CAL-MAINE FOODS INC - Annual Report: 2021 (Form 10-K)
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-K
☑
For The Fiscal Year Ended
May 29, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number:
001-38695
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware
64-0500378
(State or other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
1052 Highland Colony Pkwy, Suite 200
,
Ridgeland
,
Mississippi
39157
(Address of principal executive offices) (Zip Code)
(
601
)
948-6813
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class:
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock, $0.01 par value per share
CALM
The
NASDAQ
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes
☑
No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
☑
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
Yes
☑
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐
No
☑
The aggregate market value, as reported by The NASDAQ Global Select Market, of the registrant’s Common Stock, $0.01 par value, held by
non-affiliates at November 28, 2020, which was the date of the last business day of the registrant’s most recently completed second fiscal
quarter, was $
1,512,923,967
.
As of July 19, 2021,
44,058,463
4,800,000
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement
for its 2021 annual meeting of stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
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PART I.
FORWARD -LOOKING STATEMENTS
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg business,
including estimated future production data, expected construction schedules, projected construction costs, potential future supply
of and demand for our products, potential future corn and soybean price trends, potential future impact on our business of the
coronavirus (“COVID-19”) pandemic, potential future impact on our business of new legislation, rules or policies, potential
outcomes of legal proceedings, and projected operating data, 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 results could differ materially from those projected in the
forward-looking statements. The forward-looking statements are based on management’s current intent, belief, expectations,
estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance
and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The
factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among
others, (i) the risk factors set forth in Item 1A Risk Factors and elsewhere in this report as well as those included in other reports
we file from time to time with the Securities and Exchange Commission (the “SEC”) (including our Quarterly Reports on Form
10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including disease, pests,
weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed
costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that
could result from our future acquisition of new flocks or businesses, and risks or changes that may cause conditions to completing
a pending acquisition not to be met, (vi) risks relating to the evolving COVID-19 pandemic, and (vii) adverse results in pending
litigation matters. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe
the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-
looking statements will prove to be accurate. Further, forward-looking statements included herein are only made as of the
respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent
or obligation to update publicly these forward-looking statements, whether because of new information, future events, or
otherwise.
ITEM 1. BUSINESS
Our Business
We are the largest producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable producer
and reliable supplier of consistent, high quality fresh shell eggs and egg products in the country, demonstrating a "Culture of
Sustainability" in everything we do, and creating value for our shareholders, customers, team members and communities. We sell
most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs.
Our integrated operations consist of hatching chicks, growing and maintaining flocks of pullets, layers, and breeders,
manufacturing feed, and producing, processing, packaging, and distributing shell eggs. Layers are mature female chickens, pullets
are female chickens usually under 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to be
hatched for egg production flocks.
Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs. Specialty
eggs encompass a broad range of products. We classify nutritionally enhanced, cage-free, organic and brown eggs as specialty
eggs for accounting and reporting purposes. We classify all other shell eggs as conventional products. While we report separate
sales information for these egg types, there are many cost factors that are not specifically available for conventional or specialty
eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated
basis based on the demands of our customers.
Over time, we have acquired other companies in our industry. Since 1989 through our fiscal year ended May 29, 2021, we have
completed 22 acquisitions ranging in size from 160 thousand layers to 7.5 million layers. In addition, subsequent to our fiscal
2021, we acquired the remaining 50% membership interest in Red River Valley Egg Farm, LLC, effective June 1, 2021. For
further description of this transaction, refer to Part II. Item 8. Notes to the Consolidated Financial Statements,
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When we use “we,” “us,” “our,” or the “Company” in this report, we mean Cal-Maine Foods, Inc. and our consolidated
subsidiaries, unless otherwise indicated or the context otherwise requires. Our fiscal year 2021 ended May 29, 2021, and the first
three fiscal quarters of fiscal 2021 ended August 29, 2020, November 28, 2020, and February 27, 2021. All references herein to
a fiscal year means our fiscal year and all references to a year mean a calendar year.
Industry Background
According to the U.S. Department of Agriculture (“USDA”) Agricultural Marketing Service in 2020, approximately 72% of eggs
produced in the U.S. were sold as shell eggs, with 66% sold to retail outlets (e.g. through grocery and convenience stores), 3%
sold to foodservice customers and 3% exported. The remaining 28% of eggs produced in the U.S. are sold as egg products (shell
eggs broken and sold in liquid, frozen, or dried form) to institutions (e.g. companies producing baked goods). For information
about egg producers in the U.S., see “Competition” below.
Based on historical consumption trends, we believe general demand for eggs increases basically in line with overall population
growth, averaging about 2% per year. Specific events can impact egg consumption in a particular period. For example, in 2015,
egg consumption decreased approximately 4% over the prior year primarily due to a shortage of eggs resulting from an outbreak
of avian influenza ("AI") in the spring of that year. In 2016, consumption rebounded and increased 7% over 2015 and 3% over
the pre-shortage level of 2014. According to the USDA, annual per capita U.S. consumption since 2016 varied between 278 and
293 eggs. In calendar year 2020, per capita U.S. consumption was estimated to be 287 eggs, or approximately six eggs per person
per week. Per capita consumption is determined by dividing the total supply of eggs by the entire population in the U.S. (assuming
all eggs produced domestically by the egg industry are consumed). Sales prices of eggs are dependent upon many factors other
than consumption. For information about shell egg prices see “Prices for Shell Eggs” below.
Prices for Shell Eggs
Wholesale shell egg sales prices are a critical component of revenue for the Company. Wholesale shell egg prices are volatile,
cyclical, and impacted by a number of factors, including consumer demand, seasonal fluctuations, disease, and by the number
and productivity of laying hens in the U.S. While we use several different pricing mechanisms in pricing agreements with our
customers, we believe the majority of conventional shell eggs sold in the U.S. in the retail and foodservice channels are sold at
prices that take into account, in varying ways, independently quoted wholesale market prices as published by Urner Barry
Publications, Inc. ("UB") for shell eggs. We sell the majority of our conventional shell eggs based on formulas that take into
account, in varying ways, independently quoted regional wholesale market prices for shell eggs or formulas related to our costs
of production, which include the cost of corn and soybean meal. We do not sell eggs directly to consumers or set the prices at
which eggs are sold to consumers.
The weekly average price for the southeast region for large white conventional shell eggs as quoted by UB is shown below for
the past three fiscal years along with the five-year average price. As further discussed in
, conventional shell egg prices experienced a brief but significant increase during the fourth
quarter of fiscal 2020 related to the onset of the COVID-19 pandemic. The actual prices that we realize on any given transaction
will not necessarily equal quoted market prices because of the individualized terms that we negotiate with individual customers
which are influenced by many factors.
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Specialty eggs are sold at prices and terms negotiated directly with customers. Historically, prices for specialty eggs have
experienced less volatility than prices for conventional shell eggs and have generally been higher due to customer and consumer
willingness to pay more for specialty eggs.
Feed Costs for Shell Egg Production
Feed is a primary cost component in the production of shell eggs and represented 58.2% of our fiscal 2021 farm production costs.
We routinely fill our storage bins during harvest season when prices for feed ingredients are generally lower. To ensure continued
availability of feed ingredients, we may enter into contracts for future purchases of corn and soybean meal, and as part of these
contracts, we may lock-in the basis portion of our grain purchases several months in advance. Ordinarily, we do not enter long-
term contracts beyond a year to purchase corn and soybean meal or hedge against increases in the price of corn and soybean meal.
As the quality and composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we
formulate and produce the vast majority of our own feed at our feed mills located near our production plants. Our annual feed
requirements for fiscal 2021 were 1.8 million tons of finished feed, of which we manufactured 1.6 million tons. We currently
have the capacity to store 152 thousand tons of corn and soybean meal, and we replenish these stores as needed throughout the
year.
Our primary feed ingredients, corn and soybean meal, are commodities 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. We purchase the vast majority of our corn and soybean meal from U.S sources but may be forced to
purchase internationally when U.S. supplies are not readily available. Feed grains are currently available from an adequate number
of sources in the U.S. As a point of reference, a multi-year comparison of the monthly average of daily closing prices per Chicago
Board of Trade are shown below for corn and soybean meal:
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Shell Egg Production
We produced approximately 90.5% of our total shell eggs sold in fiscal 2021, with 91% of such production coming from company-
owned facilities, and 9% from contract producers. Under a typical arrangement with a contract producer, we own the flock,
furnish all feed and critical supplies, own the shell eggs produced and assume market risks. The contract producers own and
operate their facilities and are paid a fee based on production with incentives for performance. We purchased approximately 9.5%
of the total shell eggs we sold during fiscal 2021 from outside suppliers.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We produce the majority
of our chicks in our own breeder farms and hatcheries in a computer-controlled environment and obtain the balance from
commercial sources.
After the eggs are produced, they are graded and packaged. Substantially all our farms have modern “in-line” facilities which
mechanically gather, grade and package the eggs at the same location where they are laid. The in-line facilities generate significant
efficiencies and cost savings compared to the cost of eggs produced from non-in-line facilities, which process eggs laid at another
location and transported to the facility. The in-line facilities also produce a higher percentage of USDA Grade A eggs, which sell
at higher prices. Eggs produced on farms owned by contractors are brought to our processing plants to be graded and packaged.
Because shell eggs are perishable, we do not maintain large egg inventories. Our egg inventory averaged six days of sales over
the course of fiscal 2021. We believe our constant focus on production efficiencies and automation throughout the supply chain
enable us to be a low-cost supplier in our markets.
We do not use artificial hormones in the production of our eggs. Hormone use in the poultry and egg production industry has
been effectively banned in the U.S. since the 1950s. We have an extensive written protocol that allows the use of medically
important antibiotics only when animal health is at risk, consistent with guidance from the United States Food and Drug
Administration ("FDA") and the Guidance for Judicious Therapeutic Use of Antimicrobials in Poultry, developed by the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S., which continues to be a
significant and growing segment of the market. We classify nutritionally enhanced, cage-free, organic and brown eggs as specialty
eggs for accounting and reporting purposes. Specialty eggs are intended to meet the demands of consumers who are sensitive to
environmental, health and/or animal welfare issues.
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As defined by the USDA, eggs packed in USDA grade marked consumer packages labeled as cage-free are laid by hens that are
able to roam vertically and horizontally in indoor houses, and have access to fresh food and water. Cage-free systems must allow
hens to exhibit natural behaviors and include enrichments such as scratch areas, perches and nests. Hens must have access to
litter, protection from predators and be able to move in a barn in a manner that promotes bird welfare.
A significant number of our customers have announced goals to offer cage-free eggs exclusively on or before 2026, subject in
most cases to availability of supply, affordability and customer demand, among other contingencies. Additionally, several states
have passed legislation requiring the sale and production of only cage-free eggs within this time period and other states are
considering such requirements. Our customers typically do not commit to long-term purchases of specific quantities or type of
eggs with us, and as a result, it is difficult to accurately predict customer requirements for cage-free eggs. We are, however,
engaging with our customers in an effort to achieve a smooth transition in meeting their announced goals and needs. Sales of
cage-free eggs represented approximately 23% of our shell egg revenues for fiscal year 2021, and currently our production
capacity exceeds customer requirements, which we believe positions us well, as our customer base is primarily outside of states
that have mandated cage-free production and sales We have invested significant capital in recent years to acquire and construct
cage-free facilities, and we expect our focus for future expansion will continue to include cage-free facilities, as our customers
transition to meet consumer demand and comply with evolving legal requirements. At the same time, we understand the
importance of our continued ability to provide affordable conventional eggs in order to provide our customers with a variety of
egg choices and to address hunger in our communities.
Egg-Land’s Best®
Land O’ Lakes®
at our facilities under EB guidelines.
Land O’ Lakes®
diet. Our Farmhouse Eggs® brand eggs are produced at our facilities by cage-free hens that are provided with a vegetarian diet.
We market organic, vegetarian, and omega-3 eggs under our
4-Grain®
We also produce, market, and distribute private label specialty shell eggs to several customers.
Egg Products
Egg products are shell eggs broken and sold in liquid, frozen, or dried form. We sell liquid and frozen egg products primarily to
the institutional, foodservice, and food manufacturing sectors in the U.S. Our egg products are sold through our wholly owned
subsidiaries American Egg Products, LLC located in Georgia and Texas Egg Products, LLC located in Texas.
Summary of Conventional and Specialty Shell Egg and Egg Product Sales
The following table sets forth the contribution as a percentage of revenue and volumes of dozens sold of conventional and
specialty shell egg and egg product sales for the following fiscal years:
2021
2020
2019
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
56.8
%
73.2
%
61.4
%
76.1
%
59.4
%
74.9
%
Specialty Eggs
Egg-Land’s Best®
20.9
%
13.5
%
19.2
%
12.7
%
19.9
%
13.5
%
Other Specialty Eggs
19.1
%
13.3
%
16.7
%
11.2
%
17.3
%
11.6
%
Total Specialty Eggs
40.0
%
26.8
%
35.9
%
23.9
%
37.2
%
25.1
%
Egg Products
2.7
%
2.3
%
3.0
%
Marketing and Distribution
We sell most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. through our
extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores,
companies servicing independent supermarkets in the U.S., foodservice distributors and egg product consumers. Some of our
sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of
certain products is outsourced to another producer. Although we face intense competition from numerous other companies, we
believe that we have the largest market share for the sale of shell eggs in the grocery segment, including large U.S. food retailers.
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We are a member of the 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, Nevada, and Texas; portions of states in California, North Carolina
Oklahoma, South Carolina, Utah, as well as the whole New York City area.
The majority of eggs sold are based on the daily or short-term needs of our customers. Most sales to established accounts are on
payment terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we sell are either delivered to our customers’ warehouse or retail stores, by our own fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
Customers
Our top three customers accounted for an aggregate of 48.6%, 51.1% and 52.2% of net sales dollars for fiscal 2021, 2020, and
2019, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.8%, 32.1% and 33.7% for fiscal
2021, 2020, and 2019, respectively.
In fiscal 2021, approximately 90.5% of our revenue related to sales to retail customers, 6.8% to sales to foodservice providers
and 2.7% to egg products sales. Retail customers include primarily national and regional grocery store chains, club stores, and
companies servicing independent supermarkets in the U.S. Foodservice customers include primarily companies that sell food
products and related items to restaurants, healthcare and education facilities, and hotels.
Competition
The production, processing, and distribution of shell eggs is an intensely competitive business, which has traditionally attracted
large numbers of producers. Shell egg competition is generally based on price, service, and product quality.
The shell egg production industry remains highly fragmented. According to
Egg Industry
producers, each owning at least 500 thousand layers, owned approximately 99% of total industry layers. The ten largest producers
owned approximately 53% of total industry layers compared to 54% in the prior year. We believe industry consolidation will
continue, and we plan to capitalize on opportunities as they arise. We believe further concentration will result in reduced
cyclicality of shell egg prices, but no assurance can be given in that regard. A continuation of this trend could create greater
competition among fewer producers.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring
and early summer. Historically, shell egg prices tend to increase with the start of the school year and tend to be highest prior to
holiday periods, particularly Thanksgiving, Christmas, and Easter. Consequently, and all other things being equal, we would
expect to experience lower selling prices, sales volumes and net income (and may incur net losses) in our first and fourth fiscal
quarters ending in August/September and May/June, respectively.
Growth Strategy
Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers. In light of the growing
customer demand and increased legal requirements for cage-free eggs, we intend to continue to closely evaluate the need to
expand through selective acquisitions, with a priority on those that will facilitate our ability to expand our cage-free shell egg
production capabilities in key locations and markets. We will continue to closely evaluate the need to continue to expand and
convert our own facilities to increase production of cage-free eggs based on a timeline designed to meet the anticipated needs of
our customers and comply with evolving legal requirements. As the ongoing production of cage-free eggs is more costly than the
production of conventional eggs, aligning our cage-free production capabilities with changing demand for cage-free eggs is
important to the success of our business.
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Trademarks and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
4Grain®
. We produce and market Egg-Land's Best®
and Land O’ Lakes® branded eggs under license agreements with EB. We believe these trademarks and license agreements are
important to our business.
Government Regulation
Our facilities and operations are subject to regulation by various federal, state, and local agencies, including, but not limited to,
the FDA, USDA, Environmental Protection Agency ("EPA"), Occupational Safety and Health Administration ("OSHA") and
corresponding state agencies or laws. The applicable regulations relate to grading, quality control, labeling, sanitary control and
reuse or disposal of waste. Our shell egg facilities are subject to periodic USDA, FDA, EPA, and OSHA inspections. Our feed
production facilities are subject to FDA regulation and inspections. We maintain our own inspection program to monitor
compliance with our own standards and customer specifications. It is possible that we will be required to incur significant costs
for compliance with such statutes and regulations. In the future, additional rules could be proposed that, if adopted, could increase
our costs.
