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CAL-MAINE FOODS INC - Quarter Report: 2019 March (Form 10-Q)

Index

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q
(mark one)

þ     Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 2, 2019

OR

¨     Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ____________

Commission File Number:  000-04892

CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
64-0500378
(State or other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification No.)

3320 Woodrow Wilson Avenue, Jackson, Mississippi  39209
(Address of principal executive offices) (Zip Code)

(601) 948-6813
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
    
Large Accelerated filer þ
 
Accelerated filer  ¨
 
 
 
Non – Accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No þ
There were 43,894,478 shares of Common Stock, $0.01 par value, and 4,800,000 shares of Class A Common Stock, $0.01 par value, outstanding as of March 28, 2019.


Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED MARCH 2, 2019
 
 
 
 
 
Page Number
Part I.
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Part II.
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 



Index

PART I.  FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
March 2, 2019
 
June 2,
2018
ASSETS
 
 (unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
97,370

 
$
48,431

Investment securities available-for-sale
 
244,482

 
282,586

Trade and other receivables (less allowance for doubtful accounts of
 
 

 
 

$318 and $268 at March 2, 2019 and June 2, 2018, respectively)
 
93,222

 
85,839

Inventories
 
178,418

 
168,644

Prepaid expenses and other current assets
 
3,912

 
2,020

Total current assets
 
617,404

 
587,520

Property, plant and equipment, net
 
439,300

 
425,384

Investments in unconsolidated entities
 
68,728

 
66,806

Goodwill
 
35,525

 
35,525

Other intangible assets, net
 
24,466

 
26,307

Other long-lived assets
 
9,032

 
8,905

TOTAL ASSETS
 
$
1,194,455

 
$
1,150,447

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
$
84,116

 
$
87,209

Accrued dividends payable
 
13,245

 
17,093

Current maturities of long-term debt and capital lease obligations
 
2,444

 
3,536

Total current liabilities
 
99,805

 
107,838

Long-term debt and capital lease obligations, less current maturities
 
677

 
2,554

Other noncurrent liabilities
 
8,595

 
8,318

Deferred income taxes
 
77,335

 
76,055

Total liabilities
 
186,412

 
194,765

Contingencies - see Note 5
 


 


 
 
 
 
 
Stockholders’ equity:
 
 

 
 

Common stock, $0.01 par value, 120,000 authorized and 70,261 shares issued at
 
 
 
 
March 2, 2019, and June 2, 2018, respectively, and 43,895 and 43,831 shares
 
 

 
 

outstanding at March 2, 2019 and June 2, 2018, respectively
 
703

 
703

Class A convertible common stock, $.01 par value, 4,800 shares authorized, issued
 
 

 
 

and outstanding at March 2, 2019 and June 2, 2018
 
48

 
48

Paid-in capital
 
55,857

 
53,323

Retained earnings
 
974,287

 
924,918

Accumulated other comprehensive income (loss), net of tax
 
39

 
(693
)
Common stock in treasury at cost – 26,366 and 26,430 shares at March 2, 2019
 
 

 
 

and June 2, 2018
 
(25,865
)
 
(24,966
)
Total Cal-Maine Foods, Inc. stockholders’ equity
 
1,005,069

 
953,333

Noncontrolling interest in consolidated entities
 
2,974

 
2,349

Total stockholders’ equity
 
1,008,043

 
955,682

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,194,455

 
$
1,150,447

See Notes to Condensed Consolidated Financial Statements.

2

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Net sales
 
$
383,992

 
$
435,820

 
$
1,080,616

 
$
1,059,837

Cost of sales
 
301,551

 
315,722

 
870,511

 
840,007

Gross profit
 
82,441

 
120,098

 
210,105

 
219,830

Selling, general, and administrative expense
 
45,009

 
44,175

 
132,500

 
128,045

Legal settlement expense
 

 

 
2,250

 
80,750

Gain on disposal of fixed assets
 
(758
)
 
(279
)
 
(847
)
 
(325
)
Operating income
 
38,190

 
76,202

 
76,202

 
11,360

Other income (expense):
 
 
 
 
 
 

 
 

Interest income, net
 
1,986

 
992

 
5,459

 
2,043

Royalty income
 
565

 
169

 
1,784

 
760

Patronage dividends
 
10,482

 
8,286

 
10,482

 
8,286

Equity in income of affiliates
 
2,111

 
2,379

 
4,449

 
2,302

Other, net
 
147

 
29

 
372

 
(1,304
)
Total other income
 
15,291

 
11,855

 
22,546

 
12,087

 
 
 
 
 
 
 
 
 
Income before income taxes and noncontrolling interest
 
53,481

 
88,057

 
98,748

 
23,447

Income tax (benefit) expense
 
13,616

 
(8,301
)
 
24,134

 
(30,653
)
Net income before noncontrolling interest
 
39,865

 
96,358

 
74,614

 
54,100

Less: Net income (loss) attributable to noncontrolling interest
 
88

 
64

 
625

 
(65
)
Net income attributable to Cal-Maine Foods, Inc.
 
$
39,777

 
$
96,294

 
$
73,989

 
$
54,165

 
 
 
 
 
 
 
 
 
Net income per common share attributable to Cal-Maine Foods, Inc.:
 
 
 
 
 
 

 
 

Basic
 
$
0.82

 
$
1.99

 
$
1.53

 
$
1.12

Diluted
 
$
0.82

 
$
1.99

 
$
1.52

 
$
1.12

Weighted average shares outstanding:
 
 
 
 
 
 

 
 

Basic
 
48,417

 
48,361

 
48,416

 
48,340

Diluted
 
48,533

 
48,476

 
48,545

 
48,460


See Notes to Condensed Consolidated Financial Statements.

3

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Net income, including noncontrolling interests
 
$
39,865

 
$
96,358

 
$
74,614

 
$
54,100

 
 
 
 
 
 
 

 
 

Other comprehensive income (loss), before tax:
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 

 
 

Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments
 
1,217

 
(547
)
 
967

 
(1,004
)
 
 
 
 
 
 
 

 
 

Income tax benefit (expense) related to items of other comprehensive loss
 
(296
)
 
155

 
(235
)
 
340

 
 
 
 
 
 
 

 
 

Other comprehensive income (loss), net of  tax
 
921

 
(392
)
 
732

 
(664
)
 
 
 
 
 
 
 

 
 

Comprehensive income
 
40,786

 
95,966

 
75,346

 
53,436

 
 
 
 
 
 
 

 
 

Less: comprehensive income (loss) attributable to the noncontrolling interest
 
88

 
64

 
625

 
(65
)
 
 
 
 
 
 
 

 
 

Comprehensive income attributable to Cal-Maine Foods, Inc.
 
$
40,698

 
$
95,902

 
$
74,721

 
$
53,501


See Notes to Condensed Consolidated Financial Statements.

4

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
Operating activities:
 
 
 
 
Net income including noncontrolling interest
 
$
74,614

 
$
54,100

Depreciation and amortization
 
40,857

 
40,331

Other adjustments, net
 
(20,863
)
 
51,655

Net cash provided by operations
 
94,608

 
146,086

 
 
 

 
 

Investing activities:
 
 

 
 

Purchases of investment securities
 
(122,191
)
 
(136,921
)
Sales and maturities of investment securities
 
160,190

 
95,289

Investment in unconsolidated entities
 
(4,272
)
 
(4,100
)
Distributions from unconsolidated entities
 
6,545

 
5,831

Acquisition of business
 
(17,889
)
 

Purchases of property, plant and equipment
 
(36,841
)
 
(13,639
)
Net proceeds from disposal of property, plant and equipment
 
1,212

 
579

Net cash used by investing activities
 
(13,246
)
 
(52,961
)
 
 
 

 
 

Financing activities:  
 
 

 
 

Purchase of common stock by treasury
 
(985
)
 
(1,128
)
Contributions from noncontrolling interests
 

 
279

Principal payments on long-term debt and capital lease obligations
 
(2,969
)
 
(3,662
)
Payment of dividends
 
(28,469
)
 

Net cash used in financing activities
 
(32,423
)
 
(4,511
)
 
 
 
 
 
Net change in cash and cash equivalents
 
48,939

 
88,614

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
48,431

 
17,564

Cash and cash equivalents at end of period
 
$
97,370

 
$
106,178


See Notes to Condensed Consolidated Financial Statements.


