UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (mark one) x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 1, 1997 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 (I.R.S. Employer Identification No.) Incorporation or Organization) 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 X No_____ Number of shares outstanding of each of the issuer's classes of common stock (exclusive of treasury shares), as of April 10, 1997. Common Stock, $0.01 par value 12,032,000 shares Class A Common Stock, $0.01 par value 1,200,000 shares CAL-MAINE FOODS, INC. INDEX <TABLE> <S> <C> <C> Page Part I. Financial Information Number Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 1, 1997 and June 1, 1996 3 Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended March 1, 1997 and March 2, 1996 4 Condensed Consolidated Statements of Cash Flow - Nine Months Ended March 1, 1997 and March 2, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 </TABLE> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) <TABLE> <S> <C> <C> March 1, 1997 June 1, 1996 ASSETS (unaudited) (note) Current assets Cash and cash equivalents $ 24,332 $ 3,959 Accounts receivable, net 14,701 14,007 Inventories - note 2 42,447 40,970 Prepaid expenses and other current assets 1,158 1,512 Total current assets 82,638 60,448 Notes receivable and investments 4,620 5,318 Other assets 1,303 529 Property, plant and equipment 150,598 142,237 Less accumulated depreciation (64,396) (58,541) 86,202 83,696 TOTAL ASSETS $ 174,763 $ 149,991 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 22,651 $ 20,094 Current maturities of long-term debt 4,154 4,257 Current deferred income taxes 9,355 9,355 Total current liabilities 36,160 33,706 Long-term debt, less current maturities 54,838 59,169 Deferred expenses 2,018 1,561 Deferred income taxes 7,655 7,655 Total liabilities 100,671 102,091 Stockholders' equity Common stock $0.01 par value per share Authorized shares - 30,000,000 at March 1, 1997, 18,000,000 at June 1, 1996 Issued and outstanding shares - 17,565,200 at March 1, 1997 and 17,035,200 at June 1, 1996 176 170 Class A common stock $0.01 par value, authorized and issued 1,200,000 shares, none at June 1, 1996 12 0 Paid-in capital 18,786 8,229 Retained earnings 61,023 47,058 Common stock in treasury - 5,533,200 shares at March 1, 1997 and 5,522,400 shares at June 1, 1996 (5,905) (5,863) Note receivable from stockholder 0 (1,694) Total stockholders' equity 74,092 47,900 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 174,763 $ 149,991 </TABLE> See note next page. See notes to condensed consolidated financial statements. CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) UNAUDITED <TABLE> <S> <C> <C> <C> <C> 13 Weeks Ended 39 Weeks Ended March 1, 1997 March 2, 1996 March 1, 1997 March 2, 1996 Net sales $ 79,649 $ 82,557 $ 223,841 $ 210,757 Cost of sales 60,521 63,766 177,016 172,807 Gross profit 19,128 18,791 46,825 37,950 Selling, general and administrative 7,497 7,962 21,739 21,860 Operating income 11,631 10,829 25,086 16,090 Other income (expense) Interest expense (891) (1,364) (3,070) (4,334) Other 628 (54) 907 886 (263) (1,418) (2,163) (3,448) Income before income taxes 11,368 9,411 22,923 12,642 Income tax expense 4,431 3,501 8,958 4,703 NET INCOME $ 6,937 $ 5,910 $ 13,965 $ 7,939 Net income per common share $ 0.54 $ 0.51 $ 1.17 $ 0.68 Weighted average shares outstanding 12,902 11,590 11,972 11,600 </TABLE> Note: The balance sheet at June 1, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) UNAUDITED <TABLE> <S> <C> <C> 39 Weeks Ended March 1, 1997 March 2, 1996 Cash flows from operating activities $ 22,807 $ 17,953 Cash flows from investing activities Purchases of property, plant and equipment (4,354) (2,626) Construction of production facilities (6,552) (4,000) Payments received on notes receivable and from investments 1,814 41 Increase in note receivable and investments 0 (200) Net proceeds from sale of property, plant and equipment 557 355 Net cash used in investing activities (8,533) (6,430) Cash flows from financing activities Net proceeds from public stock offering 10,580 0 Net borrowings under line of credit 0 (8,000) Additional long-term borrowings 1,000 2,500 Principal payments on long-term debt and capital leases (5,434) (4,381) Purchases of common stock for treasury (42) (387) Redemption of fractional shares of common stock (5) (2) Net cash provided by (used in) financing activities 6,099 (10,270) Increase in cash and cash equivalents 20,373 1,253 Cash and cash equivalents at beginning of period 3,959 3,050 Cash and cash equivalents at end of period $ 24,332 $ 4,303 </TABLE> See notes to condensed consolidated financial statements. CAL-MAINE FOODS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (in thousands, except share amounts) March 1, 1997 (unaudited) 1. Presentation of Interim Information In the opinion of the management of Cal-Maine Foods, Inc. (the "Company"), the accompanying unaudited condensed consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of March 1, 1997, and the results of operations for the thirteen weeks and thirty-nine weeks ended March 1, 1997 and March 2, 1996, and the cash flows for the thirty-nine weeks ended March 1, 1997 and March 2, 1996. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements are presented in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's prospectus dated December 11, 1996. 