CAL-MAINE FOODS INC
10-Ks and 10-Qs
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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM
For the quarterly period ended
or
☐
For the transition period from ____________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S Employer Identification No.)
,
,
,
(Address of principal executive offices)
(Zip Code)
(
)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
The
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.
☑
☐
Indicate by check mark
whether the registrant has
submitted electronically every Interactive Data
File required to be
submitted
pursuant to
Rule 405 of
Regulation S-T (§232.405
of this
chapter) during
the preceding
12 months
(or for
such shorter period
that the registrant was required to submit such files).
☑
☐
Indicate by check
mark whether the
registrant is a
large accelerated filer,
an accelerated filer,
a non-accelerated filer,
a smaller
reporting
company,
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer”,
“smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☑
Accelerated filer
☐
Non – Accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If
an
emerging
growth
company,
indicate
by
check
mark
if
the
registrant
has
elected
not
to
use
the
extended
transition
period
for
complying
with
any
new
or
revised
financial
accounting
standards
provided
pursuant
to
Section 13(a) of the Exchange Act
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
☑
There were
value, outstanding as of March 29, 2022.
2
INDEX
Page
Number
Part I.
Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Other Information
Item 1.
Item 1A.
Item 2.
Item 6.
3
PART
I.
FINANCIAL
INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for par value amounts)
February 26, 2022
May 29, 2021
Assets
Current assets:
Cash and cash equivalents
$
$
Investment securities available-for-sale
Trade and other receivables, net
Income tax receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant & equipment, net
Finance lease right-of-use asset, net
Operating lease right-of-use asset, net
Investments in unconsolidated entities
Goodwill
Intangible assets, net
Other long-term assets
Total Assets
$
$
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
$
$
Current portion of finance lease obligation
Current portion of operating lease obligation
Total current liabilities
Long-term finance lease obligation
Long-term operating lease obligation
Other noncurrent liabilities
Deferred income taxes, net
Total liabilities
Commitments and contingencies - see Note 13
—
—
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
(
1,413
)
(
558
)
Common stock in treasury at cost –
shares at May 29, 2021
(
28,439
)
(
27,433
)
Total Cal-Maine Foods, Inc. stockholders’ equity
Noncontrolling interest in consolidated entity
(
88
)
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
$
$
See Notes to Condensed Consolidated Financial Statements.
4
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Net sales
$
$
$
$
Cost of sales
Gross profit
Selling, general and administrative
(Gain) loss on disposal of fixed assets
(
674
)
(
2,855
)
Operating income (loss)
(
493
)
(
2,162
)
(
13,238
)
Other income (expense):
Interest income, net
Royalty income
Patronage dividends
Equity income of unconsolidated entities
Other, net
Total other income, net
Income before income taxes
Income tax expense (benefit)
(
1,716
)
(
2,921
)
(
4,080
)
Net income
Less: Loss attributable to noncontrolling interest
(
63
)
(
91
)
Net income attributable to Cal-Maine Foods, Inc.
$
$
$
$
Net income per common share:
Basic
$
$
$
$
Diluted
$
$
$
$
Weighted average shares outstanding:
Basic
Diluted
See Notes to Condensed Consolidated Financial Statements.
5
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of
Comprehensive Income
(in thousands)
(unaudited)
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Net income
$
Other comprehensive income (loss), before tax:
Unrealized holding loss on available-for-sale
securities, net of reclassification adjustments
(
551
)
(
378
)
(
1,130
)
(
283
)
Income tax benefit related to items of other
comprehensive income
Other comprehensive loss, net of tax
(
417
)
(
286
)
(
855
)
(
214
)
Comprehensive income
Less: Comprehensive loss attributable to the
noncontrolling interest
(
63
)
(
91
)
Comprehensive income attributable to Cal-Maine
Foods, Inc.
$
$
$
$
See Notes to Condensed Consolidated Financial Statements.
6
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
Cash flows from operating activities:
Net income
$
$
Depreciation and amortization
Deferred income taxes
(
3,861
)
Other adjustments, net
(
48,884
)
(
45,936
)
Net cash provided by operations
Cash flows from investing activities:
Purchases of investment securities
(
47,135
)
(
59,415
)
Sales and maturities of investment securities
Investment in unconsolidated entities
(
3,000
)
Distributions from unconsolidated entities
Acquisition of business, net of cash acquired
(
44,823
)
Purchases of property, plant and equipment
(
49,170
)
(
73,796
)
Net proceeds from disposal of property, plant and equipment
Net cash used in investing activities
(
61,310
)
(
38,923
)
Cash flows from financing activities:
Purchase of common stock by treasury
(
1,120
)
(
871
)
Principal payments on finance lease
(
160
)
(
153
)
Contributions
Net cash used in financing activities
(
1,277
)
(
1,019
)
Net change in cash and cash equivalents
(
41,763
)
(
25,213
)
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental Information:
Cash paid for operating leases
$
$
Interest paid
$
$
See Notes to Condensed Consolidated Financial Statements.
7
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
unaudited
condensed
consolidated
financial
statements
of
Cal-Maine
Foods,
Inc.
and
its
subsidiaries
(the
"Company,"
"we,"
"us,"
"our")
have
been
prepared
in
accordance
with
the
instructions
to
Form
10-Q
and
Article
10
of
Regulation
S-X.
Therefore, they do
not include all
of the information
and footnotes required
by generally accepted
accounting principles in
the
United
States
of
America
("GAAP")
for
complete
financial
statements
and
should
be
read
in
conjunction
with
our
Annual
Report
on
Form
10-K
for
the
fiscal
year
ended
May
29,
2021
(the
"2021
Annual
Report").
These
statements
reflect
all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented
and,
in
the
opinion
of
management,
consist
of
adjustments
of
a
normal
recurring
nature.
Operating
results
for
the
interim
periods are not necessarily indicative of operating results for the entire fiscal year.
Fiscal Year
The Company's
fiscal year
ends on
the Saturday
closest to
May 31.
Each of
the three-month
periods and
year-to-date periods
ended on February 26, 2022 and February 27, 2021 included 13 weeks and 39 weeks, respectively
.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make
estimates and
assumptions that
affect the
amounts reported
in the
consolidated financial
statements and
accompanying notes.
Actual results
could differ from those estimates.
The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly
changing
and
difficult
to
predict.
Therefore,
our
accounting
estimates
and
assumptions
might
change
materially
in
future
periods in response to COVID-19.
Investment Securities
Our investment
securities are
accounted for
in accordance
with ASC
320, “Investments
- Debt
and Equity
Securities” (“ASC
320”).
The
Company
considers
all
its
debt
securities
for
which
there
is
a
determinable
fair
market
value,
and
there
are
no
restrictions
on
the
Company's
ability
to
sell
within
the
next
12
months,
as
available-for-sale.
We
classify
these
securities
as
current, because the amounts invested are available for
current operations. Available-for-sale
securities are carried at fair value,
with unrealized
gains and
losses reported
as a
separate component
of stockholders’
equity.
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 the
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 Condensed Consolidated Statements
of Income.
Investments in
mutual funds
are classified
as “Other
long-term assets”
in the
Company’s
Condensed Consolidated
Balance Sheets.
Trade Receivables
Trade
receivables are
stated at
their carrying
values, which
include a
reserve for
credit losses.
At February
26, 2022
and May
29,
2021,
reserves
for
credit
losses
were
$
customers based on an
evaluation of each customer's financial
condition and credit history.
Collateral is generally not required.
The
Company
minimizes
exposure
to
counter
party
credit
risk
through
credit
analysis
and
approvals,
credit
limits,
and
monitoring
procedures.
In
determining
our
reserve
for
credit
losses,
receivables
are
assigned
an
expected
loss
based
on
historical loss information adjusted as needed for economic and other forward-looking factors.
Business Combinations
The
Company applies
fair value
accounting guidance
to measure
non-financial assets
and
liabilities associated
with business
acquisitions. These
assets and
liabilities are
measured at
fair value
for
the initial
purchase price
allocation.
The fair
value of
8
non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets considers the
remaining estimated life of the assets acquired and what management believes is the market value for those assets.
Change in Accounting Principle
Effective
May
31,
2020,
the
Company
adopted
ASU
2016-13,
Financial
Instruments
–
Credit
Losses
(Topic
326),
which
is
intended
to
improve
financial
reporting
by
requiring
more
timely
recording
of
credit
losses
on
loans
and
other
financial
instruments held by financial institutions and other organizations. The guidance replaces the prior “incurred loss” approach with
an “expected
loss” model and
requires measurement of
all expected credit
losses for
financial assets held
at the
reporting date
based
on
historical
experience,
current
conditions,
and
reasonable
and
supportable
forecasts.
The
Company
adopted
the
guidance on
a modified
retrospective basis
through a
cumulative effect
adjustment to
retained earnings
as of
the beginning
of
the period of
adoption. The Company evaluated
its current methodology of
estimating allowance for doubtful
accounts and the
risk
profile
of
its
receivables
portfolio
and
developed
a
model
that
includes
the
qualitative
and
forecasting
aspects
of
the
“expected
loss”
model
under
the
amended
guidance.
The
Company
finalized
its
assessment
of
the
impact
of
the
amended
guidance and recorded a $
Immaterial Error Correction
Effective
on
May
30,
2021,
the
Company
acquired
the
remaining
%
membership
interest
in
Red
River
Valley
Egg
Farm,
LLC (“Red
River”), including
certain liabilities.
During the
Company’s
third quarter
of fiscal
2022, management
determined
that
it
had
not
properly
eliminated
select
intercompany
sales
and
cost
of
sales
transactions
between
Red
River
and
the
corresponding other
wholly-owned subsidiaries
of the
Company in
its first
and second
quarter 2022
Condensed Consolidated
Statements of Income. The errors resulted in
an overstatement of Net Sales and Cost
of Sales of $
of
fiscal
2022
and
$
income (loss) or Net income (loss) per share.
We
evaluated
the
errors
quantitatively
and
qualitatively
in
accordance
with
Staff
Accounting
Bulletin
("SAB") No. 99 Materiality, and
SAB No. 108 Considering
the
Effects
of
Prior
Year
Misstatements
when
Quantifying
Misstatements
in
the
Current
Year
Financial
Statements, and
determined
that
the
related
impact
was not material
to
our
condensed consolidated
financial statements
for the
first or
second quarters
of fiscal
2022, but
that correcting
the cumulative
impact
of
the
errors
would
be
relevant
to
our
Condensed
Consolidated
Statements
of
Income
for
the third
quarter
ended February 26, 2022. Accordingly, we have reflected the correction of the immaterial errors as a reduction of Net Sales and
Cost of Sales in the accompanying Condensed Consolidated Statements of Income for the thirty-nine weeks ended February 26,
2022.
