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 30, 1998
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. Delaware
(Exact name of registrant (State or other Jursidiction of
as specified in its charter) 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)
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 registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
As of July 31,1998, 11,949,988 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
$ 19,021,247, 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 1998
Annual Meeting of Shareholders to be held on October 9, 1998, to be filed
with the Securities and Exchange Commission on or about September 4, 1998.
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. Until May 1998,when the Company ceased all of its egg products
operations, the Company was also engaged in the manufacturing and sale of
egg products. The shell egg segment sales accounted for approximately 94%
and egg products sales for approximately 4% of the Company's net sales in
fiscal 1998, had slaes of approximately 424 million dozen shell eggs. This
volume represents approximately 10.5 percent of all shell eggs sold in the
United States. The Company markets the majority of its eggs in 26 states,
primarily in the Southwestern, Southeastern, Midwestern and Mid-Atlantic
regions of the United States.
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
The Company pursues 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 eight acquisitions, adding an
aggregate of 15.9 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 18.0 million for
each of the past five fiscal years. Also, the number of dozens of shell
eggs sold has increased from approximately 117 million in the fiscal year
ended May 28, 1988 to an average of approximately 403 million for the past
five fiscal years. Net sales amounted to $309.1 million in fiscal 1998,
more than 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. Arkansas 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 Ohio 1,500,000 12,194,000
1995 A & G Farms (3) Kentucky 1,000,000 2,883,000
1997 Sunbest Farms Arkansas 600,000 1,302,000
1997 Southern Empire
Egg Farm, Inc. Georgia 1,300,000 10,654,000
1998 J&S Farms/Savannah
Valley Egg Georgia 900,000 3,745,000
--------------------------
Total 15,900,000 $ 65,123,000
=============================
(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
$21,500,000, adding approximately 1,000,000 layer and 250,000 pullet
capacity, and a feed mill and grain storage; or (ii) construction in
Waelder, Texas, commenced in fiscal 1998, and to be completed in fiscal
2000 at an estimated cost of approximately $15,200,000, 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. 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 it
only approximately 10.5% 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. At its
facilities, it hatches chicks, grows pullets, manufactures feed and
produces and distributes shell eggs. Company-owned facilities accounted
for approximately 66% of its total fiscal 1998 egg production, with the
balance attributable to contract producers used by the Company.
Under Cal-Maine's 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 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 ratio 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 61%. 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 weather and by
various supply and demand 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, possibley resulting in lower egg prices. Historically,
the Company has tneded 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
produced. The increased use of in-line facilities has generated significant
cost savings as compared to the cost of eggs produced from non-in-line
facilities. In addition to greater efficiency, the in-line facilities
produce a higher percentage of grade A eggs, which sell at higher prices.
Eggs produced on farms are brought to the Company's processing plants where
they are cleaned, graded and packaged. A small percentage of eggs are sold
unprocessed to other processors.
The Company's egg production activities are subject to risks, inherent in
the agriculture industry, such as weather conditions and disease factors.
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 is subject to risks such as possible changes in food consumption
opinions and practices reflecting perceived health concerns.
The Company operates in cyclical industry with total demand that is
generally level and 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
lessen the extreme cyclicality of the past. New practices, such as more
efficient molting programs should help contribute to profitability.
Marketing. Of the approximately 424 million dozen shell eggs sold by the
Company in the fiscal year ended May 31, 1998, 328 million were produced by
company flocks. Of the total shell egg production, 94% was cleaned, graded
and packed in the Company's processing facilities and sold by the Company,
4% was used by the Company in its manufacture of egg products, and 2% was
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 1998, no customer
accounted for more than 10% 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 long-term relationships
with many of its customers, they 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. Wholesale prices are
subject to wide fluctuations. 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.
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. The
Company generally experiences lower sales and net income in its fourth
and first fiscal quarters ending in May and August, 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
foot restaurant food 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 approxikmately 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
competitiors of Cal-Maine exist in each of the Company's markets.
Egg Products. On March 30,1998, the Company announced the discontinuance of
its production of egg products, which ceased in May, prior to the end of the
1998 fiscal year. All product inventories were covered by sales agreements.
The products produced included liquid egg whites, liquid egg yolks, liquid
whole eggs, liquid salt yolk, liquid sugar yolk, and similar products sold
in frozen form, and various forms of dried whole eggs, egg whites and yolks.
Sales were made primarily to national accounts, including baked goods,
mayonnaise and confections. Egg products accounted for approximately 4%
of the Company's net sales in fiscal year 1998. The Company discontinued
its egg products operations because its plant, built 29 years ago and
located in Jackson, Mississippi required extensive remodeling and
refurbishing to operate competitively and meet current regulatory
requirements. Management determined that the necessary expenditures were
not warranted, and the production plant is being offered for sale.
Specialty Eggs. The Company also produces speciality eggs such as Eggland's
Best and Farmhouse eggs. Eggland's Bst eggs are patented eggs that are
believed by its developers, based on scientific sutdies, to cause no
increase in serum cholesterol when eaten as part of a low fat diet. Cal-
Maine produces and processes Eggland's Best eggs, under license from
Eggland's 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. Eggland's
Best eggs accounted for approximately 3 percent ofo the Company's net
sales in fiscal 1998. Farmhouse brand eggs are produced at the 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 are intended to meet the demands of consumers
whoo are sensitive to environmental and animal welfare issues.
Livestock. The Company's livestock operations currently consist of
the oepration 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 percent of the Company's net sales in fiscal year 1998.