California, Colorado, Massachusetts, Michigan, Nevada, Oregon, Rhode Island, and Washington have passed minimum space
and/or cage-free requirements, mandating the sale of only cage-free eggs in their states, with implementation of these laws ranging
from January 2022 to January 2026. These states represent approximately 24% of the U.S. total population according to the 2020
U.S. Census. While our direct sales into these states have not been material, these laws will affect sourcing, production and pricing
of eggs (conventional as well as specialty) as the national demand for cage-free production could be greater than the current
supply which would increase the price of cage-free eggs, unless more cage-free production capacity is constructed. Likewise,
the national supply for eggs from conventional production could exceed consumer demand which would decrease the price of
conventional eggs.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities, including, but not limited to,
wastewater discharge permits. We have made, and will continue to make, capital and other expenditures relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures necessary to comply with such laws and regulations; however, as environmental, health and safety laws and
regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, it is
possible that we will have to incur significant costs for compliance with such laws and regulations in the future.
Human Capital Resources
As of May 29, 2021, we had 3,286 employees, of whom 2,642 worked in egg production, processing, and marketing, 188 worked
in feed mill operations and 456, including our executive officers, were administrative employees. Approximately 4.1% of our
personnel are part-time, and we utilize temporary employment agencies and independent contractors to augment our
staffing needs when necessary. For fiscal 2021, the average monthly full-time equivalent for contingent workers were 840. None
of our employees are covered by a collective bargaining agreement. We consider our relations with employees to be good.
Culture and Values
We are proud to be contributing corporate citizens where we live and work and to help to create healthy, prosperous
communities. Our colleagues help us continue to enhance our community contributions, which are driven by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to realize full potential.
Health and Safety
Our top priority is the health and safety of our employees, who continue to produce high-quality, affordable egg choices for our
customers and contribute to a stable food supply. Our enterprise safety committee comprises two corporate safety managers, eight
area compliance managers, 53 local site compliance managers, feed mill managers, and general managers. The committee
oversees health and safety regularly reviews our written policies and changes to OSHA regulation standards, and shares
information as it relates to outcomes from incidents in order to improve future performance. The committee’s goals include
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working to ensure that our engagements with our consumers, customers, and regulators evidence our strong commitment to our
workers’ health and safety.
Our commitment to our colleagues’ health includes a strong commitment to on-site worker safety, including a focus on accident
prevention and life safety. Training and safety personnel conduct monthly multi-lingual training that covers topics such as slip-
and-fall avoidance, respiratory protection, prevention of hazardous communication of chemicals, the proper use of personal
protective equipment, hearing conservation, emergency response, lockout tagout of equipment, and forklift safety, among others.
To help drive our focus on colleague safety, we developed safety committees at each of our sites that employee representation
from each department. We regularly provide health and safety information to employees via company bulletin boards. Our local
site farm and feed mill management has an open-door policy with employees to discuss improvement ideas. We have also
installed dry hydrogen peroxide biodefense systems in our processing facilities. New colleagues undergo a two-day orientation
period reviewing our safety and health programs and policies as they relate to their job tasks and then are placed with experienced
team members to learn the job tasks. At the 30-day anniversary of the employees’ hire date, their supervisor has a one-on-one
meeting to discuss any questions the employee may still be unsure about as it relates to their job tasks, health and safety policies
and procedures, or any other matters.
We review the success of our safety programs on a monthly basis to monitor their effectiveness and the development of any
trends that need to be addressed. During fiscal year 2021 our recordable incident rates decreased by 21% compared to fiscal 2020.
Diversity, Equity and Inclusion
Our culture seeks to embrace the diversity and inclusion of all our team members. This culture is driven by our board and
executive management team. Our board comprises seven members, four of whom are independent. Women comprise 29% of our
board and 14% of our board members identify as a racial or ethnic minority. As of May 29, 2021, our total workforce comprised
30% women and 52% of colleagues who identify as racial or ethnic minorities. Our Policy against Harassment, Discrimination,
Unlawful or Unethical Conduct and Retaliation; Reporting Procedure affirms our commitment to supporting our employees
regardless of race, color, religion, sex, national origin or any other basis protected by applicable law.
Cal-Maine Foods strives to ensure that our colleagues are treated equitably. We are an Equal Opportunity Employer that prohibits,
by policy and practice, any violation of applicable federal, state, or local law regarding employment. Discrimination because of
race, color, religion, sex, pregnancy, age, national origin, citizenship status, veteran status, physical or mental disability, genetic
information, or any other basis protected by applicable law is prohibited. We value diversity in our workplaces or in work-related
situations. We maintain strong protocols to help our colleagues perform their jobs free from harassment and discrimination. Our
focus on equitable treatment extends to recruitment, employment applications, hiring, placement, job assignments, career
development, training, remuneration, benefits, discharge and other matters tied to terms and conditions of employment. We are
committed to offer our colleagues opportunities commensurate with our operational needs, their experiences, goals and
contributions.
Recruitment, Development and Retention
We believe in compensating our colleagues with fair and competitive wages, in addition to offering
competitive benefits. Approximately 78% of our employees are paid at hourly rates, with the majority paid at rates above the
federal minimum wage requirement. Our annual average weekly wage across all employees for fiscal year
2021 was $878.30. We offer our full-time eligible employees a range of benefits including company-paid life insurance. The
Company provides a comprehensive self-insured health plan and pays approximately 85% of the costs of the plan for participating
employees and their families as of December 31, 2020. Recent benchmarking of our health plan indicates comparable benefits, at
lower employee contributions, when compared to an applicable Agriculture and Food Manufacturing sector grouping, as well
as peer group data. In addition, we offer employees the opportunity to purchase an extensive range of other group
plan benefits, such as dental, vision, cancer, disability and voluntary life. After one year of employment, full-time employees,
who meet eligibility requirements, may elect to participate in our KSOP retirement plan, which offers a range of investment
alternatives and includes many positive features, such as automatic enrollment with scheduled automatic contribution
increases and loan provisions. And, regardless of the employees’ election to contribute to the KSOP, the
Company contributes shares of Company stock or cash equivalent to 3% of pre-tax earnings for each pay period that hours
are worked.
We provide extensive training and development related to safety, regulatory compliance, and task training. We invest in
developing our future leaders through our Management Intern, Management Trainee, and informal mentoring programs.
11
Sustainability
We understand that a healthy environment and responsible management of our flocks and natural resources are vital to the
production of high-quality eggs and egg products and to the success of our Company. We have engaged in agricultural production
for more than 60 years. Our agricultural practices continue to evolve with increased focus on sustainability factors as we continue
to strive to meet the need for nutritious, affordable foods to feed a growing population even as we exercise responsible natural
resource stewardship. We plan to publish our most recent Sustainability update in late July 2021, which will be available on our
website. Information contained in our website is not a part of this report.
COVID-19 Pandemic
For information regarding our response to the COVID-19 pandemic, and its impact on our business, see
Our Corporate Information
We maintain a website at www.calmainefoods.com where general information about our business and corporate governance
matters is available. The information contained in our website is not a part of this report. Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports are
available, free of charge, through our website as soon as reasonably practicable after we file them with the SEC. In addition, the
SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Information concerning corporate governance matters is also available on our
website. Cal-Maine Foods, Inc. is a Delaware corporation, incorporated in 1969.
ITEM 1A. RISK FACTORS
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our
control. The following is a description of the known factors that may materially affect our business, financial condition or results
of operations. They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on
Form 10-K, including under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
in making any investment decisions with respect to our securities. Additional risks or uncertainties that are not currently known
to us, or that we are aware of but currently deem to be immaterial or that could apply to any company could also materially
adversely affect our business, financial condition or results of operations.
INDUSTRY RISK FACTORS
Market prices of wholesale shell eggs are volatile, and decreases in these prices can adversely impact our revenues and
profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. As a result, our prior performance should not be presumed to be an accurate indication of future performance. Under
certain circumstances, small increases in production, or small decreases in demand, within the industry might have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell eggs have been volatile and cyclical. Shell egg prices have risen in the past during periods of
high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein diets are popular. Shell egg
prices have also risen in the past during periods of constrained supply, such as the avian influenza outbreak in 2015, which we
believe, based on published industry estimates, impacted approximately 12% of the national flock of laying hens. During times
when prices are high, the egg industry has typically geared up to produce more eggs primarily by increasing the number of layers,
ultimately resulting in an oversupply of eggs, which was subsequently followed by a period of lower prices.
As discussed above under the heading “Seasonality” in Part I. Item 1. Business, seasonal fluctuations impact shell egg prices.
Therefore, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily
meaningful comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the increase in meals prepared at home due to COVID-19 pandemic, high protein diet trends, industry advertising
campaigns, and the improved nutritional reputation of eggs (related to better scientific understanding of the role of cholesterol in
12
diets) have all contributed to shell egg demand. However, it is possible that the demand for shell eggs will decline in the future.
Adverse publicity relating to health concerns and changes in the perception of the nutritional value of shell eggs, changes in
consumer views regarding consumption of animal-based products, as well as movement away from high protein diets, could
adversely affect demand for shell eggs, which would have a material adverse effect on our future results of operations and
financial condition.
Feed costs are volatile and increases in these costs can adversely impact our results of operations.
Feed costs are the largest element of our shell egg (farm) production cost, ranging from 55% to 58% of total farm production cost
in the last five fiscal years. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources,
we do not have control over the prices of the ingredients we purchase, which are affected by weather, various supply and demand
factors, transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and
internationally. Increases in feed costs unaccompanied by increases in the selling price of eggs can have a material adverse effect
on the results of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly
resulting in lower egg prices and lower revenue.
Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to, or we may
voluntarily, recall contaminated products.
Shell eggs and shell egg products are vulnerable to contamination by pathogens such as Salmonella. The Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg Rule issued by the FDA "Prevention of Salmonella Enteritidis in Shell Eggs During Production, Storage, and Transportation,”
and the FDA’s Food Safety Modernization Act. Shipment of contaminated products, even if inadvertent, could result in a violation
of law and lead to increased risk of exposure to product liability claims, product recalls and scrutiny by federal and state regulatory
agencies. In addition, products purchased from other producers could contain contaminants that might be inadvertently
redistributed by us. As such, we might decide or be required to recall a product if we or regulators believe it poses a potential
health risk. Any product recall could result in a loss of consumer confidence in our products, adversely affect our reputation with
existing and potential customers and have a material adverse effect on our business, results of operations and financial condition.
Agricultural risks, including outbreaks of avian disease, could harm our business.
Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. The Company
maintains controls and procedures to reduce the risk of exposing our flocks to harmful diseases; however, despite these efforts,
outbreaks of avian disease can and do still occur and may adversely impact the health of our flocks. An outbreak of avian disease
could have a material adverse impact on our financial results by increasing government restrictions on the sale and distribution
of our products and requiring us to euthanize the affected layers. Negative publicity from an outbreak within our industry can
negatively impact customer perception, even if the outbreak does not directly impact our flocks. If a substantial portion of our
layers or production facilities are affected by any of these factors in any given quarter or year, our business, financial condition,
and results of operations could be materially and adversely affected.
BUSINESS AND OPERATIONAL RISK FACTORS
The COVID-19 pandemic has had an adverse impact on our business and operations
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. The effects of COVID-19
have had, and may continue to have if a resurgence occurs, a negative impact on our business through disruptions in the supply
chain such as increased costs and decreased availability of packaging supplies; the pandemic has also increased labor costs and
medical costs.
During the initial outbreak of COVID-19, we saw an increase in demand for eggs as consumers prepared more meals at home.
Egg prices initially rose during the fourth quarter of fiscal 2020, but prices quickly decreased as the demand shock subsided and
eggs that normally would go to foodservice businesses (e.g. restaurants) entered the retail market (e.g. grocery stores). As a result
of the pandemic, the foodservice market for shell eggs was depressed for most of fiscal 2021. As vaccination rates continue to
rise and governmental restrictions are lifted, foodservice demand may increase and demand in retail channels, where we sell most
of our eggs, could decrease.
13
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to pursue a growth strategy that includes selective acquisitions
of other companies engaged in the production and sale of shell eggs, with a priority on those that will facilitate our ability to
expand our cage-free shell egg production capabilities in key locations and markets. The number of existing companies with
cage-free capacity that we may be able to purchase is limited, as most production of shell eggs by other companies in our markets
currently does not meet customer or legal requirements to be designated as cage-free.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct
prior to our acquisition of a business that were unknown to us at the time of acquisition. We could incur significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase. We may over-estimate or under-
estimate the demand for cage-free eggs, which could cause our acquisition strategy to be less-than-optimal for our future growth
and profitability.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No assurance can be given that companies we acquire in the future will contribute positively to our results of operations or
financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold
levels of significance, and we cannot guarantee that such approvals would be obtained.
The consideration we pay in connection with any acquisition affects our financial results. If we pay cash, we could be required
to use a portion of our available cash to consummate the acquisition. To the extent we issue shares of our Common Stock, existing
stockholders may be diluted. In addition, acquisitions may result in additional debt.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by, one or more of our large customers.
Our top three customers accounted for an aggregate of 48.6%, 51.1% and 52.2% of net sales dollars for fiscal 2021, 2020, and
2019, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.8%, 32.1% and 33.7% of net
sales dollars for fiscal 2021, 2020, and 2019, respectively. Although we have established long-term relationships with most of
our customers who continue to purchase from us based on our ability to service their needs, they are free to acquire shell eggs
from other sources. If, for any reason, one or more of our large customers were to purchase significantly less of our shell eggs in
the future or terminate their purchases from us, and we were not able to sell our shell eggs to new customers at comparable levels,
it would have a material adverse effect on our business, financial condition, and results of operations.
Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for virtually all of our net sales in recent years, is intensely
competitive. We compete with a large number of competitors that may prove to be more successful than we are in marketing and
selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of these companies.
Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market share, which would
negatively affect our business, results of operations, and financial condition.
We are dependent on our management team, and the loss of any key member of this team may adversely affect the
implementation of our business plan in a timely manner.
Our success depends largely upon the continued service of our senior management team. The loss or interruption of service of
one or more of our key executive officers could adversely affect our ability to manage our operations effectively and/or pursue
our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers
nor do we carry any significant key-man life insurance coverage on any such persons. Competition could cause us to lose talented
employees, and unplanned turnover could deplete institutional knowledge and result in increased costs due to increased
competition for employees.
14
Our business is dependent on our information technology systems and software, and failure to protect against or
effectively respond to cyber-attacks, security breaches, or other incidents involving those systems, could adversely affect
day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation,
or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage
or interruption from circumstances beyond our control, including systems failures, natural disasters, terrorist attacks,
viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and are increasing in
the number of attempts and frequency by groups and individuals with a wide range of motives.
A security breach of sensitive information could result in damage to our reputation and our relations with our customers or
employees. Any such damage or interruption could have a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 78% of our employees are paid at hourly rates, often in entry-level positions. While the
majority are paid at rates above the federal minimum wage requirements, any significant increase in local, state or federal
minimum wage requirements could increase our labor costs. In addition, any regulatory changes requiring us to provide additional
employee benefits or mandating increases in other employee-related costs, such as unemployment insurance or workers
compensation, would increase our costs. A shortage in the labor pool, which may be caused by competition from other employers,
the remote locations of many of our farms, or changes in government provided support or immigration laws, particularly in times
of lower unemployment, could adversely affect our business and results of operations. A shortage of labor available to us could
cause our farms to operate with reduced staff, which could negatively impact our production capacity and efficiencies and could
require us to increase wages to attract labor. Accordingly, any significant labor shortages or increases in our labor costs could
have a material adverse effect on our results of operations.
We are controlled by the family of our late founder, Fred R. Adams, Jr., and Adolphus B. Baker, our Chief Executive
Officer and Chairman of our Board of Directors controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams’ son-in-law, Adolphus B. Baker,
our Chief Executive Officer and Chairman of our board of directors, Mr. Baker’s spouse and her three sisters (who are Mr.
Adams’ four daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A
Common Stock (which has 10 votes per share), controlling approximately 52.1% of our total voting power. Additionally, such
persons and Jean Reed Adams (“Mrs. Adams”), the wife of our late founder, Fred R. Adams, Jr., also have additional voting
power due to beneficial ownership of our Common Stock (which has one vote per share), directly or indirectly through related
entities, resulting in family voting control of approximately 57.7% of our total voting power. Mr. Baker controls the vote of 100%
of our outstanding Class A Common Stock.
