-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JwRHDf2J7xEovF3sChR+Hl/JNqgSRexVHcdep92sDbIkKxX+fte0Fi1w1Iv3f2zp kdgSJIaEJngHmtGDX/cMWg== 0000904456-99-000086.txt : 19990826 0000904456-99-000086.hdr.sgml : 19990826 ACCESSION NUMBER: 0000904456-99-000086 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990529 FILED AS OF DATE: 19990825 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAL MAINE FOODS INC CENTRAL INDEX KEY: 0000016160 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - LIVESTOCK & ANIMAL SPECIALTIES [0200] IRS NUMBER: 640500378 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04892 FILM NUMBER: 99699127 BUSINESS ADDRESS: STREET 1: 3320 WOODROW WILSON DRIVE CITY: JACKSON STATE: MS ZIP: 39207 BUSINESS PHONE: 6019486813 MAIL ADDRESS: STREET 1: 3320 WOODROW WILSON DR CITY: JACKSON STATE: MS ZIP: 39209 10-K 1 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. EX-10 2 Exhibit 10.11 WAGE CONTINUATION PLAN Cal-Maine Foods, Inc., a Delaware Corporation, (hereinafter referred to as "the Corporation"), has established under the date of January 14, 1999, by appropriate resolution of its Board of Directors, a Wage Continuation Plan, (hereinafter referred to as "the Plan"), for the benefit of Stephen Storm, Charles F. Collins and Bob Scott (hereinafter referred to as "the Participants"). WHEREAS, the services of the Participants, their experience and knowledge of the egg industry, its practice and procedures and their reputation and contacts in the agricultural community are extremely valuable to the Corporation; and WHEREAS, they not only devote their full time to the Corporation and are key employees contributing to its success but also, as professional employees, have duties and responsibilities that constitute a unique and vital role in the well-being of the Corporation's business; and WHEREAS, it is the desire of the Corporation to assure the Participants of a reasonable income at the time of normal retirement in order that their minds may be free to concentrate on his work for the Corporation; and WHEREAS, the Corporation desires the Participant's to remain in its service and wished to receive the benefit of their knowledge, experience, reputation and contacts, and WHEREAS, to retain the Participants' services, the Corporation is willing to implement, in addition to their ordinary compensation, an incentive compensation continuation plan; NOW, THEREFORE, to accomplish the foregoing desires, the Corporation hereby established the following Wage Continuation Plan: ARTICLE I EMPLOYEES COVERED BY THE PLAN 1.01 Employees covered by this Plan shall include Bob Scott, Charles Collins and Steve Storm. 1.02 An employee shall be deemed employed on a full-time basis for the purposes of this Plan if he customarily works, or is expected to work, at least nine (9) months in each year and at least thirty (30) hours in each week. ARTICLE II BENEFITS TO PARTICIPANT 2.01 The Corporation agrees to pay to each participant the sum of Twenty Thousand Dollars ($20,000) per year, to be paid on a monthly basis for up to a maximum of ten (10) years following the sixty-fifth (65th) birthday of a Participant, or a portion of such ten (10) year period computed as follows: (a) For the purposes of this Plan, the period of time between January 14, 1999, and sixty-fifth (65th) birthday of the Participant is designated "the Employment Period." (b) For each ten percent (10%), or fraction thereof, of the Employment Period during which a Participant is a full-time employee of the Corporation, the Corporation agrees to pay the Participant one (1) full year of deferred compensation in the amount of Twenty-Thousand Dollars ($20,000) per year, payable monthly. (c) In the event of the death of a Participant prior to the time the Participant has received all deferred compensation to which the Participant is entitled under the terms of this Plan, the remaining amount due the Participant, but unpaid at the time of his death, shall be paid to the Participant's estate at the same rate and in the same manner as such sums would have been paid to the participant had he lived until all payments due hereunder had been made. ARTICLE III FUNDING OF PLAN 3.01 The Corporation's obligation to pay the Participant under the terms hereof shall be discharged by payments from general working capital or other assets of the Corporation. ARTICLE IV DISABILITY OF PARTICIPANT 4.01 In the event a Participant shall become unable to perform his duties as an employee of the Corporation, the employee shall continue to accrue benefits hereunder for a maximum period of twelve (12) months as if he were a full-time employee, whether such period of disability is continuous or involves two (2) or more shorter periods. ARTICLE V PAYMENT OF BENEFITS 5.01 The Participants will achieve age sixty-five (65) on the following date: Bob Scott 5-7-05 Charles Collins 12-17-08 Steve Storm 2-25-13 5.02 Without further notice or demand, the Corporation shall pay to the Participant the benefits to which the Participant is entitled under the terms hereof commencing on the date specified below for the Participant: Bob Scott 6-1-05 Charles Collins 1-1-09 Steve Storm 3-1-13 5.03 All payments made hereunder shall be subject to such withholding as may be required to comply with the then applicable federal or state laws and regulations. ARTICLE VI TERMS OF EMPLOYMENT 6.01 Nothing contained herein shall obligate, nor shall any term or condition herein be construed as obligating, the Corporation to continue