5

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 2, 2019
(unaudited)
1.   Presentation of Interim Information

The condensed consolidated balance sheet at June 2, 2018 was derived from the audited consolidated financial statements at that date.  It does not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affected reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.  Operating results for the thirteen and thirty-nine weeks ended March 2, 2019 are not necessarily indicative of the results that may be expected for the year ending June 1, 2019.  

For further information, refer to the consolidated financial statements and footnotes thereto included in Cal-Maine Foods, Inc.’s annual report on Form 10-K for the fiscal year ended June 2, 2018. References to “we,” “us,” “our,” or the “Company” refer to Cal-Maine Foods, Inc.

2. Acquisition

On October 14, 2018, the Company acquired substantially all of the commerical egg production and processing assets of Featherland Egg Farms, Inc. (“Featherland”) for $17.9 million in cash. The acquired assets include facilities with current capacity for approximately 600,000 laying hens, a feed mill, and related production and distribution facilities located near Marion, Texas. The acquired operations of Featherland are included in the accompanying financial statements as of October 14, 2018. Acquisition related costs incurred during the period were immaterial to the financial statements.

Pending the finalization of the Company’s valuation, the following table presents the preliminary fair values of the assets acquired (in thousands):

Inventory
 
$
1,433

Property, plant and equipment
 
16,206

Intangible assets
 
250

Purchase price
 
$
17,889



Pro-forma information was not material to the Company’s Condensed Consolidated Financial Statements.

3.   Stock Based Compensation

Total stock based compensation expense for the thirty-nine weeks ended March 2, 2019 and March 3, 2018 was $2.6 million in both periods. 

Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at March 2, 2019 was $7.0 million, and will be recorded over a weighted average period of 2.3 years.  Refer to Note 10 of our June 2, 2018 audited financial statements for further information on our stock compensation plans.

6

Index


At March 2, 2019, there were 252,388 restricted shares outstanding, with a weighted average grant date fair value of $43.20 per share. The Company’s restricted share activity for the thirty-nine weeks ended March 2, 2019 follows:
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Outstanding, June 2, 2018
 
241,290

 
$
45.30

Granted
 
94,189

 
42.68

Vested
 
(75,942
)
 
49.14

Forfeited
 
(7,149
)
 
44.00

Outstanding, March 2, 2019
 
252,388

 
$
43.20



4.   Inventories

Inventories consisted of the following (in thousands):
 
 
March 2, 2019
 
June 2, 2018
Flocks
 
$
103,311

 
$
96,594

Eggs and egg products
 
18,245

 
17,313

Feed and supplies
 
56,862

 
54,737

 
 
$
178,418

 
$
168,644



We grow and maintain flocks of layers (mature female chickens), pullets (female chickens, under 18 weeks of age), and breeders (male and female chickens used to produce fertile eggs to hatch for egg production flocks). Our total flock at March 2, 2019 consisted of approximately 9.4 million pullets and breeders and 37.7 million layers.

5.   Contingencies

Financial Instruments
The Company maintained standby letters of credit (“LOC”) totaling $4.2 million at March 2, 2019.  The LOCs are collateralized with cash which is included in the line item “Other assets” in the Condensed Consolidated Balance Sheets.  The outstanding LOCs are for the benefit of certain insurance companies, and are not recorded as a liability on the consolidated balance sheets.

Legal Contingencies
The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions.  If the Company’s assessment of a contingency indicates it is probable a material loss has been incurred and the amount of the liability can be reasonably estimated, the estimated liability is accrued in the Company’s financial statements. If the assessment indicates a potential material loss contingency is not probable, but is reasonably possible, or probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the possible loss or range of possible loss will be disclosed, or a statement will be made that such an estimate cannot be made.

These legal actions are discussed in detail at Part II, Item 1, of this report.


7

Index

6.   Net Income per Common Share  

Basic net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period.  Diluted net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus the dilutive effects of options and restricted stock.  The computations of basic and diluted net income per share attributable to the Company are as follows (in thousands, except per share data):

 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Net income attributable to Cal-Maine Foods, Inc.
 
$
39,777

 
$
96,294

 
$
73,989

 
$
54,165

 
 
 
 
 
 
 

 
 

Basic weighted-average common shares
 
48,417

 
48,361

 
48,416

 
48,340

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Restricted shares
 
116

 
115

 
129

 
120

Dilutive potential common shares
 
48,533

 
48,476

 
48,545

 
48,460

 
 
 
 
 
 
 
 
 
Net income per common share attributable to Cal-Maine Foods, Inc.:
 
 
 
 
 
 

 
 

Basic
 
$
0.82

 
$
1.99

 
$
1.53

 
$
1.12

Diluted
 
$
0.82

 
$
1.99

 
$
1.52

 
$
1.12



7.   Fair Value Measurements

The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy.  The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

Level 1 - Quoted prices in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The disclosures of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.

Long-term debt: The carrying value of the Company’s long-term debt is at its stated value.  We have not elected to carry our long-term debt at fair value.  Fair values for debt are based on quoted market prices or published forward interest rate curves, which are level 2 inputs. The fair value and carrying value of the Company’s borrowings under its long-term debt were as follows (in thousands):
 
 
March 2, 2019
 
June 2, 2018
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Note payable
 
$
2,019

 
$
2,047

 
$
4,750

 
$
4,732

Long-term leases
 
1,102

 
967

 
1,340

 
1,171

 
 
$
3,121

 
$
3,014

 
$
6,090

 
$
5,903




8

Index

Assets and Liabilities Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following table shows the fair value of financial assets and liabilities measured at fair value on a recurring basis as of March 2, 2019 and June 2, 2018 (in thousands):
໿
 
 
 
 
 
 
 
 
Total
March 2, 2019
 
Level 1
 
Level 2
 
Level 3
 
Balance
Assets
 
 

 
 

 
 

 
 

US government and agency obligations
 

 
$
30,770

 

 
$
30,770

Municipal bonds
 

 
47,907

 

 
47,907

Commercial paper
 

 
3,223

 

 
3,223

Corporate bonds
 

 
155,571

 

 
155,571

Certificates of deposits
 

 
3,020

 

 
3,020

Asset backed securities
 

 
3,991

 

 
3,991

Mutual funds
 
3,403

 

 

 
3,403

Total assets measured at fair value
 
$
3,403

 
$
244,482

 

 
$
247,885

໿
 
 
 
 
 
 
 
 
Total
June 2, 2018
 
Level 1
 
Level 2
 
Level 3
 
Balance
Assets
 
 

 
 

 
 

 
 

US government and agency obligations
 
$

 
$
23,817

 
$

 
$
23,817

Municipal bonds
 

 
20,666

 

 
20,666

Certificates of deposits
 

 
2,507

 

 
2,507

Commercial paper
 

 
17,920

 

 
17,920

Corporate bonds
 

 
214,083

 

 
214,083

Variable rate demand notes
 

 
600

 

 
600

Asset backed securities
 

 
2,993

 

 
2,993

Mutual funds
 
3,071

 

 

 
3,071

Total assets measured at fair value
 
$
3,071

 
$
282,586

 
$

 
$
285,657



Investment securities – available-for-sale have maturities of three months or longer when purchased, and are classified as current, because they are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.

໿
໿

9

Index

8.   Investment Securities

The following represents the Company’s investment securities as of March 2, 2019 and June 2, 2018 (in thousands):
March 2, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
US government and agency obligations
 
$
30,834

 
$

 
$
64

 
$
30,770

Municipal bonds
 
47,866

 
41

 

 
47,907

Commercial paper
 
3,238

 

 
15

 
3,223

Corporate bonds
 
156,040

 

 
469

 
155,571

Certificates of deposits
 
3,025

 

 
5

 
3,020

Asset backed securities
 
3,990

 
1

 

 
3,991

Total current investment securities
 
$
244,993

 
$
42

 
$
553

 
$
244,482

 
 
 

 
 

 
 

 
 

Mutual funds
 
$
2,312

 
$
1,091

 
$

 
$
3,403

Total noncurrent investment securities
 
$
2,312

 
$
1,091

 
$

 
$
3,403

June 2, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
US government and agency obligations
 
$
23,991

 
$

 
$
174

 
$
23,817

Municipal bonds
 
20,697

 

 
31

 
20,666

Certificates of deposits
 
2,510

 

 
3

 
2,507

Commercial paper
 
17,926

 

 
6

 
17,920

Corporate bonds
 
215,273

 

 
1,190

 
214,083

Variable rate demand notes
 
600

 

 

 
600

Asset backed securities
 
3,010

 

 
17

 
2,993

Total current investment securities
 
$
284,007

 
$

 
$
1,421

 
$
282,586

 
 
 

 
 

 
 

 
 

Mutual funds
 
$
2,037

 
$
1,034

 
$

 
$
3,071

Total noncurrent investment securities
 
$
2,037

 
$
1,034

 
$

 
$
3,071



The mutual funds are classified as “Other long-lived assets” in the Company’s Condensed Consolidated Balance Sheets. Proceeds from sales and maturities of investment securities were $160.2 million and $95.3 million during the thirty-nine weeks ended March 2, 2019 and March 3, 2018, respectively. Gross realized gains for the thirty-nine weeks ended March 2, 2019 and March 3, 2018 were approximately $55,000 and $25,000, respectively.  Gross realized losses for the thirty-nine weeks ended March 2, 2019 and March 3, 2018 were approximately $35,000 and $5,000, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.