We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of our Common Stock and
our Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of
capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over
matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election
and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate
transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve
certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation’s
assets; accordingly, such a transaction involving us and requiring stockholder approval cannot be effected without the approval
of the Adams and Baker families. Such ownership will make an unsolicited acquisition of our Company more difficult and
discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders
of our Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker
families’ controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and you may
experience significant dilution as a result of future issuances of our securities, which could materially and adversely affect
the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. As described in
15
Adams and the Daughters’ Trust (of which the daughters of our late founder are beneficiaries) sold 6.9 million shares of Common
Stock in a secondary public offering pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”)
filed as an exhibit to this report. After the sale, approximately 5.0 million shares (the “Subject Shares”) remain registered under
a shelf registration statement and prospectus dated October 9, 2018 for potential resale, which shares are subject to the Agreement.
The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject Shares, such party must
give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to purchase
shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price based on the
20 business-day volume weighted average price. If the Company does not exercise its right of first refusal and purchase the shares
offered, such party will, subject to the approval of a special committee of independent directors of the Board of Directors, be
permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule 144 under the
Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement the Company
will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its rights of first
refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the Agreement or pursuant to Rule
144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our Common Stock could
result in a decline in the market price of our Common Stock.
In addition, our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of May 29, 2021,
there were 44,058,463 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common
Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue
additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans).
In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or
exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares
of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of
existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such
issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect
this dilution may have on the price of our Common Stock.
LEGAL AND REGULATORY RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices to comply with developing standards or subject us to marketing costs to defend challenges to our current
practices and protect our image with our customers. In particular, changes in customer preferences and new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of Animals and
the Humane Society of the United States, to require companies that supply food products to operate their business in a manner
that treats animals in conformity with certain standards developed or approved by these groups. In general, we may incur
additional costs to conform our practices to address these standards or to defend our existing practices and protect our image with
our customers. The standards promoted by these groups change over time, but typically require minimum cage space for hens,
among other requirements, and some of these groups have led successful legislative efforts to ban any form of caged housing in
various states. As discussed in Part I. Item 1. Business - Government Regulation, several states have passed minimum space
and/or cage-free requirements for hens, and other states are considering such requirements. In addition, in recent years, many
large restaurant chains, foodservice companies and grocery chains, including our largest customers, announced goals to transition
to an exclusively cage-free egg supply chain by specified future dates, in some cases subject to available supply, affordability
and consumer demand.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and new laws has
resulted and will continue to result in additional costs, including capital and operating cost increases. The USDA reported that
the estimated cage-free flock is 86.0 million hens as of June 1, 2021, which is approximately 27% of the total U.S. hen
population. According to the USDA Agricultural Marketing Service approximately 66% of the U.S. laying flock would have to
be in cage-free production by 2026 to meet projected demand from the retailers, foodservice providers and food manufacturers
that have made promises to transition to cage-free eggs. The United Egg Producers, a nation-wide egg farmer cooperative, has
estimated that the cost to build farms compliant with cage-free standards is $45 a bird. Based on that figure, such an increase in
the size of the cage-free flock would require an estimated industry-wide investment of approximately $5.5 billion.
In response to our customers' announced goals and increased legal requirements for cage-free eggs, we increased capital
expenditures to increase our cage-free production capacity. We are also enhancing our focus on cage-free capacity when
considering acquisition opportunities. Our customers typically do not commit to long-term purchases of specific quantities or
16
type of eggs with us, and as a result, we cannot predict with any certainty which types of eggs they will require us to supply in
future periods. The ongoing production of cage-free eggs is more costly than the production of conventional eggs, and these
higher production costs contribute to the higher prices of cage-free eggs compared with conventional eggs. Many consumers
prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence our customers’ future
needs for cage-free eggs. Due to these uncertainties, we may over-estimate future demand for cage-free eggs, which could increase
our costs unnecessarily, or we may under-estimate future demand for cage-free eggs, which could harm us competitively.
Failure to comply with applicable governmental regulations, including environmental regulations, could harm our
operating results, financial condition, and reputation. Further, we may incur significant costs to comply with any such
regulations.
We are subject to federal, state and local regulations relating to grading, quality control, labeling, sanitary control, waste disposal,
and other areas of our business. As a fully-integrated shell egg producer, our shell egg facilities are subject to regulation and
inspection by the USDA, EPA, and FDA, as well as state and local health and agricultural agencies, among others. All of our
shell egg production and feed mill facilities are subject to FDA regulation and inspections. In addition, rules are often proposed
that, if adopted as proposed, could increase our costs.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we are required to obtain permits from governmental authorities, including, but not
limited to pollution/wastewater discharge permits.
If we fail to comply with applicable laws or regulations, or fail to obtain necessary permits, we could be subject to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, it is
possible that we will be required to incur significant costs for compliance with such laws and regulations in the future.
Current and future litigation could expose us to significant liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings. Litigation is inherently unpredictable, and although
we believe we have meaningful defenses in these matters, we may incur liabilities due to adverse judgments or enter into
settlements of claims that could have a material adverse effect on our results of operations, cash flow and financial condition. For
a discussion of legal proceedings see Part I. Item 3. Legal Proceedings below. Such lawsuits are expensive to defend, divert
management’s attention, and may result in significant adverse judgments or settlements. Legal proceedings may expose us to
negative publicity, which could adversely affect our business reputation and customer preference for our products and brands.
FINANCIAL AND ECONOMIC RISK FACTORS
The loss of any registered trademark or other intellectual property could enable other companies to compete more
effectively with us.
We utilize intellectual property in our business. For example, we own the trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We produce and market
Egg-Land’s Best®
Land O’ Lakes
® under license agreements with EB. We
have invested a significant amount of money in establishing and promoting our trademarked brands. The loss or expiration of
any intellectual property could enable our competitors to compete more effectively with us by allowing them to make and sell
products substantially similar to those we offer. This could negatively impact our ability to produce and sell those products,
thereby adversely affecting our operations.
Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets
acquired. Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. As of May 29, 2021, we had $35.5 million of goodwill. While we believe the current carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period or our net worth.
17
Events beyond our control such as pandemics, extreme weather and natural disasters could negatively impact our
business.
Pandemics such as COVID-19, or similar disease outbreaks in the future, may depress demand for shell eggs due to quarantines
or restrictions on public interactions that would limit the ability of consumers to purchase shell eggs. Pandemics, or similar disease
outbreaks in the future, may disrupt our supply chain and operations at our facilities. If a significant percentage of our workforce,
or the workforce of our suppliers or transportation providers, is unable to work because of illness or government restrictions, our
operations would be negatively impacted, potentially materially. Pandemics or disease outbreaks may also impact hens or the
food supply.
Fire, bioterrorism, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes
or other storms, (some of which may be believed to be the result of or intensified by climate change), could impair the health or
growth of our flocks, decrease production or availability of feed ingredients, or interfere with our operations due to power outages,
fuel shortages, discharges from overtopped or breached wastewater treatment lagoons, damage to our production and processing
facilities, labor shortages or disruption of transportation channels, among other things. Any of these factors could have a material
adverse effect on our financial results.
Weak or unstable economic conditions could negatively impact our business.
Weak or unstable economic conditions, including higher inflation, may adversely affect our business by:
●
Limiting our access to capital markets or increasing the cost of capital we may need to grow our business;
●
Changing consumer spending and habits and demand for eggs, particularly higher-priced specialty eggs;
●
Restricting the supply of energy sources or increasing our cost to procure energy; or
●
Reducing the availability of feed ingredients, packaging material, and other raw materials, or increasing the cost of these
items.
Deterioration of economic conditions could also negatively impact:
●
The financial condition of our suppliers, which may make it more difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for eggs or increase our bad debt expense; or
●
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an insured peril.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
18
ITEM 2. PROPERTIES
The table below provides summary information about the primary operational facilities we use in our business.
Type
Quantity
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
—
House up to 255,000 hens
MS, GA
Distribution Centers
3
2
1
NA
FL, NC, TX
Feed Mills
25
24
1
Production capacity of 814 tons of
feed per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
MS, FL
Processing and Packaging
44
43
1
Approximately 565,800 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
24
24
—
Grow 24.4 Million pullets
annually
AR, FL, GA, KS, KY, OH, SC,
TX, UT
Shell Egg Production
41
40
1
As of May 29, 2021, 37.8 million
layers in Company owned
facilities
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
2
2
—
Capable of producing 60 million
lbs. per year
GA, TX
As of May 29, 2021, we owned approximately 28.3 thousand acres of land. There are no material encumbrances on our properties.
ITEM 3. LEGAL PROCEEDINGS
Refer to the description of certain legal proceedings pending against us under Part II. Item 8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no public trading market for the Class A Common Stock.
All outstanding Class A shares are owned by a limited liability company of which Adolphus Baker, our Chairman and Chief
Executive Officer, is the sole managing member and will be voted at the direction of Mr. Baker. At July 14, 2021, there were
approximately 322 record holders of our Common Stock and approximately 39,079 beneficial owners whose shares were held by
nominees or broker dealers. For additional information about our capital structure, see
to the Consolidated Financial Statements.
Dividends
Cal-Maine has a variable dividend policy adopted by its Board of Directors. Pursuant to the policy, Cal-Maine pays a dividend
to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company
reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with GAAP in an amount equal to one-third
(1/3) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day following the last day of such
quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company will pay dividends to shareholders of record on
the 65th day after the quarter end. Dividends are payable on the 15th day following the record date. Following a quarter for which
the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a
subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for
which a dividend was paid. Under the Company's Revolving Credit Facility, dividends are restricted to the amount permitted
under the Company’s current dividend policy, and may not be paid if a default exists or will arise after giving effect to the
19
dividend. At the end of fiscal 2021, the amount of cumulative losses to be recovered before payment of a dividend was
$4.2 million.
Stock Performance Graph
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for
the Company, the NASDAQ Composite Total Return, and the NASDAQ 100 Total Return for the five years ended May 29, 2021.
The graph assumes $100 was invested on May 28, 2016 in the stock or index. Each date plotted indicates the last day of a fiscal
quarter.
Issuer Purchases of Equity Securities
There were no purchases of our Common Stock made by or on behalf of our Company or any affiliated purchaser during our
fiscal 2021 fourth quarter.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended May 29, 2021.
20
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a)
Equity compensation plans
approved by shareholders
—
$
—
302,147
Equity compensation plans not
approved by shareholders
—
—
—
Total
—
$
—
302,147
(a)
There were no outstanding options, warrants or rights as of
May
29
, 202
1
.
There were
1,125,188
shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term Incentive Plan as of May 29, 2021.
(b)
There were no outstanding options, warrants or rights as of
May
29
, 202
1
.
(c)
Reflects s
hares available for future issuance as of
May
29
, 202
1
under our
Amended and Restated
2012 Omnibus
Long-Term Incentive Plan.
For additional information, see
Statements.
ITEM 6. SELECTED FINANCIAL DATA
This Item is reserved as a result of the Company’s early adoption of Item 301 of Regulation S-K, as deleted pursuant to SEC
Release No. 33-10890; 34-90459 (Management’s Discussion and Analysis; Selected Financial Data, and Supplementary
Financial Information) adopted by the Securities and Exchange Commission on November 19, 2020.
21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS; FORWARD -LOOKING STATEMENTS
For information relating to important risks and uncertainties that could materially adversely affect our business, securities,
financial condition or operating results, reference is made to the disclosure set forth under
. In
addition, because the following discussion includes numerous forward-looking statements relating to us, our results of operations,
financial condition and business, reference is made to the information set forth in the section of Part I immediately preceding
Item 1 above under the caption “
.”
COMPANY OVERVIEW
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs.
Our fiscal year end is the Saturday closest to May 31. The Company, which is headquartered in Ridgeland, Mississippi, is the
largest producer and distributor of fresh shell eggs in the United States. In fiscal 2021, we sold approximately 1,073.2 million
dozen shell eggs, which we believe represented approximately 19% of domestic shell egg consumption. Our total flock of
approximately 37.8 million layers and 10.8 million pullets and breeders is the largest in the U.S. We sell most of our shell eggs
to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and
egg product consumers in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell
eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs.
Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage-free, organic and brown eggs as
specialty products for accounting and reporting purposes. We classify all other shell eggs as conventional products. While we
report separate sales information for these types of eggs, there are a number of cost factors which are not specifically available
for conventional or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these
types of eggs on a consolidated basis based on the demands of our customers. For further description of our business, refer to
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 2.5 million dozen eggs
in fiscal 2021. We believe we are taking all reasonable precautions in the management of our operations in response to the
COVID-19 pandemic. Our top priority is the health and safety of our employees, who work hard every day to produce eggs for
our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and 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. All non-essential corporate travel has been suspended. There are no
known indications that COVID-19 affects hens or can be transferred through the food supply.
We continue to proactively monitor and manage operations during the COVID-19 pandemic, including additional related costs
that we incurred or may incur in the future. The pandemic had a negative impact on our business through disruptions in the supply
chain such as increased costs and availability of packaging supplies, increased labor costs and medical costs.
In fiscal 2021, we spent $2.3 million (excluding medical insurance claims) related to the pandemic. The majority these expenses
resulted from additional labor and increased cost of packaging materials, primarily reflected in cost of sales. Medical insurance
claims related to COVID-19 paid during fiscal 2021 were an additional $1.4 million.
22
Executive Overview of Results – Fiscal Years Ended May 29, 2021, May 30, 2020 and June 1, 2019
Fiscal Years Ended
May 29, 2021
May 30, 2020
June 1, 2019
Net sales (in thousands)
$
1,348,987
$
1,351,609
$
1,361,188
Gross profit (in thousands)
$
160,661
$
179,588
$
222,859
Net average shell egg price
(a)
$
1.217
$
1.231
$
1.265
Average UB Southeast Region - Shell Eggs - White Large
$
1.155
$
1.220
$
1.229
Feed costs per dozen produced
$
0.446
$
0.409
$
0.415
(a) The net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded
shell egg sales, breaking stock and undergrades.
In fiscal 2019, an increase in the U.S flock size resulted in an oversupply of eggs, particularly from the start of our third quarter
of fiscal 2019 through the end of the third quarter of fiscal 2020. This led to lower selling prices for conventional eggs, and
demand for specialty eggs was negatively impacted by the low conventional egg prices.
Our net sales for fiscal 2021 decreased $2.6 million compared to fiscal 2020, primarily due to the decrease in the selling price
and volume of conventional eggs, partially offset by the increased volume of specialty eggs sold. We sell the majority of our
conventional eggs at prices that take into account, in varying ways, independently quoted wholesale market prices as published
by UB for shell eggs. The daily average of the UB Southeast Region – Shell Eggs – White Large decreased 5.3% during our
fiscal 2021 as compared to fiscal 2020.
The total number of shell eggs produced in the U.S. for fiscal 2021 was 2.0% less than the same period last year as reported by
the United States Department of Agriculture (“USDA”). Hen numbers reported by the USDA as of June 1, 2021, were 315.7
million, which represents 5.3 million fewer hens than a year ago. Notably, this is the lowest national supply of laying hens since
October 2016. However, we believe the decreased demand in foodservice seen throughout the first three quarters of fiscal 2021
due to the pandemic contributed to the depressed price of shell eggs in the retail market due to the extra supply entering the retail
channel from the foodservice channel.
The pandemic continues to affect the demand for shell eggs. During the early restrictive phase of the pandemic, which occurred
during our fourth quarter of fiscal 2020, demand increased substantially as consumers were preparing for more meals at home.
Consumer demand maintained a steady growth throughout our first three quarters of fiscal 2021 but began trending down during
our fourth quarter of fiscal 2021 as consumers started to resume pre-pandemic activities. Foodservice demand has started to
improve, though it has remained below pre-pandemic levels. Our experience appears consistent with industry trends during this
period. According to data provided by Informational Resources, Inc. (“IRi”), IRi’s Total US – Multi Outlet for all shell eggs
demand increased by approximately 6% for the first three quarters during our fiscal year and decreased approximately 20% during
our fourth fiscal quarter as compared to the same periods in fiscal 2020.
According to IRi Total U.S. – Multi Outlet data, for the 52 weeks ended May 30, 2021, dozens sold for conventional eggs
decreased 3.4%, while dozens sold for specialty eggs increased 8.6% as compared to the same period in the prior year. Similarly,
our total dozens sold for conventional eggs decreased 3.4%, while our total dozens sold for specialty eggs increased 12.5%, as
compared to fiscal 2020. Specialty egg demand has historically been impacted by the price of the conventional egg. When the
price of conventional eggs is low the demand for specialty eggs declines and as the price of conventional eggs increases the
demand for specialty eggs increase. We have also seen demand for specialty eggs increases during holiday seasons. We believe
that the increase in demand for specialty eggs has been affected since the onset of the pandemic as consumers have been preparing
more meals at home rather than going out to eat, and therefore they have been more willing to spend money on specialty eggs.
