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CAL-MAINE FOODS INC - Annual Report: 2023 (Form 10-K)

calm-20230603_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
June 3, 2023
 
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 25,
 
2022, which
 
was the
 
date of
 
the last
 
business day
 
of the
 
registrant’s
 
most recently
 
completed second
 
fiscal
quarter, was $
2,435,832,883
.
As of
 
July 25,
 
2023,
44,184,049
 
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 2023
 
annual meeting of
 
stockholders which will be
 
filed pursuant to
 
Regulation 14A not later
 
than 120 days
 
after the end
 
of the fiscal
year covered by this report.
 
 
3
PART
 
I.
FORWARD
 
-LOOKING STATEMENTS
This report contains numerous forward-looking statements within the meaning
 
of Section 27A of the Securities Act of 1933 (the
“Securities Act”) and
 
Section 21E of the
 
Securities Exchange Act
 
of 1934 (the “Exchange
 
Act”) relating to
 
our shell egg
 
business,
including estimated future production data, expected construction schedules, projected construction costs, potential future supply
of and demand
 
for our products,
 
potential future corn and
 
soybean price trends,
 
potential future impact
 
on our business
 
of inflation
and rising interest rates,
 
potential future impact on
 
our business of new legislation,
 
rules or policies, potential outcomes
 
of legal
proceedings, and other projected
 
operating data, including anticipated
 
results of operations
 
and financial condition. Such
 
forward-
looking statements are identified
 
by the use
 
of words such
 
as “believes,” “intends,” “expects,”
 
“hopes,” “may,” “should,” “plans,”
“projected,”
 
“contemplates,”
 
“anticipates,”
 
or
 
similar
 
words.
 
Actual
 
outcomes
 
or
 
results
 
could
 
differ
 
materially
 
from
 
those
projected in
 
the forward-looking statements.
 
The forward-looking
 
statements are based
 
on management’s
 
current intent, belief,
expectations, estimates,
 
and projections
 
regarding the
 
Company and
 
its industry.
 
These statements
 
are not
 
guarantees of
 
future
performance and involve
 
risks, uncertainties, assumptions,
 
and other factors
 
that are difficult
 
to predict and
 
may be beyond
 
our
control. The
 
factors that
 
could cause
 
actual results
 
to differ
 
materially from
 
those projected
 
in the
 
forward-looking
 
statements
include, among others, (i) the risk factors set forth in Item 1A Risk Factors and elsewhere in this report as well as those included
in other
 
reports we
 
file from
 
time to
 
time with
 
the Securities
 
and Exchange
 
Commission (the
 
“SEC”) (including
 
our Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including
disease, pests,
 
weather conditions,
 
and potential
 
for product
 
recall), including
 
but not
 
limited to
 
the current
 
outbreak of
 
highly
pathogenic avian
 
influenza (“HPAI”)
 
affecting poultry
 
in the
 
United States
 
(“U.S.”), Canada
 
and other
 
countries that
 
was first
detected in commercial
 
flocks in the U.S.
 
in February 2022, (iii)
 
changes in the demand
 
for and market prices
 
of shell eggs and
feed costs, (iv)
 
our ability
 
to predict
 
and meet
 
demand for cage-free
 
and other specialty
 
eggs, (v)
 
risks, changes,
 
or obligations
that
 
could
 
result
 
from
 
our
 
future
 
acquisition
 
of
 
new
 
flocks
 
or
 
businesses
 
and
 
risks
 
or
 
changes
 
that
 
may
 
cause
 
conditions
 
to
completing
 
a pending
 
acquisition not
 
to be
 
met, (vi)
 
risks relating
 
to increased
 
costs, rising
 
inflation and
 
rising interest
 
rates,
which
 
began
 
in
 
response
 
to
 
market
 
conditions
 
caused
 
in
 
part
 
by
 
the
 
COVID-19
 
pandemic
 
and
 
which
 
generally
 
have
 
been
exacerbated by
 
the Russia-Ukraine
 
War
 
that began in
 
February 2022, (vii)
 
our ability to
 
retain existing customers,
 
acquire new
customers and grow
 
our product mix
 
and (viii) adverse
 
results in pending
 
litigation matters. Readers
 
are cautioned not
 
to place
undue
 
reliance
 
on
 
forward-looking
 
statements
 
because,
 
while
 
we
 
believe
 
the
 
assumptions
 
on
 
which
 
the
 
forward-looking
statements are based
 
are reasonable,
 
there can be
 
no assurance that
 
these forward-looking
 
statements will prove
 
to be accurate.
Further, forward-looking statements included herein
 
are only made as of the respective dates thereof, or if no date is stated, as of
the
 
date
 
hereof.
 
Except
 
as otherwise
 
required
 
by
 
law,
 
we disclaim
 
any
 
intent
 
or
 
obligation
 
to
 
update
 
publicly
 
these
 
forward-
looking statements, whether because of new information, future events, or
 
otherwise.
ITEM 1.
 
BUSINESS
Our Business
We are the largest
 
producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable
 
producer
and reliable
 
supplier of
 
consistent, high
 
quality fresh
 
shell eggs
 
and egg
 
products
 
in the
 
country,
 
demonstrating
 
a "Culture
 
of
Sustainability" in everything we do, and
 
creating value for our shareholders,
 
customers, team members and communities. We sell
most of our shell
 
eggs in the southwestern,
 
southeastern, mid-western and
 
mid-Atlantic regions of the
 
U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We
 
were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one reportable
 
operating segment, which is the production,
 
grading, packaging, marketing and distribution
 
of
shell eggs. Our integrated
 
operations consist of hatching
 
chicks, growing and maintaining
 
flocks of pullets, layers
 
and breeders,
manufacturing feed, and
 
producing, processing, packaging, and
 
distributing shell eggs.
 
Layers are mature
 
female chickens, pullets
are female chickens usually less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production
 
flocks. Our total flock as of
 
June 3, 2023 consisted of approximately
 
41.2 million layers and 10.8
million pullets and breeders.
Many of our customers rely
 
on us to provide most of
 
their shell egg needs, including
 
specialty and conventional eggs.
 
Specialty
eggs encompass
 
a broad
 
range of
 
products. We
 
classify cage-free,
 
organic,
 
brown, free-range,
 
pasture-raised
 
and nutritionally
enhanced
 
as specialty
 
eggs
 
for
 
accounting
 
and
 
reporting
 
purposes.
 
We
 
classify
 
all other
 
shell
 
eggs
 
as conventional
 
products.
While we report separate sales information
 
for these egg types, there are
 
many cost factors that are not
 
specifically available for
conventional or
 
specialty eggs
 
due to
 
the nature
 
of egg
 
production. We
 
manage our
 
operations and
 
allocate resources
 
to these
types of eggs on a consolidated basis based on the demands of our customers.
4
We
 
believe that
 
an important
 
competitive advantage
 
for Cal-Maine
 
Foods is our
 
ability to meet
 
our customers’
 
evolving needs
with a
 
favorable product
 
mix of
 
conventional and
 
specialty eggs,
 
including cage-free,
 
organic and
 
other specialty
 
offerings, as
well
 
as egg
 
products.
 
We
 
have
 
also
 
enhanced
 
our efforts
 
to provide
 
free-range
 
and pasture
 
-raised
 
eggs that
 
meet
 
consumers’
evolving choice preferences.
 
While a small
 
part of our
 
current business,
 
the free-range and
 
pasture-raised eggs
 
we produce and
sell represent
 
attractive
 
offerings
 
to a
 
subset of
 
consumers, and
 
therefore
 
our customers,
 
and
 
help us
 
continue
 
to serve
 
as the
trusted provider of quality food choices.
Throughout the Company’s history,
 
we have acquired other companies in our industry. Since 1989 through our fiscal year ended
June 3, 2023,
 
we have completed
 
23 acquisitions ranging
 
in size from
 
160 thousand layers to
 
7.5 million layers. Most
 
recently,
effective on May 30, 2021, the Company acquired
 
the remaining 50% membership interest in Red River Valley
 
Egg Farm, LLC
(“Red River”), which owns and operates a specialty shell egg production complex that includes 1.7 million cage-free hens. For a
further
 
description
 
of
 
this
 
transaction,
 
refer
 
to
 
Part
 
II.
 
Item
 
8.
 
Notes
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
. We are also focused on additional ways to enhance our product mix and support new opportunities in the restaurant,
institutional and
 
commercial food
 
preparation area.
 
Beginning in fiscal
 
2022, we have
 
invested approximately
 
$32.3 million in
Meadowcreek Foods,
 
LLC (“Meadowcreek”),
 
an egg
 
products operation
 
focused on
 
offering
 
hard-cooked eggs.
 
In addition
 
to
growth through
 
acquisitions, we
 
have also
 
grown by
 
making substantial
 
investments in
 
our business,
 
primarily to
 
increase our
cage-free production capacity.
When
 
we
 
use
 
“we,”
 
“us,”
 
“our,”
 
or
 
the
 
“Company”
 
in
 
this
 
report,
 
we
 
mean
 
Cal-Maine
 
Foods,
 
Inc.
 
and
 
our
 
consolidated
subsidiaries,
 
unless
 
otherwise
 
indicated
 
or
 
the
 
context
 
otherwise
 
requires.
 
The
 
Company’s
 
fiscal
 
year-end
 
is
 
on
 
the
 
Saturday
closest to May
 
31. Our
 
fiscal year
 
2023 and
 
fourth quarter ended
 
June 3, 2023,
 
included 53 weeks
 
and 14
 
weeks, respectively.
The first three fiscal quarters of fiscal 2023 ended August 27, 2022,
 
November 26, 2022, and February 25, 2023, all included 13
weeks.
 
All references herein to a fiscal year means our fiscal year and all references
 
to a year mean a calendar year.
 
Industry Background
According to the U.S.
 
Department of Agriculture (“USDA”) Agricultural
 
Marketing Service, in 2022 approximately
 
71% of table
eggs produced in the U.S.
 
were sold as shell
 
eggs, with 56.6% sold through food
 
at home outlets such
 
as grocery and convenience
stores, 12.4% sold to
 
food-away-from home channels such
 
as restaurants and 1.7% exported.
 
The USDA estimated that in
 
2022
approximately 29.6%
 
of eggs
 
produced in
 
the U.S.
 
were sold
 
as egg
 
products (shell
 
eggs broken
 
and sold
 
in liquid,
 
frozen, or
dried
 
form)
 
to
 
institutions
 
(e.g.
 
companies
 
producing
 
baked
 
goods).
 
For
 
information
 
about
 
egg
 
producers
 
in
 
the
 
U.S.,
 
see
“Competition” below.
 
Our
 
industry
 
has
 
been
 
greatly
 
impacted
 
by
 
the
 
outbreaks
 
of
 
highly
 
pathogenic
 
avian
 
influenza
 
(“HPAI”),
 
first
 
detected
 
in
commercial flocks in
 
the U.S. in
 
February 2022 and
 
continuing during our
 
fiscal 2023. For
 
additional information regarding HPAI
and its impact
 
on our industry
 
and business, see
Given
 
historical
 
consumption
 
trends,
 
we believe
 
that general
 
demand
 
for
 
eggs in
 
the U.S.
 
increases basically
 
in line
 
with the
overall
 
U.S.
 
population
 
growth;
 
however,
 
specific
 
events
 
can
 
impact
 
egg
 
supply
 
and
 
consumption
 
in
 
a
 
particular
 
period,
 
as
occurred with the 2015 HPAI outbreak,
 
the COVID-19 pandemic (particularly during 2020), and the most recent HPAI
 
outbreak
starting in
 
early 2022.
 
According to
 
the USDA’s
 
Economic Research
 
Service, estimated
 
annual per
 
capita consumption
 
in the
United States between 2018
 
and 2022 varied, ranging from 279 to 292 eggs. In calendar year 2022,
 
per capita U.S. consumption
was estimated to
 
be 279 eggs,
 
or approximately 5.4
 
eggs per
 
person per week.
 
According to
 
the USDA,
 
the decline in
 
consumption
was primarily
 
due to limited
 
availability caused
 
by the outbreak
 
of HPAI.
 
As of July
 
18, 2023,
 
the USDA projects
 
that the
 
per
capita consumption
 
will increase
 
in calendar
 
year 2023
 
and 2024
 
to 282.6
 
and 292.7,
 
respectively.
 
The USDA
 
calculates per
capita consumption by dividing
 
total shell egg disappearance in the U.S. by the U.S. population.
 
Prices for Shell Eggs
Wholesale shell
 
egg sales
 
prices are
 
a critical
 
component of
 
revenue for
 
the Company.
 
Wholesale shell
 
egg prices
 
are volatile,
cyclical, and impacted
 
by a number
 
of factors, including
 
consumer demand, seasonal
 
fluctuations, the number
 
and productivity
of laying hens
 
in the U.S.
 
and outbreaks of
 
agricultural diseases such
 
as HPAI.
 
While we use
 
several different pricing mechanisms
in pricing
 
agreements with
 
our customers,
 
we believe
 
the majority
 
of conventional
 
shell eggs
 
sold in
 
the U.S.
 
in the
 
retail and
foodservice channels
 
are sold
 
at prices
 
that take
 
into account,
 
in varying
 
ways, independently
 
quoted wholesale
 
market prices,
such as those published
 
by Urner Barry Publications,
 
Inc. (“UB”) for shell
 
eggs, however, grain-based and cost
 
plus arrangements
are being
 
utilized in
 
the food
 
service channel
 
and some
 
western markets.
 
We
 
sell the
 
majority of
 
our conventional
 
shell eggs
based on formulas that take into account, in varying ways, independently
 
quoted regional wholesale market prices for shell eggs
calm-20230603_10Kp5i0
5
or formulas related
 
to our costs of production,
 
which include the cost
 
of corn and soybean
 
meal. We
 
do not sell eggs
 
directly to
consumers or set the prices at which eggs are sold to consumers.
The weekly
 
average price for
 
the southeast region
 
for large white
 
conventional shell
 
eggs as quoted
 
by UB is
 
shown below for
the past three
 
fiscal years along
 
with the five-year average
 
price. As further
 
discussed in
, conventional
 
shell egg prices
 
rose during
 
the fourth quarter
 
of fiscal 2022
 
and first three
quarters of fiscal
 
2023, due
 
to the reduced
 
supply related
 
to the HPAI
 
outbreak first
 
detected in
 
commercial flocks
 
in February
2022,
 
steady shell egg demand
 
and higher production costs. Conventional shell
 
egg prices continued to rise
 
into the fourth quarter
of fiscal 2023 followed by a substantial decline,
 
as demand for shell eggs began to decrease in line
 
with typical seasonal variance
and as
 
supply increased
 
due to
 
the repopulating
 
of HPAI
 
-affected
 
layer flocks.
 
The actual
 
prices that
 
we realize
 
on any
 
given
transaction will not necessarily equal quoted market prices because of
 
the individualized terms that we negotiate with individual
customers which are influenced by many factors. Depending on market conditions, input costs
 
and individualized
 
contract terms,
the price we receive
 
per dozen eggs in any
 
given transaction may be
 
more than or less than
 
our farm production and
 
other costs
per dozen.
Specialty eggs
 
are typically
 
sold at
 
prices and
 
terms negotiated
 
directly with
 
customers. Historically,
 
prices for
 
specialty eggs
have
 
experienced
 
less
 
volatility
 
than
 
prices
 
for
 
conventional
 
shell
 
eggs
 
and
 
have
 
generally
 
been
 
higher
 
due
 
to
 
customer
 
and
consumer willingness to pay more for specialty eggs. However, throughout most of
 
fiscal 2023 conventional egg prices exceeded
specialty egg prices. Conventional
 
egg prices generally respond
 
more quickly to market conditions
 
because we sell the majority
of our conventional
 
shell eggs based on
 
formulas that adjust periodically
 
and take into account,
 
in varying ways, independently
quoted regional wholesale market prices for shell eggs or
 
formulas related to our costs of
 
production. Because the majority of our
specialty eggs
 
are typically
 
sold at prices
 
and terms negotiated
 
directly with
 
customers, specialty
 
egg prices
 
do not fluctuate
 
as
much as conventional pricing.
Feed Costs for Shell Egg Production
Feed is a primary cost component in
 
the production of shell eggs and
 
represented 63.1% of our fiscal 2023 farm
 
production costs.
We
 
routinely fill
 
our storage
 
bins during
 
harvest season
 
when prices
 
for feed
 
ingredients, primarily
 
corn and
 
to a
 
lesser extent
soybean meal,
 
are generally
 
lower.
 
To
 
ensure continued
 
availability of
 
feed ingredients,
 
we may
 
enter into
 
contracts for
 
future
purchases
 
of
 
corn
 
and
 
soybean meal,
 
and
 
as part
 
of these
 
contracts,
 
we
 
may
 
lock-in
 
the basis
 
portion
 
of our
 
grain
 
purchases
several months in advance.
 
Basis is the difference between the local cash price for grain and the applicable futures price. A basis
calm-20230603_10Kp6i0
6
contract is a common transaction in the grain market that allows us to lock-in a basis level for a specific delivery period and wait
to set
 
the futures
 
price at
 
a later
 
date. Furthermore,
 
due to
 
the more
 
limited supply
 
for organic
 
ingredients,
 
we may
 
commit to
purchase organic ingredients in advance to help assure supply.
 
Ordinarily, we do not enter into long-term contracts beyond a year
to
 
purchase
 
corn
 
and
 
soybean
 
meal
 
or
 
hedge
 
against
 
increases
 
in
 
the
 
prices
 
of
 
corn
 
and
 
soybean
 
meal.
 
As
 
the
 
quality
 
and
composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we formulate
 
and produce
the vast
 
majority of
 
our own
 
feed at
 
our feed
 
mills located
 
near our
 
production plants.
 
Our annual
 
feed requirements
 
for fiscal
2023 were 2.0 million tons of finished
 
feed, of which we manufactured 1.9 million
 
tons. We currently
 
have the capacity to store
182 thousand tons of corn and soybean meal, and we replenish these stores as needed
 
throughout the year.
Our primary feed ingredients, corn
 
and soybean meal, are commodities subject
 
to volatile price changes due to
 
weather, various
supply and
 
demand factors,
 
transportation and
 
storage costs,
 
speculators and
 
agricultural, energy
 
and trade
 
policies in
 
the U.S.
and internationally and most recently
 
the Russia-Ukraine War.
 
While we do not import corn
 
or soy directly from the region,
 
the
Russia-Ukraine War
 
has had
 
a negative
 
impact on
 
the worldwide
 
supply of
 
grain, including
 
corn, putting
 
upward pressure
 
on
prices.
 
We
 
purchase
 
the
 
vast
 
majority
 
of
 
our
 
corn
 
and
 
soybean
 
meal
 
from
 
U.S
 
sources
 
but
 
may
 
be
 
forced
 
to
 
purchase
internationally
 
when
 
U.S.
 
supplies are
 
not
 
readily
 
available.
 
Feed
 
grains
 
are
 
currently
 
available
 
from
 
an
 
adequate
 
number
 
of
sources in the U.S. As a point
 
of reference, a multi-year comparison
 
of the average of daily closing prices
 
per Chicago Board of
Trade for each period in our fiscal calendar are
 
shown below for corn and soybean meal:
Shell Egg Production
Our percentage of dozens produced to sold
 
was 92.3%
 
of our total shell eggs sold in fiscal 2023,
 
with 91.8% of such production
coming from company-owned facilities,
 
and 8.2% from contract
 
producers. Under a
 
typical arrangement with
 
a contract producer,
we
 
own
 
the
 
flock,
 
furnish
 
all feed
 
and
 
critical
 
supplies,
 
own
 
the
 
shell
 
eggs
 
produced
 
and
 
assume
 
market
 
risks.
 
The contract
producers own and operate their facilities and are paid a fee based on production
 
with incentives for performance.
 
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We hatch the majority of
our chicks in
 
our own breeder
 
farms and hatcheries
 
in a
 
computer-controlled environment and obtain
 
the balance from
 
commercial
sources. The chicks are grown in our own pullet farms and are placed into the laying
 
flock once they reach maturity.
7
After eggs are
 
produced, they are
 
cleaned, graded and
 
packaged. Substantially all
 
our farms have
 
modern “in-line” facilities
 
which
mechanically
 
gather,
 
clean,
 
grade
 
and
 
package
 
the
 
eggs
 
at
 
the
 
location
 
where
 
they
 
are
 
laid.
 
The
 
in-line
 
facilities
 
generate
significant efficiencies
 
and cost
 
savings compared
 
to the
 
cost of
 
eggs produced
 
from non-in-line
 
facilities, which
 
process eggs
that
 
have
 
been
 
laid
 
at
 
another
 
location
 
and
 
transported
 
to the
 
processing
 
facility.
 
The
 
in-line
 
facilities
 
also
 
produce
 
a
 
higher
percentage of USDA Grade A eggs, which sell at higher prices. Eggs
 
produced on farms owned by contractors are brought to our
processing plants
 
to be graded
 
and packaged.
 
Because shell eggs
 
are perishable,
 
we do not
 
maintain large
 
egg inventories. Our
egg
 
inventory
 
averaged
 
six
 
days
 
of
 
sales
 
during
 
fiscal
 
2023.
 
We
 
believe
 
our
 
constant
 
focus
 
on
 
production
 
efficiencies
 
and
automation throughout the supply chain enable us to be a low-cost supplier
 
in our markets.
We
 
are proud
 
to have
 
created and
 
upheld
 
what we
 
believe is
 
a leading
 
poultry
 
Animal Welfare
 
Program
 
(“AWP”).
 
We
 
have
aligned our AWP with
 
regulatory, veterinary
 
and our third-party certifying bodies’ guidance to govern welfare of
 
animals in our
direct care, our contract farmers’ care and our farmer-suppliers’
 
care. We continually
 
review our program to monitor and evolve
standards that guide how we hatch chicks, rear pullets and nurture
 
breeder and layer hens. At each stage of
 
our animals’ lives, we
are dedicated to providing welfare conditions aligned
 
to our commitment to the principles of the internationally
 
recognized
Five
Freedoms of Animal Welfare
. Our standards apply to
 
our enterprise and are
 
tailored for our owned and
 
contract grower operations
with oversights and approvals from senior members of our compliance team.
We
 
do not
 
use artificial
 
hormones in
 
the production
 
of our
 
eggs. Hormone
 
use in
 
the poultry
 
and egg
 
production industry
 
has
been
 
effectively
 
banned
 
in
 
the U.S.
 
since
 
the
 
1950s.
 
We
 
have
 
an
 
extensive
 
written
 
protocol
 
that
 
allows
 
the
 
use
 
of
 
medically
important
 
antibiotics
 
only
 
when
 
animal
 
health
 
is
 
at
 
risk,
 
consistent
 
with
 
guidance
 
from
 
the
 
United
 
States
 
Food
 
and
 
Drug
Administration
 
(“FDA”)
 
and
 
the
 
Guidance
 
for
 
Judicious
 
Therapeutic
 
Use
 
of
 
Antimicrobials
 
in
 
Poultry,
 
developed
 
by
 
the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary
 
doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We
 
do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We
 
are
 
one
 
of
 
the
 
largest
 
producers
 
and
 
marketers
 
of
 
value-added
 
specialty
 
shell
 
eggs
 
in
 
the
 
U.S.,
 
which
 
continues
 
to
 
be
 
a
significant and growing segment
 
of the market.
 
We classify cage-free, organic, brown, free-range, pasture-raised and
 
nutritionally
enhanced as specialty eggs for accounting and
 
reporting purposes. Specialty eggs are intended to
 
meet the demands of consumers
sensitive to environmental, health and/or animal welfare issues and
 
to comply with state requirements for cage-free eggs.
 
As defined by the USDA, eggs packed in USDA grade
 
marked consumer packages labeled as cage-free are
 
laid by hens that are
able to roam vertically and horizontally in indoor houses and have access to fresh food and water.
 
Cage-free systems must allow
hens to
 
exhibit natural
 
behaviors and
 
include enrichments
 
such as
 
scratch areas,
 
perches and
 
nests. Hens
 
must have
 
access to
litter, protection from predators and be
 
able to move in a barn in a manner that promotes bird welfare.
 
Ten
 
states
 
have
 
passed
 
legislation
 
or
 
regulations
 
mandating
 
minimum
 
space
 
or
 
cage-free
 
requirements
 
for
 
egg
 
production
 
or
mandated the sale of
 
only cage-free eggs and
 
egg products in
 
their states, with implementation
 
of these laws ranging
 
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
 
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
 
U.S. population
have cage-free legislation in effect currently.
 
In May 2023, the U.S. Supreme Court upheld as
 
constitutional California’s law that
requires the sale of
 
only cage-free eggs
 
in that state and
 
regardless of the state
 
in which the eggs
 
are produced. Although
 
we do
not sell the majority of our eggs in these ten states, these state laws have impacted
 
egg production practices nationally.
A significant number of our customers previously announced goals to
 
offer cage-free eggs exclusively on or before 2026, subject
in most cases to availability of supply,
 
affordability and consumer demand, among other contingencies. Some of these customers
have recently
 
changed those
 
goals to
 
offer 70%
 
cage-free eggs
 
by the
 
end of
 
2030. Our
 
customers typically
 
do not
 
commit to
long-term purchases
 
of specific quantities
 
or types of
 
eggs with us,
 
and as a
 
result, it is
 
difficult to
 
accurately predict
 
customer
requirements for cage-free eggs. We are focused on adjusting our cage-free production capacity with a goal of meeting the future
needs of our customers in light of changing
 
state requirements and our customer’s
 
goals. As always, we strive to offer a product
mix that aligns with current and anticipated customer purchase decisions. We are engaging with our customers to help them meet
their announced goals and needs. We have invested significant capital in
 
recent years to acquire and construct
 
cage-free facilities,
and we expect our focus for future expansion will continue
 
to include cage-free facilities. Our volume of cage-free egg sales has
continued to increase and account for a larger share of our product mix. Cage-free sales represented approximately 20.1% of our
total net
 
shell sales
 
for
 
fiscal
 
year
 
2023.
 
At the
 
same time,
 
we understand
 
the importance
 
of our
 
continued
 
ability to
 
provide
conventional eggs in order to provide our customers with a variety
 
of egg choices and to address hunger in our communities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
We are a member of the Eggland’s
 
Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s
 
Best®
 
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 primarily
 
sold through our wholly
owned subsidiaries American Egg Products, LLC located in Georgia
 
and Texas Egg Products, LLC located
 
in Texas.
During March 2023,
 
MeadowCreek Food,
 
LLC (“Meadowcreek”),
 
a majority-owned subsidiary,
 
began operations with
 
a focus
on being a
 
leading provider of
 
hard-cooked eggs. We
 
serve as the
 
preferred provider to
 
supply specialty and
 
conventional eggs
that MeadowCreek
 
needs to
 
manufacture egg
 
products. MeadowCreek’s
 
marketing plan
 
is designed
 
to extend
 
our reach
 
in the
foodservice and retail marketplace and bring
 
new opportunities in the restaurant,
 
institutional and industrial food products arenas.
 
Summary of Conventional and Specialty Shell Egg and Egg Product
 
Sales
The
 
following
 
table
 
sets
 
forth
 
the
 
contribution
 
as
 
a
 
percentage
 
of
 
revenue
 
and
 
volumes
 
of
 
dozens
 
sold
 
of
 
conventional
 
and
specialty shell egg and egg product sales for the following fiscal years:
2023
2022
2021
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
65.2
%
65.3
%
59.8
%
69.0
%
56.8
%
73.2
%
Specialty Eggs
Egg-Land’s Best®
14.7
%
16.6
%
19.2
%
15.9
%
20.9
%
13.5
%
Other Specialty Eggs
15.7
%
18.1
%
17.3
%
15.1
%
19.1
%
13.3
%
Total Specialty Eggs
30.4
%
34.7
%
36.5
%
31.0
%
40.0
%
26.8
%
Egg Products
3.9
%
3.4
%
2.7
%
Marketing and Distribution
In fiscal 2023, we sold our shell eggs in 38 states through
 
the southwestern, southeastern, mid-western and mid-Atlantic regions
of the U.S.
 
through our extensive
 
distribution network
 
to a diverse group
 
of customers, including
 
national and regional
 
grocery
store chains,
 
club stores,
 
companies servicing
 
independent supermarkets
 
in the
 
U.S., foodservice
 
distributors and
 
egg product
consumers. Some of
 
our sales
 
are completed through
 
co-pack agreements –
 
a common practice
 
in the
 
industry whereby production
and
 
processing of
 
certain products
 
are outsourced
 
to another
 
producer.
 