Unrealized holding gains (losses), net of taxes, for the thirty-nine weeks ended March 2, 2019 and March 3, 2018 were as follows (in thousands):
 
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
Current investments
 
$
689

 
$
(975
)
Noncurrent investments
 
43

 
311

Total unrealized holding gains (losses)
 
$
732

 
$
(664
)



10

Index

Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or without penalties.  Contractual maturities of current investments at March 2, 2019, are as follows (in thousands):
 
 
Estimated Fair Value
Within one year       
 
$
140,391

1-5 years
 
104,091

Total
 
$
244,482



໿
9.   Accrued Dividends Payable and Dividends per Common Share

We accrue dividends at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors. The Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with generally accepted accounting principles in an amount equal to one-third (1/3) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day following the last day of such quarter, except for the fourth fiscal quarter.  For the fourth quarter, the Company pays dividends to shareholders of record on the 65th day after the quarter end. Dividends are payable on the 15th day following the record date. For the third quarter of fiscal 2019, the dividend is payable on May 16, 2019, to holders of record on May 1, 2019. Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. The amount of the accrual appears on the Condensed Consolidated Balance Sheets as “Accrued dividends payable”. At the end of the third quarter of fiscal 2018 on March 3, 2018, the amount of cumulative losses to be recovered before payment of a dividend was $20.5 million.

On our condensed consolidated statement of income, we determine dividends per common share in accordance with the computation in the following table (in thousands, except per share data):

 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Net income attributable to Cal-Maine Foods, Inc.
 
$
39,777

 
$
96,294

 
$
73,989

 
$
54,165

 
 
 
 
 
 
 
 
 
Net income attributable to Cal-Maine Foods, Inc. available for dividend
 
$
39,777

 
$

 
$
73,989

 
$

 
 
 
 
 
 
 
 
 
1/3 of net income attributable to Cal-Maine Foods, Inc. available for dividend
 
$
13,245

 
$

 
$
24,626

 
$

 
 
 
 
 
 
 
 
 
Common stock outstanding (shares)
 
43,894

 
43,773

 
 
 
 
Class A common stock outstanding (shares)
 
4,800

 
4,800

 
 
 
 
Total common stock outstanding (shares)
 
48,694

 
48,573

 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per common share*
 
$
0.272

 
$

 
$
0.506

 
$

*Dividends per common share = 1/3 of Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend ÷ Total common stock outstanding (shares).




11

Index

10.   Equity

The following reflects the equity activity, including our noncontrolling interest, for the thirteen and thirty-nine weeks ended March 2, 2019 and March 3, 2018 (in thousands):

 
 
Thirteen Weeks Ended March 2, 2019
 
 
Cal-Maine Foods, Inc. Stockholders
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 

 
Class A
 
Treasury
 
Paid In
 
Accum. Other
 
Retained
 
Noncontrolling
 
 
 
 
Amount

 
Amount
 
Amount
 
Capital
 
Comp. Income (Loss)
 
Earnings
 
Interest
 
Total
Balance at December 1, 2018
 
$
703

 
$
48

 
$
(24,974
)
 
$
55,079

 
$
(882
)
 
$
947,768

 
$
2,886

 
$
980,628

Other comprehensive income, net of tax
 

 

 

 

 
921

 

 

 
921

Grant of restricted stock, net of forfeitures
 

 

 
88

 
(88
)
 

 

 

 

Purchase of company stock - shares withheld to satisfy withholding obligations in connection with the vesting of restricted stock
 

 

 
(979
)
 

 

 

 

 
(979
)
Restricted stock compensation
 

 

 

 
866

 

 

 

 
866

Dividends
 

 

 

 

 

 
(13,258
)
 

 
(13,258
)
Net income
 

 

 

 

 

 
39,777

 
88

 
39,865

Balance at March 2, 2019
 
$
703

 
$
48

 
$
(25,865
)
 
$
55,857

 
$
39

 
$
974,287

 
$
2,974

 
$
1,008,043

໿
 
 
Thirty-nine Weeks Ended March 2, 2019
 
 
Cal-Maine Foods, Inc. Stockholders
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 

 
Class A
 
Treasury
 
Paid In
 
Accum. Other
 
Retained
 
Noncontrolling
 
 
 
 
Amount

 
Amount
 
Amount
 
Capital
 
Comp. Income (Loss)
 
Earnings
 
Interest
 
Total
Balance at June 2, 2018
 
$
703

 
$
48

 
$
(24,966
)
 
$
53,323

 
$
(693
)
 
$
924,918

 
$
2,349

 
$
955,682

Other comprehensive income, net of tax
 

 

 

 

 
732

 

 

 
732

Grant of restricted stock, net of forfeitures
 

 

 
86

 
(86
)
 

 

 

 

Purchase of company stock - shares withheld to satisfy withholding obligations in connection with the vesting of restricted stock
 

 

 
(985
)
 

 

 

 

 
(985
)
Restricted stock compensation
 

 

 

 
2,620

 

 

 

 
2,620

Dividends
 

 

 

 

 

 
(24,620
)
 

 
(24,620
)
Net income
 

 

 

 

 

 
73,989

 
625

 
74,614

Balance at March 2, 2019
 
$
703

 
$
48

 
$
(25,865
)
 
$
55,857

 
$
39

 
$
974,287

 
$
2,974

 
$
1,008,043


12

Index

 
 
Thirteen Weeks Ended March 3, 2018
 
 
Cal-Maine Foods, Inc. Stockholders
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 

 
Class A
 
Treasury
 
Paid In
 
Accum. Other
 
Retained
 
Noncontrolling
 
 
 
 
Amount

 
Amount
 
Amount
 
Capital
 
Comp. Loss
 
Earnings
 
Interest
 
Total
Balance at December 2, 2017
 
$
703

 
$
48

 
$
(23,940
)
 
$
51,670

 
$
(400
)
 
$
773,917

 
$
1,956

 
$
803,954

Other comprehensive loss, net of tax
 

 

 

 

 
(392
)
 

 

 
(392
)
Grant of restricted stock, net of forfeitures
 

 

 
75

 
(75
)
 

 

 

 

Purchase of company stock - shares withheld to satisfy withholding obligations in connection with the vesting of restricted stock
 

 

 
(1,102
)
 

 

 

 

 
(1,102
)
Restricted stock compensation
 

 

 

 
841

 

 

 

 
841

Net income
 

 

 

 

 

 
96,294

 
64

 
96,358

Balance at March 3, 2018
 
$
703

 
$
48

 
$
(24,967
)
 
$
52,436

 
$
(792
)
 
$
870,211

 
$
2,020

 
$
899,659

 
 
Thirty-nine Weeks Ended March 3, 2018
 
 
Cal-Maine Foods, Inc. Stockholders
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 

 
Class A
 
Treasury
 
Paid In
 
Accum. Other
 
Retained
 
Noncontrolling
 
 
 
 
Amount

 
Amount
 
Amount
 
Capital
 
Comp. Loss
 
Earnings
 
Interest
 
Total
Balance at June 3, 2017
 
$
703

 
$
48

 
$
(23,914
)
 
$
49,932

 
$
(128
)
 
$
816,046

 
$
1,806

 
$
844,493

Other comprehensive loss, net of tax
 

 

 

 

 
(664
)
 

 

 
(664
)
Grant of restricted stock, net of forfeitures
 

 

 
75

 
(75
)
 

 

 

 

Purchase of company stock - shares withheld to satisfy withholding obligations in connection with the vesting of restricted stock
 

 

 
(1,128
)
 

 

 

 

 
(1,128
)
Contribution from noncontrolling interest partners
 

 

 

 

 

 

 
279

 
279

Restricted stock compensation
 

 

 

 
2,579

 

 

 

 
2,579

Net income (loss)
 

 

 

 

 

 
54,165

 
(65
)
 
54,100

Balance at March 3, 2018
 
$
703

 
$
48

 
$
(24,967
)
 
$
52,436

 
$
(792
)
 
$
870,211

 
$
2,020

 
$
899,659




11. Revenue Recognition

Satisfaction of Performance Obligation
The vast majority of the Company’s revenue is derived from contracts with customers based on the customer placing an order for products. Pricing for the most part is determined when the Company and the customer agree upon the specific order, which establishes the contract for that order.
Revenues are recognized in an amount that reflects the net consideration we expect to receive in exchange for the goods.  Our shell eggs are sold at prices related to Urner Barry Spot Egg Market Quotations, negotiated prices or formulas related to our costs of production. The Company’s sales predominantly contain a single performance obligation. We recognize revenue upon satisfaction of the performance obligation with the customer which typically occurs within days of the Company and the customer agreeing upon the order.
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we credit the customer’s account for product that the customer is unable to sell before expiration.  The Company records an estimate of returns and refunds by using historical return data and comparing to current period sales and accounts receivable.  The allowance is recorded as a reduction in sales with a corresponding reduction in trade accounts receivable.  