Gross profit decreased $18.9 million to $160.7 million in fiscal 2021. The decrease resulted primarily from lower selling prices
for conventional eggs, as discussed above, and from increased feed costs. For fiscal year 2021, the average Chicago Board of
Trade (“CBOT”) daily market price was $3.77 per bushel for corn and $300.62 per ton for soybean meal, representing increases
of 21.1% and 23.0%, respectively, compared to the daily average CBOT prices for fiscal 2020. Feed costs started trending higher
midway through the second quarter of fiscal 2021. Increased export demand for both soybeans and corn, as well as weather-
related shortfalls in production and yields, have placed additional pressure on domestic supplies, resulting in higher and more
volatile prices.
We continue to execute our growth strategy of remaining a low-cost provider of shell eggs and growth through selective
acquisitions, with a focus on expanding cage-free capacity. Subsequent to fiscal 2021, we acquired the remaining 50%
23
membership interest in Red River Valley Egg Farm, LLC (“Red River”), which owns and operates a specialty shell egg production
complex with approximately 1.7 million cage-free laying hens, cage-free pullet capacity, a feed mill, processing plant, related
offices and outbuildings and related equipment located on approximately 400 acres near Bogata, Texas.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain items from our consolidated statements of income expressed
as a percentage of net sales.
Fiscal Year Ended
May 29, 2021
May 30, 2020
Net sales
100.0
%
100.0
%
Cost of sales
88.1
%
86.7
%
Gross profit
11.9
%
13.3
%
Selling, general and administrative
13.6
%
13.2
%
Loss on disposal of fixed assets
0.2
%
—
%
Operating income (loss)
(1.9)
%
0.1
%
Total other income
1.2
%
1.4
%
Income (loss) before income taxes
(0.7)
%
1.5
%
Income tax expense (benefit)
(0.9)
%
0.1
%
Net income
0.2
%
1.4
%
24
Fiscal Year Ended May 29, 2021 Compared to Fiscal Year Ended May 30, 2020
NET SALES
Net shell egg sales represented 97.3% and 97.7% of total net sales for the fiscal year 2021 and 2020, 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. The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except
percentage data):
May 29, 2021
May 30, 2020
Total net sales
$
1,348,987
$
1,351,609
Conventional
$
766,284
58.4
%
$
830,278
62.9
%
Specialty
539,780
41.1
%
485,465
36.8
%
Egg sales, net
1,306,064
99.5
%
1,315,743
99.7
%
Other
6,190
0.5
%
4,452
0.3
%
Net shell egg sales
$
1,312,254
100.0
%
$
1,320,195
100.0
%
Dozens sold:
Conventional
785,446
73.2
%
813,255
76.1
%
Specialty
287,765
26.8
%
255,895
23.9
%
Total dozens sold
1,073,211
100.0
%
1,069,150
100.0
%
Net average selling price per dozen:
Conventional
$
0.976
$
1.021
Specialty
$
1.876
$
1.897
All shell eggs
$
1.217
$
1.231
Egg products sales:
Egg products net sales
$
36,733
$
31,414
Pounds sold
63,627
65,985
Net average selling price per pound
$
0.577
$
0.476
Shell egg net sales
-
Conventional egg sales decreased $64.0 million or 7.7%, compared to fiscal 2020, primarily due to decreases in price
and volume of conventional eggs sold. Changes in price and volume resulted in a $35.3 million and a $27.1 million
decrease in net sales, respectively.
-
The decrease in volume and price of conventional eggs in fiscal 2021 compared to fiscal 2020 was due to the significant
increase in retail demand that occurred in the fourth quarter of fiscal 2020 related to the onset of the pandemic, as
consumers purchased more eggs in anticipation of preparing more meals at home. Additionally, the extra supply entering
the retail channel from the foodservice further depressed prices of conventional shell eggs throughout the first three
quarters of fiscal 2021.
-
Specialty egg sales increased $54.3 million or 11.2%, primarily due to increased volume of 12.5% which resulted in a
$59.8 million increase in net sales. More cage-free facilities came into production and we increased promotional
spending, both of which helped increase our cage-free sales.
-
We believe that the increase in demand for specialty eggs has been affected since the onset of the pandemic as consumers
have been preparing more meals at home rather than going out to eat, and therefore they have been more willing to spend
money on specialty eggs.
Egg products net sales
-
Egg products net sales increased $5.3 million or 16.9%, primarily due to an increase in selling price of 21.2% compared
to fiscal 2020, which had a $6.4 million positive impact on net sales.
-
Fiscal 2020 net average selling prices were negatively impacted by an oversupply of eggs throughout the first three
quarters in fiscal 2020, followed by a decline in foodservice demand in the fourth quarter of fiscal 2020, due to the
pandemic. Our net average selling price has increased in fiscal 2021 as demand has started to increase in the foodservice
channel.
25
COST OF SALES
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):
Fiscal Year Ended
May 29, 2021
May 30, 2020
% Change
Cost of Sales:
Farm production
$
730,902
$
677,181
7.9
%
Processing, packaging, and warehouse
250,058
234,243
6.8
Egg purchases and other (including change in inventory)
177,634
232,027
(23.4)
Total shell eggs
1,158,594
1,143,451
1.3
Egg products
29,536
25,651
15.1
Other
196
2,919
(93.3)
Total
$
1,188,326
$
1,172,021
1.4
%
Farm production costs (per dozen produced)
Feed
$
0.446
$
0.409
9.0
%
Other
$
0.320
$
0.329
(2.7)
%
Total
$
0.766
$
0.738
3.8
%
Outside egg purchases (average cost per dozen)
$
1.22
$
1.26
(3.2)
%
Dozens produced
970,837
927,799
4.6
%
Percent produced to sold
90.5%
86.8%
4.3
%
Farm Production
-
Feed costs increased $53.7 million, primarily due to increased export demand, as well as weather-related shortfalls in
production and yields, which have placed additional pressure on domestic supplies.
-
Other farm production costs decreased due to lower facility expense, resulting from improved efficiencies in our
utilization and from increased volume of eggs produced.
-
We also had lower amortization expense, due to the lower feed costs in prior periods, which are capitalized in our flocks
during pullet production. In fiscal 2020 we incurred higher amortization expense due to selling flocks early in response
to market conditions.
Processing, packaging, and warehouse
-
Processing costs increased due to a 3.2% increase in the volume of eggs processed.
-
Cost of pac
kaging materials increased 3.0% as the retail channel demand increased due to the pandemic
and
manufacturers increased prices and implemented pandemic surcharges.
-
Labor costs increased 7.2% due to the pandemic, due to crisis pay and wage increases in response to labor shortages.
Egg purchases and other (including change in inventory)
-
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 90.5%, as well as a decrease in the cost of these purchases.
Looking forward to fiscal 2022, we believe with the ongoing uncertainties and continued supply chain disruptions related to the
COVID-19 outbreak, weather fluctuations, increase demand for exports and geopolitical issues, that feed ingredients will remain
higher in the near future and expect to see price volatility throughout the year. We do not anticipate problems in securing an
adequate amount of feed ingredients for fiscal 2022.
26
GROSS PROFIT
Gross profit, as a percentage of net sales, was 11.9% for fiscal 2021, compared to 13.3% for fiscal 2020. The decrease resulted
primarily from lower selling prices for conventional eggs and increased feed costs.
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):
Fiscal Year Ended
May 29, 2021
May 30, 2020
$ Change
% Change
Specialty egg expense
$
59,294
$
49,237
$
10,057
20.4
%
Delivery expense
52,670
52,230
440
0.8
%
Payroll, taxes and benefits
43,327
44,156
(829)
(1.9)
%
Stock compensation expense
3,778
3,617
161
4.5
%
Other expenses
24,874
28,997
(4,123)
(14.2)
%
Total
$
183,943
$
178,237
$
5,706
3.2
%
Specialty egg expense
-
Advertising and franchise fees increased due to the increased volume of specialty eggs sales of 12.5% along with
increased promotional spending throughout the year as compared to the same period in the prior year.
Other expenses
-
Other expenses decreased due to a legal settlement paid in the second quarter of fiscal 2020, in an amount that was not
material.
-
In addition, for fiscal 2021 we received a return of brokerage commissions on property and casualty insurance
placements.
OPERATING INCOME (LOSS)
As a result of the above, our operating loss was $26.3 million for fiscal 2021, compared to operating income of $1.3 million for
fiscal 2020.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged to, or related to, operations such as interest income and
expense, equity in income or loss of unconsolidated entities, and patronage dividends, among other items.
The Company recorded interest income of $2.8 million in fiscal 2021, compared to $5.0 million in fiscal 2020. We recorded
interest expense of $213 thousand and $498 thousand in fiscal 2021 and 2020, respectively. The decrease in interest income
resulted from significantly lower investment balances and lower interest rates.
Patronage dividends, which represent distributions from our membership in Eggland's Best, Inc. ("EB"), decreased $1.1 million
or 10.8%. Patronage dividends are paid once a year based on EB’s profits and its available cash.
Equity in income from unconsolidated entities for fiscal 2021 was $622 thousand compared to $534 thousand for fiscal 2020.
Other, net for fiscal 2021 was income of $4.1 million compared to $3.7 million for fiscal 2020. The increase was primarily driven
by realized and unrealized gains in investment securities available-for-sale.
INCOME TAXES
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The most
significant provision of the CARES Act that materially affected the Company’s income taxes included the five-year carryback
allowance for taxable net operating losses generated in the tax years 2018 through 2020, our fiscal years 2019 through 2021.
27
The Tax Cut and Jobs Act enacted in December 2017 disallowed the carrying back of taxable net operating losses to offset prior
years’ taxable income. The CARES Act allows us to carry those losses generated or that may be generated during our fiscal years
2019 through 2021 back to offset taxable income recognized during the prior five years. The Company is electing to utilize that
provision, which will provide additional liquidity in the form of an income tax refund currently estimated to be approximately
$36.5 million. We believe we will receive the refund during our third fiscal quarter of 2022. Additionally, we recorded a total
income tax benefit of approximately $12.4 million related to the carryback provisions during our fiscal year 2021. For more
information regarding the income tax effects of the CARES Act, refer to Part II. Item 8. Notes to the Financial Statements,
For the fiscal year ended May 29, 2021, our pre-tax loss was $9.9 million, compared to pre-tax income of $20.1 million for fiscal
2020. We recorded an income tax benefit of $12.0 million for fiscal 2021, which includes the tax benefit of $12.4 million
described above. Our fiscal 2021 effective tax rate increased to 120.8% from 8.6% in fiscal 2020, driven primarily by the net
operating loss carryback provisions allowed under the CARES Act. Excluding the effects of the CARES Act, our income tax
benefit was $2.2 million for fiscal 2021 with an adjusted effective tax rate of 22.7%. Income tax expense was $4.8 million for
the comparable period of fiscal 2020, which reflects an adjusted effective tax rate of approximately 24.1%.
At May 29, 2021, the Company had an income tax receivable of $42.5 million compared to $9.9 million at May 30, 2020. During
fiscal 2021, the Company recorded an income tax receivable of $36.5 million related to the decision to carryback fiscal 2021
taxable net operating losses to recover a portion of taxes paid in fiscal 2016. Additionally, we received $1.4 million in state tax
refunds related to claims for refund previously filed with state taxing authorities.
For the thirteen weeks ended May 29, 2021, our pretax loss was $12.2 million, and our income tax benefit was $7.9 million with
an effective tax rate of 65.1%, including the impact of the CARES Act. Our income tax provision for the fourth quarter of fiscal
2021 reflects the carryback of taxable net operating losses generated during periods in which the statutory federal income tax rate
was 21% to periods in which the statutory federal income tax rate was 35%, as permitted by the CARES Act. Excluding the
effects of the CARES Act, our income tax expense was $1.8 million with an adjusted effective tax rate of 15.4%. The low effective
rate was primarily related to a $7.4 million income tax benefit recorded during the fourth quarter of fiscal 2021 in connection
with the CARES Act.
Items causing our effective tax rate to differ from the federal statutory income tax rate of 21% are state income taxes, certain
federal tax credits and certain items included in income or loss for financial reporting purposes that are not included in taxable
income or loss for income tax purposes, including tax exempt interest income, certain nondeductible expenses, and net income
or loss attributable to noncontrolling interest.
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
Net income (loss) attributable to noncontrolling interest for fiscal 2020 was a loss of $63 thousand. During fiscal 2020, we
acquired the remaining 27.9% interest in our majority-owned subsidiary TEP.
NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
As a result of the above, net income for fiscal 2021 was $2.1 million, or $0.04 per basic and diluted share, compared to
$18.4 million, or $0.38 per basic and diluted share for fiscal 2020.
Fiscal Year Ended May 30, 2020 Compared to Fiscal Year Ended June 1, 2019
The discussion of our results of operations for the fiscal year ended May 30, 2020 compared to the fiscal year ended June 1, 2019
can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the
Company's fiscal 2020 Annual Report on Form 10-K.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at May 29, 2021 was $303.5 million, compared to $429.1 million at May 30, 2020. The calculation of
working capital is defined as current assets less current liabilities. Our current ratio was 5.77 at May 29, 2021 compared to 5.60
at May 30, 2020. The current ratio is calculated by dividing current assets by current liabilities. Due to seasonal factors described
, we generally expect our need for working capital to be highest in the fourth and first fiscal
quarters ending in May/June and August/September, respectively.
28
We had no long-term debt outstanding at the end of fiscal 2021 and 2020. On July 10, 2018, we entered into a $100.0 million
Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”). As of May 29, 2021, no amounts were borrowed
under the Revolving Credit Facility. We have $4.1 million in outstanding standby letters of credit, which were issued under our
Revolving Credit Facility for the benefit of certain insurance companies. Refer to Part II. Item 8. Notes to the Financial
Statements,
Net cash provided by operating activities was $26.1 million for fiscal year 2021 compared with $73.6 million for fiscal year 2020.
Decreased gross profit margins resulting primarily from lower selling prices for shell eggs, and increased feed costs contributed
greatly to our decrease in cash flow from operations. The increase in accounts receivables balance at fiscal 2021 compared to
prior fiscal 2020 is due to the income tax receivable related to the CARES Act, which is expected to be received in our third
quarter of fiscal 2022.
For fiscal 2021, approximately $129.1 million was provided from the sale and maturity of investments securities available-for-
sale, $88.3 million was used to purchase short-term investments and net payments of $6.7 million were received from investments
in unconsolidated entities. Approximately $95.1 million was used to purchase or construct property, plant and equipment, most
of which related to the expansion of our cage-free shell egg production capacity. Refer to the table of material construction
projects presented below for additional information on purchases and construction of property, plant and equipment. The net
result of these and other activities as of May 29, 2021 was a decrease in cash of $20.8 million from May 30, 2020.
For fiscal 2020, approximately $204.3 million was provided from the sale and maturity of investments securities available-for-
sale, $107.2 million was used to purchase short-term investments and net payments of $7.1 million were received from
investments i
n unconsolidated entities. We used $44.7 million to acquire Mahard and the remaining interest in
TEP.
Approximately $124.2 million was used to purchase or construct property, plant and equipment, most of which related to the
expansion of our cage-free shell egg production capacity. Refer to the table of material construction projects presented below for
additional information on purchases and construction of property, plant and equipment. We used $1.5 million for principal
payments on long-term debt. The net result of these and other activities as of May 30, 2020 was an increase in cash of $8.9 million
from June 1, 2019.
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
$476 million in facilities, equipment and related operations to expand our cage-free production starting with our first facility in
2008, which includes the $48.5 million acquisition of the remaining 50% interest in Red River discussed in
Note 20 – Subsequent
Events
construction projects approved as of May 29, 2021 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
May 29, 2021
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
$
140,876
$
93,612
$
47,264
$
140,876
$
93,612
$
47,264
We believe our current cash balances, investments, cash flows from operations, and Revolving Credit Facility will be sufficient
to fund our current capital needs. As we monitor the demand for cage-free eggs and our growth strategy described in
we will have adequate access to capital markets if that need arises.
