Company Quick10K Filing
Quick10K
Cal-Maine Foods
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$39.56 49 $1,926
10-Q 2019-08-31 Quarter: 2019-08-31
10-K 2019-06-01 Annual: 2019-06-01
10-Q 2019-03-02 Quarter: 2019-03-02
10-Q 2018-12-01 Quarter: 2018-12-01
10-Q 2018-09-01 Quarter: 2018-09-01
10-K 2018-06-02 Annual: 2018-06-02
10-Q 2018-03-03 Quarter: 2018-03-03
10-Q 2017-12-02 Quarter: 2017-12-02
10-Q 2017-09-02 Quarter: 2017-09-02
10-K 2017-06-03 Annual: 2017-06-03
10-Q 2017-02-25 Quarter: 2017-02-25
10-Q 2016-11-26 Quarter: 2016-11-26
10-Q 2016-08-27 Quarter: 2016-08-27
10-K 2016-05-28 Annual: 2016-05-28
10-Q 2016-02-27 Quarter: 2016-02-27
10-Q 2015-11-28 Quarter: 2015-11-28
10-Q 2015-08-29 Quarter: 2015-08-29
10-K 2015-05-30 Annual: 2015-05-30
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-29 Quarter: 2014-11-29
10-Q 2014-08-30 Quarter: 2014-08-30
10-K 2014-05-31 Annual: 2014-05-31
10-Q 2014-03-01 Quarter: 2014-03-01
8-K 2019-10-04 Shareholder Vote
8-K 2019-09-30 Earnings, Exhibits
8-K 2019-07-22 Earnings, Exhibits
8-K 2019-04-01 Earnings, Exhibits
8-K 2019-01-04 Earnings, Exhibits
8-K 2018-10-05 Officers, Shareholder Vote, Exhibits
8-K 2018-10-01 Earnings, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-07-20 Enter Agreement, Control, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-07-10 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-05 Officers, Exhibits
8-K 2018-06-05 Enter Agreement, Control, Amend Bylaw, Other Events, Exhibits
8-K 2018-04-16 Other Events, Exhibits
PM Philip Morris 129,054
BTI British American Tobacco 85,925
BV Brightview Holdings 1,900
VGR Vector Group 1,635
FDP Fresh Del Monte Produce 1,291
UVV Universal 1,255
LMNR Limoneira 345
ALCO Alico 240
SEED Origin Agritech 18
PYX Playtex Products 0
CALM 2019-08-31
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Summary of Significant Accounting Policies
Note 2 - Inventories
Note 3 - Investment Securities
Note 4 - Fair Value Measurements
Note 5 - Leases
Note 6 - Accrued Dividends Payable and Dividends per Common Share
Note 7 - Equity
Note 8 - Revenue Recognition
Note 9 - Stock Based Compensation
Note 10 - Net Income (Loss) per Common Share
Note 11 - Commitment and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 exhibit3111q20.htm
EX-31.2 exhibit3121q20.htm
EX-32 exhibit321q20.htm

Cal-Maine Foods Earnings 2019-08-31

CALM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Index    

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q
(mark one)

    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended August 31, 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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
CALM
 
The NASDAQ Global Select Market


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     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       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.


Index    

    
Large Accelerated filer
 
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 
There were 43,893,117 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 September 30, 2019.


Index    

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED AUGUST 31, 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, except for par value amounts)
 
 
August 31, 2019
 
June 1, 2019
ASSETS
 
 (unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
46,386

 
69,247

Investment securities available-for-sale
 
189,700

 
250,181

Trade and other receivables (less allowance for doubtful accounts of
 
 

 
 

$422 and $206 at August 31, 2019 and June 1, 2019, respectively)
 
78,359

 
71,760

Inventories
 
182,396

 
172,237

Prepaid expenses and other current assets
 
6,099

 
4,328

Total current assets
 
502,940

 
567,753

Property, plant and equipment, net
 
462,148

 
455,347

Finance lease right-of-use asset, net
 
793

 
947

Operating lease right-of-use asset, net
 
2,047

 

Investments in unconsolidated entities
 
66,250

 
67,554

Goodwill
 
35,525

 
35,525

Other intangible assets, net
 
23,058

 
23,762

Other long-lived assets
 
4,111

 
5,390

TOTAL ASSETS
 
1,096,872

 
1,156,278

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
73,913

 
73,211

Current maturities of long-term debt
 
750

 
1,500

Current portion of finance lease obligation
 
198

 
196

Current portion of operating lease obligation
 
628

 

