CAL-MAINE FOODS INC
10-Ks and 10-Qs
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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year
Ended
☐
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number:
(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)
(
)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class:
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The
Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
☑
No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
☑
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.
☑
No
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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).
☑
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
has filed
a report on
and attestation
to its management's
assessment of
the effectiveness
of its
internal control over
financial reporting under
Section 404(b) of
the Sarbanes-Oxley Act
(15 U.S.C.
7262(b)) by the
registered public accounting
firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐
No
☑
The aggregate market value, as
reported by The NASDAQ Global Select
Market, of the registrant’s
Common Stock, $0.01 par value,
held by
non-affiliates
at November 25,
2022, which
was the
date of
the last
business day
of the
registrant’s
most recently
completed second
fiscal
quarter, was $
.
As of
July 25,
2023,
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
The information called
for by Part
III of this Form
10-K is incorporated
herein by reference
from the registrant’s
Definitive Proxy Statement
for its 2023
annual meeting of
stockholders which will be
filed pursuant to
Regulation 14A not later
than 120 days
after the end
of the fiscal
year covered by this report.
2
TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
15.
16.
3
PART
I.
FORWARD
-LOOKING STATEMENTS
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 inflation
and rising interest rates,
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 Item 1A Risk Factors and elsewhere in this report as well as those included
in other
reports we
file from
time to
time with
the Securities
and Exchange
Commission (the
“SEC”) (including
our Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including
disease, pests,
weather conditions,
and potential
for product
recall), including
but not
limited to
the current
outbreak of
highly
pathogenic avian
influenza (“HPAI”)
affecting poultry
in the
United States
(“U.S.”), Canada
and other
countries that
was first
detected in commercial
flocks in the U.S.
in February 2022, (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 increased
costs, rising
inflation and
rising interest
rates,
which
began
in
response
to
market
conditions
caused
in
part
by
the
COVID-19
pandemic
and
which
generally
have
been
exacerbated by
the Russia-Ukraine
War
that began in
February 2022, (vii)
our ability to
retain existing customers,
acquire new
customers and grow
our product mix
and (viii) 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.
ITEM 1.
BUSINESS
Our Business
We are the largest
producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable
producer
and reliable
supplier of
consistent, high
quality fresh
shell eggs
and egg
products
in the
country,
demonstrating
a "Culture
of
Sustainability" in everything we do, and
creating value for our shareholders,
customers, team members and communities. We sell
most of our shell
eggs in the southwestern,
southeastern, mid-western and
mid-Atlantic regions of the
U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We
were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one reportable
operating segment, which is the production,
grading, packaging, marketing and distribution
of
shell eggs. Our integrated
operations consist of hatching
chicks, growing and maintaining
flocks of pullets, layers
and breeders,
manufacturing feed, and
producing, processing, packaging, and
distributing shell eggs.
Layers are mature
female chickens, pullets
are female chickens usually less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production
flocks. Our total flock as of
June 3, 2023 consisted of approximately
41.2 million layers and 10.8
million pullets and breeders.
Many of our customers rely
on us to provide most of
their shell egg needs, including
specialty and conventional eggs.
Specialty
eggs encompass
a broad
range of
products. We
classify cage-free,
organic,
brown, free-range,
pasture-raised
and nutritionally
enhanced
as specialty
eggs
for
accounting
and
reporting
purposes.
We
classify
all other
shell
eggs
as conventional
products.
While we report separate sales information
for these egg types, there are
many cost factors that are not
specifically available for
conventional or
specialty eggs
due to
the nature
of egg
production. We
manage our
operations and
allocate resources
to these
types of eggs on a consolidated basis based on the demands of our customers.
4
We
believe that
an important
competitive advantage
for Cal-Maine
Foods is our
ability to meet
our customers’
evolving needs
with a
favorable product
mix of
conventional and
specialty eggs,
including cage-free,
organic and
other specialty
offerings, as
well
as egg
products.
We
have
also
enhanced
our efforts
to provide
free-range
and pasture
-raised
eggs that
meet
consumers’
evolving choice preferences.
While a small
part of our
current business,
the free-range and
pasture-raised eggs
we produce and
sell represent
attractive
offerings
to a
subset of
consumers, and
therefore
our customers,
and
help us
continue
to serve
as the
trusted provider of quality food choices.
Throughout the Company’s history,
we have acquired other companies in our industry. Since 1989 through our fiscal year ended
June 3, 2023,
we have completed
23 acquisitions ranging
in size from
160 thousand layers to
7.5 million layers. Most
recently,
effective on May 30, 2021, the Company acquired
the remaining 50% membership interest in Red River Valley
Egg Farm, LLC
(“Red River”), which owns and operates a specialty shell egg production complex that includes 1.7 million cage-free hens. For a
further
description
of
this
transaction,
refer
to
Part
II.
Item
8.
Notes
to
the
Consolidated
Financial
Statements,
. We are also focused on additional ways to enhance our product mix and support new opportunities in the restaurant,
institutional and
commercial food
preparation area.
Beginning in fiscal
2022, we have
invested approximately
$32.3 million in
Meadowcreek Foods,
LLC (“Meadowcreek”),
an egg
products operation
focused on
offering
hard-cooked eggs.
In addition
to
growth through
acquisitions, we
have also
grown by
making substantial
investments in
our business,
primarily to
increase our
cage-free production capacity.
When
we
use
“we,”
“us,”
“our,”
or
the
“Company”
in
this
report,
we
mean
Cal-Maine
Foods,
Inc.
and
our
consolidated
subsidiaries,
unless
otherwise
indicated
or
the
context
otherwise
requires.
The
Company’s
fiscal
year-end
is
on
the
Saturday
closest to May
31. Our
fiscal year
2023 and
fourth quarter ended
June 3, 2023,
included 53 weeks
and 14
weeks, respectively.
The first three fiscal quarters of fiscal 2023 ended August 27, 2022,
November 26, 2022, and February 25, 2023, all included 13
weeks.
All references herein to a fiscal year means our fiscal year and all references
to a year mean a calendar year.
Industry Background
According to the U.S.
Department of Agriculture (“USDA”) Agricultural
Marketing Service, in 2022 approximately
71% of table
eggs produced in the U.S.
were sold as shell
eggs, with 56.6% sold through food
at home outlets such
as grocery and convenience
stores, 12.4% sold to
food-away-from home channels such
as restaurants and 1.7% exported.
The USDA estimated that in
2022
approximately 29.6%
of eggs
produced in
the U.S.
were sold
as egg
products (shell
eggs broken
and sold
in liquid,
frozen, or
dried
form)
to
institutions
(e.g.
companies
producing
baked
goods).
For
information
about
egg
producers
in
the
U.S.,
see
“Competition” below.
Our
industry
has
been
greatly
impacted
by
the
outbreaks
of
highly
pathogenic
avian
influenza
(“HPAI”),
first
detected
in
commercial flocks in
the U.S. in
February 2022 and
continuing during our
fiscal 2023. For
additional information regarding HPAI
and its impact
on our industry
and business, see
Given
historical
consumption
trends,
we believe
that general
demand
for
eggs in
the U.S.
increases basically
in line
with the
overall
U.S.
population
growth;
however,
specific
events
can
impact
egg
supply
and
consumption
in
a
particular
period,
as
occurred with the 2015 HPAI outbreak,
the COVID-19 pandemic (particularly during 2020), and the most recent HPAI
outbreak
starting in
early 2022.
According to
the USDA’s
Economic Research
Service, estimated
annual per
capita consumption
in the
United States between 2018
and 2022 varied, ranging from 279 to 292 eggs. In calendar year 2022,
per capita U.S. consumption
was estimated to
be 279 eggs,
or approximately 5.4
eggs per
person per week.
According to
the USDA,
the decline in
consumption
was primarily
due to limited
availability caused
by the outbreak
of HPAI.
As of July
18, 2023,
the USDA projects
that the
per
capita consumption
will increase
in calendar
year 2023
and 2024
to 282.6
and 292.7,
respectively.
The USDA
calculates per
capita consumption by dividing
total shell egg disappearance in the U.S. by the U.S. population.
Prices for Shell Eggs
Wholesale shell
egg sales
prices are
a critical
component of
revenue for
the Company.
Wholesale shell
egg prices
are volatile,
cyclical, and impacted
by a number
of factors, including
consumer demand, seasonal
fluctuations, the number
and productivity
of laying hens
in the U.S.
and outbreaks of
agricultural diseases such
as HPAI.
While we use
several different pricing mechanisms
in pricing
agreements with
our customers,
we believe
the majority
of conventional
shell eggs
sold in
the U.S.
in the
retail and
foodservice channels
are sold
at prices
that take
into account,
in varying
ways, independently
quoted wholesale
market prices,
such as those published
by Urner Barry Publications,
Inc. (“UB”) for shell
eggs, however, grain-based and cost
plus arrangements
are being
utilized in
the food
service channel
and some
western markets.
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
5
or formulas related
to our costs of production,
which include the cost
of corn and soybean
meal. We
do not sell eggs
directly to
consumers or set the prices at which eggs are sold to consumers.
The weekly
average price for
the southeast region
for large white
conventional shell
eggs as quoted
by UB is
shown below for
the past three
fiscal years along
with the five-year average
price. As further
discussed in
, conventional
shell egg prices
rose during
the fourth quarter
of fiscal 2022
and first three
quarters of fiscal
2023, due
to the reduced
supply related
to the HPAI
outbreak first
detected in
commercial flocks
in February
2022,
steady shell egg demand
and higher production costs. Conventional shell
egg prices continued to rise
into the fourth quarter
of fiscal 2023 followed by a substantial decline,
as demand for shell eggs began to decrease in line
with typical seasonal variance
and as
supply increased
due to
the repopulating
of HPAI
-affected
layer flocks.
The actual
prices that
we realize
on any
given
transaction will not necessarily equal quoted market prices because of
the individualized terms that we negotiate with individual
customers which are influenced by many factors. Depending on market conditions, input costs
and individualized
contract terms,
the price we receive
per dozen eggs in any
given transaction may be
more than or less than
our farm production and
other costs
per dozen.
Specialty eggs
are typically
sold at
prices and
terms negotiated
directly with
customers. Historically,
prices for
specialty eggs
have
experienced
less
volatility
than
prices
for
conventional
shell
eggs
and
have
generally
been
higher
due
to
customer
and
consumer willingness to pay more for specialty eggs. However, throughout most of
fiscal 2023 conventional egg prices exceeded
specialty egg prices. Conventional
egg prices generally respond
more quickly to market conditions
because we sell the majority
of our conventional
shell eggs based on
formulas that adjust periodically
and take into account,
in varying ways, independently
quoted regional wholesale market prices for shell eggs or
formulas related to our costs of
production. Because the majority of our
specialty eggs
are typically
sold at prices
and terms negotiated
directly with
customers, specialty
egg prices
do not fluctuate
as
much as conventional pricing.
Feed Costs for Shell Egg Production
Feed is a primary cost component in
the production of shell eggs and
represented 63.1% of our fiscal 2023 farm
production costs.
We
routinely fill
our storage
bins during
harvest season
when prices
for feed
ingredients, primarily
corn and
to a
lesser extent
soybean meal,
are generally
lower.
To
ensure continued
availability of
feed ingredients,
we may
enter into
contracts for
future
purchases
of
corn
and
soybean meal,
and
as part
of these
contracts,
we
may
lock-in
the basis
portion
of our
grain
purchases
several months in advance.
Basis is the difference between the local cash price for grain and the applicable futures price. A basis
6
contract is a common transaction in the grain market that allows us to lock-in a basis level for a specific delivery period and wait
to set
the futures
price at
a later
date. Furthermore,
due to
the more
limited supply
for organic
ingredients,
we may
commit to
purchase organic ingredients in advance to help assure supply.
Ordinarily, we do not enter into long-term contracts beyond a year
to
purchase
corn
and
soybean
meal
or
hedge
against
increases
in
the
prices
of
corn
and
soybean
meal.
As
the
quality
and
composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we formulate
and produce
the vast
majority of
our own
feed at
our feed
mills located
near our
production plants.
Our annual
feed requirements
for fiscal
2023 were 2.0 million tons of finished
feed, of which we manufactured 1.9 million
tons. We currently
have the capacity to store
182 thousand tons of corn and soybean meal, and we replenish these stores as needed
throughout the year.
Our primary feed ingredients, corn
and soybean meal, are commodities 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 and most recently
the Russia-Ukraine War.
While we do not import corn
or soy directly from the region,
the
Russia-Ukraine War
has had
a negative
impact on
the worldwide
supply of
grain, including
corn, putting
upward pressure
on
prices.
We
purchase
the
vast
majority
of
our
corn
and
soybean
meal
from
U.S
sources
but
may
be
forced
to
purchase
internationally
when
U.S.
supplies are
not
readily
available.
Feed
grains
are
currently
available
from
an
adequate
number
of
sources in the U.S. As a point
of reference, a multi-year comparison
of the average of daily closing prices
per Chicago Board of
Trade for each period in our fiscal calendar are
shown below for corn and soybean meal:
Shell Egg Production
Our percentage of dozens produced to sold
was 92.3%
of our total shell eggs sold in fiscal 2023,
with 91.8% of such production
coming from company-owned facilities,
and 8.2% from contract
producers. Under a
typical arrangement with
a contract producer,
we
own
the
flock,
furnish
all feed
and
critical
supplies,
own
the
shell
eggs
produced
and
assume
market
risks.
The contract
producers own and operate their facilities and are paid a fee based on production
with incentives for performance.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We hatch the majority of
our chicks in
our own breeder
farms and hatcheries
in a
computer-controlled environment and obtain
the balance from
commercial
sources. The chicks are grown in our own pullet farms and are placed into the laying
flock once they reach maturity.
7
After eggs are
produced, they are
cleaned, graded and
packaged. Substantially all
our farms have
modern “in-line” facilities
which
mechanically
gather,
clean,
grade
and
package
the
eggs
at
the
location
where
they
are
laid.
The
in-line
facilities
generate
significant efficiencies
and cost
savings compared
to the
cost of
eggs produced
from non-in-line
facilities, which
process eggs
that
have
been
laid
at
another
location
and
transported
to the
processing
facility.
The
in-line
facilities
also
produce
a
higher
percentage of USDA Grade A eggs, which sell at higher prices. Eggs
produced on farms owned by contractors are brought to our
processing plants
to be graded
and packaged.
Because shell eggs
are perishable,
we do not
maintain large
egg inventories. Our
egg
inventory
averaged
six
days
of
sales
during
fiscal
2023.
We
believe
our
constant
focus
on
production
efficiencies
and
automation throughout the supply chain enable us to be a low-cost supplier
in our markets.
We
are proud
to have
created and
upheld
what we
believe is
a leading
poultry
Animal Welfare
Program
(“AWP”).
We
have
aligned our AWP with
regulatory, veterinary
and our third-party certifying bodies’ guidance to govern welfare of
animals in our
direct care, our contract farmers’ care and our farmer-suppliers’
care. We continually
review our program to monitor and evolve
standards that guide how we hatch chicks, rear pullets and nurture
breeder and layer hens. At each stage of
our animals’ lives, we
are dedicated to providing welfare conditions aligned
to our commitment to the principles of the internationally
recognized
Five
Freedoms of Animal Welfare
. Our standards apply to
our enterprise and are
tailored for our owned and
contract grower operations
with oversights and approvals from senior members of our compliance team.
We
do not
use artificial
hormones in
the production
of our
eggs. Hormone
use in
the poultry
and egg
production industry
has
been
effectively
banned
in
the U.S.
since
the
1950s.
We
have
an
extensive
written
protocol
that
allows
the
use
of
medically
important
antibiotics
only
when
animal
health
is
at
risk,
consistent
with
guidance
from
the
United
States
Food
and
Drug
Administration
(“FDA”)
and
the
Guidance
for
Judicious
Therapeutic
Use
of
Antimicrobials
in
Poultry,
developed
by
the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary
doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We
do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We
are
one
of
the
largest
producers
and
marketers
of
value-added
specialty
shell
eggs
in
the
U.S.,
which
continues
to
be
a
significant and growing segment
of the market.
We classify cage-free, organic, brown, free-range, pasture-raised and
nutritionally
enhanced as specialty eggs for accounting and
reporting purposes. Specialty eggs are intended to
meet the demands of consumers
sensitive to environmental, health and/or animal welfare issues and
to comply with state requirements for cage-free eggs.
As defined by the USDA, eggs packed in USDA grade
marked consumer packages labeled as cage-free are
laid by hens that are
able to roam vertically and horizontally in indoor houses and have access to fresh food and water.
Cage-free systems must allow
hens to
exhibit natural
behaviors and
include enrichments
such as
scratch areas,
perches and
nests. Hens
must have
access to
litter, protection from predators and be
able to move in a barn in a manner that promotes bird welfare.
Ten
states
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production
or
mandated the sale of
only cage-free eggs and
egg products in
their states, with implementation
of these laws ranging
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
U.S. population
have cage-free legislation in effect currently.
In May 2023, the U.S. Supreme Court upheld as
constitutional California’s law that
requires the sale of
only cage-free eggs
in that state and
regardless of the state
in which the eggs
are produced. Although
we do
not sell the majority of our eggs in these ten states, these state laws have impacted
egg production practices nationally.
A significant number of our customers previously announced goals to
offer cage-free eggs exclusively on or before 2026, subject
in most cases to availability of supply,
affordability and consumer demand, among other contingencies. Some of these customers
have recently
changed those
goals to
offer 70%
cage-free eggs
by the
end of
2030. Our
customers typically
do not
commit to
long-term purchases
of specific quantities
or types of
eggs with us,
and as a
result, it is
difficult to
accurately predict
customer
requirements for cage-free eggs. We are focused on adjusting our cage-free production capacity with a goal of meeting the future
needs of our customers in light of changing
state requirements and our customer’s
goals. As always, we strive to offer a product
mix that aligns with current and anticipated customer purchase decisions. We are engaging with our customers to help them meet
their announced goals and needs. We have invested significant capital in
recent years to acquire and construct
cage-free facilities,
and we expect our focus for future expansion will continue
to include cage-free facilities. Our volume of cage-free egg sales has
continued to increase and account for a larger share of our product mix. Cage-free sales represented approximately 20.1% of our
total net
shell sales
for
fiscal
year
2023.
At the
same time,
we understand
the importance
of our
continued
ability to
provide
conventional eggs in order to provide our customers with a variety
of egg choices and to address hunger in our communities.
8
We are a member of the Eggland’s
Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s
Best®
Land O’
Lakes®
Land O’
Lakes®
produced by hens that are fed a
whole-grain vegetarian diet. Our
Farmhouse Eggs
® brand eggs are produced at our
facilities by
cage-free hens
that are
provided with
a vegetarian
diet. We
market organic,
vegetarian and
omega-3 eggs
under our
4-Grain®
brand, which
consists of
conventional and
cage-free eggs.
We
also produce,
market and
distribute private
label specialty
shell
eggs to several customers.
Egg Products
Egg products are shell eggs broken
and sold in liquid, frozen, or
dried form. We
sell liquid and frozen egg products
primarily to
the institutional, foodservice and food manufacturing sectors in the U.S. Our egg products are primarily
sold through our wholly
owned subsidiaries American Egg Products, LLC located in Georgia
and Texas Egg Products, LLC located
in Texas.
During March 2023,
MeadowCreek Food,
LLC (“Meadowcreek”),
a majority-owned subsidiary,
began operations with
a focus
on being a
leading provider of
hard-cooked eggs. We
serve as the
preferred provider to
supply specialty and
conventional eggs
that MeadowCreek
needs to
manufacture egg
products. MeadowCreek’s
marketing plan
is designed
to extend
our reach
in the
foodservice and retail marketplace and bring
new opportunities in the restaurant,
institutional and industrial food products arenas.
Summary of Conventional and Specialty Shell Egg and Egg Product
Sales
The
following
table
sets
forth
the
contribution
as
a
percentage
of
revenue
and
volumes
of
dozens
sold
of
conventional
and
specialty shell egg and egg product sales for the following fiscal years:
2023
2022
2021
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
65.2
%
65.3
%
59.8
%
69.0
%
56.8
%
73.2
%
Specialty Eggs
Egg-Land’s Best®
14.7
%
16.6
%
19.2
%
15.9
%
20.9
%
13.5
%
Other Specialty Eggs
15.7
%
18.1
%
17.3
%
15.1
%
19.1
%
13.3
%
Total Specialty Eggs
30.4
%
34.7
%
36.5
%
31.0
%
40.0
%
26.8
%
Egg Products
3.9
%
3.4
%
2.7
%
Marketing and Distribution
In fiscal 2023, we sold our shell eggs in 38 states through
the southwestern, southeastern, mid-western and mid-Atlantic regions
of the U.S.
through our extensive
distribution network
to a diverse group
of customers, including
national and regional
grocery
store chains,
club stores,
companies servicing
independent supermarkets
in the
U.S., foodservice
distributors and
egg product
consumers. Some of
our sales
are completed through
co-pack agreements –
a common practice
in the
industry whereby production
and
processing of
certain products
are outsourced
to another
producer.
Although we
face intense
competition
from numerous
other companies,
we believe
that we
have the
largest market
share for
the sale
of shell
eggs in
the grocery
segment, including
large U.S. food retailers.
The majority of eggs sold are based on the daily
or short-term needs of our customers. Most sales to established
accounts are on
payment terms ranging from
seven to 30
days. Although we
have established long-term relationships
with many of
our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we
sell are either delivered to
our customers’ warehouse or retail
stores, by our own
fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
We
are a member
of the Eggland’s
Best, Inc. cooperative
and produce, market,
distribute and
sell
Egg-Land’s
Best®
Land
O’ Lakes®
exclusive
license
agreements
in
Alabama,
Arizona,
Florida,
Georgia,
Louisiana,
Mississippi
and
Texas,
and
in
portions
of
Arkansas, California,
Nevada, North
Carolina,
Oklahoma and
South Carolina.
We
also have
an exclusive
license in New
York
City in addition
to exclusivity in
select New York
metropolitan areas, including
areas within New
Jersey and Pennsylvania.
As
discussed above under “Specialty Eggs,” we also sell our own Farmhouse
Eggs® and 4Grain® branded eggs.
9
During
2022,
the
Company
joined
in
the
formation
of
a
new
egg
farmer
cooperative
in
the
western
United
States.
ProEgg,
Inc.(“ProEgg”) is comprised
of leading egg production
companies, including Cal-Maine
Foods, servicing retail and
foodservice
shell egg customers in 13 western states. ProEgg is a producer-owned
cooperative organized under the Capper-Volstead
Act.
