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 ____________
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,
,
,
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(
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class:
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The Nasdaq Global Select Market
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.
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Yes
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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.
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No
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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).
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No
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whether
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registrant
is
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large
accelerated
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an
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a
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a
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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.
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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
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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.
If securities are
registered pursuant
to Section
12(b) of the
Act, indicate
by check mark
whether the
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of the registrant
included
in the filing reflect the correction of an error to previously issued financial statements.
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corrections
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐
No
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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 December 2, 2023,
which was the
date of the last
business day of the
registrant’s most recently completed second fiscal
quarter,
was $
.
As of
July 23,
2024,
Common Stock, $0.01 par value, were outstanding.
2
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 2024
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.
3
TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
1C.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
15.
16.
4
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 and egg
products
business,
including
estimated
future
production
data,
expected
construction
schedules,
projected
construction
costs,
potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on
our business of the resurgence
in United States (“U.S.”) commercial
table egg layer flocks of
highly pathogenic avian
influenza
(“HPAI”), potential future impact on our business of inflation and changing interest rates, potential future impact on our business
of new legislation, rules or policies, potential outcomes of legal proceedings, including loss
contingency accruals and factors that
may result in changes in the amounts recorded, 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 HPAI
affecting poultry in
the U.S., Canada and
other countries that
was first detected
in
commercial
flocks
in
the U.S.
in
February
2022
and
that first
impacted
our
flocks
in December
2023,
(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 recent or 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 changes
in inflation
and interest
rates, (vii)
our ability
to retain
existing customers,
acquire new
customers and
grow our
product mix,
(viii) adverse results
in pending litigation matters,
and (ix) global
instability, including as a result
of the war
in Ukraine, the Israel-
Hamas conflict
and attacks
on shipping
in the
Red Sea.
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 throughout the majority 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 1, 2024
consisted of approximately 39.9 million
layers and 11.8
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 eggs 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.
5
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, brown, free-range,
pasture-raised
and nutritionally-enhanced eggs, as well
as egg products. While a
small part of our current business,
the free-range and pasture-
raised eggs we produce and sell continues to grow and represents 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 businesses in
our industry. Since 1989,
we have acquired and
integrated 24 businesses. Subsequent to the end of our 2024 fiscal year,
we acquired our 25
th
substantially all the assets of ISE America, Inc. and certain of its affiliates, relating
to their commercial shell egg production
and processing business. For information on our recent acquisitions, refer to
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 2024 ended June 1, 2024,
and the first three fiscal quarters
of fiscal 2024 ended September
2,
2023,
December 2, 2023,
and March 2, 2024.
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 2023
approximately 70% of table
eggs produced in the U.S. were sold as shell eggs, with 57% sold through food-at-home outlets such as grocery and convenience
stores,
11%
sold
to
food-away-from
home
channels such
as restaurants
and
2%
exported.
The
USDA estimated
that
in
2023
approximately 30% 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”)
.
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 outbreaks
starting in early 2022 and
again in late 2023. For fiscal
2024, shell egg household penetration
is approximately 97%. According
to the
USDA’s
Economic
Research Service,
estimated annual
per capita
consumption
in the
United
States between
2019
and
2023
varied,
ranging
from
279
to
292
eggs
which
is
directly
impacted
by
available
supply.
The
USDA
calculates
per
capita
consumption by dividing total shell egg disappearance in the U.S. by
the U.S. population.
The most significant
shift in demand
in recent years
has been among
specialty eggs, particularly
cage-free eggs.
For additional
information, see “Specialty Eggs.”
Prices for Shell Eggs
Wholesale shell egg sales prices
are a critical component
of revenue for the Company.
We sell the
majority of our conventional
shell eggs at prices
based on formulas
that take into
account, in varying
ways, independently quoted
regional wholesale market
prices for shell eggs or formulas
related to our costs of production,
which include the cost of corn
and soybean meal. We
do not
sell eggs directly to consumers or set the prices at which eggs are sold to consumers.
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.
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”)
or the
USDA
for
shell
eggs;
however,
grain-based
or variations
of
cost
plus arrangements
are
also
commonly utilized.
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. The actual prices
that we realize on
any given transaction
will
6
not necessarily equal quoted market
prices because of the individualized terms
that we negotiate with
individual customers which
are
influenced
by many
factors.
As further
discussed
in
, egg prices in fiscal 2022 through fiscal 2024 were significantly impacted by HPAI.
Wholesale prices for cage-free eggs are quoted by independent
sources such as UB and USDA.
There is no independently quoted
wholesale
market
price
for
other
specialty
eggs
such
as
nutritionally
enhanced,
organic,
pasture-raise
and
free-range
eggs.
Specialty eggs are typically sold at
prices and terms negotiated directly with
customers and in the case of cage-free
eggs, can be
sold at
prices that
take into
account independently
quoted markets.
Historically,
prices for
specialty eggs
have generally
been
higher due to
customer and consumer willingness
to pay more
for specialty eggs. We utilize several
different pricing mechanisms;
however, the majority of our specialty eggs are typically sold at prices
and terms negotiated directly with customers.
As a result,
specialty egg prices do not fluctuate as much as conventional pricing.
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.
Feed Costs for Shell Egg Production
Feed is a primary cost component in
the production of shell eggs and
represented 56.0% of our fiscal 2024 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.
The
difference can be
due to transportation
costs, storage costs,
supply and demand,
local conditions and
other factors. A
basis 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
2024 were
1.9 million tons of
finished feed,
of which we
manufactured 1.8 million tons.
We currently have the
capacity to store
210 thousand
tons of corn and soybean meal, and we replenish these stores as needed
throughout the year.
7
Our primary feed ingredients, corn
and soybean meal, are commodities that
are subject to volatile price changes due
to weather,
various supply
and demand
factors, transportation
and storage
costs, speculators,
agricultural, energy
and trade
policies in
the
U.S. and internationally, and global instability that could disrupt the supply chain. 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 quarter in our fiscal
years 2020-2024 are shown below
for corn and soybean meal:
Shell Egg Production
Our percentage of dozens produced to sold was 88.8%
of our total shell eggs sold in fiscal 2024.
We supplement
our production
through purchases of eggs from others
when needed. The quantity of eggs purchased will vary based on many factors
such as
our own production capabilities and current market conditions. In
fiscal 2024, 91.2% of our production came from company-
owned facilities, and 8.8% from contract producers. The majority
of our contract production is with family-owned farms for
organic, pasture-raised and free-range eggs. 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
supply the majority
of
our
chicks
from
our
breeder
farms
and
hatch
them
in our
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.
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
8
processing plants to be graded
and packaged. We maintain a Safe Quality Food
(“SQF”) Management Program which is
overseen
by our
Food Safety
Department and
senior management
team. As
of June
1, 2024,
every Company-owned
processing plant
is
SQF certified. Because shell eggs are perishable, we do not maintain large
egg inventories. Our egg inventory averaged
six days
of
sales during
fiscal
2024. We
believe
our constant
focus
on production
efficiencies
and
automation
throughout
our vertical
integrated operations 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 the welfare
of animals in
our direct care,
our contract farmers’
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
.
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.
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.
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 2030. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
Massachusetts, Colorado, Oregon,
Washington,
and Nevada, which collectively
represent approximately 20% of
the
total estimated U.S. population have cage-free legislation in effect
currently.
A significant number of our customers have announced goals to either exclusively
offer cage-free eggs or significantly increase
the volume of
cage-free egg sales
in the future, subject
in most cases
to availability of supply, affordability and
consumer demand,
among other contingencies. 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 egg revenue represented approximately 29.5% of our total net shell egg
sales for fiscal year 2024. At the
same time, we understand the importance of our continued
ability to provide affordable conventional eggs in order to
provide our
customers with a variety of egg choices and to address hunger in our communities.
Branded Eggs
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®
and offerings
include nutritionally
enhanced, cage-free,
organic, pasture
-raised and
free-range eggs.
Land O’
Lakes®
eggs are produced by hens that are fed a whole-grain vegetarian diet and
include brown, organic and cage-free eggs.
In 2023, EB was the third best-selling dairy brand in the U.S. The top two best-selling branded specialty egg SKUs in 2023 were
EB branded eggs
and seven
out of
10 best-selling SKUs
are EB
branded eggs. In
2023, our
sales (including sales
through affiliates)
represented approximately 50% of EB branded eggs and 45% of
Land O’ Lakes®
branded eggs nationwide.
9
Our
Farmhouse Eggs
® brand eggs are
produced at our
facilities by hens that
are provided with a
vegetarian diet. Our
offerings
of
Farmhouse Eggs
® include cage-free, organic and pasture raised eggs.
We market organic, vegetarian and omega-3 eggs under
our
4-Grain®
Sunups®
Sunny Meadow®
brands are sold
as
conventional eggs.
We also produce,
market and distribute private label specialty and conventional 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.
In fiscal
2024, egg product sales constituted approximately 3.8% of our revenue.
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
supplier
of 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:
2024
2023
2022
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
Branded
4.3
%
4.9
%
6.6
%
6.4
%
6.5
%
7.1
%
Private-label
46.8
54.4
52.9
52.6
48.3
54.9
Other
4.4
5.8
5.7
6.3
5.0
7.0
Total Conventional
Eggs
55.5
%
65.1
%
65.2
%
65.3
%
59.8
%
69.0
%
Specialty Eggs
Branded
20.3
%
17.4
%
18.0
%
20.4
%
24.2
20.0
%
Private-label
18.5
16.3
11.3
12.9
11.3
9.5
Other
1.0
1.2
1.1
1.4
1.0
1.5
Total Specialty Eggs
39.8
%
34.9
%
30.4
%
34.7
%
36.5
%
31.0
%
Egg Products
3.8
%
3.9
%
3.4
%
Marketing and Distribution
In fiscal
2024, we
sold our
shell eggs
and egg products
in 39 states
through the
southwestern, southeastern,
mid-western, mid-
Atlantic and northeastern regions of the U.S. as
well as Puerto Rico 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.
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.
10
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 “Branded Eggs,” we also sell our own
Farmhouse Eggs
® and
4-Grain
® branded eggs.
In 2022, we
joined as a member
during the formation
of ProEgg, Inc. (“ProEgg”),
a new egg farmer
cooperative in the
western
United
States.
During
2024,
after
careful
review
and
full
analysis
we
decided
to
withdraw
our
membership
in
ProEgg.
The
withdrawal from ProEgg did not affect any of our existing customer
relationships.