Total current liabilities
 
75,489

 
74,907

Long-term finance lease obligation
 
807

 
858

Long-term operating lease obligation
 
1,420

 

Other noncurrent liabilities
 
7,705

 
8,110

Deferred income taxes
 
67,684

 
82,597

Total liabilities
 
153,105

 
166,472

Commitment and contingencies - see Note 11
 


 


Stockholders’ equity:
 
 

 
 

Common stock, $0.01 par value, 120,000 authorized and 70,261 shares issued at
 
 
 
 
August 31, 2019, and June 1, 2019, respectively, and 43,893 and 43,895 shares
 
 

 
 

outstanding at August 31, 2019 and June 1, 2019, respectively
 
703

 
703

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

 
 

and outstanding at August 31, 2019 and June 1, 2019
 
48

 
48

Paid-in capital
 
57,748

 
56,857

Retained earnings
 
908,767

 
954,527

Accumulated other comprehensive income (loss), net of tax
 
(87
)
 
355

Common stock in treasury at cost – 26,367 and 26,366 shares at August 31, 2019
 
 

 
 

and June 1, 2019
 
(25,878
)
 
(25,866
)
Total Cal-Maine Foods, Inc. stockholders’ equity
 
941,301

 
986,624

Noncontrolling interest in consolidated entities
 
2,466

 
3,182

Total stockholders’ equity
 
943,767

 
989,806

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
1,096,872

 
1,156,278


See Notes to Condensed Consolidated Financial Statements.


2

Index    

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Net sales
 
$
241,166

 
$
340,583

Cost of sales
 
262,291

 
283,455

Gross profit (loss)
 
(21,125
)
 
57,128

Selling, general and administrative expense
 
42,475

 
44,510

Gain on disposal of fixed assets
 
(130
)
 
(59
)
Operating income (loss)
 
(63,470
)
 
12,677

Other income (expense):
 
 

 
 

Interest income, net
 
1,685

 
1,785

Royalty income
 
411

 
501

Equity in income (loss) of affiliates
 
(454
)
 
1,429

Other, net
 
1,336

 
101

Total other income
 
2,978

 
3,816

 
 
 
 
 
Income (loss) before income taxes and noncontrolling interest
 
(60,492
)
 
16,493

Income tax (benefit) expense
 
(14,771
)
 
3,750

Net income (loss) before noncontrolling interest
 
(45,721
)
 
12,743

Less: Net income attributable to noncontrolling interest
 
39

 
338

Net income (loss) attributable to Cal-Maine Foods, Inc.
 
$
(45,760
)
 
$
12,405

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

 
 

Basic
 
$
(0.94
)
 
$
0.26

Diluted
 
$
(0.94
)
 
$
0.26

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,446

 
48,390

Diluted
 
48,446

 
48,516


See Notes to Condensed Consolidated Financial Statements.

3

Index    

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Net income (loss), including noncontrolling interests
 
$
(45,721
)
 
$
12,743

 
 
 

 
 

Other comprehensive income (loss), before tax:
 
 

 
 

 
 
 

 
 

Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments
 
(584
)
 
467

 
 
 

 
 

Income tax benefit (expense) related to items of other comprehensive loss
 
142

 
(114
)
 
 
 

 
 

Other comprehensive income (loss), net of  tax
 
(442
)
 
353

 
 
 

 
 

Comprehensive income (loss)
 
(46,163
)
 
13,096

 
 
 

 
 

Less: comprehensive income attributable to the noncontrolling interest
 
39

 
338

 
 
 

 
 

Comprehensive income (loss) attributable to Cal-Maine Foods, Inc.
 
$
(46,202
)
 
$
12,758


See Notes to Condensed Consolidated Financial Statements.

4

Index    

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Operating activities:
 
 
 
 
Net income (loss) including noncontrolling interest
 
$
(45,721
)
 
$
12,743

Depreciation and amortization
 
13,620

 
13,547

Impairment loss on property, plant & equipment
 
2,919

 

Other adjustments, net
 
(31,496
)
 
(5,108
)
Net cash provided by (used in) operations
 
(60,678
)
 
21,182

 
 
 

 
 

Investing activities:
 
 

 
 

Purchases of investment securities
 
(9,108
)
 
(42,793
)
Sales and maturities of investment securities
 
69,919

 
52,980

Investment in unconsolidated entities
 

 
(4,272
)
Distributions from unconsolidated entities
 
858

 
1,000

Purchases of property, plant and equipment
 
(23,670
)
 