the employment of the Participant for any specified period. The right is expressly reserved to the Corporation to terminate the employment of the Participant in accordance with the normal practices of the Corporation. In the event the employment of the Participant is terminated, either by action of the Corporation or by the resignation or other removal of the Participant, the Participant shall be entitled to receive, at the times and in accordance with the terms hereinbefore set forth, such benefits hereunder as may have been earned up to the time of such termination of employment. ARTICLE VII EFFECTIVE DATE 7.01 The effective date of this Plan is January 14, 1999. ARTICLE VIII NON-ASSIGNABILITY 8.01 This Plan and the rights, interests and benefits receivable hereunder from the general assets of the Corporation shall not be assigned, transferred, pledged, sold, conveyed or encumbered in any way by the Participant and shall not be subject to execution, attachment or similar process. Any attempted sale, conveyance, transfer, assignment, pledge or encumbrance of this Plan or of such rights, interests and benefits hereunder contrary to the foregoing provisions, or the levy of any attachment of similar process thereupon, shall be null and void and without effect. ARTICLE IX NAMED FIDUCIARY AND PLAN ADMINISTRATOR 9.01 The Chief Executive Officer of the Corporation is hereby designated as the named fiduciary of this Plan, in accordance with ERISA, and shall serve in such capacity until resignation or removal by the Board of Directors and appointment of a successor by duly adopted resolution of the Board of Directors. 9.02 The named fiduciary shall have the authority to control and manage the operation and administration of this Plan. However, the named fiduciary may allocate his responsibilities for the operation and administration of this Plan, including the designation of persons who are not named fiduciaries to carry out fiduciary responsibilities. 9.03 The named fiduciary is hereby designated as the plan administrator of this Plan. ARTICLE X COMMUNICATION 10.01 A copy of this Plan shall be given to each Participant. IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed in its corporate name and by the corporate officer thereunto duly authorized as of the day and year first above written. CAL-MAINE FOODS, INC. BY: /s/FRED ADAMS, JR. ------------------ Fred Adams, Jr. Chief Executive Officer CONSENT OF DIRECTORS The undersigned, being all of the members of the Executive Committee of Cal-Maine Foods, Inc., a Delaware corporation, acting by written consent in lieu of a special called meeting of the Executive Committee of said corporation, pursuant to the provisions and requirements of Section 141(f) of the General Corporation Law of the State of Delaware, do hereby adopt the following resolution, to-wit: BE IT RESOLVED that the Wage Continuation Plan for Charles Collins, Steve Storm and Bob Scott, a copy of which is annexed to this resolution, and which becomes part hereof, shall be, and the same is hereby, adopted. BE IT FURTHER RESOLVED that the proper and necessary officers of the corporation be and they are hereby authorized, empowered and directed to do and perform any and all acts and deeds necessary to enact and carry out the Plan on behalf of the corporation. BE IT FURTHER RESOLVED that in carrying out their direction hereunder, the officers of the corporation shall be and are hereby directed to conform to the applicable retirement requirements of the Internal Revenue Code as such may be amended from time to time. BE IT FURTHER RESOLVED that the corporation will indemnify and hold harmless any employee or director of the corporation who serves as a named fiduciary of the Plan and any other of its employees and directors serving the Plan in a fiduciary capacity from any and all claims and liabilities, including the cost of defending such claims or liabilities, arising out of the performance of such fiduciary duties to the maximum extent permitted by law and may keep and maintain liability insurance in force for the protection of such fiduciaries and the Plan, which insurance shall include a waiver by the insurer of its subrogation rights with respect to claims against fiduciaries. IN WITNESS WHEREOF, the undersigned have executed this Consent and adopted the above and foregoing resolution effective as of the 14th day of January, 1999. /s/FRED ADAMS, JR. ------------------ Fred Adams, Jr. /s/R. K. LOOPER --------------- R. K. Looper /s/B. J. RAINES --------------- B. J. Raines /s/DOLPH BAKER -------------- Dolph Baker EX-23 3 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement on Form S-8 ( No. 333-20169) and related prospectus pertaining to the Cal-Maine Foods, Inc. 1993 Stock Option Plan and in the Post-Effective amendment No.1 to Form S-1 on Form S-3 (No. 333-14809) and related prospectus pertaining to shares underlying common stock purchase warrants of Cal-Maine Foods, Inc., of our report dated July 17, 1999, with respect to the consolidated financial statements and schedule of Cal-Maine Foods, Inc. included in the Annual Report (Form 10-K) for the year ended May 29, 1999. /s/ERNST & YOUNG LLP Jackson, Mississippi August 24, 1999 EX-27 4
5 0000016160 CAL-MAINE FOODS, INC. 1,000 12-MOS MAY-29-1999 JUN-01-1998 MAY-29-1999 36,198 0 14,617 0 38,353 89,939 184,354 74,443 213,682 41,438 0 176 0 0 80,408 213,682 287,954 287,954 242,022 278,428 0 0 5,195 7,987 2,907 5,080 0 0 0 5,080 .39 .39
-----END PRIVACY-ENHANCED MESSAGE-----