Cal-Maine Foods Inc 10-Q for FY2021 Q2
Cal-Maine Foods Inc (CALM)
10-Q
2021-01-05
For: 2020-11-28
View Original
Added on
April 11, 2026
About this 10-Q
Cal-Maine Foods Inc filed this 10-Q on January 5, 2021, covering the quarter ended November 28, 2020 (FY2021 Q2).
Headline figures
Quarter ended November 28, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $347.33M
- up 11.5% from $311.52M a year earlier
- Net income
- $12.16M
- compared with a net loss of $10.06M a year earlier
- Diluted EPS
- $0.25
- compared with -$0.21 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
For the quarterly period ended November 28, 2020
or
For the transition period from ____________ to ____________
Commission File Number: 000-38695
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(601 ) 948-6813
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | ||||||||||||
Non – Accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act | ☐ | |||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
There were 43,968,231 shares of Common Stock, $0.01 par value, and 4,800,000 shares of Class A Common Stock, $0.01 par value, outstanding as of January 5, 2021.
1
INDEX
| Page Number | |||||||||||||||||
| Part I. | |||||||||||||||||
| Item 1. | |||||||||||||||||
| Item 2. | |||||||||||||||||
| Item 4. | |||||||||||||||||
| Part II. | |||||||||||||||||
| Item 1. | |||||||||||||||||
| Item 1A. | |||||||||||||||||
| Item 2. | |||||||||||||||||
| Item 6. | |||||||||||||||||
2
Index
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for par value amounts)
| November 28, 2020 | May 30, 2020 | |||||||||||||
| Assets | (unaudited) | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Investment securities available-for-sale | ||||||||||||||
| Trade and other receivables, net | ||||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant & equipment, net | ||||||||||||||
| Finance lease right-of-use asset, net | ||||||||||||||
| Operating lease right-of-use asset, net | ||||||||||||||
| Investments in unconsolidated entities | ||||||||||||||
| Goodwill | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||||||||
| Current portion of finance lease obligation | ||||||||||||||
| Current portion of operating lease obligation | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term finance lease obligation | ||||||||||||||
| Long-term operating lease obligation | ||||||||||||||
| Other noncurrent liabilities | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies - see Note 11 | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock ($ | ||||||||||||||
Common stock - authorized | ||||||||||||||
Class A convertible common stock - authorized and issued | ||||||||||||||
| Paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive income, net of tax | ||||||||||||||
Common stock in treasury at cost – | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||||||||
See Notes to Condensed Consolidated Financial Statements.
2
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Loss on disposal of fixed assets | ||||||||||||||||||||||||||
| Operating income (loss) | ( | ( | ( | |||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest income, net | ||||||||||||||||||||||||||
| Royalty income | ||||||||||||||||||||||||||
| Equity income (loss) of unconsolidated entities | ( | ( | ||||||||||||||||||||||||
| Other, net | ||||||||||||||||||||||||||
| Total other income, net | ||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ( | ( | |||||||||||||||||||||||
| Income tax (benefit) expense | ( | ( | ( | |||||||||||||||||||||||
| Net income (loss) | ( | ( | ( | |||||||||||||||||||||||
| Less: Loss attributable to noncontrolling interest | ( | ( | ||||||||||||||||||||||||
| Net income (loss) attributable to Cal-Maine Foods, Inc. | $ | $ | ( | ( | ( | |||||||||||||||||||||
| Net income (loss) per common share attributable to Cal-Maine Foods, Inc.: | ||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Diluted | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss), before tax: | ||||||||||||||||||||||||||
| Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments | ( | ( | ( | |||||||||||||||||||||||
| Income tax (benefit) expense related to items of other comprehensive income | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | |||||||||||||||||||||||
| Comprehensive income (loss) | ( | ( | ( | |||||||||||||||||||||||
| Less: Comprehensive loss attributable to the noncontrolling interest | ( | ( | ||||||||||||||||||||||||
| Comprehensive income (loss) attributable to Cal-Maine Foods, Inc. | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
4
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| 26 Weeks Ended | ||||||||||||||
| November 28, 2020 | November 30, 2019 | |||||||||||||
| Operating activities: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Depreciation and amortization | ||||||||||||||
| Impairment loss on property, plant & equipment | ||||||||||||||
| Other adjustments, net | ( | ( | ||||||||||||
| Net cash used in operations | ( | ( | ||||||||||||
| Investing activities: | ||||||||||||||
| Purchases of investment securities | ( | ( | ||||||||||||
| Sales and maturities of investment securities | ||||||||||||||
| Distributions from unconsolidated entities | ||||||||||||||
| Acquisition of business | ( | |||||||||||||
| Purchases of property, plant and equipment | ( | ( | ||||||||||||
| Net proceeds from disposal of property, plant and equipment | ||||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||
| Financing activities: | ||||||||||||||
| Purchase of common stock by treasury | ( | ( | ||||||||||||
| Distributions to noncontrolling interests | ( | |||||||||||||
| Principal payments on long-term debt | ( | |||||||||||||
| Principal payments on finance lease | ( | ( | ||||||||||||
| Contributions | ||||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Net change in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental Information: | ||||||||||||||
| Cash paid for operating leases | $ | $ | ||||||||||||
| Interest paid | $ | $ | ||||||||||||
See Notes to Condensed Consolidated Financial Statements.
5
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 28, 2020
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of Cal-Maine Foods, Inc. and its subsidiaries (the “Company,” “we,” “us,” “our”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended May 30, 2020, (the “2020 Annual Report”). These statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented and, in the opinion of management, consist of adjustments of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of operating results for the entire fiscal year.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to May 31. Each of the three-month periods and year-to-date periods ended on November 28, 2020 and November 30, 2019 included 13 and 26 weeks, respectively.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods in response to COVID-19.
Trade Receivables
Trade receivables are stated at their carrying value, net of a reserve for credit losses. At November 28, 2020 and May 30, 2020, reserves for credit losses were $766 thousand and $744 thousand, respectively. The Company extends credit to customers based on an evaluation of each customer’s financial condition and credit history. Collateral is generally not required. The Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and monitoring procedures. In determining our reserve for credit losses, receivables are pooled according to age, with each pool assigned an expected loss percentage based on historical loss experience adjusted as needed for economic and other forward-looking factors. Accounts receivable are written off when deemed uncollectible.
6
Note 2 - Investment Securities
The following represents the Company’s investment securities as of November 28, 2020 and May 30, 2020 (in thousands):
| November 28, 2020 | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Certificates of deposits | ||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||
| Total current investment securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Mutual funds | $ | $ | $ | $ | ||||||||||||||||||||||
| Total noncurrent investment securities | $ | $ | $ | $ | ||||||||||||||||||||||
| May 30, 2020 | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Certificates of deposits | ||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||
| Total current investment securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Mutual funds | $ | $ | $ | $ | ||||||||||||||||||||||
| Total noncurrent investment securities | $ | $ | $ | $ | ||||||||||||||||||||||
Available-for-sale
Proceeds from sales and maturities of investment securities available-for-sale were $59.1 million and $136.0 million during the twenty-six weeks ended November 28, 2020 and November 30, 2019, respectively. Gross realized gains for the twenty-six weeks ended November 28, 2020 and November 30, 2019 were $57 thousand and $162 thousand, respectively. There were no no
7
Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or without penalties. Contractual maturities of current investments at November 28, 2020 are as follows (in thousands):
| Estimated Fair Value | ||||||||
| Within one year | $ | |||||||
| 1-5 years | ||||||||
| Total | $ | |||||||
Noncurrent
Note 3 - 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, including:
◦Quoted prices for similar assets or liabilities in active markets
◦Quoted prices for identical or similar assets in non-active markets
◦Inputs other than quoted prices that are observable for the asset or liability
◦Inputs derived principally from or corroborated by other observable market data
•Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
The disclosures of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount approximates fair value due to the short maturity of these instruments.
