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CAL-MAINE FOODS INC - Annual Report: 2022 (Form 10-K)

calm-20210529_10K
 
 
 
 
1
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
 
20549
FORM
10-K
 
ANNUAL REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year
 
Ended
May 28, 2022
 
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
 
Global Select Market
 
Securities registered pursuant to Section 12 (g) of the Act:
 
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
 
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 26,
 
2021, which
 
was the
 
date of
 
the last
 
business day
 
of the
 
registrant’s
 
most recently
 
completed second
 
fiscal
quarter, was $
1,428,527,739
.
As of
 
July 19,
 
2022,
44,139,524
 
shares of
 
the registrant’s
 
Common Stock,
 
$0.01 par value,
 
and
4,800,000
 
shares of
 
the registrant’s
 
Class A
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 2022
 
annual meeting of
 
stockholders which will be
 
filed pursuant to
 
Regulation 14A not later
 
than 120 days
 
after the end
 
of the fiscal
year covered by this report.
 
 
 
3
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, among other things,
our shell egg business, including estimated future production data, expected construction schedules, projected construction costs,
potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on
our business of
 
the COVID-19 pandemic,
 
potential future impact
 
on our business
 
of new legislation,
 
rules or policies,
 
potential
outcomes
 
of
 
legal
 
proceedings,
 
and
 
other
 
projected
 
operating
 
data,
 
including
 
anticipated
 
results
 
of
 
operations
 
and
 
financial
condition. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,”
 
“hopes,”
“may,”
 
“should,” “plans,”
 
“projected,” “contemplates,”
 
“anticipates,” or
 
similar words.
 
Actual outcomes
 
or results could
 
differ
materially from those
 
projected in the forward-looking
 
statements. The forward-looking
 
statements are based
 
on management’s
current intent, belief,
 
expectations, estimates, and
 
projections regarding the
 
Company and its industry.
 
These statements are
 
not
guarantees of future performance
 
and involve risks, uncertainties, assumptions,
 
and other factors that are
 
difficult to predict and
may be beyond
 
our control. The
 
factors that could
 
cause actual results
 
to differ
 
materially from
 
those projected
 
in the forward-
looking statements
 
include, among
 
others, (i)
 
the risk
 
factors set
 
forth in
 
Item 1A
 
Risk Factors
 
and elsewhere
 
in this
 
report as
well
 
as those
 
included
 
in other
 
reports
 
we file
 
from time
 
to time
 
with the
 
Securities
 
and
 
Exchange
 
Commission
 
(the “SEC”)
(including our Quarterly Reports on Form 10-Q and Current Reports
 
on Form 8-K), (ii) the risks and hazards inherent
 
in the shell
egg business (including disease, pests, weather conditions, and potential for product recall), including but not limited to the most
recent outbreak of highly pathogenic avian influenza (“HPAI”)
 
affecting poultry in the U.S., Canada and other countries that was
first detected in commercial
 
flocks in the U.S. in
 
February 2022, (iii) changes in
 
the demand for and market
 
prices of shell eggs
and feed costs, (iv)
 
our ability to
 
predict and meet
 
demand for cage-free and
 
other specialty eggs, (v)
 
risks, changes, or obligations
that
 
could
 
result
 
from
 
our
 
future
 
acquisition
 
of
 
new
 
flocks
 
or
 
businesses
 
and
 
risks
 
or
 
changes
 
that
 
may
 
cause
 
conditions
 
to
completing
 
a
 
pending
 
acquisition
 
not
 
to
 
be
 
met,
 
(vi)
 
risks
 
relating
 
to
 
the
 
evolving
 
COVID-19
 
pandemic,
 
including
 
without
limitation increased costs
 
and rising inflation
 
and interest rates, which
 
generally have been
 
exacerbated by Russia’s
 
invasion of
Ukraine starting
 
in February
 
2022, (vii)
 
our ability
 
to retain
 
existing customers,
 
acquire new
 
customers and
 
grow our
 
product
mix, and (viii) adverse results
 
in pending litigation matters. Readers
 
are cautioned not to place
 
undue reliance on forward-looking
statements because,
 
while we believe
 
the assumptions on
 
which the forward-looking
 
statements are based
 
are reasonable, there
can be no
 
assurance that these
 
forward-looking statements will prove
 
to be accurate.
 
Further, forward-looking statements included
herein are only made as of the respective dates thereof, or if no
 
date is stated, as of the date hereof. Except as otherwise required
by
 
law,
 
we
 
disclaim
 
any
 
intent
 
or
 
obligation
 
to
 
publicly
 
update
 
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 less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production flocks. Our total flock as of May 28, 2022 consisted of approximately 42.2 million layers and 11.5
million pullets and breeders.
Many of our customers rely
 
on us to provide most of
 
their shell egg needs, including
 
specialty and conventional eggs.
 
Specialty
eggs encompass a broad range of products. We classify nutritionally enhanced,
 
cage-free, organic,
 
free-range, pasture-raised 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.
 
4
Throughout the Company’s history,
 
we have acquired other companies in our industry. Since 1989 through our fiscal year ended
May 28, 2022, we have completed 23 acquisitions ranging
 
in size from 160 thousand layers to 7.5 million layers. Most recently,
effective on May 30, 2021, the Company acquired
 
the remaining 50% membership interest in Red River Valley
 
Egg Farm, LLC
(“Red River”),
 
which owns and
 
operates a specialty
 
shell egg production
 
complex that includes
 
1.7 million cage-free
 
hens. For
further
 
description
 
of
 
this
 
transaction,
 
refer
 
to
 
Part
 
II.
 
Item
 
8.
 
Notes
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
.
 
In fiscal 2021,
 
we announced that
 
our Board of
 
Directors approved several
 
new capital projects
 
with an estimated
 
cost of $105
million to further
 
expand the Company’s
 
cage-free egg production
 
capabilities. These projects
 
include expanding
 
our cage-free
egg production at our
 
Okeechobee, Florida, production
 
facility. The
 
project is designed to include
 
the construction of two
 
cage-
free layer houses and one cage-free pullet house with capacity
 
for approximately 400 thousand cage-free hens and 210 thousand
pullets, respectively.
 
Construction is
 
well underway,
 
with the
 
first pullets
 
placed in
 
mid-May 2022,
 
the first
 
layer house
 
to be
finished by September 2022, and
 
with the second layer house and
 
project completion expected by January
 
2023. In Delta, Utah,
we
 
are
 
constructing
 
four
 
new
 
cage-free
 
layer
 
houses
 
and
 
two
 
pullet
 
house
 
conversions
 
with
 
capacity
 
for
 
approximately
 
810
thousand
 
cage-free
 
layer
 
hens,
 
which
 
is
 
expected
 
to
 
be
 
completed
 
by
 
fall
 
of
 
2023.
 
At
 
our
 
Guthrie,
 
Kentucky
 
farm,
 
we
 
are
converting existing facilities into nine
 
cage-free layer houses and
 
two pullet houses with
 
capacity for approximately 953 thousand
cage-free
 
hens,
 
which
 
is
 
expected
 
to
 
be
 
completed
 
by
 
spring
 
of
 
2025.
 
The
 
Company
 
plans
 
to
 
fund
 
these
 
projects
 
through
 
a
combination of available cash on hand, investments and operating cash flow.
In
 
October
 
2021,
 
we
 
announced
 
a
 
strategic
 
investment
 
in
 
MeadowCreek
 
Foods,
 
LLC,
 
that
 
will
 
specialize
 
in
 
high
 
value
commercial product solutions targeting specific needs in the food industry. For further description of this
 
transaction, refer to “—
Egg Products” below.
Effective December 5, 2021, we made an additional investment in our joint venture Southwest Specialty Eggs, LLC (“Southwest
Specialty”), to
 
acquire
 
warehouse
 
and
 
distribution
 
capability
 
to
 
expand
 
Southwest
 
Specialty’
 
customer
 
base
 
in the
 
southern
California, Arizona and Nevada markets.
 
Subsequent
 
to
 
the
 
end
 
of
 
fourth
 
quarter
 
2022,
 
the
 
Company’s
 
Board
 
of
 
Directors
 
approved
 
a
 
capital
 
project
 
to
 
expand
 
the
Company’s
 
cage-free production
 
capabilities. The
 
proposed project
 
at Chase,
 
Kansas will
 
convert
 
existing conventional
 
layer
capacity to cage-free capacity for
 
approximately 1.5 million cage-free hens
 
and include remodels of
 
all remaining pullet facilities.
Work is expected
 
to commence immediately with project completion expected by year-end
 
2025.
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 2022 ended May 28, 2022, and the first
three fiscal quarters of fiscal
 
2022 ended August 28, 2021, November
 
27, 2021, and February 26, 2022.
 
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 2021,
 
approximately 71% of table
eggs produced in the U.S.
 
were sold as shell
 
eggs, with 55.7% sold through food
 
at home outlets such
 
as grocery and convenience
stores, 11.9%
 
sold to food-away-from
 
home channels such as
 
restaurants and 3.7%
 
that are exported.
 
The USDA estimates that
29%
 
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.
 
We are closely monitoring the
 
latest outbreak of
 
highly pathogenic avian
 
influenza (“HPAI”) that was first
 
detected in commercial
flocks in the
 
U.S. in February
 
2022. According
 
to the U.S. Centers
 
for Disease Control
 
and Prevention, these
 
detections do not
present
 
an
 
immediate
 
public
 
health
 
concern.
 
There
 
have
 
been
 
no
 
positive
 
tests for
 
HPAI
 
at
 
any
 
Cal-Maine
 
Foods’
 
owned
 
or
contracted production facility as of July 19,
 
2022. The USDA division of Animal and
 
Plant Health Inspection Service (“APHIS”)
reported that approximately 30.7 million commercial layer hens
 
have been depopulated due to HPAI, representing approximately
9.5%
 
of
 
the
 
table
 
layer
 
flock
 
based
 
on
 
February
 
2022
 
reported
 
layer
 
numbers.
 
Pullets
 
impacted
 
comprise
 
approximately
 
1.0
million. According to APHIS,
 
the most recently reported
 
outbreaks
 
of HPAI affecting commercial layer hens and
 
pullets occurred
June 7,
 
2022 and
 
June 9, 2022,
 
respectively.
 
We
 
believe the
 
HPAI
 
outbreak will
 
continue to
 
impact the
 
overall supply
 
of eggs
until the layer
 
hen flock is
 
fully replenished. While no
 
farm is immune
 
from HPAI, we believe we have
 
implemented and continue
to maintain robust
 
biosecurity programs across
 
our locations. We are
 
also working closely
 
with federal, state
 
and local
 
government
officials
 
and focused
 
industry groups
 
to mitigate
 
the risk
 
of this
 
and future
 
outbreaks and
 
effectively
 
manage our
 
response, if
needed.
 
Given
 
historical
 
consumption
 
trends,
 
we believe
 
in the
 
U.S. that
 
general demand
 
for eggs
 
increases basically
 
in line
 
with the
overall U.S.
 
population growth.
 
Specific events
 
can impact
 
egg consumption
 
in a
 
particular period,
 
as occurred
 
with the
 
2015
calm-20210529_10Kp5i0
 
5
HPAI
 
outbreak,
 
the
 
pandemic,
 
and
 
the
 
most
 
recent
 
HPAI
 
outbreak.
 
For
 
example,
 
in
 
2015,
 
egg
 
consumption
 
decreased
approximately
 
3.4%
 
compared
 
with
 
2014,
 
primarily
 
tied
 
to
 
a
 
shortage
 
of
 
eggs
 
resulting
 
from
 
an
 
outbreak
 
of
 
HPAI
 
in
 
U.S.
commercial flocks in 2014 and 2015. In 2016, consumption rebounded and increased approximately 6.0% versus 2015 and 2.5%
versus
 
the
 
pre-shortage
 
level
 
of
 
2014.
 
According
 
to
 
the
 
USDA’s
 
Economic
 
Research
 
Service,
 
estimated
 
annual
 
per
 
capita
consumption in the United States between 2016 and 2021 varied, ranging from
 
271 to 288 eggs. In calendar year
 
2021, per capita
U.S. consumption was estimated to be 280 eggs,
 
or approximately 5.4 eggs per person per
 
week. The USDA calculates per capita
consumption by dividing total
 
shell egg disappearance in the
 
U.S. by the U.S.
 
population. 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, the number
 
and productivity
of laying hens
 
in the U.S.,
 
the pandemic and
 
outbreaks of HPAI
 
.
 
While we use
 
several different
 
pricing mechanisms in
 
pricing
agreements with our customers,
 
we believe the majority
 
of conventional shell eggs
 
sold in the U.S. in
 
the retail and foodservice
channels are sold at prices
 
that take into account, in
 
varying ways, independently quoted
 
wholesale market prices,
 
such as those
published by Urner Barry
 
Publications, Inc. ("UB") for
 
shell eggs. 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 rose in our
 
fourth quarter of fiscal
 
2022, due to the
 
reduced
supply related
 
to the
 
HPAI
 
outbreak first
 
detected in
 
commercial flocks
 
in February
 
2022 and
 
steady shell
 
egg demand.
 
In the
fourth quarter
 
of fiscal 2020
 
there was a
 
brief but
 
significant increase
 
in shell egg
 
demand from
 
retail consumers
 
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.
 
calm-20210529_10Kp6i0
 
6
Specialty eggs
 
are typically
 
sold at
 
prices and
 
terms negotiated
 
directly with
 
customers. Historically,
 
prices for
 
specialty eggs
have
 
experienced
 
less
 
volatility
 
than
 
prices
 
for
 
conventional
 
shell
 
eggs
 
and
 
have
 
generally
 
been
 
higher
 
due
 
to
 
customer
 
and
consumer willingness to pay more for specialty eggs.
Feed Costs for Shell Egg Production
Feed is a primary cost component in
 
the production of shell eggs and
 
represented 61.9% of our fiscal 2022 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.
 
Furthermore,
 
due
 
to
 
the more
limited
 
supply
 
for
 
organic
 
ingredients
 
we
 
may
 
commit
 
to
 
purchase
 
organic
 
ingredients
 
in
 
advance
 
to
 
help
 
assure
 
supply.
Ordinarily, we do not enter into long-term contracts beyond a year to purchase corn and soybean meal or hedge against increases
in the prices
 
of corn and soybean meal. As the quality and composition
 
of feed is a critical factor in the nutritional value of shell
eggs and health
 
of our chickens,
 
we formulate and
 
produce the vast
 
majority of our
 
own feed at our
 
feed mills located
 
near our
production plants. Our annual feed
 
requirements for fiscal 2022 were
 
1.9 million tons of finished
 
feed, of which we manufactured
1.8 million tons.
 
We
 
currently have
 
the capacity
 
to store
 
174 thousand
 
tons of
 
corn and
 
soybean meal,
 
and we
 
replenish these
stores as needed throughout the year.
Our primary feed ingredients, corn
 
and soybean meal, are commodities subject
 
to volatile price changes due to
 
weather, various
supply and
 
demand factors,
 
transportation and
 
storage costs,
 
speculators and
 
agricultural, energy
 
and trade
 
policies in
 
the U.S.
and internationally and
 
most recently the Russia-Ukraine
 
war. While we
 
do not import
 
corn or soy directly
 
from the region, the
Russia-Ukraine
 
war has
 
had
 
a negative
 
impact on
 
the worldwide
 
supply of
 
grain, including
 
corn, putting
 
upward pressure
 
on
prices.
 
We
 
purchase
 
the
 
vast
 
majority
 
of
 
our
 
corn
 
and
 
soybean
 
meal
 
from
 
U.S
 
sources
 
but
 
may
 
be
 
forced
 
to
 
purchase
internationally
 
when
 
U.S.
 
supplies are
 
not
 
readily
 
available.
 
Feed
 
grains
 
are
 
currently
 
available
 
from
 
an
 
adequate
 
number
 
of
sources in the U.S. As a point of
 
reference, a multi-year comparison of
 
the average of daily closing prices per
 
Chicago Board of
Trade for each period in our fiscal calendar are
 
shown below for corn and soybean meal:
 
7
Shell Egg Production
Our percentage of dozens produced to sold was
 
94.3%
 
of our total shell eggs sold in fiscal 2022,
 
with 91.7% of such production
coming from company-owned facilities,
 
and 8.3% from contract
 
producers. Under a
 
typical arrangement with
 
a contract producer,
we
 
own
 
the
 
flock,
 
furnish
 
all feed
 
and
 
critical
 
supplies,
 
own
 
the
 
shell
 
eggs
 
produced
 
and
 
assume
 
market
 
risks.
 
The contract
producers own and operate their facilities and are paid a fee based on production
 
with incentives for performance.
 
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We grow 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 eggs are
 
produced, they are
 
cleaned, graded and
 
packaged. Substantially all
 
our farms have
 
modern “in-line” facilities
 
which
mechanically
 
gather,
 
clean,
 
grade
 
and
 
package
 
the
 
eggs
 
at
 
the
 
location
 
where
 
they
 
are
 
laid.
 
The
 
in-line
 
facilities
 
generate
significant efficiencies
 
and cost
 
savings compared
 
to the
 
cost of
 
eggs produced
 
from non-in-line
 
facilities, which
 
process eggs
that have
 
been laid
 
at another
 
location and
 
transported to
 
the facility.
 
The in-line
 
facilities also
 
produce a
 
higher percentage
 
of
USDA Grade A
 
eggs, which
 
sell at higher
 
prices. Eggs produced
 
on farms owned
 
by contractors are
 
brought to our
 
processing
plants to be graded and packaged.
 
Because shell eggs are perishable, we
 
do not maintain large egg inventories. Our egg
 
inventory
averaged
 
six days
 
of sales
 
during fiscal 2022.
 
We believe our constant
 
focus on production
 
efficiencies and automation throughout
the supply chain enable us to be a low-cost supplier in our markets.
We
 
are proud
 
to have
 
created and
 
upheld
 
what we
 
believe is
 
a leading
 
poultry
 
Animal Welfare
 
Program
 
(“AWP”).
 
We
 
have
aligned our AWP with regulatory,
 
veterinary and our certifying bodies’ guidance to govern welfare of animals in our direct care,
our contract
 
farmers’ care
 
and our farmer-suppliers’
 
care. We
 
continually review
 
our program
 
to monitor and
 
evolve standards
that
 
guide
 
how we
 
hatch
 
chicks,
 
rear
 
pullets
 
and
 
nurture
 
breeder
 
and
 
layer
 
hens.
 
At each
 
stage
 
of
 
our
 
animals’
 
lives, we
 
are
dedicated
 
to providing
 
welfare
 
conditions
 
aligned
 
to our
 
commitment
 
to
 
the principles
 
of
 
the
 
internationally
 
recognized
Five
Freedoms of Animal Welfare
. Our standards apply to
 
our enterprise and are
 
tailored for our owned and
 
contract grower operations
with oversights and approvals from senior members of our compliance
 
team.
We
 
do not
 
use artificial
 
hormones in
 
the production
 
of our
 
eggs. Hormone
 
use in
 
the poultry
 
and egg
 
production industry
 
has
been
 
effectively
 
banned
 
in
 
the U.S.
 
since
 
the
 
1950s.
 
We
 
have
 
an
 
extensive
 
written
 
protocol
 
that
 
allows
 
the
 
use
 
of
 
medically
important
 
antibiotics
 
only
 
when
 
animal
 
health
 
is
 
at
 
risk,
 
consistent
 
with
 
guidance
 
from
 
the
 
United
 
States
 
Food
 
and
 
Drug
Administration
 
("FDA")
 
and
 
the
 
Guidance
 
for
 
Judicious
 
Therapeutic
 
Use
 
of
 
Antimicrobials
 
in
 
Poultry,
 
developed
 
by
 
the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary
 
doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We
 
do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We
 
are
 
one
 
of
 
the
 
largest
 
producers
 
and
 
marketers
 
of
 
value-added
 
specialty
 
shell
 
eggs
 
in
 
the
 
U.S.,
 
which
 
continues
 
to
 
be
 
a
significant and growing segment of the
 
market. We classify nutritionally enhanced, cage-free, organic,
 
free-range, pasture-raised,
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.
 
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.
 
We
 
have
 
monitored,
 
and will
 
continue
 
to monitor,
 
this legislation
 
and any
 
legal challenges
 
to
these
 
new
 
laws.
 
Recently,
 
the
 
Supreme
 
Court
 
of
 
the
 
U.S.
 
announced
 
that
 
in
 
October
 
2022
 
it
 
will
 
review
 
a
 
case
 
challenging
California’s
 
Proposition 12
 
that requires the
 
sale of only
 
cage-free eggs in
 
that state. Our
 
customers typically
 
do not commit
 
to
long-term purchases
 
of specific quantities
 
or types
 
of eggs with
 
us, and as
 
a result, it
 
is difficult
 
to accurately
 
predict customer
requirements for
 
cage-free eggs.
 
We
 
are, 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 22.1%
 
of our shell egg revenues for
fiscal year 2022. At the end of
 
our fiscal 2021, our production capacity for cage-free
 
eggs exceeded our customers’ requirements;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
however,
 
as our
 
customers have
 
continued to
 
transition to
 
meet consumer
 
demand and
 
comply with
 
their public
 
commitments
and evolving
 
legal requirements, and
 
as HPAI
 
has adversely
 
impacted cage-free
 
flocks, we believe
 
current supply
 
and demand
for cage-free eggs is more
 
balanced and expect demand
 
for cage-free eggs to continue
 
to increase. 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. At
 
the same time, we understand
 
the importance of our continued
 
ability to provide more affordable
conventional eggs in order to provide our customers with a variety of egg
 
choices and to address hunger in our communities.
We are a member of the Eggland’s
 
Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s
 
Best®
 
and
Land O’
 
Lakes®
 
branded eggs
 
under license
 
from EB at
 
our facilities under
 
EB guidelines.
Land O’
 
Lakes®
 
branded eggs
 
are
produced by hens that are fed a
 
whole-grain vegetarian diet. Our
Farmhouse Eggs
® brand eggs are produced at our
 
facilities by
cage-free hens
 
that are
 
provided with
 
a vegetarian
 
diet. We
 
market organic,
 
vegetarian and
 
omega-3 eggs
 
under our
4-Grain®
brand, which
 
consists of
 
conventional and
 
cage-free eggs.
 
We
 
also produce,
 
market and
 
distribute private
 
label specialty
 
shell
eggs to several customers.
Egg Products
 
Egg products are shell eggs broken
 
and sold in liquid, frozen, or
 
dried form. We
 
sell liquid and frozen egg products
 
primarily to
the institutional,
 
foodservice and
 
food manufacturing
 
sectors in
 
the U.S.
 
Our egg
 
products are
 
sold through
 
our wholly
 
owned
subsidiaries American Egg Products, LLC located in Georgia and
 
Texas Egg Products, LLC located in
 
Texas.
During October
 
2021, we
 
announced
 
that our
 
Board of
 
Directors approved
 
a strategic
 
investment that
 
will specialize
 
in high-
value commercial product solutions targeting specific needs in the food
 
industry. The initial focus will include hard-cooked eggs.
The new entity, located in Neosho, Missouri, will operate as MeadowCreek Foods, LLC (“MeadowCreek”). We have committed
up to $18.5 million in debt and
 
equity capital to MeadowCreek for
 
the purchase of property and equipment
 
and to fund working
capital,
 
and
 
we
 
retained
 
a
 
controlling
 
interest
 
in
 
the venture.
 
We
 
will serve
 
as the
 
preferred
 
provider
 
to
 
supply
 
specialty and
conventional eggs that MeadowCreek needs to manufacture egg products. MeadowCreek’s
 
marketing plan is designed to extend
our reach in the foodservice and retail marketplace and bring new opportunities in the restaurant, institutional and industrial food
products arenas. We
 
anticipate that the MeadowCreek operation will initiate production
 
late in our fiscal 2023 second quarter.
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:
2022
2021
2020
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
59.8
%
69.0
%
56.8
%
73.2
%
61.4
%
76.1
%
Specialty Eggs
Egg-Land’s Best®
19.2
%
15.9
%
20.9
%
13.5
%
19.2
%
12.7
%
Other Specialty Eggs
17.3
%
15.1
%
19.1
%
13.3
%
16.7
%
11.2
%
Total Specialty Eggs
36.5
%
31.0
%
40.0
%
26.8
%
35.9
%
23.9
%
Egg Products
3.4
%
2.7
%
2.3
%
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 are outsourced to another producer.
 
