Cal-Maine Foods Inc 10-Q for FY2022 Q2
Cal-Maine Foods Inc (CALM)
10-Q
2021-12-28
For: 2021-11-27
View Original
Added on
April 11, 2026
About this 10-Q
Cal-Maine Foods Inc filed this 10-Q on December 28, 2021, covering the quarter ended November 27, 2021 (FY2022 Q2).
Headline figures
Quarter ended November 27, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $390.9M
- up 12.5% from $347.33M a year earlier
- Net income
- $1.17M
- down 90.3% from net income of $12.16M a year earlier
- Diluted EPS
- $0.02
- down 92.0% from $0.25 a year earlier
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
or
For the transition period from ____________ to ____________
Commission File Number:
.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S Employer Identification No.)
,
,
,
(Address of principal executive offices) (Zip Code)
(
)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
The
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
☑
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☑
Accelerated filer
☐
Non – Accelerated filer
☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
☑
There were
value, outstanding as of December 28, 2021.
2
INDEX
Page
Number
Part I.
Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Other Information
Item 1.
Item 1A.
Item 2.
Item 6.
3
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for par value amounts)
November 27, 2021
May 29, 2021
Assets
Current assets:
Cash and cash equivalents
$
$
Investment securities available-for-sale
Trade and other receivables, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant & equipment, net
Finance lease right-of-use asset, net
Operating lease right-of-use asset, net
Investments in unconsolidated entities
Goodwill
Intangible assets, net
Other long-term assets
Total Assets
$
$
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
$
$
Current portion of finance lease obligation
Current portion of operating lease obligation
Total current liabilities
Long-term finance lease obligation
Long-term operating lease obligation
Other noncurrent liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies - see
Note 13
—
—
Stockholders’ equity:
Common stock ($
Common stock - authorized
Class A convertible common stock - authorized and issued
Paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
(996 )
(558 )
Common stock in treasury at cost –
shares at May 29, 2021
(27,450 )
(27,433 )
Total Cal-Maine Foods, Inc. stockholders’ equity
Noncontrolling interest in consolidated entity
(25 )
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
$
$
See Notes to Condensed Consolidated Financial Statements.
4
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27,
2021
November 28,
2020
November 27,
2021
November 28,
2020
Net sales
$
$
$
$
Cost of sales
Gross profit
Selling, general and administrative
(Gain) loss on disposal of fixed assets
(1,968 )
(2,181 )
Operating income (loss)
(2,065 )
(41,732 )
(12,744 )
Other income (expense):
Interest income, net
Royalty income
Equity income of unconsolidated entities
Other, net
Total other income, net
Income (loss) before income taxes
(33,396 )
(9,608 )
Income tax (benefit) expense
(677 )
(16,515 )
(2,364 )
Net income (loss)
(16,881 )
(7,244 )
Less: Loss attributable to noncontrolling interest
(28 )
(28 )
Net income (loss) attributable to Cal-Maine Foods,
Inc.
$
$
$
(16,853 )
$
(7,244 )
Net income (loss) per common share:
Basic
$
$
$
(0.34 )
$
(0.15 )
Diluted
$
$
$
(0.34 )
$
(0.15 )
Weighted average shares outstanding:
Basic
Diluted
See Notes to Condensed Consolidated Financial Statements.
5
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of
Comprehensive Income (Loss)
(in thousands)
(unaudited)
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27,
2021
November 28,
2020
November 27,
2021
November 28,
2020
Net income (loss)
$
(16,881 )
(7,244 )
Other comprehensive income (loss), before tax:
Unrealized holding gain (loss) on available-for-sale
securities, net of reclassification adjustments
(355 )
(373 )
(579 )
Income tax benefit (expense) related to items of other
comprehensive income
(23 )
Other comprehensive income (loss), net of tax
(268 )
(282)
(438 )
Comprehensive income (loss)
(17,319 )
(7,172 )
Less: Comprehensive loss attributable to the
noncontrolling interest
(28 )
(28 )
Comprehensive income (loss) attributable to Cal-Maine
Foods, Inc.
$
$
$
(17,291 )
$
(7,172 )
See Notes to Condensed Consolidated Financial Statements.
6
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Twenty-six Weeks Ended
November 27, 2021
November 28, 2020
Cash flows from operating activities:
Net loss
$
(16,881 )
$
(7,244 )
Depreciation and amortization
Deferred income taxes
(15,995 )
(2,364 )
Other adjustments, net
(16,585 )
(30,348 )
Net cash used in operations
(15,492 )
(10,651 )
Cash flows from investing activities:
Purchases of investment securities
(26,387 )
(29,637 )
Sales and maturities of investment securities
Distributions from unconsolidated entities
Acquisition of business, net of cash acquired
(44,823 )
Purchases of property, plant and equipment
(28,647 )
(52,373 )
Net proceeds from disposal of property, plant and equipment
Net cash used in investing activities
(26,255 )
(20,030 )
Cash flows from financing activities:
Purchase of common stock by treasury
(18 )
(45 )
Principal payments on finance lease
(106 )
(101 )
Contributions
Net cash used in financing activities
(121 )
(141 )
Net change in cash and cash equivalents
(41,868 )
(30,822 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental Information:
Cash paid for operating leases
$
$
Interest paid
$
$
See Notes to Condensed Consolidated Financial Statements.
7
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of Cal-Maine Foods, Inc. and its subsidiaries (the "Company,"
"we," "us," "our") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles in the
United States of America ("GAAP") for complete financial statements and should be read in conjunction with our Annual
Report on Form 10-K for the fiscal year ended May 29, 2021 (the "2021 Annual Report"). These statements reflect all
adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented
and, in the opinion of management, consist of adjustments of a normal recurring nature. Operating results for the interim
periods are not necessarily indicative of operating results for the entire fiscal year.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to May 31. Each of the three-month periods and year-to-date periods
ended on November 27, 2021 and November 28, 2020 included 13 weeks and 26 weeks, respectively.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly
changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future
periods in response to COVID-19.
Investment Securities
Our investment securities are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC
320”). The Company considers all its debt securities for which there is a determinable fair market value, and there are no
restrictions on the Company's ability to sell within the next 12 months, as available-for-sale. We classify these securities as
current, because the amounts invested are available for current operations. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported as a separate component of stockholders’ equity. The Company regularly evaluates
changes to the rating of its debt securities by credit agencies and economic conditions to assess and record any expected credit
losses through the allowance for credit losses, limited to the amount that fair value was less than the amortized cost basis. The
cost basis for realized gains and losses on available-for-sale securities is determined by the specific identification method.
