-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBYUDiOZnGEhHlEHO7fIwrXoyaEVUTNp2uImwec/InqNhTTxJ+G+Z24FrpGCxLKa x/y0KFmR6i+IMrAvfnWSaQ== 0000897069-03-001187.txt : 20031006 0000897069-03-001187.hdr.sgml : 20031006 20031006120711 ACCESSION NUMBER: 0000897069-03-001187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030830 FILED AS OF DATE: 20031006 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAL MAINE FOODS INC CENTRAL INDEX KEY: 0000016160 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - LIVESTOCK & ANIMAL SPECIALTIES [0200] IRS NUMBER: 640500378 STATE OF INCORPORATION: DE FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04892 FILM NUMBER: 03929263 BUSINESS ADDRESS: STREET 1: 3320 WOODROW WILSON DRIVE CITY: JACKSON STATE: MS ZIP: 39207 BUSINESS PHONE: 6019486813 MAIL ADDRESS: STREET 1: 3320 WOODROW WILSON DR CITY: JACKSON STATE: MS ZIP: 39209 FORMER COMPANY: FORMER CONFORMED NAME: CHICKEN CHEF SYSTEMS INC DATE OF NAME CHANGE: 19710315 10-Q 1 cmw196.txt QUARTERLY REPORT 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 August 30, 2003 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X Number of shares outstanding of each of the issuer's classes of common stock (exclusive of treasury shares), as of October 2, 2003. Common Stock, $0.01 par value 10,581,403 shares Class A Common Stock, $0.01 par value 1,200,000 shares CAL-MAINE FOODS, INC. AND SUBSIDIARIES INDEX Page Part I. Financial Information Number Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - August 30, 2003 and May 31, 2003 3 Condensed Consolidated Statements of Operations - Three Months Ended August 30, 2003 and August 31, 2002 4 Condensed Consolidated Statements of Cash Flow - Three Months Ended August 30, 2003 and August 31, 2002 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures of Market Risk 11 Item 4. Controls and Procedures 11 Part II. Other Information Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
August 30, 2003 May 31, 2003 --------------- ------------ (unaudited) (note1) ASSETS Current assets: Cash and cash equivalents $ 10,346 $ 6,092 Trade and other receivables 27,060 19,493 Recoverable federal income taxes 6,860 6,860 Inventories 50,185 51,005 Prepaid expenses and other current assets 2,067 1,729 -------------------------------------------------------- Total current assets 96,518 85,179 Notes receivable and investments 7,754 7,254 Goodwill 3,147 3,147 Other assets 1,657 1,620 Property, plant and equipment 269,903 267,671 Less accumulated depreciation (133,389) (129,479) -------------------------------------------------------- 136,514 138,192 -------------------------------------------------------- TOTAL ASSETS $ 245,590 $ 235,392 ======================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 37,253 $ 33,032 Current maturities of long-term debt 12,369 12,592 Deferred income taxes 11,806 11,806 -------------------------------------------------------- Total current liabilities 61,428 57,430 Long-term debt, less current maturities 93,872 95,652 Other non-current liabilities 1,820 1,481 Deferred income taxes 14,744 14,744 -------------------------------------------------------- Total liabilities 171,864 169,307 Stockholders' equity: Common stock $0.01 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares - 17,565,200 at August 30, 2003 and May 31,2003 176 176 Class A common stock $0.01 part value, authorized, issued and outstanding 1,200,000 shares 12 12 Paid-in capital 18,784 18,784 Retained earnings 67,837 60,212 Common stock in treasury-6,983,797 shares at August 30, 2003 and 7,000,812 at May 31, 2003 (13,083) (13,099) -------------------------------------------------------- Total stockholders' equity 73,726 66,085 -------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $245,590 $235,392 ========================================================
See notes to condensed consolidated financial statements. 3 CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
13 Weeks Ended August 30, 2003 August 31, 2002 ---------------------------------------------------------------- Net sales $ 114,376 $ 82,218 Cost of sales 87,701 72,147 ---------------------------------------------------------------- Gross profit 26,675 10,071 Selling, delivery and administrative 13,255 10,557 ---------------------------------------------------------------- Operating income (loss) 13,420 (486) Other income (expense): Interest expense, net (1,913) (2,219) Other 692 53 ---------------------------------------------------------------- (1,221) (2,166) ---------------------------------------------------------------- Income (loss) before income taxes 12,199 (2,652) Income tax expense (benefit) 4,428 (940) ---------------------------------------------------------------- Net income (loss) $ 7,771 $ (1,712) ================================================================ Net income (loss) per common share: Basic $ .66 $ (.15) ================================================================ Diluted $ .65 $ (.15) ================================================================ Dividends per common share $ .0125 $ .0125 ================================================================ Weighted average shares outstanding: Basic 11,779 11,764 ================================================================ Diluted 12,034 11,764 ================================================================