(9,199
)
Net proceeds from disposal of property, plant and equipment
 
1,383

 
93

Net cash provided by (used in) investing activities
 
39,382

 
(2,191
)
 
 
 

 
 

Financing activities:  
 
 

 
 

Purchase of common stock by treasury
 
(11
)
 

Distributions to noncontrolling interests
 
(756
)
 

Principal payments on long-term debt
 
(750
)
 
(1,259
)
Principal payments on finance lease
 
(48
)
 
(64
)
Payment of dividends
 

 
(17,075
)
Net cash used in financing activities
 
(1,565
)
 
(18,398
)
 
 
 
 
 
Net change in cash and cash equivalents
 
(22,861
)
 
593

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
69,247

 
48,431

Cash and cash equivalents at end of period
 
$
46,386

 
$
49,024

 
 
 
 
 
Supplemental Information:
 
 
 
 
Cash paid for operating leases
 
$197
 


See Notes to Condensed Consolidated Financial Statements.


5

Index    

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 31, 2019
(unaudited)
Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of Cal-Maine Foods, Inc. and its subsidiaries (the "Company," "we," "us," "our") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles (GAAP) in the United States of America for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 1, 2019. These statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented and, in the opinion of management, consist of adjustments of a normal recurring nature.
Operating results for the interim periods are not necessarily indicative of operating results for the entire fiscal year.

Fiscal Year

The Company's fiscal year-end is on the Saturday nearest May 31. Each of the three-month periods ended on August 31, 2019 and September 1, 2018 included 13 weeks.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Leases

The Company determines if an arrangement is a lease at inception of the arrangement and classifies it as an operating lease or finance lease. We recognize the right to use an underlying asset for the lease term as a right-of-use (“ROU”) asset on our balance sheet. A lease liability is recorded to represent our obligation to make lease payments over the term of the lease. These assets and liabilities are included in our Condensed Consolidated Balance Sheet in Finance lease right-of-use asset, Operating lease right-of-use asset, Current portion of finance lease obligation, current portion of operating lease obligation, Long-term finance lease obligation, and Long-term operating lease obligation.
The Company records ROU assets and lease obligations based on the discounted future minimum lease payments over the term of the lease. When the rate implicit in the lease is not easily determinable, the Company’s incremental borrowing rate is used to calculate the present value of the future lease payments. The Company elected not to recognize ROU assets and lease obligations for leases with an initial term of 12 months or less. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Nature of Leases
The company leases certain office spaces, trucks, processing machines, and equipment to support our operations under cancelable and non-cancelable contracts.
Corporate and Field Offices
We lease office space for administrative employees at some of our farms. These contracts are typically structured with initial non-cancelable terms of five to ten years. To the extent our corporate and field office contracts include renewal options, we evaluate whether we are reasonably certain to exercise those options on a contract by contract basis based on expected future office space needs.

6

Index    

Trucks
We assumed several non-cancelable operating leases for trucks from a prior acquisition. The initial terms on these leases ranged from five to seven years. We do not intend to exercise renewal options beyond the initial term.
Processing machines and other equipment
We lease a processing machine through a finance lease arrangement assumed in an acquisition. The lease contains a purchase option at the end of the term that we intend to exercise. The company leases various pieces of equipment such as forklifts, pallet jacks, and other items in support of operations. These leases are cancelable and non-cancelable with terms ranging from one month to five years.
Recently Adopted Accounting Standards
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 new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The effective date for the new standard, for the Company, was June 2, 2019 and the Company adopted the new standard on that date. The Company elected a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either its effective date or the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We used June 2, 2019 as the date of initial application. If an entity chooses the second option, the transition requirements for existing leases apply to leases entered into between the date of initial application and the effective date. The entity must recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. Because the Company chose the first option, the Company has not recast its comparative period financial statements.  In connection with adopting the new standard, the Company reclassified its presentation of finance lease obligations and property in the financial statements for all periods presented.
The new standard provides a number of optional practical expedients in transition. The Company elected practical expedients which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
The new standard provides practical expedients for an entity’s initial and ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. For the leases that qualify, we do not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.
Implementation of the new standard did not have a material effect on our financial statements. See Note 5 for additional information.
Reclassification
Certain reclassifications have been made to the fiscal 2019 financial statements to conform to the fiscal 2020 financial statement presentation. These reclassifications had no effect on income





7

Index    

Note 2 - Inventories

Inventories consisted of the following (in thousands):
 
 
August 31, 2019
 
June 1, 2019
Flocks
 
$
109,323

 
$
105,536

Eggs and egg products
 
16,873

 
14,318

Feed and supplies
 
56,200

 
52,383

 
 
$
182,396

 
$
172,237



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 August 31, 2019 consisted of approximately 9.6 million pullets and breeders and 36.5 million layers.