13

Index


Disaggregation of Revenue

The following table provides revenue disaggregated by product category (in thousands):

 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Non-specialty shell egg sales
 
234,960

 
287,259

 
$
659,446

 
$
662,017

Specialty shell egg sales
 
131,120

 
128,079

 
364,222

 
343,069

Co-pack specialty shell egg sales
 
7,052

 
6,956

 
20,055

 
18,875

Egg products
 
9,520

 
12,095

 
32,656

 
29,085

Other
 
1,340

 
1,431

 
4,237

 
6,791

 
 
$
383,992

 
$
435,820

 
$
1,080,616

 
$
1,059,837



Contract Costs
The Company can incur costs to obtain or fulfill a contract with a customer. The amortization period of these costs is less than one year; therefore, they are expensed as incurred.
Contract Balances
The Company receives payment from customers based on specified terms that are generally less than 30 days from delivery. There are rarely contract assets or liabilities related to performance under the contract.
Impact of Adoption
The Company adopted the revenue recognition standard (“ASU 2014-09”) on June 3, 2018 utilizing the full retrospective method. The Company’s assessment efforts included an evaluation of certain revenue contracts with customers and related sales incentives. Adoption of ASU 2014-09 did not have an impact on the Company’s results of operations or financial position; therefore, there was no adjustment to previously reported results.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business, including estimated future production data, expected construction schedules, projected construction costs, potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on our business of new legislation, rules or policies, potential outcomes of legal proceedings, and other projected operating data, including anticipated results of operations and financial condition.  Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words.  Actual outcomes or results could differ materially from those projected in the forward-looking statements.  The forward-looking statements are based on management’s current intent, belief, expectations, estimates, and projections regarding the Company and its industry.  These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control.  The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 2, 2018, as updated by our subsequent Quarterly Reports on Form 10-Q, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v)

14

Index

risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, and (vi) adverse results in pending litigation matters.  Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate.  Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof.  Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.

OVERVIEW

Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packaging, marketing, and distribution of fresh shell eggs.  Our fiscal year end is the Saturday closest to May 31.
 
Our operations are fully integrated.  At our facilities we hatch chicks, grow and maintain flocks of pullets (young female chickens, under 18 weeks of age), layers (mature female chickens) and breeders (male and female birds used to produce fertile eggs to hatch for egg production flocks), manufacture feed, and produce, process, and distribute shell eggs. We are the largest producer and marketer of shell eggs in the United States (“U.S.”).  We market the majority of our shell eggs in the southwestern, southeastern, mid-western, and mid-Atlantic regions of the U.S.  We market shell eggs through an extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product consumers.    

The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs.  The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products.  We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as non-specialty products.  While we report separate sales information for these types of eggs, there are a number of cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers.
 
Our operating results are directly tied to egg prices, which are highly volatile and subject to wide fluctuations, and are outside of our control. For example, the Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs (“UB southeastern large index”) for our fiscal years 2014-2018 ranged from a low of $0.58 in fiscal year 2016 to a high of $3.00 in fiscal year 2018.  The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices until supply and demand returned to balance.  As a result, our financial results from year to year may vary significantly.   Shorter term, retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months.  Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production in the spring and early summer.  Historically, shell egg prices have increased with the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas, and Easter.  Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.  

For the third quarter, the average UB southeastern large index price was down 19.5% compared with the prior-year period. At the same time, due to the strength of our specialty business, our net average selling price for shell eggs for the thirteen weeks ended March 2, 2019 was down 11.1% to $1.373 compared with $1.545 for the corresponding period of fiscal 2018. While demand trends have been strong in 2019, particularly for our specialty egg business, we believe supply concerns have affected market prices. Actual hen numbers from the March 2019 USDA report are 336.1 million, up 1.7% over last year. These numbers continue to trend upwards, which could negatively affect average market prices for our fourth fiscal quarter and throughout calendar 2019.

15

Index


We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. Specialty shell eggs have been a significant and growing portion of the market. In recent years, a significant number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to a cage-free egg supply chain by specified future dates. We are working with our customers to achieve smooth progress in meeting their goals. Our focus for future expansion at our farms will be environments that are cage-free or with equipment convertible to cage-free, based on a timeline to meet our customer’s needs.

Additionally, in November 2018 California passed Proposition 12, which provides for minimum space requirements per hen beginning in 2020 and mandates that all eggs or egg products sold in California must be cage-free by 2022. While our direct sales into California have not been material, we expect that Proposition 12 will affect sourcing and production of eggs in California, as well as future supply and pricing in other areas of the country. In response to these developments, on March 29, 2019, our Board of Directors approved a major expansion of the cage-free capacity at the Company’s Delta, Utah facility. This expansion includes new facilities for 2.0 million cage-free hens, pullets and a processing plant, as well as renovation of existing capacity to cage-free for another 1.4 million hens, with initial capacity expected to come on line in late 2019 and completion by early 2022. With these additions, the Delta facility will have approximately 3.4 million cage-free hens to help meet the demands of the California market. Other approved expansion projects include adding pullets and cage-free capacity for 1.0 million hens in Pittsburg, Texas, and building new cage-free pullet housing in Zephyrhills, Florida. The total approved capital expenditures for these expansion projects is $148 million. See the table under “Capital Resources and Liquidity” later in this section for further information on capital expenditure projects.

For the thirteen weeks ended March 2, 2019 and March 3, 2018, we produced approximately 82% and 81% of the total number of shell eggs we sold, respectively.  For the thirteen weeks ended March 2, 2019 and March 3, 2018, approximately 10% of such production was provided by contract producers who utilize their facilities in the production of shell eggs by layers owned by us. We own the shell eggs produced under these arrangements.

Our cost of production is materially affected by feed costs.  Feed costs averaged 57% of our total farm egg production cost for the thirteen weeks ended March 2, 2019 and March 3, 2018. Changes in market prices for corn and soybean meal, the primary ingredients in the feed we use, result in changes in our cost of goods sold.   The cost of feed ingredients, which are commodities, are subject to factors over which we have little or no control such as volatile price changes caused by weather, size of harvest, transportation, storage costs, demand, and the agricultural and energy policies of the U.S. and foreign governments. The USDA reported a record harvest for 2018’s corn and soybean crops, resulting in a large carryout, or supply, into 2019 that should provide an ample supply of feed ingredients for the rest of our fiscal 2019. However, grain prices have been volatile due to the geopolitical issues and uncertainties surrounding the latest international tariff policies.


16

Index

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales.

 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Net sales
 
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of sales
 
78.5
 %
 
72.4
 %
 
80.6
 %
 
79.3
 %
Gross profit
 
21.5
 %
 
27.6
 %
 
19.4
 %
 
20.7
 %
Selling, general, and administrative expense
 
11.7
 %
 
10.1
 %
 
12.2
 %
 
12.1
 %
Legal settlement expense
 
 %
 
 %
 
0.2
 %
 
7.7
 %
Gain on disposal of fixed assets
 
(0.2
)%
 
(0.1
)%
 
(0.1
)%
 
 %
Operating income
 
10.0
 %
 
17.6
 %
 
7.1
 %
 
0.9
 %
Other income, net
 
4.0
 %
 
2.7
 %
 
2.1
 %
 
1.1
 %
Income before income taxes and noncontrolling interest
 
14.0
 %
 
20.3
 %
 
9.2
 %
 
2.0
 %
Income tax (benefit) expense
 
3.5
 %
 
(1.9
)%
 
2.2
 %
 
(2.9
)%
Net income before noncontrolling interest
 
10.5
 %
 
22.2
 %
 
7.0
 %
 
4.9
 %
Less: Net income (loss) attributable to noncontrolling interest
 
 %
 
 %
 
0.1
 %
 
 %
Net income attributable to Cal-Maine Foods, Inc.
 