The Company’s
top priority in joining
as a member of
ProEgg is serving
our valued customers in
this important market
region.
Our
membership
in
ProEgg
is
expected
to
provide
benefits
for
its
customers,
including
supply
chain
stability
and
enhanced
reliability. Initially,
Cal-Maine Foods’ customer relationships and customer support are expected to remain the same. We
expect
that starting January
1, 2024, each
producer member
will sell through
ProEgg the
shell eggs it
produces for
sale in the
western
states covered by the cooperative. Customers will
have a single point of
contact for their shell egg
purchases, as ProEgg will have
a dedicated team to market and sell the members’ combined egg production
in the region.
Customers
Our top
three customers
accounted for
an aggregate of
50.1%, 45.9%
and 48.6% of
net sales dollars
for fiscal 2023
,
2022, and
2021,
respectively.
Our largest
customer,
Walmart
Inc. (including
Sam's Club),
accounted for
34.2%, 29.5%
and 29.8%
of net
sales dollars for fiscal 2023, 2022 and 2021, respectively.
In fiscal 2023,
approximately 85.3% of
our revenue related
to sales to retail
customers, 10.8% to
sales to foodservice
providers
and 3.9%
to egg products
sales. Retail customers
include primarily
national and
regional grocery
store chains,
club stores, and
companies
servicing
independent
supermarkets
in the
U.S. Foodservice
customers
include
primarily
companies that
sell food
products and related items to restaurants, healthcare and education facilities and
hotels.
Competition
The production, processing,
and distribution of shell
eggs is an intensely
competitive business, which
has traditionally attracted
large numbers of
producers in the United
States. Shell egg competition
is generally based on
price, service and product
quality.
The shell
egg production
industry remains
highly fragmented.
According to
Egg Industry
Magazine
, the
ten largest
producers
owned approximately
53% of industry
table egg layer
hens at year-end
2022 and 2021.
We
believe industry
consolidation may
continue,
and
we
plan
to
capitalize
on
opportunities
as
they
arise.
We
believe
further
concentration
could
result
in
reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
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. Accordingly, we generally expect our need for
working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a
low-cost provider of shell eggs located near
our customers, offering our customers
choices
that
meet
their
requirements
for
eggs
and
egg
products
and
continuing
to
grow
our
focus
on
specialty
eggs
and
egg
products. For example, our
recent investment in MeadowCreek,
discussed under the heading
“Egg Products” above, is
intended
to
extend
our
reach
in
the
foodservice
and
retail
marketplace
and
bring
new
opportunities
in
the
restaurant,
institutional
and
industrial food products arenas.
In light
of the growing
customer demand
and increased
legal requirements
for cage-free
eggs, we
intend to
continue to
closely
evaluate the
need to expand
through selective acquisitions,
with a priority
on those that
will facilitate our
ability to expand
our
cage-free shell
egg production
capabilities in
key locations
and markets.
We
will also
continue to
closely evaluate
the need
to
continue to expand and convert
our own facilities to increase production
of cage-free eggs based on
a timeline designed to meet
the anticipated
needs of
our customers
and comply
with evolving
legal requirements.
As the
ongoing
production
of cage-free
eggs
is
more
costly
than
the
production
of
conventional
eggs,
aligning
our
cage-free
production
capabilities
with
changing
demand for cage-free eggs is important to the success of our business.
10
Trademarks
and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
4Grain®
. We produce and
market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under
license agreements with
EB. We
believe these trademarks
and license agreements
are
important to our business.
Government Regulation
Our facilities and
operations are subject
to regulation by
various federal, state,
and local agencies,
including, but not
limited to,
the FDA,
USDA, Environmental
Protection
Agency (“EPA
”), Occupational
Safety and
Health Administration
("OSHA") and
corresponding state agencies or
laws. The applicable regulations relate
to grading, quality control,
labeling, sanitary control and
reuse or
disposal of
waste. Our
shell egg
facilities are
subject to
periodic USDA,
FDA, EPA
and OSHA
inspections. Our
feed
production facilities are
subject to FDA,
EPA
and OSHA regulation
and inspections. We
maintain our own
inspection program
to
monitor
compliance
with
our
own
standards
and
customer
specifications.
It
is
possible
that
we
will
be
required
to
incur
significant
costs
for
compliance
with
such
statutes
and
regulations.
In
the
future,
additional
rules
could
be
proposed
that,
if
adopted, could increase our costs.
Ten
states
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production
or
mandated the sale of
only cage-free eggs and
egg products in
their states, with implementation
of these laws ranging
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
U.S. population
have cage-free legislation in effect currently.
In May 2023, the U.S. Supreme Court upheld as
constitutional California’s law that
requires the sale of only cage-free eggs in that state and regardless of the
state in which the eggs are produced.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing,
among
other
things,
the
generation,
storage,
handling,
use,
transportation,
disposal,
and
remediation
of
hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities,
including, but not limited to,
wastewater discharge
permits. We
have made, and
will continue to make,
capital and other expenditures
relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures
necessary
to
comply
with
such
laws
and
regulations;
however,
as
environmental,
health
and
safety
laws
and
regulations are becoming
increasingly more stringent,
including those relating to
animal wastes and wastewater discharges,
it is
possible that we will have to incur significant costs for compliance with such
laws and regulations in the future.
Human Capital Resources
As of June 3, 2023, we had 2,976 employees, of whom 2,305 worked in egg production, processing,
and marketing, 207 worked
in
feed
mill operations
and 464, including
our
executive officers,
were
administrative
employees. Approximately
5.4% of
our
personnel
are
part-time, and we
utilize
temporary
employment
agencies
and
independent
contractors
to
augment
our
staffing needs when necessary. For fiscal 2023, the average monthly full-time
equivalent for contingent workers was
1,349. None
of our employees are covered by a collective bargaining
agreement. We consider
our relations with employees to be good.
Culture and Values
We
are
proud
to
be contributing corporate
citizens
where
we live
and
work and to
help create healthy,
prosperous
communities. Our
colleagues
help
us
continue
to
enhance our community
contributions,
which are driven
by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to
realize full potential. These
commitments are encapsulated
in the
Cal-Maine Foods Code
of Ethics and
Business
Conduct
Human Rights Statement
.
Health and Safety
Our top priority is the
health and safety of our
employees, who continue to produce
high-quality,
affordable egg choices for
our
customers and contribute to
a stable food
supply. Our enterprise safety committee
comprises two corporate safety managers,
eight
area compliance managers
(three specifically for
worker health
and safety),
55 local site
compliance managers, feed
mill managers
and general managers.
The committee that
oversees health and safety regularly reviews
our written policies and
changes to OSHA
regulation standards and shares information as it relates to outcomes from incidents in order to improve future performance. The
11
committee’s
goals
include
working
to
help
ensure
that
our
engagements
with
our consumers,
customers,
and
regulators
evidence our strong commitment to our workers’ health and safety.
Our commitment to our colleagues’ health includes a strong
commitment to on-site worker safety,
including a focus on accident
prevention and life safety.
Our Safety and Health Program
is designed to promote best
practices that help prevent
and minimize
workplace accidents and illnesses. The scope of our Safety and
Health Program applies to all enterprise colleagues. Additionally,
to
help
protect
the health
and well-being
of
our
colleagues and
people
in our
value
chain,
we
require
that any
contractors
or
vendors
acknowledge
and
agree
to
comply
with
the
guidelines
governed
by
our
Safety
and
Health
Program.
At
each
of
our
locations, our general managers are expected to
uphold and implement our Safety and Health Program in alignment
with OSHA
requirements. We
believe that
this program,
which is reviewed
annually by
our senior management
team, contributes
to strong
safety outcomes. As part of our
Safety and Health Program, we conduct multi-lingual training that
covers topics such as slip-and-
fall avoidance, respiratory protection, prevention of
hazardous communication of chemicals, the
proper use of personal
protective
equipment, hearing
conservation, emergency
response, lockout
and tagout
of equipment
and forklift
safety,
among others.
We
have
also
installed dry
hydrogen
peroxide biodefense
systems
in
our
processing
facilities
to
help
protect
our
colleagues’
respiratory health. To help drive
our focus on
colleague safety, we developed safety
committees at each
of our sites
with employee
representation from each department.
We
review
the success
of our
safety programs
on a
monthly basis
to monitor
their effectiveness
and
the development
of any
trends that need to
be addressed. During fiscal
year 2023
our recordable incident rates
decreased by 29% compared to
fiscal 2022.
Diversity, Equity and Inclusion
Our
culture seeks
to
embrace the
diversity
and
inclusion
of
all
our
team
members.
This
culture is driven
by
our
board
and
executive management team. Our board comprises seven members, four of
whom are independent. Women comprise 29% of our
board and 14% of our
board members identify as a
racial or ethnic
minority. As
of June 3, 2023,
our total workforce comprised
29% women and 53%
of colleagues who
identify as racial or
ethnic minorities. Our Policy
against Harassment, Discrimination,
Unlawful
or
Unethical
Conduct
and
Retaliation;
Reporting
Procedure affirms
our
commitment
to
supporting
our
employees
regardless of race, color, religion, sex, national
origin or any other basis protected by applicable law.
Cal-Maine Foods strives
to ensure that
our colleagues are
treated equitably. We are an Equal
Opportunity Employer that prohibits,
by policy and practice,
any violation of applicable
federal, state, or local
law regarding employment.
Discrimination because of
race, color, religion,
sex, pregnancy, age,
national origin, citizenship status, veteran
status, physical or mental disability,
genetic
information, or any other basis protected by applicable law
is prohibited. We value diversity in our workplaces or in
work-related
situations. We maintain
strong protocols to help our colleagues perform
their jobs free from harassment and discrimination. Our
focus
on
equitable
treatment
extends
to
recruitment,
employment
applications,
hiring,
placement,
job
assignments,
career
development, training, remuneration,
benefits, discharge
and other matters
tied to terms and
conditions of employment.
We
are
committed
to
offering
our
colleagues
opportunities
commensurate
with
our
operational
needs,
their
experiences,
goals
and
contributions.
Recruitment, Development and Retention
We
believe
in compensating
our
colleagues
with
fair
and competitive wages, in
addition
to offering
competitive benefits. Approximately 76% of our employees
are paid at hourly rates, which are all paid at rates above
the federal
minimum
wage
requirement.
We
offer
our
full-time
eligible
employees
a
range
of
benefits,
including
company-paid
life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 84% of the costs of the plan
for
participating
employees
and
their
families
as
of
December
31,
2022. Recent
benchmarking
of
our health
plan
indicates comparable
benefits, at
lower
employee contributions, when compared
to an applicable
Agriculture
and
Food Manufacturing sector grouping, as well as peer group data.
In addition, we offer employees the opportunity to purchase an
extensive range of other group
plan benefits, such as dental, vision,
accident, critical illness, disability
and voluntary life.
After
one
year
of
employment, full-time employees
who
meet
eligibility
requirements may
elect
to participate
in
our
KSOP retirement plan,
which
offers
a
range
of
investment
alternatives
and
includes
many positive features,
such
as
automatic enrollment with scheduled
automatic contribution
increases and loan
provisions. Regardless of
the
employees’ elections
to contribute
to
the
KSOP,
the
Company contributes shares
of Company
stock or
cash
equivalent
to 3%
of participants’ eligible compensation for each pay period that hours
are worked.
We
provide
extensive
training
and
development related
to
safety,
regulatory
compliance,
and
task
training.
We
invest
in
developing our future leaders through our Management Intern, Management
Trainee and informal mentoring programs.
12
Sustainability
We understand that climate, and
the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to
responsible management of
our flocks, are
vital to
the production of
high-quality eggs and
egg products
and to the success of our
Company. We have engaged in agricultural production for
more than 60
years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible
natural resource stewardship. We plan to publish our most recent sustainability report on or around early
August 2023, which
will be available
on our website.
Information contained
on our website is
not a part
of this report
on Form
10-K.
Our Corporate Information
We
maintain
a
website
at
www.calmainefoods.com
where
general
information
about
our
business
and
corporate
governance
matters is
available. The
information contained
in our
website is
not a
part of
this report.
Our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current Reports
on Form 8-K, proxy
statements, and all amendments
to those reports filed
or
furnished pursuant
to Section
13(a) or
15(d) of
the Exchange
Act are
available, free
of charge,
through our
website as
soon as
reasonably
practicable
after
we
file
them
with,
or
furnish
them
to,
the
SEC.
In
addition,
the
SEC
maintains
a
website
at
www.sec.gov
that
contains
reports,
proxy
and
information
statements,
and
other
information
regarding
issuers
that
file
electronically with the SEC. Cal-Maine Foods, Inc. is a Delaware corporation,
incorporated in 1969.
ITEM 1A.
RISK FACTORS
Our
business
and
results
of
operations
are
subject
to
numerous
risks
and
uncertainties,
many
of
which
are
beyond
our
control. The following is a description of the known factors that may materially affect
our business, financial condition or results
of operations. They
should be considered
carefully,
in addition
to the information
set forth
elsewhere in
this Annual
Report on
Form
10-K,
including
under
Part
II.
Item 7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations,
in
making
any
investment
decisions
with
respect
to
our
securities. Additional
risks
or
uncertainties
that
are
not
currently known
to us,
or that we
are aware
of but
currently deem
to be
immaterial or
that could
apply to
any company
could
also materially adversely affect our business, financial condition or results
of operations.
INDUSTRY RISK FACTORS
Market prices
of wholesale
shell eggs
are volatile,
and decreases
in these
prices can
adversely impact
our revenues
and
profits.
Our operating results are significantly
affected by wholesale shell egg
market prices, which fluctuate widely and
are outside our
control. As
a result,
our prior
performance
should not
be presumed
to be
an accurate
indication of
future performance.
Under
certain circumstances, small increases
in production, or small
decreases in demand, within
the industry might
have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect
our revenues and profits.
Market prices for
wholesale shell eggs
have been volatile
and cyclical. Shell
egg prices have
risen in the
past during periods
of
high demand such as the initial outbreak of
the COVID-19 pandemic and periods when high protein
diets are popular. Shell egg
prices
have
also
risen
during
periods
of
constrained
supply,
such
as
the
latest
highly
pathogenic
avian
influenza
(“HPAI”)
outbreak
that was
first detected
in domestic
commercial flocks
in February
2022. During
times when
prices are
high, the
egg
industry
has
typically
geared
up
to
produce
more
eggs,
primarily
by
increasing
the
number
of
layers,
which
historically
has
ultimately resulted in an oversupply of eggs, leading to a period of lower prices.
As discussed
above in
, seasonal fluctuations
impact shell
egg prices. Therefore,
comparisons
of
our
sales
and
operating
results
between
different
quarters
within
a
single
fiscal
year
are
not
necessarily
meaningful
comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the
increase in meals prepared at home due
to concerns and restrictions during the initial outbreak
of the COVID-19
pandemic,
high-protein
diet
trends,
industry
advertising
campaigns
and
the
improved
nutritional
reputation
of
eggs
have
all
contributed
at one
time or
another
to increased
shell egg
demand. However,
it is
possible that
the demand
for shell
eggs will
decline in the future. Adverse publicity relating to health or safety
concerns and changes in the perception of the nutritional
value
of shell eggs, changes in consumer
views regarding consumption of animal-based products, as
well as movement away from high
protein diets, could
adversely affect
demand for shell
eggs, which would
have a material
adverse effect
on our future
results of
operations and financial condition.
13
Feed costs are volatile and increases in these costs can
adversely impact our results of operations.
Feed costs are the largest element of our shell
egg (farm) production cost, ranging from 55%
to 63% of total farm production cost
in the last five fiscal years.
Although feed ingredients, primarily corn and soybean
meal, are available from a
number of sources, we do not
have control over
the prices
of the
ingredients we
purchase, which
are affected
by weather,
various global
and U.S.
supply and
demand factors,
transportation
and storage
costs, speculators,
and
agricultural, energy
and trade
policies in
the U.S.
and
internationally.
More
recently,
the Russia-Ukraine
War
has had
a negative
impact on
the worldwide
supply of grain,
including corn,
putting upward
pressure on
prices. We
saw increasing
prices for
corn and
soybean meal
for fiscal
years 2022
and 2023
as a
result of
weather-
related shortfalls
in production
and yields, ongoing
supply chain disruptions
and the Russia-Ukraine
War
and its impact
on the
export markets.
Our costs for
corn and
soybean meal are
also affected
by local basis
prices. Factors that
can affect
basis levels
include transportation
and storage costs. We
saw basis levels
increase in our
areas of operation
during fiscal 2023
as a result of
higher transportation and storage costs, resulting in higher farm production
costs during the year.
Increases in feed
costs unaccompanied by increases
in the selling price
of eggs can have
a material adverse effect
on the results
of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower
egg prices and lower revenue.
Agricultural risks, including outbreaks of avian
disease, could harm our business.
Our shell egg
production activities are
subject to a variety
of agricultural risks.
Unusual or extreme
weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs
we produce and distribute. Outbreaks of avian
influenza among poultry occur
periodically worldwide and have occurred
sporadically in the U.S. Most recently,
an outbreak of
HPAI,
which was first detected
in February 2022,
has impacted the
industry.
Prior to 2022, there
was another significant
HPAI
outbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI
at any Cal-Maine Foods’ owned
or contracted facility as
of July 25,
2023. The Company maintains
controls and procedures designed
to reduce the
risk of exposing
our flocks to harmful
diseases; however, despite these efforts, outbreaks of avian
disease can and do
still occur and may
adversely
impact the
health of
our flocks.
An outbreak
of avian
disease could
have a
material adverse
impact on
our financial
results by
increasing
government
restrictions
on
the
sale
and
distribution
of
our
products
and
requiring
us
to
euthanize
the
affected
layers. Negative publicity from an outbreak within our
industry can negatively impact customer perception, even if
the outbreak
does
not
directly
impact
our flocks.
If
a
substantial portion
of
our
layers
or production
facilities are
affected
by
any
of these
factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely
affected.
Shell
eggs
and
shell
egg
products
are
susceptible
to
microbial
contamination,
and
we
may
be
required
to,
or we
may
voluntarily, recall
contaminated products.
Shell eggs
and shell
egg products
are vulnerable
to contamination
by pathogens
such as
Salmonella. The
Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg
Rule
issued
by
the
FDA
“Prevention
of
Salmonella
Enteritidis
in
Shell
Eggs
During
Production,
Storage,
and
Transportation,” and
the FDA’s
Food Safety Modernization Act. Shipment
of contaminated products, even
if inadvertent, could
result in a
violation of law and
lead to increased
risk of exposure
to product liability
claims, product recalls
and scrutiny by federal
and
state
regulatory
agencies.
We
have
little,
if
any,
control
over
proper
handling
once
the
product
has
been
shipped
or
delivered. In
addition,
products
purchased
from
other
producers
could
contain
contaminants
that
might
be
inadvertently
redistributed by us. As such, we might decide or be required
to recall a product if we, our customers
or regulators believe it poses
a potential
health risk.
Any product
recall could
result in
a loss
of consumer
confidence in
our products,
adversely affect
our
reputation
with existing
and potential
customers and
have a
material adverse
effect
on our
business, results
of operations
and
financial condition. We
currently maintain insurance
with respect to certain of
these risks, including product
liability insurance,
business interruption insurance and general liability
insurance, but in many cases such insurance is expensive,
difficult to obtain
and no assurance can
be given that such insurance
can be maintained in
the future on acceptable
terms, or in sufficient
amounts
to protect us against losses due to any such events, or at all.
Our profitability
may be adversely
impacted by
increases in other
input costs such
as packaging materials
and delivery
expenses, including as a result of inflation.
In addition to feed ingredient costs, other significant input costs include costs of packaging materials and delivery expenses. Our
costs of packing materials increased
during fiscal 2023 and 2022
due to rising inflation and labor
costs, and during 2022 also as
a
result
of
supply
chain
constraints
initially
caused
by
the
pandemic,
and
these
costs
may
continue
to
increase.
We
also
14
experienced increases in delivery expenses during fiscal 2023 and 2022 due to increases in fuel and labor costs for both our fleet
and contract
trucking, and
these costs
may continue
to increase.
Increases in
these costs
are largely
outside of
our control
and
have an adverse effect on our profitability and cash flow.
BUSINESS AND OPERATIONAL
RISK FACTORS
Global
or
regional
health
crises including
pandemics
or
epidemics
could
have
an
adverse impact
on
our
business and
operations.
The
effects
of
global
or
regional
pandemics
or
epidemics
can
significantly
impact
our
operations.
Although
demand
for
our
products could
increase as
a result
of restrictions
such as
travel bans
and restrictions,
quarantines, shelter-in-place
orders, and
business and government shutdowns,
which can prompt more
consumers to eat at home,
these restrictions could also significantly
increase our cost of doing business
due to labor shortages, supply-chain disruptions, increased costs and decreased availability of
packaging supplies, and increased
medical and other costs.
We experienced these impacts as a
result of the COVID-19
pandemic,
primarily during our fiscal
years 2020 and 2021.
The pandemic recovery also
contributed to increasing inflation
and interest rates,
which persist and
may continue
to persist. The
impacts of health
crises are difficult
to predict and
depend on numerous
factors
including
the
severity,
length and
geographic
scope
of
the outbreak,
resurgences
of
the disease
and
variants,
availability
and
acceptance of vaccines, and
governmental, business and individuals’
responses.
A resurgence of
COVID-19 and/or variants, or
any future major public health crisis, would disrupt our
business and could have a material adverse effect on
our financial results.
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan
to pursue a
growth strategy that includes
selective acquisitions
of other
companies engaged
in the
production and
sale of
shell eggs,
with a
priority on
those that
will facilitate
our ability
to
expand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the
demand
for
cage-free
eggs,
which
could
cause
our
acquisition
strategy
to
be
less-than-optimal
for
our
future
growth
and
profitability.
The
number
of existing
companies
with
cage-free
capacity
that
we
may
be
able
to
purchase
is
limited,
as
most
production of shell
eggs by other companies
in our markets currently
does not meet customer
demands or legal requirements
to
be designated
as cage-free.
Conversely,
if we
acquire cage-free
production capacity,
which is
more expensive
to purchase
and
operate, and customer
demands or legal
requirements for cage-free
eggs were to change,
the resulting lack
of demand for
cage-
free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we
could become subject to contingent or
other liabilities, including liabilities arising from
events or conduct
prior to
our acquisition
of a
business that
were unknown
to us
at the
time of
acquisition. We
could incur
significantly greater
expenditures in integrating an acquired business than we anticipated at the
time of its purchase.