Note 3 - Investment Securities

The following represents the Company’s investment securities as of August 31, 2019 and June 1, 2019 (in thousands):
August 31, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
US government and agency obligations
 
$
30,943

 
$
173

 
$

 
$
31,116

Municipal bonds
 
34,632

 
200

 

 
34,832

Commercial paper
 
2,990

 
1

 

 
2,991

Corporate bonds
 
116,061

 
359

 

 
116,420

Certificates of deposits
 
1,004

 

 

 
1,004

Asset backed securities
 
3,323

 
14

 

 
3,337

Total current investment securities
 
$
188,953

 
$
747

 
$

 
$
189,700

 
 
 

 
 

 
 

 
 

Mutual funds
 
$
1,899

 
$
713

 
$

 
$
2,612

Total noncurrent investment securities
 
$
1,899

 
$
713

 
$

 
$
2,612

June 1, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
US government and agency obligations
 
$
30,896

 
$
78

 
$

 
$
30,974

Municipal bonds
 
50,220

 
133

 

 
50,353

Certificates of deposits
 
6,149

 

 
1

 
6,148

Commercial paper
 
9,953

 

 
8

 
9,945

Corporate bonds
 
147,068

 
94

 

 
147,162

Asset backed securities
 
5,589

 
10

 

 
5,599

Total current investment securities
 
$
249,875

 
$
315

 
$
9

 
$
250,181

 
 
 

 
 

 
 

 
 

Mutual funds
 
$
2,331

 
$
1,026

 
$

 
$
3,357

Total noncurrent investment securities
 
$
2,331

 
$
1,026

 
$

 
$
3,357



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 $69.9 million and $53.0 million during the thirteen weeks ended August 31, 2019 and September 1, 2018, respectively. Gross realized gains for the thirteen weeks ended August 31, 2019 and September 1, 2018 were $558,000 and $1,000, respectively.  Gross realized losses for the thirteen weeks ended August 31, 2019 and September 1, 2018 were $0 and $8,000, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.


8

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 August 31, 2019, are as follows (in thousands):
 
 
Estimated Fair Value
Within one year       
 
$
127,143

1-5 years
 
62,557

Total
 
$
189,700



໿
Note 4 - 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):
 
 
August 31, 2019
 
June 1, 2019
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Note payable
 
$
750

 
$
751

 
$
1,500

 
$
1,501

Finance lease obligations
 
1,005

 
910

 
1,054

 
940

 
 
$
1,755

 
$
1,661

 
$
2,554

 
$
2,441




9

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 August 31, 2019 and June 1, 2019 (in thousands):
໿
 
 
 
 
 
 
 
 
Total
August 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Balance
Assets
 
 

 
 

 
 

 
 

US government and agency obligations
 

 
$
31,116

 

 
$
31,116

Municipal bonds
 

 
34,832

 

 
34,832

Commercial paper
 

 
2,991

 

 
2,991

Corporate bonds
 

 
116,420

 

 
116,420

Certificates of deposits
 

 
1,004

 

 
1,004

Asset backed securities
 

 
3,337

 

 
3,337

Mutual funds
 
2,612

 

 

 
2,612

Total assets measured at fair value
 
$
2,612

 
$
189,700

 

 
$
192,312

໿
 
 
 
 
 
 
 
 
Total
June 1, 2019
 
Level 1
 
Level 2
 
Level 3
 
Balance
Assets
 
 

 
 

 
 

 
 

US government and agency obligations
 
$

 
$
30,974

 
$

 
$
30,974

Municipal bonds
 

 
50,353

 

 
50,353

Certificates of deposits
 

 
6,148

 

 
6,148

Commercial paper
 

 
9,945

 

 
9,945

Corporate bonds
 

 
147,162

 

 
147,162

Asset backed securities
 

 
5,599

 

 
5,599

Mutual funds
 
3,357

 

 

 
3,357

Total assets measured at fair value
 
$
3,357

 
$
250,181

 
$

 
$
253,538



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.