10.5
 %
 
22.2
 %
 
6.9
 %
 
4.9
 %

NET SALES

Net sales for the thirteen weeks ended March 2, 2019 were $384.0 million, a decrease of $51.8 million, or 11.9%, compared to net sales of $435.8 million for the thirteen weeks ended March 3, 2018. The decrease was primarily due to a decrease in egg selling prices as well as a small reduction in dozens sold for the current year period. The decline in net sales compared to the prior-year period was affected by the timing of the Easter holiday, which occurred three weeks earlier in fourth quarter 2018 and was preceded by a strong pre-holiday sales bump in our third quarter last year.

Shell egg sales made up approximately 97.5% of net sales for the thirteen weeks ended March 2, 2019.  Dozens sold for the thirteen weeks ended March 2, 2019 were 271.8 million, a 0.5% decrease from 273.2 million dozen for the same period of fiscal 2018. The volume decrease accounted for a $2.2 million decrease in net sales. 

Net average selling price per dozen of shell eggs was $1.373 for the thirteen weeks ended March 2, 2019, compared to $1.545 for the thirteen weeks ended March 3, 2018. The 11.1% decrease in average selling price accounted for a $47.0 million decrease in net sales.     

Egg products accounted for 2.5% of net sales for the thirteen weeks ended March 2, 2019. These revenues were $9.5 million for the thirteen weeks ended March 2, 2019, compared to $12.1 million for the thirteen weeks March 3, 2018.

Net sales for the thirty-nine weeks ended March 2, 2019 were $1,080.6 million, an increase of $20.8 million, or 2.0%, compared to net sales of $1,059.8 million for the thirty-nine weeks ended March 3, 2018. The increase was primarily due to an increase in year-to-date egg selling prices.

Shell egg sales made up approximately 97.0% of net sales for the thirty-nine weeks ended March 2, 2019.  Dozens sold for the thirty-nine weeks ended March 2, 2019 were 784.1 million, a slight decrease from 785.8 million dozen sold for the same period of fiscal 2018. The volume decrease accounted for a $2.1 million decrease in net sales. 


17

Index

Net average selling price per dozen of shell eggs was $1.331 for the thirty-nine weeks ended March 2, 2019, compared to $1.303 for the thirty-nine weeks ended March 3, 2018. The 2.1% increase in average selling price accounted for a $22.0 million increase in net sales.     

Egg products accounted for 3.0% of net sales for the thirty-nine weeks ended March 2, 2019. These revenues were $32.7 million for the thirty-nine weeks ended March 2, 2019, compared to $29.1 million for the thirty-nine weeks ended March 3, 2018.

The table below represents an analysis of our non-specialty and specialty shell egg sales (in thousands, except percentage data).  Following the table is a discussion of the information presented in the table.
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
March 2, 2019
 
March 3, 2018
Total net sales
 
$
383,992

 
 
 
$
435,820

 
 
 
$
1,080,616

 
 
 
$
1,059,837

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-specialty shell eggs
 
$
234,960

 
62.7
%
 
$
287,259

 
67.8
%
 
$
659,446

 
62.9
%
 
$
662,017

 
64.2
%
Specialty shell eggs
 
131,120

 
35.0
%
 
128,079

 
30.2
%
 
364,222

 
34.8
%
 
343,069

 
33.3
%
Co-pack specialty shell eggs
 
7,052

 
1.9
%
 
6,956

 
1.7
%
 
20,055

 
1.9
%
 
18,875

 
1.8
%
Other
 
1,340

 
0.4
%
 
1,431

 
0.3
%
 
4,237

 
0.4
%
 
6,791

 
0.7
%
Net shell egg sales
 
$
374,472

 
100.0
%
 
$
423,725

 
100.0
%
 
$
1,047,960

 
100.0
%
 
$
1,030,752

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net shell egg sales as a percent of total net sales
 
97.5
%
 
 
 
97.2
%
 
 
 
97.0
%
 
 
 
97.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dozens sold:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-specialty shell eggs
 
201,179

 
74.0
%
 
203,444

 
74.4
%
 
585,741

 
74.7
%
 
596,061

 
75.9
%
Specialty shell eggs
 
67,093

 
24.7
%
 
66,260

 
24.3
%
 
188,224

 
24.0
%
 
179,941

 
22.9
%
Co-pack specialty shell eggs
 
3,533

 
1.3
%
 
3,505

 
1.3
%
 
10,163

 
1.3
%
 
9,756

 
1.2
%
Total dozens sold
 
271,805

 
100.0
%
 
273,209

 
100.0
%
 
784,128

 
100.0
%
 
785,758

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net average selling price per dozen:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-specialty shell eggs
 
$
1.168

 
 
 
$
1.413

 
 
 
$
1.126

 
 
 
$
1.111

 
 
Specialty shell eggs
 
$
1.954

 
 
 
$
1.933

 
 
 
$
1.935

 
 
 
$
1.907

 
 
All shell eggs
 
$
1.373

 
 
 
$
1.545

 
 
 
$
1.331

 
 
 
$
1.303

 
 

Non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell egg sales.   This market is characterized generally by an inelasticity of demand. Small increases or decreases in

18

Index

production or demand can have a large positive or adverse effect on selling prices.  For the thirteen weeks ended March 2, 2019, non-specialty egg dozens sold decreased 1.1%. The average selling price decreased 17.3% to $1.168 from $1.413 for the same period of fiscal 2018. For the thirty-nine weeks ended March 2, 2019, non-specialty shell egg dozens sold decreased 1.7%. The average selling price increased 1.4% to $1.126 from $1.111 for the same period of fiscal 2018.

Specialty shell eggs, which include nutritionally enhanced, cage-free, organic, and brown eggs continue to make up a large portion of our total shell egg revenue and dozens sold.  Specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the perceived benefits from these products.  For the thirteen weeks ended March 2, 2019, specialty shell egg dozens sold increased 1.3%, and the average selling price increased 1.1% to $1.954 from $1.933 for the same period of fiscal 2018. For the thirty-nine weeks ended March 2, 2019, specialty shell egg dozens sold increased 4.6%, and the average selling price increased 1.5% to $1.935 from $1.907 for the same period of fiscal 2018.

Co-pack specialty shell eggs are sold primarily through co-pack arrangements, a common practice in the industry whereby production and processing of certain products is outsourced to another producer.  Co-pack specialty shell eggs sold during the thirty-nine weeks ended March 2, 2019 and March 3, 2018 were 10.2 million and 9.8 million dozen, respectively, which represented 1.3% and 1.2% of total dozens sold for those periods.

The shell egg sales classified as “Other” represent sales of hard cooked eggs, hatching eggs, and other miscellaneous products, which are included with our shell egg operations. 

Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form.  Our egg products are sold through our wholly-owned subsidiary American Egg Products, LLC (“AEP”) and our majority owned subsidiary Texas Egg Products, LLC (“TEP”). 

For the third quarter of fiscal 2019, egg product sales were $9.5 million, a decrease of $2.6 million, or 21.5%, compared to $12.1 million for the same period of fiscal 2018. Pounds sold for the third quarter of fiscal 2019 were 14.7 million, a decrease of 0.8 million, or 5.5%, compared to the same period of fiscal 2018. The selling price per pound for the third quarter of fiscal 2019 was $0.650 compared to $0.782 for the same period of fiscal 2018, a 16.9% decrease.

For the thirty-nine weeks ended March 2, 2019, egg product sales were $32.7 million, an increase of $3.6 million compared to $29.1 million for the same period of fiscal 2018. Pounds sold for the thirty-nine weeks ended March 2, 2019 were 45.2 million, a decrease of 0.2 million, or 0.4%, compared to the same period of fiscal 2018. The selling price per pound for the thirty-nine weeks ended March 2, 2019 was $0.725 compared to $0.644 for the same period of fiscal 2018, a 12.6% increase.

COST OF SALES

Cost of sales consists of costs directly related to production, processing and packing of shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products, and other non-egg costs.  Farm production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs.