Although we face intense competition from numerous
 
other companies, we
believe that we have the largest market share for the sale
 
of shell eggs in the grocery segment, including large U.S. food retailers.
We are a member of the Eggland’s
 
Best, Inc. cooperative and produce, market, distribute and sell EB and Land O'Lakes branded
eggs, directly and through our joint
 
ventures,
 
Specialty Eggs, LLC and Southwest Specialty
 
Eggs, LLC, under exclusive license
agreements in
 
Alabama, Arizona,
 
Florida, Georgia,
 
Louisiana, Mississippi
 
and Texas,
 
and in
 
portions of
 
Arkansas, California,
 
9
Nevada,
 
North
 
Carolina,
 
Oklahoma
 
and
 
South
 
Carolina.
 
We
 
also
 
have
 
an
 
exclusive
 
license
 
in
 
New
 
York
 
City
 
in
 
addition
 
to
exclusivity in select New York
 
metropolitan areas, including areas within New Jersey and Pennsylvania.
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
 
45.9%, 48.6%
 
and 51.1% of
 
net sales dollars
 
for fiscal 2022
 
,
 
2021, and
2020,
 
respectively.
 
Our largest
 
customer,
 
Walmart
 
Inc. (including
 
Sam's Club),
 
accounted for
 
29.5%, 29.8%
 
and 32.1%
 
of net
sales dollars for fiscal 2022, 2021 and 2020, respectively.
 
In fiscal
 
2022,
 
approximately 87.5%
 
of our
 
revenue related
 
to sales
 
to retail
 
customers, 9.1%
 
to sales
 
to foodservice
 
providers
and 3.4%
 
to egg products
 
sales. Retail customers
 
include primarily
 
national and
 
regional grocery
 
store chains,
 
club stores, and
companies
 
servicing
 
independent
 
supermarkets
 
in the
 
U.S. Foodservice
 
customers
 
include
 
primarily
 
companies that
 
sell food
products and related items to restaurants, healthcare and education facilities and
 
hotels.
Competition
The production, processing,
 
and distribution of shell
 
eggs is an intensely
 
competitive business, which
 
has traditionally attracted
large numbers of
 
producers in the United
 
States. Shell egg competition
 
is generally based on
 
price, service and product
 
quality.
The shell
 
egg production
 
industry remains
 
highly fragmented.
 
According to
Egg Industry
 
Magazine
, the
 
ten largest
 
producers
owned approximately
 
53% of industry
 
table egg layer
 
hens at year-end
 
2021 and 2020.
 
We
 
believe industry
 
consolidation may
continue,
 
and
 
we
 
plan
 
to
 
capitalize
 
on
 
opportunities
 
as
 
they
 
arise.
 
We
 
believe
 
further
 
concentration
 
could
 
result
 
in
 
reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate
 
in response to seasonal demand
 
factors and a natural
 
increase in egg production during
 
the spring
and early summer.
 
Historically,
 
shell egg prices tend
 
to increase with the
 
start of the school
 
year and tend
 
to be highest prior
 
to
holiday
 
periods,
 
particularly
 
Thanksgiving,
 
Christmas
 
and
 
Easter.
 
Consequently,
 
and
 
all
 
other
 
things
 
being
 
equal,
 
we
 
would
expect to experience
 
lower selling prices,
 
sales volumes and net
 
income (and may
 
incur net losses) in
 
our first and
 
fourth fiscal
quarters ending in August/September and May/June, respectively. Accordingly, we generally expect our need for
 
working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a
 
low-cost provider of shell eggs located near
 
our customers, offering our customers
choices
 
that
 
meet
 
their
 
requirements
 
for
 
eggs
 
and
 
egg
 
products
 
and
 
continuing
 
to
 
grow
 
our
 
focus
 
on
 
specialty
 
eggs
 
and
 
egg
products.
 
For
 
example,
 
our
 
recent
 
investment
 
in
 
MeadowCreek,
 
discussed
 
above,
 
is
 
intended
 
to
 
extend
 
our
 
reach
 
in
 
the
foodservice and retail marketplace and bring
 
new opportunities in the restaurant,
 
institutional and industrial food products arenas.
In light
 
of the growing
 
customer demand
 
and increased
 
legal requirements
 
for cage-free
 
eggs, we
 
intend to
 
continue to
 
closely
evaluate the
 
need to expand
 
through selective acquisitions,
 
with a priority
 
on those that
 
will facilitate our
 
ability to expand
 
our
cage-free shell egg production
 
capabilities in key locations and
 
markets. We will continue to closely evaluate
 
the need to continue
to
 
expand
 
and
 
convert
 
our
 
own
 
facilities
 
to
 
increase
 
production
 
of
 
cage-free
 
eggs
 
based
 
on
 
a
 
timeline
 
designed
 
to
 
meet
 
the
anticipated needs of our customers and comply with evolving legal requirements. As the ongoing production of cage-free eggs is
more costly than
 
the production of
 
conventional eggs, aligning
 
our cage-free production
 
capabilities with changing
 
demand for
cage-free eggs is important to the success of our business.
 
10
Trademarks
 
and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
 
and
4Grain®
. We produce and
 
market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under
 
license agreements with
 
EB. We
 
believe these trademarks
 
and license agreements
 
are
important to our business.
 
Government Regulation
Our facilities and
 
operations are subject
 
to regulation by
 
various federal, state,
 
and local agencies,
 
including, but not
 
limited to,
the FDA,
 
USDA, Environmental
 
Protection
 
Agency
 
("EPA"),
 
Occupational
 
Safety and
 
Health Administration
 
("OSHA") and
corresponding state agencies or
 
laws. The applicable regulations relate
 
to grading, quality control,
 
labeling, sanitary control and
reuse or
 
disposal of
 
waste. Our
 
shell egg
 
facilities are
 
subject to
 
periodic USDA,
 
FDA, EPA
 
and OSHA
 
inspections. Our
 
feed
production facilities are
 
subject to FDA,
 
EPA
 
and OSHA regulation
 
and inspections. We
 
maintain our own
 
inspection program
to
 
monitor
 
compliance
 
with
 
our
 
own
 
standards
 
and
 
customer
 
specifications.
 
It
 
is
 
possible
 
that
 
we
 
will
 
be
 
required
 
to
 
incur
significant
 
costs
 
for
 
compliance
 
with
 
such
 
statutes
 
and
 
regulations.
 
In
 
the
 
future,
 
additional
 
rules
 
could
 
be
 
proposed
 
that,
 
if
adopted, could increase our costs.
Ten
 
states
 
have
 
passed
 
legislation
 
or
 
regulations
 
mandating
 
minimum
 
space
 
or
 
cage-free
 
requirements
 
for
 
egg
 
production
 
or
mandated the sale of
 
only cage-free eggs and
 
egg products in
 
their states, with implementation
 
of these laws ranging
 
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
In California and
 
Massachusetts, which collectively represent
 
14% of the
 
total U.S. population
 
according to the
 
2020 U.S. Census,
cage-free legislation
 
went into
 
effect January
 
1, 2022.
 
However,
 
these laws
 
are subject
 
to judicial
 
challenge,
 
and the
 
Supreme
Court of the U.S. recently announced that in
 
October 2022 it will review a case
 
challenging California’s law that requires the sale
of only cage-free eggs in that state.
 
These laws have already effected
 
and, if upheld, will continue to
 
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 28, 2022,
 
we had 2,985 employees, of whom 2,346 worked in egg
 
production, processing, and marketing, 197
 
worked
in
 
feed
 
mill operations
 
and 442, including
 
our
 
executive officers,
 
were
 
administrative
 
employees. Approximately
 
4.7% of
 
our
personnel
 
are
 
part-time, and we
 
utilize
 
temporary
 
employment
 
agencies
 
and
 
independent
 
contractors
 
to
 
augment
 
our
staffing needs when necessary. For fiscal 2022, the average monthly full-time
 
equivalent for contingent workers was
 
1,046. None
of our employees are covered by a collective bargain
 
ing agreement. We consider
 
our relations with employees to be good.
 
Culture and Values
 
 
We
 
are
 
proud
 
to
 
be contributing corporate
 
citizens
 
where
 
we live
 
and
 
work and to
 
help create healthy,
 
prosperous
communities. Our
 
colleagues
 
help
 
us
 
continue
 
to
 
enhance our community
 
contributions,
 
which are driven
 
by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to
 
realize full
 
potential. These commitments are
 
encapsulated in the
Cal-Maine Foods Code
 
of Ethics
 
for Directors,
Officers and Employees and in our
Human Rights Statement
.
 
 
11
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, 55
 
local site
 
compliance managers,
 
feed mill
 
managers and
 
general managers.
 
The committee
 
that
oversees health
 
and
 
safety regularly
 
reviews
 
our
 
written policies
 
and
 
changes
 
to
 
OSHA
 
regulation
 
standards
 
and
 
shares
information
 
as
 
it
 
relates
 
to
 
outcomes
 
from
 
incidents
 
in
 
order
 
to
 
improve
 
future
 
performance.
 
The
 
committee’s
 
goals
 
include
working to help ensure that our engagements with our consumers, customers, and regulators evidence
 
our strong commitment to
our workers’ health and safety.
 
Our commitment to our colleagues’ health includes a strong
 
commitment to on-site worker safety,
 
including a focus on accident
prevention and life safety.
 
Our Safety and Health Program
 
is designed to promote best
 
practices that help prevent
 
and minimize
workplace accidents and illnesses. The scope of our Safety and Health
 
Program applies to all enterprise colleagues. Additionally,
to
 
help
 
protect
 
the health
 
and well-being
 
of
 
our
 
colleagues and
 
people
 
in our
 
value
 
chain,
 
we
 
require
 
that any
 
contractors
 
or
vendors
 
acknowledge
 
and
 
agree
 
to
 
comply
 
with
 
the
 
guidelines
 
governed
 
by
 
our
 
Safety
 
and
 
Health
 
Program.
 
At
 
each
 
of
 
our
locations, our
 
general managers
 
are expected
 
to uphold
 
and implement
 
our Employee
 
Safety and
 
Health Program
 
in alignment
with OSHA requirements. We believe that this program, which is
 
reviewed annually by our senior management team,
 
contributes
to strong
 
safety outcomes. As
 
part of our
 
Safety and Health
 
Program, we
 
conduct multi-lingual training
 
that covers topics
 
such
as slip-and-fall
 
avoidance,
 
respiratory
 
protection,
 
prevention
 
of
 
hazardous
 
communication
 
of
 
chemicals,
 
the
 
proper
 
use
 
of
personal protective
 
equipment, hearing
 
conservation, emergency
 
response, lockout
 
and tagout of
 
equipment and forklift
 
safety,
among others.
 
We
 
have also installed dry
 
hydrogen peroxide biodefense
 
systems in our
 
processing facilities to
 
help protect our
colleagues’ respiratory health.
 
To help
 
drive our focus on
 
colleague safety,
 
we developed safety committees
 
at each of our sites
with employee representation from each department.
 
We
 
review
 
the success
 
of our
 
safety programs
 
on a
 
monthly basis
 
to monitor
 
their effectiveness
 
and
 
the development
 
of any
trends that need to be addressed. During fiscal year 2022 our recordable incident rates decreased by 6% compared to fiscal 2021.
 
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 28, 2022, our total workforce comprised
29% 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
 
76% of
 
our employees
 
are paid
 
at hourly
 
rates, with
 
the majority
 
paid at
 
rates above
 
the
federal minimum wage
 
requirement. We
 
offer our full-time
 
eligible employees a range
 
of benefits,
 
including company-paid life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 85% of the costs of the plan
for
 
participating
 
employees
 
and
 
their
 
families
 
as
 
of
 
December
 
31,
 
2021. Recent
 
benchmarking
 
of
 
our health
 
plan
indicates comparable
 
benefits, at
 
lower
 
employee contributions, when compared
 
to an applicable
 
Agriculture
 
and
Food Manufacturing sector grouping, as well as peer group data.
 
In addition, we offer employees the opportunity to purchase an
extensive range of other group
 
plan benefits, such as dental, vision,
 
accident, critical illness, disability
 
and voluntary life.
 
After
one
 
year
 
of
 
employment, full-time employees
 
who
 
meet
 
eligibility
 
requirements may
 
elect
 
to participate
 
in
 
our
KSOP retirement plan,
 
which
 
offers
 
a
 
range
 
of
 
investment
 
alternatives
 
and
 
includes
 
many positive features,
 
such
 
as
automatic enrollment with scheduled
 
automatic contribution
 
increases and loan
 
provisions. Regardless of
 
the
 
 
12
employees’ elections
 
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.
Sustainability
We understand that climate, and
 
the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to
 
responsible management of
 
our flocks, are
 
vital to
 
the production of
 
high-quality eggs and
 
egg products
and to the success of our
 
Company. We have engaged in agricultural production for
 
more than 60
 
years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible natural resource stewardship. We
 
plan to publish our most recent sustainability update on or around late
July 2022, 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
 
and
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
 
Part
 
II.
 
Item 7.
 
Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results
 
of
Operations,
 
in
 
making
 
any
 
investment
 
decisions
 
with
 
respect
 
to
 
our
 
securities. Additional
 
risks
 
or
 
uncertainties
 
that
 
are
 
not
currently known
 
to us,
 
or that we
 
are aware
 
of but
 
currently deem
 
to be
 
immaterial or
 
that could
 
apply to
 
any company
 
could
also materially adversely affect our business, financial condition or results
 
of operations.
INDUSTRY RISK FACTORS
Market prices
 
of wholesale
 
shell eggs
 
are volatile,
 
and decreases
 
in these
 
prices can
 
adversely impact
 
our revenues
 
and
profits.
Our operating results are significantly
 
affected by wholesale shell egg
 
market prices, which fluctuate widely and
 
are outside our
control. As
 
a result,
 
our prior
 
performance
 
should not
 
be presumed
 
to be
 
an accurate
 
indication of
 
future performance.
 
Under
certain circumstances, small increases
 
in production, or small
 
decreases in demand, within
 
the industry might
 
have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect
 
our revenues and profits.
Market prices for
 
wholesale shell eggs
 
have been volatile
 
and cyclical. Shell
 
egg prices have
 
risen in the
 
past during periods
 
of
high demand such as the initial outbreak of
 
the COVID-19 pandemic and periods when high protein
 
diets are popular. Shell egg
prices
 
have
 
also
 
risen
 
during
 
periods
 
of
 
constrained
 
supply,
 
such
 
as
 
the
 
latest
 
highly
 
pathogenic
 
avian
 
influenza
 
(“HPAI”)
outbreak
 
that
 
was
 
first
 
detected
 
in
 
domestic
 
commercial
 
flocks
 
in
 
February
 
2022.
 
We
 
believe,
 
based
 
on
 
published
 
industry
estimates, that the HPAI outbreak has impacted approximately 30.7 million
 
laying hens in 2022 through
 
June. During times when
prices are
 
high, the
 
egg industry
 
has typically
 
geared up
 
to produce
 
more eggs,
 
primarily by
 
increasing the
 
number of
 
layers,
which historically has ultimately resulted in an oversupply of eggs,
 
leading to a period of lower prices.
 
13
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 have
 
all contributed
 
at
 
one
 
time or
 
another
 
to
 
increased
 
shell egg
demand. However,
 
it is possible that the
 
demand for shell eggs
 
will decline in the future.
 
Adverse publicity relating
 
to health or
safety
 
concerns
 
and
 
changes
 
in
 
the
 
perception
 
of
 
the
 
nutritional
 
value
 
of
 
shell
 
eggs,
 
changes
 
in
 
consumer
 
views
 
regarding
consumption of
 
animal-based products,
 
as well
 
as movement
 
away from
 
high protein
 
diets, could
 
adversely affect
 
demand for
shell eggs, which would have a material adverse effect on our
 
future results of operations and financial condition.
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 62% of total farm production cost
in the prior five fiscal
 
years. Although feed ingredients, primarily corn
 
and soybean meal, are
 
available from a number of
 
sources,
we do
 
not have
 
control over
 
the prices
 
of the
 
ingredients we
 
purchase, which
 
are affected
 
by weather,
 
various global
 
and U.S.
supply and demand
 
factors, transportation
 
and storage costs,
 
speculators, and
 
agricultural, energy
 
and trade policies
 
in the U.S.
and internationally and
 
most recently the Russia-Ukraine
 
war. While we
 
do not import
 
corn or soy directly
 
from the region, the
Russia-Ukraine
 
war has
 
had
 
a negative
 
impact on
 
the worldwide
 
supply of
 
grain, including
 
corn, putting
 
upward pressure
 
on
prices.
 
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, our customers
 
or regulators believe it poses
a potential
 
health risk.
 
Any product
 
recall could
 
result in
 
a loss
 
of consumer
 
confidence in
 
our products,
 
adversely affect
 
our
reputation
 
with existing
 
and potential
 
customers and
 
have a
 
material adverse
 
effect
 
on our
 
business, results
 
of operations
 
and
financial condition.
Agricultural risks, including outbreaks of avian
 
disease, could harm our business.
 
Our shell egg
 
production activities are
 
subject to a variety
 
of agricultural risks.
 
Unusual or extreme
 
weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs
 
we produce and distribute. Outbreaks of avian
influenza among poultry occur periodically
 
worldwide and have occurred sporadically
 
in the U.S. Most recently,
 
an outbreak of
HPAI,
 
which
 
was
 
first
 
detected
 
in
 
February
 
2022,
 
impacted
 
the
 
industry.
 
Prior
 
to
 
2022,
 
there
 
was
 
another
 
significant
 
HPAI
outbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI
 
at any Cal-Maine Foods’ owned
or contracted facility as
 
of July 19,
 
2022. The Company maintains
 
controls and procedures designed
 
to reduce the
 
risk of exposing
our flocks to harmful
 
diseases; however, despite these efforts, outbreaks of avian
 
disease can and do
 
still occur and may
 
adversely
impact the
 
health of
 
our flocks.
 
An outbreak
 
of avian
 
disease could
 
have a
 
material adverse
 
impact on
 
our financial
 
results by
increasing
 
government
 
restrictions
 
on
 
the
 
sale
 
and
 
distribution
 
of
 
our
 
products
 
and
 
requiring
 
us
 
to
 
euthanize
 
the
 
affected
layers. Negative publicity from an outbreak within our
 
industry can negatively impact customer perception, even if
 
the outbreak
does
 
not
 
directly
 
impact
 
our flocks.
 
If
 
a
 
substantial portion
 
of
 
our
 
layers
 
or production
 
facilities are
 
affected
 
by
 
any
 
of these
factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely
affected.
BUSINESS AND OPERATIONAL
 
RISK FACTORS
 
14
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 significant
 
resurgence occurs
 
including due
 
to variants
 
or related
 
strains of
 
the virus
become prevalent)
 
a negative impact on our business. Negative impacts have included, and
 
may include in the future, disruptions
in
 
the
 
supply
 
chain
 
resulting
 
in
 
increased
 
costs
 
and
 
decreased
 
availability
 
of
 
packaging
 
supplies,
 
increased
 
labor
 
costs
 
and
increased medical costs.
 
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan
 
to pursue a
 
growth strategy that includes
 
selective acquisitions
of other
 
companies engaged
 
in the
 
production and
 
sale of
 
shell eggs,
 
with a
 
priority on
 
those that
 
will facilitate
 
our ability
 
to
expand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the
demand
 
for
 
cage-free
 
eggs,
 
which
 
could
 
cause
 
our
 
acquisition
 
strategy
 
to
 
be
 
less-than-optimal
 
for
 
our
 
future
 
growth
 
and
profitability.
 
The
 
number
 
of existing
 
companies
 
with
 
cage-free
 
capacity
 
that
 
we
 
may
 
be
 
able
 
to
 
purchase
 
is
 
limited,
 
as
 
most
production of shell
 
eggs by other companies
 
in our markets currently
 
does not meet customer
 
demands or legal requirements
 
to
be designated
 
as cage-free.
 
Conversely,
 
if we
 
acquire cage-free
 
production capacity,
 
which is
 
more expensive
 
to purchase
 
and
operate, and customer
 
demands or legal
 
requirements for cage-free
 
eggs were to change,
 
the resulting lack
 
of demand for
 
cage-
free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we
 
could become subject to contingent or
 
other liabilities, including liabilities arising from
 
events or conduct
prior to
 
our acquisition
 
of a
 
business that
 
were unknown
 
to us
 
at the
 
time of
 
acquisition. We
 
could incur
 
significantly greater
expenditures in integrating an acquired business than we anticipated at the
 
time of its purchase.
We cannot assure
 
you that we:
will identify suitable acquisition candidates;
can consummate acquisitions on acceptable terms;
can successfully integrate an acquired business into our operations;
 
or
can successfully manage the operations of an acquired business.
No
 
assurance
 
can
 
be
 
given
 
that
 
companies
 
we
 
acquire
 
in
 
the
 
future
 
will
 
contribute
 
positively
 
to
 
our
 
results
 
of
 
operations
 
or
financial condition.
 
In addition,
 
federal antitrust
 
laws require
 
regulatory approval
 
of acquisitions
 
that exceed
 
certain threshold
levels of significance, and we cannot guarantee that such approvals would
 
be obtained.
The consideration
 
we pay in
 
connection with any
 
acquisition affects
 
our financial results.
 
If we pay
 
cash, we could
 
be required
to
 
use
 
a
 
portion
 
of
 
our
 
available
 
cash
 
or
 
credit
 
facility
 
to
 
consummate
 
the
 
acquisition.
 
To
 
the
 
extent
 
we
 
issue
 
shares
 
of
 
our
Common Stock, existing stockholders may be diluted. In addition, acquisitions
 
may result in additional debt.
Our 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
 
45.9%, 48.6% and
 
51.1% of net
 
sales dollars for
 
fiscal 2022,
 
2021, and
2020, respectively.
 
Our largest
 
customer,
 
Walmart
 
Inc. (including
 
Sam's Club),
 
accounted for
 
29.5%, 29.8%
 
and 32.1%
 
of net
sales dollars
 
for fiscal
 
2022, 2021,
 
and 2020,
 
respectively. Although
 
we have
 
established long-term
 
relationships with
 
most of
our customers
 
who continue
 
to purchase
 
from us
 
based on
 
our ability
 
to service
 
their needs,
 
they are
 
generally free
 
to acquire
shell eggs
 
from other
 
sources. If, for
 
any reason, one
 
or more
 
of our
 
large customers
 
were to
 
purchase significantly
 
less of
 
our
shell eggs
 
in the
 
future or
 
terminate their
 
purchases from
 
us, and
 
we were
 
not able
 
to sell
 
our shell
 
eggs to
 
new customers
 
at
comparable levels, it would have a material adverse effect
 
on our business, financial condition, and results of operations.
Our business is highly competitive.
The
 
production
 
and
 
sale
 
of
 
fresh
 
shell
 
eggs,
 
which
 
accounted
 
for
 
virtually
 
all
 
of
 
our
 
net
 
sales
 
in
 
recent
 
years,
 
is
 
intensely
competitive. We
 
compete with
 
a large
 
number of
 
competitors that
 
may prove
 
to be
 
more successful
 
than we
 
are in
 
producing,
marketing and
 
selling shell
 
eggs. We
 
cannot provide
 
assurance that
 
we will
 
be able
 
to compete
 
successfully with
 
any or
 
all of
these companies.
 
Increased competition could result in price reductions, greater
 
cyclicality, reduced margins
 
and loss of market
share, which would negatively affect our business, results of operations,
 
and financial condition.
 
15
We
 
are
 
dependent
 
on
 
our
 
management
 
team,
 
and
 
the
 
loss
 
of
 
any
 
key
 
member
 
of
 
this
 
team
 
may
 
adversely
 
affect
 
the
implementation of our business plan in a timely manner.
Our success
 
depends largely
 
upon the
 
continued service
 
of our
 
senior management
 
team. The
 
loss or interruption
 
of service
 
of
one or more
 
of our key
 
executive officers
 
could adversely affect
 
our ability to
 
manage our operations
 
effectively and/or
 
pursue
our growth strategy.
 
We
 
have not entered
 
into any employment
 
or non-compete
 
agreements with any
 
of our executive
 
officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional knowledge
 
and result
in increased costs due to increased competition for employees.
 
Our
 
business
 
is
 
dependent
 
on
 
our
 
information
 
technology
 
systems
 
and
 
software,
 
and
 
failure
 
to
 
protect
 
against
 
or
effectively respond to
 
cyber-attacks, security
 
breaches, or other
 
incidents involving those systems,
 
could adversely affect
day-to-day operations and decision making processes and
 
have an adverse effect on our performance and reputation.
The efficient operation of our business depends
 
on our information technology systems, which we rely
 
on to effectively manage
our
 
business
 
data,
 
communications,
 
logistics,
 
accounting,
 
regulatory
 
and
 
other
 
business
 
processes.
 
