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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 29, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-04892
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0500378
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3320 WOODROW WILSON AVENUE, JACKSON, MISSISSIPPI 39209
(Address of principal executive offices) (Zip Code)
(601) 948-6813
(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 24, 1999, 11,212,988 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 $15,660,465,
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 1999 Annual
Meeting of Shareholders to be held on October 11, 1999, to be filed with the
Securities and Exchange Commission on or about September 6, 1999.
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.
Shell egg sales, including feed sales to outside egg producers, accounted for
approximately 98% of the Company's net sales in fiscal 1999. Egg products
operations, which accounted for approximately 4% of the Company's net sales in
fiscal 1998, were discontinued in May 1998. Currently, the Company is the
largest producer and distributor of fresh shell eggs in the United States and
during fiscal 1999, had sales of approximately 426 million dozen shell eggs.
This volume represents approximately 10.5% 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 nine acquisitions,
adding an aggregate of 17.1 million layers to its capacity, and built five new
"in-line" shell egg production and processing facilities and one pullet
growing facility, adding 5.0 million layers and 1.2 million growing 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 18.2 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 407 million for the past five fiscal
years. Net sales amounted to $288.0 million in fiscal 1999, 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.
2
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. North Carolina 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
1999 Hudson Brothers, Inc. Kentucky 1,200,000 12,161,000
----------------------------
Total 17,100,000 $ 77,284,000
(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
1999 Kansas 1,250,000 250,000 21,500,000
------------------------------------------
Total 5,000,000 1,200,000 $ 68,200,000
==========================================
(1) Does not include construction in Waelder, Texas, commenced in
fiscal 1998, and to be completed in fiscal 2000 at an estimated cost of
approximately $18.7 million, adding approximately 1,300,000 layer and 300,000
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 its last fiscal year
represented 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.
3
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 70% of its total fiscal 1999 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, Tennessee, and Texas.
All ingredients necessary for feed production are readily available in the
open market and most are purchased centrally from Jackson, Mississippi.
Approximately 95% of the feed for Company flocks is manufactured at feed mills
owned and operated by the Company. Poultry feed is formulated using a computer
model to determine the least-cost ration to meet the nutritional needs of the
flocks. Although most feed ingredients are purchased on an as-needed basis,
from time-to-time, when deemed advantageous, the Company purchases ingredients
in advance with a delayed delivery of several weeks.
Feed cost represents the largest element of the Company's farm egg
production cost, ranging from 55% to 64% of total cost in the last five years,
or an average of approximately 60%. Although feed ingredients are available
from a number of sources, the Company 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,
possibly resulting in lower egg prices. Historically, the Company has tended
to have higher profit margins when feed costs are higher. However, this may
not be the case in the future.
After the eggs are produced, they are cleaned, graded, and packaged.
Substantially all of the Company-owned farms have modern "in-line" facilities
that mechanically gather, clean, grade and package the eggs 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 owned by
contractors 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 a 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 425.2 million dozen shell eggs sold by the Company in
the fiscal year ended May 29, 1999, 315 million were produced by company
flocks.
4
Sales of shell eggs primarily are made to national and regional
supermarket chains that buy direct from the Company. During fiscal 1999, no
customer accounted for more than 10% of net sales, and the top 10 customers
accounted for less 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, and often losses, 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 245, averaging 238. While the Company believes that increased fast
food restaurant consumption, reduced egg cholesterol levels and industry
advertising campaigns may result in a continuance of the recent increases in
current per capita egg consumption levels, no assurance can be given that per
capita consumption will not decline in the future.
The Company sells the majority of its shell eggs in approximately 26
states, ranging across the southwest, southeast, mid-west and mid-Atlantic
regions of the United States. Cal-Maine is a major factor in egg marketing in
a majority of these states. Many states in Cal-Maine's market area are egg
deficit regions; that is, production of fresh shell eggs is less than total
consumption. Competition from other producers in specific market areas is
generally based on price, service, and quality of product. Strong competitors
of Cal-Maine exist in each of the Company's markets.
EGG PRODUCTS. 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. Egg products accounted for approximately
4% of the Company's net sales in fiscal year 1998.
SPECIALTY EGGS. The Company also produces specialty eggs such as
Egg*land's Best(TM) and Farmhouse eggs. Egg*land's Best(TM) eggs are patented
eggs that are believed by its developers, based on scientific studies, to
cause no increase in serum cholesterol when eaten as part of a low fat diet.
Cal-Maine produces and processes Egg*land's Best(TM) eggs, under license from
Egg*land'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. Egg*land's Best(TM)
eggs accounted for approximately 4.3% of the Company's net sales in fiscal
1999. "FARMHOUSE" brand eggs are produced at Company facilities by hens that
are not caged, and are provided with a diet of natural grains and drinking
water that is free of hormones or other chemical additives. Farmhouse eggs
account for just under 1% of net sales. They are intended to meet the demands
of consumers who are sensitive to environmental and animal welfare issues.
LIVESTOCK. The Company's livestock operations currently consist of the
operation of a 1,440 head dairy facility, from which milk sales are made to a
major milk processor. Milk and cattle sales were approximately 2% of the
Company's net sales in fiscal year 1999.
5
COMPETITION. The production, processing, and distribution of shell eggs
is an intensely competitive business which, traditionally, has attracted large
numbers of producers. Shell egg competition is generally based on price,
service, and quality of production. Although the Company is the largest
combined producer, processor, and distributor of shell eggs in the United
States, it does not occupy a controlling market position in any area where its
eggs are sold.
The shell egg production and processing industry has been characterized
by a growing concentration of production. In 1998, 61 producers with one
million or more layers owned 74% of the 263 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 TRADEMARKS. 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 Egg*land's Best(TM)
eggs, under license from EB, as indicated above.
