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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(mark one)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 1, 2003
OR
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number: 000-04892
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware f 64-0500378
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3320 Woodrow Wilson Avenue, Jackson, Mississippi 39209
(Address of principal executive offices) (Zip Code)
(601) 948-6813
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 under the Exchange Act).
Yes _____ No X
Number of shares outstanding of each of the issuer's classes of common
stock (exclusive of treasury shares), as of March 31, 2003.
Common Stock, $0.01 par value 10,564,388 shares
Class A Common Stock, $0.01 par value 1,200,000 shares
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information Number
------
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets -
March 1, 2003 and June 1, 2002 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended
March 1, 2003 and March 2, 2002 4
Condensed Consolidated Statements of Cash Flow -
Nine Months Ended March 1, 2003 and
March 2, 2002 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures of
Market Risk 12
Item 4. Controls and Procedures 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Certifications 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 1,2003 June 1, 2002
(unaudited) (note (1))
ASSETS ----------------------------
Current assets:
Cash and cash equivalents $ 3,126 $ 4,878
Trade and other receivables 21,930 17,380
Recoverable federal income taxes 6,031 6,031
Inventories 51,245 46,108
Prepaid expenses and other current assets 1,428 911
----------------------------
Total current assets 83,760 75,308
Notes receivable and investments 7,404 7,116
Goodwill 3,147 3,147
Other assets 1,772 1,865
Property, plant and equipment 265,474 258,696
Less accumulated depreciation (125,817) (116,478)
----------------------------
139,657 142,218
----------------------------
TOTAL ASSETS $ 235,740 $ 229,654
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 8,500 $ 7,000
Accounts payable and accrued expenses 28,033 28,867
Current maturities of long-term debt 12,507 10,364
Deferred income taxes 11,767 11,767
----------------------------
Total current liabilities 60,807 57,998
Long-term debt, less current maturities 97,804 107,998
Other non-current liabilities 1,480 1,450
Deferred income taxes 13,727 7,748
----------------------------
Total liabilities 173,818 175,194
Stockholders' equity:
Common stock $0.01 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 17,565,200
at March 1, 2003 and June 1, 2002 176 176
Class A common stock $0.01 par value,
authorized, issued and outstanding
1,200,000 shares 12 12
Paid-in capital 18,784 18,784
Retained earnings 56,049 48,587
Common stock in treasury-6,863,512 shares at
March 1,2003 and June 1, 2002 (13,099) (13,099)
----------------------------
Total stockholders' equity 61,922 54,460
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 235,740 $ 229,654
============================
See notes to condensed consolidated financial statements.
3
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
UNAUDITED
13 Weeks Ended 39 Weeks Ended
------------------------------------------------
March 1, March 2, March 1, March 2,
2003 2002 2003 2002
------------------------------------------------
Net sales $ 106,822 $ 86,927 $ 284,024 $ 243,114
Cost of sales 82,014 74,908 233,790 219,004
------------------------------------------------
Gross profit 24,808 12,019 50,234 24,110
Selling, general and
administrative 11,629 10,543 32,461 31,012
------------------------------------------------
Operating income (loss) 13,179 1,476 17,773 (6,902)
Other income (expense):
Interest expense, net (1,762) (2,046) (6,104) (6,368)
Other 522 (291) 734 (283)
------------------------------------------------
(1,240) (2,337) (5,370) (6,651)
------------------------------------------------
Income (loss) before
income taxes 11,939 (861) 12,403 (13,553)
Income tax expense (benefit) 4,334 (310) 4,501 (4,843)
------------------------------------------------
NET INCOME (LOSS) $ 7,605 $ (551) $ 7,902 $ (8,710)
================================================
Net income (loss) per
common share:
Basic $ .65 $ (.05) $ .67 $ (.74)
================================================
Diluted $ .64 $ (.05) $ .67 $ (.74)
================================================
Dividends per common share $ .0125 $ .0125 $ .0375 $ .0375
================================================
Weighted average shares
outstanding:
Basic 11,764 11,764 11,764 11,802
================================================
Diluted 11,840 11,764 11,837 11,802
================================================
See notes to condensed consolidated financial statements.