2. Inventories Inventories consisted of the following: <TABLE> <S> <C> <C> March 1, 1997 June 1, 1996 Flocks $ 25,324 $ 23,501 Eggs and egg products 4,714 3,127 Feed and supplies 8,911 10,424 Livestock 3,498 3,918 $ 42,447 $ 40,970 </TABLE> 3. Impact of Recently Issued Accounting Standards In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed" which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed. The Company adopted Statement 121 in the first quarter of fiscal 1997, the effect of which was not material (unaudited) to the Company's financial position or operations. 4. Subsequent Events On April 3, 1997, the Company announced an agreement to purchase the operating assets of Southern Empire Egg Farm, Inc., ("Southern Empire") Shady Dale, Georgia, and real property from the sole shareholder of Southern Empire. Southern Empire, with approximately 1.3 million laying hens, has been in business for over 40 years with customers in Georgia, South Carolina and surrounding states. Closing of the purchase was completed on April 9, 1997 for a price of $ 10.6 million. ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is primarily engaged in the production, cleaning, grading, packing and sale of fresh shell eggs and in the manufacture and sale of egg products. The Company's fiscal year end is the Saturday closest to May 31. The Company's operations are fully integrated. It owns facilities to hatch chicks, grow pullets, manufacture feed, and produce, process, manufacture and distribute shell eggs and egg products. The Company currently is the largest producer and distributor of fresh shell eggs in the United States. Shell eggs account for over 90% of the Company's net sales. The Company primarily markets its shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. Shell eggs are sold directly by the Company primarily to national and regional supermarket chains. Egg products are sold both on a direct basis and through egg product brokers to institutional users, including manufacturers of baked goods, mayonnaise and confections. The Company currently uses contract producers for approximately 40% of its total egg production. Contract producers operate under agreements with the Company for the use of their facilities in the production of shell eggs by layers owned by the Company, which owns the eggs produced. Also, some shell eggs are purchased for resale by the Company from other, outside producers. The Company's operating income or loss is significantly affected by wholesale shell egg market prices, which can fluctuate widely and are outside of the Company's control. Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in egg production during the spring and early summer. The Company's cost of production is materially affected by feed costs, which average about 60% of Cal-Maine's' total farm egg production cost. Changes in feed costs result in changes in the Company's cost of goods sold. The cost of feed ingredients is affected by a number of supply and demand factors such as crop production and weather, and other factors, such as the level of grain exports, over which the Company has little or no control. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's Condensed Consolidated Statements of Income expressed as a percentage of net sales. Percentage of Net Sales <TABLE> <S> <C> <C> <C> <C> 13 Weeks Ended 39 Weeks Ended March 1, 1997 March 2, 1996 March 1, 1997 March 2, 1996 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 76.0 77.2 79.1 82.0 Gross profit 24.0 22.8 20.9 18.0 Selling, general & admin.9.4 9.7 9.7 10.4 Operating income 14.6 13.1 11.2 7.6 Other income (expense) (0.3) (1.7) (1.0) (1.6) Income before taxes 14.3 11.4 10.2 6.0 Income tax provision 5.6 4.2 4.0 2.2 Net income 8.7% 7.2% 6.2% 3.8% </TABLE> NET SALES Net sales for the third quarter of fiscal 1997 were $79.6 million, a decrease of $3.0 million, or 3.6%, when compared to the third quarter of fiscal 1996. The dollar decrease in net sales is the net result of a 1.7% increase in average shell egg market prices and a 3.1% decrease in dozens sold. The Company's net average selling price per dozen for the fiscal 1997 third quarter was $.799, compared to $.787 for the third quarter last year, an increase of 1.5%. Dozens sold for fiscal 1997 third quarter were 96.1 million, compared to 99.2 million for last year. The decrease in dozens sold is due to a slightly smaller Company owned flock size and fewer eggs purchased by the company from outside sources during the fiscal 1997 quarter than during last year's comparable 1996 quarter. Net sales for the thirty-nine weeks ended March 1, 1997 were $223.8 million, an increase over last year of $13.0 million, or 6.2%. The dollar increase in net sales is the net result of a 9.2% increase in average shell egg market prices and a 3.7% decrease in dozens sold. The Company's net average selling price per dozen for the fiscal 1997 period is $.760 compared to $.687 last year, an increase of 10.6%. Dozens sold for the 1997 period is 280.9 million, compared to 291.7 million for last year, a decrease of 3.7%. The decrease in dozens sold is primarily attributable to decreased purchases by the company from outside sources. COST OF SALES Total cost of sales for the third quarter ended March 1, 1997 was $60.5 million, a decrease of $3.2 million, or 5.1%, below the a cost of sales of $63.8 million for last year's third quarter. This decreased dollar amount is the result of a decrease in feed cost per dozen eggs sold and, to a fractional