Customers
Our top
three customers
accounted for
an aggregate of
49.0%, 50.1%
and 45.9%
of net sales
dollars for
fiscal 2024,
2023, and
2022,
respectively.
Our largest
customer,
Walmart
Inc. (including
Sam's Club),
accounted for
34.0%, 34.2%
and 29.5%
of net
sales dollars for fiscal 2024, 2023 and 2022, respectively.
For shell
egg
sales in
fiscal 2024
,
approximately
89% of
our revenue
related
to sales
to retail
customers
and
11%
to sales
to
foodservice providers. 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 U.S. 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 54% and 53% of industry table egg layer hens at calendar
year-end 2023
and 2022, respectively.
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
centered
on
growth
through
strategic
acquisitions,
organic
growth,
and
expansion
of
our
value-added
products
business.
We
believe
that
we
can
continue
to
expand
our
market
reach
through
strategic
acquisitions
and
achieve
favorable
returns
through
our
proven
operating
model
emphasizing
synergies
and
efficient
operations.
Organic
growth
is
grounded in
our culture of
operational excellence
to optimize everything
we can control.
We
are committed
to investing in
our
existing operations
to increase sales,
profitability and
customer service.
We
have continued to
increase our production
of cage-
free shell eggs and
other higher value specialty
eggs such as pasture-raised,
free-range and organic
shell eggs. We
believe there
is long-term
growth potential
in value-added
products such
as hard-cooked
eggs, which
will enable
us to
leverage our
existing
distribution
channels,
expand
our
reach
in
foodservice
and
retail
marketplaces
and
bring
new
opportunities
in
the
restaurant,
institutional and industrial food products arenas.
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.
11
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. 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
inspection programs
and in certain cases
utilize
independent
third-party
certification
bodies
to
monitor
compliance
with
regulations,
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.
A number of
states have passed
legislation or regulations mandating
minimum space or
cage-free requirements for
egg production
or have
mandated the
sale of
only cage-free
eggs and
egg products
in their
states. For
further information
refer to
the heading
“Specialty Eggs” within this section.
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
material
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 1, 2024, we had 3,067 employees, of whom 2,370 worked in egg production, processing,
and marketing, 204 worked
in
feed
mill operations
and 493, including
our
executive officers,
were
administrative
employees. Approximately
4.5% of
our
personnel
are
part-time, and we
utilize
temporary
employment
agencies
and
independent
contractors
to
augment
our
staffing needs when necessary.
For fiscal 2024, we
had 1,962 average monthly
contingent workers. As of June
1, 2024, none of
our employees were 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 is
comprised
of two corporate safety managers,
nine area compliance managers (three
specifically for worker health and
safety), and 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 and
our health
and safety
practices.
The 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
12
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 2024
our recordable incident rates
decreased by 20% compared to
fiscal 2023.
People
Our
strength
as
a
company
comes
from
our
employees
at
all
levels
and
we
have
a
long-established
culture
that
values
each
individual’s
contributions
and
encourages
productivity
and
growth.
This
culture is driven
by
our
board
and
executive
management team. Our
board is comprised
of seven members, four
of whom are independent,
two of whom
are women, one of
whom is of
a racial
or ethnic minority. As of
June 1,
2024, our
total workforce was comprised
of 31% women and
56% individuals
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.
We
are
an
Equal
Opportunity
Employer
that
prohibits
any
violation
of
applicable
federal,
state,
or
local
law
regarding
employment. Discrimination
on any
basis protected
by applicable
law is
prohibited.
We
maintain strong
protocols to
help our
colleagues perform their jobs
free from harassment
and discrimination. We are committed
to offering our
colleagues opportunities
commensurate with our operational needs and 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 82% of the costs of the plan
for
participating
employees
and
their
families
as
of
December
31,
2023. 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.
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
and
conservation.
We
published our
most
recent sustainability report
for
our fiscal 2023 in July
2024, which is 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
13
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 high
-protein diet trends, industry advertising campaigns,
the improved nutritional reputation of eggs and an increase
in at-home consumption
of eggs during
the COVID-19 pandemic,
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 could have a material adverse effect on our future
results of operations and financial condition.
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.
For
example, while feed
costs declined during fiscal
2024, we saw higher
prices for corn and soybean
meal in fiscal 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.
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
egg industry overproduction,
possibly resulting in
lower egg prices and lower revenue.
14
Agricultural risks,
including outbreaks
of avian
diseases such as
HPAI,
have harmed
and in
the future
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. Since the
HPAI
outbreaks in
2015, there were no reported
significant outbreaks of HPAI in the commercial table egg
layer flocks in the
U.S. until the February
– December
2022 time
period and
then again
beginning in
November 2023.
During the
third and
fourth quarters
of our
fiscal
2024, we
experienced HPAI
outbreaks within
our facilities
located in
Kansas and
Texas,
resulting in
total depopulation
of 3.1
million laying hens
and 577,000 pullets.
Both locations have
been cleared by
the USDA to resume
operations and repopulation
is expected to
be completed
before calendar
year end. As
of July 5,
2024, the
U.S. Centers for
Disease Control
and Prevention
(“CDC”) reported
outbreaks in 138
dairy herds in
12 states and
five cases in
the U.S. in
persons who were
exposed to infected
cows or poultry.
The CDC has not
reported any case of
human-to-human transmission. The
CDC considers that the
overall risk
to the general U.S. public
posed by the virus remains
low; however,
as a precautionary measure,
the U.S. Department of
Health
and
Human
Services
has
awarded
funding
to
Moderna
to
develop
a
human
vaccine
against
avian
influenza.
For
additional
information, refer to
We
maintain
controls
and
procedures
designed
to reduce
the risk
of
exposing
our
flocks and
employees
to harmful
diseases;
however,
despite these
efforts, outbreaks
of avian
diseases can
and do
still occur
and have
adversely impacted,
and may
in the
future adversely impact, the health of our flocks and could in the future adversely impact the health of our employees. Continued
or intensified spread of HPAI 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 outbreaks
within our industry
can negatively impact
customer perception. 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,
product
recall
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
the past
three fiscal
years due
to inflation
and higher
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
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.
15
BUSINESS AND OPERATIONAL
RISK FACTORS
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to continue to pursue a growth strategy that includes,
in part,
selective
acquisitions
of
other
businesses
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 businesses 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
businesses
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.
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 or
feed, 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
higher
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 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
that are more
capable of operating
with reduced
inventories, opposing
price increases,
and demanding
lower pricing,
increased
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.
16
Our top
three customers
accounted for
an aggregate of
49.0%, 50.1%
and 45.9%
of net sales
dollars for
fiscal 2024,
2023, and
2022, respectively.
Our largest
customer,
Walmart
Inc. (including
Sam's Club),
accounted for
33.8%, 34.2%
and 29.5%
of net
sales dollars for fiscal 2024, 2023 and
2022, 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 96.1% to 96.6% of our net sales in our
last three fiscal 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.
We regularly engage with
third-party service providers
as part
of our operations
to provide a
high level of
service to our
customers.
We have
implemented certain practices and policies
to minimize the potential risks associated with
the exchange of information
with contracted
vendors. Despite
these practices
and policies,
we cannot
guarantee that
information technology
systems of
our
third-party
service providers
will prevent
and detect
all cybersecurity
breaches and
incidents. Although
we require
third-party
service providers to notify us
upon a potential breach
or incident, there is
a potential risk that
our business, reputation,
or financial
results could be negatively impacted by cybersecurity incidents at their businesses
.
Additionally, future or past business
transactions (such as acquisitions
or integrations) could expose
us to additional
cybersecurity
risks and vulnerabilities, as our systems could be negatively affected
by vulnerabilities present in acquired or integrated systems
and technologies.
Furthermore, we
may discover
security issues
that were
not found
during due
diligence of
such acquired
or
integrated businesses,
and it
may be
difficult to
integrate businesses
into our
information technology
environment and security
program.
Our information technology systems also subject us to numerous data privacy obligations. We
may at times fail (or be perceived
to have failed)
in our efforts
to comply with
our data privacy obligations.
If we or the
third parties on which
we rely fail, or
are
perceived to have failed, to address or comply
with applicable data privacy obligations, we could face significant
consequences,
including but not
limited to government
enforcement actions and
litigation. 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.
17
Technology
and
related
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.
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 2022, our
labor
costs
increased
primarily
due
to
the
pandemic
and
its
effects,
which
caused
us
to
increase
wages
in
response
to
labor
shortages.
In
fiscal
2023
and
2024,
labor
wages
continued
to
rise
due
to
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. A
limited liability company (the
“Daughters’
LLC”), owned by
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”),
owns 100%
of our
outstanding Class
A Common
Stock
(which has
10 votes
per share),
controlling approximately
52.0% of
our total
voting power.
As sole
managing member
of the
Daughters’
LLC,
Mr.
Baker
controls
the
vote
of
100%
of
our
outstanding
Class
A
Common
Stock,
except
that
certain
extraordinary matters requiring the
vote of the
Company’s stockholders such as a
merger or amendment of
the Company’s Second
Amended
and Restated
Certificate of
Incorporation
require joint
approval
of Mr.
Baker and
members of
the Daughters’
LLC
holding a majority of its voting
interests. Family members also have
additional voting power due to beneficial
ownership of our
Common Stock (which has one vote per share), directly or indirectly
through the Daughter’s LLC and other entities, resulting in
family voting control of approximately 53.8% of our total voting power.
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.
For
additional
information,
refer
to
Exhibit
4.1
to
this
Annual
Report
on
Form
10-K,
“Description
of
Registrant’s
Securities
Registered Under Section 12 of the Exchange Act.”
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 Daughters’
LLC holds approximately 1.1
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
18
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 1,
2024,
there were
44,238,766 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. We
may also issue such securities
as consideration in an
acquisition. The issuance of
such securities 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.
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 state 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, a
significant
number of
our customers
have announced goals to either exclusively offer cage-free eggs or significantly increase the volume of cage-free
egg sales in the
future, subject in most cases to availability of supply, affordability and
consumer demand, among other contingencies. While we
anticipate that our
retail and foodservice
customers will continue
to transition to
selling cage-free eggs
given publicly stated
goals,
there is
no assurance
that this
transition will
take place
or take
place according
to the
timeline of
current cage-free
goals. 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
recent 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 122.0 million hens
as of
May 31,
2024, which
is approximately
39.9% of
the total
U.S. table
egg
layer hen
population.