4
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
UNAUDITED
39 Weeks Ended
---------------------
March 1, March 2,
2003 2002
---------------------
Cash flows provided by (used in) operating activities $ 14,500 $ (5,742)
Cash flows from investing activities:
Purchases of property, plant and equipment (3,831) (5,694)
Construction of production facilities (6,097) (6,730)
Payments received on notes receivable and
from investments 73 161
Decrease in note receivable, investments
and other assets 113 (212)
Net proceeds from sale of property, plant
and equipment 482 977
---------------------
Net cash used in investing activities (9,260) (11,498)
Cash flows from financing activities:
Net borrowings on notes payable to banks 1,500 8,000
Long-term borrowings -0- 9,000
Principal payments on long-term debt (8,052) (6,998)
Purchases of common stock for treasury -0- (571)
Payment of dividends (440) (444)
---------------------
Net cash provided by (used in) financing activities (6,992) 8,987
---------------------
Net change in cash and cash equivalents (1,752) (8,253)
Cash and cash equivalents at beginning of period 4,878 13,129
---------------------
Cash and cash equivalents at end of period $ 3,126 $ 4,876
=====================
See notes to condensed consolidated financial statements.
5
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(in thousands, except share amounts)
March 1, 2003
(unaudited)
1. Presentation of Interim Information
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management , all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
nine-month periods ended March 1, 2003 are not necessarily indicative of the
results that may be expected for the year ended May 31, 2003.
The balance sheet at June 1, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Cal-Maine Foods, Inc. and Subsidiaries Annual
Report on Form 10-K for the year ended June 1, 2002.
2. Inventories
Inventories consisted of the following:
March 1, 2003 June 1, 2002
-------------------------------
Flocks $ 32,424 $ 30,836
Eggs 3,370 2,258
Feed and supplies 12,737 10,073
Livestock 2,714 2,942
-------------------------------
$ 51,245 $ 46,108
===============================
3. Other Matters
During the third quarter of fiscal 2003, the Company received $4,090 in
vendor settlements pertaining to overcharges for vitamins and methionine
purchased by the Company over a number of years. The total received for the 39
weeks ended March 1,2003 is $7,037. The settlements are reflected in the
accompanying condensed consolidated financial statements as a reduction of cost
of sales in the periods ended March 1, 2003. The net after tax, per basic share,
effect is $.22 for the current quarter and $.38 for the 39 weeks ended March
1,2003.
6
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is primarily engaged in the production, cleaning, grading,
packing, and sale of fresh shell eggs. The Company's fiscal year end is the
Saturday nearest to May 31.
The Company's operations are fully integrated. It owns facilities to hatch
chicks, grow pullets, manufacture feed, and produce, process, and distribute
shell eggs. The Company currently is the largest producer and distributor of
fresh shell eggs in the United States. The shell egg segment sales, including
feed sales to outside egg producers, accounted for 98% of the Company's net
sales. The Company primarily markets its shell eggs in the southwestern,
southeastern, mid-western and mid-Atlantic regions of the United States. Shell
eggs are sold directly by the Company primarily to national and regional
supermarket chains.
The Company currently uses contract producers for approximately 15% 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, from outside producers for resale by the Company.
The Company's operating income or loss is significantly affected by
wholesale shell egg market prices, which can fluctuate widely and are outside of
the Company's control. Retail sales of shell eggs are greatest during the fall
and winter months and lowest during the summer months. Prices for shell eggs
fluctuate in response to seasonal factors and 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 56% of Cal-Maine's total farm egg production cost for the
current and prior year. Changes in feed costs result in changes in the Company's
cost of goods sold. The cost of feed ingredients is affected by a number of
supply and demand factors such as crop production and weather, and other
factors, such as the level of grain exports, over which the Company has little
or no control.