Lease obligations: The carrying value of the Company’s lease obligations is at its present value which approximates fair value.
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 November 28, 2020 and May 30, 2020 (in thousands):
| November 28, 2020 | Level 1 | Level 2 | Level 3 | Balance | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Certificates of deposits | ||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||
| Mutual funds | ||||||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
8
| May 30, 2020 | Level 1 | Level 2 | Level 3 | Balance | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Municipal bonds | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Certificates of deposits | ||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||
| Mutual funds | ||||||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
Investment securities – available-for-sale classified as level 2 consist of securities with maturities of three months or longer when purchased. Observable inputs for these securities are yields, credit risks, default rates, and volatility.
Note 4 - Inventories
Inventories consisted of the following as of November 28, 2020 and May 30, 2020 (in thousands):
| November 28, 2020 | May 30, 2020 | |||||||||||||
| Flocks, net of amortization | $ | $ | ||||||||||||
| Eggs and egg products | ||||||||||||||
| Feed and supplies | ||||||||||||||
| $ | $ | |||||||||||||
Note 5 - Accrued Dividends Payable and Dividends per Common Share
9
On our condensed consolidated statement of operations, we determine dividends per common share in accordance with the computation in the following table (in thousands, except per share data):
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Net income (loss) attributable to Cal-Maine Foods, Inc. | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Cumulative losses to be recovered prior to payment of divided at beginning of period | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend | $ | $ | $ | $ | ||||||||||||||||||||||
| 1/3 of net income attributable to Cal-Maine Foods, Inc. available for dividend | ||||||||||||||||||||||||||
| Common stock outstanding (shares) | ||||||||||||||||||||||||||
| Class A common stock outstanding (shares) | ||||||||||||||||||||||||||
| Total common stock outstanding (shares) | ||||||||||||||||||||||||||
| Dividends per common share* | $ | |||||||||||||||||||||||||
*Dividends per common share = 1/3 of Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend ÷ Total common stock outstanding (shares).
Note 6 - Equity
The following reflects the Company’s equity activity, for the thirteen and twenty-six weeks ended November 28, 2020 and November 30, 2019 (in thousands):
| Thirteen Weeks Ended November 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cal-Maine Foods, Inc. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Treasury | Paid In | Accum. Other | Retained | ||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | Capital | Comp. Loss | Earnings | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 29, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of company stock | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at November 28, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
10
| Thirteen Weeks Ended November 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cal-Maine Foods, Inc. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Treasury | Paid In | Accum. Other | Retained | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | Capital | Comp. Loss | Earnings | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance at August 31, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Purchase of company stock | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Reclass of equity portion of Texas Egg Products, LLC in connection with acquisition | — | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at November 30, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Twenty-six Weeks Ended November 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cal-Maine Foods, Inc. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Treasury | Paid In | Accum. Other | Retained | ||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | Capital | Comp. Income | Earnings | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at May 30, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Impact of ASC 326, see Note 2 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at May 31, 2020 | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grant, net of forfeitures | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of company stock | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance at November 28, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
11
| Twenty-six Weeks Ended November 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cal-Maine Foods, Inc. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Treasury | Paid In | Accum. Other | Retained | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | Capital | Comp. Loss | Earnings | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 1, 2019 | $ | $ | $ | ( | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grant, net of forfeitures | — | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Purchase of company stock | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest partners | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Reclass of equity portion of Texas Egg Products, LLC in connection with acquisition | — | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at November 30, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Note 7 - Net Loss per Common Share
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The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income per common share attributable to Cal-Maine Foods, Inc. (amounts in thousands, except per share data):
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Numerator | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Less: Loss attributable to noncontrolling interest | ( | ( | ||||||||||||||||||||||||
| Net income (loss) attributable to Cal-Maine Foods, Inc. | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Denominator | ||||||||||||||||||||||||||
| Weighted-average common shares outstanding, basic | ||||||||||||||||||||||||||
| Effect of dilutive securities of restricted shares | — | — | — | |||||||||||||||||||||||
| Weighted-average common shares outstanding, diluted | ||||||||||||||||||||||||||
| Net income (loss) per common share attributable to Cal-Maine Foods, Inc. | ||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Diluted | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
Note 8 - Revenue Recognition
Satisfaction of Performance Obligation
The vast majority of the Company’s revenue is derived from contracts with customers based on the customer placing an order for products. Pricing for the most part is determined when the Company and the customer agree upon the specific order, which establishes the contract for that order.
Revenues are recognized in an amount that reflects the net consideration we expect to receive in exchange for the goods. Our shell eggs are sold at prices related to independently quoted wholesale market prices, negotiated prices or formulas related to our costs of production. The Company’s sales predominantly contain a single performance obligation. We recognize revenue upon satisfaction of the performance obligation with the customer, which typically occurs within days of the Company and the customer agreeing upon the order.
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we credit the customer’s account for product the customer is unable to sell before expiration. The Company records an estimate of returns and refunds by using historical return data and comparing to current period sales and accounts receivable. The allowance is recorded as a reduction in sales with a corresponding reduction in trade accounts receivable.
Sales Incentives Provided to Customers
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future discounts subject to a minimum current purchase), and other similar offers. Current discount offers, when accepted by customers, are treated as a reduction to the sales price of the related transaction, while inducement offers, when accepted by customers, are treated as a reduction to sales price based on estimated future redemption rates.
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Disaggregation of Revenue
The following table provides revenue disaggregated by product category (in thousands):
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Conventional shell egg sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Specialty shell egg sales | ||||||||||||||||||||||||||
| Egg products | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
Contract Costs
The Company can incur costs to obtain or fulfill a contract with a customer. Generally, the amortization period of these costs is less than one year; therefore, they are expensed as incurred. Contracts that extend beyond one year are amortized over the contractual terms of the agreement.
Contract Balances
The Company receives payment from customers based on specified terms that are generally less than 30 days from delivery. There are rarely contract assets or liabilities related to performance under the contract and they are generally immaterial to the financial statements.