GOVERNMENT REGULATION. The Company is subject to federal and state
regulations relating to grading, quality control, labeling, sanitary control,
and waste disposal. As a fully-integrated egg producer, the Company's shell
egg facilities are subject to USDA and FDA regulation. The Company's shell egg
facilities are subject to periodic USDA inspections, and its egg products
plant is subject to continuous on-site USDA inspection. Cal-Maine maintains
its own inspection program to assure compliance with the Company's own
standards and customer specifications.
Cal-Maine is subject to federal and state environmental laws and
regulations and has all necessary permits.
EMPLOYEES. As of May 29, 1999, the Company had a total of approximately
1,635 employees of whom 1,455 worked in egg production, processing and
marketing, 90 were engaged in feed mill operations, 50 in dairy activities,
and 40 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, New Mexico, North Carolina,
Ohio, Oklahoma, South Carolina, Tennessee, and Texas, as follows: two breeding
facilities, two hatcheries, 13 feed mills, 11 production facilities, 11 pullet
growing facilities, 15 processing and packing facilities, three 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 265 over-the-road tractors and 331 trailers, of
which 168 and 204 are owned, respectively, and the balance are leased.
6
At May 29, 1999, the Company owned approximately 12,350 acres of land
and owned facilities to:
Operation Capacity
--------- --------
Hatch 13,000,000 - pullet chicks per year
Grow(1) 7,800,000 - pullets per year
House(2) 12,000,000 - hens
Produce 600 - 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 16.5 million layers, of which 5.0
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 $97 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 29,
1999.
7
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. The following table sets
forth the high and low daily sale prices and dividends for four quarters of
fiscal 1998 and fiscal 1999. Cash Dividend SALES PRICE DECLARED
Sales Price
---------------- Cash Dividend
Year Ended Fiscal Quarter High Low Declared
---------- -------------- ---- --- -------------
May 30, 1998 First Quarter $7 5/8 $6 1/4 $.00
Second Quarter 7 5 7/8 .01
Third Quarter 7 5 1/2 .01
Fourth Quarter 6 5/8 4 3/4 .01
May 29, 1999 First Quarter 5 3/4 4 .01
Second Quarter 5 1/2 3 1/2 .0125
Third Quarter 5 7/16 4 1/4 .0125
Fourth Quarter 5 5/8 5 3/16 .0125
As of May 29, 1999, there were approximately 180 record holders of the
Company's Common Stock and approximately 1,300 beneficial owners whose shares
were held by nominees or broker dealers.
On September 24, 1996, the shareholders approved an amendment to the
Company's certificate of incorporation to authorize capital stock consisting
of 30,000,000 shares of Common Stock and 1,200,000 shares of Class A Common
Stock, each class having a par value of $0.01 per share, and to reclassify and
change each previously outstanding share of Class A Common Stock, $1.00 par
value per share, and each previously outstanding share of Class B Common
Stock, $1.00 par value per share, into 1,200 shares each of Common Stock and
Class A Common Stock, respectively, each class with a par value of $0.01 per
share. The Company's Amended and Restated Certificate of Incorporation, which
reflects such authorized capital stock, was effective as of October 3, 1996.
Unless otherwise indicated, all references to historical earnings per share,
and number and class of shares outstanding, are as adjusted for the aforesaid
recapitalization, reclassification and stock split of the Company's capital
stock.
There is no public trading market for the Class A Common Stock, 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 current
cash dividend is $.0125 per share on Common Stock, representing an annual cash
dividend of $.05 per share. The cash dividend is $.011875 per share on Class A
Common Stock, representing an annual cash dividend of $.0475 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 to pay dividends.
The Company is required to maintain minimum levels of working capital and net
worth, to limit capital expenditures, leasing transactions and additional
long-term borrowings, and to maintain various current and cash-flow coverage
ratios, among other restrictions. For the foreseeable future, the Company
expects to retain 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 audited financial statements. 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.
8
Fiscal Years Ended
------------------
May 29, May 30, May 31, June 1, June 3,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales $ 287,954 $ 309,071 $ 292,526 $ 282,844 $ 242,649
Cost of sales 242,022 264,636 236,273 230,850 223,965
----------------------------------------------------------------------
Gross profit 45,932 44,435 56,253 51,994 18,684
Selling, general and administrative 36,406 34,089 28,930 29,653 27,934
----------------------------------------------------------------------
Operating income (loss) 9,526 10,346 27,323 22,341 (9,250)
Other income (expense):
Interest expense (5,195) (4,583) (4,277) (5,487) (5,052)
Equity in income of affiliate 326 294 524 721 24
Other 3,330 2,268 783 (190) 993
----------------------------------------------------------------------
(1,539) (2,021) (2,970) (4,956) (4,035)
----------------------------------------------------------------------
Income (loss) before income taxes 7,987 8,325 24,353 17,385 (13,285)
Income tax expense (benefit) 2,907 2,946 9,508 6,460 (4,600)
----------------------------------------------------------------------
Net income (loss) $ 5,080 $ 5,379 $ 14,845 $ 10,925 $ (8,685)
======================================================================
Net income (loss) per common share(1):
Basic $ 0.39 $ 0.41 $ 1.21 $ 0.94 $ (0.74)
======================================================================
Diluted $ 0.39 $ 0.40 $ 1.18 $ 0.94 $ (0.74)
======================================================================
Cash dividends declared per share $ 0.04 $ 0.02 $ .00 $ .00 $ .00
======================================================================
Weighted average shares outstanding(1):
Basic 12,999 13,191 12,285 11,584 11,700
======================================================================
Diluted 13,114 13,428 12,560 11,584 11,700
======================================================================
BALANCE SHEET DATA:
Working capital $ 48,501 $ 56,591 $ 45,390 $ 26,742 $ 10,092
Total assets 213,682 203,188 182,294 149,991 147,402
Total debt (including current portion) 84,004 75,498 64,436 63,426 64,211
Total stockholders' equity 80,584 79,547 74,642 47,900 37,472
(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 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. Egg products
operations, which accounted for approximately 4% of the Company's net sales in
fiscal 1998, were discontinued in May 1998.