According
to the
USDA Agricultural
Marketing
Service, as
of May
2024 approximately
220.1 million hens, or about
72% of the U.S.
non-organic laying flock would have to be
in cage-free production to meet
projected
cage-free commitments
from the
retailers, foodservice
providers and
food manufacturers
that have
stated 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
19
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
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
and
our
costs.
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
20
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 high inflation and interest rates,
could negatively impact our
business.
Weak
or unstable economic
conditions, including
continued high inflation
and 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 or operate our business;
●
Changing consumer spending and habits and demand for eggs, particularly
higher-priced eggs;
●
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% and
3.3% from May
2022 to May
2023 and May
2023 to May
2024, respectively. 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 1,
2024, we
had $45.8 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
21
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.
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
We
understand the importance
of cybersecurity and
its role in
the success of
our Company.
Our business operations
depend on
the effective use of
our information systems in order
to properly serve our
customers, manage our business and
track and report
our financial results. Our technology operations consider risks from cybersecurity threats in the implementation and execution of
our business processes.
We have considered and assessed
the risks from
cybersecurity threats as
part of our
overall risk assessment
process using the National Institute of Standards and Technology
(“NIST”) Cybersecurity Framework.
In order to
identify, assess and manage material
risks arising from
cybersecurity threats, we
maintain internal resources to
monitor
and quickly respond to such
threats. We
perform vulnerability scans and penetration
testing designed to test the effectiveness
of
our
security
practices.
We
engage
third-party
service
providers
to
assist
in
the
evaluation
of
our
internal
controls
over
our
information systems
through audit
and consulting
services to
test the
design and
operational effectiveness
of security
controls.
We continually monitor our systems to detect and identify cybersecurity threats. Prior to
contracting with third-party vendors, we
perform risk assessments of the vendors and require the vendors to manage cybersecurity risks to our business operations as well
as
notify
us
of
any
potential
or
known
cybersecurity
risks.
We
also
require
our
employees
to
complete
training
programs
to
increase their
awareness of
and sensitivity
to cybersecurity
threats. These
training programs
include the
identification of
such
threats and the proper responses to a potential breach of cybersecurity that
aligns with our adopted processes.
The Company has
implemented a response
process in the
event of a
cybersecurity incident through
its crisis management
plan.
The
process
includes
the
cooperation
of
the
information
technology
team
and
our
management
team
to
properly
detect
and
respond to these incidents. These
responses include determination of the
potential impact and materiality of
the incident, potential
disclosure
and
litigation
matters,
and
mitigation
of
actual
or
potential
damage
to
our
systems
or
reputation
arising
from
the
incident. An action plan is implemented to respond to any potential cybersecurity breach in order to continue to effectively serve
our customers and conduct our operations with as little interruption as practicable. The information technology team reviews the
response process
on a
regular basis
to ensure
that it
is designed
to be
effective and
to encompass
current or
new cybersecurity
threats.
As of July
23, 2024, we
are not aware
of any risks
from cybersecurity threats, including
as a
result of prior
cybersecurity incidents,
that have
materially affected
or that
we believe
are reasonably
likely to
materially affect
the Company,
including our
business
strategy,
results
of
operations
or
financial
condition.
See
“Item
1A.
Risk
Factors”
for
further
discussion
about
risks
from
cybersecurity threats.
Governance
The Board is responsible for
the oversight of management’s
process for identifying and mitigating
risks related to cybersecurity
threats. On a quarterly
basis, the Director of
Information Technology provides a report to the
Audit Committee regarding ongoing
processes to improve
and update our
current cybersecurity protocols,
new cybersecurity threats,
results of internal
assessments,
and any recent cybersecurity
incidents. The Audit Committee will make
the Board aware of any information
it deems necessary
or appropriate in order for the Board to effectively oversee the
Company’s cybersecurity risk management
and strategy.
The
Director
of
Information
Technology
and
the
team
he manages
are
responsible
for
the
operation
and
maintenance
of
our
information systems, including the assessment, identification and
management of risks from cybersecurity threats. Together,
the
Director of Information
Technology
and his team have over
150 years of experience
in the information technology
and security
environment.
Our Chief
Financial Officer, to whom
the Director
of Information Technology reports,
has served
as Chief
Financial
Officer and a Board member since 2018 and has over 40 years of risk
management experience.
22
ITEM 2.
PROPERTIES
The table below provides summary information about
the primary operational facilities we use
in our business as of June
1, 2024.
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
26
25
1
Production capacity of 949 tons
of feed per hour
AL, AR, FL, GA, KS, KY,
MO,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
3
2
1
Hatch up to 780,848 chicks per
week
FL, MO, MS
Processing and
Packaging
44
44
—
Approximately 605,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY,
LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
33
33
—
House up to 12.7 million pullets
AR, FL, GA, KS, KY,
MS, SC,
TX, UT
Shell Egg Production
43
43
—
House up to 48.0 million layers
AL, AR, FL, GA, KS, KY,
LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
3
3
—
Production capacity of 59,000
lbs. per hour
GA, MO, TX
(a)
Does not include idled facilities or contract production and growers.
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
2026.
For
additional
information,
see
As
of
June
1,
2024,
we
owned
approximately
29.0 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
shares
of
Class
A
Common
Stock
are
owned
by
a
limited
liability
company
of
which
Adolphus
Baker,
our
Chairman, is the sole managing member. For additional information, see
, “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.”
At
July 19,
2024,
there
were
approximately
230
record
holders
of
our
Common
Stock
and
approximately
69,898
beneficial
owners
whose
shares
were
held
by
nominees
or
broker
dealers.
For
additional information
about our
capital structure,
see
Statements.
23
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
(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 May 31, 2019
in the stock or index and dividends were reinvested.
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
June 2, 2023
May 31, 2024
Cal-Maine Foods, Inc.
$
100.00
$
120.37
$
94.39
$
130.51
$
141.75
$
190.54
Russell 2000 Total Return
100.00
96.56
158.91
133.69
131.71
151.16
S&P Composite 1500 Food
Products Industry Index
100.00
110.09
136.95
146.73
154.96
141.10
24
Issuer Purchases of Equity Securities
There were
no purchases
of our
Common Stock
made by
or on
behalf of
our Company
or any
affiliated purchaser
during our
fiscal 2024 fourth quarter.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933
occurred during our fiscal year ended June 1, 2024.
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
—
$
—
277,954
Equity compensation plans not
approved by shareholders
—
—
—
Total
—
$
—
277,954
(a)
There were
no outstanding options,
warrants or
rights as of
June 1, 2024.
There were 856,119
shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term
Incentive Plan as of June 1, 2024.
(b)
There were no outstanding options, warrants or rights as of June 1, 202
4.
(c)
Reflects shares
available for
future issuance
as of
June 1,
2024 under
our Amended
and Restated
2012 Omnibus
Long-Term Incentive
Plan.
For
additional
information,
see
Statements.
ITEM 6.
RESERVED
25
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
years 2024
and 2022
included 52
weeks and
fiscal year
2023
included 53
weeks. 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
2024,
we
sold
approximately
1.15 billion
dozen
shell
eggs,
which
we
believe represented approximately 21%
of domestic shell egg
consumption. Our total flock as
of June 1, 2024 of
approximately
39.9 million
layers and
11.8 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 throughout the majority 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.
For further description of our business, refer to
ACQUISITIONS
On September 30,
2023, we completed
our 24th acquisition
since 1989,
when we acquired
the assets of Fassio
Egg Farms, Inc.
(“Fassio”), related to its commercial shell egg production
and processing business. Fassio owned and operated commercial
shell
egg
production
and
processing
facilities
with
a
capacity
at
the
time
of
acquisition
of
approximately
1.2
million
laying
hens,
primarily cage-free, a feed mill, pullets, a fertilizer production and
composting operation and land located in Erda, Utah, outside
Salt Lake
City.
This acquisition
provided us
with an
opportunity to
expand our
market presence
in Utah
and the
western U.S.,
particularly
for cage-free
eggs. For
a further
description of
this transaction,
refer to
Part II.
Item 8.
Notes to
the Consolidated
Financial Statements,
. In
March 2024,
we acquired
a broiler
processing plant,
hatchery and
feed mill
in
Dexter, Missouri that were closed by
Tyson Foods, Inc.
in 2023 and that we are remodeling and repurposing for use in shell egg
and egg products production to enhance our supply and
distribution capabilities for customers in Missouri and surrounding areas.
In addition, subsequent to our fiscal
2024, we acquired substantially all the egg
production and processing assets of ISE America,
Inc.
and certain
of its
affiliates.
The acquired
assets include
commercial
shell egg
production and
processing facilities
with
a
capacity
at
the
time
of acquisition
of
approximately
4.7
million
laying
hens,
including
1.0
million
cage-free,
and 1.2
million
pullets, feed mills, approximately 4,000 acres of land, inventories and an egg products breaking facility. The acquired assets also
include an
extensive customer
distribution network
across the
Northeast and
Mid-Atlantic states,
and production
operations in
Maryland,
New
Jersey,
Delaware
and
South
Carolina.
These
production
assets
are
our
first
in
Maryland,
New
Jersey
and
Delaware. We believe this acquisition provides us with an opportunity to significantly enhance our market reach in the Northeast
and Mid-Atlantic
states. For further
description of
this transaction,
refer to
Part II. Item
8. Notes to
the Consolidated
Financial
Statements,
During fiscal 2022, we 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.
HPAI
Since the HPAI outbreaks in 2015, there were no reported significant outbreaks of HPAI in the commercial table egg layer
flocks
until the
February –
December 2022
time period.
During this
time, approximately
44.3 million
commercial
layers and
pullets
were depopulated resulting in significant
pressure on the overall supply
of eggs. Thereafter, there
were no HPAI
cases affecting
commercial
layers
until
November
2023.
From
November
2023
through
the
end
of
May
2024,
approximately
32.8
million
commercial laying hens and pullets were depopulated.
26
During the
third and
fourth quarters
of fiscal
2024, we
experienced HPAI
outbreaks within
our facilities
in Kansas
and Texas,
resulting
in
the
depopulation
of
approximately
3.1
million
laying
hens
and
577,000
pullets
and
the
temporary
cessation
of
operations at the facilities. Both locations have been cleared by
the USDA to resume operations and we have begun to
repopulate
the flock. We
have continued efforts to minimize disruption to our customers.
We remain dedicated
to robust biosecurity programs across our locations; however,
no farm is immune from HPAI.