According to U.S. Department of Agriculture reports, during calendar year
2002, the chick hatch was lower than in the same twelve-month period in 2001,
resulting in lower projected hen numbers for 2003. The same data for January and
February 2003 shows the chick hatch below January and February 2002. This could
result in decreased egg production and upward pressure on egg prices. Egg demand
is very good for domestic use. Export opportunities for 2003 are uncertain at
this time. Although the fall 2002 grain crop was adequate, current grain
commodities futures trading levels indicate that the cost of feed ingredients
may be at higher price levels during 2003.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Condensed Consolidated Statements of Operations expressed as
a percentage of net sales.
Percentage of Net Sales
---------------------------------------------
13 Weeks Ended 39 Weeks Ended
March 1, March 2, March 1, March 2,
2003 2002 2003 2002
---------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.8 86.2 82.3 90.0
---------------------------------------------
Gross profit 23.2 13.8 17.7 10.0
Selling, general & administrative 10.9 12.1 11.4 12.8
---------------------------------------------
Operating income (loss) 12.3 1.7 6.3 (2.8)
Other expense (1.1) (2.7) (1.9) (2.7)
---------------------------------------------
Income (loss) before taxes 11.2 (1.0) 4.4 (5.5)
Income tax expense (benefit) 4.1 (0.4) 1.6 (1.9)
---------------------------------------------
Net income (loss) 7.1% (0.6)% 2.8% (3.6)%
=============================================
7
NET SALES
Net sales for the third quarter of fiscal 2003 were $106.8 million, an
increase of $19.9 million, or 22.9% as compared to net sales of $86.9 million
for the third quarter of fiscal 2002. Total dozens of eggs sold increased in the
current quarter and egg selling prices increased as compared with prices last
year. Dozens sold for the current quarter were 146.7 million dozen, an increase
of 3.3 million dozen, or 2.3% as compared to the third quarter of last year.
Consumer demand was good and egg supply was in balance, helped by a sizeable,
one time, export order to Europe by the U.S. egg industry. These market factors
resulted in higher egg selling prices during the current quarter. The Company's
net average selling price per dozen for the fiscal 2003 third quarter was $.693,
compared to $.576 for the third quarter of last year, an increase of 20.3%.
Net sales for the thirty-nine weeks ended March 1, 2003 were $284.0
million, an increase of $40.9 million, or 16.8%, as compared to net sales of
$243.1 million for last year. As in the current quarter, total dozens sold
increased and net egg selling prices increased. Dozens sold for the current 39
week period were 427.7 million as compared to 420.1 million for the same period
in last fiscal year, an increase of 1.8%. For the current 39 week period, the
Company's net average selling price per dozen was $.631, compared to $.547 per
dozen last year, an increase of 15.4%.
COST OF SALES
Cost of sales for the third quarter ended March 1, 2003 was $82.0 million,
an increase of $7.1 million, or 9.5%, as compared to cost of sales of $74.9
million for last year's third quarter. The increase is due to higher cost of
purchases from outside egg producers and higher cost of feed ingredients, offset
by the Company's $4.1 million recovery share of a class action feed ingredient
lawsuit. Settlement discussions are ongoing with other ingredient suppliers and
management believes that additional settlements, of an indeterminate amount, are
likely during the remainder of fiscal 2003. Dozens of eggs sold increased 2.3%.
These additional dozens were the net result of an increase in dozens produced in
Company facilities and small decrease in the number of dozens purchased from
outside egg producers. The increase in the cost of the eggs purchased from
outside producers was due to stronger egg market conditions. Feed cost for the
third quarter ended March 1, 2003 was $.218 per dozen, compared to last fiscal
year's cost per dozen of $.193, an increase of 13.0%. The higher egg selling
prices resulted in an increase in gross profit from 13.8% of net sales for the
quarter ended March 2, 2002 to 23.2% of net sales for the current quarter ended
March 1, 2003.