໿
໿
Note 5 - Leases

Expenses related to operating leases, amortization of finance lease ROU assets and finance lease interest are included in Cost of sales, Selling general and administrative expense, and interest income, net in the Condensed Consolidated Statements of Operations. The Company’s lease cost consists of the following (in thousands):
 
Thirteen weeks ended August 31, 2019
Operating Lease cost
$197
Finance Lease cost
 
Amortization of right-of-use asset
$38
Interest on lease obligations
$12
Short term lease cost
$434



10

Index    

Future minimum lease payments under non-cancelable leases are as follows (in thousands):
 
 
As of August 31, 2019
 
 
Operating Leases
 
Finance Leases
Remainder fiscal 2020
 
$563
 
$180
2021
 
685

 
239

2022
 
554

 
239

2023
 
403

 
239

2024
 
44

 
218

Thereafter
 
31

 

Total
 
2,280

 
1,115

Less imputed interest
 
(232
)
 
(110
)
Total
 
$2,048
 
$1,005


The weighted-average remaining lease term and discount rate for lease liabilities included in our Condensed Consolidated Balance Sheet are as follows:
 
 
As of August 31, 2019
 
 
Operating Leases
 
Finance Leases
Weighted-average remaining lease term (years)
 
3.5

 
5.0

Weighted-average discount rate
 
5.9
%
 
4.9
%



Note 6 - 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 GAAP 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. Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. At the end of the first quarter of fiscal 2020 on August 31, 2019, the amount of cumulative losses to be recovered before payment of a dividend was $65.6 million.


11

Index    

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

 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend
 
$
(45,760
)
 
$
12,405

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

 
$
4,135

 
 
 
 
 
Common stock outstanding (shares)
 
43,893

 
43,831

Class A common stock outstanding (shares)
 
4,800

 
4,800

Total common stock outstanding (shares)
 
48,693

 
48,631

 
 
 
 
 
Dividends per common share*
 
$

 
$
0.085

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




12

Index    

Note 7 - Equity

The following reflects the equity activity, including our noncontrolling interest, for the thirteen weeks ended August 31, 2019 and September 1, 2018 (in thousands):

 
 
Thirteen Weeks Ended August 31, 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 1, 2019
 
$
703

 
$
48

 
$
(25,866
)
 
$
56,857

 
$
355

 
$
954,527

 
$
3,182

 
$
989,806

Other comprehensive loss, net of tax
 

 

 

 

 
(442
)
 

 

 
(442
)
Grant of restricted stock, net of forfeitures
 

 

 
(1
)
 
1

 

 

 

 

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

 

 
(11
)
 

 

 

 

 
(11
)
Distributions to noncontrolling interest partners
 

 

 

 

 

 

 
(755
)
 
(755
)
Restricted stock compensation
 

 

 

 
890

 

 

 

 
890

Net income (loss)
 

 

 

 

 

 
(45,760
)
 
39

 
(45,721
)
Balance at August 31, 2019
 
$
703

 
$
48

 
$
(25,878
)
 
$
57,748

 
$
(87
)
 
$
908,767

 
$
2,466

 
$
943,767

໿
 
 
Thirteen Weeks Ended September 1, 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 2, 2018
 
$
703

 
$
48

 
$
(24,966
)
 
$
53,323

 
$
(693
)
 
$
924,918

 
$
2,349

 
$
955,682

Other comprehensive income, net of tax
 

 

 

 

 
353

 

 

 
353

Restricted stock compensation
 

 

 

 
903

 

 

 

 
903

Dividends
 

 

 

 

 

 
(4,117
)
 

 
(4,117
)
Net income
 

 

 

 

 

 
12,405

 
338

 
12,743

September 31, 2018
 
$
703

 
$
48

 
$
(24,966
)
 
$
54,226

 
$
(340
)
 
$
933,206

 
$
2,687

 
$
965,564




Note 8 - 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.

13

Index    

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.  

Disaggregation of Revenue

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

 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Non-specialty shell egg sales
 
$
121,609

 
$
208,162

Specialty shell egg sales
 
105,069

 
112,263

Co-pack specialty shell egg sales
 
6,139

 
6,366

Egg products
 
7,201

 
12,054

Other
 
1,148

 
1,738

 
 
$
241,166

 
$
340,583



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.


Note 9 - Stock Based Compensation

Total stock based compensation expense for the thirteen weeks ended August 31, 2019 and September 1, 2018 was $890,000 and $903,000, respectively.

Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at August 31, 2019 was $5.1 million, and will be recorded over a weighted average period of 1.9 years.  Refer to Note 10 of our June 1, 2019 audited financial statements for further information on our stock compensation plans.