29
CONTRACTUAL OBLIGATIONS
The following table summarizes by fiscal year the future estimated cash payments, in thousands, to be made under existing
contractual obligations as of May 29, 2021. Further information on debt obligations is contained in
, and
on lease obligations in
, each in Part II. Item 8. Notes to the Consolidated Financial Statements. As of May 29,
2021, we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Finance leases
$
697
$
239
$
458
$
—
$
—
Operating leases
1,882
802
1,049
31
—
Purchase obligations:
Feed ingredients and fuel
(a)
89,779
89,779
—
—
—
Construction contracts and other equipment
38,063
38,063
—
—
—
Red River
(b)
48,500
48,500
—
—
—
Total
$
178,921
$
177,383
$
1,507
$
31
$
—
(a)
Actual purchase obligations may change based on the contractual terms and agreements
(b)
Represents the cash paid for the acquisition of Red River
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
For information on changes in accounting principles and new accounting principles, see “
New Accounting Pronouncements and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates. Critical accounting estimates are those
estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the financial condition or results of operations. Our critical accounting estimates are described
below.
INVESTMENTS IN SECURITIES
Our investment securities are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC
320”). The Company considers all of 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 allowance for credit losses, limited to the amount that fair value was less than the amortized cost basis. The cost
basis for realized gains and losses on available-for-sale securities is determined by the specific identification method. Gains and
losses are recognized in other income (expenses) as Other, net in the Company's Consolidated Statements of Income. Investments
in mutual funds are classified as “Other long-term assets” in the Company’s Consolidated Balance Sheets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade receivables are stated at their carrying values, which include a reserve for credit losses. The Company extends credit to
customers based on an evaluation of each customer's financial condition and credit history. Collateral is generally not required.
The Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and monitoring
procedures. In determining our reserve for credit losses, receivables are pooled according to age, with each pool assigned an
expected loss based on historical loss information adjusted as needed for economic and other forward-looking factors.
30
INVENTORIES
Inventories of eggs, feed, supplies and flocks are valued principally at the lower of cost (first-in, first-out method) or net realizable
value. If market prices for eggs and feed grains move substantially lower, we record adjustments to write down the carrying
values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick
purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive life, generally one to two years. Flock mortality is
charged to cost of sales as incurred. High mortality from disease or extreme temperatures will result in abnormal write-downs to
flock inventories. Management continually monitors each flock and attempts to take appropriate actions to minimize the risk of
mortality loss.
LONG-LIVED ASSETS
Depreciable long-lived assets are primarily comprised of buildings, improvements, machinery and equipment. Depreciation is
provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements
and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to
depreciation expense. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and
related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. We continually
reevaluate the carrying value of our long-lived assets, for events or changes in circumstances which indicate the carrying value
may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum
of the expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the asset, an
impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value.
INTANGIBLE ASSETS
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees,
non-compete agreements and customer relationship intangibles. They are amortized over their estimated useful lives of 5 to 15
years. The gross cost and accumulated amortization of intangible assets are removed when the recorded amounts are fully
amortized and the asset is no longer in use.
EQUITY AND COST METHOD INVESTMENTS
We have invested in other companies engaged in the production, processing and distribution of shell eggs and egg products. These
investments are recorded using the cost or equity method, and are not consolidated in our financial statements. Changes in the
ownership percentages of these investments might alter the accounting methods currently used. Our investment in these
companies is shown on the Company’s Consolidated Balance Sheet in the amounts presented for "Investment in unconsolidated
entities" and “Other long-term assets”.
GOODWILL
Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative
goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the
magnitude of any impairment.
31
At May 29, 2021, goodwill represented 2.9% of total assets and 3.5% of stockholders’ equity. Goodwill relates to the following
(in thousands):
Fiscal Year
Description
Amount
1999
Acquisition of Hudson Brothers, Inc.
$
3,147
2006
Acquisition of Hillandale Farms, LLC
869
2007
Acquisition of Green Forest Foods, LLC
179
2008
Revised Hillandale incremental purchase price
9,257
2009
Revised Hillandale incremental purchase price
2,527
2009
Acquisition of Zephyr Egg, LLC
1,876
2009
Acquisition of Tampa Farms, LLC
4,600
2010
Revised Hillandale incremental purchase price
(338)
2013
Acquisition of Maxim Production Co., Inc.
2,300
2014
Purchase of joint venture partner’s 50% in Delta Egg
4,779
2017
Acquisition of Foodonics International, Inc.
3,389
2017
Acquisition of Happy Hen Egg Farms, Inc.
2,940
Total Goodwill
$
35,525
REVENUE RECOGNITION AND DELIVERY COSTS
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer agreeing upon the order. See
Consolidated Financial Statements for further discussion of the policy.
The Company believes the performance obligation is met upon delivery and acceptance of the product by our customers. Costs
to deliver product to customers are included in selling, general and administrative expenses in the accompanying Consolidated
Statements of Income. Sales revenue reported in the accompanying Consolidated Statements of Income is reduced to reflect
estimated returns and allowances. The Company records an estimated sales allowance for returns and discounts at the time of
sale using historical trends based on actual sales returns and sales.
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.’’
STOCK BASED COMPENSATION
We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC
718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options, restricted stock and
performance-based shares to be recognized in the statement of income based on their fair values. ASC 718 requires the benefits
of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. See
INCOME TAXES
We determine our effective tax rate by estimating our permanent differences resulting from differing treatment of items for tax
and accounting purposes. We are periodically audited by taxing authorities. Any audit adjustments affecting permanent
differences could have an impact on our effective tax rate.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISK
Our primary exposure to market risk arises from changes in the prices of conventional eggs, which are subject to significant price
fluctuations that are largely beyond our control. We are focused on growing our specialty shell egg business because the selling
prices of specialty shell eggs are generally not as volatile as conventional shell egg prices. Our exposure to market risk also
includes changes in the prices of corn and soybean meal, which are commodities subject to significant price fluctuations due to
market conditions that are largely beyond our control. To ensure continued availability of feed ingredients, we may enter into
contracts for future purchases of corn and soybean meal, and as part of these contracts, we may lock-in the basis portion of our
grain purchases several months in advance. Ordinarily, we do not enter long-term contracts beyond a year to purchase corn and
soybean meal or hedge against increases in the price of corn and soybean meal. The following table outlines the impact of price
changes for corn and soybean meal on feed costs per dozen as feed ingredient pricing varies:
Change in price per bushel of corn
$
(0.87)
$
(0.58)
$
(0.29)
$
0.00
$
0.29
$
0.58
$
0.87
Change
per ton
Soybean
Meal
$
(82.50)
0.386
0.396
0.406
0.416
0.426
0.436
0.446
$
(55.00)
0.396
0.406
0.416
0.426
0.436
0.446
0.456
$
(27.50)
0.406
0.416
0.426
0.436
0.446
0.456
0.466
$
0.00
0.416
0.426
0.436
0.446
(a)
0.456
0.466
0.476
$
27.50
0.426
0.436
0.446
0.456
0.466
0.476
0.486
$
55.00
0.436
0.446
0.456
0.466
0.476
0.486
0.496
$
82.50
0.446
0.456
0.466
0.476
0.486
0.496
0.506
(a)
Based on 2021 actual costs, table flexes feed cost inputs to show $0.01 impacts to per dozen egg feed production costs.
INTEREST RATE RISK
The fair value of our debt is sensitive to changes in the general level of U.S. interest rates. In July 2018, we entered into a
$100.0 million Senior Secured Revolving Credit Facility which bears interest at a variable rate. No amounts were outstanding
under that facility during fiscal 2021. Under our current policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
FIXED INCOME SECURITIES RISK
At May 29, 2021, the effective maturity of our cash equivalents and investment securities available for sale was 11.2 months, and
the composite credit rating of the holdings are A- / A3 / A- (S&P / Moody’s / Fitch).
CONCENTRATION OF CREDIT RISK
Our financial instruments exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit
risk with respect to receivables are limited due to our large number of customers and their dispersion across geographic areas,
except that at May 29, 2021 and May 30, 2020, 23.8% and 29.5%, respectively, of our net accounts receivable balance was due
from Walmart Inc. (including Sam’s Club). No other single customer or customer group represented 10% or greater of net
accounts receivable.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc. and Subsidiaries (the
“Company”) as of May 29, 2021 and May 30, 2020, the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows for each of the three years in the period ended May 29, 2021, and the related consolidated
notes and schedule listed in the Index at Item 15(1) (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
May 29, 2021 and May 30, 2020, and the results of its operations and its cash flows for each of the three years in the period ended
May 29, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of May 29, 2021, based on the criteria established
in
2013 Internal Control – Integrated Framework
Commission and our report dated July 19, 2021 expressed an unqualified opinion.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the Audit Committee and
that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Contingent Liabilities – Litigation and Claims – Refer to Note 18 in the Consolidated Financial Statements
Critical Audit Matter Description
The Company records liabilities for legal proceedings and claims in those instances where it can reasonably estimate the
amount of the loss and when the liability is probable. Where the reasonable estimate of the probable loss is a range, the Company
records the most likely estimate of the loss, or the low end of the range if there is no one best estimate. The Company either
discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate
cannot be made. The Company discloses significant legal proceedings and claims even where liability is not probable or the
amount of the liability is not estimable, or both, if the Company believes there is at least a reasonable possibility that a loss may
be incurred.
34
We identified litigation and claims as a critical audit matter because of the challenges auditing management’s judgments
applied in determining the likelihood of loss related to the resolution of such claims. Specifically, auditing management’s
determination of whether any contingent loss arising from the related litigation and claims is probable, reasonably possible or
remote, and the related disclosures, is subjective and requires significant judgment due to the sensitivity of the issue.
How the Critical Audit Matter was addressed during the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of the controls
relating to the Company’s evaluation of the liability related to legal proceedings and claims, including controls over determining
the likelihood of a loss and whether the amount of loss can be reasonably estimated, as well as financial statement disclosures
over the legal proceedings and claims. These procedures also included obtaining and evaluating the letters of audit inquiry with
external legal counsel, evaluating the reasonableness of the Company’s assessment regarding whether an unfavorable outcome is
reasonably possible or probable and reasonably estimable, evaluating the sufficiency of the Company’s disclosures related to
legal proceedings and claims and evaluating the completeness and accuracy of the Company’s legal contingencies.
/s/ Frost, PLLC
We have served as the Company’s auditor since 2007.
Little Rock, Arkansas
July 19, 2021
35
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
May 29, 2021
May 30, 2020
Assets
Current assets:
Cash and cash equivalents
$
57,352
$
78,130
Investment securities available-for-sale
112,158
154,163
Receivables:
Trade receivables, net
79,066
84,976
Income tax receivable
42,516
9,884
Other
5,057
3,515
Total receivables, net
126,639
98,375
Inventories, net
218,375
187,216
Prepaid expenses and other current assets
5,407
4,367
Total current assets
519,931
522,251
Property, plant & equipment, net
589,417
557,375
Finance lease right-of-use asset, net
525
678
Operating lease right-of-use asset, net
1,724
2,531
Investments in unconsolidated entities
54,941
60,982
Goodwill
35,525
35,525
Intangible assets, net
20,341
22,816
Other long-term assets
6,770
4,536
Total assets
$
1,229,174
$
1,206,694
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable
$
52,784
$
55,904
Accrued wages and benefits
23,812
23,277
Accrued expenses and other liabilities
12,595
13,001
Current portion of finance lease obligation
215
205
Current portion of operating lease obligation
691
796
Total current liabilities
90,097
93,183
Long-term finance lease obligation
438
652
Long-term operating lease obligation
1,034
1,735
Other noncurrent liabilities
10,416
8,681
Deferred income taxes
114,408
92,768
Total liabilities
216,393
197,019
Commitments and contingencies - see
Note 18
—
—
Stockholders’ equity:
Common stock ($
0.01
Common stock – authorized
120,000
70,261
703
703
Class A convertible common stock – authorized and issued
4,800
48
48
Paid-in capital
64,044
60,372
Retained earnings
975,977
975,147
Accumulated other comprehensive income (loss), net of tax
(558)
79
Common stock in treasury, at cost –
26,202
26,287
respectively
(27,433)
(26,674)
Total stockholders’ equity
1,012,781
1,009,675
Total liabilities and stockholders’ equity
$
1,229,174
$
1,206,694
36
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal years ended
May 29, 2021
May 30, 2020
June 1, 2019
52 weeks
52 weeks
52 weeks
Net sales
$
1,348,987
$
1,351,609
$
1,361,188
Cost of sales
1,188,326
1,172,021
1,138,329
Gross profit
160,661
179,588
222,859
Selling, general and administrative
183,943
178,237
177,045
Loss on disposal of fixed assets
2,982
82
33
Operating income (loss)
(26,264)
1,269
45,781
Other income (expense):
Interest expense
(213)
(498)
(644)
Interest income
2,828
4,962
7,978
Patronage dividends
9,004
10,096
10,482
Equity in income of unconsolidated entities
622
534
4,776
Other, net
4,074
3,696
2,432
Total other income
16,315
18,790
25,024
Income (loss) before income taxes
(9,949)
20,059
70,805
Income tax expense (benefit)
(12,009)
1,731
15,743
Net income
2,060
18,328
55,062
Less: Net income (loss) attributable to noncontrolling interest
—
(63)
833
Net income attributable to Cal-Maine Foods, Inc.
$
2,060
$
18,391
$
54,229
Net income per share attributable to Cal-Maine Foods, Inc.:
Basic
$
0.04
$
0.38
$
1.12
Diluted
$
0.04
$
0.38
$
1.12
Weighted average shares outstanding:
Basic
48,522
48,467
48,467
Diluted
48,656
48,584
48,589
37
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of
Comprehensive Income
(in thousands)
Fiscal years ended
2021
2020
2019
Net income
$
2,060
$
18,328
$
55,062
Other comprehensive income (loss), before tax:
Unrealized holding gain (loss) available-for-sale securities, net of reclassification
adjustments
(736)
59
1,719
Increase in accumulated post-retirement benefits obligation, net of reclassification
adjustments
(137)
(445)
(349)
Other comprehensive income (loss), before tax
(873)
(386)
1,370
Income tax expense (benefit) related to items of other comprehensive income (loss)
(236)
(110)
322
Other comprehensive income (loss), net of tax
(637)
(276)
1,048
Comprehensive income
1,423
18,052
56,110
Less: comprehensive income (loss) attributable to the noncontrolling interest
—
(63)
833
Comprehensive income attributable to Cal-Maine Foods, Inc.
$
1,423
$
18,115
$
55,277
38
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
Common Stock
Shares
Amount
Class A
Shares
Class A
Amount
Treasury
Shares
Treasury
Amount
Paid In
Capital
Retained
Earnings
Accum.
Other
Comp.