Note 2 – Acquisition
Effective
on
May
30,
2021,
the
Company
acquired
the
remaining
%
membership
interest
in
Red
River
Valley
Egg
Farm,
LLC (“Red River”),
including certain liabilities. As a result of the
acquisition, Red River became a wholly owned
subsidiary of
the Company.
Red River owns and operates
a specialty shell egg production
complex with approximately
laying
hens,
cage-free
pullet
capacity,
feed
mill,
processing
plant,
related
offices
and
outbuildings
and
related
equipment
located on approximately
9
The
following
table
summarizes
the
consideration
paid
for
Red
River
and
the
amounts
of
the
assets
acquired
and
liabilities
assumed recognized at the acquisition date:
Cash consideration paid
$
Fair value of the Company's equity interest in Red River held before the business combination
$
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash
$
Accounts receivable, net
Inventory
Property, plant and equipment
Liabilities assumed
(
2,448
)
Deferred income taxes
(
8,481
)
Total identifiable net assets
Goodwill
$
Cash and
accounts receivable
acquired along
with liabilities
assumed were
valued at
their carrying
value which
approximates
fair value due to the short maturity of these instruments.
Inventory consisted primarily
of flock, feed
ingredients, packaging, and
egg inventory.
Flock inventory was
valued at carrying
value as management believes that their carrying value
best approximates their fair value.
Feed ingredients, packaging and egg
inventory were all valued based on market prices as of May 30, 2021.
Property,
plant and
equipment were valued
utilizing the
cost approach which
is based on
replacement or reproduction
costs of
the assets and subtracting any depreciation resulting from physical deterioration and/or functional or economic obsolescence.
The Company
recognized a
gain of
$
% equity
interest in
Red River
held before the business combination. The gain was recorded in other income and expense under the heading “Other, net” in the
Company’s
Condensed Consolidated
Statements of
Income. The
acquisition of
Red River
resulted in
a discrete
tax benefit
of
$
investment
in
Red
River,
with
a
corresponding
non-recurring,
non-cash
$
non-taxable
remeasurement
gain
associated
with
the
acquisition.
As
part
of
the
acquisition
accounting,
the
Company
also
recorded
an
$
assumed. The recognition
of deferred tax
liabilities resulted in
the recognition of
goodwill. None of
the goodwill recognized is
expected to be deductible for income tax purposes.
10
Note 3 - Investment
Securities
The following represents the Company’s investment securities as of February 26, 2022 and May 29, 2021 (in thousands):
February 26, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Total current investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent investment securities
$
$
$
$
May 29, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Total current investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent investment securities
$
$
$
$
Available-for-sale
Proceeds from
sales and
maturities of
investment securities available-for-sale
were $
thirty-nine weeks ended February
26, 2022 and
February 27, 2021,
respectively.
Gross realized gains
for the thirty-nine
weeks
ended February 26, 2022 and February 27, 2021 were $
the thirty-nine weeks ended February 26, 2022 and February 27, 2021 were $
were
Actual maturities may differ
from contractual maturities as
some borrowers have
the right to
call or prepay
obligations with or
without penalties. Contractual maturities of current investments at February 26, 2022 are as follows (in thousands):
Estimated Fair Value
Within one year
$
1-5 years
Total
$
Noncurrent
Proceeds
from
sales
and
maturities
of
noncurrent
investment
securities
were
$
ended February
26,
2022.
Gross
realized
gains
for
the
thirty-nine
weeks
ended February
26,
2022
were
$
were
no
realized
losses
for
the
thirty-nine
weeks
ended February
26,
2022.
There
were
securities during the thirty-nine weeks ended February 27, 2021.
11
Note 4 - Fair Value Measurements
The Company
is required
to categorize
both financial
and nonfinancial
assets and
liabilities based
on the
following fair
value
hierarchy. The
fair value
of an
asset is
the price
at which
the asset
could be
sold in
an orderly
transaction between
unrelated,
knowledgeable, and willing parties able to engage in the
transaction. A liability’s fair value
is defined as the amount that would
be paid
to transfer
the liability
to a
new obligor
in a
transaction between
such parties,
not
the amount
that would
be paid
to
settle the liability with the creditor.
•
Level 1
•
Level 2
directly or indirectly, including:
◦
Quoted prices for similar assets or liabilities in active markets
◦
Quoted prices for identical or similar assets in non-active markets
◦
Inputs other than quoted prices that are observable for the asset or liability
◦
Inputs derived principally from or corroborated by other observable market data
•
Level 3
significant to the fair value of the assets or liabilities
The disclosures of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents, accounts receivable, and accounts payable:
short maturity of these instruments.
Lease obligations:
Assets and Liabilities Measured at Fair Value
on a Recurring Basis
In
accordance with
the
fair value
hierarchy described
above, the
following
table shows
the
fair value
of
financial assets
and
liabilities measured at fair value on a recurring basis as of February 26, 2022 and May 29, 2021 (in thousands):
February 26, 2022
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Mutual funds
Total assets measured at fair value
$
$
$
$
May 29, 2021
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Mutual funds
Total assets measured at fair value
$
$
$
$
Investment securities
–
available-for-sale
classified as
Level 2
consist of
securities with
maturities of
three months
or longer
when purchased. We
classified these securities as current because amounts invested are readily available
for current operations.
Observable inputs for these securities are yields, credit risks, default rates, and volatility.
12
Note 5 - Inventories
Inventories consisted of the following as of February 26, 2022 and May 29, 2021 (in thousands):
February 26, 2022
May 29, 2021
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 February
26, 2022 consisted of approximately
Note 6 - Accrued Dividends Payable and Dividends per Common Share
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.
For the third quarter
of fiscal 2022, we
will pay a
cash dividend
of approximately $
recorded in Accounts payable and accrued expenses in the Company’s Condensed Consolidated Balance Sheets.
On
our
Condensed
Consolidated
Statements
of
Income,
we
determine
dividends
per
common
share
in
accordance
with
the
computation in the following table (in thousands, except per share data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Net income attributable to Cal-Maine Foods,
Inc.
$
$
$
$
Cumulative losses to be recovered prior to
payment of divided at beginning of period
(
21,097
)
(
8,614
)
(
4,244
)
(
1,370
)
Net income available for dividend
$
$
$
$
1/3 of net income attributable to Cal-Maine
Foods, Inc. available for dividend
Common stock outstanding (shares)
Class A common stock outstanding (shares)
Total common stock outstanding (shares)
Dividends per common share*
$
$
$
$
*Dividends
per
common
share
=
1/3
outstanding (shares).
Note 7 – Credit Facility
On November
15, 2021,
we entered
into an
Amended and
Restated Credit
Agreement (the
“Credit Agreement”)
with a
five
-
year
term.
The
Credit
Agreement
amended
and
restated
the
Company’s
previously
existing
credit
agreement
dated
July
10,
2018.
The
Credit
Agreement
provides
for
an
increased
senior
secured
revolving
credit
facility
(the
“Credit
Facility”
or
“Revolver”),
in
an
initial
aggregate
principal
amount
of
up
to
$
13
issuance
of
standby
letters
of
credit
and
a
$
accordion
feature
permitting,
with
the
consent
of
BMO
Harris
Bank
N.A.
(the
“Administrative
Agent”),
an
increase
in
the
Credit Facility in
the aggregate up
to $
one or more times
the revolving commitments under
the Revolver.
As of February 26,
2022,
the Credit Facility and $
The
interest
rate
in
connection
with
loans
made
under
the
Credit
Facility
is
based
on,
at
the
Company’s
election,
either
the
Eurodollar Rate
plus
the Applicable
Margin
or
the
Base Rate
plus
the Applicable
Margin.
The “Eurodollar
Rate” means
the
reserve adjusted rate
at which Eurodollar
deposits in the
London interbank market
for an interest
period of
one
,
two
,
three
,
six
or
twelve
highest
of
(a)
the
federal
funds
rate
plus
%
per
annum,
(b)
the
prime
rate
of
interest
established
by
the
Administrative
Agent, and (c) the Eurodollar Rate for an interest period of
one
% per annum, subject to certain interest rate floors.
The
“Applicable
Margin”
means
%
to
%
per
annum
for
Base
Rate
Loans
and
%
to
%
per
annum
for
Eurodollar
Rate
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 Agreement contains customary provisions regarding replacement of the Eurodollar Rate.
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
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 February 26, 2022, we were in compliance with the covenant requirements of the Credit Facility.
14
Note 8 - Equity
The following reflects equity activity for the
thirteen and thirty-nine weeks ended February 26,
2022 and February 27, 2021 (in
thousands):
Thirteen Weeks Ended February 26, 2022
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at November
27, 2021
$
$
$
(
27,450
)
$
$
(
996
)
$
$
(
25
)
$
Other comprehensive
loss, net of tax
—
—
—
—
(
417
)
—
—
(
417
)
Stock compensation
plan transactions
—
—
(
989
)
—
—
—
(
99
)
Dividends
—
—
—
—
—
(
6,118
)
—
(
6,118
)
Net income (loss)
—
—
—
—
—
(
63
)
Balance at February
26, 2022
$
$
$
(
28,439
)
$
$
(
1,413
)
$
$
(
88
)
$
Thirteen Weeks Ended February 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Accum.
Class A
Treasury
Paid In
Other Comp.
Retained
Amount
Amount
Amount
Capital
Income (Loss)
Earnings
Total
Balance at November 28, 2020
$
$
$
(
26,723
)
$
$
$
$
Other comprehensive loss, net of tax
—
—
—
—
(
286
)
—
(
286
)
Stock compensation plan transactions
—
—
(
826
)
—
—
Dividends
—
—
—
—
—
(
1,661
)
(
1,661
)
Net income
—
—
—
—
—
Balance at February 27, 2021
$
$
$
(
27,549
)
$
$
(
135
)
$
$
Thirty-nine Weeks Ended February 26, 2022
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at May 29,
2021
$
$
$
(
27,433
)
$
$
(
558
)
$
$
$
Other comprehensive
loss, net of tax
—
—
—
—
(
855
)
—
—
(
855
)
Stock compensation
plan transactions
—
—
(
1,006
)
—
—
—
Contributions
—
—
—
—
—
—
Dividends
—
—
—
—
—
(
6,118
)
—
(
6,118
)
Net income (loss)
—
—
—
—
—
(
91
)
Balance at February
26, 2022
$
$
$
(
28,439
)
$
$
(
1,413
)
$
$
(
88
)
$
15
Thirty-nine Weeks Ended February 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Accum.