Gains and losses are recognized in other income (expenses) as Other, net in the Company's Condensed Consolidated Statements
of Operations. Investments in mutual funds are classified as “Other long-term assets” in the Company’s Condensed
Consolidated Balance Sheets.
Trade Receivables
Trade receivables are stated at their carrying values, which include a reserve for credit losses. At November 27, 2021 and May
29, 2021, reserves for credit losses were $
customers based on an evaluation of each customer's financial condition and credit history. Collateral is generally not required.
The Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and
monitoring procedures. In determining our reserve for credit losses, receivables are pooled according to age, with each pool
assigned an expected loss based on historical loss information adjusted as needed for economic and other forward-looking
factors.
8
Business Combinations
The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with business
acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation. The fair value of
non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets considers the
remaining estimated life of the assets acquired and what management believes is the market value for those assets.
Change in Accounting Principle
Effective May 31, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which is
intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial
instruments held by financial institutions and other organizations. The guidance replaces the prior “incurred loss” approach with
an “expected loss” model and requires measurement of all expected credit losses for financial assets held at the reporting date
based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted the
guidance on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of
the period of adoption. The Company evaluated its current methodology of estimating allowance for doubtful accounts and the
risk profile of its receivables portfolio and developed a model that includes the qualitative and forecasting aspects of the
“expected loss” model under the amended guidance. The Company finalized its assessment of the impact of the amended
guidance and recorded a $
Note 2 – Acquisition
Effective on May 30, 2021, the Company acquired the remaining
% membership interest in Red River Valley Egg Farm,
LLC (“Red River”), including certain liabilities. As a result of the acquisition, Red River became a wholly owned subsidiary of
the Company. Red River owns and operates a specialty shell egg production complex with approximately
laying hens, cage-free pullet capacity, feed mill, processing plant, related offices and outbuildings and related equipment
located on approximately
The following table summarizes the consideration paid for Red River and the amounts of the assets acquired and liabilities
assumed recognized at the acquisition date:
Cash consideration paid
$
Fair value of the Company's equity interest in Red River held before the business combination
$
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash
$
Accounts receivable, net
Inventory
Property, plant and equipment
Liabilities assumed
(2,448 )
Deferred income taxes
(8,481 )
Total identifiable net assets
Goodwill
$
Cash and accounts receivable acquired along with liabilities assumed were valued at their carrying value which approximates
fair value due to the short maturity of these instruments.
Inventory consisted primarily of flock, feed ingredients, packaging, and egg inventory. Flock inventory was valued at carrying
value as management believes that their carrying value best approximates their fair value. Feed ingredients, packaging and egg
inventory were all valued based on market prices as of May 30, 2021.
9
Property, plant and equipment were valued utilizing the cost approach which is based on replacement or reproduction costs of
the assets and subtracting any depreciation resulting from physical deterioration and/or functional or economic obsolescence.
The Company recognized a gain of $
% equity interest in Red River
held before the business combination. The gain was recorded in other income and expense under the heading “Other, net” in the
Company’s Condensed Consolidated Statements of Operations. The acquisition of Red River resulted in a discrete tax benefit
of $
investment in Red River, with a corresponding non-recurring, non-cash $
non-taxable remeasurement gain associated with the acquisition. As part of the acquisition accounting, the Company also
recorded a $
The recognition of deferred tax liabilities resulted in the recognition of goodwill. None of the goodwill recognized is expected
to be deductible for income tax purposes.
Note 3 - Investment
Securities
The following represents the Company’s investment securities as of November 27, 2021 and May 29, 2021 (in thousands):
November 27, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Asset backed securities
Total current investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent investment securities
$
$
$
$
May 29, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Total current investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent investment securities
$
$
$
$
Available-for-sale
Proceeds from sales and maturities of investment securities available-for-sale were $
twenty-six weeks ended November 27, 2021 and November 28, 2020, respectively. Gross realized gains for the twenty-six
weeks ended November 27, 2021 and November 28, 2020 were $
losses for the twenty-six weeks ended November 27, 2021 were $
twenty-six weeks ended November 28, 2020. There were
2021.
10
Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or
without penalties. Contractual maturities of current investments at November 27, 2021 are as follows (in thousands):
Estimated Fair Value
Within one year
$
1-5 years
Total
$
Noncurrent
Proceeds from sales and maturities of noncurrent investment securities were $
ended November 27, 2021. Gross realized gains for the twenty-six weeks ended November 27, 2021 were $
thousand. There were
investment securities during the twenty-six weeks ended November 28, 2020.
Note 4 - Fair Value Measurements
The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value
hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated,
knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would
be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to
settle the liability with the creditor.
•
Level 1
•
Level 2
directly or indirectly, including:
◦
Quoted prices for similar assets or liabilities in active markets
◦
Quoted prices for identical or similar assets in non-active markets
◦
Inputs other than quoted prices that are observable for the asset or liability
◦
Inputs derived principally from or corroborated by other observable market data
•
Level 3
significant to the fair value of the assets or liabilities
The disclosures of fair value of certain financial assets and liabilities that are recorded at cost are as follows:
Cash and cash equivalents, accounts receivable, and accounts payable:
short maturity of these instruments.
Lease obligations:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following table shows the fair value of financial assets and
liabilities measured at fair value on a recurring basis as of November 27, 2021 and May 29, 2021 (in thousands):
November 27, 2021
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Asset backed securities
Mutual funds
Total assets measured at fair value
$
$
$
$
11
May 29, 2021
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
Asset backed securities
Mutual funds
Total assets measured at fair value
$
$
$
$
Investment securities – available-for-sale classified as Level 2 consist of securities with maturities of three months or longer
when purchased. We classified these securities as current because amounts invested are readily available for current operations.
Observable inputs for these securities are yields, credit risks, default rates, and volatility.
Note 5 - Inventories
Inventories consisted of the following as of November 27, 2021 and May 29, 2021 (in thousands):
November 27, 2021
May 29, 2021
Flocks, net of amortization
$
$
Eggs and egg products
Feed and supplies
$
$
We grow and maintain flocks of layers (mature female chickens), pullets (female chickens, under 18 weeks of age), and
breeders (male and female chickens used to produce fertile eggs to hatch for egg production flocks). Our total flock at
November 27, 2021 consisted of approximately
Note 6 - Accrued Dividends Payable and Dividends per Common Share
We accrue dividends at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors.
The Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each
quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with GAAP
in an amount equal to one-third (1/3) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day
following the last day of such quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company pays dividends
to shareholders of record on the 65th day after the quarter end. Dividends are payable on the 15th day following the record date.
Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will
not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the
date of the most recent quarter for which a dividend was paid. At the end of the second quarter of fiscal 2022, the amount of
cumulative losses to be recovered before payment of a dividend was $
12
On our condensed consolidated statement of operations, we determine dividends per common share in accordance with the
computation in the following table (in thousands, except per share data):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27,
November 28,
November 27,
November 28,
Net income (loss)
$
$
$
(16,853 )
$
(7,244 )
Cumulative losses to be recovered prior to
payment of divided at beginning of period
(22,270 )
(20,769 )
(4,244 )
(1,370 )
Net income available for dividend
$
$
$
$
1/3 of net income attributable to Cal-Maine
Foods, Inc. available for dividend
Common stock outstanding (shares)
Class A common stock outstanding (shares)
Total common stock outstanding (shares)
*Dividends per common share = 1/3 of Net income (loss) attributable to Cal-Maine Foods, Inc. available for dividend ÷ Total common stock
outstanding (shares).
Note 7 – Credit Facility
On November 15, 2021, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a
five
-
year term. The Credit Agreement amended and restated the Company’s previously existing credit agreement dated July 10,
2018. The Credit Agreement provides for an increased senior secured revolving credit facility (the “Credit Facility” or
“Revolver”), in an initial aggregate principal amount of up to $
issuance of standby letters of credit and a $
accordion feature permitting, with the consent of BMO Harris Bank N.A. (the “Administrative Agent”), an increase in the
Credit Facility in the aggregate up to $
one or more times the revolving commitments under the Revolver. As of November 27, 2021,
the Credit Facility and $
The interest rate in connection with loans made under the Credit Facility is based on, at the Company’s election, either the
Eurodollar Rate plus the Applicable Margin or the Base Rate plus the Applicable Margin. The “Eurodollar Rate” means the
reserve adjusted rate at which Eurodollar deposits in the London interbank market for an interest period of
one
,
two
,
three
,
six
or
twelve
highest of (a) the federal funds rate plus
% per annum, (b) the prime rate of interest established by the Administrative
Agent, and (c) the Eurodollar Rate for an interest period of
one
% per annum, subject to certain interest rate floors.
The “Applicable Margin” means
% to
% per annum for Base Rate Loans and
% to
% per annum for
Eurodollar Rate Loans, in each case depending upon the Total Funded Debt to Capitalization Ratio for the Company at the
quarterly pricing date. The Company will pay a commitment fee on the unused portion of the Credit Facility payable quarterly
from
% to
% in each case depending upon the Total Funded Debt to Capitalization Ratio for the Company at the
quarterly pricing date. The Credit Agreement contains customary provisions regarding replacement of the Eurodollar Rate.
The Credit Facility is guaranteed by all the current and future wholly -owned direct and indirect domestic subsidiaries of the
Company (the “Guarantors”), and is secured by a first-priority perfected security interest in substantially all of the Company’s
and the Guarantors’ accounts, payment intangibles, instruments (including promissory notes), chattel paper, inventory
(including farm products) and deposit accounts maintained with the Administrative Agent.
The Credit Agreement for the Credit Facility contains customary covenants, including restrictions on the incurrence of liens,
incurrence of additional debt, sales of assets and other fundamental corporate changes and investments. The Credit Agreement
requires maintenance of two financial covenants: (i) a maximum Total Funded Debt to Capitalization Ratio tested quarterly of
no greater than
%; and (ii) a requirement to maintain Minimum Tangible Net Worth at all times of $
% of
net income (if net income is positive) less permitted restricted payments for each fiscal quarter after November 27, 2021.
Additionally, the Credit Agreement requires that Fred R. Adams Jr.’s spouse, natural children, sons-in-law or grandchildren, or
any trust, guardianship, conservatorship or custodianship for the primary benefit of any of the foregoing, or any family limited
partnership, similar limited liability company or other entity that
% of the voting control of such entity is held by any of the
foregoing, shall maintain at least
% of the Company's voting stock. Failure to satisfy any of these covenants will constitute a
13
default under the terms of the Credit Agreement. Further, under the terms of the Credit Agreement, payment of dividends under
the Company's current dividend policy of
one-third
payment of other dividends or repurchases by the Company of its capital stock is allowed, as long as after giving effect to such
dividend payments or repurchases no default has occurred and is continuing and the sum of cash and cash equivalents of the
Company and its subsidiaries plus availability under the Credit Facility equals at least $
The Credit Agreement also includes customary events of default and customary remedies upon the occurrence of an event of
default, including acceleration of the amounts due under the Credit Facility and foreclosure of the collateral securing the Credit
Facility.
At November 27, 2021, we were in compliance with the covenant requirements of the Credit Facility.
Note 8 - Equity
The following reflects equity activity for the thirteen and twenty-six weeks ended November 27, 2021 and November 28, 2020
(in thousands):
Thirteen Weeks Ended November 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at August 28,
2021
$
$
$
(27,451 )
$
$
(728 )
$
$
$
Other comprehensive
loss, net of tax
—
—
—
—
(268 )
—
—
(268 )
Stock compensation
plan transactions
—
—
—
—
—
Contributions
—
—
—
—
—
—
Net income (loss)
—
—
—
—
—
(28 )
Balance at November
27, 2021
$
$
$
(27,450 )
$
$
(996 )
$
$
(25 )
$
Thirteen Weeks Ended November 28, 2020
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Amount
Amount
Amount
Capital
Comp. Income
Earnings
Total
Balance at August 29, 2020
$
$
$
(26,676 )
$
$
$
$
Other comprehensive loss, net of tax
—
—
—
—
(282 )
—
(282 )
Stock compensation plan
transactions
—
—
(47 )
—
—
Contributions
—
—
—
—
—
Net income
—
—
—
—
—
Balance at November 28, 2020
$
$
$
(26,723 )
$
$
$
$
14
Twenty-six Weeks Ended November 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp.