9
The Company currently uses contract producers for approximately 30% of
its total egg production. Contract producers operate under agreements with the
Company for the use of their facilities in the production of shell eggs by
layers owned by the Company, which owns the eggs produced. Also, shell eggs
are purchased, as needed, for resale by the Company from outside producers.
The Company's operating income or loss is significantly affected by
wholesale shell egg market prices, which can fluctuate widely and are outside
of the Company's control. Retail sales of shell eggs are greatest during the
fall and winter months and lowest during the summer months. Prices for shell
eggs fluctuate in response to seasonal factors and a natural increase in egg
production during the spring and early summer.
The Company's cost of production is materially affected by feed costs,
which average about 60% of Cal-Maine's total farm egg production cost. Changes
in feed costs result in changes in the Company's cost of goods sold. The cost
of feed ingredients is affected by a number of supply and demand factors such
as crop production and weather, and other factors, such as the level of grain
exports, over which the Company has little or no control.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of net sales.
Percentage of Net Sales
Fiscal Years Ended
May 29, 1999 May 30, 1998 May 31, 1997
------------ ------------ ------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 84.0 85.6 80.8
------ ------ ------
Gross profit 16.0 14.4 19.2
Selling, general & administrative expenses 12.6 11.0 9.9
------ ------ ------
Operating income 3.4 3.4 9.3
------ ------ ------
Other income (expense) (0.6) (0.7) (1.0)
------ ------ ------
Income before taxes 2.8 2.7 8.3
------ ------ ------
Income tax expense 1.0 1.0 3.2
------ ------ ------
Net income 1.8% 1.7% 5.1%
====== ====== ======
FISCAL YEAR ENDED MAY 29, 1999 COMPARED TO FISCAL YEAR ENDED MAY 30, 1998
NET SALES. Net sales in the fiscal year ended May 29, 1999 were $288.0
million, a decrease of $21.1 million, or 6.8%, from net sales of $309.1
million in the fiscal year ended May 30, 1998. The closure of the egg products
division, in fiscal 1998, accounts for $12.9 million of the decrease in net
sales for the current fiscal year. The balance of the decrease is the result
of lower selling prices for eggs. Due to increased egg supplies and lower
exports, average shell egg market prices declined approximately 5.4%. In
response to declining market prices, Cal-Maine's net average selling price of
shell eggs decreased from $.657 per dozen for fiscal 1998 to $.623, a decrease
of $.034 per dozen, or 5.2%. Total dozens of eggs sold remained about the same
for both fiscal years, 425.5 million dozen for fiscal 1999, compared to 424
million for fiscal 1998, an increase of 1.5 million dozens. Outside feed sales
increased $2.4 million, or approximately 15.0%, for the current fiscal year.
The increase was the net result of an increase of 43.0% in tons of feed sold
to outside producers, offset by a decrease of 20.0% in the net selling price
per ton. Lower cost of feed ingredients brought market prices for feed down.
COST OF SALES. The cost of sales in fiscal 1999 was $242.0 million, a
decrease of $22.6 million, or 8.5%, under the fiscal 1998 cost of sales of
$264.6 million. The closed egg products division accounted for $13.0 million
of the current fiscal year decrease. The balance of the decrease is mostly due
to decreases in cost of feed ingredients, and lower shell egg market prices.
The lower cost of feed ingredients is the result of a large 1998 corn and
soybean harvest and indications of continued favorable feed prices as the 1999
crop season begins. Feed cost per dozen eggs produced during fiscal 1999 was $
.195, compared to $.248 per dozen in fiscal 1998, a decrease of 21.4%. During
fiscal 1999, the Company purchased 116.0 million dozens from outside sources,
compared to 101.8 million dozen during fiscal 1998, an increase of 13.9%. Due
to decreased egg market prices, as discussed above, the Company was able to
10
purchase all outside dozens at more favorable net prices. Lower shell egg
market prices, offset by improvements in egg production and purchased egg
costs, resulted in an increase in gross profit from 14.4% of net sales for
fiscal 1998 to 16.0% of net sales for the 1999 fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses in fiscal 1999 were $36.4 million, an increase of $2.3
million, or 6.7%, as compared to $34.1 million for fiscal 1998. The increases
are mostly in payroll and payroll related expenses, including cash payments to
certain employees to terminate stock options and employee health insurance
costs. During the second quarter of the 1999 fiscal year, the Company, in
accordance with FASB Statement 121, incurred an impairment change of $500,000
on a facility, including feed mill and production and distribution properties,
that was closed. In the current fiscal year, franchise fees have increased
almost $500,000 as the Company expands its markets for specialty brands of
eggs, primarily EGGLAND'S BEST. Sales of the specialty brands for the current
year were 5.2% of net sales, as compared to 3.4% for last fiscal year, and
1.0% for fiscal 1997. Other costs, including delivery, remained approximately
the same during both fiscal years. As a percent of net sales, general and
administrative expenses increased from 11.0% for fiscal 1998 to 12.6% for the
current fiscal year.
OPERATING INCOME. As a result of the above, the Company's operating
income was $9.5 million in fiscal 1999, a decrease of $800,000 or 7.9%, as
compared to operating income of $10.3 million for fiscal 1998. As a percent of
net sales, operating income for fiscal 1999 was 3.4%, the same as for fiscal
1998.