Class A
Treasury
Paid In
Other Comp.
Retained
Amount
Amount
Amount
Capital
Income (Loss)
Earnings
Total
Balance at May 30, 2020
$
$
$
(
26,674
)
$
$
$
$
Impact of ASC 326
—
—
—
—
—
Balance at May 31 2020
(
26,674
)
Other comprehensive loss, net of tax
—
—
—
—
(
214
)
—
(
214
)
Stock compensation plan transactions
—
—
(
875
)
—
—
Contributions
—
—
—
—
—
Dividends
—
—
—
—
—
(
1,661
)
(
1,661
)
Net income
—
—
—
—
—
Balance at February 27, 2021
$
$
$
(
27,549
)
$
$
(
135
)
$
$
Note 9 - Net Income per Common Share
Basic net income per
share is based on
the weighted average Common Stock
and Class A Common
Stock outstanding. Diluted
net
income
per
share
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 (amounts in thousands, except per share data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Numerator
Net income
$
$
$
$
Less: Loss attributable to noncontrolling
interest
(
63
)
(
91
)
Net income attributable to Cal-Maine
Foods, Inc.
$
$
$
$
Denominator
Weighted-average common shares
outstanding, basic
Effect of dilutive restricted shares
Weighted-average common shares
outstanding, diluted
Net income per common share attributable to
Cal-Maine Foods, Inc.
Basic
$
$
$
$
Diluted
$
$
$
$
Note 10 - Revenue Recognition
Satisfaction of Performance Obligation
Most of the Company’s
revenue is derived from
contracts with customers based on
the customer placing an
order for products.
Pricing for
the most
part is
determined when
the Company
and the
customer agree
upon the
specific order,
which establishes
the contract for that order.
16
Revenues are
recognized in
an amount
that reflects
the net
consideration we
expect to
receive in
exchange for
the goods. Our
shell eggs
are sold
at prices
related to
independently quoted
wholesale market
prices, negotiated
prices or
formulas related
to
our costs
of production.
The Company’s
sales predominantly
contain a
single performance
obligation. We
recognize revenue
upon satisfaction of the
performance obligation with the
customer, which typically
occurs within days of
the Company and the
customer agreeing upon the order.
Returns and Refunds
Some of our contracts include a guaranteed
sale clause, pursuant to which we
credit the customer’s account for product that
the
customer is unable to
sell before expiration. The Company records
an estimate of returns and
refunds by using historical
return
data and
comparing to
current period
sales and
accounts receivable. The
allowance is
recorded as
a reduction
in sales
with a
corresponding reduction in trade accounts receivable.
Sales Incentives Provided to Customers
The
Company
periodically
provides
incentive
offers
to
its
customers
to
encourage
purchases.
Such
offers
include
current
discount offers (e.g.,
percentage discounts off
current purchases), inducement offers
(e.g., offers for
future discounts subject
to
a minimum
current purchase),
and other
similar offers.
Current discount
offers, when
accepted by
customers, are
treated as
a
reduction to
the sales
price of
the related
transaction, while
inducement offers,
when accepted
by customers,
are treated
as a
reduction
to
sales
price
based
on
estimated
future
redemption
rates.
Redemption
rates
are
estimated
using
the
Company’s
historical experience
for similar
inducement offers.
Current discount
and inducement
offers
are presented
as a
net amount
in
‘‘Net sales.’’
Disaggregation of Revenue
The following table provides revenue disaggregated by product category (in thousands):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Conventional shell egg sales
$
$
$
$
Specialty shell egg sales
Egg products
Other
$
$
$
$
Contract Costs
The Company can incur costs to obtain or fulfill a contract with a customer.
If the amortization period of these costs is less than
one year,
they are
expensed as
incurred. When
the amortization
period is
greater than
one year,
a contract
asset is
recognized
and is amortized
over the contract
life as a
reduction in net
sales. As of
February 26, 2022
and February 27,
2021, the balance
for contract assets is immaterial.
Contract Balances
The Company
receives payment
from customers
based on
specified terms
that are
generally less
than 30
days from
delivery.
There are rarely contract assets or liabilities related to performance under the contract.
17
Note 11 - Leases
Expenses related to
operating leases, amortization
of finance leases,
right-of-use assets, and
finance lease interest
are included
in Cost of sales, Selling general and administrative expense, and Interest income, net in the Condensed Consolidated Statements
of Income. The Company’s lease cost consists of the following (in thousands):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 26, 2022
Operating lease cost
$
$
Finance lease cost
Amortization of right-of-use asset
$
$
Interest on lease obligations
$
$
Short term lease cost
$
$
Future minimum lease payments under non-cancelable leases are as follows (in thousands):
As of February 26, 2022
Operating Leases
Finance Leases
Remainder fiscal 2022
$
$
2023
2024
2025
2026
2027
Total
Less imputed interest
(
92
)
(
24
)
Total
$
$
The
weighted-average
remaining
lease
term
and
discount
rate
for
lease
liabilities
included
in
our
Condensed
Consolidated
Balance Sheet are as follows:
As of February 26, 2022
Operating Leases
Finance Leases
Weighted-average remaining lease term (years)
Weighted-average discount rate
%
%
Note 12 - Stock Based Compensation
Total
stock-based compensation expense
was $
and February 27, 2021, respectively.
Unrecognized compensation
expense as
a result
of non-vested
shares of
restricted stock
outstanding under
the Amended
and
Restated
2012
Omnibus
Long-Term
Incentive
Plan
at
February
26,
2022
of
$
average period of
16: Stock Compensation Plans in our 2021 Annual Report for further information on our stock compensation plans.
18
The Company’s restricted share activity for the thirty-nine weeks ended February 26, 2022 follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Outstanding, May 29, 2021
$
Granted
Vested
(
90,778
)
Forfeited
(
3,932
)
Outstanding, February 26, 2022
$
Note 13 - Commitments and Contingencies
Financial Instruments
The
Company
maintained
standby
letters
of
credit
(“LOCs”)
totaling
$
under
the
Company's
Credit
Facility.
The
outstanding
LOCs
are
for
the
benefit
of
certain
insurance
companies
and
are
not
recorded as a liability on the consolidated balance sheets.
LEGAL PROCEEDINGS
State of Texas v.
Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC
On April 23,
2020, the Company
and its subsidiary
Wharton County Foods,
LLC (“WCF”) were
named as defendants
in State
of
Texas
v.
Cal-Maine Foods,
Inc. d/b/a
Wharton; and
Wharton County
Foods, LLC,
Cause No.
2020-25427,
in the
District
Court of
Harris County,
Texas.
The State
of Texas
(the “State”)
asserted claims
based on
the Company’s
and WCF’s
alleged
violation
of
the
Texas
Deceptive
Trade
Practices—Consumer
Protection
Act,
Tex.
Bus.
&
Com.
Code
§§
17.41-17.63
(“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
$
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. The
State filed its
opening brief on
December 7, 2020.
The Company and
WCF filed their
response on February
8,
2021.
On
February
11,
2022,
the
Texas
Court
of
Appeals
heard
oral
argument
but
has
not
issued
a
ruling.
Management
believes the risk of material loss related to this matter to be remote.
Bell et al. v. Cal-Maine Foods et al.
On April
30, 2020,
the Company
was named
as one
of several
defendants in
Bell et
al. v.
Cal-Maine Foods
et al.,
Case No.
1:20-cv-461,
in
the
Western
District
of
Texas,
Austin
Division.
The
defendants
include
numerous
grocery
stores,
retailers,
producers, and farms. Plaintiffs assert that defendants violated the DTPA
by allegedly demanding exorbitant or excessive prices
for eggs
during the
COVID-19 state
of emergency.
Plaintiffs
request certification
of a
class of
all consumers
who purchased
eggs
in
Texas
sold,
distributed,
produced,
or
handled
by
any
of
the
defendants
during
the
COVID-19
state
of
emergency.
Plaintiffs seek to enjoin the Company and
other defendants from selling eggs at a price more
than 10% greater than the price of
eggs prior
to the
declaration of
the state
of emergency
and damages
in the
amount of
$
each violation
impacting anyone
over 65
years old.
On December
1, 2020,
the Company
and certain
other defendants
filed a
motion to
dismiss the
plaintiffs’ amended
class action
complaint. The
plaintiffs subsequently
filed a
motion to
strike, and
the
motion to
dismiss and
related proceedings were
referred to
a United
States magistrate
judge. On
July 14,
2021, the
magistrate
judge
issued
a
report
and
recommendation
to
the
court
that
the
defendants’
motion
to
dismiss
be
granted
and
the
case
be
dismissed without prejudice
for lack of
subject matter jurisdiction.
On September 20,
2021, the
court adopted the
magistrate’s
report
and
recommendation
in
its
entirety
and
granted
defendants’
motion
to
dismiss
plaintiffs’
first
amended
class
action
complaint; thereafter,
the court
entered a
final judgment
in favor
of the
Company and
certain other
defendants dismissing
the
case without prejudice.
On October 18,
2021, plaintiffs
filed a motion
to alter or
amend the final
judgement and allow
a filing
of
a
second
amended
complaint.
The
Company
responded
on
November
1,
2021.
The
court
has
not
ruled
on
the
plaintiffs’
motion.
19
Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.
As previously
reported, on
September 25,
2008, the
Company was
named as
one of
several defendants
in numerous
antitrust
cases involving
the United
States shell
egg industry.
The Company
settled all
of these
cases, except
for the
claims of
certain
plaintiffs who sought substantial damages allegedly arising from the purchase of egg products
(as opposed to shell eggs). These
remaining plaintiffs
are Kraft Food
Global, Inc., General
Mills, Inc., and
Nestle USA, Inc.
(the “Egg
Products Plaintiffs”)
and
The Kellogg Company.
On September
13, 2019,
the case
with the
Egg Products
Plaintiffs was
remanded from
a multi-district
litigation proceeding
in
the
United
States
District
Court
for
the
Eastern
District
of
Pennsylvania,
In
re
Processed
Egg
Products
Antitrust
Litigation,
MDL No. 2002, to the United States District Court for
the Northern District of Illinois, Kraft Foods Global, Inc. et
al. v. United
Egg
Producers,
Inc.
et
al.,
Case
No.
1:11-cv-8808,
for
trial.
The
Egg
Products
Plaintiffs
allege
that
the
Company
and
other
defendants
violated
Section
1
of
the
Sherman
Act,
15.
U.S.C.