HPAI is
currently widespread in the wild bird population worldwide. The extent
of possible future outbreaks, with heightened risk
during the migration seasons, and more recent HPAI
events, which have been directly linked to dairy cattle operations, cannot
be predicted. According to the U.S. Centers for Disease Control and Prevention, the
human health risk to the U.S. public from
the HPAI
virus is considered to be low.
Also, according to the USDA, HPAI
cannot be transmitted through safely handled and
properly cooked eggs. There is no known risk related to HPAI
associated with eggs that are currently in the market and no eggs
have been recalled. For additional information, refer to
27
Executive Overview of Results – Fiscal Years
Ended June 1, 2024, June 3, 2023 and May 28, 2022
Fiscal Years
Ended
June 1, 2024
June 3, 2023
May 28, 2022
Net sales (in thousands)
$
2,326,443
$
3,146,217
$
1,777,159
Gross profit (in thousands)
$
541,571
$
1,196,457
$
337,059
Net income attributable to Cal-Maine Foods, Inc.
$
277,888
$
758,024
$
132,650
Net income per share attributable to Cal-Maine Foods, Inc.
Basic
$
5.70
$
15.58
$
2.73
Diluted
$
5.69
$
15.52
$
2.72
Net average shell egg price
(a)
$
1.932
$
2.622
$
1.579
Average UB Southeast
Region - Shell Eggs - White Large
$
2.049
$
3.115
$
1.712
Feed costs per dozen produced
$
0.550
$
0.676
$
0.571
(a) The net average
shell egg selling
price is the blended
price for all sizes
and grades of
shell eggs, including
graded and
non-graded shell egg sales, breaking stock and undergrades.
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,
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
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 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.
For fiscal 2024, net sales
decreased to $2.3 billion, gross profit
to $541.6 million and net
income to $277.9 million. The
decreases
compared to
fiscal 2023
are primarily
a result
of a
decrease in
average egg
selling prices.
The average
UB southeastern
large
index price for
fiscal 2024 decreased
34% compared to
fiscal 2023. The
decrease is due in
large part to
the recovery of
the egg
supply
following
the
HPAI
outbreaks
during
most
of
calendar
year
2022.
However,
the
resurgence
of
HPAI
beginning
in
November 2023 resulted in the
UB southeastern large index price
being 9.1% higher in
the fourth quarter of
fiscal 2024 compared
to the fourth quarter of fiscal 2023.
Our dozens sold for fiscal 2024 remained relatively flat compared to fiscal 2023. We had an increase in production capacity with
the acquisition
of the
commercial shell
egg production
and processing
business of
Fassio Egg
Farms, Inc.
during fiscal
2024,
which was offset by the temporary decrease in production due
to the HPAI
outbreaks
at our facilities.
Our feed costs
per dozen produced
decreased to $0.550
in fiscal 2024, compared
to $0.676 in fiscal
2023. For fiscal
year 2024,
the average CBOT
daily market price
was $4.76 per bushel
for corn and
$390 per ton for
soybean meal, representing
decreases
of
27.5%
and
13.4%,
respectively,
compared
to
the
daily
average
CBOT
prices
for
fiscal
2023.
Current
indications
for
corn
project an overall better stocks-to-use ratio implying potentially lower prices
in the near term; however, as long as outside
factors
remain uncertain (including weather patterns and global supply chain disruptions),
volatility could remain.
28
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 1, 2024
June 3, 2023
Net sales
100.0
%
100.0
%
Cost of sales
76.7
%
62.0
%
Gross profit
23.3
%
38.0
%
Selling, general and administrative
10.9
%
7.4
%
Gain on involuntary conversions
(1.0)
%
(0.1)
%
(Gain) loss on disposal of fixed assets
—
%
—
%
Operating income
13.4
%
30.7
%
Total other income
2.0
%
1.0
%
Income before income taxes
15.4
%
31.7
%
Income tax expense
3.6
%
7.7
%
Net income
11.8
%
24.0
%
Less:
Net loss attributable to noncontrolling interest
(0.1)
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
11.9
%
24.0
%
29
Fiscal Year
Ended June 1, 2024 Compared to Fiscal Year
Ended June 3, 2023
NET SALES
Net revenue is primarily generated
through sales of shell
eggs and egg products. Net
shell egg sales represented 96.2%
and 96.1%
of total
net sales
in fiscal
2024 and
2023, respectively.
The Company’s
shell egg
offerings include
specialty and
conventional
shell
eggs.
Specialty
shell
eggs
include
cage-free,
organic,
brown,
free-range,
pasture-raised
and
nutritionally
enhanced.
Conventional
shell
eggs sales
represent
all other
shell
egg sales
not
sold
as specialty
shell
eggs.
Shell
egg
sales classified
as
“Other” represent sales of miscellaneous byproducts and resale products included
with our shell egg operations.
The Company’s egg products
offering include liquid and frozen egg products and hard
-cooked eggs.
The table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
June 1, 2024
June 3, 2023
Total net sales
$
2,326,443
$
3,146,217
Conventional
$
1,291,743
57.7
%
$
2,051,961
67.9
%
Specialty
925,665
41.4
%
956,993
31.6
%
Egg sales, net
2,217,408
99.1
%
3,008,954
99.5
%
Other
20,026
0.9
%
14,993
0.5
%
Net shell egg sales
$
2,237,434
100.0
%
$
3,023,947
100.0
%
Dozens sold:
Conventional
746,687
65.1
%
749,076
65.3
%
Specialty
400,946
34.9
%
398,297
34.7
%
Total dozens sold
1,147,633
100.0
%
1,147,373
100.0
%
Net average selling price per dozen:
Conventional
$
1.730
$
2.739
Specialty
$
2.309
$
2.403
All shell eggs
$
1.932
$
2.622
Egg products sales:
Egg products net sales
$
89,009
$
122,270
Pounds sold
74,849
70,035
Net average selling price per pound
$
1.189
$
1.746
Shell egg net sales
-
For fiscal 2024,
shell egg net
sales decreased $786.5
million compared to
fiscal 2023,
primarily due to
the decrease in
net average selling prices
for conventional eggs, and
to a lesser extent the decrease
in the net average
selling prices for
specialty eggs.
-
For fiscal 2024,
conventional egg sales
decreased $760.2 million,
or 37.0%, compared
to fiscal 2023,
primarily due to
the decrease in conventional egg prices. Changes in price resulted in a $753.4 million
decrease in net sales and changes
in volume resulted in a $6.5 million decrease in net sales.
-
Conventional egg
prices reached
record highs
in fiscal
2023 due
to HPAI
outbreaks experienced
throughout calendar
year 2022 as
well seasonal demand during
the winter holidays.
Prices were lower
in the first
half of fiscal
2024 compared
to the
same period of
fiscal 2023
as the
U.S. egg supply
started to
recover from
outbreaks of
HPAI.
There has
been a
resurgence of
HPAI
starting in November
2023, and continuing
through the remainder
of fiscal 2024, which
increased
prices due to supply constraints. However, prices
in fiscal 2024 remained lower on average than fiscal 2023.
-
Specialty egg sales
decreased $31.3 million,
or 3.3%, for fiscal
2024
compared to fiscal 2023,
primarily due to
a 3.9%
decrease in specialty
egg prices partially
offset by
a 0.7% increase
in the volume
of specialty dozens
sold. Changes in
price resulted
in a $37.7
million decrease in
net sales and
changes in volume
resulted in a
$6.4 million
increase in net
sales.
30
-
Our
dozens
sold for
fiscal
2024 remained
relatively
flat
compared
to fiscal
2023.
We
had
an
increase
in production
capacity with the acquisition of the commercial shell egg production and processing business of Fassio Egg Farms, Inc.
during fiscal 2024, which was
offset by the temporary decrease
in production due to the
HPAI outbreaks at our facilities.
Egg products net sales
-
Egg products net sales decreased
$33.3 million, or 27.2%, primarily
due to a 31.9% selling price
decrease compared to
fiscal 2023, which had a $41.7 million negative impact on net sales.
-
Our egg products net average selling price decreased in fiscal 2024, compared to fiscal 2023 as the supply of shell
eggs
used to produce egg products increased.
COST OF SALES
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 (including
labor), 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 1, 2024
June 3, 2023
% Change
Cost of Sales:
Farm production
$
987,861
$
1,118,741
(11.7)
%
Processing, packaging, and warehouse
335,949
342,836
(2.0)
Egg purchases and other (including change in inventory)
380,200
379,777
0.1
Total shell eggs
1,704,010
1,841,354
(7.5)
Egg products
80,862
108,406
(25.4)
Total
$
1,784,872
$
1,949,760
(8.5)
%
Farm production costs (per dozen produced)
Feed
$
0.550
$
0.676
(18.6)
%
Other
$
0.433
$
0.396
9.3
%
Total
$
0.983
$
1.072
(8.3)
%
Outside egg purchases (average cost per dozen)
$
2.16
$
3.02
(28.5)
%
Dozens produced
1,018,835
1,058,540
(3.8)
%
Percent produced to sold
88.8%
92.3%
(3.8)
%
Farm Production
-
Feed costs
per dozen
produced decreased
18.6% in
fiscal 2024
compared to
fiscal 2023,
primarily
due to
lower feed
ingredient prices.
Basis levels
for corn
and soybean
meal were
lower in
our areas
of operation
compared to
our prior
fiscal year.
-
For fiscal 2024, the average daily CBOT market price was $4.76 per bushel for corn and $390 per ton of soybean meal,
representing decreases of 27.6% and
13.4%, respectively, as compared to the average
daily CBOT prices for
fiscal 2023.
-
Other farm production costs increased
due to higher flock amortization
and increased
facility costs. Flock amortization
increased primarily due
to the increased
capitalized value of
our flocks. This
is primarily due
to the higher
feeds costs
in earlier periods incurred during the growing phase of the flocks.
31
-
Facility
costs
increased
due
primarily
to
increased
contract
labor
in
response
to
labor
shortages
as
well
as
higher
depreciation expense primarily due to the completion of several large
construction projects during fiscal 2024.
Current
indications
for
corn
project
an
overall
better
stocks-to-use
ratio
implying
potentially
lower
prices
in
the
near
term;
however, as long
as outside factors remain uncertain
(including weather patterns and
global supply chain disruptions), volatility
could remain.
Processing, packaging, and warehouse
-
Processing, packaging,
and warehouse
costs decreased
primarily due
to a
3.5% reduction
in the
volume of
processed
dozens,
partially offset by higher processing costs.