For the thirty-nine week period ended March 1, 2003, cost of sales was
$233.8 million, an increase of $14.8 million, or 6.8%, as compared to cost of
sales of $219.0 million for last year. As in the quarter, the increase in cost
of sales is the result of higher outside egg purchase cost and an increase in
the cost of feed, offset by the Company's $7.0 million recovery share, for the
39 week period, of the class action feed ingredient lawsuit. Feed cost for the
current 39 weeks was $.211 per dozen, compared to $.195 per dozen last year, an
increase of 8.2%. The increase in egg selling prices resulted in an increase in
gross profit from 10.0% of net sales for the prior year 39 week period to 17.7%
for the current 39 week period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter ended
March 1, 2003 were $11.6 million, an increase of $1.1 million, or 10.5%, as
compared to $10.5 million for last fiscal year's third quarter. The increase is
due to an increase in payroll and related expenses and increased delivery costs,
especially in costs of insurance and employee benefits. On a cost per dozen sold
basis, selling, general and administrative expenses increased $.005 per dozen,
or $.079 per dozen for the current quarter as compared to $.074 for the same
period in the prior year. As a percent of net sales, selling, general and
administrative expenses decreased from 12.1% for the fiscal 2002 third quarter
to 10.9% for the current quarter.
For the thirty-nine weeks ended March 1, 2003, selling, general and
administrative expenses were $32.5 million, an increase of $1.5 million, or
4.8%, as compared to $31.0 million for the same period in the prior fiscal year.
As in the current quarter, the increased cost was related to increases in
payroll and related expenses, and increased delivery expenses. On a cost per
dozen sold basis, selling, general and administrative expenses increased
slightly, $.076 for the current year and $.074 for last fiscal year. As a
percent of net sales, selling, general and administrative expenses have
decreased from 12.8% for the prior 39 week period to 11.4% for the current 39
week period.
8
OPERATING INCOME
As the result of the above, operating income was $13.2 million for the
third quarter ended March 1, 2003, as compared to operating income of $1.5
million for last year's fiscal third quarter. Operating income was 12.3% of net
sales for the current fiscal quarter, compared to operating income of 1.7% of
net sales for the same quarter in the prior year.
For the thirty-nine weeks ended March 1, 2003, operating income was $17.8
million, compared to operating loss of $6.9 million for last fiscal year.
Operating income was 6.3% of net sales for the current 39 week period compared
to operating loss of 2.8% of net sales in the same period in the prior year.
OTHER EXPENSE
Other expense for the third quarter ended March 1, 2003 was $1.2 million,
an decrease of $1.1, as compared to the third quarter of last fiscal year. In
the current quarter, net interest expense decreased $284,000 and other income
increased $813,000. Net interest expense decreased as the result of lower
interest rates and capitalized interest on construction projects. Other income
for the current quarter increased from equity in income of affiliates. As a
percent of net sales, other expense was 1.1% for the current third quarter,
compared to 2.7% for the same period in the prior year.
For the thirty-nine weeks ended March 1, 2003, other expense was $5.4
million, a decrease of $1.3 million, or 19.4%, as compared to $6.7 million for
the same period in the prior year. For the current period, net interest expense
decreased $264,000 and other income increased $1.0 million. Net interest expense
decreased due to lower interest rates. The increase in other income is due to an
increased of $1.1 million from equity in income of affiliates. As a percent of
net sales, other expense was 1.9% for the current period, as compared to 2.7%
for the same period in the prior year.
INCOME TAXES
As a result of the above, the Company's pre-tax income was $11.9 million
for the quarter ended March 1, 2003, compared to pre-tax loss of $861,000 for
last year's quarter. For the current quarter, an income tax expense of $4.3
million was recorded with an effective tax rate of 36.3%, as compared to an
income tax benefit of $310,000 with an effective rate of 36.0% for last year's
comparable quarter.
For the thirty-nine week period ended March 1, 2003, the Company's pre-tax
income was $12.4 million, compared to pre-tax loss of $13.6 million for last
year. For the current thirty-nine week period, an income tax expense of $4.5
million was recorded with an effective tax rate of 36.3%, as compared to an
income tax benefit of $4.8 million with an effective rate of 35.7% for last
year's comparable period.
NET INCOME (LOSS)
Net income for the third quarter ended March 1, 2003 was $7.6 million, or
$.65 per basic share, $.64 per diluted share, compared to net loss of $551,000,
or $.05 per basic and diluted share, for last fiscal year's third quarter.