Earnings
Interest
Total
Balance at May 29,
2021
$
$
$
(27,433 )
$
$
(558 )
$
$
$
Other comprehensive
loss, net of tax
—
—
—
—
(438 )
—
—
(438 )
Stock compensation
plan transactions
—
—
(17 )
—
—
—
Contributions
—
—
—
—
—
—
Net loss
—
—
—
—
—
(16,853 )
(28 )
(16,881)
Balance at November
27, 2021
$
$
$
(27,450 )
$
$
(996 )
$
$
(25 )
$
Twenty-six Weeks Ended November 28, 2020
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Amount
Amount
Amount
Capital
Comp. Income
Earnings
Total
Balance at May 30, 2020
$
$
$
(26,674 )
$
$
$
$
Impact of ASC 326
—
—
—
—
—
Balance at May 31 2020
(26,674 )
Other comprehensive income, net of
tax
—
—
—
—
—
Stock compensation plan
transactions
—
—
(49 )
—
—
Contributions
—
—
—
—
—
Net loss
—
—
—
—
—
(7,244 )
(7,244 )
Balance at November 28, 2020
$
$
$
(26,723 )
$
$
$
$
Note 9 - Net Income (Loss) per Common Share
Basic net income (loss) per share is based on the weighted average Common Stock and Class A Common Stock outstanding.
Diluted net income per share is based on weighted-average common shares outstanding during the relevant period adjusted for
the dilutive effect of share-based awards. Restricted shares of
losses for the first twenty-six weeks of fiscal 2022 and 2021, respectively. These shares were not included in the diluted net loss
per share calculation.
15
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net
income per common share (amounts in thousands, except per share data):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27,
2021
November 28,
2020
November 27,
2021
November 28,
2020
Numerator
Net income (loss)
$
$
$
(16,881 )
$
(7,244 )
Less: Loss attributable to noncontrolling
interest
(28 )
(28 )
Net income (loss) attributable to Cal-
Maine Foods, Inc.
$
$
$
(16,853 )
$
(7,244 )
Denominator
Weighted-average common shares
outstanding, basic
Effect of dilutive restricted shares
—
—
Weighted-average common shares
outstanding, diluted
Net income (loss) per common share
attributable to Cal-Maine Foods, Inc.
Basic
$
$
$
(0.34 )
$
(0.15 )
Diluted
$
$
$
(0.34 )
$
(0.15 )
Note 10 - Revenue Recognition
Satisfaction of Performance Obligation
Most of the Company’s revenue is derived from contracts with customers based on the customer placing an order for products.
Pricing for the most part is determined when the Company and the customer agree upon the specific order, which establishes
the contract for that order.
Revenues are recognized in an amount that reflects the net consideration we expect to receive in exchange for the goods. Our
shell eggs are sold at prices related to independently quoted wholesale market prices, negotiated prices or formulas related to
our costs of production. The Company’s sales predominantly contain a single performance obligation. We recognize revenue
upon satisfaction of the performance obligation with the customer, which typically occurs within days of the Company and the
customer agreeing upon the order.
Returns and Refunds
Some of our contracts include a guaranteed sale clause, pursuant to which we credit the customer’s account for product that the
customer is unable to sell before expiration. The Company records an estimate of returns and refunds by using historical return
data and comparing to current period sales and accounts receivable. The allowance is recorded as a reduction in sales with a
corresponding reduction in trade accounts receivable.
Sales Incentives Provided to Customers
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current
discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future discounts subject to
a minimum current purchase), and other similar offers. Current discount offers, when accepted by customers, are treated as a
reduction to the sales price of the related transaction, while inducement offers, when accepted by customers, are treated as a
reduction to sales price based on estimated future redemption rates. Redemption rates are estimated using the Company’s
historical experience for similar inducement offers. Current discount and inducement offers are presented as a net amount in
‘‘Net sales.’’
16
Disaggregation of Revenue
The following table provides revenue disaggregated by product category (in thousands):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27, 2021
November 28, 2020
November 27, 2021
November 28, 2020
Conventional shell egg sales
$
$
$
$
Specialty shell egg sales
Egg products
Other
$
$
$
$
Contract Costs
The Company can incur costs to obtain or fulfill a contract with a customer. If the amortization period of these costs is less than
one year, they are expensed as incurred. When the amortization period is greater than one year, a contract asset is recognized
and is amortized over the contract life as a reduction in net sales. As of November 27, 2021, the balance for contract assets is
immaterial.
Contract Balances
The Company receives payment from customers based on specified terms that are generally less than 30 days from delivery.
There are rarely contract assets or liabilities related to performance under the contract.
Note 11 - Leases
Expenses related to operating leases, amortization of finance leases, right-of-use assets, and finance lease interest are included
in Cost of sales, Selling general and administrative expense, and Interest income, net in the Condensed Consolidated Statements
of Operations. The Company’s lease cost consists of the following (in thousands):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27, 2021
November 27, 2021
Operating lease cost
$
$
Finance lease cost
Amortization of right-of-use asset
$
$
Interest on lease obligations
$
$
Short term lease cost
$
$
17
Future minimum lease payments under non-cancelable leases are as follows (in thousands):
As of November 27, 2021
Operating Leases
Finance Leases
Remainder fiscal 2022
$
$
2023
2024
2025
2026
2027
Total
Less imputed interest
(111 )
(30 )
Total
$
$
The weighted-average remaining lease term and discount rate for lease liabilities included in our Condensed Consolidated
Balance Sheet are as follows:
As of November 27, 2021
Operating Leases
Finance Leases
Weighted-average remaining lease term (years)
Weighted-average discount rate
%
%
Note 12 - Stock Based Compensation
Total stock-based compensation expense was $
and November 28, 2020, respectively.
Unrecognized compensation expense as a result of non -vested shares of restricted stock outstanding under the Amended and
Restated 2012 Omnibus Long-Term Incentive Plan at November 27, 2021 of $
average period of
16: Stock Compensation Plans in our 2021 Annual Report for further information on our stock compensation plans.
The Company’s restricted share activity for the twenty-six weeks ended November 27, 2021 follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Outstanding, May 29, 2021
$
Vested
(1,359 )
Forfeited
(1,460 )
Outstanding, November 27, 2021
$
Note 13 - Commitments and Contingencies
Financial Instruments
The Company maintained standby letters of credit ("LOC") totaling $
under the Company's Credit Facility. The outstanding LOCs are for the benefit of certain insurance companies, and are not
recorded as a liability on the consolidated balance sheets.