Although we
 
face intense
 
competition
 
from numerous
other companies,
 
we believe
 
that we
 
have the
 
largest market
 
share for
 
the sale
 
of shell
 
eggs in
 
the grocery
 
segment, including
large U.S. food retailers.
The majority of eggs sold are based on the daily
 
or short-term needs of our customers. Most sales to established
 
accounts are on
payment terms ranging from
 
seven to 30
 
days. Although we
 
have established long-term relationships
 
with many of
 
our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we
 
sell are either delivered to
 
our customers’ warehouse or retail
 
stores, by our own
 
fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
We
 
are a member
 
of the Eggland’s
 
Best, Inc. cooperative
 
and produce, market,
 
distribute and
 
sell
Egg-Land’s
 
Best®
 
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,
 
Nevada, North
 
Carolina,
 
Oklahoma and
 
South Carolina.
 
We
 
also have
 
an exclusive
 
license in New
 
York
City in addition
 
to exclusivity in
 
select New York
 
metropolitan areas, including
 
areas within New
 
Jersey and Pennsylvania.
 
As
discussed above under “Specialty Eggs,” we also sell our own Farmhouse
 
Eggs® and 4Grain® branded eggs.
9
During
 
2022,
 
the
 
Company
 
joined
 
in
 
the
 
formation
 
of
 
a
 
new
 
egg
 
farmer
 
cooperative
 
in
 
the
 
western
 
United
 
States.
 
ProEgg,
Inc.(“ProEgg”) is comprised
 
of leading egg production
 
companies, including Cal-Maine
 
Foods, servicing retail and
 
foodservice
shell egg customers in 13 western states. ProEgg is a producer-owned
 
cooperative organized under the Capper-Volstead
 
Act.
 
The Company’s
 
top priority in joining
 
as a member of
 
ProEgg is serving
 
our valued customers in
 
this important market
 
region.
Our
 
membership
 
in
 
ProEgg
 
is
 
expected
 
to
 
provide
 
benefits
 
for
 
its
 
customers,
 
including
 
supply
 
chain
 
stability
 
and
 
enhanced
reliability. Initially,
 
Cal-Maine Foods’ customer relationships and customer support are expected to remain the same. We
 
expect
that starting January
 
1, 2024, each
 
producer member
 
will sell through
 
ProEgg the
 
shell eggs it
 
produces for
 
sale in the
 
western
states covered by the cooperative. Customers will
 
have a single point of
 
contact for their shell egg
 
purchases, as ProEgg will have
a dedicated team to market and sell the members’ combined egg production
 
in the region.
Customers
Our top
 
three customers
 
accounted for
 
an aggregate of
 
50.1%, 45.9%
 
and 48.6% of
 
net sales dollars
 
for fiscal 2023
 
,
 
2022, and
2021,
 
respectively.
 
Our largest
 
customer,
 
Walmart
 
Inc. (including
 
Sam's Club),
 
accounted for
 
34.2%, 29.5%
 
and 29.8%
 
of net
sales dollars for fiscal 2023, 2022 and 2021, respectively.
 
In fiscal 2023,
 
approximately 85.3% of
 
our revenue related
 
to sales to retail
 
customers, 10.8% to
 
sales to foodservice
 
providers
and 3.9%
 
to egg products
 
sales. Retail customers
 
include primarily
 
national and
 
regional grocery
 
store chains,
 
club stores, and
companies
 
servicing
 
independent
 
supermarkets
 
in the
 
U.S. Foodservice
 
customers
 
include
 
primarily
 
companies that
 
sell food
products and related items to restaurants, healthcare and education facilities and
 
hotels.
Competition
The production, processing,
 
and distribution of shell
 
eggs is an intensely
 
competitive business, which
 
has traditionally attracted
large numbers of
 
producers in the United
 
States. Shell egg competition
 
is generally based on
 
price, service and product
 
quality.
The shell
 
egg production
 
industry remains
 
highly fragmented.
 
According to
Egg Industry
 
Magazine
, the
 
ten largest
 
producers
owned approximately
 
53% of industry
 
table egg layer
 
hens at year-end
 
2022 and 2021.
 
We
 
believe industry
 
consolidation may
continue,
 
and
 
we
 
plan
 
to
 
capitalize
 
on
 
opportunities
 
as
 
they
 
arise.
 
We
 
believe
 
further
 
concentration
 
could
 
result
 
in
 
reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate
 
in response to seasonal demand
 
factors and a natural
 
increase in egg production during
 
the spring
and early summer.
 
Historically,
 
shell egg prices tend
 
to increase with the
 
start of the school
 
year and tend
 
to be highest prior
 
to
holiday
 
periods,
 
particularly
 
Thanksgiving,
 
Christmas
 
and
 
Easter.
 
Consequently,
 
and
 
all
 
other
 
things
 
being
 
equal,
 
we
 
would
expect to experience
 
lower selling prices,
 
sales volumes and net
 
income (and may
 
incur net losses) in
 
our first and
 
fourth fiscal
quarters ending in August/September and May/June, respectively. Accordingly, we generally expect our need for
 
working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a
 
low-cost provider of shell eggs located near
 
our customers, offering our customers
choices
 
that
 
meet
 
their
 
requirements
 
for
 
eggs
 
and
 
egg
 
products
 
and
 
continuing
 
to
 
grow
 
our
 
focus
 
on
 
specialty
 
eggs
 
and
 
egg
products. For example, our
 
recent investment in MeadowCreek,
 
discussed under the heading
 
“Egg Products” above, is
 
intended
to
 
extend
 
our
 
reach
 
in
 
the
 
foodservice
 
and
 
retail
 
marketplace
 
and
 
bring
 
new
 
opportunities
 
in
 
the
 
restaurant,
 
institutional
 
and
industrial food products arenas.
In light
 
of the growing
 
customer demand
 
and increased
 
legal requirements
 
for cage-free
 
eggs, we
 
intend to
 
continue to
 
closely
evaluate the
 
need to expand
 
through selective acquisitions,
 
with a priority
 
on those that
 
will facilitate our
 
ability to expand
 
our
cage-free shell
 
egg production
 
capabilities in
 
key locations
 
and markets.
 
We
 
will also
 
continue to
 
closely evaluate
 
the need
 
to
continue to expand and convert
 
our own facilities to increase production
 
of cage-free eggs based on
 
a timeline designed to meet
the anticipated
 
needs of
 
our customers
 
and comply
 
with evolving
 
legal requirements.
 
As the
 
ongoing
 
production
 
of cage-free
eggs
 
is
 
more
 
costly
 
than
 
the
 
production
 
of
 
conventional
 
eggs,
 
aligning
 
our
 
cage-free
 
production
 
capabilities
 
with
 
changing
demand for cage-free eggs is important to the success of our business.
10
Trademarks
 
and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
 
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.
California,
 
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
 
U.S. population
have cage-free legislation in effect currently.
 
In May 2023, the U.S. Supreme Court upheld as
 
constitutional California’s law that
requires the sale of only cage-free eggs in that state and regardless of the
 
state in which the eggs are produced.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing,
 
among
 
other
 
things,
 
the
 
generation,
 
storage,
 
handling,
 
use,
 
transportation,
 
disposal,
 
and
 
remediation
 
of
 
hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities,
 
including, but not limited to,
wastewater discharge
 
permits. We
 
have made, and
 
will continue to make,
 
capital and other expenditures
 
relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures
 
necessary
 
to
 
comply
 
with
 
such
 
laws
 
and
 
regulations;
 
however,
 
as
 
environmental,
 
health
 
and
 
safety
 
laws
 
and
regulations are becoming
 
increasingly more stringent,
 
including those relating to
 
animal wastes and wastewater discharges,
 
it is
possible that we will have to incur significant costs for compliance with such
 
laws and regulations in the future.
Human Capital Resources
 
 
As of June 3, 2023, we had 2,976 employees, of whom 2,305 worked in egg production, processing,
 
and marketing, 207 worked
in
 
feed
 
mill operations
 
and 464, including
 
our
 
executive officers,
 
were
 
administrative
 
employees. Approximately
 
5.4% of
 
our
personnel
 
are
 
part-time, and we
 
utilize
 
temporary
 
employment
 
agencies
 
and
 
independent
 
contractors
 
to
 
augment
 
our
staffing needs when necessary. For fiscal 2023, the average monthly full-time
 
equivalent for contingent workers was
 
1,349. None
of our employees are covered by a collective bargaining
 
agreement. We consider
 
our relations with employees to be good.
 
Culture and Values
 
 
We
 
are
 
proud
 
to
 
be contributing corporate
 
citizens
 
where
 
we live
 
and
 
work and to
 
help create healthy,
 
prosperous
communities. Our
 
colleagues
 
help
 
us
 
continue
 
to
 
enhance our community
 
contributions,
 
which are driven
 
by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to
 
realize full potential. These
 
commitments are encapsulated
 
in the
Cal-Maine Foods Code
 
of Ethics and
 
Business
Conduct
 
and in our
Human Rights Statement
.
 
Health and Safety
 
 
Our top priority is the
 
health and safety of our
 
employees, who continue to produce
 
high-quality,
 
affordable egg choices for
 
our
customers and contribute to
 
a stable food
 
supply. Our enterprise safety committee
 
comprises two corporate safety managers,
 
eight
area compliance managers
 
(three specifically for
 
worker health
 
and safety),
 
55 local site
 
compliance managers, feed
 
mill managers
and general managers.
 
The committee that
 
oversees health and safety regularly reviews
 
our written policies and
 
changes to OSHA
regulation standards and shares information as it relates to outcomes from incidents in order to improve future performance. The
11
committee’s
 
goals
 
include
 
working
 
to
 
help
 
ensure
 
that
 
our
 
engagements
 
with
 
our consumers,
 
customers,
 
and
 
regulators
evidence our strong commitment to our workers’ health and safety.
 
Our commitment to our colleagues’ health includes a strong
 
commitment to on-site worker safety,
 
including a focus on accident
prevention and life safety.
 
Our Safety and Health Program
 
is designed to promote best
 
practices that help prevent
 
and minimize
workplace accidents and illnesses. The scope of our Safety and
 
Health Program applies to all enterprise colleagues. Additionally,
to
 
help
 
protect
 
the health
 
and well-being
 
of
 
our
 
colleagues and
 
people
 
in our
 
value
 
chain,
 
we
 
require
 
that any
 
contractors
 
or
vendors
 
acknowledge
 
and
 
agree
 
to
 
comply
 
with
 
the
 
guidelines
 
governed
 
by
 
our
 
Safety
 
and
 
Health
 
Program.
 
At
 
each
 
of
 
our
locations, our general managers are expected to
 
uphold and implement our Safety and Health Program in alignment
 
with OSHA
requirements. We
 
believe that
 
this program,
 
which is reviewed
 
annually by
 
our senior management
 
team, contributes
 
to strong
safety outcomes. As part of our
 
Safety and Health Program, we conduct multi-lingual training that
 
covers topics such as slip-and-
fall avoidance, respiratory protection, prevention of
 
hazardous communication of chemicals, the
 
proper use of personal
 
protective
equipment, hearing
 
conservation, emergency
 
response, lockout
 
and tagout
 
of equipment
 
and forklift
 
safety,
 
among others.
 
We
have
 
also
 
installed dry
 
hydrogen
 
peroxide biodefense
 
systems
 
in
 
our
 
processing
 
facilities
 
to
 
help
 
protect
 
our
 
colleagues’
respiratory health. To help drive
 
our focus on
 
colleague safety, we developed safety
 
committees at each
 
of our sites
 
with employee
representation from each department.
 
We
 
review
 
the success
 
of our
 
safety programs
 
on a
 
monthly basis
 
to monitor
 
their effectiveness
 
and
 
the development
 
of any
trends that need to
 
be addressed. During fiscal
 
year 2023
 
our recordable incident rates
 
decreased by 29% compared to
 
fiscal 2022.
 
Diversity, Equity and Inclusion
 
 
Our
 
culture seeks
 
to
 
embrace the
 
diversity
 
and
 
inclusion
 
of
 
all
 
our
 
team
 
members.
 
This
 
culture is driven
 
by
 
our
 
board
 
and
executive management team. Our board comprises seven members, four of
 
whom are independent. Women comprise 29% of our
board and 14% of our
 
board members identify as a
 
racial or ethnic
 
minority. As
 
of June 3, 2023,
 
our total workforce comprised
29% women and 53%
 
of colleagues who
 
identify as racial or
 
ethnic minorities. Our Policy
 
against Harassment, Discrimination,
Unlawful
 
or
 
Unethical
 
Conduct
 
and
 
Retaliation;
 
Reporting
 
Procedure affirms
 
our
 
commitment
 
to
 
supporting
 
our
 
employees
regardless of race, color, religion, sex, national
 
origin or any other basis protected by applicable law.
 
 
Cal-Maine Foods strives
 
to ensure that
 
our colleagues are
 
treated equitably. We are an Equal
 
Opportunity Employer that prohibits,
by policy and practice,
 
any violation of applicable
 
federal, state, or local
 
law regarding employment.
 
Discrimination because of
race, color, religion,
 
sex, pregnancy, age,
 
national origin, citizenship status, veteran
 
status, physical or mental disability,
 
genetic
information, or any other basis protected by applicable law
 
is prohibited. We value diversity in our workplaces or in
 
work-related
situations. We maintain
 
strong protocols to help our colleagues perform
 
their jobs free from harassment and discrimination. Our
focus
 
on
 
equitable
 
treatment
 
extends
 
to
 
recruitment,
 
employment
 
applications,
 
hiring,
 
placement,
 
job
 
assignments,
 
career
development, training, remuneration,
 
benefits, discharge
 
and other matters
 
tied to terms and
 
conditions of employment.
 
We
 
are
committed
 
to
 
offering
 
our
 
colleagues
 
opportunities
 
commensurate
 
with
 
our
 
operational
 
needs,
 
their
 
experiences,
 
goals
 
and
contributions.
 
 
Recruitment, Development and Retention
 
 
We
 
believe
 
in compensating
 
our
 
colleagues
 
with
 
fair
 
and competitive wages, in
 
addition
 
to offering
competitive benefits. Approximately 76% of our employees
 
are paid at hourly rates, which are all paid at rates above
 
the federal
minimum
 
wage
 
requirement.
 
We
 
offer
 
our
 
full-time
 
eligible
 
employees
 
a
 
range
 
of
 
benefits,
 
including
 
company-paid
 
life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 84% of the costs of the plan
for
 
participating
 
employees
 
and
 
their
 
families
 
as
 
of
 
December
 
31,
 
2022. Recent
 
benchmarking
 
of
 
our health
 
plan
indicates comparable
 
benefits, at
 
lower
 
employee contributions, when compared
 
to an applicable
 
Agriculture
 
and
Food Manufacturing sector grouping, as well as peer group data.
 
In addition, we offer employees the opportunity to purchase an
extensive range of other group
 
plan benefits, such as dental, vision,
 
accident, critical illness, disability
 
and voluntary life.
 
After
one
 
year
 
of
 
employment, full-time employees
 
who
 
meet
 
eligibility
 
requirements may
 
elect
 
to participate
 
in
 
our
KSOP retirement plan,
 
which
 
offers
 
a
 
range
 
of
 
investment
 
alternatives
 
and
 
includes
 
many positive features,
 
such
 
as
automatic enrollment with scheduled
 
automatic contribution
 
increases and loan
 
provisions. Regardless of
 
the
employees’ elections
 
to contribute
 
to
 
the
 
KSOP,
 
the
 
Company contributes shares
 
of Company
 
stock or
 
cash
 
equivalent
 
to 3%
of participants’ eligible compensation for each pay period that hours
 
are worked.
 
We
provide
 
extensive
 
training
 
and
 
development related
 
to
 
safety,
 
regulatory
 
compliance,
 
and
 
task
 
training.
We
invest
 
in
developing our future leaders through our Management Intern, Management
 
Trainee and informal mentoring programs.
 
12
Sustainability
We understand that climate, and
 
the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to
 
responsible management of
 
our flocks, are
 
vital to
 
the production of
 
high-quality eggs and
 
egg products
and to the success of our
 
Company. We have engaged in agricultural production for
 
more than 60
 
years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible
 
natural resource stewardship. We plan to publish our most recent sustainability report on or around early
August 2023, which
 
will be available
 
on our website.
 
Information contained
 
on our website is
 
not a part
 
of this report
 
on Form
10-K.
 
Our Corporate Information
We
 
maintain
 
a
 
website
 
at
 
www.calmainefoods.com
 
where
 
general
 
information
 
about
 
our
 
business
 
and
 
corporate
 
governance
matters is
 
available. The
 
information contained
 
in our
 
website is
 
not a
 
part of
 
this report.
 
Our Annual
 
Reports on
 
Form 10-K,
Quarterly Reports on
 
Form 10-Q, Current Reports
 
on Form 8-K, proxy
 
statements, and all amendments
 
to those reports filed
 
or
furnished pursuant
 
to Section
 
13(a) or
 
15(d) of
 
the Exchange
 
Act are
 
available, free
 
of charge,
 
through our
 
website as
 
soon as
reasonably
 
practicable
 
after
 
we
 
file
 
them
 
with,
 
or
 
furnish
 
them
 
to,
 
the
 
SEC.
 
In
 
addition,
 
the
 
SEC
 
maintains
 
a
 
website
 
at
www.sec.gov
 
that
 
contains
 
reports,
 
proxy
 
and
 
information
 
statements,
 
and
 
other
 
information
 
regarding
 
issuers
 
that
 
file
electronically with the SEC. Cal-Maine Foods, Inc. is a Delaware corporation,
 
incorporated in 1969.
 
ITEM 1A.
 
RISK FACTORS
Our
 
business
 
and
 
results
 
of
 
operations
 
are
 
subject
 
to
 
numerous
 
risks
 
and
 
uncertainties,
 
many
 
of
 
which
 
are
 
beyond
 
our
control. The following is a description of the known factors that may materially affect
 
our business, financial condition or results
of operations. They
 
should be considered
 
carefully,
 
in addition
 
to the information
 
set forth
 
elsewhere in
 
this Annual
 
Report on
Form
 
10-K,
 
including
 
under
 
Part
 
II.
 
Item 7.
 
Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results
 
of
Operations,
 
in
 
making
 
any
 
investment
 
decisions
 
with
 
respect
 
to
 
our
 
securities. Additional
 
risks
 
or
 
uncertainties
 
that
 
are
 
not
currently known
 
to us,
 
or that we
 
are aware
 
of but
 
currently deem
 
to be
 
immaterial or
 
that could
 
apply to
 
any company
 
could
also materially adversely affect our business, financial condition or results
 
of operations.
INDUSTRY RISK FACTORS
Market prices
 
of wholesale
 
shell eggs
 
are volatile,
 
and decreases
 
in these
 
prices can
 
adversely impact
 
our revenues
 
and
profits.
Our operating results are significantly
 
affected by wholesale shell egg
 
market prices, which fluctuate widely and
 
are outside our
control. As
 
a result,
 
our prior
 
performance
 
should not
 
be presumed
 
to be
 
an accurate
 
indication of
 
future performance.
 
Under
certain circumstances, small increases
 
in production, or small
 
decreases in demand, within
 
the industry might
 
have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect
 
our revenues and profits.
Market prices for
 
wholesale shell eggs
 
have been volatile
 
and cyclical. Shell
 
egg prices have
 
risen in the
 
past during periods
 
of
high demand such as the initial outbreak of
 
the COVID-19 pandemic and periods when high protein
 
diets are popular. Shell egg
prices
 
have
 
also
 
risen
 
during
 
periods
 
of
 
constrained
 
supply,
 
such
 
as
 
the
 
latest
 
highly
 
pathogenic
 
avian
 
influenza
 
(“HPAI”)
outbreak
 
that was
 
first detected
 
in domestic
 
commercial flocks
 
in February
 
2022. During
 
times when
 
prices are
 
high, the
 
egg
industry
 
has
 
typically
 
geared
 
up
 
to
 
produce
 
more
 
eggs,
 
primarily
 
by
 
increasing
 
the
 
number
 
of
 
layers,
 
which
 
historically
 
has
ultimately resulted in an oversupply of eggs, leading to a period of lower prices.
 
As discussed
 
above in
, seasonal fluctuations
 
impact shell
 
egg prices. Therefore,
 
comparisons
of
 
our
 
sales
 
and
 
operating
 
results
 
between
 
different
 
quarters
 
within
 
a
 
single
 
fiscal
 
year
 
are
 
not
 
necessarily
 
meaningful
comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the
 
increase in meals prepared at home due
 
to concerns and restrictions during the initial outbreak
 
of the COVID-19
pandemic,
 
high-protein
 
diet
 
trends,
 
industry
 
advertising
 
campaigns
 
and
 
the
 
improved
 
nutritional
 
reputation
 
of
 
eggs
 
have
 
all
contributed
 
at one
 
time or
 
another
 
to increased
 
shell egg
 
demand. However,
 
it is
 
possible that
 
the demand
 
for shell
 
eggs will
decline in the future. Adverse publicity relating to health or safety
 
concerns and changes in the perception of the nutritional
 
value
of shell eggs, changes in consumer
 
views regarding consumption of animal-based products, as
 
well as movement away from high
protein diets, could
 
adversely affect
 
demand for shell
 
eggs, which would
 
have a material
 
adverse effect
 
on our future
 
results of
operations and financial condition.
13
Feed costs are volatile and increases in these costs can
 
adversely impact our results of operations.
Feed costs are the largest element of our shell
 
egg (farm) production cost, ranging from 55%
 
to 63% of total farm production cost
in the last five fiscal years.
 
Although feed ingredients, primarily corn and soybean
 
meal, are available from a
 
number of sources, we do not
 
have control over
the prices
 
of the
 
ingredients we
 
purchase, which
 
are affected
 
by weather,
 
various global
 
and U.S.
 
supply and
 
demand factors,
transportation
 
and storage
 
costs, speculators,
 
and
 
agricultural, energy
 
and trade
 
policies in
 
the U.S.
 
and
 
internationally.
 
More
recently,
 
the Russia-Ukraine
 
War
 
has had
 
a negative
 
impact on
 
the worldwide
 
supply of grain,
 
including corn,
 
putting upward
pressure on
 
prices. We
 
saw increasing
 
prices for
 
corn and
 
soybean meal
 
for fiscal
 
years 2022
 
and 2023
 
as a
 
result of
 
weather-
related shortfalls
 
in production
 
and yields, ongoing
 
supply chain disruptions
 
and the Russia-Ukraine
 
War
 
and its impact
 
on the
export markets.
 
Our costs for
 
corn and
 
soybean meal are
 
also affected
 
by local basis
 
prices. Factors that
 
can affect
 
basis levels
include transportation
 
and storage costs. We
 
saw basis levels
 
increase in our
 
areas of operation
 
during fiscal 2023
 
as a result of
higher transportation and storage costs, resulting in higher farm production
 
costs during the year.
Increases in feed
 
costs unaccompanied by increases
 
in the selling price
 
of eggs can have
 
a material adverse effect
 
on the results
of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower
egg prices and lower revenue.
 
Agricultural risks, including outbreaks of avian
 
disease, could harm our business.
 
Our shell egg
 
production activities are
 
subject to a variety
 
of agricultural risks.
 
Unusual or extreme
 
weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs
 
we produce and distribute. Outbreaks of avian
influenza among poultry occur
 
periodically worldwide and have occurred
 
sporadically in the U.S. Most recently,
 
an outbreak of
HPAI,
 
which was first detected
 
in February 2022,
 
has impacted the
 
industry.
 
Prior to 2022, there
 
was another significant
 
HPAI
outbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI
 
at any Cal-Maine Foods’ owned
or contracted facility as
 
of July 25,
 
2023. The Company maintains
 
controls and procedures designed
 
to reduce the
 
risk of exposing
our flocks to harmful
 
diseases; however, despite these efforts, outbreaks of avian
 
disease can and do
 
still occur and may
 
adversely
impact the
 
health of
 
our flocks.
 
An outbreak
 
of avian
 
disease could
 
have a
 
material adverse
 
impact on
 
our financial
 
results by
increasing
 
government
 
restrictions
 
on
 
the
 
sale
 
and
 
distribution
 
of
 
our
 
products
 
and
 
requiring
 
us
 
to
 
euthanize
 
the
 
affected
layers. Negative publicity from an outbreak within our
 
industry can negatively impact customer perception, even if
 
the outbreak
does
 
not
 
directly
 
impact
 
our flocks.
 
If
 
a
 
substantial portion
 
of
 
our
 
layers
 
or production
 
facilities are
 
affected
 
by
 
any
 
of these
factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely
affected.
Shell
 
eggs
 
and
 
shell
 
egg
 
products
 
are
 
susceptible
 
to
 
microbial
 
contamination,
 
and
 
we
 
may
 
be
 
required
 
to,
 
or we
 
may
voluntarily, recall
 
contaminated products.
Shell eggs
 
and shell
 
egg products
 
are vulnerable
 
to contamination
 
by pathogens
 
such as
 
Salmonella. The
 
Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg
 
Rule
 
issued
 
by
 
the
 
FDA
 
“Prevention
 
of
 
Salmonella
 
Enteritidis
 
in
 
Shell
 
Eggs
 
During
 
Production,
 
Storage,
 
and
Transportation,” and
 
the FDA’s
 
Food Safety Modernization Act. Shipment
 
of contaminated products, even
 
if inadvertent, could
result in a
 
violation of law and
 
lead to increased
 
risk of exposure
 
to product liability
 
claims, product recalls
 
and scrutiny by federal
and
 
state
 
regulatory
 
agencies.
 
We
 
have
 
little,
 
if
 
any,
 
control
 
over
 
proper
 
handling
 
once
 
the
 
product
 
has
 
been
 
shipped
 
or
delivered. In
 
addition,
 
products
 
purchased
 
from
 
other
 
producers
 
could
 
contain
 
contaminants
 
that
 
might
 
be
 
inadvertently
redistributed by us. As such, we might decide or be required
 
to recall a product if we, our customers
 
or regulators believe it poses
a potential
 
health risk.
 
Any product
 
recall could
 
result in
 
a loss
 
of consumer
 
confidence in
 
our products,
 
adversely affect
 
our
reputation
 
with existing
 
and potential
 
customers and
 
have a
 
material adverse
 
effect
 
on our
 
business, results
 
of operations
 
and
financial condition. We
 
currently maintain insurance
 
with respect to certain of
 
these risks, including product
 
liability insurance,
business interruption insurance and general liability
 
insurance, but in many cases such insurance is expensive,
 
difficult to obtain
and no assurance can
 
be given that such insurance
 
can be maintained in
 
the future on acceptable
 
terms, or in sufficient
 
amounts
to protect us against losses due to any such events, or at all.
Our profitability
 
may be adversely
 
impacted by
 
increases in other
 
input costs such
 
as packaging materials
 
and delivery
expenses, including as a result of inflation.
In addition to feed ingredient costs, other significant input costs include costs of packaging materials and delivery expenses. Our
costs of packing materials increased
 
during fiscal 2023 and 2022
 
due to rising inflation and labor
 
costs, and during 2022 also as
a
 
result
 
of
 
supply
 
chain
 
constraints
 
initially
 
caused
 
by
 
the
 
pandemic,
 
and
 
these
 
costs
 
may
 
continue
 
to
 
increase.
 
We
 
also
 
14
experienced increases in delivery expenses during fiscal 2023 and 2022 due to increases in fuel and labor costs for both our fleet
and contract
 
trucking, and
 
these costs
 
may continue
 
to increase.
 
Increases in
 
these costs
 
are largely
 
outside of
 
our control
 
and
have an adverse effect on our profitability and cash flow.
BUSINESS AND OPERATIONAL
 
RISK FACTORS
Global
 
or
 
regional
 
health
 
crises including
 
pandemics
 
or
 
epidemics
 
could
 
have
 
an
 
adverse impact
 
on
 
our
 
business and
operations.
The
 
effects
 
of
 
global
 
or
 
regional
 
pandemics
 
or
 
epidemics
 
can
 
significantly
 
impact
 
our
 
operations.
 