See notes to condensed consolidated financial statements. 4 CAL-MAINE FOODS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
13 Weeks Ended August 30, 2003 August 31, 2002 ----------------------------------------------- Cash provided by (used in) operations $ 8,727 $(3,314) Investing activities: Purchases of property, plant and equipment (1,183) (1,248) Construction of production and processing facilities (1,168) (2,554) Payments received on notes receivable and from investments 26 31 Increase in notes receivable and investments (59) (110) Net proceeds from disposal of property, plant and equipment 45 261 ----------------------------------------------- Net cash used in investing activities (2,339) (3,620) Financing activities: Net borrowings on note payable to bank - 7,500 Principal payments on long-term debt (2,003) (1,991) Sale of common stock from treasury 16 - Payments of dividends (147) (147) ----------------------------------------------- Net cash provided by (used in)financing activities (2,134) 5,362 ----------------------------------------------- Net change in cash and cash equivalents 4,254 (1,572) Cash and cash equivalents at beginning of period 6,092 4,878 ----------------------------------------------- Cash and cash equivalents at end of period $ 10,346 $ 3,306 ===============================================
See notes to condensed consolidated financial statements. 5 CAL-MAINE FOODS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (in thousands, except share amounts) August 30, 2003 (unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared 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 principals for complete financial statements. In the opinion of management, all adjustments (consisting of normal occurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended August 30, 2003 are not necessarily indicative of the results that may be expected for the year ending May 29, 2004. The balance sheet at May 31, 2003 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. For further information, refer to the consolidated financial statements and footnotes thereto included the in Cal-Maine Foods, Inc. annual report on Form 10-K for the fiscal year ended May 31, 2003. 2. Inventories Inventories consisted of the following: August 30 2003 May 31, 2003 ---------------------------------------------------- Flocks $ 33,443 $ 33,070 Eggs 3,251 2,752 Feed and supplies 11,034 12,597 Livestock 2,457 2,586 ---------------------------------------------------- $ 50,185 $ 51,005 ==================================================== 3. Other Matters Possible "Going Private" Transaction As reported in the Company's Form 8-K Current Report dated July 11, 2003, at a special meeting held on that date Cal-Maine's Board of Directors unanimously voted to explore the possibility of the Company becoming privately owned. At the same meeting, the Board also appointed a Special Committee comprised of three independent directors to consider the feasibility of "going private" and, in that regard, to ensure that the best interests of the Company and its shareholders would be served by such a course of action. The members of the Special Committee are W.B. Cox, Letitia C. Hughes and R. Faser Triplett, M.D. Following their appointment, the Committee members held an organizational meeting and elected Dr. Triplett as the Committee's Chairman. In addition, the Committee decided to interview certain investment banking firms for purposes of obtaining an opinion as to the fairness from a financial standpoint of the price to be paid by the Company for shares to be purchased in a going private transaction, as well as to assist the Committee in evaluating alternative methods of going private. In addition, the Committee selected and engaged its own independent counsel to advise and represent the Committee on related legal matters. On July 24, 2003, after considering several investment banking firms, the Special Committee engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") to serve as investment adviser to the Committee in connection with the possible going private transaction. The selection of Houlihan Lokey was reported by the Committee to the full Board of Directors of the Company at a regular quarterly Directors meeting held the same day. Houlihan Lokey reports to the Special Committee and its final written opinion is addressed to the full