OTHER INCOME (EXPENSE). Other expense for fiscal 1999 was $1.5 million,
a decrease of $482,000, or 23.8%, as compared to other expense of $2.0 million
for fiscal 1998. The decrease in net other expense is due to an increase in
interest income of $831,000 offset by an increase in interest expense of
$611,000 and an increase in other income of $263,000. As a percent of net
sales, other expenses were 0.6% for fiscal 1999 compared to 0.7% for fiscal
1998.
INCOME TAXES. As a result of the above, the Company's pre-tax income was
$8.0 million in fiscal 1999, compared to pre-tax income of $8.3 million for
fiscal 1998. For fiscal 1999, income tax expense totaled $2.9 million with an
effective rate of 36.4% as compared to income tax expense of $2.9 million with
an effective rate of 35.4% for fiscal 1998. The increase in the effective rate
is primarily due to a decrease 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 1999 was
$5.1 million, or $0.39 per basic share, compared to net income of $5.4
million, or $0.41 per basic share for fiscal 1998.
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%. Due to increased egg supplies and lower egg
exports, average shell egg market prices declined approximately 9.0%. During
fiscal 1998, the number of dozens sold increased approximately 6.0%, primarily
due to 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 dozens of eggs in
fiscal 1997. Approximately one-third of the increase in outside purchases
resulted from an 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 1998 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 1998 fiscal year, the Company
purchased the inventories and shell egg production and processing equipment of
J&S Farms, Inc., and Savannah Valley Company Inc. These acquisitions accounted
for approximately 14.0% of net sales for fiscal 1998, and 10.0% of dozens of
eggs sold.
11
COST OF SALES. The cost of sales in fiscal 1998 was $264.6 million, an
increase of $28.3 million, or 12.0%, 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
increased 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 1998 fiscal year. The balance of
the cost increase is due to specialty egg brands promotions, bad debt
allowances, and an overall 4% increase in general administrative expenses. For
the 1998 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 1998 fiscal year were almost 3.4% of net
sales, as compared to less than 1% for the prior year. As a percent of net
sales, general and administrative expenses have increased from 9.9% for fiscal
1997 to 11.0% for the 1998 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. In addition, in fiscal
1997, income tax expense included an adjustment to reflect an increase in the
statutory federal rate for the then current and deferred tax liabilities.
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.
CAPITAL RESOURCES AND LIQUIDITY. The Company's working capital at May
29, 1999 was $48.5 million compared to $56.6 million at May 30, 1998. The
Company's current ratio was 2.17 at May 29, 1999 as compared with 2.39 at May
30, 1998. 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 29, 1999. The
Company's long-term debt at that date, including current maturities and
capitalized lease obligations, amounted to $84.0 million, as compared to $75.5
million at May 30, 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 29, 1999.
12
For the fiscal year ended May 29, 1999, $24.0 million of net cash was
provided by operating activities, and $5.1 million was provided from net
proceeds from sales of property, plant, and equipment. Of this net cash, $15.9
million was used for construction and purchases of property, plant, and
equipment and $12.2 million was used for the purchase of a shell egg operation
and processing business. On May 29,1999 the Company purchased the shell egg
operation of Hudson Brothers Inc. in Kentucky. Included in the purchase were
approximately 1.2 million layers. The Company, as a 50% member, invested $1.8
million in a joint venture shell egg production and processing operation in
Utah, Delta Egg Farm, LLC. Short-term construction advances of $2.5 million
were also made to Delta Egg Farm which were repaid in the first quarter of
fiscal 2000. The Company's cash flows from financing activities consisted of
long-term borrowings of $13.1 million, principal payments on long-term debt of
$11.3 million, purchases of common stock for the treasury of $3.5 million, and
payments of $586,000 in dividends on the Company's common stock. The net
result of these activities was a decrease in cash and cash equivalents of $4.9
million for fiscal 1999.
At May 29, 1999, the Company had expended, since the start of the
project, approximately $7.5 million for construction of new shell egg
production and processing facilities in Waelder, Texas. The estimated cost of
construction is approximately $18.7 million with anticipated borrowings in
fiscal 2000 of approximately $10.4 million from an insurance company.
The Company has $2.9 million of deferred tax liability due to a
subsidiary's change from a cash basis to an accrual basis taxpayer on May 29,
1988. THE TAXPAYER RELIEF ACT OF 1997 provides that the taxes on the cash
basis temporary differences as of that date are generally payable over 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 $2.9 million deferred
tax liability would reduce the Company's cash, but would not impact the
Company's statement of operations or 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 has a program underway to ensure that all
of its significant computer systems are Year 2000 compliant. The program is
divided into three major components: (1) identification of all information
technology systems ("IT Systems") and non-information technology systems
("Non-IT Systems") that are not Year 2000 compliant; (2) repair or replacement
of the identified non-compliant systems; and (3) testing of the repaired or
replaced systems. The Company has no "in house" developed or proprietary IT
Systems. The Company uses commercially developed software, the majority of
which is periodically upgraded through existing maintenance contracts. For
part (1), identification, the review phase has been completed. Identification
will continue as new equipment, software, and upgrades are installed and as
the Company goes through the testing phase of the program. Review of
accounting and financial reporting systems is finished and the Company is
continuing to review Non-IT Systems that may have embedded microprocessors in
various types of equipment. Part (2), repairing and replacing, continues
primarily under maintenance contracts with the Company's software vendors.
While the Company's major systems are substantially Year 2000 compliant, the
software vendors continue to send new programs, upgrades and patches as they
get into final testing stages of their product. None of the vendors have, to
date, indicated any serious problems or delays in becoming Year 2000 compliant
in calendar 1999. Part (3), testing, has begun and will continue until vendors
have completed all upgrades and patches. Testing should be substantially
complete in the first quarter ending in August 1999, but will be ongoing
throughout calendar 1999.