§
1,
by
agreeing
to
limit
the
production
of
eggs
and
thereby
illegally to raise the prices that plaintiffs paid for processed egg products. In particular, the Egg Products Plaintiffs are
attacking
certain features of the United
Egg Producers animal-welfare guidelines and program
used by the Company and many
other egg
producers. The Egg
Products Plaintiffs
seek to
enjoin the
Company and other
defendants from engaging
in antitrust violations
and seek
treble money
damages. The
parties filed
a joint
status report
on May
18, 2020.
On August
4, 2021,
by docket
entry,
the
court
instructed
the
parties
to
jointly
submit
a
second
status
report
to
the
court
that
included
a
proposed
schedule
for
preparing a final pretrial order. On
August 25, 2021, the parties filed a joint status report, and on
August 26, 2021, the court, by
docket entry, informed the parties that the need to discuss issues was no longer necessary and that a scheduled August 30, 2021,
status hearing was stricken. No trial schedule has yet been entered by the court.
In addition,
on October
24, 2019,
the Company
entered into
a confidential
settlement agreement
with The
Kellogg Company
dismissing
all
claims
against
the
Company
for
an
amount
that
did
not
have
a
material
impact
on
the
Company’s
financial
condition or results of operations. On
November 11, 2019, a
stipulation for dismissal was filed with
the court, but the court
has
not yet entered a judgment on the filing.
The Company intends to continue to defend the remaining case with the Egg Products Plaintiffs
as vigorously as possible based
on
defenses
which
the
Company
believes
are
meritorious
and
provable.
Adjustments,
if
any,
which
might
result
from
the
resolution of
this remaining
matter with
the Egg
Products Plaintiffs
have not
been reflected
in the
financial statements.
While
management
believes
that
there
is
still
a
reasonable
possibility
of
a
material
adverse
outcome
from
the
case
with
the
Egg
Products Plaintiffs,
at the present
time, it is
not possible to
estimate the amount
of monetary exposure,
if any,
to the Company
due to a range of factors, including the following, among
others: the matter is in the early stages of preparing for
trial following
remand;
any
trial
will
be
before
a
different
judge
and
jury
in
a
different
court
than
prior
related
cases;
there
are
significant
factual issues
to be
resolved; and
there are
requests for
damages other
than compensatory
damages (i.e.,
injunction and
treble
money damages).
State of Oklahoma Watershed Pollution Litigation
On June 18,
2005, the
State of Oklahoma
filed suit,
in the United
States District
Court for
the Northern District
of Oklahoma,
against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates,
Cobb-Vantress,
Inc., Cargill, Inc. and its affiliate, George’s,
Inc. and its
affiliate, Peterson Farms,
Inc. and Simmons Foods,
Inc. The State of
Oklahoma claims that through
the disposal of
chicken litter
the defendants
have polluted
the Illinois
River Watershed.
This watershed
provides water
to eastern
Oklahoma.
The complaint
seeks injunctive
relief and
monetary damages,
but the
claim for
monetary damages
has been
dismissed by
the
court.
Cal-Maine
Foods,
Inc.
discontinued
operations
in
the
watershed.
Accordingly,
we
do
not
anticipate
that
Cal-Maine
Foods,
Inc.
will
be
materially
affected
by
the
request
for
injunctive
relief
unless
the
court
orders
substantial
affirmative
remediation. Since the
litigation began, Cal-Maine
Foods, Inc. purchased
% 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.
The trial in the case began in September 2009 and concluded in February 2010.
The case was tried without a jury,
and the court
has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.
Other Matters
In addition to the above,
the Company is involved in
various other claims and litigation
incidental to its business. Although
the
outcome of
these matters
cannot be determined
with certainty,
management, upon the
advice of counsel,
is of
the opinion that
the final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
20
Note 14 - Related Party Transaction
On
August
24,
2020,
Mrs.
Jean
Reed
Adams,
the
wife
of
the
Company’s
late
founder
Fred
R.
Adams,
Jr.,
and
the
Fred
R.
Adams,
Jr.
Daughters’
Trust,
dated
July
20,
2018
(the
“Daughters’
Trust”),
of
which
the
daughters
of
Mr.
Adams
are
beneficiaries
(together,
the
“Selling
Stockholders”),
completed
a
registered
secondary public
offering
of
Common Stock held by them, pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”) filed
as an exhibit to our 2021 Annual Report. Mrs. Adams and the Daughters’ Trust advised the Company that they were conducting
the
offering
in
order
to
pay
estate
taxes
related
to
the
settlement
of
Mr.
Adam’s
estate
and
to
obtain
liquidity.
The
public
offering
was
made
pursuant
to
the
Company’s
effective
shelf
registration
statement
on
Form
S-3
(File
No.
333-227742),
including the Prospectus contained therein dated October
9, 2018, and a related
Prospectus Supplement dated August 19, 2020,
each of which
is on file
with the Securities and
Exchange Commission. The public
offering involved only
the sale of
shares of
Common
Stock
that
were
already
outstanding,
and
thus
the
Company
did
not
issue
any
new
shares
or
raise
any
additional
capital in
the offering.
The expenses
of
the offering
(not including
the underwriting
discount and
legal fees
and expenses
of
legal
counsel
for
the
Selling
Stockholders,
which
were
paid
by
the
Selling
Stockholders)
paid
by
the
Company
were
$
million. Pursuant to the Agreement, the Selling Stockholders reimbursed the Company $
21
ITEM
2.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATIONS
The following
should be
read in
conjunction with
Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations included in Part II
Item 7 of the Company’s
Annual Report on Form 10-K for
its fiscal year ended May 29,
2021
(the “2021 Annual Report”), and the accompanying financial statements and notes included in Part II Item 8 of the 2021 Annual
Report and in
This
report contains
numerous forward-looking
statements within
the meaning
of
Section 27A
of
the Securities
Act of
1933
(the “Securities
Act”) and
Section 21E
of the
Securities Exchange Act
of 1934
(the “Exchange
Act”) relating
to our
shell egg
business,
including
estimated
future
production
data,
expected
construction
schedules,
projected
construction
costs,
potential
future supply
of
and demand
for our
products, potential
future corn
and soybean
price trends,
potential future
impact on
our
business
of
the
COVID-19
pandemic,
potential
future
impact
on
our
business
of
new
legislation,
rules
or
policies,
potential
outcomes
of
legal
proceedings,
and
other
projected
operating
data,
including
anticipated
results
of
operations
and
financial
condition.
Such
forward-looking
statements
are
identified
by
the
use
of
words
such
as
“believes,”
“intends,”
“expects,”
“hopes,”
“may,”
“should,”
“plans,”
“projected,”
“contemplates,”
“anticipates,”
or
similar
words.
Actual
outcomes
or
results
could differ
materially from
those
projected in
the forward-looking
statements. The forward-looking
statements are
based on
management’s
current
intent,
belief,
expectations,
estimates,
and
projections
regarding
the
Company
and
its
industry. These
statements
are
not
guarantees
of
future
performance
and
involve
risks,
uncertainties,
assumptions,
and
other
factors
that
are
difficult
to predict
and may
be beyond
our control. The
factors that
could cause
actual results
to differ
materially from
those
projected in
the forward-looking
statements include,
among others,
(i) the
risk factors
set forth
in Part
I Item
1A of
the 2021
Annual Report
(ii) the
risks and
hazards inherent
in the
shell egg
business (including
disease, pests,
weather
conditions, and
potential
for
product
recall),
including
but
not
limited
to
the
current
outbreak
of
highly
pathogenic
avian
influenza
(HPAI)
affecting poultry
in the
U.S., Canada
and other
countries (iii)
changes in
the demand
for and
market prices
of shell
eggs and
feed costs, (iv)
our ability to
predict and meet
demand for cage-free
and other specialty
eggs, (v) risks,
changes, or obligations
that
could
result
from
our
future
acquisition
of
new
flocks
or
businesses
and
risks
or
changes
that
may
cause
conditions
to
completing
a
pending
acquisition
not
to
be
met,
(vi)
risks
relating
to
the
evolving
COVID-19
pandemic,
including
without
limitation increased costs
and rising
inflation and interest
rates, and
(vii) adverse
results in pending
litigation matters. Readers
are cautioned
not to
place undue
reliance on
forward-looking statements
because, while
we believe
the assumptions
on which
the forward-looking
statements are
based are
reasonable, there
can be
no assurance
that these
forward-looking statements will
prove to be accurate. Further,
forward-looking statements included herein are only made as of
the respective dates thereof, or if
no
date
is
stated,
as
of
the date
hereof. Except
as
otherwise
required
by
law,
we
disclaim
any
intent
or
obligation
to
update
publicly these forward-looking statements, whether because of new information, future events, or otherwise.
GENERAL
Cal-Maine
Foods,
Inc.
(the
“Company,”
“we,”
“us,”
“our”)
is
primarily
engaged
in
the
production,
grading,
packaging,
marketing
and
distribution
of
fresh
shell
eggs.
Our
operations
are
fully
integrated
under
one
operating
segment.
We
are
the
largest producer and
distributor of fresh
shell eggs in
the United States
(“U.S.”). Our total
flock of approximately
42.7 million
layers
and
9.4
million
pullets
and
breeders
is
the
largest
in
the
U.S.
We
sell
most
of
our
shell
eggs
to
a
diverse
group
of
customers, including national
and regional grocery
store chains, club
stores, companies servicing
independent supermarkets in
the U.S., food
service distributors and
egg product consumers
in states across
the southwestern, southeastern, mid-western
and
mid-Atlantic regions of the U.S.
We
are a
member of
the Eggland’s
Best, Inc.
(“EB”) cooperative
and produce,
market, and
distribute EB
and Land
O'Lakes
branded
eggs,
both
directly
and
through
our
joint
ventures
Specialty
Eggs,
LLC
and
Southwest
Specialty
Eggs,
LLC,
under
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.
Our operating
results are
materially impacted
by market
prices for
eggs and
feed grains
(corn
and soybean
meal), which
are
highly
volatile,
independent
of
each
other,
and
out
of
our
control.
Generally,
higher
market
prices
for
eggs
have
a
positive
impact
on
our
financial
results
while
higher
market
prices
for
feed
grains
have
a
negative
impact
on
our
financial
results.
Although we
use a
variety of pricing
mechanisms in pricing
agreements with our
customers, we sell
most of
our conventional
shell eggs
based on
formulas that
consider,
in varying
ways, independently
quoted regional
wholesale market
prices for
shell
eggs
or
formulas related
to our
costs of
production which
include
the
cost of
corn
and
soybean meal.
As
an
example of
the
volatility in the market prices of shell eggs, the Urner-Barry White
Large, Southeast Regional Egg Market Price per dozen eggs
(“UB southeast large index”) for the first three quarters of fiscal year 2022 ranged from a low of $1.00 in June 2021 to a high of
$2.06 in February 2022.