Income
(loss)
Noncontrolling
Interest
Total
Balance at June 2, 2018
70,261
$
703
4,800
$
48
26,430
$
(24,966)
$
53,323
$
924,918
$
(693)
$
2,349
955,682
Stock compensation plan transactions
—
—
—
—
(64)
(900)
3,534
—
—
—
2,570
Dividends
—
—
—
—
—
—
—
(24,620)
—
—
(24,620)
Net income
—
—
—
—
—
—
—
54,229
—
833
55,062
Other comprehensive income, net of tax
—
—
—
—
—
—
—
—
1,048
—
1,048
Balance at June 1, 2019
70,261
703
4,800
—
48
26,366
(25,866)
56,857
954,527
355
3,182
989,806
Stock compensation plan transactions
—
—
—
—
(79)
(808)
3,515
—
—
2,628
Distributions to noncontrolling interest
partners
—
—
—
—
—
—
—
—
—
(755)
(755)
Acquisition of noncontrolling interest in
Texas Egg Products, LLC
—
—
—
—
—
—
—
2,229
—
(2,364)
(135)
Net income
—
—
—
—
—
—
—
18,391
—
(63)
18,328
Other comprehensive loss, net of tax
—
—
—
—
—
—
—
—
(276)
(276)
Balance at May 30, 2020
70,261
703
4,800
48
26,287
(26,674)
60,372
975,147
79
—
1,009,675
Impact of ASC 326, see Note 1
—
—
—
—
—
—
—
422
—
—
422
Balance at May 31, 2020
70,261
703
4,800
48
26,287
(26,674)
60,372
975,569
79
—
1,010,097
Stock compensation plan transactions
—
—
—
—
(85)
(759)
3,667
—
—
—
2,823
Dividends
—
—
—
—
—
—
—
(1,652)
—
—
(1,652)
Contributions
—
—
—
—
—
—
5
—
—
—
5
Net income
—
—
—
—
—
—
—
2,060
—
—
2,060
Other comprehensive loss, net of tax
—
—
—
—
—
—
—
—
(637)
—
(637)
Balance at May 29, 2021
70,261
$
703
4,800
$
48
26,202
$
(27,433)
$
64,044
$
975,977
$
(558)
$
—
$
1,012,781
39
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
May 29, 2021
May 30, 2020
June 1, 2019
Cash flows from operating activities:
Net income
$
2,060
$
18,328
$
55,062
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
59,477
58,103
54,650
Deferred income taxes
22,351
10,281
6,123
Equity in income of affiliates
(622)
(534)
(4,776)
Loss on disposal of property, plant and equipment
2,982
82
33
Impairment loss on fixed assets
196
2,919
—
Stock compensation expense, net of amounts paid
3,778
3,617
3,619
Unrealized losses on investments
1,810
744
—
Gains on sales of investments
(22)
(611)
—
Purchases of equity securities
(334)
(275)
—
Sales of equity securities
55
1,212
—
Amortization of investments
890
316
962
Other
(427)
(248)
23
Change in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in receivables and other assets
(33,487)
(28,300)
16,012
Increase in inventories
(31,159)
(9,704)
(2,285)
(Increase) decrease in accounts payable, accrued expenses and other
liabilities
(1,412)
17,679
(14,338)
Net cash provided by operating activities
26,136
73,609
115,085
Cash flows from investing activities:
Purchases of investments
(88,283)
(107,234)
(176,951)
Sales of investments
129,108
204,277
209,806
Acquisition of businesses, net of cash acquired
—
(44,650)
(17,889)
Investment in unconsolidated entities
—
—
(4,273)
Distributions from unconsolidated entities
6,663
7,114
7,904
Purchases of property, plant and equipment
(95,069)
(124,178)
(67,989)
Net proceeds from disposal of property, plant and equipment
3,390
3,306
1,575
Net cash used in investing activities
(44,191)
(61,365)
(47,817)
Cash flows from financing activities:
Principal payments on long-term debt
—
(1,500)
(3,754)
Principal payments on finance lease
(205)
(196)
—
Distributions to noncontrolling interest partners
—
(755)
—
Purchase of common stock by treasury
(871)
(910)
(985)
Payments of dividends
(1,652)
—
(41,713)
Contributions
5
—
—
Net cash used in financing activities
(2,723)
(3,361)
(46,452)
Increase (decrease) in cash and cash equivalents
(20,778)
8,883
20,816
Cash and cash equivalents at beginning of year
78,130
69,247
48,431
Cash and cash equivalents at end of year
$
57,352
$
78,130
$
69,247
Supplemental information:
Cash paid for operating leases
$
929
$
871
$
—
Income taxes paid (refunds received)
$
(1,618)
$
(8,443)
$
36,312
Interest paid
$
508
$
498
$
644
40
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packing and sale of
fresh shell eggs, including cage-free, organic, and nutritionally-enhanced eggs. The Company, which is headquartered
in Ridgeland, Mississippi, is the largest producer and distributor of fresh shell eggs in the United States and sells the majority of
its shell eggs in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned subsidiaries, and majority-owned subsidiaries
over which we exercise control. All significant intercompany transactions and accounts have been eliminated in consolidation.
Fiscal Year
The Company’s fiscal year-end is on the Saturday closest to May 31. Each of the year-to-date periods ended
May 29, 2021
, May
30, 2020, and June 1, 2019, included
52
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles ("GAAP")
in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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 may change over time in response to
COVID-19 and may change materially in future periods.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents. We maintain bank accounts that are insured by the Federal Deposit Insurance Corporation up to $250,000. The
Company routinely maintains cash balances with certain financial institutions in excess of federally insured amounts. The
Company has not experienced any loss in such accounts. The Company manages this risk through maintaining cash deposits and
other highly liquid investments in high quality financial institutions.
We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for receiving
cash, concentration accounts to which funds are moved, and zero-balance disbursement accounts for funding accounts payable.
Checks issued, but not presented to the banks for payment, may result in negative book cash balances, which are included in
accounts payable. At May 29, 2021 and May 30, 2020, checks outstanding in excess of related book cash balances totaled
$
7.5
11.2
Investment Securities
Our investment securities are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC
320”). The Company considers 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 allowance
for credit losses, limited to the amount that fair value was less than the amortized cost basis. The cost basis for realized gains and
losses on available-for-sale securities is determined by the specific identification method. Gains and losses are recognized in other
income (expenses) as Other, net in the Company's Consolidated Statements of Income. Investments in mutual funds are classified
as “Other long-term assets” in the Company’s Consolidated Balance Sheets.
41
Trade Receivables
Trade receivables are stated at their carrying values, which include a reserve for credit losses. At May 29, 2021 and May 30,
2020, reserves for credit losses were $
795
744
based on an evaluation of each customer's financial condition and credit history. Collateral is generally not required. The
Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and monitoring
procedures. In determining our reserve for credit losses, receivables are pooled according to age, with each pool assigned an
expected loss based on historical loss information adjusted as needed for economic and other forward-looking factors. At both
May 29, 2021 and May 30, 2020 one customer accounted for approximately
23.8
% and
29.5
% of the Company’s trade accounts
receivable, respectively.
Inventories
Inventories of eggs, feed, supplies and flocks are valued principally at the lower of cost (first-in, first-out method) or net realizable
value.
The cost associated with flocks, consisting principally of chicks, feed, labor, contractor payments and overhead costs, are
accumulated during a growing period of approximately
22
lives of the flocks, generally
one
two years
. Flock mortality is charged to cost of sales as incurred.
The Company does not disclose the gross cost and accumulated amortization with respect to its flock inventories since this
information is not utilized by management in the operation of the Company.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful
lives, which are
15
25
3
12
maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When
property, plant, and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated
depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost
incurred on funds used to construct property, plant, and equipment as part of the asset to which it relates, and is amortized over
the asset’s estimated useful life.
Leases
The Company determines if an arrangement is a lease at inception of the arrangement and classifies it as an operating lease or
finance lease. We recognize the right to use an underlying asset for the lease term as a right-of-use ("ROU") asset on our balance
sheet. A lease liability is recorded to represent our obligation to make lease payments over the term of the lease. These assets and
liabilities are included in our Consolidated Balance Sheet in Finance lease right-of-use asset, Operating lease right-of-use asset,
Current portion of finance lease obligation, Current portion of operating lease obligation, Long-term finance lease obligation, and
Long-term operating lease obligation.
The Company records ROU assets and lease obligations based on the discounted future minimum lease payments over the term
of the lease. When the rate implicit in the lease is not easily determinable, the Company’s incremental borrowing rate is used to
calculate the present value of the future lease payments. The Company elected not to recognize ROU assets and lease obligations
for leases with an initial term of 12 months or less. Lease expense for operating leases is recognized on a straight-line basis over
the lease term.
Investments in Unconsolidated Entities
The equity method of accounting is used when the Company has a 20% to 50% interest in other entities or when the Company
exercises significant influence over the entity. Under the equity method, original investments are recorded at cost and adjusted
by the Company’s share of undistributed earnings or losses of these entities. Nonmarketable investments in which the Company
has less than a 20% interest and in which it does not have the ability to exercise significant influence over the investee are initially
recorded at cost, and periodically reviewed for impairment.
42
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill is
evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test
is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of
any impairment.
Intangible Assets
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees,
non-compete agreements and customer relationship intangibles. They are amortized over their estimated useful lives of
5
15
years. The gross cost and accumulated amortization of intangible assets are removed when the recorded amounts are fully
amortized and the asset is no longer in use or the contract has expired.
Accrued Self Insurance
We use a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for health and welfare,
workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks retained are estimated, in
part, by considering claims experience, demographic factors, severity factors and other actuarial assumptions.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as
treasury stock. The grant of restricted stock through the Company’s share-based compensation plans is funded through the
issuance of treasury stock. Gains and losses on the subsequent reissuance of shares in accordance with the Company’s share-
based compensation plans are credited or charged to paid-in capital in excess of par value using the average-cost method.
Revenue Recognition and Delivery Costs
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer agreeing upon the order. See
policy.
The Company believes the performance obligation is met upon delivery and acceptance of the product by our customers. Costs
to deliver product to customers are included in selling, general and administrative expenses in the accompanying Consolidated
Statements of Income. Sales revenue reported in the accompanying consolidated statements of income is reduced to reflect
estimated returns and allowances. The Company records an estimated sales allowance for returns and discounts at the time of
sale using historical trends based on actual sales returns and sales.
Advertising Costs
The Company expensed advertising costs as incurred of $
11.7
6.0
7.3
2019, respectively.
Income Taxes
Income taxes are provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. The Company’s policy with respect to evaluating uncertain tax positions is based upon whether management believes
it is more likely than not the uncertain tax positions will be sustained upon review by the taxing authorities. The tax positions
must meet the more-likely-than-not recognition threshold with consideration given to the amounts and probabilities of the
outcomes that could be realized upon settlement using the facts, circumstances and information at the reporting date. The
Company will reflect only the portion of the tax benefit that will be sustained upon resolution of the position and applicable
interest on the portion of the tax benefit not recognized. The Company initially and subsequently measures the largest amount of
tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority that has full knowledge of all
relevant information. Based upon management’s assessment, there are no uncertain tax positions expected to have a material
impact on the Company’s consolidated financial statements.
43
Stock Based Compensation
We account for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC
718 requires all share-based payments to employees, including grants of employee stock options, restricted stock and
performance-based shares, to be recognized in the statement of income based on their fair values. ASC 718 requires the benefits
of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. See
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 and are subject to
recurring revaluations. The fair value of non-financial assets acquired is determined internally. Our internal valuation
methodology for non-financial assets takes into account the remaining estimated life of the assets acquired and what management
believes is the market value for those assets.
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel
assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such
proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well
as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability
can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a
potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be
disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the
nature of the guarantee would be disclosed.
The Company expenses the costs of litigation as they are incurred.
New Accounting Pronouncements and Policies
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 $
422
thousand cumulative increase to retained earnings at May 31, 2020.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact
on our Consolidated Financial Statements.
Reclassification
Certain reclassifications were made to the fiscal 2020 financial statements to conform to the fiscal 2021 financial statement
presentation. These reclassifications had no effect on income.
Note 2 – Acquisitions
Effective on October 20, 2019, the Company acquired certain assets of Mahard Egg Farm ("Mahard"), relating to its commercial
shell egg production, processing, distribution and sales for $
45.5
44
capacity for approximately
3.9
8.0
raising facilities and related production facilities located in Chillicothe, Texas, and Nebo, Oklahoma, a distribution warehouse
located in Gordonville, Texas and an equity interest in Texas Egg Products, LLC ("TEP"). As a result of the acquisition, the
Company acquired a
21.1
% equity interest in TEP which brought our total ownership to
93.2
%. The acquired operations of
Mahard are included in the accompanying financial statements as of October 20, 2019. Acquisition related costs incurred during
the period were immaterial to the financial statements.
The following table summarizes the aggregate purchase price allocation for Mahard (in thousands):
Inventory
$
5,276
Property, plant and equipment
38,433
Customer list and non-compete agreement
2,000
Liabilities assumed
(194)
Total purchase price
$
45,515
Effective March 28, 2020, the Company acquired from Feathercrest Farms, Inc. the remaining
6.8
% interest in our majority-
owned subsidiary TEP for $
135
Note 3 - Investment Securities
The following presents the Company’s investment securities as of May 29, 2021 and May 30, 2020 (in thousands):
May 29, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
16,424
$
56
$
—
$
16,480
Commercial paper
1,998
—
—
1,998
Corporate bonds
80,092
608
—
80,700
Certificates of deposits
1,077
—
1
1,076
Asset backed securities
11,914
—
10
11,904
Total current investment securities
$
111,505
$
664
$
11
$
112,158
Mutual funds
$
2,306
$
1,810
$
—
$
4,116
Total noncurrent investment securities
$
2,306
$
1,810
$
—
$
4,116
May 30, 2020
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
16,093
$
86
$
—
$
16,179
Commercial paper
6,965
17
—
6,982
Corporate bonds
125,594
1,274
—
126,868
Certificates of deposits
1,492
—
—
1,492
Asset backed securities
2,629
13
—
2,642
Total current investment securities
$
152,773
$
1,390
$
—
$
154,163
Mutual funds
$
2,005
$
744
$
—
$
2,749
Total noncurrent investment securities
$
2,005
$
744
$
—
$
2,749
Available-for-sale
Proceeds from the sales and maturities of available-for-sale securities were $
129.1
204.3
209.7
during fiscal 2021, 2020, and 2019, respectively. Gross realized gains for fiscal 2021, 2020, and 2019 were $
456
278
thousand, and $
9
19
6
and $
33
no
45
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with
or without call or prepayment penalties. Contractual maturities of investment securities at May 29, 2021 are as follows (in
thousands):
Estimated Fair Value
Within one year
$
33,899
1-5 years
78,259
Total
$
112,158
Noncurrent
Proceeds from sales and maturities of noncurrent investment securities were $
54
1.2
84
fiscal 2021, 2020 and 2019, respectively. Gross realized gains on those sales and maturities during fiscal 2020 and 2019 were
$
611
48
no
Note 4 - Fair Value Measures
The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value
hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated,
knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would
be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle
the liability with the creditor.
●
Level 1
●
Level 2
directly or indirectly, including:
o
Quoted prices for similar assets or liabilities in active markets
o
Quoted prices for identical or similar assets in non-active markets
o
Inputs other than quoted prices that are observable for the asset or liability
o
Inputs derived principally from or corroborated by other observable market data
●
Level 3
to the fair value of the assets or liabilities
The disclosure of fair value of certain financial assets and liabilities recorded at cost are as follows:
Cash and cash equivalents, accounts receivable, and accounts payable:
short maturity of these instruments.
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 our financial assets and
liabilities that are required to be measured at fair value on a recurring basis as of May 29, 2021 and May 30, 2020 (in thousands):
May 29, 2021
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
—
$
16,480
$
—
$
16,480
Commercial paper
—
1,998
—
1,998
Corporate bonds
—
80,700
—
80,700
Certificates of deposits
—
1,076
—
1,076
Asset backed securities
—
11,904
—
11,904
Mutual funds
4,116
—
—
4,116
Total assets measured at fair value
$
4,116
$
112,158
$
—
$
116,274
46
May 30, 2020
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
—
$
16,179
$
—
$
16,179
Commercial paper
—
6,982
—
6,982
Corporate bonds
—
126,868
—
126,868
Certificates of deposits
—
1,492
—
1,492
Asset backed securities
—
2,642
—
2,642
Mutual funds
2,749
—
—
2,749
Total assets measured at fair value
$
2,749
$
154,163
$
—
$
156,912
Our investment securities – available-for-sale classified as Level 2 consist of securities with maturities of three months or longer
when purchased. We classified these securities as current, because amounts invested are available for current operations.
Observable inputs for these securities are yields, credit risks, default rates, and volatility.
Note 5 - Inventories
Inventories consisted of the following (in thousands):
May 29, 2021
May 30, 2020
Flocks, net of amortization
$
123,860
$
110,198
Eggs and egg products
21,084
18,487
Feed and supplies
73,431
58,531
$
218,375
$
187,216
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 May 29, 2021,
consisted of approximately
10.8
37.8
The Company expensed amortization and mortality associated with the flocks to cost of sales as follows (in thousands):
May 29, 2021
May 30, 2020
June 1, 2019
Amortization
$
133,448
$
133,379
$
119,658
Mortality
6,769
5,823
5,161
Total flock costs charged to cost of sales
$
140,217
$
139,202
$
124,819
Note 6 - Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
May 29, 2021
May 30, 2020
Land and improvements
$
101,174
$
91,865
Buildings and improvements
454,332
393,195
Machinery and equipment
584,778
531,545
Construction-in-progress
72,879
126,061
1,213,163
1,142,666
Less: accumulated depreciation
623,746
585,291
$
589,417
$
557,375
Depreciation expense was $
56.5
54.5
51.7
and June 1, 2019, respectively.
The Company maintains insurance for both property damage and business interruption relating to catastrophic events, such as
fires. Insurance recoveries received for property damage and business interruption in excess of the net book value of damaged
assets, clean-up and demolition costs, and post-event costs are recognized as income in the period received or committed when
all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are
recorded within “Cost of sales” and any gains or losses related to property damage are recorded within “Loss on disposal of fixed
47
assets.” Insurance recoveries related to business interruption are classified as operating cash flows and recoveries related to
property damage are classified as investing cash flows in the statement of cash flows. Insurance claims incurred or finalized
during the fiscal years ended May 29, 2021, May 30, 2020, and June 1, 2019 did not have a material effect on the Company's
consolidated financial statements.