Although
 
demand
 
for
 
our
products could
 
increase as
 
a result
 
of restrictions
 
such as
 
travel bans
 
and restrictions,
 
quarantines, shelter-in-place
 
orders, and
business and government shutdowns,
 
which can prompt more
 
consumers to eat at home,
 
these restrictions could also significantly
increase our cost of doing business
 
due to labor shortages, supply-chain disruptions, increased costs and decreased availability of
packaging supplies, and increased
 
medical and other costs.
 
We experienced these impacts as a
 
result of the COVID-19
 
pandemic,
primarily during our fiscal
 
years 2020 and 2021.
 
The pandemic recovery also
 
contributed to increasing inflation
 
and interest rates,
which persist and
 
may continue
 
to persist. The
 
impacts of health
 
crises are difficult
 
to predict and
 
depend on numerous
 
factors
including
 
the
 
severity,
 
length and
 
geographic
 
scope
 
of
 
the outbreak,
 
resurgences
 
of
 
the disease
 
and
 
variants,
 
availability
 
and
acceptance of vaccines, and
 
governmental, business and individuals’
 
responses.
 
A resurgence of
 
COVID-19 and/or variants, or
any future major public health crisis, would disrupt our
 
business and could have a material adverse effect on
 
our financial results.
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan
 
to pursue a
 
growth strategy that includes
 
selective acquisitions
of other
 
companies engaged
 
in the
 
production and
 
sale of
 
shell eggs,
 
with a
 
priority on
 
those that
 
will facilitate
 
our ability
 
to
expand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the
demand
 
for
 
cage-free
 
eggs,
 
which
 
could
 
cause
 
our
 
acquisition
 
strategy
 
to
 
be
 
less-than-optimal
 
for
 
our
 
future
 
growth
 
and
profitability.
 
The
 
number
 
of existing
 
companies
 
with
 
cage-free
 
capacity
 
that
 
we
 
may
 
be
 
able
 
to
 
purchase
 
is
 
limited,
 
as
 
most
production of shell
 
eggs by other companies
 
in our markets currently
 
does not meet customer
 
demands or legal requirements
 
to
be designated
 
as cage-free.
 
Conversely,
 
if we
 
acquire cage-free
 
production capacity,
 
which is
 
more expensive
 
to purchase
 
and
operate, and customer
 
demands or legal
 
requirements for cage-free
 
eggs were to change,
 
the resulting lack
 
of demand for
 
cage-
free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we
 
could become subject to contingent or
 
other liabilities, including liabilities arising from
 
events or conduct
prior to
 
our acquisition
 
of a
 
business that
 
were unknown
 
to us
 
at the
 
time of
 
acquisition. We
 
could incur
 
significantly greater
expenditures in integrating an acquired business than we anticipated at the
 
time of its purchase.
We cannot assure
 
you that we:
will identify suitable acquisition candidates;
can consummate acquisitions on acceptable terms;
can successfully integrate an acquired business into our operations; or
can successfully manage the operations of an acquired business.
No
 
assurance
 
can
 
be
 
given
 
that
 
companies
 
we
 
acquire
 
in
 
the
 
future
 
will
 
contribute
 
positively
 
to
 
our
 
results
 
of
 
operations
 
or
financial condition.
 
In addition,
 
federal antitrust
 
laws require
 
regulatory approval
 
of acquisitions
 
that exceed
 
certain threshold
levels of significance, and we cannot guarantee that such approvals would
 
be obtained.
The consideration
 
we pay in
 
connection with any
 
acquisition affects
 
our financial results.
 
If we pay
 
cash, we could
 
be required
to
 
use
 
a
 
portion
 
of
 
our
 
available
 
cash
 
or
 
credit
 
facility
 
to
 
consummate
 
the
 
acquisition.
 
To
 
the
 
extent
 
we
 
issue
 
shares
 
of
 
our
Common Stock, existing stockholders may
 
be diluted. In addition,
 
acquisitions may result in
 
additional debt. Our ability to
 
access
any additional
 
capital that
 
may be
 
needed for
 
an acquisition
 
may be
 
adversely impacted
 
by higher
 
interest rates
 
and economic
uncertainty.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by,
 
one or more of our large customers.
Our customers, such as supermarkets, warehouse clubs
 
and food distributors, have continued to consolidate and consolidation
 
is
expected to continue. These consolidations have
 
produced larger customers and potential customers with
 
increased buying power
who are more
 
capable of operating
 
with reduced inventories,
 
opposing price increases,
 
and demanding lower
 
pricing, increased
 
15
promotional programs and specifically tailored products. Because of these trends,
 
our volume growth could slow or we
 
may need
to lower prices or increase promotional spending for our products, any of
 
which could adversely affect our financial results.
 
Our top
 
three customers
 
accounted for
 
an aggregate of
 
50.1%, 45.9%
 
and 48.6% of
 
net sales dollars
 
for fiscal 202
 
3, 2022,
 
and
2021, respectively.
 
Our largest
 
customer,
 
Walmart
 
Inc. (including
 
Sam's Club),
 
accounted for
 
34.2%, 29.5%
 
and 29.8%
 
of net
sales dollars
 
for fiscal
 
2023, 2022,
 
and 2021,
 
respectively. Although
 
we have
 
established long-term
 
relationships with
 
most of
our customers
 
who continue
 
to purchase
 
from us
 
based on
 
our ability
 
to service
 
their needs,
 
they are
 
generally free
 
to acquire
shell eggs
 
from other
 
sources. If, for
 
any reason, one
 
or more
 
of our
 
large customers
 
were to
 
purchase significantly
 
less of
 
our
shell eggs
 
in the
 
future or
 
terminate their
 
purchases from
 
us, and
 
we were
 
not able
 
to sell
 
our shell
 
eggs to
 
new customers
 
at
comparable levels, it would have a material adverse effect
 
on our business, financial condition, and results of operations.
Our business is highly competitive.
The
 
production
 
and
 
sale
 
of
 
fresh
 
shell
 
eggs,
 
which
 
accounted
 
for
 
virtually
 
all
 
of
 
our
 
net
 
sales
 
in
 
recent
 
years,
 
is
 
intensely
competitive. We
 
compete with
 
a large
 
number of
 
competitors that
 
may prove
 
to be
 
more successful
 
than we
 
are in
 
producing,
marketing and
 
selling shell
 
eggs. We
 
cannot provide
 
assurance that
 
we will
 
be able
 
to compete
 
successfully with
 
any or
 
all of
these companies.
 
Increased competition could result in price reductions,
 
greater cyclicality, reduced
 
margins and loss of market
share, which would negatively affect our business, results of operations,
 
and financial condition.
We
 
are
 
dependent
 
on
 
our
 
management
 
team,
 
and
 
the
 
loss
 
of
 
any
 
key
 
member
 
of
 
this
 
team
 
may
 
adversely
 
affect
 
the
implementation of our business plan in a timely manner.
Our success
 
depends largely
 
upon the
 
continued service
 
of our
 
senior management
 
team. The
 
loss or interruption
 
of service
 
of
one or more
 
of our key
 
executive officers
 
could adversely
 
affect our
 
ability to manage
 
our operations effectively
 
and/or pursue
our growth strategy.
 
We
 
have not entered
 
into any employment
 
or non-compete
 
agreements with any
 
of our executive
 
officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional
 
knowledge and result
in increased costs due to increased competition for employees.
 
Our
 
business
 
is
 
dependent
 
on
 
our
 
information
 
technology
 
systems
 
and
 
software,
 
and
 
failure
 
to
 
protect
 
against
 
or
effectively respond to
 
cyber-attacks, security
 
breaches, or other
 
incidents involving those systems,
 
could adversely affect
day-to-day operations and decision making processes and
 
have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our
 
information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory
 
and other business processes. If we do not allocate and
effectively manage the resources necessary to build
 
and sustain an appropriate technology environment, our business,
reputation, or financial results could be negatively impacted. In
 
addition, our information technology systems may be
vulnerable to damage or interruption from circumstances beyond our control,
 
including systems failures, natural disasters,
terrorist attacks, viruses, ransomware, security breaches or cyber
 
incidents. Cyber-attacks are becoming more sophisticated and
are increasing in the number of attempts and frequency by groups and individuals
 
with a wide range of motives. We
 
have
experienced and expect to continue to experience attempted cyber-attacks
 
of our information technology systems or networks.
 
A security breach
 
of
 
sensitive
 
information
 
could
 
result
 
in
 
damage
 
to
 
our
 
reputation
 
and
 
our
 
relations
 
with
 
our
 
customers
 
or
employees. Any such damage or interruption could have a material adverse
 
effect on our business.
 
Technology
 
and business and regulatory requirements continue to change rapidly.
 
Failure to update or replace legacy systems to
address
 
these
 
changes
 
could
 
result
 
in
 
increased
 
costs,
 
including
 
remediation
 
costs,
 
system
 
downtime,
 
third
 
party
 
litigation,
regulatory actions or cyber security vulnerabilities which could have
 
a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely
 
impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent
 
upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 76% of our employees are paid at hourly rates, often in entry-level positions. While all
our employees are paid at
 
rates above the federal minimum wage
 
requirements, any significant increase
 
in local, state or federal
minimum wage requirements could
 
increase our labor
 
costs. In addition,
 
any regulatory changes
 
requiring us to
 
provide additional
employee
 
benefits
 
or
 
mandating
 
increases
 
in
 
other
 
employee-related
 
costs,
 
such
 
as
 
unemployment
 
insurance
 
or
 
workers
compensation, would increase our
 
costs. A shortage
 
in the labor
 
pool, which may be
 
caused by competition from
 
other employers,
the remote
 
locations of
 
many of
 
our farms,
 
decreased
 
labor participation
 
rates or
 
changes in
 
government-provided
 
support or
immigration laws, particularly in times of lower unemployment,
 
could adversely affect our business and results of operations.
A
shortage of labor
 
available to
 
us could
 
cause our
 
farms to
 
operate with
 
reduced staff, which
 
could negatively impact
 
our production
capacity and efficiencies.
 
In fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic
 
and its effects, which
16
caused us to
 
increase wages in
 
response to labor shortages.
 
In fiscal 2023,
 
labor wages continued to
 
rise due to
 
increasing inflation
and low unemployment.
 
Accordingly, any significant labor shortages or increases
 
in our labor costs
 
could have a material
 
adverse
effect on our results of operations.
We are controlled by the family of our late founder, Fred
 
R. Adams, Jr., and Adolphus B. Baker,
 
Chairman of our Board
of Directors,
 
controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams,
 
Jr., our
 
Founder and Chairman Emeritus
 
died on March 29,
 
2020. Mr.
 
Adams’ son-in-law,
 
Adolphus B. Baker,
Chairman
 
of
 
our
 
board
 
of
 
directors,
 
Mr.
 
Baker’s
 
spouse
 
and
 
her
 
three
 
sisters
 
(Mr.
 
Adams’
 
four
 
daughters)
 
(collectively,
 
the
“Family”)
 
beneficially
 
own,
 
directly
 
or
 
indirectly
 
through
 
related
 
entities,
 
100%
 
of
 
our
 
outstanding
 
Class
 
A
 
Common
 
Stock
(which has
 
10 votes
 
per share),
 
controlling approximately
 
52.1% of
 
our total
 
voting power.
 
Such persons
 
also have
 
additional
voting power
 
due to
 
beneficial ownership
 
of our
 
Common Stock
 
(which has
 
one vote
 
per share),
 
directly or
 
indirectly through
related entities, resulting in family voting control of approximately 53.8% of our total voting power.
 
Mr. Baker controls the vote
of 100% of our outstanding Class A Common Stock.
We understand that the Family
 
intends
 
to retain ownership
 
of a
 
sufficient amount of our
 
Common Stock and
 
our Class A
 
Common
Stock to assure continued ownership of more than 50% of the voting power of
 
our outstanding shares of capital stock. As a result
of
 
this ownership,
 
the
 
Family has
 
the
 
ability
 
to exert
 
substantial
 
influence
 
over
 
matters requiring
 
action
 
by our
 
stockholders,
including
 
amendments
 
to our
 
certificate
 
of incorporation
 
and by-laws,
 
the election
 
and removal
 
of directors,
 
and any
 
merger,
consolidation,
 
or
 
sale of
 
all or
 
substantially
 
all of
 
our
 
assets,
 
or
 
other
 
corporate
 
transactions.
 
Delaware
 
law
 
provides
 
that
 
the
holders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such
as a merger,
 
consolidation and sale of
 
all or substantially all
 
of a corporation’s
 
assets; accordingly,
 
such a transaction involving
us
 
and
 
requiring
 
stockholder
 
approval
 
cannot
 
be
 
effected
 
without
 
the
 
approval
 
of
 
the
 
Family.
 
Such
 
ownership
 
will
 
make
 
an
unsolicited acquisition of our Company more difficult and discourage
 
certain types of transactions involving a change of control
of our Company, including
 
transactions in which the holders of our Common Stock might otherwise receive a premium for their
shares over then current market prices.
 
The Family’s controlling
 
ownership of our capital stock may adversely
 
affect the market
price of our Common Stock.
The
 
price
 
of
 
our
 
Common
 
Stock
 
may
 
be
 
affected
 
by
 
the
 
availability
 
of
 
shares
 
for
 
sale
 
in
 
the
 
market,
 
and
 
you
 
may
experience significant dilution as a result of future issuances
 
of our securities, which could materially and adversely
 
affect
the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price.
 
The Family holds
approximately 1.4 million shares of Common Stock (the “Subject Shares”) that are subject to an Agreement Regarding Common
Stock
 
(the
 
“Agreement”)
 
filed
 
as
 
an
 
exhibit
 
to
 
this
 
report.
 
The
 
Subject
 
Shares
 
remain
 
subject
 
to
 
potential
 
sale
 
under
 
the
Agreement. The Agreement
 
generally provides that
 
if a holder
 
of Subject Shares
 
intends to sell any
 
of the Subject
 
Shares, such
party must give the
 
Company a right of first
 
refusal to purchase all or
 
any of such shares.
 
The price payable by
 
the Company to
purchase shares
 
pursuant to
 
the exercise
 
of the
 
right of
 
first refusal
 
will reflect
 
a 6%
 
discount to
 
the then-current
 
market price
based
 
on
 
the
 
20
 
business-day
 
volume-weighted
 
average
 
price.
 
If
 
the
 
Company
 
does
 
not exercise
 
its right
 
of
 
first
 
refusal
 
and
purchase the shares offered, such party will, subject to the approval of a special committee of independent
 
directors of the Board
of Directors, be
 
permitted to sell
 
the shares not
 
purchased by the
 
Company pursuant to
 
a Company registration
 
statement, Rule
144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although
 
pursuant to the Agreement
the Company
 
will have a
 
right of first
 
refusal to purchase
 
all or any
 
of those shares,
 
the Company
 
may elect not
 
to exercise its
rights
 
of
 
first
 
refusal,
 
and
 
if so
 
such
 
shares
 
would
 
be
 
eligible for
 
sale pursuant
 
to
 
the registration
 
rights
 
in
 
the
 
Agreement
 
or
pursuant
 
to
 
Rule
 
144
 
under
 
the Securities
 
Act
 
of
 
1933.
 
Sales, or
 
the
 
availability
 
for
 
sale, of
 
a
 
large
 
number
 
of
 
shares of
 
our
Common Stock could result in a decline in the market price of our
 
Common Stock.
In addition,
 
our articles
 
of incorporation
 
authorize us
 
to issue
 
120,000,000 shares
 
of our
 
Common Stock.
 
As of
 
June 3,
 
2023,
there were
 
44,184,048 shares
 
of our
 
Common Stock
 
outstanding. Accordingly,
 
a substantial
 
number of
 
shares of
 
our Common
Stock
 
are
 
outstanding
 
and
 
are,
 
or
 
could
 
become,
 
available
 
for
 
sale
 
in
 
the
 
market.
 
In
 
addition,
 
we
 
may
 
be
 
obligated
 
to
 
issue
additional shares of our Common Stock in connection with employee benefit
 
plans (including equity incentive plans).
In the
 
future, we
 
may decide
 
to raise
 
capital through
 
offerings of
 
our Common
 
Stock, additional
 
securities convertible
 
into or
exchangeable for
 
Common Stock, or
 
rights to acquire
 
these securities or
 
our Common Stock.
 
The issuance of
 
additional shares
of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of
existing stockholders’ equity interests in
 
us. Issuances of substantial amounts of
 
our Common Stock, or the perception
 
that such
issuances could
 
occur,
 
may adversely
 
affect prevailing
 
market prices
 
for our
 
Common Stock,
 
and we
 
cannot predict
 
the effect
this dilution may have on the price of our Common Stock.
17
LEGAL AND REGULATORY
 
RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices
 
to
 
comply
 
with
 
developing
 
standards
 
or
 
subject
 
us
 
to
 
marketing
 
costs
 
to
 
defend
 
challenges
 
to
 
our
 
current
practices and protect
 
our image with
 
our customers. In
 
particular,
 
changes in customer
 
preferences and
 
new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty
 
in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as
 
People for the Ethical Treatment of Animals and
the Humane
 
Society of
 
the United States,
 
to require
 
companies that supply
 
food products
 
to operate
 
their business in
 
a manner
that
 
treats
 
animals
 
in
 
conformity
 
with
 
certain
 
standards
 
developed
 
or
 
approved
 
by
 
these
 
groups.
 
In
 
general,
 
we
 
may
 
incur
additional costs to conform our practices to address
 
these standards or to defend our existing
 
practices and protect our image with
our customers.
 
The standards promoted
 
by these groups
 
change over time,
 
but typically
 
require minimum
 
cage space
 
for hens,
among other requirements, and some
 
of these groups have led successful
 
legislative efforts to ban
 
any form of caged housing
 
in
various states.
 
As
 
discussed
 
in
,
 
ten
 
states
 
have
 
passed
 
minimum
 
space
 
and/or
 
cage-free
requirements
 
for
 
hens,
 
and
 
other
 
states are
 
considering
 
such requirements.
 
In
 
addition,
 
in recent
 
years,
 
many
 
large
 
restaurant
chains,
 
foodservice
 
companies
 
and
 
grocery
 
chains,
 
including
 
our
 
largest
 
customers,
 
announced
 
goals
 
to
 
transition
 
to
 
an
exclusively cage-free
 
egg supply
 
chain by specified
 
future dates.
 
A significant
 
number of
 
our customers
 
previously announced
goals to offer cage-free eggs exclusively on or before 2026, in most cases subject to available supply, affordability and consumer
demand,
 
among other contingencies.
 
Some of these customers have recently changed those goals to offer 70% cage-free eggs by
the end of 2030. While we
 
anticipate that our retail and foodservice customers will
 
continue to transition to selling cage-free eggs
given public
 
commitments,
 
there is
 
no assurance
 
that this
 
transition
 
will take
 
place or
 
take place
 
according to
 
the timeline
 
of
current cage-free
 
commitments. For
 
example, customers
 
may accelerate
 
their transition
 
to stocking
 
cage-free eggs,
 
which may
challenge our
 
ability to
 
meet the
 
cage-free
 
volume needs
 
of those
 
customers and
 
result in
 
a loss
 
of shell
 
egg
 
sales. Similarly,
customers who
 
commit to
 
stock greater
 
proportional quantities
 
of cage-free
 
eggs are
 
under no
 
obligation to
 
continue to
 
do so,
which may
 
result in an
 
oversupply of
 
cage-free eggs and
 
result in lower
 
specialty egg
 
prices, which could
 
reduce the return
 
on
our capital investment in cage-free production.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and
 
new laws has
resulted and
 
will continue
 
to result
 
in additional
 
costs, including
 
capital and
 
operating cost
 
increases. The
 
USDA reported
 
that
the estimated
 
U.S. cage-free
 
flock was
 
121.6 million hens as
 
of June
 
30, 2023,
 
which is approximately
 
38.3% of
 
the total U.S.
table
 
egg
 
layer
 
hen
 
population.
 
According
 
to
 
the
 
USDA
 
Agricultural
 
Marketing
 
Service,
 
as of
 
May
 
2023
 
approximately
 
221
million hens,
 
or about
 
70.5% of
 
the U.S.
 
non-organic
 
laying flock
 
would have
 
to be
 
in cage-free
 
production by
 
2026 to
 
meet
projected demand
 
from the
 
retailers, foodservice
 
providers and
 
food
 
manufacturers that
 
have made
 
goals to
 
transition to
 
cage-
free eggs.
 
In response
 
to our
 
customers’ announced
 
goals and
 
increased legal
 
requirements for
 
cage-free eggs,
 
we have
 
increased capital
expenditures
 
to
 
increase
 
our
 
cage-free
 
production
 
capacity.
 
We
 
are
 
also
 
enhancing
 
our
 
focus
 
on
 
cage-free
 
capacity
 
when
considering
 
acquisition opportunities.
 
Our customers
 
typically do
 
not commit
 
to long-term
 
purchases of
 
specific quantities
 
or
type of eggs
 
with us, and
 
as a result,
 
we cannot predict
 
with any certainty
 
which types of
 
eggs they will
 
require us to
 
supply in
future
 
periods.
 
The
 
production
 
of
 
cage-free
 
eggs
 
is
 
more
 
costly
 
than
 
the
 
production
 
of
 
conventional
 
eggs,
 
and
 
these
 
higher
production costs contribute
 
to the prices
 
of cage-free eggs,
 
which historically have
 
typically been higher
 
than conventional egg
prices. Many consumers prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence
our customers’ future needs for
 
cage-free and conventional eggs.
 
Due to these uncertainties,
 
we may over-estimate future demand
for cage-free
 
eggs, which
 
could increase
 
our costs
 
unnecessarily,
 
or we
 
may under-estimate
 
future demand
 
for cage-free
 
eggs,
which could
 
harm us
 
competitively.
 
If our
 
competitors obtain
 
non-cancelable
 
long-term contracts
 
to provide
 
cage-free eggs
 
to
our existing or potential customers,
 
then there may be decreased demand
 
for our cage-free eggs due
 
to these lost potential sales.
If we and our
 
competitors increase cage-free egg production
 
and there is no
 
commensurate increase in demand for
 
cage-free eggs,
this overproduction
 
could lead to
 
an oversupply of
 
cage-free eggs, reducing
 
the sales price
 
for specialty eggs
 
and our return
 
on
capital investments in cage-free production.
Failure
 
to
 
comply
 
with
 
applicable
 
governmental
 
regulations,
 
including
 
environmental
 
regulations,
 
could
 
harm
 
our
operating results,
 
financial condition,
 
and reputation.
 
Further,
 
we may
 
incur significant
 
costs to
 
comply with
 
any such
regulations.
We are subject to federal, state and local
 
regulations relating to grading, quality
 
control, labeling, sanitary control, waste
 
disposal,
and other
 
areas of
 
our business.
 
As a
 
fully-integrated
 
shell egg
 
producer,
 
our shell
 
egg facilities
 
are subject
 
to regulation
 
and
inspection by the USDA, OSHA, EPA
 
and FDA, as well as state and local health and agricultural agencies, among others. All of
 
18
our shell egg production and
 
feed mill facilities are subject
 
to FDA, EPA and OSHA regulation and inspections. In addition, rules
are often proposed
 
that, if adopted as proposed, could increase our costs.
 
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing,
 
among
 
other
 
things,
 
the
 
generation,
 
storage,
 
handling,
 
use,
 
transportation,
 
disposal,
 
and
 
remediation
 
of
 
hazardous
materials. Under these laws and
 
regulations, we are required to obtain permits
 
from governmental authorities, including, but
 
not
limited to wastewater discharge permits and manure
 
and litter land applications.
If we
 
fail to
 
comply with
 
applicable laws
 
or regulations,
 
or fail
 
to obtain
 
necessary permits,
 
we could
 
be subject
 
to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially
 
adversely
 
affected.
 
In
 
addition,
 
because
 
these
 
laws and
 
regulations
 
are
 
becoming
 
increasingly
 
more
 
stringent,
 
it is
possible that we will be required to incur significant costs for compliance
 
with such laws and regulations in the future.
Climate change and legal or regulatory responses
 
may have an adverse impact on our business and results of
 
operations.
 
Extreme
 
weather
 
events,
 
such
 
as derechos,
 
wildfires,
 
drought,
 
tornadoes,
 
hurricanes,
 
storms,
 
floods
 
or
 
other
 
natural
 
disasters
could materially and adversely affect our operating
 
results and financial condition. In fact, derechos, fires, floods,
 
tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures
 
and more
frequent occurrences
 
of extreme
 
weather events,
 
which may
 
be exacerbated
 
by climate
 
change, may
 
cause crop
 
and livestock
areas to
 
become unsuitable,
 
including due
 
to water
 
scarcity or
 
high or
 
unpredictable
 
temperatures,
 
which may
 
result in
 
much
greater stress on food systems and more pronounced food
 
insecurity globally. Lower
 
global crop production, including corn and
soybean meal,
 
which are
 
the primary
 
feed ingredients
 
that support
 
the health of
 
our animals,
 
may result
 
in significantly
 
higher
prices for these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact
our ability
 
to maintain
 
or grow our
 
operations. Climate
 
change may
 
increasingly expose
 
workers and
 
animals to
 
high heat
 
and
humidity stressors that adversely impact poultry production. Increased
 
greenhouse gas emissions may also negatively impact air
quality, soil quality
 
and water quality,
 
which may hamper our ability to support our operations,
 
particularly in higher water- and
soil-stressed regions.
 
Increasing
 
frequency of
 
severe weather
 
events, whether
 
tied to
 
climate change
 
or any
 
other cause,
 
may negatively
 
impact our
ability to raise
 
poultry and
 
produce eggs profitably
 
or to
 
operate our transportation
 
and logistics
 
supply chains. Regulatory
 
controls
and
 
market
 
pricing may
 
continue
 
to drive
 
the costs
 
of fossil
 
-based
 
fuels higher,
 
which
 
could negatively
 
impact
 
our ability
 
to
source commodities
 
necessary to
 
operate our
 
farms or
 
plants and
 
our current
 
fleet of
 
vehicles. These
 
changes may
 
cause us
 
to
change, significantly, our day-to-day
 
business operations and our strategy. Climate change and extreme weather events may also
impact demand for our products
 
given evolution of consumer food preferences.
 
Even if we take
 
measures to position our business
in anticipation
 
of such
 
changes, future
 
compliance
 
with legal
 
or regulatory
 
requirements may
 
require significant
 
management
time, oversight and enterprise expense. We
 
may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied
 
in a manner that
 
is inconsistent with our
 
business practices. We
 
can make no
 
assurances that our efforts
to prepare
 
for these
 
adverse events
 
will be
 
in line
 
with future
 
market and
 
regulatory expectations
 
and our
 
access to
 
capital to
support our business may also be adversely impacted.
Current and future litigation could expose us to significant
 
liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings.
 
Litigation is inherently unpredictable, and although
we
 
believe
 
we
 
have
 
meaningful
 
defenses
 
in
 
these
 
matters,
 
we
 
may
 
incur
 
liabilities
 
due
 
to
 
adverse
 
judgments
 
or
 
enter
 
into
settlements of claims that
 
could have a material
 
adverse effect on our
 
results of operations, cash
 
flow and financial condition.
 
For
a
 
discussion
 
of
 
our
 
ongoing
 
legal
 
proceedings
 
see
 
below
 
and
 
Part
 
II.
 
Item
 
8.
 
Notes
 
to
 
the
Consolidated Financial
 
Statements,
 
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
 
continued
 
higher inflation
 
and rising
 
interest
 
rates,
 
could negatively
impact our business.
Weak
 
or unstable
 
economic conditions,
 
including continued
 
higher inflation
 
and rising
 
interest rates,
 
may adversely
 
affect our
business by:
Limiting our access to capital markets or increasing the cost of capital we may
 
need to grow our business;
 
Changing consumer spending and habits and demand for eggs, particularly
 
higher-priced eggs;
 
19
Restricting the supply of energy sources or increasing our cost to procure
 
energy; or
Reducing the availability of feed
 
ingredients, packaging material, and other raw
 
materials, or increasing the cost
 
of these
items.
Deterioration of economic conditions could also negatively
 
impact:
The financial condition of our suppliers, which may make it more
 
difficult for them to supply raw materials;
The financial condition of our customers, which may decrease demand for
 
eggs or increase our bad debt expense; or
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an
 
insured peril.
According
 
to
 
the
 
U.S.
 