At August 31, 2019, there were 246,561 restricted shares outstanding, with a weighted average grant date fair value of $43.20 per share. The Company’s restricted share activity for the thirteen weeks ended August 31, 2019 follows:

14

Index    

 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Outstanding, June 1, 2019
 
248,412

 
$
43.20

Granted
 

 

Vested
 
(1,000
)
 
43.30

Forfeited
 
(851
)
 
43.12

Outstanding, August 31, 2019
 
246,561

 
$
43.20



Note 10 - Net Income (Loss) per Common Share  

Basic net loss per share was calculated by dividing net loss by the weighted-average number of common shares outstanding during the period.  Diluted net loss per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus the dilutive effects of options and restricted stock.  Due to the net loss in the thirteen weeks ended August 31, 2019, restricted shares were excluded from the calculation of diluted net loss per share because their inclusion would have been antidilutive. The computations of basic and diluted net loss per share attributable to the Company are as follows (in thousands, except per share data):

 
 
13 Weeks Ended
 
 
August 31, 2019
 
September 1, 2018
Net income (loss) attributable to Cal-Maine Foods, Inc.
 
$
(45,760
)
 
$
12,405

 
 
 

 
 

Basic weighted-average common shares
 
48,446

 
48,390

Effect of dilutive securities:
 
 
 
 
Restricted shares
 

 
126

Dilutive potential common shares
 
48,446

 
48,516

 
 
 
 
 
Antidilutive securities excluded from computation of earnings per share
 
110

 

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

 
 

Basic
 
$
(0.94
)
 
$
0.26

Diluted
 
$
(0.94
)
 
$
0.26



Note 11 - Commitment and Contingencies

Financial Instruments

The Company maintained standby letters of credit (“LOC”) totaling $4.2 million at August 31, 2019 that were issued under our Revolving Credit Facility.  The outstanding LOCs are for the benefit of certain insurance companies, and are not recorded as a liability on the consolidated balance sheets.

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 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, and 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). As previously reported, the Company settled all

15

Index    

claims brought by one of these plaintiffs, Conopco, Inc. 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 (“Egg Products Plaintiffs”). The Egg Products Plaintiffs seek treble damages and injunctive relief under the Sherman Act and are attacking certain features of the UEP animal-welfare guidelines and program used by the Company and many other egg producers. On July 2, 2019 the Egg Products Plaintiffs filed a motion to remand, and on September 13, 2019 the case was remanded to the United States District Court for the Northern District of Illinois, Kraft Foods Global, Inc. et al v. United Egg Producers, Inc. et al, No. 1:11-cv-08808 (DP), where it was initially filed, for trial. The Illinois court has not issued a case management order or any other directive.
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.



16

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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 1, 2019, as updated by our subsequent Quarterly Reports on Form 10-Q, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, and (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.
 

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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 2016-2019 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 first quarter, the average UB southeastern large index price was down 40.7% compared with the prior-year period. At the same time our net average selling price for all shell eggs for the thirteen weeks ended August 31, 2019 was down 30.0% to $0.92 compared with $1.31 for the corresponding period of fiscal 2019. While demand trends have been strong in the first quarter of 2020, particularly for our specialty egg business, we believe supply concerns have affected market prices. The most recent USDA Chickens and Eggs Report showed 331.4 million laying hens as of September 1, 2019, which was approximately 800,000 more hens than a year ago. These numbers continue to trend upwards, which could negatively affect average market prices for our second fiscal quarter and throughout fiscal 2020.

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 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 for cage-free hens. Final completion of these additions and renovations is expected by early 2022 and will add approximately 3.4 million cage-free hens.

Other approved expansion projects to meet the increasing demands for cage-free eggs include adding cage-free layers in Pittsburg, TX; Harwood, TX; Bushnell, FL; Lake City, FL; and Zephyrhills, FL. We are also adding cage-free pullet capacity in Pittsburg, TX and Zephyrhills, FL. The total projected investment in current projects including Delta to expand cage-fee egg capacity is $187.5 million of which remaining projected spending is $131.8 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 August 31, 2019 and September 1, 2018, we produced approximately 84% of the total number of shell eggs we sold.  For the thirteen weeks ended August 31, 2019 and September 1, 2018, approximately 9% 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.


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Our cost of production is materially affected by feed costs.  Feed costs averaged 54.9% and 56.5% of our total farm egg production cost for the thirteen weeks ended August 31, 2019 and September 1, 2018, respectively. Changes in market prices for corn and soybean me