Included in cost of sales for fiscal 2021 and 2020 is a non-cash impairment loss on fixed assets of $
196
2.9
respectively, related to decommissioning some older, less efficient production facilities as the Company continues to invest in
new facilities to meet the increasing demand for specialty eggs and to reduce production costs.
Note 7 - Investment in Unconsolidated Entities
At May 29, 2021, the Company had several investments in unconsolidated entities that are accounted for using the equity method
of accounting. Red River Valley Egg Farm, LLC ("Red River") operates a cage-free shell egg production complex near Bogota,
Texas. Specialty Eggs, LLC ("Specialty Eggs") owns the Egg-Land's Best franchise for most of Georgia and South Carolina, as
well as a portion of western North Carolina and eastern Alabama. Southwest Specialty Eggs, LLC ("Southwest Specialty Eggs")
owns the Egg-Land's Best franchise for Arizona, southern California and Clark County, Nevada (including Las Vegas). As of
May 29, 2021, the Company owned
50
% in Red River, Specialty Eggs, and Southwest Specialty Eggs. Equity method investments
are included in “Investments in unconsolidated entities” in the accompanying Consolidated Balance Sheets and totaled
$
49.9
54.7
Equity in income of unconsolidated entities of $
622
534
4.8
included in the Consolidated Statements of Income for fiscal 2021, 2020, and 2019, respectively.
The condensed consolidated financial information for the Company's unconsolidated joint ventures was as follows (in thousands):
For the fiscal year ended
May 29, 2021
May 30, 2020
June 1, 2019
Net sales
$
119,853
$
188,922
$
112,396
Net income
1,596
1,064
9,490
Total assets
106,592
113,513
128,470
Total liabilities
5,850
4,655
7,600
Total equity
100,742
108,858
120,870
The Company is a member of Eggland’s Best, Inc. (“EB”), which is a cooperative. At May 29, 2021 and May 30, 2020,
“Investments in unconsolidated entities” as shown on the Company’s Consolidated Balance Sheet includes the cost of the
Company’s investment in EB plus any qualified written allocations. The Company cannot exert significant influence over EB’s
operating and financial activities; therefore, the Company accounts for this investment using the cost method. The carrying value
of this investment at May 29, 2021 and May 30, 2020 was $
768
2.0
The following relates to the Company’s transactions with these unconsolidated affiliates (in thousands):
For the fiscal year ended
May 29, 2021
May 30, 2020
June 1, 2019
Sales to unconsolidated entities
$
56,765
$
54,559
$
58,093
Purchases from unconsolidated entities
76,059
71,475
81,685
Distributions from unconsolidated entities
6,663
7,114
7,904
May 29, 2021
May 30, 2020
Accounts receivable from unconsolidated entities
2,404
$
4,935
Accounts payable to unconsolidated entities
4,161
5,706
48
Note 8 - Goodwill and Other Intangible Assets
Goodwill and other intangibles consisted of the following (in thousands):
Other Intangibles
Franchise
Customer
Non-compete
Right of
Water
Total
Goodwill
rights
relationships
agreements
Use
rights
Trademark
intangibles
Balance June 1, 2019
$
35,525
$
19,955
$
2,504
$
297
$
—
$
720
$
286
$
59,287
Additions
—
—
1,000
1,000
—
—
—
2,000
Amortization
—
(1,628)
(1,150)
(118)
—
—
(50)
(2,946)
Balance May 30, 2020
35,525
18,327
2,354
1,179
—
720
236
58,341
Additions
—
—
—
—
39
—
—
39
Amortization
—
(1,628)
(666)
(160)
(10)
—
(50)
(2,514)
Balance May 29, 2021
$
35,525
$
16,699
$
1,688
$
1,019
$
29
$
720
$
186
$
55,866
For the Other Intangibles listed above, the gross carrying amounts and accumulated amortization are as follows (in thousands):
May 29, 2021
May 30, 2020
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
Other intangible assets:
Franchise rights
$
29,284
$
(12,585)
$
29,284
$
(10,957)
Customer relationships
9,644
(7,956)
20,544
(18,190)
Non-compete agreements
1,450
(431)
1,450
(271)
Right of use intangible
229
(200)
191
(191)
Water rights *
720
—
720
—
Trademark
400
(214)
400
(164)
Total
$
41,727
$
(21,386)
$
52,589
$
(29,773)
*
Water rights are an indefinite life intangible asset.
No significant residual value is estimated for these intangible assets. Aggregate amortization expense for fiscal years 2021, 2020,
and 2019 totaled $
2.5
2.9
2.8
The following table presents the total estimated amortization of intangible assets for the five succeeding years (in thousands):
For fiscal year
Estimated amortization expense
2022
$
2,220
2023
2,206
2024
2,170
2025
2,040
2026
2,015
Thereafter
8,970
Total
$
19,621
Note 9 - Employee Benefit Plans
The Company maintains a medical plan that is qualified under Section 401(a) of the Internal Revenue Code and is not subject to
tax under present income tax laws. The plan is funded by contributions from the Company and its employees. Under its plan, the
Company self-insures its portion of medical claims for substantially all full-time employees. The Company uses stop-loss
insurance to limit its portion of medical claims to $
225,000
incurred but not reported claims were approximately $
21.7
17.8
. million, and $
18.1
and 2019, respectively. The liability recorded for incurred but not reported claims was $
2.4
1.7
29, 2021 and May 30, 2020, respectively.
The Company has a KSOP plan that covers substantially all employees (the “Plan”). The Company makes contributions to the
Plan at a rate of
3
% of participants' eligible compensation, plus an additional amount determined at the discretion of the Board of
49
Directors. Contributions can be made in cash or the Company's common stock, and vest immediately. The Company's cash
contributions to the Plan were $
3.8
3.7
no
t make direct contributions of the Company’s common stock in fiscal years 2021, 2020, or 2019. Dividends on the Company’s
common stock are paid to the Plan in cash. The Plan acquires the Company’s common stock, which is listed on the NASDAQ,
by using the dividends and the Company’s cash contribution to purchase shares in the public markets. The Plan sells common
stock on the NASDAQ to pay benefits to Plan participants. Participants may make contributions to the Plan up to the maximum
allowed by the Internal Revenue Service regulations. The Company does not match participant contributions.
The Company has deferred compensation agreements with certain officers for payments to be made over specified periods
beginning when the officers reach age
65
upon deferred compensation earned over the estimated remaining service period of each officer. Payments made under these
agreements were $
170
150
129
liability recorded related to these agreements was $
1.4
In December 2006, the Company adopted an additional deferred compensation plan to provide deferred compensation to named
officers of the Company. The awards issued under this plan were $
279
266
267
2021, 2020, and 2019, respectively. Payments made under the plan were $
55
1.2
respectively. The liability recorded for this plan was $
4.1
2.7
respectively.
Deferred compensation expense for both plans totaled $
1.6
621
377
2019, respectively.
Postretirement Medical Plan
The Company maintains an unfunded postretirement medical plan to provide limited health benefits to certain qualified retired
employees and officers. Retired non-officers and spouses are eligible for coverage until attainment of Medicare eligibility, at
which time coverage ceases. Retired officers and spouses are eligible for lifetime benefits under the plan. Officers and their
spouses, who retired prior to May 1, 2012, must participate in Medicare Plans A and B. Officers, and their spouses, who retire on
or after May 1, 2012 must participate in Medicare Plans A, B, and D.
The plan is accounted for in accordance with ASC 715, Compensation – Retirement Benefits (“ASC 715”), whereby an employer
recognizes the funded status of a defined benefit postretirement plan as an asset or liability, and recognizes changes in the funded
status in the year the change occurs through comprehensive income. Additionally, this expense is recognized on an accrual basis
over the employees’ approximate period of employment. The liability associated with the plan was $
3.4
and May 30, 2020. The remaining disclosures associated with ASC 715 are immaterial to the Company’s financial statements.
Note 10 - Credit Facility
For fiscal years 2021, 2020 and 2019, interest was $
213
498
644
On July 10, 2018, we entered into a $
100.0
with a
five
-year term. The credit agreement for the Revolving Credit Facility includes an accordion feature permitting the
Company, with the consent of the administrative agent, to increase the revolving commitments in the aggregate up to
$
125.0
No
$
4.1
The interest rate is based, at the Company’s election, on 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 months (as selected by the Company) are quoted. The
“Base Rate” means a fluctuating rate per annum equal to the highest of (a) the federal funds rate plus
0.5
% per annum, (b) the
prime rate of interest established by the administrative agent, and (c) the Eurodollar Rate for an interest period of one month plus
1.00
% per annum, subject to certain interest rate floors. The “Applicable Margin” means
0
% to
0.75
% per annum for Base Rate
Loans and
1.00
% to
1.75
% per annum for Eurodollar Rate Loans, in each case depending upon the average outstanding balance
at the quarterly pricing date. The Company will pay a commitment fee of
0.2
% on the unused portion of the facility.
The Revolving Credit Facility is guaranteed by all the current and future wholly-owned direct and indirect domestic subsidiaries
of the Company and is secured by a first-priority perfected security interest in substantially all of the Company’s and the
50
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 Revolving Credit Facility contains customary covenants, including restrictions on the incurrence of
liens, and additional debt, sales of assets and other fundamental corporate changes and investments. The credit agreement requires
maintenance of
two
2.00
expenditures of $
150.0
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 100% of the voting control of
such entity is held by any of the foregoing, shall maintain at least
50
% 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, dividends are restricted to the
Company’s current dividend policy of one-third of the Company’s net income computed in accordance with GAAP. The
Company is allowed to repurchase up to $
75.0
agreement and the Company has availability of at least $
20.0
The credit agreement for the Revolving Credit Facility includes customary events of default and customary remedies upon the
occurrence of an event of default, including acceleration of the amounts due and foreclosure of the collateral.
At May 29, 2021, we were in compliance with the covenant requirements of the Revolving Credit Facility.
Note 11 - Accrued Dividends Payable and Dividends per Common Share
We accrue dividends at the end of each quarter according to our dividend policy adopted by our 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
60
th 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
65
th day after the quarter end. Dividends are payable on the
15
th day following the record date. Following a quarter for
which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a
subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for
which a dividend was paid. At the end of fiscal 2021, the amount of cumulative losses to be recovered before payment of a
dividend was $
4.2
On our consolidated statement of income, we determine dividends per common share in accordance with the computation in the
following table (in thousands, except per share data):
13 Weeks Ended
52 Weeks Ended
May 29, 2021
May 30, 2020
May 29, 2021
May 30, 2020
Net income (loss) attributable to Cal-Maine Foods, Inc.
$
(4,244)
$
60,463
$
2,060
$
18,391
Cumulative losses to be recovered prior to payment of
divided at beginning of period
—
(61,833)
(1,370)
(19,761)
Net income attributable to Cal-Maine Foods, Inc.
available for dividend
$
—
$
—
$
—
$
—
1/3 of net income attributable to Cal-Maine Foods, Inc.
available for dividend
$
—
Common stock outstanding (shares)
44,058
Class A common stock outstanding (shares)
4,800
Total common stock outstanding (shares)
48,858
Dividends per common share*
$
—
$
—
$
0.034
$
—
*Dividends per common share =
1/3
common stock outstanding (shares).
51
Note 12 - Equity
The Company has
two
or the Company's certificate of incorporation, holders of shares of the Company’s capital stock vote as a single class on all matters
submitted to a vote of the stockholders, with each share of Common Stock entitled to
one
Stock entitled to
ten
Stock and Class A Common Stock have equal liquidation rights and the same dividend rights. In the case of any dividend payable
in stock, holders of Common Stock are entitled to receive the same percentage dividend (payable only in shares of Common
Stock) as the holders of Class A Common Stock receive (payable only in shares of Class A Common Stock). Upon liquidation,
dissolution, or winding-up of the Company, the holders of Common Stock are entitled to share ratably with the holders of Class
A Common Stock in all assets available for distribution after payment in full of creditors. The holders of Common Stock and
Class A Common Stock are not entitled to preemptive or subscription rights. No class of capital stock may be combined or
subdivided unless the other classes of capital stock are combined or subdivided in the same proportion. No dividend may be
declared and paid on Class A Common Stock unless the dividend is payable only to the holders of Class A Common Stock and a
dividend is declared and paid to Common Stock concurrently.
Each share of Class A Common Stock is convertible, at the option of its holder, into
one
The Company’s Second Restated Certificate of Incorporation (“Restated Charter”) identifies family members of Mr. Adams
(“Immediate Family Members”) and arrangements and entities that are permitted to receive and hold shares of Class A Common
Stock, with
ten
one
Transferees”). The Permitted Transferees include arrangements and entities such as revocable trusts and limited liability
companies that could hold Class A Common Stock for the benefit of Immediate Family Members. Each Permitted Transferee
must have a relationship, specifically defined in the Restated Charter, with another Permitted Transferee or an Immediate Family
Member. A share of Class A Common Stock transferred to a person other than a Permitted Transferee would automatically
convert into Common Stock with one vote per share. Additionally, the Restated Charter includes a sunset provision pursuant to
which all of the outstanding Class A Common Stock will automatically convert to Common Stock if: (a) less than
4,300,000
shares of Class A Common Stock, in the aggregate, are beneficially owned by Immediate Family Members and/or Permitted
Transferees, or (b) if less than
4,600,000
owned by Immediate Family Members and/or Permitted Transferees.
Note 13 - Net Income per Common Share
Basic net income per share attributable to Cal-Maine Foods, Inc. is based on the weighted average Common Stock and Class A
Common Stock outstanding. Diluted net income per share attributable to Cal-Maine Foods, Inc. is based on weighted-average
common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards.
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income
per common share attributable to Cal-Maine Foods, Inc. (amounts in thousands, except per share data):
May 29, 2021
May 30, 2020
June 1, 2019
Numerator
Net income
$
2,060
$
18,328
$
55,062
Less: Net income (loss) attributable to noncontrolling interest
—
(63)
833
Net income attributable to Cal-Maine Foods, Inc.
$
2,060
$
18,391
$
54,229
Denominator
Weighted-average common shares outstanding, basic
48,522
48,467
48,467
Effect of dilutive securities of restricted shares
134
117
122
Weighted-average common shares outstanding, diluted
48,656
48,584
48,589
Net income per common share attributable to Cal-Maine Foods, Inc.
Basic
$
0.04
$
0.38
$
1.12
Diluted
$
0.04
$
0.38
$
1.12
52
Note 14 - Revenue Recognition
Satisfaction of Performance Obligation
The vast majority of the Company’s revenue is derived from agreements with customers based on the customer placing an order
for products. Pricing for the most part is determined when the Company and the customer agree upon the specific order, which
establishes the contract for that order.
Revenues are recognized in an amount that reflects the net consideration we expect to receive in exchange for the goods. Our
shell eggs are sold at prices related to independently quoted wholesale market prices or formulas related to our costs of production.
The Company’s sales predominantly contain a single performance obligation. We recognize revenue upon satisfaction of the
performance obligation with the customer which typically occurs within days of the Company and the customer agreeing upon
the order.
Costs to deliver product to customers are included in selling, general and administrative expenses in the accompanying
Consolidated Statements of Income and totaled $
52.7
52.2
53.6
2019, respectively.
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we credit the customer’s account for product that the
customer is unable to sell before expiration. The Company records an allowance 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):
13 Weeks Ended
52 Weeks Ended
May 29, 2021
May 30, 2020
May 29, 2021
May 30, 2020
Conventional shell egg sales
$
205,987
$
311,380
$
766,284
$
830,278
Specialty shell egg sales
131,243
133,347
539,780
485,465
Egg products
10,997
7,204
36,733
31,414
Other
1,571
1,402
6,190
4,452
$
349,798
$
453,333
$
1,348,987
$
1,351,609
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 May 29, 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.
53
Concentration of Credit Risks
Our largest customer, Walmart Inc. (including Sam's Club) accounted for
29.8
%,
32.1
% and
33.7
% of net sales dollars for fiscal
2021, 2020, and 2019, respectively. H-E-B, LP accounted for
10.1
% of net sales dollars for fiscal 2020.
Note 15 - Leases
Expenses related to operating leases, amortization of finance lease ROU assets and finance lease interest are included in Cost of
sales, Selling general and administrative expense, and Interest expense in the Consolidated Statements of Income.