Bureau
 
of
 
Labor
 
Statistics,
 
from
 
May
 
2021
 
to
 
May
 
2022,
 
the
 
Consumer
 
Price Index for
 
All
 
Urban
Consumers (“CPI-U”) increased
 
8.5 percent, the largest
 
12-month increase since
 
the period ending December
 
1981. The CPI-U
increased 4.1% from May 2022 to May 2023. Inflationary costs have increased our input costs, and if
 
we are unable to pass these
costs through to the customer it could have an adverse effect on
 
our business.
We
 
hold
 
significant
 
cash balances
 
in deposit
 
accounts with
 
deposits in
 
excess of
 
the amounts
 
insured by
 
the Federal
 
Deposit
Insurance Corporation (“FDIC”). In
 
the event of
 
a bank failure
 
at an institution
 
where we maintain
 
deposits in excess
 
of the FDIC-
insured amount, we may lose such excess deposits.
The
 
loss
 
of
 
any
 
registered
 
trademark
 
or
 
other
 
intellectual
 
property
 
could
 
enable
 
other
 
companies
 
to
 
compete
 
more
effectively with us.
We
 
utilize intellectual
 
property in
 
our business. For
 
example, we
 
own the
 
trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We
 
produce and market
Egg-Land’s
 
Best®
 
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
existence of events or circumstances
 
leads to a determination that
 
it is more likely than not
 
that the fair value of
 
a reporting unit
is less
 
than its
 
carrying
 
amount. As of
 
June 3,
 
2023, we
 
had $44.0 million
 
of goodwill. While
 
we believe
 
the current
 
carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period and our net worth.
Events beyond our control such as extreme
 
weather and natural disasters could negatively impact our business.
 
Fire,
 
bioterrorism,
 
pandemics,
 
extreme
 
weather
 
or natural
 
disasters, including
 
droughts,
 
floods,
 
excessive
 
cold
 
or
 
heat, water
rights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability
of feed ingredients, or interfere
 
with our operations due to
 
power outages, fuel shortages, discharges from
 
overtopped or breached
wastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation
channels, among other things. Any of these factors could have a material adverse
 
effect on our financial results.
ITEM 1B.
 
UNRESOLVED
 
STAFF COMMENTS
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
ITEM 2.
 
PROPERTIES
The table below provides summary information about
 
the primary operational facilities we use
 
in our business as of June
 
3, 2023.
Type
Quantity
 
(a)
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
House up to 255,000 hens
GA, MS
Distribution Centers
6
6
NA
FL, GA, NC, TX
Feed Mills
25
24
1
Production capacity of 859 tons
of feed per hour
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
FL, MS
Processing and
Packaging
43
43
Approximately 587,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
29
29
Grow 27.1 million pullets
annually
AR, FL, GA, KS, KY,
 
MS, SC,
TX, UT
Shell Egg Production
42
42
House up to 46.6 million layers
AL, AR, FL, GA, KS, KY,
 
LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
3
3
Production capacity of 43,140
lbs. per hour
GA, TX, MO
(a)
Does not include idled facilities.
We
 
also
 
have
 
ongoing
 
construction
 
projects
 
to
 
further
 
expand
 
the
 
Company’s
 
cage-free
 
egg
 
production
 
capabilities.
 
These
projects
 
include
 
expanding
 
our cage-free
 
egg production
 
at existing
 
farms or
 
converting
 
conventional
 
housing
 
with cage-free
production.
 
These
 
projects
 
will
 
phase
 
into
 
production
 
through
 
fiscal
 
2027.
 
For
 
additional
 
information,
 
see
As
 
of
 
June
 
3,
 
2023,
 
we
 
owned
 
approximately
 
28.0
 
thousand
 
acres
 
of
 
land.
 
There
 
are
 
no
 
material
 
mortgages
 
or
 
liens
 
on
 
our
properties.
 
ITEM 3.
 
LEGAL PROCEEDINGS
Refer to the description of certain legal proceedings pending against us under Part II. Item
 
8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
 
ITEM 4.
 
MINE SAFETY DISCLOSURES
Not applicable.
 
PART
 
II.
ITEM
 
5.
 
MARKET
 
FOR
 
REGISTRANT’S
 
COMMON
 
EQUITY,
 
RELATED
 
STOCKHOLDER
 
MATTERS
 
AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of
 
capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no public
 
trading market for the Class A Common Stock.
 
All outstanding
 
Class A
 
shares are
 
owned by
 
a limited
 
liability company
 
of which
 
Adolphus Baker,
 
our Chairman,
 
is the
 
sole
managing member and will be
 
voted at the direction of
 
Mr. Baker. At July 14, 2023, there were approximately 319 record
 
holders
of our Common Stock
 
and approximately 73,626
 
beneficial owners whose shares
 
were held by nominees
 
or broker dealers. For
additional information
 
about our
 
capital structure,
 
see
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
calm-20230603_10Kp21i0
21
(1/3) of
 
such quarterly
 
income. Dividends
 
are paid
 
to shareholders
 
of record
 
as of
 
the 60th
 
day following
 
the last
 
day of
 
such
quarter, except for
 
the fourth fiscal quarter.
 
For the fourth quarter,
 
the Company will pay dividends
 
to shareholders of record on
the 65th day after the
 
quarter end. Dividends are payable
 
on the 15th day following
 
the record date. Following a
 
quarter for which
the
 
Company
 
does
 
not
 
report
 
net
 
income
 
attributable
 
to
 
Cal-Maine
 
Foods,
 
Inc.,
 
the
 
Company
 
will
 
not
 
pay
 
a
 
dividend
 
for
 
a
subsequent profitable quarter until the Company is profitable on a
 
cumulative basis computed from the date of the
 
last quarter for
which
 
a
 
dividend
 
was
 
paid. Under
 
the
 
Company's
 
Credit
 
Facility,
 
dividends
 
are
 
restricted
 
to
 
the
 
amount
 
permitted
 
under
 
the
Company’s
 
current dividend policy,
 
and may not
 
be paid if
 
a default exists
 
or will arise
 
after giving effect
 
to the dividend
 
or if
the sum of
 
cash and cash
 
equivalents of
 
the Company and
 
its subsidiaries plus
 
availability under
 
the Credit Facility
 
equals less
than $50 million.
 
Stock Performance Graph
 
The
 
Company
 
utilized
 
the
 
(i)
 
Russell
 
2000
 
Total
 
Return,
 
and
 
(ii)
 
S&P
 
Composite
 
1500
 
Food
 
Products
 
Industry
 
Index
 
to
benchmark the
 
Company’s
 
total shareholder
 
return. The
 
Company is a
 
member of
 
each of these
 
indexes and
 
believes the other
companies
 
included
 
in
 
these
 
indexes
 
provide
 
products
 
and
 
services
 
similar
 
to
 
Cal-Maine
 
Foods.
 
The
 
graph
 
presents
 
total
shareholder return and assumes $100 was invested on June 1, 2018
 
in the stock or index and dividends were reinvested.
 
June 1, 2018
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
June 3, 2023
Cal-Maine Foods, Inc.
$
100.00
$
80.69
$
97.12
$
76.16
$
105.31
$
114.38
Russell 2000 Total Return
100.00
90.16
87.06
143.27
120.53
118.75
S&P Composite 1500 Food
Products Industry Index
100.00
105.74
116.41
144.80
155.14
163.85
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
Issuer Purchases of Equity Securities
The following table is a summary of our fourth quarter 2023 share repurchases:
Issuer Purchases of Equity Securities
Total
 
Number of
Maximum Number
Shares Purchased
of Shares that
Total
 
Number
Average
as Part of Publicly
May Yet
 
Be
of Shares
Price Paid
Announced Plans
Purchased Under the
Period
Purchased (1)
per Share
Or Programs
Plans or Programs
2/26/23 to 3/25/23
$
3/26/23 to 4/22/23
10,551
48.62
4/23/23 to 6/03/23
10,551
$
48.62
(1)
As permitted under
 
our Amended and
 
Restated 2012
 
Omnibus Long-Term
 
Incentive Plan,
 
these shares were
 
withheld
by us to satisfy tax withholding
 
obligations for employees in connection with the vesting of restricted common stock.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933
 
occurred during our fiscal year ended June 3, 2023.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
 
securities to be
 
issued upon exercise
 
of outstanding
 
options, warrants
 
and rights
Weighted average
 
exercise price of
 
outstanding
 
options, warrants
 
and rights
Number of securities
 
remaining available for future
 
issuance under equity
 
compensation plans (excluding
 
securities reflected in column
 
(a))
Equity compensation plans
approved by shareholders
$
294,140
Equity compensation plans not
approved by shareholders
Total
$
294,140
(a)
 
There were
 
no outstanding options,
 
warrants or
 
rights as of
 
June 3, 2023.
 
There were 941,593
 
shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term
 
Incentive Plan as of June 3, 2023.
(b)
 
There were no outstanding options, warrants or rights as of June 3, 202
 
3.
(c)
 
Reflects shares
 
available for
 
future issuance
 
as of
 
June 3,
 
2023 under
 
our Amended
 
and Restated
 
2012 Omnibus
Long-Term Incentive
 
Plan.
 
For
 
additional
 
information,
 
see
 
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
 
fiscal
 
year
 
2023
 
and
 
2022
 
included
 
53
 
weeks
 
and
 
52
 
weeks,
respectively.
 
The Company,
 
which
 
is headquartered
 
in Ridgeland,
 
Mississippi, is
 
the largest
 
producer and
 
distributor
 
of fresh
shell eggs in the United States
 
(“U.S”). In fiscal 2023, we sold approximately 1,147.4 million dozen shell
 
eggs, which we believe
represented
 
approximately
 
21% of
 
domestic shell
 
egg consumptio
 
n. Our
 
total flock
 
as of
 
June 3,
 
2023
 
of approximately
 
41.2
million layers and 10.8 million pullets and breeders is the largest in the
 
U.S. We sell most of
 
our shell eggs to a diverse group of
customers, including
 
national and
 
regional grocery
 
store chains,
 
club stores,
 
companies servicing
 
independent supermarkets
 
in
the U.S., food
 
service distributors, and
 
egg product consumers
 
in states across
 
the southwestern, southeastern,
 
mid-western and
mid-Atlantic regions of the U.S.
The Company has one reportable
 
operating segment, which is the production,
 
grading, packaging, marketing and distribution
 
of
shell eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs.
Specialty
 
eggs
 
represent
 
a
 
broad
 
range
 
of
 
products. We
 
classify
 
cage-free,
 
organic,
 
brown,
 
free-range,
 
pasture-raised
 
and
nutritionally enhanced
 
as specialty eggs for
 
accounting and reporting
 
purposes. We
 
classify all other
 
shell eggs as conventional
eggs.
 
While
 
we
 
report
 
separate
 
sales
 
information
 
for
 
these
 
types
 
of
 
eggs,
 
there
 
are
 
a
 
number
 
of
 
cost
 
factors
 
which
 
are
 
not
specifically
 
available
 
for
 
conventional
 
or
 
specialty
 
eggs due
 
to
 
the
 
nature
 
of egg
 
production.
 
We
 
manage
 
our
 
operations
 
and
allocate resources to these
 
types of eggs on a consolidated
 
basis based on the demands
 
of our customers. For further
 
description
of our business, refer to
HPAI
Since the first detection in
 
a U.S. commercial flock in
 
February 2022, outbreaks of highly
 
pathogenic avian influenza
 
(“HPAI”)
continued
 
to occur
 
in U.S.
 
poultry flocks
 
throughout calendar
 
year 2022
 
and, less
 
frequently,
 
in calendar
 
year 2023,
 
which is
more than twice the length of time
 
of the last HPAI outbreak in 2014-2015. HPAI affected more than 58 million birds in 47 states
and
 
resulted
 
in
 
the
 
depopulation
 
of
 
43.3
 
million
 
commercial
 
layer
 
hens
 
and
 
1.0
 
million
 
pullets
 
leading
 
to
 
higher
 
prices
 
for
conventional
 
shell eggs
 
beginning in
 
the fourth
 
quarter of
 
fiscal 2022
 
and continuing
 
through the
 
third quarter
 
of fiscal
 
2023.
Though the virus is still present, due to seasonal migratory patterns of wild birds (which serve as carriers for the disease) the rate
of outbreaks has substantially
 
decreased and the last
 
occurrence in a commercial
 
egg laying flock was in
 
December 2022.
 
The
USDA
 
attributes
 
this,
 
in
 
large
 
part,
 
to
 
improved
 
biosecurity
 
measures
 
by
 
the
 
commercial
 
poultry
 
industry.
 
The
 
industry
 
and
USDA have devoted
 
significant resources to
 
attempt to prevent
 
future outbreaks. With
 
the spring wild
 
bird migration complete
in the U.S., focus is on the fall migration season.
We
 
believe the
 
HPAI
 
outbreak will
 
continue to
 
impact the overall
 
supply of
 
eggs until the
 
layer hen
 
flock is
 
fully replenished.
The egg industry typically experiences lower sales during the
 
summer. The layer hen flock five-year average from 2020-2022 for
the month of June is 321.5 million hens. According to the USDA the U.S.
 
flock consisted of 317.4 million layers producing table
or
 
market
 
type
 
eggs as
 
of
 
July
 
1,
 
2023,
 
which
 
is 0.9%
 
below
 
the
 
five-year
 
average
 
and
 
reflects
 
efforts
 
by
 
U.S.
 
producers
 
to
repopulate their flocks. As the layer flock began to recover in the fourth quarter of fiscal 2023, prices for conventional shell eggs
decreased
 
from
 
previous
 
highs.
 
There
 
have
 
been
 
no
 
positive
 
tests
 
for
 
HPAI
 
at
 
any
 
Cal-Maine
 
Foods’
 
owned
 
or
 
contracted
production facility as of July
 
25, 2023. While no farm
 
is immune from HPAI,
 
we believe we have implemented
 
and continue to
maintain robust biosecurity programs across our locations. We
 
are also working closely with federal, state and local government
officials
 
and focused
 
industry groups
 
to mitigate
 
the risk
 
of this
 
and future
 
outbreaks and
 
effectively
 
manage our
 
response, if
needed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
Executive Overview of Results – Fiscal Years
 
Ended June 3, 2023, May 28, 2022 and May 29, 2021
Fiscal Years
 
Ended
June 3, 2023
May 28, 2022
May 29, 2021
Net sales (in thousands)
$
3,146,217
$
1,777,159
$
1,348,987
Gross profit (in thousands)
$
1,196,457
$
337,059
$
160,661
Net income attributable to Cal-Maine Foods, Inc.
$
758,024
$
132,650
$
2,060
Net income per share attributable to Cal-Maine Foods, Inc.
Basic
$
15.58
$
2.73
$
0.04
Diluted
$
15.52
$
2.72
$
0.04
Net average shell egg price
(a)
$
2.622
$
1.579
$
1.217
Average UB Southeast
 
Region - Shell Eggs - White Large
 
$
3.115
$
1.712
$
1.155
Feed costs per dozen produced
$
0.676
$
0.571
$
0.446
(a) The net average
 
shell egg selling price
 
is the blended price
 
for all sizes and
 
grades of shell eggs,
 
including non-graded
shell egg sales, breaking stock and undergrades.
For fiscal
 
2022, net
 
sales increased
 
to $1.8
 
billion, gross
 
profit to
 
$337.1 million
 
and net income
 
to $132.7
 
million from
 
fiscal
2021 net sales of
 
$1.3 billion, gross profit
 
of $160.7 million and
 
net income of $2.1
 
million. The increases resulted primarily
 
from
higher selling prices for
 
conventional eggs as well as an
 
increased volume of specialty
 
eggs sold, partially offset
 
by a decline in
the
 
volume
 
of
 
conventional
 
eggs
 
sold.
 
Gross
 
profit
 
and
 
net
 
income
 
increases
 
were
 
partially
 
offset
 
by
 
increased
 
cost
 
of
 
feed
ingredients and increased processing
 
costs. Consumer demand maintained
 
a steady growth throughout our
 
first three quarters of
fiscal
 
2021
 
but
 
began
 
trending
 
down
 
during
 
our
 
fourth
 
quarter
 
of
 
fiscal
 
2021
 
as
 
consumers
 
started
 
to
 
resume
 
pre-pandemic
activities.
 
We
 
believe
 
the
 
decreased
 
demand
 
in
 
foodservice
 
seen
 
throughout
 
the
 
first
 
three
 
quarters
 
of
 
fiscal
 
2021
 
due
 
to
 
the
pandemic contributed to the depressed price of shell
 
eggs for fiscal 2021 in the retail market due to the extra
 
supply entering the
retail channel from the foodservice channel.
 
For
 
fiscal
 
2022,
 
we
 
believe
 
prices
 
for
 
conventional
 
eggs
 
were
 
positively
 
impacted
 
by
 
a
 
better
 
alignment
 
of
 
the
 
size
 
of
 
the
conventional
 
production
 
layer
 
hen
 
flock
 
and
 
customer
 
and
 
consumer
 
demand
 
through
 
the
 
first
 
three
 
fiscal
 
quarters
 
of
 
2022.
Conventional egg
 
prices further
 
increased in
 
the fourth
 
quarter of
 
fiscal 2022
 
primarily due
 
to decreased
 
supply caused
 
by the
HPAI
 
outbreak
 
compounded
 
with
 
good
 
customer
 
demand.
 
Throughout
 
fiscal
 
2022
 
the
 
hen
 
numbers
 
reported
 
by
 
the
 
USDA
remained below the five-year average.
 
For fiscal
 
2023, net
 
sales increased
 
to $3.1
 
billion, gross
 
profit to
 
$1.2 billion
 
and net
 
income to
 
$758.0 million.
 
The increases
primarily resulted
 
from significantly
 
higher average
 
egg selling
 
prices, primarily
 
due to
 
the reduction
 
in egg
 
supply caused
 
by
HPAI
 
and
 
higher
 
grain
 
and
 
other
 
input
 
costs,
 
as
 
some
 
of
 
our
 
egg
 
sales
 
prices
 
are
 
based
 
on
 
formulas
 
related
 
to
 
our
 
costs
 
of
production. Gross
 
profit and
 
net income
 
increases were
 
partially offset
 
by the
 
increased cost
 
of feed
 
ingredients and
 
increased
processing, packaging
 
and warehouse costs.
 
The impact of
 
HPAI
 
continued throughout
 
the first three
 
quarters of fiscal
 
2023 as
prices continued to increase. For the
 
first three quarters of fiscal
 
2023, the average UB southeastern large index
 
price was 138.8%
higher
 
than
 
the
 
average
 
price
 
of
 
the
 
first
 
three
 
quarters
 
in
 
fiscal
 
2022.
 
For
 
the
 
fourth
 
quarter
 
of
 
fiscal
 
2023
 
the
 
average
 
UB
southeastern large index price decreased 13.8% to $2.163
 
from the same period in the
 
prior year as the egg supply
 
improved from
the effects
 
of HPAI.
 
Conventional egg
 
selling prices
 
declined significantly
 
during the
 
latter part
 
of the
 
fourth quarter
 
of fiscal
2023.
Our dozens sold
 
increased by 5.9%
 
for fiscal 2023
 
compared to fiscal
 
2022, primarily due
 
to an increase
 
in specialty egg
 
sales.
According to
 
Information Resources,
 
Inc. (“IRI”),
 
for the
 
52 weeks
 
ended June
 
4, 2023,
 
which approximately
 
aligns with
 
our
fiscal year 2023, conventional egg dozens sold in the U.S. at multi-retail outlets decreased 9.3%, while specialty egg dozens sold
increased 9.9%
 
versus the
 
prior-year comparable
 
period. Our
 
conventional eggs
 
dozens sold
 
increased 0.2%
 
and specialty
 
egg
dozens sold increased 18.6% as compared to fiscal 2022, with most of the increase
 
due to an increase in cage-free eggs sold.
Our feed costs
 
per dozen produced
 
increased to $0.676
 
in fiscal 2023,
 
compared to $0.571
 
in fiscal 2022.
 
For fiscal year
 
2023,
the average Chicago
 
Board of Trade
 
(“CBOT”) daily market
 
price was $6.57
 
per bushel for
 
corn and $450
 
per ton for
 
soybean
meal,
 
representing
 
increases
 
of
 
4.1%
 
and
 
14.7%,
 
respectively,
 
compared
 
to
 
the
 
daily
 
average
 
CBOT
 
prices
 
for
 
fiscal
 
2022.
Supplies
 
of corn and soybean meal remained tight
 
relative to demand in throughout fiscal 2023,
 
as evidenced by a low stock-to-
use ratio
 
for corn,
 
as a
 
result of
 
weather-related
 
shortfalls in
 
production
 
and yields,
 
ongoing supply
 
chain disruptions
 
and
 
the
Russia-Ukraine War
 
and its
 
impact on
 
the export
 
markets. Basis
 
levels for
 
corn and
 
soybean meal,
 
which impact
 
our costs for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
these feed ingredients, ran significantly higher in fiscal 2023 in our areas of operation compared to our prior year fiscal year as a
result of higher transportation and storage costs, adding to our expense.
RESULTS
 
OF OPERATIONS
The following table sets forth, for the
 
fiscal years indicated, certain items from our Consolidated
 
Statements of Income expressed
as a percentage of net sales.
Fiscal Year
 
Ended
June 3, 2023
May 28, 2022
Net sales
100.0
%
100.0
%
Cost of sales
62.0
%
81.0
%
Gross profit
38.0
%
19.0
%
Selling, general and administrative
7.4
%
11.2
%
Gain on insurance recoveries
(0.1)
%
(0.3)
%
(Gain) loss on disposal of fixed assets
%
%
Operating income
30.7
%
8.1
%
Total other income
1.0
%
1.3
%
Income before income taxes
31.7
%
9.4
%
Income tax expense
7.7
%
1.9
%
Net income
24.0
%
7.5
%
Less:
 
Net loss attributable to noncontrolling interest
%
%
Net income attributable to Cal-Maine Foods, Inc.
24.0
%
7.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Fiscal Year
 
Ended June 3, 2023 Compared to Fiscal Year
 
Ended May 28, 2022
NET SALES
Total net sales for fiscal
 
2023
 
were $3.1 billion compared to $1.8 billion for fiscal 2022.
Net shell egg sales represented 96.1% and 96.6% of total net
 
sales for the fiscal year 2023
 
and 2022, respectively. Shell egg sales
classified as “Other” represent sales of miscellaneous byproducts and resale products included with our shell
 
egg operations. The
table below presents an analysis of our conventional and specialty shell egg
 
sales (in thousands, except percentage data):
June 03, 2023
May 28, 2022
Total net sales
$
3,146,217
$
1,777,159
Conventional
$
2,051,961
67.9
%
$
1,061,995
61.8
%
Specialty
956,993
31.6
%
648,838
37.8
%
Egg sales, net
3,008,954
99.5
%
1,710,833
99.6
%
Other
14,993
0.5
%
6,322
0.4
%
Net shell egg sales
$
3,023,947
100.0
%
$
1,717,155
100.0
%
Dozens sold:
Conventional
749,076
65.3
%
747,914
69.0
%
Specialty
398,297
34.7
%
335,875
31.0
%
Total dozens sold
1,147,373
100.0
%
1,083,789
100.0
%
Net average selling price per dozen:
Conventional
$
2.739
$
1.420
Specialty
$
2.403
$
1.932
All shell eggs
$
2.622
$
1.579
Egg products sales:
 
Egg products net sales
$
122,270
$
60,004
Pounds sold
70,035
63,968
Net average selling price per pound
$
1.746
$
0.938
Shell egg net sales
-
For
 
fiscal
 
2023,
 
shell
 
egg
 
net
 
sales
 
increased
 
$1.3
 
billion,
 
primarily
 
due
 
to
 
higher
 
net
 
average
 
selling
 
prices
 
for
conventional eggs, and to a lesser extent specialty eggs.
-
For fiscal 202
 
3, conventional
 
egg sales increased
 
$990.0 million,
 
or 93.2%, compared
 
to fiscal 2022,
 
primarily due
 
to
the increase in
 
conventional egg
 
prices. Changes
 
in price resulted
 
in a $988.0
 
million increase and
 
changes
 
in volume
resulted in a $1.7 million increase in net sales.
-
Conventional egg prices increased in the first three quarters
 
of fiscal 2023 primarily due to decreased supply
 
caused by
the HPAI outbreak, discussed above. Conventional egg prices decreased
 
substantially in the fourth
 
quarter of fiscal 2023
compared to average
 
fiscal 2023 levels, due
 
to an increased supply
 
of conventional eggs
 
caused by the repopulating
 
of
layer
 
flocks
 
in
 
response
 
to
 
the
 
impact
 
of
 
HPAI
 
and
 
typical
 
seasonal
 
decreases
 
in
 
demand.
 
Conventional
 
egg
 
prices
exceeded
 
specialty
 
egg
 
prices
 
during
 
fiscal
 
2022
 
and
 
for
 
the
 
first
 
three
 
quarters
 
of
 
fiscal
 
2023,
 
which
 
is
 
atypical
historically. Conventional
 
egg prices generally respond more quickly to market conditions because we sell the majority
of
 
our
 
conventional
 
shell
 
eggs
 
based
 
on
 
formulas
 
that
 
adjust
 
periodically
 
and
 
take
 
into
 
account,
 
in
 
varying
 
ways,
independently quoted regional wholesale market prices for shell
 
eggs or formulas related to our
 
costs of production. The
majority of our specialty eggs are typically sold at prices and terms negotiated
 
directly with customers and therefore do
not fluctuate as much as conventional pricing.
-
Specialty egg sales
 
increased $308.2 million, or
 
47.5%, for fiscal
 
2023
 
compared to fiscal
 
2022, primarily due
 
to a 24.4%
increase in specialty egg
 
prices and a 18.6% increase
 
in the volume of
 
specialty dozens sold. Changes
 
in price resulted
in a $187.6
 
million increase and
 
change in volume
 
resulted in a
 
$120.6 million increase
 
in net sales,
 
respectively.
 
Our
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
specialty egg sales also benefitted from our additional
 
cage-free production capacity.
 
Cage-free revenue for fiscal 2023
was 20.2% of total revenue, compared to 22.3% for fiscal 2022.
-
Net average selling
 
prices of specialty eggs
 
increased by agreements with
 
our customers in response
 
to rising feed and
other input costs as well as lower supply availability due to HPAI.
-
Demand for specialty
 
eggs increased during
 
the first three
 
quarters of fiscal
 
2023 as conventional
 
egg prices rose.
 