Board of Directors of the Company. All expenses of a going private transaction, including Houlihan Lokey's fee, will be paid by the Company. It is contemplated that a going private transaction would be effected by means of a "reverse split" of the Company's Common Stock. This would require an amendment of the Company's Certificate of Incorporation that would result in fractional shares that would be purchased by the Company for cash. If a going private transaction is effected, as to which the Company can make no representation or prediction, the reporting and other applicable requirements of the Securities Exchange Act of 1934 will no longer apply to the Company or to any officer, director or controlling stockholder of the Company. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Cal-Maine Foods, Inc. (the" Company") is primarily engaged in the production, grading, packing and sale of fresh shell eggs. The Company's fiscal year end is the Saturday closest to May 31. The Company's operations are fully integrated. At its facilities it hatches chicks, grows pullets, manufactures feed, and produces, processes, and distributes shell eggs. The Company currently is the largest producer and distributor of fresh shell eggs in the United States. Shell egg sales, including feed sales to outside egg producers, account for 99% 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. The Company currently uses contract producers for approximately 13% 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, shell eggs are purchased from outside producers for resale, as needed, by the Company. 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 55% of the Company'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. According to U.S. Department of Agriculture reports, laying hen numbers on September 1, 2003 were lower than a year ago. Current industry projections are that, by calendar year end, the hen numbers will be slightly higher than last year. Current U.S. Department of Agriculture projections for the fall 2003 corn and soybean crop are for a smaller crop than earlier projected. This will likely result in higher feed ingredient cost for the year ahead. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's Condensed Consolidated Statements of Operations expressed as a percentage of net sales.
Percentage of Net Sales ----------------------- 13 Weeks Ended August 30, 2003 August 31, 2002 ---------------------------------------------------------- Net sales 100.0 % 100.0 % Cost of sales 76.7 87.8 ---------------------------------------------------------- Gross profit 23.3 12.2 Selling, delivery & administrative 11.6 12.8 ---------------------------------------------------------- Operating income (loss) 11.7 (0.6) Other expense (1.1) (2.6) ---------------------------------------------------------- Income (loss) before taxes 10.6 (3.2) Income tax (benefit) 3.8 (1.1) ---------------------------------------------------------- Net income (loss) 6.8 % (2.1) % ==========================================================
7 NET SALES Net sales for the first quarter of fiscal 2004 were $114.4 million, an increase of $32.2 million, or 39.1%, as compared to net sales of $82.2 million for the first quarter of fiscal 2003. Total eggs sold and egg selling prices increased in the current quarter as compared to a year ago. Dozens sold for the current quarter were 147.0 million dozen, an increase of 11.0 million dozen, or 8.1%, as compared to the first quarter of last year. The Company's net average selling price per dozen for the fiscal 2004 first quarter was $.746, compared to $.573 for the first quarter of last year, an increase of 30.2%. The Company's net average selling price is the blended price for all sizes and grades of shell eggs, including non-graded egg sales, breaking stock and undergrades. Usually, the first quarter of the Company's fiscal year is a weak quarter as to egg price and volume of sales. However, for the fiscal 2004 first quarter, domestic demand for eggs was good and a nearly balanced supply of eggs strengthened egg selling prices. COST OF SALES Total cost of sales for the first quarter ended August 30, 2003 was $87.7 million, an increase of $15.6 million, or 21.6%, as compared to the cost of sales of $72.1 million for last year's first quarter. The increase is due to an increase in dozens sold, cost of purchases from outside egg producers, and an increase in cost of feed. The 5.2% increase in dozens sold was provided mostly from an increase in dozens produced in Company facilities and a small increase in eggs purchases from outside producers. Due to the increase in egg selling prices, the cost of these outside purchases increased sharply, as reflected in the Company's 31.9% increase in average egg selling prices. Feed cost per dozen for the current first quarter was $.215, compared to $.205 per dozen for the comparable