The Company’s lease cost consists of the following (in thousands):
13 Weeks Ended
May 29, 2021
52 Weeks Ended
May 30, 2020
Operating Lease cost
$
226
$
929
Finance Lease cost
Amortization of right-of-use asset
$
43
$
168
Interest on lease obligations
$
7
$
34
Short term lease cost
$
1,057
$
3,771
Future minimum lease payments under non-cancelable leases are as follows (in thousands):
As of May 29, 2021
Operating Leases
Finance Leases
2022
$
802
$
239
2023
539
239
2024
380
219
2025
130
—
2026
26
—
Thereafter
5
—
Total
1,882
697
Less imputed interest
(157)
(44)
Total
$
1,725
$
653
The weighted-average remaining lease term and discount rate for lease liabilities included in our Condensed Consolidated Balance
Sheet are as follows:
As of May 29, 2021
Operating Leases
Finance Leases
Weighted-average remaining lease term (years)
2.8
2.5
Weighted-average discount rate
5.9
%
4.9
%
Note 16 - Stock Compensation Plans
On October 2, 2020, shareholders approved the Amended and Restated Cal-Maine Foods, Inc. 2012 Omnibus Long-Term
Incentive Plan (the “LTIP Plan”). The purpose of the LTIP Plan is to assist us and our subsidiaries in attracting and retaining
selected individuals who are expected to contribute to our long-term success. The maximum number of shares of common stock
available for awards under the LTIP Plan is
2,000,000
1,126,188
authorized but unissued shares or treasury shares. Awards may be granted under the LTIP Plan to any employee, any non-
employee member of the Company’s Board of Directors, and any consultant who is a natural person and provides services to us
or one of our subsidiaries (except for incentive stock options, which may be granted only to our employees).
The only outstanding awards under the LTIP Plan are restricted stock awards. The restricted stock vests one to three years from
the grant date, or upon death or disability, change in control, or retirement (subject to certain requirements). The restricted stock
contains no other service or performance conditions. Restricted stock is awarded in the name of the recipient and, except for the
right of disposal, constitutes issued and outstanding shares of the Company’s common stock for all corporate purposes during the
54
period of restriction including the right to receive dividends. Compensation expense is a fixed amount based on the grant date
closing price and is amortized on a straight-line basis over the vesting period. Forfeitures are recognized as they occur.
Total stock-based compensation expense was $
3.8
3.6
3.6
respectively.
Our unrecognized compensation expense as a result of non-vested shares was $
6.6
6.3
May 30, 2020. The unrecognized compensation expense will be amortized to stock compensation expense over a period of
2.1
years.
A summary of our equity award activity and related information for our restricted stock is as follows:
Number of
Shares
Weighted Average Grant
Date Fair Value
Outstanding, June 1, 2019
248,412
$
42.20
Granted
104,566
38.25
Vested
(77,801)
43.00
Forfeited
(2,131)
43.20
Outstanding, May 30, 2020
273,046
$
41.36
Granted
112,860
37.82
Vested
(79,328)
43.96
Forfeited
(4,431)
40.12
Outstanding, May 29, 2021
302,147
$
39.37
Note 17 - Income Taxes
Income tax expense (benefit) consisted of the following:
Fiscal year ended
May 29, 2021
May 30, 2020
June 1, 2019
Current:
Federal
$
(35,090)
$
(6,750)
$
8,160
State
730
(1,800)
1,460
(34,360)
(8,550)
9,620
Deferred:
Federal
21,658
8,872
4,843
State
693
1,409
1,280
22,351
10,281
6,123
$
(12,009)
$
1,731
$
15,743
55
Significant components of the Company’s deferred tax liabilities and assets were as follows:
May 29, 2021
May 30, 2020
Deferred tax liabilities:
Property, plant and equipment
$
82,508
$
60,645
Inventories
31,501
28,075
Investment in affiliates
7,670
8,099
Other comprehensive income
—
214
Other
5,648
5,002
Total deferred tax liabilities
127,327
102,035
Deferred tax assets:
Accrued expenses
3,728
3,376
State operating loss carryforwards
3,416
792
Other comprehensive income
497
—
Other
5,278
5,099
Total deferred tax assets
12,919
9,267
Net deferred tax liabilities
$
114,408
$
92,768
The differences between income tax expense (benefit) at the Company’s effective income tax rate and income tax expense at the
statutory federal income tax rate were as follows:
Fiscal year end
May 29, 2021
May 30, 2020
June 1, 2019
Statutory federal income tax
$
(2,087)
$
4,226
$
14,694
State income taxes, net
1,124
(309)
2,164
Domestic manufacturers deduction
3,566
684
—
Enacted net operating loss carryback provision
(16,014)
(3,041)
—
Tax exempt interest income
(50)
(111)
(197)
Other, net
1,452
282
(918)
$
(12,009)
$
1,731
$
15,743
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act
contains several income tax provisions, as well as other measures, that are intended to assist businesses impacted by the economic
effects of the COVID-19 pandemic. The most significant provision of the CARES Act that materially affects our accounting for
income taxes includes a five-year carryback allowance for taxable net operating losses generated in tax years 2018 through 2020,
our fiscal years 2019 through 2021.
Our financial statements for the fiscal year ended May 29, 2021 were materially affected by the changes enacted by the CARES
Act. As a result of the applicable accounting guidance and the provisions enacted by the CARES Act, our income tax provision
for fiscal 2021 reflects the carryback of taxable net operating losses generated during periods in which the statutory federal income
tax rate was 21% to periods in which the statutory federal income tax rate was 35%. Due to the difference in statutory rates, we
recorded a $
16.0
2021. Because the net operating losses were carried back to years in which we initially reduced our taxable income using the
Domestic Production Activities Deduction, we recorded a partially offsetting $
3.6
fiscal 2021 to account for the reduced taxable income.
Federal and state income taxes of $
995
32
37.4
respectively. Federal and state income taxes of $
2.6
8.4
418
2020, and 2019, respectively.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures
the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
resolution.
56
As of May 29, 2021, we are under audit by the Internal Revenue Service (IRS) for the fiscal years 2013 through 2015. Although
we are subject to income tax in many jurisdictions within the U.S., we were not under audit by any state and local tax authorities.
As of May 29, 2021, the IRS has proposed adjustments related to the Company’s research and development credits claimed
during the years under audit. Management is continuing to evaluate those proposed adjustments and does not anticipate the
adjustments would result in a material change to its consolidated financial statements. However, the Company believes it is
reasonably possible that an additional decrease of up to $
1.4
development credits may be necessary within the coming year. Tax periods for all years beginning with fiscal year 2013 remain
open to examination by federal and state taxing jurisdictions to which we are subject.
Note 18 - Commitments and Contingencies
Financial Instruments
The Company maintained standby letters of credit ("LOC") totaling $
4.1
Company's Revolving Credit Facility. The outstanding LOCs are for the benefit of certain insurance companies. None of the
LOCs are recorded as a liability on the Consolidated Balance Sheets.
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 $
100,000
2020, the court granted the defendants’ motion to dismiss the State’s original petition with prejudice. On September 11, 2020,
the State filed a notice of appeal, which was assigned to the Texas Court of Appeals for the First District. The State filed its
opening brief on December 7, 2020. The Company and WCF filed their response on February 8, 2021. The Texas Court of
Appeals has not ruled on these submissions. 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 $
10,000
250,000
impacting anyone over 65 years old. On December 1, 2020, the Company and certain other defendants filed their motion to
dismiss the plaintiffs’ first amended class action complaint. The court has not ruled on this motion to dismiss. Management
believes the risk of material loss related to this matter to be remote.
Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.
As previously reported, on September 25, 2008, the Company was named as one of several defendants in numerous antitrust
cases involving the United States shell egg industry. The Company settled all of these cases, except for the claims of certain
plaintiffs who sought substantial damages allegedly arising from the purchase of egg products (as opposed to shell eggs). These
remaining plaintiffs are Kraft Food Global, Inc., General Mills, Inc., and Nestle USA, Inc. (the “Egg Products Plaintiffs”) and
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
57
Egg Products Plaintiffs seek to enjoin the Company and other defendants from engaging in antitrust violations and seek treble
money damages. The parties filed a joint status report on May 18, 2020, but no schedule has yet been entered by the court. It
appears that the case will not be tried until later in 2021 or 2022.
In addition, on October 24, 2019, the Company entered into a confidential settlement agreement with The Kellogg Company
dismissing all claims against the Company for an amount that did not have a material impact on the Company’s financial condition
or results of operations. On November 11, 2019, a stipulation for dismissal was filed with the court, but the court has not yet
entered a judgment on the filing.
The Company intends to continue to defend the remaining case with the Egg Products Plaintiffs as vigorously as possible based
on defenses which the Company believes are meritorious and provable. Adjustments, if any, which might result from the
resolution of this remaining matter with the Egg Products Plaintiffs have not been reflected in the financial statements. While
management believes that there is still a reasonable possibility of a material adverse outcome from the case with the Egg Products
Plaintiffs, at the present time, it is not possible to estimate the amount of monetary exposure, if any, to the Company due to a
range of factors, including the following, among others: the matter is in the early stages of preparing for trial following remand;
any trial will be before a different judge and jury in a different court than prior related cases; there are significant factual issues
to be resolved; and there are requests for damages other than compensatory damages (i.e., injunction and treble money damages).
State of Oklahoma Watershed Pollution Litigation
On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma,
against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and its affiliate, George’s,
Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. The State of Oklahoma claims that through the disposal of
chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma. The
complaint seeks injunctive relief and monetary damages, but the claim for monetary damages has been dismissed by the court.
Cal-Maine Foods, Inc. discontinued operations in the watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc.
will be materially affected by the request for injunctive relief unless the court orders substantial affirmative remediation. Since
the litigation began, Cal-Maine Foods, Inc. purchased
100
% of the membership interests of Benton County Foods, LLC, which
is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant
in the litigation.
The trial in the case began in September 2009 and concluded in February 2010. The case was tried without a jury, and the court
has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business. Although the
outcome of these matters cannot be determined with certainty, management, upon the advice of counsel, is of the opinion that the
final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
Note 19 - 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
6,900,000
held by them, pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”) filed as an exhibit to
this 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 $
1.1
reimbursed the Company $
551
58
Note 20 – Subsequent Events
Effective on May 30, 2021, the Company paid $
48.5
50
% membership interest in Red River,
including certain liabilities. As a result of the acquisition, the entity became a wholly owned subsidiary of the Company. Red
River owns and operates a specialty shell egg production complex with approximately
1.7
free pullet capacity, feed mill, processing plant, related offices and outbuildings and related equipment located on approximately
400
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years ended May 29, 2021, May 30, 2020, and June 1, 2019
(in thousands)
Description
Balance at
Beginning of Period
Charged to Cost
and Expense
Write-off
of Accounts
Balance at
End of Period
Year ended May 29, 2021
Allowance for doubtful accounts
$
743
$
135
$
83
$
795
Year ended May 30, 2020
Allowance for doubtful accounts
$
206
$
550
$
13
$
743
Year ended June 1, 2019
Allowance for doubtful accounts
$
268
$
42
$
104
$
206
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by
us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded,
processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to management, including our principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of our disclosure controls
and procedures conducted by our Chief Executive Officer and Chief Financial Officer, together with other financial officers, such
officers concluded that our disclosure controls and procedures were effective as of May 29, 2021 at the reasonable assurance
level.
Internal Control Over Financial Reporting
(a)
Management’s Report on Internal Control Over Financial Reporting
The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308 of the Securities
and Exchange Commission’s Regulation S-K, the report of management on our internal control over financial reporting.
1.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
“Internal control over financial reporting” is a process designed by, or under the supervision of, our Chief Executive
Officer and Chief Financial Officer, together with other financial officers, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
●
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets;
●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and
●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
2.
Our management, in accordance with Rule 13a
-
15(c) under the Exchange Act and with the participation of our
Chief Executive Officer and Chief Financial Officer, together with other financial officers, evaluated the
effectiveness of our internal control over financial reporting as of May 29, 2021. The framework on which
management’s evaluation of our internal control over financial reporting is based is the “Internal Control –
Integrated Framework”
published in 2013 by the Committee of Sponsoring Organizations (“COSO”) of the
Treadway Commission.
3.
Management has determined that our internal control over financial reporting as of
May 29, 2021
is effective. It is
noted that internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives, but rather reasonable assurance of achieving such objectives.
4.
The attestation report of FROST, PLLC on our internal control over financial reporting, which includes that firm’s
opinion on the effectiveness of our internal control over financial reporting, is set forth below.
(b)
Attestation
Report of the Registrant’s Public Accounting Firm
60
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on Internal Control Over Financial Reporting
We have audited Cal-Maine Foods, Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting as
of May 29, 2021, based on criteria established in
2013 Internal Control – Integrated Framework
Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as May 29, 2021, based on criteria established in
2013 Internal Control
– Integrated Framework
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets and the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows of the Company and our report dated July 19, 2021 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the entity’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCOAB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. An entity’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in
accordance with authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material
effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Frost, PLLC
Little Rock, Arkansas
July 19, 2021
61
(c)
Changes in
Internal Control Over Financial Reporting
In connection with its evaluation of the effectiveness, as of May 29, 2021, of our internal control over financial reporting,
management determined that there was no change in our internal control over financial reporting that occurred during the fourth
quarter ended May 29, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information concerning directors, executive officers and corporate governance required by Item 10
is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with our 2021 Annual Meeting of Shareholders.
We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees, including the chief executive and principal
financial and accounting officers of the Company. We will provide a copy of the code free of charge to any person that requests
a copy by writing to:
Cal-Maine Foods, Inc.
P.O. Box 2960
Jackson, Mississippi 39207
Attn.: Investor Relations
Requests can be made by phone at (601) 948-6813.
A copy is also available at our website www.calmainefoods.com. We intend to disclose any amendments to, or waivers from, the
Code of Conduct and Ethics for Directors, Officers and Employees on our website promptly following the date of any such
amendment or waiver. Information contained on our website is not a part of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation required by Item 11 is incorporated by reference from our definitive proxy
statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our 2021
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information concerning security ownership of certain beneficial owners and management and related stockholder matters
required by Item 12 is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 in connection with our 2021 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information concerning certain relationships and related transactions, and director independence required by Item 13 is
incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with our 2021 Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning principal accounting fees and services required by Item 14 is incorporated by reference from our
definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in
connection with our 2021 Annual Meeting of Shareholders.
62
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item
8 and are filed herewith:
20
Consolidated Statements of Comprehensive Income – Fiscal Years Ended May 29, 2021, May 30, 2020, and
May 29, 2021, May 30, 2020, and
(a)(2) Financial Statement Schedule
All other schedules are omitted either because they are not applicable or required, or because the required information is included
in the financial statements or notes thereto.
(a)(3)
Exhibits Required by Item 601 of Regulation S
-
K
See Part (b) of this Item 15.
63
(b)
Exhibits Required by Item 601 of Regulation S
-
K
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number
Exhibit
3.1
3.2
4.1**
10.1
10.2
10.3*
10.4
as lenders, and BMO Capital Markets, as the sole Lead Arranger and sole Book Runner (incorporated by
10.5*
10.6*
10.7*
10.8*
to Exhibit 10.13 in the Registrant’s Form 10-K for the year ended May 31, 2014, filed July 28, 2014)
21**
23.1**
31.1**
31.2**
32***
101.SCH***+
Inline XBRL Taxonomy Extension Schema Document
101.CAL***+
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF***+
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB***+
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE***+
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Management contract or compensatory plan or arrangement
**
Filed herewith as an Exhibit
***
Furnished herewith as an Exhibit
†
Submitted electronically with this Annual
Report on Form 10
-
K
(c)
Financial Statement Schedules Required by Regulation S
-
X
The financial statement schedule required by Regulation S-X is filed at page 58. All other schedules for which provision is made
in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions
or are inapplicable and therefore have been omitted.
ITEM 16. FORM 10-K SUMMARY
Not applicable
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, in Ridgeland, Mississippi.
CAL-MAINE FOODS, INC.
/s/ Adolphus B. Baker
Adolphus B. Baker
Chief Executive Officer and Chairman of the Board
Date:
July 19, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Adolphus B. Baker
Chief Executive Officer and
July 19, 2021
Adolphus B. Baker
Chairman of the Board
(Principal Executive Officer)
/s/ Max P. Bowman
Vice President, Chief Financial
July 19, 2021
Max P. Bowman
Officer and Director
(Principal Financial Officer)
/s/ Michael D. Castleberry
Vice President, Controller
July 19, 2021
Michael D. Castleberry
(Principal Accounting Officer)
/s/ Sherman L. Miller
President, Chief Operating
July 19, 2021
Sherman L. Miller
Officer and Director
/s/ Letitia C. Hughes
Director
July 19, 2021
Letitia C. Hughes
/s/ James E. Poole
Director
July 19, 2021
James E. Poole
/s/ Steve W. Sanders
Director
July 19, 2021
Steve W. Sanders
/s/ Camille S. Young
Director
July 19, 2021
Camille S. Young