Egg purchases and other (including change in inventory)
-
Costs in this category remained relatively flat as the average cost per dozen of outside
egg purchases decreased 28.5%
compared to fiscal 2023, offset by an increase of 29.2% in dozens purchased
due to the loss of production primarily
caused by HPAI
outbreaks
at our facilities.
GROSS PROFIT
Gross profit, as
a percentage of
net sales, was
23.3%
for fiscal 2024,
compared to 38.0%
for fiscal 2023.
The decrease resulted
primarily from lower selling prices for conventional eggs,
partially offset by the lower feed ingredients prices.
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling, general, and administrative (“SGA”) expenses include costs of delivery, marketing, and other general and administrative
expenses. Delivery expense includes contract trucking expense and all costs to maintain and operate our fleet of trucks to deliver
products to
customers including
the related
payroll expenses.
Marketing
expense includes
franchise fees
that are
submitted to
Eggland’s
Best, Inc.
to support
the EB
brand, brokerage
and commission
fees, and
other general
marketing
expenses such
as
payroll
expenses
for
our
in-house
sales
team.
Other
general
and
administrative
expenses
include
corporate
payroll
related
expenses
and
other
general
corporate
overhead
costs.
The
following
table
presents
an
analysis
of
our
SGA
expenses
(in
thousands):
Fiscal Year
Ended
June 1, 2024
June 3, 2023
$ Change
% Change
Delivery expense
$
72,742
$
77,548
$
(4,806)
(6.2)
%
Marketing expense
52,285
57,198
(4,913)
(8.6)
%
Litigation loss contingency accrual
19,648
-
19,648
%
Other general and administrative expenses
107,950
97,461
10,489
10.8
%
Total
$
252,625
$
232,207
$
20,418
8.8
%
N.M. - Not Meaningful
Delivery expense
-
The decreased delivery expense is primarily due to a decrease in contract
trucking expense and fuel costs.
Marketing expense
-
The decrease in marketing expense is primarily due to a decrease in franchise
fees.
Litigation loss contingency accrual
-
The litigation loss contingency accrual in fiscal 2024 is discussed in
II. Item 8. Notes to Consolidated Financial Statements in this Annual Report.
32
Other general and administrative expenses
-
The increase in other general and administrative expenses
is primarily due to an increase of
$5.5 million in the fair value
of the contingent consideration associated with the Fassio asset acquisition, and increased legal costs, partially offset by
a decrease in accrued bonuses compared to the prior year.
GAIN ON INVOLUNTARY
CONVERSIONS
For fiscal 2024 and 2023,
we recorded a gain of $23.5 million and
$3.3 million, respectively,
due to recoveries under indemnity
and insurance programs that exceeded the amortized book value of
the covered assets and our direct costs.
OPERATING
INCOME
As a result of the above, our operating income was $312.5 million for fiscal 2024
,
compared to $967.7 million for fiscal 2023.
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. Patronage
dividends
are paid to us from our membership in the EB cooperative.
The Company recorded
interest income of $32.3
million in fiscal 2024,
compared to $18.6 million
in fiscal 2023, primarily
due
to significantly
higher cash
and cash
equivalents and
investment securities
available-for-sale balances
and yields.
We
recorded
interest expense of $549 thousand and $583 thousand
in fiscal 2024 and 2023, respectively, primarily related to commitment fees
on our Credit Facility described below.
INCOME TAXES
For
the
fiscal
year
ended
June
1,
2024,
our
pre-tax
income
was
$360.0
million,
compared
to
$998.6
million
for
fiscal
2023.
Income tax expense
of $83.7 million
was recorded for
fiscal 2024 with
an effective
tax rate of 23.
2%.
For fiscal 2023,
income
tax expense was $241.8 million with an effective tax rate of 24.2%.
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.
NET LOSS ATTRIBUTABLE
TO NONCONTROLLING INTEREST
Net loss attributable to
noncontrolling interest was $1.6 million
for fiscal 2024 compared
to a $1.3 million
net loss for fiscal
2023.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
As a result of the above, net
income attributable to Cal-Maine Foods, Inc.
for fiscal 2024 was $277.9 million, or $5.70
per basic
and $5.69 per diluted share, compared to $758.0 million, or $15.58
per basic and $15.52 per diluted share for fiscal 2023.
Fiscal Year
Ended June 3, 2023 Compared to Fiscal Year
Ended May 28, 2022
The discussion of our results of operations for the fiscal
year ended June 3, 2023 compared to the fiscal
year ended May 28, 2022
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 2023 Annual Report
on Form 10-K.
33
LIQUIDITY AND CAPITAL
RESOURCES
We aim to maintain a
strong balance sheet and
liquidity, particularly given the cyclical nature
of our business.
We believe a strong
balance sheet supports our growth opportunities and stockholder returns. Our priorities for the use of cash in recent periods have
included the payment of dividends pursuant to our variable dividend policy, inorganic growth through acquisitions of businesses,
organic
growth
including
construction
and
conversion
of
cage-free
facilities
and
investment
in
value-added
products,
and
maintenance capital expenditures.
Working
Capital and Current Ratio
Our working
capital at
June 1,
2024 was
$1.0 billion, compared
to $942.2 million
at June
3, 2023.
The calculation
of working
capital is
defined as
current assets
less current
liabilities. Our current
ratio was
5.5 at
June 1,
2024 compared
to 6.2
at June
3,
2023.
The current ratio is calculated by dividing current assets by current liabilities. The decrease
in our current ratio is primarily
due to the increase in total current liabilities,
which increased by $45.0 million to $227.7 million at
June 1, 2024, due to increases
in
income
tax
payable
and
accrued
expenses
and
other
liabilities
primarily
resulting
from
the
$19.6
million
litigation
loss
contingency
accrual
recorded in
fiscal 2024
.
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
$451.4 million for
fiscal 2024 compared with
$863.0 million for fiscal
2023. The
decrease in cash
flow from operations
resulted primarily from
lower selling prices
for conventional eggs,
partially offset by
the
lower cost of feed ingredients.
Cash Flows from Investing Activities
For
fiscal
2024,
$412.6
million
was
used
in
investing
activities,
primarily
due
to
the
purchases
of
investment
securities,
the
acquisition of the assets
of Fassio Egg Farms,
Inc., and purchases of
property,
plant and equipment compared
to $375.1 million
used in investing activities in the same
period of fiscal 2023. Purchases of investment securities were
573.6 million in fiscal 2024
compared
to
530.8
million
in
fiscal
2023.
Sales
and
maturities
of
investment
securities
were
$358.9
million
in
fiscal
2024,
compared to $291.8 million for fiscal 2023. Purchases of property,
plant and equipment were $147.1 million and $136.6 million
in fiscal 2024 and 2023, respectively,
primarily reflecting progress on our construction projects.
Cash Flows from Financing Activities
We paid dividends
totaling $91.9 million and $252.3 million in fiscal 2024
and 2023, respectively.
As of June 1, 2024, cash decreased
$54.9 million since June 3, 2023.
Acquisition of ISE America, Inc. Assets
Subsequent to our
fiscal 2024 year-end,
we acquired substantially
all the assets of
ISE America, Inc.
and certain of its
affiliates
related to
their commercial
shell egg
production and
processing facilities.
The purchase
price was
approximately $112
million
and
was
funded
with
available
cash
on
hand.
For
additional
information,
refer
to
Part
II.
Item
8.
Notes
to
the
Consolidated
Financial Statements,
Credit Facility
We had no
long-term debt outstanding at the end of fiscal 2024
and 2023. 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 1, 2024, no amounts were borrowed under the
Credit Facility. We
have $4.7
million in outstanding standby letters of
credit, which were issued under our Credit Facility for the benefit of certain insurance companies. Refer to Part II. Item 8. Notes
to the Financial Statements,
34
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 1, 2024 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
June 1, 2024
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses
Fiscal 2025
86,837
81,757
5,080
Dexter, MO Renovations
Fiscal 2025
10,944
771
10,173
Feed Mill
Fiscal 2026
10,480
3,254
7,226
Solar Project
Fiscal 2026
5,789
475
5,314
Cage-Free Layer & Pullet Houses
Fiscal 2026
135,905
108,035
27,870
$
249,955
$
194,292
$
55,663
As of June 1, 2024, we had $102.2 million of purchase obligations outstanding,
of which $84.6 million are due within one year.
Purchase obligations primarily include contractual agreements to purchase
feed ingredients and commitments to make capital
expenditures. Timing of payments and actual
amounts paid may be different depending on the timing
of the receipt of goods or
services or changes to agreed-upon amounts for some obligations.
We
believe our
current cash
balances, investments,
projected cash
flows from
operations, and
available borrowings
under our
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.
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.
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.
35
The
fair
values
of
identifiable
assets
and
liabilities
are
generally
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
or
hatching
costs,
feed,
labor,
contractor
payments
and
overhead
costs,
are
accumulated
during
the
hatching
and
growing periods 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
$45.8
million
of
goodwill
on
June
1,
2024.
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 1, 2024, goodwill represented 2.1% of total assets and 2.5% 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.
Goodwill
is
evaluated
for
impairment
at
least
annually
or more
frequently
if
impairment
indicators
arise.
During
our
annual
impairment test
which is
the first day
of the fourth
quarter, we
determined that
goodwill passed
the qualitative
assessment and
therefore no quantitative analysis of goodwill impairment was necessary in fiscal 2024.
REVENUE RECOGNITION
Revenue
recognition
is
completed
upon
satisfaction
of
the
performance
obligation
which
generally
occurs
upon
shipment
or
delivery to a customer based on terms of the sale.
36
Revenues
are
recognized
in
an
amount
that
reflects
the
net
consideration
we
expect
to
receive
in
exchange
for
delivery
the
products. The Company periodically offers sales incentives or other programs such as rebates,
discounts, coupons, volume-based
incentives, guaranteed
sales and
other programs.
The Company
records an
estimated allowance
for costs
associated with
these
programs, which
is recorded as
a reduction in
revenue at the
time of sale
using historical trends
and projected redemption
rates
of
each
program.
The
Company
regularly
reviews these
estimates
and
any
difference
between
the
estimated
costs and
actual
realization of these programs would be recognized in the subsequent period.
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.
Except for
the $19.6
million litigation
loss contingency
accrual in
fiscal 2024,
there were
no loss
contingency accruals
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
accruals
for
loss
contingencies
may
be
required.