Competition. The production, processing and distribution of shell eggs
is an intensely competitive busienss 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 or 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 shell egg production and processing industry has been characterized
by a growing concentration of production. In 1997, 59 producers with
one million or more layers owned 75.1 percent 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 Eggland's 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
Customer specifications.
Cal-Maine is subject to federal and state environmental laws and
regulations and has all necessary permits.
Employees. As of May 30, 1998, the Company had a total of approximately
1,575 employees of whom 1,400 worked in egg production, processing and
marketing, 90 were engaged in feed mill operations, 50 in dairy activities,
and 35 were administrative employees, including officers, at the Company's
executive offices. About 15% 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, 14 feed mills, 13 production
facilities, 10 pullet growing facilities, 18 processing and packing
facilities, two wholesale distribution facilities, 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 245 over-the-road tractors and 314 trailers, of
which 160 and 194 are owned, respectively, and the balance are leased.
At May 30, 1998, the Company owned approximately 10,899 acres of land and
owned facilities to:
Operation Capacity
Hatch 13,000,000- pullet chicks per year
Grow (1) 6,559,000- pullets per year
House (2) 11,200,000- hens
Produce 542- tons of feed per hour
Process (3) 5,500- cases of eggs per hour
(1) The Company uses contract growers for the production of an additional
2.8 million pullets.
(2) The Company controls approximately 17.1 million layers, of which 5.9
million are cared for by contract producers.
(3) One case equals 30 dozen eggs.
Over the past five fiscal years, Cal-Maine's capital expenditures have
totaled approximately $102 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 30, 1998.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S 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 , the fourth quarter of fiscal year 1997, and the four
quarters of fiscal 1998.
Year Ended Fiscal Quarter High Low
- ---------- -------------- ---- ---
May 31, 1997 Third Quarter $ 9 3/8 $ 6 5/8
Fourth Quarter 8 1/2 5
May 30, 1998 First Quarter 7 5/8 6 1/4
Second Quarter 7 5 7/8
Third Quarter 7 5 1/2
Fourth Quarter 6 5/8 4 3/4
As of May 30, 1998, there were approximately 198 record holders of the
Company's Common Stock and approximately 1,427 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 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,
the majority outstanding shares of which are owned by Fred A. Adams, Jr.,
Chairman of the Board of Directors and Chief Executive Officer of the
Company.
In January 1998, the Company's Board of Directors approved a program to
initiate the payment of quarterly cash dividends to shareholders. The cash
dividend is $.01 per share on Common Stock, representing an annual cash
dividend of $.04 per share. The cash dividend is $.0095 per share on Class
A Common Stock, representing an annual cash dividend of $.038 per share.
Under the terms of the Company's agreements with its principal lenders,
Cal-Maine is subject to various financial covenants limiting its ability
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 the majority of 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 "Management's 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.
Fiscal Years Ended
May 30, May 31, June 1, June 3, May 28
1998 1997 1996 1995 1994
(Amounts in thousands, except per share data)
Statement of
Operations Data:
Net sales $ 309,071 $292,526 $282,844 $242,649 $254,713
Cost of sales 264,636 236,273 230,850 223,965 225,227
-------------------------------------------------
Gross profit 44,435 56,253 51,994 18,684 29,486
Selling, general
and administrative 34,089 28,930 29,653 27,934 26,094
-------------------------------------------------
Operating income (loss 10,346 27,323 22,341 (9,250) 3,392
Other income (expense):
Interest expense (4,583) (4,277) (5,487) (5,052) (4,318)
Equity in income
of affiliate 294 524 721 24 283
Other 2,268 783 (190) 993 1,238
-------------------------------------------------
(2,021) (2,970) (4,956) (4,035) (2,797)
-------------------------------------------------
Income (loss) before
income taxes 8,325 24,353 17,385 (13,285) 595
Income tax expense
(benefit) 2,946 9,508 6,460 (4,600) 371
-------------------------------------------------
Net income (loss) $ 5,379 $ 14,845 $ 10,925 $ (8,685) $ 224
=================================================
Net income (loss)
per common share (1):
Basic $ 0.41 $ 1.21 $ 0.94 $ (0.74) $ 0.02
==================================================
Dilutive $ 0.40 $ 1.18 $ 0.94 $ (0.74) $ 0.02
==================================================
Cash dividends
declared per share $ 0.02 $ .00 $ .00 $ .00 $ .00
==================================================
Weighted average
shares outstanding (1):
Basic 13,191 12,285 11,584 11,700 11,760
==================================================
Dilutive 13,428 12,560 11,584 11,700 11,760
==================================================
Balance Sheet Data:
Working capital $ 56,591 $ 45,390 $ 26,742 $ 10,092 $ 29,588
Total assets 203,188 188,294 149,991 147,402 144,859
Total debt (including
current portion) 75,498 64,436 63,426 64,211 62,968
Total stockholders'
equity 79,547 74,642 47,900 37,472 46,489
(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'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. The shell egg
segment accounted for over 94% 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 to national and regional supermarket chains. Egg products
accounted for approximately 4% of the Company's net sales in fiscal 1998.
Egg products operations were discontinued in May 1998.
The Company currently uses contract producers for approximately 34% 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 61% 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 Consolidated Statements of Income expressed as a
percentage of net sales.