Note 9 - Leases
Expenses related to operating leases, amortization of finance leases, right-of-use assets, and finance lease interest are included in Cost of sales, Selling general and administrative expense, and Interest income, net in the Condensed Consolidated Statements of Operations. The Company’s lease cost consists of the following (in thousands):
| 13 Weeks Ended November 28, 2020 | 26 Weeks Ended November 28, 2020 | |||||||||||||
| Operating Lease cost | $ | $ | ||||||||||||
| Finance Lease cost | ||||||||||||||
| Amortization of right-of-use asset | $ | $ | ||||||||||||
| Interest on lease obligations | $ | $ | ||||||||||||
| Short term lease cost | $ | $ | ||||||||||||
Future minimum lease payments under non-cancelable leases are as follows (in thousands):
| As of November 28, 2020 | ||||||||||||||
| Operating Leases | Finance Leases | |||||||||||||
| Remainder fiscal 2021 | $ | $ | ||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total | ||||||||||||||
| Less imputed interest | ( | ( | ||||||||||||
| Total | $ | $ | ||||||||||||
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The weighted-average remaining lease term and discount rate for lease liabilities included in our Condensed Consolidated Balance Sheet are as follows:
| As of November 28, 2020 | ||||||||||||||
| Operating Leases | Finance Leases | |||||||||||||
| Weighted-average remaining lease term (years) | ||||||||||||||
| Weighted-average discount rate | % | % | ||||||||||||
Note 10 - Stock Based Compensation
On October 2, 2020, shareholders approved the Amended and Restated Cal-Maine Foods, Inc. 2012 Omnibus Long-Term Incentive Plan (the “Plan”). The purpose of the Plan is to assist us and our subsidiaries in attracting and retaining selected individuals who are expected to contribute to our long-term success. The maximum number of shares of common stock available for awards under the Plan is 2,000,000 , of which 1,239,048 shares remain available for issuance, and may be authorized but unissued shares or treasury shares. Awards may be granted under the Plan to any employee, any non-employee member of the Company’s Board of Directors, and any consultant who is a natural person and provides services to us or one of our subsidiaries (except for incentive stock options, which may be granted only to our employees).
The only outstanding awards under the Plan are restricted stock awards. The restricted stock vests three years from the grant date, or upon death or disability, change in control, or retirement (subject to certain requirements). The restricted stock contains no other service or performance conditions. Restricted stock is awarded in the name of the recipient and, except for the right of disposal, constitutes issued and outstanding shares of the Company’s common stock for all corporate purposes during the period of restriction including the right to receive dividends. Compensation expense is a fixed amount based on the grant date closing price and is amortized over the vesting period.
Total stock based compensation expense was $932 thousand and $904 thousand for the twenty-six weeks ended November 28, 2020 and November 30, 2019, respectively.
Unrecognized compensation expense as a result of non-vested shares of the restricted stock outstanding under the Plan at November 28, 2020 of $4.3 million will be recorded over a weighted average period of 1.8 years.
The Company’s restricted share activity for the twenty-six weeks ended November 28, 2020 follows:
| Number of Shares | Weighted Average Grant Date Fair Value | |||||||||||||
| Outstanding, May 30, 2020 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Forfeited | ( | |||||||||||||
| Outstanding, November 28, 2020 | $ | |||||||||||||
Note 11 - Commitments and Contingencies
Financial Instruments
The Company maintained standby letters of credit (“LOC”) totaling $4.3 million at November 28, 2020 which were issued under the Company’s Revolving Credit Facility. The outstanding LOCs are for the benefit of certain insurance companies, and are not recorded as a liability on the consolidated balance sheets.
LEGAL PROCEEDINGS
State of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC
On April 23, 2020, the Company and its subsidiary Wharton County Foods, LLC (“WCF”) were named as defendants in State of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC, Cause No. 2020-25427, in the District Court of Harris County, Texas. The State of Texas (the “State”) asserted claims based on the Company’s and WCF’s alleged violation of the Texas Deceptive Trade Practices—Consumer Protection Act, Tex. Bus. & Com. Code §§ 17.41-17.63
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(“DTPA”). The State claimed that the Company and WCF offered shell eggs at excessive or exorbitant prices during the COVID-19 state of emergency and made misleading statements about shell egg prices. The State sought temporary and permanent injunctions against the Company and WCF to prevent further alleged violations of the DTPA, along with over $100,000
Bell et al. v. Cal-Maine Foods et al.
On April 30, 2020, the Company was named as one of several defendants in Bell et al. v. Cal-Maine Foods et al., Case No. 1:20-cv-461, in the Western District of Texas, Austin Division. The defendants include numerous grocery stores, retailers, producers, and farms. Plaintiffs assert that defendants violated the DTPA by allegedly demanding exorbitant or excessive prices for eggs during the COVID-19 state of emergency. Plaintiffs request certification of a class of all consumers who purchased eggs in Texas sold, distributed, produced, or handled by any of the defendants during the COVID-19 state of emergency. Plaintiffs seek to enjoin the Company and other defendants from selling eggs at a price more than 10% greater than the price of eggs prior to the declaration of the state of emergency and damages in the amount of $10,000 250,000
Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.
As previously reported, on September 25, 2008, the Company was named as one of several defendants in numerous antitrust cases involving the United States shell egg industry. The Company settled all of these cases, except for the claims of certain plaintiffs who sought substantial damages allegedly arising from the purchase of egg products (as opposed to shell eggs). These remaining plaintiffs are Kraft Food Global, Inc., General Mills, Inc., and Nestle USA, Inc. (the “Egg Products Plaintiffs”) and The Kellogg Company.
On September 13, 2019, the case with the Egg Products Plaintiffs was remanded from a multi-district litigation proceeding in the United States District Court for the Eastern District of Pennsylvania, In re Processed Egg Products Antitrust Litigation, MDL No. 2002, to the United States District Court for the Northern District of Illinois, Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al., Case No. 1:11-cv-8808, for trial. The Egg Products Plaintiffs allege that the Company and other defendants violated Section 1 of the Sherman Act, 15. U.S.C. § 1, by agreeing to limit the production of eggs and thereby illegally to raise the prices that plaintiffs paid for processed egg products. In particular, the Egg Products Plaintiffs are attacking certain features of the United Egg Producers animal-welfare guidelines and program used by the Company and many other egg producers. The Egg Products Plaintiffs seek to enjoin the Company and other defendants from engaging in antitrust violations and seek treble money damages. The parties filed a joint status report on May 18, 2020, but no schedule has yet been entered by the court. It appears that the case will not be tried until 2021 or 2022.
In addition, on October 24, 2019, the Company entered into a confidential settlement agreement with The Kellogg Company dismissing all claims against the Company for an amount that did not have a material impact on the Company’s financial condition or results of operations. On November 11, 2019, a stipulation for dismissal was filed with the court, but the court has not yet entered a judgment on the filing.
The Company intends to continue to defend the remaining case with the Egg Products Plaintiffs as vigorously as possible based on defenses which the Company believes are meritorious and provable. Adjustments, if any, which might result from the resolution of this remaining matter with the Egg Products Plaintiffs have not been reflected in the financial statements. While management believes that there is still a reasonable possibility of a material adverse outcome from the case with the Egg Products Plaintiffs, at the present time, it is not possible to estimate the amount of monetary exposure, if any, to the Company due to a range of factors, including the following, among others: the matter is in the early stages of preparing for trial following remand; any trial will be before a different judge and jury in a different court than prior related cases; there are significant factual issues to be resolved; and there are requests for damages other than compensatory damages (i.e., injunction and treble money damages).
State of Oklahoma Watershed Pollution Litigation
On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma, against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and its affiliate, George’s, Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. The State of Oklahoma claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma. The complaint seeks injunctive relief and monetary damages, but the claim for monetary damages has been dismissed by the court. Cal-Maine Foods, Inc. discontinued operations in the watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request for injunctive relief unless the court orders substantial affirmative remediation. Since the litigation began, Cal-Maine Foods, Inc. purchased 100% of the membership interests of Benton County Foods, LLC, which is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in the litigation.
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The trial in the case began in September 2009 and concluded in February 2010. The case was tried without a jury, and the court has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business. Although the outcome of these matters cannot be determined with certainty, management, upon the advice of counsel, is of the opinion that the final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
Note 12 - Related Party Transaction
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Company’s Annual Report on Form 10-K for its fiscal year ended May 30, 2020 (the “2020 Annual Report”), and the accompanying financial statements and notes included in Part II, Item 8 of the 2020 Annual Report and in Part I, Item I of this Quarterly Report on Form 10-Q (“Quarterly Report”).