We cannot assure
you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No
assurance
can
be
given
that
companies
we
acquire
in
the
future
will
contribute
positively
to
our
results
of
operations
or
financial condition.
In addition,
federal antitrust
laws require
regulatory approval
of acquisitions
that exceed
certain threshold
levels of significance, and we cannot guarantee that such approvals would
be obtained.
The consideration
we pay in
connection with any
acquisition affects
our financial results.
If we pay
cash, we could
be required
to
use
a
portion
of
our
available
cash
or
credit
facility
to
consummate
the
acquisition.
To
the
extent
we
issue
shares
of
our
Common Stock, existing stockholders may
be diluted. In addition,
acquisitions may result in
additional debt. Our ability to
access
any additional
capital that
may be
needed for
an acquisition
may be
adversely impacted
by higher
interest rates
and economic
uncertainty.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by,
one or more of our large customers.
Our customers, such as supermarkets, warehouse clubs
and food distributors, have continued to consolidate and consolidation
is
expected to continue. These consolidations have
produced larger customers and potential customers with
increased buying power
who are more
capable of operating
with reduced inventories,
opposing price increases,
and demanding lower
pricing, increased
15
promotional programs and specifically tailored products. Because of these trends,
our volume growth could slow or we
may need
to lower prices or increase promotional spending for our products, any of
which could adversely affect our financial results.
Our top
three customers
accounted for
an aggregate of
50.1%, 45.9%
and 48.6% of
net sales dollars
for fiscal 202
3, 2022,
and
2021, respectively.
Our largest
customer,
Walmart
Inc. (including
Sam's Club),
accounted for
34.2%, 29.5%
and 29.8%
of net
sales dollars
for fiscal
2023, 2022,
and 2021,
respectively. Although
we have
established long-term
relationships with
most of
our customers
who continue
to purchase
from us
based on
our ability
to service
their needs,
they are
generally free
to acquire
shell eggs
from other
sources. If, for
any reason, one
or more
of our
large customers
were to
purchase significantly
less of
our
shell eggs
in the
future or
terminate their
purchases from
us, and
we were
not able
to sell
our shell
eggs to
new customers
at
comparable levels, it would have a material adverse effect
on our business, financial condition, and results of operations.
Our business is highly competitive.
The
production
and
sale
of
fresh
shell
eggs,
which
accounted
for
virtually
all
of
our
net
sales
in
recent
years,
is
intensely
competitive. We
compete with
a large
number of
competitors that
may prove
to be
more successful
than we
are in
producing,
marketing and
selling shell
eggs. We
cannot provide
assurance that
we will
be able
to compete
successfully with
any or
all of
these companies.
Increased competition could result in price reductions,
greater cyclicality, reduced
margins and loss of market
share, which would negatively affect our business, results of operations,
and financial condition.
We
are
dependent
on
our
management
team,
and
the
loss
of
any
key
member
of
this
team
may
adversely
affect
the
implementation of our business plan in a timely manner.
Our success
depends largely
upon the
continued service
of our
senior management
team. The
loss or interruption
of service
of
one or more
of our key
executive officers
could adversely
affect our
ability to manage
our operations effectively
and/or pursue
our growth strategy.
We
have not entered
into any employment
or non-compete
agreements with any
of our executive
officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional
knowledge and result
in increased costs due to increased competition for employees.
Our
business
is
dependent
on
our
information
technology
systems
and
software,
and
failure
to
protect
against
or
effectively respond to
cyber-attacks, security
breaches, or other
incidents involving those systems,
could adversely affect
day-to-day operations and decision making processes and
have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our
information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory
and other business processes. If we do not allocate and
effectively manage the resources necessary to build
and sustain an appropriate technology environment, our business,
reputation, or financial results could be negatively impacted. In
addition, our information technology systems may be
vulnerable to damage or interruption from circumstances beyond our control,
including systems failures, natural disasters,
terrorist attacks, viruses, ransomware, security breaches or cyber
incidents. Cyber-attacks are becoming more sophisticated and
are increasing in the number of attempts and frequency by groups and individuals
with a wide range of motives. We
have
experienced and expect to continue to experience attempted cyber-attacks
of our information technology systems or networks.
A security breach
of
sensitive
information
could
result
in
damage
to
our
reputation
and
our
relations
with
our
customers
or
employees. Any such damage or interruption could have a material adverse
effect on our business.
Technology
and business and regulatory requirements continue to change rapidly.
Failure to update or replace legacy systems to
address
these
changes
could
result
in
increased
costs,
including
remediation
costs,
system
downtime,
third
party
litigation,
regulatory actions or cyber security vulnerabilities which could have
a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely
impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent
upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 76% of our employees are paid at hourly rates, often in entry-level positions. While all
our employees are paid at
rates above the federal minimum wage
requirements, any significant increase
in local, state or federal
minimum wage requirements could
increase our labor
costs. In addition,
any regulatory changes
requiring us to
provide additional
employee
benefits
or
mandating
increases
in
other
employee-related
costs,
such
as
unemployment
insurance
or
workers
compensation, would increase our
costs. A shortage
in the labor
pool, which may be
caused by competition from
other employers,
the remote
locations of
many of
our farms,
decreased
labor participation
rates or
changes in
government-provided
support or
immigration laws, particularly in times of lower unemployment,
could adversely affect our business and results of operations.
A
shortage of labor
available to
us could
cause our
farms to
operate with
reduced staff, which
could negatively impact
our production
capacity and efficiencies.
In fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic
and its effects, which
16
caused us to
increase wages in
response to labor shortages.
In fiscal 2023,
labor wages continued to
rise due to
increasing inflation
and low unemployment.
Accordingly, any significant labor shortages or increases
in our labor costs
could have a material
adverse
effect on our results of operations.
We are controlled by the family of our late founder, Fred
R. Adams, Jr., and Adolphus B. Baker,
Chairman of our Board
of Directors,
controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams,
Jr., our
Founder and Chairman Emeritus
died on March 29,
2020. Mr.
Adams’ son-in-law,
Adolphus B. Baker,
Chairman
of
our
board
of
directors,
Mr.
Baker’s
spouse
and
her
three
sisters
(Mr.
Adams’
four
daughters)
(collectively,
the
“Family”)
beneficially
own,
directly
or
indirectly
through
related
entities,
100%
of
our
outstanding
Class
A
Common
Stock
(which has
10 votes
per share),
controlling approximately
52.1% of
our total
voting power.
Such persons
also have
additional
voting power
due to
beneficial ownership
of our
Common Stock
(which has
one vote
per share),
directly or
indirectly through
related entities, resulting in family voting control of approximately 53.8% of our total voting power.
Mr. Baker controls the vote
of 100% of our outstanding Class A Common Stock.
We understand that the Family
intends
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
Family has
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
Family.
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 Family’s 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.
The Family holds
approximately 1.4 million shares of Common Stock (the “Subject Shares”) that are subject to an Agreement Regarding Common
Stock
(the
“Agreement”)
filed
as
an
exhibit
to
this
report.
The
Subject
Shares
remain
subject
to
potential
sale
under
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.
In addition,
our articles
of incorporation
authorize us
to issue
120,000,000 shares
of our
Common Stock.
As of
June 3,
2023,
there were
44,184,048 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.
17
LEGAL AND REGULATORY
RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices
to
comply
with
developing
standards
or
subject
us
to
marketing
costs
to
defend
challenges
to
our
current
practices and protect
our image with
our customers. In
particular,
changes in customer
preferences and
new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty
in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as
People for the Ethical Treatment of Animals and
the Humane
Society of
the United States,
to require
companies that supply
food products
to operate
their business in
a manner
that
treats
animals
in
conformity
with
certain
standards
developed
or
approved
by
these
groups.
In
general,
we
may
incur
additional costs to conform our practices to address
these standards or to defend our existing
practices and protect our image with
our customers.
The standards promoted
by these groups
change over time,
but typically
require minimum
cage space
for hens,
among other requirements, and some
of these groups have led successful
legislative efforts to ban
any form of caged housing
in
various states.
As
discussed
in
,
ten
states
have
passed
minimum
space
and/or
cage-free
requirements
for
hens,
and
other
states are
considering
such requirements.
In
addition,
in recent
years,
many
large
restaurant
chains,
foodservice
companies
and
grocery
chains,
including
our
largest
customers,
announced
goals
to
transition
to
an
exclusively cage-free
egg supply
chain by specified
future dates.
A significant
number of
our customers
previously announced
goals to offer cage-free eggs exclusively on or before 2026, in most cases subject to available supply, affordability and consumer
demand,
among other contingencies.
Some of these customers have recently changed those goals to offer 70% cage-free eggs by
the end of 2030. While we
anticipate that our retail and foodservice customers will
continue to transition to selling cage-free eggs
given public
commitments,
there is
no assurance
that this
transition
will take
place or
take place
according to
the timeline
of
current cage-free
commitments. For
example, customers
may accelerate
their transition
to stocking
cage-free eggs,
which may
challenge our
ability to
meet the
cage-free
volume needs
of those
customers and
result in
a loss
of shell
egg
sales. Similarly,
customers who
commit to
stock greater
proportional quantities
of cage-free
eggs are
under no
obligation to
continue to
do so,
which may
result in an
oversupply of
cage-free eggs and
result in lower
specialty egg
prices, which could
reduce the return
on
our capital investment in cage-free production.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and
new laws has
resulted and
will continue
to result
in additional
costs, including
capital and
operating cost
increases. The
USDA reported
that
the estimated
U.S. cage-free
flock was
121.6 million hens as
of June
30, 2023,
which is approximately
38.3% of
the total U.S.
table
egg
layer
hen
population.
According
to
the
USDA
Agricultural
Marketing
Service,
as of
May
2023
approximately
221
million hens,
or about
70.5% of
the U.S.
non-organic
laying flock
would have
to be
in cage-free
production by
2026 to
meet
projected demand
from the
retailers, foodservice
providers and
food
manufacturers that
have made
goals to
transition to
cage-
free eggs.
In response
to our
customers’ announced
goals and
increased legal
requirements for
cage-free eggs,
we have
increased capital
expenditures
to
increase
our
cage-free
production
capacity.
We
are
also
enhancing
our
focus
on
cage-free
capacity
when
considering
acquisition opportunities.
Our customers
typically do
not commit
to long-term
purchases of
specific quantities
or
type of eggs
with us, and
as a result,
we cannot predict
with any certainty
which types of
eggs they will
require us to
supply in
future
periods.
The
production
of
cage-free
eggs
is
more
costly
than
the
production
of
conventional
eggs,
and
these
higher
production costs contribute
to the prices
of cage-free eggs,
which historically have
typically been higher
than conventional egg
prices. Many consumers prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence
our customers’ future needs for
cage-free and conventional eggs.
Due to these uncertainties,
we may over-estimate future demand
for cage-free
eggs, which
could increase
our costs
unnecessarily,
or we
may under-estimate
future demand
for cage-free
eggs,
which could
harm us
competitively.
If our
competitors obtain
non-cancelable
long-term contracts
to provide
cage-free eggs
to
our existing or potential customers,
then there may be decreased demand
for our cage-free eggs due
to these lost potential sales.
If we and our
competitors increase cage-free egg production
and there is no
commensurate increase in demand for
cage-free eggs,
this overproduction
could lead to
an oversupply of
cage-free eggs, reducing
the sales price
for specialty eggs
and our return
on
capital investments in cage-free production.
Failure
to
comply
with
applicable
governmental
regulations,
including
environmental
regulations,
could
harm
our
operating results,
financial condition,
and reputation.
Further,
we may
incur significant
costs to
comply with
any such
regulations.
We are subject to federal, state and local
regulations relating to grading, quality
control, labeling, sanitary control, waste
disposal,
and other
areas of
our business.
As a
fully-integrated
shell egg
producer,
our shell
egg facilities
are subject
to regulation
and
inspection by the USDA, OSHA, EPA
and FDA, as well as state and local health and agricultural agencies, among others. All of
18
our shell egg production and
feed mill facilities are subject
to FDA, EPA and OSHA regulation and inspections. In addition, rules
are often proposed
that, if adopted as proposed, could increase our costs.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing,
among
other
things,
the
generation,
storage,
handling,
use,
transportation,
disposal,
and
remediation
of
hazardous
materials. Under these laws and
regulations, we are required to obtain permits
from governmental authorities, including, but
not
limited to wastewater discharge permits and manure
and litter land applications.
If we
fail to
comply with
applicable laws
or regulations,
or fail
to obtain
necessary permits,
we could
be subject
to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially
adversely
affected.
In
addition,
because
these
laws and
regulations
are
becoming
increasingly
more
stringent,
it is
possible that we will be required to incur significant costs for compliance
with such laws and regulations in the future.
Climate change and legal or regulatory responses
may have an adverse impact on our business and results of
operations.
Extreme
weather
events,
such
as derechos,
wildfires,
drought,
tornadoes,
hurricanes,
storms,
floods
or
other
natural
disasters
could materially and adversely affect our operating
results and financial condition. In fact, derechos, fires, floods,
tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures
and more
frequent occurrences
of extreme
weather events,
which may
be exacerbated
by climate
change, may
cause crop
and livestock
areas to
become unsuitable,
including due
to water
scarcity or
high or
unpredictable
temperatures,
which may
result in
much
greater stress on food systems and more pronounced food
insecurity globally. Lower
global crop production, including corn and
soybean meal,
which are
the primary
feed ingredients
that support
the health of
our animals,
may result
in significantly
higher
prices for these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact
our ability
to maintain
or grow our
operations. Climate
change may
increasingly expose
workers and
animals to
high heat
and
humidity stressors that adversely impact poultry production. Increased
greenhouse gas emissions may also negatively impact air
quality, soil quality
and water quality,
which may hamper our ability to support our operations,
particularly in higher water- and
soil-stressed regions.
Increasing
frequency of
severe weather
events, whether
tied to
climate change
or any
other cause,
may negatively
impact our
ability to raise
poultry and
produce eggs profitably
or to
operate our transportation
and logistics
supply chains. Regulatory
controls
and
market
pricing may
continue
to drive
the costs
of fossil
-based
fuels higher,
which
could negatively
impact
our ability
to
source commodities
necessary to
operate our
farms or
plants and
our current
fleet of
vehicles. These
changes may
cause us
to
change, significantly, our day-to-day
business operations and our strategy. Climate change and extreme weather events may also
impact demand for our products
given evolution of consumer food preferences.
Even if we take
measures to position our business
in anticipation
of such
changes, future
compliance
with legal
or regulatory
requirements may
require significant
management
time, oversight and enterprise expense. We
may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied
in a manner that
is inconsistent with our
business practices. We
can make no
assurances that our efforts
to prepare
for these
adverse events
will be
in line
with future
market and
regulatory expectations
and our
access to
capital to
support our business may also be adversely impacted.
Current and future litigation could expose us to significant
liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings.
Litigation is inherently unpredictable, and although
we
believe
we
have
meaningful
defenses
in
these
matters,
we
may
incur
liabilities
due
to
adverse
judgments
or
enter
into
settlements of claims that
could have a material
adverse effect on our
results of operations, cash
flow and financial condition.
For
a
discussion
of
our
ongoing
legal
proceedings
see
Consolidated Financial
Statements,
management’s
attention, and
may
result in
significant
adverse judgments
or settlements. Legal
proceedings
may expose
us to
negative publicity,
which could adversely affect our business reputation and customer preference
for our products and brands.
FINANCIAL AND ECONOMIC RISK FACTORS
Weak
or unstable
economic
conditions, including
continued
higher inflation
and rising
interest
rates,
could negatively
impact our business.
Weak
or unstable
economic conditions,
including continued
higher inflation
and rising
interest rates,
may adversely
affect our
business by:
●
Limiting our access to capital markets or increasing the cost of capital we may
need to grow our business;
●
Changing consumer spending and habits and demand for eggs, particularly
higher-priced eggs;
19
●
Restricting the supply of energy sources or increasing our cost to procure
energy; or
●
Reducing the availability of feed
ingredients, packaging material, and other raw
materials, or increasing the cost
of these
items.
Deterioration of economic conditions could also negatively
impact:
●
The financial condition of our suppliers, which may make it more
difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for
eggs or increase our bad debt expense; or
●
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an
insured peril.
According
to
the
U.S.
Bureau
of
Labor
Statistics,
from
May
2021
to
May
2022,
the
Consumer
Price Index for
All
Urban
Consumers (“CPI-U”) increased
8.5 percent, the largest
12-month increase since
the period ending December
1981. The CPI-U
increased 4.1% from May 2022 to May 2023. Inflationary costs have increased our input costs, and if
we are unable to pass these
costs through to the customer it could have an adverse effect on
our business.
We
hold
significant
cash balances
in deposit
accounts with
deposits in
excess of
the amounts
insured by
the Federal
Deposit
Insurance Corporation (“FDIC”). In
the event of
a bank failure
at an institution
where we maintain
deposits in excess
of the FDIC-
insured amount, we may lose such excess deposits.
The
loss
of
any
registered
trademark
or
other
intellectual
property
could
enable
other
companies
to
compete
more
effectively with us.
We
utilize intellectual
property in
our business. For
example, we
own the
trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We
produce and market
Egg-Land’s
Best®
Land O’ Lakes
® under license
agreements with EB. We
have invested a significant amount of
money in establishing and promoting
our trademarked brands. The loss or
expiration of any
intellectual property could
enable our competitors
to compete more
effectively with us
by allowing them
to make and
sell products
substantially
similar
to
those
we
offer.
This
could
negatively
impact
our
ability
to
produce
and
sell
those
products,
thereby
adversely affecting our operations.
Impairment in the carrying value
of goodwill or other assets
could negatively affect our results of
operations or net worth.
Goodwill
represents
the
excess
of
the
cost
of
business
acquisitions
over
the
fair
value
of
the
identifiable
net
assets
acquired. Goodwill
is
reviewed
at
least
annually
for
impairment
by
assessing
qualitative
factors
to
determine
whether
the
existence of events or circumstances
leads to a determination that
it is more likely than not
that the fair value of
a reporting unit
is less
than its
carrying
amount. As of
June 3,
2023, we
had $44.0 million
of goodwill. While
we believe
the current
carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period and our net worth.
Events beyond our control such as extreme
weather and natural disasters could negatively impact our business.
Fire,
bioterrorism,
pandemics,
extreme
weather
or natural
disasters, including
droughts,
floods,
excessive
cold
or
heat, water
rights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability
of feed ingredients, or interfere
with our operations due to
power outages, fuel shortages, discharges from
overtopped or breached
wastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation
channels, among other things. Any of these factors could have a material adverse
effect on our financial results.
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.
20
ITEM 2.
PROPERTIES
The table below provides summary information about
the primary operational facilities we use
in our business as of June
3, 2023.
Type
Quantity
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
—
House up to 255,000 hens
GA, MS
Distribution Centers
6
6
—
NA
FL, GA, NC, TX
Feed Mills
25
24
1
Production capacity of 859 tons
of feed per hour
AL, AR, FL, GA, KS, KY,
LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
FL, MS
Processing and
Packaging
43
43
—
Approximately 587,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY,
LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
29
29
—
Grow 27.1 million pullets
annually
AR, FL, GA, KS, KY,
MS, SC,
TX, UT
Shell Egg Production
42
42
—
House up to 46.6 million layers
AL, AR, FL, GA, KS, KY,
LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
3
3
—
Production capacity of 43,140
lbs. per hour
GA, TX, MO
(a)
Does not include idled facilities.
We
also
have
ongoing
construction
projects
to
further
expand
the
Company’s
cage-free
egg
production
capabilities.
These
projects
include
expanding
our cage-free
egg production
at existing
farms or
converting
conventional
housing
with cage-free
production.
These
projects
will
phase
into
production
through
fiscal
2027.
For
additional
information,
see
As
of
June
3,
2023,
we
owned
approximately
28.0
thousand
acres
of
land.
There
are
no
material
mortgages
or
liens
on
our
properties.
ITEM 3.
LEGAL PROCEEDINGS
Refer to the description of certain legal proceedings pending against us under Part II. Item
8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART
II.
ITEM
5.
MARKET
FOR
REGISTRANT’S
COMMON
EQUITY,
RELATED
STOCKHOLDER
MATTERS
AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of
capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no public
trading market for the Class A Common Stock.
All outstanding
Class A
shares are
owned by
a limited
liability company
of which
Adolphus Baker,
our Chairman,
is the
sole
managing member and will be
voted at the direction of
Mr. Baker. At July 14, 2023, there were approximately 319 record
holders
of our Common Stock
and approximately 73,626
beneficial owners whose shares
were held by nominees
or broker dealers. For
additional information
about our
capital structure,
see
Statements.
Dividends
Cal-Maine has a
variable dividend policy
adopted by its
Board of Directors.
Pursuant to the
policy,
Cal-Maine pays
a dividend
to shareholders of
its Common Stock and
Class A Common
Stock on a quarterly
basis for each quarter
for which the Company
reports net
income attributable
to Cal-Maine
Foods, Inc.
computed in
accordance with
GAAP in
an amount
equal to
one-third
21
(1/3) of
such quarterly
income. Dividends
are paid
to shareholders
of record
as of
the 60th
day following
the last
day of
such
quarter, except for
the fourth fiscal quarter.
For the fourth quarter,
the Company will pay dividends
to shareholders of record on
the 65th day after the
quarter end. Dividends are payable
on the 15th day following
the record date. Following a
quarter for which
the
Company
does
not
report
net
income
attributable
to
Cal-Maine
Foods,
Inc.,
the
Company
will
not
pay
a
dividend
for
a
subsequent profitable quarter until the Company is profitable on a
cumulative basis computed from the date of the
last quarter for
which
a
dividend
was
paid. Under
the
Company's
Credit
Facility,
dividends
are
restricted
to
the
amount
permitted
under
the
Company’s
current dividend policy,
and may not
be paid if
a default exists
or will arise
after giving effect
to the dividend
or if
the sum of
cash and cash
equivalents of
the Company and
its subsidiaries plus
availability under
the Credit Facility
equals less
than $50 million.
Stock Performance Graph
The
Company
utilized
the
(i)
Russell
2000
Total
Return,
and
(ii)
S&P
Composite
1500
Food
Products
Industry
Index
to
benchmark the
Company’s
total shareholder
return. The
Company is a
member of
each of these
indexes and
believes the other
companies
included
in
these
indexes
provide
products
and
services
similar
to
Cal-Maine
Foods.
The
graph
presents
total
shareholder return and assumes $100 was invested on June 1, 2018
in the stock or index and dividends were reinvested.
June 1, 2018
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
June 3, 2023
Cal-Maine Foods, Inc.