The Company has been contacting key suppliers and customers about the
Year 2000 issue. While no assurances can be given that key suppliers and
business partners will remedy their own Year 2000 issues, the Company, to
date, has not identified any material impact on its ability to continue normal
business operations with suppliers or other third parties who fail to address
the issue. The Company, like other businesses, is dependent upon year 2000
compliance within the utilities, transportation, and financial industries.
Actual costs associated with implementation of the Company's Year 2000
program are expected to be insignificant to the Company's consolidated
operations and financial condition. Costs of $50,000 to $100,000, primarily
for hardware, are expected to be incurred. As of May 29, 1999, the Company has
expended under $50,000 in the project. Significantly, all of these costs are
will be capitalized since the hardware would have been replaced even if there
were no Year 2000 issue.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company as completed the final testing
phase of its program, the risks for potential Year 2000 failures cannot be
fully assessed. Thus, the Company cannot now finalize contingency plans until
13
such testing is complete. These contingency plans will be developed as
potential Year 2000 failures are identified in the final testing stages.
FORWARD LOOKING STATEMENTS. The foregoing statements contain
forward-looking statements which involve risks and uncertainties and the
Company's actual experience may differ materially from that discussed above.
Factors that may cause such a difference include, but are not limited to,
those discussed in "Factors Affecting Future Performance" below, as well as
future events that have the effect of reducing the Company's available cash
balances, such as unanticipated operating losses or capital expenditures
related to possible future acquisitions. Readers are cautioned not to place
undue reliance on forward-looking statements, which reflect management's
analysis only as the date hereof. The Company assumes no obligation to update
forward-looking statements. See also the Company's reports to be filed from
time to time with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.
FACTORS AFFECTING FUTURE PERFORMANCE. The Company's future operating
results may be affected by various trends and factors 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
See Note 12 to the Company's Consolidated Financial Statements.
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 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------
Net sales $ 68,785 $ 77,948 $ 77,861 $ 63,360
Operating income (loss) (2,854) 8,017 6,991 (2,628)
Net income (loss) (2,087) 4,254 3,979 (1,066)
Net income per share
Basic $ (.16) $ .32 $ .31 $ (.08)
Diluted $ (.16) $ .32 $ .30 $ (.08)
Fiscal Year 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------
Net sales $ 63,723 $ 79,435 $ 89,344 $ 76,569
Operating income (1,991) 7,314 5,419 (396)
Net income (1,737) 4,244 3,703 (831)
Net income per share
Basic $ (.13) $ .32 $ .28 $ (.06)
Diluted $ (.13) $ .32 $ .28 $ (.06)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
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 1999 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 1999 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 1999 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 1999 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 29, 1999 and May 30,
1998
Consolidated Statements of Income for the Years Ended May
29, 1999, May 30, 1998 and May 31, 1997
Consolidated Statements of Stockholders' Equity for the
Years Ended May 29, 1999, May 30, 1998 and May 31, 1997
Consolidated Statements of Cash Flows for the Years Ended
May 29, 1999, May 30, 1998 and May 31, 1997.
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.
15
(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) ***
10.11 Wage Continuation Plan, dated as of January 14, 1999, among
Stephen Storm, Charles F. Collins, Bob Scott, and the Registrant +
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.
16
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.
**** Incorporated by reference to the same exhibit number in
Registrant's Form 10-K for fiscal year ended May 30, 1998.
+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 1999.
(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.
17
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, 1999.
CAL-MAINE FOODS, INC.
/s/FRED R. ADAMS, JR.
---------------------
Fred R. Adams, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/FRED R. ADAMS, JR. Chairman of the Board and August 24, 1999
--------------------- Chief Executive Officer
Fred R. Adams, Jr (Principal Executive Officer)
/s/RICHARD K. LOOPER Vice Chairman of the Board August 24, 1999
-------------------- and Director
Richard K. Looper
/s/ADOLPHUS B. BAKER President and Director August 24, 1999
--------------------
Adolphus B. Baker
/s/BOBBY J. RAINES Vice President, Chief Financial August 24, 1999
------------------ Officer, Treasurer, Secretary
Bobby J. Raines and Director
(Principal Financial Officer)
/s/CHARLES F. COLLINS Vice President, Controller August 24, 1999
--------------------- and Director
Charles F. Collins (Principal Accounting Officer)
/s/JACK B. SELF Vice President and Director August 24, 1999
---------------
Jack B. Self
/s/JOE M. WYATT Vice President and Director August 24, 1999
---------------
Joe M. Wyatt
/s/W. D. COX Director August 24, 1999
------------
D. Cox
/s/R. FASER TRIPLETT Director August 24, 1999
--------------------
Faser Triplett
18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors ............................................F-2
Consolidated Balance Sheets as of May 29, 1999 and May 30, 1998 ...........F-3
Consolidated Statements of Income for the years ended May 29, 1999,
May 30, 1998 and May 31, 1997 ...........................................F-4
Consolidated Statements of Stockholders' Equity for the years ended
May 29, 1999, May 30, 1998 and May 31, 1997 .............................F-5
Consolidated Statements of Cash Flows for the years ended May 29,
1999, May 30, 1998 and May 31, 1997 .....................................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 29, 1999 and May 30, 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended May 29, 1999. 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 29, 1999 and May 30, 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended May 29, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ERNST & YOUNG LLP
Jackson, Mississippi
July 17, 1999
F-2
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
May 29 May 30
1999 1998
-------------------------
Assets
Current assets:
Cash and cash equivalents $ 36,198 $ 41,126
Receivables:
Trade receivables, less allowance for doubtful
accounts of $52 in 1999 and $361 in 1998 11,667 13,223
Note receivable from affiliate 2,500 -