LEGAL PROCEEDINGS
State of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC
On April 23, 2020, the Company and its subsidiary Wharton County Foods, LLC (“WCF”) were named as defendants in State
of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC, Cause No. 2020-25427, in the District
18
Court of Harris County, Texas. The State of Texas (the “State”) asserted claims based on the Company’s and WCF’s alleged
violation of the Texas Deceptive Trade Practices—Consumer Protection Act, Tex. Bus. & Com. Code §§ 17.41-17.63
(“DTPA”). The State claimed that the Company and WCF offered shell eggs at excessive or exorbitant prices during the
COVID-19 state of emergency and made misleading statements about shell egg prices. The State sought temporary and
permanent injunctions against the Company and WCF to prevent further alleged violations of the DTPA, along with over
$
prejudice. On September 11, 2020, the State filed a notice of appeal, which was assigned to the Texas Court of Appeals for the
First District. The State filed its opening brief on December 7, 2020. The Company and WCF filed their response on February
8, 2021. The Texas Court of Appeals has not ruled on these submissions. Management believes the risk of material loss related
to this matter to be remote.
Bell et al. v. Cal-Maine Foods et al.
On April 30, 2020, the Company was named as one of several defendants in Bell et al. v. Cal-Maine Foods et al., Case No.
1:20-cv-461, in the Western District of Texas, Austin Division. The defendants include numerous grocery stores, retailers,
producers, and farms. Plaintiffs assert that defendants violated the DTPA by allegedly demanding exorbitant or excessive prices
for eggs during the COVID-19 state of emergency. Plaintiffs request certification of a class of all consumers who purchased
eggs in Texas sold, distributed, produced, or handled by any of the defendants during the COVID-19 state of emergency.
Plaintiffs seek to enjoin the Company and other defendants from selling eggs at a price more than 10% greater than the price of
eggs prior to the declaration of the state of emergency and damages in the amount of $
each violation impacting anyone over 65 years old. On December 1, 2020, the Company and certain other defendants filed a
motion to dismiss the plaintiffs’ amended class action complaint. The plaintiffs subsequently filed a motion to strike, and the
motion to dismiss and related proceedings were referred to a United States magistrate judge. On July 14, 2021, the magistrate
judge issued a report and recommendation to the court that the defendants’ motion to dismiss be granted and the case be
dismissed without prejudice for lack of subject matter jurisdiction. On September 20, 2021, the court adopted the magistrate’s
report and recommendation in its entirety and granted defendants’ motion to dismiss plaintiffs’ first amended class action
complaint; thereafter, the court entered a final judgment in favor of the Company and certain other defendants dismissing the
case without prejudice. On October 18, 2021, plaintiffs filed a motion to alter or amend the final judgement and allow a filing
of a second amended complaint. The Company responded on November 1, 2021. The court has not ruled on the plaintiffs’
motion.
Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.
As previously reported, on September 25, 2008, the Company was named as one of several defendants in numerous antitrust
cases involving the United States shell egg industry. The Company settled all of these cases, except for the claims of certain
plaintiffs who sought substantial damages allegedly arising from the purchase of egg products (as opposed to shell eggs). These
remaining plaintiffs are Kraft Food Global, Inc., General Mills, Inc., and Nestle USA, Inc. (the “Egg Products Plaintiffs”) and
The Kellogg Company.
On September 13, 2019, the case with the Egg Products Plaintiffs was remanded from a multi-district litigation proceeding in
the United States District Court for the Eastern District of Pennsylvania, In re Processed Egg Products Antitrust Litigation,
MDL No. 2002, to the United States District Court for the Northern District of Illinois, Kraft Foods Global, Inc. et al. v. United
Egg Producers, Inc. et al., Case No. 1:11-cv-8808, for trial. The Egg Products Plaintiffs allege that the Company and other
defendants violated Section 1 of the Sherman Act, 15. U.S.C. § 1, by agreeing to limit the production of eggs and thereby
illegally to raise the prices that plaintiffs paid for processed egg products. In particular, the Egg Products Plaintiffs are attacking
certain features of the United Egg Producers animal-welfare guidelines and program used by the Company and many other egg
producers. The Egg Products Plaintiffs seek to enjoin the Company and other defendants from engaging in antitrust violations
and seek treble money damages. The parties filed a joint status report on May 18, 2020. On August 4, 2021, by docket entry,
the court instructed the parties to jointly submit a second status report to the court that included a proposed schedule for
preparing a final pretrial order. On August 25, 2021, the parties filed a joint status report, and on August 26, 2021, the court, by
docket entry, informed the parties that the need to discuss issues was no longer necessary and that a scheduled August 30, 2021,
status hearing was stricken. No trial schedule has yet been entered by the court.
In addition, on October 24, 2019, the Company entered into a confidential settlement agreement with The Kellogg Company
dismissing all claims against the Company for an amount that did not have a material impact on the Company’s financial
condition or results of operations. On November 11, 2019, a stipulation for dismissal was filed with the court, but the court has
not yet entered a judgment on the filing.
The Company intends to continue to defend the remaining case with the Egg Products Plaintiffs as vigorously as possible based
on defenses which the Company believes are meritorious and provable. Adjustments, if any, which might result from the
19
resolution of this remaining matter with the Egg Products Plaintiffs have not been reflected in the financial statements. While
management believes that there is still a reasonable possibility of a material adverse outcome from the case with the Egg
Products Plaintiffs, at the present time, it is not possible to estimate the amount of monetary exposure, if any, to the Company
due to a range of factors, including the following, among others: the matter is in the early stages of preparing for trial following
remand; any trial will be before a different judge and jury in a different court than prior related cases; there are significant
factual issues to be resolved; and there are requests for damages other than compensatory damages (i.e., injunction and treble
money damages).
State of Oklahoma Watershed Pollution Litigation
On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma,
against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and its affiliate, George’s,
Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. The State of Oklahoma claims that through the disposal of
chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma.
The complaint seeks injunctive relief and monetary damages, but the claim for monetary damages has been dismissed by the
court. Cal-Maine Foods, Inc. discontinued operations in the watershed. Accordingly, we do not anticipate that Cal-Maine
Foods, Inc. will be materially affected by the request for injunctive relief unless the court orders substantial affirmative
remediation. Since the litigation began, Cal-Maine Foods, Inc. purchased
% of the membership interests of Benton County
Foods, LLC, which is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods,
LLC is not a defendant in the litigation.
The trial in the case began in September 2009 and concluded in February 2010. The case was tried without a jury, and the court
has not yet issued its ruling. Management believes the risk of material loss related to this matter to be remote.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business. Although the
outcome of these matters cannot be determined with certainty, management, upon the advice of counsel, is of the opinion that
the final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
Note 14 - Related Party Transaction
On August 24, 2020, Mrs. Jean Reed Adams, the wife of the Company’s late founder Fred R. Adams, Jr., and the Fred R.