22
Generally,
we purchase
primary feed
ingredients, mainly
corn and
soybean meal,
at current
market prices.
Corn and
soybean
meal
are
commodities
and
are
subject
to
volatile
price
changes
due
to
weather,
various
supply
and
demand
factors,
transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and internationally.
An important competitive advantage for Cal-Maine Foods is our ability to meet
our customers’ evolving needs with a favorable
product
mix
of
conventional
and
specialty
eggs,
including
cage-free,
organic
and
other
specialty
offerings,
as
well
as
egg
products.
We
have
also
enhanced
our
efforts
to
provide
free-range
and
pasture-raised
eggs
that
meet
consumers’
evolving
choice
preferences.
While
a
small
part
of
our
current
business,
the
free-range
and
pasture-raised
eggs
we
produce
and
sell
represent attractive offerings to a subset
of consumers, and therefore our customers, and help
us continue to serve as the trusted
provider of quality food choices.
Specialty shell
eggs have
been a
significant and
growing portion
of the
market. In
recent years,
a significant
number of
large
restaurant chains, food service companies
and grocery chains, including our
largest customers, announced goals to
transition to
an
exclusively
cage-free
egg
supply
chain
by
specified
future
dates.
Additionally,
several
states,
representing
approximately
24% of the U.S. total population according to the 2020 U.S. Census, have passed legislation requiring that all eggs
sold in those
states
must
be
cage-free
eggs
by
specified
future
dates,
and
other
states
are
considering
such
legislation.
In
California
and
Massachusetts,
which represent about 14% of the total U.S. population according to the 2020
U.S. Census, cage-free legislation
went into effect January
1, 2022. For additional
information, see the 2021
Annual Report, Part I,
Item 1, “Business –
Specialty
Eggs,”
“Business
–
Growth
Strategy”
and
“Business
–
Government
Regulation,”
and
the
first
risk
factor
in
Part
I
Item
1A,
“Risk Factors” under the sub-heading “Legal and Regulatory Risk Factors.”
Retail
sales
of
shell
eggs
historically
have
been
highest
during
the
fall
and
winter
months
and
lowest
during
the
summer
months. Prices
for shell
eggs fluctuate
in response
to seasonal
demand factors
and a
natural increase
in egg
production during
the
spring
and
early
summer.
Historically,
shell
egg
prices
tend
to
increase
with
the
start
of
the
school
year
and
tend
to
be
highest
prior
to
holiday
periods,
particularly
Thanksgiving,
Christmas
and
Easter.
Consequently,
and
all
other
things
being
equal, we would expect to
experience lower selling prices, sales volumes
and net income (and may
incur net losses) in our
first
and
fourth
fiscal
quarters
ending
in
August/September
and
May/June,
respectively.
Because
of
the
seasonal
and
quarterly
fluctuations,
comparisons
of
our
sales
and
operating
results
between
different
quarters
within
a
single
fiscal
year
are
not
necessarily meaningful comparisons.
COVID-19
Since early
2020, the
coronavirus (“COVID-19”) outbreak,
characterized as
a pandemic
by the
World
Health Organization
on
March
11,
2020,
has
caused
significant
disruptions
in
international
and
U.S.
economies
and
markets.
We
understand
the
challenges
and
difficult
economic
environment
facing
families
in
the
communities
where
we
live
and
work,
and
we
are
committed
to
helping
where
we
can.
We
have
provided
food
assistance
to
those
in
need
by
donating
approximately
679
thousand
dozen
eggs
to
date
in
fiscal
2022.
We
believe
we
are
taking
all
reasonable
precautions
in
the
management
of
our
operations in response
to the COVID-19
pandemic. Our top
priority is the
health and safety
of our
employees, who work
hard
each day
to produce
eggs for
our customers.
As part
of the
nation’s
food supply,
we work
in a
critical infrastructure industry,
and
we
believe
we
have
a
special
responsibility
to
maintain
our
normal
work
schedule.
As
such,
we
are
in
regular
communication with our managers across our operations and continue to closely monitor the situation in our facilities and in the
communities where we live and work. We have implemented procedures designed to protect our employees, taking into account
guidelines published
by the
Centers for
Disease Control
and other
government health
agencies, and
we have
strict sanitation
protocols and
biosecurity measures
in place
throughout our
operations with
restricted access
to visitors.
There are
no known
indications that COVID-19 affects chickens or can be transferred through the food supply.
We
continue to proactively monitor
and manage operations during
the COVID-19 pandemic, including
additional related costs
that
we incurred
or may
incur in
the future.
The pandemic
had a
negative impact
on our
business through
disruptions in
the
supply chain such as increased costs
and limited availability of packaging supplies,
and increased labor costs and medical costs
and, more recently, inflation.
In
the third
quarters of
fiscal 2022
and 2021,
we spent
approximately $534
thousand and
$397 thousand
(excluding medical
insurance claims)
related to
the pandemic
and its
effects,
respectively.
The majority
of these
expenses in
fiscal 2022
resulted
from additional labor
costs and increased
cost of packaging
materials, primarily reflected
in cost of
sales. In
fiscal 2021, most
of
these
expenses
related
to
additional
labor
costs,
primarily
reflected
in
cost
of
sales.
Medical
insurance
claims
related
to
COVID-19 paid during the third quarter of
fiscal 2022 were an additional $424 thousand as
compared to $322 thousand paid in
the comparable quarter in fiscal 2021.
23
For
the
thirty-nine
weeks
ended
2022
and
2021,
we
spent
approximately
$1.8
million
(excluding
medical
insurance
claims)
related to
the pandemic
and its
effects. The
majority of
these expenses
in fiscal
2022 resulted
from additional
labor costs
and
increased
cost
of
packaging
materials,
primarily
reflected
in
cost
of
sales.
In
fiscal
2021,
most
of
these
expenses
related
to
additional labor costs, primarily reflected in cost of sales. Medical insurance claims related to COVID-19 paid during the thirty-
nine
weeks
ended 2022
were
an
additional $1.6
million
as compared
to $1.1
million paid
in
the comparable
period
in
fiscal
2021.
EXECUTIVE OVERVIEW
For the third
quarter of fiscal
2022, we recorded
a gross profit
of $91.6 million
compared to $47.5
million for the
same period
of
fiscal
2021,
with
the
increase
due
primarily
to
higher
shell
egg
prices
and
increased
volume
of
specialty
eggs.
Our
total
dozens sold
increased 2.8%
to 287.7
million dozen
shell eggs
for
the third
quarter of
fiscal 2022
compared to
279.7
million
dozen for
the same
period of
fiscal
2021. For
the third
quarter of
fiscal 2022,
conventional dozens
sold decreased
5.2%
and
specialty dozens sold increased 24.1%
as compared to the same
quarter in fiscal 2021. Specialty
dozens sold increased as more
cage-free facilities came into production, retailers continue shift to selling cage-free products and cage-free legislation went into
full effect in California on January 1, 2022.
The
daily
average
price
for
the
UB
southeast
large
index
for
the
third
quarter
of
fiscal
2022
increased
46.8%
from
the
comparable period
in
the
prior year.
Our
net
average
selling price
per
dozen
for
the
third
quarter
of
fiscal
2022
was
$1.612
compared
to $1.246
in the
prior-year
period.
Hen numbers
reported by
the USDA
as of
March 1,
2022, were
322.7 million,
which is
approximately 5.4
million less
hens than
the comparable
period of
the prior
year.
The USDA
also reported
that the
hatch
from
October
2021
through
February
2022
decreased
5.5%
compared
to
the
prior-year
period.
As
of
March
1,
2022,
table-type eggs in incubators totaled 55.4 million, a decrease of 7.6% versus the prior-year period.
We
are
closely
monitoring the
recently reported
outbreaks of
highly pathogenic
avian influenza
(“HPAI”).
According
to
the
U.S.
Centers for
Disease Control
and Prevention,
these detections
.
There
have been no positive tests for HPAI
at any Cal-Maine Foods’ owned or contracted production facility to date. As
of March 28,
2022, the USDA
division of Animal
and Plant Health
Inspection Service (“APHIS”),
reported that approximately
11.5 million
commercial layer
hens or
about 3.6%
of the
table egg
layer flock
based on
February 2022
reported layer
numbers, have
been
depopulated due to
HPAI.
Pullets impacted comprise
approximately 830,000, or
about 0.7 percent
of the February
2022 pullet
inventory. We
believe we have implemented and continue to maintain robust biosecurity programs across our
locations. We are
also working
closely with
federal, state
and local
government officials
and focused
industry groups to
mitigate the
risk of
this
and future outbreaks and effectively manage our response, if needed.
Our farm production costs
per dozen produced for
the third quarter of
fiscal 2022 increased 16.9%,
or $0.132, compared to
the
third quarter
of fiscal
2021. This
increase was
primarily due
to increased
prices for
feed ingredients.
For the
third quarter
of
fiscal 2022, the average
Chicago Board of Trade
(“CBOT”) daily market price
was $6.13 per
bushel for corn and
$412 per ton
for soybean meal, representing an increase of 23.5% and a decrease of 2.5%, respectively, compared to the average daily CBOT
prices for
the comparable
period in
the prior
year.
Other farm
production
costs for
the third
quarter of
fiscal 2022
increased
11.8% versus the comparable period in the prior fiscal year, driven by higher flock amortization and facility expense.
Effective
May
30,
2021,
we
acquired
the
remaining
50%
membership
interest
in
Red
River
Valley
Egg
Farm,
LLC
(“Red
River”). Red River owns and operates a specialty shell egg production complex with approximately 1.7 million cage-free laying
hens, cage-free
pullet capacity,
feed mill,
processing plant,
related offices
and outbuildings
and related
equipment located
on
approximately 400
acres near
Bogata, Texas.
For additional
information, see
Consolidated Financial Statements included in this Quarterly Report.
During October
2021, we
announced that
our Board
of Directors
approved a
strategic investment
that will
specialize in
high-
value
commercial
product
solutions
targeting
specific
needs
in
the
food
industry.
The
initial
focus
will
include
hard-cooked
eggs.
The
new
entity,
located
in
Neosho,
Missouri,
will
operate
as
MeadowCreek
Foods,
LLC
(“MeadowCreek”).
We
will
capitalize MeadowCreek with
up to $18.5
million in debt
and equity to
purchase property and
equipment and to
fund working
capital, and we
will retain a
controlling interest in
the venture. We
will serve as
the preferred provider
to supply specialty
and
conventional
eggs
that
MeadowCreek
needs
to
manufacture
egg
products.