Other 450 468
-------------------------
14,617 13,691
Recoverable federal and state income taxes - 218
Inventories 38,353 41,437
Prepaid expenses and other current assets 771 791
-------------------------
Total current assets 89,939 97,263
Other assets:
Notes receivable and investments 7,468 5,373
Goodwill 4,260 -
Other 2,104 1,183
-------------------------
13,832 6,556
Property, plant and equipment, less accumulated
depreciation 109,911 99,369
-------------------------
Total assets $ 213,682 $ 203,188
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 16,597 $ 17,705
Federal and state income taxes payable 1,484 -
Accrued wages and benefits 4,975 4,350
Accrued expenses and other liabilities 3,970 3,701
Current maturities of long-term debt 4,118 4,540
Deferred income taxes 10,294 10,376
-------------------------
Total current liabilities 41,438 40,672
Long-term debt, less current maturities 79,886 70,958
Deferred expenses 1,489 1,716
Deferred income taxes 10,285 10,295
-------------------------
Total liabilities 133,098 123,641
Stockholders' equity:
Common stock, $.01 par value:
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 18,784
Retained earnings 71,525 67,031
Common stock in treasury (6,257,712 shares in 1999 and 5,608,212
shares in 1998) (9,913) (6,456)
-------------------------
Total stockholders' equity 80,584 79,547
-------------------------
Total liabilities and stockholders' equity $ 213,682 $ 203,188
=========================
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 29 May 30 May 31
1999 1998 1997
----------------------------------------
Net sales $ 287,954 $ 309,071 $ 292,526
Cost of sales 242,022 264,636 236,273
----------------------------------------
Gross profit 45,932 44,435 56,253
Selling, general and administrative 36,406 34,089 28,930
----------------------------------------
Operating income 9,526 10,346 27,323
Other income (expense):
Interest expense (5,195) (4,583) (4,277)
Interest income 2,202 1,371 597
Equity in income of affiliates 357 294 524
Other, net 1,097 897 186
----------------------------------------
(1,539) (2,021) (2,970)
----------------------------------------
Income before income taxes 7,987 8,325 24,353
Income tax expense 2,907 2,946 9,508
----------------------------------------
Net income $ 5,080 $ 5,379 $ 14,845
========================================
Net income per share:
Basic $ .39 $ .41 $ 1.21
========================================
Diluted $ .39 $ .40 $ 1.18
========================================
Weighted average shares outstanding:
Basic 12,999 13,191 12,285
========================================
Diluted 13,114 13,428 12,560
========================================
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
----------------------------------------------------- Paid-in Retained Receivable
Class A Class A Treasury Treasury -
Shares Amount Shares Amount Shares Amount Capital Earnings Stockholder Total
------------------------------------------------------------------------------------------------
Balance at June 1, 1996 17,035 $170 - $ - 5,522 $(5,863) $ 8,229 $47,058 $(1,694) $47,900
Exchange of common stock for
Class A common stock (1,200) (12) 1,200 12 - - - - - -
Issuance of common stock 1,730 18 - - - - 10,562 - - 10,580
Redemption of fractional shares
of common stock - - - - - - (6) - - (6)
Purchases of common stock for
treasury - - - - 61 (371) - - - (371)
Repayment of note receivable -
stockholder - - - - - - - - 1,694 1,694
Net income for fiscal 1997 - - - - - - - 14,845 - 14,845
------------------------------------------------------------------------------------------------
Balance at May 31, 1997 17,565 176 1,200 12 5,583 (6,234) 18,785 61,903 - 74,642
Redemption of fractional shares
of common stock - - - - - - (1) - - (1)
Purchases of common stock for - - - - 50 (311) - - - (311)
treasury
Sale of common stock from
treasury - - - - (25) 89 - - - 89
Cash dividends paid ($.020 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
Purchases of common stock
for treasury - - - - 650 (3,457) - - - (3,457)
Cash dividends paid ($.045 per - - - - - - - (586) - (586)
common share)
Net income for fiscal 1999 - - - - - - - 5,080 - 5,080
------------------------------------------------------------------------------------------------
Balance at May 29, 1999 17,565 $176 1,200 $12 6,258 $(9,913) $18,784 $71,525 $ - $80,584
================================================================================================
SEE ACCOMPANYING NOTES.
F-5
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(IN THOUSANDS)
Fiscal year ended
-------------------------------------
May 29 May 30 May 31
1999 1998 1997
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,080 $ 5,379 $ 14,845
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,199 12,017 10,550
Provision for doubtful accounts 51 361 52
Deferred income taxes (92) 805 2,856
Equity in income of affiliates (357) (294) (524)
(Gain) loss on sales of property, plant and equipment (355) (27) 69
Increase in deferred compensation 50 50 60
Change in operating assets and liabilities, net of effects
from purchases of shell egg production and processing
businesses:
(Increase) decrease in receivables and other assets 1,891 (321) 1,702
Decrease in inventories 5,967 3,675 1,238
Increase (decrease) in accounts payable, accrued expenses
and deferred expenses (367) 3,262 1,635
-------------------------------------
Net cash provided by operating activities 24,067 24,907 32,483
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (15,911) (14,831) (16,189)
Purchases of shell egg production and processing businesses (12,161) (3,745) (6,956)
Payments received on notes receivable and from investments 798 297 1,634
Increase in notes receivable and investments (4,603) (725) (15)
Net proceeds from sales of property, plant and equipment 5,122 898 914
-------------------------------------
Net cash used in investing activities (26,755) (18,106) (20,612)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock - - 10,580
Long-term borrowings 13,135 35,800 3,000
Principal payments on long-term debt and capital leases (11,332) (24,738) (6,990)
Payments received on note receivable - stockholder - - 1,694
Purchases of common stock for treasury (3,457) (311) (371)
Sales of common stock from treasury - 89 -
Payments of dividends (586) (251) -
Redemption of fractional shares of common stock - (1) (6)
-------------------------------------
Net cash provided by (used in) financing activities (2,240) 10,588 7,907
-------------------------------------
Increase (decrease) in cash and cash equivalents (4,928) 17,389 19,778
Cash and cash equivalents at beginning of year 41,126 23,737 3,959
-------------------------------------
Cash and cash equivalents at end of year $ 36,198 $ 41,126 $ 23,737
=====================================
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 $ 80 $ - $ 88
=====================================
SEE ACCOMPANYING NOTES.