Our
sales volume benefited versus the prior-year period, through use of
 
our higher cage-free production capacity.
Egg products net sales
-
Egg products net sales increased $62.3 million or 103.8%, primarily due to an 86.1% selling price increase compared to
fiscal 2022, which had a $56.6 million positive impact on net sales.
-
Our egg products net average selling
 
price increased in fiscal 2023, compared
 
to fiscal 2022 as the supply of shell
 
eggs
used to produce egg products decreased due to the HPAI
 
outbreak that started in February 2022.
COST OF SALES
Cost of sales for fiscal 2023
 
were $1.9 billion compared to $1.4 billion for fiscal 2022.
Cost of
 
sales consists
 
of
 
costs directly
 
related
 
to producing,
 
processing
 
and
 
packing
 
shell eggs,
 
purchases
 
of
 
shell
 
eggs from
outside sources,
 
processing and
 
packing of
 
liquid and
 
frozen egg
 
products and
 
other non-egg
 
costs. Farm production
 
costs are
those
 
costs incurred
 
at the
 
egg production
 
facility,
 
including feed,
 
facility,
 
hen amortization
 
and other
 
related farm
 
production
costs.
The following table presents the key variables affecting our cost of
 
sales (in thousands,
 
except cost per dozen data):
Fiscal Year
 
Ended
June 03, 2023
May 28, 2022
% Change
Cost of Sales:
Farm production
$
1,118,741
$
927,806
20.6
%
Processing, packaging, and warehouse
342,836
289,056
18.6
Egg purchases and other (including change in inventory)
379,777
172,034
120.8
Total shell eggs
1,841,354
1,388,896
32.6
Egg products
108,406
51,204
111.7
Total
$
1,949,760
$
1,440,100
35.4
%
Farm production costs (per dozen produced)
Feed
$
0.676
$
0.571
18.4
%
Other
$
0.396
$
0.352
12.5
%
Total
$
1.072
$
0.923
16.1
%
Outside egg purchases (average cost per dozen)
$
3.02
$
1.72
75.6
%
Dozens produced
1,058,540
1,022,327
3.5
%
Percent produced to sold
92.3%
94.3%
(2.1)
%
Farm Production
-
Feed costs
 
per dozen
 
produced increased
 
18.4% in
 
fiscal 2023
 
compared to
 
fiscal 2022,
 
primarily due
 
to higher
 
feed
ingredient prices. Basis levels for corn and soybean meal
 
ran significantly higher in our areas of operation
 
compared to
our prior fiscal year due to higher transportation and storage costs, adding
 
to our expense.
-
For fiscal 2023, the average daily CBOT market price was $6.57 per bushel for corn and $450 per ton of soybean meal,
representing increases of 4.1% and 14.7%, respectively,
 
as compared to the average daily CBOT prices for fiscal 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
-
Other farm production
 
costs increased due
 
to higher
 
facility and
 
flock amortization.
 
Facility costs
 
increased due primarily
to increased labor costs. Labor costs increased 29.6%
 
due to increased use of contract labor and increased wages
 
raised
in response to labor shortages.
-
Flock amortization increased
 
primarily from higher
 
capitalized feed costs
 
as well as higher
 
amortization costs from
 
an
increase in our cage-free production.
Supplies of corn and soybean remained tight relative to demand throughout fiscal 2023, as evidenced by a low stock-to-use
 
ratio
for
 
corn,
 
as
 
a
 
result
 
of
 
weather-related
 
shortfalls
 
in
 
production
 
and
 
yields,
 
ongoing
 
supply
 
chain
 
disruptions
 
and
 
the
 
Russia-
Ukraine
 
War
 
and
 
its
 
impact
 
on
 
the
 
export
 
markets.
 
For
 
fiscal
 
2024,
 
we
 
expect
 
continued
 
corn
 
and
 
soybean
 
upward
 
pricing
pressures and further market volatility to affect feed costs.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 18.6% compared to
 
fiscal 2022
 
as costs increased due to rising
 
inflation and labor
costs.
-
Labor costs increased 13.6% due to wage increases instituted in response
 
to labor shortages and rising inflation.
-
Dozens processed increased 3.6% compared to fiscal 2022, which
 
resulted in an $11.2 million increase in costs.
Egg purchases and other (including change in inventory)
-
Costs in this category increased
 
120.8% compared to fiscal 2022
 
primarily due to the
 
increase in egg prices. The
 
average
price
 
of outside
 
egg
 
purchases
 
increased
 
75.6%
 
per
 
dozen compared
 
to
 
fiscal
 
2022.
 
Additionally,
 
our
 
percentage
 
of
produced to
 
sold decreased
 
to 92.3%
 
in fiscal
 
2023 from
 
94.3% in
 
fiscal 2022
 
as we
 
increased our
 
volume of
 
outside
egg purchases in order to meet customer demand.
GROSS PROFIT
Gross profit,
 
as a percentage
 
of net sales,
 
was 38.0%
 
for fiscal 2023
 
,
 
compared to 19.0%
 
for fiscal 2022.
 
The increase resulted
primarily from higher selling prices for conventional eggs as well as the increased volume
 
of specialty eggs sold, partially offset
by the increased cost of feed ingredients and processing, packaging
 
and warehouse costs.
SELLING, GENERAL, AND ADMINISTRATIVE
 
EXPENSES
Selling,
 
general,
 
and
 
administrative
 
(“SGA”)
 
expenses
 
include
 
costs
 
of
 
marketing,
 
distribution,
 
accounting,
 
and
 
corporate
overhead. SG&A expenses increased
 
$33.6 million to $232.2
 
million in fiscal 2023.
 
The following table presents
 
an analysis of
our SGA expenses (in thousands):
Fiscal Year
 
Ended
June 03, 2023
May 28, 2022
$ Change
% Change
Specialty egg expense
$
57,758
$
59,830
$
(2,072)
(3.5)
%
Delivery expense
77,548
62,677
14,871
23.7
%
Payroll, taxes and benefits
57,830
43,954
13,876
31.6
%
Stock compensation expense
4,205
4,063
142
3.5
%
Other expenses
34,866
28,107
6,759
24.0
%
Total
$
232,207
$
198,631
$
33,576
16.9
%
Specialty egg expense
-
Specialty egg
 
expense, which
 
includes franchise
 
fees, advertising
 
and promotion
 
costs generally
 
tracks with
 
specialty
egg
 
volumes,
 
which
 
were
 
up
 
18.6%
 
for
 
fiscal
 
2023
 
compared
 
to
 
fiscal
 
2022.
 
However,
 
our
 
specialty
 
egg
 
expense
decreased 3.5%,
 
primarily due
 
to a
 
significant reduction
 
in advertising
 
costs. The
 
higher prices
 
for conventional
 
eggs
and
 
the
 
comparatively
 
lower prices
 
for
 
specialty eggs
 
diminished
 
the need
 
to promote
 
specialty eggs
 
in fiscal
 
2023.
However, we anticipate that the need to promote specialty eggs will increase
 
in fiscal 2024 as the market recovers from
the effects of HPAI.
 
 
 
29
Delivery expense
-
The increased
 
delivery expense
 
is primarily
 
due to
 
the increase
 
in fuel
 
and labor
 
costs for
 
both our
 
fleet and
 
contract
trucking. Compared to fiscal
 
2022, contract trucking and
 
labor expenses increased
 
approximately $10.2 million for
 
fiscal
2023.
Payroll, taxes and benefits expense
-
The
 
increase
 
in
 
payroll,
 
taxes
 
and
 
benefits
 
expense
 
is
 
primarily
 
due
 
to
 
an
 
increase
 
in
 
the
 
accrual
 
for
 
anticipated
performance-based bonuses.
Other expenses
-
The increase in other
 
expenses is due to
 
increased legal expenses of
 
approximately $3.6 million
 
as well as inflationary
pressure increasing costs.
OPERATING
 
INCOME (LOSS)
As a result of the above, our operating income was $967.7 million for fiscal 2023
 
,
 
compared to $143.5 million for fiscal 2022.
OTHER INCOME (EXPENSE)
Total
 
other
 
income
 
(expense)
 
consists
 
of
 
items
 
not
 
directly
 
charged
 
to,
 
or
 
related
 
to,
 
operations
 
such
 
as
 
interest
 
income
 
and
expense, equity in income or loss of unconsolidated entities, and patronage dividends,
 
among other items.
 
The Company recorded interest income of $18.6 million in fiscal 2023,
 
compared to $988 thousand in fiscal 2022, primarily due
to significantly
 
higher cash
 
and cash
 
equivalents and
 
investment securities
 
available-for-sale balances
 
and yields.
 
We
 
recorded
interest expense of $583 thousand and $403 thousand
 
in fiscal 2023 and 2022, respectively, primarily related to commitment fees
on our Credit Facility described below.
Equity in income from unconsolidated entities for fiscal 2023 was $746
 
thousand compared to $1.9 million for fiscal 2022.
Other, net
 
for fiscal 2023
 
was income of
 
$1.9 million compared
 
to $9.8 million for
 
fiscal 2022.
 
The majority of
 
the decrease is
due
 
to
 
our
 
acquisition
 
in
 
fiscal
 
2022
 
of
 
the
 
remaining
 
50% membership
 
interest
 
in
 
Red
 
River
 
Valley
 
Egg
 
Farm,
 
LLC
 
(“Red
River”) as we recognized a $4.5 million gain in fiscal 2022 due to the remeasurement of our equity investment.
 
We also received
$1.4 million in fiscal 2022 related
 
to our review and adjustment
 
of our various marketing agreements. Additionally, the Company
recorded a $2 million impairment of an investment in an unconsolidated entity
 
in fiscal 2023.
INCOME TAXES
For
 
the
 
fiscal
 
year
 
ended
 
June
 
3,
 
2023,
 
our
 
pre-tax
 
income
 
was
 
$998.6
 
million,
 
compared
 
to
 
$166.0
 
million
 
for
 
fiscal
 
2022.
Income tax expense of $241.8 million
 
was recorded for fiscal 2023 with an effective
 
tax rate of 24.2%.
 
For fiscal 2022, income
tax expense was $33.6 million with an effective tax rate
 
of 20.2%. Included in fiscal 2022 income tax expense is the discrete tax
benefit of
 
$8.3 million
 
discussed in
 
of Part
 
II. Item
 
8. Notes
 
to 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%.
 
At June 3, 2023, the Company had
 
an income tax receivable of $67.0 million compared to
 
$42.1 million at May 28, 2022. During
fiscal 2022,
 
the Company
 
filed federal
 
carryback tax
 
returns for
 
fiscal 2020
 
and 2021
 
taxable net
 
operating losses
 
to recover
 
a
portion of
 
taxes paid
 
in fiscal 2015
 
and fiscal
 
2016. Subsequent
 
to fiscal
 
2023, we
 
received $31.8
 
million of
 
the $34.9
 
million
fiscal 2021 refund and believe we will receive the remaining amount of the fiscal 2020 and 2021 refunds, totaling
 
$11.7 million,
during our second fiscal quarter of 2024.
 
An additional $23.5 million income tax receivable was recorded as of June 3, 2023 for
fiscal 2023 federal overpayments in excess of federal tax liability.
Items causing
 
our effective
 
tax rate
 
to differ
 
from the
 
federal statutory
 
income tax
 
rate of
 
21% are
 
state income
 
taxes, certain
federal tax
 
credits and
 
certain items included
 
in income or
 
loss for financial
 
reporting purposes that
 
are not included
 
in taxable
income or
 
loss for income
 
tax purposes, including
 
tax exempt interest
 
income, certain
 
nondeductible expenses,
 
and net income
or loss attributable to noncontrolling interest.
 
 
 
 
 
30
NET LOSS ATTRIBUTABLE
 
TO NONCONTROLLING INTEREST
Net loss attributable
 
to noncontrolling
 
interest was $1.3
 
million for fiscal
 
2023
 
compared to a
 
$209 thousand
 
net loss for
 
fiscal
2022.
NET INCOME ATTRIBUTABLE
 
TO CAL-MAINE FOODS, INC.
As a result of the above, net income attributable to Cal-Maine Foods, Inc. for fiscal
 
2023 was $758.0 million, or $15.58 per basic
and $15.52 per diluted share, compared to $132.7 million, or $2.73 per basic
 
and $2.72 per diluted share for fiscal 2022.
Fiscal Year
 
Ended May 28, 2022 Compared to Fiscal Year
 
Ended May 29, 2021
The discussion
 
of our
 
results of
 
operations for
 
the fiscal
 
year ended
 
May 28,
 
2022 compared
 
to the
 
fiscal year
 
ended May
 
29,
2021 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results
 
of Operations in
the Company’s fiscal 2022
 
Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL
 
RESOURCES
Working
 
Capital and Current Ratio
Our working capital at
 
June 3, 2023 was
 
$942.2 million, compared to $476.8 million at
 
May 28, 2022.
 
The calculation of working
capital is defined as current assets less current liabilities. Our current ratio was 6.16 at June 3, 2023 compared to 3.58 at May 28,
2022.
 
The current
 
ratio is
 
calculated
 
by dividing
 
current assets
 
by current
 
liabilities. The
 
increase
 
in our
 
working
 
capital and
current ratio
 
is primarily due
 
to the increase
 
in total current
 
assets, which increased
 
by $463.4 million
 
to $1.1 billion
 
at June 3,
2023,
 
due
 
to significant
 
increases in
 
cash and
 
cash equivalents
 
and
 
investment
 
securities available
 
-for-sale.
 
Due to
 
seasonal
factors described in
, we generally expect
 
our need for working
 
capital to be highest in
 
the
fourth and first fiscal quarters ending in May/June and August/September,
 
respectively.
Cash Flows from Operating Activities
Net cash provided
 
by operating activities
 
was $863.0
 
million for fiscal
 
year 2023
 
compared with $126.2
 
million for fiscal
 
year
2022.
 
The increase in cash flow from operations
 
resulted primarily from higher selling prices for conventional eggs
 
as well as the
increased volume of specialty eggs
 
sold, partially offset by the increased
 
cost of feed ingredients and processing,
 
packaging and
warehouse costs.
 
Cash Flows from Investing Activities
We
 
continue
 
to
 
invest
 
in
 
our
 
facilities,
 
with
 
$136.6
 
million
 
used
 
to
 
purchase
 
property,
 
plant
 
and
 
equipment
 
for
 
fiscal
 
2023,
compared to $72.4
 
million in fiscal 2022.
 
These investments were primarily
 
made to expand our
 
cage-free production capacity.
We
 
have for many years
 
invested substantial amounts
 
to expand our cage-free
 
production capacity and
 
expect to continue to
 
do
so.
 
Purchases
 
of
 
investments
 
were
 
$530.8
 
million
 
in
 
fiscal
 
2023,
 
compared
 
to
 
$98.2
 
million
 
in
 
fiscal
 
2022.
 
The
 
increase
 
in
purchases of
 
investment securities
 
is primarily
 
due to
 
the utilization
 
of increased
 
liquidity resulting
 
from increased
 
cash flows
provided by operating
 
activities noted above.
 
Sales and maturities
 
of investment securities
 
were $291.8
 
million for fiscal
 
2023,
compared to $92.7 million
 
for fiscal 2022. During fiscal
 
2022, we also acquired the
 
remaining 50% membership interest
 
in Red
River for $44.8 million, net of cash acquired.
 
Cash Flows from Financing Activities
We paid dividends
 
totaling $252.3 million and $6.1 million in fiscal 2023
 
and 2022, respectively.
 
As of
 
June 3,
 
2023, cash
 
increased
 
$233.7 million
 
since May
 
28, 2022,
 
compared to
 
an increase
 
of $1.7
 
million during
 
fiscal
2022.
Credit Facility
We had no
 
long-term debt outstanding at the end of fiscal 2023
 
and 2022. On November 15, 2021, we entered
 
into an Amended
and Restated Credit Agreement (as amended the “Credit
 
Agreement”) with a five-year term. The Credit Agreement provides for
a senior
 
secured revolving
 
credit facility
 
(the “Credit
 
Facility”), in
 
an initial
 
aggregate principal
 
amount of
 
up to
 
$250 million.
As of June 3, 2023, no amounts were borrowed under
 
the Credit Facility. We
 
have $4.3
 
million in outstanding standby letters of
credit, which were issued under our Credit Facility for the
 
benefit of certain insurance companies. In May 2023,
 
we entered into
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
an amendment to
 
the Credit Agreement
 
to replace the
 
London Interbank Offered
 
Rate interest rate
 
benchmark. Refer
 
to Part II.
Item 8. Notes to the Financial Statements,
 
for further information regarding our long-term debt.
Material Cash Requirements
Material cash
 
requirements for
 
operating activities
 
primarily consist
 
of feed
 
ingredients, processing,
 
packaging and
 
warehouse
costs, employee related
 
costs, and other
 
general operating expenses,
 
which we expect
 
to be paid
 
from our cash
 
from operations
and cash and
 
investment securities on
 
hand for at
 
least the next
 
12 months. While
 
volatile egg prices
 
and feed ingredient
 
costs,
among
 
other
 
things,
 
make
 
long-term
 
predictions
 
difficult,
 
we
 
have
 
substantial
 
liquid
 
assets
 
and
 
availability
 
under
 
our
 
Credit
Facility to fund future operating requirements.
Our material cash requirements for capital expenditures consist primarily
 
of our projects to increase our cage-free production
capacity. We
 
continue to monitor the increasing demand for cage-free eggs and to engage
 
with our customers in efforts to help
them achieve their announced timelines for cage-free egg sales. The following
 
table presents material construction projects
approved as of June 3, 2023 (in thousands):
Project(s) Type
Projected
 
Completion
Projected Cost
Spent as of
 
June 3, 2023
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses
 
Fiscal 2024
$
54,702
$
18,900
$
35,802
Cage-Free Layer & Pullet Houses
 
Fiscal 2025
40,099
27,152
12,947
Cage-Free Layer & Pullet Houses
 
Fiscal 2026
38,883
19,218
19,665
Cage-Free Layer & Pullet Houses
 
Fiscal 2027
56,923
20,472
36,451
$
190,607
$
85,742
$
104,865
The
 
following
 
table
 
summarizes
 
by
 
fiscal
 
year
 
the
 
future
 
estimated
 
cash
 
payments,
 
in
 
thousands,
 
to
 
be
 
made
 
under
 
existing
contractual obligations
 
as of
 
June 3, 2023.
 
Further information
 
on debt
 
obligations is
 
contained in
 
in
Part II. Item 8. Notes to the Consolidated Financial Statements. As of June 3, 2023,
 
we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Lease obligations
$
1,714
$
796
$
914
$
4
$
Purchase obligations:
Feed ingredients and fuel
(a)
123,321
123,321
Construction contracts and other equipment
105,414
61,108
44,306
Total
$
230,449
$
185,225
$
45,220
$
4
$
(a)
Actual purchase obligations may change based on the contractual terms and
 
agreements
We believe our
 
current cash balances, investments, cash flows from operations, and
 
Credit Facility will be sufficient to fund our
capital needs for at least the next 12 months and to fund our capital commitments
 
currently in place thereafter.
IMPACT OF
 
RECENTLY
 
ISSUED ACCOUNTING STANDARDS
For information on changes in accounting
 
principles and new accounting principles,
 
see “
New Accounting Pronouncements
 
and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates
 
and assumptions
that affect the
 
reported amounts of
 
assets and liabilities
 
at the date
 
of the financial
 
statements and the
 
reported amounts of
 
revenues
and expenses during the reporting period. Actual results could
 
differ from these estimates. Critical accounting estimates are
 
those
estimates made in
 
accordance with GAAP
 
that involve a
 
significant level of estimation
 
uncertainty and have had
 
or are reasonably
likely to have a material impact
 
on the financial condition or results
 
of operations. Our critical accounting estimates are described
below.
32
BUSINESS COMBINATION
 
S
The Company applies the acquisition
 
method of accounting, which
 
requires that once control is obtained,
 
all the assets acquired
and liabilities assumed,
 
including amounts
 
attributable to noncontrolling
 
interests, are recorded
 
at their respective
 
fair values at
the
 
date
 
of acquisition.
 
The
 
excess
 
of
 
the
 
purchase
 
price
 
over
 
fair
 
values
 
of
 
identifiable
 
assets
 
and
 
liabilities
 
is
 
recorded
 
as
goodwill.
We
 
typically
 
use the
 
income method
 
approach for
 
intangible assets
 
acquired
 
in a
 
business combination.
 
Significant
 
judgment
exists in valuing certain
 
intangible assets. and the
 
most significant assumptions requiring
 
judgment involve estimating the
 
amount
and timing of
 
future cash flows,
 
growth rates,
 
discount rates selected
 
to measure
 
the risks inherent
 
in the future
 
cash flows and
the asset’s expected useful lives.
 
The
 
fair
 
values
 
of
 
identifiable
 
assets
 
and
 
liabilities
 
are
 
determined
 
internally
 
and
 
requires
 
estimates
 
and
 
the
 
use
 
of
 
various
valuation techniques. When a
 
market value is not
 
readily available, our internal
 
valuation methodology considers the
 
remaining
estimated life
 
of the
 
assets acquired
 
and significant
 
judgment is
 
required
 
as management
 
determines the
 
fair market
 
value for
those assets.
 
Due
 
to
 
inherent
 
industry
 
uncertainties
 
including
 
volatile
 
egg
 
prices
 
and
 
feed
 
costs,
 
unanticipated
 
market
 
changes,
 
events,
 
or
circumstances may occur that could affect the estimates and assumptions
 
used, which could result in subsequent impairments.
 
INVENTORIES
 
Inventories of eggs, feed,
 
supplies and flocks
 
are valued principally
 
at the lower
 
of cost (first-in,
 
first-out method) or
 
net realizable
value. If
 
market
 
prices
 
for
 
eggs and
 
feed
 
grains
 
move
 
substantially
 
lower,
 
we
 
record
 
adjustments
 
to
 
write
 
down
 
the
 
carrying
values of eggs
 
and feed inventories
 
to fair market
 
value. The cost
 
associated with flock inventories,
 
consisting principally of chick
purchases, feed, labor, contractor payments and
 
overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive
 
life, generally one to two years. Judgment exists in
determining
 
the flock’s
 
productive life
 
including
 
factors such
 
as laying
 
rate and
 
egg size,
 
molt cycles,
 
and customer
 
demand.
Furthermore, other factors such as
 
hen type or weather conditions could affect
 
the productive life. These factors could
 
make our
estimates of productive life differ from actual results. Flock mortality is charged to cost of sales as incurred. High mortality from
disease or extreme temperatures will
 
result in abnormal write-downs to
 
flock inventories. Management continually monitors each
flock and attempts to take appropriate actions to minimize the risk of mortality
 
loss.
GOODWILL
As
 
a
 
result
 
of
 
acquiring
 
businesses,
 
the
 
Company
 
has
 
$44.0
 
million
 
of
 
goodwill
 
on
 
June
 
3,
 
2023.
 
Goodwill
 
is
 
evaluated
 
for
impairment
 
annually
 
by
 
first
 
performing
 
a
 
qualitative
 
assessment
 
to
 
determine
 
whether
 
a
 
quantitative
 
goodwill
 
test
 
is
necessary. After
 
assessing the totality of events or
 
circumstances, if we determine it
 
is more likely than not that the
 
fair value of
a reporting unit is less than its carrying
 
amount, then we perform additional quantitative tests to
 
determine the magnitude of any
impairment.
The
 
Company
 
has
 
determined
 
that
 
all
 
of
 
our
 
locations
 
share
 
similar
 
economic
 
characteristics
 
and
 
support
 
each
 
other
 
in
 
the
production of eggs and customer support. Therefore, we aggregate all our locations as a single reporting unit for testing goodwill
for
 
impairment.
 
When
 
the
 
Company
 
acquires
 
a
 
new
 
location,
 
we
 
determine
 
whether
 
it
 
should
 
be
 
integrated
 
into
 
our
 
single
reporting unit or
 
treated as a
 
separate reporting unit. Historically, we
 
have concluded that
 
acquired operations should be
 
integrated
into our single reporting unit due to the operational changes, redistribution of customers, and significant changes in management
that occur when we acquire businesses, which result in the acquired operations sharing
 
similar economic characteristics with the
rest of our locations. Once goodwill associated with acquired operations becomes part of goodwill of our single reporting unit, it
no longer represents the particular
 
acquired operations that gave rise to the
 
goodwill. We
 
may conclude that a business acquired
in the future should be treated as a separate reporting unit, in which case it would be tested separately
 
for goodwill impairment.
At June 3, 2023, goodwill represented 2.3% of total assets and 2.7% of stockholders’
 
equity.
 
Judgment exists in management’s evaluation
 
of the qualitative factors which include macroeconomic conditions, the current egg
industry environment, cost inputs such as
 
feed ingredients and overall financial performance. Furthermore, judgment
 
exists in the
evaluation
 
of the
 
threshold of
 
whether it
 
is more
 
likely than
 
not that
 
the fair
 
value of
 
a reporting
 
unit is
 
less than
 
its carrying
amount. Uncertainty exists due to uncontrollable events that could occur
 
that could negatively affect our operating conditions.
During the fourth quarter of
 
2023, we elected to change the
 
date of our annual impairment assessment
 
from year-end to
 
the first
day of the fourth quarter.
 
The change was made to
 
more closely align the impairment
 
assessment date with our annual
 
planning
33
and forecasting
 
process. The change
 
in impairment
 
assessment date
 
did not
 
have any
 
impact on
 
goodwill or
 
the impairment
 
of
goodwill.
 
The change
 
has been
 
applied prospectively
 
and will
 
not have
 
an impact
 
on a
 
retrospective basis.
 
During our
 
annual
impairment
 
test
 
in
 
fiscal
 
2023,
 
we
 
determined
 
that
 
goodwill
 
passed
 
the
 
qualitative
 
assessment
 
and
 
therefore
 
no
 
quantitative
analysis of goodwill impairment was necessary.
REVENUE RECOGNITION
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer
 
agreeing upon the order.
 
See
 
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)
0.616
0.626
0.636
0.646
0.656
0.666
0.676
$
(51.00)
0.626
0.636
0.646
0.656
0.666
0.676
0.686
$
(25.50)
0.636
0.646
0.656
0.666
0.676
0.686
0.696
$
0.00
0.646
0.656
0.666
0.676
(a)
0.686
0.696
0.706
$
25.50
0.656
0.666
0.676
0.686
0.696
0.706
0.716
$
51.00
0.666
0.676
0.686
0.696
0.706
0.716
0.726
$
76.50
0.676
0.686
0.696
0.706
0.716
0.726
0.736
(a)
Based on 2023
 
actual costs, table flexes feed cost inputs to show $0.01 impacts to per dozen egg feed production
 
costs.
INTEREST RATE
 
RISK
We
 
have
 
a
 
$250 million
 
Credit
 
Facility,
 
borrowings
 
under
 
which
 
would
 
bear
 
interest
 
at
 
variable
 
rates.
 
No
 
amounts
 
were
outstanding under that facility during fiscal 2023 or fiscal 2022. Under our current policies, we do not use interest rate derivative
instruments to manage our exposure to interest rate changes.
FIXED INCOME SECURITIES RISK
At June 3,
 
2023,
 
the effective maturity
 
of our cash equivalents
 
and investment securities
 
available for sale
 
was 4.8 months, and
the composite credit rating of
 
the holdings are AA- /
 
Aa3 / AA- (S&P
 
/ Moody’s / Fitch). Generally speaking, rising
 
interest rates,
as have
 
been
 
experienced
 
in recent
 
periods,
 
decrease
 
the value
 
of fixed
 
income
 
securities
 
portfolios.
 
As of
 
June 3,
 
2023,
 
the
estimated fair value
 
of our
 
fixed income securities
 
portfolio was approximately
 
$355 million
 
and reflected
 
unrealized losses
 
of
approximately
 
$2.4
 
million.
 
For
 
additional
 
information
 
see
 
under
 
the
heading
 
“Investment
 
Securities”
 
and
 
in
 
Part
 
II.
 
Item
 
8.
 
Notes
 
to
 
the
 
Consolidated
 
Financial
Statements.
CONCENTRATION
 
OF CREDIT RISK
Our financial instruments exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit
risk with
 
respect to
 
receivables are
 
limited due
 
to our
 
large number
 
of customers
 
and their
 
dispersion across
 
geographic areas,
except that
 
at June 3,
 
2023 and
 
May 28,
 
2022, 30.1%
 
and 27.9%,
 
respectively,
 
of our net
 
accounts receivable
 
balance was due
from
 
Walmart
 
Inc.
 
(including
 
Sam’s
 
Club).
 
No
 
other
 
single
 
customer
 
or
 
customer
 
group
 
represented
 
10%
 
or
 
greater
 
of
 
net
accounts receivable at June 3, 2023 and May 28, 2022.
 
 
 
 
35
ITEM 8.
 
FINANCIAL
 
STATEMENTS
 
AND SUPPLEMENTARY
 
DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc. and Subsidiaries as of June 3,
2023 and
 
May 28, 2022,
 
the related consolidated
 
statements of
 
income, comprehensive
 
income, stockholders’
 
equity,
 
and cash
flows for each
 
of the three
 
years in the
 
period ended June
 
3, 2023, and
 
the related consolidated
 
notes and schedule
 
listed in the
Index
 
at
 
Items
 
15(a)(1)
 
and
 
15(a)(2)
 
(collectively
 
referred
 
to
 
as
 
the
 
“consolidated
 
financial
 
statements”).
 