Results
of
operations
may
be
materially
affected
by
losses
or
a
loss
contingency accrual 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.
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)
0.49
0.50
0.51
0.52
0.53
0.54
0.55
$
(51.00)
0.50
0.51
0.52
0.53
0.54
0.55
0.56
$
(25.50)
0.51
0.52
0.53
0.54
0.55
0.56
0.57
$
0.00
0.52
0.53
0.54
0.55
(a)
0.56
0.57
0.58
$
25.50
0.53
0.54
0.55
0.56
0.57
0.58
0.59
$
51.00
0.54
0.55
0.56
0.57
0.58
0.59
0.60
$
76.50
0.55
0.56
0.57
0.58
0.59
0.60
0.61
37
(a)
Based on 2024
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 2024 or fiscal 2023. 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 1,
2024, the effective
maturity of our
cash equivalents and
investment securities available
for sale was
8.5 months, and
the composite
credit rating
of the holdings
are A+ /
A1 / A+
(S&P / Moody’s
/ Fitch).
Generally speaking,
rising interest rates
decrease the value of
fixed income securities portfolios. As
of June 1,
2024, the estimated fair
value of our fixed
income securities
portfolio
was
approximately
$574.5
million
and
reflected
unrealized
losses
of
approximately
$1.2
million.
For
additional
information see
Sale” and
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
1, 2024
and June
3, 2023,
26.8% and
30.1%, 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 1, 2024 and June 3, 2023.
38
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 1,
2024
and June
3, 2023,
the related
consolidated
statements of
income, comprehensive
income, stockholders’
equity,
and cash
flows for each
of the three
years in the
period ended June
1, 2024, 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
1, 2024
and June
3, 2023,
and the
results of
their operations
and their
cash flows
for each
of the
three
years
in
the
period
ended
June
1,
2024,
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 1,
2024,
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 23, 2024 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
39
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 23, 2024
40
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
June 1, 2024
June 3, 2023
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
(
1,773
)
(
2,886
)
Common stock in treasury,
at cost –
respectively
(
31,597
)
(
30,008
)
Total Cal-Maine Foods,
Inc. stockholders’ equity
Noncontrolling interest in consolidated equity
(
3,104
)
(
1,498
)
Total stockholders’
equity
Total liabilities and stockholders’
equity
$
$
See Notes to Consolidated Financial Statements.
41
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal years ended
June 1, 2024
June 3, 2023
May 28, 2022
52 weeks
53 weeks
52 weeks
Net sales
$
$
$
Cost of sales
Gross profit
Selling, general and administrative
Gain on involuntary conversions
(
23,532
)
(
3,345
)
(
5,492
)
(Gain) loss on disposal of fixed assets
(
131
)
Operating income
Other income (expense):
Interest expense
(
549
)
(
583
)
(
403
)
Interest income
Patronage dividends
Equity in income of unconsolidated entities
Other, net
Total other income
Income before income taxes
Income tax expense
Net income
Less:
Net loss attributable to noncontrolling interest
(
1,606
)
(
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.
42
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of
Comprehensive Income
(in thousands)
Fiscal years ended
June 1, 2024
June 3, 2023
May 28, 2022
Net income
$
$
$
Other comprehensive income (loss), before tax:
Unrealized holding gain (loss) available-for-sale securities, net of
reclassification adjustments
(
1,714
)
(
1,398
)
(Increase) decrease in accumulated post-retirement benefits obligation,
net of
reclassification adjustments
(
27
)
(
9
)
Other comprehensive income (loss), before tax
(
1,741
)
(
1,407
)
Income tax expense (benefit) related to items of other comprehensive income
(loss)
(
451
)
(
369
)
Other comprehensive income (loss), net of tax
(
1,290
)
(
1,038
)
Comprehensive income
Less: comprehensive loss attributable to the noncontrolling interest
(
1,606
)
(
1,292
)
(
209
)
Comprehensive income attributable to Cal-Maine Foods, Inc.
$
$
$
See Notes to Consolidated Financial Statements.
43
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 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
)
Stock compensation plan transactions
—
—
—
—
(
55
)
(
1,589
)
—
—
—
Dividends ($
Common
—
—
—
—
—
—
—
(
83,565
)
—
—
(
83,565
)
Class A common
—
—
—
—
—
—
—
(
9,040
)
—
—
(
9,040
)
Net income (loss)
—
—
—
—
—
—
—
—
(
1,606
)
Other comprehensive income, net of tax
—
—
—
—
—
—
—
—
—
Balance at June 1, 2024
$
$
$
(
31,597
)
$
$
$
(
1,773
)
$
(
3,104
)
$
See Notes to Consolidated Financial Statements.
44
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
June 1, 2024
June 3, 2023
May 28, 2022
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
(
9,672
)
Stock compensation expense, net of amounts paid
Loss on change in fair value contingent consideration
Other operating activities, net
(
6,908
)
(
1,491
)
(
9,099
)
Change in operating assets and liabilities, net of effects from acquisitions:
Increase (decrease) in trade receivables
(
27,570
)
(
88,063
)
Increase (decrease) in inventories
(
21,102
)
(
36,152
)
Increase (decrease) in income taxes payable/receivable
(
42,218
)
Increase in accounts payable and current accrued expenses
Decrease in other operating assets and liabilities
(
553
)
(
2,890
)
(
7,101
)
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investments
(
573,565
)
(
530,781
)
(
98,243
)
Sales of investments
Acquisition of business, net of cash acquired
(
53,746
)
(
44,823
)
Investment in unconsolidated entities
(
363
)
(
1,673
)
(
3,000
)
Distributions from unconsolidated entities
Purchases of property,
plant and equipment
(
147,116
)
(
136,569
)
(
72,399
)
Net proceeds from insurance settlement - property,
plant and equipment
Net proceeds from disposal of property,
plant and equipment
Net cash used in investing activities
(
412,586
)
(
375,111
)
(
117,021
)
Cash flows from financing activities:
Principal payments on finance lease
(
214
)
(
224
)
(
215
)
Purchase of common stock by treasury
(
1,688
)
(
1,643
)
(
1,127
)
Payments of dividends
(
91,856
)
(
252,292
)
(
6,117
)
Contributions
Net cash used in financing activities
(
93,758
)
(
254,159
)
(
7,456
)
Increase (decrease) in cash and cash equivalents
(
54,946
)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
$
$
Supplemental information:
Income taxes paid
$
$
$
See Notes to Consolidated Financial Statements.
45
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 most of its shell eggs throughout
the majority 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
years
ending
on
June
1,
2024
and
May
28,
2022 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
$
. 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 Available-for-Sale
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.
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.
Trade Receivables
Trade receivables are stated at their carrying
values, which include a reserve for credit losses. At June 1, 2024
and June 3, 2023,
reserves for credit losses were $
46
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
1,
2024
and
June
3,
2023,
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
. As the amortization period of the flocks is relatively short, disclosure of the gross
cost and accumulated amortization is omitted. Flock mortality is charged
to cost of sales as incurred.
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. 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.
Membership in cooperatives 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
at
least annually
or more
frequently
if
impairment
indicators
arise
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.
Intangible Assets
Intangible assets are
initially recorded at
fair value
in business
acquisitions, which include
franchise rights, customer
relationships,
non-compete agreements, trademarks and right of use 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.
Indefinite life assets are recorded at fair value in business acquisitions and
represent water rights. They are not amortized, but
are reviewed for impairment at least annually or more frequently if
impairment indicators arise.
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.
47
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.
The dividend policy is subject to
periodic review by the Board of
Directors.
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
The
Company
recognizes
revenue
through
sale of
its products
to
customers
through
retail, foodservice
and
other
distribution
channels.
The
majority
of
the
Company’s
revenue
is
derived
from
agreements
or
contracts
with
customers
based
upon
the
customer
ordering
its
products
with
a
single
performance
obligation
of
delivering
the
product.
The
Company
believes
the
performance
obligation
is
met
upon
delivery
and
acceptance
of
the
product
by
our
customers,
which
generally
occurs
upon
shipment or delivery to a customer
based on terms of the
sale. Costs paid to third
party brokers to obtain agreements are
expensed
as the Company’s agreements are
generally less than one year.
Revenues are
recognized in
an amount
that reflects
the net
consideration we
expect to
receive in
exchange for
delivery of
the
products. The Company periodically offers sales incentives or other programs such as rebates,
discounts, coupons, volume-based
incentives, guaranteed
sales and
other programs.
The Company
records an
estimated allowance
for costs
associated with
these
programs, which
is recorded as
a reduction in
revenue at the
time of sale
using historical trends
and projected redemption
rates
of
each
program.
The
Company
regularly
reviews these
estimates
and
any
difference
between
the
estimated
costs and
actual
realization of these programs would be recognized the subsequent period.
Shipping and Distribution
Costs
to
deliver
product
to
customers
are
included
in
selling,
general
and
administrative
expenses
in
the
accompanying
Consolidated Statements
of Income
and totaled
$
2022, 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
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.
48
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.
Gain on Involuntary Conversions
The Company
maintains insurance
for both
property damage
and business
interruption relating
to catastrophic
events, such
as
fires, hurricanes,
tornadoes
and other
acts of
God, and
is eligible
to participate
in U.S.
Department
of Agriculture
(“USDA”)
indemnity
and
compensation
programs
for
certain
losses
due
to
disease
outbreaks
such as
highly
pathogenic
avian
influenza
(“HPAI”).
Specifically, the Animal
Health Protection Act authorizes the USDA to provide indemnity
payments to producers for
birds and eggs
that must be
destroyed during a
disease response. Payments
received under these
programs are based
on the fair
market value
of the
poultry and/or
eggs at
the time
that HPAI
virus is
detected in
the flock.
Other covered
costs include
feed,
depopulation and
disposal costs,
and virus
elimination costs.
The USDA
does not
provide indemnity
for income
or production
losses
suffered
due
to
downtime
or
other
business
disruptions
nor
for
indirect
continuing
expenses.
Recoveries
received
for
property damage, business
interruption and disease
outbreaks in excess
of the net
book value
of damaged assets,
including poultry,
clean-up and
demolition costs,
and other
direct post-event
costs are
recorded within
“Gain on
involuntary conversions”
in the
period received or committed when all contingencies associated with the
recoveries are resolved.
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.
49
Note 2 – Acquisition
On
, the
Company announced
the acquisition
of the
assets of
Fassio Egg
Farms, Inc.