F-6
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
May 29, 1999
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 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 feed ingredients, corn and other grains.
Primarily all of the Company's sales are to wholesale egg buyers in the
southeastern, southwestern, mid-western 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 generally collateral is 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 1999 or 1998. One customer 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
Included in other assets are loan acquisition costs which are amortized over
the life of the related loan and franchise fees which 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.
NET INCOME PER COMMON SHARE
Basic earnings per share is based on the weighted average common shares
outstanding. Diluted earnings per share includes any dilutive effects of
options and warrants.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). The provisions of SFAS No. 133 requires all derivatives to be recorded
on the balance sheet at fair value. SFAS No. 133 establishes "special
accounting" for derivatives that are hedges. Derivatives that are not hedges
must be adjusted to fair value through income. Management has not determined
the effect of the adoption of this statement to the earnings and financial
position of the Company when it becomes effective for fiscal 2001.
F-8
FISCAL YEAR
The Company's fiscal year-end is on the Saturday nearest May 31 which was May
29, 1999 (52 weeks), May 30, 1998 (52 weeks) and May 31, 1997 (52 weeks), for
the most recent three fiscal 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 May 1999, The Company purchased all of the issued and outstanding common
stock of a shell egg production and processing business for $12,161, net of
cash acquired. The purchase price was allocated based upon the fair value of
the assets acquired and liabilities assumed resulting in goodwill of $4,260,
which is being amortized on the straight-line method over 15 years. The
purchase price is subject to adjustment in fiscal 2000 based upon the final
tax accounting of the company acquired for the period prior to the
acquisition.
Unaudited pro forma results of operations of the Company, including the
company acquired in fiscal 1999, for the periods prior to its acquisition by
the Company were as follows:
FISCAL YEAR ENDED
MAY 29 May 30
1999 1998
Net sales $308,530 $329,991
Net income 5,646 5,013
Net income per basic share .43 .38
Net income per diluted share .43 .37
Pro forma results do not purport to be indicative of actual results had the
acquisition been made at June 1, 1997 or the results that may occur in the
future.
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 businesses acquired are included in the
consolidated statements of income of the Company for the periods subsequent to
the acquisition dates. Prior operations of the businesses acquired in fiscal
1998 and 1997 were immaterial to the Company's consolidated net sales, net
income and net income per basic and diluted 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, Specialty Eggs
LLC and Delta Eggs LLC and 32.5% of American Egg Products, Inc. at May 29,
1999. Equity in earnings of $357, $284 and $524, from these entities have been
included in the consolidated statements of income for fiscal 1999, 1998 and
1997, respectively. The Company purchased $4,863, $5,189 and $9,831 of eggs
from BCM during each of those fiscal years, which represented a significant
percentage of BCM's sales. Note receivable from affiliate at May 29, 1999
consisted of a $2,500 demand note receivable from Delta Eggs LLC accruing
interest at prime minus 1.00%. Payment for the demand note was received by the
Company subsequent to May 29, 1999.
F-9
5. INVENTORIES
Inventories consisted of the following:
MAY 29 May 30
1999 1998
Flocks $ 24,662 $ 26,866
Eggs and egg products 2,471 2,683
Feed and supplies 7,847 8,736
Livestock 3,373 3,152
$ 38,353 $ 41,437
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
MAY 29 May 30
1999 1998
Land and improvements $ 23,635 $ 22,180
Buildings and improvements 65,985 57,248
Machinery and equipment 85,320 84,204
Construction-in-progress 9,414 7,280
184,354 170,912
Less accumulated depreciation 74,443 71,543
$109,911 $ 99,369
Depreciation expense was $11,958, $11,595 and $10,172 in fiscal 1999, 1998 and
1997, respectively.
7. LEASES
Future minimum payments under noncancelable operating leases that have initial
or remaining noncancelable terms in excess of one year at May 29, 1999 are as
follows:
2000 $ 3,525
2001 2,752
2002 2,800
2003 1,496
2004 1,260
Thereafter 1,246
Total minimum lease payments $ 13,079
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 $3,824, $3,979 and $3,849 in fiscal 1999, 1998 and 1997,
respectively. Included in rent expense are vehicle rents totaling $1,777,
$1,876 and $1,837 in fiscal 1999, 1998 and 1997, respectively.
8. CREDIT FACILITIES AND LONG-TERM DEBT
Long-term debt consisted of the following:
May 29 May 30
1999 1998
Note payable at 6.7%; due in monthly installments
of $100, plus interest, maturing in 2009 $18,000 $12,515
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 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 15,000
semi-annually
Industrial revenue bonds at 7.21%; due in monthly installments
of $40, plus interest, maturing in 2011 13,191 10,000
Note payable at 7.64%; due in monthly installments of
$114, including interest, maturing in 2003 9,269 9,909
Note payable at 7.75%; due in monthly installments of
$55, plus interest, maturing in 2003 6,675 7,335
Note payable at 8.25%; due in monthly installments of
$79, including interest, maturing in 2004 3,747 4,353
Note payable at 6.85%; due in monthly installments of
$66 commencing on August 1, 2000, plus interest,
maturing in 2004 2,850 -
Note payable at 8.25%; due in monthly installments of
$24, including interest, maturing
in 2004 1,405 1,691
Adjustable rate industrial revenue bond 1,805 1,985
Other notes payable 295 802
Capital lease equipment obligations; due in monthly
installments of $13, maturing in 2001 267 408
84,004 75,498
Less current maturities 4,118 4,540
$79,886 $70,958
The adjustable rate industrial revenue bond is due May 1, 2006 with interest
due monthly at variable rates (6.15% at May 29,1999 and 5.6% at May 30, 1998).