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business, including estimated future production data, expected construction schedules, projected construction costs, potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on our business of the COVID-19 pandemic, potential future impact on our business of new legislation, rules or policies, potential outcomes of legal proceedings, and other projected operating data, including anticipated results of operations and financial condition. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words. Actual outcomes or results could differ materially from those projected in the forward-looking statements. The forward-looking statements are based on management’s current intent, belief, expectations, estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Part I, Item 1A of the 2020 Annual Report (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, (vi) risks relating to the evolving COVID-19 pandemic, and (vii) adverse results in pending litigation matters. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.
GENERAL
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs. Our operations are fully integrated under one operating segment. We are the largest producer and distributor of fresh shell eggs in the United States. Our total flock of approximately 41.5 million layers and 9.9 million pullets and breeders is the largest in the U.S. We sell most of our shell eggs to a diverse group of customers, including national and regional grocery store chains, club stores, companies servicing independent supermarkets in the U.S., food service distributors, and egg product consumers in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Our operating results are materially impacted by market prices for eggs and feed grains (corn and soybean meal), which are highly volatile, independent of each other, and out of our control. Generally speaking, higher market prices for eggs have a positive impact on our financial results while higher market prices for feed grains have a negative impact on our financial results. Although we use a variety of pricing mechanisms in pricing agreements with our customers, we sell the majority of our conventional shell eggs based on formulas that take into account, in varying ways, independently quoted regional wholesale market prices for shell eggs or formulas related to our costs of production which include the cost of corn and soybean meal. As an example of the volatility in the market prices of shell eggs, the Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs (“UB southeastern large index”) in fiscal year 2020 ranged from a low of $0.62 in July 2019 to a high of $3.18 in March 2020.
Generally, we purchase primary feed ingredients, mainly corn and soybean meal, at current market prices. Corn and soybean meal are commodities and are subject to volatile price changes due to weather, various supply and demand factors, transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and internationally.
Specialty shell eggs have been a significant and growing portion of the market. In recent years, a significant number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to an exclusively cage-free egg supply chain by specified future dates. Additionally, several states, representing 23% of the U.S.
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total population according to the U.S. Census Bureau, have passed legislation requiring cage-free eggs by specified future dates, and other states are considering such legislation. For additional information, see the 2020 Annual Report, Part I, Item 1, “Business – Growth Strategy” and “– Government Regulation,” and the fifth risk factor in Part I, Item 1A, “Risk Factors.”
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring and early summer. Historically, shell egg prices tend to increase with the start of the school year and tend to be highest prior to holiday periods, particularly Thanksgiving, Christmas, and Easter. Consequently, and all other things being equal, we would expect to experience lower selling prices, sales volumes and net income (and may incur net losses) in our first and fourth fiscal quarters ending in August/September and May/June, respectively. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.
COVID-19
Since early 2020, the coronavirus (“COVID-19”) outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. We understand the challenges and difficult economic environment facing the families in the communities where we live and work, and we are committed to helping where we can. One way we can do this is by providing food assistance to those in need, and Cal-Maine Foods has donated approximately 1 million dozen eggs in the first two quarters of 2021. We believe we are taking all reasonable precautions in the management of our operations in response to the COVID-19 pandemic. Our top priority is the health and safety of our employees, who work hard every day to produce eggs for our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and believe we have a special responsibility to maintain our normal work schedule. As such, we are in regular communication with our managers across our operations and continue to closely monitor the situation in our facilities and in the communities where we live and work. We have implemented procedures designed to protect our employees, taking into account guidelines published by the Centers for Disease Control and other government health agencies, and we have strict sanitation protocols and biosecurity measures in place throughout our operations with restricted access to visitors. All non-essential corporate travel has been suspended. There are no known indications that COVID-19 affects hens or can be transferred through the food supply.
We continue to proactively monitor and manage operations during the COVID-19 pandemic, including additional related costs that we incurred or may incur in the future. In the twenty-six weeks ended November 28, 2020, we spent $1.4 million (excluding medical costs) related to the pandemic, of which $612 thousand was spent in the second fiscal quarter of 2021. The majority of such expenses for both periods were related to additional labor, primarily reflected in cost of sales. Medical costs related to COVID-19 paid during the twenty-six weeks ended November 28, 2020 were an additional $818 thousand of which $529 thousand were in the second fiscal quarter of 2021.
EXECUTIVE OVERVIEW
For the second quarter of fiscal 2021, we recorded a gross profit of $58.5 million compared to $29.4 million for the same period of fiscal 2020. This largely resulted from an increase in our net average selling price for shell eggs, which was $1.227 and $1.160 for the second quarters of fiscal 2021 and 2020, respectively. Demand for shell eggs remain favorable, primarily at the retail level as consumers continue to prepare more meals at home during the COVID-19 pandemic. According to data provided by Informational Resources, Inc. (“IRI”) for the latest 12 weeks ending November 15, 2020, the time period which most closely aligns to our second quarter of fiscal 2021, dozens sold in the Total US - Multi Outlet channel for conventional eggs increased 4.3% and specialty eggs increased 15.9% compared to the same period in the prior year. Our total dozens sold during the second quarter of fiscal 2021 was the highest of any second quarter period, and our ratio of total dozens produced to total dozens sold during the second quarter of fiscal 2021 was the highest of any quarterly period. Our total dozens sold increased 4.8% to 273.7 million dozen shell eggs for the second quarter of fiscal 2021 compared to 261.0 million dozen for the same period of fiscal 2020. This is largely due to an increase in specialty egg dozens sold of 17.7%.
For the second quarter of our fiscal year 2020, an oversupply of eggs negatively affected the price of conventional eggs, and demand for specialty eggs was negatively impacted by the low conventional egg prices. The daily average price for the UB southeastern large index for second quarter of fiscal 2021 increased 3.5% from the same period in the prior year. We did not experience a typical seasonal spike in market prices around Thanksgiving as the UB southeastern large index peaked on October 8, 2020, at $1.30 and then declined to $1.20 at quarter close. The United States Department of Agriculture (“USDA”) reported that the hatch from July through November 2020 decreased 1.5 percent as compared to the same period last year, and hen numbers reported by the USDA as of December 1, 2020, were 325.2 million, which represents 15.6 million less hens than
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reported a year ago. Demand for eggs in foodservice remains lower due to the COVID-19 pandemic. We believe this has depressed the price of shell eggs in the retail market due to the extra supply entering the retail channel from foodservice.
Our farm production costs per dozen produced for the second quarter of fiscal 2021 decreased 2.6% or $0.019 compared to second quarter of fiscal 2020. This decrease was primarily due to lower feed costs and reductions in flock amortization and facility expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales.