If
 
we
 
do
 
not
 
allocate
 
and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation,
or financial results could be negatively impacted.
 
In addition, our information technology systems may be vulnerable
 
to damage
or
 
interruption
 
from
 
circumstances
 
beyond
 
our
 
control,
 
including
 
systems
 
failures,
 
natural
 
disasters,
 
terrorist
 
attacks,
viruses, ransomware, security breaches
 
or cyber incidents. Cyber-attacks
 
are becoming more sophisticated
 
and are increasing in
the number of attempts and frequency by groups and individuals with a wide range
 
of motives.
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 76% of our employees are paid at hourly rates, often in entry-level positions. While all
our employees are paid at
 
rates above the federal minimum wage
 
requirements, any significant increase
 
in local, state or federal
minimum wage requirements could
 
increase our labor
 
costs. In addition,
 
any regulatory changes
 
requiring us to
 
provide additional
employee
 
benefits
 
or
 
mandating
 
increases
 
in
 
other
 
employee-related
 
costs,
 
such
 
as
 
unemployment
 
insurance
 
or
 
workers
compensation, would increase our
 
costs. A shortage
 
in the labor
 
pool, which may be
 
caused by competition from
 
other employers,
the remote
 
locations of
 
many of
 
our farms,
 
decreased
 
labor participation
 
rates or
 
changes in
 
government-provided
 
support or
immigration laws, particularly in times of lower unemployment,
 
could adversely affect our business and results of operations.
 
A
shortage of labor
 
available to
 
us could
 
cause our
 
farms to
 
operate with
 
reduced staff, which
 
could negatively impact
 
our production
capacity and efficiencies.
 
In fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic
 
and its effects, which
caused us
 
to increase
 
wages in
 
response to
 
labor shortages,
 
and these
 
trends may
 
continue.
 
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 (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
 
widow of
 
Mr.
 
Adams,
 
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
 
57.5% 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
 
16
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
 
of Part
 
II. Item
 
8. Notes
 
to the
 
Consolidated
 
Financial
 
Statements, in
 
August 2020
 
Mrs.
Adams and the Daughters’ Trust (of
 
which the daughters of our
 
late founder are beneficiaries)
 
sold 6.9 million shares of
 
Common
Stock in a secondary public offering pursuant to a
 
previously disclosed Agreement Regarding Common Stock (the “Agreement”)
filed as an exhibit
 
to this report.
 
After the sale,
 
approximately 5.0 million shares
 
(the “Subject Shares”) remain subject
 
to potential
sale under the Agreement. The Agreement generally provides that if a holder
 
of Subject Shares intends to sell any of the Subject
Shares, such party must give
 
the Company a right of first
 
refusal to purchase all or
 
any of such shares. The
 
price payable by the
Company to
 
purchase shares
 
pursuant to
 
the exercise
 
of the
 
right of
 
first refusal
 
will reflect
 
a 6%
 
discount to
 
the then-current
market price
 
based on
 
the 20
 
business-day
 
volume-weighted average
 
price. If
 
the Company
 
does not
 
exercise its
 
right of
 
first
refusal and purchase
 
the shares offered,
 
such party will, subject
 
to the approval
 
of a special committee
 
of independent directors
of the
 
Board
 
of Directors,
 
be permitted
 
to sell
 
the
 
shares not
 
purchased
 
by the
 
Company pursuant
 
to a
 
Company
 
registration
statement, Rule 144
 
under the Securities
 
Act of 1933,
 
or another manner
 
of sale agreed
 
to by the
 
Company.
 
Although pursuant
to the Agreement the Company will have a right of
 
first refusal to purchase all or any of those
 
shares, the Company may elect not
to
 
exercise
 
its rights
 
of
 
first refusal,
 
and
 
if
 
so
 
such shares
 
would
 
be eligible
 
for
 
sale pursuant
 
to
 
the registration
 
rights in
 
the
Agreement or pursuant to Rule
 
144 under the Securities
 
Act of 1933. Sales,
 
or the availability for
 
sale, of a large
 
number of shares
of our Common Stock could result in a decline in the market price of our Common
 
Stock.
In addition,
 
our articles
 
of incorporation
 
authorize us
 
to issue
 
120,000,000 shares
 
of our Common
 
Stock. As
 
of May
 
28, 2022,
there were
 
44,139,524 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.
 
While we anticipate that
 
our retail and foodservice
 
customers will continue to
 
transition to selling cage-
free eggs given
 
public commitments, there
 
is no
 
assurance that this
 
transition will take
 
place or take
 
place according to
 
the timeline
of current cage-free commitments. For example, customers may accelerate their transition to stocking cage-free eggs, which
 
may
challenge our
 
ability to
 
meet the
 
cage-free
 
volume needs
 
of those
 
customers and
 
result in
 
a loss
 
of shell
 
egg
 
sales. Similarly,
customers who
 
commit to
 
stock greater
 
proportional quantities
 
of cage-free
 
eggs are
 
under no
 
obligation to
 
continue to
 
do so,
which may
 
result in an
 
oversupply of
 
cage-free eggs and
 
result in lower
 
specialty egg
 
prices. In
 
addition,
 
legislation passed
 
by
 
17
states requiring
 
cage-free
 
sale of
 
eggs is
 
facing and
 
may continue
 
to face
 
legal challenges
 
and could
 
be stayed
 
or overturned.
These or other judicial
 
outcomes could also
 
lead to an
 
oversupply of cage-free eggs and
 
result in lower
 
specialty egg prices, which
could reduce the return on our capital investment in cage-free production.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and
 
new laws has
resulted and
 
will continue
 
to result
 
in additional
 
costs, including
 
capital and
 
operating cost
 
increases. The
 
USDA reported
 
that
the estimated cage-free
 
flock is 103.6 million hens
 
as of July 1,
 
2022, which is
 
approximately 34.8% of
 
the total U.S. table
 
egg
layer hen population. These numbers reflect recent cage-free layer hen losses due to the HPAI outbreak. According to the USDA
Agricultural
 
Marketing
 
Service, approximately
 
221 million
 
hens,
 
or about
 
74.0% of
 
the U.S.
 
non-organic
 
laying flock
 
would
have
 
to
 
be
 
in
 
cage-free
 
production
 
by
 
2026
 
to
 
meet
 
projected
 
demand
 
from
 
the
 
retailers,
 
foodservice
 
providers
 
and
 
food
manufacturers that have made promises to transition to cage-free eggs.
 
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
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.
 
If our
competitors obtain non-cancelable long-term contracts to
 
provide cage-free eggs to our
 
existing or potential customers, then
 
there
may be decreased
 
demand for our
 
cage-free eggs due
 
to these lost
 
potential sales. If
 
we and our
 
competitors increase
 
cage-free
egg
 
production
 
and
 
there
 
is
 
no
 
commensurate
 
increase
 
in
 
demand
 
for
 
cage-free
 
eggs,
 
this
 
overproduction
 
could
 
lead
 
to
 
an
oversupply
 
of
 
cage-free
 
eggs,
 
reducing
 
the
 
sales
 
price
 
for
 
specialty
 
eggs
 
and
 
our
 
return
 
on
 
capital
 
investments
 
in
 
cage-free
production.
Failure
 
to
 
comply
 
with
 
applicable
 
governmental
 
regulations,
 
including
 
environmental
 
regulations,
 
could
 
harm
 
our
operating results,
 
financial condition,
 
and reputation.
 
Further,
 
we may
 
incur significant
 
costs to
 
comply with
 
any such
regulations.
We are subject to federal, state and local
 
regulations relating to grading, quality
 
control, labeling, sanitary control, waste
 
disposal,
and other
 
areas of
 
our business.
 
As a
 
fully-integrated
 
shell egg
 
producer,
 
our shell
 
egg facilities
 
are subject
 
to regulation
 
and
inspection by the USDA, OSHA, EPA
 
and FDA, as well as state and local health and agricultural agencies, among others. All of
our shell egg production and
 
feed mill facilities are subject
 
to FDA, EPA and OSHA regulation and inspections. In addition, rules
are often proposed that, if adopted as proposed, could increase our costs.
 
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing,
 
among
 
other
 
things,
 
the
 
generation,
 
storage,
 
handling,
 
use,
 
transportation,
 
disposal,
 
and
 
remediation
 
of
 
hazardous
materials. Under these laws and
 
regulations, we are required to obtain permits
 
from governmental authorities, including, but
 
not
limited to wastewater discharge permits and manure
 
and litter land applications.
If we
 
fail to
 
comply with
 
applicable laws
 
or regulations,
 
or fail
 
to obtain
 
necessary permits,
 
we could
 
be subject
 
to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially
 
adversely
 
affected.
 
In
 
addition,
 
because
 
these
 
laws and
 
regulations
 
are
 
becoming
 
increasingly
 
more
 
stringent,
 
it is
possible that we will be required to incur significant costs for compliance
 
with such laws and regulations in the future.
Climate change and legal or regulatory responses
 
may have an adverse impact on our business and results of
 
operations.
 
Extreme
 
weather
 
events,
 
such
 
as derechos,
 
wildfires,
 
drought,
 
tornadoes,
 
hurricanes,
 
storms,
 
floods
 
or
 
other
 
natural
 
disasters
could materially and adversely affect our operating
 
results and financial condition. In fact, derechos, fires, floods,
 
tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures
 
and more
frequent occurrences
 
of extreme
 
weather events,
 
which may
 
be exacerbated
 
by climate
 
change, may
 
cause crop
 
and livestock
areas to
 
become unsuitable,
 
including due
 
to water
 
scarcity or
 
high or
 
unpredictable
 
temperatures,
 
which may
 
result in
 
much
greater stress on food systems and more pronounced food
 
insecurity globally. Lower
 
global crop production, including corn and
soy,
 
which are
 
the primary
 
feed ingredients
 
that support
 
the health
 
of our
 
animals, may
 
result in
 
significantly higher
 
prices for
these commodity inputs, impact our ability
 
to source the commodities we
 
use to feed our flocks,
 
and negatively impact our ability
to maintain
 
or grow
 
our operations.
 
Climate change
 
may increasingly
 
expose workers
 
and animals
 
to high
 
heat and
 
humidity
stressors that adversely
 
impact poultry
 
production. Increased
 
greenhouse gas
 
emissions may
 
also negatively
 
impact air quality,
soil quality
 
and water
 
quality,
 
which may
 
hamper our
 
ability to
 
support our
 
operations, particularly
 
in higher
 
water-
 
and soil-
stressed regions.
 
 
18
Increasing
 
frequency of
 
severe weather
 
events, whether
 
tied to
 
climate change
 
or any
 
other cause,
 
may negatively
 
impact our
ability to raise
 
poultry and
 
produce eggs profitably
 
or to
 
operate our transportation
 
and logistics
 
supply chains. Regulatory
 
controls
and
 
market
 
pricing may
 
continue
 
to drive
 
the costs
 
of fossil
 
-based
 
fuels higher,
 
which
 
could negatively
 
impact
 
our ability
 
to
source commodities
 
necessary to
 
operate our
 
farms or
 
plants and
 
our current
 
fleet of
 
vehicles. These
 
changes may
 
cause us
 
to
change, significantly, our day-to-day
 
business operations and our strategy. Climate change and extreme weather events may also
impact demand for our products
 
given evolution of consumer food preferences.
 
Even if we take
 
measures to position our business
in anticipation
 
of such
 
changes, future
 
compliance
 
with legal
 
or regulatory
 
requirements may
 
require significant
 
management
time, oversight and enterprise expense. We
 
may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied
 
in a manner that
 
is inconsistent with our
 
business practices. We
 
can make no
 
assurances that our efforts
to prepare
 
for these
 
adverse events
 
will be
 
in line
 
with future
 
market and
 
regulatory expectations
 
and our
 
access to
 
capital to
support our business may also be adversely impacted.
Current and future litigation could expose us to significant
 
liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings. Litigation
 
is inherently unpredictable, and although
we
 
believe
 
we
 
have
 
meaningful
 
defenses
 
in
 
these
 
matters,
 
we
 
may
 
incur
 
liabilities
 
due
 
to
 
adverse
 
judgments
 
or
 
enter
 
into
settlements of claims that
 
could have a material
 
adverse effect on our
 
results of operations, cash flow
 
and financial condition.
 
For
a discussion of our ongoing
 
legal proceedings see 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
Weak or unstable economic conditions,
 
including higher inflation, 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.
According
 
to
 
the
 
U.S.
 
Bureau
 
of
 
Labor
 
Statistics,
 
from
 
May
 
2021
 
to
 
May
 
2022,
 
the
 
Consumer
 
Price Index for
 
All
 
Urban
Consumers increased 8.6 percent, the largest 12-month
 
increase since the period ending December 1981. Inflationary costs have
increased our input costs, and if
 
we are unable to pass these costs through
 
to the customer it could have an adverse
 
effect on our
business.
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®
 
and
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
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 28, 2022,
 
we had $44.0
 
million of
 
goodwill. While we
 
believe the
 
current carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period and our net worth.
Events
 
beyond
 
our
 
control
 
such
 
as
 
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,
 
pandemics,
 
extreme
 
weather
 
or natural
 
disasters, including
 
droughts,
 
floods,
 
excessive
 
cold
 
or
 
heat, water
rights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability
of feed ingredients, or interfere
 
with our operations due to
 
power outages, fuel shortages, discharges from
 
overtopped or breached
wastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation
channels, among other things. Any of these factors could have a material adverse
 
effect on our financial results.
ITEM 1B.
 
UNRESOLVED
 
STAFF COMMENTS
 
None.
ITEM 2.
 
PROPERTIES
 
The table
 
below provides
 
summary
 
information
 
about the
 
primary
 
operational facilities
 
we use
 
in our
 
business as
 
of May
 
28,
2022.
Type
Quantity
 
(a)
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
House up to 255,000 hens
GA, MS
Distribution Centers
4
4
NA
FL, GA, NC, TX
Feed Mills
25
24
1
Production capacity of 859 tons
of feed per hour
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
FL, MS
Processing and
Packaging
43
42
1
Approximately 596,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
28
27
1
Grow 27.2 million pullets
annually
AR, FL, GA, KS, KY,
 
MS, OH,
SC, TX, UT
Shell Egg Production
42
42
House up to 48.8 million hens
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
2
2
Production capacity of 72.8
million lbs. per year
GA, TX
(a)
Does not include idled facilities.
Our affiliate, MeadowCreek Foods, LLC (“MeadowCreek”) owns our new egg products facility that is
 
currently being retrofitted
and upgraded for
 
future production. The
 
facility is expected
 
to be operational
 
late in our
 
fiscal 2023 second
 
quarter.
 
Once fully
operational, MeadowCreek
 
will have
 
the capacity
 
to produce
 
approximately
 
500 thousand
 
pounds of
 
weekly hard-cooked
 
egg
products.
We
 
also
 
have
 
ongoing
 
construction
 
projects
 
to
 
further
 
expand
 
the
 
Company’s
 
cage-free
 
egg
 
production
 
capabilities.
 
These
projects include expanding our cage-free egg production at our Okeechobee, Florida, production facility.
 
The project is designed
to include
 
the construction
 
of two
 
cage-free
 
layer houses
 
and one
 
cage-free pullet
 
house with
 
capacity for
 
approximately 400
thousand cage-free hens and 210 thousand pullets, respectively.
 
Construction has commenced, with the first layer house planned
to be finished
 
by October 1,
 
2022, with the
 
second layer house
 
and project completion
 
expected by February
 
1, 2023. In
 
Delta,
 
 
 
 
 
20
Utah, we
 
are constructing
 
four new
 
cage-free layer
 
houses and
 
two pullet
 
houses conversions
 
with capacity
 
for approximately
810 thousand
 
cage-free layer
 
hens which
 
is expected
 
to be
 
completed by
 
fall of
 
2023. At
 
our Guthrie,
 
Kentucky farm,
 
we are
converting nine
 
existing houses
 
to cage-free
 
layer houses
 
and two
 
pullet houses
 
with capacity
 
for approximately
 
953 thousand
cage-free hens which is expected to be completed by spring of 2025.
Subsequent
 
to
 
the
 
end
 
of
 
fourth
 
quarter
 
2022,
 
the
 
Company’s
 
Board
 
of
 
Directors
 
approved
 
a
 
capital
 
project
 
to
 
expand
 
the
Company’s
 
cage-free production
 
capabilities. The
 
proposed project
 
at Chase,
 
Kansas will
 
convert
 
existing conventional
 
layer
capacity to cage-free capacity for
 
approximately 1.5 million cage-free hens
 
and include remodels of
 
all remaining pullet facilities.
Work is expected
 
to commence immediately with project completion expected by year-end
 
2025.
As of
 
May
 
28,
 
2022,
 
we
 
owned
 
approximately
 
28.0 thousand
 
acres
 
of land.
 
There
 
are no
 
material
 
mortgages
 
or liens
 
on our
properties.
 
ITEM 3.
 
LEGAL PROCEEDINGS
 
Refer to the description of certain legal proceedings pending against us under Part II.
 
Item 8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
 
ITEM 4.
 
MINE SAFETY DISCLOSURES
 
Not applicable.
 
PART
 
II.
 
ITEM
 
5.
 
MARKET
 
FOR
 
REGISTRANT’S
 
COMMON
 
EQUITY,
 
RELATED
 
STOCKHOLDER
 
MATTERS
 
AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of
 
capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no publ
 
ic 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 12,
 
2022, there
 
were
approximately 324 record holders of our Common Stock and
 
approximately 28,419 beneficial owners whose shares were held by
nominees or broker dealers. For
 
additional information about our capital
 
structure, see
 
in Part II. Item 8. Notes
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
 
Credit
 
Facility,
 
dividends
 
are
 
restricted
 
to
 
the
 
amount
 
permitted
 
under
 
the
Company’s
 
current dividend policy,
 
and may not
 
be paid if
 
a default exists
 
or will arise
 
after giving effect
 
to the dividend
 
or if
the sum of
 
cash and cash
 
equivalents of
 
the Company and
 
its subsidiaries plus
 
availability under
 
the Credit Facility
 
equals less
than $50 million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
calm-20210529_10Kp21i0
 
21
Stock Performance Graph
 
In fiscal year
 
2021, the Company
 
utilized the NASDAQ
 
Composite and NASDAQ
 
100 Total
 
Return indexes to
 
benchmark the
Company’s
 
total
 
shareholder
 
return.
 
We
 
are
 
replacing
 
these
 
indexes
 
with
 
the
 
(i)
 
Russell
 
2000
 
Total
 
Return,
 
and
 
(ii)
 
S&P
Composite
 
1500
 
Food
 
Products
 
Industry
 
Index.
 
The
 
Company
 
is
 
a
 
member
 
of
 
each
 
of
 
these
 
indexes
 
and
 
believes
 
the
 
other
companies included
 
in these indexes
 
provide products and
 
services similar to
 
Cal-Maine Foods.
 
The NASDAQ Composite
 
and
NASDAQ 100
 
Total
 
Return index
 
performances are
 
presented below
 
on the
 
performance graph
 
for comparison
 
purpose in
 
the
transitional year.
 
Beginning in
 
fiscal year
 
2023, only
 
the Russell
 
2000 Total
 
Return and
 
S&P Composite
 
1500 Food
 
Products
Industry indexes will be used as a
 
comparison for total shareholder return. The graph assumes $100 was
 
invested on June 2, 2017
in the stock or index and dividends were reinvested.
 
June 2, 2017
June 1, 2018
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
Cal-Maine Foods, Inc.
$
100.00
$
121.40
$
97.94
$
117.89
$
92.44
$
127.83
NASDAQ Composite
100.00
125.88
150.49
154.80
189.32
276.83
NASDAQ 100 Total Return
100.00
121.74
123.82
167.72
242.04
225.88
Russell 2000 Total Return
100.00
118.77
107.08
103.40
170.16
143.16
S&P Composite 1500 Food
Products Industry Index
100.00
85.03
87.52
93.92
113.97
119.33
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 2022
 
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 28, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
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
$
317,844
Equity compensation plans not
approved by shareholders
Total
$
317,844
(a)
 
There were no outstanding options,
 
warrants or rights as
 
of May 28, 2022. There were 1,016,573
 
shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term
 
Incentive Plan as of May 28, 2022.
(b)
 
There were no outstanding options, warrants or rights as of May 28,
 
2022.
(c)
 
Reflects shares available
 
for future issuance
 
as of May 28,
 
2022
 
under our Amended
 
and Restated 2012
 
Omnibus
Long-Term Incentive
 
Plan.
 
For
 
additional
 
information,
 
see
 
in
 
Part
 
II.
 
Item
 
8.
 
Notes
 
to
 
the
 
Consolidated
 
Financial
Statements.
 
ITEM 6.
 
RESERVED
 
 
 
23
ITEM
 
7.
 
MANAGEMENT’S
 
DISCUSSION
 
AND
 
ANALYSIS
 
OF
 
FINANCIAL
 
CONDITION
AND RESULTS
 
OF OPERATIONS
RISK FACTORS;
 
FORWARD
 
-LOOKING STATEMENTS
For
 
information
 
relating
 
to
 
important
 
risks
 
and
 
uncertainties
 
that
 
could
 
materially
 
adversely
 
affect
 
our
 
business,
 
securities,
financial
 
condition,
 
operating
 
results,
 
or
 
cash
 
flow,
 
reference
 
is
 
made
 
to
 
the
 
disclosure
 
set
 
forth
 
under
. In
 
addition, because
 
the following
 
discussion includes
 
numerous forward
 
-looking statements
 
relating to
 
our business,
securities, financial condition, operating results and cash flow, reference is made to the disclosure set forth under
 
and
 
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
 
(“U.S”).
 
In
 
fiscal
 
2022,
 
we
 
sold
 
approximately
1,083.8 million dozen shell eggs, which we believe
 
represented approximately 20% of domestic shell egg consumption.
 
Our total
flock as of May 28, 2022 of approximately 42.2 million layers and 11.5 million pullets and breeders is the largest in the U.S. We
sell most
 
of our
 
shell eggs
 
to a
 
diverse
 
group of
 
customers, including
 
national
 
and regional
 
grocery
 
store chains,
 
club stores,
companies
 
servicing independent supermarkets in the U.S., food service distributors, and egg product consumers in states across
the southwestern, southeastern, mid-western and mid-Atlantic regions
 
of the U.S.
The
 
Company
 
has
 
one
 
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,
 
free-range, pasture-
raised and brown
 
eggs as specialty eggs
 
for accounting and reporting
 
purposes. We
 
classify all other shell
 
eggs as conventional
eggs.
 
While
 
we
 
report
 
separate
 
sales
 
information
 
for
 
these
 
types
 
of
 
eggs,
 
there
 
are
 
a
 
number
 
of
 
cost
 
factors
 
which
 
are
 
not
specifically
 
available
 
for
 
conventional
 
or
 
specialty
 
eggs due
 
to
 
the
 
nature
 
of egg
 
production.
 
We
 
manage
 
our
 
operations
 
and
allocate resources to these
 
types of eggs on a consolidated
 
basis based on the demands
 
of our customers. For further description
of our business, refer to
HPAI
We
 
are
 
closely
 
monitoring
 
the outbreaks
 
of
 
highly
 
pathogenic
 
avian
 
influenza
 
(“HPAI”)
 
,
 
the
 
latest of
 
which
 
was
 
detected
 
in
commercial
 
flocks
 
in
 
the
 
U.S.
 
in
 
February
 
2022.
 
According
 
to
 
the
 
U.S.
 
Centers
 
for
 
Disease
 
Control
 
and
 
Prevention,
 
these
detections
 
do not
 
present
 
an immediate
 
public
 
health
 
concern.
 
There
 
have
 
been
 
no positive
 
tests for
 
HPAI
 
at
 
any
 
Cal-Maine
Foods’ owned or
 
contracted production facility
 
as of July 19,
 
2022. The USDA division
 
of Animal and
 
Plant Health Inspection
Service (“APHIS”), reported that approximately 30.7 million commercial layer hens have
 
been depopulated due to HPAI. Pullets
impacted
 
comprise
 
approximately
 
1.0
 
million.
 
According
 
to
 
APHIS,
 
the
 
most
 
recently
 
reported
 
outbreaks
 
of
 
HPAI
 
affecting
commercial
 
layer hens
 
and pullets
 
occurred
 
June 7,
 
2022 and
 
June 9,
 
2022,
 
respectively.
 
