calm-20160227 Q3

Index

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-Q

(mark one)

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended February 27, 2016

 

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       No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes       No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large Accelerated filer

Accelerated filer 

 

Non – Accelerated filer

(Do not check if a smaller reporting company)

 

 

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                                 Yes   No 

 

There were 43,736,481 shares of Common Stock, $0.01 par value, and 4,800,000 shares of Class A Common Stock, $0.01 par value, outstanding as of March 25, 2016.

 

 


 

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

FOR THE QUARTER ENDED FEBRUARY 27, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Page Number

Part I.

 

 

Financial Information

 

 

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets -
February 27, 2016 and May 30, 2015

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income -
Thirteen and Thirty-nine Weeks Ended February 27, 2016 and February 28, 2015

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income -
Thirteen and Thirty-nine Weeks Ended February 27, 2016 and February 28, 2015

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flow -
Thirty-nine Weeks Ended February 27, 2016 and February 28, 2015

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

 

13 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23 

 

 

 

 

 

 

Part II.

 

 

Other Information

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

26 

 

 

 

 

 

 

 

Signatures

 

 

 

27 

 

 

 

 

 

 


 

Index

 

PART I.  FINANCIAL INFORMATION

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.

2

 


 

Index

CAL-MAINE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 Weeks Ended

 

39 Weeks Ended

   

 

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.

 

3

 


 

Index

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.

4

 


 

Index

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.

 

5

 


 

Index

 

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 adjustments, considered necessary for a fair statement of the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affected reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.  Operating results for the thirteen and thirty-nine weeks ended 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 the  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 

 

 

 

 

 

 

 

 

6

 


 

Index

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 collateralizing the LOCs is included in the line item “Other assets” in the Condensed Consolidated Balance Sheets.    As a result, none 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.

 

7

 


 

Index

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 60th 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 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 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) attributable 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.

 

9

 


 

Index

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.  Estimated fair values 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 financial assets and liabilities measured at fair value on a recurring basis as of February 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 

 

Investment 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 classify these securities as

10

 


 

Index

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 

 

$

 

$

 -

 

$

10,991 

Municipal bonds

 

79,951 

 

 

226 

 

 

 -

 

 

80,177 

Commercial paper

 

2,992 

 

 

 -

 

 

 

 

2,989 

Corporate bonds

 

267,802 

 

 

 -

 

 

1,327 

 

 

266,475 

Foreign government obligations

 

2,056 

 

 

 -

 

 

 -

 

 

2,056 

Asset backed securities

 

12,687 

 

 

 -

 

 

 

 

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 

 

 

11

 


 

Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

 

 -

 

 

2,002 

Commercial paper

 

7,491 

 

 

 

 

 -

 

 

7,496 

Corporate bonds

 

136,411 

 

 

 -

 

 

47 

 

 

136,364 

Foreign government obligations

 

1,042 

 

 

 

 

 -

 

 

1,045 

Asset backed securities

 

14,356 

 

 

 -

 

 

 

 

14,352 

Mutual funds

 

2,758 

 

 

 

 

 -

 

 

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 were $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 $68,000, 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 losses, 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 $58,000 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 

 

12

 


 

Index

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