For the thirty-nine week period ended March 1, 2003, net income was $7.9
million, or $.67 per basic and diluted share, compared to last fiscal year's net
loss of $8.7 million, or $.74 per basic and diluted share.
9
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at March 1, 2003 was $23.0 million, compared
to $17.3 million at June 1, 2002. The Company's current ratio was 1.38 at March
1, 2003, as compared with 1.30 at June 1, 2002. The Company's need for working
capital generally is highest in the first and second fiscal quarters ending in
August and November. During the first quarter egg prices are normally at
seasonal lows. In the second quarter, the Company usually builds inventories and
receivable balances in anticipation of the holiday season. Seasonal borrowing
needs frequently are higher during these periods than during other fiscal
periods. The Company had a $35 million line of credit with three banks of which
$8.5 million was outstanding at March 1, 2003. The Company's long-term debt at
that date, including current maturities, totaled $110.3 million, as compared to
$118.4 million at June 1, 2002.
For the thirty-nine weeks ended March 1, 2003, $14.5 million in net cash
was provided by operating activities. This compares to $5.7 million that was
used in operating activities for the comparable period last fiscal year. In the
current thirty-nine week period, $3.8 million was used for purchases of
property, plant and equipment, $482,000 was received from sales of property,
plant and equipment, and $6.1 million was used for construction projects. Net
cash of $186,000 was provided by notes receivable and investments. Approximately
$440,000 was used for payments of dividends on the Company's common stock.
Proceeds of $1.5 million were received from net borrowings on notes payable to
banks. Payments of $8.1 million were made on long-term debt. The net result was
a decrease in cash of approximately $1.8 million.
For the comparable period last year, $5.7 million was used for purchases of
property, plant and equipment, $977,000 was received from sales of property,
plant and equipment, and $6.7 million was used for construction projects. Net
cash of $212,000 was used for additions to investments and other assets and
payments of $161,000 were received on notes receivable and investments.
Approximately $571,000 was used for purchase of common stock for the treasury
and $444,000 was used for payments of dividends on the Company's common stock.
Proceeds of $8.0 million were received from net borrowings on notes payable to
banks and long-term borrowings of $9.0 million were received. Payments of $7.0
million were made on long-term debt. The net result was a decrease in cash of
approximately $8.3 million.
Substantially all trade receivables and inventories collateralize the
Company's line of credit, and property, plant and equipment collateralize the
Company's long-term debt. The Company is required by certain provisions of these
loan agreements to (1) maintain minimum levels of working capital and net worth;
(2) limit dividends, capital expenditures, lease obligations and additional
long-term borrowings; and (3) maintain various current and cash-flow coverage
ratios, among other restrictions. At June 1, 2002, the Company did not meet
certain of these provisions on its long-term debt agreements and obtained
waivers of these requirements through fiscal 2003. At March 1, 2003, the Company
was not in compliance with a certain financial covenant requirement of a $16.0
million long-term debt agreement. The Company obtained a waiver of such
requirement. As of March 1, 2003, the Company is in compliance with the
provisions of all loan agreements as waived or amended. Under certain of the
loan agreements, the lenders have the option to require the prepayment of any
outstanding borrowings in the event of a change in the control of the Company.
The Company has a net operating income tax loss carryforward to fiscal year
ending May 31, 2003 of approximately $14.0 million. Due to this, at March 1,
2003, there is not a current payable portion of estimated income taxes included
in current liabilities.
In fiscal 2001, the Company began construction of a new shell egg
production and processing facility in Guthrie, Kentucky, with completion of the
facility expected in fiscal 2004. The total cost of the facility is
approximately $18.0 million, of which $12.1 million was incurred through March
1, 2003. The Company has commitments from an insurance company to receive $10.0
million in long-term borrowings and from a leasing company to receive $7.5
million applicable to the Guthrie facility. Including the construction project,
the Company has projected capital expenditures of $14.0 million in fiscal 2003,
which will be funded by cash flows from operations and additional long-term
borrowings.
10
Impact of Recently Issued Accounting Standards.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144). SFAS No. 144 supersedes Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of "(SFAS No. 121). However, it
retains the fundamental provisions of SFAS No. 121 related to the recognition
and measurement of the impairment of long-lived assets to be "held and used." In
addition, SFAS No. 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset to be
disposed other than by sale (e.g., abandoned) be classified as "held and used"
until it is disposed of, and establishes more restrictive criteria to classify
an asset as "held for sale." The Company adopted SFAS No. 144 effective June 2,
2002. The adoption did not have an effect on the Company's consolidated results
of operations or financial position.
Forward Looking Statements. The foregoing statements contain
forward-looking statements, which involve risks and uncertainties, and the
Company's actual experience may differ materially from that discussed above.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Factors Affecting Future Performance" below, as well as future
events that have the effect of reducing the Company's available cash balances,
such as unanticipated operating losses or capital expenditures related to
possible future acquisitions. Readers are cautioned not to place undue reliance
on forward-looking statements, which reflect management's analysis only as the
date hereof. The Company assumes no obligation to update forward-looking
statements. See also the Company's other reports to be filed from time to time
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934.
Factors Affecting Future Performance. The Company's future operating
results may be affected by various trends and factors beyond the Company's
control. These include adverse changes in shell egg prices and in the grain
markets. Accordingly, past trends should not be used to anticipate future
results and trends. Further, the Company's prior performance should not be
presumed to be an accurate indication of future performance.
Critical Accounting Policies. The preparation of financial statements in
accordance with accounting standards generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Management suggests that the Company's Summary of Significant Accounting
Policies, as described in Note 1 of the Notes to Consolidated Financial
Statements included in Cal-Maine Foods, Inc. and Subsidiaries Annual Report on
Form10-K for the fiscal year ended June 1, 2002, be read in conjunction with
this Management's Discussion and Analysis of Financial Condition and Results of
Operations. The Company believes the critical accounting policies that most
impact the Company's consolidated financial statements are described below.
Allowance for Doubtful Accounts. In the normal course of business, the
Company extends credit to its customers on a short-term basis. Although credit
risks associated with our customers are considered minimal, the Company
routinely reviews its accounts receivable balances and makes provisions for
probable doubtful accounts. In circumstances where management is aware of a
specific customer's inability to meet its financial obligations to the Company
(e.g. bankruptcy filings), a specific reserve is recorded to reduce the
receivable to the amount expected to be collected. For all other customers, the
Company recognizes reserves for bad debts based on the length of time the
receivables are past due, generally 100% for amounts more than 60 days past due.
Inventories. Inventories of eggs, feed, supplies and livestock are valued
principally at the lower of cost (first-in, first-out method) or market. If
market prices for eggs and feed grains move substantially lower, the Company
would record adjustments to write-down the carrying values of eggs and feed
inventories to fair market value.
The cost associated with flock inventories, consisting principally of chick
purchases, feed, labor, contractor payments and overhead costs, are accumulated
during the growing period of approximately 18 weeks. Capitalized flock costs are
then amortized over the productive lives of the flocks, generally one to two
years. Flock mortality is charged to cost of sales as incurred. High mortality
from disease or extreme temperatures would result in abnormal adjustments to
write-down flock inventories. Management continually monitors each flock and
attempts to take appropriate actions to minimize the risk of mortality loss.
11
Long-Lived Assets. Depreciable long-lived assets are primarily comprised of
buildings and improvements and machinery and equipment. Depreciation is provided
by the straight-line method over the estimated useful lives, which are 15 to 25
years for buildings and improvements and 3 to 12 years for machinery and
equipment. An increase or decrease in the estimated useful lives would result in
changes to depreciation expense.
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 to reduce the carrying value of the
long-lived asset to the estimated fair value of the asset.
Investment in Affiliates. The Company has invested in other companies
engaged in the production, processing and distribution of shell eggs and egg
products. The Company's ownership percentages in these companies range from less
than 20% to 50%. Therefore, these investments are recorded using the cost or the
equity method, and accordingly, not consolidated in the Company's financial
statements. Changes in the ownership percentages of these investments might
alter the accounting methods currently used. The Company is a guarantor of
approximately $9 million of long-term debt of one of the affiliates.