fiscal 2003 first quarter, an increase of 4.8%. Other operating costs remained in the same ranges for both the current and last year first fiscal quarters. The increase in egg selling prices offset the increase in cost of sales and resulted in a net increase in gross profit from12.2% for the quarter ended August 31, 2002 to 23.3% of net sales for the current quarter ended August 30, 2003. SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES Selling, delivery and administrative expense for the first quarter ended August 30,2003 was $13.3 million, an increase of $2.7 million, or 25.5%, as compared to the expense of $10.6 million for the comparable period last year. Almost half of the increase, $1.4 million, is due increase in value of the Company's stock option plan. The market quotation for the Company's stock increased from $5.24 per share at May 30,2003 to $7.21 per share at August 30, 2003, and liability accounts were adjusted for the stock option plan. Due to overall increases in the insurance market, the cost of general business and property insurance increased $600,000 for the current quarter as compared to last year's comparable quarter. Franchise fees, concerning the Company's specialty egg sales, and professional fees, including legal and audit, increased $300,000 each. On a cost per dozen sold basis, selling, delivery and administrative expense increased from $.078 per dozen for the first quarter of fiscal 2003 to $.093 per dozen for the current quarter, an increase of 19.2%. Due to an increase in net sales, selling, delivery and administrative expense decreased from 12.8% for fiscal 2003 to 11.6% of net sales for the current fiscal year. OPERATING INCOME As a result of the above, operating income was $13.4 million for the first quarter ended August 30,2003, as compared to an operating loss of $486,000 for last fiscal year's first quarter. As a percent of net sales, the current fiscal 2004 quarter had operating income of 11.7%, compared to an operating loss of 0.6% for last year. OTHER EXPENSE Other expense for the first quarter ended August 30, 2003 was $1.2 million, a decrease of $1.0 million, compared to $2.2 million for the quarter and August 31, 2002. For the current fiscal quarter, other income increased $600,000, mostly from equity in income of affiliates, and net interest expense decreased $300,000, due to repayment of borrowings on the Company's line of credit. As a percent of net sales, other expense decreased from 2.6% for last year's first quarter to 1.1% for the current first quarter. INCOME TAXES As a result of the above, the Company had pre-tax income of $12.2 million for the quarter ended August 30, 2003, compared to pre-tax loss of $2.7 million for the quarter ended August 31, 2002. For the current first quarter, income taxes of $4.4 million were recorded with an effective tax rate of 36.3%, as compared to an income tax benefit of $940,000 with an effective tax rate of 35.4% for last year's first quarter. NET INCOME (LOSS) As a result of the above, net income for the first quarter ended August 30, 2003 was $7.8 million, or $.66 per basic and $.65 per diluted share, compared to net loss of $1.7 million, or $.15 per basic and diluted share for the quarter ended August 31, 2002. As a percent 8 of net sales, net income was 6.8% for the quarter ended August 31, 2002, compared to net loss of 2.1% for the quarter ended August 30, 2003. CAPITAL RESOURCES AND LIQUIDITY The Company's working capital at August 30, 2003 was $35.1 million compared to $27.7 million at May 31, 2003. The Company's current ratio was 1.57 at August 30, 2003 as compared with 1.48 at May 31, 2003. The Company's need for working capital generally is highest in the last and first fiscal quarters ending in May and August, respectively, when egg prices are normally at seasonal lows. Seasonal borrowing needs frequently are higher during these quarters than during other fiscal quarters. The Company has a $35.0 million line of credit with three banks none of which was utilized at August 30, 2003. The Company's long-term debt at August 30, 2003, including current maturities, amounted to $106.2 million, as compared to $108.2 million at May 31, 2003. For the thirteen weeks ended August 30, 2003, $8.7 million in net cash was provided by operating activities. This compares to net cash used of $3.3 million for the comparable period last year. In the current fiscal quarter, $1.2 million was used for purchases of property, plant and equipment and $1.1 million used for construction projects. Approximately $147,000 used for payments of dividends on the common stock and $2.0 million was used for repayments on long-term debt. The net result of these current activities was an increase in cash of $4.3 million since May 31, 2003. 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. At August 30, 2003, the Company is in compliance with the provisions of all loan agreements, including any provisions waived or amended. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event of a change in the control of the Company. In fiscal 2001, the Company began construction of a new shell egg production and processing facility in Guthrie, Kentucky, with completion of the facility expected in the next fiscal quarter. The total cost of the facility is approximately $18.0 million, of which $16.0 million was incurred through August 31, 2002. The Company has commitments from an insurance company to receive $5.0 million in long-term borrowings and from a leasing company to receive $7.5 million applicable to the Guthrie facility. Including the construction project, the Company has projected capital expenditures of $11.0 million fiscal 2004, which will be funded by cash flows from operations and additional long-term borrowings. The Company has $2.5 million of deferred tax liability due to a subsidiary's change from a cash basis to an accrual basis taxpayer on May 29, 1988. The Taxpayer Relief Act of 1997 provides that the taxes on the cash basis temporary differences as of that date are generally payable over the 20 years beginning in fiscal 1999 or in the first fiscal year in which there is a change in ownership control. Payment of the $2.5 million deferred tax liability would reduce the Company's cash, but would not impact the Company's consolidated statement of operations or stockholders' equity, as these taxes have been accrued and are reflected on the Company's consolidated balance sheet. Impact of Recently Issued Accounting Standards. In the first quarter of fiscal 2003, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," (SFAS No. 121), however, it retains the fundamental provisions of SFAS No. 121 related to the recognition and measurement of the impairment of long-lived assets to be "held and used." In addition, SFAS No. 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed other than by sale (e.g., abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset as "held for sale." The adoption of SFAS No. 144 had no effect on the Company's consolidated results of operations or financial position. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (the Interpretation). The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The Company has investments in various affiliates established for the purpose of production, processing, and distribution of shell eggs. These entities are primarily funded with financing from third party lenders, which is secured by first liens on the assets of the entities. The creditors of the entities do not have recourse to the Company, except for one entity for which the Company guarantees 50% of its debt. The Company accounts for these investments on the equity method of accounting, recording its share of the net income or loss. The Company has the 9 ability to exercise significant influence over operating and financial policies. However, the Company does not have a controlling interest in the respective entities. At May 31, 2003, the Company's aggregate net investment in these entities totaled $6 million. The portion of the debt guaranteed was $7.2 million at May 31, 2003. These amounts represent the Company's maximum exposure to loss at May 31, 2003 as a result of its involvement with these entities. Forward Looking Statements. The foregoing statements contain forward-looking statements that involve risks and uncertainties and the Company's actual experience may differ materially from that discussed above. Factors that may cause such a difference include, but are not limited to, those discussed in "Factors Affecting Future Performance" below, as well as future events that have the effect of reducing the Company's available cash balances, such as unanticipated operating losses or capital expenditures related to possible future acquisitions. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. See also the Company's reports to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. Factors Affecting Future Performance. The Company's future operating results may be affected by various trends and factors that are beyond the Company's control. These include adverse changes in shell egg prices and in the grain markets. Accordingly, past trends should not be used to anticipate future results and trends. Further, the Company's prior performance should not be presumed to be an accurate indication of future performance. Critical Accounting Policies. The preparation of financial statements in accordance with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management suggests that the Company's Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included in Cal-Maine Foods, Inc. and Subsidiaries annual report on Form10-K for the fiscal year ended May 31, 2003, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company believes the critical accounting policies that most impact the Company's consolidated financial statements are described below. Allowance for Doubtful Accounts. In the normal course of business, the Company extends credit to its customers on a short-term basis. Although credit risks associated with our customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer's inability to meet its financial obligations to the Company (e.g. bankruptcy filings), a specific reserve is recorded to reduce the receivable to the amount expected to be collected. For all other customers, the Company recognizes reserves for bad debts based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due. Inventories. Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method) or market. If market prices for eggs and feed grains move substantially lower, the Company would record adjustments to write-down the carrying values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 18 weeks. Capitalized flock costs are then amortized over the productive lives of the flocks, generally one to two years. Flock mortality is charged to cost of sales as incurred. High mortality from disease or extreme temperatures would result in abnormal adjustments to write-down flock inventories. Management continually monitors each flock and attempts to take appropriate actions to minimize the risk of mortality loss. Long-Lived Assets. Depreciable long-lived assets are primarily comprised of buildings and improvements and machinery and equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to depreciation expense. The Company continually reevaluates the carrying value of its long-lived assets, for events or changes in circumstances, which indicate that the carrying value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the asset. 10 Investment in Affiliates. The Company has invested in other companies engaged in the production, processing and distribution of shell eggs and egg products. The Company's ownership percentages in these companies range from less than 20% to 50%. Therefore, these investments are recorded using the cost or the equity method, and accordingly, not consolidated in the Company's financial statements. Changes in the ownership percentages of these investments might alter the accounting methods currently used. The Company is a guarantor of approximately $7.2 million of long-term debt of one of the affiliates. Goodwill. Goodwill primarily relates to the fiscal 1999 acquisition of Hudson Brothers, Inc. Goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. An impairment loss would be recorded if the recorded goodwill exceeds its implied fair value. The Company has only one operating segment, which is its sole reporting unit. Accordingly, goodwill is tested for impairment at the entity level. Significant adverse industry or economic changes, or other factors not anticipated could result in an impairment charge to reduce recorded goodwill. Income Taxes. The Company determines its effective tax rate by estimating its permanent differences resulting from differing treatment of items for tax and accounting purposes. The Company is periodically audited by taxing authorities. Any audit adjustments affecting permanent differences could have an impact on the Company's effective tax rate. ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK There have been no material changes in the market risk reported in the Company's fiscal 2003 annual report on Form 10-K. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of the end of the period covered by this report. There were no significant changes in internal controls or in other factors that significantly affect internal controls subsequent to the date of their most recent evaluation. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 26, 2002, Cal-Maine Farms, Inc.("Cal-Maine Farms"), a Delaware corporation and a wholly owned subsidiary of the Company, was served with process in a civil complaint filed in the Circuit Court of the First Judicial District of Hinds County, Mississippi, on behalf of four plaintiffs, Hunter McWhorter, a minor, his two parents, and Michael Green, an adult. In addition to Cal-Maine Farms, Fred Adams, Dolph Baker, Charlie Collins, R. K. Looper and B. J. Raines, officers of the Company, are also named as defendants. Six other named defendants include Cargill, Incorporated, George's Farms, Inc., Peterson Farms, Inc., Simmons Foods, Inc., Simmons Poultry Farms, Inc., and Tyson Foods, Inc., each of which is engaged in the broiler business. Additional individual defendants with affiliations to the other corporate defendants were also named. The suit alleges the original plaintiffs have suffered medical problems resulting from living near land upon which "litter" from the flocks of hens owned by certain of the defendants was spread as fertilizer. The suit specifically addresses conditions