ITEM 1. FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE
SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 27, 2016
|
|
May 28, 2016
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,646
|
|
$
|
29,046
|
Investment securities available-for-sale
|
|
|
269,202
|
|
|
360,499
|
Trade and other receivables (less allowance for doubtful accounts of
|
|
|
|
|
|
|
$944 and $727 at August 27, 2016 and May 28, 2016, respectively)
|
|
|
74,099
|
|
|
67,448
|
Income tax receivable
|
|
|
34,855
|
|
|
11,830
|
Inventories
|
|
|
154,621
|
|
|
154,799
|
Prepaid expenses and other current assets
|
|
|
3,530
|
|
|
2,661
|
Total current assets
|
|
|
573,953
|
|
|
626,283
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
404,787
|
|
|
392,274
|
Goodwill
|
|
|
29,196
|
|
|
29,196
|
Other investments
|
|
|
58,483
|
|
|
53,975
|
Other intangible assets
|
|
|
4,642
|
|
|
4,958
|
Other assets
|
|
|
4,911
|
|
|
5,079
|
TOTAL ASSETS
|
|
$
|
1,075,972
|
|
$
|
1,111,765
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
59,223
|
|
$
|
67,131
|
Current maturities of long-term debt
|
|
|
15,915
|
|
|
16,320
|
Total current liabilities
|
|
|
75,138
|
|
|
83,451
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
8,125
|
|
|
9,250
|
Other noncurrent liabilities
|
|
|
6,380
|
|
|
6,321
|
Deferred income taxes
|
|
|
98,902
|
|
|
95,382
|
Total liabilities
|
|
|
188,545
|
|
|
194,404
|
|
|
|
|
|
|
|
Commitments and Contingencies - see Note 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
Common stock, $0.01 par value, 120,000 and 70,261 shares authorized and issued
|
|
|
|
|
|
|
at August 27, 2016 and May 28, 2016, respectively
|
|
|
|
|
|
|
43,733 and 43,737 shares outstanding at August 27, 2016 and May 28, 2016, respectively
|
|
|
703
|
|
|
703
|
Class A convertible common stock, $.01 par value, 4,800 shares authorized, issued
|
|
|
|
|
|
|
and outstanding at August 27, 2016 and May 28, 2016, respectively
|
|
|
48
|
|
|
48
|
Paid-in capital
|
|
|
47,254
|
|
|
46,404
|
Retained earnings
|
|
|
859,504
|
|
|
890,440
|
Accumulated other comprehensive income (loss), net of tax
|
|
|
263
|
|
|
(48)
|
Common stock in treasury at cost – 26,527 and 26,524 shares at August 27, 2016
|
|
|
|
|
|
|
and May 28, 2016, respectively
|
|
|
(22,314)
|
|
|
(22,272)
|
Total Cal-Maine Foods, Inc. stockholders’ equity
|
|
|
885,458
|
|
|
915,275
|
Noncontrolling interest in consolidated entities
|
|
|
1,969
|
|
|
2,086
|
Total stockholders’ equity
|
|
|
887,427
|
|
|
917,361
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,075,972
|
|
$
|
1,111,765
|
See Notes to Condensed Consolidated Financial Statements.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS
OF
OPERATIONS
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Net sales
|
|
$
|
239,845
|
|
$
|
609,895
|
Cost of sales
|
|
|
249,414
|
|
|
346,824
|
Gross profit (loss)
|
|
|
(9,569)
|
|
|
263,071
|
Selling, general, and administrative expense
|
|
|
40,256
|
|
|
42,963
|
Operating income (loss)
|
|
|
(49,825)
|
|
|
220,108
|
Other income (expense):
|
|
|
|
|
|
|
Interest income, net
|
|
|
1,091
|
|
|
27
|
Royalty income
|
|
|
406
|
|
|
606
|
Equity in income of affiliates
|
|
|
191
|
|
|
730
|
Other, net
|
|
|
(403)
|
|
|
(814)
|
|
|
|
1,285
|
|
|
549
|
|
|
|
|
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
(48,540)
|
|
|
220,657
|
Income tax expense (benefit)
|
|
|
(17,560)
|
|
|
76,567
|
Net income (loss) before noncontrolling interest
|
|
|
(30,980)
|
|
|
144,090
|
Less: Net income (loss) attributable to noncontrolling interest
|
|
|
(44)
|
|
|
1,067
|
Net income (loss) attributable to Cal-Maine Foods, Inc.
|
|
$
|
(30,936)
|
|
$
|
143,023
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Cal-Maine Foods, Inc.:
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.64)
|
|
$
|
2.97
|
Diluted
|
|
$
|
(0.64)
|
|
$
|
2.95
|
Dividends per common share
|
|
$
|
-
|
|
$
|
0.983
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
|
48,249
|
|
|
48,163
|
Diluted
|
|
|
48,249
|
|
|
48,498
|
See Notes to Condensed Consolidated Financial Statements.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE
INCOME
(LOSS)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Net income (loss), including noncontrolling interests
|
|
$
|
(30,980)
|
|
$
|
144,090
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments
|
|
|
502
|
|
|
(300)
|
|
|
|
|
|
|
|
Income tax benefit (expense) related to items of other comprehensive income
|
|
|
(191)
|
|
|
120
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
311
|
|
|
(180)
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(30,669)
|
|
|
143,910
|
|
|
|
|
|
|
|
Less: comprehensive income (loss) attributable to the noncontrolling interest
|
|
|
(44)
|
|
|
1,067
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Cal-Maine Foods, Inc.
|
|
$
|
(30,625)
|
|
$
|
142,843
|
See Notes to Condensed Consolidated Financial Statements
.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS
OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Operating activities:
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interest
|
|
$
|
(30,980)
|
|
$
|
144,090
|
Depreciation and amortization
|
|
|
11,159
|
|
|
11,061
|
Other adjustments, net
|
|
|
(25,626)
|
|
|
(1,036)
|
Net cash provided by (used in) operations
|
|
|
(45,447)
|
|
|
154,115
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(9,008)
|
|
|
(80,668)
|
Sales of investments
|
|
|
92,833
|
|
|
43,942
|
Investment in joint ventures
|
|
|
(5,500)
|
|
|
(18,000)
|
Purchases of property, plant and equipment
|
|
|
(23,895)
|
|
|
(15,266)
|
Payments received on notes receivable and from affiliates
|
|
|
1,250
|
|
|
107
|
Net proceeds from disposal of property, plant and equipment
|
|
|
10
|
|
|
171
|
Net cash provided by (used in) investing activities
|
|
|
55,690
|
|
|
(69,714)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Purchase of common stock by treasury
|
|
|
(40)
|
|
|
-
|
Distributions to noncontrolling interests
|
|
|
(73)
|
|
|
(10)
|
Principal payments on long-term debt
|
|
|
(1,530)
|
|
|
(8,310)
|
Payments of dividends
|
|
|
-
|
|
|
(15,380)
|
Net cash used in financing activities
|
|
|
(1,643)
|
|
|
(23,700)
|
Net change in cash and cash equivalents
|
|
|
8,600
|
|
|
60,701
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
29,046
|
|
|
8,667
|
Cash and cash equivalents at end of period
|
|
$
|
37,646
|
|
$
|
69,368
|
See Notes to Condensed Consolidated Financial Statements
.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to
Condensed
Consolidated Financial Statements
August
27, 2016
(unaudited)
1.
Presentation of Interim Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
GAAP
for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adj
ustments, considered necessary for
a fair statement of the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affected reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions. Operating results for the
thirteen weeks ended
August 27, 2016
are not necessarily indicative of the results
that may be expected for the year ending
June 3, 2017
.
The condensed consolidated balance sheet at
May 28, 2016
has been derived from the audited
consolidated
financial statements at that date
. It
does not include all of the information and footnotes required by
GAAP
for complete financial statements.
For
further information, refer to the consolidated financial statements and footnotes thereto included in Cal-Maine Foods, Inc.'s annual report on Form 10-K for the fiscal year ended
May 28, 2016
. References to “we,” “us,” “our,” or the “Company” refer to Cal-Maine Foods, Inc.
2. Stock Based Compensation
Total stock based compensation expense for the
thirteen weeks ended
August 27, 2016
and
August 29, 2015
was $
848,000
and $
700,000
,
respectively.
Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at
August 27, 2016
was $
4.8
million and will be recorded over a
weighted average
period of
1.9
years.
Refer to Note 11 of our
May 28, 2016
audited financial statements for further information on our stock compensation plans.
At
August 27, 2016
, there were
283,800
restricted shares outstanding
, with
a weighted average grant date fair value of
$35.99
per share.
A summary of the Company’s restricted share activity for th
e
thirteen weeks ended August 27, 2016
follows:
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Outstanding, May 28, 2016
|
|
288,900
|
|
$
|
35.97
|
Vested
|
|
(2,960)
|
|
|
29.41
|
Forfeited
|
|
(2,140)
|
|
|
41.64
|
Outstanding, August 27, 2016
|
|
283,800
|
|
$
|
35.99
|
3
. Inventories
Inventories consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 27, 2016
|
|
May 28, 2016
|
Flocks
|
|
$
|
98,355
|
|
$
|
94,312
|
Eggs
|
|
|
12,072
|
|
|
11,519
|
Feed and supplies
|
|
|
44,194
|
|
|
48,968
|
|
|
$
|
154,621
|
|
$
|
154,799
|
4
. Contingencies
Financial Instruments
The Company maintained cash collateralized
standby letters of credit (“LOC”)
for the benefit of certain
insurance
companies
totaling
$
3.
7
million
at
August 27, 2016
. The cash collateraliz
ing
the LOCs is included in the line item “Other
assets” in the
C
ondensed
C
onsolidated
B
alance
S
heets.
As a result, n
one of the LOCs are recorded as a liability on the consolidated balance sheets.
Legal
Contingencies
The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions.
If the
Company’s
assessment
of a contingency indicates
it is probable
a material loss has been incurred and the amount of the liability can be reasonably estimated,
the estimated liability is
accrued in the Company’s financial statements.
If the assessment indicates
a potential material loss contingency is not probable, but is reasonably possible, or probable but cannot be
reasonably
estimated, then the nature of the contingent liability, together with an estimate of the
possible loss or
range of possible loss
will
be disclosed
, or a statement
will
be made that such an estimate cannot be made
.
These legal actions are discussed in detail at Part II, Item 1, of this report
.
5
. Net Income per Common Share
Basic net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share was calculated by dividing net income by the weighted-
average number of common shares outstanding during the period plus the dilutive effects of options
and restricted stock
.
Due to the net loss in the first quarter of fiscal 2017,
restricted shares in the amount of
140,551
were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive.
The computations of basic and diluted net income per share attributable to the Company are as follows
(in thousands, except per share data)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Net income (loss) attributable to
|
|
|
|
|
|
|
Cal-Maine Foods, Inc.
|
|
$
|
(30,936)
|
|
$
|
143,023
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
48,249
|
|
|
48,163
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Restricted shares
|
|
|
-
|
|
|
335
|
Dilutive potential common shares
|
|
|
48,249
|
|
|
48,498
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
attributable to Cal-Maine Foods, Inc.:
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.64)
|
|
$
|
2.97
|
Diluted
|
|
$
|
(0.64)
|
|
$
|
2.95
|
6
. Accrued Dividends Payable and Dividends per Common Share
We make an accrual of dividends payable at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors. According to the policy, the Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with generally accepted accounting principles in an amount equal to one-third (
1/3
) of such quarterly income. Dividends are paid to shareholders of record as of the
60
th day following the last day of such quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company will pay dividends to shareholders of record on the
65
th day after the quarter end. Dividends are payable on the
15
th day following the record date. Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid.
At August 27, 2016, cumulative losses that must be recovered prior to paying a dividend were
$31.3
million.
When applicable, the amount of the accrual appears on the Condensed Consolidated Balance Sheets as “Accrued dividends payable.”
On our condensed consolidated statement of income, we determine dividends per common share in accordance with the computation in the following table (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
|
Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend
|
$
|
(30,936)
|
|
$
|
143,023
|
|
|
|
|
|
|
|
|
1/3 of net income attributable to Cal-Maine Foods, Inc.
|
|
-
|
|
|
47,674
|
|
|
|
|
|
|
|
|
Common stock outstanding (shares)
|
|
43,733
|
|
|
43,698
|
|
Class A common stock outstanding (shares)
|
|
4,800
|
|
|
4,800
|
|
Total common stock outstanding (shares)
|
|
48,533
|
|
|
48,498
|
|
|
|
|
|
|
|
|
Dividends per common share*
|
$
|
-
|
|
$
|
0.983
|
|
*Dividends per common share =
1/3
of Net income (loss) attri
butable to Cal-Maine Foods, Inc. available for dividend
÷ Total common stock outstanding (shares)
7
. Fair Value Measurements
The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.
|
·
|
|
Level 1 - Quoted prices in active markets for identical assets or liabilities
|
|
·
|
|
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly
|
|
·
|
|
Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents:
The carrying amount approximates fair value due to the short maturity of these instruments.
Long-term debt:
The carrying value of the Company’s long-term debt is at its stated value. We have not elected to carry our long-term debt at fair value.
F
air values for debt are based on quoted market prices or published
forward interest rate curves
, which are level 2 inputs
.
Estimated fair v
alues are management’s estimate,
which is a level 3 input
; however, when there is no readily available market data, the estimated fair values may not represent the amounts that could be realized in a current transaction, and the fair values could change significantly. The fair value and carrying value of the Company’s borrowings
under its
long-term debt were as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 27, 2016
|
|
May 28, 2016
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
5.4%
–
6.4%
Notes payable
|
$
|
24,040
|
|
$
|
24,192
|
|
$
|
25,570
|
|
$
|
25,824
|
|
$
|
24,040
|
|
$
|
24,192
|
|
$
|
25,570
|
|
$
|
25,824
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following table shows the fair value of fi
nancial assets and liabilities
measured at fair value on a recurring basis as of
August 27, 2016
and
May 28, 2016
(in thousand
s
)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
August 27, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$
|
-
|
|
$
|
18,596
|
|
$
|
-
|
|
$
|
18,596
|
Municipal bonds
|
|
|
-
|
|
|
68,049
|
|
|
-
|
|
|
68,049
|
Corporate bonds
|
|
|
-
|
|
|
168,421
|
|
|
-
|
|
|
168,421
|
Foreign government obligations
|
|
|
-
|
|
|
2,035
|
|
|
-
|
|
|
2,035
|
Asset backed securities
|
|
|
-
|
|
|
12,101
|
|
|
-
|
|
|
12,101
|
Mutual funds
|
|
|
2,011
|
|
|
-
|
|
|
-
|
|
|
2,011
|
Total assets measured at fair value
|
|
$
|
2,011
|
|
$
|
269,202
|
|
$
|
-
|
|
$
|
271,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
May 28, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$
|
-
|
|
$
|
18,814
|
|
$
|
-
|
|
$
|
18,814
|
Municipal bonds
|
|
|
-
|
|
|
79,643
|
|
|
-
|
|
|
79,643
|
Corporate bonds
|
|
|
-
|
|
|
240,537
|
|
|
-
|
|
|
240,537
|
Foreign government obligations
|
|
|
-
|
|
|
2,046
|
|
|
-
|
|
|
2,046
|
Asset backed securities
|
|
|
-
|
|
|
15,893
|
|
|
-
|
|
|
15,893
|
Mutual funds
|
|
|
5,503
|
|
|
-
|
|
|
-
|
|
|
5,503
|
Total assets measured at fair value
|
|
$
|
5,503
|
|
$
|
356,933
|
|
$
|
-
|
|
$
|
362,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
nvestment securities – available-for-sale
,
classified as level 2
,
consist of U
.
S
.
government
and agency
obligations,
taxable and tax exempt municipal bonds, zero coupon municipal bonds,
foreign government obligations, asset backed securities
and
corporate bonds
with maturities of three months or longer when purchased
. We classif
y
these securities as current, because amounts invested are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.
8
. Investment
Securities
The following represents the Company’s
investment
securities as of
August 27, 2016
and
May 28, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 27, 2016
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
US government and agency obligations
|
$
|
18,583
|
|
$
|
13
|
|
$
|
-
|
|
$
|
18,596
|
Municipal bonds
|
|
67,806
|
|
|
243
|
|
|
-
|
|
|
68,049
|
Corporate bonds
|
|
168,145
|
|
|
276
|
|
|
-
|
|
|
168,421
|
Foreign government obligations
|
|
2,032
|
|
|
3
|
|
|
-
|
|
|
2,035
|
Asset backed securities
|
|
12,099
|
|
|
2
|
|
|
-
|
|
|
12,101
|
Total current investment securities
|
$
|
268,665
|
|
$
|
537
|
|
$
|
-
|
|
$
|
269,202
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
1,458
|
|
|
553
|
|
|
-
|
|
|
2,011
|
Total noncurrent investment securities
|
$
|
1,458
|
|
$
|
553
|
|
$
|
-
|
|
$
|
2,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28, 2016
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
US government and agency obligations
|
$
|
18,809
|
|
$
|
5
|
|
$
|
-
|
|
$
|
18,814
|
Municipal bonds
|
|
79,481
|
|
|
162
|
|
|
-
|
|
|
79,643
|
Corporate bonds
|
|
240,593
|
|
|
-
|
|
|
56
|
|
|
240,537
|
Foreign government obligations
|
|
2,044
|
|
|
2
|
|
|
-
|
|
|
2,046
|
Asset backed securities
|
|
15,908
|
|
|
-
|
|
|
15
|
|
|
15,893
|
Mutual funds
|
|
3,565
|
|
|
1
|
|
|
-
|
|
|
3,566
|
Total current investment securities
|
$
|
360,400
|
|
$
|
170
|
|
$
|
71
|
|
$
|
360,499
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
1,448
|
|
|
489
|
|
|
-
|
|
|
1,937
|
Total noncurrent investment securities
|
$
|
1,448
|
|
$
|
489
|
|
$
|
-
|
|
$
|
1,937
|
Proceeds from sales of available-for-sale securities were $
92.8
million
and $
43.9
million during the
thirteen weeks ended
August 27, 2016
and
August 29, 2015
, respectively. Gross realized gains on those sales during the
thirteen weeks ended
August 27, 2016
and
August 29, 2015
were $
10
8
,000
and
$
4
,000
, respectively. Gross realized losses on those sales during the
thirteen weeks ended
August 27, 2016
and
August 29, 2015
were
zero
and $
28
,000
, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.
Unrealized holding
gains
,
net of tax
,
on available-for-sale securities
classified as current in the amount of
$
271
,000
for the thirteen week
s ended August 27, 2016 compared with unrealized holding losses, net of tax, of
$
12
5
,000
for the same period of fiscal 2016
.
Unrealized holding gains, net of tax, on long-term available-for-sale securities of
$
4
0
,000
were recorded for the thirteen weeks ended August 27, 2016 compared with unrealized holding losses, net of tax, on long-term available-for-sale securities of
$
5
5
,000
for the sam
e period of fiscal 2016.
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Contractual maturities at
August 27, 2016
, are as follows
(in thousands)
:
|
|
|
|
|
|
|
|
Estimated Fair Value
|
Within one year
|
$
|
133,357
|
1-5 years
|
|
135,845
|
Total
|
$
|
269,202
|
9. Equity
The following reflects the equity activity, including our noncontrolling interest, for the
thirteen weeks ended
August 27, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cal-Maine Foods, Inc. Stockholders
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Treasury
|
|
Paid In
|
|
Accum. Other
|
|
Retained
|
|
Noncontrolling
|
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Capital
|
|
Comp. Loss
|
|
Earnings
|
|
Interest
|
|
Total
|
Balance at May 28, 2016
|
$
|
703
|
$
|
48
|
$
|
(22,272)
|
$
|
46,404
|
$
|
(48)
|
$
|
890,440
|
$
|
2,086
|
$
|
917,361
|
Other comprehensive loss, net of tax
|
|
-
|
|
-
|
|
-
|
|
-
|
|
311
|
|
-
|
|
-
|
|
311
|
Forfeiture of restricted stock
|
|
-
|
|
-
|
|
(2)
|
|
2
|
|
-
|
|
-
|
|
-
|
|
-
|
Buyback of
920
shares to satisfy withholding obligation in connection with the vesting of restricted stock
|
|
-
|
|
-
|
|
(40)
|
|
-
|
|
-
|
|
-
|
|
|
|
(40)
|
Distribution to noncontrolling interest partners
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(73)
|
|
(73)
|
Restricted stock compensation
|
|
-
|
|
-
|
|
-
|
|
848
|
|
-
|
|
-
|
|
-
|
|
848
|
Net income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(30,936)
|
|
(44)
|
|
(30,980)
|
Balance at August 27, 2016
|
$
|
703
|
$
|
48
|
$
|
(22,314)
|
$
|
47,254
|
$
|
263
|
$
|
859,504
|
$
|
1,969
|
$
|
887,427
|
ITEM 2. MANAGEMENT’S
DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business, including estimated production data, expected operating schedules,
projected construction
costs, and other operating data, including anticipated results of operations and financial condition. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words. Actual production, operating schedules, capital costs, results of operations, and other projections and estimates could differ materially from those projected in the forward-looking statements. The forward-looking statements are based on management’s current intent, belief, expectations, estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
May 28, 2016
, as updated by our subsequent Quarterly Reports on Form 10-Q, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for
product
recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv)
our ability to predict and meet demand for cage-free and other specialty eggs, (v)
risks, changes, or obligations that could result from our future acquisition of new flocks or businesses
and risks or changes that may cause conditions to completing a pending acquisition not to be met
, and (v
i
) adverse results in pending litigation matters. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.
OVERVIEW
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packaging, marketing, and distribution of fresh shell eggs. Our fiscal year end is the Saturday closest to May 31.
Our operations are fully integrated. At our facilities we hatch chicks, grow and maintain flocks of pullets (
young
female chickens, u
nder
18
weeks of age), layers (mature female chickens) and breeders (male
and
female birds used to produce fertile eggs
to be
h
atched for egg production flocks), manufacture feed, and produce, process
,
and distribute shell eggs. We are the largest producer and marketer of shell eggs in the United States (U.S.). We market the majority of our shell eggs in the southwestern, southeastern, mid-western, and mid-Atlantic regions of the U.S.
We market shell eggs through an
extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product
consumers
.
The Company has one operating segment
,
which is the production, grading, packaging, marketing and distribution of shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell egg
s
as non-specialty products. While we report separate sales information for these types of eggs, we note there are a number of cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers.
Our operating results are directly tied to egg prices, which are highly volatile and subject to wide fluctuations, and are outside of our control. For example, the annual average Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs, for our fiscal 2005-2016 ranged from a low of $0.72 during fiscal 2005 to a high of $2.97 during fiscal 2016. The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices until supply and
demand returned to balance. As a result, our financial results from year to year may vary significantly. Shorter term, retail sales of shell eggs historically have been 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 shell egg production during the spring and early summer. Shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas, and Easter. Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in August and May, respectively. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.
From April through June 2015, our industry experienced a significant avian influenza (“AI”) outbreak, primarily in the upper Midwestern U.S. Based on several published industry estimates, we believe approximately 12% of the national flock of laying hens was affected. The affected laying hens were either destroyed by the disease or euthanized. During April through June 2015, the supply of laying hens decreased substantially, and then began to recover gradually. As of August 1, 2016, the national laying hen flock according to the U.S. Department of Agriculture was approximately 8.4% higher than the AI reduced flock
on
August 1, 2015, but remained 3.3% below the number of layers on August 1, 2014. Egg prices increased significantly during the summer and fall of 2015. The average Urner-Barry Thursday prices for the large market (i.e. generic shell eggs) in the southeastern region for the months of June through November 2015 was $2.32 per dozen, with a peak of $2.97 in August. Subsequent to November 2015, shell egg prices declined. The Urner Barry price index hit a decade-low level during our fiscal 2016 fourth quarter, and has remained at significantly lower levels in
the first quarter of
fiscal 201
7 than the corresponding period
of last year. Accordingly, our net average selling prices for eggs
for
the first quarter of fiscal 201
7
was $0.952 compared with $2.243 in t
he fiscal 2016 first quarter. Retail demand has remained favorable; however, lower institutional demand for egg products and reduced egg exports have pushed inventory levels higher and created additional pricing pressure.
Based on USDA reports, the laying flock is expected to increase through the end of calendar 2016, creating more supply and the potential for further price declines. Egg prices will likely remain volatile and future prices will depend on levels of supply and the recovery of institutional demand for eggs which was adversely impacted as a result of the 2015 shortages caused by AI.
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. For accounting and tax purposes, we classify nutritionally enhanced, cage-free, organic and brown eggs as specialty shell eggs. They have been a significant and growing segment of the market in recent years. During our fiscal 2016 an increasing number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to a cage-free egg supply chain by specified future dates. We are working with our customers to achieve smooth progress in meeting their goals, and our focus for future expansion at our farms will be with environments that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline that meets our customer’s needs.
For the
thirteen weeks ended
August 27, 2016
, we produced approximat
ely
82
% of the total number of shell eggs we sold
. This compares to 78% in the comparable prior year period
.
For both periods, a
pproximately
4
% of such production was provided by contract producers
utiliz
ing
their facilities in the production of shell eggs by layers owned by us. We own the shell eggs produced under these arrangements.
Our cost of production is materially affected by feed costs. Feed costs average
d approximatel
y
6
0
%
of our total farm egg production cost for
the
thirteen weeks ended
August 27, 2016
.
Changes in market prices for corn and soybe
an meal, the primary ingredients in the feed we use, result in changes in our cost of goods sold. The cost of our feed ingredients, which are commodities, are subject to factors over which we have little or no control such as volatile price changes caused by weather, size of harv
est, transportation and storage costs, demand and the agricultural and energy policies of the U.S. and foreign governments.
Increased U.S. acreage
and large per acre yields
for both corn and soybeans in 2016 should provide adequate domestic supplies for both of our primary feed ingredients. Domestic corn supplies could be particularly robust, although domestic soybean stocks could be negatively impacted by increased exports due to reduced supplies from South America.
As previously
disclosed
on August 2, 2016,
we
are in the process of acquiring
substantially all of the assets of Foodonics International, Inc. and its related entities doing business as Dixie Egg Company. The assets to be acquired include commercial egg production and processing facilities with capacity for approximately 1.6 million laying hens and related feed production, milling and distribution facilities in Georgia, Alabama and Florida
, as well as
contract
grower
arrangements for an additional 1.5 million laying hens. In addition, the assets to be acquired include the Egg-Land’s Best, Inc. franchise
with licensing rights for portions of certain markets in Alabama, Florida and Georgia as well as Puerto Rico, Bahamas and Cuba. We expect to close this transaction in the second quarter of fiscal 2017
.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Income expressed as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Net sales
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of sales
|
|
104.0
|
|
|
56.9
|
|
Gross profit (loss)
|
|
(4.0)
|
|
|
43.1
|
|
Selling, general, and administrative expense
|
|
16.7
|
|
|
7.0
|
|
Operating income (loss)
|
|
(20.7)
|
|
|
36.1
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest income, net
|
|
0.4
|
|
|
0.0
|
|
Royalty income
|
|
0.2
|
|
|
0.1
|
|
Equity in income of affiliates
|
|
0.1
|
|
|
0.1
|
|
Other
|
|
(0.2)
|
|
|
(0.1)
|
|
|
|
0.5
|
|
|
0.1
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
(20.2)
|
|
|
36.2
|
|
Income tax expense (benefit)
|
|
(7.3)
|
|
|
12.6
|
|
Net income (loss) before noncontrolling interest
|
|
(12.9)
|
|
|
23.6
|
|
Less: Net income (loss) attributable to noncontrolling interest
|
|
0.0
|
|
|
0.1
|
|
Net income (loss) attributable to Cal-Maine Foods, Inc.
|
|
(12.9)
|
%
|
|
23.5
|
%
|
NET SALES
Approximatel
y 9
8
% of our net sales
for the
first
quarter
of fiscal 201
7
were shell egg
s and approximately
2
%
w
ere
egg product
s
. Net sales for the
thirteen weeks ended August 27, 2016
were
$
239.8
million, a
de
crease
of $
3
70
.1
million, or
60.7
%, compared to net sales of $
609.9
million for the
thirteen weeks ended August 29, 2015
, primarily due to the decrease in egg selling prices
.
Total dozens of
shell
eggs sold
and egg selling prices
decreased
for the current thirteen-week period compared to the same period in fiscal
2016
.
Dozens sold for the
first
quarter of fiscal year
201
7
w
ere
242.3
million, a de
crease of
16.5
million
, or
6.4
%, compared to
258.8
million
for the first quarter of fiscal 2016
resulting
in a decrease in net sales of
$36.9
million.
Our net average
selling price per dozen of shell eggs
for the
thirteen weeks ended
August
27, 2016
was $
0.952
, compared to $
2.243
for the
thirteen weeks ended
August 29
2015
, a
de
crease of
57.6
%, resulting in a corr
esponding
de
crease in net
shell egg
sales of $
3
12.9
million.
Net average selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sale
s, breaking stock, and undergrades.
Egg products and other revenues res
ulted in a de
crease in net
sales of $
2
0.4
million for the
thirteen weeks ended
August
27, 2016
compared to the same period of last year.
The table below represents an analysis of our non-specialty and specialty shell egg sales
(in thousands, except percentage data)
. Following the table is a discussion of the information presented in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
Total net sales
|
|
$
|
239,845
|
|
|
$
|
609,895
|
|
|
|
|
|
|
|
|
|
|
Non-specialty shell egg sales
|
|
$
|
113,504
|
48.4%
|
|
$
|
422,921
|
72.6%
|
Specialty shell egg sales
|
|
|
109,312
|
46.7%
|
|
|
143,953
|
24.7%
|
Co-pack specialty shell egg sales
|
|
|
8,455
|
3.6%
|
|
|
13,999
|
2.4%
|
Other
|
|
|
2,997
|
1.3%
|
|
|
1,785
|
0.3%
|
Net shell egg sales
|
|
$
|
234,268
|
100.0%
|
|
$
|
582,658
|
100.0%
|
|
|
|
|
|
|
|
|
|
Net shell egg sales as a percent of total net sales
|
|
|
98%
|
|
|
|
96%
|
|
|
|
|
|
|
|
|
|
|
Dozens sold:
|
|
|
|
|
|
|
|
|
Non-specialty shell egg
|
|
|
182,730
|
75.4%
|
|
|
195,352
|
75.5%
|
Specialty shell egg
|
|
|
55,399
|
22.9%
|
|
|
58,035
|
22.4%
|
Co-pack specialty shell egg
|
|
|
4,196
|
1.7%
|
|
|
5,387
|
2.1%
|
Total dozens sold
|
|
|
242,325
|
100.0%
|
|
|
258,774
|
100.0%
|
|
|
|
|
|
|
|
|
|
Net average selling price
|
|
|
$ 0.952
|
|
|
|
$ 2.243
|
|
Non
-specialty shell eggs include all shell egg sales not specifically identified as specialty shell egg sales. The non-specialty shell egg market is characterized by an inelasticity of demand
.
S
mall increases or decreases in production or demand can have a large positive or
adverse effect on
selling prices.
For the
thirteen weeks ended
August
27, 2016
, non-specialty shell egg dozens sold
de
creased approximately
6.5
%
and the average selling price de
creased
70.7
%
to $
0.638
from $
2.174
for the same period of the prior year.
Specialty she
ll eggs, which
include
nutritionally enhanced, cage
-
free,
organic
and
brown
eggs,
continue to make up
a
larger
portion of our
total shell egg revenue and dozens sold
. Specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to
consumer willingness to pay for the perceived benefits from these products.
This
was
particularly evident in recent quarters as non-specialty egg prices declined more than specialty egg prices. However, as non-specialty egg prices declined, we experienc
ed
some margin and volume pressures on specialty egg sales.
For the
thirteen weeks ended
August
27, 2016
, specialty shell egg dozens sold
de
creased approximately
4.5
% and the
average selling price de
creased
20
.
5
% to $
1.973
from $
2.481
for the same period of the prior year.
Co-pack specialty shell eggs are sold primarily through co-pack arrangements, a common practice in the industry whereb
y production and processing of certain products is outsourced to another producer. Shell egg sales in this catego
ry represented
4.2
million and
5.4
million dozen for the
quarters ended
August
27, 2016
and
August 29,
2015
, respectively
,
primarily reflecting the loss of a portion of a major customer’s co-pack business
.
The shell egg sales classified as “Other” represent sales of hard
cooked eggs, hatching eggs, and
/or
other miscellaneous
products
, which are included with our shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. Our egg products are sold through our consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC (“TEP”). For the
first
quarter of fiscal
201
7
, egg product sales
were $
5.6
million, a de
crease of $
21.7
mill
ion, or
79.5
%, compared to $
27.2
million for the same period of
201
6
. Pounds sold for the
first
quarter of fiscal year
201
7
were
14.4
million pounds, a
n
increase of
253,000
pounds, or
1.8
%, compared to
14.1
million pounds for the
same
quarter of fiscal
201
6
.
Selling
prices for liquid and frozen egg products were down 79.3% for the first quarter of 2017 compared wi
th the same period of last year
.
COST OF SALES
Cost of sales consists of costs directly related to production, processing and packing shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products, and other non-egg costs. Farm production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs.
The following table presents the key variables affecting cost of sales
(in thousands, except cost per dozen data)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
August 27, 2016
|
|
August 29, 2015
|
|
Percent Change
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
Farm production
|
|
$
|
142,871
|
|
$
|
139,035
|
|
2.8
|
%
|
Processing and packaging
|
|
|
46,302
|
|
|
44,853
|
|
3.2
|
%
|
Outside egg purchases and other (including change in inventory)
|
|
|
55,593
|
|
|
145,074
|
|
(61.7)
|
%
|
Total shell eggs
|
|
|
244,766
|
|
|
328,962
|
|
(25.6)
|
%
|
Egg products
|
|
|
4,299
|
|
|
17,503
|
|
(75.4)
|
%
|
Other
|
|
|
349
|
|
|
359
|
|
(2.8)
|
%
|
Total
|
|
$
|
249,414
|
|
$
|
346,824
|
|
(28.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farm production cost (per dozen produced)
|
|
|
|
|
|
|
|
|
|
Feed
|
|
$
|
0.431
|
|
$
|
0.419
|
|
2.9
|
%
|
Other
|
|
|
0.294
|
|
|
0.271
|
|
8.5
|
%
|
Total
|
|
$
|
0.725
|
|
$
|
0.690
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Outside egg purchases (average cost per dozen)
|
|
$
|
1.03
|
|
$
|
2.27
|
|
(54.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
Dozen produced
|
|
|
198,782
|
|
|
202,648
|
|
(1.9)
|
%
|
Dozen sold
|
|
|
242,325
|
|
|
258,774
|
|
(6.4)
|
%
|
Cost of sales for the
first
quarter of fiscal
201
7
was $
249.4
million, a de
crease of $
97.4
million, or
28.1
%, compared to cost of sales of $
346.8
million for the
same
quarter of
fiscal
201
6
.
The
de
crease w
as primarily driven by
a
de
crease
in the
cost of
outside egg purchases
during the quarter
, including eggs purchased by our egg products divisions
.
Feed cost per dozen for the fiscal
201
7
first
quarter was $0.4
31
, compared to $0.
4
19
per dozen for the comparable fiscal
201
6
quarter, a
n in
crease of
2.9
%
resulting
in a
n in
crea
se in cost of sales of
$
2
.5 million
for the
thirteen weeks ended
August
27, 2016
compared wit
h the same period of fiscal 2016
.
Other farm production cost increased 8.5% to $0.294 for the first quarter of 2017, compared with $0.271 for the same period of last year primarily due to increased
facility
costs related to capital improvement and conversion projects
.
Gross
margin
de
creased
from 43.1
%
for the
first quarter of fiscal 2016
to a loss of
4.0
% for the
thirteen weeks ended
August 27, 2016
primarily
due to t
he
de
creased average customer selling price
s
.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Sellin
g, general, and administrative expenses include costs of marketing, distribution, accounting, and corporate overhead.
The following table present
s
an analysis of our selling, general, and administrative expenses
(in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
|
August 27, 2016
|
|
|
August 29, 2015
|
|
|
$ Change
|
|
% Change
|
Stock compensation expense
|
|
$
|
848
|
|
$
|
700
|
|
$
|
148
|
|
21.1%
|
Specialty egg expense
|
|
|
13,057
|
|
|
13,882
|
|
|
(825)
|
|
-5.9%
|
Payroll and overhead
|
|
|
8,438
|
|
|
9,585
|
|
|
(1,147)
|
|
-12.0%
|
Other expenses
|
|
|
5,353
|
|
|
6,602
|
|
|
(1,249)
|
|
-18.9%
|
Delivery expense
|
|
|
12,560
|
|
|
12,194
|
|
|
366
|
|
3.0%
|
Total
|
|
$
|
40,256
|
|
$
|
42,963
|
|
$
|
(2,707)
|
|
-6.3%
|
F
or the
thirteen weeks ended
August
27, 2016
,
s
elling, general, and administrative expense
was $
40.3
million, a
de
crease of
6.3
%, compared to $
4
3.
0
million for the
thirteen weeks ended
August
2
9
, 2015
. Specialty egg expense de
creased $
825,000
compared to the same period of last year, a
de
crease of
5.9
%. Specialty egg expense typically fluctuates with specialty egg dozens sold which
de
creased
4.5
% for the current quarter
compared to the same period of last year
. Payroll and overhead
de
creased $
1.1
million, or
12.0
%, compared to the same period of last year primarily due to
reduced bonus accruals in the current period and
expense related to the vesting of liability awards
incurred in the first quarter of fiscal 2016
. As a percentage of net sales, payroll and overhead was
3.5
% for the
first
quarter of fiscal 201
7
compared to
1.
6
% for the same period of last year.
OPERATING INCOME
(LOSS)
As a result of th
e above, operating
loss
was $
49
.8
million for the
first
quarter of fiscal
201
7
, compared to
operating income of
$
220.1
million for the fiscal
201
6 first
quarter.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of income (expenses) not directly charged to, or related to, operations such as interest expense, royalty income, and patronage income, among other items. Other income for the
thirteen weeks ended
August
27, 2016
was $
1.3
million
, a
n
in
crease of
$736,000
, compared to $
549,000
for the
thirteen weeks ended
August 29
, 2015
.
This increase is primarily due to an increase in net interest income partially offset by a decrease in equity income from affiliates for the first quarter of fiscal 2017 compared to the same period of last year.
As a percent of net sales, other income was
0.5
% for
the
thirteen weeks ended
August
27, 2016
and
0.1
% for the same period of fiscal 20
16
.
F
or the
first
quarter of fiscal 201
7
, we recorded $1.1 million of interest income compared with $583,000 for the same period of last year.
This
increase
resulted from
higher average invested balances a
nd
higher rates of return
on available for sale securities
.
The company recorded interest expense of $387,000 and $825,000
,
of which $379,000 and $269,000 was capitalized in the first quarters of fiscal 2017 and 2016, respectively.
Th
is
reduction
resulted from
the
Company
reducing outstanding
debt
and
increas
ing
capitalized interest
related to
major expansion and renovation projects.
Equity in income of affiliates for the
first
quarter of fiscal 201
7
was $
191,000
compared to $
730
,000 for the same period of last year. The
de
crease of $
539
,000 is primarily due
to
de
crease
d
income from specialty egg sales
in our unconsolidated joint ventures.
INCOME TAXES
Pre-tax
loss
,
less net
loss
attributable to
noncontrolling interest, was $
48.5
million for the
thirteen weeks ended
August
27, 2016
, compared to
pre-tax income of
$
219.6
million for last year’s comparable period
. For the current thirteen-week period, income tax
benefit
of
$17.6
million was recorded, with an effective tax rate of
36.2
%, compared
to
income tax expense of
$
76.6
million, with an effective rate of
3
4.9
%, for last year’s comparable
period.
Included in prior period income tax expense is the benefit of the domestic production activity deduction.
Our effective rate differs from the federal statutory income tax rate of 35% due to state income taxes and ce
rtain items included in income
for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income, domestic
production activity
deduction, and net income or loss attributable to noncontrolling interest.
NET INCOME
(LOSS)
ATTRIBUTABLE TO NONCONTROLLING INTEREST
For the
thirteen weeks ended
August
27, 2016
, net
loss
attributable to noncontrolling interest
was $
44
,000
,
compared to
net income of
$
1.1 million
for the same period of
201
6
.
NET INCOME
(LOSS)
ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
Net
loss
for the
thirteen weeks ended
August
27, 2016
was $
30.9
million, or $
0.64
per basic
and diluted share,
compared
to net income of $
143.0
million, or $
2.97
per basic and
$2.95
per
diluted share for the same period last year.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at
August
27, 2016
was $
498.8
million,
compared to $
542.8
million at
May
28, 2016
. The calculation of working capital is defined as current assets less current liabilities. Our current
ratio was
7.70
at
August
27, 2016
, compared
with
7.50
at
May
28, 2016
. We have $3.
7
million in outstanding standby letters of credit
, which are collateralized by cash
for the benefit of certain insurance companies
. Our long-term debt at
August
27, 2016
, including current maturities, amounted to $
24.0
million, compared
to $
25.6
million at
May
28, 2016
. Refer to Note 9 of our
May
28
, 201
6
audited financial statements for further information on our long-term debt.
For the
thirteen weeks ended August 27, 2016
, $
45
.
5
million in net cash was
used for
operating activities, a
de
crease of
$
199.6
million
, compared to net cash
provided by
operations of $
154.1
million for the
comparable period in fiscal
201
6
.
Decreased
gross profit margins
resulting from lower egg selling prices
contributed greatly to our
de
crease in cash flow from operations
.
For the
thirteen weeks ended August 27, 2016
,
approximately $
92.8
million was provided from the
sale of short-term investments and
$
9.0
million was used to purchase shor
t-term investments
, compared to $80.7 million in sales and $43.9 million in purchases in the first quarter of fiscal 2016
.
We
invested
$
5.5
million in our previously disclosed
Red River Valley Egg Farm
, LLC joint venture
(“Red River”)
.
Approximately $
23.9
million was used to purchase property, plant and equipment,
including
construction projects
discussed in detail below
, compared to $15.3 million in the first quarter of fiscal 2016. We paid dividends of $15.4 million in the first quarter of fiscal 2016 and none in the first quarter of fiscal 2017
.
As of
August 27, 2016
,
cash
in
crease
d
approximately
$
8.6 million
since
May
28, 2016
compared to $60.7 million during the first quarter of fiscal 2016.
To accommodate t
he previously discussed
increase
in customers committing to cage-free eggs over time, future expansion
s
at our farms
will be with
environments that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline that meets our customer’s needs. The following table represents material construction projects approved as
of
September 23
, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
|
Location
|
Projected Completion
|
|
Projected Cost
|
|
Spent as of
August 27, 2016
|
|
Remaining Projected Cost
|
Breeder Pullet Houses
|
Edwards, MS
|
August 2016
|
$
|
2,461
|
$
|
2,136
|
$
|
325
|
Warehouse
|
Luling, TX
|
August 2016
|
|
2,343
|
|
2,318
|
|
25
|
Cage-Free Layer & Pullet Houses
|
South Texas
|
October 2016
|
|
49,586
|
|
48,604
|
|
982
|
Cage-Free Layer Houses
|
South Texas
|
October 2016
|
|
4,033
|
|
2,088
|
|
1,945
|
Cooler & Dry Storage Expansion
|
Bethune, SC
|
October 2016
|
|
1,529
|
|
1,081
|
|
448
|
Organic Facility Expansion
|
Chase, KS
|
October 2016
|
|
18,550
|
|
18,261
|
|
289
|
Conventional/Cage-Free Layer Houses
|
Green Forest, AR
|
January 2017
|
|
8,146
|
|
4,916
|
|
3,230
|
Distribution Center Remodel
|
Louisburg, NC
|
February 2017
|
|
2,955
|
|
184
|
|
2,771
|
Conventional/Cage-Free Layer House with Pullets
|
South Texas
|
February 2017
|
|
11,353
|
|
7,139
|
|
4,214
|
Cage-Free Layer Houses
|
Lake City, FL
|
March 2017
|
|
8,144
|
|
3,020
|
|
5,124
|
Cage-Free Layer Houses
|
South Texas
|
March 2017
|
|
4,063
|
|
536
|
|
3,527
|
California Compliant/Cage Free Layer House Expansions
|
Delta, UT
|
April 2017
|
|
10,696
|
|
9,179
|
|
1,517
|
Conventional/Cage-Free Layer House with Pullets
|
Guthrie, KY
|
May 2017
|
|
13,252
|
|
3,838
|
|
9,414
|
Refurbish Layer Houses Cage Free
|
Shady Dale, GA
|
May 2017
|
|
4,864
|
|
846
|
|
4,018
|
|
|
|
$
|
141,975
|
$
|
104,146
|
$
|
37,829
|
In addition to these projects, the Company expects to continue to fund its 50% share of the previously discussed Red River JV during fiscal 2017. As of September
23
, 2016, we have contributed $39.5 million to the joint venture and we estimate we will make additional contributions of
approxim
ately
$
9
.0 million to
fund our share of the remaining construction and startup costs.
Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes. Unless otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum levels of working capital (current ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth, plus 45% of cumulative net income since
the
fiscal year ended May 28, 2005); (2) limit dividends paid in any given quarter to not exceed an amount equal to one third of the previous quarter’s consolidated net income (
allowed if no events of default); (3) maintain minimum
total funded debt to total capitalization
(
not to exceed 55%); and (
4
) maintain various cash-flow coverage ratios (1.25 to 1), among other restrictions. At
August
27, 2016
, we were in compliance with the financial covenant requirements of all loan agreements. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control, as defined in the applicable loan agreem
ent. Our debt agreements
require Fred R. Adams, Jr., our Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing not less than 50% of the outstanding voting power of the Company.
W
e believe our current cash balances, investments, borrowing
s
, and cash flows from operations will be sufficient to fund our current and projected capital needs
for at least the next twelve months
.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company does not
expect
ASU 2014-09
to have a material impact
on the consolidated financial statement presentation.
I
n February 2016, the FASB issued ASU 2016-02,
Leases
. The purpose of the standard is to improve transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its financial statements and presentation.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Compensation Accounting
. ASU 2016-09 requires that excess tax benefits are recorded on the income statement as opposed to additional paid-in-capital, and treated as an operating activity on the statement of cash flows. ASU 2016-09 also allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company does not
expect
ASU 2016-09
to have a material impact
on the consolidated financial statement presentation.
CRITICAL ACCOUNTING POLICIES
We suggest
our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the fiscal year ended
May
28, 2016
, be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to critical accounting policies identified in our Annual Report on Form 10-K for the year ended
May 28, 2016
.