We
 
believe
 
the HPAI
 
outbreak
 
will
continue to impact the overall supply of eggs until the layer hen flock is fully replenished. While no farm is immune from HPAI,
we believe we have
 
implemented and continue to maintain
 
robust biosecurity programs across our
 
locations. We are also working
closely
 
with
 
federal,
 
state
 
and
 
local
 
government
 
officials
 
and
 
focused
 
industry
 
groups
 
to
 
mitigate
 
the
 
risk
 
of
 
this
 
and
 
future
outbreaks and effectively manage our response, if needed.
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 829 thousand
 
dozen eggs
in
 
fiscal
 
2022.
 
We
 
believe
 
we
 
are
 
taking
 
all
 
reasonable
 
precautions
 
in
 
the
 
management
 
of
 
our
 
operations
 
in
 
response
 
to
 
the
COVID-19 pandemic.
 
Our top priority
 
is the health
 
and safety
 
of our
 
employees, who
 
work hard
 
each day
 
to produce eggs
 
for
our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and we believe we have a special
responsibility to
 
maintain our
 
normal work
 
schedule. As
 
such, we
 
are in
 
regular communication
 
with our
 
managers across
 
our
operations
 
and continue
 
to closely
 
monitor the
 
situation in
 
our facilities
 
and in
 
the communities
 
where we
 
live and
 
work.
 
We
have implemented
 
procedures designed
 
to protect
 
our employees,
 
taking into
 
account guidelines
 
published
 
by the
 
Centers for
Disease Control and other government health agencies, and we have strict sanitation protocols and biosecurity measures in place
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
throughout our operations
 
with restricted access
 
to visitors. There
 
are no known
 
indications that COVID-19
 
affects chickens
 
or
can be transferred through the food supply.
 
We
 
continue to
 
proactively monitor
 
and manage
 
operations during
 
the COVID-19 pandemic,
 
including additional
 
related costs
that we incurred or
 
may incur in the
 
future. The pandemic had
 
a negative impact on
 
our business through disruptions in
 
the supply
chain such as
 
increased costs and
 
limited availability of
 
packaging supplies, increased
 
labor costs, increased
 
medical costs and,
more recently, inflation.
In fiscal
 
2022 and
 
2021, we
 
spent $2.2
 
million and
 
$2.3 million
 
(excluding medical
 
insurance claims)
 
related to
 
the pandemic
and
 
its
 
effects,
 
respectively.
 
The
 
majority
 
of
 
these
 
expenses
 
resulted
 
from
 
additional
 
labor
 
and
 
increased
 
cost
 
of
 
packaging
materials, which are
 
primarily reflected in cost
 
of sales. Medical insurance
 
claims related to COVID-19
 
paid during fiscal 2022
and 2021 were an additional $2.4 million and $1.4 million, respectively.
Executive Overview of Results – Fiscal Years
 
Ended May 28, 2022, May 29, 2021 and May 30, 2020
Fiscal Years
 
Ended
May 28, 2022
May 29, 2021
May 30, 2020
Net sales (in thousands)
$
1,777,159
$
1,348,987
$
1,351,609
Gross profit (in thousands)
$
337,059
$
160,661
$
179,588
Net average shell egg price
(a)
$
1.579
$
1.217
$
1.231
Average UB Southeast
 
Region - Shell Eggs - White Large
 
$
1.712
$
1.155
$
1.220
Feed costs per dozen produced
$
0.571
$
0.446
$
0.409
(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.
Throughout the
 
first three quarters
 
of our
 
fiscal year 2020,
 
an oversupply
 
of eggs negatively
 
affected the
 
price of
 
conventional
eggs and demand
 
for specialty eggs
 
was negatively impacted
 
by the low
 
conventional egg prices.
 
For the first
 
three quarters of
fiscal 2020,
 
the average UB
 
southeastern large
 
index price was
 
down 21.9%
 
compared with the
 
prior-year period.
 
However, in
the fourth quarter of fiscal 2020, the average UB southeastern large index price was 62.4% higher than the average price through
the first three quarters in fiscal 2020 due to increased demand related to the onset of
 
the pandemic, as consumers purchased more
eggs in anticipation of preparing 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. 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
 
believe the decreased demand in foodservice
 
seen throughout the first
three
 
quarters of
 
fiscal 2021
 
due
 
to the
 
pandemic
 
contributed to
 
the depressed
 
price
 
of shell
 
eggs for
 
fiscal 2021
 
in the
 
retail
market due to the extra supply entering the retail channel from the foodservice
 
channel.
 
For
 
fiscal
 
2022,
 
we
 
believe
 
prices
 
for
 
conventional
 
eggs
 
were
 
positively
 
impacted
 
by
 
a
 
better
 
alignment
 
of
 
the
 
size
 
of
 
the
conventional
 
production
 
layer
 
hen
 
flock
 
and
 
customer
 
and
 
consumer
 
demand
 
through
 
the
 
first
 
three
 
fiscal
 
quarters
 
of
 
2022.
Conventional egg
 
prices further
 
increased in
 
the fourth
 
quarter of
 
fiscal 2022
 
primarily due
 
to decreased
 
supply caused
 
by the
HPAI
 
outbreak
 
compounded
 
with
 
good
 
customer
 
demand.
 
Throughout
 
fiscal
 
2022
 
the
 
hen
 
numbers
 
reported
 
by
 
the
 
USDA
remained below
 
the five-year
 
average. As
 
of July 17,
 
2022, APHIS
 
reported that
 
approximately 30.7
 
million commercial
 
table
egg layer
 
hens, or
 
approximately 9.5%
 
of the
 
table egg
 
layer flock
 
based on
 
February 2022
 
reported layer
 
numbers, have
 
been
depopulated due
 
to HPAI.
 
Hen numbers
 
reported by
 
the USDA
 
as of
 
June 1,
 
2022, were
 
297.5 million,
 
which represents
 
18.3
million fewer hens than a year ago.
According to
 
Information Resources,
 
Inc. (“IRI”),
 
for the
 
52 weeks
 
ended June
 
5, 2022,
 
which approximately
 
aligns with
 
our
fiscal year
 
2022, conventional
 
egg dozens
 
sold in
 
the U.S.
 
at multi-retail
 
outlets decreased
 
14.3%, while
 
specialty egg
 
dozens
sold increased 13.2% versus the prior-year comparable period.
 
Our conventional eggs dozens sold decreased 3.4% and specialty
egg dozens sold increased 12.5% as compared to fiscal 2021.
Gross profit increased $176.4 million to $337.1 million in fiscal 2022. The increase resulted primarily from higher
 
selling prices
for
 
conventional
 
eggs
 
as
 
well
 
as
 
the
 
increased
 
volume
 
of
 
specialty
 
eggs
 
sold,
 
partially
 
offset
 
by
 
the
 
increased
 
cost
 
of
 
feed
ingredients, increased processing costs and the decline in the volume of conventional eggs
 
sold. For fiscal year 2022, the average
Chicago
 
Board
 
of Trade
 
(“CBOT”)
 
daily
 
market
 
price
 
was $6.31
 
per bushel
 
for
 
corn and
 
$392.06
 
per ton
 
for
 
soybean meal,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
representing increases of
 
38.3% and 6.1%, respectively,
 
compared to the daily
 
average CBOT prices for fiscal
 
2021. Feed costs
started trending
 
higher midway
 
through the
 
second quarter
 
of fiscal
 
2021 and
 
then again
 
near the
 
end of
 
the second
 
quarter of
fiscal
 
2022.
 
Beginning
 
in
 
August
 
2020,
 
the
 
grain
 
markets,
 
particularly
 
corn,
 
have
 
been
 
negatively
 
affected
 
by
 
many
 
factors,
including weather-related production and yield shortfalls, increased export demand and ongoing disruptions from the COVID-19
global pandemic.
 
These factors continued into our fiscal 2022 and
 
as other factors such as the
 
Russia-Ukraine war, increased fuel
costs, transportation and fertilizers prices
 
and strong export demand and restrictions
 
further compounded the existing issues that
contributed
 
to
 
near-historical
 
low
 
stocks-to-use
 
ratios
 
for
 
corn
 
worldwide
 
and
 
overall
 
higher
 
feed
 
ingredient
 
cost
 
and
 
price
volatility.
We continue
 
to execute our growth strategy of remaining a low-cost provider
 
of shell eggs and growth of our specialty eggs and
egg
 
products
 
through
 
additional
 
investments
 
in
 
cage-free
 
facilities and
 
selective
 
acquisitions.
 
In
 
fiscal
 
2022,
 
we
 
acquired
 
the
remaining 50%
 
membership interest
 
in Red
 
River Valley
 
Egg Farm,
 
LLC (“Red
 
River”), which
 
owns and
 
operates a
 
specialty
shell
 
egg
 
production
 
complex
 
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, Texa
 
s.
We
 
also
 
announced
 
new
 
capital
 
projects
 
with
 
estimated
 
costs of
 
$105
 
million
 
that
 
will
 
expand
 
our
 
cage-free
 
production
 
and
capacity by 2.2 million cage-free hens. For additional information,
 
see
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 28, 2022
May 29, 2021
Net sales
100.0
%
100.0
%
Cost of sales
81.0
%
88.1
%
Gross profit
19.0
%
11.9
%
Selling, general and administrative
11.2
%
13.6
%
(Gain) loss on disposal of fixed assets
(0.3)
%
0.2
%
Operating income (loss)
8.1
%
(1.9)
%
Total other income
1.3
%
1.2
%
Income (loss) before income taxes
9.4
%
(0.7)
%
Income tax expense (benefit)
1.9
%
(0.9)
%
Net income
7.5
%
0.2
%
Less:
 
Net loss attributable to noncontrolling interest
%
%
Net income attributable to Cal-Maine Foods, Inc.
7.5
%
0.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Fiscal Year
 
Ended May 28, 2022 Compared to Fiscal Year
 
Ended May 29, 2021
NET SALES
Total net sales for fiscal
 
2022 were $1,777.2 million compared to $1,349.0 million for fiscal 2021.
Net shell egg sales represented 96.6% and 97.3% of total net sales
 
for the fiscal year 2022
 
and 2021, respectively. Shell egg sales
classified as
 
“Other”
 
represent sales
 
of hard
 
-cooked
 
eggs, hatching
 
eggs, and
 
other miscellaneous
 
products
 
included with
 
our
shell egg operations. The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except
percentage data):
May 28, 2022
May 29, 2021
Total net sales
$
1,777,159
$
1,348,987
Conventional
$
1,061,995
61.8
%
$
766,284
58.4
%
Specialty
648,838
37.8
%
539,780
41.1
%
Egg sales, net
1,710,833
99.6
%
1,306,064
99.5
%
Other
6,322
0.4
%
6,190
0.5
%
Net shell egg sales
$
1,717,155
100.0
%
$
1,312,254
100.0
%
Dozens sold:
Conventional
747,914
69.0
%
785,446
73.2
%
Specialty
335,875
31.0
%
287,765
26.8
%
Total dozens sold
1,083,789
100.0
%
1,073,211
100.0
%
Net average selling price per dozen:
Conventional
$
1.420
$
0.976
Specialty
$
1.932
$
1.876
All shell eggs
$
1.579
$
1.217
Egg products sales:
 
Egg products net sales
$
60,004
$
36,733
Pounds sold
63,968
63,627
Net average selling price per pound
$
0.938
$
0.577
Shell egg net sales
-
For fiscal 2022,
 
conventional egg
 
sales increased $295.7
 
million, or 38.6%,
 
compared to
 
fiscal 2021, primarily
 
due to
the increase
 
in conventional
 
egg prices,
 
partially offset
 
by a
 
4.8% decrease
 
in the
 
volume of
 
conventional
 
eggs sold.
Changes in price resulted in a $332.1
 
million increase and change in volume resulted
 
in a $36.6 million decrease in net
sales, respectively.
-
We believe
 
prices for conventional eggs
 
were positively impacted by
 
a better alignment of the
 
size of the conventional
production
 
layer
 
hen
 
flock
 
and
 
customer
 
and
 
consumer
 
demand
 
throughout
 
the
 
first
 
three
 
quarters
 
of
 
fiscal
 
2022.
Conventional egg prices further
 
increased in the fourth quarter
 
of fiscal 2022 primarily due
 
to decreased supply caused
by the HPAI
 
outbreak,
 
discussed above.
-
We believe lower
 
conventional egg prices in the prior-year period were primarily
 
tied to a surplus of conventional eggs
entering the retail channel from the foodservice channel exceeding
 
retail demand during this phase of the pandemic.
-
The decrease
 
in volume of
 
conventional eggs
 
sold was primarily
 
due to elevated
 
retail demand
 
during the
 
first half
 
of
fiscal 2021 given consumers’ preferences
 
to purchase eggs for in-home meal
 
preparation due to the pandemic.
 
We saw
these consumer preferences begin to shift
 
in the fourth quarter of
 
fiscal 2021 as consumers began
 
to resume out-of-home
dining and prepared fewer meals at home.
-
Specialty egg sales
 
increased $109.1 million, or
 
20.2%, for fiscal
 
2022 compared to
 
fiscal 2021, primarily
 
due to a
 
16.7%
increase in the volume of specialty dozens sold and a 3.0% increase in specialty egg prices. Changes in price resulted in
a $18.8 million
 
increase and change
 
in volume
 
resulted in a
 
$90.3 million increase
 
in net
 
sales, respectively. Our specialty
egg sales
 
also benefitted
 
from our
 
additional cage-free
 
production capacity.
 
Cage-free egg
 
sales for
 
fiscal 2022
 
were
22.1% of our total net shell egg sales.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
Egg products net sales
-
Egg products
 
net sales increased
 
$23.3 million
 
or 63.4%, primarily
 
due to a
 
62.6% selling
 
price increase
 
compared to
fiscal 2021, which had a $23.1 million positive impact on net sales.
-
Our
 
egg products
 
net average
 
selling
 
price
 
increased
 
in fiscal
 
2022,
 
compared
 
to fiscal
 
2021
 
as foodservice
 
channel
demand has
 
begun to
 
shift more
 
towards pre-pandemic
 
levels. This
 
coincided
 
with the
 
HPAI
 
outbreak
 
that started
 
in
February 2022, in which
 
we believe 10.4 of
 
the 30.7 million culled birds
 
were located at facilities dedicated
 
to support
inline breaking facilities in Iowa.
-
Selling prices for
 
egg products in fiscal
 
2021 were negatively
 
impacted by a
 
decline in foodservice
 
demand during the
more restrictive phases of governmental and business shutdowns due to the pandemic.
COST OF SALES
Cost of sales for fiscal 2022 were $1,440.1 million compared to $1,188.3
 
million for fiscal 2021.
Cost of
 
sales consi
 
sts 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 28, 2022
May 29, 2021
% Change
Cost of Sales:
Farm production
$
927,806
$
730,902
26.9
%
Processing, packaging, and warehouse
289,056
250,058
15.6
Egg purchases and other (including change in inventory)
172,034
177,634
(3.2)
Total shell eggs
1,388,896
1,158,594
19.9
Egg products
51,204
29,536
73.4
Other
196
(100.0)
Total
$
1,440,100
$
1,188,326
21.2
%
Farm production costs (per dozen produced)
Feed
$
0.571
$
0.446
28.0
%
Other
$
0.352
$
0.320
10.0
%
Total
$
0.923
$
0.766
20.5
%
Outside egg purchases (average cost per dozen)
$
1.72
$
1.22
41.0
%
Dozens produced
1,022,327
970,837
5.3
%
Percent produced to sold
94.3%
90.5%
4.2
%
Farm Production
-
Feed costs
 
per dozen
 
produced increased
 
28.0% in
 
fiscal 2022
 
compared to
 
fiscal 2021,
 
primarily due
 
to higher
 
feed
ingredient prices,
 
discussed above.
-
Other
 
farm
 
production
 
costs increased
 
due
 
to higher
 
flock amortization,
 
primarily
 
from an
 
increase
 
in
 
our
 
cage-free
production, which has higher capitalized costs. Also, higher feed costs, which began to rise in our third quarter of fiscal
2021, are capitalized in our flocks during pullet production and increased our
 
amortization expense.
-
We had higher
 
facility expense as more cage-free facilities came into production.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 11.9% compared to fiscal 2021 as supply chain constraints initially caused by the
pandemic
 
increased
 
costs
 
for
 
packaging
 
products
 
and
 
manufacturers
 
implemented
 
pandemic
 
surcharges.
 
Costs
 
also
increased due to rising inflation.
-
Labor costs increased 14.4% due to wage increases in response to
 
labor shortages, primarily due to the pandemic and its
effects.
-
Dozens processed increased 5.0% compared to fiscal 2021, which resulted
 
in an $11.4 million increase in costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
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 94.3% in fiscal 2022 from 90.5% in fiscal 2021,
 
partially offset by higher egg prices.
Looking
 
forward
 
to
 
fiscal
 
2023,
 
market
 
indications
 
point
 
to
 
higher
 
corn
 
and
 
soybean
 
prices and
 
greater
 
volatility
 
tied
 
to
 
the
Russia-Ukraine war and higher export demand.
GROSS PROFIT
Gross profit,
 
as a percentage
 
of net sales,
 
was 19.0% for
 
fiscal 2022,
 
compared to 11.9%
 
for fiscal 2021.
 
The increase resulted
primarily from higher selling prices for conventional eggs as well as the increased volume of
 
specialty eggs sold, partially offset
by the increased cost of feed ingredients,
 
increased processing costs and the decline in the volume of conventional eggs sold.
SELLING, GENERAL, AND ADMINISTRATIVE
 
EXPENSES
Selling,
 
general,
 
and
 
administrative
 
expenses
 
("SGA")
 
include
 
costs
 
of
 
marketing,
 
distribution,
 
accounting,
 
and
 
corporate
overhead. SG&A increased $14.7
 
million to $198.6 million
 
in fiscal 2022. The following
 
table presents an analysis of
 
our SGA
expenses (in thousands):
Fiscal Year
 
Ended
May 28, 2022
May 29, 2021
$ Change
% Change
Specialty egg expense
$
59,830
$
59,294
$
536
0.9
%
Delivery expense
62,677
52,670
10,007
19.0
%
Payroll, taxes and benefits
43,954
43,327
627
1.4
%
Stock compensation expense
4,063
3,778
285
7.5
%
Other expenses
28,107
24,874
3,233
13.0
%
Total
$
198,631
$
183,943
$
14,688
8.0
%
Specialty egg expense
-
Specialty egg
 
expense which
 
includes franchise
 
fees, advertising
 
and promotion
 
costs generally
 
tracks with
 
specialty
egg
 
volumes,
 
which
 
were
 
up
 
16.7%
 
for
 
fiscal
 
2022
 
compared
 
to
 
fiscal
 
2021.
 
However,
 
our
 
specialty
 
egg
 
expense
increased
 
only
 
0.9%,
 
primarily
 
due
 
to
 
increased
 
sales
 
to
 
other
 
Eggland’s
 
Best,
 
Inc.
 
(“EB”)
 
franchisees,
 
including
unconsolidated
 
affiliates,
 
Specialty
 
Eggs,
 
LLC
 
and
 
Southwest
 
Specialty
 
Eggs,
 
LLC,
 
that
 
were
 
responsible
 
for
 
the
franchise fees,
 
advertising and
 
promotion costs
 
associated with
 
those sales
 
resulting in
 
reduced costs
 
for us.
 
Also, the
strong conventional market diminished
 
the need to promote specialty eggs;
 
and as a result, EB temporarily
 
reduced the
related franchise fees for certain specialty egg products to encourage
 
continued production of these products.
Delivery expense
-
The increased
 
delivery expense
 
is primarily
 
due to
 
the increase
 
in fuel
 
and labor
 
costs for
 
both our
 
fleet and
 
contract
trucking.
Other expenses
-
The increase
 
in other expenses
 
is primarily due
 
to property losses
 
incurred that
 
were not covered
 
by insurance
 
as well
as increased
 
premiums
 
for
 
property
 
and casualty
 
insurance programs.
 
We
 
also
 
accrued an
 
additional
 
$1.1 million
 
in
property taxes due to the Red River acquisition.
OPERATING
 
INCOME (LOSS)
As a result
 
of the above,
 
our operating
 
income was $143.5 million
 
for fiscal 2022,
 
compared to operating
 
loss of $26.3 million
for fiscal 2021.
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.
 
 
 
29
The Company
 
recorded interest income
 
of $988 thousand
 
in fiscal 2022,
 
compared to $2.8
 
million in
 
fiscal 2021. We
 
recorded
interest expense of $403 thousand and $213 thousand
 
in fiscal 2022 and 2021, respectively, primarily related to commitment fees
on our Credit Facility described below.
Patronage
 
dividends,
 
which
 
represent
 
distributions
 
from
 
our
 
membership
 
in
 
EB,
 
increased
 
$1.1
 
million
 
or
 
12.5%.
 
Patronage
dividends are paid once a year based on EB’s
 
profits and its available cash.
Equity in income
 
from unconsolidated entities
 
for fiscal 2022 was
 
$1.9 million compared
 
to $622 thousand for
 
fiscal 2021, due
to increased specialty
 
egg prices
 
as well
 
as increased sales
 
volume resulting from
 
our additional investment
 
in Southwest
 
Specialty
to expand its operations.
Other,
 
net for fiscal
 
2022 was
 
income of
 
$9.8 million compared
 
to $4.1 million
 
for fiscal 2021.
 
The majority of
 
the increase is
due to our
 
acquisition of the
 
remaining 50% membership
 
interest in Red
 
River as we
 
recognized a
 
$4.5 million
 
gain due to
 
the
remeasurement of
 
our equity investment,
 
along with the
 
$1.6 million payments
 
related to review
 
and adjustment of
 
our various
marketing agreements.
INCOME TAXES
For the
 
fiscal year
 
ended May
 
28, 2022,
 
our pre-tax
 
income was
 
$166.0 million,
 
compared to
 
pre-tax loss
 
of $9.9
 
million for
fiscal 2021. Income
 
tax expense of
 
$33.6 million was
 
recorded for fiscal
 
2022 with an
 
effective tax rate
 
of 20.2%.
 
Included in
fiscal 2022
 
income tax
 
expense is
 
the discrete
 
tax benefit
 
of $8.3
 
million discussed
 
in
 
of Part
 
II. Item
 
8.
Notes to
 
Condensed
 
Consolidated
 
Financial
 
Statements in
 
this Annual
 
Report.
 
Excluding the
 
discrete tax
 
benefit,
 
income tax
expense was $41.9
 
million with an
 
adjusted effective
 
tax rate of
 
25.2%. For
 
fiscal 2021, income
 
tax benefit was
 
$12.0 million.
Excluding the impact
 
of discrete items
 
related to a
 
$12.4 million net
 
tax benefit recorded
 
during fiscal 2021
 
in connection with
the Coronavirus Aid,
 
Relief, and Economic Security
 
Act (the “CARES Act”),
 
our income tax benefit
 
for the comparable period
of fiscal 2021 was $2.2 million, which reflects an adjusted effective
 
tax rate of 22.7%.
At May 28, 2022, the
 
Company had an income tax
 
receivable of $42.1 million compared
 
to $42.5 million at May 29,
 
2021. The
income tax receivable is related
 
to the Company’s
 
decision to carryback fiscal 2020
 
and fiscal 2021 taxable net operating
 
losses
to recover a
 
portion of taxes paid
 
in fiscal 2015
 
and fiscal 2016.
 
During fiscal 2022,
 
the Company filed
 
both federal carryback
tax returns,
 
and we believe we will receive the refunds during our third fiscal quarter of 2023.
Items causing
 
our effective
 
tax rate
 
to differ
 
from the
 
federal statutory
 
income tax
 
rate of
 
21% are
 
state income
 
taxes, certain
federal tax
 
credits and
 
certain items included
 
in income or
 
loss for financial
 
reporting purposes that
 
are not included
 
in taxable
income or
 
loss for income
 
tax purposes, including
 
tax exempt interest
 
income, certain
 
nondeductible expenses,
 
and net income
or loss attributable to noncontrolling interest.
NET LOSS ATTRIBUTABLE
 
TO NONCONTROLLING INTEREST
Net loss attributable
 
to noncontrolling interest was
 
$209 thousand for fiscal
 
2022 compared to
 
no such income or
 
loss for fiscal
2021.
NET INCOME ATTRIBUTABLE
 
TO CAL-MAINE FOODS, INC.
As a result of the above, net
 
income attributable to Cal-Maine Foods, Inc.
 
for fiscal 2022 was $132.7 million, or $2.73
 
per basic
and $2.72 per diluted share, compared to $2.1 million, or $0.04
 
per basic and diluted share for fiscal 2021.
Fiscal Year
 
Ended May 29, 2021 Compared to Fiscal Year
 
Ended May 30, 2020
The discussion
 
of our
 
results of
 
operations for
 
the fiscal
 
year ended
 
May 29,
 
2021 compared
 
to the
 
fiscal year
 
ended May
 
30,
2020 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 2021 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL
 
RESOURCES
Working
 
Capital and Current Ratio
Our
 
working
 
capital
 
at
 
May
 
28,
 
2022
 
was
 
$476.8 million,
 
compared
 
to
 
$429.8 million
 
at
 
May
 
29,
 
2021.
 