Adams, Jr. Daughters’ Trust, dated July 20, 2018 (the “Daughters’ Trust”), of which the daughters of Mr. Adams are
beneficiaries (together, the “Selling Stockholders”), completed a registered secondary public offering of
Common Stock held by them, pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”) filed
as an exhibit to our 2021 Annual Report. Mrs. Adams and the Daughters’ Trust advised the Company that they were conducting
the offering in order to pay estate taxes related to the settlement of Mr. Adam’s estate and to obtain liquidity. The public
offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-227742),
including the Prospectus contained therein dated October 9, 2018, and a related Prospectus Supplement dated August 19, 2020,
each of which is on file with the Securities and Exchange Commission. The public offering involved only the sale of shares of
Common Stock that were already outstanding, and thus the Company did not issue any new shares or raise any additional
capital in the offering. The expenses of the offering (not including the underwriting discount and legal fees and expenses of
legal counsel for the Selling Stockholders, which were paid by the Selling Stockholders) paid by the Company were $
million. Pursuant to the Agreement, the Selling Stockholders reimbursed the Company $
20
ITEM 2. MANAGEMENT’S
DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results
of Operations included in Part II Item 7 of the Company’s Annual Report on Form 10-K for its fiscal year ended May 29, 2021
(the “2021 Annual Report”), and the accompanying financial statements and notes included in Part II Item 8 of the 2021 Annual
Report and in
Part
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
(the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our shell egg
business, including estimated future production data, expected construction schedules, projected construction costs, potential
future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on our
business of the 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 Part I, Item 1A of the 2021
Annual Report (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and
potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to
predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that could result from our
future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending
acquisition not to be met, (vi) risks relating to the evolving COVID-19 pandemic, including without limitation increased costs
and growing inflationary rates, and (vii) adverse results in pending litigation matters. Readers are cautioned not to place undue
reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are
based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further,
forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of
the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-
looking statements, whether because of new information, future events, or otherwise.
GENERAL
Cal-Maine Foods, Inc. (the “Company,” “we,” “us,” “our”) is primarily engaged in the production, grading, packaging,
marketing and distribution of fresh shell eggs. Our operations are fully integrated under one operating segment. We are the
largest producer and distributor of fresh shell eggs in the United States (“U.S.”). Our total flock of approximately 42.9 million
layers and 9.3 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.
We are a member of the Eggland’s Best, Inc. (“EB”) cooperative and produce, market and distribute EB and Land O'Lakes
branded eggs, both directly and through our joint ventures Specialty Eggs, LLC and Southwest Specialty Eggs, LLC, under
exclusive license agreements in Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi and Texas, and in portions of
Arkansas, California, Nevada, North Carolina Oklahoma and South Carolina. We also have an exclusive license in New York
City in addition to exclusivity in select New York metropolitan areas, including areas within New Jersey and Pennsylvania.
Our operating results are materially impacted by market prices for eggs and feed grains (corn and soybean meal), which are
highly volatile, independent of each other, and out of our control. Generally, higher market prices for eggs have a positive
impact on our financial results while higher market prices for feed grains have a negative impact on our financial results.
Although we use a variety of pricing mechanisms in pricing agreements with our customers, we sell most of our conventional
shell eggs based on formulas that consider, 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. As an example of the
volatility in the market prices of shell eggs, the Urner-Barry White Large, Southeast Regional Egg Market Price per dozen eggs
(“UB southeast large index”) for the first half of fiscal year 2022 ranged from a low of $1.00 in June 2021 to a high of $1.66 in
November 2021.
21
Generally, we purchase primary feed ingredients, mainly corn and soybean meal, at current market prices. Corn and soybean
meal are commodities and are subject to volatile price changes due to weather, various supply and demand factors,
transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and internationally.
An important competitive advantage for Cal-Maine Foods is our ability to meet our customers’ evolving needs with a favorable
product mix of conventional and specialty eggs, including cage-free, organic and other specialty offerings, as well as egg
products. We have also enhanced our efforts to provide free-range and pasture-raised eggs that meet consumers’ evolving
choice preferences. While a small part of our current business, the free-range and pasture-raised eggs we produce and sell
represent attractive offerings to a subset of consumers, and therefore our customers, and help us continue to serve as the trusted
provider of quality food choices.
Specialty shell eggs have been a significant and growing portion of the market. In recent years, a significant number of large
restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to
an exclusively cage-free egg supply chain by specified future dates. Additionally, several states, representing approximately
24% of the U.S. total population according to the 2020 U.S. Census, have passed legislation requiring that all eggs sold in those
states must be cage-free eggs by specified future dates, and other states are considering such legislation. In California and
Massachusetts, which represent about 14% of the total U.S. population according to the 2020 U.S. Census, cage-free legislation
goes into effect January 1, 2022. For additional information, see the 2021 Annual Report, Part I, Item 1, “Business – Specialty
Eggs,” “Business – Growth Strategy” and “Business – Government Regulation,” and the first risk factor in Part I Item 1A,
“Risk Factors” under the sub-heading “Legal and Regulatory Risk Factors.”
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. Because of the seasonal and quarterly
fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not
necessarily meaningful comparisons.
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 479
thousand dozen eggs to date 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 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, and increased labor costs and medical costs
and, more recently, inflation.
In the second quarters of fiscal 2022 and 2021, we spent approximately $713 thousand and $612 thousand (excluding medical
insurance claims) related to the pandemic and its effects, respectively. The majority of these expenses in fiscal 2022 resulted
from additional labor costs and increased cost of packaging materials, primarily reflected in cost of sales. In fiscal 2021, most
of these expenses related to additional labor costs. Medical insurance claims related to COVID-19 paid during the second
quarter of fiscal 2022 were an additional $870 thousand as compared to $529 thousand paid in the comparable quarter in fiscal
2021.
22
In the first half of fiscal 2022 and 2021, we spent approximately $1.3 million and $1.4 million (excluding medical insurance
claims) related to the pandemic and its effects, respectively. The majority of these expenses in fiscal 2022 resulted from
additional labor costs and increased cost of packaging materials, primarily reflected in cost of sales. In fiscal 2021, most of
these expenses related to additional labor costs. Medical insurance claims related to COVID-19 paid during the first half of
fiscal 2022 were an additional $1.1 million as compared to $818 thousand paid in the comparable period in fiscal 2021.
EXECUTIVE OVERVIEW
For the second quarter of fiscal 2022, we recorded a gross profit of $43.7 million compared to $58.5 million for the same period
of fiscal 2021, with the decrease due primarily to the higher costs of feed ingredients and higher processing costs. Our total
dozens sold increased 0.9% to 276.1 million dozen shell eggs for the second quarter of fiscal 2022 compared to 273.7 million
dozen for the same period of fiscal 2021. For the second quarter of fiscal 2022, conventional dozens sold decreased 4.4% and
specialty dozens sold increased 15.7% as compared to the same quarter in fiscal 2021. Specialty dozens sold increased as more
cage-free facilities came into production which helped increase our cage-free egg sales.
The daily average price for the UB southeast large index for the second quarter of fiscal 2022 increased 14.6% from the
comparable period in the prior year. Our net average selling price per dozen for the second quarter of fiscal 2022 was $1.373
compared to $1.227 in the prior-year period. Hen numbers reported by the USDA as of December 1, 2021, were 327.8 million,
which is approximately 913 thousand more hens than the comparable period of the prior year. The USDA also reported that the
hatch from July 2021 through November 2021 decreased 2.0% compared to the prior-year period. As of December 1, 2021,
eggs in incubators were down 9% versus the prior-year period.
Our farm production costs per dozen produced for the second quarter of fiscal 2022 increased 21.6%, or $0.156, compared to
the second quarter of fiscal 2021. This increase was primarily due to increased prices for feed ingredients. Feed costs started
trending higher midway through the second quarter of fiscal 2021 and have remained elevated compared to historical costs.
Though these feed costs began trending higher in fiscal 2021, we initially benefitted from filling our storage bins at harvest and
locking in the basis portion of our grain purchases several months in advance, which reduced our feed costs in fiscal 2021. We
did not experience the same benefits in fiscal 2022 given sustained elevated feed costs that increased our feed costs compared
to the comparable fiscal 2021 period. For the second quarter of fiscal 2022, the average Chicago Board of Trade (“CBOT”)
daily market price was $5.43 per bushel for corn and $338 per ton for soybean meal, representing an increase of 38.4% and a
decrease of 5.9%, respectively, compared to the average daily CBOT prices for the comparable period in the prior year. Other
farm production costs for the second quarter of fiscal 2022 increased 11.9% versus the comparable period in the prior fiscal
year, driven by higher flock amortization and facility expense.
Effective May 30, 2021, we acquired the remaining 50% membership interest in Red River Valley Egg Farm, LLC (“Red
River”). Red River owns and operates a specialty shell egg production complex with approximately 1.7 million cage-free laying
hens, cage-free pullet capacity, feed mill, processing plant, related offices and outbuildings and related equipment located on
approximately 400 acres near Bogata, Texas. For additional information, see
Consolidated Financial Statements included in this Quarterly Report.
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 will
capitalize MeadowCreek with up to $18.5 million in debt and equity to purchase property and equipment and to fund working
capital, and we will retain 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.
Also during October 2021, we announced that our Board of Directors approved a $23.0 million capital project to expand 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 400,000 cage-free hens and 210,000
pullets, respectively. Construction has commenced, with first pullet placements planned by mid-May 2022 and 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. The Company plans to fund the project through a combination of available cash on hand, investments and operating cash
flow.
Effective December 5, 2021, we made an additional investment in our joint venture Southwest Specialty Eggs, LLC, to acquire
warehouse and distribution capability to expand Southwest Specialty Eggs, LLC’s customer base in the southern
California, Arizona and Nevada markets.
23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of
Operations expressed as a percentage of net sales.
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27, 2021
November 28, 2020
November 27, 2021
November 28, 2020
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
88.8
%
83.2
%
93.0
%
88.2
%
Gross profit
11.2
%
16.8
%
7.0
%
11.8
%
Selling, general and administrative
12.2
%
12.6
%
13.1
%
13.7
%
(Gain) loss on disposal of fixed assets
(0.5)
%
—
%
(0.3)
%
—
%
Operating income (loss)
(0.5)
%
4.2
%
(5.8)
%
(1.9)
%
Total other income, net
0.6
%
0.4
%
1.2
%
0.5
%
Income (loss) before income taxes
0.1
%
4.6
%
(4.6)
%
(1.4)
%
Income tax (benefit) expense
(0.2)
%
1.1
%
(2.3)
%
(0.4)
%
Net income (loss)
0.3
%
3.5
%
(2.3)
%
(1.0)
%
NET SALES
Total net sales for the second quarter of fiscal 2022 were $390.9 million compared to $347.3 million for the same period of
fiscal 2021.
Net shell egg sales represented 97.1% of total net sales for the second quarters of fiscal 2022 and 2021. Shell egg sales
classified as “Other” represent sales of hard-cooked eggs, hatching eggs and other miscellaneous products included with our
shell egg operations.
Total net sales for the twenty-six weeks ended November 27, 2021 were $722.6 million, compared to $640.1 million for the
comparable period of fiscal 2021.
Net shell egg sales represented 97.1% and 97.4% of total net sales for the twenty-six weeks ended November 27, 2021 and
November 28, 2020, respectively.
24
The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except percentage data):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27, 2021
November 28, 2020
November 27, 2021
November 28, 2020
Total net sales
$
390,903
$
347,328
$
722,607
$
640,110
Conventional
$
223,258
58.8
%
$
201,725
59.8
%
$
405,807
57.8
%
$
357,109
57.3
%
Specialty
155,853
41.1
%
134,082
39.7
%
294,510
42.0
%
263,327
42.2
%
Egg sales, net
379,111
99.9
%
335,807
99.5
%
700,317
99.8
%
620,436
99.5
%
Other
391
0.1
%
1,589
0.5
%
1,523
0.2
%
3,037
0.5
%
Net shell egg sales
$
379,502
100.0
%
$
337,396
100.0
%
$
701,840
100.0
%
$
623,473
100.0
%
Net shell egg sales as a
percent of total net sales
97.1
%
97.1
%
97.1
%
97.4
%
Dozens sold:
Conventional
192,403
69.7
%
201,317
73.6
%
376,890
70.4
%
396,555
73.8
%
Specialty
83,705
30.3
%
72,334
26.4
%
158,603
29.6
%
141,090
26.2
%
Total dozens sold
276,108
100.0
%
273,651
100.0
%
535,493
100.0
%
537,645
100.0
%
Net average selling price per
dozen:
Conventional
$
1.160
$
1.002
$
1.077
$
0.901
Specialty
$
1.862
$
1.854
$
1.857
$
1.866
All shell eggs
$
1.373
$
1.227
$
1.308
$
1.154
Egg products sales:
Egg products net sales
11,401
9,932
20,767
16,637
Pounds sold
16,009
15,967
31,278
30,996
Net average selling price per
pound
0.712
0.622
0.664
0.537
Shell egg net sales
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
In the second quarter of fiscal 2022, conventional egg sales increased $21.5 million, or 10.7%, compared to the second
quarter of fiscal 2021, primarily due to the increase in price for conventional shell eggs, partially offset by a decrease
in volume of conventional eggs sold. Changes in price resulted in a $30.4 million increase and the change in volume
resulted in a $10.3 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a decrease in the conventional production layer
hen flock. According to reports from the USDA, as of November 1, 2021, the estimated number of hens producing
conventional eggs decreased 11.3 million, or 4.6%, versus the prior-year comparable period. In addition, foodservice
demand improved compared to the comparable prior-year period. 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
during the pandemic. A stronger export market in our second quarter of fiscal 2022 also supported conventional egg
prices.