MeadowCreek’s
marketing
plan
is
designed
to
extend
our
reach
in
the
foodservice
and
retail
marketplace
and
bring
new
opportunities
in
the
restaurant,
institutional
and
industrial food products arenas.
Also, during
October 2021,
we announced
that our
Board of
Directors approved
a $23.0
million capital
project to
expand our
cage-free egg production at our
Okeechobee, Florida, production facility.
The project is designed
to include the construction of
two cage-free layer houses and one cage-free
pullet house with capacity for approximately 400,000
cage-free hens and 210,000
pullets, respectively.
Construction has
commenced, with
first pullet
placements planned
by mid-May
2022 and
the first
layer
24
house planned to be finished by October 1, 2022, with project completion expected by February 1, 2023. The Company plans to
fund the project through a combination of available cash on hand, investments and operating cash flow.
Effective December 5,
2021, we made
an additional investment
in our joint
venture Southwest Specialty Eggs,
LLC to acquire
warehouse
and
distribution
capability
to
expand
Southwest
Specialty
Eggs,
LLC’s
customer
base
in the
southern
California, Arizona and Nevada
markets. This strategic investment
is proving to
be incrementally
accretive as additional
cases
of
specialty
and
cage-free
eggs
began
distribution
through
the
warehouse
in
early
December
as
customers
prepared
for
the
California’s January 1, 2022 cage-free mandate.
RESULTS OF OPERATIONS
The following table sets
forth, for the periods
indicated, certain items from
our Condensed Consolidated Statements
of Income
expressed as a percentage of net sales.
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
80.8
%
86.8
%
88.0
%
87.7
%
Gross profit
19.2
%
13.2
%
12.0
%
12.3
%
Selling, general and administrative
11.0
%
13.3
%
12.4
%
13.6
%
(Gain) loss on disposal of fixed assets
(0.1)
%
0.1
%
(0.2)
%
—
%
Operating income (loss)
8.3
%
(0.2)
%
(0.2)
%
(1.3)
%
Total other income, net
2.8
%
3.4
%
1.8
%
1.5
%
Income before income taxes
11.1
%
3.2
%
1.6
%
0.2
%
Income tax expense (benefit)
2.8
%
(0.5)
%
(0.2)
%
(0.4)
%
Net income
8.3
%
3.7
%
1.8
%
0.6
%
NET SALES
Total net
sales for the third quarter of
fiscal 2022 were $477.5 million compared
to $359.1 million for the same
period of fiscal
2021.
Net shell egg
sales represented 97.3%
and 97.5% of
total net sales
for the
third quarters of
fiscal 2022 and
2021, respectively.
Shell
egg
sales
classified
as
“Other”
represent
sales
of
hard-cooked
eggs,
hatching
eggs
and
other
miscellaneous
products
included with our shell egg operations.
Total
net sales
for the
thirty-nine weeks
ended February
26, 2022
were $1,184.2
million, compared
to $999.2
million for
the
comparable period of fiscal 2021.
Net
shell
egg
sales
represented
97.2%
and
97.4%
of
total
net
sales
for
the
thirty-nine
weeks
ended
February
26,
2022
and
February 27, 2021, respectively.
Total
conventional
dozens
sold
for
the
first,
second
and
third
quarters
were
183.9
million,
192.1
million
and
192.5
million,
respectively.
Total
specialty
dozens
sold
for
the
first,
second
and
third
quarters
were
70.8
million,
77.4
million
and
95.1
million, respectively.
25
The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except percentage data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Total net sales
$
477,485
$
359,080
$
1,184,195
$
999,189
Conventional
$
280,633
60.4
%
$
203,189
58.0
%
$
685,678
59.6
%
$
560,297
57.5
%
Specialty
182,945
39.4
%
145,210
41.5
%
462,319
40.2
%
408,537
42.0
%
Egg sales, net
463,578
99.8
%
348,399
99.5
%
1,147,997
99.8
%
968,834
99.5
%
Other
1,158
0.2
%
1,583
0.5
%
2,682
0.2
%
4,619
0.5
%
Net shell egg sales
$
464,736
100.0
%
$
349,982
100.0
%
$
1,150,679
100.0
%
$
973,453
100.0
%
Net shell egg sales as a
percent of total net sales
97.3
%
97.5
%
97.2
%
97.4
%
Dozens sold:
Conventional
192,511
66.9
%
203,070
72.6
%
568,511
70.0
%
599,625
73.4
%
Specialty
95,140
33.1
%
76,645
27.4
%
243,310
30.0
%
217,735
26.6
%
Total dozens sold
287,651
100.0
%
279,715
100.0
%
811,821
100.0
%
817,360
100.0
%
Net average selling price per
dozen:
Conventional
$
1.458
$
1.001
$
1.206
$
0.934
Specialty
$
1.923
$
1.895
$
1.900
$
1.876
All shell eggs
$
1.612
$
1.246
$
1.414
$
1.185
Egg products sales:
Egg products net sales
12,749
9,098
33,516
25,736
Pounds sold
15,947
15,569
47,225
46,565
Net average selling price per
pound
0.799
0.584
0.710
0.553
Shell egg net sales
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
In
the
third
quarter of
fiscal 2022,
conventional
egg
sales
increased
$77.4
million,
or
38.1%,
compared
to
the
third
quarter of fiscal
2021, primarily due
to the increase
in price for
conventional shell eggs,
partially offset
by a decrease
in volume
of conventional
eggs sold.
Changes in
price resulted
in a
$88.0 million
increase and
the change
in volume
resulted in a $10.6 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a better alignment of the conventional production
layer
hen
flock
and
customer
and
consumer
demand.
According
to
reports
from
the
USDA,
the
average
number
of
hens producing
white and
brown conventional
eggs for
February 2022
decreased 31.7
million, or
13.1%, versus
the
prior-year
comparable period.
USDA Agriculture
Marketing
Service reported
shell
eggs
broken for
foodservice and
further processing
increased 7.9% compared
to the
comparable prior-year
period. We
believe lower
conventional egg
prices in the prior-year period were primarily tied to a surplus of conventional eggs entering the retail channel from the
foodservice channel exceeding demand during this phase of the pandemic.
-
Conventional
egg
volume
sales
decreased
5.2%.
We
believe
many
consumers
have
evolved
their
preferences
to
purchase higher-priced specialty eggs for at-home meal preparation due to the perceived health and
welfare benefits of
specialty eggs, various state laws
mandating the sale of cage-free
and the public commitments by
most retailers to sell
more cage-free
products. Per
Information Resources,
Inc. (“IRI”),
Total
US –
Multi Outlet,
conventional white
shell
egg
dozens
sales
decreased
13.7%
during
the
latest
13
weeks
ended
February
27,
2022
versus
the
prior-year
comparable period.
-
Specialty egg sales increased
$37.7 million, or 26.0%,
in the third quarter
of fiscal 2022 compared
to the third quarter
of
fiscal
2021,
primarily
due
to
a
24.1%
increase
in
the
volume
of
specialty
eggs
sold,
which
resulted
in
a
$35.0
million increase in
net sales. Per
IRI, Total
US – Multi
Outlet for the
latest 13 weeks
ended February 27,
2022, cage-
free eggs
dozens sold
(including free-range,
pasture-raised and
organic) increased
21.3%. We
believe this
increase in
26
demand is due
to California’s
cage-free mandate going
into-effect January
1, 2022,
as well
as more retailers’
shifting
to selling more cage-free products.
-
Our specialty egg
sales in
the third quarter
of fiscal
2022 versus
the prior-year
period benefitted from
our acquisition
of
the remaining
50% membership
interest in
Red River,
which helped
drive our
cage-free egg
sales. Our
cage-free
sales
also
benefitted
from
our
continued
investment
in
expanded
cage-free
capabilities
as
additional
cage-free
production capacity came online during the quarter. Cage-free egg sales for the first, second and third quarters of fiscal
2022 were 22.3%, 22.4% and 24.1% of our total net shell egg sales, respectively.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
For
the
thirty-nine
weeks
ended
February
26,
2022,
conventional
egg
sales
increased
$125.4
million
or
22.4%
compared
to
the
same period
of
fiscal 2021,
primarily
due
to
the
increase in
price,
partially
offset
by
a
decrease in
volume
of
conventional
eggs
sold.
Changes
in
price
resulted
in
a
$154.6
million
increase
and
change
in
volume
resulted in a $29.1 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a better alignment of the conventional production
layer hen flock and customer and consumer demand.
USDA Agriculture Marketing Service reported shell eggs broken
for
foodservice
and
further
processing
increased
10.2%
compared
to
the
comparable
prior-year
period.
We
believe
lower conventional
egg prices
in the
prior-year period
were primarily
tied to
a surplus
of conventional
eggs entering
the retail channel from the foodservice channel exceeding demand during this phase of the pandemic.
-
The decrease in
volume of conventional
eggs sold was
primarily due to
elevated retail demand
during the first
half of
fiscal 2021
due to
consumers’ preferences
to purchase
eggs for
in-home meal
preparation due
to the
pandemic. We
saw this consumer
preference begin to
shift in the
fourth quarter of
fiscal 2021 as
consumers began to
resume out-of-
home
dining
and
prepare
fewer
meals
at
home.
Per
Information
Resources,
Inc.
(“IRI”),
Total
US
–
Multi
Outlet,
conventional white shell egg dozens sales decreased 12.6% during the latest 39
weeks ended February 27, 2022 versus
the prior-year comparable period.
-
Specialty egg sales increased $53.8
million, or 13.2%, for the
thirty-nine weeks ended February 26, 2022
compared to
the same period of
fiscal 2021, primarily due
to an 11.7%
increase in the volume
of specialty dozens sold
and a slight
increase in specialty egg prices. Changes in price resulted in a $5.8 million increase and change in volume resulted in a
$48.0 million increase in net sales,
respectively. We
also benefitted from our additional cage-free
production capacity.
Cage-free egg sales for the thirty-nine weeks ended February 26, 2022 were 23.0% of our total net shell egg sales.
Egg products net sales
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Egg
products
net
sales
increased
$3.7
million
or
40.1%
for
the
third
quarter
of
fiscal
2022
compared
to
the
same
period of fiscal 2021,
primarily due to a
36.8% selling price increase,
which had a $3.4
million positive impact on
net
sales.
-
Selling prices for egg products in
the third quarter of fiscal 2021
were negatively impacted by a decline in
foodservice
demand due
to the
pandemic. Our
egg products
net average
selling price
increased in
the third
quarter of
fiscal 2022
compared to
the same
period in
fiscal 2021
as foodservice
channel demand
has begun
to shift
more to
pre-pandemic
levels.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Egg products
net sales
increased $7.8
million or
30.2%, primarily
due to
a 28.4%
selling price
increase compared
to
the first thirty-nine weeks of fiscal 2021, which had a $7.4 million positive impact on net sales.