In
 
our
 
opinion,
 
the
consolidated
 
financial
 
statements
 
present
 
fairly,
 
in
 
all
 
material
 
respects,
 
the
 
financial
 
position
 
of
 
Cal-Maine
 
Foods,
 
Inc.
 
and
Subsidiaries as of
 
June 3, 2023
 
and May
 
28, 2022, and
 
the results of
 
their operations
 
and their cash
 
flows for each
 
of the three
years
 
in
 
the
 
period
 
ended
 
June
 
3,
 
2023,
 
in
 
conformity
 
with
 
accounting
 
principles
 
generally
 
accepted
 
in
 
the
 
United
 
States
 
of
America.
We
 
also have
 
audited, in
 
accordance with
 
the standards
 
of the
 
Public Company
 
Accounting Oversight
 
Board (United
States) (“PCAOB”),
 
the Cal-Maine
 
Foods,
 
Inc.
 
and Subsidiaries’
 
internal
 
control over
 
financial
 
reporting
 
as of
 
June 3,
 
2023,
based
 
on
 
the
 
criteria
 
established
 
in
 
2013
 
Internal
 
Control
 
 
Integrated
 
Framework
 
issued
 
by
 
the
 
Committee
 
of
 
Sponsoring
Organizations of the Treadway
 
Commission and our report dated July 25, 2023 expressed an unqualified
 
opinion.
Basis for Opinion
These
 
consolidated
 
financial
 
statements
 
are
 
the
 
responsibility
 
of
 
the
 
entities’
 
management.
 
Our
 
responsibility
 
is
 
to
express an
 
opinion on
 
these consolidated
 
financial statements
 
based on
 
our audits.
 
We
 
are a
 
public accounting
 
firm registered
with the PCAOB and
 
are required to be
 
independent with respect to
 
Cal-Maine Foods, Inc.
 
and Subsidiaries in accordance
 
with
the
 
U.S.
 
federal
 
securities
 
laws and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of the
 
Securities and
 
Exchange
 
Commission
 
and
 
the
PCAOB.
We
 
conducted
 
our audits
 
in accordance
 
with the
 
standards of
 
the PCAOB.
 
Those
 
standards require
 
that we
 
plan and
perform
 
the
 
audit
 
to
 
obtain
 
reasonable
 
assurance
 
about
 
whether
 
the
 
consolidated
 
financial
 
statements
 
are
 
free
 
of
 
material
misstatement,
 
whether
 
due
 
to
 
error
 
or
 
fraud.
 
Our
 
audits
 
included
 
performing
 
procedures
 
to
 
assess
 
the
 
risks
 
of
 
material
misstatement of the
 
consolidated financial statements,
 
whether due to error
 
or fraud, and performing
 
procedures that respond
 
to
those
 
risks.
 
Such
 
procedures
 
included
 
examining,
 
on
 
a
 
test
 
basis,
 
evidence
 
regarding
 
the
 
amounts
 
and
 
disclosures
 
in
 
the
consolidated financial
 
statements. Our
 
audits also
 
included evaluating
 
the accounting
 
principles used
 
and significant
 
estimates
made
 
by management,
 
as well
 
as evaluating
 
the overall
 
presentation
 
of the
 
consolidated financial
 
statements. We
 
believe
 
our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The
 
critical
 
audit
 
matter
 
communicated
 
below
 
is
 
a
 
matter
 
arising
 
from
 
the
 
current
 
period
 
audit
 
of
 
the
 
consolidated
financial
 
statements
 
that
 
were
 
communicated
 
or
 
required
 
to
 
be
 
communicated
 
to
 
the
 
Audit
 
Committee
 
and
 
that:
 
(1)
 
relate
 
to
accounts
 
or disclosures
 
that are
 
material
 
to the
 
consolidated
 
financial
 
statements and
 
(2) involved
 
our especially
 
challenging,
subjective, or
 
complex judgments. The
 
communication of
 
the critical audit
 
matter does
 
not alter in
 
any way
 
our opinion on
 
the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
 
providing
a separate opinion on the critical audit matter or on the accounts or disclosures to
 
which it relates.
Contingent Liabilities – Litigation and Claims – Refer to Note 16 in the Consolidated
 
Financial Statements
Critical Audit Matter Description
Cal-Maine Foods, Inc. and Subsidiaries record liabilities for legal proceedings and claims in those instances where they
can reasonably estimate the amount of the loss and when the liability is probable.
 
Where the reasonable estimate of the probable
loss is a range, Cal-Maine
 
Foods, Inc. and Subsidiaries record
 
the most likely estimate of
 
the loss, or the low end of
 
the range if
there is no one best estimate.
 
Cal-Maine Foods, Inc. and Subsidiaries either disclose the
 
amount of a possible loss
 
or range of loss
36
in
 
excess
 
of
 
established
 
accruals
 
if
 
estimable,
 
or
 
states
 
that
 
such
 
an
 
estimate
 
cannot
 
be
 
made.
 
Cal-Maine
 
Foods,
 
Inc.
 
and
Subsidiaries disclose significant
 
legal proceedings and
 
claims even where
 
liability is not
 
probable or the
 
amount of the
 
liability
is not
 
estimable, or
 
both, if
 
Cal-Maine Foods,
 
Inc. and
 
Subsidiaries believe
 
there is
 
at least
 
a reasonable
 
possibility that
 
a loss
may be incurred.
We identified litigation and claims as a critical
 
audit matter because of the challenges
 
auditing management’s judgments
applied
 
in
 
determining
 
the
 
likelihood
 
of
 
loss
 
related
 
to
 
the
 
resolution
 
of
 
such
 
claims.
 
Specifically,
 
auditing
 
management’s
determination of
 
whether any
 
contingent loss
 
arising from
 
the related
 
litigation and
 
claims is
 
probable, reasonably
 
possible, or
remote, and the related disclosures, is subjective and requires significant judgment
 
due to the sensitivity of the issue.
How the Critical Audit Matter was addressed during
 
the Audit
Addressing the
 
matter involved
 
performing procedures
 
and evaluating
 
audit evidence
 
in connection
 
with forming
 
our
overall
 
opinion
 
on
 
the
 
consolidated
 
financial
 
statements.
 
These
 
procedures
 
included
 
testing
 
the
 
effectiveness
 
of
 
the
 
controls
relating to the
 
Cal-Maine Foods, Inc.
 
and Subsidiaries’ evaluation
 
of the
 
liability related
 
to legal
 
proceedings and claims,
 
including
controls over determining the likelihood
 
of a loss
 
and whether the amount
 
of loss can be
 
reasonably estimated, as well
 
as financial
statement disclosures over the legal proceedings and claims.
 
These procedures also included obtaining and evaluating
 
the letters
of audit inquiry with external
 
legal counsel, evaluating the reasonableness of
 
Cal-Maine Foods, Inc. and Subsidiaries’ assessment
regarding
 
whether
 
an
 
unfavorable
 
outcome
 
is
 
reasonably
 
possible
 
or
 
probable,
 
and
 
reasonably
 
estimable,
 
evaluating
 
the
sufficiency
 
of Cal-Maine
 
Foods, Inc.
 
and Subsidiaries’
 
disclosures
 
related
 
to legal
 
proceedings and
 
claims and
 
evaluating
 
the
completeness and accuracy of Cal-Maine Foods, Inc. and Subsidiaries’ legal
 
contingencies.
 
/s/ Frost, PLLC
We have served
 
as the Company’s auditor since 2007.
Little Rock, Arkansas
July 25, 2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
June 3, 2023
May 28, 2022
Assets
Current assets:
Cash and cash equivalents
$
292,824
$
59,084
Investment securities available-for-sale
355,090
115,429
Receivables:
Trade receivables, net
110,980
169,109
Income tax receivable
66,966
42,147
Other
9,267
8,148
Total receivables,
 
net
187,213
219,404
Inventories, net
284,418
263,316
Prepaid expenses and other current assets
5,380
4,286
Total current
 
assets
1,124,925
661,519
Property, plant &
 
equipment, net
744,540
677,796
Investments in unconsolidated entities
14,449
15,530
Goodwill
44,006
44,006
Intangible assets, net
15,897
18,131
Other long-term assets
10,708
10,507
Total assets
$
1,954,525
$
1,427,489
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable
$
82,590
$
82,049
Dividends payable
37,130
36,656
Accrued wages and benefits
38,733
26,059
Income tax payable
8,288
25,687
Accrued expenses and other liabilities
15,990
14,223
Total current
 
liabilities
182,731
184,674
Other noncurrent liabilities
9,999
10,274
Deferred income taxes
152,212
128,196
Total liabilities
344,942
323,144
Commitments and contingencies - see
Note 16
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
72,112
67,989
Retained earnings
1,571,112
1,065,854
Accumulated other comprehensive loss, net of tax
(2,886)
(1,596)
Common stock in treasury,
 
at cost –
26,077
 
and
26,121
 
shares in 2023 and 2022,
respectively
(30,008)
(28,447)
Total Cal-Maine Foods,
 
Inc. stockholders’ equity
1,611,081
1,104,551
Noncontrolling interest in consolidated equity
(1,498)
(206)
Total stockholders’
 
equity
1,609,583
1,104,345
Total liabilities and stockholders’
 
equity
$
1,954,525
$
1,427,489
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Fiscal years ended
June 3, 2023
May 28, 2022
May 29, 2021
53 weeks
52 weeks
52 weeks
Net sales
$
3,146,217
$
1,777,159
$
1,348,987
Cost of sales
1,949,760
1,440,100
1,188,326
Gross profit
1,196,457
337,059
160,661
Selling, general and administrative
232,207
198,631
183,943
Gain on insurance recoveries
(3,345)
(5,492)
(Gain) loss on disposal of fixed assets
(131)
383
2,982
Operating income (loss)
967,726
143,537
(26,264)
Other income (expense):
Interest expense
(583)
(403)
(213)
Interest income
18,553
988
2,828
Patronage dividends
10,239
10,130
9,004
Equity in income of unconsolidated entities
746
1,943
622
Other, net
1,869
9,820
4,074
Total other income
30,824
22,478
16,315
Income (loss) before income taxes
998,550
166,015
(9,949)
Income tax expense (benefit)
241,818
33,574
(12,009)
Net income
756,732
132,441
2,060
Less:
 
Net loss attributable to noncontrolling interest
(1,292)
(209)
Net income attributable to Cal-Maine Foods, Inc.
$
758,024
$
132,650
$
2,060
Net income per share attributable to Cal-Maine Foods, Inc.:
Basic
$
15.58
$
2.73
$
0.04
Diluted
$
15.52
$
2.72
$
0.04
Weighted average
 
shares outstanding:
Basic
48,648
48,581
48,522
Diluted
48,834
48,734
48,656
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of
Comprehensive Income
 
(in thousands)
Fiscal years ended
June 3, 2023
May 28, 2022
May 29, 2021
Net income
$
756,732
$
132,441
$
2,060
Other comprehensive loss, before tax:
Unrealized holding loss available-for-sale securities, net of reclassification
adjustments
(1,714)
(1,398)
(736)
Increase in accumulated post-retirement benefits obligation, net of
reclassification adjustments
(27)
(9)
(137)
Other comprehensive loss, before tax
(1,741)
(1,407)
(873)
Income tax benefit related to items of other comprehensive loss
(451)
(369)
(236)
Other comprehensive loss, net of tax
(1,290)
(1,038)
(637)
Comprehensive income
755,442
131,403
1,423
Less: comprehensive loss attributable to the noncontrolling interest
(1,292)
(209)
Comprehensive income attributable to Cal-Maine Foods, Inc.
$
756,734
$
131,612
$
1,423
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands)
Accum.
Other
Common Stock
Comp.
Shares
Amount
Class A
Shares
Class A
Amount
Treasury
Shares
Treasury
Amount
Paid In
Capital
Retained
Earnings
 
Income
(loss)
Noncontrolling
Interest
Total
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 ($
0.034
 
per share)
Common
(1,489)
(1,489)
Class A common
(163)
(163)
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 ($
0.874
 
per share)
Common
(38,578)
(38,578)
Class A common
(4,195)
(4,195)
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
Stock compensation plan transactions
(44)
(1,561)
4,123
2,562
Dividends ($
5.161
 
per share)
Common
(227,993)
(227,993)
Class A common
(24,773)
(24,773)
Net income (loss)
758,024
(1,292)
756,732
Other comprehensive loss, net of tax
(1,290)
(1,290)
Balance at June 3, 2023
70,261
$
703
4,800
$
48
26,077
$
(30,008)
$
72,112
$
1,571,112
$
(2,886)
$
(1,498)
$
1,609,583
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Cash flows from operating activities:
Net income
$
756,732
$
132,441
$
2,060
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
72,234
68,395
59,477
Deferred income taxes
24,467
5,676
22,351
Equity in income of affiliates
(746)
(1,943)
(622)
Gain on insurance recoveries
(3,345)
(5,492)
Net proceeds from insurance settlement - business interruption
3,345
(Gain) loss on disposal of property,
 
plant and equipment
(131)
383
2,982
Stock compensation expense, net of amounts paid
4,205
4,063
3,778
Unrealized (gain) loss on investments
17
(745)
1,810
(Gain) loss on sales of investments
60
(2,208)
(22)
Purchases of equity securities
(85)
(356)
(334)
Sales of equity securities
 
1,739
4,939
55
Amortization (accretion) of investments
(4,380)
977
890
Impairment of investment in affiliate
2,000
Gain on change in fair value of investment in affiliates
(4,545)
Other
35
(109)
(231)
Change in operating assets and liabilities, net of effects from acquisitions:
Increase (decrease) in receivables and other assets
30,816
(93,897)
(33,487)
Increase in inventories
(21,102)
(36,152)
(31,159)
Increase (decrease) in accounts payable, accrued expenses and other
liabilities
(2,851)
54,782
(1,412)
Net cash provided by operating activities
863,010
126,209
26,136
Cash flows from investing activities:
Purchases of investments
(530,781)
(98,243)
(88,283)
Sales of investments
291,832
92,703
129,108
Acquisition of business, net of cash acquired
(44,823)
Investment in unconsolidated entities
(1,673)
(3,000)
Distributions from unconsolidated entities
1,500
400
6,663
Purchases of property,
 
plant and equipment
(136,569)
(72,399)
(95,069)
Net proceeds from insurance settlement - property,
 
plant and equipment
7,655
Net proceeds from disposal of property,
 
plant and equipment
580
686
3,390
Net cash used in investing activities
(375,111)
(117,021)
(44,191)
Cash flows from financing activities:
Principal payments on finance lease
(224)
(215)
(205)
Purchase of common stock by treasury
(1,643)
(1,127)
(871)
Payments of dividends
(252,292)
(6,117)
(1,652)
Contributions
 
3
5
Net cash used in financing activities
(254,159)
(7,456)
(2,723)
Increase (decrease) in cash and cash equivalents
233,740
1,732
(20,778)
Cash and cash equivalents at beginning of year
59,084
57,352
78,130
Cash and cash equivalents at end of year
$
292,824
$
59,084
$
57,352
Supplemental information:
Cash paid for operating leases
$
648
$
805
$
929
Income taxes paid
$
258,247
$
1,747
$
995
Interest paid
$
561
$
379
$
508
See Notes to Consolidated Financial Statements.
42
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Cal-Maine
 
Foods,
 
Inc.
 
(“we,”
 
“us,”
 
“our,”
 
or
 
the
 
“Company”)
 
is
 
primarily
 
engaged
 
in
 
the
 
production,
 
grading,
 
packaging,
marketing and distribution
 
of fresh shell eggs,
 
including conventional, cage-free,
 
organic, brown, free
 
-range, pasture-raised and
nutritionally-enhanced
 
eggs.
 
The
 
Company,
 
which
 
is
 
headquartered
 
in
 
Ridgeland,
 
Mississippi,
 
is
 
the
 
largest
 
producer
 
and
distributor
 
of
 
fresh
 
shell
 
eggs
 
in
 
the
 
United
 
States
 
and
 
sells
 
the
 
majority
 
of
 
its
 
shell
 
eggs
 
in
 
states
 
across
 
the
 
southwestern,
southeastern, mid-western and mid-Atlantic regions of the United States.
Principles of Consolidation
The consolidated financial statements include
 
the accounts of all wholly-owned
 
subsidiaries and of majority-owned subsidiaries
over which we exercise control. All significant intercompany transactions and
 
accounts have been eliminated in consolidation.
Fiscal Year
The Company’s fiscal year-end
 
is on the Saturday closest to May 31. The fiscal year ended
June 3, 2023
, included
53
 
weeks and
the fiscal years ended May 28, 2022 and May 29, 2021 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.
 
Investment Securities
The Company
 
has determined
 
that its
 
debt securities
 
are available-for-sale
 
investments. We
 
classify these
 
securities as
 
current
because the amounts invested are available for current operations. Available
 
-for-sale securities are carried at fair value, based on
quoted market prices as of the balance sheet date, with unrealized gains and losses recorded in other comprehensive income. The
amortized cost of debt securities is adjusted for amortization
 
of premiums and accretion of discounts to maturity and
 
is recorded
in interest income. The Company regularly evaluates changes to the rating of
 
its debt securities by credit agencies and economic
conditions
 
to assess
 
and
 
record any
 
expected credit
 
losses through
 
allowance for
 
credit losses,
 
limited to
 
the amount
 
that fair
value was less than the amortized cost basis.
 
Investments
 
in
 
mutual
 
funds
 
are
 
recorded
 
at
 
fair
 
value
 
and
 
are
 
classified
 
as
 
“Other
 
long-term
 
assets”
 
in
 
the
 
Company’s
Consolidated Balance Sheets. Unrealized gains and losses for equity securities are recorded in other income (expenses) as Other,
net in the Company’s Consolidated
 
Statements of Income.
The cost
 
basis for
 
realized gains
 
and losses
 
on available-for-sale
 
securities is
 
determined by
 
the specific
 
identification method.
Gains and losses are recognized in other income (expenses) as Other,
 
net in the Company’s Consolidated
 
Statements of Income.
Interest and dividends on securities classified as available-for-sale
 
are recorded in interest income.
43
Trade Receivables
 
Trade receivables are stated at their carrying values, which include a reserve for credit
 
losses. At June 3, 2023 and May 28, 2022,
reserves for credit losses were $
579
 
thousand and $
775
 
thousand, respectively.
 
The Company extends credit to customers
 
based
on an
 
evaluation
 
of each
 
customer's financial
 
condition
 
and credit
 
history.
 
Collateral is
 
generally
 
not required.
 
The Company
minimizes exposure to
 
counter party credit
 
risk through credit analysis
 
and approvals, credit
 
limits, and monitoring
 
procedures.
In determining our
 
reserve for
 
credit losses, receivables
 
are assigned an
 
expected loss based
 
on historical loss
 
information adjusted
as
 
needed
 
for
 
economic
 
and
 
other
 
forward-looking
 
factors.
 
At
 
June
 
3,
 
2023
 
and
 
May
 
28,
 
2022,
one
 
customer
 
accounted
 
for
approximately
30.1
% and
27.9
% 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.
Investments in Unconsolidated Entities
The equity method
 
of accounting is used
 
when the Company can
 
exert significant influence
 
over an entity,
 
but does not control
its financial
 
and
 
operating
 
decisions.
 
Under
 
the
 
equity
 
method,
 
original
 
investments
 
are recorded
 
at
 
cost
 
and
 
adjusted
 
by
 
the
Company’s share of undistributed earnings
 
or losses of
 
these entities. Equity
 
investments without readily
 
determinable fair values,
when
 
the
 
Company
 
does
 
not
 
have
 
the
 
ability
 
to
 
exercise
 
significant
 
influence
 
over
 
the
 
investee,
 
are
 
recorded
 
at
 
cost,
 
less
impairment, plus or minus observable price changes.
The Company is a member of Eggland’s Best, Inc.
 
and ProEgg, Inc., which are cooperatives.
 
These investments are recorded at
cost, plus or minus any allocated equities and retains.
Goodwill
Goodwill
 
represents
 
the
 
excess
 
of
 
the
 
purchase
 
price
 
over
 
the
 
fair
 
value
 
of
 
the
 
identifiable
 
net
 
assets
 
acquired.
 
Goodwill
 
is
evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test
is necessary.
 
After assessing the totality
 
of events or circumstances,
 
if we determine it is
 
more likely than not
 
that the fair value
of a reporting
 
unit is less
 
than its carrying
 
amount, then we
 
perform additional
 
quantitative tests to
 
determine the
 
magnitude of
any impairment. During the
 
fourth quarter of 2023,
 
we elected to change
 
the date of
 
our annual impairment assessment
 
from year-
end to the
 
first day of
 
the fourth quarter.
 
The change
 
was made to
 
more closely
 
align the impairment
 
assessment date
 
with our
annual planning and forecasting process.
 
The change in impairment assessment date
 
did not have any impact on goodwill
 
or the
impairment of goodwill. The change has been applied prospectively
 
and would not have an impact on a retrospective basis.
44
Intangible Assets
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise
 
fees,
non-compete agreements
 
and customer
 
relationship intangibles.
 
They are
 
amortized over
 
their estimated useful
 
lives of
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 coverage for the potential liabilities for health and
welfare,
 
workers’
 
compensation,
 
auto
 
liability
 
and
 
general
 
liability
 
risks.
 
Liabilities
 
associated
 
with
 
our
 
risks
 
retained
 
are
estimated, in part, by considering claims experience, demographic factors,
 
severity factors and other actuarial assumptions.
Dividend Payable
We
 
accrue dividends at
 
the end of
 
each quarter according
 
to the Company’s
 
dividend policy adopted
 
by its Board
 
of Directors.
The Company
 
pays a dividend
 
to shareholders
 
of its Common
 
Stock and
 
Class A Common
 
Stock on
 
a quarterly basis
 
for each
quarter for which the Company reports net income attributable to Cal-Maine
 
Foods, Inc. computed in accordance with GAAP in
an amount
 
equal to
 
one-third (
1/3
) of
 
such quarterly
 
income. Dividends
 
are paid
 
to shareholders
 
of record
 
as of
 
the 60th
 
day
following the last day of such quarter, except for the fourth fiscal quarter.
 
For the fourth quarter, the Company pays dividends to
shareholders of
 
record on
 
the 65th
 
day after
 
the quarter
 
end. Dividends
 
are payable
 
on the
 
15th day
 
following the
 
record date.
Following a quarter for which the Company does not report net income
 
attributable to Cal-Maine Foods, Inc., the Company will
not pay a dividend
 
for a subsequent profitable
 
quarter until the Company
 
is profitable on a cumulative
 
basis computed from the
date of the most recent quarter for which a dividend was paid.
Treasury Stock
Treasury
 
stock purchases
 
are accounted
 
for under
 
the cost
 
method whereby
 
the entire
 
cost of
 
the acquired
 
stock is
 
recorded as
treasury
 
stock. The
 
grant
 
of
 
restricted
 
stock
 
through
 
the
 
Company’s
 
share-based
 
compensation
 
plans
 
is
 
funded
 
through
 
the
issuance of
 
treasury stock. Gains
 
and losses
 
on the
 
subsequent reissuance
 
of shares
 
in accordance
 
with the
 
Company’s
 
share-
based compensation plans are credited or charged to paid-in
 
capital in excess of par value using the average-cost method.
Revenue Recognition and Delivery Costs
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of
 
the Company
 
and customer
 
agreeing upon
 
the order.
 
See
 
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 $
3.4
 
million, $
12.6
 
million, and $
11.7
 
million in fiscal 2023, 2022,
 
and
2021, respectively.
Income Taxes
Income
 
taxes
 
are
 
accounted
 
for
 
using
 
the
 
liability
 
method.
 
Deferred
 
income
 
taxes
 
reflect
 
the
 
net
 
tax
 
effects
 
of
 
temporary
differences
 
between
 
the
 
carrying
 
amounts
 
of
 
assets
 
and
 
liabilities
 
for
 
financial
 
reporting
 
purposes
 
and
 
the
 
amounts
 
used
 
for
income tax purposes. The
 
Company’s policy with respect
 
to evaluating
 
uncertain tax
 
positions is
 
based upon whether
 
management
believes it
 
is more
 
likely than
 
not the
 
uncertain tax
 
positions will
 
be sustained
 
upon review
 
by the
 
taxing authorities.
 
The tax
positions must meet the more-likely-than-not
 
recognition threshold with consideration
 
given to the amounts and
 
probabilities of
the outcomes
 
that could
 
be realized
 
upon settlement
 
using the
 
facts, circumstances
 
and information
 
at the
 
reporting date.
 
The
Company
 
will reflect
 
only
 
the portion
 
of the
 
tax benefit
 
that will
 
be
 
sustained
 
upon resolution
 
of the
 
position
 
and
 
applicable
45
interest on the portion of the tax benefit not recognized. The Company initially and subsequently measures the largest amount
 
of
tax benefit
 
that is
 
greater than
 
50% likely
 
to be
 
realized upon
 
settlement with
 
a taxing
 
authority that
 
has full
 
knowledge of
 
all
relevant
 
information. The
 
Company
 
records
 
interest
 
and
 
penalties on
 
uncertain
 
tax
 
positions
 
as
 
a
 
component
 
of
 
income
 
tax
expense. Based
 
upon management’s
 
assessment, there
 
are no uncertain
 
tax positions expected
 
to have a
 
material impact on
 
the
Company’s consolidated
 
financial statements.
Stock Based Compensation
The
 
Company
 
recognizes
 
all
 
share-based
 
payments
 
to
 
employees
 
and
 
directors,
 
including
 
grants
 
of
 
employee
 
stock
 
options,
restricted stock and performance-based shares, in the Consolidated Statements
 
of Income based on their fair values. The benefits
of
 
tax
 
deductions
 
in
 
excess
 
of
 
recognized
 
compensation
 
cost
 
are
 
reported
 
as
 
a
 
financing
 
cash
 
flow. See
 
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. We
 
determine the fair values of identifiable assets and liabilities
 
internally,
 
which requires estimates and
the
 
use
 
of
 
various
 
valuation
 
techniques.
 
When
 
a
 
market
 
value
 
is
 
not
 
readily
 
available,
 
our
 
internal
 
valuation
 
methodology
considers the remaining estimated life of the assets acquired and what
 
management believes is the market value for those assets.
 
We
 
typically use the income
 
method approach for
 
intangible assets acquired in
 
a business combination. Significant
 
estimates in
valuing certain intangible assets include, but
 
are not limited to,
 
the amount and timing of
 
future cash flows, growth rates,
 
discount
rates and useful
 
lives. The excess
 
of the purchase
 
price over fair
 
values of identifiable
 
assets and liabilities
 
is recorded as
 
goodwill.
 
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company but which
will only be
 
resolved when one
 
or more future
 
events occur or
 
fail to occur.
 
The Company’s
 
management and
 
its legal counsel
assess
 
such
 
contingent
 
liabilities,
 
and
 
such
 
assessment
 
inherently
 
involves
 
an
 
exercise
 
of
 
judgment.
 
In
 
assessing
 
loss
contingencies
 
related
 
to legal
 
proceedings
 
that are
 
pending against
 
the Company
 
or unasserted
 
claims that
 
may result
 
in such
proceedings, the Company’s
 
legal counsel evaluates
 
the perceived merits
 
of any legal
 
proceedings or unasserted
 
claims as well
as the perceived merits of the amount of relief sought or expected to be
 
sought therein.
If the assessment
 
of a contingency
 
indicates it is
 
probable that
 
a material loss
 
has been incurred
 
and the amount
 
of the liability
can be
 
estimated, the
 
estimated liability
 
would be accrued
 
in the Company’s
 
financial statements.
 
If the assessment
 
indicates a
potentially material loss contingency is
 
not probable, but is reasonably possible,
 
or is probable but cannot be estimated,
 
then the
nature of the
 
contingent liability,
 
together with an
 
estimate of the
 
range of possible
 
loss if determinable
 
and material, would
 
be
disclosed. Loss
 
contingencies considered
 
remote are
 
generally not
 
disclosed unless
 
they involve
 
guarantees, in
 
which case
 
the
nature of the guarantee would be disclosed.
 