The
 
calculation
 
of
working capital is defined
 
as current assets less current
 
liabilities. Our current ratio was
 
3.58 at May 28, 2022
 
compared to 5.77
 
 
 
 
 
30
at May 29, 2021. The current ratio is
 
calculated by dividing current assets by current liabilities. Due to seasonal factors described
in
, we
 
generally expect
 
our need
 
for working
 
capital to
 
be highest
 
in the
 
fourth and
 
first
fiscal quarters ending in May/June and August/September,
 
respectively.
Cash Flows from Operating Activities
Net cash
 
provided by
 
operating activities
 
was $126.2
 
million for
 
fiscal year
 
2022 compared
 
with $26.1 million
 
for fiscal
 
year
2021.
 
The increase in cash flow from operations
 
resulted primarily from higher selling prices for conventional eggs
 
as well as the
increased volume of
 
specialty eggs, partially
 
offset by
 
the increased cost
 
of feed ingredients
 
and processing costs.
 
The increase
in accounts payables,
 
accrued expenses and
 
other liabilities is
 
primarily due
 
to $62.3 million
 
balance for dividends
 
and income
tax payables as of May 28, 2022.
 
Cash Flows from Investing Activities
We
 
continue
 
to
 
invest
 
in
 
our
 
facilities,
 
with
 
$72.4
 
million
 
used
 
to
 
purchase
 
property,
 
plant
 
and
 
equipment
 
for
 
fiscal
 
2022,
compared to
 
$95.1 million
 
in fiscal
 
2021. Proceeds from
 
the sale
 
of property,
 
plant and
 
equipment was
 
$8.3 million
 
for fiscal
2022, compared to $3.4 million for in fiscal 2021. We also acquired the remaining 50% membership interest in Red River during
our first quarter of fiscal
 
2022 for $44.8 million, net
 
of cash acquired. Purchases of
 
investments were $98.2 million in fiscal
 
2022,
compared
 
to
 
$88.3
 
million
 
in
 
fiscal
 
2021.
 
Sales
 
and
 
maturities
 
of
 
investment
 
securities
 
were
 
$92.7
 
million
 
for
 
fiscal
 
2022,
compared to $129.1 million for fiscal
 
2021. We received $400 thousand in distributions from unconsolidated entity in
 
fiscal 2022
compared to $6.7 million for fiscal 2021.
 
Cash Flows from Financing Activities
We
 
paid dividends
 
totaling $6.1 million
 
and $1.7 million
 
in fiscal 2022
 
and 2021, respectively.
 
Purchases of common
 
stock by
treasury of $1.1
 
million and $871
 
thousand were made
 
to satisfy tax
 
withholding obligations
 
for employees
 
in connection with
the vesting of restricted common stock. Cash payments of $215 thousand
 
and $205 thousand were made on our finance lease.
As of May 28, 2022,
 
cash increased $1.7 million since
 
May 29, 2021, compared to a
 
decrease of $20.8 million during fiscal
 
2021.
Credit Facility
We had no
 
long-term debt outstanding at the end of fiscal 2022
 
and 2021. On November 15, 2021, we entered
 
into an Amended
and Restated Credit Agreement (the “Credit Agreement”) with a five-year term. The Credit Agreement amended and restated the
Company’s
 
previously
 
existing credit
 
agreement dated
 
July 10,
 
2018. The
 
Credit Agreement
 
provides for
 
an increased
 
senior
secured revolving credit facility (the “Credit Facility”), in an initial aggregate principal amount of up to $250 million. As of May
28, 2022,
 
no amounts
 
were borrowed
 
under the
 
Credit Facility.
 
We
 
have $4.1
 
million in
 
outstanding standby
 
letters of
 
credit,
which were issued under our Credit
 
Facility for the benefit of
 
certain insurance companies. Refer to
 
Part II. Item 8. Notes to
 
the
Financial Statements,
 
for further information regarding our long-term debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
Material Cash Requirements
Material cash requirements for
 
operating activities consist of
 
feed ingredients, employee related
 
costs, and other general
 
operating
expenses, which we expect to be paid from our cash from operations.
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. As
 
of May
 
28, 2022,
 
we had
 
invested
approximately $516 million
 
in facilities, equipment
 
and related operations
 
to expand our
 
cage-free production starting
 
with our
first facility in 2008. The following table
 
presents current material construction projects approved as of
 
May 28, 2022, along with
our $55.3
 
million capital
 
project approved
 
subsequent to
 
the end
 
of the
 
fourth quarter
 
2022 to
 
convert existing
 
capacity at
 
our
Chase, Kansas production facility to house approximately
 
1.5 million cage-free hens and include
 
remodels of all remaining pullet
facilities (in thousands):
Project(s) Type
Projected
 
Completion
Projected Cost
Spent as of
 
May 28, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2023
$
131,974
$
113,386
$
18,588
Cage-Free Layer & Pullet Houses
 
Fiscal 2023
24,171
14,201
9,970
Cage-Free Layer & Pullet Houses
 
Fiscal 2024
42,591
107
42,484
Cage-Free Layer & Pullet Houses
 
Fiscal 2025
94,183
144
94,039
$
292,919
$
127,838
$
165,081
For additional information, see
 
The following table summarizes by fiscal year the
 
future estimated cash
payments,
 
in
 
thousands,
 
to
 
be
 
made
 
under
 
existing
 
contractual
 
obligations
 
as
 
of
 
May
 
28,
 
2022.
 
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 28, 2022,
 
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
$
457
$
239
$
218
$
$
Operating leases
1,080
539
536
5
Purchase obligations:
Feed ingredients
(a)
172,132
172,132
Construction contracts and other equipment
27,568
19,281
8,287
Total
$
201,237
$
192,191
$
9,041
$
5
$
(a)
Actual purchase obligations may change based on the contractual terms and
 
agreements
We believe our
 
current cash balances, investments, cash flows from operations, and
 
Credit Facility will be sufficient to fund our
capital needs for at least the next 12 months.
IMPACT OF
 
RECENTLY
 
ISSUED ACCOUNTING STANDARDS
For information on changes in accounting
 
principles and new accounting principles,
 
see “
New Accounting Pronouncements
 
and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates
 
and assumptions
that affect the
 
reported amounts of
 
assets and liabilities
 
at the date
 
of the financial
 
statements and the
 
reported amounts of
 
revenues
and expenses during the reporting period. Actual results could
 
differ from these estimates. Critical accounting estimates are
 
those
estimates made in
 
accordance with GAAP
 
that involve a
 
significant level of estimation
 
uncertainty and have had
 
or are reasonably
likely to have a material impact
 
on the financial condition or results
 
of operations. Our critical accounting estimates are described
below.
 
32
BUSINESS COMBINATION
 
S
The Company applies the acquisition
 
method of accounting, which
 
requires that once control is
 
obtained, all the assets acquired
and liabilities assumed,
 
including amounts
 
attributable to noncontrolling
 
interests, are recorded
 
at their respective
 
fair values at
the
 
date
 
of acquisition.
 
The
 
excess
 
of
 
the
 
purchase
 
price
 
over
 
fair
 
values
 
of
 
identifiable
 
assets
 
and
 
liabilities
 
is
 
recorded
 
as
goodwill.
We
 
typically
 
use the
 
income method
 
approach for
 
intangible assets
 
acquired
 
in a
 
business combination.
 
Significant
 
judgment
exists in valuing certain
 
intangible assets. and the
 
most significant assumptions requiring judgment
 
involve estimating the
 
amount
and timing of
 
future cash flows,
 
growth rates,
 
discount rates selected
 
to measure
 
the risks inherent
 
in the future
 
cash flows and
the asset’s expected useful lives.
 
The fair values of
 
identifiable assets and liabilities
 
is determined internally and requires
 
estimates and the use
 
of various valuation
techniques. When a market value
 
is not readily available, our internal
 
valuation methodology considers the
 
remaining estimated
life of the assets acquired and significant judgment is required as management
 
determines the fair market value for those assets.
 
Due
 
to
 
inherent
 
industry
 
uncertainties
 
including
 
volatile
 
egg
 
prices
 
and
 
feed
 
costs,
 
unanticipated
 
market
 
changes,
 
events,
 
or
circumstances may occur that could affect the estimates and assumptions
 
used, which could result in subsequent impairments.
 
INVENTORIES
 
Inventories of eggs, feed,
 
supplies and flocks
 
are valued principally
 
at the lower
 
of cost (first-in,
 
first-out method) or net
 
realizable
value. If
 
market
 
prices
 
for
 
eggs and
 
feed
 
grains
 
move
 
substantially
 
lower,
 
we
 
record
 
adjustments
 
to
 
write
 
down
 
the
 
carrying
values of eggs
 
and feed inventories
 
to fair market
 
value. The cost
 
associated with flock inventories,
 
consisting principally of chick
purchases, feed, labor, contractor payments and
 
overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive
 
life, generally one to two years. Judgment exists in
determining
 
the flock’s
 
productive life
 
including
 
factors such
 
as laying
 
rate and
 
egg size,
 
molt cycles,
 
and customer
 
demand.
Furthermore, other factors such as
 
hen type or weather conditions could affect
 
the productive life. These factors could
 
make our
estimates of productive life differ from actual results. Flock mortality is charged to cost of sales as incurred. High mortality from
disease or extreme temperatures will
 
result in abnormal write-downs to
 
flock inventories. Management continually monitors each
flock and attempts to take appropriate actions to minimize the risk of mortality
 
loss.
GOODWILL
As a
 
result of
 
acquiring
 
businesses, the
 
Company
 
has $44.0
 
million
 
of goodwill
 
on May
 
28, 2022.
 
Goodwill is
 
evaluated
 
for
impairment
 
annually
 
by
 
first
 
performing
 
a
 
qualitative
 
assessment
 
to
 
determine
 
whether
 
a
 
quantitative
 
goodwill
 
test
 
is
necessary. After
 
assessing the totality of events or
 
circumstances, if we determine it
 
is more likely than not that the
 
fair value of
a reporting unit is less than its carrying
 
amount, then we perform additional quantitative tests to
 
determine the magnitude of any
impairment.
The
 
Company
 
has
 
determined
 
that
 
all
 
of
 
our
 
locations
 
share
 
similar
 
economic
 
characteristics
 
and
 
support
 
each
 
other
 
in
 
the
production of eggs and customer support. Therefore, we aggregate all our locations as a single reporting unit for testing goodwill
for
 
impairment.
 
When
 
the
 
Company
 
acquires
 
a
 
new
 
location,
 
we
 
determine
 
whether
 
it
 
should
 
be
 
integrated
 
into
 
our
 
single
reporting unit or
 
treated as a
 
separate reporting unit. Historically, we
 
have concluded that
 
acquired operations should be
 
integrated
into our single reporting unit due to the operational changes, redistribution of customers, and significant changes in management
that occur when we acquire businesses, which result in the acquired operations sharing
 
similar economic characteristics with the
rest of our locations. Once goodwill associated with acquired operations becomes part of goodwill of our single reporting unit, it
no longer represents the particular
 
acquired operations that gave rise to the
 
goodwill. We
 
may conclude that a business acquired
in the future should be treated as a separate reporting unit, in which case it would be tested separately
 
for goodwill
 
impairment.
At May 28, 2022, goodwill represented 3.1% of total assets and 2.9% of
 
stockholders’ equity.
 
Judgment exists in management’s evaluation
 
of the qualitative factors which include macroeconomic conditions, the current egg
industry environment,
 
cost inputs such as
 
feed ingredients and overall financial performance. Furthermore, judgment
 
exists in the
evaluation
 
of the
 
threshold of
 
whether it
 
is more
 
likely than
 
not that
 
the fair
 
value of
 
a reporting
 
unit is
 
less than
 
its carrying
amount. Uncertainty exists due to uncontrollable events that could occur
 
that could negatively affect our operating conditions.
During our
 
annual impairment
 
test in fiscal
 
2022, we
 
determined that
 
goodwill passed
 
the qualitative
 
assessment and
 
therefore
no quantitative analysis of goodwill impairment was necessary.
 
33
REVENUE RECOGNITION
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer
 
agreeing upon the order.
 
See
 
in Part II. Item 8. Notes to the
Consolidated Financial Statements for further discussion of the policy.
The Company believes
 
the performance obligation
 
is met upon delivery
 
and acceptance of
 
the product by
 
our customers. Costs
to deliver
 
product to
 
customers are
 
included in selling,
 
general and
 
administrative expenses
 
in the
 
accompanying Consolidated
Statements
 
of
 
Income. Sales
 
revenue
 
reported
 
in
 
the
 
accompanying
 
Consolidated
 
Statements
 
of
 
Income
 
is
 
reduced
 
to
 
reflect
estimated returns
 
and allowances. The
 
Company records
 
an estimated
 
sales allowance
 
for returns
 
and discounts
 
at the
 
time of
sale using historical trends based on actual sales returns and sales.
The Company periodically provides
 
incentive offers to its
 
customers to encourage purchases.
 
Such offers include current
 
discount
offers (e.g., percentage discounts off current purchases), inducement
 
offers (e.g., offers for future discounts
 
subject to a minimum
current purchase), and other similar offers. Current discount offers, when accepted by customers, are treated as a reduction to the
sales price
 
of the
 
related transaction,
 
while inducement
 
offers, when
 
accepted by
 
customers, are
 
treated as
 
a reduction
 
to sales
price based on estimated future redemption rates.
 
Redemption rates are estimated using the Company’s
 
historical experience for
similar inducement offers. Current discount and inducement offers
 
are presented as a net amount in ‘‘Net
 
sales.’’
As the
 
estimates noted
 
above are
 
based on
 
historical information,
 
we do
 
not believe
 
that there
 
will be
 
a material
 
change in
 
the
estimates and assumptions used
 
to recognize revenue. However,
 
if actual results varied significantly
 
from our estimates it could
expose us to material gains or losses.
 
LOSS CONTINGENCIES
The Company evaluates
 
whether a loss contingency
 
exists, and if the
 
assessment of a contingency
 
indicates it is probable
 
that a
material loss has
 
been incurred and
 
the amount of
 
the loss can
 
be reasonably estimated,
 
the estimated loss
 
would be accrued
 
in
the Company’s financial statements.
 
The Company expenses the costs of litigation as they are incurred.
There
 
were
 
no
 
loss
 
contingency
 
reserves
 
for
 
the
 
past
 
three
 
fiscal
 
years.
 
Our
 
evaluation
 
of
 
whether
 
loss
 
contingencies
 
exist
primarily relates to
 
litigation matters. The
 
outcome of litigation
 
is uncertain due
 
to, among other
 
things, uncertainties regarding
the facts will be established
 
during the proceedings, uncertainties
 
regarding how the law will
 
be applied to the facts
 
established,
and uncertainties
 
regarding the
 
calculation of
 
any potential
 
damages or
 
the costs
 
of any
 
potential injunctive
 
relief. If
 
the facts
discovered or the Company’s
 
assumptions change, future reserves for
 
loss contingencies may be required.
 
Results of operations
may be materially affected by losses or a loss contingency reserve
 
resulting from adverse legal proceedings.
INCOME TAXES
We
 
determine our
 
effective tax
 
rate by estimating
 
our permanent differences
 
resulting from differing
 
treatment of items
 
for tax
and accounting purposes. Judgment and uncertainty exist with management’s application of tax regulations
 
and evaluation of the
more-likely-than-not recognition and measurement thresholds. We
 
are periodically audited by taxing authorities. An adverse tax
settlement could have a negative impact on our effective tax rate
 
and our results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
ITEM 7A.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISKS
 
COMMODITY PRICE RISK
Our primary exposure to market risk arises from changes
 
in the prices of conventional eggs,
 
which are subject to significant price
fluctuations that are largely
 
beyond our control. We
 
are focused on growing our
 
specialty shell egg business because
 
the selling
prices
 
of
 
specialty
 
shell
 
eggs are
 
generally
 
not
 
as
 
volatile
 
as conventional
 
shell
 
egg
 
prices. Our
 
exposure
 
to
 
market
 
risk
 
also
includes changes in
 
the prices of corn
 
and soybean meal,
 
which are commodities
 
subject to significant
 
price fluctuations due
 
to
market conditions
 
that are
 
largely beyond
 
our control.
 
To
 
ensure continued
 
availability of
 
feed ingredients,
 
we may
 
enter into
contracts for future
 
purchases of corn
 
and soybean meal,
 
and as part of
 
these contracts, we
 
may lock-in
 
the basis portion
 
of our
grain purchases several months in
 
advance and commit to purchase
 
organic ingredients to help
 
assure supply.
 
Ordinarily, we
 
do
not enter
 
long-term contracts
 
beyond a
 
year to
 
purchase corn
 
and soybean
 
meal or
 
hedge against
 
increases in
 
the price
 
of corn
and soybean meal.
 
The following table
 
outlines the impact
 
of price changes
 
for corn and
 
soybean meal on
 
feed costs per
 
dozen
as feed ingredient pricing varies:
Change in price per bushel of corn
$
(0.84)
$
(0.56)
$
(0.28)
$
0.00
$
0.28
$
0.56
$
0.84
Change
 
in price
per ton
Soybean
Meal
$
(76.50)
0.511
0.521
0.531
0.541
0.551
0.561
0.571
$
(51.00)
0.521
0.531
0.541
0.551
0.561
0.571
0.581
$
(25.50)
0.531
0.541
0.551
0.561
0.571
0.581
0.591
$
0.00
0.541
0.551
0.561
0.571
(a)
0.581
0.591
0.601
$
25.50
0.551
0.561
0.571
0.581
0.591
0.601
0.611
$
51.00
0.561
0.571
0.581
0.591
0.601
0.611
0.621
$
76.50
0.571
0.581
0.591
0.601
0.611
0.621
0.631
(a)
Based on 2022
 
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 November 2021, we entered
 
into a
$250 million Credit Facility which bears interest at a variable rate. No amounts were outstanding under that facility during fiscal
2022.
 
Under
 
our
 
current
 
policies,
 
we
 
do
 
not
 
use
 
interest
 
rate
 
derivative
 
instruments
 
to
 
manage
 
our
 
exposure
 
to
 
interest
 
rate
changes.
FIXED INCOME SECURITIES RISK
At May 28, 2022, the effective maturity of our cash equivalents and
 
investment securities available for sale was 9.5 months, and
the composite credit rating of the holdings are A / A2 / 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 28,
 
2022 and May 29,
 
2021, 27.9% and 23.8%,
 
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.
 
 
 
 
 
35
ITEM 8.
 
FINANCIAL STATEMENTS
 
AND SUPPLEMENTARY
 
DATA
 
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on the Consolidated Financial Statements
We
 
have audited
 
the accompanying
 
consolidated balance
 
sheets of
 
Cal-Maine Foods,
 
Inc. and Subsidiaries
 
as of
 
May
28, 2022 and May 29,
 
2021, the related consolidated statements
 
of income, comprehensive income, stockholders’ equity
 
and cash
flows for each of the
 
three years in the period ended
 
May 28, 2022, and the related
 
consolidated notes and schedule listed
 
in the
Index
 
at
 
Item
 
15(a)(1)
 
and
 
15(a)(2)
 
(collectively
 
referred
 
to
 
as
 
the
 
“consolidated
 
financial
 
statements”).
 
In
 
our
 
opinion,
 
the
consolidated
 
financial
 
statements
 
present
 
fairly,
 
in
 
all
 
material
 
respects,
 
the
 
financial
 
position
 
of
 
Cal-Maine
 
Foods,
 
Inc.
 
and
Subsidiaries as of May
 
28, 2022 and May
 
29, 2021, and the
 
results of their operations
 
and their cash flows for
 
each of the three
years in
 
the period
 
ended May
 
28,
 
2022,
 
in conformity
 
with accounting
 
principles
 
generally
 
accepted
 
in the
 
United
 
States of
America.
We
 
also have
 
audited, in
 
accordance with
 
the standards
 
of the
 
Public Company
 
Accounting Oversight
 
Board (United
States) (“PCAOB”),
 
the Cal-Maine
 
Foods, Inc.
 
and Subsidiaries’
 
internal control
 
over financial
 
reporting as
 
of May
 
28, 2022,
based
 
on
 
the
 
criteria
 
established
 
in
2013
 
Internal
 
Control
 
 
Integrated
 
Framework
 
issued
 
by
 
the
 
Committee
 
of
 
Sponsoring
Organizations of the Treadway
 
Commission and our report dated July 19, 2022 expressed an unqualified
 
opinion.
Basis for Opinion
These
 
consolidated
 
financial
 
statements
 
are
 
the
 
responsibility
 
of
 
the
 
entities’
 
management.
 
Our
 
responsibility
 
is
 
to
express an
 
opinion on
 
these consolidated
 
financial statements
 
based on
 
our audits.
 
We
 
are a
 
public accounting
 
firm registered
with the PCAOB and
 
are required to be
 
independent with respect to
 
Cal-Maine Foods, Inc.
 
and Subsidiaries in accordance
 
with
the
 
U.S.
 
federal
 
securities
 
laws and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of the
 
Securities and
 
Exchange
 
Commission
 
and
 
the
PCAOB.
We
 
conducted
 
our audits
 
in accordance
 
with the
 
standards of
 
the PCAOB.
 
Those
 
standards require
 
that we
 
plan and
perform
 
the
 
audit
 
to
 
obtain
 
reasonable
 
assurance
 
about
 
whether
 
the
 
consolidated
 
financial
 
statements
 
are
 
free
 
of
 
material
misstatement,
 
whether
 
due
 
to
 
error
 
or
 
fraud.
 
Our
 
audits
 
included
 
performing
 
procedures
 
to
 
assess
 
the
 
risks
 
of
 
material
misstatement of the
 
consolidated financial statements,
 
whether due to error
 
or fraud, and performing
 
procedures that respond
 
to
those
 
risks.
 
Such
 
procedures
 
included
 
examining,
 
on
 
a
 
test
 
basis,
 
evidence
 
regarding
 
the
 
amounts
 
and
 
disclosures
 
in
 
the
consolidated financial
 
statements. Our
 
audits also
 
included evaluating
 
the accounting
 
principles used
 
and significant
 
estimates
made
 
by management,
 
as well
 
as evaluating
 
the overall
 
presentation
 
of the
 
consolidated financial
 
statements. We
 
believe
 
our
audits provide a reasonable
 
basis for our opinion.
Critical Audit Matter
The
 
critical
 
audit
 
matter
 
communicated
 
below
 
is
 
a
 
matter
 
arising
 
from
 
the
 
current
 
period
 
audit
 
of
 
the
 
consolidated
financial
 
statements
 
that
 
were
 
communicated
 
or
 
required
 
to
 
be
 
communicated
 
to
 
the
 
Audit
 
Committee
 
and
 
that:
 
(1)
 
relate
 
to
accounts
 
or disclosures
 
that are
 
material
 
to the
 
consolidated
 
financial
 
statements and
 
(2) involved
 
our especially
 
challenging,
subjective or
 
complex judgments.
 
The communication
 
of the critical
 
audit matter
 
does not
 
alter in
 
any way
 
our opinion
 
on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
 
providing
a separate opinion on the critical audit matter or on the accounts or disclosures to
 
which it relates.
Contingent Liabilities – Litigation and Claims – Refer to Note 18 in the Consolidated
 
Financial Statements
Critical Audit Matter Description
Cal-Maine Foods, Inc. and Subsidiaries record liabilities for legal proceedings and claims in those instances where they
can reasonably estimate the amount of the loss and when the liability is probable.
 
Where the reasonable estimate of the probable
loss is a range, Cal-Maine
 
Foods, Inc. and Subsidiaries record
 
the most likely estimate of
 
the loss, or the low end of
 
the range if
 
36
there is no one best estimate.
 
Cal-Maine Foods, Inc. and Subsidiaries either disclose 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.
 
Cal-Maine
 
Foods,
 
Inc.
 
and
Subsidiaries disclose significant
 
legal proceedings and
 
claims even where
 
liability is not
 
probable or the
 
amount of the
 
liability
is not
 
estimable, or
 
both, if
 
Cal-Maine Foods,
 
Inc. and
 
Subsidiaries believe
 
there is
 
at least
 
a reasonable
 
possibility that
 
a loss
may be incurred.
We identified litigation and claims as a critical
 
audit matter because of the challenges
 
auditing management’s judgments
applied
 
in
 
determining
 
the
 
likelihood
 
of
 
loss
 
related
 
to
 
the
 
resolution
 
of
 
such
 
claims.
 
Specifically,
 
auditing
 
management’s
determination of
 
whether any
 
contingent loss
 
arising from
 
the related
 
litigation and
 
claims is
 
probable, reasonably
 
possible or
remote, and the related disclosures, is subjective and requires significant judgment
 
due to the sensitivity of the issue.
How the Critical Audit Matter was addressed during
 
the Audit
Addressing the
 
matter involved
 
performing procedures
 
and evaluating
 
audit evidence
 
in connection
 
with forming
 
our
overall
 
opinion
 
on
 
the
 
consolidated
 
financial
 
statements.
 
These
 
procedures
 
included
 
testing
 
the
 
effectiveness
 
of
 
the
 
controls
relating to the
 
Cal-Maine Foods, Inc.
 
and Subsidiaries’ evaluation
 
of the
 
liability related
 
to legal
 
proceedings and claims,
 
including
controls over determining the likelihood
 
of a loss
 
and whether the amount
 
of loss can be
 
reasonably estimated, as well
 
as financial
statement disclosures over the legal proceedings and claims.
 
These procedures also included obtaining and evaluating
 
the letters
of audit inquiry with external
 
legal counsel, evaluating the reasonableness of
 
Cal-Maine Foods, Inc. and Subsidiaries’ assessment
regarding
 
whether
 
an
 
unfavorable
 
outcome
 
is
 
reasonably
 
possible
 
or
 
probable
 
and
 
reasonably
 
estimable,
 
evaluating
 
the
sufficiency
 
of Cal-Maine
 
Foods, Inc.
 
and Subsidiaries’
 
disclosures
 
related
 
to legal
 
proceedings and
 
claims and
 
evaluating
 
the
completeness and accuracy of Cal-Maine Foods, Inc. and Subsidiaries’ legal
 
contingencies.
 
/s/ Frost, PLLC
We have served
 
as the Company’s auditor since 2007.
Little Rock, Arkansas
July 19, 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
May 28, 2022
May 29, 2021
Assets
Current assets:
Cash and cash equivalents
$
59,084
$
57,352
Investment securities available-for-sale
115,429
112,158
Receivables:
Trade receivables, net
169,109
79,066
Income tax receivable
42,147
42,516
Other
8,148
5,057
Total receivables,
 
net
219,404
126,639
Inventories, net
263,316
218,375
Prepaid expenses and other current assets
4,286
5,407
Total current
 
assets
661,519
519,931
Property, plant &
 
equipment, net
677,796
589,417
Finance lease right-of-use asset, net
371
525
Operating lease right-of-use asset, net
1,005
1,724
Investments in unconsolidated entities
15,530
54,941
Goodwill
44,006
35,525
Intangible assets, net
18,131
20,341
Other long-term assets
9,131
6,770
Total assets
$
1,427,489
$
1,229,174
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable
$
82,049
$
52,784
Dividends payable
36,656
Accrued wages and benefits
26,059
23,812
Income tax payable
25,687
Accrued expenses and other liabilities
13,527
12,595
Current portion of finance lease obligation
224
215
Current portion of operating lease obligation
472
691
Total current
 
liabilities
184,674
90,097
Long-term finance lease obligation
214
438
Long-term operating lease obligation
533
1,034
Other noncurrent liabilities
9,527
10,416
Deferred income taxes
128,196
114,408
Total liabilities
323,144
216,393
Commitments and contingencies - see
Note 18
Stockholders’ equity:
Common stock ($
0.01
 
par value):
Common stock – authorized
120,000
 
shares, issued
70,261
 
shares
703
703
Class A convertible common stock – authorized and issued
4,800
 
shares
48
48
Paid-in capital
67,989
64,044
Retained earnings
1,065,854
975,977
Accumulated other comprehensive income (loss), net of tax
(1,596)
(558)
Common stock in treasury,
 
at cost –
26,121
 
and
26,202
 
shares in 2022 and 2021,
respectively
(28,447)
(27,433)
Total Cal-Maine Foods,
 
Inc. stockholders’ equity
1,104,551
1,012,781
Noncontrolling interest in consolidated equity
(206)
Total stockholders’
 
equity
1,104,345
1,012,781
Total liabilities and stockholders’
 
equity
$
1,427,489
$
1,229,174
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal years ended
May 28, 2022
May 29, 2021
May 30, 2020
52 weeks
52 weeks
52 weeks
Net sales
$
1,777,159
$
1,348,987
$
1,351,609
Cost of sales
1,440,100
1,188,326
1,172,021
Gross profit
337,059
160,661
179,588
Selling, general and administrative
198,631
183,943
178,237
(Gain) loss on disposal of fixed assets
(5,109)
2,982
82
Operating income (loss)
143,537
(26,264)
1,269
Other income (expense):
Interest expense
(403)
(213)
(498)
Interest income
988
2,828
4,962
Patronage dividends
10,130
9,004
10,096
Equity in income of unconsolidated entities
1,943
622
534
Other, net
9,820
4,074
3,696
Total other income
22,478
16,315
18,790
Income (loss) before income taxes
166,015
(9,949)
20,059
Income tax expense (benefit)
33,574
(12,009)
1,731
Net income
132,441
2,060
18,328
Less:
 
Net loss attributable to noncontrolling interest
(209)
(63)
Net income attributable to Cal-Maine Foods, Inc.
$
132,650
$
2,060
$
18,391
Net income per share attributable to Cal-Maine Foods, Inc.:
Basic
$
2.73
$
0.04
$
0.38
Diluted
$
2.72
$
0.04
$
0.38
Weighted average
 
shares outstanding:
Basic
48,581
48,522
48,467
Diluted
48,734
48,656
48,584
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of
Comprehensive Income
 
(in thousands)
Fiscal years ended
May 28, 2022
May 29, 2021
May 30, 2020
Net income
$
132,441
$
2,060
$
18,328
Other comprehensive loss, before tax:
Unrealized holding gain (loss) available-for-sale securities, net of
reclassification adjustments
(1,398)
(736)
59
Increase in accumulated post-retirement benefits obligation, net of
reclassification adjustments
(9)
(137)
(445)
Other comprehensive loss, before tax
(1,407)
(873)
(386)
Income tax benefit related to items of other comprehensive loss
(369)
(236)
(110)
Other comprehensive loss, net of tax
(1,038)
(637)
(276)
Comprehensive income
131,403
1,423
18,052
Less: comprehensive loss attributable to the noncontrolling interest
(209)
(63)
Comprehensive income attributable to Cal-Maine Foods, Inc.
$
131,612
$
1,423
$
18,115
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
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 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
2,707
Distributions to noncontrolling interest
partners
(755)
(755)
Acquisition of noncontrolling interest in
Texas Egg Products,
 
LLC
2,229
(2,364)
(135)
Net income (loss)
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
2,908
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
Stock compensation plan transactions
(81)
(1,014)
3,945
2,931
Dividends
(42,773)
(42,773)
Contributions
3
3
Net income (loss)
132,650
(209)
132,441
Other comprehensive loss, net of tax
(1,038)
(1,038)
Balance at May 28, 2022
70,261
$
703
4,800
$
48
26,121
$
(28,447)
$
67,989
$
1,065,854
$
(1,596)
$
(206)
$
1,104,345
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
May 28, 2022
May 29, 2021
May 30, 2020
Cash flows from operating activities:
Net income
$
132,441
$
2,060
$
18,328
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
68,395
59,477
58,103
Deferred income taxes
5,676
22,351
10,281
Equity in income of affiliates
(1,943)
(622)
(534)
(Gain) Loss on disposal of property,
 
plant and equipment
(5,109)
2,982
82
Impairment loss on fixed assets
196
2,919
Stock compensation expense, net of amounts paid
4,063
3,778
3,617
Unrealized losses on investments
(745)
1,810
744
Gains on sales of investments
(2,208)
(22)
(611)
Purchases of equity securities
3,469
(334)
(275)
Sales of equity securities
 
4,939
55
1,212
Amortization of investments
977
890
316
Gain on change in fair value of investment in affiliates
(4,545)
Other
(109)
(427)
(248)
Change in operating assets and liabilities, net of effects from acquisitions:
Increase in receivables and other assets
(97,722)
(33,487)
(28,300)
Increase in inventories
(36,152)
(31,159)
(9,704)
Increase (decrease) in accounts payable, accrued expenses and other
liabilities
54,782
(1,412)
17,679
Net cash provided by operating activities
126,209
26,136
73,609
Cash flows from investing activities:
Purchases of investments
(98,243)
(88,283)
(107,234)
Sales of investments
92,703
129,108
204,277
Acquisition of businesses, net of cash acquired
(44,823)
(44,650)
Investment in unconsolidated entities
(3,000)
Distributions from unconsolidated entities
400
6,663
7,114
Purchases of property,
 
plant and equipment
(72,399)
(95,069)
(124,178)
Net proceeds from disposal of property,
 
plant and equipment
8,341
3,390
3,306
Net cash used in investing activities
(117,021)
(44,191)
(61,365)
Cash flows from financing activities:
Principal payments on long-term debt
(1,500)
Principal payments on finance lease
(215)
(205)
(196)
Distributions to noncontrolling interest partners
(755)
Purchase of common stock by treasury
(1,127)
(871)
(910)
Payments of dividends
(6,117)
(1,652)
Contributions
 
3
5
Net cash used in financing activities
(7,456)
(2,723)
(3,361)
Increase (decrease) in cash and cash equivalents
1,732
(20,778)
8,883
Cash and cash equivalents at beginning of year
57,352
78,130
69,247
Cash and cash equivalents at end of year
$
59,084
$
57,352
$
78,130
Supplemental information:
Cash paid for operating leases
$
805
$
929
$
871
Income taxes paid
$
2,214
$
995
$
32
Interest paid
$
379
$
508
$
498
See Notes to Consolidated Financial Statements.
 
42
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Cal-Maine Foods, Inc. (“we,”
 
“us,” “our,” or the
 
“Company”) is primarily
 
engaged in the
 
production, grading, packing and
 
sale of
fresh shell eggs, including nutritionally-enhanced, cage-free,
 
organic, free-range, pasture-raised and brown
 
eggs. The Company,
which is headquartered
 
in Ridgeland, Mississippi, is the
 
largest producer
 
and distributor of fresh
 
shell eggs in the
 
United States
and sells the majority
 
of its shell
 
eggs in states
 
across the
 
southwestern, southeastern,
 
mid-western and
 
mid-Atlantic regions
 
of
the United States.
 
Principles of Consolidation
The consolidated financial statements include
 
the accounts of all wholly-owned
 
subsidiaries and of majority-owned subsidiaries
over which we exercise control. All significant intercompany transactions and
 
accounts have been eliminated in consolidation.
Fiscal Year
The Company’s fiscal year-end is on the Saturday closest to May 31. Each of the year-to-date periods
 
ended
May 28, 2022
, May
29, 2021, and May 30, 2020, included
52
 
weeks.
Use of Estimates
The preparation of the consolidated
 
financial statements in conformity with
 
generally accepted accounting principles
 
("GAAP")
in the United States of America requires management to make
 
estimates and assumptions that affect the amounts
 
reported in the
consolidated financial statements and accompanying notes. Actual results could
 
differ from those estimates.
 
Cash Equivalents
The
 
Company
 
considers
 
all
 
highly
 
liquid
 
investments
 
with
 
a
 
maturity
 
of
 
three
 
months
 
or
 
less
 
when
 
purchased
 
to
 
be
 
cash
equivalents.
 
We
 
maintain
 
bank
 
accounts
 
that
 
are
 
insured
 
by
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
up
 
to
 
$250,000. The
Company
 
routinely
 
maintains
 
cash
 
balances
 
with
 
certain
 
financial
 
institutions
 
in
 
excess
 
of
 
federally
 
insured
 
amounts.
 
The
Company has not experienced any loss in such accounts. The Company manages this risk through maintaining cash deposits and
other highly liquid investments in high quality financial institutions.
We
 
primarily utilize a
 
cash management system
 
with a series of
 
separate accounts consisting
 
of lockbox accounts
 
for receiving
cash, concentration
 
accounts to which
 
funds are moved,
 
and zero-balance disbursement
 
accounts for funding
 
accounts payable.
Checks issued,
 
but not
 
presented to
 
the banks
 
for payment,
 
may result
 
in negative
 
book cash
 
balances,
 
which are
 
included in
accounts payable. At May 29,
 
2021, checks outstanding in excess
 
of related book cash
 
balances totaled $
7.5
 
million, respectively.
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.
 
Trade Receivables
 
Trade
 
receivables are
 
stated at
 
their carrying
 
values, which
 
include a
 
reserve for
 
credit losses.
 
At May
 
28, 2022
 
and May
 
29,
2021, reserves for credit losses
 
were $
775
 
thousand and $
795
 
thousand, respectively.
 
The Company extends credit to customers
 
43
based
 
on
 
an
 
evaluation
 
of
 
each
 
customer's
 
financial
 
condition
 
and
 
credit
 
history.
 
Collateral
 
is
 
generally
 
not
 
required.
 
The
Company
 
minimizes exposure
 
to counter
 
party credit
 
risk through
 
credit analysis
 
and approvals,
 
credit limits,
 
and monitoring
procedures.
 
In
 
determining
 
our
 
reserve
 
for
 
credit
 
losses,
 
receivables
 
are
 
assigned
 
an
 
expected
 
loss
 
based
 
on
 
historical
 
loss
information
 
adjusted
 
as
 
needed
 
for
 
economic
 
and
 
other
 
forward-looking
 
factors.
 
At
 
May
 
28,
 
2022
 
and
 
May
 
29,
 
2021,
one
customer accounted for approximately
27.9
% and
23.8
% 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
 
weeks. Flock costs are amortized
 
to cost of sales over
 
the productive
lives of the flocks, generally
one
 
to
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
 
to
25
 
years for
 
buildings and
 
improvements
 
and
3
 
to
12
 
years for
 
machinery and
 
equipment. Repairs
 
and
maintenance are expensed as incurred.
 
Expenditures that increase the
 
value or productive capacity of
 
assets are capitalized. When
property,
 
plant, and
 
equipment are
 
retired, sold,
 
or otherwise
 
disposed of,
 
the asset’s
 
carrying amount
 
and related
 
accumulated
depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost
incurred on funds used to construct property, plant, and equipment
 
as part of the asset to which it relates and amortizes such cost
over the asset’s
 
estimated useful life. When
 
certain events or changes
 
in operating conditions occur,
 
asset lives may be adjusted
and an impairment assessment may be performed on the recoverability
 
of the carrying amounts.
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.
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.
 
44
Intangible Assets
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees,
non-compete agreements
 
and customer
 
relationship intangibles.
 
They are
 
amortized over
 
their estimated useful
 
lives of
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 or
 
the contract
 
has expired.
 
When certain
 
events or changes
 
in operating
 
conditions
occur, asset lives may
 
be adjusted and an
 
impairment assessment may be
 
performed on the recoverability
 
of the carrying amounts.
Accrued Self Insurance
We use
 
a combination of insurance
 
and self-insurance mechanisms to provide
 
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
 
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.
Advertising Costs
The Company expensed advertising
 
costs as incurred of $
12.6
 
million, $
11.7
 
million, and $
9.0
 
million in fiscal 2022, 2021,
 
and
2020, respectively.
Income Taxes
Income
 
taxes
 
are
 
accounted
 
for
 
using
 
the
 
liability
 
method.
 
Deferred
 
income
 
taxes
 
reflect
 
the
 
net
 
tax
 
effects
 
of
 
temporary
differences
 
between
 
the
 
carrying
 
amounts
 
of
 
assets
 
and
 
liabilities
 
for
 
financial
 
reporting
 
purposes
 
and
 
the
 
amounts
 
used
 
for
income tax purposes. The
 
Company’s policy with respect
 
to evaluating
 
uncertain tax
 
positions is
 
based upon whether
 
management
believes it
 
is more
 
likely than
 
not the
 
uncertain
 
tax positions
 
will be
 
sustained upon
 
review by
 
the taxing
 
authorities. The
 
tax
positions must meet the more-likely-than-not
 
recognition threshold with consideration
 
given to the amounts and
 
probabilities of
the outcomes
 
that could
 
be realized
 
upon settlement
 
using the
 
facts, circumstances
 
and information
 
at the
 
reporting
 
date. The
Company
 
will reflect
 
only
 
the portion
 
of the
 
tax benefit
 
that will
 
be
 
sustained
 
upon resolution
 
of the
 
position
 
and
 
applicable
interest on the portion of the tax benefit not recognized. The Company initially and subsequently measures the largest
 
amount of
tax benefit
 
that is
 
greater than
 
50% likely
 
to be
 
realized upon
 
settlement with
 
a taxing
 
authority that
 
has full
 
knowledge of
 
all
relevant
 
information. The
 
Company
 
records
 
interest
 
and
 
penalties on
 
uncertain
 
tax
 
positions
 
as
 
a
 
component
 
of
 
income
 
tax
expense. Based
 
upon management’s
 
assessment, there
 
are no uncertain
 
tax positions expected
 
to have a
 
material impact on
 
the
Company’s consolidated
 
financial statements.
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 and
 
directors, 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
 
45
benefits of tax deductions in
 
excess of recognized compensation cost to
 
be reported as a financing cash
 
flow. See
 
for more information.
Business Combinations
The Company applies the acquisition
 
method of accounting, which
 
requires that once control is obtained,
 
all the assets acquired
and liabilities assumed,
 
including amounts
 
attributable to noncontrolling
 
interests, are recorded
 
at their respective
 
fair values at
the date of
 
acquisition. The
 
fair values of
 
identifiable assets
 
and liabilities are
 
determined internally
 
and requires
 
estimates and
the
 
use
 
of
 
various
 
valuation
 
techniques.
 
When
 
a
 
market
 
value
 
is
 
not
 
readily
 
available,
 
our
 
internal
 
valuation
 
methodology
considers the remaining estimated life of the assets acquired and
 
what management believes is the market value for those assets.
 
We
 
typically use the income
 
method approach for
 
intangible assets acquired in
 
a business combination. Significant
 
estimates in
valuing certain intangible assets include, but
 
are not limited to,
 
the amount and timing of
 
future cash flows, growth rates,
 
discount
rates and useful
 
lives. The excess
 
of the purchase
 
price over fair
 
values of identifiable
 
assets and liabilities
 
is recorded as
 
goodwill.
 
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company but which
will only be
 
resolved when one
 
or more future
 
events occur or
 
fail to occur.
 
The Company’s
 
management and
 
its legal counsel
assess
 
such
 
contingent
 
liabilities,
 
and
 
such
 
assessment
 
inherently
 
involves
 
an
 
exercise
 
of
 
judgment.
 
In
 
assessing
 
loss
contingencies
 
related
 
to legal
 
proceedings
 
that are
 
pending against
 
the Company
 
or unasserted
 
claims that
 
may result
 
in such
proceedings, the Company’s
 
legal counsel evaluates
 
the perceived merits
 
of any legal
 
proceedings or unasserted
 
claims as well
as the perceived merits of the amount of relief sought or expected to be
 
sought therein.
If the assessment
 
of a contingency
 
indicates it is
 
probable that
 
a material loss
 
has been incurred
 
and the amount
 
of the liability
can be
 
estimated, the
 
estimated liability
 
would be accrued
 
in the Company’s
 
financial statements.
 
If the assessment
 
indicates a
potentially material loss contingency is
 
not probable, but is reasonably possible,
 
or is probable but cannot be estimated,
 
then the
nature of the
 
contingent liability,
 
together with an
 
estimate of the
 
range of possible
 
loss if determinable
 
and material, would
 
be
disclosed. Loss
 
contingencies considered
 
remote are
 
generally not
 
disclosed unless
 
they involve
 
guarantees, in
 
which case
 
the
nature of the guarantee would be disclosed.
 
The Company expenses the costs of litigation as they are incurred.
New Accounting Pronouncements and Policies
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
Note 2 – Acquisition
 
Effective on May 30, 2021, the Company acquired the remaining
50
% membership interest in Red River Valley
 
Egg Farm, LLC
(“Red River”),
 
including certain
 
liabilities. As
 
a result
 
of the
 
acquisition, Red
 
River became
 
a wholly
 
owned subsidiary
 
of the
Company. Red River owns and
 
operates a specialty
 
shell egg production
 
complex with approximately
1.7
 
million cage-free laying
hens,
 
cage-free
 
pullet capacity,
 
feed
 
mill, processing
 
plant, related
 
offices
 
and outbuildings
 
and
 
related
 
equipment located
 
on
approximately
400
 
acres near Bogata, Texas.
The
 
following
 
table
 
summarizes
 
the
 
consideration
 
paid
 
for
 
Red
 
River
 
and
 
the
 
amounts
 
of
 
the
 
assets
 
acquired
 
and
 
liabilities
assumed recognized at the acquisition date:
Cash consideration paid
$
48,500
Fair value of the Company's equity interest in Red River held before the business combination
48,500
$
97,000
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash
$
3,677
Accounts receivable, net
1,980
Inventory
8,789
Property, plant and equipment
85,002
Liabilities assumed
(2,448)
Deferred income taxes
(8,481)
Total identifiable
 
net assets
88,519
Goodwill
8,481
$
97,000
Cash and accounts receivable acquired along with liabilities
 
assumed were valued at their carrying
 
value which approximates fair
value due to the short maturity of these instruments.
Inventory consisted
 
primarily of
 
flock, feed
 
ingredients, packaging,
 
and egg
 
inventory.
 
Flock inventory
 
was valued at
 
carrying
value as management
 
believes that their
 
carrying value best
 
approximates their
 
fair value. Feed
 
ingredients, packaging
 
and egg
inventory were all valued based on market prices as of May 30, 2021.
 
Property,
 
plant and
 
equipment were
 
valued utilizing
 
the cost
 
approach which
 
is based
 
on replacement
 
or reproduction
 
costs of
the assets and subtracting any depreciation resulting from physical deterioration
 
and/or functional or economic obsolescence.
The Company recognized a gain of $
4.5
 
million as a result of remeasuring to fair value its
50
% equity interest in Red River held
before
 
the
 
business
 
combination.
 
The
 
gain
 
was
 
recorded
 
in
 
other
 
income
 
and
 
expense
 
under
 
the
 
heading
 
“Other,
 
net”
 
in
 
the
Company’s Condensed Consolidated Statements of Income. The acquisition
 
of Red River resulted
 
in a discrete tax
 
benefit of $
8.3
million,
 
which
 
includes
 
a
 
$
7.3
 
million
 
decrease
 
in
 
deferred
 
income
 
tax
 
expense
 
related
 
to
 
the
 
outside-basis
 
of
 
our
 
equity
investment in Red River, with a corresponding non-recurring,
 
non-cash $
955,000
 
reduction to income taxes expense on the non-
taxable remeasurement gain associated with the acquisition. As part of the acquisition accounting, the Company also
 
recorded an
$
8.5
 
million
 
deferred
 
tax
 
liability
 
for
 
the
 
difference
 
in
 
the
 
inside-basis
 
of
 
the
 
acquired
 
assets
 
and
 
liabilities
 
assumed.
 
The
recognition of deferred
 
tax liabilities resulted in
 
the recognition of goodwill.
 
None of the goodwill
 
recognized is expected
 
to be
deductible for income tax purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
Note 3 - Investment Securities
The following presents the Company’s
 
investment securities as of May 28, 2022 and May 29, 2021 (in thousands):
May 28, 2022
Amortized
 
Cost
Unrealized
 
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
10,136
$
$
32
$
10,104
Commercial paper
14,940
72
14,868
Corporate bonds
74,167
483
73,684
Certificates of deposits
1,263
18
1,245
US government and agency obligations
2,205
4
2,209
Asset backed securities
13,456
137
13,319
Total current
 
investment securities
$
116,167
$
4
$
742
$
115,429
Mutual funds
$
3,826
$
$
74
$
3,752
Total noncurrent
 
investment securities
$
3,826
$
$
74
$
3,752
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
Available-for-sale
Proceeds
 
from
 
the
 
sales and
 
maturities
 
of
 
available-for-sale
 
securities
 
were
 
$
92.7
 
million,
 
$
129.1
 
million,
 
and $
204.3
 
million
during fiscal 2022, 2021, and 2020, respectively. Gross realized gains for fiscal 2022, 2021, and 2020 were $
181
 
thousand, $
456
thousand,
 
and
 
$
278
 
thousand,
 
respectively.
 