alleged to exist in Washington County, Arkansas, where there is a relatively high concentration of broiler farms. Cal-Maine Farms is not engaged in any broiler production and, compared to the broiler producers, only has a very small portion of the hens located in Washington County, Arkansas. The suit alleges actual damages in the amount of $55,000,000 and requests punitive damages in the amount of $100,000,000. On December 31, 2002, an Amended Complaint was filed, bringing the total number of plaintiffs to 93, of which 67 are alleged to be ill and three are deceased. The damages sought were not amended. An answer has been filed on behalf of Cal-Maine Farms denying the plaintiffs claim but no discovery has taken place. At this time, motions to dismiss on behalf of certain defendants, including Cal-Maine Farms, are pending, but not yet scheduled for hearing. At this stage, it is impossible to evaluate the potential exposure, if any, of Cal-Maine Farms to damages in this suit. On August 18, 2003, a complaint, styled H. David Schneider v. Cal-Maine Foods Inc., et al. C.A. No. 20493-NC (the "Schneider Action"), was filed against the Company and its directors in the Court of Chancery of the State of Delaware in and for New Castle County. The suit seeks class action status and alleges the Company and its directors are attempting to freeze out the Company's public shareholders in connection with the proposed going private transaction announced by the Company on July 14, 2003, conflicts of interests, self-dealing and lack of good faith dealing. The suit asks for a preliminary and permanent injunction to enjoin the defendants from proceeding with the proposed going private transaction, damages in the event the transaction is consummated, and an accounting to class members for their damages. On August 25, 2003, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County against the Company and its directors styled Pyles v. Cal-Maine Foods, Inc., et al., C.A. No. 20507 (the "Pyles Action"). The proposed class in the Pyles Action consists of all holders of the Company's common stock other than the directors of the Company, their affiliates and the Company's ESOP. The complaint in the Pyles Action generally alleges, among other things, that the directors breached their fiduciary duties in approving the reverse stock split, that the structure and timing of the reverse split is unfair to the holders of the Company's common stock other than the directors of the Company and the participants in the Company's ESOP and the price being paid for fractional shares in the reverse split is unfair. The complaint in the Pyles Action seeks preliminary and permanent injunctions to prevent consummation of the reverse stock split, rescission or rescissory damages in the event the reverse stock split is consummated and damages as a result of the alleged breaches of fiduciary duty. On August 26, 2003, the plaintiff in the Pyles Action filed a motion for expedited proceedings, motion for preliminary injunction and served discovery requests on the Company and its directors. As of the date of this report, the Court of Chancery has not scheduled a date and time to hear the plaintiff's request to expedite proceedings in the Pyles Action. On September 2, 2003, with the consent of the parties to each action the Court of Chancery entered an order consolidating the Schneider Action with the Pyles Action into one proceeding styled, In re Cal-Maine Foods, Inc. Stockholders Litigation, C.A. No. 20507 (the "Consolidated Action"). That same day, the Court of Chancery agreed to hear plaintiffs' motion for preliminary injunction on October 1, 2003. On or about September 16, 2003, the parties to the Consolidated Action advised the Court that the Court did not need to hear plaintiffs' motion for preliminary injunction on October 1 as the date of the meeting to vote on the going private transaction had been delayed. The parties are attempting to reschedule the date for the hearing on plaintiffs' motion for preliminary injunction in advance of the new date for the stockholders' meeting to vote on the going private transaction. On September 25, 2003, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County against the Company and its directors styled Twin Valley Farms Exchange, Inc., Leon Eshelman, Valeria Eshelman, Gary Eshelman, Pamela Fredricks, and Terry Bixler v. Cal-Maine Foods, Inc., et al., C.A. No. 20576-NC (the "Twin Valley 12 Farms Action"). The proposed class in the Twin Valley Farms Action consists of all holders of the Company's common stock other than the directors of the Company, their affiliates and the Company's ESOP. All of the directors of the Company are named as defendants in the Twin Valley Farms Action. The complaint in the Twin Valley Farms Action generally alleges, among other things, that the proposed reverse split is the product of