(“Fassio”), related
to its
commercial
shell
egg
production
and
processing
business.
Fassio
owned
and
operated
commercial
shell
egg
production
and
processing facilities
with a
capacity at
the time
of acquisition
of approximately
feed mill,
pullets, a
fertilizer production
and composting
operation and
land located
in Erda,
Utah, outside
Salt Lake City.
The
Company accounted for the acquisition as a business combination.
The following
table summarizes
the consideration
paid for
the Fassio
assets and
the amounts
of assets
acquired and
liabilities
assumed recognized at the acquisition date (in thousands):
Cash consideration paid
$
Fair value of contingent consideration
Total estimated purchase
consideration
Recognized amounts of identifiable assets acquired and
liabilities assumed
Inventory
$
Property, plant and equipment
Intangible assets
Other long-term assets
Liabilities assumed
(
143
)
Total identifiable
net assets
Goodwill
$
Inventory consisted
primarily of
flock, feed
ingredients, packaging,
and egg
inventory.
Flock inventory
was valued at
carrying
value
as
management
believes
that
its
carrying
value
best
approximates
its
fair
value.
Feed
ingredients,
packaging
and
egg
inventory were all valued based on market prices as of September 30, 2023.
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.
Intangible
assets
consisted
primarily
of
water
rights
within
the
property
acquired.
Water
rights
were
valued
using
the
sales
comparison approach.
Contingent
consideration
liability
was
recorded
and
represents
potential
future
cash
payment
to
the
sellers
contingent
on
the
acquired
business
meeting
certain
return
on
profitability
milestones over
a
three-year
acquisition. The fair value of the contingent consideration
is estimated using a discounted cash flow
model. Key assumptions and
unobservable inputs that require significant
judgement used in the estimate include
weighted average cost of capital,
egg prices,
projected
revenue
and
expenses
over
the
period
for
which
the
contingent
consideration
is
measured,
and
the
probability
assessments
with
respect
to
the
likelihood
of
achieving
the
forecasted
projections.
A
range
of
potential
outcomes
cannot
be
reasonably estimated due to market volatility of egg prices.
Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets
acquired.
Goodwill
recorded
in
connection
with
the Fassio
acquisition
is primarily
attributable
to improved
efficiencies
from
integrating the assets of Fassio
with the operations of the
Company. The Company recognized goodwill of $
of the acquisition.
50
Note 3 - Investment Securities Available
-for-Sale
The following presents
the Company’s investment securities available-for-sale
as of June
1, 2024 and
June 3, 2023
(in thousands):
June 1, 2024
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
$
$
$
$
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
$
$
$
$
Proceeds
from
the
sales and
maturities
of
available-for-sale
securities
were
$
during fiscal 2024, 2023,
and 2022, respectively.
Gross realized gains for
fiscal 2024, 2023, and
2022 were $
thousand, and $
and $
Actual maturities
may differ
from contractual
maturities as some
borrowers have
the right to
call or prepay
obligations with
or
without penalties. Contractual maturities of investment securities at June
1, 2024 are as follows (in thousands):
Estimated Fair Value
Within one year
$
1-5 years
Total
$
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
51
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 1, 2024 and June 3, 2023 (in thousands):
June 1, 2024
Level 1
Level 2
Level 3
Balance
Investment securities available-for-sale
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Treasury bills
Total investment
securities available-for-sale
measured at fair value
$
$
$
$
Liabilities
Contingent consideration
Total liabilities measured
at fair value
$
$
$
$
June 3, 2023
Level 1
Level 2
Level 3
Balance
Investment securities available-for-sale
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Treasury bills
Total investment
securities available-for-sale
measured at fair value
$
$
$
$
Investment securities – available-for-sale are all classified as Level 2 and
consist of securities with maturities of three months or
longer when purchased. Observable inputs for these securities are yields, credit
risks, default rates, and volatility.
Contingent
consideration
classified
as
Level
3
consists
of
the
potential
obligation
to
pay
an
earnout
to
the
sellers
of
Fassio
contingent on the
acquired business meeting
certain return on
profitability milestones over
a
three-year
the date of
the acquisition. The fair
value of the
contingent consideration is
estimated using a
discounted cash flow
model. Key
assumptions and
unobservable inputs
that require
significant judgement
used in
the estimate
include weighted
average cost
of
capital, egg prices,
projected revenue and
expenses over the period
for which the contingent
consideration is measured,
and the
probability assessments with respect
to the likelihood of
achieving the forecasted projections.
See further discussion in
52
The following table shows the beginning and ending balances in fair value of
the contingent consideration:
Fassio Contingent Consideration
Balance, June 4, 2023
Acquisition of Fassio
$
Fair value adjustments
Balance, June 1, 2024
$
Adjustments to the fair value of contingent
consideration are recorded within selling, general and
administrative expenses in the
consolidated statements of income.
Note 5 - Inventories
Inventories consisted of the following (in thousands):
June 1, 2024
June 3, 2023
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 1,
2024 and
June 3,
2023, consisted
of approximately
layers, respectively.
The Company expensed amortization and mortality associated with the
flocks to cost of sales as follows (in thousands):
June 1, 2024
June 3, 2023
May 28, 2022
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 1, 2024
June 3, 2023
Land and improvements
$
$
Buildings and improvements
Machinery and equipment
Construction-in-progress
Less: accumulated depreciation
$
$
Depreciation expense
was $
and May 28, 2022, respectively.
Note 7 - Investment in Unconsolidated Entities
As
of
June
1,
2024
and
June
3,
2023,
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
53
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).
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 $
in the Consolidated Statements of Income for fiscal 2024, 2023,
and 2022, respectively.
The consolidated financial information for the Company’s
unconsolidated joint ventures was as follows (in thousands):
For the fiscal year ended
June 1, 2024
June 3, 2023
May 28, 2022
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 1, 2024
June 3, 2023
May 28, 2022
Sales to unconsolidated entities
$
$
$
Purchases from unconsolidated entities
Distributions from unconsolidated entities
June 1, 2024
June 3, 2023
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 28, 2022
$
$
$
$
$
$
$
$
Amortization
—
(
1,657
)
(
356
)
(
152
)
(
18
)
(
51
)
(
2,234
)
Balance June 3, 2023
Additions
Amortization
—
(
1,627
)
(
362
)
(
134
)
(
50
)
(
2,173
)
Balance June 1, 2024
$
$
$
$
$
$
$
$
54
For the Other Intangibles listed above, the gross carrying amounts and
accumulated amortization are as follows (in thousands):
June 1, 2024
June 3, 2023
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
Other intangible assets:
Franchise rights
$
$
(
17,497
)
$
$
(
15,870
)
Customer relationships
(
2,292
)
(
8,674
)
Non-compete agreements
(
876
)
(
742
)
Water rights *
—
—
Trademark
(
365
)
(
315
)
Total
$
$
(
21,030
)
$
$
(
25,601
)
*
Water rights are
an indefinite life intangible asset.
No significant residual value is estimated for these
intangible assets. Aggregate amortization expense for fiscal years 2024, 2023,
and 2022 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
2025
$
2026
2027
2028
2029
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 2022, respectively.
The liability recorded
for incurred but
not reported claims
was $
1,
2024
and
June
3,
2023,
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 2024, 2023, or 2022. 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 Global Select Market,
by using the dividends and the Company’s
cash contributions
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
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 $
55
related to these agreements was $
within “Other noncurrent 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 $
and 2022, 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
1,
2024
and
June
3,
2023,
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 $
classified within “Other noncurrent liabilities” in the Company’s
Consolidated Balance Sheets.
Note 10 - Credit Facility
For
fiscal
years
2024,
2023
and
2022,
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.
56
fiscal 2023.
The Company
had $
2024.
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 1, 2024, we were in compliance with the covenant requirements of the
Credit Facility.
Note 11 - Equity
The Company has
or
the
Company's
Second
Amended
and
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
of cumulative 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
57
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 1, 2024
June 3, 2023
May 28, 2022
Numerator
Net income
$
$
$
Less: Net loss attributable to noncontrolling interest
(
1,606
)
(
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
$
$
$
58
Note 13 - Revenue Recognition
Net revenue is primarily generated through the sales
of shell eggs and egg products. The Company’s
shell egg product offerings
include specialty and
conventional shell eggs.
Specialty shell eggs include
cage-free, organic,
brown, free-range, pasture-raised
and nutritionally enhanced eggs. Conventional shell eggs sales represent all other shell egg sales not
sold as specialty shell eggs.
The
Company’s
egg
products
offering
include
liquid
and
frozen
egg
products
and
hard-cooked
eggs.
Liquid
and
frozen egg
products are primarily sold to the institutional, foodservice and food manufacturing sectors. Hard-cooked eggs are sold primarily
within the foodservice and retail channels.
The following table provides revenue disaggregated by product category
(in thousands):
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
June 1, 2024
June 3, 2023
June 1, 2024
June 3, 2023
Conventional shell egg sales
$
$
$
$
Specialty shell egg sales
Egg products
Other
$
$
$
$
Our largest customer, Walmart
Inc. (including Sam’s Club) accounted for
%,
% and
% of net sales dollars for fiscal
2024, 2023, and 2022, respectively.
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
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 $
June 3,
2023. The unrecognized
compensation expense
will be
amortized to
stock compensation
expense over
a period
of
years.
59
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 28, 2022
$
Granted
Vested
(
98,684
)
Forfeited
(
9,989
)
Outstanding, June 3, 2023
$
Granted
Vested
(
101,660
)
Forfeited
(
1,329
)
Outstanding, June 1, 2024
$
Note 15 - Income Taxes
Income tax expense consisted of the following:
Fiscal year ended
June 1, 2024
June 3, 2023
May 28, 2022
Current:
Federal
$
$
$
State
Deferred:
Federal
(
7,371
)
State
(
2,301
)
(
9,672
)
$
$
$
Significant components of the Company’s
deferred tax liabilities and assets were as follows:
June 1, 2024
June 3, 2023
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
$
$
60
The differences between income tax expense 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 1, 2024
June 3, 2023
May 28, 2022
Statutory federal income tax
$
$
$
State income taxes, net
Tax exempt
interest income
(
9
)
Reversal of outside basis in equity investment - Red River
(
7,310
)
Non-taxable remeasurement gain - Red River
(
955
)
Other, net
(
262
)
$
$
$
As of
June 1,
2024,
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.