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
| Cost of sales | 83.2 | % | 90.6 | % | 88.2 | % | 98.5 | % | ||||||||||||||||||
| Gross profit | 16.8 | % | 9.4 | % | 11.8 | % | 1.5 | % | ||||||||||||||||||
| Selling, general and administrative | 12.6 | % | 14.7 | % | 13.7 | % | 16.0 | % | ||||||||||||||||||
| Loss on disposal of fixed assets | — | % | 0.1 | % | — | % | — | % | ||||||||||||||||||
| Operating income (loss) | 4.2 | % | (5.4) | % | (1.9) | % | (14.5) | % | ||||||||||||||||||
| Total other income, net | 0.4 | % | 0.5 | % | 0.5 | % | 0.8 | % | ||||||||||||||||||
| Income (loss) before income taxes | 4.6 | % | (4.9) | % | (1.4) | % | (13.7) | % | ||||||||||||||||||
| Income tax expense (benefit) | 1.1 | % | (1.6) | % | (0.4) | % | (3.6) | % | ||||||||||||||||||
| Net income (loss) | 3.5 | % | (3.3) | % | (1.0) | % | (10.1) | % | ||||||||||||||||||
NET SALES
Net sales for the second quarter ended November 28, 2020 were $347.3 million, an increase of $35.8 million, or 11.5%, compared to net sales of $311.5 million for the same period of fiscal 2020. The increase was primarily due to a 5.8% increase in egg selling prices which accounted for a $17.5 million increase in net sales. The net average selling price per dozen of shell eggs for the second quarters ended November 28, 2020 and November 30, 2019 was $1.227 and $1.160, respectively.
Net shell egg sales of $337.4 million and $303.7 million made up approximately 97.1% and 97.5% of net sales for the second quarters ended November 28, 2020 and November 30, 2019, respectively. Dozens sold for the second quarter ended November 28, 2020 were 273.7 million, a 4.8% increase from 261.0 million dozen for the same period of fiscal 2020. The total volume increase accounted for a $15.5 million increase in net sales.
The acquisition in the second quarter of fiscal 2020 of Mahard Egg Farm (“Mahard”) had a positive impact on our conventional shell egg volumes and continued growth of our customer base. For the second quarter of fiscal 2021, this acquisition increased total and conventional shell egg dozens sold by 4.8% and 5.6%, respectively, compared to the second quarter of fiscal 2020. Furthermore, the acquisition opened up opportunities to streamline aspects of our logistics, thereby reducing costs and creating efficiencies as we integrated Mahard into our operations.
Egg products accounted for 2.9% and 2.5% of net sales for the second quarters ended November 28, 2020 and November 30, 2019, respectively. These revenues were $9.9 million for the second quarter ended November 28, 2020, compared to $7.8 million for the same period in fiscal 2020, primarily due to higher prices slightly offset by decreased volume.
Net sales for the twenty-six weeks ended November 28, 2020 were $640.1 million, an increase of $87.4 million, or 15.8%, compared to net sales of $552.7 million for the same period of fiscal 2020. The increase was primarily due to an 11.1% increase in egg selling prices which accounted for a $59.3 million increase in net sales. The net average selling price per dozen of shell eggs for the twenty-six weeks ended November 28, 2020 and November 30, 2019 was $1.154 and $1.039, respectively.
Net shell egg sales of $623.5 million and $537.7 million made up approximately 97.4% and 97.3% of net sales for the twenty-six weeks ended November 28, 2020 and November 30, 2019, respectively. Dozens sold for the twenty-six weeks ended
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November 28, 2020 were 537.6 million, a 4.3% increase from 515.5 million dozen for the same period of fiscal 2020. The total volume increase accounted for a $25.6 million increase in net sales.
Egg products accounted for 2.6% and 2.7% of net sales for the twenty-six weeks ended November 28, 2020 and November 30, 2019, respectively. These revenues were $16.6 million for the twenty-six weeks ended November 28, 2020, compared to $15.0 million for the same period in fiscal 2020, primarily due to higher prices slightly offset by decreased volume.
The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except percentage data):
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | November 28, 2020 | November 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Sales | $ | 347,328 | $ | 311,522 | $ | 640,110 | $ | 552,688 | ||||||||||||||||||||||||||||||||||||||||||
| Conventional | $ | 201,725 | 59.8 | % | $ | 186,960 | 61.6 | % | $ | 357,109 | 57.3 | % | $ | 308,569 | 57.4 | % | ||||||||||||||||||||||||||||||||||
| Specialty | 134,082 | 39.7 | % | 115,891 | 38.2 | % | 263,327 | 42.2 | % | 227,099 | 42.2 | % | ||||||||||||||||||||||||||||||||||||||
| Egg sales, net | 335,807 | 99.5 | % | 302,851 | 99.8 | % | 620,436 | 99.5 | % | 535,668 | 99.6 | % | ||||||||||||||||||||||||||||||||||||||
| Other | 1,589 | 0.5 | % | 874 | 0.3 | % | 3,037 | 0.5 | % | 2,022 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||
| Net shell egg sales | $ | 337,396 | 100.0 | % | $ | 303,725 | 100.1 | % | $ | 623,473 | 100.0 | % | $ | 537,690 | 100.0 | % | ||||||||||||||||||||||||||||||||||
| Shell egg sales as a percent of net sales | 97.1 | % | 97.5 | % | 97.4 | % | 97.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dozens sold: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Conventional | 201,317 | 73.6 | % | 199,570 | 76.5 | % | 396,555 | 73.8 | % | 394,446 | 76.5 | % | ||||||||||||||||||||||||||||||||||||||
| Specialty | 72,334 | 26.4 | % | 61,456 | 23.5 | % | 141,090 | 26.2 | % | 121,004 | 23.5 | % | ||||||||||||||||||||||||||||||||||||||
| Total | 273,651 | 100.0 | % | 261,026 | 100.0 | % | 537,645 | 100.0 | % | 515,450 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||
| Net average selling price per dozen: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Conventional | $ | 1.002 | $ | 0.937 | $ | 0.901 | $ | 0.782 | ||||||||||||||||||||||||||||||||||||||||||
| Specialty | $ | 1.854 | $ | 1.886 | $ | 1.866 | $ | 1.877 | ||||||||||||||||||||||||||||||||||||||||||
| All shell eggs | $ | 1.227 | $ | 1.160 | $ | 1.154 | $ | 1.039 | ||||||||||||||||||||||||||||||||||||||||||
Conventional shell eggs include all shell egg sales not specifically identified as specialty shell egg sales. Comparing the second quarter ended November 28, 2020 and November 30, 2019, conventional egg dozens sold increased 0.9% and the average selling price increased 6.9% to $1.002 from $0.937. Comparing the twenty-six weeks ended November 28, 2020 and November 30, 2019, conventional shell egg dozens sold increased 0.5% and the average selling price increased 15.2% to $0.901 from $0.782.
Specialty eggs, which include nutritionally enhanced, cage-free, organic and brown eggs, continued to make up a significant portion of our total shell egg revenue and dozens sold. Specialty egg retail prices are less cyclical than conventional shell egg prices and are generally higher due to consumer willingness to pay more for specialty eggs. For the second quarter ended November 28, 2020 and November 30, 2019, specialty shell egg dozens sold increased 17.7%, and the average selling price decreased 1.7% to $1.854 from $1.886. For the twenty-six weeks ended November 28, 2020, specialty shell egg dozens sold increased 16.6% and the average selling price decreased 0.6% to $1.866 from $1.877 compared to the same period of fiscal 2020. In both the second quarter and year-to-date fiscal 2021 periods, demand for specialty eggs was positively impacted by the higher conventional egg prices as compared to the same period in the prior year.
The shell egg sales classified as “Other” represent sales of hard cooked eggs, hatching eggs, and other miscellaneous products included with our shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. Our egg products are sold through our wholly-owned subsidiaries American Egg Products, LLC and Texas Egg Products, LLC. Comparing the second quarter ended November 28, 2020 and November 30, 2019, pounds sold decreased 1.5%; however, the average selling price per pound increased 29.3% to $0.622 from $0.481. Comparing the twenty-six weeks ended November 28, 2020 and November 30, 2019, pounds sold decreased 7.6% while the average selling price increased 20.1% to $0.537 from $0.447.