Percentage of Net Sales
Fiscal Years Ended
May 30, 1998 May 31, 1997 June 1, 1996
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.6 80.8 81.6
----- ------- ------
Gross profit 14.4 19.2 18.4
----- ------- ------
Selling, general &
administrative expenses 11.0 9.9 10.5
----- ------ ------
Operating income 3.4 9.3 7.9
Other income (expense) (0.7) (1.0) (1.8)
----- ------ -------
Income before taxes 2.7 8.3 6.1
Income tax expense 1.0 3.2 2.2
----- ------ -------
Net income 1.7% 5.1% 3.9%
===== ====== ====
Fiscal Year Ended May 30, 1998 Compared to Fiscal Year Ended May 31, 1997
Net Sales. Net sales in the fiscal year ended May 30, 1998 were $309.1
million, an increase of $16.6 million, or 5.7%, over net sales of $292.5
million in the fiscal year ended May 31, 1997. Although average shell egg
market prices declined, the increase in sales was due to increased dozens
sold and an increase in feed sales, which are part of the shell egg segment,
to outside egg producers. Cal-Maine's net average selling price of shell
eggs during fiscal 1998 was $.675 per dozen, as compared to $.722 per dozen
for fiscal 1997, a decrease of 6.5 percent. Due to increased egg supplies
and lower egg experts, average shell egg market prices declined approximately
9 percent. During fiscal 1998, the number of dozens sold increased
approximately 6 percent, primarily due to recetn acquisitions of production
and processing facilities. The Company produced 327.7 million dozens of eggs
in fiscal 1998, compared to 309.8 million dozens in fiscal 1997. The
Company purchased 101.8 million dozens from outside sources during fiscal
1998, compared to 73.4 million dozensn of eggs in fiscal 1997. Approximately
one-third of the increase in outside purchases resulted from a recent
acquisition in Georgia. This operation also contributed to the increase
in outside feed sales. Outside feed sales increased from $2.8 million
during fiscal 1997 to $15.7 million in the current fiscal year. In April
1997, mid-fourth quarter of fiscal 1997, the Company purchased the egg
production and processing facilities of Southern Empire Egg Farm, Inc.
In November 1997, late second quarter of the current fiscal year, the
Company purchased the inventories and shell egg production and processing
equipmetnn of J&S Farms, Inc., and Savannah Valley Company Inc. These
acquisitions accounted for approximately 14 percent of net sales for
fiscal 1998, and 10 percent of dozens of eggs sold.
Cost of Sales. The cost of sales in fiscal 1998 was $264.6 million, an
increase of $28.3 million, or 12%, above the fiscal 1997 cost of sales of
$236.3 million. Although feed ingredient cost decreased, costs associated
with the increased amount of dozens and feed tonnage sold resulted in a
higher cost of sales. Feed cost per dozen eggs produced during fiscal 1998
was $.248, compared to $.284 per dozen in fiscal 1997, a decrease of 12.7%.
As mentioned above in the sales discussion, the number of outside dozens of
eggs purchased for fiscal 1998. Though purchased at lower per dozen prices,
due to lower shell egg market prices, the increased quantities purchased
resulted in an increase in cost of sales. With increasing units sold and
decreasing sales price per unit, the gross profit decreased from 19.2% of
net sales for fiscal 1997 to 14.4% for fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1998 were $34.1 million, an increase
of $5.2 million, or 17.8%, as compared to the $28.9 million for fiscal
1997. The increase is generally due to acquisitions and increased sales
volume. Approximately one-half of the cost increase is due to delivery
expenses for the increased dozens sold. On a delivery cost per dozen
comparison, overall operating costs have increased 6.5% for the current
fiscal year. The balance of the cost increase is due to specialty egg
brands promotions, bad debt allowances and an overall 4 percetn increase
in general administrative expenses. For the current fiscal year, the
Company incurred approximately $1.7 million in franchise and advertising
expenses in opening new markets for specialty brand eggs, primarily the
Egg Land's BEst franchise in New York City. Sale of the specialty brands
of eggs for the current fiscal year were almost 3.4 percent of net sales,
as compared to less than 1 percent for last year. As a percent of net
sales, general and administrative expenses have increased from 9.9
percent for fiscal 1997 to 11.0 percent for the current fiscal year.
Operating Income. As a result of the above, the Company's operating income
was $10.3 million in fiscal 1998, a decrease of $17.0 million, or 62.1%,
as compared to an operating income of $27.3 million for fiscal 1997. As a
percent of net sales, operating income for fiscal 1998 was 3.4%, as compared
to 9.3% for fiscal 1997.
Other Income (Expense). Other expense for fiscal 1998 was $2.0 million, a
decrease of $1.0 million, or 32.0%, as compared to other expense of $3.0
million for fiscal 1997. The decrease in net expense is primarily due to
an increase in interest income of $774,000, net insurance claim income of
$662,000 and an increase in interest expense of $306,000. As a percent
of net sales, other expenses were 0.7% for fiscal 1998 compared to 1.0% for
fiscal 1997.
Income Taxes. As a result of the above, the Company's pre-tax income was
$8.3 million in fiscal 1998, compared to pre-tax income of $24.4 million
for fiscal 1997. For fiscal 1998, an income tax expense of $2.9 million
was recorded with an effective rate of 35.4% as compared to an income tax
expense of $9.5 million with an effective rate of 39.0% for fiscal 1997.
The decrease in the effective rate is due primarily to an increase in tax
exempt interest income as a percentage of income before income taxes.
Net Income. As a result of the above, net income for fiscal 1998 was $5.4
million, or $0.41 per basic share, compared to net income of $14.8 million,
or $1.21 per basic share, for fiscal 1997.
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-Maine's 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 soruces 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. Aproximately
2 percent 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
laste fiscal purchase date, these facilities accounted for approximately
1 percent 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 decrase for fewer dozens purchased
was offset by the higher per dozen price paid, due to the improved shell
egg market prices. With increases in sale exceeding increases in cost
of sales, the gorss profit increased from 18.4 percent of net sales
for fiscal 1996 to 19.2 percent 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 fiscal 1997, 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 decreased from 10.5% for fiscal
1996 to 9.9% for fiscal 1997.