Gross
 
realized
 
losses
 
for
 
fiscal
 
2022,
 
2021,
 
and
 
2020
 
were
 
$
76
 
thousand,
 
$
19
thousand, and $
6
 
thousand, respectively. There
 
was
no
 
allowance for credit losses at May 28, 2022 and May 29, 2021.
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
 
28,
 
2022
 
are
 
as
 
follows
 
(in
thousands):
Estimated Fair Value
Within one year
$
58,970
1-5 years
56,459
Total
$
115,429
Noncurrent
 
Proceeds from sales and maturities of noncurrent investment securities were $
4.9
 
million, $
54
 
thousand, and $
1.2
 
million, during
fiscal 2022,
 
2021 and
 
2020, respectively.
 
Gross realized
 
gains on
 
those sales
 
and maturities
 
during fiscal
 
2022 and
 
2021 were
$
2.2
 
million and $
611
 
thousand, respectively.
 
There were
no
 
realized losses for fiscal 2022, 2021, and 2020.
 
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,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
knowledgeable, and willing
 
parties able to engage in
 
the transaction. A liability’s
 
fair value is defined
 
as the amount that would
be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be
 
paid to settle
the liability with the creditor.
Level 1
 
- Quoted prices in active markets for identical assets or liabilities
Level 2
 
- Inputs
 
other than
 
quoted
 
prices included
 
in Level
 
1 that
 
are observable
 
for the
 
asset or
 
liability,
 
either
directly or indirectly,
 
including:
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
 
- Unobservable inputs
 
for the asset
 
or liability supported
 
by little or
 
no market activity
 
and are significant
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:
 
The carrying amount approximates fair value due to the
short maturity of these instruments.
 
Lease obligations:
 
The carrying value of the Company’s lease obligations
 
is at its present value which approximates fair value.
Assets and Liabilities Measured at Fair
 
Value
 
on a Recurring Basis
In accordance with
 
the fair value hierarchy
 
described above, the
 
following table shows the
 
fair value of our
 
financial assets and
liabilities that are required to be measured at fair value on a recurring basis
 
as of May 28, 2022 and May 29, 2021 (in thousands):
May 28, 2022
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
10,104
$
$
10,104
Commercial paper
14,868
14,868
Corporate bonds
73,684
73,684
Certificates of deposits
1,245
1,245
US government and agency obligations
2,209
2,209
Asset backed securities
13,319
13,319
Mutual funds
3,752
3,752
Total assets measured at fair
 
value
$
3,752
$
115,429
$
$
119,181
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
Investment securities – available-for-sale
 
classified as Level
 
2 consist of
 
securities with maturities of
 
three months or longer
 
when
purchased. We
 
classified these
 
securities as
 
current, because
 
amounts invested
 
are available
 
for current
 
operations. Observable
inputs for these securities are yields, credit risks, default rates, and volatility.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
Note 5 - Inventories
Inventories consisted of the following (in thousands):
May 28, 2022
May 29, 2021
Flocks, net of amortization
$
144,051
$
123,860
Eggs and egg products
26,936
21,084
Feed and supplies
92,329
73,431
$
263,316
$
218,375
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
 
28, 2022 and
May 29, 2021,
 
consisted of approximately
11.5
 
million and
10.8
 
million pullets and
 
breeders and
42.2
 
million and
37.8
 
million
layers, respectively.
The Company expensed amortization and mortality associated with the
 
flocks to cost of sales as follows (in thousands):
May 28, 2022
May 29, 2021
May 30, 2020
Amortization
$
160,107
$
133,448
$
133,379
Mortality
8,011
6,769
5,823
Total flock costs charged
 
to cost of sales
$
168,118
$
140,217
$
139,202
Note 6 - Property,
 
Plant and Equipment
Property, plant and equipment
 
consisted of the following (in thousands):
May 28, 2022
May 29, 2021
Land and improvements
$
109,833
$
101,174
Buildings and improvements
517,859
454,332
Machinery and equipment
655,925
584,778
Construction-in-progress
71,967
72,879
1,355,584
1,213,163
Less: accumulated depreciation
677,788
623,746
$
677,796
$
589,417
Depreciation expense was $
65.8
 
million, $
56.5
 
million and $
54.5
 
million in the fiscal years ended May 28, 2022, May 29, 2021,
and May 30, 2020, 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 “(Gains) loss on disposal
of fixed 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
 
28, 2022, May
 
29, 2021, and
 
May 30, 2020
 
did not have
 
a material effect
 
on the Company's
consolidated financial statements.
Note 7 - Investment in Unconsolidated Entities
As of
 
May 28,
 
2022 and
 
May 29,
 
2021, the
 
Company owned
50
% in
 
Specialty Eggs,
 
LLC ("Specialty
 
Eggs") and
 
Southwest
Specialty Eggs,
 
LLC ("Southwest
 
Specialty Eggs"),
 
which are
 
accounted for
 
using the
 
equity method
 
of accounting.
 
Specialty
Eggs owns the Egg-Land's Best franchise for most of Georgia and South Carolina, as well as
 
a portion of western North Carolina
and eastern Alabama. Southwest Specialty
 
Eggs owns the Egg-Land's Best franchise
 
for Arizona, southern California
 
and Clark
County, Nevada (including
 
Las Vegas).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
As of May
 
29, 2021, the
 
Company owned
50
% in Red
 
River which was
 
acquired at the
 
beginning of
 
fiscal 2022 (see
). The Company accounted for Red River using the equity method of
 
accounting in fiscal 2021.
Equity method investments are included
 
in “Investments in unconsolidated entities”
 
in the accompanying Consolidated Balance
Sheets and totaled $
10.5
 
million and $
49.9
 
million at May 28, 2022 and May 29, 2021, respectively.
 
Equity
 
in
 
income
 
of
 
unconsolidated
 
entities
 
of
 
$
1.9
 
million,
 
$
622
 
thousand,
 
and
 
$
534
 
thousand
 
from
 
these
 
entities
 
has
 
been
included in the Consolidated Statements of Income for fiscal 2022
 
,
 
2021, and 2020, respectively.
The condensed consolidated financial
 
information for the
 
Company's unconsolidated joint
 
ventures was as
 
follows (in thousands):
For the fiscal year ended
May 28, 2022
May 29, 2021
May 30, 2020
Net sales
$
145,281
$
119,853
$
188,922
Net income
3,942
1,596
1,064
Total assets
42,971
106,592
113,513
Total liabilities
21,892
5,850
4,655
Total equity
21,079
100,742
108,858
The
 
Company
 
is
 
a
 
member
 
of
 
Eggland’s
 
Best,
 
Inc.
 
(“EB”),
 
which
 
is
 
a
 
cooperative. At
 
May
 
28,
 
2022
 
and
 
May
 
29,
 
2021,
“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.
 
As of
 
May 28,
2022 and May 29, 2021, the carrying value of this investment was $
768
 
thousand.
The following relates to the Company’s
 
transactions with these unconsolidated affiliates (in thousands):
 
For the fiscal year ended
May 28, 2022
May 29, 2021
May 30, 2020
Sales to unconsolidated entities
$
94,311
$
56,765
$
54,559
Purchases from unconsolidated entities
60,016
76,059
71,475
Distributions from unconsolidated entities
400
6,663
7,114
May 28, 2022
May 29, 2021
Accounts receivable from unconsolidated entities
10,815
$
2,404
Accounts payable to unconsolidated entities
4,678
4,161
Note 8 - Goodwill and Other Intangible Assets
Goodwill and other intangibles consisted of the following (in thousands):
Other Intangibles
Franchise
Customer
Non-compete
Right of
Water
Total
Goodwill
rights
relationships
agreements
Use
rights
Trademark
intangibles
Balance May 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
Additions
8,481
10
8,491
Amortization
(1,628)
(362)
(159)
(21)
(50)
(2,220)
Balance May 28, 2022
$
44,006
$
15,071
$
1,326
$
860
$
18
$
720
$
136
$
62,137
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
For the Other Intangibles listed above, the gross carrying amounts and
 
accumulated amortization are as follows (in thousands):
May 28, 2022
May 29, 2021
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
Other intangible assets:
Franchise rights
$
29,284
$
(14,213)
$
29,284
$
(10,957)
Customer relationships
9,644
(8,318)
20,544
(18,190)
Non-compete agreements
1,450
(590)
1,450
(271)
Right of use intangible
239
(221)
191
(191)
Water rights *
720
720
Trademark
400
(264)
400
(164)
Total
$
41,737
$
(23,606)
$
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 2022, 2021,
and 2020 totaled $
2.2
 
million, $
2.5
 
million, and $
2.9
 
million, respectively.
 
The following table presents the total estimated amortization of intangible
 
assets for the five succeeding years (in thousands):
For fiscal year
Estimated amortization expense
2023
$
2,216
2024
2,170
2025
2,041
2026
2,008
2027
1,703
Thereafter
7,273
Total
$
17,411
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
 
per
 
occurrence. The
 
Company's
 
expenses
 
including
 
accruals
 
for
incurred but not
 
reported claims were approximately
 
$
24.6
 
million, $
21.7
 
million, and $
17.8
 
million in fiscal years
 
2022, 2021,
and 2020, respectively.
 
The liability recorded
 
for incurred but
 
not reported claims
 
was $
2.8
 
million and $
2.4
 
million as of
 
May
28,
 
2022
 
and
 
May
 
29,
 
2021,
 
respectively
 
and
 
are
 
classified
 
as
 
“Accrued
 
expenses
 
and
 
other
 
liabilities”
 
in
 
the
 
Company’s
Consolidated Balance Sheets.
The Company
 
has a KSOP
 
plan that
 
covers substantially
 
all employees
 
(the “Plan”). The
 
Company makes
 
contributions to
 
the
Plan at a rate of
3
% of participants' eligible compensation, plus an additional amount determined at the discretion of the
 
Board of
Directors. Contributions
 
can
 
be
 
made
 
in
 
cash
 
or
 
the
 
Company's
 
Common
 
Stock,
 
and
 
vest
 
immediately. The
 
Company's
 
cash
contributions to the Plan were $
3.9
 
million in fiscal year 2022
 
and $
3.8
 
million in both fiscal years
 
2021 and 2020. The Company
did
no
t
 
make
 
direct
 
contributions
 
of
 
the
 
Company’s
 
Common
 
Stock
 
in
 
fiscal
 
years
 
2022,
 
2021,
 
or
 
2020.
 
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
 
or over as specified in the
 
agreements. Amounts accrued for
 
the agreements are based
upon
 
deferred
 
compensation
 
earned
 
over
 
the
 
estimated
 
remaining
 
service
 
period
 
of
 
each officer.
 
Payments
 
made
 
under
 
these
agreements
 
were $
170
 
thousand, in fiscal
 
years 2022
 
and 2021,
 
and $
150
 
thousand in fiscal
 
year
 
2020. The liability
 
recorded
related to these agreements was $
1.1
 
million and $
1.4
 
million at May 28, 2022 and May 29, 2021, respectively.
 
 
52
Effective
 
December
 
1,
 
2021,
 
the
 
Company
 
amended
 
and
 
restated
 
its
 
deferred
 
compensation
 
plan
 
(the
 
“Amended
 
DC Plan”).
 
The Amended DC Plan,
 
expanded eligibility for participation
 
from named officers only
 
to a select
 
group of management or
 
highly
compensated employees of the
 
Company,
 
expanded the investment options
 
available and added the
 
ability of participants to
 
make
elective deferrals.
 
The awards
 
issued under
 
the Amended
 
DC Plan
 
were $
340
 
thousand, $
279
 
thousand, and
 
$
266
 
thousand in
fiscal 2022,
 
2021, and 2020,
 
respectively. Payments
 
made under
 
the Amended
 
DC Plan were
 
$
480
 
thousand and $
55
 
thousand
in fiscal 2022 and 2021, respectively. The liability
 
recorded for the Amended DC Plan was $
4.5
 
million and $
4.1
 
million at May
28, 2022 and May 29, 2021, respectively.
Deferred compensation expense for
 
both plans totaled $
258
 
thousand, $
1.6
 
million and $
621
 
thousand in fiscal 2022,
 
2021, and
2020,
 
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,
 
who retired
prior to May 1, 2012 and their spouses must participate in Medicare
 
Plans A and B. Officers, who retire on or after May 1, 2012
and their spouses must participate in Medicare Plans A, B, and D.
 
The plan is accounted for
 
in accordance with ASC
 
715, Compensation – Retirement Benefits (“ASC
 
715”), whereby an employer
recognizes the funded status of a defined benefit postretirement plan as
 
an asset or liability, and recognizes changes in the funded
status in the year the change occurs through comprehensive income. Additionally,
 
this expense is recognized on an accrual basis
over the employees’ approximate period of employment. The liability associated with the plan was $
2.9
 
million and $
3.4
 
million
at
 
May
 
28,
 
2022
 
and
 
May
 
29,
 
2021,
 
respectively.
 
The
 
remaining
 
disclosures
 
associated
 
with
 
ASC
 
715
 
are
 
immaterial
 
to
 
the
Company’s financial statements.
Note 10 - Credit Facility
 
For fiscal years 2022, 2021 and 2020, interest was $
403
 
thousand, $
213
 
thousand, and $
498
 
thousand, respectively.
On November 15, 2021, we entered into an Amended and Restated Credit Agreement (the “Credit
 
Agreement”) with a
five
-year
term. The Credit Agreement amended and restated the Company’s previously existing credit agreement dated July 10, 2018. The
Credit Agreement
 
provides for an
 
increased senior
 
secured revolving credit
 
facility (the
 
“Credit Facility” or
 
“Revolver”), in
 
an
initial aggregate principal amount of up to $
250
 
million, which includes a $
15
 
million sublimit for the issuance of standby letters
of credit and
 
a $
15
 
million sublimit for
 
swingline loans. The
 
Credit Facility also
 
includes an accordion
 
feature permitting, with
the consent
 
of BMO
 
Harris Bank
 
N.A. (the
 
“Administrative Agent”),
 
an increase
 
in the
 
Credit Facility
 
in the
 
aggregate up
 
to
$
200
 
million
 
by
 
adding
 
one
 
or
 
more
 
incremental
 
senior
 
secured
 
term
 
loans
 
or
 
increasing
 
one
 
or
 
more
 
times
 
the
 
revolving
commitments under the
 
Revolver.
No
 
amounts were borrowed under
 
the facility as of May
 
28, 2022 or May
 
29, 2021 or during
fiscal 2022 or fiscal 2021. The Company had $
4.1
 
million of outstanding standby letters of credit issued under the Credit Facility
at May 28, 2022.
The
 
interest
 
rate
 
in
 
connection
 
with
 
loans
 
made
 
under
 
the
 
Credit
 
Facility
 
is
 
based
 
on,
 
at
 
the
 
Company’s
 
election,
 
either
 
the
Eurodollar
 
Rate
 
plus
 
the
 
Applicable
 
Margin
 
or
 
the
 
Base
 
Rate
 
plus
 
the
 
Applicable
 
Margin.
 
The
 
“Eurodollar
 
Rate”
 
means
 
the
reserve adjusted rate at which Eurodollar deposits in the London interbank market for an interest period of
one
,
two
,
three
,
six
 
or
twelve
 
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
0.50
% 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
% per annum, subject to
 
certain interest rate floors. The
 
“Applicable
Margin” means
0.00
% 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 Total
 
Funded
 
Debt
 
to
 
Capitalization
 
Ratio
 
for
 
the
 
Company
 
at
 
the
 
quarterly
 
pricing
 
date. The
Company will pay a commitment fee on the unused portion of the Credit Facility payable quarterly from
0.15
% to
0.25
% in each
case depending
 
upon the
 
Total
 
Funded Debt
 
to Capitalization
 
Ratio for
 
the Company
 
at the
 
quarterly pricing
 
date. The
 
Credit
Agreement contains customary provisions regarding replacement of
 
the Eurodollar Rate.
The
 
Credit
 
Facility
 
is
 
guaranteed
 
by
 
all the
 
current
 
and
 
future wholly-owned
 
direct
 
and
 
indirect
 
domestic
 
subsidiaries
 
of
 
the
Company (the
 
“Guarantors”), and
 
is secured
 
by a
 
first-priority perfected
 
security interest
 
in substantially
 
all of
 
the Company’s
and the Guarantors’ accounts, payment intangibles, instruments (including promissory notes), chattel paper, inventory (including
farm products) and deposit accounts maintained with the Administrative Agent.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
The
 
Credit
 
Agreement
 
for the
 
Credit
 
Facility
 
contains
 
customary
 
covenants,
 
including
 
restrictions
 
on
 
the incurrence
 
of
 
liens,
incurrence of
 
additional debt,
 
sales of
 
assets and
 
other fundamental
 
corporate changes
 
and investments.
 
The Credit
 
Agreement
requires maintenance of two financial covenants: (i) a maximum Total Funded Debt to Capitalization Ratio tested
 
quarterly of no
greater than
50
%; and (ii) a requirement to maintain Minimum
 
Tangible Net
 
Worth at
 
all times of $
700
 
Million plus
50
% of net
income
 
(if
 
net
 
income
 
is
 
positive)
 
less
 
permitted
 
restricted
 
payments
 
for
 
each
 
fiscal
 
quarter
 
after
 
November
 
27,
 
2021.
Additionally,
 
the Credit Agreement
 
requires that Fred
 
R. Adams Jr.’s
 
spouse, natural children,
 
sons-in-law or grandchildren,
 
or
any trust,
 
guardianship, conservatorship
 
or custodianship
 
for the primary
 
benefit of any
 
of the foregoing,
 
or any family
 
limited
partnership, similar limited liability
 
company or other entity
 
that
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,
 
under the terms of the Credit
 
Agreement, payment of dividends under
the
 
Company's
 
current
 
dividend
 
policy
 
of
 
one-third
 
of
 
the
 
Company's
 
net
 
income
 
computed
 
in
 
accordance
 
with
 
GAAP
 
and
payment of other
 
dividends or repurchases
 
by the Company
 
of its capital stock
 
is allowed, as long
 
as after giving
 
effect to such
dividend
 
payments or
 
repurchases no
 
default has
 
occurred and
 
is continuing
 
and
 
the sum
 
of cash
 
and cash
 
equivalents of
 
the
Company and its subsidiaries plus availability under the Credit Facility equals at least $50
 
million.
The Credit
 
Agreement also
 
includes customary
 
events of
 
default and
 
customary remedies
 
upon the
 
occurrence of
 
an event
 
of
default, including acceleration
 
of the amounts
 
due under the Credit
 
Facility and foreclosure
 
of the collateral
 
securing the Credit
Facility.
At May 28, 2022, we were in compliance with the covenant requirements of
 
the 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.
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 28, 2022
May 29, 2021
May 28, 2022
May 29, 2021
Net income (loss) attributable to Cal-Maine Foods, Inc.
$
109,986
$
(4,244)
$
132,650
$
2,060
Cumulative losses to be recovered prior to payment of
divided at beginning of period
(4,244)
(1,370)
Net income attributable to Cal-Maine Foods, Inc.
available for dividend
$
109,986
$
$
$
1/3 of net income attributable to Cal-Maine Foods, Inc.
available for dividend
$
36,662
Common stock outstanding (shares)
44,140
44,058
Class A common stock outstanding (shares)
4,800
4,800
Total common stock
 
outstanding (shares)
48,940
48,858
Dividends per common share*
$
0.749
$
$
0.874
$
0.034
*Dividends per
 
common share
 
=
1/3
 
of Net
 
income (loss)
 
attributable to
 
Cal-Maine Foods,
 
Inc. available
 
for dividend ÷
 
Total
common stock outstanding (shares).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
Note 12 - Equity
 
The Company has
two
 
classes of capital stock: Common Stock and Class
 
A Common Stock. Except as otherwise required by
 
law
or the Company's Second Restated Certificate of Incorporation
 
(“Restated Charter”), holders of shares of the Company’s
 
capital
stock vote as
 
a single class on
 
all matters submitted
 
to a vote of
 
the stockholders, with
 
each share of
 
Common Stock entitled to
one
 
vote and
 
each share
 
of Class A
 
Common Stock
 
entitled to
ten
 
votes. Holders
 
of capital
 
stock have
 
the right
 
of cumulative
voting in
 
the election of
 
directors. The
 
Common Stock
 
and Class A
 
Common Stock
 
have equal liquidation
 
rights and the
 
same
dividend rights. In the
 
case of
 
any dividend payable
 
in stock,
 
holders of Common
 
Stock are entitled
 
to receive the
 
same percentage
dividend (payable only in shares of Common Stock) as the holders of Class A Common Stock receive (payable only
 
in shares of
Class A Common
 
Stock). Upon liquidation,
 
dissolution, or winding-up
 
of the Company, the
 
holders of Common
 
Stock are entitled
to share ratably
 
with the holders
 
of Class A
 
Common Stock in
 
all assets available
 
for distribution after payment
 
in full of
 
creditors.
The holders
 
of Common
 
Stock and
 
Class A
 
Common
 
Stock are
 
not entitled
 
to preemptive
 
or subscription
 
rights. No
 
class of
capital stock
 
may be
 
combined or
 
subdivided unless
 
the other
 
classes of
 
capital stock
 
are combined
 
or subdivided
 
in the
 
same
proportion. No dividend may be declared and paid on Class A Common
 
Stock unless the dividend is payable only to the holders
of Class A Common Stock and a dividend is declared and paid to Common Stock
 
concurrently.
Each share
 
of Class A
 
Common Stock
 
is convertible,
 
at the option
 
of its
 
holder,
 
into
one
 
share of
 
Common Stock
 
at any
 
time.
The Company’s
 
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
 
votes per share, without such shares
converting into shares of Common
 
Stock, with one vote per share (“Permitted
 
Transferees”). The Permitted
 
Transferees include
arrangements and entities such as revocable trusts and limited liability companies that could hold Class A Common Stock
 
for the
benefit of Immediate Family Members. Each Permitted
 
Transferee must have a relationship,
 
specifically defined in the Restated
Charter, with
 
another Permitted Transferee
 
or an Immediate Family
 
Member.
 
A share of Class A
 
Common Stock transferred
 
to
a person other
 
than a
 
Permitted Transferee would automatically
 
convert into Common
 
Stock with
 
one vote per
 
share. Additionally,
the
 
Restated
 
Charter
 
includes
 
a
 
sunset
 
provision
 
pursuant
 
to
 
which
 
all
 
of
 
the
 
outstanding
 
Class
 
A
 
Common
 
Stock
 
will
automatically
 
convert
 
to
 
Common
 
Stock
 
if:
 
(a)
 
less
 
than
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
 
shares of Class A
Common Stock
 
and Common Stock,
 
in the aggregate,
 
are beneficially 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 28, 2022
May 29, 2021
May 30, 2020
Numerator
Net income
$
132,441
$
2,060
$
18,328
Less: Net income (loss) attributable to noncontrolling interest
(209)
(63)
Net income attributable to Cal-Maine Foods, Inc.
$
132,650
$
2,060
$
18,391
Denominator
Weighted-average
 
common shares outstanding, basic
48,581
48,522
48,467
Effect of dilutive securities of restricted shares
153
134
117
Weighted-average
 
common shares outstanding, diluted
48,734
48,656
48,584
Net income per common share attributable to Cal-Maine Foods, Inc.
Basic
$
2.73
$
0.04
$
0.38
Diluted
$
2.72
$
0.04
$
0.38
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
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
 
$
62.7
 
million, $
52.7
 
million, and
 
$
52.2
 
million in
 
fiscal years
 
2022, 2021,
 
and
2020,
 
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 28, 2022
May 29, 2021
May 28, 2022
May 29, 2021
Conventional shell egg sales
$
378,190
$
205,987
$
1,061,995
$
766,284
Specialty shell egg sales
186,518
131,243
648,838
539,780
Egg products
26,488
10,997
60,004
36,733
Other
1,768
1,571
6,322
6,190
$
592,964
$
349,798
$
1,777,159
$
1,348,987
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 28,
 
2022 and
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
Concentration of Credit Risks
Our largest customer, Walmart
 
Inc. (including Sam's Club) accounted for
29.5
%,
29.8
% and
32.1
% of net sales dollars for fiscal
2022, 2021, and 2020, 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 leases, right-of-use assets, and finance lease interest are included in
Cost of
 
sales, Selling
 
general and
 
administrative expense,
 
and Interest
 
income, net
 
in the
 
Consolidated Statements
 
of Income.
The Company’s lease cost consists of the
 
following (in thousands):
13 Weeks Ended
 
May 28, 2022
52 Weeks Ended
 
May 28, 2022
Operating Lease cost
$
180
$
805
Finance Lease cost
Amortization of right-of-use asset
$
46
$
178
Interest on lease obligations
$
5
$
25
Short term lease cost
$
1,409
$
4,630
Future minimum lease payments under non-cancelable leases are as follows (in
 
thousands):
As of May 28, 2022
Operating Leases
Finance Leases
2023
$
539
$
239
2024
380
218
2025
130
2026
26
2027
5
Thereafter
Total
1,080
457
Less imputed interest
(75)
(19)
Total
$
1,005
$
438
The weighted-average remaining lease term and discount rate for lease liabilities included in our Consolidated Balance Sheet are
as follows:
As of May 28, 2022
Operating Leases
Finance Leases
Weighted-average
 
remaining lease term (years)
2.3
1.5
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
 
of which
1,016,573
 
shares remain
 
available
 
for
 
issuance,
 
and may
 
be
authorized
 
but
 
unissued
 
shares
 
or
 
treasury
 
shares.
 