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COST OF SALES
Cost of sales consists of costs directly related to production, processing and packing of shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products, and other non-egg costs. Farm production costs are costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs.
The following table presents the key variables affecting cost of sales (in thousands, except cost per dozen data).
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | % Change | November 28, 2020 | November 30, 2019 | % Change | |||||||||||||||||||||||||||||||||
| Cost of Sales: | ||||||||||||||||||||||||||||||||||||||
| Farm production | $ | 179,131 | $ | 169,735 | 5.5 | % | $ | 340,994 | $ | 327,315 | 4.2 | % | ||||||||||||||||||||||||||
| Processing, packaging, and warehouse | 63,505 | 56,890 | 11.6 | % | 123,374 | 110,812 | 11.3 | % | ||||||||||||||||||||||||||||||
| Egg purchases and other (including change in inventory) | 37,625 | 48,055 | (21.7) | % | 86,558 | 90,575 | (4.4) | % | ||||||||||||||||||||||||||||||
| Total shell eggs | 280,261 | 274,680 | 2.0 | % | 550,926 | 528,702 | 4.2 | % | ||||||||||||||||||||||||||||||
| Egg products | 8,616 | 7,467 | 15.4 | % | 13,968 | 12,817 | 9.0 | % | ||||||||||||||||||||||||||||||
| Other | — | — | — | % | — | 2,919 | (100.0) | % | ||||||||||||||||||||||||||||||
| Total | $ | 288,877 | $ | 282,147 | 2.4 | % | $ | 564,894 | $ | 544,438 | 3.8 | % | ||||||||||||||||||||||||||
| Farm production costs (per dozen produced) | ||||||||||||||||||||||||||||||||||||||
| Feed | $ | 0.410 | $ | 0.416 | (1.4) | % | $ | 0.399 | $ | 0.413 | (3.4) | % | ||||||||||||||||||||||||||
| Other | $ | 0.312 | $ | 0.325 | (4.0) | % | $ | 0.320 | $ | 0.332 | (3.6) | % | ||||||||||||||||||||||||||
| Total | $ | 0.722 | $ | 0.741 | (2.6) | % | $ | 0.719 | $ | 0.745 | (3.5) | % | ||||||||||||||||||||||||||
| Outside egg purchases (average cost per dozen) | $ | 1.24 | $ | 1.28 | (3.1) | % | $ | 1.13 | $ | 1.06 | 6.6 | % | ||||||||||||||||||||||||||
| Dozen produced | 251,914 | 231,467 | 8.8 | % | 483,075 | 445,765 | 8.4 | % | ||||||||||||||||||||||||||||||
| Dozen sold | 273,651 | 261,026 | 4.8 | % | 537,645 | 515,450 | 4.3 | % | ||||||||||||||||||||||||||||||
Cost of sales for the second quarter of fiscal 2021 was $288.9 million, an increase of $6.7 million, or 2.4%, from $282.1 million for the same period of fiscal 2020. The increase was primarily driven by the increase in farm production costs and processing costs. Processing costs increased due to a 6.7% increase in the volume of eggs processed compared to the same period of the prior year. The cost of packaging materials increased 5.8% compared to the prior year period as the retail channel demand increased due to the pandemic. The pandemic also led to an increase in labor costs. Farm production costs for the second quarter ended November 28, 2020 increased $9.4 million, primarily due to an increase in production volume. Dozens produced increased by 8.8% compared to the same period of fiscal 2020. Feed cost per dozen for the quarter ended November 28, 2020 was $0.410, compared to $0.416 per dozen for the comparable period of fiscal 2020, a decrease of 1.4%. Other farm production costs per dozen produced decreased 4.0% to $0.312 for the quarter ended November 28, 2020, compared to $0.325 for the same period of last year, primarily from lower facility and amortization expense. Facility costs decreased in the second quarter of fiscal 2021 compared to the same period in fiscal 2020 due to improved utilization and increased production. In the prior fiscal year we incurred higher amortization expense due to selling flocks early in fiscal 2020 in response to market conditions. Lower feed costs which are capitalized in our flocks during pullet production also helped reduce amortization expense in the second quarter of fiscal 2021 as compared to the same period in fiscal 2020. Egg purchase expenses decreased 21.7%, primarily due to the decrease in the volume of outside egg purchases as well as a slight decrease in the cost of these purchases.
Cost of sales for the twenty-six weeks ended November 28, 2020 was $564.9 million, an increase of $20.5 million, or 3.8%, from $544.4 million for the same period of fiscal 2020. The increase was primarily driven by the increase in farm production
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costs and processing costs. Processing costs increased due to a 6.7% increase in the volume of eggs processed compared to the same period of the prior year. The cost of packaging materials increased 3.3% compared to the prior year period as the retail channel demand increased due to the pandemic. The pandemic also led to an increase in labor costs. Farm production costs for the twenty-six weeks ended November 28, 2020 increased $9.4 million, which is primarily due to an increase in production volume. Dozens produced increased by 8.4% compared to the same period of fiscal 2020. Feed cost per dozen for the twenty-six weeks ended November 28, 2020 was $0.399, compared to $0.413 per dozen for the comparable period of fiscal 2020, a decrease of 3.4%. Other farm production costs per dozen produced decreased 3.6% to $0.320 for the twenty-six weeks ended November 28, 2020, compared to $0.332 for the same period of last year, primarily from lower amortization expense. In the prior fiscal year we incurred higher amortization expense due to selling flocks early in fiscal 2020 in response to market conditions. Egg purchase expenses decreased 4.4%, primarily due to the decrease in the volume of outside egg purchases, partially offset by an increase in the cost of these purchases.
Included in cost of sales for the twenty-six weeks ended November 30, 2019 is a $2.9 million impairment charge related to decommissioning older, less efficient production facilities as we invest in new facilities to meet the increasing demand for specialty eggs and reduce production costs.
Feed costs started trending higher midway through the second quarter and continued volatility is expected for the remainder of fiscal 2021 as increased export demand for both soybeans and corn is placing pressure on domestic supplies. Additionally, the ongoing uncertainties and supply chain disruptions related to the COVID-19 outbreak, weather fluctuations and geopolitical issues surrounding trade agreements and international tariffs will continue to affect market prices for our primary feed ingredients.
GROSS PROFIT
Gross profit for the second quarter of fiscal 2021 was $58.5 million compared to $29.4 million for the same period of fiscal 2020. For the twenty-six weeks ended November 28, 2020 gross profit was $75.2 million compared to $8.3 million for the same period of fiscal 2020. The increase for both periods was primarily due to the increase in conventional shell egg selling prices and an increase in dozens sold for specialty eggs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SGA”) expenses include costs of marketing, distribution, accounting, and corporate overhead. The following table presents an analysis of our SGA expenses (in thousands):
| 13 Weeks Ended | ||||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | $ Change | % Change | |||||||||||||||||||||||
| Specialty egg expense | $ | 14,039 | $ | 11,939 | $ | 2,100 | 17.6 | % | ||||||||||||||||||
| Delivery expense | 13,052 | 13,524 | (472) | (3.5) | % | |||||||||||||||||||||
| Payroll, taxes and benefits | 10,030 | 10,257 | (227) | (2.2) | % | |||||||||||||||||||||
| Stock compensation expense | 931 | 903 | 28 | 3.1 | % | |||||||||||||||||||||
| Other expenses | 5,821 | 9,105 | (3,284) | (36.1) | % | |||||||||||||||||||||
| Total | $ | 43,873 | $ | 45,728 | $ | (1,855) | (4.1) | % | ||||||||||||||||||
For the second quarter of fiscal 2021, SGA expenses decreased 4.1% to $43.9 million from $45.7 million for the same period in fiscal 2020. Specialty egg expense increased $2.1 million, or 17.6%, compared to the same period of the prior year. Specialty egg expense typically fluctuates with specialty egg dozens sold, which increased 17.7% for the second quarter ended November 28, 2020. Other expenses decreased $3.3 million or 36.1% compared to the same period in fiscal 2020. This decrease is primarily due to a legal settlement paid in the second quarter of fiscal 2020.