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 40.0%, 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 basic share, compared to net income of $10.9 million,
or $.94 per basic share, for fiscal 1996.
Capital Resources and Liquidity. The Company's working capital at May 30,
1998 was $56.6 million compared to $45.4 million at May 31, 1997. The
Company's current ratio was 2.39 at May 30, 1998 as compared with 2.26 at
May 31, 1997. The Company's need for working capital generally is highest
in the last and first quarters ending in May and August, 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 $35.0 million line of credit with three banks at
May 30, 1998. The Company's long-term debt at that date, including current
maturities and capitalized lease obligations, amounted to $75.5 million, as
compared to $64.4 million at May 31, 1997.
In December 1997, the Company and three of its lenders agreed to revised
terms, amounts and interest rates for long-term debt extended to the
Company. The revised arrangements provide for a total of $40.0 million
of borrowings under notes, with maturities ranging from 10 to 15 years
at a weighted average fixed interest rate of 7.10 percent. Approximately
$20 million of existing debt was refinanced and the Company was provided
with an additional $20 million of working capital, of which $3.5 million
had not been disbursed as of year end 1998.
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 30, 1998.
For the fiscal year ended May 30, 1998, $24.9 million of net cash was
provided by oeprating activities, of which $14.8 million was used for
construction and pruchases of property, pland and equipment and $3.7
million was used for the purchase of assets of a shell egg production
and processing businesses. The Company has expended $18.0 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 $21.5 million total project cost through
industrial revenue bonds maturing in 2011. Borrowings under the
industrial revenue bond agreement totaled $10.0 million at May 30, 1998.
In fiscal 1998, the Company expended $952,000 in construction of new
shell egg production and processing facilities in Waelder, Texas. The
estimated cost of construction is approximately $15.2 million with
financing plans of approximately $10.4 million in borrowings from an
insurance company. In fiscal 1998, $24.7 million was used to repay
long-term debt.
The net result of these activities was an increase in cash and cash
equivalents of $17.4 million for fiscal 1998.
The Company has $3.2 million of deferred tax liability due to a
subsidiary's change from a cash basis to an accrual basis taxpayer on
May 29, 1988. The Taxpayer Relief Act of 1997 provides that the taxes on
the cash basis temporary differences as of that date are generally payable
over the next 20 years beginning in fiscal 1999 or in the first fiscal year
in which there is a change in ownership control. Payment of the $3.2
million deferred tax liability would reduce the Company's cash, but
would not impact the Company's statement of operations or reduce
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.
Year 2000 Issue. The Company currently has a program underway to ensure
that all significant computer systems are Year 2000 compliant. All major
systems are upgradeable with commercially available software packages. The
Company expects no material impact from the Year 2000 issue on its internal
information systems or on its ability to continue normal business operations
with suppliers or other third parties who fail to address the issue. The
Company will continue to monitor and evaluate the impact of the Year 2000
on its operations. Any costs associated with implementation of the
Company's Year 2000 program would be within normal expenditures for
hardware and software.
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 diference 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 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, amounts in thousands, except per share data )
Fiscal Year 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------
Net sales $ 63,723 $ 79,435 $ 89,344 $ 76,569
Operating income
(loss) (1,991) 7,314 5,419 (396)
Net income (loss) (1,737) 4,244 3,703 (831)
Net income per share
Basic $ (.13) $ .32 $ .28 $ (.06)
Dilutive $ (.13) $ .32 $ .28 $ (.06)
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
Basic $ .10 $ .52 $ .54 $ .07
Dilutive $ .09 $ .50 $ .53 $ .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 1998
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 1998 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 1998 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 1998 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 Independent Auditors
Consolidated Balance Sheets as of May 30, 1998 and May 31, 1997
Consolidated Statements of Income for the Years Ended May 30, 1998,
May 31, 1997 and June 1, 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
May 30, 1998, May 31, 1997 and June 1, 1996
Consolidated Statements of Cash Flows for the Years Ended May 30, 1998,
May 31, 1997 and June 1, 1996
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
Registrant's 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 January1, 1986, among R.K. Looper,
B.J. Raines and the Registrant.*
10.6(a) Amendment dated October 29, 1997 to Wage Continuation Plan, dated
as of January 1, 1986, between 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.*
10.10 Note Purchase Agreement, dated December 18, 1997, among Cal-Maine
Foods, Inc., Cal-Maine Farms, Inc., Cal-Maine Egg Products, Inc., Cal-
Maine Partnership, LTD, CMF of Kansas LLC and First South Production
Credit Association and Metropolitan Life Insurance Company (without
exhibits, except names of guarantors and forms of notes) ***
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
* Incorporated by reference to the same exhibit number in Registrant's
Form S-1 Registration Statement No. 333-14809.
** Incorporated by reference to the same exhibit number in Registrant's
Form 10-K for fiscal year ended May 31,1997.
*** Incorporated by reference to the same exhibit number in Registrant's
Form 10-Q for the quarter ended November 29, 1997.
(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 1998. No amendments to previously
filed Forms 8-K were filed during the fourth quarter of 1998.
(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 24th day of August, 1998.
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 August 24, 1998
Fred R. Adams, Jr. Chief Executive Officer
(Principal Executive Officer)
/s/ Richard K. Looper Vice Chairman of the Board August 24, 1998
Richard K. Looper and Director
/s/ Adolphus B. Baker President and Director August 24, 1998
Adolphus B. Baker
/s/ Bobby J. Raines Vice President, Chief Financial August 24, 1998
Bobby J. Raines Officer, Treasurer, Secretary
and Director
(Principal Financial Officer)
/s/ Charles F. Collins Vice President, Controller August 24, 1998
Charles F. Collins and Director
(Principal Accounting Officer)
/s/ Jack B. Self Vice President and Director August 24, 1998
Jack B. Self
/s/ Joe M. Wyatt Vice President and Director August 24, 1998
Joe M. Wyatt
/s/ W. D. Cox Director August 24, 1998
W. D. Cox
/s/ R. Faser Triplett Director August 24, 1998
R. Faser Triplett
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors................................... F-2
Consolidated Balance Sheets as of May 30, 1998 and
May 31, 1997 ..................................................... F-3
Consolidated Statements of Income for the years ended
May 30, 1998, May 31, 1997 and June 1, 1996..................... F-4
Consolidated Statements of Stockholders' Equity for
the years ended May 30, 1998, May 31, 1997 and June 1, 1996...... F-5
Consolidated Statements of Cash Flows for the years
ended May 30, 1998, May 31, 1997 and June 1, 1996............... F-6
Notes to Consolidated Financial Statements ..................... F-7
F-1
Report of 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 30, 1998 and May 31, 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended May 30, 1998. Our
audits also included 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Cal-Maine Foods, Inc. and subsidiaries at May 30, 1998 and
May 31, 1997, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended May 30, 1998,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statments taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Jackson, Mississippi
July 10, 1998
F-2
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
May 30 May 31
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 41,126 $ 23,737
Receivables:
Trade receivables, less allowance
for doubtful accounts of $361 in
1998 and $62 in 1997 (Note 8) 13,223 12,779
Other 468 307
--------------------------
13,691 13,086
Recoverable federal and state
income taxes 218 1,137
Inventories (Notes 5 and 8) 41,437 42,594
Prepaid expenses and other
current assets 791 986
--------------------------
Total current assets 97,263 81,540
Other assets:
Notes receivable and investments 5,373 4,747
Other 1,183 661
--------------------------
6,556 5,408
Property, plant and equipment,
less accumulated depreciation
(Notes 6 and 8) 98,856 94,454
Leased property under capital
leases, less accumulated
amortization (Note 7) 513 892
--------------------------
Total assets $203,188 $182,294
==========================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 17,705 $ 15,267
Accrued wages and benefits 4,350 4,314
Accrued expenses and other liabilities 3,701 2,114
Current maturities of:
Long-term debt 4,432 4,302
Capitalized lease obligations 108 238
-------------------------
4,540 4,540
Deferred income taxes (Note 11) 10,376 9,915
-------------------------
Total current liabilities 40,672 36,150
Long-term debt, less current
maturities (Note 8) 70,658 59,177
Capitalized lease obligations,
less current maturities (Note 7) 300 719
Deferred expenses (Note 9) 1,716 1,655
Deferred income taxes (Note 11) 10,295 9,951
-------------------------
Total liabilities 123,641 107,652
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
Issued and outstanding
shares - 17,565,200 176 176
Class A common stock, $.01 par value :
Authorized shares - 1,200,000
Issued and outstanding
shares -1,200,000 12 12
Paid-in capital 18,784 18,785
Retained earnings 67,031 61,903
Common stock in treasury (5,608,212
shares in 1998 and 5,583,200 shares
in 1997) (6,456) (6,234)
-----------------------
Total stockholders' equity 79,547 74,642
-----------------------
Total liabilities and stockholders'
equity $203,188 $182,294
=========================
See accompanying notes
F-3
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal year ended
May 30 May 31 June 1
1998 1997 1996
-------------------------
Net Sales $ 309,071 $ 292,526 $ 282,844
Cost of Sales 264,636 236,273 230,850
Gross Profit 44,435 56,253 51,994
Selling, general and ---------------------------
administrative 34,089 28,930 29,653
---------------------------
Operating income 10,346 27,323 22,341
Other income (expense):
Interest expense (Note 8) (4,583) (4,277) (5,487)
Interest income 1,371 597 141
Equity in income of affiliates
(Note 4) 294 524 721
Other, net 897 186 (331)
--------------------------
(2,021) (2,970) (4,956)
Income before income taxes 8,325 24,353 17,385
Income tax expense (Note 11) 2,946 9,508 6,460
--------------------------
Net income $ 5,379 $ 14,845 $ 10,925
==========================
Net income per share:
Basic $ .41 $ 1.21 $ .94
==========================
Dilutive $ .40 $ 1.18 $ .94
==========================
Weighted average shares
outstanding:
Basic 13,191 12,285 11,584
Dilutive 13,428 12,560 11,584
===========================
See accompanying notes.
F-4
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands, except per share amounts)
Common Stock
Note ------------
Class Class Treas. Treas. Pd-in Ret. Rec.
Shares Amt A A Shrs Amt Cap Ern. Stkh Total
------------------------------------------------------------
Balance at
June 3, 1995 17,035 $170 - $ - 5,380 $(5,367)$8,230$36,133$(1,694)$37,472
Redemption
of fract-
ional shares
of common
stock - - - - - - (1) - - (1)
Purchases of
common stock
for treasury - - - - 142 (496) - - - (496)
Net income
for fiscal
1996 - - - - - - - 10,925 - 10,925
------------------------------------------------------------------
Balance at
June 1,
1996 17,035 170 - - 5,522 (5,863) 8,229 47,058 (1,694)47,900
Exchange
of common
stock for
Class A
common
stock (1,200) (12) 1,200 12 - - - - - -
Issuance
of common
stock 1,730 18 - - - - 10,562 - - 10,580
Redemption
of
fractional
shares of
common
stock - - - - - - (6) - - (6)
Purchase
of common
stock for
treasury - - - - 61 (371) - - - (371)
Repayment
of note
receivable-
stockholder - - - - - - - - 1,694 1,694
Net income
for fiscal
1997 - - - - - - - 14,845 - 14,845
-----------------------------------------------------------------
Balance at
May 31,
1997 17,565 176 1,200 12 5,583 (6,234) 18,785 61,903 - 74,642
Redemption
of
fractional
shares of
common stock - - - - - - (1) - - (1)
Purchase of
common stock
for treasury - - - - 50 (311) - - - (311)
Sale of
common stock
from treasury - - - - (25) 89 - - - 89
Cash
dividends
paid ($.02 per
common share) - - - - - - - (251) - (251)
Net income
for fiscal
1998 - - - - - - - 5,379 - 5,379
------------------------------------------------------------------
Balance at
May 30,
1998 17,565 $176 1,200 $12 5,608$(6,456)$18,784 $67,031 $ - $79,547
See accompanying notes.
F-5
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
May 30 May 31 June 1
1998 1997 1996
----------------------------
Cash flows from operating activities
Net income $ 5,379 $ 14,845 $ 10,925
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 12,017 10,550 10,444
Provision for doubtful accounts 361 52 41
Provision for deferred income taxes 805 2,856 4,660
Equity in income of affiliates (294) (524) (721)
(Gain) loss on sales of property,
plant and equipment (27) 69 956
Increase in deferred compensation 50 60 60
Change in operating assets and
liabilities, net of effects
from purchases of shell egg production
and processing businesses in 1998
and 1997:
(Increase) decrease in receivables
and other assets (321) 1,702 (2,220)
(Increase) decrease in inventories 3,675 1,238 (2,599)
Increase in accounts payable,
accrued expenses and deferred expenses 3,262 1,635 3,728
--------------------------
Net cash provided by operating activities 24,907 32,483 25,274
Cash flows from investing activities
Purchases of property, plant and equipment (14,831) (16,189) (8,768)
Purchases of shell egg production
and processing businesses (3,745) (6,956) -
Payments received on notes receivable
and from investments 297 1,634 513
Increase in note receivable
and investments (725) (15) (13)
Net proceeds from sales of property,
plant and equipment 898 914 687
---------------------------
Net cash used in investing activities (18,106) (20,612) (7,581)
Cash flows from financing activities
Net proceeds from sale of common stock - 10,580 -
Net payments on line of credit - - (15,500)
Long-term borrowings 35,800 3,000 5,050
Principal payments on long-term debt
and capital leases (24,738) (6,990) (5,835)
Payments received on note
receivable - stockholder - 1,694 -
Purchases of common stock for treasury (311) (371) (497)
Sales of common stock from treasury 89 - -
Payments of dividends (251) - -
Redemption of fractional shares of
common stock (1) (6) (2)
----------------------------
Net cash provided by (used in)
financing activities 10,588 7,907 16,784)
----------------------------
Increase in cash and cash equivalents 17,389 19,778 909
Cash and cash equivalents at
beginning of year 23,737 3,959 3,050
----------------------------
Cash and cash equivalents at end of year $ 41,126 $ 23,737 $ 3,959
============================
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
=============================
See accompanying notes.
F-6
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)
May 30, 1998
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.
Primarily all of the Company's sales are to wholesale egg buyers in the
southeastern, midwestern and mid-Atlantic regions of the United States.
Credit is extended based upon an evaluation of each customer's financial
condition and credit history and collateral is generally not required.
Credit losses have consistently been within management's expectations.
No single customer accounted for more than 10% of the Company's net sales
in fiscal year accounted for 10.1% of the Company's net sales in fiscal 1997.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
general 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.
F-7
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.
Impairment of Long-Lived Assets
The Company continually reevaluates the carrying value of its long-lived
assets for events or changes in circumstances which indicate that the
carrying value may not be recoverable. As part of this reevaluation, the
Company estimates the future cash flows expected to result from the use of
the asset and its eventual disposal. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized through a charge to
operations.
Intangible Assets
Loan acquisition costs are amortized over the life of the loan.
Franchise fees are amortized over ten years.
Revenue Recognition
Revenue is recognized when product is shipped to customers.
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.
Impact of Recently Issued Accounting Standards
In fiscal 1998, the Company adopted the provisions of FASB Statement No.
128, "Earnings per Share". Statement 128 replaced the calculation of
primary and fully diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported earnings per share.
All earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to the statement 128 requirements.
Effective for fiscal 1999, FASB No. 130, "Reporting Comprehensive Income",
requires that items required to be recognized as components of comprehensive
income be reported in a financial statement displayed with the same
prominence as other financial statements. Management does not expect FASB
No. 130 to have a significant impact on the Company in fiscal 1999.
Effective fiscal 1999, FASB No. 131, "Disclosures about Segments of an
Enterprise and Related Information", requires that companies report
financial and descriptive information about their reportable operating
segments. Management does not expect FASB No. 131 to have a significant
impact on the Company in fiscal 1999.
F-8
Fiscal Year
The Company's fiscal year-end is on the Saturday nearest May 31 which was
May 30, 1998 (52 weeks), May 31, 1997 (52 weeks) and June 1, 1996 (52 weeks),
for the most recent three years.
2. Initial Public Offering
During December 1996 and January 1997, the Company sold 1,730,000 shares in
the 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 November 1997, the Company purchased, certain operating assets of a
shell egg production and processing business for $3,745. In April 1997,
the Company purchased, certain operating assets of a shell egg production
and processing business for $5,654 in cash and a $5,000 note payable to
the former owners. In January 1997, the Company purchased, for $1,302,
certain operating assets of a shell egg production business. These
acquisitions were accounted for by the purchase method of accounting.
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 consolidated net sales, net
income and net income per common share for the fiscal years ended May 30,
1998 and May 31, 1997.
4. Investment in Affiliates
The Company owns 50% of BCM Egg Company ("BCM"), a partnership. Equity in
earnings of $180, $681, and $721 from BCM have been included in the
consolidated statements of operations in fiscal 1998, 1997 and 1996,
respectively. The Company purchased $5,189, $9,831, and $9,929 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
earnings of $113 for fiscal 1998 and losses of $157 for fiscal 1997 from
AEP have been included in the Company's consolidated statement of operations.
The Company did not record equity in income or losses from AEP in fiscal
1996 because of immateriality.
5. Inventories
Inventories consisted of the following:
May 30 May 31
1998 1997
----------------------
Flocks $ 26,866 $ 26,674
Eggs and egg products 2,683 4,030
Feed and supplies 8,736 8,377
Livestock 3,152 3,513
----------------------
$ 41,437 $ 42,594
======================
F-9
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
May 30 May 31
1998 1997
----------------------
Land and improvements $ 22,180 $ 19,752
Buildings and improvements 57,248 53,593
Machinery and equipment 82,104 75,069
Construction-in-progress 7,280 10,603
----------------------
168,812 159,017
Less accumulated depreciation 69,956 64,563
----------------------
$ 98,856 $ 94,454
======================
Depreciation expense was $11,595, $10,172 and $10,056 in fiscal 1998, 1997
and 1996, respectively.
7. Leases
Leased property under capital leases consisted of the following:
May 30 May 31
1998 1997
----------------------
Machinery and equipment $2,100 $2,100
Less accumulated amortization 1,587 1,208
----------------------
$ 513 $ 892
======================
Amortization expense was $379, $378 and $388 in fiscal 1998, 1997 and 1996,
respectively.
Future minimum payments under capital leases and noncancelable operating
leases that have initial or remaining noncancelable terms in excess of one
year at May 30, 1998 are as follows:
Capital Operating
Leases Leases
-------------------------
1999 $ 129 $ 3,106
2000 168 2,713
2001 143 2,318
2002 -- 1,034
2003 -- 636
Thereafter -- 612
-------------------------
Total minimum lease payments 440 $10,419
========
Less amount representing
interest (rates from
7.25% to 7.50%) 32
Present value of minimum ----
lease payments 408
Less amounts due within one year 108
----
Amounts due after one year $ 300
========
F-10
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 $3,979, $ 3,849, and $3,901 in fiscal 1998,
1997, and 1996, respectively. Included in rent expense are vehicle rents
totaling $1,876, $1,837, and $1,718 in fiscal 1998, 1997 and 1996,
respectively.
8. Credit Facilities and Long-Term Debt
Long-term debt consisted of the following:
May 30 May 31
1998 1997
------------------
Note payable at 6.62%; due in monthly
installments of $130, plus interest,
maturing in 2000 $12,515 $14,075
Series A Senior Secured Notes at 6.87%;
due in annual principal installments
of $1,917 beginning on December 2002
through 2009 with interest due
semi-annually 11,500 -
Series B Senior Secured Notes at 7.18%;
due in annual principal installments of
$2,143 beginning in December 2003 through
2009 with interest due 15,000 -
semi-annually
Fixed rate industrial revenue bonds 10,000 1,000
Note payable at 7.64%; due in monthly
installments of $114, including interest,
maturing in 2003 9,909 10,503
Note payable at 7.75%; due in monthly
installments of $55, plus interest,
maturing in 2003 7,335 7,995
Note payable at 8.25%; due in monthly
installments of $79, including interest,
maturing in 2004 4,353 4,911
Note payable, federal funds rate plus 1.50%;
due in monthly installments of $24, including
interest, maturing in 2004 1,691 1,976
Note payable at 8.5%; due in weekly installments
of $2, plus interest, maturing in 2002 291 -
Note payable at 8.69%; due in monthly installments
of $8, including interest, maturing in 2001 259 329
Note payable at 6.61%; due in monthly installments
of $7, including interest, maturing in 2000 192 266
Note payable at 4%; due in monthly installments of
$4, including interest, maturing in 1999 60 105
Adjustable rate industrial revenue bond 1,985 6,655
Note payable paid in 1998 - 8,884
Note payable paid in 1998 - 6,780
-----------------
75,090 63,479
Less current maturities 4,432 4,302
-----------------
$70,658 $59,177
=================
The adjustable rate industrial revenue bond is due May 1, 2006 with interest
due monthly at variable rates (5.6% at May 30, 1998 and 5.65% at May 30,
1997). The bond is redeemable at the option of the Company on a monthly
basis subject to certain mandatory redemption requirements. The bond is
collateralized by a letter of credit of $2,026.
F-11
The Company has available to borrow $13,500 of fixed rate industrial revenue
bonds for the construction of certain operating facilities, of which $10,000
has been borrowed as of May 30, 1998. The estimated total construction cost
of the facilities is $21,500, of which $18,000 was expended as of May 30,
1998. Principal payments will be due monthly in an amount equal to the
outstanding borrowings on September 30, 1998 divided by 150 beginning
November 1, 1998. Interest is at a fixed rate of 7.21% on outstanding
borrowings at May 30, 1998. Interest on subsequent borrowings will be
at a fixed rate of 1.25% above the then current yield on an average-life
U.S. Treasury security.