Goodwill. Goodwill primarily relates to the fiscal 1999 acquisition of
Hudson Brothers, Inc. Goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. An impairment loss would be recorded if the
recorded goodwill exceeds its implied fair value.
The Company has only one operating segment, which is its sole reporting
unit. Accordingly, goodwill is tested for impairment at the entity level.
Significant adverse industry or economic changes, or other factors not
anticipated could result in an impairment charge to reduce recorded goodwill.
Income Taxes. The Company determines its effective tax rate by estimating
its permanent differences resulting from differing treatment of items for tax
and accounting purposes. The Company is periodically audited by taxing
authorities. Any audit adjustments affecting permanent differences could have an
impact on the Company's effective tax rate.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There have been no material changes in the market risk reported in Item 7A
of the Company's Annual Report on Form 10-K for the fiscal year ended June 1,
2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective
based on their evaluation of such controls and procedures as of a date within 90
days prior to the filing of this report. There were no significant changes in
internal controls or in other factors that significantly affect internal
controls subsequent to the date of their most recent evaluation.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 26, 2002, Cal-Maine Farms, Inc.("Cal-Maine Farms"), a Delaware
corporation and a wholly owned subsidiary of the Company, was served with
process in a civil complaint filed in the Circuit Court of the First Judicial
District of Hinds County, Mississippi, on behalf of four plaintiffs, Hunter
McWhorter, a minor, his two parents, and Michael Green, an adult. In addition to
Cal-Maine Farms, Fred Adams, Dolph Baker, Charlie Collins, R. K. Looper and B.
J. Raines, officers of the Company, are also named as defendants. Six other
named defendants include Cargill, Incorporated, George's Farms, Inc., Peterson
Farms, Inc., Simmons Foods, Inc., Simmons Poultry Farms, Inc., and Tyson Foods,
Inc., each of which is engaged in the broiler business. Additional individual
defendants with affiliations to the other corporate defendants were also named.
The suit alleges the original plaintiffs have suffered medical problems
resulting from living near land upon which "litter" from the flocks of hens
owned by certain of the defendants was spread as fertilizer. The suit
specifically addresses conditions alleged to exist in Washington County,
Arkansas, where there is a relatively high concentration of broiler farms.
Cal-Maine Farms is not engaged in any broiler production and, compared to the
broiler producers, only has a very small portion of the hens located in
Washington County, Arkansas.
The suit alleges actual damages in the amount of $55,000,000 and requests
punitive damages in the amount of $100,000,000. On December 31, 2002, an Amended
Complaint was filed, bringing the total number of plaintiffs to 93, of which 67
are alleged to be ill and three are deceased. The damages sought were not
amended.
An answer has been filed on behalf of Cal-Maine Farms denying the
plaintiffs claim but no discovery has taken place. At this time, motions to
dismiss on behalf of certain defendants, including Cal-Maine Farms, are pending,
but not yet scheduled for hearing. At this stage, it is impossible to evaluate
the potential exposure, if any, of Cal-Maine Farms to damages in this suit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
99.1 Written Statement of The Chief Executive Officer
99.2 Written Statement of The Chief Financial Officer
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company covering
an event during the third quarter of fiscal 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAL-MAINE FOODS, INC.
(Registrant)
Date: April 9, 2003 /s/ Bobby J. Raines
-------------------------------------------
Bobby J. Raines
Vice President/Treasurer
(Principal Financial Officer)
Date: April 9, 2003 /s/ Charles F. Collins
-------------------------------------------
Charles F. Collins
Vice President/Controller
(Principal Accounting Officer)
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CERTIFICATION
I, Fred R. Adams, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cal-Maine Foods, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Fred R. Adams, Jr.
- -------------------------------------------------
Fred R. Adams, Jr.
Chairman of the Board and Chief Executive Officer
Date : April 9, 2003
15
CERTIFICATION
I, Bobby J. Raines, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cal-Maine Foods, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Bobby J. Raines
- -------------------------------------------------
Bobby J. Raines
Vice President, Chief Financial Officer, Treasurer and Secretary
Date: April 9, 2003
16