield; volatility factor
of the expected market price of the Company's common stock of .517, and a
weighted-average expected life of the options of 5 years.
The weighted-average fair value of options granted during
fiscal 1997 was $4.56. No options were granted in fiscal
1996. The pro forma effect of the estimated fair value of the options
granted in fiscal 1997 was insignificant to the fiscal 1997
net income and net income per share of the Company.
A summary of the Company's stock option activity and related
information is as follows:
Weighted-
Average
Shares Exercise Price
-------- --------------
Outstanding at June 3, 1995 552,000 $ 3.42
Forfeited (48,000) 3.42
--------
Outstanding at June 1, 1996 504,000 3.42
Granted 24,000 4.33
--------
Outstanding at May 31, 1997 528,000 3.46
========
At May 31, 1997, the weighted average remaining contractual
life of the options outstanding was 6.2 years and 302,400
options were exercisable.
11. Income Taxes
Income tax expense (benefit) consisted of the following:
Fiscal year ended
May 31 June 1 June 3
1997 1996 1995
------ ------ ------
Current:
Federal $6,502 $1,700 $(1,390)
State 150 100 -
------ ------ ------
6,652 1,800 (1,390)
Deferred:
Federal 2,390 4,020 (2,810)
State 466 640 (400)
------ ------ ------
2,856 4,660 (3,210)
------ ------ ------
$9,508 $6,460 $(4,600)
F-13
11. Income Taxes (continued)
Significant components of the Company's deferred tax
liabilities were as follows:
May 31 June 1
1997 1996
-------- --------
Current deferred tax liabilities:
Inventories $ 10,175 $ 9,330
Prepaid expenses 175 235
Accrued expenses (415) (200)
Other (20) (10)
-------- --------
Total current deferred tax liabilities 9,915 9,355
Long-term deferred tax liabilities:
Property, plant and equipment 6,741 5,830
Investments 335 385
Deferred compensation (310) (300)
State net operating loss carryforwards - (255)
Alternative minimum tax credit carryforwards - (1,105)
Cash basis temporary differences 3,185 3,100
-------- --------
Total long-term deferred tax liabilities 9,951 7,655
-------- --------
Total deferred tax liabilities $19,866 $17,010
======== ========
Effective May 29, 1988, the Company could no longer use cash
basis accounting for its farming subsidiary because of tax
law changes. The taxes on the cash basis temporary differences
as of that date will not be payable under current tax laws
provided there are no changes in ownership control and future annual
revenues of the farming subsidiary exceed 1988 revenues.
Management does not anticipate the payment of such taxes
related to these cash basis timing differences during 1997.
The Company uses the farm-price method for valuing inventories
for income tax purposes.
The differences between income tax expense at the Company's
effective income tax rate and income tax expense (benefit)
at the statutory federal income tax rate (35% in fiscal 1997
and 34% in fiscal 1996 and 1995) were as follows:
Fiscal year ended
May 31 June 1 June 3
1997 1996 1995
-------- -------- --------
Statutory federal income tax (benefit) $8,524 $5,911 $(4,517)
State income taxes (benefit), net 700 488 (268)
Benefit of net operating loss carryover
for certain states (300) - -
Increase in federal income tax rate 495 - -
Other, net 89 61 185
-------- -------- --------
$9,508 $6,460 $(4,600)
Federal and state income taxes of $7,597, $1,985 and $294
were paid in fiscal 1997, 1996 and 1995, respectively.
Federal and state income taxes of $9, $1,500 and $3,267 were refunded in
fiscal 1997, 1996 and 1995, respectively.
F-14
12. Other Matters
The carrying amounts reported in the balance sheet for cash
and cash equivalents, notes receivable and investments,
long-term debt and capitalized leases approximate their carrying
value. The fair values for notes receivables, long-term
debt and capitalized leases are estimated using discounted cash flow
analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The Company is the defendant in certain legal actions. It
is the opinion of management, based on advise of legal
counsel, that the outcome of these actions will not have a material
adverse effect on the Company's financial position or
results of operations.
F-15
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years ended May 31, 1997, June 1, 1996, and June 3, 1995
(in thousands)
Balance at Charged to Write-off Balance at
Beginning of Cost and of End of
Description Period Expense Accounts Period
- ----------- ------------ ---------- --------- ----------
Year ended May 31, 1997:
Allowance for doubtful accounts $ 31 $ 52 $ 21 $ 62
===== ===== ===== =====
Year ended June 1, 1996:
Allowance for doubtful accounts $ 34 $ 41 $ 44 $ 31
===== ===== ===== =====
Year ended June 3, 1995:
Allowance for doubtful accounts $ 49 $ 4 $ 19 $ 34
===== ===== ===== =====
S-1
CAL-MAINE FOODS, INC.
Form 10-K for the fiscal year ended May 31, 1997
EXHIBIT INDEX
The following exhibits, not included by reference, are filed herewith:
Exhibit
Number Exhibit
- ------- -------
10.1(A) Amendment to Term Loan Agreement (see Exhibit 10.1) dated as of
June 3, 1997 (without exhibits)
11 Statement regarding computation of earnings per share
23 Consent of Ernst & Young LLP
27 Financial Data Schedule