1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended
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The aggregate market value, as reported by The NASDAQ Global Select Market, of the registrant’s Common Stock, $0.01 par value, held by
non-affiliates at November 26, 2021, which was the date of the last business day of the registrant’s most recently completed second fiscal
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1,428,527,739
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As of July 19, 2022,
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement
for its 2022 annual meeting of stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
15.
16.
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PART I.
FORWARD -LOOKING STATEMENTS
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to, among other things,
our shell egg business, including estimated future production data, expected construction schedules, projected construction costs,
potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on
our business of the COVID-19 pandemic, potential future impact on our business of new legislation, rules or policies, potential
outcomes of legal proceedings, and other projected operating data, including anticipated results of operations and financial
condition. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,”
“may,” “should,” “plans,” “projected,” “contemplates,” “anticipates,” or similar words. Actual outcomes or results could differ
materially from those projected in the forward-looking statements. The forward-looking statements are based on management’s
current intent, belief, expectations, estimates, and projections regarding the Company and its industry. These statements are not
guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and
may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-
looking statements include, among others, (i) the risk factors set forth in Item 1A Risk Factors and elsewhere in this report as
well as those included in other reports we file from time to time with the Securities and Exchange Commission (the “SEC”)
(including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell
egg business (including disease, pests, weather conditions, and potential for product recall), including but not limited to the most
recent outbreak of highly pathogenic avian influenza (“HPAI”) affecting poultry in the U.S., Canada and other countries that was
first detected in commercial flocks in the U.S. in February 2022, (iii) changes in the demand for and market prices of shell eggs
and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations
that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to
completing a pending acquisition not to be met, (vi) risks relating to the evolving COVID-19 pandemic, including without
limitation increased costs and rising inflation and interest rates, which generally have been exacerbated by Russia’s invasion of
Ukraine starting in February 2022, (vii) our ability to retain existing customers, acquire new customers and grow our product
mix, and (viii) adverse results in pending litigation matters. Readers are cautioned not to place undue reliance on forward-looking
statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there
can be no assurance that these forward-looking statements will prove to be accurate. Further, forward-looking statements included
herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required
by law, we disclaim any intent or obligation to publicly update these forward-looking statements, whether because of new
information, future events, or otherwise.
ITEM 1. BUSINESS
Our Business
We are the largest producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable producer
and reliable supplier of consistent, high quality fresh shell eggs and egg products in the country, demonstrating a "Culture of
Sustainability" in everything we do, and creating value for our shareholders, customers, team members and communities. We sell
most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs.
Our integrated operations consist of hatching chicks, growing and maintaining flocks of pullets, layers and breeders,
manufacturing feed, and producing, processing, packaging, and distributing shell eggs. Layers are mature female chickens, pullets
are female chickens usually less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production flocks. Our total flock as of May 28, 2022 consisted of approximately 42.2 million layers and 11.5
million pullets and breeders.
Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs. Specialty
eggs encompass a broad range of products. We classify nutritionally enhanced, cage-free, organic, free-range, pasture-raised and
brown eggs as specialty eggs for accounting and reporting purposes. We classify all other shell eggs as conventional products.
While we report separate sales information for these egg types, there are many cost factors that are not specifically available for
conventional or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these
types of eggs on a consolidated basis based on the demands of our customers.
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Throughout the Company’s history, we have acquired other companies in our industry. Since 1989 through our fiscal year ended
May 28, 2022, we have completed 23 acquisitions ranging in size from 160 thousand layers to 7.5 million layers. Most recently,
effective on May 30, 2021, the Company acquired the remaining 50% membership interest in Red River Valley Egg Farm, LLC
(“Red River”), which owns and operates a specialty shell egg production complex that includes 1.7 million cage-free hens. For
further description of this transaction, refer to Part II. Item 8. Notes to the Consolidated Financial Statements,
.
In fiscal 2021, we announced that our Board of Directors approved several new capital projects with an estimated cost of $105
million to further expand the Company’s cage-free egg production capabilities. These projects include expanding our cage-free
egg production at our Okeechobee, Florida, production facility. The project is designed to include the construction of two cage-
free layer houses and one cage-free pullet house with capacity for approximately 400 thousand cage-free hens and 210 thousand
pullets, respectively. Construction is well underway, with the first pullets placed in mid-May 2022, the first layer house to be
finished by September 2022, and with the second layer house and project completion expected by January 2023. In Delta, Utah,
we are constructing four new cage-free layer houses and two pullet house conversions with capacity for approximately 810
thousand cage-free layer hens, which is expected to be completed by fall of 2023. At our Guthrie, Kentucky farm, we are
converting existing facilities into nine cage-free layer houses and two pullet houses with capacity for approximately 953 thousand
cage-free hens, which is expected to be completed by spring of 2025. The Company plans to fund these projects through a
combination of available cash on hand, investments and operating cash flow.
In October 2021, we announced a strategic investment in MeadowCreek Foods, LLC, that will specialize in high value
commercial product solutions targeting specific needs in the food industry. For further description of this transaction, refer to “—
Egg Products” below.
Effective December 5, 2021, we made an additional investment in our joint venture Southwest Specialty Eggs, LLC (“Southwest
Specialty”), to acquire warehouse and distribution capability to expand Southwest Specialty’ customer base in the southern
California, Arizona and Nevada markets.
Subsequent to the end of fourth quarter 2022, the Company’s Board of Directors approved a capital project to expand the
Company’s cage-free production capabilities. The proposed project at Chase, Kansas will convert existing conventional layer
capacity to cage-free capacity for approximately 1.5 million cage-free hens and include remodels of all remaining pullet facilities.
Work is expected to commence immediately with project completion expected by year-end 2025.
When we use “we,” “us,” “our,” or the “Company” in this report, we mean Cal-Maine Foods, Inc. and our consolidated
subsidiaries, unless otherwise indicated or the context otherwise requires. Our fiscal year 2022 ended May 28, 2022, and the first
three fiscal quarters of fiscal 2022 ended August 28, 2021, November 27, 2021, and February 26, 2022. All references herein to
a fiscal year means our fiscal year and all references to a year mean a calendar year.
Industry Background
According to the U.S. Department of Agriculture (“USDA”) Agricultural Marketing Service in 2021, approximately 71% of table
eggs produced in the U.S. were sold as shell eggs, with 55.7% sold through food at home outlets such as grocery and convenience
stores, 11.9% sold to food-away-from home channels such as restaurants and 3.7% that are exported. The USDA estimates that
29% of eggs produced in the U.S. are sold as egg products (shell eggs broken and sold in liquid, frozen, or dried form) to
institutions (e.g. companies producing baked goods). For information about egg producers in the U.S., see “Competition” below.
We are closely monitoring the latest outbreak of highly pathogenic avian influenza (“HPAI”) that was first detected in commercial
flocks in the U.S. in February 2022. According to the U.S. Centers for Disease Control and Prevention, these detections do not
present an immediate public health concern. There have been no positive tests for HPAI at any Cal-Maine Foods’ owned or
contracted production facility as of July 19, 2022. The USDA division of Animal and Plant Health Inspection Service (“APHIS”)
reported that approximately 30.7 million commercial layer hens have been depopulated due to HPAI, representing approximately
9.5% of the table layer flock based on February 2022 reported layer numbers. Pullets impacted comprise approximately 1.0
million. According to APHIS, the most recently reported outbreaks of HPAI affecting commercial layer hens and pullets occurred
June 7, 2022 and June 9, 2022, respectively. We believe the HPAI outbreak will continue to impact the overall supply of eggs
until the layer hen flock is fully replenished. While no farm is immune from HPAI, we believe we have implemented and continue
to maintain robust biosecurity programs across our locations. We are also working closely with federal, state and local government
officials and focused industry groups to mitigate the risk of this and future outbreaks and effectively manage our response, if
needed.
Given historical consumption trends, we believe in the U.S. that general demand for eggs increases basically in line with the
overall U.S. population growth. Specific events can impact egg consumption in a particular period, as occurred with the 2015
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HPAI outbreak, the pandemic, and the most recent HPAI outbreak. For example, in 2015, egg consumption decreased
approximately 3.4% compared with 2014, primarily tied to a shortage of eggs resulting from an outbreak of HPAI in U.S.
commercial flocks in 2014 and 2015. In 2016, consumption rebounded and increased approximately 6.0% versus 2015 and 2.5%
versus the pre-shortage level of 2014. According to the USDA’s Economic Research Service, estimated annual per capita
consumption in the United States between 2016 and 2021 varied, ranging from 271 to 288 eggs. In calendar year 2021, per capita
U.S. consumption was estimated to be 280 eggs, or approximately 5.4 eggs per person per week. The USDA calculates per capita
consumption by dividing total shell egg disappearance in the U.S. by the U.S. population. Sales prices of eggs are dependent upon
many factors other than consumption. For information about shell egg prices see “Prices for Shell Eggs” below.
Prices for Shell Eggs
Wholesale shell egg sales prices are a critical component of revenue for the Company. Wholesale shell egg prices are volatile,
cyclical, and impacted by a number of factors, including consumer demand, seasonal fluctuations, the number and productivity
of laying hens in the U.S., the pandemic and outbreaks of HPAI . While we use several different pricing mechanisms in pricing
agreements with our customers, we believe the majority of conventional shell eggs sold in the U.S. in the retail and foodservice
channels are sold at prices that take into account, in varying ways, independently quoted wholesale market prices, such as those
published by Urner Barry Publications, Inc. ("UB") for shell eggs. We sell the majority of our conventional shell eggs based on
formulas that take into account, in varying ways, independently quoted regional wholesale market prices for shell eggs or formulas
related to our costs of production, which include the cost of corn and soybean meal. We do not sell eggs directly to consumers or
set the prices at which eggs are sold to consumers.
The weekly average price for the southeast region for large white conventional shell eggs as quoted by UB is shown below for
the past three fiscal years along with the five-year average price. As further discussed in
, conventional shell egg prices rose in our fourth quarter of fiscal 2022, due to the reduced
supply related to the HPAI outbreak first detected in commercial flocks in February 2022 and steady shell egg demand. In the
fourth quarter of fiscal 2020 there was a brief but significant increase in shell egg demand from retail consumers related to the
onset of the COVID-19 pandemic. The actual prices that we realize on any given transaction will not necessarily equal quoted
market prices because of the individualized terms that we negotiate with individual customers which are influenced by many
factors.
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Specialty eggs are typically sold at prices and terms negotiated directly with customers. Historically, prices for specialty eggs
have experienced less volatility than prices for conventional shell eggs and have generally been higher due to customer and
consumer willingness to pay more for specialty eggs.
Feed Costs for Shell Egg Production
Feed is a primary cost component in the production of shell eggs and represented 61.9% of our fiscal 2022 farm production costs.
We routinely fill our storage bins during harvest season when prices for feed ingredients are generally lower. To ensure continued
availability of feed ingredients, we may enter into contracts for future purchases of corn and soybean meal, and as part of these
contracts, we may lock-in the basis portion of our grain purchases several months in advance. Furthermore, due to the more
limited supply for organic ingredients we may commit to purchase organic ingredients in advance to help assure supply.
Ordinarily, we do not enter into long-term contracts beyond a year to purchase corn and soybean meal or hedge against increases
in the prices of corn and soybean meal. As the quality and composition of feed is a critical factor in the nutritional value of shell
eggs and health of our chickens, we formulate and produce the vast majority of our own feed at our feed mills located near our
production plants. Our annual feed requirements for fiscal 2022 were 1.9 million tons of finished feed, of which we manufactured
1.8 million tons. We currently have the capacity to store 174 thousand tons of corn and soybean meal, and we replenish these
stores as needed throughout the year.
Our primary feed ingredients, corn and soybean meal, are commodities subject to volatile price changes due to weather, various
supply and demand factors, transportation and storage costs, speculators and agricultural, energy and trade policies in the U.S.
and internationally and most recently the Russia-Ukraine war. While we do not import corn or soy directly from the region, the
Russia-Ukraine war has had a negative impact on the worldwide supply of grain, including corn, putting upward pressure on
prices. We purchase the vast majority of our corn and soybean meal from U.S sources but may be forced to purchase
internationally when U.S. supplies are not readily available. Feed grains are currently available from an adequate number of
sources in the U.S. As a point of reference, a multi-year comparison of the average of daily closing prices per Chicago Board of
Trade for each period in our fiscal calendar are shown below for corn and soybean meal:
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Shell Egg Production
Our percentage of dozens produced to sold was 94.3% of our total shell eggs sold in fiscal 2022, with 91.7% of such production
coming from company-owned facilities, and 8.3% from contract producers. Under a typical arrangement with a contract producer,
we own the flock, furnish all feed and critical supplies, own the shell eggs produced and assume market risks. The contract
producers own and operate their facilities and are paid a fee based on production with incentives for performance.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We grow the majority of
our chicks in our own breeder farms and hatcheries in a computer-controlled environment and obtain the balance from commercial
sources.
After eggs are produced, they are cleaned, graded and packaged. Substantially all our farms have modern “in-line” facilities which
mechanically gather, clean, grade and package the eggs at the location where they are laid. The in-line facilities generate
significant efficiencies and cost savings compared to the cost of eggs produced from non-in-line facilities, which process eggs
that have been laid at another location and transported to the facility. The in-line facilities also produce a higher percentage of
USDA Grade A eggs, which sell at higher prices. Eggs produced on farms owned by contractors are brought to our processing
plants to be graded and packaged. Because shell eggs are perishable, we do not maintain large egg inventories. Our egg inventory
averaged six days of sales during fiscal 2022. We believe our constant focus on production efficiencies and automation throughout
the supply chain enable us to be a low-cost supplier in our markets.
We are proud to have created and upheld what we believe is a leading poultry Animal Welfare Program (“AWP”). We have
aligned our AWP with regulatory, veterinary and our certifying bodies’ guidance to govern welfare of animals in our direct care,
our contract farmers’ care and our farmer-suppliers’ care. We continually review our program to monitor and evolve standards
that guide how we hatch chicks, rear pullets and nurture breeder and layer hens. At each stage of our animals’ lives, we are
dedicated to providing welfare conditions aligned to our commitment to the principles of the internationally recognized
Five
Freedoms of Animal Welfare
. Our standards apply to our enterprise and are tailored for our owned and contract grower operations
with oversights and approvals from senior members of our compliance team.
We do not use artificial hormones in the production of our eggs. Hormone use in the poultry and egg production industry has
been effectively banned in the U.S. since the 1950s. We have an extensive written protocol that allows the use of medically
important antibiotics only when animal health is at risk, consistent with guidance from the United States Food and Drug
Administration ("FDA") and the Guidance for Judicious Therapeutic Use of Antimicrobials in Poultry, developed by the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S., which continues to be a
significant and growing segment of the market. We classify nutritionally enhanced, cage-free, organic, free-range, pasture-raised,
and brown eggs as specialty eggs for accounting and reporting purposes. Specialty eggs are intended to meet the demands of
consumers who are sensitive to environmental, health and/or animal welfare issues.
As defined by the USDA, eggs packed in USDA grade marked consumer packages labeled as cage-free are laid by hens that are
able to roam vertically and horizontally in indoor houses and have access to fresh food and water. Cage-free systems must allow
hens to exhibit natural behaviors and include enrichments such as scratch areas, perches and nests. Hens must have access to
litter, protection from predators and be able to move in a barn in a manner that promotes bird welfare.
A significant number of our customers have announced goals to offer cage-free eggs exclusively on or before 2026, subject in
most cases to availability of supply, affordability and customer demand, among other contingencies. Additionally, several states
have passed legislation requiring the sale and production of only cage-free eggs within this time period and other states are
considering such requirements. We have monitored, and will continue to monitor, this legislation and any legal challenges to
these new laws. Recently, the Supreme Court of the U.S. announced that in October 2022 it will review a case challenging
California’s Proposition 12 that requires the sale of only cage-free eggs in that state. Our customers typically do not commit to
long-term purchases of specific quantities or types of eggs with us, and as a result, it is difficult to accurately predict customer
requirements for cage-free eggs. We are, however, engaging with our customers in an effort to achieve a smooth transition in
meeting their announced goals and needs. Sales of cage-free eggs represented approximately 22.1% of our shell egg revenues for
fiscal year 2022. At the end of our fiscal 2021, our production capacity for cage-free eggs exceeded our customers’ requirements;
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however, as our customers have continued to transition to meet consumer demand and comply with their public commitments
and evolving legal requirements, and as HPAI has adversely impacted cage-free flocks, we believe current supply and demand
for cage-free eggs is more balanced and expect demand for cage-free eggs to continue to increase. We have invested significant
capital in recent years to acquire and construct cage-free facilities, and we expect our focus for future expansion will continue to
include cage-free facilities. At the same time, we understand the importance of our continued ability to provide more affordable
conventional eggs in order to provide our customers with a variety of egg choices and to address hunger in our communities.
We are a member of the Eggland’s Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s Best®
Land O’ Lakes®
Land O’ Lakes®
produced by hens that are fed a whole-grain vegetarian diet. Our
Farmhouse Eggs
® brand eggs are produced at our facilities by
cage-free hens that are provided with a vegetarian diet. We market organic, vegetarian and omega-3 eggs under our
4-Grain®
brand, which consists of conventional and cage-free eggs. We also produce, market and distribute private label specialty shell
eggs to several customers.
Egg Products
Egg products are shell eggs broken and sold in liquid, frozen, or dried form. We sell liquid and frozen egg products primarily to
the institutional, foodservice and food manufacturing sectors in the U.S. Our egg products are sold through our wholly owned
subsidiaries American Egg Products, LLC located in Georgia and Texas Egg Products, LLC located in Texas.
During October 2021, we announced that our Board of Directors approved a strategic investment that will specialize in high-
value commercial product solutions targeting specific needs in the food industry. The initial focus will include hard-cooked eggs.
The new entity, located in Neosho, Missouri, will operate as MeadowCreek Foods, LLC (“MeadowCreek”). We have committed
up to $18.5 million in debt and equity capital to MeadowCreek for the purchase of property and equipment and to fund working
capital, and we retained a controlling interest in the venture. We will serve as the preferred provider to supply specialty and
conventional eggs that MeadowCreek needs to manufacture egg products. MeadowCreek’s marketing plan is designed to extend
our reach in the foodservice and retail marketplace and bring new opportunities in the restaurant, institutional and industrial food
products arenas. We anticipate that the MeadowCreek operation will initiate production late in our fiscal 2023 second quarter.
Summary of Conventional and Specialty Shell Egg and Egg Product Sales
The following table sets forth the contribution as a percentage of revenue and volumes of dozens sold of conventional and
specialty shell egg and egg product sales for the following fiscal years:
2022
2021
2020
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
59.8
%
69.0
%
56.8
%
73.2
%
61.4
%
76.1
%
Specialty Eggs
Egg-Land’s Best®
19.2
%
15.9
%
20.9
%
13.5
%
19.2
%
12.7
%
Other Specialty Eggs
17.3
%
15.1
%
19.1
%
13.3
%
16.7
%
11.2
%
Total Specialty Eggs
36.5
%
31.0
%
40.0
%
26.8
%
35.9
%
23.9
%
Egg Products
3.4
%
2.7
%
2.3
%
Marketing and Distribution
We sell most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. through our
extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores,
companies servicing independent supermarkets in the U.S., foodservice distributors and egg product consumers. Some of our
sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of
certain products are outsourced to another producer. Although we face intense competition from numerous other companies, we
believe that we have the largest market share for the sale of shell eggs in the grocery segment, including large U.S. food retailers.
We are a member of the Eggland’s Best, Inc. cooperative and produce, market, distribute and sell EB and Land O'Lakes branded
eggs, directly and through our joint ventures, Specialty Eggs, LLC and Southwest Specialty Eggs, LLC, under exclusive license
agreements in Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi and Texas, and in portions of Arkansas, California,
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Nevada, North Carolina, Oklahoma and South Carolina. We also have an exclusive license in New York City in addition to
exclusivity in select New York metropolitan areas, including areas within New Jersey and Pennsylvania.
The majority of eggs sold are based on the daily or short-term needs of our customers. Most sales to established accounts are on
payment terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we sell are either delivered to our customers’ warehouse or retail stores, by our own fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
Customers
Our top three customers accounted for an aggregate of 45.9%, 48.6% and 51.1% of net sales dollars for fiscal 2022 , 2021, and
2020, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.5%, 29.8% and 32.1% of net
sales dollars for fiscal 2022, 2021 and 2020, respectively.
In fiscal 2022, approximately 87.5% of our revenue related to sales to retail customers, 9.1% to sales to foodservice providers
and 3.4% to egg products sales. Retail customers include primarily national and regional grocery store chains, club stores, and
companies servicing independent supermarkets in the U.S. Foodservice customers include primarily companies that sell food
products and related items to restaurants, healthcare and education facilities and hotels.
Competition
The production, processing, and distribution of shell eggs is an intensely competitive business, which has traditionally attracted
large numbers of producers in the United States. Shell egg competition is generally based on price, service and product quality.
The shell egg production industry remains highly fragmented. According to
Egg Industry Magazine
, the ten largest producers
owned approximately 53% of industry table egg layer hens at year-end 2021 and 2020. We believe industry consolidation may
continue, and we plan to capitalize on opportunities as they arise. We believe further concentration could result in reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring
and early summer. Historically, shell egg prices tend to increase with the start of the school year and tend to be highest prior to
holiday periods, particularly Thanksgiving, Christmas and Easter. Consequently, and all other things being equal, we would
expect to experience lower selling prices, sales volumes and net income (and may incur net losses) in our first and fourth fiscal
quarters ending in August/September and May/June, respectively. Accordingly, we generally expect our need for working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers, offering our customers
choices that meet their requirements for eggs and egg products and continuing to grow our focus on specialty eggs and egg
products. For example, our recent investment in MeadowCreek, discussed above, is intended to extend our reach in the
foodservice and retail marketplace and bring new opportunities in the restaurant, institutional and industrial food products arenas.
In light of the growing customer demand and increased legal requirements for cage-free eggs, we intend to continue to closely
evaluate the need to expand through selective acquisitions, with a priority on those that will facilitate our ability to expand our
cage-free shell egg production capabilities in key locations and markets. We will continue to closely evaluate the need to continue
to expand and convert our own facilities to increase production of cage-free eggs based on a timeline designed to meet the
anticipated needs of our customers and comply with evolving legal requirements. As the ongoing production of cage-free eggs is
more costly than the production of conventional eggs, aligning our cage-free production capabilities with changing demand for
cage-free eggs is important to the success of our business.
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Trademarks and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
4Grain®
. We produce and market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under license agreements with EB. We believe these trademarks and license agreements are
important to our business.
Government Regulation
Our facilities and operations are subject to regulation by various federal, state, and local agencies, including, but not limited to,
the FDA, USDA, Environmental Protection Agency ("EPA"), Occupational Safety and Health Administration ("OSHA") and
corresponding state agencies or laws. The applicable regulations relate to grading, quality control, labeling, sanitary control and
reuse or disposal of waste. Our shell egg facilities are subject to periodic USDA, FDA, EPA and OSHA inspections. Our feed
production facilities are subject to FDA, EPA and OSHA regulation and inspections. We maintain our own inspection program
to monitor compliance with our own standards and customer specifications. It is possible that we will be required to incur
significant costs for compliance with such statutes and regulations. In the future, additional rules could be proposed that, if
adopted, could increase our costs.
Ten states have passed legislation or regulations mandating minimum space or cage-free requirements for egg production or
mandated the sale of only cage-free eggs and egg products in their states, with implementation of these laws ranging from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
In California and Massachusetts, which collectively represent 14% of the total U.S. population according to the 2020 U.S. Census,
cage-free legislation went into effect January 1, 2022. However, these laws are subject to judicial challenge, and the Supreme
Court of the U.S. recently announced that in October 2022 it will review a case challenging California’s law that requires the sale
of only cage-free eggs in that state. These laws have already effected and, if upheld, will continue to affect sourcing, production
and pricing of eggs (conventional as well as specialty) as the national demand for cage-free production could be greater than the
current supply, which would increase the price of cage-free eggs, unless more cage-free production capacity is constructed.
Likewise, the national supply for eggs from conventional production could exceed consumer demand which would decrease the
price of conventional eggs.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities, including, but not limited to,
wastewater discharge permits. We have made, and will continue to make, capital and other expenditures relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures necessary to comply with such laws and regulations; however, as environmental, health and safety laws and
regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, it is
possible that we will have to incur significant costs for compliance with such laws and regulations in the future.
Human Capital Resources
As of May 28, 2022, we had 2,985 employees, of whom 2,346 worked in egg production, processing, and marketing, 197 worked
in feed mill operations and 442, including our executive officers, were administrative employees. Approximately 4.7% of our
personnel are part-time, and we utilize temporary employment agencies and independent contractors to augment our
staffing needs when necessary. For fiscal 2022, the average monthly full-time equivalent for contingent workers was 1,046. None
of our employees are covered by a collective bargain ing agreement. We consider our relations with employees to be good.
Culture and Values
We are proud to be contributing corporate citizens where we live and work and to help create healthy, prosperous
communities. Our colleagues help us continue to enhance our community contributions, which are driven by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to realize full potential. These commitments are encapsulated in the
Cal-Maine Foods Code of Ethics
Officers and Employees and in our
Human Rights Statement
.
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Health and Safety
Our top priority is the health and safety of our employees, who continue to produce high-quality, affordable egg choices for our
customers and contribute to a stable food supply. Our enterprise safety committee comprises two corporate safety managers, eight
area compliance managers, 55 local site compliance managers, feed mill managers and general managers. The committee that
oversees health and safety regularly reviews our written policies and changes to OSHA regulation standards and shares
information as it relates to outcomes from incidents in order to improve future performance. The committee’s goals include
working to help ensure that our engagements with our consumers, customers, and regulators evidence our strong commitment to
our workers’ health and safety.
Our commitment to our colleagues’ health includes a strong commitment to on-site worker safety, including a focus on accident
prevention and life safety. Our Safety and Health Program is designed to promote best practices that help prevent and minimize
workplace accidents and illnesses. The scope of our Safety and Health Program applies to all enterprise colleagues. Additionally,
to help protect the health and well-being of our colleagues and people in our value chain, we require that any contractors or
vendors acknowledge and agree to comply with the guidelines governed by our Safety and Health Program. At each of our
locations, our general managers are expected to uphold and implement our Employee Safety and Health Program in alignment
with OSHA requirements. We believe that this program, which is reviewed annually by our senior management team, contributes
to strong safety outcomes. As part of our Safety and Health Program, we conduct multi-lingual training that covers topics such
as slip-and-fall avoidance, respiratory protection, prevention of hazardous communication of chemicals, the proper use of
personal protective equipment, hearing conservation, emergency response, lockout and tagout of equipment and forklift safety,
among others. We have also installed dry hydrogen peroxide biodefense systems in our processing facilities to help protect our
colleagues’ respiratory health. To help drive our focus on colleague safety, we developed safety committees at each of our sites
with employee representation from each department.
We review the success of our safety programs on a monthly basis to monitor their effectiveness and the development of any
trends that need to be addressed. During fiscal year 2022 our recordable incident rates decreased by 6% compared to fiscal 2021.
Diversity, Equity and Inclusion
Our culture seeks to embrace the diversity and inclusion of all our team members. This culture is driven by our board and
executive management team. Our board comprises seven members, four of whom are independent. Women comprise 29% of our
board and 14% of our board members identify as a racial or ethnic minority. As of May 28, 2022, our total workforce comprised
29% women and 52% of colleagues who identify as racial or ethnic minorities. Our Policy against Harassment, Discrimination,
Unlawful or Unethical Conduct and Retaliation; Reporting Procedure affirms our commitment to supporting our employees
regardless of race, color, religion, sex, national origin or any other basis protected by applicable law.
Cal-Maine Foods strives to ensure that our colleagues are treated equitably. We are an Equal Opportunity Employer that prohibits,
by policy and practice, any violation of applicable federal, state, or local law regarding employment. Discrimination because of
race, color, religion, sex, pregnancy, age, national origin, citizenship status, veteran status, physical or mental disability, genetic
information, or any other basis protected by applicable law is prohibited. We value diversity in our workplaces or in work-related
situations. We maintain strong protocols to help our colleagues perform their jobs free from harassment and discrimination. Our
focus on equitable treatment extends to recruitment, employment applications, hiring, placement, job assignments, career
development, training, remuneration, benefits, discharge and other matters tied to terms and conditions of employment. We are
committed to offer our colleagues opportunities commensurate with our operational needs, their experiences, goals and
contributions.
Recruitment, Development and Retention
We believe in compensating our colleagues with fair and competitive wages, in addition to offering
competitive benefits. Approximately 76% of our employees are paid at hourly rates, with the majority paid at rates above the
federal minimum wage requirement. We offer our full-time eligible employees a range of benefits, including company-paid life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 85% of the costs of the plan
for participating employees and their families as of December 31, 2021. Recent benchmarking of our health plan
indicates comparable benefits, at lower employee contributions, when compared to an applicable Agriculture and
Food Manufacturing sector grouping, as well as peer group data. In addition, we offer employees the opportunity to purchase an
extensive range of other group plan benefits, such as dental, vision, accident, critical illness, disability and voluntary life. After
one year of employment, full-time employees who meet eligibility requirements may elect to participate in our
KSOP retirement plan, which offers a range of investment alternatives and includes many positive features, such as
automatic enrollment with scheduled automatic contribution increases and loan provisions. Regardless of the
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employees’ elections to contribute to the KSOP, the Company contributes shares of Company stock or cash equivalent to 3%
of pre-tax earnings for each pay period that hours are worked.
We provide extensive training and development related to safety, regulatory compliance, and task training. We invest in
developing our future leaders through our Management Intern, Management Trainee and informal mentoring programs.
Sustainability
We understand that climate, and the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to responsible management of our flocks, are vital to the production of high-quality eggs and egg products
and to the success of our Company. We have engaged in agricultural production for more than 60 years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible natural resource stewardship. We plan to publish our most recent sustainability update on or around late
July 2022, which will be available on our website. Information contained in our website is not a part of this report.
COVID-19 Pandemic
For information regarding our response to the COVID-19 pandemic, and its impact on our business, see
Our Corporate Information
We maintain a website at www.calmainefoods.com where general information about our business and corporate governance
matters is available. The information contained in our website is not a part of this report. Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports are
available, free of charge, through our website as soon as reasonably practicable after we file them with the SEC. In addition, the
SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Information concerning corporate governance matters is also available on our
website. Cal-Maine Foods, Inc. is a Delaware corporation, incorporated in 1969.
ITEM 1A. RISK FACTORS
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our
control. The following is a description of the known factors that may materially affect our business, financial condition or results
of operations. They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on
Form 10-K, including under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in making any investment decisions with respect to our securities. Additional risks or uncertainties that are not
currently known to us, or that we are aware of but currently deem to be immaterial or that could apply to any company could
also materially adversely affect our business, financial condition or results of operations.
INDUSTRY RISK FACTORS
Market prices of wholesale shell eggs are volatile, and decreases in these prices can adversely impact our revenues and
profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. As a result, our prior performance should not be presumed to be an accurate indication of future performance. Under
certain circumstances, small increases in production, or small decreases in demand, within the industry might have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell eggs have been volatile and cyclical. Shell egg prices have risen in the past during periods of
high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein diets are popular. Shell egg
prices have also risen during periods of constrained supply, such as the latest highly pathogenic avian influenza (“HPAI”)
outbreak that was first detected in domestic commercial flocks in February 2022. We believe, based on published industry
estimates, that the HPAI outbreak has impacted approximately 30.7 million laying hens in 2022 through June. During times when
prices are high, the egg industry has typically geared up to produce more eggs, primarily by increasing the number of layers,
which historically has ultimately resulted in an oversupply of eggs, leading to a period of lower prices.
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As discussed above under the heading “Seasonality” in Part I. Item 1. Business, seasonal fluctuations impact shell egg prices.
Therefore, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily
meaningful comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the increase in meals prepared at home due to COVID-19 pandemic, high-protein diet trends, industry advertising
campaigns and the improved nutritional reputation of eggs have all contributed at one time or another to increased shell egg
demand. However, it is possible that the demand for shell eggs will decline in the future. Adverse publicity relating to health or
safety concerns and changes in the perception of the nutritional value of shell eggs, changes in consumer views regarding
consumption of animal-based products, as well as movement away from high protein diets, could adversely affect demand for
shell eggs, which would have a material adverse effect on our future results of operations and financial condition.
Feed costs are volatile and increases in these costs can adversely impact our results of operations.
Feed costs are the largest element of our shell egg (farm) production cost, ranging from 55% to 62% of total farm production cost
in the prior five fiscal years. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources,
we do not have control over the prices of the ingredients we purchase, which are affected by weather, various global and U.S.
supply and demand factors, transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S.
and internationally and most recently the Russia-Ukraine war. While we do not import corn or soy directly from the region, the
Russia-Ukraine war has had a negative impact on the worldwide supply of grain, including corn, putting upward pressure on
prices. Increases in feed costs unaccompanied by increases in the selling price of eggs can have a material adverse effect on the
results of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly resulting
in lower egg prices and lower revenue.
Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to, or we may
voluntarily, recall contaminated products.
Shell eggs and shell egg products are vulnerable to contamination by pathogens such as Salmonella. The Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg Rule issued by the FDA "Prevention of Salmonella Enteritidis in Shell Eggs During Production, Storage, and Transportation,”
and the FDA’s Food Safety Modernization Act. Shipment of contaminated products, even if inadvertent, could result in a violation
of law and lead to increased risk of exposure to product liability claims, product recalls and scrutiny by federal and state regulatory
agencies. In addition, products purchased from other producers could contain contaminants that might be inadvertently
redistributed by us. As such, we might decide or be required to recall a product if we, our customers or regulators believe it poses
a potential health risk. Any product recall could result in a loss of consumer confidence in our products, adversely affect our
reputation with existing and potential customers and have a material adverse effect on our business, results of operations and
financial condition.
Agricultural risks, including outbreaks of avian disease, could harm our business.
Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. Outbreaks of avian
influenza among poultry occur periodically worldwide and have occurred sporadically in the U.S. Most recently, an outbreak of
HPAI, which was first detected in February 2022, impacted the industry. Prior to 2022, there was another significant HPAI
outbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI at any Cal-Maine Foods’ owned
or contracted facility as of July 19, 2022. The Company maintains controls and procedures designed to reduce the risk of exposing
our flocks to harmful diseases; however, despite these efforts, outbreaks of avian disease can and do still occur and may adversely
impact the health of our flocks. An outbreak of avian disease could have a material adverse impact on our financial results by
increasing government restrictions on the sale and distribution of our products and requiring us to euthanize the affected
layers. Negative publicity from an outbreak within our industry can negatively impact customer perception, even if the outbreak
does not directly impact our flocks. If a substantial portion of our layers or production facilities are affected by any of these
factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely
affected.
BUSINESS AND OPERATIONAL RISK FACTORS
14
The COVID-19 pandemic has had an adverse impact on our business and operations
Since early 2020, the coronavirus ("COVID-19") outbreak, characterized as a pandemic by the World Health Organization on
March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. The effects of COVID-19
have had, and may continue to have (if a significant resurgence occurs including due to variants or related strains of the virus
become prevalent) a negative impact on our business. Negative impacts have included, and may include in the future, disruptions
in the supply chain resulting in increased costs and decreased availability of packaging supplies, increased labor costs and
increased medical costs.
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to pursue a growth strategy that includes selective acquisitions
of other companies engaged in the production and sale of shell eggs, with a priority on those that will facilitate our ability to
expand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the
demand for cage-free eggs, which could cause our acquisition strategy to be less-than-optimal for our future growth and
profitability. The number of existing companies with cage-free capacity that we may be able to purchase is limited, as most
production of shell eggs by other companies in our markets currently does not meet customer demands or legal requirements to
be designated as cage-free. Conversely, if we acquire cage-free production capacity, which is more expensive to purchase and
operate, and customer demands or legal requirements for cage-free eggs were to change, the resulting lack of demand for cage-
free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct
prior to our acquisition of a business that were unknown to us at the time of acquisition. We could incur significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No assurance can be given that companies we acquire in the future will contribute positively to our results of operations or
financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold
levels of significance, and we cannot guarantee that such approvals would be obtained.
The consideration we pay in connection with any acquisition affects our financial results. If we pay cash, we could be required
to use a portion of our available cash or credit facility to consummate the acquisition. To the extent we issue shares of our
Common Stock, existing stockholders may be diluted. In addition, acquisitions may result in additional debt.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by, one or more of our large customers.
Our top three customers accounted for an aggregate of 45.9%, 48.6% and 51.1% of net sales dollars for fiscal 2022, 2021, and
2020, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.5%, 29.8% and 32.1% of net
sales dollars for fiscal 2022, 2021, and 2020, respectively. Although we have established long-term relationships with most of
our customers who continue to purchase from us based on our ability to service their needs, they are generally free to acquire
shell eggs from other sources. If, for any reason, one or more of our large customers were to purchase significantly less of our
shell eggs in the future or terminate their purchases from us, and we were not able to sell our shell eggs to new customers at
comparable levels, it would have a material adverse effect on our business, financial condition, and results of operations.
Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for virtually all of our net sales in recent years, is intensely
competitive. We compete with a large number of competitors that may prove to be more successful than we are in producing,
marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of
these companies. Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market
share, which would negatively affect our business, results of operations, and financial condition.
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We are dependent on our management team, and the loss of any key member of this team may adversely affect the
implementation of our business plan in a timely manner.
Our success depends largely upon the continued service of our senior management team. The loss or interruption of service of
one or more of our key executive officers could adversely affect our ability to manage our operations effectively and/or pursue
our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional knowledge and result
in increased costs due to increased competition for employees.
Our business is dependent on our information technology systems and software, and failure to protect against or
effectively respond to cyber-attacks, security breaches, or other incidents involving those systems, could adversely affect
day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation,
or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage
or interruption from circumstances beyond our control, including systems failures, natural disasters, terrorist attacks,
viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and are increasing in
the number of attempts and frequency by groups and individuals with a wide range of motives.
A security breach of sensitive information could result in damage to our reputation and our relations with our customers or
employees. Any such damage or interruption could have a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 76% of our employees are paid at hourly rates, often in entry-level positions. While all
our employees are paid at rates above the federal minimum wage requirements, any significant increase in local, state or federal
minimum wage requirements could increase our labor costs. In addition, any regulatory changes requiring us to provide additional
employee benefits or mandating increases in other employee-related costs, such as unemployment insurance or workers
compensation, would increase our costs. A shortage in the labor pool, which may be caused by competition from other employers,
the remote locations of many of our farms, decreased labor participation rates or changes in government-provided support or
immigration laws, particularly in times of lower unemployment, could adversely affect our business and results of operations. A
shortage of labor available to us could cause our farms to operate with reduced staff, which could negatively impact our production
capacity and efficiencies. In fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic and its effects, which
caused us to increase wages in response to labor shortages, and these trends may continue. Accordingly, any significant labor
shortages or increases in our labor costs could have a material adverse effect on our results of operations.
We are controlled by the family of our late founder, Fred R. Adams, Jr., and Adolphus B. Baker, our Chief Executive
Officer and Chairman of our Board of Directors controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams’ son-in-law, Adolphus B. Baker,
our Chief Executive Officer and Chairman of our board of directors, Mr. Baker’s spouse and her three sisters (Mr. Adams’ four
daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A Common Stock
(which has 10 votes per share), controlling approximately 52.1% of our total voting power. Additionally, such persons and Jean
Reed Adams (“Mrs. Adams”), the widow of Mr. Adams, also have additional voting power due to beneficial ownership of our
Common Stock (which has one vote per share), directly or indirectly through related entities, resulting in family voting control
of approximately 57.5% of our total voting power. Mr. Baker controls the vote of 100% of our outstanding Class A Common
Stock.
We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of our Common Stock and
our Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of
capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over
matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election
and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate
transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve
certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation’s
assets; accordingly, such a transaction involving us and requiring stockholder approval cannot be effected without the approval
of the Adams and Baker families. Such ownership will make an unsolicited acquisition of our Company more difficult and
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discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders
of our Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker
families’ controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and you may
experience significant dilution as a result of future issuances of our securities, which could materially and adversely affect
the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. As described in
Adams and the Daughters’ Trust (of which the daughters of our late founder are beneficiaries) sold 6.9 million shares of Common
Stock in a secondary public offering pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”)
filed as an exhibit to this report. After the sale, approximately 5.0 million shares (the “Subject Shares”) remain subject to potential
sale under the Agreement. The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject
Shares, such party must give the Company a right of first refusal to purchase all or any of such shares. The price payable by the
Company to purchase shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current
market price based on the 20 business-day volume-weighted average price. If the Company does not exercise its right of first
refusal and purchase the shares offered, such party will, subject to the approval of a special committee of independent directors
of the Board of Directors, be permitted to sell the shares not purchased by the Company pursuant to a Company registration
statement, Rule 144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant
to the Agreement the Company will have a right of first refusal to purchase all or any of those shares, the Company may elect not
to exercise its rights of first refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the
Agreement or pursuant to Rule 144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares
of our Common Stock could result in a decline in the market price of our Common Stock.
In addition, our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of May 28, 2022,
there were 44,139,524 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common
Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue
additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans).
In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or
exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares
of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of
existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such
issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect
this dilution may have on the price of our Common Stock.
LEGAL AND REGULATORY RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices to comply with developing standards or subject us to marketing costs to defend challenges to our current
practices and protect our image with our customers. In particular, changes in customer preferences and new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of Animals and
the Humane Society of the United States, to require companies that supply food products to operate their business in a manner
that treats animals in conformity with certain standards developed or approved by these groups. In general, we may incur
additional costs to conform our practices to address these standards or to defend our existing practices and protect our image with
our customers. The standards promoted by these groups change over time, but typically require minimum cage space for hens,
among other requirements, and some of these groups have led successful legislative efforts to ban any form of caged housing in
various states. As discussed in Part I. Item 1. Business - Government Regulation, several states have passed minimum space
and/or cage-free requirements for hens, and other states are considering such requirements. In addition, in recent years, many
large restaurant chains, foodservice companies and grocery chains, including our largest customers, announced goals to transition
to an exclusively cage-free egg supply chain by specified future dates, in some cases subject to available supply, affordability
and consumer demand. While we anticipate that our retail and foodservice customers will continue to transition to selling cage-
free eggs given public commitments, there is no assurance that this transition will take place or take place according to the timeline
of current cage-free commitments. For example, customers may accelerate their transition to stocking cage-free eggs, which may
challenge our ability to meet the cage-free volume needs of those customers and result in a loss of shell egg sales. Similarly,
customers who commit to stock greater proportional quantities of cage-free eggs are under no obligation to continue to do so,
which may result in an oversupply of cage-free eggs and result in lower specialty egg prices. In addition, legislation passed by
17
states requiring cage-free sale of eggs is facing and may continue to face legal challenges and could be stayed or overturned.
These or other judicial outcomes could also lead to an oversupply of cage-free eggs and result in lower specialty egg prices, which
could reduce the return on our capital investment in cage-free production.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and new laws has
resulted and will continue to result in additional costs, including capital and operating cost increases. The USDA reported that
the estimated cage-free flock is 103.6 million hens as of July 1, 2022, which is approximately 34.8% of the total U.S. table egg
layer hen population. These numbers reflect recent cage-free layer hen losses due to the HPAI outbreak. According to the USDA
Agricultural Marketing Service, approximately 221 million hens, or about 74.0% of the U.S. non-organic laying flock would
have to be in cage-free production by 2026 to meet projected demand from the retailers, foodservice providers and food
manufacturers that have made promises to transition to cage-free eggs.
In response to our customers' announced goals and increased legal requirements for cage-free eggs, we increased capital
expenditures to increase our cage-free production capacity. We are also enhancing our focus on cage-free capacity when
considering acquisition opportunities. Our customers typically do not commit to long-term purchases of specific quantities or
type of eggs with us, and as a result, we cannot predict with any certainty which types of eggs they will require us to supply in
future periods. The ongoing production of cage-free eggs is more costly than the production of conventional eggs, and these
higher production costs contribute to the higher prices of cage-free eggs compared with conventional eggs. Many consumers
prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence our customers’ future
needs for cage-free eggs. Due to these uncertainties, we may over-estimate future demand for cage-free eggs, which could increase
our costs unnecessarily, or we may under-estimate future demand for cage-free eggs, which could harm us competitively. If our
competitors obtain non-cancelable long-term contracts to provide cage-free eggs to our existing or potential customers, then there
may be decreased demand for our cage-free eggs due to these lost potential sales. If we and our competitors increase cage-free
egg production and there is no commensurate increase in demand for cage-free eggs, this overproduction could lead to an
oversupply of cage-free eggs, reducing the sales price for specialty eggs and our return on capital investments in cage-free
production.
Failure to comply with applicable governmental regulations, including environmental regulations, could harm our
operating results, financial condition, and reputation. Further, we may incur significant costs to comply with any such
regulations.
We are subject to federal, state and local regulations relating to grading, quality control, labeling, sanitary control, waste disposal,
and other areas of our business. As a fully-integrated shell egg producer, our shell egg facilities are subject to regulation and
inspection by the USDA, OSHA, EPA and FDA, as well as state and local health and agricultural agencies, among others. All of
our shell egg production and feed mill facilities are subject to FDA, EPA and OSHA regulation and inspections. In addition, rules
are often proposed that, if adopted as proposed, could increase our costs.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we are required to obtain permits from governmental authorities, including, but not
limited to wastewater discharge permits and manure and litter land applications.
If we fail to comply with applicable laws or regulations, or fail to obtain necessary permits, we could be subject to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, it is
possible that we will be required to incur significant costs for compliance with such laws and regulations in the future.
Climate change and legal or regulatory responses may have an adverse impact on our business and results of operations.
Extreme weather events, such as derechos, wildfires, drought, tornadoes, hurricanes, storms, floods or other natural disasters
could materially and adversely affect our operating results and financial condition. In fact, derechos, fires, floods, tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures and more
frequent occurrences of extreme weather events, which may be exacerbated by climate change, may cause crop and livestock
areas to become unsuitable, including due to water scarcity or high or unpredictable temperatures, which may result in much
greater stress on food systems and more pronounced food insecurity globally. Lower global crop production, including corn and
soy, which are the primary feed ingredients that support the health of our animals, may result in significantly higher prices for
these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact our ability
to maintain or grow our operations. Climate change may increasingly expose workers and animals to high heat and humidity
stressors that adversely impact poultry production. Increased greenhouse gas emissions may also negatively impact air quality,
soil quality and water quality, which may hamper our ability to support our operations, particularly in higher water- and soil-
stressed regions.
18
Increasing frequency of severe weather events, whether tied to climate change or any other cause, may negatively impact our
ability to raise poultry and produce eggs profitably or to operate our transportation and logistics supply chains. Regulatory controls
and market pricing may continue to drive the costs of fossil -based fuels higher, which could negatively impact our ability to
source commodities necessary to operate our farms or plants and our current fleet of vehicles. These changes may cause us to
change, significantly, our day-to-day business operations and our strategy. Climate change and extreme weather events may also
impact demand for our products given evolution of consumer food preferences. Even if we take measures to position our business
in anticipation of such changes, future compliance with legal or regulatory requirements may require significant management
time, oversight and enterprise expense. We may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied in a manner that is inconsistent with our business practices. We can make no assurances that our efforts
to prepare for these adverse events will be in line with future market and regulatory expectations and our access to capital to
support our business may also be adversely impacted.
Current and future litigation could expose us to significant liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings. Litigation is inherently unpredictable, and although
we believe we have meaningful defenses in these matters, we may incur liabilities due to adverse judgments or enter into
settlements of claims that could have a material adverse effect on our results of operations, cash flow and financial condition. For
a discussion of our ongoing legal proceedings see Part I. Item 3. Legal Proceedings below. Such lawsuits are expensive to defend,
divert management’s attention, and may result in significant adverse judgments or settlements. Legal proceedings may expose us
to negative publicity, which could adversely affect our business reputation and customer preference for our products and brands.
FINANCIAL AND ECONOMIC RISK FACTORS
Weak or unstable economic conditions, including higher inflation, could negatively impact our business.
Weak or unstable economic conditions, including higher inflation, may adversely affect our business by:
●
Limiting our access to capital markets or increasing the cost of capital we may need to grow our business;
●
Changing consumer spending and habits and demand for eggs, particularly higher-priced specialty eggs;
●
Restricting the supply of energy sources or increasing our cost to procure energy; or
●
Reducing the availability of feed ingredients, packaging material, and other raw materials, or increasing the cost of these
items.
Deterioration of economic conditions could also negatively impact:
●
The financial condition of our suppliers, which may make it more difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for eggs or increase our bad debt expense; or
●
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an insured peril.
According to the U.S. Bureau of Labor Statistics, from May 2021 to May 2022, the Consumer Price Index for All Urban
Consumers increased 8.6 percent, the largest 12-month increase since the period ending December 1981. Inflationary costs have
increased our input costs, and if we are unable to pass these costs through to the customer it could have an adverse effect on our
business.
The loss of any registered trademark or other intellectual property could enable other companies to compete more
effectively with us.
We utilize intellectual property in our business. For example, we own the trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We produce and market
Egg-Land’s Best®
Land O’ Lakes
® under license agreements with EB. We
have invested a significant amount of money in establishing and promoting our trademarked brands. The loss or expiration of any
intellectual property could enable our competitors to compete more effectively with us by allowing them to make and sell products
substantially similar to those we offer. This could negatively impact our ability to produce and sell those products, thereby
adversely affecting our operations.
Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets
acquired. Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether the
19
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. As of May 28, 2022, we had $44.0 million of goodwill. While we believe the current carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period and our net worth.
Events beyond our control such as pandemics, extreme weather and natural disasters could negatively impact our
business.
Pandemics such as COVID-19, or similar disease outbreaks in the future, may depress demand for shell eggs due to quarantines
or restrictions on public interactions that would limit the ability of consumers to purchase shell eggs. Pandemics, or similar disease
outbreaks in the future, may disrupt our supply chain and operations at our facilities. If a significant percentage of our workforce,
or the workforce of our suppliers or transportation providers, is unable to work because of illness or government restrictions, our
operations would be negatively impacted, potentially materially. Pandemics or disease outbreaks may also impact hens or the
food supply.
Fire, bioterrorism, pandemics, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, water
rights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability
of feed ingredients, or interfere with our operations due to power outages, fuel shortages, discharges from overtopped or breached
wastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation
channels, among other things. Any of these factors could have a material adverse effect on our financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The table below provides summary information about the primary operational facilities we use in our business as of May 28,
2022.
Type
Quantity
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
—
House up to 255,000 hens
GA, MS
Distribution Centers
4
4
—
NA
FL, GA, NC, TX
Feed Mills
25
24
1
Production capacity of 859 tons
of feed per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
FL, MS
Processing and
Packaging
43
42
1
Approximately 596,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
28
27
1
Grow 27.2 million pullets
annually
AR, FL, GA, KS, KY, MS, OH,
SC, TX, UT
Shell Egg Production
42
42
—
House up to 48.8 million hens
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
2
2
—
Production capacity of 72.8
million lbs. per year
GA, TX
(a)
Does not include idled facilities.
Our affiliate, MeadowCreek Foods, LLC (“MeadowCreek”) owns our new egg products facility that is currently being retrofitted
and upgraded for future production. The facility is expected to be operational late in our fiscal 2023 second quarter. Once fully
operational, MeadowCreek will have the capacity to produce approximately 500 thousand pounds of weekly hard-cooked egg
products.
We also have ongoing construction projects to further expand the Company’s cage-free egg production capabilities. These
projects include expanding our cage-free egg production at our Okeechobee, Florida, production facility. The project is designed
to include the construction of two cage-free layer houses and one cage-free pullet house with capacity for approximately 400
thousand cage-free hens and 210 thousand pullets, respectively. Construction has commenced, with the first layer house planned
to be finished by October 1, 2022, with the second layer house and project completion expected by February 1, 2023. In Delta,
20
Utah, we are constructing four new cage-free layer houses and two pullet houses conversions with capacity for approximately
810 thousand cage-free layer hens which is expected to be completed by fall of 2023. At our Guthrie, Kentucky farm, we are
converting nine existing houses to cage-free layer houses and two pullet houses with capacity for approximately 953 thousand
cage-free hens which is expected to be completed by spring of 2025.
Subsequent to the end of fourth quarter 2022, the Company’s Board of Directors approved a capital project to expand the
Company’s cage-free production capabilities. The proposed project at Chase, Kansas will convert existing conventional layer
capacity to cage-free capacity for approximately 1.5 million cage-free hens and include remodels of all remaining pullet facilities.
Work is expected to commence immediately with project completion expected by year-end 2025.
As of May 28, 2022, we owned approximately 28.0 thousand acres of land. There are no material mortgages or liens on our
properties.
ITEM 3. LEGAL PROCEEDINGS
Refer to the description of certain legal proceedings pending against us under Part II. Item 8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no publ ic trading market for the Class A Common Stock.
All outstanding Class A shares are owned by a limited liability company of which Adolphus Baker, our Chairman and Chief
Executive Officer, is the sole managing member and will be voted at the direction of Mr. Baker. At July 12, 2022, there were
approximately 324 record holders of our Common Stock and approximately 28,419 beneficial owners whose shares were held by
nominees or broker dealers. For additional information about our capital structure, see
to the Consolidated Financial Statements.
Dividends
Cal-Maine has a variable dividend policy adopted by its Board of Directors. Pursuant to the policy, Cal-Maine pays a dividend
to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company
reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with GAAP in an amount equal to one-third
(1/3) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day following the last day of such
quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company will pay dividends to shareholders of record on
the 65th day after the quarter end. Dividends are payable on the 15th day following the record date. Following a quarter for which
the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a
subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for
which a dividend was paid. Under the Company's Credit Facility, dividends are restricted to the amount permitted under the
Company’s current dividend policy, and may not be paid if a default exists or will arise after giving effect to the dividend or if
the sum of cash and cash equivalents of the Company and its subsidiaries plus availability under the Credit Facility equals less
than $50 million.
21
Stock Performance Graph
In fiscal year 2021, the Company utilized the NASDAQ Composite and NASDAQ 100 Total Return indexes to benchmark the
Company’s total shareholder return. We are replacing these indexes with the (i) Russell 2000 Total Return, and (ii) S&P
Composite 1500 Food Products Industry Index. The Company is a member of each of these indexes and believes the other
companies included in these indexes provide products and services similar to Cal-Maine Foods. The NASDAQ Composite and
NASDAQ 100 Total Return index performances are presented below on the performance graph for comparison purpose in the
transitional year. Beginning in fiscal year 2023, only the Russell 2000 Total Return and S&P Composite 1500 Food Products
Industry indexes will be used as a comparison for total shareholder return. The graph assumes $100 was invested on June 2, 2017
in the stock or index and dividends were reinvested.
June 2, 2017
June 1, 2018
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
Cal-Maine Foods, Inc.
$
100.00
$
121.40
$
97.94
$
117.89
$
92.44
$
127.83
NASDAQ Composite
100.00
125.88
150.49
154.80
189.32
276.83
NASDAQ 100 Total Return
100.00
121.74
123.82
167.72
242.04
225.88
Russell 2000 Total Return
100.00
118.77
107.08
103.40
170.16
143.16
S&P Composite 1500 Food
Products Industry Index
100.00
85.03
87.52
93.92
113.97
119.33
Issuer Purchases of Equity Securities
There were no purchases of our Common Stock made by or on behalf of our Company or any affiliated purchaser during our
fiscal 2022 fourth quarter.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended May 28, 2022.
22
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
Equity compensation plans
approved by shareholders
—
$
—
317,844
Equity compensation plans not
approved by shareholders
—
—
—
Total
—
$
—
317,844
(a) There were no outstanding options, warrants or rights as of May 28, 2022. There were 1,016,573 shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term Incentive Plan as of May 28, 2022.
(b) There were no outstanding options, warrants or rights as of May 28, 2022.
(c) Reflects shares available for future issuance as of May 28, 2022 under our Amended and Restated 2012 Omnibus
Long-Term Incentive Plan.
For additional information, see
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
“
.”
COMPANY OVERVIEW
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs.
Our fiscal year end is the Saturday closest to May 31. The Company, which is headquartered in Ridgeland, Mississippi, is the
largest producer and distributor of fresh shell eggs in the United States (“U.S”). In fiscal 2022, we sold approximately
1,083.8 million dozen shell eggs, which we believe represented approximately 20% of domestic shell egg consumption. Our total
flock as of May 28, 2022 of approximately 42.2 million layers and 11.5 million pullets and breeders is the largest in the U.S. We
sell most of our shell eggs to a diverse group of customers, including national and regional grocery store chains, club stores,
companies servicing independent supermarkets in the U.S., food service distributors, and egg product consumers in states across
the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell
eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs.
Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage-free, organic, free-range, pasture-
raised and brown eggs as specialty eggs for accounting and reporting purposes. We classify all other shell eggs as conventional
eggs. While we report separate sales information for these types of eggs, there are a number of cost factors which are not
specifically available for conventional or specialty eggs due to the nature of egg production. We manage our operations and
allocate resources to these types of eggs on a consolidated basis based on the demands of our customers. For further description
of our business, refer to
HPAI
We are closely monitoring the outbreaks of highly pathogenic avian influenza (“HPAI”) , the latest of which was detected in
commercial flocks in the U.S. in February 2022. According to the U.S. Centers for Disease Control and Prevention, these
detections do not present an immediate public health concern. There have been no positive tests for HPAI at any Cal-Maine
Foods’ owned or contracted production facility as of July 19, 2022. The USDA division of Animal and Plant Health Inspection
Service (“APHIS”), reported that approximately 30.7 million commercial layer hens have been depopulated due to HPAI. Pullets
impacted comprise approximately 1.0 million. According to APHIS, the most recently reported outbreaks of HPAI affecting
commercial layer hens and pullets occurred June 7, 2022 and June 9, 2022, respectively. We believe the HPAI outbreak will
continue to impact the overall supply of eggs until the layer hen flock is fully replenished. While no farm is immune from HPAI,
we believe we have implemented and continue to maintain robust biosecurity programs across our locations. We are also working
closely with federal, state and local government officials and focused industry groups to mitigate the risk of this and future
outbreaks and effectively manage our response, if needed.
COVID-19
Since early 2020, the coronavirus (“COVID-19”) outbreak, characterized as a pandemic by the World Health Organization on
March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. We understand the
challenges and difficult economic environment facing families in the communities where we live and work, and we are committed
to helping where we can. We have provided food assistance to those in need by donating approximately 829 thousand dozen eggs
in fiscal 2022. We believe we are taking all reasonable precautions in the management of our operations in response to the
COVID-19 pandemic. Our top priority is the health and safety of our employees, who work hard each day to produce eggs for
our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and we believe we have a special
responsibility to maintain our normal work schedule. As such, we are in regular communication with our managers across our
operations and continue to closely monitor the situation in our facilities and in the communities where we live and work. We
have implemented procedures designed to protect our employees, taking into account guidelines published by the Centers for
Disease Control and other government health agencies, and we have strict sanitation protocols and biosecurity measures in place
24
throughout our operations with restricted access to visitors. There are no known indications that COVID-19 affects chickens or
can be transferred through the food supply.
We continue to proactively monitor and manage operations during the COVID-19 pandemic, including additional related costs
that we incurred or may incur in the future. The pandemic had a negative impact on our business through disruptions in the supply
chain such as increased costs and limited availability of packaging supplies, increased labor costs, increased medical costs and,
more recently, inflation.
In fiscal 2022 and 2021, we spent $2.2 million and $2.3 million (excluding medical insurance claims) related to the pandemic
and its effects, respectively. The majority of these expenses resulted from additional labor and increased cost of packaging
materials, which are primarily reflected in cost of sales. Medical insurance claims related to COVID-19 paid during fiscal 2022
and 2021 were an additional $2.4 million and $1.4 million, respectively.
Executive Overview of Results – Fiscal Years Ended May 28, 2022, May 29, 2021 and May 30, 2020
Fiscal Years Ended
May 28, 2022
May 29, 2021
May 30, 2020
Net sales (in thousands)
$
1,777,159
$
1,348,987
$
1,351,609
Gross profit (in thousands)
$
337,059
$
160,661
$
179,588
Net average shell egg price
(a)
$
1.579
$
1.217
$
1.231
Average UB Southeast Region - Shell Eggs - White Large
$
1.712
$
1.155
$
1.220
Feed costs per dozen produced
$
0.571
$
0.446
$
0.409
(a) The net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded
shell egg sales, breaking stock and undergrades.
Throughout the first three quarters of our fiscal year 2020, an oversupply of eggs negatively affected the price of conventional
eggs and demand for specialty eggs was negatively impacted by the low conventional egg prices. For the first three quarters of
fiscal 2020, the average UB southeastern large index price was down 21.9% compared with the prior-year period. However, in
the fourth quarter of fiscal 2020, the average UB southeastern large index price was 62.4% higher than the average price through
the first three quarters in fiscal 2020 due to increased demand related to the onset of the pandemic, as consumers purchased more
eggs in anticipation of preparing more meals at home.
Consumer demand maintained a steady growth throughout our first three quarters of fiscal 2021 but began trending down during
our fourth quarter of fiscal 2021 as consumers started to resume pre-pandemic activities. Our net sales for fiscal 2021 decreased
$2.6 million compared to fiscal 2020, primarily due to the decrease in the selling price and volume of conventional eggs, partially
offset by the increased volume of specialty eggs sold. We believe the decreased demand in foodservice seen throughout the first
three quarters of fiscal 2021 due to the pandemic contributed to the depressed price of shell eggs for fiscal 2021 in the retail
market due to the extra supply entering the retail channel from the foodservice channel.
For fiscal 2022, we believe prices for conventional eggs were positively impacted by a better alignment of the size of the
conventional production layer hen flock and customer and consumer demand through the first three fiscal quarters of 2022.
Conventional egg prices further increased in the fourth quarter of fiscal 2022 primarily due to decreased supply caused by the
HPAI outbreak compounded with good customer demand. Throughout fiscal 2022 the hen numbers reported by the USDA
remained below the five-year average. As of July 17, 2022, APHIS reported that approximately 30.7 million commercial table
egg layer hens, or approximately 9.5% of the table egg layer flock based on February 2022 reported layer numbers, have been
depopulated due to HPAI. Hen numbers reported by the USDA as of June 1, 2022, were 297.5 million, which represents 18.3
million fewer hens than a year ago.
According to Information Resources, Inc. (“IRI”), for the 52 weeks ended June 5, 2022, which approximately aligns with our
fiscal year 2022, conventional egg dozens sold in the U.S. at multi-retail outlets decreased 14.3%, while specialty egg dozens
sold increased 13.2% versus the prior-year comparable period. Our conventional eggs dozens sold decreased 3.4% and specialty
egg dozens sold increased 12.5% as compared to fiscal 2021.
Gross profit increased $176.4 million to $337.1 million in fiscal 2022. The increase resulted primarily from higher selling prices
for conventional eggs as well as the increased volume of specialty eggs sold, partially offset by the increased cost of feed
ingredients, increased processing costs and the decline in the volume of conventional eggs sold. For fiscal year 2022, the average
Chicago Board of Trade (“CBOT”) daily market price was $6.31 per bushel for corn and $392.06 per ton for soybean meal,
25
representing increases of 38.3% and 6.1%, respectively, compared to the daily average CBOT prices for fiscal 2021. Feed costs
started trending higher midway through the second quarter of fiscal 2021 and then again near the end of the second quarter of
fiscal 2022. Beginning in August 2020, the grain markets, particularly corn, have been negatively affected by many factors,
including weather-related production and yield shortfalls, increased export demand and ongoing disruptions from the COVID-19
global pandemic. These factors continued into our fiscal 2022 and as other factors such as the Russia-Ukraine war, increased fuel
costs, transportation and fertilizers prices and strong export demand and restrictions further compounded the existing issues that
contributed to near-historical low stocks-to-use ratios for corn worldwide and overall higher feed ingredient cost and price
volatility.
We continue to execute our growth strategy of remaining a low-cost provider of shell eggs and growth of our specialty eggs and
egg products through additional investments in cage-free facilities and selective acquisitions. In fiscal 2022, we acquired the
remaining 50% membership interest in Red River Valley Egg Farm, LLC (“Red River”), which owns and operates a specialty
shell egg production complex with approximately 1.7 million cage-free laying hens, cage-free pullet capacity, a feed mill,
processing plant, related offices and outbuildings and related equipment located on approximately 400 acres near Bogata, Texa s.
We also announced new capital projects with estimated costs of $105 million that will expand our cage-free production and
capacity by 2.2 million cage-free hens. For additional information, see
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain items from our consolidated statements of income expressed
as a percentage of net sales.
Fiscal Year Ended
May 28, 2022
May 29, 2021
Net sales
100.0
%
100.0
%
Cost of sales
81.0
%
88.1
%
Gross profit
19.0
%
11.9
%
Selling, general and administrative
11.2
%
13.6
%
(Gain) loss on disposal of fixed assets
(0.3)
%
0.2
%
Operating income (loss)
8.1
%
(1.9)
%
Total other income
1.3
%
1.2
%
Income (loss) before income taxes
9.4
%
(0.7)
%
Income tax expense (benefit)
1.9
%
(0.9)
%
Net income
7.5
%
0.2
%
Less: Net loss attributable to noncontrolling interest
—
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
7.5
%
0.2
%
26
Fiscal Year Ended May 28, 2022 Compared to Fiscal Year Ended May 29, 2021
NET SALES
Total net sales for fiscal 2022 were $1,777.2 million compared to $1,349.0 million for fiscal 2021.
Net shell egg sales represented 96.6% and 97.3% of total net sales for the fiscal year 2022 and 2021, respectively. Shell egg sales
classified as “Other” represent sales of hard -cooked eggs, hatching eggs, and other miscellaneous products included with our
shell egg operations. The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except
percentage data):
May 28, 2022
May 29, 2021
Total net sales
$
1,777,159
$
1,348,987
Conventional
$
1,061,995
61.8
%
$
766,284
58.4
%
Specialty
648,838
37.8
%
539,780
41.1
%
Egg sales, net
1,710,833
99.6
%
1,306,064
99.5
%
Other
6,322
0.4
%
6,190
0.5
%
Net shell egg sales
$
1,717,155
100.0
%
$
1,312,254
100.0
%
Dozens sold:
Conventional
747,914
69.0
%
785,446
73.2
%
Specialty
335,875
31.0
%
287,765
26.8
%
Total dozens sold
1,083,789
100.0
%
1,073,211
100.0
%
Net average selling price per dozen:
Conventional
$
1.420
$
0.976
Specialty
$
1.932
$
1.876
All shell eggs
$
1.579
$
1.217
Egg products sales:
Egg products net sales
$
60,004
$
36,733
Pounds sold
63,968
63,627
Net average selling price per pound
$
0.938
$
0.577
Shell egg net sales
-
For fiscal 2022, conventional egg sales increased $295.7 million, or 38.6%, compared to fiscal 2021, primarily due to
the increase in conventional egg prices, partially offset by a 4.8% decrease in the volume of conventional eggs sold.
Changes in price resulted in a $332.1 million increase and change in volume resulted in a $36.6 million decrease in net
sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a better alignment of the size of the conventional
production layer hen flock and customer and consumer demand throughout the first three quarters of fiscal 2022.
Conventional egg prices further increased in the fourth quarter of fiscal 2022 primarily due to decreased supply caused
by the HPAI outbreak, discussed above.
-
We believe lower conventional egg prices in the prior-year period were primarily tied to a surplus of conventional eggs
entering the retail channel from the foodservice channel exceeding retail demand during this phase of the pandemic.
-
The decrease in volume of conventional eggs sold was primarily due to elevated retail demand during the first half of
fiscal 2021 given consumers’ preferences to purchase eggs for in-home meal preparation due to the pandemic. We saw
these consumer preferences begin to shift in the fourth quarter of fiscal 2021 as consumers began to resume out-of-home
dining and prepared fewer meals at home.
-
Specialty egg sales increased $109.1 million, or 20.2%, for fiscal 2022 compared to fiscal 2021, primarily due to a 16.7%
increase in the volume of specialty dozens sold and a 3.0% increase in specialty egg prices. Changes in price resulted in
a $18.8 million increase and change in volume resulted in a $90.3 million increase in net sales, respectively. Our specialty
egg sales also benefitted from our additional cage-free production capacity. Cage-free egg sales for fiscal 2022 were
22.1% of our total net shell egg sales.
27
Egg products net sales
-
Egg products net sales increased $23.3 million or 63.4%, primarily due to a 62.6% selling price increase compared to
fiscal 2021, which had a $23.1 million positive impact on net sales.
-
Our egg products net average selling price increased in fiscal 2022, compared to fiscal 2021 as foodservice channel
demand has begun to shift more towards pre-pandemic levels. This coincided with the HPAI outbreak that started in
February 2022, in which we believe 10.4 of the 30.7 million culled birds were located at facilities dedicated to support
inline breaking facilities in Iowa.
-
Selling prices for egg products in fiscal 2021 were negatively impacted by a decline in foodservice demand during the
more restrictive phases of governmental and business shutdowns due to the pandemic.
COST OF SALES
Cost of sales for fiscal 2022 were $1,440.1 million compared to $1,188.3 million for fiscal 2021.
Cost of sales consi sts of costs directly related to producing, processing and packing shell eggs, purchases of shell eggs from
outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm production costs are
those costs incurred at the egg production facility, including feed, facility, hen amortization and other related farm production
costs.
The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data):
Fiscal Year Ended
May 28, 2022
May 29, 2021
% Change
Cost of Sales:
Farm production
$
927,806
$
730,902
26.9
%
Processing, packaging, and warehouse
289,056
250,058
15.6
Egg purchases and other (including change in inventory)
172,034
177,634
(3.2)
Total shell eggs
1,388,896
1,158,594
19.9
Egg products
51,204
29,536
73.4
Other
—
196
(100.0)
Total
$
1,440,100
$
1,188,326
21.2
%
Farm production costs (per dozen produced)
Feed
$
0.571
$
0.446
28.0
%
Other
$
0.352
$
0.320
10.0
%
Total
$
0.923
$
0.766
20.5
%
Outside egg purchases (average cost per dozen)
$
1.72
$
1.22
41.0
%
Dozens produced
1,022,327
970,837
5.3
%
Percent produced to sold
94.3%
90.5%
4.2
%
Farm Production
-
Feed costs per dozen produced increased 28.0% in fiscal 2022 compared to fiscal 2021, primarily due to higher feed
ingredient prices, discussed above.
-
Other farm production costs increased due to higher flock amortization, primarily from an increase in our cage-free
production, which has higher capitalized costs. Also, higher feed costs, which began to rise in our third quarter of fiscal
2021, are capitalized in our flocks during pullet production and increased our amortization expense.
-
We had higher facility expense as more cage-free facilities came into production.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 11.9% compared to fiscal 2021 as supply chain constraints initially caused by the
pandemic increased costs for packaging products and manufacturers implemented pandemic surcharges. Costs also
increased due to rising inflation.
-
Labor costs increased 14.4% due to wage increases in response to labor shortages, primarily due to the pandemic and its
effects.
-
Dozens processed increased 5.0% compared to fiscal 2021, which resulted in an $11.4 million increase in costs.
28
Egg purchases and other (including change in inventory)
-
Costs in this category decreased primarily due to the decrease in the volume of outside egg purchases, as our percentage
of produced to sold increased to 94.3% in fiscal 2022 from 90.5% in fiscal 2021, partially offset by higher egg prices.
Looking forward to fiscal 2023, market indications point to higher corn and soybean prices and greater volatility tied to the
Russia-Ukraine war and higher export demand.
GROSS PROFIT
Gross profit, as a percentage of net sales, was 19.0% for fiscal 2022, compared to 11.9% for fiscal 2021. The increase resulted
primarily from higher selling prices for conventional eggs as well as the increased volume of specialty eggs sold, partially offset
by the increased cost of feed ingredients, increased processing costs and the decline in the volume of conventional eggs sold.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses ("SGA") include costs of marketing, distribution, accounting, and corporate
overhead. SG&A increased $14.7 million to $198.6 million in fiscal 2022. The following table presents an analysis of our SGA
expenses (in thousands):
Fiscal Year Ended
May 28, 2022
May 29, 2021
$ Change
% Change
Specialty egg expense
$
59,830
$
59,294
$
536
0.9
%
Delivery expense
62,677
52,670
10,007
19.0
%
Payroll, taxes and benefits
43,954
43,327
627
1.4
%
Stock compensation expense
4,063
3,778
285
7.5
%
Other expenses
28,107
24,874
3,233
13.0
%
Total
$
198,631
$
183,943
$
14,688
8.0
%
Specialty egg expense
-
Specialty egg expense which includes franchise fees, advertising and promotion costs generally tracks with specialty
egg volumes, which were up 16.7% for fiscal 2022 compared to fiscal 2021. However, our specialty egg expense
increased only 0.9%, primarily due to increased sales to other Eggland’s Best, Inc. (“EB”) franchisees, including
unconsolidated affiliates, Specialty Eggs, LLC and Southwest Specialty Eggs, LLC, that were responsible for the
franchise fees, advertising and promotion costs associated with those sales resulting in reduced costs for us. Also, the
strong conventional market diminished the need to promote specialty eggs; and as a result, EB temporarily reduced the
related franchise fees for certain specialty egg products to encourage continued production of these products.
Delivery expense
-
The increased delivery expense is primarily due to the increase in fuel and labor costs for both our fleet and contract
trucking.
Other expenses
-
The increase in other expenses is primarily due to property losses incurred that were not covered by insurance as well
as increased premiums for property and casualty insurance programs. We also accrued an additional $1.1 million in
property taxes due to the Red River acquisition.
OPERATING INCOME (LOSS)
As a result of the above, our operating income was $143.5 million for fiscal 2022, compared to operating loss of $26.3 million
for fiscal 2021.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged to, or related to, operations such as interest income and
expense, equity in income or loss of unconsolidated entities, and patronage dividends, among other items.
29
The Company recorded interest income of $988 thousand in fiscal 2022, compared to $2.8 million in fiscal 2021. We recorded
interest expense of $403 thousand and $213 thousand in fiscal 2022 and 2021, respectively, primarily related to commitment fees
on our Credit Facility described below.
Patronage dividends, which represent distributions from our membership in EB, increased $1.1 million or 12.5%. Patronage
dividends are paid once a year based on EB’s profits and its available cash.
Equity in income from unconsolidated entities for fiscal 2022 was $1.9 million compared to $622 thousand for fiscal 2021, due
to increased specialty egg prices as well as increased sales volume resulting from our additional investment in Southwest Specialty
to expand its operations.
Other, net for fiscal 2022 was income of $9.8 million compared to $4.1 million for fiscal 2021. The majority of the increase is
due to our acquisition of the remaining 50% membership interest in Red River as we recognized a $4.5 million gain due to the
remeasurement of our equity investment, along with the $1.6 million payments related to review and adjustment of our various
marketing agreements.
INCOME TAXES
For the fiscal year ended May 28, 2022, our pre-tax income was $166.0 million, compared to pre-tax loss of $9.9 million for
fiscal 2021. Income tax expense of $33.6 million was recorded for fiscal 2022 with an effective tax rate of 20.2%. Included in
fiscal 2022 income tax expense is the discrete tax benefit of $8.3 million discussed in
Notes to Condensed Consolidated Financial Statements in this Annual Report. Excluding the discrete tax benefit, income tax
expense was $41.9 million with an adjusted effective tax rate of 25.2%. For fiscal 2021, income tax benefit was $12.0 million.
Excluding the impact of discrete items related to a $12.4 million net tax benefit recorded during fiscal 2021 in connection with
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), our income tax benefit for the comparable period
of fiscal 2021 was $2.2 million, which reflects an adjusted effective tax rate of 22.7%.
At May 28, 2022, the Company had an income tax receivable of $42.1 million compared to $42.5 million at May 29, 2021. The
income tax receivable is related to the Company’s decision to carryback fiscal 2020 and fiscal 2021 taxable net operating losses
to recover a portion of taxes paid in fiscal 2015 and fiscal 2016. During fiscal 2022, the Company filed both federal carryback
tax returns, and we believe we will receive the refunds during our third fiscal quarter of 2023.
Items causing our effective tax rate to differ from the federal statutory income tax rate of 21% are state income taxes, certain
federal tax credits and certain items included in income or loss for financial reporting purposes that are not included in taxable
income or loss for income tax purposes, including tax exempt interest income, certain nondeductible expenses, and net income
or loss attributable to noncontrolling interest.
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
Net loss attributable to noncontrolling interest was $209 thousand for fiscal 2022 compared to no such income or loss for fiscal
2021.
NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
As a result of the above, net income attributable to Cal-Maine Foods, Inc. for fiscal 2022 was $132.7 million, or $2.73 per basic
and $2.72 per diluted share, compared to $2.1 million, or $0.04 per basic and diluted share for fiscal 2021.
Fiscal Year Ended May 29, 2021 Compared to Fiscal Year Ended May 30, 2020
The discussion of our results of operations for the fiscal year ended May 29, 2021 compared to the fiscal year ended May 30,
2020 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in
the Company's fiscal 2021 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Current Ratio
Our working capital at May 28, 2022 was $476.8 million, compared to $429.8 million at May 29, 2021. The calculation of
working capital is defined as current assets less current liabilities. Our current ratio was 3.58 at May 28, 2022 compared to 5.77
30
at May 29, 2021. The current ratio is calculated by dividing current assets by current liabilities. Due to seasonal factors described
in
, we generally expect our need for working capital to be highest in the fourth and first
fiscal quarters ending in May/June and August/September, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities was $126.2 million for fiscal year 2022 compared with $26.1 million for fiscal year
2021. The increase in cash flow from operations resulted primarily from higher selling prices for conventional eggs as well as the
increased volume of specialty eggs, partially offset by the increased cost of feed ingredients and processing costs. The increase
in accounts payables, accrued expenses and other liabilities is primarily due to $62.3 million balance for dividends and income
tax payables as of May 28, 2022.
Cash Flows from Investing Activities
We continue to invest in our facilities, with $72.4 million used to purchase property, plant and equipment for fiscal 2022,
compared to $95.1 million in fiscal 2021. Proceeds from the sale of property, plant and equipment was $8.3 million for fiscal
2022, compared to $3.4 million for in fiscal 2021. We also acquired the remaining 50% membership interest in Red River during
our first quarter of fiscal 2022 for $44.8 million, net of cash acquired. Purchases of investments were $98.2 million in fiscal 2022,
compared to $88.3 million in fiscal 2021. Sales and maturities of investment securities were $92.7 million for fiscal 2022,
compared to $129.1 million for fiscal 2021. We received $400 thousand in distributions from unconsolidated entity in fiscal 2022
compared to $6.7 million for fiscal 2021.
Cash Flows from Financing Activities
We paid dividends totaling $6.1 million and $1.7 million in fiscal 2022 and 2021, respectively. Purchases of common stock by
treasury of $1.1 million and $871 thousand were made to satisfy tax withholding obligations for employees in connection with
the vesting of restricted common stock. Cash payments of $215 thousand and $205 thousand were made on our finance lease.
As of May 28, 2022, cash increased $1.7 million since May 29, 2021, compared to a decrease of $20.8 million during fiscal 2021.
Credit Facility
We had no long-term debt outstanding at the end of fiscal 2022 and 2021. On November 15, 2021, we entered into an Amended
and Restated Credit Agreement (the “Credit Agreement”) with a five-year term. The Credit Agreement amended and restated the
Company’s previously existing credit agreement dated July 10, 2018. The Credit Agreement provides for an increased senior
secured revolving credit facility (the “Credit Facility”), in an initial aggregate principal amount of up to $250 million. As of May
28, 2022, no amounts were borrowed under the Credit Facility. We have $4.1 million in outstanding standby letters of credit,
which were issued under our Credit Facility for the benefit of certain insurance companies. Refer to Part II. Item 8. Notes to the
Financial Statements,
31
Material Cash Requirements
Material cash requirements for operating activities consist of feed ingredients, employee related costs, and other general operating
expenses, which we expect to be paid from our cash from operations.
We continue to monitor the increasing demand for cage-free eggs and to engage with our customers in an effort to achieve a
smooth transition to meet their announced commitment timeline for cage-free egg sales. As of May 28, 2022, we had invested
approximately $516 million in facilities, equipment and related operations to expand our cage-free production starting with our
first facility in 2008. The following table presents current material construction projects approved as of May 28, 2022, along with
our $55.3 million capital project approved subsequent to the end of the fourth quarter 2022 to convert existing capacity at our
Chase, Kansas production facility to house approximately 1.5 million cage-free hens and include remodels of all remaining pullet
facilities (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
May 28, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2023
$
131,974
$
113,386
$
18,588
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,171
14,201
9,970
Cage-Free Layer & Pullet Houses
Fiscal 2024
42,591
107
42,484
Cage-Free Layer & Pullet Houses
Fiscal 2025
94,183
144
94,039
$
292,919
$
127,838
$
165,081
For additional information, see
payments, in thousands, to be made under existing contractual obligations as of May 28, 2022. Further information on debt
obligations is contained in
, and on lease obligations in
, each in Part II. Item 8. Notes
to the Consolidated Financial Statements. As of May 28, 2022, we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Finance leases
$
457
$
239
$
218
$
—
$
—
Operating leases
1,080
539
536
5
—
Purchase obligations:
Feed ingredients
(a)
172,132
172,132
—
—
—
Construction contracts and other equipment
27,568
19,281
8,287
—
—
Total
$
201,237
$
192,191
$
9,041
$
5
$
—
(a)
Actual purchase obligations may change based on the contractual terms and agreements
We believe our current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient to fund our
capital needs for at least the next 12 months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
For information on changes in accounting principles and new accounting principles, see “
New Accounting Pronouncements and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates. Critical accounting estimates are those
estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the financial condition or results of operations. Our critical accounting estimates are described
below.
32
BUSINESS COMBINATION S
The Company applies the acquisition method of accounting, which requires that once control is obtained, all the assets acquired
and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values at
the date of acquisition. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as
goodwill.
We typically use the income method approach for intangible assets acquired in a business combination. Significant judgment
exists in valuing certain intangible assets. and the most significant assumptions requiring judgment involve estimating the amount
and timing of future cash flows, growth rates, discount rates selected to measure the risks inherent in the future cash flows and
the asset’s expected useful lives.
The fair values of identifiable assets and liabilities is determined internally and requires estimates and the use of various valuation
techniques. When a market value is not readily available, our internal valuation methodology considers the remaining estimated
life of the assets acquired and significant judgment is required as management determines the fair market value for those assets.
Due to inherent industry uncertainties including volatile egg prices and feed costs, unanticipated market changes, events, or
circumstances may occur that could affect the estimates and assumptions used, which could result in subsequent impairments.
INVENTORIES
Inventories of eggs, feed, supplies and flocks are valued principally at the lower of cost (first-in, first-out method) or net realizable
value. If market prices for eggs and feed grains move substantially lower, we record adjustments to write down the carrying
values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick
purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive life, generally one to two years. Judgment exists in
determining the flock’s productive life including factors such as laying rate and egg size, molt cycles, and customer demand.
Furthermore, other factors such as hen type or weather conditions could affect the productive life. These factors could make our
estimates of productive life differ from actual results. Flock mortality is charged to cost of sales as incurred. High mortality from
disease or extreme temperatures will result in abnormal write-downs to flock inventories. Management continually monitors each
flock and attempts to take appropriate actions to minimize the risk of mortality loss.
GOODWILL
As a result of acquiring businesses, the Company has $44.0 million of goodwill on May 28, 2022. Goodwill is evaluated for
impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is
necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of any
impairment.
The Company has determined that all of our locations share similar economic characteristics and support each other in the
production of eggs and customer support. Therefore, we aggregate all our locations as a single reporting unit for testing goodwill
for impairment. When the Company acquires a new location, we determine whether it should be integrated into our single
reporting unit or treated as a separate reporting unit. Historically, we have concluded that acquired operations should be integrated
into our single reporting unit due to the operational changes, redistribution of customers, and significant changes in management
that occur when we acquire businesses, which result in the acquired operations sharing similar economic characteristics with the
rest of our locations. Once goodwill associated with acquired operations becomes part of goodwill of our single reporting unit, it
no longer represents the particular acquired operations that gave rise to the goodwill. We may conclude that a business acquired
in the future should be treated as a separate reporting unit, in which case it would be tested separately for goodwill impairment.
At May 28, 2022, goodwill represented 3.1% of total assets and 2.9% of stockholders’ equity.
Judgment exists in management’s evaluation of the qualitative factors which include macroeconomic conditions, the current egg
industry environment, cost inputs such as feed ingredients and overall financial performance. Furthermore, judgment exists in the
evaluation of the threshold of whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Uncertainty exists due to uncontrollable events that could occur that could negatively affect our operating conditions.
During our annual impairment test in fiscal 2022, we determined that goodwill passed the qualitative assessment and therefore
no quantitative analysis of goodwill impairment was necessary.
33
REVENUE RECOGNITION
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer agreeing upon the order. See
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