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| 26 Weeks Ended | ||||||||||||||||||||||||||
| November 28, 2020 | November 30, 2019 | $ Change | % Change | |||||||||||||||||||||||
| Specialty egg expense | $ | 26,736 | $ | 23,414 | $ | 3,322 | 14.2 | % | ||||||||||||||||||
| Delivery expense | 25,546 | 26,032 | (486) | (1.9) | % | |||||||||||||||||||||
| Payroll, taxes and benefits | 21,331 | 20,752 | 579 | 2.8 | % | |||||||||||||||||||||
| Stock compensation expense | 1,824 | 1,794 | 30 | 1.7 | % | |||||||||||||||||||||
| Other expenses | 12,401 | 16,211 | (3,810) | (23.5) | % | |||||||||||||||||||||
| Total | $ | 87,838 | $ | 88,203 | $ | (365) | (0.4) | % | ||||||||||||||||||
For the twenty-six weeks ended November 28, 2020, SGA expense decreased 0.4% to $87.8 million from $88.2 million for the same period in fiscal 2020. Specialty egg expense increased $3.3 million, or 14.2%, compared to the same period of the prior year. Specialty egg expense typically fluctuates with specialty egg dozens sold, which increased 16.6% for the twenty-six weeks ended November 28, 2020. Other expenses decreased $3.8 million or 23.5% compared to the same period in fiscal 2020. This decrease is primarily due to the legal settlement paid in the second quarter of fiscal 2020 and the first quarter of fiscal 2021 return of brokerage commissions on property and casualty insurance placements refunded after final reconciliation of all brokerage service agreements.
Included in Other expenses is approximately $551 thousand related to the secondary public offering completed in August 2020 by the wife of our late founder and a trust of which his daughters are beneficiaries. For more information, see Note 12 – Related Party Transaction of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.
OPERATING INCOME (LOSS)
For the second quarter of fiscal 2021, we recorded operating income of $14.5 million compared to an operating loss of $16.6 million for the same period of fiscal 2020.
For the twenty-six weeks ended November 28, 2020, we recorded an operating loss of $12.7 million compared to an operating loss of $80.0 million for the same period of fiscal 2020.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged or related to operations, such as interest income and expense, royalty income, equity in income or loss of unconsolidated entities, and patronage income, among other items.
For the second quarter of fiscal 2021, we earned $727 thousand of interest income compared to $1.2 million for the same period of fiscal 2020. For the twenty-six weeks ended November 28, 2020, we earned $1.7 million of interest income compared to $3.0 million for the same period of fiscal 2020. The decrease for both periods resulted from significantly lower interest rates. The Company recorded interest expense of $64 thousand and $91 thousand for the second quarters ended November 28, 2020 and November 30, 2019, respectively. For the twenty-six weeks ended November 28, 2020 and November 30, 2019 interest expense was $135 thousand and $181 thousand, respectively.
For the second quarter and the twenty-six weeks ended November 28, 2020, the increase in income from our equity investments of unconsolidated entities was $512 thousand and $922 thousand, respectively. The increase for both periods is primarily due to the increase in egg selling prices positively impacting the profitability of our joint ventures.
Other, net for the twenty-six weeks ended November 28, 2020, was income of $436 thousand compared to income of $482 thousand for the same period of fiscal 2020.
Other, net for the second quarter ended November 28, 2020, was income of $948 thousand compared to income of $1.8 million for the same period of fiscal 2020. The decrease is primarily driven by lower realized and unrealized gains in investment securities available-for-sale.
INCOME TAXES
For the second quarter of fiscal 2021, pre-tax income was $15.9 million compared to a pre-tax loss of $15.0 million for the same period of fiscal 2020. Income tax expense of $3.8 million was recorded for the second quarter of fiscal 2021 with an
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effective tax rate of 23.6%, compared to a benefit of $4.9 million (which included a $1.5 million state income tax benefit recorded for a claim for a refund) for the comparable period of fiscal 2020, which reflects an effective tax rate of 32.3%.
For the twenty-six weeks ended November 28, 2020, pre-tax loss was $9.6 million compared to $75.5 million for the same period of fiscal 2020. Income tax benefit of $2.4 million was recorded with an effective tax rate of 24.6%, compared to $19.6 million for the comparable period of fiscal 2020, which reflects an effective tax rate of 26.0%.
At November 28, 2020, trade and other receivables included income taxes receivables of $9.7 million compared to $9.9 million at May 30, 2020.
Our effective rate differs from the federal statutory income tax rate due to state income taxes, certain federal tax credits and certain items included in income for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income, certain nondeductible expenses and net income or loss attributable to noncontrolling interest. Results for the second quarter of fiscal 2020 were favorably impacted by a $1.5 million state income tax benefit recorded for a claim for a refund filed during the period.
NET INCOME (LOSS) ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
Net income for the second quarter ended November 28, 2020 was $12.2 million, or $0.25 per basic and diluted share, compared to a loss of $10.1 million or $0.21 per basic and diluted share for the same period of fiscal 2020.
Net loss for the twenty-six weeks ended November 28, 2020 was $7.2 million, or $0.15 per basic and diluted share, compared to $55.8 million or $1.15 per basic and diluted share for the same period of fiscal 2020.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at November 28, 2020 was $399.7 million, compared to $429.1 million at May 30, 2020. The calculation of working capital is defined as current assets less current liabilities. Our current ratio was 5.25 at November 28, 2020, compared with 5.60 at May 30, 2020.
We had no long-term debt outstanding at November 28, 2020 or May 30, 2020. On July 10, 2018, we entered into a $100.0 million Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”). As of November 28, 2020, no amounts were borrowed under the Revolving Credit Facility. We have $4.3 million in outstanding standby letters of credit, issued under our Revolving Credit Facility for the benefit of certain insurance companies. Refer to Note 10 of our audited financial statements included in our 2020 Annual Report for further information regarding our long-term debt.
For the twenty-six weeks ended November 28, 2020, $10.7 million in net cash was used in operating activities, compared to $74.3 million used in operating activities for the comparable period in fiscal 2020. This is primarily due to an increase in egg selling prices compared to the prior year period, which contributed to the decrease in cash used in operations.
We continue to invest in our facilities with $52.4 million used to purchase property, plant and equipment for the twenty-six weeks ended November 28, 2020 compared to $68.1 million in the same period of fiscal 2020. Sales and maturities of investment securities, net of purchases, were $29.4 million for the twenty-six weeks ended November 28, 2020 compared to $127.0 million for the comparable period in fiscal 2020. We received $2.7 million in distributions from unconsolidated entities during the first two quarters of fiscal 2021 compared to $2.4 million for the same period fiscal of 2020. We used $101 thousand for principal payments on finance leases in the first two quarters of fiscal 2021 compared to $1.6 million for principal payments on long-term debt and finance leases for the same period of fiscal 2020.