unfair dealing by the directors of the Company and that the price to be paid in lieu of fractional shares does not reflect the intrinsic value of the Company nor does it constitute "fair value" pursuant to the General Corporation Law of the State of Delaware. On September 25, 2003, the plaintiffs in the Twin Valley Farms Action also filed a motion to consolidate the Twin Valley Farms Action with the Consolidated Action. By order dated September 29, 2003, the Twin Valley Farms Action was consolidated with and into the Consolidated Action. The Company and its directors intend to vigorously defend the Consolidated Action and are of the opinion that the suits described included therein are without merit. The Schneider Action, Pyles Action and Twin Valley Farms Action were previously reported by the Company in its Form 8-K current reports dated August 18, 2003, August 25, 2003 and September 25, 2003, respectively ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits No. Description -- ----------- 31.1 Certification of The Chief Executive Officer 31.2 Certification of The Chief Financial Officer 32.0 Written Statement of The Chief Executive Officer and The Chief Financial Officer b. Reports on Form 8-K (i) Form 8-K filed July 14, 2003, reporting on July 11, 2003, under Item 5 " Other Events" that the Company voted to explore the possibility of the Company becoming privately held. (ii) Form 8-K filed August 13, 2003, reporting on July 25, 2003, under Item 12 " Results of Operations and Financial Condition," provided under Item 9 " Regulation FD Disclosure" the Company's press release announcing financial results for the quarter and fiscal year ended May 31, 2003. (iii) Form 8-K filed August 18, 2003, reporting on August 18, 2003, under Item 5 " Other Events" and under Item 7 " Financial Statements and Exhibits" the Company's press release announcing that the Company voted for a 1 for 2,500 reverse stock split, and that shareholder's owning less than 2,500 shares would receive cash in the amount of $7.35 in lieu of fractional shares. (iv) Form 8-K filed August 22, 2003, reporting on August 18, 2003, under Item 5 " Other Events and Required FD Disclosure" and under Item 7 " Financial Statements and Exhibits" that a class action suit styled H. David Schneider v. Cal-Maine Foods Inc., et al., C.A. No. 20493-NC, was filed against the Company and its directors in the Court of Chancery of the State of Delaware in and for New Castle County in connection with the proposed going private transaction announced by the Company on July 14, 2003. (v) Form 8-K filed August 29, 2003, reporting on August 25, 2003, under Item 5 " Other Events and Required FD Disclosure" and under Item 7 " Financial Statements and Exhibits" that a class action suit styled Pyles v. Cal-Maine Foods Inc., et al., C.A. No. 20507, was filed against the Company and its directors in the Court of Chancery of the State of Delaware in and for New Castle County in connection with the proposed going private transaction announced by the Company on July 14, 2003. 13 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) Date: October 6, 2003 /s/ Bobby J. Raines -------------------------------------------- Bobby J. Raines Vice President/Treasurer (Principal Financial Officer) Date: October 6, 2003 /s/ Charles F. Collins -------------------------------------------- Charles F. Collins Vice President/Controller (Principal Accounting Officer) 14 EX-31.1 3 cmw196a.txt CERTIFICATION OF CEO Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 I, Fred R. Adams, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Cal-Maine Foods, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Fred R. Adams, Jr. ----------------------------------------- Fred R. Adams, Jr. Date: October 6, 2003 Chairman of the Board and Chief Executive Officer EX-31.2 4 cmw196b.txt CERTIFICATION OF CFO Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 I, Bobby J. Raines , certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Cal-Maine Foods, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Bobby J. Raines ------------------------------------------- Bobby J. Raines Date: October 6, 2003 Vice President, Chief Financial Officer, Treasurer and Secretary EX-32.0 5 cmw196c.txt CERTIFICATION OF CEO AND CFO Exhibit 32.0 Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Cal-Maine Foods Inc. (the "Company"), hereby certify, based on their knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended August 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Fred R. Adams, Jr. - ------------------------------------------------- Fred R. Adams, Jr. Chairman of the Board and Chief Executive Officer /s/ Bobby J. Raines - ------------------------------------------------- Bobby J. Raines Vice President, Chief Financial Officer, Treasurer and Secretary Date: October 6, 2003 -----END PRIVACY-ENHANCED MESSAGE-----