Awards
 
may
 
be
 
granted
 
under
 
the
 
LTIP
 
Plan
 
to
 
any
 
employee,
 
any
 
non-
employee member of the Company’s
 
Board of Directors, and any consultant
 
who is a natural person and
 
provides services to us
or one of our subsidiaries (except for incentive stock options, which may be granted only
 
to our employees).
The only outstanding awards under
 
the LTIP Plan are restricted stock awards.
 
The restricted stock vests
 
three years from the
 
grant
date, or upon death or
 
disability, change
 
in control, or retirement (subject
 
to certain requirements). The
 
restricted stock contains
no other service
 
or performance conditions.
 
Restricted stock is awarded
 
in the name of
 
the recipient and,
 
except for the right
 
of
disposal, constitutes issued and outstanding shares of the Company’s Common Stock for all
 
corporate purposes during the period
of restriction
 
including the right
 
to receive
 
dividends. Compensation
 
expense is a
 
fixed amount
 
based on the
 
grant date closing
price and is amortized on a straight-line basis over the vesting period. Forfeitures are
 
recognized as they occur.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
Total
 
stock-based
 
compensation
 
expense
 
was
 
$
4.1
 
million,
 
$
3.8
 
million,
 
and
 
$
3.6
 
million
 
in
 
fiscal
 
2022,
 
2021,
 
and
 
2020,
respectively.
Our unrecognized
 
compensation expense
 
as a result
 
of non-vested shares
 
was $
7.0
 
million at May
 
28, 2022 and
 
$
6.6
 
million at
May 29,
 
2021. 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, 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
Granted
113,142
41.13
Vested
(92,918)
42.45
Forfeited
(4,527)
38.01
Outstanding, May 28, 2022
317,844
$
39.12
Note 17 - Income Taxes
Income tax expense (benefit) consisted of the following:
 
Fiscal year ended
May 28, 2022
May 29, 2021
May 30, 2020
Current:
Federal
$
24,228
$
(35,090)
$
(6,750)
State
3,670
730
(1,800)
27,898
(34,360)
(8,550)
Deferred:
Federal
2,716
21,658
8,872
State
2,960
693
1,409
5,676
22,351
10,281
$
33,574
$
(12,009)
$
1,731
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
Significant components of the Company’s
 
deferred tax liabilities and assets were as follows:
May 28, 2022
May 29, 2021
Deferred tax liabilities:
Property, plant and equipment
$
100,250
$
82,508
Inventories
31,987
31,501
Investment in affiliates
65
7,670
Other
5,713
5,648
Total deferred
 
tax liabilities
138,015
127,327
Deferred tax assets:
Accrued expenses
4,041
3,728
State operating loss carryforwards
470
3,416
Other comprehensive income
866
497
Other
4,442
5,278
Total deferred
 
tax assets
9,819
12,919
Net deferred tax liabilities
$
128,196
$
114,408
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 28, 2022
May 29, 2021
May 30, 2020
Statutory federal income tax
$
34,907
$
(2,087)
$
4,226
State income taxes, net
5,237
1,124
(309)
Domestic manufacturers deduction
3,566
684
Enacted net operating loss carryback provision
(16,014)
(3,041)
Tax exempt
 
interest income
(9)
(50)
(111)
Reversal of outside basis in equity investment Red River
(7,310)
Non-taxable remeasurement gain Red River
(955)
Other, net
1,704
1,452
282
$
33,574
$
(12,009)
$
1,731
Federal and state income taxes of $
2.2
 
million, $
995
 
thousand, and $
32
 
thousand were paid in fiscal years 2022, 2021, and 2020,
respectively. Federal and state income taxes of $
373
 
thousand, $
2.6
 
million, and $
8.4
 
million were refunded in fiscal years 2022,
2021, and 2020, respectively.
In
 
fiscal
 
2022,
 
the
 
Company
 
recognized
 
$
467
 
thousand
 
in
 
interest
 
and
 
penalties.
 
As
 
of
 
May
 
28,
 
2022,
 
the
 
Company
 
had
no
accrued interest and penalties related to uncertain tax positions.
As of May 28,
 
2022, we had completed
 
the audit by the Internal
 
Revenue Service (IRS) for
 
the fiscal years 2013
 
through 2015.
Final
 
audit
 
adjustments
 
did
 
not
 
result
 
in
 
a
 
material
 
change
 
to
 
the
 
consolidated
 
financial
 
statements.
 
From
 
management’s
perspective, the years are closed
 
and are only open with respect
 
to any net operating loss carryback
 
to those years.
 
Although we
are
 
subject
 
to
 
income
 
tax
 
in
 
many
 
jurisdictions
 
within
 
the
 
U.S.,
 
we
 
are
 
currently
 
not
 
under
 
audit
 
by
 
any
 
state
 
and
 
local
 
tax
authorities.
 
Tax
 
periods for
 
all years
 
beginning
 
with fiscal
 
year
 
2019 remain
 
open
 
to examination
 
by federal
 
and state
 
taxing
jurisdictions to which we are subject.
Note 18 - Commitments and Contingencies
 
State of Texas
 
v. Cal-Maine Foods, Inc. d/b/a Wharton;
 
and Wharton County Foods, LLC
 
On April 23, 2020, the Company and its subsidiary Wharton County Foods, LLC (“WCF”) were named as defendants in State of
Texas
 
v.
 
Cal-Maine Foods, Inc.
 
d/b/a Wharton; and
 
Wharton County Foods,
 
LLC, Cause No. 2020-25427,
 
in the District Court
of Harris County,
 
Texas. The State
 
of Texas
 
(the “State”) asserted claims based on the
 
Company’s and
 
WCF’s alleged violation
of
 
the Texas
 
Deceptive
 
Trade
 
Practices—Consumer
 
Protection
 
Act, Tex.
 
Bus.
 
& Com.
 
Code §§
 
17.41-17.63
 
(“DTPA”).
 
The
 
 
 
59
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
 
in damages. On August 13,
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.
 
On February
 
11, 2022,
the Texas
 
Court of
 
Appeals heard
 
oral argument,
 
but as
 
of the
 
date of
 
this Annual
 
Report the
 
Texas
 
Court of
 
Appeals has
 
not
issued a ruling. Management believes the risk of material loss related to this matter
 
to be remote.
Bell et al. v. Cal-Maine Foods et al.
 
On April 30, 2020, the Company was named as one of several defendants in Bell et al. v. Cal-Maine Foods et al., Case No. 1:20-
cv-461, in the Western
 
District of Texas, Austin
 
Division. The defendants include numerous grocery
 
stores, retailers, producers,
and farms.
 
Plaintiffs assert
 
that defendants
 
violated the
 
DTPA
 
by allegedly
 
demanding exorbitant
 
or excessive
 
prices for
 
eggs
during the COVID-19 state of
 
emergency. Plaintiffs request certification of a class of all consumers who
 
purchased eggs in Texas
sold,
 
distributed,
 
produced,
 
or handled
 
by any
 
of the
 
defendants
 
during
 
the COVID-19
 
state of
 
emergency.
 
Plaintiffs
 
seek
 
to
enjoin the Company
 
and other defendants from
 
selling eggs at a
 
price more than
 
10% greater than
 
the price of eggs
 
prior to the
declaration
 
of
 
the
 
state
 
of
 
emergency
 
and
 
damages
 
in
 
the
 
amount
 
of
 
$
10,000
 
per
 
violation,
 
or
 
$
250,000
 
for
 
each
 
violation
impacting anyone over 65 years old. On December
 
1, 2020, the Company and certain other defendants
 
filed a motion to dismiss
the plaintiffs’ amended class action complaint. The plaintiffs subsequently filed a motion to strike, and the motion to dismiss and
related proceedings were referred to a United States magistrate judge. On July 14, 2021, the magistrate judge issued a report and
recommendation to
 
the court that
 
the defendants’ motion
 
to dismiss be
 
granted and the
 
case be dismissed
 
without prejudice for
lack of subject matter jurisdiction. On September 20, 2021, the court dismissed the case without prejudice. On July 13, 2022, the
court denied the plaintiffs’ motion to set aside or amend
 
the judgment to amend their complaint.
On March 15, 2022,
 
plaintiffs filed a
 
second suit against the
 
Company and several
 
defendants in Bell et
 
al. v.
 
Cal-Maine Foods
et al., Case No. 1:22-cv-246, in the Western District of Texas, Austin Division
 
alleging the same assertions as laid out in the first
complaint. The Company has not
 
yet filed a responsive
 
pleading and there is
 
currently no deadline to do
 
so. Management believes
the risk of material loss related to both matters to be remote.
Kraft Foods Global, Inc. et al. v.
 
United Egg Producers, Inc. et al.
 
As previously
 
reported, on
 
September 25,
 
2008, the
 
Company
 
was named
 
as one
 
of several
 
defendants
 
in numerous
 
antitrust
cases involving
 
the United
 
States shell
 
egg
 
industry.
 
The Company
 
settled all
 
of these
 
cases, except
 
for
 
the claims
 
of certain
plaintiffs who sought substantial
 
damages allegedly arising from
 
the purchase of egg products (as
 
opposed to shell eggs). These
remaining plaintiffs
 
are Kraft
 
Food Global,
 
Inc., General
 
Mills, Inc.,
 
and Nestle
 
USA, Inc.
 
(the “Egg
 
Products Plaintiffs”)
 
and
The Kellogg Company.
On September 13, 2019, the case with the Egg Products Plaintiffs was remanded from a multi-district litigation proceeding in the
United States District Court for
 
the Eastern District of Pennsylvania, In
 
re Processed Egg Products Antitrust
 
Litigation, MDL No.
2002,
 
to
 
the
 
United
 
States
 
District
 
Court
 
for
 
the
 
Northern
 
District
 
of
 
Illinois,
 
Kraft
 
Foods
 
Global,
 
Inc.
 
et
 
al.
 
v.
 
United
 
Egg
Producers, Inc. et al., Case No. 1:11-cv-8808, for trial. The Egg Products
 
Plaintiffs allege that the Company and other defendants
violated Section 1
 
of the Sherman Act,
 
15. U.S.C. §
 
1, by agreeing
 
to limit the
 
production of eggs
 
and thereby illegally
 
to raise
the prices that
 
plaintiffs paid for
 
processed egg products.
 
In particular,
 
the Egg Products Plaintiffs
 
are attacking certain
 
features
of the United
 
Egg Producers animal-welfare
 
guidelines and program
 
used by the
 
Company and many
 
other egg producers.
 
The
Egg Products
 
Plaintiffs seek
 
to enjoin
 
the Company
 
and other
 
defendants from
 
engaging in
 
antitrust violations
 
and seek
 
treble
money damages. On May 2, 2022, the court set trial for October 24, 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,
 
and on March 28, 2022, the
court dismissed the Company with prejudice.
The Company intends to
 
continue to defend the remaining
 
case with the Egg Products Plaintiffs
 
as vigorously as possible based
on
 
defenses
 
which
 
the
 
Company
 
believes
 
are
 
meritorious
 
and
 
provable.
 
Adjustments,
 
if
 
any,
 
which
 
might
 
result
 
from
 
the
resolution of
 
this remaining
 
matter with
 
the Egg
 
Products Plaintiffs
 
have not
 
been reflected
 
in the
 
financial statements.
 
While
management believes that there is
 
still a reasonable possibility of a
 
material adverse outcome from the
 
case with the Egg
 
Products
Plaintiffs, at
 
the present
 
time, it
 
is not
 
possible to
 
estimate the
 
amount of
 
monetary exposure,
 
if any,
 
to the
 
Company due
 
to a
range of factors,
 
including the
 
following, among others:
 
two earlier trials
 
based on substantially
 
the same
 
facts and
 
legal arguments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
resulted in findings of
 
no conspiracy and/or damages;
 
this trial will be before
 
a different judge
 
and jury in a different
 
court than
prior related cases; there are significant factual issues to
 
be resolved; and there are requests for damages
 
other than compensatory
damages (i.e., injunction and treble money damages).
State of Oklahoma Water
 
shed 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
 
shares of Common
 
Stock
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
 
million. Pursuant to
 
the Agreement, the Selling
 
Stockholders
reimbursed the Company $
551
 
thousand.
SCHEDULE II - VALUATION
 
AND QUALIFYING ACCOUNTS
Fiscal Years
 
ended May 28, 2022, May 29, 2021, and May 30, 2020
 
(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 28, 2022
Allowance for doubtful accounts
$
795
$
30
$
50
$
775
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
 
 
 
 
61
ITEM
 
9.
 
CHANGES
 
IN
 
AND
 
DISAGREEMENTS
 
WITH
 
ACCOUNTANTS
 
ON
 
ACCOUNTING
 
AND
 
FINANCIAL
DISCLOSURE
None.
 
ITEM 9A.
 
CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information
 
required to be disclosed by
us in
 
the reports
 
we file
 
or submit
 
under the
 
Securities Exchange
 
Act of
 
1934, as
 
amended (the
 
“Exchange Act”)
 
is recorded,
processed, summarized
 
and reported,
 
within the time
 
periods specified in
 
the Securities and
 
Exchange Commission’s
 
rules and
forms. Disclosure
 
controls
 
and
 
procedures
 
include,
 
without
 
limitation,
 
controls
 
and
 
procedures
 
designed
 
to
 
ensure
 
that
information
 
required
 
to
 
be
 
disclosed
 
by
 
us
 
in
 
the
 
reports
 
that
 
we
 
file
 
or
 
submit
 
under
 
the
 
Exchange
 
Act
 
is
 
accumulated
 
and
communicated to management,
 
including our principal
 
executive and principal
 
financial officers, or
 
persons performing similar
functions, as appropriate
 
to allow
 
timely decisions regarding
 
required disclosure. Based
 
on an
 
evaluation of
 
our disclosure controls
and procedures conducted by our
 
Chief Executive Officer and Chief
 
Financial Officer, together with other financial officers, such
officers
 
concluded that
 
our disclosure
 
controls and
 
procedures were
 
effective
 
as of
 
May 28,
 
2022 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
 
28,
 
2022. 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 28, 2022 is effective.
 
It is
noted
 
that
 
internal
 
control
 
over
 
financial
 
reporting
 
cannot
 
provide
 
absolute
 
assurance
 
of
 
achieving
 
financial
reporting objectives, but rather reasonable assurance of achieving
 
such objectives.
4.
 
The attestation report of FROST,
 
PLLC on our internal control over financial reporting,
 
which includes that firm’s
opinion on the effectiveness of our internal control over financial
 
reporting, is set forth below.
(b)
 
Attestation Report of the Registrant’s
 
Public Accounting Firm
 
 
 
 
 
 
 
62
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on Internal Control Over Financial Reporting
We have
 
audited Cal-Maine Foods, Inc.
 
and Subsidiaries’ internal control over
 
financial reporting as of
 
May 28, 2022,
based
 
on
 
criteria
 
established
 
in
2013
 
Internal
 
Control
 
 
Integrated
 
Framework
 
issued
 
by
 
the
 
Committee
 
of
 
Sponsoring
Organizations of the
 
Treadway Commission
 
(“COSO”).
 
In our opinion, Cal-Maine
 
Foods, Inc. and Subsidiaries
 
maintained, in
all material
 
respects, effective
 
internal control
 
over financial
 
reporting as
 
May 28,
 
2022, based
 
on criteria
 
established in
2013
Internal Control – Integrated Framework
 
issued by the COSO.
We
 
also have
 
audited, in
 
accordance with
 
the standards
 
of the
 
Public Company
 
Accounting Oversight
 
Board (United
States) (“PCAOB”), the consolidated
 
balance sheets and the
 
related consolidated statements of
 
income, comprehensive income,
stockholders’ equity and
 
cash flows of Cal-Maine
 
Foods, Inc. and
 
Subsidiaries and our report
 
dated July 19, 2022
 
expressed an
unqualified opinion.
Basis for Opinion
Cal-Maine
 
Foods,
 
Inc.
 
and
 
Subsidiaries’
 
management
 
is
 
responsible
 
for
 
maintaining
 
effective
 
internal
 
control
 
over
financial
 
reporting
 
and
 
for
 
their
 
assessment
 
of
 
the
 
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
included
 
in
 
the
accompanying Management’s
 
Report on Internal Control Over
 
Financial Reporting in Item 9A.
 
Our responsibility is to express
an opinion on the entities’
 
internal control over financial reporting based
 
on our audit.
 
We are a public accounting firm registered
with the PCAOB and
 
are required to be
 
independent with respect to
 
Cal-Maine Foods, Inc.
 
and Subsidiaries in accordance
 
with
the
 
U.S.
 
federal
 
securities
 
laws and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of the
 
Securities and
 
Exchange
 
Commission
 
and
 
the
PCAOB.
We
 
conducted
 
our audit
 
in accordance
 
with the
 
standards of
 
the PCOAB.
 
Those
 
standards require
 
that we
 
plan
 
and
perform the audit to obtain reasonable assurance about whether effective internal control over financial
 
reporting was maintained
in all
 
material respects.
 
Our audit
 
of internal
 
control over
 
financial reporting
 
included obtaining
 
an understanding
 
of internal
control
 
over
 
financial
 
reporting,
 
assessing the
 
risk
 
that
 
a
 
material
 
weakness
 
exists,
 
and
 
testing
 
and
 
evaluating
 
the design
 
and
operating effectiveness of internal control
 
based on the assessed risk.
 
Our audit also included performing such other
 
procedures
as we considered necessary in the circumstances.
 
We believe our audit provides
 
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
An entities’ 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 entities’ internal
 
control over financial
 
reporting
includes those
 
policies and
 
procedures that
 
(1) pertain
 
to the
 
maintenance
 
of records
 
that, in
 
reasonable detail,
 
accurately and
fairly reflect the
 
transactions and dispositions of
 
the assets of the
 
entities; (2) provide reasonable
 
assurance that transactions are
recorded
 
as
 
necessary
 
to
 
permit
 
preparation
 
of
 
consolidated
 
financial
 
statements
 
in
 
accordance
 
with
 
accounting
 
principles
generally
 
accepted
 
in the
 
United States
 
of America,
 
and
 
that receipts
 
and
 
expenditures
 
of the
 
entities are
 
being
 
made only
 
in
accordance
 
with
 
authorizations
 
of
 
management
 
and
 
directors
 
of
 
the
 
entities;
 
and
 
(3)
 
provide
 
reasonable
 
assurance
 
regarding
prevention or
 
timely detection
 
of unauthorized
 
acquisition, use,
 
or disposition
 
of the
 
entities’ assets
 
that could
 
have a
 
material
effect on the consolidated financial statements.
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, 2022
 
 
 
 
 
 
 
 
63
(c)
 
Changes in Internal Control Over Financial Reporting
In
 
connection
 
with
 
its
 
evaluation
 
of
 
the
 
effectiveness,
 
as
 
of
 
May
 
28,
 
2022,
 
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 28,
 
2022, that
 
has materially
 
affected,
 
or is
 
reasonably likely
 
to materially
 
affect, our
 
internal control
 
over
financial reporting.
 
ITEM 9B.
 
OTHER INFORMATION
 
Not applicable.
 
ITEM 9C.
 
DISCLOSURE REGARDING FOREIGN JURISDICTIONS
 
THAT PREVENT INSPECTIONS
Not applicable.
 
PART
 
III.
 
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
 
GOVERNANCE
Except as set forth below, the information concerning directors, executive officers and corporate governance required by Item 10
is
 
incorporated
 
by
 
reference
 
from
 
our
 
definitive
 
proxy
 
statement
 
which
 
is
 
to
 
be
 
filed
 
pursuant
 
to
 
Regulation
 
14A
 
under
 
the
Securities Exchange Act of 1934 in connection with our 2022 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 2022
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 2022
 
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 2022 Annual Meeting of Shareholders.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
ITEM 14.
 
PRINCIPAL ACCOUNTING
 
FEES AND SERVICES
 
The information
 
concerning principal
 
accounting fees
 
and services
 
required by
 
Item 14
 
is incorporated
 
by reference
 
from our
definitive
 
proxy
 
statement
 
which
 
is
 
to
 
be
 
filed
 
pursuant
 
to
 
Regulation
 
14A
 
under
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934
 
in
connection with our 2022 Annual Meeting of Shareholders.
 
PART
 
IV.
 
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT
 
SCHEDULES
 
(a)(1)
 
Financial Statements
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item
8 and are filed herewith:
 
 
(PCAOB
5348
)
(a)(2)
 
Financial Statement Schedule
All other schedules are omitted either because they
 
are not applicable or required, or
 
because the required information is included
in the financial statements or notes thereto.
(a)(3)
 
Exhibits Required by Item 601 of Regulation S-K
See Part (b) of this Item 15.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
(b)
 
Exhibits Required by Item 601 of Regulation S-K
 
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number
Exhibit
3.1
3.2
4.1**
10.1
10.2
10.3*
10.4
10.5*
10.6*
10.7*
10.8*
21**
23.1**
31.1**
31.2**
 
32***
101.SCH***+
Inline XBRL Taxonomy
 
Extension Schema Document
 
101.CAL***+
Inline XBRL Taxonomy
 
Extension Calculation Linkbase Document
101.DEF***+
Inline XBRL Taxonomy
 
Extension Definition Linkbase Document
101.LAB***+
Inline XBRL Taxonomy
 
Extension Label Linkbase Document
101.PRE***+
Inline XBRL Taxonomy
 
Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
 
in Exhibit 101)
*
 
Management contract or compensatory plan or arrangement
**
 
Filed herewith as an Exhibit
***
 
Furnished herewith as an Exhibit
 
Submitted electronically with this Annual Report on Form 10-K
(c)
 
Financial Statement Schedules Required by Regulation S-X
The financial statement schedule required by Regulation S-X is filed at page 60. All other schedules for which provision is made
in the
 
applicable accounting regulations
 
of the
 
Securities and
 
Exchange Commission are
 
not required
 
under the
 
related instructions
or are inapplicable and therefore have been omitted.
 
ITEM 16. FORM 10-K SUMMARY
 
Not applicable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
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, 2022
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, 2022
Adolphus B. Baker
 
Chairman of the Board
 
 
(Principal Executive Officer)
 
 
 
 
/s/
 
Max P.
 
Bowman
 
Vice President, Chief Financial
 
July 19, 2022
Max P.
 
Bowman
 
Officer and Director
 
 
(Principal Financial Officer)
 
 
 
 
/s/ Matthew S. Glover
 
Vice President, Accounting
 
July 19, 2022
Matthew S. Glover
 
(Principal Accounting Officer)
 
 
 
 
/s/
 
Sherman L. Miller
 
President, Chief Operating
 
July 19, 2022
Sherman L. Miller
 
Officer and Director
 
 
 
 
/s/
 
Letitia C. Hughes
 
Director
 
July 19, 2022
Letitia C. Hughes
 
 
 
 
 
 
/s/
 
James E. Poole
 
Director
 
July 19, 2022
James E. Poole
 
 
 
 
 
 
/s/
 
Steve W. Sanders
 
Director
 
July 19, 2022
Steve W. Sanders
 
 
 
 
/s/
 
Camille S. Young
 
Director
July 19, 2022
Camille S. Young