19

Index

The following table presents the key variables affecting cost of sales (in thousands, except cost per dozen data).
໿
໿
໿
໿
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
Percent Change
 
March 2, 2019
 
March 3, 2018
 
Percent Change
Cost of Sales:
 
 
 
 
 
 
 
 
 
 
 
 
Farm production
 
$
162,595

 
$
152,224

 
6.8
 %
 
$
473,655

 
$
448,416

 
5.6
 %
Processing, packaging, and warehouse
 
57,126

 
55,525

 
2.9
 %
 
167,181

 
160,344

 
4.3
 %
Egg purchases and other (including change in inventory)
 
74,295

 
97,796

 
(24.0
)%
 
205,096

 
205,849

 
(0.4
)%
Total shell eggs
 
294,016

 
305,545

 
(3.8
)%
 
845,932

 
814,609

 
3.8
 %
Egg products
 
7,443

 
10,041

 
(25.9
)%
 
23,881

 
24,808

 
(3.7
)%
Other
 
92

 
136

 
(32.4
)%
 
698

 
590

 
18.3
 %
Total
 
$
301,551

 
$
315,722

 
(4.5
)%
 
$
870,511

 
$
840,007

 
3.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Farm production cost (per dozen produced)
 
 
 
 
 
 
 
 
 
 
 
 
Feed
 
$
0.421

 
$
0.396

 
6.3
 %
 
$
0.416

 
$
0.387

 
7.5
 %
Other
 
$
0.320

 
$
0.297

 
7.7
 %
 
$
0.316

 
$
0.300

 
5.3
 %
Total
 
$
0.741

 
$
0.693

 
6.9
 %
 
$
0.732

 
$
0.687

 
6.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Outside egg purchases (average cost per dozen)
 
$
1.30

 
$
1.59

 
(18.2
)%
 
$
1.31

 
$
1.35

 
(3.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Dozen produced
 
222,213

 
221,119

 
0.5
 %
 
654,380

 
657,578

 
(0.5
)%
Dozen sold
 
271,805

 
273,209

 
(0.5
)%
 
784,128

 
785,758

 
(0.2
)%

Cost of sales for the third quarter of fiscal 2019 was $301.6 million, a decrease of $14.2 million, or 4.5%, from $315.7 million for the third quarter of fiscal 2018. This decrease was primarily driven by a decrease in the cost of outside egg purchases. Feed cost per dozen for the third quarter of fiscal 2019 was $0.421, compared to $0.396 per dozen for the third quarter of fiscal 2018, an increase of 6.3%, due to increased ingredient costs. This resulted in an increase in cost of sales of approximately $5.5 million. The increase in ingredient costs was primarily related to less favorable crop conditions in the south central U. S., which adversely affected ingredient prices at some of our larger feed mill operations. Also, our organic and other specialty egg production continues to grow, which requires a higher priced feed formulation. Other farm production cost increased 7.7% to $0.320 per dozen for the third quarter of fiscal 2019 compared to $0.297 for the same period of last year. Processing, packaging, and warehouse cost increased 2.9% for the current year period over the same period of a year ago primarily due to increases in processing costs.

Cost of sales for the thirty-nine weeks ended March 2, 2019 was $870.5 million, an increase of $30.5 million, or 3.6%, from $840.0 million for the same period of fiscal 2018. The increase was primarily driven by increased farm production costs. Dozens produced decreased 0.5% compared to the same period of fiscal 2018 as we adjusted flock rotations early in fiscal 2019 in order to maximize production for the holiday season. Feed cost per dozen for the thirty-nine weeks ended March 2, 2019, was $0.416, compared to $0.387 per dozen for the comparable period of fiscal 2018, an increase of 7.5%, due to increased ingredient costs. This resulted in an increase in cost of sales of approximately $19.1 million compared to the prior year period. Other farm production cost per dozen produced increased 5.3% to $0.316 for the thirty-nine weeks ended March 2, 2019, compared to $0.300 for the same period of last year primarily due to increased fixed costs for year-over-year periods and reduced dozens produced. Processing, packaging, and warehouse cost increased 4.3% for the current year period over the same period of a year ago primarily due to processing more outside egg purchases and increases in processing, packaging and container costs.


20

Index

Gross profit for the third quarter of fiscal 2019 was $82.4 million compared to $120.1 million for the third quarter of fiscal 2018, primarily as a result of the decrease in the average selling price of non-specialty eggs along with the other factors dicussed above. For the thirty-nine weeks ended March 2, 2019, gross profit decreased to $210.1 million from $219.8 million for the same period of fiscal 2018 primarily due to increases in feed and other costs, partially offset by the increase in average customer selling prices. 
 
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include costs of marketing, distribution, accounting, and corporate overhead.  The following table presents an analysis of our selling, general, and administrative expenses (in thousands). 

 
 
13 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
$ Change
 
% Change
Specialty egg expense
 
$
14,218

 
$
13,848

 
$
370

 
2.7
 %
Delivery expense
 
13,442

 
13,443

 
(1
)
 
 %
Payroll and overhead
 
9,663

 
9,425

 
238

 
2.5
 %
Stock compensation expense
 
866

 
841

 
25

 
3.0
 %
Other expenses
 
6,820

 
6,618

 
202

 
3.1
 %
Total
 
$
45,009

 
$
44,175

 
$
834

 
1.9
 %

For the thirteen weeks ended March 2, 2019, selling, general, and administrative expense was $45.0 million compared to $44.2 million for the thirteen weeks ended March 3, 2018. Specialty egg expense increased $370,000, or 2.7%, compared to the same period of the prior year. Specialty egg expense typically fluctuates with specialty egg dozens sold, which increased 1.3% for the thirteen weeks ended March 2, 2019. Advertising expense, which is a component of specialty egg expense, also contributed to the increase in specialty egg expense in the current period.
 
 
39 Weeks Ended
 
 
March 2, 2019
 
March 3, 2018
 
$ Change
 
% Change
Specialty egg expense
 
$
40,973

 
$
37,422

 
$
3,551

 
9.5
 %
Delivery expense
 
40,145

 
39,680

 
465

 
1.2
 %
Payroll and overhead
 
28,845

 
27,168

 
1,677

 
6.2
 %
Stock compensation expense
 
2,620

 
2,579

 
41

 
1.6
 %
Other expenses
 
19,917

 
21,196

 
(1,279
)
 
(6.0
)%
Total
 
$
132,500

 
$
128,045

 
$
4,455

 
3.5
 %

໿
For the thirty-nine weeks ended March 2, 2019, selling, general, and administrative expense was $132.5 million, an increase of $4.5 million, or 3.5%, compared to $128.0 million for the thirty-nine weeks ended March 3, 2018. Specialty egg expense increased $3.6 million, or 9.5%, compared to the same period of last year. Specialty egg expense typically fluctuates with specialty egg dozens sold, which increased 4.6% for the thirty-nine weeks ended March 2, 2019. Advertising expense, which is a component of specialty egg expense, also contributed to the increase in specialty egg expense due to an increase in refunded promotional allowances in the prior year period. Payroll and overhead increased $1.7 million, or 6.2%, compared to the same period of fiscal 2018 primarily due to a change in the timing of accruals related to sick leave benefits. Other expenses for the thirty-nine weeks ended March 2, 2019 compared to the same period of prior year, were down $1.3 million, or 6.0%, primarily due to reduced legal and audit expense.

LEGAL SETTLEMENT EXPENSE

Legal settlement expense for the thirty-nine weeks ended March 2, 2019 was $2.3 million compared to $80.8 million for the same period of last fiscal year, primarily reflecting settlements of several direct action purchasers’ antitrust claims against the Company.


21

Index

OPERATING INCOME

As a result of the above, operating income was $38.2 million for the third quarter of fiscal 2019, compared to $76.2 million for the same period of fiscal 2018.

For the thirty-nine weeks ended March 2, 2019, we recorded an operating income of $76.2 million compared to $11.4 million for the same period of fiscal 2018.

OTHER INCOME (EXPENSE)    

Total other income (expense) consists of items not directly charged to, or related to, operations such as interest income and expense, royalty income, equity in income or loss of affiliates, and patronage income, among other items.  

For the third quarter of fiscal 2019, we earned $2.1 million of interest income compared to $1.1 million for the same period of last year. This resulted from higher interest rates earned during the period and higher average invested balances. The Company recorded interest expense of $115,000 and $104,000, of which $0 and $8,000 was capitalized, in the third quarters of fiscal 2019 and 2018, respectively.