The Company expenses the costs of litigation as they are incurred.
New Accounting Pronouncements and Policies
No new accounting pronouncement issued or effective
 
during the fiscal year had or is expected to have a material impact on
 
our
Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
Note 2 – Acquisition
Effective on May 30, 2021, the Company acquired the remaining
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 June 3, 2023 and May 28, 2022 (in thousands):
June 3, 2023
Amortized
 
Cost
Unrealized
 
Gains
Unrealized
Losses
Estimated Fair
Value
Municipal bonds
$
16,571
$
$
275
$
16,296
Commercial paper
56,486
77
56,409
Corporate bonds
139,979
1,402
138,577
Certificates of deposits
675
675
US government and agency obligations
101,240
471
100,769
Asset backed securities
13,459
151
13,308
Treasury bills
29,069
13
29,056
Total current
 
investment securities
$
357,479
$
$
2,389
$
355,090
Mutual funds
$
2,172
$
$
91
$
2,081
Total noncurrent
 
investment securities
$
2,172
$
$
91
$
2,081
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
Available-for-sale
Proceeds
 
from
 
the
 
sales and
 
maturities
 
of
 
available-for-sale
 
securities
 
were
 
$
291.8
 
million,
 
$
92.7
 
million,
 
and $
129.1
 
million
during fiscal 2023, 2022,
 
and 2021, respectively.
 
Gross realized gains for
 
fiscal 2023, 2022, and
 
2021 were $
51
 
thousand, $
181
thousand,
 
and
 
$
456
 
thousand,
 
respectively.
 
Gross
 
realized
 
losses
 
for
 
fiscal
 
2023,
 
2022,
 
and
 
2021
 
were
 
$
87
 
thousand,
 
$
76
thousand, and $
19
 
thousand, respectively. There
 
was
no
 
allowance for credit losses at June 3, 2023 and May 28, 2022.
Actual maturities may differ from contractual maturities because some
 
borrowers have the right to
 
call or prepay obligations with
or
 
without
 
call
 
or
 
prepayment
 
penalties.
 
Contractual
 
maturities
 
of
 
investment
 
securities
 
at
 
June
 
3,
 
2023
 
are
 
as
 
follows
 
(in
thousands):
Estimated Fair Value
Within one year
$
269,830
1-5 years
85,260
Total
$
355,090
Noncurrent
 
Proceeds from sales and maturities of noncurrent investment securities were $
1.7
 
million, $
4.9
 
million, and $
54
 
thousand, during
fiscal 2023,
 
2022 and
 
2021, respectively.
 
Gross realized gains
 
on those sales
 
and maturities
 
during fiscal
 
2023,
 
2022 and 2021
were $
6
 
thousand, $
2.2
 
million and
 
$
611
 
thousand, respectively.
 
Gross realized
 
losses during
 
fiscal 2023
 
were $
66
 
thousand.
There were
no
 
realized losses for fiscal 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
Note 4 - Fair Value
 
Measures
The Company
 
is required
 
to categorize
 
both financial
 
and nonfinancial
 
assets and
 
liabilities based
 
on the
 
following fair
 
value
hierarchy. The
 
fair value
 
of an
 
asset is
 
the price
 
at which
 
the asset
 
could be
 
sold in
 
an orderly
 
transaction between
 
unrelated,
knowledgeable, and willing
 
parties able to engage in
 
the transaction. A liability’s
 
fair value is defined
 
as the amount that would
be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be
 
paid to settle
the liability with the creditor.
Level 1
 
- 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.
Assets and Liabilities Measured at Fair
 
Value
 
on a Recurring Basis
In accordance with
 
the fair value hierarchy
 
described above, the
 
following table shows the
 
fair value of our
 
financial assets and
liabilities that are required to be measured at fair value on a recurring
 
basis as of June 3, 2023 and May 28, 2022 (in thousands):
June 3, 2023
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
16,296
$
$
16,296
Commercial paper
56,409
56,409
Corporate bonds
138,577
138,577
Certificates of deposits
675
675
US government and agency obligations
100,769
100,769
Asset backed securities
13,308
13,308
Treasury bills
29,056
29,056
Mutual funds
2,081
2,081
Total assets measured at fair
 
value
$
2,081
$
355,090
$
$
357,171
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
Investment securities – available-for-sale
 
classified as Level
 
2 consist of
 
securities with maturities of
 
three months or longer
 
when
purchased. We
 
classified these
 
securities as
 
current, because
 
amounts invested
 
are available
 
for current
 
operations. Observable
inputs for these securities are yields, credit risks, default rates, and volatility.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
Note 5 - Inventories
Inventories consisted of the following (in thousands):
June 3, 2023
May 28, 2022
Flocks, net of amortization
$
164,540
$
144,051
Eggs and egg products
28,318
26,936
Feed and supplies
91,560
92,329
$
284,418
$
263,316
We grow and maintain
 
flocks of layers (mature female chickens), pullets (female chickens under 18 weeks of age), and breeders
(male and female
 
chickens used to
 
produce fertile eggs
 
to hatch for
 
egg production flocks).
 
Our total flock
 
at June 3,
 
2023 and
May 28, 2022,
 
consisted of approximately
10.8
 
million and
11.5
 
million pullets and
 
breeders and
41.2
 
million and
42.2
 
million
layers, respectively.
The Company expensed amortization and mortality associated with the
 
flocks to cost of sales as follows (in thousands):
June 3, 2023
May 28, 2022
May 29, 2021
Amortization
$
186,973
$
160,107
$
133,448
Mortality
10,455
8,011
6,769
Total flock costs charged
 
to cost of sales
$
197,428
$
168,118
$
140,217
 
Note 6 - Property,
 
Plant and Equipment
Property, plant and equipment
 
consisted of the following (in thousands):
June 3, 2023
May 28, 2022
Land and improvements
$
117,279
$
109,833
Buildings and improvements
552,669
517,859
Machinery and equipment
715,205
655,925
Construction-in-progress
98,605
71,967
1,483,758
1,355,584
Less: accumulated depreciation
739,218
677,788
$
744,540
$
677,796
Depreciation expense was
 
$
69.4
 
million, $
65.8
 
million and $
56.5
 
million in the fiscal
 
years ended June 3,
 
2023, May 28, 2022,
and May 29, 2021, respectively.
The Company
 
maintains insurance
 
for both
 
property damage
 
and business
 
interruption relating
 
to catastrophic
 
events, such
 
as
fires. Insurance recoveries
 
received for
 
property damage
 
and business
 
interruption in
 
excess of
 
the net
 
book value
 
of damaged
assets,
 
clean-up
 
and
 
demolition
 
costs,
 
and
 
post-event
 
costs are
 
recorded
 
within
 
“Gain
 
on
 
insurance
 
recoveries”
 
in
 
the period
received or committed when all contingencies associated with the recoveries are resolved. Losses related to property damage are
recorded within “(Gains) loss
 
on disposal of fixed assets”.
 
Insurance recoveries relating
 
to direct, recoverable costs for
 
business
interruption are recorded
 
as a reduction in cost of
 
sales on the Consolidated Statements
 
of Income. Insurance
 
claims incurred or
finalized
 
during
 
the fiscal
 
years ended
 
June 3,
 
2023,
 
May 28,
 
2022,
 
and
 
May
 
29,
 
2021 did
 
not have
 
a material
 
effect
 
on
 
the
Company’s consolidated
 
financial statements.
Note 7 - Investment in Unconsolidated Entities
As of
 
June 3,
 
2023
 
and
 
May 28,
 
2022,
 
the Company
 
owned
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).
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
Equity method investments are included
 
in “Investments in unconsolidated entities”
 
in the accompanying Consolidated Balance
Sheets and totaled $
9.7
 
million and $
10.5
 
million at June 3, 2023 and May 28, 2022, respectively.
 
Equity
 
in
 
income
 
of
 
unconsolidated
 
entities
 
of
 
$
746
 
thousand,
 
$
1.9
 
million,
 
and
 
$
622
 
thousand
 
from
 
these
 
entities
 
has
 
been
included in the Consolidated Statements of Income for fiscal 2023
 
,
 
2022, and 2021, respectively.
The condensed consolidated
 
financial information for
 
the Company’s unconsolidated joint
 
ventures was as
 
follows (in thousands):
For the fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Net sales
$
222,602
$
145,281
$
119,853
Net income
1,492
3,942
1,596
Total assets
27,784
42,971
106,592
Total liabilities
9,854
21,892
5,850
Total equity
17,930
21,079
100,742
The following relates to the Company’s
 
transactions with these unconsolidated affiliates (in thousands):
 
For the fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Sales to unconsolidated entities
$
136,351
$
94,311
$
56,765
Purchases from unconsolidated entities
75,024
60,016
76,059
Distributions from unconsolidated entities
1,500
400
6,663
June 3, 2023
May 28, 2022
Accounts receivable from unconsolidated entities
$
4,719
$
10,815
Accounts payable to unconsolidated entities
3,187
4,678
 
Note 8 - Goodwill and Other Intangible Assets
Goodwill and other intangibles consisted of the following (in thousands):
Other Intangibles
Franchise
Customer
Non-compete
Right of
Water
Total
Goodwill
rights
relationships
agreements
Use
rights
Trademark
intangibles
Balance May 29, 2021
$
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
Amortization
(1,657)
(356)
(152)
(18)
(51)
(2,234)
Balance June 3, 2023
$
44,006
$
13,414
$
970
$
708
$
$
720
$
85
$
59,903
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
For the Other Intangibles listed above, the gross carrying amounts and
 
accumulated amortization are as follows (in thousands):
June 3, 2023
May 28, 2022
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
Other intangible assets:
Franchise rights
$
29,284
$
(15,870)
$
29,284
$
(14,213)
Customer relationships
9,644
(8,674)
9,644
(8,318)
Non-compete agreements
1,450
(742)
1,450
(590)
Right of use intangible
239
(239)
239
(221)
Water rights *
720
720
Trademark
400
(315)
400
(264)
Total
$
41,737
$
(25,840)
$
41,737
$
(23,606)
*
 
Water rights are
 
an indefinite life intangible asset.
No significant residual value is estimated for these
 
intangible assets. Aggregate amortization expense for fiscal years 2023, 2022,
and 2021 totaled $
2.2
 
million, $
2.2
 
million, and $
2.5
 
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
2024
$
2,170
2025
2,035
2026
1,831
2027
1,828
2028
1,758
Thereafter
5,555
Total
$
15,177
 
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
 
$
275,000
 
per
 
occurrence. The
 
Company's
 
expenses
 
including
 
accruals
 
for
incurred but not
 
reported claims were approximately
 
$
21.9
 
million, $
24.6
 
million, and $
21.7
 
million in fiscal years
 
2023, 2022,
and 2021, respectively.
 
The liability recorded
 
for incurred but
 
not reported claims
 
was $
2.9
 
million and $
2.8
 
million as of
 
June
3,
 
2023
 
and
 
May 28,
 
2022,
 
respectively
 
and
 
are classified
 
within
 
“Accrued
 
expenses
 
and
 
other
 
liabilities”
 
in
 
the
 
Company’s
Consolidated Balance Sheets.
The Company
 
has a KSOP
 
plan that
 
covers substantially
 
all employees
 
(the “Plan”). The
 
Company makes
 
contributions to
 
the
Plan at a rate of
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 $
4.3
 
million, $
3.9
 
million, and $
3.8
 
million in fiscal years 2023, 2022 and 2021, respectively. The
Company did
no
t make direct contributions of the Company’s
 
Common Stock in fiscal years 2023, 2022, or 2021. Dividends on
the Company’s Common Stock are paid to the Plan in cash. The Plan acquires the Company’s Common Stock, which is listed on
the NASDAQ, by
 
using the dividends
 
and the Company’s
 
cash contribution to
 
purchase shares in
 
the public markets.
 
The Plan
sells Common Stock on the NASDAQ to pay benefits to Plan participants. Participants may make contributions to the Plan up to
the maximum allowed by the Internal Revenue Service regulations.
 
The Company does not match participant contributions.
Deferred Compensation Plans
The
 
Company
 
has
 
deferred
 
compensation
 
agreements
 
with
 
certain
 
officers
 
for
 
payments
 
to
 
be
 
made
 
over
 
specified
 
periods
beginning when the officers
 
reach age
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
 
2023,
 
2022
 
and
 
2021. The
 
liability
 
recorded
 
related
 
to
 
these
 
agreements
 
was
 
52
$
1.0
 
million
 
and
 
$
1.1
 
million
 
at
 
June
 
3,
 
2023
 
and
 
May
 
28,
 
2022,
 
respectively
 
and
 
are
 
classified
 
within
 
“Other
 
noncurrent
liabilities” in the Company’s Consolidated
 
Balance Sheets.
The
 
Company
 
sponsors
 
an
 
unfunded,
 
non-qualified
 
deferred
 
compensation
 
plan,
 
which
 
was
 
amended
 
and
 
restated
 
effective
December 1, 2021 (the “Amended DC Plan”) to expand eligibility for participation from named officers only to a select group of
management or highly
 
compensated employees of
 
the Company,
 
expand the investment options
 
available and add the
 
ability of
participants
 
to
 
make
 
elective
 
deferrals.
 
Participants
 
may
 
be
 
awarded
 
long-term
 
incentive
 
contributions
 
(“Awards”)
 
under
 
the
Amended DC Plan.
 
Awards
 
vest on December 31
st
 
of the fifth year
 
after such contribution is
 
credited to the
 
Amended DC Plan
or, if earlier, the participant’s attainment of age
60
 
with
5
 
years of service. Awards issued under the Amended DC
 
Plan were $
388
thousand, $
340
 
thousand, and $
279
 
thousand in fiscal
 
2023, 2022,
 
and 2021, respectively.
 
Payments made
 
under the
 
Amended
DC Plan were $
410
 
thousand, $
480
 
thousand and $
55
 
thousand in fiscal 2023,
 
2022 and 2021, respectively. The liability recorded
for the Amended DC Plan was $
4.6
 
million, $
4.5
 
million and $
4.1
 
million at June 3, 2023, May 28, 2022 and 2021, respectively
and is classified within “Other noncurrent liabilities” in the Company’s
 
Consolidated Balance Sheets.
Deferred compensation expense for
 
both plans totaled $
346
 
thousand, $
258
 
thousand and $
1.6
 
million in fiscal 2023, 2022,
 
and
2021,
 
respectively.
Other Postretirement Employee Benefits
The Company
 
maintains an
 
unfunded postretirement
 
medical plan to
 
provide limited
 
health benefits to
 
certain qualified
 
retired
employees
 
and officers.
 
Retired non-officers
 
and
 
spouses are
 
eligible for
 
coverage
 
until attainment
 
of Medicare
 
eligibility,
 
at
which time coverage
 
ceases. Retired officers
 
and spouses
 
are eligible for
 
lifetime benefits under
 
the plan. Officers,
 
who retired
prior to May 1, 2012 and their spouses must participate in Medicare
 
Plans A and B. Officers, who retire on or after May 1, 2012
and their spouses must participate in Medicare Plans A, B, and D.
 
The plan is accounted for
 
in accordance with ASC
 
715, Compensation – Retirement Benefits (“ASC
 
715”), whereby an employer
recognizes the funded status of a defined benefit postretirement plan as
 
an asset or liability, and recognizes changes in the funded
status in the year the change occurs through comprehensive income. Additionally,
 
this expense is recognized on an accrual basis
over the employees’ approximate period of employment. The liability associated with the plan was $
2.7
 
million and $
3.4
 
million
at
 
June
 
3,
 
2023
 
and
 
May
 
28,
 
2022,
 
respectively. The
 
remaining
 
disclosures
 
associated
 
with
 
ASC
 
715
 
are
 
immaterial
 
to
 
the
Company’s financial statements.
Effective
 
March 1,
 
2023,
 
the Company
 
adopted
 
a non-qualified
 
supplemental
 
executive retirement
 
plan
 
(“SERP”) and
 
a split
dollar life insurance plan (“Split Dollar Plan”) designed
 
to provide deferred compensation and a pre-retirement
 
death benefit for
a
 
select
 
group
 
of
 
management
 
or
 
highly
 
compensated
 
employees
 
of
 
the
 
Company.
 
Provided
 
the
 
vesting
 
conditions
 
are
 
met,
participants in the SERP are eligible to receive an aggregate retirement benefit of $
500,000
, which is paid in annual installments
of $
50,000
 
for
10 years
. A participant
 
becomes vested in
 
the retirement benefit
 
over
five years
 
of plan participation
 
at
20
% per
year. If a participant becomes disabled, attains the retirement age of 65, or the Company experiences a change in control, vesting
will be
 
accelerated to
100
%. If
 
a participant
 
dies while
 
employed, he
 
or she
 
will not
 
receive any
 
benefits under
 
the SERP,
 
but
their beneficiaries
 
will instead be
 
entitled to the
 
life insurance benefit
 
provided under
 
the Split Dollar
 
Plan, which
 
is $500,000.
 
The liability recorded
 
for these plans was
 
$
63
 
thousand at June 3,
 
2023 and is classified
 
within “Other noncurrent
 
liabilities” in
the Company’s Consolidated Balance
 
Sheets.
Note 10 - Credit Facility
For
 
fiscal
 
years
 
2023,
 
2022
 
and
 
2021,
 
interest
 
expense
 
was
 
$
583
 
thousand,
 
$
403
 
thousand,
 
and
 
$
213
 
thousand,
 
respectively,
primarily related to commitment fees on the Credit Facility described below.
On May
 
26, 2023,
 
we entered
 
into the
 
First Amendment
 
(the “Amendment”)
 
to the
 
Amended and
 
Restated Credit
 
Agreement,
dated November 15, 2021 (as amended, the “Credit Agreement”).
 
The Amendment replaced the London Interbank Offered Rate
interest rate benchmark
 
with the secured overnight
 
financing rate as administered
 
by the Federal Reserve
 
Bank of New York
 
or
a successor
 
administrator
 
of the
 
secured overnight
 
financing
 
rate (“SOFR”).
 
The Credit
 
Agreement
 
has a
five
-year term.
 
The
Credit
 
Agreement
 
provides
 
for
 
a
 
senior
 
secured
 
revolving
 
credit
 
facility
 
(the
 
“Credit
 
Facility”
 
or
 
“Revolver”)
 
in
 
an
 
initial
aggregate principal
 
amount of
 
up to
 
$
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 June
 
3, 2023 or
 
May 28, 2022
 
or during fiscal
 
2023 or
53
fiscal 2022.
 
The Company
 
had $
4.3
 
million of
 
outstanding standby
 
letters of
 
credit issued
 
under the
 
Credit Facility
 
at June
 
3,
2023.
The
 
interest
 
rate
 
in
 
connection
 
with
 
loans
 
made
 
under
 
the
 
Credit
 
Facility
 
is
 
based
 
on,
 
at
 
the
 
Company’s
 
election,
 
either
 
the
Adjusted Term SOFR Rate plus the
 
Applicable Margin or the
 
Base Rate plus
 
the Applicable Margin. The “Adjusted
 
Term SOFR”
means with respect to any tenor,
 
the per annum rate equal to the sum of
 
(i) Term
 
SOFR as defined in the Credit Agreement
 
plus
(ii)
0.10
% (10 basis
 
points); provided,
 
if Adjusted Term
 
SOFR determined
 
as provided above
 
shall ever be
 
less than the
 
Floor,
then Adjusted
 
Term
 
SOFR shall
 
be deemed
 
to be
 
the Floor.
 
The “Floor”
 
means the
 
rate per
 
annum of
 
interest equal
 
to
0.00
%.
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 Adjusted Term
 
SOFR for a
one
-month tenor plus
1.00
%. The
 
“Applicable Margin”
 
means
0.00
% to
0.75
% per
 
annum for
 
Base Rate
 
Loans and
1.00
% to
1.75
% per
 
annum for
SOFR Loans, in
 
each case depending upon
 
the Total Funded Debt to
 
Capitalization Ratio for the
 
Company at the quarterly
 
pricing
date. The
 
Company will
 
pay a
 
commitment
 
fee on
 
the unused
 
portion
 
of the
 
Credit Facility
 
payable quarterly
 
from
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
 
Facility
 
is
 
guaranteed
 
by
 
all the
 
current
 
and
 
future wholly
 
-owned
 
direct
 
and
 
indirect
 
domestic
 
subsidiaries
 
of
 
the
Company (the
 
“Guarantors”), and
 
is secured
 
by a
 
first-priority perfected
 
security interest
 
in substantially
 
all of
 
the Company’s
and the Guarantors’ accounts, payment intangibles, instruments (including promissory notes), chattel paper, inventory (including
farm products) and deposit accounts maintained with the Administrative Agent.
The
 
Credit
 
Agreement
 
for the
 
Credit
 
Facility
 
contains
 
customary
 
covenants,
 
including
 
restrictions
 
on
 
the incurrence
 
of
 
liens,
incurrence of
 
additional debt,
 
sales of
 
assets and
 
other fundamental
 
corporate changes
 
and investments.
 
The Credit
 
Agreement
requires maintenance of two financial covenants: (i) a maximum Total Funded Debt to Capitalization Ratio tested
 
quarterly of no
greater than
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 June 3, 2023, we were in compliance with the covenant requirements of the
 
Credit Facility.
Note 11 - 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
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 12 - Net Income per Common Share
Basic net income
 
per share attributable
 
to Cal-Maine Foods, Inc.
 
is based on the
 
weighted average Common
 
Stock and Class A
Common Stock
 
outstanding. Diluted
 
net income
 
per share
 
attributable to
 
Cal-Maine Foods,
 
Inc. is
 
based on
 
weighted-average
common shares outstanding during the relevant period adjusted for the dilutive
 
effect of share-based awards.
 
The following table provides a reconciliation of the
 
numerators and denominators used to determine basic and diluted
 
net income
per common share attributable to Cal-Maine Foods, Inc. (amounts in
 
thousands, except per share data):
June 3, 2023
May 28, 2022
May 29, 2021
Numerator
Net income
$
756,732
$
132,441
$
2,060
Less: Net loss attributable to noncontrolling interest
(1,292)
(209)
Net income attributable to Cal-Maine Foods, Inc.
$
758,024
$
132,650
$
2,060
Denominator
Weighted-average
 
common shares outstanding, basic
48,648
48,581
48,522
Effect of dilutive securities of restricted shares
186
153
134
Weighted-average
 
common shares outstanding, diluted
48,834
48,734
48,656
Net income per common share attributable to Cal-Maine Foods, Inc.
Basic
$
15.58
$
2.73
$
0.04
Diluted
$
15.52
$
2.72
$
0.04
 
Note 13 - Revenue Recognition
Satisfaction of Performance Obligation
The vast majority of the Company’s
 
revenue is derived from agreements with customers based on the customer
 
placing an order
for products. Pricing
 
for the most part
 
is determined when
 
the Company and
 
the customer agree
 
upon the specific
 
order, which
establishes the contract for that order.
Revenues are
 
recognized in
 
an amount
 
that reflects
 
the net
 
consideration we
 
expect to
 
receive in
 
exchange for
 
the goods.
 
Our
shell eggs
 
are sold at
 
prices related to
 
independently quoted wholesale
 
market prices or
 
formulas related to
 
our costs of
 
production.
The
 
Company’s
 
sales predominantly
 
contain
 
a
 
single
 
performance
 
obligation.
 
We
 
recognize
 
revenue
 
upon
 
satisfaction of
 
the
performance obligation
 
with the customer
 
which typically occurs
 
within days of
 
the Company
 
and the customer
 
agreeing upon
the order.
Costs
 
to
 
deliver
 
product
 
to
 
customers
 
are
 
included
 
in
 
selling,
 
general
 
and
 
administrative
 
expenses
 
in
 
the
 
accompanying
Consolidated Statements
 
of Income
 
and totaled
 
$
77.5
 
million, $
62.7
 
million, and
 
$
52.7
 
million in
 
fiscal years
 
2023, 2022,
 
and
2021,
 
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we
 
credit the customer’s account for product that the
customer is unable to sell before expiration. The Company records an allowance
 
for expected customer returns using historical
return data and comparing to current period sales and accounts receivable
 
.
 
The allowance is recorded as a reduction of sales in
the same period the revenue is recognized.
Sales Incentives Provided to Customers
The Company periodically provides
 
incentive offers to its
 
customers to encourage purchases.
 
Such offers include current
 
discount
offers (e.g., percentage discounts off current purchases), inducement
 
offers (e.g., offers for future discounts
 
subject to a minimum
current purchase), and other similar offers. Current discount offers, when accepted by customers, are treated as a reduction to the
sales price
 
of the
 
related transaction,
 
while inducement
 
offers, when
 
accepted by
 
customers, are
 
treated as
 
a reduction
 
to sales
price based on estimated future redemption rates.
 
Redemption rates are estimated using the Company’s
 
historical experience for
similar inducement offers. Current discount and inducement offers
 
are presented as a net amount in ‘‘Net
 
sales.’’
Disaggregation of Revenue
The following table provides revenue disaggregated by product category
 
(in thousands):
14 Weeks Ended
13 Weeks Ended
53 Weeks Ended
52 Weeks Ended
June 3, 2023
May 28, 2022
June 3, 2023
May 28, 2022
Conventional shell egg sales
$
395,433
$
378,190
$
2,051,961
$
1,061,995
Specialty shell egg sales
256,190
186,518
956,993
648,838
Egg products
33,996
26,488
122,270
60,004
Other
3,061
1,768
14,993
6,322
$
688,680
$
592,964
$
3,146,217
$
1,777,159
Contract Costs
The Company can incur costs to
 
obtain or fulfill a contract with
 
a customer. If
 
the amortization period of these costs
 
is less than
one year, they are expensed as incurred. When the amortization period is greater than one year, a contract asset is recognized and
is amortized over the contract life
 
as a reduction in net
 
sales. As of June 3,
 
2023 and May 28, 2022, the
 
balance for contract assets
is immaterial.
Contract Balances
The Company
 
receives payment
 
from
 
customers based
 
on specified
 
terms that
 
are generally
 
less than
 
30 days
 
from
 
delivery.
There
 
are rarely contract assets or liabilities related to performance under the contract.
Concentration of Credit Risks
Our largest customer, Walmart
 
Inc. (including Sam's Club) accounted for
34.2
%,
29.5
% and
29.8
% of net sales dollars for fiscal
2023, 2022, and 2021, respectively.
 
H-E-B, LP accounted for
10.1
% of net sales dollars for fiscal
 
2021.
Note 14 - Stock Compensation Plans
On
 
October
 
2,
 
2020,
 
shareholders
 
approved
 
the
 
Amended
 
and
 
Restated
 
Cal-Maine
 
Foods,
 
Inc.
 
2012
 
Omnibus
 
Long-Term
Incentive
 
Plan (the
 
“LTIP
 
Plan”). The
 
purpose of
 
the LTIP
 
Plan is
 
to assist
 
us and
 
our subsidiaries
 
in attracting
 
and retaining
selected individuals who are expected to contribute to our long-term success. The maximum number of
 
shares of Common Stock
available
 
for
 
awards
 
under
 
the
 
LTIP
 
Plan
 
is
2,000,000
 
of
 
which
941,593
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
disposal, constitutes issued and outstanding shares of the Company’s Common Stock for all
 
corporate purposes during the period
of restriction
 
including the right
 
to receive
 
dividends. Compensation
 
expense is a
 
fixed amount
 
based on the
 
grant date closing
price and is amortized on a straight-line basis over the vesting period. Forfeitures are
 
recognized as they occur.
Total
 
stock-based
 
compensation
 
expense
 
was
 
$
4.2
 
million,
 
$
4.1
 
million,
 
and
 
$
3.8
 
million
 
in
 
fiscal
 
2023,
 
2022,
 
and
 
2021,
respectively.
Our unrecognized
 
compensation expense
 
as a
 
result of
 
non-vested shares
 
was $
7.2
 
million at
 
June 3,
 
2023 and
 
$
7.0
 
million at
May 28,
 
2022. 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 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
Granted
84,969
54.10
Vested
(98,684)
38.25
Forfeited
(9,989)
39.69
Outstanding, June 3, 2023
294,140
$
43.72
 
Note 15 - Income Taxes
Income tax expense (benefit) consisted of the following:
 
Fiscal year ended
June 3, 2023
May 28, 2022
May 29, 2021
Current:
Federal
$
180,521
$
24,228
$
(35,090)
State
36,830
3,670
730
217,351
27,898
(34,360)
Deferred:
Federal
19,952
2,716
21,658
State
4,515
2,960
693
24,467
5,676
22,351
$
241,818
$
33,574
$
(12,009)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
Significant components of the Company’s
 
deferred tax liabilities and assets were as follows:
June 3, 2023
May 28, 2022
Deferred tax liabilities:
Property, plant and equipment
$
109,590
$
100,250
Inventories
44,986
31,987
Investment in affiliates
1,133
65
Other
5,702
5,713
Total deferred
 
tax liabilities
161,411
138,015
Deferred tax assets:
Accrued expenses
3,838
4,041
State operating loss carryforwards
78
470
Other comprehensive income
1,317
866
Other
3,966
4,442
Total deferred
 
tax assets
9,199
9,819
Net deferred tax liabilities
$
152,212
$
128,196
The differences between income tax expense (benefit) at the Company’s
 
effective income tax rate and income tax expense at the
statutory federal income tax rate were as follows:
Fiscal year end
June 3, 2023
May 28, 2022
May 29, 2021
Statutory federal income tax
$
209,418
$
34,907
$
(2,087)
State income taxes, net
32,662
5,237
1,124
Domestic manufacturers deduction
3,566
Enacted net operating loss carryback provision
(16,014)
Tax exempt
 
interest income
(9)
(50)
Reversal of outside basis in equity investment Red River
(7,310)
Non-taxable remeasurement gain Red River
(955)
Other, net
(262)
1,704
1,452
$
241,818
$
33,574
$
(12,009)
As of
 
June 3,
 
2023,
 
we had
no
 
significant
 
unrecognized
 
tax benefits.
 