$
100.00
$
80.69
$
97.12
$
76.16
$
105.31
$
114.38
Russell 2000 Total Return
100.00
90.16
87.06
143.27
120.53
118.75
S&P Composite 1500 Food
Products Industry Index
100.00
105.74
116.41
144.80
155.14
163.85
22
Issuer Purchases of Equity Securities
The following table is a summary of our fourth quarter 2023 share repurchases:
Issuer Purchases of Equity Securities
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
2/26/23 to 3/25/23
—
$
—
—
—
3/26/23 to 4/22/23
10,551
48.62
—
—
4/23/23 to 6/03/23
—
—
—
—
10,551
$
48.62
—
—
(1)
As permitted under
our Amended and
Restated 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.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933
occurred during our fiscal year ended June 3, 2023.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
Equity compensation plans
approved by shareholders
—
$
—
294,140
Equity compensation plans not
approved by shareholders
—
—
—
Total
—
$
—
294,140
(a)
There were
no outstanding options,
warrants or
rights as of
June 3, 2023.
There were 941,593
shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term
Incentive Plan as of June 3, 2023.
(b)
There were no outstanding options, warrants or rights as of June 3, 202
3.
(c)
Reflects shares
available for
future issuance
as of
June 3,
2023 under
our Amended
and Restated
2012 Omnibus
Long-Term Incentive
Plan.
For
additional
information,
see
Statements.
ITEM 6.
RESERVED
23
ITEM
7.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND RESULTS
OF OPERATIONS
RISK FACTORS;
FORWARD
-LOOKING STATEMENTS
For
information
relating
to
important
risks
and
uncertainties
that
could
materially
adversely
affect
our
business,
securities,
financial
condition,
operating
results,
or
cash
flow,
reference
is
made
to
the
disclosure
set
forth
under
. In
addition, because
the following
discussion includes
numerous forward
-looking statements
relating to
our business,
securities, financial condition, operating results and cash flow, reference is made to the disclosure set forth under
“
.”
COMPANY
OVERVIEW
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of
fresh shell eggs.
Our
fiscal
year
end
is
the
Saturday
closest
to
May 31.
The
fiscal
year
2023
and
2022
included
53
weeks
and
52
weeks,
respectively.
The Company,
which
is headquartered
in Ridgeland,
Mississippi, is
the largest
producer and
distributor
of fresh
shell eggs in the United States
(“U.S”). In fiscal 2023, we sold approximately 1,147.4 million dozen shell
eggs, which we believe
represented
approximately
21% of
domestic shell
egg consumptio
n. Our
total flock
as of
June 3,
2023
of approximately
41.2
million layers and 10.8 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 U.S.
The Company has one reportable
operating segment, which is the production,
grading, packaging, marketing and distribution
of
shell eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs.
Specialty
eggs
represent
a
broad
range
of
products. We
classify
cage-free,
organic,
brown,
free-range,
pasture-raised
and
nutritionally enhanced
as specialty eggs for
accounting and reporting
purposes. We
classify all other
shell eggs as conventional
eggs.
While
we
report
separate
sales
information
for
these
types
of
eggs,
there
are
a
number
of
cost
factors
which
are
not
specifically
available
for
conventional
or
specialty
eggs due
to
the
nature
of egg
production.
We
manage
our
operations
and
allocate resources to these
types of eggs on a consolidated
basis based on the demands
of our customers. For further
description
of our business, refer to
HPAI
Since the first detection in
a U.S. commercial flock in
February 2022, outbreaks of highly
pathogenic avian influenza
(“HPAI”)
continued
to occur
in U.S.
poultry flocks
throughout calendar
year 2022
and, less
frequently,
in calendar
year 2023,
which is
more than twice the length of time
of the last HPAI outbreak in 2014-2015. HPAI affected more than 58 million birds in 47 states
and
resulted
in
the
depopulation
of
43.3
million
commercial
layer
hens
and
1.0
million
pullets
leading
to
higher
prices
for
conventional
shell eggs
beginning in
the fourth
quarter of
fiscal 2022
and continuing
through the
third quarter
of fiscal
2023.
Though the virus is still present, due to seasonal migratory patterns of wild birds (which serve as carriers for the disease) the rate
of outbreaks has substantially
decreased and the last
occurrence in a commercial
egg laying flock was in
December 2022.
The
USDA
attributes
this,
in
large
part,
to
improved
biosecurity
measures
by
the
commercial
poultry
industry.
The
industry
and
USDA have devoted
significant resources to
attempt to prevent
future outbreaks. With
the spring wild
bird migration complete
in the U.S., focus is on the fall migration season.
We
believe the
HPAI
outbreak will
continue to
impact the overall
supply of
eggs until the
layer hen
flock is
fully replenished.
The egg industry typically experiences lower sales during the
summer. The layer hen flock five-year average from 2020-2022 for
the month of June is 321.5 million hens. According to the USDA the U.S.
flock consisted of 317.4 million layers producing table
or
market
type
eggs as
of
July
1,
2023,
which
is 0.9%
below
the
five-year
average
and
reflects
efforts
by
U.S.
producers
to
repopulate their flocks. As the layer flock began to recover in the fourth quarter of fiscal 2023, prices for conventional shell eggs
decreased
from
previous
highs.
There
have
been
no
positive
tests
for
HPAI
at
any
Cal-Maine
Foods’
owned
or
contracted
production facility as of July
25, 2023. While no farm
is immune from HPAI,
we believe we have implemented
and continue to
maintain robust biosecurity programs across our locations. We
are also working closely with federal, state and local government
officials
and focused
industry groups
to mitigate
the risk
of this
and future
outbreaks and
effectively
manage our
response, if
needed.
24
Executive Overview of Results – Fiscal Years
Ended June 3, 2023, May 28, 2022 and May 29, 2021
Fiscal Years
Ended
June 3, 2023
May 28, 2022
May 29, 2021
Net sales (in thousands)
$
3,146,217
$
1,777,159
$
1,348,987
Gross profit (in thousands)
$
1,196,457
$
337,059
$
160,661
Net income attributable to Cal-Maine Foods, Inc.
$
758,024
$
132,650
$
2,060
Net income per share attributable to Cal-Maine Foods, Inc.
Basic
$
15.58
$
2.73
$
0.04
Diluted
$
15.52
$
2.72
$
0.04
Net average shell egg price
(a)
$
2.622
$
1.579
$
1.217
Average UB Southeast
Region - Shell Eggs - White Large
$
3.115
$
1.712
$
1.155
Feed costs per dozen produced
$
0.676
$
0.571
$
0.446
(a) The net average
shell egg selling price
is the blended price
for all sizes and
grades of shell eggs,
including non-graded
shell egg sales, breaking stock and undergrades.
For fiscal
2022, net
sales increased
to $1.8
billion, gross
profit to
$337.1 million
and net income
to $132.7
million from
fiscal
2021 net sales of
$1.3 billion, gross profit
of $160.7 million and
net income of $2.1
million. The increases resulted primarily
from
higher selling prices for
conventional eggs as well as an
increased volume of specialty
eggs sold, partially offset
by a decline in
the
volume
of
conventional
eggs
sold.
Gross
profit
and
net
income
increases
were
partially
offset
by
increased
cost
of
feed
ingredients and increased processing
costs. Consumer demand maintained
a steady growth throughout our
first three quarters of
fiscal
2021
but
began
trending
down
during
our
fourth
quarter
of
fiscal
2021
as
consumers
started
to
resume
pre-pandemic
activities.
We
believe
the
decreased
demand
in
foodservice
seen
throughout
the
first
three
quarters
of
fiscal
2021
due
to
the
pandemic contributed to the depressed price of shell
eggs for fiscal 2021 in the retail market due to the extra
supply entering the
retail channel from the foodservice channel.
For
fiscal
2022,
we
believe
prices
for
conventional
eggs
were
positively
impacted
by
a
better
alignment
of
the
size
of
the
conventional
production
layer
hen
flock
and
customer
and
consumer
demand
through
the
first
three
fiscal
quarters
of
2022.
Conventional egg
prices further
increased in
the fourth
quarter of
fiscal 2022
primarily due
to decreased
supply caused
by the
HPAI
outbreak
compounded
with
good
customer
demand.
Throughout
fiscal
2022
the
hen
numbers
reported
by
the
USDA
remained below the five-year average.
For fiscal
2023, net
sales increased
to $3.1
billion, gross
profit to
$1.2 billion
and net
income to
$758.0 million.
The increases
primarily resulted
from significantly
higher average
egg selling
prices, primarily
due to
the reduction
in egg
supply caused
by
HPAI
and
higher
grain
and
other
input
costs,
as
some
of
our
egg
sales
prices
are
based
on
formulas
related
to
our
costs
of
production. Gross
profit and
net income
increases were
partially offset
by the
increased cost
of feed
ingredients and
increased
processing, packaging
and warehouse costs.
The impact of
HPAI
continued throughout
the first three
quarters of fiscal
2023 as
prices continued to increase. For the
first three quarters of fiscal
2023, the average UB southeastern large index
price was 138.8%
higher
than
the
average
price
of
the
first
three
quarters
in
fiscal
2022.
For
the
fourth
quarter
of
fiscal
2023
the
average
UB
southeastern large index price decreased 13.8% to $2.163
from the same period in the
prior year as the egg supply
improved from
the effects
of HPAI.
Conventional egg
selling prices
declined significantly
during the
latter part
of the
fourth quarter
of fiscal
2023.
Our dozens sold
increased by 5.9%
for fiscal 2023
compared to fiscal
2022, primarily due
to an increase
in specialty egg
sales.
According to
Information Resources,
Inc. (“IRI”),
for the
52 weeks
ended June
4, 2023,
which approximately
aligns with
our
fiscal year 2023, conventional egg dozens sold in the U.S. at multi-retail outlets decreased 9.3%, while specialty egg dozens sold
increased 9.9%
versus the
prior-year comparable
period. Our
conventional eggs
dozens sold
increased 0.2%
and specialty
egg
dozens sold increased 18.6% as compared to fiscal 2022, with most of the increase
due to an increase in cage-free eggs sold.
Our feed costs
per dozen produced
increased to $0.676
in fiscal 2023,
compared to $0.571
in fiscal 2022.
For fiscal year
2023,
the average Chicago
Board of Trade
(“CBOT”) daily market
price was $6.57
per bushel for
corn and $450
per ton for
soybean
meal,
representing
increases
of
4.1%
and
14.7%,
respectively,
compared
to
the
daily
average
CBOT
prices
for
fiscal
2022.
Supplies
of corn and soybean meal remained tight
relative to demand in throughout fiscal 2023,
as evidenced by a low stock-to-
use ratio
for corn,
as a
result of
weather-related
shortfalls in
production
and yields,
ongoing supply
chain disruptions
and
the
Russia-Ukraine War
and its
impact on
the export
markets. Basis
levels for
corn and
soybean meal,
which impact
our costs for
25
these feed ingredients, ran significantly higher in fiscal 2023 in our areas of operation compared to our prior year fiscal year as a
result of higher transportation and storage costs, adding to our expense.
RESULTS
OF OPERATIONS
The following table sets forth, for the
fiscal years indicated, certain items from our Consolidated
Statements of Income expressed
as a percentage of net sales.
Fiscal Year
Ended
June 3, 2023
May 28, 2022
Net sales
100.0
%
100.0
%
Cost of sales
62.0
%
81.0
%
Gross profit
38.0
%
19.0
%
Selling, general and administrative
7.4
%
11.2
%
Gain on insurance recoveries
(0.1)
%
(0.3)
%
(Gain) loss on disposal of fixed assets
—
%
—
%
Operating income
30.7
%
8.1
%
Total other income
1.0
%
1.3
%
Income before income taxes
31.7
%
9.4
%
Income tax expense
7.7
%
1.9
%
Net income
24.0
%
7.5
%
Less:
Net loss attributable to noncontrolling interest
—
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
24.0
%
7.5
%
26
Fiscal Year
Ended June 3, 2023 Compared to Fiscal Year
Ended May 28, 2022
NET SALES
Total net sales for fiscal
2023
were $3.1 billion compared to $1.8 billion for fiscal 2022.
Net shell egg sales represented 96.1% and 96.6% of total net
sales for the fiscal year 2023
and 2022, respectively. Shell egg sales
classified as “Other” represent sales of miscellaneous byproducts and resale products included with our shell
egg operations. The
table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
June 03, 2023
May 28, 2022
Total net sales
$
3,146,217
$
1,777,159
Conventional
$
2,051,961
67.9
%
$
1,061,995
61.8
%
Specialty
956,993
31.6
%
648,838
37.8
%
Egg sales, net
3,008,954
99.5
%
1,710,833
99.6
%
Other
14,993
0.5
%
6,322
0.4
%
Net shell egg sales
$
3,023,947
100.0
%
$
1,717,155
100.0
%
Dozens sold:
Conventional
749,076
65.3
%
747,914
69.0
%
Specialty
398,297
34.7
%
335,875
31.0
%
Total dozens sold
1,147,373
100.0
%
1,083,789
100.0
%
Net average selling price per dozen:
Conventional
$
2.739
$
1.420
Specialty
$
2.403
$
1.932
All shell eggs
$
2.622
$
1.579
Egg products sales:
Egg products net sales
$
122,270
$
60,004
Pounds sold
70,035
63,968
Net average selling price per pound
$
1.746
$
0.938
Shell egg net sales
-
For
fiscal
2023,
shell
egg
net
sales
increased
$1.3
billion,
primarily
due
to
higher
net
average
selling
prices
for
conventional eggs, and to a lesser extent specialty eggs.
-
For fiscal 202
3, conventional
egg sales increased
$990.0 million,
or 93.2%, compared
to fiscal 2022,
primarily due
to
the increase in
conventional egg
prices. Changes
in price resulted
in a $988.0
million increase and
changes
in volume
resulted in a $1.7 million increase in net sales.
-
Conventional egg prices increased in the first three quarters
of fiscal 2023 primarily due to decreased supply
caused by
the HPAI outbreak, discussed above. Conventional egg prices decreased
substantially in the fourth
quarter of fiscal 2023
compared to average
fiscal 2023 levels, due
to an increased supply
of conventional eggs
caused by the repopulating
of
layer
flocks
in
response
to
the
impact
of
HPAI
and
typical
seasonal
decreases
in
demand.
Conventional
egg
prices
exceeded
specialty
egg
prices
during
fiscal
2022
and
for
the
first
three
quarters
of
fiscal
2023,
which
is
atypical
historically. Conventional
egg prices generally respond more quickly to market conditions because we sell the majority
of
our
conventional
shell
eggs
based
on
formulas
that
adjust
periodically
and
take
into
account,
in
varying
ways,
independently quoted regional wholesale market prices for shell
eggs or formulas related to our
costs of production. The
majority of our specialty eggs are typically sold at prices and terms negotiated
directly with customers and therefore do
not fluctuate as much as conventional pricing.
-
Specialty egg sales
increased $308.2 million, or
47.5%, for fiscal
2023
compared to fiscal
2022, primarily due
to a 24.4%
increase in specialty egg
prices and a 18.6% increase
in the volume of
specialty dozens sold. Changes
in price resulted
in a $187.6
million increase and
change in volume
resulted in a
$120.6 million increase
in net sales,
respectively.
Our
27
specialty egg sales also benefitted from our additional
cage-free production capacity.
Cage-free revenue for fiscal 2023
was 20.2% of total revenue, compared to 22.3% for fiscal 2022.
-
Net average selling
prices of specialty eggs
increased by agreements with
our customers in response
to rising feed and
other input costs as well as lower supply availability due to HPAI.
-
Demand for specialty
eggs increased during
the first three
quarters of fiscal
2023 as conventional
egg prices rose.
Our
sales volume benefited versus the prior-year period, through use of
our higher cage-free production capacity.
Egg products net sales
-
Egg products net sales increased $62.3 million or 103.8%, primarily due to an 86.1% selling price increase compared to
fiscal 2022, which had a $56.6 million positive impact on net sales.
-
Our egg products net average selling
price increased in fiscal 2023, compared
to fiscal 2022 as the supply of shell
eggs
used to produce egg products decreased due to the HPAI
outbreak that started in February 2022.
COST OF SALES
Cost of sales for fiscal 2023
were $1.9 billion compared to $1.4 billion for fiscal 2022.
Cost of
sales consists
of
costs directly
related
to producing,
processing
and
packing
shell eggs,
purchases
of
shell
eggs from
outside sources,
processing and
packing of
liquid and
frozen egg
products and
other non-egg
costs. Farm production
costs are
those
costs incurred
at the
egg production
facility,
including feed,
facility,
hen amortization
and other
related farm
production
costs.
The following table presents the key variables affecting our cost of
sales (in thousands,
except cost per dozen data):
Fiscal Year
Ended
June 03, 2023
May 28, 2022
% Change
Cost of Sales:
Farm production
$
1,118,741
$
927,806
20.6
%
Processing, packaging, and warehouse
342,836
289,056
18.6
Egg purchases and other (including change in inventory)
379,777
172,034
120.8
Total shell eggs
1,841,354
1,388,896
32.6
Egg products
108,406
51,204
111.7
Total
$
1,949,760
$
1,440,100
35.4
%
Farm production costs (per dozen produced)
Feed
$
0.676
$
0.571
18.4
%
Other
$
0.396
$
0.352
12.5
%
Total
$
1.072
$
0.923
16.1
%
Outside egg purchases (average cost per dozen)
$
3.02
$
1.72
75.6
%
Dozens produced
1,058,540
1,022,327
3.5
%
Percent produced to sold
92.3%
94.3%
(2.1)
%
Farm Production
-
Feed costs
per dozen
produced increased
18.4% in
fiscal 2023
compared to
fiscal 2022,
primarily due
to higher
feed
ingredient prices. Basis levels for corn and soybean meal
ran significantly higher in our areas of operation
compared to
our prior fiscal year due to higher transportation and storage costs, adding
to our expense.
-
For fiscal 2023, the average daily CBOT market price was $6.57 per bushel for corn and $450 per ton of soybean meal,
representing increases of 4.1% and 14.7%, respectively,
as compared to the average daily CBOT prices for fiscal 2022.
28
-
Other farm production
costs increased due
to higher
facility and
flock amortization.
Facility costs
increased due primarily
to increased labor costs. Labor costs increased 29.6%
due to increased use of contract labor and increased wages
raised
in response to labor shortages.
-
Flock amortization increased
primarily from higher
capitalized feed costs
as well as higher
amortization costs from
an
increase in our cage-free production.
Supplies of corn and soybean remained tight relative to demand throughout fiscal 2023, as evidenced by a low stock-to-use
ratio
for
corn,
as
a
result
of
weather-related
shortfalls
in
production
and
yields,
ongoing
supply
chain
disruptions
and
the
Russia-
Ukraine
War
and
its
impact
on
the
export
markets.
For
fiscal
2024,
we
expect
continued
corn
and
soybean
upward
pricing
pressures and further market volatility to affect feed costs.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 18.6% compared to
fiscal 2022
as costs increased due to rising
inflation and labor
costs.
-
Labor costs increased 13.6% due to wage increases instituted in response
to labor shortages and rising inflation.
-
Dozens processed increased 3.6% compared to fiscal 2022, which
resulted in an $11.2 million increase in costs.
Egg purchases and other (including change in inventory)
-
Costs in this category increased
120.8% compared to fiscal 2022
primarily due to the
increase in egg prices. The
average
price
of outside
egg
purchases
increased
75.6%
per
dozen compared
to
fiscal
2022.
Additionally,
our
percentage
of
produced to
sold decreased
to 92.3%
in fiscal
2023 from
94.3% in
fiscal 2022
as we
increased our
volume of
outside
egg purchases in order to meet customer demand.
GROSS PROFIT
Gross profit,
as a percentage
of net sales,
was 38.0%
for fiscal 2023
,
compared to 19.0%
for fiscal 2022.
The increase resulted
primarily from higher selling prices for conventional eggs as well as the increased volume
of specialty eggs sold, partially offset
by the increased cost of feed ingredients and processing, packaging
and warehouse costs.
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling,
general,
and
administrative
(“SGA”)
expenses
include
costs
of
marketing,
distribution,
accounting,
and
corporate
overhead. SG&A expenses increased
$33.6 million to $232.2
million in fiscal 2023.
The following table presents
an analysis of
our SGA expenses (in thousands):
Fiscal Year
Ended
June 03, 2023
May 28, 2022
$ Change
% Change
Specialty egg expense
$
57,758
$
59,830
$
(2,072)
(3.5)
%
Delivery expense
77,548
62,677
14,871
23.7
%
Payroll, taxes and benefits
57,830
43,954
13,876
31.6
%
Stock compensation expense
4,205
4,063
142
3.5
%
Other expenses
34,866
28,107
6,759
24.0
%
Total
$
232,207
$
198,631
$
33,576
16.9
%
Specialty egg expense
-
Specialty egg
expense, which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg
volumes,
which
were
up
18.6%
for
fiscal
2023
compared
to
fiscal
2022.
However,
our
specialty
egg
expense
decreased 3.5%,
primarily due
to a
significant reduction
in advertising
costs. The
higher prices
for conventional
eggs
and
the
comparatively
lower prices
for
specialty eggs
diminished
the need
to promote
specialty eggs
in fiscal
2023.
However, we anticipate that the need to promote specialty eggs will increase
in fiscal 2024 as the market recovers from
the effects of HPAI.
29
Delivery expense
-
The increased
delivery expense
is primarily
due to
the increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking. Compared to fiscal
2022, contract trucking and
labor expenses increased
approximately $10.2 million for
fiscal
2023.
Payroll, taxes and benefits expense
-
The
increase
in
payroll,
taxes
and
benefits
expense
is
primarily
due
to
an
increase
in
the
accrual
for
anticipated
performance-based bonuses.
Other expenses
-
The increase in other
expenses is due to
increased legal expenses of
approximately $3.6 million
as well as inflationary
pressure increasing costs.
OPERATING
INCOME (LOSS)
As a result of the above, our operating income was $967.7 million for fiscal 2023
,
compared to $143.5 million for fiscal 2022.
OTHER INCOME (EXPENSE)
Total
other
income
(expense)
consists
of
items
not
directly
charged
to,
or
related
to,
operations
such
as
interest
income
and
expense, equity in income or loss of unconsolidated entities, and patronage dividends,
among other items.
The Company recorded interest income of $18.6 million in fiscal 2023,
compared to $988 thousand in fiscal 2022, primarily due
to significantly
higher cash
and cash
equivalents and
investment securities
available-for-sale balances
and yields.