For the thirty-nine weeks ended March 2, 2019, we earned $5.8 million of interest income compared to $2.2 million for the same period of fiscal 2018. The increase resulted from higher interest rates during the period and higher average invested balances. The Company recorded interest expense of $358,000 and $387,000, of which zero and $214,000 was capitalized, for the thirty-nine weeks ended March 2, 2019 and March 3, 2018, respectively.

Patronage dividends, which represent distributions from our membership in Eggland's Best, Inc., increased $2.2 million from $8.3 million for the thirteen and thirty-nine weeks ended March 3, 2018 to $10.5 million for the thirteen and thirty-nine weeks ended March 2, 2019.

Equity in income of affiliates for the thirty-nine weeks ended March 2, 2019 was income of $4.4 million compared to $2.3 million for the same period of fiscal 2018. The increase of $2.1 million is primarily due to improved results at our Red River Valley Egg Farm joint venture.

Other, net for the thirty-nine weeks ended March 2, 2019, was income of $372,000 compared to a loss of $1.3 million for the same period of fiscal 2018, primarily driven by uninsured losses in the prior year period.

INCOME TAXES

For the thirteen weeks ended March 2, 2019, pre-tax income was $53.5 million compared to $88.1 million for the same period of fiscal 2018. For thirteen weeks ended March 2, 2019, income tax expense of $13.6 million was recorded, with an effective tax rate of 25.5%, compared to income tax benefit of $8.3 million for the comparable period of 2018, which reflects an effective tax rate of 31.8% excluding the impact of discrete items related to a $35 million tax benefit recorded in the third quarter of 2018 in connection with the Tax Cuts and Jobs Act of 2017 (“the Act”).

For the thirty-nine weeks ended March 2, 2019, pre-tax income was $98.7 million compared to $23.4 million for the same period of fiscal 2018. For the thirty-nine weeks ended March 2, 2019 income tax expense of $24.1 million was recorded, with an effective tax rate of 24.6%, compared to an income tax benefit of $30.7 million for the comparable period of 2018, which reflects an effective tax rate of 24.0% excluding the impact of discrete items related to the $35 million tax benefit recorded during the thirty-nine weeks ended March 3, 2018 in connection with the Act.

The effective rate decrease for the thirty-nine weeks ended March 2, 2019 was primarily related to the change in the federal statutory rate from 35% to 21%, resulting from the Act, which was enacted on December 22, 2017.

At March 2, 2019, accounts payable and accrued expense included income taxes payable of $13.2 million compared to $17.1 million at June 2, 2018.

22

Index


Our effective rate differs from the federal statutory income tax rate due to state income taxes and certain items included in income for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income and net income or loss attributable to noncontrolling interest. 

NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST

For the thirteen weeks ended March 2, 2019, net income attributable to noncontrolling interest was $88,000 compared to $64,000 for the same period of fiscal 2018.

For the thirty-nine weeks ended March 2, 2019, net income attributable to noncontrolling interest was $625,000 compared to net loss attributable to noncontrolling interest of $65,000 for the same period of fiscal 2018. This is attributable to income and losses from the Company’s majority owned subsidiary.

NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.

Net income for the thirteen weeks ended March 2, 2019 was $39.8 million, or $0.82 per basic and diluted share, compared to $96.3 million, or $1.99 per basic and diluted share for the same period of last year.

Net income for the thirty-nine weeks ended March 2, 2019 was $74.0 million, or $1.53 per basic share and $1.52 per diluted share, compared to $54.2 million, or $1.12 per basic and diluted share, for the same period of fiscal 2018.

CAPITAL RESOURCES AND LIQUIDITY

Our working capital at March 2, 2019 was $517.6 million, compared to $479.7 million at June 2, 2018. The calculation of working capital is defined as current assets less current liabilities. Our current ratio was 6.19 at March 2, 2019, compared with 5.45 at June 2, 2018.

Our long-term debt at March 2, 2019, including current maturities, was $3.1 million, compared to $6.1 million at June 2, 2018. On July 10, 2018, we entered into a $100.0 million Senior Secured Revolving Credit Facility (“the Revolving Credit Facility”). As of March 2, 2019, no amounts were borrowed under the Revolving Credit Facility. We have $4.2 million in outstanding standby letters of credit, which are collateralized by cash for the benefit of certain insurance companies. Refer to Notes 8 and 16 of our June 2, 2018 audited financial statements for further information regarding our long-term debt.
  
For the thirty-nine weeks ended March 2, 2019, $94.6 million in net cash was provided by operating activities, a decrease of $51.5 million, compared to $146.1 million for the comparable period in fiscal 2018.   Decreased accounts payable and an increase in receivables in the current year contributed to our decrease in cash flow from operations.

For the thirty-nine weeks ended March 2, 2019, approximately $160.2 million was provided from the sale and maturity of short-term investment securities compared to $95.3 million for the thirty-nine weeks ended March 3, 2018. We used $122.2 million and $136.9 million for purchases of short-term investment securities for the thirty-nine weeks ended March 2, 2019 and March 3, 2018, respectively.
 
We invested $4.3 million in unconsolidated entities in the first three quarters fiscal 2019 compared to $4.1 million for the same period fiscal 2018.  Approximately $36.8 million was used to purchase property, plant and equipment compared to $13.6 million in the thirty-nine weeks ended March 3, 2018.  In the first three quarters fiscal 2019, we used $17.9 million for the acquisition of Featherland Egg Farms, Inc. We received $6.5 million in distributions from unconsolidated entities during the thirty-nine weeks ended March 2, 2019 compared to $5.8 million in the first three quarters of fiscal 2018. We used $3.0 million for principal payments on long-term debt and capital leases, including the final payment on a 5.4% note payable that matured in the first quarter, compared to $3.7 million for the same period of fiscal 2018. We paid out $28.5 million in dividends during first three quarters of fiscal 2019 compared to zero for the same period of last year.

23

Index


As of March 2, 2019, cash increased approximately $48.9 million since June 2, 2018 compared to an increase of $88.6 million during the same period of fiscal 2018.

Certain property, plant, and equipment is pledged as collateral on our note payable.  Unless otherwise approved by our lenders, we are required by provisions of our loan agreement governing the note to (1) maintain minimum levels of working capital (current ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth, plus 45% of cumulative net income since the fiscal year ended May 28, 2005); (2) limit dividends paid in any given quarter to not exceed an amount equal to one-third of the previous quarter’s consolidated net income (allowed if no events of default); (3) maintain minimum total funded debt to total capitalization (debt to total tangible capitalization ratio not to exceed 55%); and (4) maintain various cash-flow coverage ratios (1.25 to 1), among other restrictions. At March 2, 2019, we were in compliance with the financial covenant requirements of all loan agreements. Under the loan agreement, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control, as defined in the loan agreement. Our debt agreement requires Fred R. Adams, Jr., our Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing not less than 50% of the outstanding voting power of the Company.

The Revolving Credit Facility is guaranteed by all the current and future wholly-owned direct and indirect domestic subsidiaries of the Company, and is secured by a first-priority perfected security interest in substantially all of the Company’s and the guarantors’ accounts, payment intangibles, instruments (including promissory notes), chattel paper, inventory (including farm products) and deposit accounts maintained with the administrative agent. The credit agreement governing our Revolving Credit Facility contains customary covenants including restrictions on the incurrence of liens, incurrence of additional debt, sales of assets and other fundamental corporate changes and investments. The credit agreement requires maintenance of two financial covenants (i) a minimum working capital ratio of 2.0 to 1.0 and (ii) an annual limit on capital expenditures of $100.0 million. Additionally, the credit agreement requires that Fred R. Adams Jr., his spouse, natural children, sons-in-law or grandchildren, or any trust, guardianship, conservatorship or custodianship for the primary benefit of any of the foregoing, or any family limited partnership, similar limited liability company or other entity that 100% of the voting control of such entity is held by any of the foregoing, shall maintain at least 50% of the outstanding voting power of the Company. Failure to satisfy any of these covenants will constitute a default under the terms of the credit agreement. In addition, under the terms of the credit agreement, dividends are restricted to the Company’s current dividend policy of one-third of the Company’s net income computed in accordance with generally accepted accounting principles. The Company is allowed to repurchase up to $75.0 million of its capital stock in any year provided there is no default under the credit agreement and the borrower has availability of at least $20.0 million under the Revolving Credit Facility.


