Company Quick10K Filing
Quick10K
Cal-Maine Foods
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$42.44 49 $2,070
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 2019-01-04 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 Enter Agreement, Control, Amend Bylaw, Other Events, Exhibits
8-K 2018-06-05 Officers, Exhibits
8-K 2018-04-16 Other Events, Exhibits
SPG Simon Property Group 53,690
GPN Global Payments 22,960
HRS Harris 21,400
MTD Mettler Toledo 18,420
FTI TechnipFMC 10,240
MTLS Materialise 812
CTBI Community Trust Bancorp 746
CVEO Civeo 325
NAII Natural Alternatives International 103
FXA Invesco Currencyshares Australian Dollar Trust 0
CALM 2018-12-01
Part I. Financial Information
Item 1. Financial Statements
Note 2. Acquisition
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 exhibit3112q19.htm
EX-31.2 exhibit3122q19.htm
EX-32 exhibit322q19.htm

Cal-Maine Foods Earnings 2018-12-01

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)

þ     Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 1, 2018

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 43,827,923 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 January 2, 2019.


Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
FOR THE QUARTER ENDED DECEMBER 1, 2018
 
 
 
 
 
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)
 
 
December 1, 2018
 
June 2,
2018
ASSETS
 
 (unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
46,205

 
$
48,431

Investment securities available-for-sale
 
252,072

 
282,586

Trade and other receivables (less allowance for doubtful accounts of
 
 

 
 

$442 and $268 at December 1, 2018 and June 2, 2018, respectively)
 
110,837

 
85,839

Inventories
 
176,735

 
168,644

Prepaid expenses and other current assets
 
4,499

 
2,020

Total current assets
 
590,348

 
587,520

Property, plant and equipment, net
 
434,398

 
425,384

Investments in unconsolidated entities
 
68,966

 
66,806

Goodwill
 
35,525

 
35,525

Other intangible assets, net
 
25,174

 
26,307

Other long-lived assets
 
8,816

 
8,905

TOTAL ASSETS
 
$
1,163,227

 
$
1,150,447

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
$
86,901

 
$
87,209

Accrued dividends payable
 
7,246

 
17,093

Current maturities of long-term debt and capital lease obligations
 
3,192

 
3,536

Total current liabilities
 
97,339

 
107,838

Long-term debt and capital lease obligations, less current maturities
 
713

 
2,554

Other noncurrent liabilities
 
8,294

 
8,318

Deferred income taxes
 
76,253

 
76,055

Total liabilities
 
182,599

 
194,765

 
 
 

 
 

Commitments and Contingencies - see Note 5
 


 


 
 
 
 
 
Stockholders’ equity:
 
 

 
 

Common stock, $0.01 par value, 120,000 and 70,261 shares authorized and issued at
 
 
 
 
December 1, 2018, and June 2, 2018, respectively, and 43,828 and 43,831 shares
 
 

 
 

outstanding at December 1, 2018 and June 2, 2018, respectively
 
703

 
703

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

 
 

and outstanding at December 1, 2018 and June 2, 2018
 
48

 
48

Paid-in capital
 
55,079

 
53,323

Retained earnings
 
947,768

 
924,918

Accumulated other comprehensive loss, net of tax
 
(882
)
 
(693
)
Common stock in treasury at cost – 26,432 and 26,430 shares at December 1, 2018
 
 

 
 

and June 2, 2018
 
(24,974
)
 
(24,966
)
Total Cal-Maine Foods, Inc. stockholders’ equity
 
977,742

 
953,333

Noncontrolling interest in consolidated entities
 
2,886

 
2,349

Total stockholders’ equity
 
980,628

 
955,682

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,163,227

 
$
1,150,447

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
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
 
December 1, 2018
 
December 2, 2017
Net sales
 
$
356,040

 
$
361,172

 
$
696,623

 
$
624,017

Cost of sales
 
285,505

 
278,776

 
568,960

 
524,285

Gross profit
 
70,535

 
82,396

 
127,663

 
99,732

Selling, general, and administrative expense
 
42,981

 
42,160

 
87,491

 
83,870

Legal settlement expense
 
2,250

 
80,750

 
2,250

 
80,750

Gain on disposal of fixed assets
 
(30
)
 
(50
)
 
(89
)
 
(46
)
Operating income (loss)
 
25,334

 
(40,464
)
 
38,011

 
(64,842
)
Other income (expense):
 
 
 
 
 
 

 
 

Interest income, net
 
1,688

 
578

 
3,473

 
1,052

Royalty income
 
719

 
312

 
1,220

 
590

Equity in income (loss) of affiliates
 
909

 
276

 
2,338

 
(77
)
Other, net
 
124

 
(795
)
 
225

 
(1,333
)
Total other income
 
3,440

 
371

 
7,256

 
232

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and noncontrolling interest
 
28,774

 
(40,093
)
 
45,267

 
(64,610
)
Income tax (benefit) expense
 
6,768

 
(14,012
)
 
10,518

 
(22,352
)
Net income (loss) before noncontrolling interest
 
22,006

 
(26,081
)
 
34,749

 
(42,258
)
Less: Net income (loss) attributable to noncontrolling interest
 
199

 
55

 
537

 
(129
)
Net income (loss) attributable to Cal-Maine Foods, Inc.
 
$
21,807

 
$
(26,136
)
 
$
34,212

 
$
(42,129
)
 
 
 
 
 
 
 
 
 
Net income (loss) per common share attributable to Cal-Maine Foods, Inc.:
 
 
 
 
 
 

 
 

Basic
 
$
0.45

 
$
(0.54
)
 
$
0.71

 
$
(0.87
)
Diluted
 
$
0.45

 
$
(0.54
)
 
$
0.71

 
$
(0.87
)
Weighted average shares outstanding:
 
 
 
 
 
 

 
 

Basic
 
48,391

 
48,330

 
48,390

 
48,330

Diluted
 
48,534

 
48,330

 
48,525

 
48,330


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
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
 
December 1, 2018
 
December 2, 2017
Net income (loss), including noncontrolling interests
 
$
22,006

 
$
(26,081
)
 
$
34,749

 
$
(42,258
)
 
 
 
 
 
 
 

 
 

Other comprehensive income, before tax:
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 

 
 

Unrealized holding loss on available-for-sale securities, net of reclassification adjustments
 
(717
)
 
(508
)
 
(250
)
 
(457
)
 
 
 
 
 
 
 

 
 

Income tax benefit related to items of other comprehensive loss
 
175

 
204

 
61

 
185

 
 
 
 
 
 
 

 
 

Other comprehensive loss, net of  tax
 
(542
)
 
(304
)
 
(189
)
 
(272
)
 
 
 
 
 
 
 

 
 

Comprehensive income (loss)
 
21,464

 
(26,385
)
 
34,560

 
(42,530
)
 
 
 
 
 
 
 

 
 

Less: comprehensive income (loss) attributable to the noncontrolling interest
 
199

 
55

 
537

 
(129
)
 
 
 
 
 
 
 

 
 

Comprehensive income (loss) attributable to Cal-Maine Foods, Inc.
 
$
21,265

 
$
(26,440
)
 
$
34,023

 
$
(42,401
)

See Notes to Condensed Consolidated Financial Statements.

4

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
Operating activities:
 
 
 
 
Net income (loss) including noncontrolling interest
 
$
34,749

 
$
(42,258
)
Depreciation and amortization
 
27,229

 
26,612

Other adjustments, net
 
(34,290
)
 
80,488

Net cash provided by operations
 
27,688

 
64,842

 
 
 

 
 

Investing activities:
 
 

 
 

Purchases of investment securities
 
(78,564
)
 
(112,804
)
Sales and maturities of investment securities
 
108,274

 
61,737

Investment in unconsolidated entities
 
(4,272
)
 
(2,800
)
Proceeds from unconsolidated entities
 
4,456

 
3,385

Acquisition of business
 
(17,889
)
 

Purchases of property, plant and equipment
 
(18,972
)
 
(10,171
)
Net proceeds from disposal of property, plant and equipment
 
454

 
220

Net cash used by investing activities
 
(6,513
)
 
(60,433
)
 
 
 

 
 

Financing activities:  
 
 

 
 

Purchase of common stock by treasury
 
(6
)
 
(25
)
Contributions from noncontrolling interests
 

 
279

Principal payments on long-term debt and capital lease obligations
 
(2,185
)
 
(2,419
)
Payment of dividends
 
(21,210
)
 

Net cash used in financing activities
 
(23,401
)
 
(2,165
)
 
 
 
 
 
Net change in cash and cash equivalents
 
(2,226
)
 
2,244

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
48,431

 
17,564

Cash and cash equivalents at end of period
 
$
46,205

 
$
19,808


See Notes to Condensed Consolidated Financial Statements.


5

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 1, 2018
(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 twenty-six weeks ended December 1, 2018 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.

Note 2. Acquisition

On October 14, 2018, the Company acquired substantially all of the assets of Featherland Egg Farms, Inc. (“Featherland”) for $17.9 million in cash. The acquired assets include commercial egg production and processing 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 twenty-six weeks ended December 1, 2018 and December 2, 2017 was $1.8 million and $1.7 million, respectively. 


6

Index

Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at December 1, 2018 was $4.1 million, and will be recorded over a weighted average period of 1.7 years.  Refer to Note 10 of our June 2, 2018 audited financial statements for further information on our stock compensation plans.

At December 1, 2018, there were 237,590 restricted shares outstanding, with a weighted average grant date fair value of $45.28 per share. The Company’s restricted share activity for the twenty-six weeks ended December 1, 2018 follows:
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Outstanding, June 2, 2018
 
241,290

 
$
45.30

Granted
 

 

Vested
 
(1,650
)
 
48.48

Forfeited
 
(2,050
)
 
45.21

Outstanding, December 1, 2018
 
237,590

 
$
45.28



4.   Inventories

Inventories consisted of the following (in thousands):
 
 
December 1, 2018
 
June 2, 2018
Flocks
 
$
101,402

 
$
96,594

Eggs and egg products
 
20,319

 
17,313

Feed and supplies
 
55,014

 
54,737

 
 
$
176,735

 
$
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 December 1, 2018, consisted of approximately 8.6 million pullets and breeders and 38.6 million layers.

5.   Contingencies

Financial Instruments
The Company maintained standby letters of credit (“LOC”) totaling $4.2 million at December 1, 2018.  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 (Loss) per Common Share  

Basic net income (loss) per share was calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.  Diluted net income (loss) per share was calculated by dividing net income (loss) 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 twenty-six weeks ended December 2, 2017, 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 income (loss) per share attributable to the Company are as follows (in thousands, except per share data):

 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
 
December 1, 2018
 
December 2, 2017
Net income (loss) attributable to Cal-Maine Foods, Inc.
 
$
21,807

 
$
(26,136
)
 
$
34,212

 
$
(42,129
)
 
 
 
 
 
 
 

 
 

Basic weighted-average common shares
 
48,391

 
48,330

 
48,390

 
48,330

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Restricted shares
 
143

 

 
135

 

Dilutive potential common shares
 
48,534

 
48,330

 
48,525

 
48,330

 
 
 
 
 
 
 
 
 
Antidilutive securities excluded from computation of earnings per share
 

 
138

 

 
127

 
 
 
 
 
 
 

 
 

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

 
 

Basic
 
$
0.45

 
$
(0.54
)
 
$
0.71

 
$
(0.87
)
Diluted
 
$
0.45

 
$
(0.54
)
 
$
0.71

 
$
(0.87
)


7.   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. 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.”


8

Index

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

 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
 
December 1, 2018
 
December 2, 2017
Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend
 
$
21,807

 
$
(26,136
)
 
$
34,212

 
$
(42,129
)
 
 
 
 
 
 
 
 
 
1/3 of net income attributable to Cal-Maine Foods, Inc.
 
$
7,246

 
$

 
$
11,381

 
$

 
 
 
 
 
 
 
 
 
Common stock outstanding (shares)
 
43,828

 
43,773

 
 
 
 
Class A common stock outstanding (shares)
 
4,800

 
4,800

 
 
 
 
Total common stock outstanding (shares)
 
48,628

 
48,573

 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per common share*
 
$
0.149

 
$

 
$
0.234

 
$


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

8.   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):
 
 
December 1, 2018
 
June 2, 2018
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Note payable
 
$
2,756

 
$
2,783

 
$
4,750

 
$
4,732

Long-term leases
 
1,149

 
1,001

 
1,340

 
1,171

 
 
$
3,905

 
$
3,784

 
$
6,090

 
$
5,903




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 December 1, 2018 and June 2, 2018 (in thousands):
໿
 
 
 
 
 
 
 
 
Total
December 1, 2018
 
Level 1
 
Level 2
 
Level 3
 
Balance
Assets
 
 

 
 

 
 

 
 

US government and agency obligations
 

 
$
27,719

 

 
$
27,719

Municipal bonds
 

 
46,733

 

 
46,733

Commercial paper
 

 
9,833

 

 
9,833

Corporate bonds
 

 
162,299

 

 
162,299

Certificates of deposits
 

 
2,500

 

 
2,500

Asset backed securities
 

 
2,988

 

 
2,988

Mutual funds
 
3,083

 

 

 
3,083

Total assets measured at fair value
 
$
3,083

 
$
252,072

 

 
$
255,155

໿
 
 
 
 
 
 
 
 
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.

໿
໿

10

Index

9.   Investment Securities

The following represents the Company’s investment securities as of December 1, 2018 and June 2, 2018 (in thousands):
December 1, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
US government and agency obligations
 
$
27,899

 
$

 
$
180

 
$
27,719

Municipal bonds
 
46,803

 

 
70

 
46,733

Commercial paper
 
9,836

 

 
3

 
9,833

Corporate bonds
 
163,702

 

 
1,403

 
162,299

Certificates of deposits
 
2,507

 

 
7

 
2,500

Asset backed securities
 
2,999

 

 
11

 
2,988

Total current investment securities
 
$
253,746

 
$

 
$
1,674

 
$
252,072

 
 
 

 
 

 
 

 
 

Mutual funds
 
$
2,046

 
$
1,037

 
$

 
$
3,083

Total noncurrent investment securities
 
$
2,046

 
$
1,037

 
$

 
$
3,083

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



Proceeds from sales and maturities of investment securities were $108.3 million and $61.7 million during the twenty-six weeks ended December 1, 2018 and December 2, 2017, respectively. Gross realized gains for the twenty-six weeks ended December 1, 2018 and December 2, 2017 were approximately $1,000 and $16,000, respectively.  Gross realized losses for the twenty-six weeks ended December 1, 2018 and December 2, 2017 were approximately $26,000 and zero, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.

Unrealized holding losses, net of taxes, for the twenty-six weeks ended December 1, 2018 and December 2, 2017 were as follows (in thousands):
 
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
Current investments
 
$
(191
)
 
$
(420
)
Noncurrent investments
 
2

 
148

Total unrealized holding losses
 
$
(189
)
 
$
(272
)



11

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 at December 1, 2018, are as follows (in thousands):
 
 
Estimated Fair Value
Within one year       
 
$
127,516

1-5 years
 
124,556

Total
 
$
252,072



໿
10.   Equity

The following reflects the equity activity, including our noncontrolling interest, for the twenty-six weeks ended December 1, 2018 (in thousands, except share amounts):
໿
 
 
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 loss, net of tax
 

 

 

 

 
(189
)
 

 

 
(189
)
Purchase of company stock - shares withheld to satisfy withholding obligations in connection with the vesting of restricted stock
 

 

 
(6
)
 

 

 

 

 
(6
)
Forfeiture of restricted stock
 

 

 
(2
)
 
2

 

 

 

 

Restricted stock compensation
 

 

 

 
1,754

 

 

 

 
1,754

Dividends
 

 

 

 

 

 
(11,362
)
 

 
(11,362
)
Net income
 

 

 

 

 

 
34,212

 
537

 
34,749

Balance at December 1, 2018
 
$
703

 
$
48

 
$
(24,974
)
 
$
55,079

 
$
(882
)
 
$
947,768

 
$
2,886

 
$
980,628



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 provides for 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.  


12

Index

Disaggregation of Revenue

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

 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
December 1, 2018
 
December 2, 2017
 
December 1, 2018
 
December 2, 2017
Non-specialty shell egg sales
 
216,324

 
228,709

 
$
424,486

 
$
374,758

Specialty shell egg sales
 
120,839

 
113,293

 
233,102

 
214,990

Co-pack specialty shell egg sales
 
6,636

 
5,839

 
13,003

 
11,919

Egg products
 
11,082

 
10,855

 
23,135

 
16,990

Other
 
1,159

 
2,476

 
2,897

 
5,360

 
 
$
356,040

 
$
361,172

 
$
696,623

 
$
624,017



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) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or

13

Index

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.  

According to data from IRI, a consumer market research firm, retail demand for calendar year 2018 has been strong, supported by increased egg promotions in grocery stores. After a period of sluggish demand from institutional food customers, this sector has seen increasing egg usage in recent months. However, the laying hen flock size has increased over prior-year levels. According to the USDA, the hatch is up 10 percent year to date, although the actual hen inventory is up only 2.8 percent. Hen numbers are forecasted to continue to trend upwards for the next several months, which has resulted in supply concerns which appear to be affecting market prices. Accordingly, our net average selling price for shell eggs for the thirteen weeks ended December 1, 2018 was $1.311 compared with $1.321 for the corresponding period of fiscal 2018.

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We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. They 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, California recently passed Proposition 12, which mandates that all eggs or egg products sold in California be cage-free by 2022. While our direct sales into California are not material, we expect the referendum to affect future supply and pricing in other areas of the country.

For the thirteen weeks ended December 1, 2018 and December 2, 2017, we produced approximately 85% of the total number of shell eggs we sold.  For the thirteen weeks ended December 1, 2018 and December 2, 2017, 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.

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 December 1, 2018 and December 2, 2017. 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 this calendar year’s corn and soybean crops, which should provide an ample supply of feed ingredients for fiscal 2019. However, grain prices have been volatile due to the geopolitical issues and uncertainties surrounding the latest international tariff policies.



RESULTS OF OPERATIONS