percent, an increased cost of eggs purchased outside the Company. Feed cost per dozen for the third quarter ended March 1, 1997, was $.259 as compared to the cost per dozen of $.282 for the comparable fiscal 1996 period, a decrease of 8.2%. New crop prices for feed ingredients during the current quarter were lower than the comparable quarter last year. As mentioned in the sales discussion, the number of eggs purchased from outside the company decreased for the current quarter. The dollar decrease in cost of these outside purchases was partially offset by the increase in shell egg market prices. The increase in egg prices and decrease in production/purchase prices combined to increase gross profit from 22.8% of gross sales in the quarter ended March 2, 1996 to 24% for the current quarter ended March 1, 1997. Total cost of sales for the thirty-nine weeks ended March 1, 1997 was $177.0 million, an increase of $4.2 million, or 2.4%, over the $172.8 million total cost of goods sold for the comparable period ended March 2, 1996. Although cost of feed ingredients showed improvement for the current thirteen week period, the cost of feed ingredients was higher for the current thirty-nine week period than the comparable period ended March 2, 1996. Feed cost per dozen for the thirty-nine week period ended March 1, 1997 was $.287, compared to $.252 per dozen for the same period ended March 2, 1996, an increase of 13.9%. For the current thirty-nine week period, fewer eggs were purchased from outside sources, but at a higher price. Outside egg purchases for the thirty-nine week period ended March 1, 1997 were 50.3 million dozen, compared to 60.2 million dozen last year, a decrease of 16.4%. For the fiscal 1997 thirty-nine week period, egg price increases have exceeded increases in production/purchase costs. Gross profit increased from 18.0% of net sales for the thirty-nine week period ended March 2, 1996 to 20.9% for the thirty-nine week period ended March 1, 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense for the third quarter ended March 1, 1997 was $7.5 million, a decrease of $500,000, or 6.2%, as compared to the $8.0 million for the comparable period last year. For the current quarter, health insurance expenses lead a general overall decrease in costs. As a percent of net sales, selling, general and administrative expenses have decreased from 9.7% for last year's third quarter to 9.4% for fiscal 1997 third quarter. For the thirty-nine weeks ended March 1, 1997, selling, general and administrative expenses were $21.7 million, a decrease of $122,000, or .5%, under the $21.8 million for last year's comparable period. As a percent of net sales, selling, general and administrative expenses have decreased from 10.4% for the thirty-nine week period ended March 2, 1996 to 9.7% for the comparable period of the current fiscal year. OPERATING INCOME As the result of the above, operating income was $11.6 million for the 13 weeks ended March 1, 1997 as compared to $10.8 million for last year's comparable period. As a percent of net sales, the current fiscal 1997 quarter had a 14.6% operating profit, compared to 13.1% for last year. For the thirty-nine weeks ended March 1, 1997, operating income was $25.1 million compared to $16.1 million for last year's comparable period. As a percent of net sales, the fiscal 1997 39 week period has a 11.2% operating profit, compared to 7.6% for last year. OTHER INCOME (EXPENSE) Net other expenses for the 13 weeks ended March 1, 1997 were $263,000, compared to $1.4 million for last year's comparable period. For the current third quarter, interest expense was $.9 million, compared to $1.4 million, a decrease of $.5 million or 35.7%. The higher interest expense for the thirteen weeks ended March 2, 1996 is due to an average $12 million in credit line borrowings from banks. The notes were repaid during the fourth fiscal quarter of 1996. Current long term debt balances are $3.3 million less than the same period last year. For the current thirteen week period, net other income was $628,000 as compared to net other expense of $54,000 for the comparable period last year. During the quarter ended March 2, 1996, a loss of $350,000 was recorded for the sale and disposition of assets of the Company's hog operations. Also, during that period, the Company recorded a $100,000 insurance claim deductible on a fire loss. As a percent of net sales, net other expenses were .3% for third quarter as compared to 1.7% for last year's comparable quarter. For the thirty-nine weeks ended March 1, 1997, net other expenses were $2.2 million, a reduction of $1.2 million, or 37.3%, as compared to the comparable period last year. For the current thirty-nine weeks, interest expense was $3.1 million, a reduction of $1.2 million, or 29.2%, for the comparable period last fiscal year. As discussed above in the current quarter, the reduction in interest expense is primarily due to the repayment of credit line borrowings incurred during fiscal year 1996. As a percent of net sales, net other expense was 1.0% for the current thirty-nine week period, as compared to 1.6% for last year. INCOME TAXES As a result of above, the Company's pre-tax income was $11.4 million for the quarter ended March 1, 1997, compared to pre-tax income of $9.4 million for last year's comparable quarter. For the fiscal 1997 third quarter, an income tax expense of $4.4 million was recorded with an effective rate of 39.0% as compared to an income tax expense of $3.5 million with an effective rate of 37.2% for last year's comparable quarter. The Company's pre-tax income for the thirty-nine week period ended March 1, 1997 was $22.9 million compared to $12.6 million pre-tax income for the comparable period last year. For the thirty-nine week period ended March 1, 1997, an income tax expense of $8.9 million was recorded with an effective rate of 39.0% as compared to an income tax expense of $4.7 million with an effective rate of 37.2% for last year's comparable period. The increase in the effective income tax rate is primarily attributable to an increase in the effective state income tax rate. NET INCOME As a result of the above, net income for the third quarter ended March 1, 1997 was $6.9 million, or $.52 per share, compared to net income of $5.9 million, or $.51 per share, for last year's comparable quarter. For the thirty-nine week period ended March 1, 1997, net income was $13.9 million, or $1.17 per share, compared to last year's net income of $7.9 million, or $.68 per share, for last year's comparable period. CAPITAL RESOURCES AND LIQUIDITY The Company's working capital at March 1, 1997 was $46.5 million compared to $26.7 million at June 1, 1996. The Company's need for working capital generally is highest in the first and last fiscal quarters ending in August and May, respectively, when egg prices are normally at seasonal lows. Seasonal borrowing needs frequently are higher during these periods than during other fiscal periods. The Company had an unused $35 million line of credit with three banks at March 1, 1997. The Company's long-term debt at that date, including current maturities and capitalized lease obligations, amounted to $59.0 million. Substantially all trade receivables and inventories collateralize the Company's line of credit, and property, plant and equipment collateralize the Company's long-term debt. The Company is required by certain provisions of these loan agreements to (1) maintain minimum levels of working capital and net worth; (2) limit dividends, capital expenditures, lease obligations and additional long-term borrowings; and (3) maintain various current and cash-flow coverage ratios, among other restrictions. The Company was in compliance with these provisions at March 1, 1997. For the thirty-nine weeks ended March 1, 1997, $22.8 million in net cash was provided by operating activities, primarily from net income and depreciation. This compares to $18.0 million for the comparable period last year. For the current fiscal year, $10.5 million was used for construction and purchases of equipment. Additional long-term borrowings of $1.0 million were used for construction and $5.4 million was used to repay long-term debt. On December 11, 1996, the Company sold 1,400,000 shares of common stock at a price of $7.00 per share in an underwritten public offering. On December 30, 1996 and January 9, 1997, the Company sold a total of 330,000 additional shares of common stock in connection with the public offering upon the exercise of the underwriter's over-allotment option. The Company plans to use the $10.6 million net proceeds from the public offering to provide additional funds for possible future acquisitions of shell egg operations and related facilities, to increase working capital and for general corporate purposes. Fred R. Adams, Jr., Chairman of the Board and Chief Executive Officer of the Company, also sold shares of common stock in the public offering and used $1.7 million of the proceeds received by him to pay the note receivable from stockholder. The net result of these current activities was an increase in cash and cash equivalents at March 1, 1997, of $20.4 million over June 1, 1996. At March 1, 1997, the Company had expended approximately $6.6 million in the construction of new shell egg production, processing and feed mill facilities in Chase, Kansas. The Company is financing approximately $13.5 million of the estimated $16.0 million to complete the project through industrial revenue bonds maturing in 2011. Borrowings under the industrial revenue bond agreement totaled $1.0 million at March 1, 1997. In late fiscal 1997, the Company plans to commence construction of new shell egg production and processing facilities in Waelder, Texas. The estimated cost of construction is approximately $13.9 million with financing plans of approximately $10.4 million borrowing from an insurance company. On April 9, 1997, subsequent to the end of the third quarter, the company expended $ 10.6 million in connection with the acquisition of Southern Empire Egg Farm, Inc. The source of the purchase price was cash of $ 5.6 million and a note payable to P. Jack Davis for $ 5 million. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The following Part I exhibit is filed herewith: Exhibit Number Exhibit 27 Financial data schedule b. Reports on Form 8-K No Current Report on Form 8-K was filed by the Company covering an event during the third quarter of fiscal 1997. The Company was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 prior to December 11, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAL-MAINE FOODS, INC. (Registrant) <TABLE> <S> <C> Date: April 10, 1997 /s/Bobby J. Raines Bobby J. Raines Vice President/Treasurer (Principal Financial Officer) Date: April 10, 1997 /s/Charles F. Collins Charles F. Collins Vice President/Controller (Principal Accounting Officer) </TABLE>