The aggregate annual maturities of long-term debt at May 30, 1998
are as follows:
1999 $ 4,432
2000 14,315
2001 3,590
2002 3,555
2003 5,582
Thereafter 43,616
----------
$75,090
===========
The Company has a $35,000 line of credit with three banks all of which was
unused at May 30, 1998. 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 ninety basis points above the federal funds
rate or ninety basis points above LIBOR, at the Company's option.
Facilities fees of 25 basis points 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 of the
outstanding voting stock of the Company. The Company was in compliance
with these provisions as of May 30, 1998.
Interest of $4,402, $4,614, and $5,910 was paid during fiscal 1998, 1997,
and 1996, respectively. Interest of $615, $337, and $305 was capitalized
for construction of certain facilities during fiscal 1998, 1997, and 1996,
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 $2,579, $2,110, and $3,130 in fiscal
1998, 1997 and 1996, 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 $970,
$1,416, and $992 in fiscal 1998, 1997 and 1996, respectively.
F-12
The Company has deferred compensation agreements with certain officers
for payments to be made over specified periods beginning when the officers
reach age 65 or over as specified in the agreements. Amounts accrued for
these agreements are based upon deferred compensation earned, discounted
over the estimated remaining service life of each officer. Deferred
compensation expense totaled $50 in fiscal 1998 and $60 in fiscal 1997
and 1996, respectively.
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 30, 1998 and May 31, 1997, 272,000
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 1998 or 1996. The pro forma
effect of the estimated fair value of the options granted in fiscal 1997
was insignificant to the fiscal 1998 and 1997 consolidated 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:
Shares Weighted-Average
----- Exercise Price
----------------
Outstanding at June 1, 1996 504,000 $ 3.42
Granted 24,000 4.33
-------
Outstanding at May 31, 1997 528,000 3.46
Exercised (23,000) 3.42
-------
Outstanding at May 30, 1998 505,000 3.47
=======
The weighted average remaining contractual life of the options outstanding
was 5.2 years and 6.2 years at May 30, 1998 and May 31, 1997, respectively.
At May 30, 1998 and May 31, 1997, 385,000 and 302,400 options, respectively,
were exercisable.
F-13
11. Income Taxes
Income tax expense consisted of the following:
Fiscal year ended
May 30 May 31 June 1
1998 1997 1996
-----------------------------------
Current:
Federal $1,967 $ 6,502 $ 1,700
State 174 150 100
-----------------------------------
2,141 6,652 1,800
Deferred:
Federal 696 2,390 4,020
State 109 466 640
-----------------------------------
805 2,856 4,660
-----------------------------------
$2,946 $ 9,508 $ 6,460
===================================
Significant components of the Company's deferred tax liabilities were
as follows:
May 30 May 31
1998 1997
--------------------
Current deferred tax liabilities:
Inventories $10,641 $10,175
Prepaid expenses 123 175
Accrued expenses (257) (415)
Other (131) (20)
---------------------
Total current deferred tax liabilities 10,376 9,915
Long-term deferred tax liabilities:
Property, plant and equipment 7,168 6,741
Investments 252 335
Deferred compensation (310) (310)
Cash basis temporary differences 3,185 3,185
---------------------
Total long-term deferred tax liabilities 10,295 9,951
---------------------
Total deferred tax liabilities $20,671 $19,866
=====================
Effective May 29, 1988, the Company could no longer use cash basis
accounting for its farming subsidiary because of tax law changes. The
Taxpayer Relief Act of 1997 provides that taxes on the cash basis
temporary differences as of that date are generally payable over the
next 20 years beginning in fiscal 1999 or in the first fiscal in which
there is a change in ownership control. The Company uses the farm-price
method for valuing inventories for income tax purposes.
F-14
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 (34% in 1998 and 1996 and 35% in 1997) were as follows:
Fiscal year ended
May 30 May 31 June 1
1998 1997 1996
-------------------------------
Statutory federal income tax $2,830 $8,524 $5,911
State income taxes, net 187 700 488
Benefit of net operating loss
carryover for certain states - (300) -
Increase in federal income tax rate - 495 -
Other, net (benefit) (71) 89 61
-------------------------------
$2,946 $9,508 $6,460
===============================
Federal and state income taxes of $7,989, $7,597, and $1,985 were paid in
fiscal 1998, 1997 and 1996, respectively. Federal and state income taxes
of $1,090, $9, and $1,500 were refunded in fiscal 1998, 1997 and 1996,
respectively.
12. Other Matters
The carrying amounts reported in the consolidated 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 advice of legal counsel, that the outcome of these
actions will not have a material adverse effect on the Company's
consolidated financial position or operations.
F-15
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended May 30, 1998, May 31, 1997 and June 1, 1996
(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 30, 1998:
Allowance for doubtful
accounts $ 62 $ 361 $ 62 $ 361
==== ===== ====== =====
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
===== ===== ====== ======
S-1
CAL-MAINE FOODS, INC.
Form 10-K for the fiscal year
ended May 30, 1998
EXHIBIT INDEX
The following exhibits, not included by reference, are filed herewith:
Exhibit
Number Exhibit
- ------- -------
10.6(a) Amendment dated October 29, 1997 to Wage Continuation Plan dated
as of January 1, 1986 between B. J. Raines and the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule