Summary of Significant Accounting Policies (Policy)

12 Months Ended

May 28, 2022

Summary of Significant Accounting Policies [Abstract]

Nature of Operations

Nature of Operations

Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading, packing and sale of

fresh shell eggs, including nutritionally-enhanced, cage-free, organic, free-range, pasture-raised and brown eggs. The Company,

which is headquartered in Ridgeland, Mississippi, is the largest producer and distributor of fresh shell eggs in the United States

and sells the majority of its shell eggs in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of

the United States.

Principles of Consolidation

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

Fiscal Year

The Company’s fiscal year-end is on the Saturday closest to May 31. Each of the year-to-date periods ended

May 28, 2022

, May

29, 2021, and May 30, 2020, included

52

 weeks.

Use of Estimates

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

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash

equivalents. We maintain bank accounts that are insured by the Federal Deposit Insurance Corporation up to $250,000. The

Company routinely maintains cash balances with certain financial institutions in excess of federally insured amounts. The

Company has not experienced any loss in such accounts. The Company manages this risk through maintaining cash deposits and

other highly liquid investments in high quality financial institutions.

We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for receiving

cash, concentration accounts to which funds are moved, and zero-balance disbursement accounts for funding accounts payable.

Checks issued, but not presented to the banks for payment, may result in negative book cash balances, which are included in

accounts payable. At May 29, 2021, checks outstanding in excess of related book cash balances totaled $

7.5

 million, respectively.

Investment Securities

Investment Securities

Our investment securities are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC

320”). The Company considers its debt securities for which there is a determinable fair market value, and there are no restrictions

on the Company's ability to sell within the next 12 months, as available-for-sale. We classify these securities as current, because

the amounts invested are available for current operations. Available -for-sale securities are carried at fair value, with unrealized

gains and losses reported as a separate component of stockholders’ equity. The Company regularly evaluates changes to the rating

of its debt securities by credit agencies and economic conditions to assess and record any expected credit losses through allowance

for credit losses, limited to the amount that fair value was less than the amortized cost basis. The cost basis for realized gains and

losses on available-for-sale securities is determined by the specific identification method. Gains and losses are recognized in other

income (expenses) as Other, net in the Company's Consolidated Statements of Income. Investments in mutual funds are classified

as “Other long-term assets” in the Company’s Consolidated Balance Sheets.

Trade Receivables

Trade Receivables 

Trade receivables are stated at their carrying values, which include a reserve for credit losses. At May 28, 2022 and May 29,

2021, reserves for credit losses were $

775

 thousand and $

795

 thousand, respectively. The Company extends credit to customers

based on an evaluation of each customer's financial condition and credit history. Collateral is generally not required. The

Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and monitoring

procedures. In determining our reserve for credit losses, receivables are assigned an expected loss based on historical loss

information adjusted as needed for economic and other forward-looking factors. At May 28, 2022 and May 29, 2021,

one

customer accounted for approximately

27.9

% and

23.8

% of the Company’s trade accounts receivable, respectively.

Inventories

Inventories of eggs, feed, supplies and flocks are valued principally at the lower of cost (first-in, first-out method) or net realizable

value.

The cost associated with flocks, consisting principally of chicks, feed, labor, contractor payments and overhead costs, are

accumulated during a growing period of approximately

22

 weeks. Flock costs are amortized to cost of sales over the productive

lives of the flocks, generally

one

 to

two years

. Flock mortality is charged to cost of sales as incurred.

The Company does not disclose the gross cost and accumulated amortization with respect to its flock inventories since this

information is not utilized by management in the operation of the Company.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful

lives, which are

15

 to

25

 years for buildings and improvements and

3

 to

12

 years for machinery and equipment. Repairs and

maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When

property, plant, and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated

depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost

incurred on funds used to construct property, plant, and equipment as part of the asset to which it relates and amortizes such cost

over the asset’s estimated useful life. When certain events or changes in operating conditions occur, asset lives may be adjusted

and an impairment assessment may be performed on the recoverability of the carrying amounts.

Leases

The Company determines if an arrangement is a lease at inception of the arrangement and classifies it as an operating lease or

finance lease. We recognize the right to use an underlying asset for the lease term as a right-of-use ("ROU") asset on our balance

sheet. A lease liability is recorded to represent our obligation to make lease payments over the term of the lease. These assets and

liabilities are included in our Consolidated Balance Sheet in Finance lease right-of-use asset, Operating lease right-of-use asset,

Current portion of finance lease obligation, Current portion of operating lease obligation, Long-term finance lease obligation, and

Long-term operating lease obligation.

The Company records ROU assets and lease obligations based on the discounted future minimum lease payments over the term

of the lease. When the rate implicit in the lease is not easily determinable, the Company’s incremental borrowing rate is used to

calculate the present value of the future lease payments. The Company elected not to recognize ROU assets and lease obligations

for leases with an initial term of 12 months or less. Lease expense for operating leases is recognized on a straight-line basis over

the lease term.

Investments in Unconsolidated Entities

The equity method of accounting is used when the Company has a 20% to 50% interest in other entities or when the Company

exercises significant influence over the entity. Under the equity method, original investments are recorded at cost and adjusted

by the Company’s share of undistributed earnings or losses of these entities. Nonmarketable investments in which the Company

has less than a 20% interest and in which it does not have the ability to exercise significant influence over the investee are initially

recorded at cost, and periodically reviewed for impairment.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill is

evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test

is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value

of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of

any impairment.

Inventories

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

Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful

lives, which are

15

 to

25

 years for buildings and improvements and

3

 to

12

 years for machinery and equipment. Repairs and

maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When

property, plant, and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated

depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost

incurred on funds used to construct property, plant, and equipment as part of the asset to which it relates and amortizes such cost

over the asset’s estimated useful life. When certain events or changes in operating conditions occur, asset lives may be adjusted

and an impairment assessment may be performed on the recoverability of the carrying amounts.

Leases

Leases

The Company determines if an arrangement is a lease at inception of the arrangement and classifies it as an operating lease or

finance lease. We recognize the right to use an underlying asset for the lease term as a right-of-use ("ROU") asset on our balance

sheet. A lease liability is recorded to represent our obligation to make lease payments over the term of the lease. These assets and

liabilities are included in our Consolidated Balance Sheet in Finance lease right-of-use asset, Operating lease right-of-use asset,

Current portion of finance lease obligation, Current portion of operating lease obligation, Long-term finance lease obligation, and

Long-term operating lease obligation.

The Company records ROU assets and lease obligations based on the discounted future minimum lease payments over the term

of the lease. When the rate implicit in the lease is not easily determinable, the Company’s incremental borrowing rate is used to

calculate the present value of the future lease payments. The Company elected not to recognize ROU assets and lease obligations

for leases with an initial term of 12 months or less. Lease expense for operating leases is recognized on a straight-line basis over

the lease term.

Investments in Unconsolidated Entities

Investments in Unconsolidated Entities

The equity method of accounting is used when the Company has a 20% to 50% interest in other entities or when the Company

exercises significant influence over the entity. Under the equity method, original investments are recorded at cost and adjusted

by the Company’s share of undistributed earnings or losses of these entities. Nonmarketable investments in which the Company

has less than a 20% interest and in which it does not have the ability to exercise significant influence over the investee are initially

recorded at cost, and periodically reviewed for impairment.

Goodwill

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill is

evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test

is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value

of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of

any impairment.

Intangible Assets

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

Accrued Self Insurance

We use a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for health and welfare,

workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks retained are estimated, in

part, by considering claims experience, demographic factors, severity factors and other actuarial assumptions.

Treasury Stock

Treasury Stock

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 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

Advertising Costs

The Company expensed advertising costs as incurred of $

12.6

 million, $

11.7

 million, and $

9.0

 million in fiscal 2022, 2021, and

2020, respectively.

Income Taxes

Income Taxes

Income taxes are accounted for using the liability method. Deferred income taxes reflect the net tax effects of temporary

differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for

income tax purposes. The Company’s policy with respect to evaluating uncertain tax positions is based upon whether management

believes it is more likely than not the uncertain tax positions will be sustained upon review by the taxing authorities. The tax

positions must meet the more-likely-than-not recognition threshold with consideration given to the amounts and probabilities of

the outcomes that could be realized upon settlement using the facts, circumstances and information at the reporting date. The

Company will reflect only the portion of the tax benefit that will be sustained upon resolution of the position and applicable

interest on the portion of the tax benefit not recognized. The Company initially and subsequently measures the largest amount of

tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority that has full knowledge of all

relevant information. The Company records interest and penalties on uncertain tax positions as a component of income tax

expense. Based upon management’s assessment, there are no uncertain tax positions expected to have a material impact on the

Company’s consolidated financial statements.

Stock Based Compensation

Stock Based Compensation

We account for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC

718 requires all share-based payments to employees and directors, including grants of employee stock options, restricted stock

and performance-based shares, to be recognized in the statement of income based on their fair values. ASC 718 requires the

benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. See

 for more information.

Business Combinations

Business Combinations

The Company applies the acquisition method of accounting, which requires that once control is obtained, all the assets acquired

and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values at

the date of acquisition. The fair values of identifiable assets and liabilities are determined internally and requires estimates and

the use of various valuation techniques. When a market value is not readily available, our internal valuation methodology

considers the remaining estimated life of the assets acquired and what management believes is the market value for those assets. 

We typically use the income method approach for intangible assets acquired in a business combination. Significant estimates in

valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates, discount

rates and useful lives. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill.

Loss Contingencies

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

New Accounting Pronouncements and Policies

Effective May 31, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which is

intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial

instruments held by financial institutions and other organizations. The guidance replaces the prior “incurred loss” approach with

an “expected loss” model and requires measurement of all expected credit losses for financial assets held at the reporting date

based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted the guidance

on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the period of

adoption. The Company evaluated its current methodology of estimating allowance for doubtful accounts and the risk profile of

its receivables portfolio and developed a model that includes the qualitative and forecasting aspects of the “expected loss” model

under the amended guidance. The Company finalized its assessment of the impact of the amended guidance and recorded a $

422

thousand cumulative increase to retained earnings at May 31, 2020.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact

on our Consolidated Financial Statements.