24

Index

In recent years we have made significant investments in new and remodeled facilities to meet the increasing demand for cage-free, organic and other specialty eggs, including our Red River joint venture. On March 29, 2019, we announced plans for a major expansion of the cage-free capacity at our Delta, Utah facility as well as expansions in Pittsburg, Texas and Zephyrhills, Florida, which we expect to finance with cash on hand, investments and operating cash flow. The following table represents material construction projects approved as of March 29, 2019 (in thousands):
Project
 
Location
 
Projected Completion
 
Projected Cost
 
Spent as of
March 2, 2019
 
Remaining Projected Cost
Convertible/Cage-Free Layer Houses
 
Pittsburg, TX
 
June 2019
 
$
11,069

 
$
8,415

 
$
2,654

Convertible/Cage-Free Layer Houses
 
Lake City, FL
 
September 2019
 
11,782

 
4,032

 
7,750

Convertible/Cage-Free Layer Houses
 
Harwood, TX
 
November 2019
 
12,505

 
1,012

 
11,493

Convertible/Cage-Free Layer Houses
 
Bushnell, FL
 
January 2020
 
11,543

 
2,599

 
8,944

Convertible/Cage-Free Layer Houses
 
Bushnell, FL
 
February 2020
 
6,151

 
5

 
6,146

Cage-Free Pullet Houses
 
Zephyrhills, FL
 
February 2020
 
6,332

 

 
6,332

Convertible/Cage-Free Layer & Pullet Houses
 
Pittsburg, TX
 
October 2020
 
25,550

 

 
25,550

Convertible/Cage-Free Layer Houses
 
Delta, UT
 
February 2021
 
17,964

 

 
17,964

Cage-Free Layer & Pullet Houses/Processing Facilty
 
Delta, UT
 
February 2022
 
98,216

 

 
98,216

 
 
 
 
 
 
$
201,112

 
$
16,063

 
$
185,049


We believe our current cash balances, investments, cash flows from operations, and Revolving Credit Facility will be sufficient to fund our current and projected capital needs for at least the next twelve months.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.

The Company adopted the new standard on June 3, 2018 utilizing the full retrospective method. The Company’s assessment efforts included an evaluation of certain revenue contracts with customers and related sales incentives. The Company’s adoption of ASU 2014-09 did not have an impact on the results of operations or financial position; therefore, there was no adjustment to previously reported results.

In February 2016, the FASB issued ASU 2016-02, Leases.  The purpose of the standard is to improve transparency and comparability related to the accounting and reporting of leasing arrangements.  The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months.  ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods.  Early adoption is permitted.  Based on the findings to date, the Company does not  expect ASU 2016-02 to have a material impact on the results of operations or financial position; however, the Company’s assessment is not complete.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment

25

Index

test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, our fiscal 2021. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017, and the prospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES    

We suggest our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the fiscal year ended June 2, 2018, be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations. Except for the adoption of ASU 2014-09, there have been no changes to critical accounting policies identified in our Annual Report on Form 10-K for the year ended June 2, 2018.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risk reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 2, 2018.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer and Chief Financial Officer, together with other financial officers, such officers concluded that our disclosure controls and procedures were effective as of March 2, 2019 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended March 2, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
Refer to the discussion of certain legal proceedings involving the Company and/or its subsidiaries in our Quarterly Reports on Form 10-Q for the period ended September 1, 2018 and December 1, 2018, under Part II, Item 1:  Legal Proceedings, and our Annual Report on Form 10-K for the year ended June 2, 2018, Part I Item 3: Legal Proceedings, and Part II Item 8, Notes to Consolidated Financial Statements, Note 12: Contingencies, which discussions are incorporated herein by reference, as well as the following: 
Egg Antitrust Litigation
On September 25, 2008, the Company was named as one of several defendants in numerous antitrust cases involving the United States shell egg industry. The cases were consolidated into In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the Eastern District of Pennsylvania (the “District Court”), in three groups of cases - the “Direct Purchaser Putative Class Action”, the “Indirect Purchaser Putative Class

26

Index

Action” and the “Non-Class Cases.” As previously reported, the Company settled all of the Direct Purchaser Putative Class Action cases and the Indirect Purchaser Putative Class Action cases.
The Company settled all Non-Class cases except for the claims of certain plaintiffs who sought substantial damages allegedly arising from the purchase of egg products (as opposed to shell eggs). On November 7, 2018, the Company agreed to settle all claims brought by one of these plaintiffs, Conopco, Inc. on a confidential basis and for an amount that does not have a material impact on the Company’s financial condition or results. The settlement is, however, reflected in our results of operations along with certain other legal settlements and expenses. The Court entered a final judgment dismissing Conopco’s claims against the Company on November 21, 2018. The remaining plaintiffs are Kraft Food Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company. These egg products plaintiffs seek treble damages and injunctive relief under the Sherman Act and are attacking certain features of the United Egg Producers animal-welfare guidelines and program used by the Company and many other egg producers. On September 6, 2016, the District Court granted defendants’ motion for summary judgment and dismissed with prejudice all claims based on the purchase of egg products. That ruling was appealed to the United States Court of Appeals for the Third Circuit, and on January 22, 2018, the Third Circuit reversed the District Court’s grant of summary judgment and remanded the case to the District Court. Even though the appealing egg-products plaintiffs had asked the Third Circuit to remand the case for trial, the Third Circuit declined, instead remanding the case for further proceedings, including the suggestion that the District Court determine whether the egg-products plaintiffs had sufficient evidence of causation and damages to submit the case to a jury. On March 5, 2018, defendants filed a motion in the District Court seeking leave to file a motion for summary judgment in light of the remand statements in the Third Circuit’s opinion. Plaintiffs opposed that motion, and on March 26, 2018, the defendants filed a reply in support of the motion. On July 16, 2018, the court granted the defendants’ motion for leave and on August 17, 2018, defendants filed their motions for summary judgment and requested oral argument. The plaintiffs filed their responses on September 21, 2018, and sur-replies on October 19, 2018, and the defendants filed their replies on October 12, 2018. On December 19, 2018, the District Court heard oral arguments on the renewed motions for summary judgment but has not issued a ruling.

The Company intends to continue to defend the remaining case as vigorously as possible based on defenses which the Company believes are meritorious and provable.  While management believes that the likelihood of a material adverse outcome in the overall egg antitrust litigation has been significantly reduced as a result of the settlements and rulings described above, there is still a reasonable possibility of a material adverse outcome in the remaining egg antitrust litigation. At the present time, however, it is not possible to estimate the amount of monetary exposure, if any, to the Company because of this remaining case.  Adjustments, if any, which might result from the resolution of these remaining legal matters, have not been reflected in the financial statements.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business. Although the outcome of these matters cannot be determined with certainty, management, upon the advice of counsel, is of the opinion that the final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
 
ITEM 1A.   RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on  Form 10-K for the fiscal year ended June 2, 2018.


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Index

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table is a summary of our third quarter 2019 share repurchases:
 
 
 
 
 
 
Total Number of
 
Maximum Number
 
 
 
 
 
 
Shares Purchased
 
of Shares that
 
 
Total Number
 
Average
 
as Part of Publicly
 
May Yet Be
 
 
of Shares
 
Price Paid
 
Announced Plans
 
Purchased Under the
Period
 
Purchased (1)
 
per Share
 
Or Programs
 
Plans or Programs
12/02/18 to 12/29/18
 

 
$

 

 

12/30/18 to 01/26/19
 
22,812

 
42.66

 

 

01/27/19 to 03/02/19
 
142

 
41.18

 

 

 
 
22,954

 
$
42.65

 

 


(1) As permitted under our 2012 Omnibus Long-term Incentive Plan, these shares were withheld by us to satisfy tax withholding obligations for employees in connection with the vesting of restricted common stock.

ITEM 6. EXHIBITS

Exhibits
No.
 
Description
3.1
 
3.2
 
31.1*
 
31.2*
 
32**
 
99.1
 
101.SCH*+
 
Inline XBRL Taxonomy Extension Schema Document
101.CAL*+
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*+
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*+
 
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*+
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
*
 
Filed herewith as an Exhibit.
**
 
Furnished herewith as an Exhibit.
+
 
Submitted electronically with this Quarterly Report.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAL-MAINE FOODS, INC.
(Registrant)

Date:
April 1, 2019
/s/ Max P. Bowman
 
 
Max P. Bowman
 
 
Vice President, Chief Financial Officer
(Principal Financial Officer)
໿
Date:
April 1, 2019
/s/ Michael D. Castleberry
 
 
Michael D. Castleberry
 
 
Vice President, Controller
(Principal Accounting Officer)
໿


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