As of November 28, 2020, cash decreased $30.8 million since May 30, 2020 compared to a decrease of $58.0 million during the same period of fiscal 2020.
We continue to take aggressive steps to position Cal-Maine Foods to meet the expected future demand for cage-free eggs. We have invested approximately $405 million in facilities, equipment and related operations to expand our cage-free production starting with our first facility in 2008. The following table presents material construction projects approved as of November 28, 2020, along with our $40.1 million capital project announced in December 2020 to convert existing conventional capacity at
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our Guthrie, Kentucky production facility to house approximately 1.5 million cage-free hens and 300 thousand pullets (in thousands):
| Project(s) Type | Projected Completion | Projected Cost | Spent as of November 28, 2020 | Remaining Projected Cost | ||||||||||||||||||||||
| Convertible/Cage-Free Layer Houses & Pullet Houses | Fiscal 2021 | 38,032 | 35,042 | 2,990 | ||||||||||||||||||||||
| Cage-Free Layer & Pullet Houses/Processing Facility | Fiscal 2022 | 127,304 | 72,527 | 54,777 | ||||||||||||||||||||||
| 165,336 | 107,569 | 57,767 | ||||||||||||||||||||||||
We believe our current cash balances, investments, cash flows from operations, and Revolving Credit Facility will be sufficient to fund our current and projected capital needs for at least the next twelve months.
RECENTLY ISSUED/ADOPTED ACCOUNTING STANDARDS
For information on changes in accounting principles and new accounting policies, see Note 1 - Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.
CRITICAL ACCOUNTING POLICIES
We suggest our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included our 2020 Annual Report, and as described in Note 1 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report, be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in such 2020 Annual Report and this Quarterly Report. Except for the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), there have been no changes to our significant accounting policies described in our 2020 Annual Report. In addition, there have been no changes to our critical accounting policies identified in our 2020 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer and Chief Financial Officer, together with other financial officers, such officers concluded that our disclosure controls and procedures were effective as of November 28, 2020 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended November 28, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the discussion of certain legal proceedings involving the Company and/or its subsidiaries in (i) our 2020 Annual Report, Part I Item 3: Legal Proceedings, and Part II Item 8, Notes to Consolidated Financial Statements and Supplementary Data, Note 18: Commitments and Contingencies, and (ii) in this Quarterly Report in Note 11: Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements, which discussions are incorporated herein by reference.
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ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes in the risk factors previously disclosed in the 2020 Annual Report.
We are controlled by the family of our late founder, Fred R. Adams, Jr., and Adolphus B. Baker, our Chief Executive Officer and Chairman of our Board of Directors, controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams’ son-in-law, Adolphus B. Baker, our Chief Executive Officer and Chairman of our board of directors, Mr. Baker’s spouse and her three sisters (who are Mr. Adams’ four daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A Common Stock, controlling approximately 52.2% of our total voting power. Additionally, such persons and Jean Reed Adams (“Mrs. Adams”), the wife of our late founder, Fred R. Adams, Jr., also have additional voting power due to beneficial ownership of our Common Stock, directly or indirectly through related entities, resulting in family voting control of approximately 57.7% of our total voting power. Mr. Baker controls the vote of 100% of our outstanding Class A Common Stock.
We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of our Common Stock and our Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation’s assets; accordingly, such a transaction involving us and requiring stockholder approval cannot be effected without the approval of the Adams and Baker families. Such ownership will make an unsolicited acquisition of our Company more difficult and discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders of our Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker families’ controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and you may experience significant dilution as a result of future issuances of our securities, which could materially and adversely affect the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. Our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of January 5, 2021, there were 43,968,231 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans).
In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect this dilution may have on the price of our Common Stock.
As described in Note 12 – Related Party Transaction of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report, in August 2020 Mrs. Adams and the Daughters’ Trust (of which the daughters of our late founder are beneficiaries) sold 6.9 million shares of Common Stock in a secondary public offering pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”) filed as an exhibit to our 2020 Annual Report. After the sale, approximately 5.0 million shares (the “Subject Shares”) remain registered under a shelf registration statement and prospectus dated October 9, 2018 for potential resale, which shares are subject to the Agreement. The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject Shares, such party must give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to purchase shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price based on the 20 business-day volume weighted average price. If the Company does not exercise its right of first refusal and purchase the shares offered, such party will, subject to the approval of a special committee of independent directors of the Board of Directors, be permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule 144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement the Company will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its rights of first refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the Agreement or pursuant to Rule 144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our Common Stock could result in a decline in the market price of our Common Stock.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table is a summary of our second quarter 2020 share repurchases:
| Total Number of | Maximum Number | |||||||||||||||||||||||||
| Shares Purchased | of Shares that | |||||||||||||||||||||||||
| Total Number | Average | as Part of Publicly | May Yet Be | |||||||||||||||||||||||
| of Shares | Price Paid | Announced Plans | Purchased Under the | |||||||||||||||||||||||
| Period | Purchased (1) | per Share | Or Programs | Plans or Programs | ||||||||||||||||||||||
| 8/30/20 to 9/26/20 | — | $ | — | — | — | |||||||||||||||||||||
| 9/27/20 to 10/24/20 | — | — | — | — | ||||||||||||||||||||||
| 10/25/20 to 11/28/20 | 1,102 | 40.90 | — | — | ||||||||||||||||||||||
| 1,102 | $ | 40.90 | — | — | ||||||||||||||||||||||
(1) As permitted under our Amended and Restated Cal-Maine Foods, Inc. 2012 Omnibus Long-term Incentive Plan, these shares were withheld by us to satisfy tax withholding obligations for employees in connection with the vesting of restricted common stock.
ITEM 6. EXHIBITS
Exhibits
| No. | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32** | ||||||||
| 101.SCH*+ | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL*+ | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF*+ | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB*+ | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE*+ | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
| * | Filed herewith as an Exhibit. | |||||||
| ** | Furnished herewith as an Exhibit. | |||||||
| + | Submitted electronically with this Quarterly Report. | |||||||
28
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: | January 5, 2021 | /s/ Max P. Bowman | ||||||
| Max P. Bowman | ||||||||
Vice President, Chief Financial Officer (Principal Financial Officer) | ||||||||
| Date: | January 5, 2021 | /s/ Michael D. Castleberry | ||||||
| Michael D. Castleberry | ||||||||
Vice President, Controller (Principal Accounting Officer) | ||||||||
29
Exhibit 31.1
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Adolphus B. Baker, 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)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
(d) 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(s) 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/ Adolphus B. Baker | |||||
| Adolphus B. Baker | |||||
| Chief Executive Officer and Chairman of the Board | |||||
| Date: | January 5, 2021 | ||||
Exhibit 31.2
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Max P. Bowman, 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)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
(d)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(s) 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/ Max P. Bowman | |||||
| Max P. Bowman | |||||
| Vice President and Chief Financial Officer | |||||
| Date: | January 5, 2021 | ||||
Exhibit 32
Certifications Pursuant to 18 U.S.C. §1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. §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 our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended February 29, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Adolphus B. Baker | |||||
| Adolphus B. Baker | |||||
| Chief Executive Officer and Chairman of the Board | |||||
| /s/ Max P. Bowman | |||||
| Max P. Bowman | |||||
| Vice President and Chief Financial Officer | |||||
| Date: | January 5, 2021 | ||||