-
Our egg products
net average selling
price increased in
the thirty-nine weeks
end February 26,
2022, compared to
the
same
period
in
fiscal
2021
as
foodservice
channel
demand
has
begun
to
shift
more
towards
pre-pandemic
levels.
Selling
prices
for
egg
products
in
the
thirty-nine
weeks
ended
February
27,
2021
were
negatively
impacted
by
a
decline in foodservice
demand during the
more restrictive phases
of governmental and
business shutdowns due
to the
pandemic.
27
COST OF SALES
Costs of sales for
the third quarter of
fiscal 2022 were $385.9
million compared to $311.6
million for the same
period of fiscal
2021. For the
thirty-nine weeks ended
February 26, 2022
and February 27,
2021, total cost
of sales were
$1,042.2 million and
$876.5 million, respectively.
Cost of
sales consists
of costs
directly related
to producing,
processing and
packing shell
eggs, purchases
of shell
eggs from
outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm production costs are
those costs incurred
at the egg
production facility,
including feed, facility,
hen amortization, and
other related farm
production
costs.
The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26,
2022
February 27,
2021
%
Change
February 26,
2022
February 27,
2021
%
Change
Cost of Sales:
Farm production
$
239,389
$
190,883
25.4
%
$
668,855
$
531,877
25.8
%
Processing, packaging, and warehouse
77,116
63,640
21.2
211,649
187,014
13.2
Egg purchases and other (including
change in inventory)
59,135
50,443
17.2
133,968
137,001
(2.2)
Total shell eggs
375,640
304,966
23.2
1,014,472
855,892
18.5
Egg products
10,263
6,597
55.6
27,749
20,565
34.9
Total
$
385,903
$
311,563
23.9
%
$
1,042,221
$
876,457
18.9
%
Farm production costs (per dozen
produced)
Feed
$
0.562
$
0.467
20.3
%
$
0.546
$
0.422
29.4
%
Other
$
0.350
$
0.313
11.8
%
$
0.350
$
0.318
10.1
%
Total
$
0.912
$
0.780
16.9
%
$
0.896
$
0.740
21.1
%
Outside egg purchases (average cost per
dozen)
$
1.75
$
1.26
38.9
%
$
1.57
$
1.23
27.6
%
Dozens produced
264,433
248,130
6.6
%
757,677
731,205
3.6
%
Percent produced to sold
91.9%
88.7%
3.6
%
93.3%
89.5%
4.2
%
Farm Production
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Feed
costs per
dozen
produced
increased 20.3%
in
the
third
quarter
of
fiscal
2022
compared
to
the third
quarter of
fiscal 2021.
This increase
was primarily
due
to
increased prices
for
corn, our
primary feed
ingredient. For
the
third
quarter
of
fiscal 2022,
the
average
daily
Chicago
Board
of
Trade
(“CBOT”) market
price
was
$6.13 per
bushel
for
corn representing an increase of 23.5 percent compared to the average
daily CBOT prices for the third quarter of fiscal
2021.
-
Other farm
production costs
increased due
to higher
flock amortization,
primarily from
an increase
in our
cage-free
production, which has
higher capitalized costs. Also,
our higher feed
costs, which began to
rise in our
third quarter of
fiscal 2021, are capitalized in our flocks during pullet production and increased our amortization expense.
-
We had higher facility expense as more cage-free facilities came into production.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Feed
costs per
dozen
produced
increased
29.4%
in
the
thirty-nine weeks
ended
February 26,
2022
compared
to
the
same period
of fiscal
2021, primarily
due to
higher feed
ingredient prices
resulting from
weather-related shortfalls
in
production and yields, which have placed additional pressure on domestic supplies.
-
Other farm
production costs
increased due
to higher
flock amortization,
primarily from
an increase
in our
cage-free
production,
which
has
higher
capitalized
costs.
Also,
higher
feed
costs,
which
began
to
rise
in
our
third
quarter
of
fiscal 2021, are capitalized in our flocks during pullet production and increased our amortization expense.
28
-
We had higher facility expense as more cage-free facilities came into production.
Processing, packaging, and warehouse
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Cost of
packaging materials
increased 17.7%
compared to
the third
quarter of
fiscal 2021
as supply
chain constraints
initially
caused
by
the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented
pandemic
surcharges.
Costs also increased due to rising inflation.
-
Labor costs increased
16.3% due to
wage increases in
response to labor
shortages, primarily due
to the pandemic
and
its effects.
-
Dozens
processed
increased
6.6%
compared
to
the
third
quarter
of
fiscal
2021,
which
resulted
in
a
$4.5
million
increase in costs.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Cost of
packaging materials
increased 10.8%
compared to
the thirty-nine
weeks ended
February 27,
2021 as
supply
chain
constraints
initially
caused
by
the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented pandemic surcharges.
Costs also increased due to rising inflation.
-
Labor costs increased
15.3% due to
wage increases in
response to labor
shortages, primarily due
to the pandemic
and
its effects.
-
Dozens processed increased 3.2%
compared to the thirty-nine
weeks ended February 27,
2021, which resulted in
$6.1
million increase in costs.
Egg purchases and other (including change in inventory)
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Costs in
this category
increased primarily
due to
higher egg
prices, partially
offset
by the
decrease in
the volume
of
outside egg purchases, as our percentage of produced to sold increased to 91.9% from 88.7%.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Costs
in
this
category
decreased
primarily
due
to
the
decrease
in
the
volume
of
outside
egg
purchases,
as
our
percentage of produced to sold increased to 93.3% from 89.5%, partially offset by higher egg prices.
Looking
forward
throughout
the
rest
of
fiscal
2022,
market
indications
point
to
higher
corn
and
soybean
prices
and
higher
volatility tied to the Russia-Ukraine war and higher export demand.
GROSS PROFIT
Gross profit for the third quarter of fiscal 2022
was $91.6 million compared to $47.5 million for the
same period of fiscal 2021.
The increase of $44.1 million was primarily due to higher egg prices as well as the increased volume of specialty eggs, partially
offset by the increased cost of feed ingredients and processing costs.
Gross profit
for the
thirty-nine weeks
ended February
26, 2022
was $142.0
million compared
to $122.7
million for
the same
period of fiscal
2021. The increase
of $19.3 million
was primarily due
to higher egg
prices as well
as the increased
volume of
specialty eggs, partially offset by the increased cost of feed ingredients and processing costs.
29
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling,
general,
and
administrative
expenses
("SGA")
include
costs
of
marketing,
distribution,
accounting
and
corporate
overhead. The following table presents an analysis of our SGA expenses (in thousands):
Thirteen Weeks Ended
February 26, 2022
February 27, 2021
$ Change
% Change
Specialty egg expense
$
17,318
$
16,162
$
1,156
7.2
%
Delivery expense
16,440
13,359
3,081
23.1
%
Payroll, taxes and benefits
11,398
10,195
1,203
11.8
%
Stock compensation expense
1,007
964
43
4.5
%
Other expenses
6,523
6,976
(453)
(6.5)
%
Total
$
52,686
$
47,656
$
5,030
10.6
%
Third Quarter – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Specialty egg
expense which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg volumes
which were
up 24.1%
for the
third quarter
of fiscal
2022 compared
to the
same period
of fiscal
2021.
Specialty dozens
sold to
outside distributors
including unconsolidated
affiliates, Specialty
Eggs, LLC
and Southwest
Specialty Eggs, LLC, increased which reduced related costs that we generally incur for specialty egg sales to retailers.
Delivery expense
-
The increased
delivery expense
is primarily
due to
the increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking.
Payroll, taxes and benefits expense
-
The increase in payroll, taxes and benefits
is primarily due to increased wages for standard annual
raises as well as the
addition of Red River. The accrual for anticipated performance-based bonuses also increased.
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
$ Change
% Change
Specialty egg expense
$
45,295
$
42,898
$
2,397
5.6
%
Delivery expense
44,771
38,905
5,866
15.1
%
Payroll, taxes and benefits
32,640
31,526
1,114
3.5
%
Stock compensation expense
2,983
2,789
194
7.0
%
Other expenses
21,302
19,376
1,926
9.9
%
Total
$
146,991
$
135,494
$
11,497
8.5
%
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Specialty egg
expense which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg volumes
which were
up 11.7%
for the
thirty-nine weeks end
February 26,
2022, compared
to the
same period
of
fiscal 2021.
Specialty dozens sold to outside distributors including unconsolidated affiliates,
Specialty Eggs, LLC and
Southwest Specialty Eggs,
LLC, increased which
reduced related costs
that we generally
incur for specialty
egg sales
to retailers.
Delivery expense
-
The increased
delivery expense
is primarily
due to
the increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking.
Other expenses
-
The increase in other
expenses is primarily due
to property losses
incurred that were not
covered by insurance as
well
as increased premiums for property and casualty insurance programs.
30
OPERATING
INCOME (LOSS)
For
the
third
quarter
of
fiscal
2022,
we
recorded
operating
income
of
$39.6
million
compared
to
operating
loss
of
$493
thousand for the same period of fiscal 2021.
For the thirty-nine weeks ended February 26, 2022, we recorded an operating loss of $2.2 million compared to an operating loss
of $13.2 million for the same period of fiscal 2021.
OTHER INCOME (EXPENSE)
Total
other
income
(expense)
consists
of
items
not
directly
charged
or
related
to
operations,
such
as
interest
income
and
expense, royalty income, equity income or loss of unconsolidated entities, and patronage income, among other items.
For
the
third
quarter
of
fiscal
2022,
we
earned
$205
thousand
of
interest
income
compared
to
$661
thousand
for
the
same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly
lower
investment
balances.
The
Company
recorded
interest
expense
of
$126
thousand
and
$70
thousand
for
the
third
quarters
ended
February
26,
2022
and
February
27,
2021,
respectively.
For the
thirty-nine weeks ended
February 26, 2022,
we earned
$702 thousand
of interest
income compared to
$2.4 million
for
the
same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly lower
investment balances.
The
Company
recorded
interest
expense
of
$262
thousand
and
$205
thousand
for
the
thirty-nine
weeks
ended
February
26,
2022
and
February
27,
2021, respectively.
Patronage dividends, which represent distributions from our membership in Eggland’s Best, Inc. were $10.1 million and $9.0
million for the thirteen and thirty-nine weeks ended February 26, 2022 and February 27, 2021, respectively. Patronage
dividends are paid once a year based on the profits of Eggland’s Best as well as its available cash.