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 September
29, 2023,
the
Supreme Court of Texas
denied the Company’s Petition
for Review and remanded to the trial court for further
proceedings. The
district court
entered a
pre-trial order
scheduling pre-trial
proceedings and
tentatively setting
a trial
date for
August 11,
2025.
Management believes the risk of material loss related to this matter 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.
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 alleged
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 attacked certain features of the
United Egg Producers animal-welfare guidelines and program used by the
Company and many other egg producers.
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.
61
The trial of this case began
on October 17, 2023. On December
1, 2023, the jury returned a decision
awarding the Egg Products
Plaintiffs
$
liable
for
treble
damages,
or
$
settlements with
previous
settling defendants,
plus the
Egg Product
Plaintiffs’
reasonable
attorneys’
fees. This
decision is
not
final and
remains subject
to the
defendants’ motion
for a
directed verdict
noted below
and appeals
by the
parties. During
our
second fiscal quarter
of 2024, we
recorded an accrued
expense of $
in the Company’s Condensed Consolidated
Statements of Income and classified as other noncurrent liabilities in the Company’s
Condensed
Consolidated
Balance
Sheets.
The
accrual
represents
our
estimate
of
the
Company’s
proportional
share
of
the
reasonably
possible
ultimate
damages
award,
excluding
the
Egg
Product
Plaintiffs’
attorneys’
fees
that
we
believe
would
be
approximately offset
by the credits
noted above.
We
have entered
into a judgment
allocation and
joint defense
agreement with
the
other
major
producer
defendant
remaining
in
the
case,
and
are
in
discussions
with
other
defendants
regarding
their
contributions. Our accrual may change in the future
based on the outcome of those discussions. Our accrual
may also be revised
in whole or in
part in the future
to the
extent we are successful
in further proceedings
in the litigation.
On November 29, 2023,
the defendants, including the Company, filed a motion for judgment as a matter
of law in their favor, known as a directed
verdict,
notwithstanding
the
jury’s
decision.
The
court
has
not
ruled
on
this motion.
The
Company
intends
to
continue
to
vigorously
defend the claims asserted by the Egg Products Plaintiffs.
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 retired Tenth
Circuit Chief Judge
Deanell Reece Tacha.
On October
26, 2023, the
parties filed separate
status reports informing
the court
that the mediation
was
unsuccessful. Also on October 26,
2023, the defendants filed a post-trial
motion to dismiss and supporting brief
arguing that the
case should be dismissed due to the state record before the
court, the resulting mootness of the case, and
violation of due process.
On November
10, 2023,
the State of
Oklahoma filed
its response
in opposition
to the
motion to
dismiss and
on November
17,
2023,
the
defendants
filed
their
reply.
On
June
26,
2024,
the
district
court
denied
defendants’
motion
to
dismiss.
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 litigation
with the State of Oklahoma
and motion to
dismiss before
the court, 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.
62
Note 17 – Subsequent Events
Effective on
, the
Company acquired
substantially all
the assets
of ISE
America, Inc.
and certain
of its affiliates,
related
to
their
commercial
shell
egg
production
and
processing
facilities
with
a
capacity
at
the
time
of
acquisition
of
approximately
acres
of
land,
inventories
and
an
egg
products
breaking
facility.
The
acquired
assets
also
include
an
extensive
customer
distribution
network across the Northeast and Mid-Atlantic states,
and production operations in Maryland, New Jersey, Delaware
and South Carolina. The purchase price was approximately $
SCHEDULE II - VALUATION
AND QUALIFYING ACCOUNTS
Fiscal Years
ended June 1, 2024, June 3, 2023, and May 28, 2022
(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 1, 2024
Allowance for credit losses
$
$
$
$
Year
ended June 3, 2023
Allowance for credit losses
$
$
(
148
)
$
$
Year
ended May 28, 2022
Allowance for credit losses
$
$
$
$
63
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 1, 2024
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
1,
2024. 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
1, 2024
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
64
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
1, 2024,
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
1, 2024,
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 23, 2024 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 23, 2024
65
(c)
Changes in Internal Control Over Financial Reporting
In
connection
with
its
evaluation
of
the
effectiveness,
as
of
June
1,
2024,
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
1, 2024,
that has
materially
affected,
or is
reasonably
likely to
materially
affect,
our
internal
control over
financial reporting.
ITEM 9B.
OTHER INFORMATION
On July 23,
2024, our Board
of Directors (“Board”)
approved and adopted,
effective as of
July 23,
2024, the Company’s Amended
and Restated Bylaws (as amended and restated, the “Bylaws”). The amendments to
the Bylaws, among other things:
●
Modify the Bylaws to
more closely align with
the current Delaware General
Corporation Law (the “DGCL”)
and current
practices,
including
provisions
related
to
meetings
held
by
remote
communications,
accessing
the
stockholder
list,
providing for consents,
notices and other
communications by means
of electronic transmission, addressing
uncertificated
shares, adding
that a determination
whether indemnification
is proper
may also
be made
by a
committee of
non-party
directors even though less than a
quorum, and deleting the requirement for an
“Annual Statement” at the annual meeting
of stockholders.
●
Add
the
Chairman
of
the
Board
as
a
person
entitled
to
call
a
special
meeting
of
stockholders
and
specify
that
the
Chairman of the Board, or such other person designated by him or the
Board, will preside at stockholders’ meetings.
●
Amend Article VII
to make
advancement of expenses
(including attorneys’ fees)
incurred by current
and former directors
and
officers
in
defending
actions,
suits
or
proceedings
against
them
mandatory
(subject
to
their
delivery
of
an
undertaking to
repay if it
is ultimately determined
that they are
not entitled to
be indemnified),
and to provide
that the
indemnification and expense advancement rights in the
bylaws are not the exclusive means by which a person could be
entitled to such rights.
●
Add new Article
VIII to provide
that, unless the
Company consents in
writing to the
selection of an
alternative forum,
the Court of Chancery
of the State of
Delaware (or if such
court does not have
subject matter jurisdiction
another state
or federal court (as appropriate) located within the State
of Delaware) shall, to the fullest extent permitted by
law, be the
sole and exclusive
forum for (i) any
derivative action or
proceeding brought on
behalf of the Company;
(ii) any action
asserting a
claim of
breach of
a fiduciary
duty owed
by any
current or
former director,
officer
or other
employee, or
stockholder of the Company to
the Company or its stockholders, creditors
or other constituents; (iii) any
action asserting
a claim against the
Company or any current
or former director, officer, employee, or stockholder of the
Company arising
pursuant to any provision of the DGCL or
the certificate of incorporation or the bylaws (as they may be amended and/or
restated
from
time
to
time)
or
as
to
which
the
DGCL
confers
jurisdiction
on
the
Court
of
Chancery
of
the
State
of
Delaware; or (iv) any action asserting a claim
governed by the internal affairs doctrine. A stockholder bringing any such
action will
be deemed
to have
consented to
the personal
jurisdiction of
the state
and federal
courts located
within the
State of Delaware and to service
of process on such stockholder’s
counsel in such action as agent for
such stockholder.
To the fullest extent permitted
by law, any person or entity purchasing
or otherwise acquiring or holding any interest in
shares
of
capital
stock
of
the
Company
shall
be
deemed
to
have
notice
of
and
consented
to
the
provisions
of
this
paragraph.
In
addition,
certain
other
technical,
ministerial,
clarifying
and
conforming
changes
were
made
to
the
Bylaws.
The
foregoing
description of the
amendments to
the Company’s Bylaws is
not intended to
be complete and
is qualified in
all respects
by reference
to the text of the Bylaws,
a copy of which is filed
as Exhibit 3.2 to this Annual
Report on Form 10-K and
is incorporated herein
by reference.
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 2024 Annual
Meeting of Shareholders.
66
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.
1052 Highland Colony Pkwy,
Suite 200
Ridgeland, MS
39157
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
“Investor
Relations
–
Corporate
Governance.” We
intend
to
disclose
any
amendments
to,
or
waivers
from,
the
Code
of
Ethics
and
Business
Conduct
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 2024
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 2024
Annual Meeting of Shareholders.
ITEM 13.
CERTAIN
RELATIONSHIPS
AND RELATED TRANSACTIONS,
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 2024 Annual Meeting of Shareholders.
ITEM 14.
PRINCIPAL ACCOUNT
ANT FEES AND SERVICES
The information
concerning principal
accountant
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 2024 Annual Meeting of Shareholders.
PART
IV.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT
SCHEDULES
(a)(1)
Financial Statements
67
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item
8 and are filed herewith:
)
(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.
68
(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*
Form of Restricted Stock Agreement for Amended and Restated Cal-Maine Foods, Inc. 2012 Omnibus
Long-
10.9*
10.10*
19.1**
21**
23.1**
31.1**
31.2**
32***
97**
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 62. 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.
69
ITEM 16. FORM 10-K SUMMARY
None.
70
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 23, 2024
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 23, 2024
Sherman L. Miller
and Director
(Principal Executive Officer)
/s/
Max P.
Bowman
Vice President, Treasurer,
Secretary,
July 23, 2024
Max P.
Bowman
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ Matthew S. Glover
Vice President, Accounting
July 23, 2024
Matthew S. Glover
(Principal Accounting Officer)
/s/
Adolphus B. Baker
Chairman of the Board and Director
July 23, 2024
Adolphus B. Baker
/s/
Letitia C. Hughes
Director
July 23, 2024
Letitia C. Hughes
/s/
James E. Poole
Director
July 23, 2024
James E. Poole
/s/
Steve W. Sanders
Director
July 23, 2024
Steve W. Sanders
/s/
Camille S. Young
Director
July 23, 2024
Camille S. Young
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 1C. CybersecurityItem 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 7A. Quantitative and Qualitative Disclosures About Market RisksItem 8. Financial Statements and Supplementary DataNote 1 - Summary Of Significant Accounting PoliciesNote 2 AcquisitionNote 3 - Investment Securities Available -for-saleNote 4 - Fair Value MeasuresNote 5 - Inventoriesinventories Consisted Of The Following (in Thousands):Note 5 - InventoriesNote 6 - Property, Plant and Equipmentproperty, 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 Assetsgoodwill 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 Taxesincome Tax Expense Consisted Of The Following:Note 15 - Income TaxesNote 16 - Commitments and ContingenciesNote 17 Subsequent EventsItem 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 Transactions, and Director IndependenceItem 14. Principal Account Ant Fees and ServicesPart IVItem 15. Exhibit and Financial Statement SchedulesItem 16. Form 10-k Summary