We
recorded
interest expense of $583 thousand and $403 thousand
in fiscal 2023 and 2022, respectively, primarily related to commitment fees
on our Credit Facility described below.
Equity in income from unconsolidated entities for fiscal 2023 was $746
thousand compared to $1.9 million for fiscal 2022.
Other, net
for fiscal 2023
was income of
$1.9 million compared
to $9.8 million for
fiscal 2022.
The majority of
the decrease is
due
to
our
acquisition
in
fiscal
2022
of
the
remaining
50% membership
interest
in
Red
River
Valley
Egg
Farm,
LLC
(“Red
River”) as we recognized a $4.5 million gain in fiscal 2022 due to the remeasurement of our equity investment.
We also received
$1.4 million in fiscal 2022 related
to our review and adjustment
of our various marketing agreements. Additionally, the Company
recorded a $2 million impairment of an investment in an unconsolidated entity
in fiscal 2023.
INCOME TAXES
For
the
fiscal
year
ended
June
3,
2023,
our
pre-tax
income
was
$998.6
million,
compared
to
$166.0
million
for
fiscal
2022.
Income tax expense of $241.8 million
was recorded for fiscal 2023 with an effective
tax rate of 24.2%.
For fiscal 2022, income
tax expense was $33.6 million with an effective tax rate
of 20.2%. Included in fiscal 2022 income tax expense is the discrete tax
benefit of
$8.3 million
discussed in
Annual Report.
Excluding the discrete
tax benefit,
income tax expense
was $41.9
million with an
adjusted effective
tax rate of
25.2%.
At June 3, 2023, the Company had
an income tax receivable of $67.0 million compared to
$42.1 million at May 28, 2022. During
fiscal 2022,
the Company
filed federal
carryback tax
returns for
fiscal 2020
and 2021
taxable net
operating losses
to recover
a
portion of
taxes paid
in fiscal 2015
and fiscal
2016. Subsequent
to fiscal
2023, we
received $31.8
million of
the $34.9
million
fiscal 2021 refund and believe we will receive the remaining amount of the fiscal 2020 and 2021 refunds, totaling
$11.7 million,
during our second fiscal quarter of 2024.
An additional $23.5 million income tax receivable was recorded as of June 3, 2023 for
fiscal 2023 federal overpayments in excess of federal tax liability.
Items causing
our effective
tax rate
to differ
from the
federal statutory
income tax
rate of
21% are
state income
taxes, certain
federal tax
credits and
certain items included
in income or
loss for financial
reporting purposes that
are not included
in taxable
income or
loss for income
tax purposes, including
tax exempt interest
income, certain
nondeductible expenses,
and net income
or loss attributable to noncontrolling interest.
30
NET LOSS ATTRIBUTABLE
TO NONCONTROLLING INTEREST
Net loss attributable
to noncontrolling
interest was $1.3
million for fiscal
2023
compared to a
$209 thousand
net loss for
fiscal
2022.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
As a result of the above, net income attributable to Cal-Maine Foods, Inc. for fiscal
2023 was $758.0 million, or $15.58 per basic
and $15.52 per diluted share, compared to $132.7 million, or $2.73 per basic
and $2.72 per diluted share for fiscal 2022.
Fiscal Year
Ended May 28, 2022 Compared to Fiscal Year
Ended May 29, 2021
The discussion
of our
results of
operations for
the fiscal
year ended
May 28,
2022 compared
to the
fiscal year
ended May
29,
2021 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations in
the Company’s fiscal 2022
Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL
RESOURCES
Working
Capital and Current Ratio
Our working capital at
June 3, 2023 was
$942.2 million, compared to $476.8 million at
May 28, 2022.
The calculation of working
capital is defined as current assets less current liabilities. Our current ratio was 6.16 at June 3, 2023 compared to 3.58 at May 28,
2022.
The current
ratio is
calculated
by dividing
current assets
by current
liabilities. The
increase
in our
working
capital and
current ratio
is primarily due
to the increase
in total current
assets, which increased
by $463.4 million
to $1.1 billion
at June 3,
2023,
due
to significant
increases in
cash and
cash equivalents
and
investment
securities available
-for-sale.
Due to
seasonal
factors described in
, we generally expect
our need for working
capital to be highest in
the
fourth and first fiscal quarters ending in May/June and August/September,
respectively.
Cash Flows from Operating Activities
Net cash provided
by operating activities
was $863.0
million for fiscal
year 2023
compared with $126.2
million for fiscal
year
2022.
The increase in cash flow from operations
resulted primarily from higher selling prices for conventional eggs
as well as the
increased volume of specialty eggs
sold, partially offset by the increased
cost of feed ingredients and processing,
packaging and
warehouse costs.
Cash Flows from Investing Activities
We
continue
to
invest
in
our
facilities,
with
$136.6
million
used
to
purchase
property,
plant
and
equipment
for
fiscal
2023,
compared to $72.4
million in fiscal 2022.
These investments were primarily
made to expand our
cage-free production capacity.
We
have for many years
invested substantial amounts
to expand our cage-free
production capacity and
expect to continue to
do
so.
Purchases
of
investments
were
$530.8
million
in
fiscal
2023,
compared
to
$98.2
million
in
fiscal
2022.
The
increase
in
purchases of
investment securities
is primarily
due to
the utilization
of increased
liquidity resulting
from increased
cash flows
provided by operating
activities noted above.
Sales and maturities
of investment securities
were $291.8
million for fiscal
2023,
compared to $92.7 million
for fiscal 2022. During fiscal
2022, we also acquired the
remaining 50% membership interest
in Red
River for $44.8 million, net of cash acquired.
Cash Flows from Financing Activities
We paid dividends
totaling $252.3 million and $6.1 million in fiscal 2023
and 2022, respectively.
As of
June 3,
2023, cash
increased
$233.7 million
since May
28, 2022,
compared to
an increase
of $1.7
million during
fiscal
2022.
Credit Facility
We had no
long-term debt outstanding at the end of fiscal 2023
and 2022. On November 15, 2021, we entered
into an Amended
and Restated Credit Agreement (as amended the “Credit
Agreement”) with a five-year term. The Credit Agreement provides for
a senior
secured revolving
credit facility
(the “Credit
Facility”), in
an initial
aggregate principal
amount of
up to
$250 million.
As of June 3, 2023, no amounts were borrowed under
the Credit Facility. We
have $4.3
million in outstanding standby letters of
credit, which were issued under our Credit Facility for the
benefit of certain insurance companies. In May 2023,
we entered into
31
an amendment to
the Credit Agreement
to replace the
London Interbank Offered
Rate interest rate
benchmark. Refer
to Part II.
Item 8. Notes to the Financial Statements,
Material Cash Requirements
Material cash
requirements for
operating activities
primarily consist
of feed
ingredients, processing,
packaging and
warehouse
costs, employee related
costs, and other
general operating expenses,
which we expect
to be paid
from our cash
from operations
and cash and
investment securities on
hand for at
least the next
12 months. While
volatile egg prices
and feed ingredient
costs,
among
other
things,
make
long-term
predictions
difficult,
we
have
substantial
liquid
assets
and
availability
under
our
Credit
Facility to fund future operating requirements.
Our material cash requirements for capital expenditures consist primarily
of our projects to increase our cage-free production
capacity. We
continue to monitor the increasing demand for cage-free eggs and to engage
with our customers in efforts to help
them achieve their announced timelines for cage-free egg sales. The following
table presents material construction projects
approved as of June 3, 2023 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
June 3, 2023
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses
Fiscal 2024
$
54,702
$
18,900
$
35,802
Cage-Free Layer & Pullet Houses
Fiscal 2025
40,099
27,152
12,947
Cage-Free Layer & Pullet Houses
Fiscal 2026
38,883
19,218
19,665
Cage-Free Layer & Pullet Houses
Fiscal 2027
56,923
20,472
36,451
$
190,607
$
85,742
$
104,865
The
following
table
summarizes
by
fiscal
year
the
future
estimated
cash
payments,
in
thousands,
to
be
made
under
existing
contractual obligations
as of
June 3, 2023.
Further information
on debt
obligations is
contained in
Part II. Item 8. Notes to the Consolidated Financial Statements. As of June 3, 2023,
we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Lease obligations
$
1,714
$
796
$
914
$
4
$
—
Purchase obligations:
Feed ingredients and fuel
(a)
123,321
123,321
—
—
—
Construction contracts and other equipment
105,414
61,108
44,306
—
—
Total
$
230,449
$
185,225
$
45,220
$
4
$
—
(a)
Actual purchase obligations may change based on the contractual terms and
agreements
We believe our
current cash balances, investments, cash flows from operations, and
Credit Facility will be sufficient to fund our
capital needs for at least the next 12 months and to fund our capital commitments
currently in place thereafter.
IMPACT OF
RECENTLY
ISSUED ACCOUNTING STANDARDS
For information on changes in accounting
principles and new accounting principles,
see “
New Accounting Pronouncements
and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions
that affect the
reported amounts of
assets and liabilities
at the date
of the financial
statements and the
reported amounts of
revenues
and expenses during the reporting period. Actual results could
differ from these estimates. Critical accounting estimates are
those
estimates made in
accordance with GAAP
that involve a
significant level of estimation
uncertainty and have had
or are reasonably
likely to have a material impact
on the financial condition or results
of operations. Our critical accounting estimates are described
below.
32
BUSINESS COMBINATION
S
The Company applies the acquisition
method of accounting, which
requires that once control is obtained,
all the assets acquired
and liabilities assumed,
including amounts
attributable to noncontrolling
interests, are recorded
at their respective
fair values at
the
date
of acquisition.
The
excess
of
the
purchase
price
over
fair
values
of
identifiable
assets
and
liabilities
is
recorded
as
goodwill.
We
typically
use the
income method
approach for
intangible assets
acquired
in a
business combination.
Significant
judgment
exists in valuing certain
intangible assets. and the
most significant assumptions requiring
judgment involve estimating the
amount
and timing of
future cash flows,
growth rates,
discount rates selected
to measure
the risks inherent
in the future
cash flows and
the asset’s expected useful lives.
The
fair
values
of
identifiable
assets
and
liabilities
are
determined
internally
and
requires
estimates
and
the
use
of
various
valuation techniques. When a
market value is not
readily available, our internal
valuation methodology considers the
remaining
estimated life
of the
assets acquired
and significant
judgment is
required
as management
determines the
fair market
value for
those assets.
Due
to
inherent
industry
uncertainties
including
volatile
egg
prices
and
feed
costs,
unanticipated
market
changes,
events,
or
circumstances may occur that could affect the estimates and assumptions
used, which could result in subsequent impairments.
INVENTORIES
Inventories of eggs, feed,
supplies and flocks
are valued principally
at the lower
of cost (first-in,
first-out method) or
net realizable
value. If
market
prices
for
eggs and
feed
grains
move
substantially
lower,
we
record
adjustments
to
write
down
the
carrying
values of eggs
and feed inventories
to fair market
value. The cost
associated with flock inventories,
consisting principally of chick
purchases, feed, labor, contractor payments and
overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive
life, generally one to two years. Judgment exists in
determining
the flock’s
productive life
including
factors such
as laying
rate and
egg size,
molt cycles,
and customer
demand.
Furthermore, other factors such as
hen type or weather conditions could affect
the productive life. These factors could
make our
estimates of productive life differ from actual results. Flock mortality is charged to cost of sales as incurred. High mortality from
disease or extreme temperatures will
result in abnormal write-downs to
flock inventories. Management continually monitors each
flock and attempts to take appropriate actions to minimize the risk of mortality
loss.
GOODWILL
As
a
result
of
acquiring
businesses,
the
Company
has
$44.0
million
of
goodwill
on
June
3,
2023.
Goodwill
is
evaluated
for
impairment
annually
by
first
performing
a
qualitative
assessment
to
determine
whether
a
quantitative
goodwill
test
is
necessary. After
assessing the totality of events or
circumstances, if we determine it
is more likely than not that the
fair value of
a reporting unit is less than its carrying
amount, then we perform additional quantitative tests to
determine the magnitude of any
impairment.
The
Company
has
determined
that
all
of
our
locations
share
similar
economic
characteristics
and
support
each
other
in
the
production of eggs and customer support. Therefore, we aggregate all our locations as a single reporting unit for testing goodwill
for
impairment.
When
the
Company
acquires
a
new
location,
we
determine
whether
it
should
be
integrated
into
our
single
reporting unit or
treated as a
separate reporting unit. Historically, we
have concluded that
acquired operations should be
integrated
into our single reporting unit due to the operational changes, redistribution of customers, and significant changes in management
that occur when we acquire businesses, which result in the acquired operations sharing
similar economic characteristics with the
rest of our locations. Once goodwill associated with acquired operations becomes part of goodwill of our single reporting unit, it
no longer represents the particular
acquired operations that gave rise to the
goodwill. We
may conclude that a business acquired
in the future should be treated as a separate reporting unit, in which case it would be tested separately
for goodwill impairment.
At June 3, 2023, goodwill represented 2.3% of total assets and 2.7% of stockholders’
equity.
Judgment exists in management’s evaluation
of the qualitative factors which include macroeconomic conditions, the current egg
industry environment, cost inputs such as
feed ingredients and overall financial performance. Furthermore, judgment
exists in the
evaluation
of the
threshold of
whether it
is more
likely than
not that
the fair
value of
a reporting
unit is
less than
its carrying
amount. Uncertainty exists due to uncontrollable events that could occur
that could negatively affect our operating conditions.
During the fourth quarter of
2023, we elected to change the
date of our annual impairment assessment
from year-end to
the first
day of the fourth quarter.
The change was made to
more closely align the impairment
assessment date with our annual
planning
33
and forecasting
process. The change
in impairment
assessment date
did not
have any
impact on
goodwill or
the impairment
of
goodwill.
The change
has been
applied prospectively
and will
not have
an impact
on a
retrospective basis.
During our
annual
impairment
test
in
fiscal
2023,
we
determined
that
goodwill
passed
the
qualitative
assessment
and
therefore
no
quantitative
analysis of goodwill impairment was necessary.
REVENUE RECOGNITION
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer
agreeing upon the order.
See
Consolidated Financial Statements for further discussion of the policy.
The Company believes
the performance obligation
is met upon delivery
and acceptance of
the product by
our customers. Costs
to deliver
product to
customers are
included in selling,
general and
administrative expenses
in the
accompanying Consolidated
Statements
of
Income. Sales
revenue
reported
in
the
accompanying
Consolidated
Statements
of
Income
is
reduced
to
reflect
estimated returns
and allowances. The
Company records
an estimated
sales allowance
for returns
and discounts
at the
time of
sale using historical trends based on actual sales returns and sales.
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.
Redemption rates are estimated using the Company’s
historical experience for
similar inducement offers. Current discount and inducement offers
are presented as a net amount in ‘‘Net
sales.’’
As the
estimates noted
above are
based on
historical information,
we do
not believe
that there
will be
a material
change in
the
estimates and assumptions used
to recognize revenue. However,
if actual results varied significantly
from our estimates it could
expose us to material gains or losses.
LOSS CONTINGENCIES
The Company evaluates
whether a loss contingency
exists, and if the
assessment of a contingency
indicates it is probable
that a
material loss has
been incurred and
the amount of
the loss can
be reasonably estimated,
the estimated loss
would be accrued
in
the Company’s financial statements.
The Company expenses the costs of litigation as they are incurred.
There
were
no
loss
contingency
reserves
for
the
past
three
fiscal
years.
Our
evaluation
of
whether
loss
contingencies
exist
primarily relates to
litigation matters. The
outcome of litigation
is uncertain due
to, among other
things, uncertainties regarding
the facts will be established
during the proceedings, uncertainties
regarding how the law will
be applied to the facts
established,
and uncertainties
regarding the
calculation of
any potential
damages or
the costs
of any
potential injunctive
relief. If
the facts
discovered or the Company’s
assumptions change, future reserves for
loss contingencies may be required.
Results of operations
may be materially affected by losses or a loss contingency reserve
resulting from adverse legal proceedings.
INCOME TAXES
We
determine our
effective tax
rate by estimating
our permanent differences
resulting from differing
treatment of items
for tax
and accounting purposes. Judgment and uncertainty exist with management’s application of tax regulations
and evaluation of the
more-likely-than-not recognition and measurement thresholds. We
are periodically audited by taxing authorities. An adverse tax
settlement could have a negative impact on our effective tax rate
and our results of operations.
34
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISK
Our primary exposure to market risk arises from changes
in the prices of conventional eggs,
which are subject to significant price
fluctuations that are largely
beyond our control. We
are focused on growing our
specialty shell egg business because
the selling
prices
of
specialty
shell
eggs are
generally
not
as
volatile
as conventional
shell
egg
prices. Our
exposure
to
market
risk
also
includes changes in
the prices of corn
and soybean meal,
which are commodities
subject to significant
price fluctuations due
to
market conditions
that are
largely beyond
our control.
To
ensure continued
availability of
feed ingredients,
we may
enter into
contracts for future
purchases of corn
and soybean meal,
and as part of
these contracts, we
may lock-in
the basis portion
of our
grain purchases several months in
advance and commit to purchase
organic ingredients to help
assure supply.
Ordinarily, we
do
not enter
long-term contracts
beyond a
year to
purchase corn
and soybean
meal or
hedge against
increases in
the price
of corn
and soybean meal.
The following table
outlines the impact
of price changes
for corn and
soybean meal on
feed costs per dozen
as feed ingredient pricing varies:
Change in price per bushel of corn
$
(0.84)
$
(0.56)
$
(0.28)
$
0.00
$
0.28
$
0.56
$
0.84
Change
per ton
soybean
meal
$
(76.50)
0.616
0.626
0.636
0.646
0.656
0.666
0.676
$
(51.00)
0.626
0.636
0.646
0.656
0.666
0.676
0.686
$
(25.50)
0.636
0.646
0.656
0.666
0.676
0.686
0.696
$
0.00
0.646
0.656
0.666
0.676
(a)
0.686
0.696
0.706
$
25.50
0.656
0.666
0.676
0.686
0.696
0.706
0.716
$
51.00
0.666
0.676
0.686
0.696
0.706
0.716
0.726
$
76.50
0.676
0.686
0.696
0.706
0.716
0.726
0.736
(a)
Based on 2023
actual costs, table flexes feed cost inputs to show $0.01 impacts to per dozen egg feed production
costs.
INTEREST RATE
RISK
We
have
a
$250 million
Credit
Facility,
borrowings
under
which
would
bear
interest
at
variable
rates.
No
amounts
were
outstanding under that facility during fiscal 2023 or fiscal 2022. Under our current policies, we do not use interest rate derivative
instruments to manage our exposure to interest rate changes.
FIXED INCOME SECURITIES RISK
At June 3,
2023,
the effective maturity
of our cash equivalents
and investment securities
available for sale
was 4.8 months, and
the composite credit rating of
the holdings are AA- /
Aa3 / AA- (S&P
/ Moody’s / Fitch). Generally speaking, rising
interest rates,
as have
been
experienced
in recent
periods,
decrease
the value
of fixed
income
securities
portfolios.
As of
June 3,
2023,
the
estimated fair value
of our
fixed income securities
portfolio was approximately
$355 million
and reflected
unrealized losses
of
approximately
$2.4
million.
For
additional
information
see
heading
“Investment
Securities”
and
Statements.
CONCENTRATION
OF CREDIT RISK
Our financial instruments exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit
risk with
respect to
receivables are
limited due
to our
large number
of customers
and their
dispersion across
geographic areas,
except that
at June 3,
2023 and
May 28,
2022, 30.1%
and 27.9%,
respectively,
of our net
accounts receivable
balance was due
from
Walmart
Inc.
(including
Sam’s
Club).
No
other
single
customer
or
customer
group
represented
10%
or
greater
of
net
accounts receivable at June 3, 2023 and May 28, 2022.
35
ITEM 8.
FINANCIAL
STATEMENTS
AND SUPPLEMENTARY
DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc. and Subsidiaries as of June 3,
2023 and
May 28, 2022,
the related consolidated
statements of
income, comprehensive
income, stockholders’
equity,
and cash
flows for each
of the three
years in the
period ended June
3, 2023, and
the related consolidated
notes and schedule
listed in the
Index
at
Items
15(a)(1)
and
15(a)(2)
(collectively
referred
to
as
the
“consolidated
financial
statements”).
In
our
opinion,
the
consolidated
financial
statements
present
fairly,
in
all
material
respects,
the
financial
position
of
Cal-Maine
Foods,
Inc.
and
Subsidiaries as of
June 3, 2023
and May
28, 2022, and
the results of
their operations
and their cash
flows for each
of the three
years
in
the
period
ended
June
3,
2023,
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.
We
also have
audited, in
accordance with
the standards
of the
Public Company
Accounting Oversight
Board (United
States) (“PCAOB”),
the Cal-Maine
Foods,
Inc.
and Subsidiaries’
internal
control over
financial
reporting
as of
June 3,
2023,
based
on
the
criteria
established
in
2013
Internal
Control
–
Integrated
Framework
issued
by
the
Committee
of
Sponsoring
Organizations of the Treadway
Commission and our report dated July 25, 2023 expressed an unqualified
opinion.
Basis for Opinion
These
consolidated
financial
statements
are
the
responsibility
of
the
entities’
management.
Our
responsibility
is
to
express an
opinion on
these consolidated
financial statements
based on
our audits.
We
are a
public accounting
firm registered
with the PCAOB and
are required to be
independent with respect to
Cal-Maine Foods, Inc.
and Subsidiaries in accordance
with
the
U.S.
federal
securities
laws and
the
applicable
rules
and
regulations
of the
Securities and
Exchange
Commission
and
the
PCAOB.
We
conducted
our audits
in accordance
with the
standards of
the PCAOB.
Those
standards require
that we
plan and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
consolidated
financial
statements
are
free
of
material
misstatement,
whether
due
to
error
or
fraud.
Our
audits
included
performing
procedures
to
assess
the
risks
of
material
misstatement of the
consolidated financial statements,
whether due to error
or fraud, and performing
procedures that respond
to
those
risks.
Such
procedures
included
examining,
on
a
test
basis,
evidence
regarding
the
amounts
and
disclosures
in
the
consolidated financial
statements. Our
audits also
included evaluating
the accounting
principles used
and significant
estimates
made
by management,
as well
as evaluating
the overall
presentation
of the
consolidated financial
statements. We
believe
our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The
critical
audit
matter
communicated
below
is
a
matter
arising
from
the
current
period
audit
of
the
consolidated
financial
statements
that
were
communicated
or
required
to
be
communicated
to
the
Audit
Committee
and
that:
(1)
relate
to
accounts
or disclosures
that are
material
to the
consolidated
financial
statements and
(2) involved
our especially
challenging,
subjective, or
complex judgments. The
communication of
the critical audit
matter does
not alter in
any way
our opinion on
the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing
a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Contingent Liabilities – Litigation and Claims – Refer to Note 16 in the Consolidated
Financial Statements
Critical Audit Matter Description
Cal-Maine Foods, Inc. and Subsidiaries record liabilities for legal proceedings and claims in those instances where they
can reasonably estimate the amount of the loss and when the liability is probable.
Where the reasonable estimate of the probable
loss is a range, Cal-Maine
Foods, Inc. and Subsidiaries record
the most likely estimate of
the loss, or the low end of
the range if
there is no one best estimate.
Cal-Maine Foods, Inc. and Subsidiaries either disclose the
amount of a possible loss
or range of loss
36
in
excess
of
established
accruals
if
estimable,
or
states
that
such
an
estimate
cannot
be
made.
Cal-Maine
Foods,
Inc.
and
Subsidiaries disclose significant
legal proceedings and
claims even where
liability is not
probable or the
amount of the
liability
is not
estimable, or
both, if
Cal-Maine Foods,
Inc. and
Subsidiaries believe
there is
at least
a reasonable
possibility that
a loss
may be incurred.
We identified litigation and claims as a critical
audit matter because of the challenges
auditing management’s judgments
applied
in
determining
the
likelihood
of
loss
related
to
the
resolution
of
such
claims.
Specifically,
auditing
management’s
determination of
whether any
contingent loss
arising from
the related
litigation and
claims is
probable, reasonably
possible, or
remote, and the related disclosures, is subjective and requires significant judgment
due to the sensitivity of the issue.
How the Critical Audit Matter was addressed during
the Audit
Addressing the
matter involved
performing procedures
and evaluating
audit evidence
in connection
with forming
our
overall
opinion
on
the
consolidated
financial
statements.
These
procedures
included
testing
the
effectiveness
of
the
controls
relating to the
Cal-Maine Foods, Inc.
and Subsidiaries’ evaluation
of the
liability related
to legal
proceedings and claims,
including
controls over determining the likelihood
of a loss
and whether the amount
of loss can be
reasonably estimated, as well
as financial
statement disclosures over the legal proceedings and claims.
These procedures also included obtaining and evaluating
the letters
of audit inquiry with external
legal counsel, evaluating the reasonableness of
Cal-Maine Foods, Inc. and Subsidiaries’ assessment
regarding
whether
an
unfavorable
outcome
is
reasonably
possible
or
probable,
and
reasonably
estimable,
evaluating
the
sufficiency
of Cal-Maine
Foods, Inc.
and Subsidiaries’
disclosures
related
to legal
proceedings and
claims and
evaluating
the
completeness and accuracy of Cal-Maine Foods, Inc. and Subsidiaries’ legal
contingencies.
We have served
as the Company’s auditor since 2007.
Little Rock, Arkansas
July 25, 2023
37
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
June 3, 2023
May 28, 2022
Assets
Current assets:
Cash and cash equivalents
$
$
Investment securities available-for-sale
Receivables:
Trade receivables, net
Income tax receivable
Other
Total receivables,
net
Inventories, net
Prepaid expenses and other current assets
Total current
assets
Property, plant &
equipment, net
Investments in unconsolidated entities
Goodwill
Intangible assets, net
Other long-term assets
Total assets
$
$
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable
$
$
Dividends payable
Accrued wages and benefits
Income tax payable
Accrued expenses and other liabilities
Total current
liabilities
Other noncurrent liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies - see
Note 16
—
—
Stockholders’ equity:
Common stock ($
Common stock – authorized
Class A convertible common stock – authorized and issued
Paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
(
2,886
)
(
1,596
)
Common stock in treasury,
at cost –
respectively
(
30,008
)
(
28,447
)
Total Cal-Maine Foods,
Inc. stockholders’ equity
Noncontrolling interest in consolidated equity
(
1,498
)
(
206
)
Total stockholders’
equity
Total liabilities and stockholders’
equity
$
$
See Notes to Consolidated Financial Statements.
38
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal years ended
June 3, 2023
May 28, 2022
May 29, 2021
53 weeks
52 weeks
52 weeks
Net sales
$
$
$
Cost of sales
Gross profit
Selling, general and administrative
Gain on insurance recoveries
(
3,345
)
(
5,492
)
(Gain) loss on disposal of fixed assets
(
131
)
Operating income (loss)
(
26,264
)
Other income (expense):
Interest expense
(
583
)
(
403
)
(
213
)
Interest income
Patronage dividends
Equity in income of unconsolidated entities
Other, net
Total other income
Income (loss) before income taxes
(
9,949
)
Income tax expense (benefit)
(
12,009
)
Net income
Less:
Net loss attributable to noncontrolling interest
(
1,292
)
(
209
)
Net income attributable to Cal-Maine Foods, Inc.
$
$
$
Net income per share attributable to Cal-Maine Foods, Inc.:
Basic
$
$
$
Diluted
$
$
$
Weighted average
shares outstanding:
Basic
Diluted
See Notes to Consolidated Financial Statements.
39
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of
Comprehensive Income
(in thousands)
Fiscal years ended
June 3, 2023
May 28, 2022
May 29, 2021
Net income
$
$
$
Other comprehensive loss, before tax:
Unrealized holding loss available-for-sale securities, net of reclassification
adjustments
(
1,714
)
(
1,398
)
(
736
)
Increase in accumulated post-retirement benefits obligation, net of
reclassification adjustments
(
27
)
(
9
)
(
137
)
Other comprehensive loss, before tax
(
1,741
)
(
1,407
)
(
873
)
Income tax benefit related to items of other comprehensive loss
(
451
)
(
369
)
(
236
)
Other comprehensive loss, net of tax
(
1,290
)
(
1,038
)
(
637
)
Comprehensive income
Less: comprehensive loss attributable to the noncontrolling interest
(
1,292
)
(
209
)
Comprehensive income attributable to Cal-Maine Foods, Inc.
$
$
$
See Notes to Consolidated Financial Statements.
40
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands)
Accum.
Other
Common Stock
Comp.
Shares
Amount
Class A
Shares
Class A
Amount
Treasury
Shares
Treasury
Amount
Paid In
Capital
Retained
Earnings
(loss)
Noncontrolling
Interest
Total
Balance at May 31, 2020
$
$
$
(
26,674
)
$
$
$
$
—
Stock compensation plan transactions
—
—
—
—
(
85
)
(
759
)
—
—
—
Dividends ($
Common
—
—
—
—
—
—
—
(
1,489
)
—
—
(
1,489
)
Class A common
—
—
—
—
—
—
—
(
163
)
—
—
(
163
)
Contributions
—
—
—
—
—
—
—
—
—
Net income
—
—
—
—
—
—
—
—
—
Other comprehensive loss, net of tax
—
—
—
—
—
—
—
—
(
637
)
—
(
637
)
Balance at May 29, 2021
—
(
27,433
)
(
558
)
—
Stock compensation plan transactions
—
—
—
—
(
81
)
(
1,014
)
—
—
Dividends ($
Common
—
—
—
—
—
—
—
(
38,578
)
—
—
(
38,578
)
Class A common
—
—
—
—
—
—
—
(
4,195
)
—
—
(
4,195
)
Contributions
—
—
—
—
—
—
—
—
—
Net income (loss)
—
—
—
—
—
—
—
—
(
209
)
Other comprehensive loss, net of tax
—
—
—
—
—
—
—
—
(
1,038
)
(
1,038
)
Balance at May 28, 2022
(
28,447
)
(
1,596
)
(
206
)
Stock compensation plan transactions
—
—
—
—
(
44
)
(
1,561
)
—
—
—
Dividends ($
Common
—
—
—
—
—
—
—
(
227,993
)
—
—
(
227,993
)
Class A common
—
—
—
—
—
—
—
(
24,773
)
—
—
(
24,773
)
Net income (loss)
—
—
—
—
—
—
—
—
(
1,292
)
Other comprehensive loss, net of tax
—
—
—
—
—
—
—
—
(
1,290
)
—
(
1,290
)
Balance at June 3, 2023
$
$
$
(
30,008
)
$
$
$
(
2,886
)
$
(
1,498
)
$
See Notes to Consolidated Financial Statements.
41
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Cash flows from operating activities:
Net income
$
$
$
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Deferred income taxes
Equity in income of affiliates
(
746
)
(
1,943
)
(
622
)
Gain on insurance recoveries
(
3,345
)
(
5,492
)
Net proceeds from insurance settlement - business interruption
(Gain) loss on disposal of property,
plant and equipment
(
131
)
Stock compensation expense, net of amounts paid
Unrealized (gain) loss on investments
(
745
)
(Gain) loss on sales of investments
(
2,208
)
(
22
)
Purchases of equity securities
(
85
)
(
356
)
(
334
)
Sales of equity securities
Amortization (accretion) of investments
(
4,380
)
Impairment of investment in affiliate
Gain on change in fair value of investment in affiliates
(
4,545
)
Other
(
109
)
(
231
)
Change in operating assets and liabilities, net of effects from acquisitions:
Increase (decrease) in receivables and other assets
(
93,897
)
(
33,487
)
Increase in inventories
(
21,102
)
(
36,152
)
(
31,159
)
Increase (decrease) in accounts payable, accrued expenses and other
liabilities
(
2,851
)
(
1,412
)
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investments
(
530,781
)
(
98,243
)
(
88,283
)
Sales of investments
Acquisition of business, net of cash acquired
(
44,823
)
Investment in unconsolidated entities
(
1,673
)
(
3,000
)
Distributions from unconsolidated entities
Purchases of property,
plant and equipment
(
136,569
)
(
72,399
)
(
95,069
)
Net proceeds from insurance settlement - property,
plant and equipment
Net proceeds from disposal of property,
plant and equipment
Net cash used in investing activities
(
375,111
)
(
117,021
)
(
44,191
)
Cash flows from financing activities:
Principal payments on finance lease
(
224
)
(
215
)
(
205
)
Purchase of common stock by treasury
(
1,643
)
(
1,127
)
(
871
)
Payments of dividends
(
252,292
)
(
6,117
)
(
1,652
)
Contributions
Net cash used in financing activities
(
254,159
)
(
7,456
)
(
2,723
)
Increase (decrease) in cash and cash equivalents
(
20,778
)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
$
$
Supplemental information:
Cash paid for operating leases
$
$
$
Income taxes paid
$
$
$
Interest paid
$
$
$
See Notes to Consolidated Financial Statements.
42
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Cal-Maine
Foods,
Inc.
(“we,”
“us,”
“our,”
or
the
“Company”)
is
primarily
engaged
in
the
production,
grading,
packaging,
marketing and distribution
of fresh shell eggs,
including conventional, cage-free,
organic, brown, free
-range, pasture-raised and
nutritionally-enhanced
eggs.
The
Company,
which
is
headquartered
in
Ridgeland,
Mississippi,
is
the
largest
producer
and
distributor
of
fresh
shell
eggs
in
the
United
States
and
sells
the
majority
of
its
shell
eggs
in
states
across
the
southwestern,
southeastern, mid-western and mid-Atlantic regions of the United States.
Principles of Consolidation
The consolidated financial statements include
the accounts of all wholly-owned
subsidiaries and of majority-owned subsidiaries
over which we exercise control. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Fiscal Year
The Company’s fiscal year-end
is on the Saturday closest to May 31. The fiscal year ended
June 3, 2023
, included
the fiscal years ended May 28, 2022 and May 29, 2021 included
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles (“GAAP”)
in the United States of America 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.
Cash Equivalents
The
Company
considers
all
highly
liquid
investments
with
a
maturity
of
three
months
or
less
when
purchased
to
be
cash
equivalents.
We
maintain
bank
accounts
that
are
insured
by
the
Federal
Deposit
Insurance
Corporation
up
to
$250,000. The
Company
routinely
maintains
cash
balances
with
certain
financial
institutions
in
excess
of
federally
insured
amounts.
The
Company has not experienced any loss in such accounts. The Company manages this risk through maintaining cash deposits and
other highly liquid investments in high quality financial institutions.
We
primarily utilize a
cash management system
with a series of
separate accounts consisting
of lockbox accounts
for receiving
cash, concentration
accounts to which
funds are moved,
and zero-balance disbursement
accounts for funding
accounts payable.
Checks issued,
but not
presented to
the banks
for payment,
may result
in negative
book cash
balances,
which are
included in
accounts payable.
Investment Securities
The Company
has determined
that its
debt securities
are available-for-sale
investments. We
classify these
securities as
current
because the amounts invested are available for current operations. Available
-for-sale securities are carried at fair value, based on
quoted market prices as of the balance sheet date, with unrealized gains and losses recorded in other comprehensive income. The
amortized cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity and
is recorded
in interest income. The Company regularly evaluates changes to the rating of
its debt securities by credit agencies and economic
conditions
to assess
and
record any
expected credit
losses through
allowance for
credit losses,
limited to
the amount
that fair
value was less than the amortized cost basis.
Investments
in
mutual
funds
are
recorded
at
fair
value
and
are
classified
as
“Other
long-term
assets”
in
the
Company’s
Consolidated Balance Sheets. Unrealized gains and losses for equity securities are recorded in other income (expenses) as Other,
net in the Company’s Consolidated
Statements of Income.
The cost
basis for
realized gains
and losses
on available-for-sale
securities is
determined by
the specific
identification method.
Gains and losses are recognized in other income (expenses) as Other,
net in the Company’s Consolidated
Statements of Income.
Interest and dividends on securities classified as available-for-sale
are recorded in interest income.
43
Trade Receivables
Trade receivables are stated at their carrying values, which include a reserve for credit
losses. At June 3, 2023 and May 28, 2022,
reserves for credit losses were $
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 assigned an
expected loss based
on historical loss
information adjusted
as
needed
for
economic
and
other
forward-looking
factors.
At
June
3,
2023
and
May
28,
2022,
approximately
% and
% of the Company’s trade accounts receivable,
respectively.
Inventories
Inventories of eggs, feed,
supplies and flocks
are valued principally
at the lower
of cost (first-in,
first-out method) or
net realizable
value.
The
cost
associated
with
flocks,
consisting
principally
of
chicks,
feed,
labor,
contractor
payments
and
overhead
costs,
are
accumulated during a growing period
of approximately
lives of the flocks, generally
one
. Flock mortality is charged to cost of sales as incurred.
The
Company
does
not
disclose
the
gross
cost
and
accumulated
amortization
with
respect
to
its
flock
inventories
since
this
information is not utilized by management in the operation of the Company.
Property,
Plant and Equipment
Property,
plant and equipment
are stated at
cost. Depreciation is
provided by the
straight-line method over
the estimated useful
lives, which
are
maintenance are expensed as incurred.
Expenditures that increase the
value or productive capacity of
assets are capitalized. When
property,
plant, and
equipment are
retired, sold,
or otherwise
disposed of,
the asset’s
carrying amount
and related
accumulated
depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost
incurred on funds used to construct property, plant, and equipment
as part of the asset to which it relates and amortizes such cost
over the asset’s
estimated useful life. When
certain events or changes
in operating conditions occur,
asset lives may be adjusted
and an impairment assessment may be performed on the recoverability
of the carrying amounts.
Investments in Unconsolidated Entities
The equity method
of accounting is used
when the Company can
exert significant influence
over an entity,
but does not control
its financial
and
operating
decisions.
Under
the
equity
method,
original
investments
are recorded
at
cost
and
adjusted
by
the
Company’s share of undistributed earnings
or losses of
these entities. Equity
investments without readily
determinable fair values,
when
the
Company
does
not
have
the
ability
to
exercise
significant
influence
over
the
investee,
are
recorded
at
cost,
less
impairment, plus or minus observable price changes.
The Company is a member of Eggland’s Best, Inc.
and ProEgg, Inc., which are cooperatives.
These investments are recorded at
cost, plus or minus any allocated equities and retains.
Goodwill
Goodwill
represents
the
excess
of
the
purchase
price
over
the
fair
value
of
the
identifiable
net
assets
acquired.
Goodwill
is
evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test
is necessary.
After assessing the totality
of events or circumstances,
if we determine it is
more likely than not
that the fair value
of a reporting
unit is less
than its carrying
amount, then we
perform additional
quantitative tests to
determine the
magnitude of
any impairment. During the
fourth quarter of 2023,
we elected to change
the date of
our annual impairment assessment
from year-
end to the
first day of
the fourth quarter.
The change
was made to
more closely
align the impairment
assessment date
with our
annual planning and forecasting process.
The change in impairment assessment date
did not have any impact on goodwill
or the
impairment of goodwill. The change has been applied prospectively
and would not have an impact on a retrospective basis.
44
Intangible Assets
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise
fees,
non-compete agreements
and customer
relationship intangibles.
They are
amortized over
their estimated useful
lives of
years. The
gross
cost
and
accumulated
amortization
of
intangible
assets
are
removed
when
the
recorded
amounts
are
fully
amortized and
the asset is
no longer
in use or
the contract
has expired.
When certain
events or changes
in operating
conditions
occur, asset lives may
be adjusted and an
impairment assessment may be
performed on the recoverability
of the carrying amounts.
Accrued Self Insurance
We use a combination of insurance
and self-insurance mechanisms to provide coverage for the potential liabilities for health and
welfare,
workers’
compensation,
auto
liability
and
general
liability
risks.
Liabilities
associated
with
our
risks
retained
are
estimated, in part, by considering claims experience, demographic factors,
severity factors and other actuarial assumptions.
Dividend Payable
We
accrue dividends at
the end of
each quarter according
to the Company’s
dividend policy adopted
by its Board
of Directors.
The Company
pays a dividend
to shareholders
of its Common
Stock and
Class A Common
Stock on
a quarterly basis
for each
quarter for which the Company reports net income attributable to Cal-Maine
Foods, Inc. computed in accordance with GAAP in
an amount
equal to
one-third (
1/3
) of
such quarterly
income. Dividends
are paid
to shareholders
of record
as of
the 60th
day
following the last day of such quarter, except for the fourth fiscal quarter.
For the fourth quarter, the Company pays dividends to
shareholders of
record on
the 65th
day after
the quarter
end. Dividends
are payable
on the
15th day
following the
record date.
Following a quarter for which the Company does not report net income
attributable to Cal-Maine Foods, Inc., the Company will
not pay a dividend
for a subsequent profitable
quarter until the Company
is profitable on a cumulative
basis computed from the
date of the most recent quarter for which a dividend was paid.
Treasury Stock
Treasury
stock purchases
are accounted
for under
the cost
method whereby
the entire
cost of
the acquired
stock is
recorded as
treasury
stock. The
grant
of
restricted
stock
through
the
Company’s
share-based
compensation
plans
is
funded
through
the
issuance of
treasury stock. Gains
and losses
on the
subsequent reissuance
of shares
in accordance
with the
Company’s
share-
based compensation plans are credited or charged to paid-in
capital in excess of par value using the average-cost method.
Revenue Recognition and Delivery Costs
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of
the Company
and customer
agreeing upon
the order.
See
policy.
The Company believes
the performance obligation
is met upon delivery
and acceptance of
the product by
our customers. Costs
to deliver
product to
customers are
included in selling,
general and
administrative expenses
in the
accompanying Consolidated
Statements
of
Income.
Sales
revenue
reported
in
the
accompanying
Consolidated
Statements
of
Income
is
reduced
to
reflect
estimated returns
and allowances.
The Company
records an
estimated sales
allowance for
returns and
discounts at
the time
of
sale using historical trends based on actual sales returns and sales.
Advertising Costs
The Company expensed advertising
costs as incurred of $
2021, respectively.
Income Taxes
Income
taxes
are
accounted
for
using
the
liability
method.
Deferred
income
taxes
reflect
the
net
tax
effects
of
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
for
financial
reporting
purposes
and
the
amounts
used
for
income tax purposes. The
Company’s policy with respect
to evaluating
uncertain tax
positions is
based upon whether
management
believes it
is more
likely than
not the
uncertain tax
positions will
be sustained
upon review
by the
taxing authorities.
The tax
positions must meet the more-likely-than-not
recognition threshold with consideration
given to the amounts and
probabilities of
the outcomes
that could
be realized
upon settlement
using the
facts, circumstances
and information
at the
reporting date.
The
Company
will reflect
only
the portion
of the
tax benefit
that will
be
sustained
upon resolution
of the
position
and
applicable
45
interest on the portion of the tax benefit not recognized. The Company initially and subsequently measures the largest amount
of
tax benefit
that is
greater than
50% likely
to be
realized upon
settlement with
a taxing
authority that
has full
knowledge of
all
relevant
information. The
Company
records
interest
and
penalties on
uncertain
tax
positions
as
a
component
of
income
tax
expense. Based
upon management’s
assessment, there
are no uncertain
tax positions expected
to have a
material impact on
the
Company’s consolidated
financial statements.
Stock Based Compensation
The
Company
recognizes
all
share-based
payments
to
employees
and
directors,
including
grants
of
employee
stock
options,
restricted stock and performance-based shares, in the Consolidated Statements
of Income based on their fair values. The benefits
of
tax
deductions
in
excess
of
recognized
compensation
cost
are
reported
as
a
financing
cash
flow. See
Business Combinations
The Company applies the acquisition
method of accounting, which
requires that once control is obtained,
all the assets acquired
and liabilities assumed,
including amounts
attributable to noncontrolling
interests, are recorded
at their respective
fair values at
the date of acquisition. We
determine the fair values of identifiable assets and liabilities
internally,
which requires estimates and
the
use
of
various
valuation
techniques.
When
a
market
value
is
not
readily
available,
our
internal
valuation
methodology
considers the remaining estimated life of the assets acquired and what
management believes is the market value for those assets.
We
typically use the income
method approach for
intangible assets acquired in
a business combination. Significant
estimates in
valuing certain intangible assets include, but
are not limited to,
the amount and timing of
future cash flows, growth rates,
discount
rates and useful
lives. The excess
of the purchase
price over fair
values of identifiable
assets and liabilities
is recorded as
goodwill.
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company but which
will only be
resolved when one
or more future
events occur or
fail to occur.
The Company’s
management and
its legal counsel
assess
such
contingent
liabilities,
and
such
assessment
inherently
involves
an
exercise
of
judgment.
In
assessing
loss
contingencies
related
to legal
proceedings
that are
pending against
the Company
or unasserted
claims that
may result
in such
proceedings, the Company’s
legal counsel evaluates
the perceived merits
of any legal
proceedings or unasserted
claims as well
as the perceived merits of the amount of relief sought or expected to be
sought therein.
If the assessment
of a contingency
indicates it is
probable that
a material loss
has been incurred
and the amount
of the liability
can be
estimated, the
estimated liability
would be accrued
in the Company’s
financial statements.
If the assessment
indicates a
potentially material loss contingency is
not probable, but is reasonably possible,
or is probable but cannot be estimated,
then the
nature of the
contingent liability,
together with an
estimate of the
range of possible
loss if determinable
and material, would
be
disclosed. Loss
contingencies considered
remote are
generally not
disclosed unless
they involve
guarantees, in
which case
the
nature of the guarantee would be disclosed.
The Company expenses the costs of litigation as they are incurred.
New Accounting Pronouncements and Policies
No new accounting pronouncement issued or effective
during the fiscal year had or is expected to have a material impact on
our
Consolidated Financial Statements.
46
Note 2 – Acquisition
Effective on May 30, 2021, the Company acquired the remaining
% membership interest in Red River Valley
Egg Farm, LLC
(“Red River”),
including certain
liabilities. As
a result
of the
acquisition, Red
River became
a wholly
owned subsidiary
of the
Company. Red River owns and
operates a specialty
shell egg production
complex with approximately
hens,
cage-free
pullet capacity,
feed
mill, processing
plant, related
offices
and outbuildings
and
related
equipment located
on
approximately
The
following
table
summarizes
the
consideration
paid
for
Red
River
and
the
amounts
of
the
assets
acquired
and
liabilities
assumed recognized at the acquisition date:
Cash consideration paid
$
Fair value of the Company's equity interest in Red River held before the business combination
$
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash
$
Accounts receivable, net
Inventory
Property, plant and equipment
Liabilities assumed
(
2,448
)
Deferred income taxes
(
8,481
)
Total identifiable
net assets
Goodwill
$
Cash and accounts receivable acquired along with liabilities
assumed were valued at their carrying
value which approximates fair
value due to the short maturity of these instruments.
Inventory consisted
primarily of
flock, feed
ingredients, packaging,
and egg
inventory.
Flock inventory
was valued at
carrying
value as management
believes that their
carrying value best
approximates their
fair value. Feed
ingredients, packaging
and egg
inventory were all valued based on market prices as of May 30, 2021.
Property,
plant and
equipment were
valued utilizing
the cost
approach which
is based
on replacement
or reproduction
costs of
the assets and subtracting any depreciation resulting from physical deterioration
and/or functional or economic obsolescence.
The Company recognized a gain of $
% equity interest in Red River held
before
the
business
combination.
The
gain
was
recorded
in
other
income
and
expense
under
the
heading
“Other,
net”
in
the
Company’s Condensed Consolidated Statements of Income. The acquisition
of Red River resulted
in a discrete tax
benefit of $
million,
which
includes
a
$
investment in Red River, with a corresponding non-recurring,
non-cash $
taxable remeasurement gain associated with the acquisition. As part of the acquisition accounting, the Company also
recorded an
$
recognition of deferred
tax liabilities resulted in
the recognition of goodwill.
None of the goodwill
recognized is expected
to be
deductible for income tax purposes.
47
Note 3 - Investment Securities
The following presents the Company’s
investment securities as of June 3, 2023 and May 28, 2022 (in thousands):
June 3, 2023
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Treasury bills
Total current
investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent
investment securities
$
$
$
$
May 28, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Total current
investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent
investment securities
$
$
$
$
Available-for-sale
Proceeds
from
the
sales and
maturities
of
available-for-sale
securities
were
$
during fiscal 2023, 2022,
and 2021, respectively.
Gross realized gains for
fiscal 2023, 2022, and
2021 were $
thousand,
and
$
thousand, and $
Actual maturities may differ from contractual maturities because some
borrowers have the right to
call or prepay obligations with
or
without
call
or
prepayment
penalties.
Contractual
maturities
of
investment
securities
at
June
3,
2023
are
as
follows
(in
thousands):
Estimated Fair Value
Within one year
$
1-5 years
Total
$
Noncurrent
Proceeds from sales and maturities of noncurrent investment securities were $
fiscal 2023,
2022 and
2021, respectively.
Gross realized gains
on those sales
and maturities
during fiscal
2023,
2022 and 2021
were $
There were
48
Note 4 - Fair Value
Measures
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
●
Level 2
directly or indirectly,
including:
o
Quoted prices for similar assets or liabilities in active markets
o
Quoted prices for identical or similar assets in non-active markets
o
Inputs other than quoted prices that are observable for the asset or liability
o
Inputs derived principally
from or corroborated by other observable market data
●
Level 3
to the fair value of the assets or liabilities
The disclosure of fair value of certain financial assets and liabilities recorded
at cost are as follows:
Cash and cash equivalents, accounts receivable,
and accounts payable:
short maturity of these instruments.
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 our
financial assets and
liabilities that are required to be measured at fair value on a recurring
basis as of June 3, 2023 and May 28, 2022 (in thousands):
June 3, 2023
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Treasury bills
Mutual funds
Total assets measured at fair
value
$
$
$
$
May 28, 2022
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
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. We
classified these
securities as
current, because
amounts invested
are available
for current
operations. Observable
inputs for these securities are yields, credit risks, default rates, and volatility.
49
Note 5 - Inventories
Inventories consisted of the following (in thousands):
June 3, 2023
May 28, 2022
Flocks, net of amortization
$
$
Eggs and egg products
Feed and supplies
$
$
We grow and maintain
flocks of layers (mature female chickens), pullets (female chickens under 18 weeks of age), and breeders
(male and female
chickens used to
produce fertile eggs
to hatch for
egg production flocks).
Our total flock
at June 3,
2023 and
May 28, 2022,
consisted of approximately
layers, respectively.
The Company expensed amortization and mortality associated with the
flocks to cost of sales as follows (in thousands):
June 3, 2023
May 28, 2022
May 29, 2021
Amortization
$
$
$
Mortality
Total flock costs charged
to cost of sales
$
$
$
Note 6 - Property,
Plant and Equipment
Property, plant and equipment
consisted of the following (in thousands):
June 3, 2023
May 28, 2022
Land and improvements
$
$
Buildings and improvements
Machinery and equipment
Construction-in-progress
Less: accumulated depreciation
$
$
Depreciation expense was
$
and May 29, 2021, respectively.
The Company
maintains insurance
for both
property damage
and business
interruption relating
to catastrophic
events, such
as
fires. Insurance recoveries
received for
property damage
and business
interruption in
excess of
the net
book value
of damaged
assets,
clean-up
and
demolition
costs,
and
post-event
costs are
recorded
within
“Gain
on
insurance
recoveries”
in
the period
received or committed when all contingencies associated with the recoveries are resolved. Losses related to property damage are
recorded within “(Gains) loss
on disposal of fixed assets”.
Insurance recoveries relating
to direct, recoverable costs for
business
interruption are recorded
as a reduction in cost of
sales on the Consolidated Statements
of Income. Insurance
claims incurred or
finalized
during
the fiscal
years ended
June 3,
2023,
May 28,
2022,
and
May
29,
2021 did
not have
a material
effect
on
the
Company’s consolidated
financial statements.
Note 7 - Investment in Unconsolidated Entities
As of
June 3,
2023
and
May 28,
2022,
the Company
owned
% in
Specialty
Eggs,
LLC (“Specialty
Eggs”)
and
Southwest
Specialty Eggs,
LLC (“Southwest
Specialty Eggs”),
which are
accounted for
using the
equity method
of accounting.
Specialty
Eggs owns the Egg-Land's Best franchise for most of Georgia and South Carolina, as well as
a portion of western North Carolina
and eastern Alabama. Southwest Specialty
Eggs owns the Egg-Land's Best franchise
for Arizona, southern California
and Clark
County, Nevada (including
Las Vegas).
As of May
29, 2021, the
Company owned
% in Red
River which was
acquired at the
beginning of
fiscal 2022 (see
). The Company accounted for Red River using the equity method of
accounting in fiscal 2021.
50
Equity method investments are included
in “Investments in unconsolidated entities”
in the accompanying Consolidated Balance
Sheets and totaled $
Equity
in
income
of
unconsolidated
entities
of
$
included in the Consolidated Statements of Income for fiscal 2023
,
2022, and 2021, respectively.
The condensed consolidated
financial information for
the Company’s unconsolidated joint
ventures was as
follows (in thousands):
For the fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Net sales
$
$
$
Net income
Total assets
Total liabilities
Total equity
The following relates to the Company’s
transactions with these unconsolidated affiliates (in thousands):
For the fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Sales to unconsolidated entities
$
$
$
Purchases from unconsolidated entities
Distributions from unconsolidated entities
June 3, 2023
May 28, 2022
Accounts receivable from unconsolidated entities
$
$
Accounts payable to unconsolidated entities
Note 8 - Goodwill and Other Intangible Assets
Goodwill and other intangibles consisted of the following (in thousands):
Other Intangibles
Franchise
Customer
Non-compete
Right of
Water
Total
Goodwill
rights
relationships
agreements
Use
rights
Trademark
intangibles
Balance May 29, 2021
$
$
$
$
$
$
$
$
Additions
—
Amortization
—
(
1,628
)
(
362
)
(
159
)
(
21
)
—
(
50
)
(
2,220
)
Balance May 28, 2022
Amortization
—
(
1,657
)
(
356
)
(
152
)
(
18
)
—
(
51
)
(
2,234
)
Balance June 3, 2023
$
$
$
$
$
$
$
$
51
For the Other Intangibles listed above, the gross carrying amounts and
accumulated amortization are as follows (in thousands):
June 3, 2023
May 28, 2022
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
Other intangible assets:
Franchise rights
$
$
(
15,870
)
$
$
(
14,213
)
Customer relationships
(
8,674
)
(
8,318
)
Non-compete agreements
(
742
)
(
590
)
Right of use intangible
(
239
)
(
221
)
Water rights *
—
—
Trademark
(
315
)
(
264
)
Total
$
$
(
25,840
)
$
$
(
23,606
)
*
Water rights are
an indefinite life intangible asset.
No significant residual value is estimated for these
intangible assets. Aggregate amortization expense for fiscal years 2023, 2022,
and 2021 totaled $
The following table presents the total estimated amortization of intangible
assets for the five succeeding years (in thousands):
For fiscal year
Estimated amortization expense
2024
$
2025
2026
2027
2028
Thereafter
Total
$
Note 9 - Employee Benefit Plans
The Company maintains a medical plan that is qualified under Section
401(a) of the Internal Revenue Code and is not subject to
tax under present income tax laws. The plan is funded by contributions from the Company and its employees. Under its plan, the
Company
self-insures
its
portion
of
medical
claims
for
substantially
all
full-time
employees. The
Company
uses
stop-loss
insurance
to
limit
its
portion
of
medical
claims
to
$
incurred but not
reported claims were approximately
$
and 2021, respectively.
The liability recorded
for incurred but
not reported claims
was $
3,
2023
and
May 28,
2022,
respectively
and
are classified
within
“Accrued
expenses
and
other
liabilities”
in
the
Company’s
Consolidated Balance Sheets.
The Company
has a KSOP
plan that
covers substantially
all employees
(the “Plan”). The
Company makes
contributions to
the
Plan at a rate of
% of participants eligible compensation, plus an additional amount determined at the discretion of the Board of
Directors. Contributions
can be
made
in cash
or
the Company’s
Common
Stock,
and vest
immediately. The
Company’s
cash
contributions to the Plan were $
Company did
t make direct contributions of the Company’s
Common Stock in fiscal years 2023, 2022, or 2021. Dividends on
the Company’s Common Stock are paid to the Plan in cash. The Plan acquires the Company’s Common Stock, which is listed on
the NASDAQ, by
using the dividends
and the Company’s
cash contribution to
purchase shares in
the public markets.
The Plan
sells Common Stock on the NASDAQ to pay benefits to Plan participants. Participants may make contributions to the Plan up to
the maximum allowed by the Internal Revenue Service regulations.
The Company does not match participant contributions.
Deferred Compensation Plans
The
Company
has
deferred
compensation
agreements
with
certain
officers
for
payments
to
be
made
over
specified
periods
beginning when the officers
reach age
upon
deferred
compensation
earned
over
the
estimated
remaining
service
period
of
each officer.
Payments
made
under
these
agreements
were
$
52
$
liabilities” in the Company’s Consolidated
Balance Sheets.
The
Company
sponsors
an
unfunded,
non-qualified
deferred
compensation
plan,
which
was
amended
and
restated
effective
December 1, 2021 (the “Amended DC Plan”) to expand eligibility for participation from named officers only to a select group of
management or highly
compensated employees of
the Company,
expand the investment options
available and add the
ability of
participants
to
make
elective
deferrals.
Participants
may
be
awarded
long-term
incentive
contributions
(“Awards”)
under
the
Amended DC Plan.
Awards
vest on December 31
st
or, if earlier, the participant’s attainment of age
thousand, $
DC Plan were $
for the Amended DC Plan was $
and is classified within “Other noncurrent liabilities” in the Company’s
Consolidated Balance Sheets.
Deferred compensation expense for
both plans totaled $
2021,
respectively.
Other Postretirement Employee Benefits
The Company
maintains an
unfunded postretirement
medical plan to
provide limited
health benefits to
certain qualified
retired
employees
and officers.
Retired non-officers
and
spouses are
eligible for
coverage
until attainment
of Medicare
eligibility,
at
which time coverage
ceases. Retired officers
and spouses
are eligible for
lifetime benefits under
the plan. Officers,
who retired
prior to May 1, 2012 and their spouses must participate in Medicare
Plans A and B. Officers, who retire on or after May 1, 2012
and their spouses must participate in Medicare Plans A, B, and D.
The plan is accounted for
in accordance with ASC
715, Compensation – Retirement Benefits (“ASC
715”), whereby an employer
recognizes the funded status of a defined benefit postretirement plan as
an asset or liability, and recognizes changes in the funded
status in the year the change occurs through comprehensive income. Additionally,
this expense is recognized on an accrual basis
over the employees’ approximate period of employment. The liability associated with the plan was $
at
June
3,
2023
and
May
28,
2022,
respectively. The
remaining
disclosures
associated
with
ASC
715
are
immaterial
to
the
Company’s financial statements.
Effective
March 1,
2023,
the Company
adopted
a non-qualified
supplemental
executive retirement
plan
(“SERP”) and
a split
dollar life insurance plan (“Split Dollar Plan”) designed
to provide deferred compensation and a pre-retirement
death benefit for
a
select
group
of
management
or
highly
compensated
employees
of
the
Company.
Provided
the
vesting
conditions
are
met,
participants in the SERP are eligible to receive an aggregate retirement benefit of $
, which is paid in annual installments
of $
. A participant
becomes vested in
the retirement benefit
over
% per
year. If a participant becomes disabled, attains the retirement age of 65, or the Company experiences a change in control, vesting
will be
accelerated to
%. If
a participant
dies while
employed, he
or she
will not
receive any
benefits under
the SERP,
but
their beneficiaries
will instead be
entitled to the
life insurance benefit
provided under
the Split Dollar
Plan, which
is $500,000.
The liability recorded
for these plans was
$
the Company’s Consolidated Balance
Sheets.
Note 10 - Credit Facility
For
fiscal
years
2023,
2022
and
2021,
interest
expense
was
$
primarily related to commitment fees on the Credit Facility described below.
On May
26, 2023,
we entered
into the
First Amendment
(the “Amendment”)
to the
Amended and
Restated Credit
Agreement,
dated November 15, 2021 (as amended, the “Credit Agreement”).
The Amendment replaced the London Interbank Offered Rate
interest rate benchmark
with the secured overnight
financing rate as administered
by the Federal Reserve
Bank of New York
or
a successor
administrator
of the
secured overnight
financing
rate (“SOFR”).
The Credit
Agreement
has a
five
-year term.
The
Credit
Agreement
provides
for
a
senior
secured
revolving
credit
facility
(the
“Credit
Facility”
or
“Revolver”)
in
an
initial
aggregate principal
amount of
up to
$
credit and a $
consent of BMO
Harris Bank N.A.
(the “Administrative
Agent”), an increase
in the Credit
Facility in the
aggregate up to
$
million by adding one or more
incremental senior secured term loans or increasing one
or more times the revolving commitments
under the Revolver.
53
fiscal 2022.
The Company
had $
2023.
The
interest
rate
in
connection
with
loans
made
under
the
Credit
Facility
is
based
on,
at
the
Company’s
election,
either
the
Adjusted Term SOFR Rate plus the
Applicable Margin or the
Base Rate plus
the Applicable Margin. The “Adjusted
Term SOFR”
means with respect to any tenor,
the per annum rate equal to the sum of
(i) Term
SOFR as defined in the Credit Agreement
plus
(ii)
% (10 basis
points); provided,
if Adjusted Term
SOFR determined
as provided above
shall ever be
less than the
Floor,
then Adjusted
Term
SOFR shall
be deemed
to be
the Floor.
The “Floor”
means the
rate per
annum of
interest equal
to
%.
The “Base Rate” means a fluctuating rate per annum
equal to the highest of (a) the federal funds rate
plus
% per annum, (b)
the prime rate of
interest established by the
Administrative Agent, and
(c) the Adjusted Term
SOFR for a
one
-month tenor plus
%. The
“Applicable Margin”
means
% to
% per
annum for
Base Rate
Loans and
% to
% per
annum for
SOFR Loans, in
each case depending upon
the Total Funded Debt to
Capitalization Ratio for the
Company at the quarterly
pricing
date. The
Company will
pay a
commitment
fee on
the unused
portion
of the
Credit Facility
payable quarterly
from
% to
% in each case depending upon the Total Funded Debt to Capitalization Ratio for the Company at the quarterly pricing date.
The
Credit
Facility
is
guaranteed
by
all the
current
and
future wholly
-owned
direct
and
indirect
domestic
subsidiaries
of
the
Company (the
“Guarantors”), and
is secured
by a
first-priority perfected
security interest
in substantially
all of
the Company’s
and the Guarantors’ accounts, payment intangibles, instruments (including promissory notes), chattel paper, inventory (including
farm products) and deposit accounts maintained with the Administrative Agent.
The
Credit
Agreement
for the
Credit
Facility
contains
customary
covenants,
including
restrictions
on
the incurrence
of
liens,
incurrence of
additional debt,
sales of
assets and
other fundamental
corporate changes
and investments.
The Credit
Agreement
requires maintenance of two financial covenants: (i) a maximum Total Funded Debt to Capitalization Ratio tested
quarterly of no
greater than
%; and (ii) a requirement to maintain Minimum
Tangible Net
Worth at
all times of $
% of net
income
(if
net
income
is
positive)
less
permitted
restricted
payments
for
each
fiscal
quarter
after
November
27,
2021.
Additionally,
the Credit Agreement
requires that Fred
R. Adams Jr.’s
spouse, natural children,
sons-in-law or grandchildren,
or
any trust,
guardianship, conservatorship
or custodianship
for the primary
benefit of any
of the foregoing,
or any family
limited
partnership, similar limited liability
company or other entity
that
% of the voting control
of such entity is held
by any of the
foregoing, shall maintain
at least
% of the Company's
voting stock. Failure
to satisfy any of
these covenants will constitute
a
default under the terms of
the Credit Agreement. Further,
under the terms of the Credit
Agreement, payment of dividends under
the
Company's
current
dividend
policy
of
one-third
of
the
Company's
net
income
computed
in
accordance
with
GAAP
and
payment of other
dividends or repurchases
by the Company
of its capital stock
is allowed, as long
as after giving
effect to such
dividend
payments or
repurchases no
default has
occurred and
is continuing
and
the sum
of cash
and cash
equivalents of
the
Company and its subsidiaries plus availability under the Credit Facility equals at least $
The Credit
Agreement also
includes customary
events of
default and
customary remedies
upon the
occurrence of
an event
of
default, including acceleration
of the amounts due
under the Credit Facility
and foreclosure of
the collateral securing
the Credit
Facility.
At June 3, 2023, we were in compliance with the covenant requirements of the
Credit Facility.
Note 11 - Equity
The Company has
or the Company's Second Restated Certificate of Incorporation
(“Restated Charter”), holders of shares of the Company’s
capital
stock vote as
a single class on
all matters submitted
to a vote of
the stockholders, with
each share of
Common Stock entitled to
voting in
the election of
directors. The Common
Stock and Class
A Common
Stock have equal
liquidation rights
and the same
dividend rights. In the
case of
any dividend payable
in stock,
holders of Common
Stock are entitled
to receive the
same percentage
dividend (payable only in shares of Common Stock) as the holders of Class A Common Stock receive (payable only
in shares of
Class A Common
Stock). Upon liquidation,
dissolution, or winding-up
of the Company, the
holders of Common
Stock are entitled
to share ratably
with the holders
of Class A
Common Stock in
all assets available
for distribution after payment
in full of
creditors.
The holders
of Common
Stock and
Class A
Common
Stock are
not entitled
to preemptive
or subscription
rights. No
class of
capital stock
may be
combined or
subdivided unless
the other
classes of
capital stock
are combined
or subdivided
in the
same
proportion. No dividend may be declared and paid on Class A Common
Stock unless the dividend is payable only to the holders
of Class A Common Stock and a dividend is declared and paid to Common Stock
concurrently.
Each share
of Class A
Common Stock
is convertible,
at the option
of its
holder,
into
The Company’s
Restated Charter
identifies family
members of
Mr.
Adams (“Immediate
Family Members”)
and arrangements
54
and entities that are permitted to
receive and hold shares of Class
A Common Stock, with
converting into shares of Common
Stock, with one vote per share (“Permitted
Transferees”). The Permitted
Transferees include
arrangements and entities such as revocable trusts and limited liability companies that could hold Class A Common Stock
for the
benefit of Immediate Family Members. Each Permitted
Transferee must have a relationship,
specifically defined in the Restated
Charter, with
another Permitted Transferee
or an Immediate Family
Member.
A share of Class A
Common Stock transferred
to
a person other
than a
Permitted Transferee would automatically
convert into Common
Stock with
one vote per
share. Additionally,
the
Restated
Charter
includes
a
sunset
provision
pursuant
to
which
all
of
the
outstanding
Class
A
Common
Stock
will
automatically
convert
to
Common
Stock
if:
(a)
less
than
beneficially owned by Immediate Family
Members and/or Permitted Transferees,
or (b) if less than
Common Stock
and Common Stock,
in the aggregate,
are beneficially owned
by Immediate Family
Members and/or Permitted
Transferees.