Accordingly,
 
the Company
 
had
no
 
accrued interest
 
and
penalties related to uncertain tax positions.
We
 
are subject
 
to income
 
tax in
 
many jurisdictions
 
within the
 
U.S.
 
We
 
are currently
 
not under
 
audit by
 
the Internal
 
Revenue
Service
 
or
 
by
 
any
 
state
 
and
 
local
 
tax
 
authorities.
 
Tax
 
periods
 
for
 
all
 
years
 
beginning
 
with
 
fiscal
 
year
 
2020
 
remain
 
open
 
to
examination by federal and state taxing jurisdictions to which we are
 
subject.
 
 
 
58
Note 16 - Commitments and Contingencies
State of Texas
 
v. Cal-Maine Foods, Inc. d/b/a Wharton;
 
and Wharton County Foods, LLC
 
On April 23, 2020, the Company and its subsidiary Wharton County Foods, LLC (“WCF”) were named as defendants in State of
Texas
 
v.
 
Cal-Maine Foods, Inc.
 
d/b/a Wharton; and
 
Wharton County Foods,
 
LLC, Cause No. 2020-25427,
 
in the District Court
of Harris County,
 
Texas. The State
 
of Texas
 
(the “State”) asserted claims based on the
 
Company’s and
 
WCF’s alleged violation
of
 
the Texas
 
Deceptive
 
Trade
 
Practices—Consumer
 
Protection
 
Act, Tex.
 
Bus.
 
& Com.
 
Code §§
 
17.41-17.63
 
(“DTPA”).
 
The
State claimed
 
that
 
the Company
 
and
 
WCF offered
 
shell eggs
 
at
 
excessive
 
or exorbitant
 
prices
 
during
 
the
 
COVID-19
 
state of
emergency and made misleading
 
statements about shell
 
egg prices. The
 
State sought temporary and
 
permanent injunctions against
the Company and WCF to prevent further alleged violations of the DTPA,
 
along with over $
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.
 
On August 16,
 
2022,
the
 
appeals
 
court
 
reversed
 
and
 
remanded
 
the
 
case
 
back
 
to
 
the
 
trial
 
court
 
for
 
further
 
proceedings.
 
On
 
October
 
31,
 
2022,
 
the
Company and WCF appealed the First District Court’s decision to the Supreme Court of Texas.
 
On May 10, 2023, the Company
filed its brief on the merits,
 
and the State of Texas
 
filed its brief on June 29, 2023.
 
The Company filed its reply brief on July
 
14,
2023. Management believes the risk of material loss related to this matter to be remote.
Bell et al. v. Cal-Maine Foods et al.
 
On April 30, 2020, the Company was named as one of several defendants in Bell et al. v. Cal-Maine Foods et al., Case No. 1:20-
cv-461, in the Western
 
District of Texas, Austin
 
Division. The defendants include numerous grocery
 
stores, retailers, producers,
and farms.
 
Plaintiffs assert
 
that defendants
 
violated the
 
DTPA
 
by allegedly
 
demanding exorbitant
 
or excessive
 
prices for
 
eggs
during the COVID-19 state of
 
emergency. Plaintiffs request certification of a class of all consumers who
 
purchased eggs in Texas
sold,
 
distributed,
 
produced,
 
or handled
 
by any
 
of the
 
defendants
 
during
 
the COVID-19
 
state of
 
emergency.
 
Plaintiffs
 
seek
 
to
enjoin the Company
 
and other defendants from
 
selling eggs at a
 
price more than
 
10% greater than
 
the price of eggs
 
prior to the
declaration
 
of
 
the
 
state
 
of
 
emergency
 
and
 
damages
 
in
 
the
 
amount
 
of
 
$
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. On August 12,
 
2022, the Company and
 
other defendants in
 
the case filed
 
a motion to
 
dismiss the plaintiffs’ class
 
action
complaint. On January 9, 2023, the court entered an order and final judgement
 
granting the Company’s motion
 
to dismiss.
 
On February
 
8, 2023,
 
the plaintiffs
 
appealed
 
the lower
 
court’s
 
judgement
 
to the
 
United States
 
Court of
 
Appeals for
 
the Fifth
Circuit, Case No.
 
23-50112.
 
The parties filed
 
their respective appellate
 
briefs, but the
 
court has not
 
ruled on these
 
submissions.
Management believes the risk of material loss related to both matters to be remote.
Kraft Foods Global, Inc. et al. v.
 
United Egg Producers, Inc. et al.
 
As previously
 
reported, on
 
September 25,
 
2008, the
 
Company
 
was named
 
as one
 
of several
 
defendants
 
in numerous
 
antitrust
cases involving
 
the United
 
States shell
 
egg
 
industry.
 
The Company
 
settled all
 
of these
 
cases, except
 
for
 
the claims
 
of certain
plaintiffs who sought substantial
 
damages allegedly arising from
 
the purchase of egg products (as
 
opposed to shell eggs).
 
These
remaining plaintiffs
 
are Kraft Food
 
Global, Inc.,
 
General Mills, Inc.,
 
and Nestle USA,
 
Inc. (the
 
“Egg Products
 
Plaintiffs”) and,
until a subsequent settlement was reached as described below,
 
The Kellogg Company.
 
 
59
On September 13, 2019, the case with the Egg Products Plaintiffs was remanded from a multi-district litigation proceeding in the
United States District Court for
 
the Eastern District of Pennsylvania, In
 
re Processed Egg Products Antitrust
 
Litigation, MDL No.
2002,
 
to
 
the
 
United
 
States
 
District
 
Court
 
for
 
the
 
Northern
 
District
 
of
 
Illinois,
 
Kraft
 
Foods
 
Global,
 
Inc.
 
et
 
al.
 
v.
 
United
 
Egg
Producers, Inc. et al., Case No. 1:11-cv-8808, for trial. The Egg Products
 
Plaintiffs allege that the Company and other defendants
violated Section 1
 
of the Sherman Act,
 
15. U.S.C. §
 
1, by agreeing
 
to limit the production
 
of eggs and
 
thereby illegally to
 
raise
the prices that
 
plaintiffs paid for
 
processed egg products.
 
In particular,
 
the Egg Products Plaintiffs
 
are attacking certain
 
features
of the United
 
Egg Producers animal-welfare
 
guidelines and program
 
used by the
 
Company and many
 
other egg producers.
 
The
Egg Products
 
Plaintiffs seek
 
to enjoin
 
the Company
 
and other
 
defendants from
 
engaging in
 
antitrust violations
 
and seek
 
treble
money damages.
 
On May
 
2, 2022,
 
the court
 
set trial
 
for October
 
24, 2022,
 
but on
 
September 20,
 
2022, the
 
court cancelled
 
the
trial date due to COVID-19
 
protocols and converted the trial date
 
to a status hearing to reschedule
 
the jury trial. Trial
 
is now set
for October 16, 2023.
In addition,
 
on October
 
24, 2019,
 
the Company
 
entered into
 
a confidential
 
settlement agreement
 
with The
 
Kellogg Company
dismissing all
 
claims against the
 
Company for an
 
amount that did
 
not have a
 
material impact on
 
the Company’s financial condition
or results of operations. On November
 
11, 2019, a stipulation for
 
dismissal was filed with the court,
 
and on March 28, 2022, the
court dismissed the Company with prejudice.
The Company intends to
 
continue to defend the remaining
 
case with the Egg Products
 
Plaintiffs as vigorously as
 
possible based
on
 
defenses
 
which
 
the
 
Company
 
believes
 
are
 
meritorious
 
and
 
provable.
 
Adjustments,
 
if
 
any,
 
which
 
might
 
result
 
from
 
the
resolution of
 
this remaining
 
matter with
 
the Egg
 
Products Plaintiffs
 
have not
 
been reflected
 
in the
 
financial statements.
 
While
management believes that there is
 
still a reasonable possibility of a
 
material adverse outcome from the
 
case with the Egg
 
Products
Plaintiffs, at
 
the present
 
time, it
 
is not
 
possible to
 
estimate the
 
amount of
 
monetary exposure,
 
if any,
 
to the
 
Company due
 
to a
range of factors,
 
including the
 
following, among others:
 
two earlier trials
 
based on substantially
 
the same
 
facts and
 
legal arguments
resulted in findings of
 
no conspiracy and/or damages;
 
this trial will be before
 
a different judge
 
and jury in a different
 
court than
prior related cases; there are significant factual issues to
 
be resolved; and there are requests for damages
 
other than compensatory
damages (i.e., injunction and treble money damages).
State of Oklahoma Watershed Pollution
 
Litigation
On June
 
18, 2005,
 
the State
 
of Oklahoma
 
filed suit,
 
in the
 
United States
 
District Court
 
for the
 
Northern District
 
of Oklahoma,
against Cal-Maine Foods, Inc. and Tyson Foods, Inc., Cobb-Vantress, Inc., Cargill,
 
Inc., George’s, Inc., Peterson Farms, Inc. and
Simmons Foods, Inc., and certain
 
of their affiliates. The State
 
of Oklahoma claims that through the
 
disposal of chicken litter the
defendants
 
polluted
 
the Illinois
 
River
 
Watershed.
 
This
 
watershed
 
provides
 
water to
 
eastern Oklahoma.
 
The complaint
 
sought
injunctive relief and monetary damages, but the claim for monetary
 
damages was dismissed by the court. Cal-Maine Foods, Inc.
discontinued operations
 
in the watershed
 
in or around
 
2005. Since the litigation
 
began, Cal-Maine Foods,
 
Inc. purchased
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.
 
We
 
also
 
have
 
a
 
number
 
of
 
small
 
contract
producers that operate in the area.
The non-jury trial in the case began in September 2009
 
and concluded in February 2010. On January 18, 2023, the court entered
findings of
 
fact and
 
conclusions of
 
law in favor
 
of the
 
State of
 
Oklahoma, but
 
no penalties
 
were assessed.
 
The court
 
found the
defendants liable for state law nuisance, federal
 
common law nuisance, and state law
 
trespass. The court also found the
 
producers
vicariously liable for the actions of
 
their contract producers. The court directed the
 
parties to confer in attempt to
 
reach agreement
on appropriate remedies. On June 12, 2023, the court ordered the
 
parties to mediate before the Tenth Circuit Chief Judge Deanell
Reece Tacha
 
and instructed the parties
 
to file a joint
 
status report fourteen days
 
following mediation. The
 
mediation has not yet
been set but is expected to be in the September to October time frame this fall. While management believes
 
there is a reasonable
possibility of a material loss from the case, at the present
 
time, it is not possible to estimate the amount of
 
monetary exposure, if
any,
 
to the Company
 
due to a
 
range of factors,
 
including the following,
 
among others: uncertainties
 
inherent in any
 
assessment
of potential costs
 
associated with injunctive
 
relief or other
 
penalties based on
 
a decision in
 
a case tried over
 
13 years ago based
on
 
environmental
 
conditions
 
that
 
existed
 
at
 
the
 
time,
 
the
 
lack
 
of
 
guidance
 
from
 
the
 
court
 
as
 
to
 
what
 
might
 
be
 
considered
appropriate remedies, the ongoing negotiations with the State on appropriate remedies and upcoming mediation,
 
and uncertainty
regarding
 
what
 
our
 
proportionate
 
share
 
of
 
any
 
remedy
 
would
 
be,
 
although
 
we
 
believe
 
that
 
our
 
share
 
compared
 
to
 
the
 
other
defendants is small.
Other Matters
In addition to
 
the above, the Company
 
is involved in
 
various other claims
 
and litigation incidental
 
to its business. Although
 
the
outcome of these matters cannot be determined with certainty, management, upon the advice of counsel,
 
is of the opinion that the
final outcome should not have a material effect on the Company’s
 
consolidated results of operations or financial position.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
SCHEDULE II - VALUATION
 
AND QUALIFYING ACCOUNTS
Fiscal Years
 
ended June 3, 2023, May 28, 2022, and May 29, 2021
 
(in thousands)
Description
Balance at
 
Beginning of Period
Charged to Cost
 
and Expense
Write-off
 
of Accounts
Balance at
 
End of Period
Year
 
ended June 3, 2023
Allowance for doubtful accounts
$
775
$
(148)
$
48
$
579
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
 
 
 
 
61
ITEM
 
9.
 
CHANGES
 
IN
 
AND
 
DISAGREEMENTS
 
WITH
 
ACCOUNTANTS
 
ON
 
ACCOUNTING
 
AND
 
FINANCIAL
DISCLOSURE
None.
 
ITEM 9A.
 
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information
 
required to be disclosed by
us in
 
the reports
 
we file
 
or submit
 
under the
 
Securities Exchange
 
Act of
 
1934, as
 
amended (the
 
“Exchange Act”)
 
is recorded,
processed, summarized
 
and reported,
 
within the time
 
periods specified in
 
the Securities and
 
Exchange Commission’s
 
rules and
forms. Disclosure
 
controls
 
and
 
procedures
 
include,
 
without
 
limitation,
 
controls
 
and
 
procedures
 
designed
 
to
 
ensure
 
that
information
 
required
 
to
 
be
 
disclosed
 
by
 
us
 
in
 
the
 
reports
 
that
 
we
 
file
 
or
 
submit
 
under
 
the
 
Exchange
 
Act
 
is
 
accumulated
 
and
communicated to management,
 
including our principal
 
executive and principal
 
financial officers, or
 
persons performing similar
functions, as appropriate
 
to allow
 
timely decisions regarding
 
required disclosure. Based
 
on an
 
evaluation of
 
our disclosure controls
and procedures conducted by our
 
Chief Executive Officer and Chief
 
Financial Officer, together with other financial officers, such
officers concluded that our disclosure controls and procedures
 
were effective as of June 3, 2023
 
at the reasonable assurance level.
Internal Control Over Financial Reporting
(a)
 
Management’s Report
 
on Internal Control Over Financial Reporting
The following
 
sets forth,
 
in accordance
 
with Section
 
404(a) of
 
the Sarbanes-Oxley
 
Act of
 
2002 and
 
Item 308
 
of the
 
Securities
and Exchange Commission’s Regulation
 
S-K, the report of management on our internal control over financial reporting.
1.
Our management is responsible for establishing and maintaining adequate internal control over financial
 
reporting.
“Internal control over financial reporting”
 
is a process designed
 
by, or under the supervision of, our
 
Chief Executive
Officer and Chief
 
Financial Officer,
 
together with other financial
 
officers, and effected
 
by our Board of
 
Directors,
management
 
and other
 
personnel, to
 
provide reasonable
 
assurance
 
regarding the
 
reliability of
 
financial reporting
and the preparation of financial statements for external purposes in accordance
 
with generally accepted accounting
principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements
 
in
 
accordance
 
with
 
generally
 
accepted
 
accounting
 
principles,
 
and
 
that
 
our
 
receipts
 
and
expenditures are being made only in accordance with
 
authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection
 
of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial
 
statements.
2.
 
Our
 
management,
 
in
 
accordance
 
with
 
Rule
 
13a-15(c)
 
under the
 
Exchange
 
Act
 
and
 
with the
 
participation
 
of
 
our
Chief
 
Executive
 
Officer
 
and
 
Chief
 
Financial
 
Officer,
 
together
 
with
 
other
 
financial
 
officers,
 
evaluated
 
the
effectiveness
 
of
 
our
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
June
 
3,
 
2023. The
 
framework
 
on
 
which
management’s
 
evaluation
 
of
 
our
 
internal
 
control
 
over
 
financial
 
reporting
 
is
 
based
 
is
 
the
 
“Internal
 
Control
 
Integrated
 
Framework”
published
 
in
 
2013
 
by
 
the
 
Committee
 
of
 
Sponsoring
 
Organizations
 
(“COSO”)
 
of
 
the
Treadway Commission.
3.
 
Management has
 
determined that
 
our internal
 
control over
 
financial reporting
 
as of June
 
3, 2023
 
is effective.
 
It is
noted
 
that
 
internal
 
control
 
over
 
financial
 
reporting
 
cannot
 
provide
 
absolute
 
assurance
 
of
 
achieving
 
financial
reporting objectives, but rather reasonable assurance of achieving
 
such objectives.
4.
 
The attestation report of FROST,
 
PLLC on our internal control over financial reporting,
 
which includes that firm’s
opinion on the effectiveness of our internal control over financial
 
reporting, is set forth below.
(b)
 
Attestation Report of the Registrant’s
 
Public Accounting Firm
 
 
 
 
 
 
62
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Ridgeland, Mississippi
Opinion on Internal Control Over Financial Reporting
We
 
have audited
 
Cal-Maine Foods,
 
Inc. and
 
Subsidiaries’ internal
 
control over
 
financial reporting
 
as of June
 
3, 2023,
based
 
on
 
criteria
 
established
 
in
 
2013
 
Internal
 
Control
 
 
Integrated
 
Framework
 
issued
 
by
 
the
 
Committee
 
of
 
Sponsoring
Organizations of
 
the Treadway
 
Commission (“COSO”).
 
In our
 
opinion, Cal-Maine
 
Foods, Inc. and
 
Subsidiaries maintained,
 
in
all material
 
respects,
 
effective
 
internal
 
control
 
over
 
financial
 
reporting
 
as June
 
3, 2023,
 
based
 
on
 
criteria
 
established
 
in
 
2013
Internal Control – Integrated Framework issued by the COSO.
We
 
also have
 
audited, in
 
accordance with
 
the standards
 
of the
 
Public Company
 
Accounting Oversight
 
Board (United
States) (“PCAOB”), the consolidated
 
balance sheets and the
 
related consolidated statements of
 
income, comprehensive income,
stockholders’ equity,
 
and cash flows of Cal-Maine Foods,
 
Inc. and Subsidiaries and our
 
report dated July 25, 2023 expressed
 
an
unqualified opinion.
Basis for Opinion
Cal-Maine
 
Foods,
 
Inc.
 
and
 
Subsidiaries’
 
management
 
is
 
responsible
 
for
 
maintaining
 
effective
 
internal
 
control
 
over
financial
 
reporting,
 
and
 
for
 
their
 
assessment
 
of
 
the
 
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
included
 
in
 
the
accompanying Management’s
 
Report on Internal
 
Control Over Financial
 
Reporting in Item 9A.
 
Our responsibility is
 
to express
an opinion on the entities’ internal control over financial reporting based
 
on our audit. We are a public accounting firm registered
with the PCAOB and
 
are required to be
 
independent with respect to
 
Cal-Maine Foods, Inc.
 
and Subsidiaries in accordance
 
with
the
 
U.S.
 
federal
 
securities
 
laws and
 
the
 
applicable
 
rules
 
and
 
regulations
 
of the
 
Securities and
 
Exchange
 
Commission
 
and
 
the
PCAOB.
We
 
conducted
 
our
 
audit in
 
accordance
 
with
 
the
 
standards
 
of
 
the
 
PCOAB. Those
 
standards
 
require
 
that
 
we
 
plan
 
and
perform the audit to obtain reasonable assurance about whether effective internal control over financial
 
reporting was maintained
in
 
all material
 
respects.
 
Our audit
 
of internal
 
control over
 
financial
 
reporting
 
included
 
obtaining
 
an understanding
 
of internal
control
 
over
 
financial
 
reporting,
 
assessing the
 
risk
 
that
 
a
 
material
 
weakness
 
exists,
 
and
 
testing
 
and
 
evaluating
 
the design
 
and
operating effectiveness
 
of internal control based
 
on the assessed risk.
 
Our audit also included
 
performing such other procedures
as we considered necessary in the circumstances. We
 
believe our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
 
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 25, 2023
 
 
 
 
 
 
 
63
(c)
 
Changes in Internal Control Over Financial Reporting
In
 
connection
 
with
 
its
 
evaluation
 
of
 
the
 
effectiveness,
 
as
 
of
 
June
 
3,
 
2023,
 
of
 
our
 
internal
 
control
 
over
 
financial
 
reporting,
management determined that there was no change
 
in our internal control over financial reporting that
 
occurred during the fourth
quarter
 
ended June
 
3, 2023,
 
that has
 
materially
 
affected,
 
or is
 
reasonably
 
likely to
 
materially
 
affect,
 
our
 
internal
 
control over
financial reporting.
 
ITEM 9B.
 
OTHER INFORMATION
Not applicable.
 
ITEM 9C.
 
DISCLOSURE REGARDING FOREIGN JURISDICTIONS
 
THAT PREVENT INSPECTIONS
Not applicable.
 
PART
 
III.
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
 
GOVERNANCE
Except as set forth below, the information concerning directors, executive officers and corporate governance required by Item 10
is
 
incorporated
 
by
 
reference
 
from
 
our
 
definitive
 
proxy
 
statement
 
which
 
is
 
to
 
be
 
filed
 
pursuant
 
to
 
Regulation
 
14A
 
under
 
the
Securities Exchange Act of 1934 in connection with our 2023 Annual
 
Meeting of Shareholders.
We have adopted a Code of Ethics and
 
Business Conduct that applies to
 
our directors, officers and employees, including the chief
executive
 
officer
 
and principal
 
financial and
 
accounting
 
officers of
 
the Company.
 
We
 
will provide
 
a copy
 
of the
 
code free
 
of
charge to any person that requests a copy by writing to:
Cal-Maine Foods, Inc.
P.O.
 
Box 2960
Jackson, Mississippi 39207
Attn.:
 
Investor Relations
Requests can be made by phone at (601) 948-6813.
A copy is also
 
available at our
 
website www.calmainefoods.com
 
under the heading
 
“Investors – Corporate
 
Governance – Code
of Ethics.” We
 
intend to disclose
 
any amendments
 
to, or waivers
 
from, the
 
Code of Conduct
 
and Ethics for
 
Directors, Officers
and
 
Employees
 
on our
 
website promptly
 
following
 
the date
 
of any
 
such amendment
 
or waiver.
 
Information
 
contained
 
on our
website is not a part of this report.
 
ITEM 11.
 
EXECUTIVE COMPENSATION
The information concerning executive
 
compensation required by Item 11
 
is incorporated by reference from our
 
definitive proxy
statement which is to
 
be filed pursuant to Regulation
 
14A under the Securities
 
Exchange Act of 1934 in
 
connection with our 2023
Annual Meeting of Shareholders.
 
ITEM
 
12.
 
SECURITY
 
OWNERSHIP
 
OF
 
CERTAIN
 
BENEFICIAL
 
OWNERS
 
AND MANAGEMENT
 
AND
RELATED STOCKHOLDER
 
MATTERS
The information
 
concerning security
 
ownership of
 
certain beneficial
 
owners and
 
management and
 
related stockholder
 
matters
required by Item 12 is incorporated
 
by reference from our definitive proxy
 
statement which is to be filed pursuant
 
to Regulation
14A under the Securities Exchange Act of 1934 in connection with our 2023
 
Annual Meeting of Shareholders.
 
ITEM 13.
 
CERTAIN
 
RELATIONSHIPS
 
AND RELATED TRANSACTI
 
ONS, AND DIRECTOR INDEPENDENCE
The
 
information
 
concerning
 
certain
 
relationships
 
and
 
related
 
transactions,
 
and
 
director
 
independence
 
required
 
by
 
Item
 
13
 
is
incorporated by reference from
 
our definitive proxy
 
statement which is
 
to be filed
 
pursuant to Regulation
 
14A under the
 
Securities
Exchange Act of 1934 in connection with our 2023 Annual Meeting of Shareholders.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
ITEM 14.
 
PRINCIPAL ACCOUNTING
 
FEES AND SERVICES
The information
 
concerning principal
 
accounting fees
 
and services
 
required by
 
Item 14
 
is incorporated
 
by reference
 
from our
definitive
 
proxy
 
statement
 
which
 
is
 
to
 
be
 
filed
 
pursuant
 
to
 
Regulation
 
14A
 
under
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934
 
in
connection with our 2023 Annual Meeting of Shareholders.
 
PART
 
IV.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT
 
SCHEDULES
 
(a)(1)
 
Financial Statements
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are included in Item
8 and are filed herewith:
 
 
(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*
10.9*
10.10*
10.11*
21**
23.1**
31.1**
31.2**
 
32***
101.SCH***+
Inline XBRL Taxonomy
 
Extension Schema Document
 
101.CAL***+
Inline XBRL Taxonomy
 
Extension Calculation Linkbase Document
101.DEF***+
Inline XBRL Taxonomy
 
Extension Definition Linkbase Document
101.LAB***+
Inline XBRL Taxonomy
 
Extension Label Linkbase Document
101.PRE***+
Inline XBRL Taxonomy
 
Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
 
in Exhibit 101)
*
 
Management contract or compensatory plan or arrangement
**
 
Filed herewith as an Exhibit
***
 
Furnished herewith as an Exhibit
 
Submitted electronically with this Annual Report on Form 10-K
(c)
 
Financial Statement Schedules Required by Regulation S-X
The financial statement schedule required by Regulation S-X is filed at page 60. All other schedules for which provision is made
in the
 
applicable accounting regulations
 
of the
 
Securities and
 
Exchange Commission are
 
not required
 
under the
 
related instructions
or are inapplicable and therefore have been omitted.
 
 
66
ITEM 16. FORM 10-K SUMMARY
Not applicable
 
 
 
 
 
 
 
 
 
 
 
 
 
67
SIGNATURES
Pursuant to
 
the requirements of
 
Section 13 or
 
15(d) of the
 
Securities Exchange
 
Act of 1934,
 
the registrant has
 
duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
 
in Ridgeland, Mississippi.
CAL-MAINE FOODS, INC.
/s/ Sherman L. Miller
Sherman L. Miller
President and Chief Executive Officer
Date:
July 25, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
 
Date
 
 
 
/s/
 
Sherman L. Miller
 
President, Chief Executive Officer
 
July 25, 2023
Sherman L. Miller
 
and Director
 
 
(Principal Executive Officer)
 
 
 
 
/s/
 
Max P.
 
Bowman
 
Vice President, Treasurer,
 
Secretary,
 
 
July 25, 2023
Max P.
 
Bowman
 
Chief Financial Officer and Director
 
 
(Principal Financial Officer)
 
 
 
 
/s/ Matthew S. Glover
 
Vice President, Accounting
 
July 25, 2023
Matthew S. Glover
 
(Principal Accounting Officer)
 
 
 
 
/s/
 
Adolphus B. Baker
 
Chairman of the Board and Director
 
July 25, 2023
Adolphus B. Baker
 
 
 
 
 
/s/
 
Letitia C. Hughes
 
Director
 
July 25, 2023
Letitia C. Hughes
 
 
 
 
 
 
/s/
 
James E. Poole
 
Director
 
July 25, 2023
James E. Poole
 
 
 
 
 
 
/s/
 
Steve W. Sanders
 
Director
 
July 25, 2023
Steve W. Sanders
 
 
 
 
/s/
 
Camille S. Young
 
Director
July 25, 2023
Camille S. Young