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 $1,842.
F-11
The aggregate annual maturities of long-term debt at May 29, 1999 are as
follows:
2000 $ 4,118
2001 4,963
2002 5,209
2003 7,254
2004 14,437
Thereafter 48,023
$84,004
The Company has a $35,000 line of credit with three banks all of which was
unused at May 29, 1999. 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 90 basis points above the federal funds rate
or 90 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 ownership of not less than 50% of
the outstanding voting stock of the Company. The Company was in compliance
with these provisions as of May 29, 1999.
Interest of $6,061, $4,402 and $4,614 was paid during fiscal 1999, 1998 and
1997, respectively. Interest of $450, $615 and $337 was capitalized for
construction of certain facilities during fiscal 1999, 1998 and 1997,
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 $3,702, $2,579 and $2,110 in fiscal 1999, 1998 and
1997, 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 $1,335, $970 and $1,416 in fiscal 1999, 1998
and 1997, respectively.
The Company has deferred compensation agreements with certain officers for
payments to be made over specified periods beginning when the officers reach
age 65 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 1999 and 1998 and $60 in fiscal 1997.
F-12
10. STOCK OPTION PLAN
The Company has elected to follow APB No. 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, requires use of option valuation
models that were not developed for use in valuing employee stock options.
The Company has reserved 800,000 shares under its 1993 Stock Option Plan. The
options have ten-year terms and vest annually over five years beginning one
year from the grant date. At May 29, 1999 and May 30, 1998, 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 1999 or 1998. The pro forma effect of
the estimated fair value of the options granted in fiscal 1997 was
insignificant to the fiscal 1999, 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:
Weighted-Average
Shares 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
Terminated (471,000) 3.42
Outstanding at May 29, 1999 34,000 4.06
During fiscal 1999, the Company and certain employees agreed to terminate
stock options to purchase an aggregate of 471,000 shares of the Company's
common stock. In connection with the termination of the options, the Company
paid $870 to those employees, which is recognized as compensation expense in
fiscal 1999, based upon the difference between the fair value of the Company's
common stock and the exercise price of the option.
The weighted average remaining contractual life of the options outstanding was
5 years at May 29, 1999 and May 30, 1998, respectively. At May 29, 1999 and
May 30, 1998, 19,600 and 385,000 options, respectively, were exercisable.
F-13
11. INCOME TAXES
Income tax expense consisted of the following:
Fiscal year ended
May 29 May 30 May 31
1999 1998 1997
Current:
Federal $2,749 $1,967 $6,502
State 250 174 150
2,999 2,141 6,652
Deferred:
Federal (80) 696 2,390
State (12) 109 466
(92) 805 2,856
$2,907 $2,946 $9,508
Significant components of the Company's deferred tax liabilities were as
follows:
May 29 May 30
1999 1998
Current deferred tax liabilities:
Inventories $10,057 $10,641
Prepaid expenses 104 123
Accrued expenses (10) (257)
Other 143 (131)
Total current deferred tax liabilities 10,294 10,376
Long-term deferred tax liabilities:
Property, plant and equipment 7,450 7,168
Investments 214 252
Deferred compensation (249) (310)
Cash basis temporary differences 2,870 3,185
Total long-term deferred tax liabilities 10,285 10,295
Total deferred tax liabilities $20,579 $20,671
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 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 fiscal 1999 and 1998 and 35% in fiscal 1997) were as follows:
Fiscal year ended
---------------------------------------
May 29 May 30 May 31
1999 1998 1997
---------------------------------------
Statutory federal income tax $2,715 $2,830 $8,524
State income taxes, net 156 187 700
Benefit of net operating loss
carryover for certain states - - (300)
Increase in federal income tax rate - - 495
Other, net (benefit) 36 (71) 89
---------------------------------------
$2,907 $2,946 $9,508
=======================================
Federal and state income taxes of $1,524, $7,989 and $7,597 were paid in
fiscal 1999, 1998 and 1997, respectively. Federal and state income taxes of
$237, $1,090 and $9 were refunded in fiscal 1999, 1998 and 1997, respectively.
12. OTHER MATTERS
The carrying amounts in the consolidated balance sheet for cash and cash
equivalents, accounts receivable, notes receivable and investments, accounts
payable and long-term debt and capitalized leases approximate their fair
value. The fair values for notes receivable, long-term debt and capitalized
leases are estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar arrangements.
The Company's interest expense is sensitive to changes in the general level of
U.S. interest rates. The Company maintains certain of its debt as fixed rate
in nature to mitigate the impact of fluctuations in interest rates. Under its
current policies, the Company does not use interest rate derivative
instruments to manage its exposure to interest rate changes. A one percent
(1%) adverse move (decrease) in interest rates would adversely affect the net
fair value of the Company's debt by $3.2 million at May 29, 1999. The Company
is a party to no other market risk sensitive instruments requiring disclosure.
The Company issued warrants to purchase 220,000 shares of its common stock to
the underwriter of the Offering. The warrants are exercisable at $8.40 per
share through December 2001.
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 29,
1999, MAY 30, 1998 AND MAY 31, 1997
(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 29, 1999:
Allowance for doubtful accounts $361 $ 51 $360 $ 52
==== ==== ==== ====
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
==== ==== ==== ====
S-1
CAL-MAINE FOODS, INC.
Form 10-K for the fiscal year
Ended May 29, 1999
EXHIBIT INDEX
Exhibit
Number Exhibit
10.11 Wage Continuation Plan, dated as of January 14, 1999, among
Stephen Storm, Charles F. Collins, Bob Scott, and the
Registrant
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.