Note 12 - Net Income per Common Share
Basic net income
per share attributable
to Cal-Maine Foods, Inc.
is based on the
weighted average Common
Stock and Class A
Common Stock
outstanding. Diluted
net income
per share
attributable to
Cal-Maine Foods,
Inc. is
based on
weighted-average
common shares outstanding during the relevant period adjusted for the dilutive
effect of share-based awards.
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):
June 3, 2023
May 28, 2022
May 29, 2021
Numerator
Net income
$
$
$
Less: Net loss attributable to noncontrolling interest
(
1,292
)
(
209
)
Net income 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 per common share attributable to Cal-Maine Foods, Inc.
Basic
$
$
$
Diluted
$
$
$
Note 13 - Revenue Recognition
Satisfaction of Performance Obligation
The vast majority of the Company’s
revenue is derived from agreements 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 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.
Costs
to
deliver
product
to
customers
are
included
in
selling,
general
and
administrative
expenses
in
the
accompanying
Consolidated Statements
of Income
and totaled
$
2021,
respectively.
55
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we
credit the customer’s account for product that the
customer is unable to sell before expiration. The Company records an allowance
for expected customer returns using historical
return data and comparing to current period sales and accounts receivable
.
The allowance is recorded as a reduction of sales in
the same period the revenue is recognized.
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.
Redemption rates are estimated using the Company’s
historical experience for
similar inducement offers. Current discount and inducement offers
are presented as a net amount in ‘‘Net
sales.’’
Disaggregation of Revenue
The following table provides revenue disaggregated by product category
(in thousands):
14 Weeks Ended
13 Weeks Ended
53 Weeks Ended
52 Weeks Ended
June 3, 2023
May 28, 2022
June 3, 2023
May 28, 2022
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. If
the amortization period of these costs
is less than
one year, they are expensed as incurred. When the amortization period is greater than one year, a contract asset is recognized and
is amortized over the contract life
as a reduction in net
sales. As of June 3,
2023 and May 28, 2022, the
balance for contract assets
is immaterial.
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.
Concentration of Credit Risks
Our largest customer, Walmart
Inc. (including Sam's Club) accounted for
%,
% and
% of net sales dollars for fiscal
2023, 2022, and 2021, respectively.
H-E-B, LP accounted for
% of net sales dollars for fiscal
Note 14 - Stock Compensation Plans
On
October
2,
2020,
shareholders
approved
the
Amended
and
Restated
Cal-Maine
Foods,
Inc.
2012
Omnibus
Long-Term
Incentive
Plan (the
“LTIP
Plan”). The
purpose of
the LTIP
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
LTIP
Plan
is
authorized
but
unissued
shares
or
treasury
shares.
Awards
may
be
granted
under
the
LTIP
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 LTIP 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
56
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 on a straight-line basis over the vesting period. Forfeitures are
recognized as they occur.
Total
stock-based
compensation
expense
was
$
respectively.
Our unrecognized
compensation expense
as a
result of
non-vested shares
was $
May 28,
2022. The unrecognized
compensation expense
will be
amortized to
stock compensation
expense over
a period
of
years.
A summary of our equity award activity and related information for our
restricted stock is as follows:
Number of
Shares
Weighted Average
Grant
Date Fair Value
Outstanding, May 29, 2021
$
Granted
Vested
(
92,918
)
Forfeited
(
4,527
)
Outstanding, May 28, 2022
$
Granted
Vested
(
98,684
)
Forfeited
(
9,989
)
Outstanding, June 3, 2023
$
Note 15 - Income Taxes
Income tax expense (benefit) consisted of the following:
Fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Current:
Federal
$
$
$
(
35,090
)
State
(
34,360
)
Deferred:
Federal
State
$
$
$
(
12,009
)
57
Significant components of the Company’s
deferred tax liabilities and assets were as follows:
June 3, 2023
May 28, 2022
Deferred tax liabilities:
Property, plant and equipment
$
$
Inventories
Investment in affiliates
Other
Total deferred
tax liabilities
Deferred tax assets:
Accrued expenses
State operating loss carryforwards
Other comprehensive income
Other
Total deferred
tax assets
Net deferred tax liabilities
$
$
The differences between income tax expense (benefit) at the Company’s
effective income tax rate and income tax expense at the
statutory federal income tax rate were as follows:
Fiscal year end
June 3, 2023
May 28, 2022
May 29, 2021
Statutory federal income tax
$
$
$
(
2,087
)
State income taxes, net
Domestic manufacturers deduction
Enacted net operating loss carryback provision
(
16,014
)
Tax exempt
interest income
(
9
)
(
50
)
Reversal of outside basis in equity investment Red River
(
7,310
)
Non-taxable remeasurement gain Red River
(
955
)
Other, net
(
262
)
$
$
$
(
12,009
)
As of
June 3,
2023,
we had
penalties related to uncertain tax positions.
We
are subject
to income
tax in
many jurisdictions
within the
U.S.
We
are currently
not under
audit by
the Internal
Revenue
Service
or
by
any
state
and
local
tax
authorities.
Tax
periods
for
all
years
beginning
with
fiscal
year
2020
remain
open
to
examination by federal and state taxing jurisdictions to which we are
subject.
58
Note 16 - Commitments and Contingencies
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
(“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 $
2020, the
court granted
the defendants’
motion to
dismiss the
State’s
original petition
with prejudice.
On September
11, 2020,
the State filed a
notice of appeal,
which was assigned
to the Texas
Court of Appeals
for the First District.
On August 16,
2022,
the
appeals
court
reversed
and
remanded
the
case
back
to
the
trial
court
for
further
proceedings.
On
October
31,
2022,
the
Company and WCF appealed the First District Court’s decision to the Supreme Court of Texas.
On May 10, 2023, the Company
filed its brief on the merits,
and the State of Texas
filed its brief on June 29, 2023.
The Company filed its reply brief on July
14,
2023. Management believes the risk of material loss related to this matter to be remote.
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
$
impacting anyone over 65 years old. On December
1, 2020, the Company and certain other defendants
filed a motion to dismiss
the plaintiffs’ amended class action complaint. The plaintiffs subsequently filed a motion to strike, and the motion to dismiss and
related proceedings were referred to a United States magistrate judge. On July 14, 2021, the magistrate judge issued a report and
recommendation to
the court that
the defendants’ motion
to dismiss be
granted and the
case be dismissed
without prejudice for
lack of subject matter jurisdiction. On September 20, 2021, the court dismissed the case without prejudice. On July 13, 2022, the
court denied the plaintiffs’ motion to set aside or amend
the judgment to amend their complaint.
On March 15, 2022,
plaintiffs filed a
second suit against the
Company and several
defendants in Bell et
al. v.
Cal-Maine Foods
et al., Case No. 1:22-cv-246, in the Western District of Texas, Austin Division alleging
the same assertions as laid out in the first
complaint. On August 12,
2022, the Company and
other defendants in
the case filed
a motion to
dismiss the plaintiffs’ class
action
complaint. On January 9, 2023, the court entered an order and final judgement
granting the Company’s motion
to dismiss.
On February
8, 2023,
the plaintiffs
appealed
the lower
court’s
judgement
to the
United States
Court of
Appeals for
the Fifth
Circuit, Case No.
23-50112.
The parties filed
their respective appellate
briefs, but the
court has not
ruled on these
submissions.
Management believes the risk of material loss related to both matters to be remote.
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,
until a subsequent settlement was reached as described below,
The Kellogg Company.
59
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.
On May
2, 2022,
the court
set trial
for October
24, 2022,
but on
September 20,
2022, the
court cancelled
the
trial date due to COVID-19
protocols and converted the trial date
to a status hearing to reschedule
the jury trial. Trial
is now set
for October 16, 2023.
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,
and on March 28, 2022, the
court dismissed the Company with prejudice.
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:
two earlier trials
based on substantially
the same
facts and
legal arguments
resulted in findings of
no conspiracy and/or damages;
this 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., Cobb-Vantress, Inc., Cargill,
Inc., George’s, Inc., Peterson Farms, Inc. and
Simmons Foods, Inc., and certain
of their affiliates. The State
of Oklahoma claims that through the
disposal of chicken litter the
defendants
polluted
the Illinois
River
Watershed.
This
watershed
provides
water to
eastern Oklahoma.
The complaint
sought
injunctive relief and monetary damages, but the claim for monetary
damages was dismissed by the court. Cal-Maine Foods, Inc.
discontinued operations
in the watershed
in or around
2005. Since the litigation
began, Cal-Maine Foods,
Inc. purchased
%
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.
We
also
have
a
number
of
small
contract
producers that operate in the area.
The non-jury trial in the case began in September 2009
and concluded in February 2010. On January 18, 2023, the court entered
findings of
fact and
conclusions of
law in favor
of the
State of
Oklahoma, but
no penalties
were assessed.
The court
found the
defendants liable for state law nuisance, federal
common law nuisance, and state law
trespass. The court also found the
producers
vicariously liable for the actions of
their contract producers. The court directed the
parties to confer in attempt to
reach agreement
on appropriate remedies. On June 12, 2023, the court ordered the
parties to mediate before the Tenth Circuit Chief Judge Deanell
Reece Tacha
and instructed the parties
to file a joint
status report fourteen days
following mediation. The
mediation has not yet
been set but is expected to be in the September to October time frame this fall. While management believes
there is a reasonable
possibility of a material loss from the case, 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: uncertainties
inherent in any
assessment
of potential costs
associated with injunctive
relief or other
penalties based on
a decision in
a case tried over
13 years ago based
on
environmental
conditions
that
existed
at
the
time,
the
lack
of
guidance
from
the
court
as
to
what
might
be
considered
appropriate remedies, the ongoing negotiations with the State on appropriate remedies and upcoming mediation,
and uncertainty
regarding
what
our
proportionate
share
of
any
remedy
would
be,
although
we
believe
that
our
share
compared
to
the
other
defendants is small.
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.
60
SCHEDULE II - VALUATION
AND QUALIFYING ACCOUNTS
Fiscal Years
ended June 3, 2023, May 28, 2022, and May 29, 2021
(in thousands)
Description
Balance at
Beginning of Period
Charged to Cost
and Expense
Write-off
of Accounts
Balance at
End of Period
Year
ended June 3, 2023
Allowance for doubtful accounts
$
$
(
148
)
$
$
Year
ended May 28, 2022
Allowance for doubtful accounts
$
$
$
$
Year
ended May 29, 2021
Allowance for doubtful accounts
$
$
$
$
61
ITEM
9.
CHANGES
IN
AND
DISAGREEMENTS
WITH
ACCOUNTANTS
ON
ACCOUNTING
AND
FINANCIAL
DISCLOSURE
None.
ITEM 9A.
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
Securities Exchange
Act of
1934, as
amended (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 June 3, 2023
at the reasonable assurance level.
Internal Control Over Financial Reporting
(a)
Management’s Report
on Internal Control Over Financial Reporting
The following
sets forth,
in accordance
with Section
404(a) of
the Sarbanes-Oxley
Act of
2002 and
Item 308
of the
Securities
and Exchange Commission’s Regulation
S-K, the report of management on our internal control over financial reporting.
1.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting.
“Internal control over financial reporting”
is a process designed
by, or under the supervision of, our
Chief Executive
Officer and Chief
Financial Officer,
together with other financial
officers, and effected
by our Board of
Directors,
management
and other
personnel, 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 and includes those policies and procedures that:
●
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets;
●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
our
receipts
and
expenditures are being made only in accordance with
authorizations of our management and directors; and
●
Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial
statements.
2.
Our
management,
in
accordance
with
Rule
13a-15(c)
under the
Exchange
Act
and
with the
participation
of
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
together
with
other
financial
officers,
evaluated
the
effectiveness
of
our
internal
control
over
financial
reporting
as
of
June
3,
2023. The
framework
on
which
management’s
evaluation
of
our
internal
control
over
financial
reporting
is
based
is
the
“Internal
Control
–
Integrated
Framework”
published
in
2013
by
the
Committee
of
Sponsoring
Organizations
(“COSO”)
of
the
Treadway Commission.
3.
Management has
determined that
our internal
control over
financial reporting
as of June
3, 2023
is effective.
It is
noted
that
internal
control
over
financial
reporting
cannot
provide
absolute
assurance
of
achieving
financial
reporting objectives, but rather reasonable assurance of achieving
such objectives.
4.
The attestation report of FROST,
PLLC on our internal control over financial reporting,
which includes that firm’s
opinion on the effectiveness of our internal control over financial
reporting, is set forth below.
(b)
Attestation Report of the Registrant’s
Public Accounting Firm
62
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on Internal Control Over Financial Reporting
We
have audited
Cal-Maine Foods,
Inc. and
Subsidiaries’ internal
control over
financial reporting
as of June
3, 2023,
based
on
criteria
established
in
2013
Internal
Control
–
Integrated
Framework
issued
by
the
Committee
of
Sponsoring
Organizations of
the Treadway
Commission (“COSO”).
In our
opinion, Cal-Maine
Foods, Inc. and
Subsidiaries maintained,
in
all material
respects,
effective
internal
control
over
financial
reporting
as June
3, 2023,
based
on
criteria
established
in
2013
Internal Control – Integrated Framework issued by the COSO.
We
also have
audited, in
accordance with
the standards
of the
Public Company
Accounting Oversight
Board (United
States) (“PCAOB”), the consolidated
balance sheets and the
related consolidated statements of
income, comprehensive income,
stockholders’ equity,
and cash flows of Cal-Maine Foods,
Inc. and Subsidiaries and our
report dated July 25, 2023 expressed
an
unqualified opinion.
Basis for Opinion
Cal-Maine
Foods,
Inc.
and
Subsidiaries’
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting,
and
for
their
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
accompanying Management’s
Report on Internal
Control Over Financial
Reporting in Item 9A.
Our responsibility is
to express
an opinion on the entities’ internal control over financial reporting based
on our audit. We are a public accounting firm registered
with the PCAOB and
are required to be
independent with respect to
Cal-Maine Foods, Inc.
and Subsidiaries in accordance
with
the
U.S.
federal
securities
laws and
the
applicable
rules
and
regulations
of the
Securities and
Exchange
Commission
and
the
PCAOB.
We
conducted
our
audit in
accordance
with
the
standards
of
the
PCOAB. Those
standards
require
that
we
plan
and
perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained
in
all material
respects.
Our audit
of internal
control over
financial
reporting
included
obtaining
an understanding
of internal
control
over
financial
reporting,
assessing the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the design
and
operating effectiveness
of internal control based
on the assessed risk.
Our audit also included
performing such other procedures
as we considered necessary in the circumstances. We
believe our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with
accounting principles
generally accepted
in the
United States
of America.
An entities’
internal control
over financial
reporting
includes those
policies and
procedures that
(1) pertain
to the
maintenance
of records
that, in
reasonable detail,
accurately and
fairly reflect the
transactions and dispositions of
the assets of the
entities; (2) provide reasonable
assurance that transactions are
recorded
as
necessary
to
permit
preparation
of
consolidated
financial
statements
in
accordance
with
accounting
principles
generally
accepted
in the
United States
of America,
and
that receipts
and
expenditures
of the
entities are
being
made only
in
accordance
with
authorizations
of
management
and
directors
of
the
entities;
and
(3)
provide
reasonable
assurance
regarding
prevention or
timely detection
of unauthorized
acquisition, use,
or disposition
of the
entities’ assets
that could
have a
material
effect on the consolidated financial statements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
July 25, 2023
63
(c)
Changes in Internal Control Over Financial Reporting
In
connection
with
its
evaluation
of
the
effectiveness,
as
of
June
3,
2023,
of
our
internal
control
over
financial
reporting,
management determined that there was no change
in our internal control over financial reporting that
occurred during the fourth
quarter
ended June
3, 2023,
that has
materially
affected,
or is
reasonably
likely to
materially
affect,
our
internal
control over
financial reporting.
ITEM 9B.
OTHER INFORMATION
Not applicable.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS
Not applicable.
PART
III.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Except as set forth below, the information concerning directors, executive officers and corporate governance required by Item 10
is
incorporated
by
reference
from
our
definitive
proxy
statement
which
is
to
be
filed
pursuant
to
Regulation
14A
under
the
Securities Exchange Act of 1934 in connection with our 2023 Annual
Meeting of Shareholders.
We have adopted a Code of Ethics and
Business Conduct that applies to
our directors, officers and employees, including the chief
executive
officer
and principal
financial and
accounting
officers of
the Company.
We
will provide
a copy
of the
code free
of
charge to any person that requests a copy by writing to:
Cal-Maine Foods, Inc.
P.O.
Box 2960
Jackson, Mississippi 39207
Attn.:
Investor Relations
Requests can be made by phone at (601) 948-6813.
A copy is also
available at our
website www.calmainefoods.com
under the heading
“Investors – Corporate
Governance – Code
of Ethics.” We
intend to disclose
any amendments
to, or waivers
from, the
Code of Conduct
and Ethics for
Directors, Officers
and
Employees
on our
website promptly
following
the date
of any
such amendment
or waiver.
Information
contained
on our
website is not a part of this report.
ITEM 11.
EXECUTIVE COMPENSATION
The information concerning executive
compensation required by Item 11
is incorporated by reference from our
definitive proxy
statement which is to
be filed pursuant to Regulation
14A under the Securities
Exchange Act of 1934 in
connection with our 2023
Annual Meeting of Shareholders.
ITEM
12.
SECURITY
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
AND MANAGEMENT
AND
RELATED STOCKHOLDER
MATTERS
The information
concerning security
ownership of
certain beneficial
owners and
management and
related stockholder
matters
required by Item 12 is incorporated
by reference from our definitive proxy
statement which is to be filed pursuant
to Regulation
14A under the Securities Exchange Act of 1934 in connection with our 2023
Annual Meeting of Shareholders.
ITEM 13.
CERTAIN
RELATIONSHIPS
AND RELATED TRANSACTI
ONS, AND DIRECTOR INDEPENDENCE
The
information
concerning
certain
relationships
and
related
transactions,
and
director
independence
required
by
Item
13
is
incorporated by reference from
our definitive proxy
statement which is
to be filed
pursuant to Regulation
14A under the
Securities
Exchange Act of 1934 in connection with our 2023 Annual Meeting of Shareholders.
64
ITEM 14.
PRINCIPAL ACCOUNTING
FEES AND SERVICES
The information
concerning principal
accounting fees
and services
required by
Item 14
is incorporated
by reference
from our
definitive
proxy
statement
which
is
to
be
filed
pursuant
to
Regulation
14A
under
the
Securities
Exchange
Act
of
1934
in
connection with our 2023 Annual Meeting of Shareholders.
PART
IV.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT
SCHEDULES
(a)(1)
Financial Statements
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item
8 and are filed herewith:
)
Consolidated
Statements
of
Comprehensive
Income
–
Fiscal
Years
Ended
June
3,
2023,
May 28,
2022,
and
(a)(2)
Financial Statement Schedule
All other schedules are omitted either because they
are not applicable or required, or
because the required information is included
in the financial statements or notes thereto.
(a)(3)
Exhibits Required by Item 601 of Regulation S-K
See Part (b) of this Item 15.
65
(b)
Exhibits Required by Item 601 of Regulation S-K
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number
Exhibit
3.1
3.2
4.1**
10.1
10.2
10.3*
10.4
10.5**
10.6*
10.7*
10.8*
10.9*
Form of Restricted Stock Agreement for Amended and Restated Cal-Maine Foods, Inc. 2012 Omnibus
Long-
10.10*
10.11*
21**
23.1**
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)
*
Management contract or compensatory plan or arrangement
**
Filed herewith as an Exhibit
***
Furnished herewith as an Exhibit
†
Submitted electronically with this Annual Report on Form 10-K
(c)
Financial Statement Schedules Required by Regulation S-X
The financial statement schedule required by Regulation S-X is filed at page 60. All other schedules for which provision is made
in the
applicable accounting regulations
of the
Securities and
Exchange Commission are
not required
under the
related instructions
or are inapplicable and therefore have been omitted.
66
ITEM 16. FORM 10-K SUMMARY
Not applicable
67
SIGNATURES
Pursuant to
the requirements of
Section 13 or
15(d) 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,
in Ridgeland, Mississippi.
CAL-MAINE FOODS, INC.
/s/ Sherman L. Miller
Sherman L. Miller
President and Chief Executive Officer
Date:
July 25, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/
Sherman L. Miller
President, Chief Executive Officer
July 25, 2023
Sherman L. Miller
and Director
(Principal Executive Officer)
/s/
Max P.
Bowman
Vice President, Treasurer,
Secretary,
July 25, 2023
Max P.
Bowman
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ Matthew S. Glover
Vice President, Accounting
July 25, 2023
Matthew S. Glover
(Principal Accounting Officer)
/s/
Adolphus B. Baker
Chairman of the Board and Director
July 25, 2023
Adolphus B. Baker
/s/
Letitia C. Hughes
Director
July 25, 2023
Letitia C. Hughes
/s/
James E. Poole
Director
July 25, 2023
James E. Poole
/s/
Steve W. Sanders
Director
July 25, 2023
Steve W. Sanders
/s/
Camille S. Young
Director
July 25, 2023
Camille S. Young
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters andItem 6. ReservedItem 7. Management S Discussion and Analysis Of Financial ConditionItem 8. Notes To The Financial Statements,Part II. Item 8. Notes To The Consolidated Financial Statements. As Of June 3, 2023, We Had No Outstanding Long-term DebtItem 7A. Quantitative and Qualitative Disclosures About Market RisksItem 8. Financial Statements and Supplementary DataNote 1 - Summary Of Significant Accounting PoliciesNote 2 AcquisitionNote 3 - Investment SecuritiesNote 4 - Fair Value MeasuresNote 5 - Inventories Inventories Consisted Of The Following (in Thousands):Note 5 - InventoriesNote 6 - Property, Plant and Equipment Property, Plant and Equipment Consisted Of The Following (in Thousands):Note 6 - Property, Plant and EquipmentNote 7 - Investment in Unconsolidated EntitiesNote 8 - Goodwill and Other Intangible Assets Goodwill and Other Intangibles Consisted Of The Following (in Thousands):Note 8 - Goodwill and Other Intangible AssetsNote 9 - Employee Benefit PlansNote 10 - Credit FacilityNote 11 - EquityNote 12 - Net Income Per Common ShareNote 13 - Revenue RecognitionNote 14 - Stock Compensation PlansNote 15 - Income Taxes Income Tax Expense (benefit) Consisted Of The Following:Note 15 - Income TaxesNote 16 - Commitments and ContingenciesItem 9. Changes in and Disagreements with Accountants on Accounting and FinancialItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management andItem 13. Certain Relationships and Related Transacti Ons, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibit and Financial Statement SchedulesItem 16. Form 10-k Summary