For the third
quarter of fiscal
2022, equity income
of unconsolidated entities
was $1.8 million
compared to $1.9
million in the
prior-year period.
For the thirty-nine weeks ended February 26, 2022, equity income of unconsolidated entities was $2.2 million compared to $1.9
million in the prior-year period.
Other, net for
the third quarter ended February 26, 2022,
was income of $1.1 million compared
to income of $537 thousand for
the same period of fiscal 2021.
Other, net
for the thirty-nine
weeks ended February
26, 2022, was
income of $8.2
million compared to
income of $1.5
million
for the
same period
of fiscal
2021.
The majority
of the
increase is
due
to our
acquisition of
the remaining
50% membership
interest in
Red River
as we
recognized a
$4.5 million
gain due
to the
remeasurement of our
equity investment,
along with
the
$1.4 million payment related to review and adjustment of our various marketing agreements.
INCOME TAXES
For the
third quarter of
fiscal 2022,
pre-tax income was
$53.0 million compared
to $11.8
million for the
same period of
fiscal
2021. We
recorded income tax expense
of $13.6 million for
the third quarter of
fiscal 2022, which reflects
an effective tax
rate
of 25.6%.
Excluding the impact of discrete
items related to a
$5.0 million net tax
benefit recorded in the
third quarter of fiscal
2021 in connection
with the Coronavirus
Aid, Relief, and
Economic Security Act
(the “CARES Act”),
income tax expense
for
the comparable period of fiscal 2021 was $3.3 million, which reflects an adjusted effective tax rate of 27.9%.
For the
thirty-nine weeks
ended February
26, 2022,
pre-tax income
was $19.7
million compared
to $2.2
million for
the same
period of fiscal 2021. We
recorded an income tax benefit of $2.9 million, which includes the discrete tax benefit of $8.3 million
as discussed
in
Excluding the discrete tax benefit, income tax
expense was $5.3 million with an
adjusted effective tax rate of 27.3%,
compared
to income tax expense
of $934 thousand for the
comparable period of fiscal 2021,
which reflects an effective
tax rate of 41.8%
excluding the impact of the $5.0 million discrete net tax benefit recorded in connection with the CARES Act.
Our effective tax rate differs
from the federal statutory income tax rate
due to state income taxes, certain
federal tax credits and
certain
items
included
in
income
for
financial
reporting
purposes
that
are
not
included
in
taxable
income
for
income
tax
31
purposes,
including
tax
exempt
interest
income,
certain
nondeductible
expenses
and
net
income
or
loss
attributable
to
our
noncontrolling interest.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
Net income attributable to Cal-Maine Foods, Inc. for the third quarter ended February 26, 2022, was $39.5 million, or $0.81 per
basic and
diluted common
share, compared
to net
income attributable
to Cal-Maine
Foods, Inc.
of $13.5
million or
$0.28 per
basic and diluted common share for the same period of fiscal 2021.
Net
income
attributable
to
Cal-Maine
Foods,
Inc.
for
the
thirty-nine
weeks
ended
February
26,
2022,
was
$22.7
million,
or
$0.46 per
basic and
diluted common
share, compared
to net
income attributable
to Cal-Maine
Foods, Inc.
of $6.3
million or
$0.13 per basic and diluted common share for the same period of fiscal 2021.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at February
26, 2022 was $401.3 million,
compared to $429.8 million at
May 29, 2021. The
calculation of
working capital
is defined
as current
assets less
current liabilities.
Our current
ratio was
4.31 at
February 26,
2022, compared
with 5.77 at May 29, 2021.
We
had
no
long-term
debt
outstanding
at
February
26,
2022
or
May
29,
2021.
On
November
15,
2021,
we
entered
into
an
Amended and Restated Credit Agreement (the
“Credit Agreement”) with a five-year
term. The Credit Agreement amended
and
restated
the
Company’s
previously
existing
credit
agreement
dated
July
10,
2018.
The
Credit
Agreement
provides
for
an
increased senior secured
revolving credit facility
(the “Credit Facility”),
in an
initial aggregate principal
amount of up
to $250
million. As
of February
26, 2022,
no amounts
were borrowed
under the
Credit Facility.
We
have $4.1
million in
outstanding
standby
letters
of
credit,
issued
under
our
Credit
Facility
for
the
benefit
of
certain
insurance
companies.
For
additional
information,
see
Quarterly Report.
For the thirty-nine weeks ended February 26, 2022,
$20.8 million in net cash was provided by
operating activities, compared to
$14.7 million provided
by operating activities
for the comparable
period in fiscal
2021. This is
primarily due to
the higher egg
prices partially offset by increased costs of feed ingredients compared to the prior-year period.
We
continue to
invest in
our facilities,
with $49.2
million used
to purchase
property,
plant and
equipment for
the thirty-nine
weeks ended February
26, 2022, compared
to $73.8 million
in the same
period of fiscal
2021. We
also acquired the
remaining
50%
membership
interest
in
Red
River
during
our
first
quarter
of
fiscal
2022
for
$48.5
million.
Sales
and
maturities
of
investment
securities,
net
of
purchases,
were
$29.2
million
for
the
thirty-nine
weeks
ended
February
26,
2022,
compared
to
$25.8
million
for
the
comparable period
in
fiscal
2021.
We
received
$400
thousand
in
distributions
from
an
unconsolidated
entity in the first three quarters of fiscal 2022 compared to $5.8 million for the same period fiscal of 2021.
As of February 26, 2022, cash decreased $41.8 million
since May 29, 2021, compared to a decrease of
$25.2 million during the
same period of fiscal 2021.
We
continue to
monitor the
increasing demand
for cage-free
eggs and
to engage
with our
customers in
an effort
to achieve
a
smooth transition to meet their
announced commitment timeline for cage-free
egg sales. We
have invested approximately $502
million in facilities, equipment and related operations to expand our cage-free production
starting with our first facility in 2008.
The following table presents material construction projects approved as of February 26, 2022 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of February
26, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
$
130,918
108,579
22,339
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,752
6,262
18,490
$
155,670
$
114,841
$
40,829
We believe our current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient to fund our
current capital needs.
32
RECENTLY ISSUED/ADOPTED ACCOUNTING STANDARDS
For
information
on
changes
in
accounting
principles
and
new
accounting
policies,
see
CRITICAL ACCOUNTING ESTIMATES
Critical accounting
estimates are
those estimates
made in
accordance with
U.S. generally
accepted accounting
principles that
involve
a
significant
level
of
estimation
uncertainty
and
have
had
or
are
reasonably
likely
to
have
a
material
impact
on
our
financial condition
or results
of operations.
There have
been no
changes to
our critical
accounting estimates
identified in
our
2021 Annual Report.
33
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk during the thirty-six weeks ended February 26, 2022 from
the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2021 Annual Report.
ITEM 4.
CONTROLS
AND
PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls
and procedures are
designed to
provide reasonable assurance
that information required
to be disclosed
by us in the reports we file
or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time
periods specified
in the
Securities and
Exchange Commission’s
rules and
forms. Disclosure controls
and procedures
include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports
that
we file or submit under
the Exchange Act is accumulated and
communicated to management, including our principal
executive
and
principal
financial
officers,
or
persons
performing
similar
functions,
as
appropriate
to
allow
timely
decisions
regarding
required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer
and
Chief
Financial
Officer,
together
with
other
financial
officers,
such
officers
concluded
that
our
disclosure
controls
and
procedures were effective as of February 26, 2022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no
change in our
internal control over
financial reporting that
occurred during the
quarter ended February
26, 2022
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Refer
to
the
discussion
of
certain
legal
proceedings
involving
the
Company
and/or
its
subsidiaries
in
(i)
our
2021
Annual
Report,
Part I
Item 3
Legal Proceedings,
and Part
II
Item 8,
Notes
to Consolidated
Financial
Statements and
Supplementary
Data, Note 18: Commitments and Contingencies, and (ii)
in this Quarterly Report in
of the Notes to Condensed Consolidated Financial Statements, which discussions are incorporated herein by reference.
ITEM 1A.
RISK
FACTORS
There have been no material changes in the risk factors previously disclosed in the Company’s 2021 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table is a summary of our third quarter 2022 share repurchases:
Issuer Purchases of Equity Securities
Total Number of
Maximum Number
Shares Purchased
of Shares that
Total Number
Average
as Part of Publicly
May Yet
Be
of Shares
Price Paid
Announced Plans
Purchased Under the
Period
Purchased (1)
per Share
Or Programs
Plans or Programs
11/28/21 to 12/25/21
206
$
36.32
—
—
12/26/21 to 01/22/22
26,780
41.00
—
—
01/23/22 to 02/26/22
—
—
—
—
26,986
$
40.96
—
—
(1)
As permitted under our Amended and Restated 2012 Omnibus Long-Term
Incentive Plan, these shares were withheld by us to satisfy tax withholding
34
ITEM 6. EXHIBITS
Exhibits
No.
Description
3.1
3.2
31.1*
31.2*
32**
101.SCH*+
Inline XBRL Taxonomy Extension Schema Document
101.CAL*+
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*+
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*+
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*+
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith as an Exhibit.
**
Furnished herewith as an Exhibit.
+
Submitted electronically with this Quarterly Report.
SIGNATURES
Pursuant to the
requirements of the
Securities Exchange Act
of 1934, the
registrant has duly
caused this report
to be signed
on
its behalf by the undersigned, thereunto duly authorized.
CAL-MAINE FOODS, INC.
(Registrant)
Date:
March 29, 2022
/s/ Max P.
Bowman
Max P.
Bowman
Vice President, Chief Financial Officer
(Principal Financial Officer)
Date:
March 29, 2022
/s/ Matthew S. Glover
Matthew S. Glover
Vice President – Accounting
(Principal Accounting Officer)
TABLE OF CONTENTS
Part I. FinancialItem 1. Financial StatementsNote 1 - Summary Of Significant Accounting PoliciesNote 2 AcquisitionNote 3 - InvestmentNote 4 - Fair Value MeasurementsNote 5 - Inventories Inventories Consisted Of The Following As Of February 26, 2022 and May 29, 2021 (in Thousands):Note 5 - InventoriesNote 6 - Accrued Dividends Payable and Dividends Per Common ShareNote 7 Credit FacilityNote 8 - EquityNote 9 - Net Income Per Common ShareNote 10 - Revenue RecognitionNote 11 - LeasesNote 12 - Stock Based CompensationNote 13 - Commitments and ContingenciesNote 14 - Related Party TransactionItem 2. Management SItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. ControlsPart II. Other InformationItem 1. Legal ProceedingsItem 1A. RiskItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits