ITEM 1. FINANCIAL STATEMENTS
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE
SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 27, 2016
|
|
May 30, 2015
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,139
|
|
$
|
8,667
|
Investment securities available-for-sale
|
|
|
378,910
|
|
|
249,961
|
Trade and other receivables (less allowance for doubtful accounts of
|
|
|
|
|
|
|
$450
and
$513
at February 27, 2016 and May 30, 2015, respectively)
|
|
|
110,765
|
|
|
101,977
|
Inventories
|
|
|
154,165
|
|
|
146,260
|
Prepaid expenses and other current assets
|
|
|
2,289
|
|
|
2,099
|
Total current assets
|
|
|
654,268
|
|
|
508,964
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
382,271
|
|
|
358,790
|
Goodwill
|
|
|
29,196
|
|
|
29,196
|
Other investments
|
|
|
47,971
|
|
|
18,843
|
Other intangible assets
|
|
|
5,495
|
|
|
7,560
|
Other assets
|
|
|
5,031
|
|
|
5,300
|
TOTAL ASSETS
|
|
$
|
1,124,232
|
|
$
|
928,653
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
70,338
|
|
$
|
70,821
|
Accrued dividends payable
|
|
|
21,388
|
|
|
15,372
|
Current maturities of long-term debt
|
|
|
6,159
|
|
|
10,065
|
Income taxes payable
|
|
|
7,946
|
|
|
5,288
|
Deferred income taxes
|
|
|
21,796
|
|
|
30,391
|
Total current liabilities
|
|
|
127,627
|
|
|
131,937
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
21,081
|
|
|
40,795
|
Other noncurrent liabilities
|
|
|
6,301
|
|
|
5,745
|
Deferred income taxes
|
|
|
53,207
|
|
|
45,614
|
Total liabilities
|
|
|
208,216
|
|
|
224,091
|
|
|
|
|
|
|
|
Commitments and Contingencies - see Note 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
Common stock,
$0.01
par value,
120,000
shares authorized,
70,261
shares issued,
|
|
|
|
|
|
|
and
43,738
and
43,698
shares outstanding, at February 27, 2016 and May 30, 2015, respectively
|
|
|
703
|
|
|
703
|
Class A common stock,
$0.01
par value,
4,800
shares authorized,
|
|
|
|
|
|
|
issued
and
outstanding
at February 27, 2016 and May 30, 2015
|
|
|
48
|
|
|
48
|
Paid-in capital
|
|
|
45,473
|
|
|
43,304
|
Retained earnings
|
|
|
890,838
|
|
|
679,969
|
Accumulated other comprehensive income (loss), net of tax
|
|
|
(812)
|
|
|
22
|
Common stock in treasury at cost –
26,523
and
26,563
shares at February 27, 2016
|
|
|
|
|
|
|
and May 30, 2015, respectively
|
|
|
(22,254)
|
|
|
(20,482)
|
Total Cal-Maine Foods, Inc. stockholders’ equity
|
|
|
913,996
|
|
|
703,564
|
Noncontrolling interests in consolidated entities
|
|
|
2,020
|
|
|
998
|
Total stockholders’ equity
|
|
|
916,016
|
|
|
704,562
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,124,232
|
|
$
|
928,653
|
See Notes to Condensed Consolidated Financial Statements.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS
OF INCOME
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
February 27, 2016
|
|
February 28, 2015
|
|
February 27, 2016
|
|
February 28, 2015
|
Net sales
|
|
$
|
449,760
|
|
$
|
437,556
|
|
$
|
1,605,630
|
|
$
|
1,173,117
|
Cost of sales
|
|
|
317,034
|
|
|
325,039
|
|
|
998,236
|
|
|
886,790
|
Gross profit
|
|
|
132,726
|
|
|
112,517
|
|
|
607,394
|
|
|
286,327
|
Selling, general, and administrative expense
|
|
|
46,955
|
|
|
40,492
|
|
|
135,356
|
|
|
117,542
|
Operating income
|
|
|
85,771
|
|
|
72,025
|
|
|
472,038
|
|
|
168,785
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
1,377
|
|
|
(351)
|
|
|
2,020
|
|
|
(1,362)
|
Royalty income
|
|
|
362
|
|
|
331
|
|
|
1,266
|
|
|
2,355
|
Patronage dividends
|
|
|
6,879
|
|
|
4,336
|
|
|
6,879
|
|
|
4,581
|
Equity in income of affiliates
|
|
|
1,542
|
|
|
817
|
|
|
3,574
|
|
|
1,462
|
Other, net
|
|
|
1,584
|
|
|
(84)
|
|
|
404
|
|
|
549
|
|
|
|
11,744
|
|
|
5,049
|
|
|
14,143
|
|
|
7,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest
|
|
|
97,515
|
|
|
77,074
|
|
|
486,181
|
|
|
176,370
|
Income tax expense
|
|
|
33,173
|
|
|
26,115
|
|
|
167,839
|
|
|
60,365
|
Net income before noncontrolling interest
|
|
|
64,342
|
|
|
50,959
|
|
|
318,342
|
|
|
116,005
|
Less: Net income attributable to noncontrolling interest
|
|
|
178
|
|
|
77
|
|
|
1,925
|
|
|
865
|
Net income attributable to Cal-Maine Foods, Inc.
|
|
$
|
64,164
|
|
$
|
50,882
|
|
$
|
316,417
|
|
$
|
115,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to Cal-Maine Foods, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.33
|
|
$
|
1.06
|
|
$
|
6.57
|
|
$
|
2.39
|
Diluted
|
|
$
|
1.33
|
|
$
|
1.05
|
|
$
|
6.54
|
|
$
|
2.38
|
Dividends per common share
|
|
$
|
0.441
|
|
$
|
0.350
|
|
$
|
2.175
|
|
$
|
0.793
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,204
|
|
|
48,137
|
|
|
48,177
|
|
|
48,134
|
Diluted
|
|
|
48,367
|
|
|
48,447
|
|
|
48,359
|
|
|
48,416
|
See Notes to Condensed Consolidated Financial Statements.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE
INCOME
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
February 27, 2016
|
|
February 28, 2015
|
|
February 27, 2016
|
|
February 28, 2015
|
Net income, including noncontrolling interests
|
|
$
|
64,342
|
|
$
|
50,959
|
|
$
|
318,342
|
|
$
|
116,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding loss on available-for-sale securities, net of reclassification adjustments
|
|
|
(897)
|
|
|
(42)
|
|
|
(1,355)
|
|
|
(115)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit related to items of other comprehensive income
|
|
|
341
|
|
|
17
|
|
|
521
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
|
|
(556)
|
|
|
(25)
|
|
|
(834)
|
|
|
(70)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
63,786
|
|
|
50,934
|
|
|
317,508
|
|
|
115,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: comprehensive income attributable to the noncontrolling interest
|
|
|
178
|
|
|
77
|
|
|
1,925
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Cal-Maine Foods, Inc.
|
|
$
|
63,608
|
|
$
|
50,857
|
|
$
|
315,583
|
|
$
|
115,070
|
See Notes to Condensed Consolidated Financial Statements
.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS
OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
February 27, 2016
|
|
February 28, 2015
|
Operating activities:
|
|
|
|
|
|
|
Net income including noncontrolling interest
|
|
$
|
318,342
|
|
$
|
116,005
|
Depreciation and amortization
|
|
|
33,185
|
|
|
30,201
|
Other adjustments, net
|
|
|
(18,807)
|
|
|
(9,852)
|
Net cash provided by operations
|
|
|
332,720
|
|
|
136,354
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(352,315)
|
|
|
(139,956)
|
Sales of investments
|
|
|
221,879
|
|
|
109,489
|
Investment in joint ventures
|
|
|
(29,209)
|
|
|
(8,160)
|
Purchases of property, plant and equipment
|
|
|
(55,119)
|
|
|
(62,109)
|
Payments received on notes receivable and from affiliates
|
|
|
4,677
|
|
|
1,409
|
Net proceeds from disposal of property, plant and equipment
|
|
|
2,724
|
|
|
2,031
|
Net cash used in investing activities
|
|
|
(207,363)
|
|
|
(97,296)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Proceeds from issuance of common stock from treasury, net (including tax benefit on nonqualifying disposition of incentive stock options)
|
|
|
-
|
|
|
60
|
Purchase of company stock
|
|
|
(1,831)
|
|
|
-
|
Distributions to noncontrolling interests
|
|
|
(903)
|
|
|
(941)
|
Principal payments on long-term debt
|
|
|
(23,620)
|
|
|
(7,726)
|
Payments of dividends
|
|
|
(99,531)
|
|
|
(31,938)
|
Net cash used in financing activities
|
|
|
(125,885)
|
|
|
(40,545)
|
Net change in cash and cash equivalents
|
|
|
(528)
|
|
|
(1,487)
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,667
|
|
|
14,521
|
Cash and cash equivalents at end of period
|
|
$
|
8,139
|
|
$
|
13,034
|
See Notes to Condensed Consolidated Financial Statements
.
CAL-MAINE FOODS, INC. AND SUBSIDIARIES
Notes to
Condensed
Consolidated Financial Statements
February 27, 2016
(unaudited)
1
.
Presentation of Interim Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
GAAP
for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adj
ustments, considered necessary for
a fair statement of the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affected reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions. Operating results for the
thirteen and thirty-nine weeks ended
February 27, 2016
are not necessarily indicative of the results
that may be expected for the year ending
May 28, 2016
.
The condensed consolidated balance sheet at
May 30, 2015
has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by
GAAP
for complete financial statements.
For
further information, refer to the consolidated financial statements and footnotes thereto included in Cal-Maine Foods, Inc.'s annual report on Form 10-K for the fiscal year ended
May 30, 2015
. References to “we,” “us,” “our,” or the “Company” refer to Cal-Maine Foods, Inc.
2
. Stock Based Compensation
Total stock based compensation expense for the
thirty-nine weeks ended
February 27, 2016
and
February 28, 2015
was $
2.2
million
and $
1.7
million,
respectively.
Liabilities associated with Stock Appreciation Rights as of
February 27, 2016
and
May 30, 2015
were
zero
and $
1.4
million, respectively. The liabilities for our 2005 Stock Appreciation Rights are included in the line item “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheets.
Unrecognized compensation expense as a result of non-vested shares of the 2012 Omnibus Long-Term Incentive Plan at
February 27, 2016
was $
6.4
million and will be recorded over a
weighted average
period of
2.3
years.
Refer to Note 11 of our
May 30, 2015
audited financial statements for further information on our stock compensation plans.
At
February 27, 2016
, there were
290,600
restricted shares outstanding
, with
a weighted average grant date fair value of
$35.94
per share.
A summary of the Company’s restricted share activity for th
e
thirty-nine weeks ended February 27, 2016
follows:
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Outstanding, May 30, 2015
|
|
335,140
|
|
$
|
27.24
|
Granted
|
|
78,560
|
|
|
49.39
|
Vested
|
|
(121,250)
|
|
|
20.70
|
Forfeited
|
|
(1,850)
|
|
|
30.76
|
Outstanding, February 27, 2016
|
|
290,600
|
|
$
|
35.94
|
3
. Inventories
Inventories consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 27, 2016
|
|
May 30, 2015
|
Flocks
|
|
$
|
90,929
|
|
$
|
87,280
|
Eggs
|
|
|
15,742
|
|
|
15,507
|
Feed and supplies
|
|
|
47,494
|
|
|
43,473
|
|
|
$
|
154,165
|
|
$
|
146,260
|
4
.
Contingencies
Financial Instruments
The Company maintained cash collateralized
standby letters of credit (“LOC”)
for the benefit of certain
insurance
companies
totaling
$
3.
7
million
at
February 27, 2016
. The cash collateraliz
ing
the LOCs is included in the line item “Other
assets” in the
C
ondensed
C
onsolidated
B
alance
S
heets.
As a result, n
one of the LOCs are recorded as a liability on the consolidated balance sheets.
Legal
Contingencies
The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions.
If the
Company’s
assessment
of a contingency indicates
it is probable
a material loss has been incurred and the amount of the liability can be reasonably estimated,
the estimated liability is
accrued in the Company’s financial statements.
If the assessment indicates
a potential material loss contingency is not probable, but is reasonably possible, or probable but cannot be
reasonably
estimated, then the nature of the contingent liability, together with an estimate of the
possible loss or
range of possible loss
will
be disclosed
, or a statement
will
be made that such an estimate cannot be made
.
These legal actions are discussed in detail at Part II, Item 1, of this report
.
5
. Net Income per Common Share
Basic net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share was calculated by dividing net income by the weighted-
average number of common shares outstanding during the period plus the dilutive effects of options
and restricted stock
. The computations of basic and diluted net income per share attributable to the Company are as follows
(in thousands, except per share data)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
February 27, 2016
|
|
February 28, 2015
|
|
February 27, 2016
|
|
February 28, 2015
|
Net income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
Cal-Maine Foods, Inc.
|
$
|
64,164
|
|
$
|
50,882
|
|
$
|
316,417
|
|
$
|
115,140
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
48,204
|
|
|
48,137
|
|
|
48,177
|
|
|
48,134
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
163
|
|
|
288
|
|
|
182
|
|
|
260
|
Common stock options
|
|
-
|
|
|
22
|
|
|
-
|
|
|
22
|
Dilutive potential common shares
|
|
48,367
|
|
|
48,447
|
|
|
48,359
|
|
|
48,416
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
attributable to Cal-Maine Foods, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.33
|
|
$
|
1.06
|
|
$
|
6.57
|
|
$
|
2.39
|
Diluted
|
$
|
1.33
|
|
$
|
1.05
|
|
$
|
6.54
|
|
$
|
2.38
|
6
. Accrued Dividends Payable and Dividends per Common Share
We make an accrual of dividends payable at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors. According to the policy, the Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with generally accepted accounting principles in an amount equal to one-third (
1/3
) of such quarterly income. Dividends are paid to shareholders of record as of the
60
th day following the last day of such quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company will pay dividends to shareholders of record on the
65
th day after the quarter end. Dividends are payable on the
15
th day following the record date. Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. The amount of the accrual appears on the Condensed Consolidated Balance Sheets as “Accrued dividends payable.”
On our condensed consolidated statement of income, we determine dividends per common share in accordance with the computation in the following table (in thousands
, except per share data
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
February 27, 2016
|
|
February 28, 2015
|
|
February 27, 2016
|
|
February 28, 2015
|
Net income attributable to Cal-Maine Foods, Inc. available for dividend
|
$
|
64,164
|
|
$
|
50,882
|
|
$
|
316,417
|
|
$
|
115,140
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3 of net income attributable to Cal-Maine Foods, Inc.
|
|
21,388
|
|
|
16,961
|
|
|
105,472
|
|
|
38,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding (shares)
|
|
43,738
|
|
|
43,672
|
|
|
|
|
|
|
Class A common stock outstanding (shares)
|
|
4,800
|
|
|
4,800
|
|
|
|
|
|
|
Total common stock outstanding (shares)
|
|
48,538
|
|
|
48,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share*
|
$
|
0.441
|
|
$
|
0.350
|
|
$
|
2.175
|
|
$
|
0.793
|
*Dividends per common share =
1/3
of Net income (loss) attri
butable to Cal-Maine Foods, Inc. available for dividend
÷ Total common stock outstanding (shares)
7
. Fair Value Measurements
The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.
|
·
|
|
Level 1 - Quoted prices in active markets for identical assets or liabilities
|
|
·
|
|
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly
|
|
·
|
|
Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents:
The carrying amount approximates fair value due to the short maturity of these instruments.
Long-term debt:
The carrying value of the Company’s long-term debt is at its stated value. We have not elected to carry our long-term debt at fair value.
F
air values for debt are based on quoted market prices or published
forward interest rate curves
, which are level 2 inputs
.
Estimated fair v
alues are management’s estimate,
which is a level 3 input
; however, when there is no readily available market data, the estimated fair values may not represent the amounts that could be realized in a current transaction, and the fair values could change significantly. The fair value and carrying value of the Company’s borrowings under its credit facilities and long-term debt were as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 27, 2016
|
|
May 30, 2015
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
2.0%
–
6.84%
Notes payable
|
$
|
27,240
|
|
$
|
27,586
|
|
$
|
44,549
|
|
$
|
45,158
|
Series A Senior Secured Notes at
5.45%
|
|
-
|
|
|
-
|
|
|
6,311
|
|
|
6,312
|
|
$
|
27,240
|
|
$
|
27,586
|
|
$
|
50,860
|
|
$
|
51,470
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following table shows the fair value of fi
nancial assets and liabilities
measured at fair value on a recurring basis as of
F
ebruary 27, 2016
and
May 30, 2015
)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
February 27, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$
|
-
|
|
$
|
10,991
|
|
$
|
-
|
|
$
|
10,991
|
Municipal bonds
|
|
|
-
|
|
|
80,177
|
|
|
-
|
|
|
80,177
|
Commercial paper
|
|
|
-
|
|
|
2,989
|
|
|
-
|
|
|
2,989
|
Corporate bonds
|
|
|
-
|
|
|
266,475
|
|
|
-
|
|
|
266,475
|
Foreign government obligations
|
|
|
-
|
|
|
2,056
|
|
|
-
|
|
|
2,056
|
Asset backed securities
|
|
|
-
|
|
|
12,686
|
|
|
-
|
|
|
12,686
|
Mutual Funds
|
|
|
5,415
|
|
|
-
|
|
|
-
|
|
|
5,415
|
Total assets measured at fair value
|
|
$
|
5,415
|
|
$
|
375,374
|
|
$
|
-
|
|
$
|
380,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
May 30, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$
|
-
|
|
$
|
9,630
|
|
$
|
-
|
|
$
|
9,630
|
Municipal bonds
|
|
|
-
|
|
|
76,311
|
|
|
-
|
|
|
76,311
|
Certificates of deposit
|
|
|
-
|
|
|
2,002
|
|
|
-
|
|
|
2,002
|
Commercial paper
|
|
|
-
|
|
|
7,496
|
|
|
-
|
|
|
7,496
|
Corporate bonds
|
|
|
-
|
|
|
136,364
|
|
|
-
|
|
|
136,364
|
Foreign government obligations
|
|
|
-
|
|
|
1,045
|
|
|
-
|
|
|
1,045
|
Asset backed securities
|
|
|
-
|
|
|
14,352
|
|
|
-
|
|
|
14,352
|
Mutual Funds
|
|
|
4,508
|
|
|
-
|
|
|
-
|
|
|
4,508
|
Commodity contracts
|
|
|
-
|
|
|
82
|
|
|
-
|
|
|
82
|
Total assets measured at fair value
|
|
$
|
4,508
|
|
$
|
247,282
|
|
$
|
-
|
|
$
|
251,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,024
|
|
$
|
1,024
|
Total liabilities measured at fair value
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,024
|
|
$
|
1,024
|
I
nvestment securities – available-for-sale
,
classified as level 2
,
consist of U
.
S
.
government
and agency
obligations,
taxable and tax exempt municipal bonds, zero coupon municipal bonds,
foreign government obligations, asset backed securities
and
corporate bonds
with maturities of three months or longer when purchased
. We classif
y
these securities as
current, because amounts invested are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.
The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with business acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation and are subject to recurring revaluations. The fair value of non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets takes into account the remaining estimated life of the assets acquired and what management believes is the market value for those assets
based on their highest and best use
. Liabilities for contingent consideration (earn-outs) take into account commodity prices based on published forward commodity price curves, projected future egg prices as of the date of the estimate, and projected future cash flows expected to be received as a result of a business acquisition (Refer to Note 2 in the Annual Report on Form 10-K).
Given the unobservable nature of these inputs, they are deemed to be Level 3
fair
value measurements. During the
thirty-nine weeks ended February 27, 2016
, the
final payment of $1.0 million was
made related to contingent consideration.
|
|
|
|
|
|
|
|
Thirty-nine weeks ended February 27, 2016
|
Balance at May 30, 2015
|
$
|
1,024
|
(Gains)/Losses recognized in earnings
|
|
-
|
Actual payments made
|
|
(1,024)
|
Balance at February 27, 2016
|
$
|
-
|
8
. Investment
Securities
The following represents the Company’s
investment
securities as of
February 27, 2016
and
May 30, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 27, 2016
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
US government and agency obligations
|
$
|
10,989
|
|
$
|
2
|
|
$
|
-
|
|
$
|
10,991
|
Municipal bonds
|
|
79,951
|
|
|
226
|
|
|
-
|
|
|
80,177
|
Commercial paper
|
|
2,992
|
|
|
-
|
|
|
3
|
|
|
2,989
|
Corporate bonds
|
|
267,802
|
|
|
-
|
|
|
1,327
|
|
|
266,475
|
Foreign government obligations
|
|
2,056
|
|
|
-
|
|
|
-
|
|
|
2,056
|
Asset backed securities
|
|
12,687
|
|
|
-
|
|
|
1
|
|
|
12,686
|
Mutual funds
|
|
3,561
|
|
|
-
|
|
|
25
|
|
|
3,536
|
Total current investment securities
|
$
|
380,038
|
|
$
|
228
|
|
$
|
1,356
|
|
$
|
378,910
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
1,493
|
|
|
386
|
|
|
-
|
|
|
1,879
|
Total noncurrent investment securities
|
$
|
1,493
|
|
$
|
386
|
|
$
|
-
|
|
$
|
1,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2015
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
US government and agency obligations
|
$
|
9,609
|
|
$
|
21
|
|
$
|
-
|
|
$
|
9,630
|
Municipal bonds
|
|
76,228
|
|
|
83
|
|
|
-
|
|
|
76,311
|
Certificates of deposit
|
|
2,001
|
|
|
1
|
|
|
-
|
|
|
2,002
|
Commercial paper
|
|
7,491
|
|
|
5
|
|
|
-
|
|
|
7,496
|
Corporate bonds
|
|
136,411
|
|
|
-
|
|
|
47
|
|
|
136,364
|
Foreign government obligations
|
|
1,042
|
|
|
3
|
|
|
-
|
|
|
1,045
|
Asset backed securities
|
|
14,356
|
|
|
-
|
|
|
4
|
|
|
14,352
|
Mutual funds
|
|
2,758
|
|
|
3
|
|
|
-
|
|
|
2,761
|
Total current investment securities
|
$
|
249,896
|
|
$
|
116
|
|
$
|
51
|
|
$
|
249,961
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
1,199
|
|
|
548
|
|
|
-
|
|
|
1,747
|
Total noncurrent investment securities
|
$
|
1,199
|
|
$
|
548
|
|
$
|
-
|
|
$
|
1,747
|
Proceeds from sales of available-for-sale securities wer
e $
221.9
million
and $
109.5
million during the
thirty-nine weeks ended
February 27, 2016
and
February 28, 2015
, respectively. Gross realized gains on those sales during the
thirty-nine weeks ended
February 27, 2016
and
February 28, 2015
were $
100
,000
and
$6
8
,000
, respectively. Gross realized losses on those sales during the
thirty-nine weeks ended
February 27, 2016
and
February 28, 2015
were $
102
,000
and $
6
,000
, respectively. For purposes of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method.
Unrealized holding
losse
s
,
net of tax
,
on available-for-sale securities
classified as current in the amount of
$
740
,000
and
$
128
,000
were recorded in other comprehensive income (loss)
for the
thirty-nine weeks ended
February 27, 2016
and
February 28, 2015
, respectively
.
Unrealized holding gains (losses), net of tax, on long-term available-for-sale securities of
$(94
,000)
and
$
5
8
,000
were recorded in other comprehensive income (loss) for the
thirty-nine weeks ended February 27, 2016
and
February 28, 2015
, respectively.
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Contractual maturities at
February
27, 2016
, are as follows
(in thousands)
:
|
|
|
|
|
|
|
|
Estimated Fair Value
|
Within one year
|
$
|
206,189
|
1-5 years
|
|
169,185
|
Total
|
$
|
375,374
|
9
. Equity
The following reflects the equity activity, including our noncontrolling interest, for the
thirty-nine weeks ended
February 27, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cal-Maine Foods, Inc. Stockholders
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Treasury
|
|
Paid In
|
|
Accum. Other
|
|
Retained
|
|
Noncontrolling
|
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Capital
|
|
Comp. Loss
|
|
Earnings
|
|
Interests
|
|
Total
|
Balance at May 30, 2015
|
$
|
703
|
$
|
48
|
$
|
(20,482)
|
$
|
43,304
|
$
|
22
|
$
|
679,969
|
$
|
998
|
$
|
704,562
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(105,548)
|
|
-
|
|
(105,548)
|
Other comprehensive loss, net of tax
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(834)
|
|
-
|
|
-
|
|
(834)
|
Purchase of Company stock
|
|
-
|
|
-
|
|
(1,831)
|
|
-
|
|
-
|
|
-
|
|
|
|
(1,831)
|
Grant of restricted stock, net of forfeitures
|
|
-
|
|
-
|
|
59
|
|
(59)
|
|
-
|
|
-
|
|
|
|
-
|
Distribution to noncontrolling interest partners
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(903)
|
|
(903)
|
Restricted stock compensation
|
|
-
|
|
-
|
|
-
|
|
2,228
|
|
-
|
|
-
|
|
-
|
|
2,228
|
Net income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
316,417
|
|
1,925
|
|
318,342
|
Balance at February 27, 2016
|
$
|
703
|
$
|
48
|
$
|
(22,254)
|
$
|
45,473
|
$
|
(812)
|
$
|
890,838
|
$
|
2,020
|
$
|
916,016
|
ITEM 2. MANAGEMENT’S
DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business, including estimated production data, expected operating schedules,
projected construction
costs, and other operating data, including anticipated results of operations and financial condition. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words. Actual production, operating schedules, capital costs, results of operations, and other projections and estimates could differ materially from those projected in the forward-looking statements. The forward-looking statements are based on management’s current intent, belief, expectations, estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
May 30, 2015
, 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) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses, and (v) adverse results in pending litigation matters. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.
OVERVIEW
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packaging, marketing, and distribution of fresh shell eggs. Our fiscal year end is the Saturday closest to May 31.
Our operations are fully integrated. At our facilities we hatch chicks, grow and maintain flocks of pullets (
young
female chickens, u
nder
18
weeks of age), layers (mature female chickens) and breeders (male
and
female birds used to produce fertile eggs
to be
h
atched for egg production flocks), manufacture feed, and produce, process
,
and distribute shell eggs. We are the largest producer and marketer of shell eggs in the United States (U.S.). We market the majority of our shell eggs in the southwestern, southeastern, mid-western, and mid-Atlantic regions of the U.S.
We market shell eggs through an
extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product manufacturers.
The Company has one operating segment
,
which is the production, grading, packaging, marketing and distribution of shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell egg
s
as non-specialty products. While we report separate sales information for these types of eggs, we note that 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
market
egg prices, which are highly volatile, subject to wide fluctuations, and outside of our control.
For example, the annual average Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs, for our fiscal 2005-2015 ranged from a low of $0.72
in
2005 to a high of $1.53
in
2015.
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 profitab
ility, 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 return
ed
to balance. As a result, our financial results from quarter to quarter and year to year vary significantly. Shorter term, retail sales of shell eggs historically have been greatest during the fall and winter months and lowest
in
the summer months. Our
need for working capital generally is highest in the last and first fiscal quarters ending in May/June and August/September, respectively, when egg prices are normally at seasonal lows. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production during the spring and early summer. Shell egg prices tend to increase with the start of the school year and are highest prior to Thanksgiving, Christmas, and Easter. Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in August/September and May/June, respectively. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.
Beginning in April 2015, our industry experienced a significant avian influenza
(“AI”)
outbreak, primarily in the upper Midwestern U.S.
B
ased on several published industry estimates, we believe approximately 1
2
% of the national flock of laying hens
was
affected. The affected laying hens
were
either destroyed by the disease or
e
uthani
zed.
As of
March
1
,
2016,
the national laying hen flock according to the U.S. Department of Agriculture was approximately
3
% lower than a year ago.
E
gg prices
increased significantly
during the summer and fall of 2015
. The average
Urner-Barry
T
hursday prices for the large market (i.e. generic shell eggs) in the southeastern region for the months of
June
through November
2015 w
as
$
2
.32 per dozen, with a peak of $2.
97 during
August
.
Subsequent to November 2015, shell egg pri
ces have declined. Our average year to date selling prices for shell eggs
in fiscal 2016 were up 35.6% compared to fiscal 2015
;
however, average selling prices for the third quarter of fiscal 2016 were up just 4.3% compared
with the same period last year due to
increased industry-wide egg supplies caused by
demand erosion for egg products as well as increased egg imports and reduced egg exports.
During January 2016, there was a minor outbreak of highly pathogenic AI
in Indiana
that did not have a material impact on egg supply
.
There have been no positive tests for
AI
at any of our locations, and we
have
significantly increas
ed
the biosecurity measures at all of our facilities
;
however
,
we cannot be certain our flocks will not be affected.
For the
thirteen and thirty-nine weeks ended February 27, 2016
, we produced approximat
ely 7
7
% of the total number of shell eggs we sold. Approximately
4
% of such production was provided by contract producers
utiliz
ing
their facilities in the production of shell eggs by layers owned by us. We own the shell eggs produced under these arrangements.
Our cost of production is materially affected by feed costs. Feed costs average
d approximatel
y
6
0
%
of our total farm egg production cost for
the
thirteen and thirty-nine weeks ended February 27, 2016.
Changes in market prices for corn and soybe
an meal, the primary ingredients in the feed we use, result in changes in our cost of goods sold. The cost of our feed ingredients, which are commodities, are subject to factors over which we have little or no control such as volatile price changes caused by weather, size of harv
est, transportation and storage costs, demand and the agricultural and energy policies of the U.S. and foreign governments.
Favorable weather conditions and improved yields for the 2014 crop increased supplies of both corn and soybean meal for fiscal year 2015
.
The large, recently harvested, 2015 crops
further
increased available supplies
for
corn and soybean meal
which favorabl
y
impacted our results for the first three quarters of fiscal 2016, and should result in lower feed prices
in the fourth quarter of fiscal 2016 compared to the same period of fiscal 2015. H
owever, we expect the outlook for feed prices to remain volatile.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Income expressed as a percentage of net sales.
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Percentage of Net Sales
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13 Weeks Ended
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39 Weeks Ended
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February 27, 2016
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February 28, 2015
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|
February 27, 2016
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|
February 28, 2015
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Net sales
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100.0
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%
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100.0
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%
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|
100.0
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%
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|
100.0
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%
|
Cost of sales
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70.5
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|
74.3
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|
62.2
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|
75.6
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Gross profit
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29.5
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|
25.7
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|
37.8
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|
24.4
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Selling, general, and administrative expense
|
10.4
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|
9.3
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|
8.4
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|
10.0
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Operating income
|
19.1
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|
16.4
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|
29.4
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|
14.4
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Other income (expense):
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Interest income (expense), net
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0.3
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(0.1)
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|
0.1
|
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(0.1)
|
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Royalty income
|
0.1
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|
0.1
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|
0.1
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0.2
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Patronage dividends
|
1.5
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|
1.0
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0.4
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|
0.4
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Equity in income of affiliates
|
0.3
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|
0.2
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|
0.3
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|
0.1
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Other
|
0.4
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|
0.0
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0.0
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0.1
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2.6
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|
1.2
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0.9
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0.7
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Income before income taxes and noncontrolling interest
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21.7
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|
17.6
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|
30.3
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|
15.1
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Income tax expense
|
7.4
|
|
|
6.0
|
|
|
10.5
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|
5.1
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Net income before noncontrolling interest
|
14.3
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|
|
11.6
|
|
|
19.8
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|
|
10.0
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Less: Net income attributable to noncontrolling interest
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0.0
|
|
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0.0
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0.1
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|
0.2
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Net income attributable to Cal-Maine Foods, Inc.
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14.3
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%
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|
11.6
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%
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|
19.7
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%
|
|
9.8
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%
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NET SALES
Approximatel
y 9
7
% of our net sales
for the third quarter
of fiscal 2016
were shell egg
s and approximately
3
%
w
ere
egg product
s
. Net sales for the
thirteen weeks ended February 27, 2016
were
$449.8
million, an increase
of $
1
2.2
million, or
2.8
%, compared to net sales of $
437.6
million for the
thirteen weeks ended February 28, 2015
.
Total dozens of
shell
eggs sold
decreased
for the current thirteen-week period compared to the same period in fiscal
2015
while
shell
egg selling prices increased
.
Dozens sold for the
third
quarter of fiscal year
2016
w
ere
2
77.6
million, a de
crease of
5.
4
million
, or
1.9
%, compared to
283.0
million
resulting
in a decrease in net sales of $8.2 million.
Our net average
selling price per dozen of shell eggs
for the
thirte
en weeks ended February 27, 2016
was $
1.
568
, compared to $
1.503
for the
thirteen weeks ended February 28, 2015
, an increase of
4
.
3
%, resulting in a corr
esponding increase in net
shell egg
sales of $18.4 million.
Net average selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sale
s, breaking stock, and undergrades.
Egg products and other revenues res
ulted in an increase in net
sales of $2.0 million for the thirteen weeks ended February 27, 2016 compared to the same period of last year.
Approximately 96% of our net sales for the thirty-nine weeks ended February 27, 2016, were shell eggs and approximately 4% were egg products.
Net sales for the
thirty-nine weeks ended February 27, 2016
were $1,
605.6
million, an increase of $
4
32.5
million, or
36.9
%, compared to $
1,173.1
million for the
thirty-nine weeks ended February 28, 2015
.
Total dozens of
shell
eggs sold and
shell
egg selling prices increased for the current
thirty-nine week period
compared to the same period in fiscal 2015. Dozens sold for the current
thirty-nine wee
k
period
of fiscal year 2016 were
800.5
million, an increase of
0.3
%
compared to 798.2
million
result
ing
in an increase in net
shell egg
sales of $3
.3
million.
For the
thirty-nine weeks ended February 27, 2016
, our average selling price per dozen was $
1.919
compared
to $
1.415
for the same period last year, an increase of
35.6
%
result
ing
in a corresponding increase in net
shell egg
sales of $402.4 million.
Egg products and other revenues resulted in an increase in net sales of $26.8 million for the thirty-nine weeks ended February 27, 2016 compared to the same period of last year.
The table below represents an analysis of our non-specialty and specialty shell egg sales
(in thousands, except percentage data)
. Following the table is a discussion of the information presented in the table.
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13 Weeks Ended
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39 Weeks Ended
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|
February 27, 2016
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February 28, 2015
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|
February 27, 2016
|
|
February 28, 2015
|
Total net sales
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$
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449,760
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|
$
|
437,556
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$
|
1,605,630
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$
|
1,173,117
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Non-specialty shell egg sales
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$
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286,725
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65.6%
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$
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297,659
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69.6%
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$
|
1,079,495
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69.8%
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$
|
790,445
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69.5%
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Specialty shell egg sales
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135,654
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31.0%
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115,152
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26.9%
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416,398
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27.0%
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305,431
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26.8%
|
Co-pack specialty shell egg sales
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12,017
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2.7%
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11,998
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2.8%
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40,262
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2.6%
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33,004
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2.9%
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Other
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2,987
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0.7%
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3,038
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0.7%
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7,288
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0.5%
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9,059
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0.8%
|
Net shell egg sales
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$
|
437,383
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100.0%
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|
$
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427,847
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100.0%
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$
|
1,543,443
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100.0%
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|
$
|
1,137,939
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100.0%
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Net shell egg sales as a percent of total net sales
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97%
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98%
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96%
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|
97%
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|
Dozens sold:
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Non-specialty shell egg
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206,670
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74.5%
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219,500
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77.6%
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601,208
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75.1%
|
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626,632
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78.5%
|
Specialty shell egg
|
|
|
65,443
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23.6%
|
|
|
57,534
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20.3%
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|
182,747
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22.8%
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|
154,907
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19.4%
|
Co-pack specialty shell egg
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5,461
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2.0%
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5,998
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2.0%
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16,565
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2.1%
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|
16,664
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2.1%
|
Total dozens sold
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277,574
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100.0%
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283,032
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100.0%
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|
800,520
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100.0%
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|
798,203
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100.0%
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Net average selling price
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$ 1.568
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|
$ 1.503
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$ 1.919
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|
$ 1.415
|
|
Non
-specialty shell eggs include all shell egg sales not specifically identified as specialty shell egg sales. The non-specialty shell egg market is characterized by an inelasticity of demand, and small increases or decreases in production or demand can have a large positive or
adverse effect on
selling prices.
For the
thirteen weeks ended February 27, 2016
, non-specialty shell egg dozens sold
de
creased approximately
5.
8
% and the average selling price increased
2.3
%
to $
1
.
39
from $
1.
3
6
for the same period of the prior year.
For the
thirty-nine weeks ended February 27, 2016
, non-specialty shell egg dozens sold decreased
4
.1
% and the average selling price increase
d
42.9
%
to $
1.8
0
from $
1.2
6
for the same period of the prior year.
Specialty she
ll eggs, which we classify as
nutritionally enhanced, cage
-
free,
organic
and
brown
eggs,
continue to make up
a significant
and growing
portion of our sales volume. Specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to
consumer willingness to pay for the perceived benefits from these
products. For the
thirteen weeks ended February 27, 2016
, specialty shell egg dozens sold increased approximately
13.
7
% and the average selling price increased
3.
5
% to $
2.
07
from $
2.00
for the same period of the prior year.
For the
thirty-nine weeks ended February 27, 2016
, specialty shell egg dozens sold increased approximately
18.0
% and the average selling price increased
15.
7
% to $
2.
28
from $1.9
7
for the same period of the p
rior year.
Co-pack specialty shell eggs are sold primarily through co-pack arrangements, a common practice in the industry whereb
y production and processing of certain products is outsourced to another producer. Shell egg sales in this catego
ry represented
5.
5
million and
6.0
million dozen for the
quarters ended
February 27, 2016
and
February 28, 2015
, respectively.
Co-pack specialty shell eggs sold during the
thirty-nine weeks ended February 27, 2016
and
February 28, 2015
, were
16.6
million and 1
6.7
million, respective
ly.
The shell egg sales classified as “Other” represent sales of hard
cooked eggs, hatching eggs, and
/or
other egg products
, which are included with our shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. Our egg products are sold through our consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC (“TEP”). For the
third
quarter of fiscal
2016
, egg product sales
were $
12.4
million, an increase of $
2.7
mill
ion, or
27.
8
%, compared to $
9.7
million for the same period of
2015
. Pounds sold for the
third
quarter of fiscal year
2016
were
15.1
million pounds, a
n
increase of
2
.7
million
pounds, or
21.
7
%, compared to
12.
4
million pounds for the
same
quarter of fiscal
2015
.
For the
thirty-nine weeks ended February 27, 2016
, egg product sales were $
62.2
million, an increase of $
2
7.5
million, or
79
.
2
%, compared to $
34.7
million for the same period of 2015.
Pounds sold for the
thirty-nine weeks ended February 27, 2016
were
44.0
millio
n pounds, an increase of
6.1
million pounds, or
16.
1
%, compared to
37.8
million pounds for the same period of fiscal year 2015.
The increase in sales volume for
both
the
thirteen and thirty-nine weeks ended
February 27, 2016
is combined with significantly higher market prices for liquid
and frozen
whole eggs and egg
yolks
due to
shortages resulting from avian influenza.
COST OF SALES
Cost of sales consists of costs directly related to production, processing and packing shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products, and other non-egg costs. Farm production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs.
The following table presents the key variables affecting cost of sales
(in thousands, except cost per dozen data)
.
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13 Weeks Ended
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39 Weeks Ended
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February 27, 2016
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February 28, 2015
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Percent Change
|
|
February 27, 2016
|
|
February 28, 2015
|
|
Percent Change
|
Cost of Sales:
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Farm production
|
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$
|
147,482
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$
|
141,425
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4.3
|
%
|
|
$
|
427,334
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|
$
|
420,001
|
|
1.7
|
%
|
Processing and packaging
|
|
|
48,447
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|
45,108
|
|
7.4
|
%
|
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|
139,497
|
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|
128,125
|
|
8.9
|
%
|
Outside egg purchases and other (including change in inventory)
|
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|
111,848
|
|
|
130,287
|
|
(14.2)
|
%
|
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|
388,697
|
|
|
312,834
|
|
24.3
|
%
|
Total shell eggs
|
|
|
307,777
|
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|
316,820
|
|
(2.9)
|
%
|
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|
955,528
|
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|
860,960
|
|
11.0
|
%
|
Egg products
|
|
|
9,157
|
|
|
8,089
|
|
13.2
|
%
|
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|
42,111
|
|
|
25,246
|
|
66.8
|
%
|
Other
|
|
|
100
|
|
|
130
|
|
(23.1)
|
%
|
|
|
597
|
|
|
584
|
|
2.2
|
%
|
Total
|
|
$
|
317,034
|
|
$
|
325,039
|
|
(2.5)
|
%
|
|
$
|
998,236
|
|
$
|
886,790
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farm production cost (per dozen produced)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed
|
|
$
|
0.414
|
|
$
|
0.436
|
|
(5.0)
|
%
|
|
$
|
0.420
|
|
$
|
0.450
|
|
(6.7)
|
%
|
Other
|
|
|
0.281
|
|
|
0.262
|
|
7.3
|
%
|
|
|
0.275
|
|
|
0.264
|
|
4.2
|
%
|
Total
|
|
$
|
0.695
|
|
$
|
0.698
|
|
(0.4)
|
%
|
|
$
|
0.695
|
|
$
|
0.714
|
|
(2.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside egg purchases (average cost per dozen)
|
|
$
|
1.51
|
|
$
|
1.48
|
|
2.0
|
%
|
|
$
|
1.90
|
|
$
|
1.41
|
|
34.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dozen Produced
|
|
|
213,285
|
|
|
203,581
|
|
4.8
|
%
|
|
|
620,356
|
|
|
597,080
|
|
3.9
|
%
|
Dozen Sold
|
|
|
277,574
|
|
|
283,032
|
|
(1.9)
|
%
|
|
|
800,520
|
|
|
798,203
|
|
0.3
|
%
|
Cost of sales for the
third
quarter of fiscal
2
01
6
was $
317.0 million, a de
crease of $
8.0
million, or
2.5
%, compared to cost of sales of $
325.0
million for the
same
quarter of
fiscal
201
5
.
The
de
crease w
as primarily driven by
a
de
crease
in the volume of
outside egg purchases
during the quarter.
Feed cost per dozen for the fiscal 201
6
third
quarter was $0.4
14
, compared to $0.
436
per dozen for the comparable fiscal
2015
quarter, a decrease of
5
.
0
%
resulting
in a decrea
se in cost of sales of $4.8 million for the thirteen weeks ended February 27, 2016 compared with the same period of fiscal 2015.
Gross profit
increased to
29.5
%
for the current period
from
2
5.7
% for the
thirteen weeks ended February 28, 2015
due to the increased average customer selling price and decrease in
cost of sales
.
For the
thirty-nine weeks ended February 27, 2016
, total
cost of sales was $
998.
2
million, an increase of $
11
1
.
4
million, or
12.6
%, compared to cost of sales of $
886.8
million for the same period of fiscal 2015.
The increase was primarily driven by
increases
in the volume and cost per dozen of
outside egg purchase
s,
as well as increases
in
processing and packaging
costs
.
Labor costs related to an increased focus on quality in our processing plants drove the increase in processing costs for the year to date period, while packaging costs increased due to higher volumes of certain specialty egg cartons.
Cost of sales as a percentage of net sales decreased compared to the same period of last year due to
significantly
higher
average
selling prices of eggs
and lower feed costs per dozen produced
. Feed cost per dozen for the
thirty-nine weeks ended February 27, 2016
, was $
0.42
0
, compared to $0.
450
per dozen for the comparable period of fiscal 2015, a decrease of
6.
7
%
resulting
in a decrease in cost of sales of $18.9 million
.
Gross profit increased from 2
4.4
% of net sales for the
thirty-nine weeks ended February 28, 2015
, to
37.8
% of net sales for the same period of fiscal 2016
primarily due to the increased selling prices of eggs
.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Sellin
g, general, and administrative expenses include costs of marketing, distribution, accounting, and corporate overhead.
The following table present
s
an analysis of our selling, general, and administrative expenses
(in thousands)
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
|
February 27, 2016
|
|
|
February 28, 2015
|
|
|
$ Change
|
|
% Change
|
Stock compensation expense
|
|
$
|
732
|
|
$
|
466
|
|
$
|
266
|
|
57.1%
|
Specialty egg expense
|
|
|
17,458
|
|
|
14,282
|
|
|
3,176
|
|
22.2%
|
Payroll and overhead
|
|
|
10,016
|
|
|
7,662
|
|
|
2,354
|
|
30.7%
|
Other expenses
|
|
|
5,968
|
|
|
6,081
|
|
|
(113)
|
|
-1.9%
|
Delivery expense
|
|
|
12,781
|
|
|
12,001
|
|
|
780
|
|
6.5%
|
Total
|
|
$
|
46,955
|
|
$
|
40,492
|
|
$
|
6,463
|
|
16.0%
|
F
or the
thirteen weeks ended February 27, 2016
,
s
elling, general, and administrative expense
was $
4
7.0
million, an increase of
16.0
%, compared to $
40.5
million for the
thirteen weeks ended February 28, 2015
. Specialty egg expense increased $
3.2
million
compared to the same period of last year, an increase of
22.2
%. Specialty egg expense typically fluctuates with specialty egg dozens sold which increased
13.
7
% for the current quarter
compared to the same period of last year
. Franchise fees
and advertising,
which
are
component
s
of specialty egg expense
,
increased
21.4%
compared to the same period of last year
.
Payroll and overhead increased $
2.4
million, or
30.7
%, compared to the same period of last year primarily due to increased bonus accruals in the current period. As a percentage of net sales, payroll and overhead was
2.2
% for the
third
quarter of fiscal 2016 compared to
1.8
% for the same period of last year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
|
February 27, 2016
|
|
|
February 28, 2015
|
|
|
$ Change
|
|
% Change
|
Stock compensation expense
|
|
$
|
2,176
|
|
$
|
1,666
|
|
$
|
510
|
$
|
30.6%
|
Specialty egg expense
|
|
|
47,527
|
|
|
39,749
|
|
|
7,778
|
|
19.6%
|
Payroll and overhead
|
|
|
29,698
|
|
|
23,044
|
|
|
6,654
|
|
28.9%
|
Other expenses
|
|
|
18,271
|
|
|
17,822
|
|
|
449
|
|
2.5%
|
Delivery expense
|
|
|
37,684
|
|
|
35,261
|
|
|
2,423
|
|
6.9%
|
Total
|
|
$
|
135,356
|
|
$
|
117,542
|
|
$
|
17,814
|
$
|
15.2%
|
F
or t
he
thirty-nine weeks ended February 27, 2016
,
s
elling, general, and administrative expense
was $
135.4
million, an increase of
15.2
%, compared to $
117.5
million for the
thirty-nine weeks ended February 28, 2015
.
Specialty egg expense increased $
7.8
million
compared to the same period of last year, an increase of
19.6
%. Specialty egg expense typically fluctuates with specialty egg dozens sold which increased
18.0
% for the current year
to date period compared to the same period o
f last year
.
Franchise fees
and advertising,
which
are
component
s
of specialty egg expense
,
increased
18.2
%
compared to the same period of last year.
Payroll and overhead increased $
6.7
million, or
28.
9
%, compared to the same period of last year primarily due to increased bonus accruals in the current period. As a percentage of net sales, payroll and overhead was
1.8
% for fiscal 2016 compared to 2.
0
% for the same period of last year.
OPERATING INCOME
As a result of th
e above, operating income was $
85.8
million for the
third
quarter of fiscal
201
6
, compared to $
72.0
million for the fiscal
2015
third
quarter. Operating income as a percent of net sales was
19.1
% for the
third
quarter of fiscal
201
6
, compared to
16.4
% for the
third
quarter of fiscal
2015
.
For the
thirty-nine weeks ended February 27, 2016
, operating income was $
472.0
million compared to $
168.8
million for the same period of fiscal 2015. Operating income as a percentage of net sales was
29.4
% for the
thirty-nine weeks ended February 27, 2016
compared to 1
4.4
% for the same period of fiscal 2015.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of income (expenses) not directly charged to, or related to, operations such as interest expense, royalty income, and patronage income, among other items. Other income for the
thirteen weeks ended February 27, 2016
was $
1
1.
7
million
, a
n
in
crease of $
6.7 million
, compared to $
5.0 million
for the
thirteen weeks ended February 28, 2015
.
As a percent of net sales, other income was
2.6
% for
the
thirteen weeks ended
February 27, 2016
and
1.2% for the same period of fiscal 2015.
Net i
nterest income for the
third
quarter of fiscal 2016 was $
1.4 million
compared to
net
interest expense of $
351
,000 for the same period of last year. The increase in interest income on available for sale securities
resulted from
higher average invested balances a
nd
higher rates of return
.
The
reduction of interest expense
resulted from
the
Company
reducing outstanding
debt.
Patronage income was $6.9 million for the
thirteen weeks ended February 27, 2016
, compared to $4.3 million for the same period of fiscal 2015 primarily due to an increase in patronage dividends received from Eggland’s Best, Inc.
Equity in income of affiliates for the
third
quarter of fiscal 2016 was $1.
5
million compared to $
817
,000 for the same period of last year. The increase of $
725
,000 is primarily due
to
increase
d
income from specialty egg sales
and patronage dividends
in our unconsolidated joint ventures.
Other, net for the thirteen weeks ended February 27, 2016, was $1.
6
million, an increase of $1.
7
million compared to ($84,000) for the same period of fiscal 2015. This increase is primarily due
to
a gain of $1.8 million
from
the sale of property in Albuquerque, New Mexico, that was
completed
in the third quarter of fiscal 2016
.
Total other income (expense) for the
thirty-nine weeks ended February 27, 2016
, was $
14.1
million, a
n
in
crease of $
6
.
6
million
compared to
$7.6 million
for the same period of fiscal 2015.
As a percent of net sales, other income was
0.
9
% and 0.
7
% for the
thirty-nine weeks ended February 27, 2016 and February 28, 2015, res
pectively.
Net i
nterest income for the
thirty-nine weeks ended February 27, 2016
was $
2.0 million
compared to
net
interest expense of $
1.
4
million
for the same period of last year. The increase in interest income on available for sale securities
resulted from
higher average invested balances
and
higher rates of return
.
The
reduction of interest expense
resulted from
the
Company
reducing outstanding
debt.
Royalty income, related to oil and gas wells located on property we own in Texas, was $
1.3 million
for the
thirty-nine weeks ended February 27, 2016
, compared to $
2.4
million from
thirty-nine weeks ended February 28, 2015
, a decrease of $1.
1
million primarily due to a one-time bonus received in the prior year for a new mineral rights lease as well as declining well production
and
crude oil
prices
in the current period.
Patronage income was $6.9 million for the
thirty-nine weeks ended February 27, 2016
, compared to $4.
6
million for the same period of fiscal 2015 primarily due to an increase in patronage dividends received from Eggland’s Best, Inc.
Equity in income of affiliates for the
thirty-nine weeks ended
February 27, 2016
was $
3.6
million compared to $
1.5 million
for the same period of last year. The increase of $
2.1
million
is primarily due to our interest in the Southwest Specialty Egg, LLC joint venture
as well as increase
d
income from specialty egg sales
and patronage dividends
in our unconsolidated joint ventures.
INCOME TAXES
Pre-tax income,
less net income attributable to
noncontrolling interest, was $
97.3
million for the
thirteen weeks ended February 27, 2016
, compared to $
77.0
million for last year’s comparable period
. For the current thirteen-week period, income tax expense
of $
33.2
million was recorded, with an effective tax rate of
34.
1
%, compared
to $
26.1
million, with an effective rate of
3
3.9
%, for last year’s comparable
period.
For the
thirty-nine weeks ended February 27, 2016
, pre-tax income, less net income attributable to noncontrolling interest, was
$
484.3
million, compared to $
175.5
million for last year’s comparable period. For the
thirty-nine weeks ended February 27, 2016
, income tax expense of
$
167.8
million was recorded, with an effective tax rate of
34.
7
%, compared to $
60.4
million, with an effective rate of 34.
4
% for last year’s comparable period.
Our effective rate differs from the federal statutory income tax rate of 35% due to state income taxes and ce
rtain items included in income
for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income, domestic
production activity
deduction, and net income or loss attributable to noncontrolling interest.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
For the
thirteen weeks ended February 27, 2016
, net income attributable to noncontrolling interest
was $
178
,000
,
compared to $
77
,000
for the same period of
2015
.
For the
thirty-nine weeks ended February 27, 2016
, net income attributable to noncontrolling interest
was $
1.
9
million
,
compared to $
865
,000
for the same period of
2015
.
NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
Net income for the
thirteen weeks ended February 27, 2016
was $
64
.2
million, or $
1.33
per basic
and diluted share,
compared
to net income of $
50.9
million, or $
1.0
6
per basic and
1.05 per
diluted share for the same period last year.
Net income for the
thirty-nine weeks ended February 27, 2016
,
was $
316.4
million, or $
6.57
per basic share and $
6.54
per diluted share, compared
to net income of $
115.1
million, or $
2.39
per basic and
$
2.38
per
diluted share for the same period last year.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at
February 27, 2016
was $
526.6
million,
compared to $
377.0
million at
May 30, 2015
. The calculation of working capital is defined as current assets less current liabilities. Our current
ratio was
5.13
at
February 27, 2016
, compared
with 3.
86
at
May 30, 2015
. We have $3.
7
million in outstanding standby letters of credit
, which are collateralized by cash
for the benefit of certain insurance companies
. Our long-term debt at
February 27, 2016
, including current maturities, amounted to $
27.2
million, compared
to $
50.9
million at
May 30, 2015
.
During the
thirty-nine weeks ended February 27, 2016
, the Company prepaid long-term debt of $
18.1
million. In conjunction with th
ese
prepayment
s
, the Company
expensed
approximately $48,000 of prepayment penalties and $
41
,000 of deferred financing fees, both
of
which were recognized in interest expense during the
thirty-nine weeks ended February 27, 2016
.
Refer to Note 9 of our
May 30, 2015
audited financial statements for further information on our long-term debt.
For the
thirty-nine weeks ended February 27, 2016
, $
3
32.7
million in net cash was provided by operating activities, an increase of
$
196.4
million
, compared to net cash
provided by
operations of $
136.4
million for the
comparable period in fiscal
2015
.
Improved operating income as a result of
improved gross profit margins
contributed greatly to our
increase in cash flow from operations
.
For the
thirty-nine weeks ended February 27, 2016
,
approximately $
221.9
million was provided from the
sale of short-term investments and
$
352.3
million was used to purchase shor
t-term investments
.
We
invested
$
29.2
million in our previously disclosed
Red River Valley Egg Farm
, LLC joint venture
(“Red River”)
.
Approximately $
55.1
million was used to purchase property, plant and equipment,
including
construction projects
discussed in detail below
.
We
used approximately $
23.6
million for principal payments on long-term debt
including the previously discussed prepayment
s
and $
99.5
million for payment of dividends
.
As of
February 27, 2016
, t
he
se activities
result
ed in a cash
de
crease of approximately
$
528,000
since
May 30, 2015
.
The following table represents material construction projects approved
as of
March 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
|
Location
|
Projected Completion
|
|
Projected Cost
|
|
Spent as of
February 27, 2016
|
|
Remaining Projected Cost
|
Cage-Free Layer Expansion
|
Quincy, FL
|
April 2016
|
$
|
2,968
|
$
|
2,935
|
$
|
33
|
Layer House Expansions
|
Okeechobee, FL
|
April 2016
|
|
14,260
|
|
13,224
|
|
1,036
|
California Compliant/Cage Free Layer House Expansions
|
Delta, UT
|
April 2016
|
|
10,696
|
|
3,662
|
|
7,034
|
Cage-Free Layer & Pullet Houses
|
South Texas
|
May 2016
|
|
49,587
|
|
48,551
|
|
1,036
|
Breeder Pullet Houses
|
Edwards, MS
|
May 2016
|
|
2,461
|
|
563
|
|
1,898
|
Pullet Houses & Layer Houses
|
Shady Dale, GA
|
May 2016
|
|
7,872
|
|
7,862
|
|
10
|
Cage-Free Layer Houses
|
South Texas
|
October 2016
|
|
4,033
|
|
287
|
|
3,746
|
Cage-Free Layer Houses
|
Lake City, FL
|
October 2016
|
|
8,144
|
|
292
|
|
7,852
|
Cooler & Dry Storage Expansion
|
Bethune, SC
|
October 2016
|
|
1,529
|
|
-
|
|
1,529
|
Organic Facility Expansion
|
Chase, KS
|
October 2016
|
|
17,175
|
|
15,025
|
|
2,150
|
Warehouse
|
Luling, TX
|
November 2016
|
|
2,037
|
|
1,332
|
|
705
|
Cage-Free Layer Houses
|
South Texas
|
December 2016
|
|
4,063
|
|
-
|
|
4,063
|
Conventional/Cage-Free Layer House with Pullets
|
South Texas
|
February 2017
|
|
11,353
|
|
1,523
|
|
9,830
|
Refurbish Layer Houses Cage Free
|
Shady Dale, GA
|
February 2017
|
|
4,864
|
|
165
|
|
4,699
|
Conventional/Cage-Free Layer House with Pullets
|
Guthrie, KY
|
May 2017
|
|
11,751
|
|
2,249
|
|
9,502
|
Conventional/Cage-Free Layer Houses
|
Green Forest, AR
|
August 2017
|
|
8,146
|
|
915
|
|
7,231
|
|
|
|
$
|
160,939
|
$
|
98,585
|
$
|
62,354
|
In addition to these projects, the Company expects to continue to fund its 50% share of the previously discussed Red River JV during fiscal 2016. As of
March 25, 2016
,
we estimate
we will make additional contributions to the joint venture of
$
12.2
million to fund our share of the remaining construction costs
of a cage-
free production complex with capacity for 1.8 million laying hens.
Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes. Unless otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum levels of working capital (current ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth, plus 45% of cumulative net income since
the
fiscal year ended May 28, 2005); (2) limit dividends paid in any given quarter to not exceed an amount equal to one third of the previous quarter’s consolidated net income (
allowed if no events of default); (3) maintain minimum
total funded debt to total capitalization
(
not to exceed 55%); and (
4
) maintain various cash-flow coverage ratios (1.25 to 1), among other restrictions. At
February 27, 2016
, we were in compliance with the financial covenant requirements of all loan agreements. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control, as defined in the applicable loan agreem
ent. Our debt agreements
require Fred R. Adams, Jr., our Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing not less than 50% of the outstanding voting power of the Company.
W
e believe our current cash balances, investments, borrowing capacity, and cash flows from operations will be sufficient to fund our current and projected capital needs
for at least the next twelve months
.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2015-17,
Income Taxes – Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”). The purpose of the standard is to simplify the presentation of deferred taxes on a classified balance sheet. Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. The amendments in ASU 2015-17 require that all deferred tax assets and liabilities be classified as noncurrent in the balance sheet. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted.
The Company does not expect the adoption of ASU 2015-17 to have a material impact
on
its financial statements or presentation.
In February 2016, the FASB issued ASU 2016-02, Leases. The purpose of the standard is to improve transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its financial statements and presentation.
CRITICAL ACCOUNTING POLICIES
We suggest
our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the fiscal year ended
May 30, 2015
, be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to critical accounting policies identified in our Annual Report on Form 10-K for the year ended
May 30, 2015
.