-
The decrease in volume of conventional eggs sold was primarily due to elevated retail demand during the second
quarter of fiscal 2021 given consumers’ preferences to purchase eggs for in-home meal preparation during the more
restrictive phases of governmental and business shutdowns due to the pandemic. We saw this consumer preference
begin to shift in the fourth quarter of fiscal 2021 as consumers began to resume out-of-home dining and prepare fewer
meals at home.
-
Specialty egg sales increased $21.8 million, or 16.2%, in the second quarter of fiscal 2022 compared to the second
quarter of fiscal 2021, primarily due to a 15.7% increase in the volume of specialty eggs sold, of which resulted in a
$21.2 million increase in net sales. Our specialty egg sales in the second quarter of fiscal 2022 versus the prior-year
period benefitted from our acquisition of the remaining 50% membership interest in Red River, which helped drive our
cage-free egg retail sales. Our cage-free sales also benefitted from our continued investment in expanded cage-free
25
capabilities as additional cage-free production capacity came online during the quarter. Cage-free egg sales comprised
24.0% of our total sales in second quarter fiscal 2022 and 23.8% of total sales fiscal year-to-date.
-
We believe that the demand for specialty eggs has increased as consumers have evolved their preferences to purchase
higher-priced specialty eggs for at-home meal preparation and as retailers have committed to selling more cage-free
products.
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
-
For the twenty-six weeks ended November 27, 2021, conventional egg sales increased $48.7 million or 13.6%
compared to the same period of fiscal 2021, primarily due to the increase in price, partially offset by a decrease in
volume of conventional eggs sold. Changes in price resulted in a $66.3 million increase and change in volume resulted
in a $21.2 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a decrease in the conventional production layer
hen flock. In addition, foodservice demand improved compared to the same period in the prior year. Lower
conventional egg prices in the prior -year period were primarily due to conventional eggs entering the retail channel
from the foodservice channel due to the pandemic.
-
The decrease in volume of conventional eggs sold was primarily due to elevated retail demand during the first half of
fiscal 2021 due to consumers’ preferences to purchase eggs for in-home meal preparation due to the pandemic. We
saw this consumer preference begin to shift in the fourth quarter of fiscal 2021 as consumers began to resume out-of-
home dining and prepare fewer meals at home.
-
Specialty egg sales increased $31.2 million, or 11.8%, for the twenty-six weeks ended November 27, 2021 compared
to the same period of fiscal 2021, primarily due to a 12.4% increase in the volume of specialty dozens sold, partially
offset by a decrease in specialty egg prices. Changes in price resulted in a $1.4 million decrease and change in volume
resulted in a $32.5 million increase in net sales, respectively. We also benefitted from our additional cage-free
production capacity.
Egg products net sales
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Egg products net sales increased $1.5 million or 14.8% for the second quarter of fiscal 2022 compared to the same
period of fiscal 2021, primarily due to a 14.5% selling price increase, which had a $1.4 million positive impact on net
sales.
-
Selling prices for egg products in the second quarter of fiscal 2021 were negatively impacted by a decline in
foodservice demand due to the pandemic. Our egg products net average selling price increased in the second quarter of
fiscal 2022 compared to the same period in fiscal 2021 as foodservice channel demand has begun to shift more to pre-
pandemic levels.
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
-
Egg products net sales increased $4.1 million or 24.8%, primarily due to a 23.6% selling price increase compared to
the first twenty-six weeks of fiscal 2021, which had a $4.0 million positive impact on net sales.
-
Our egg products net average selling price increased in the twenty-six weeks end November 27, 2021, compared to the
same period in fiscal 2021 as foodservice channel demand has begun to shift more towards pre-pandemic levels.
Selling prices for egg products in the twenty-six weeks ended November 28, 2020 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
Costs of sales for the second quarter of fiscal 2022 were $347.2 million compared to $288.9 million for the same period of
fiscal 2021. For the twenty-six weeks ended November 27, 2021 and November 28, 2020, total cost of sales were $672.2
million and $564.9 million, respectively.
Cost of sales consists of costs directly related to producing, processing and packing shell eggs, purchases of shell eggs from
outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm production costs are
those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production
costs.
26
The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data):
Thirteen Weeks Ended
Twenty-six Weeks Ended
November 27,
2021
November 28,
2020
% Change
November 27,
2021
November 28,
2020
% Change
Cost of Sales:
Farm production
$
221,971
$
179,131
23.9
%
$
429,466
$
340,994
25.9
%
Processing, packaging, and
warehouse
69,474
63,505
9.4
134,533
123,374
9.0
Egg purchases and other (including
change in inventory)
46,039
37,625
22.4
90,730
86,558
4.8
Total shell eggs
337,484
280,261
20.4
654,729
550,926
18.8
Egg products
9,672
8,616
12.3
17,486
13,968
25.2
Total
$
347,156
$
288,877
20.2
%
$
672,215
$
564,894
19.0
%
Farm production costs (per dozen
produced)
Feed
$
0.529
$
0.410
29.0
%
$
0.537
$
0.399
34.6
%
Other
$
0.349
$
0.312
11.9
%
$
0.351
$
0.320
9.7
%
Total
$
0.878
$
0.722
21.6
%
$
0.888
$
0.719
23.5
%
Outside egg purchases (average
cost per dozen)
$
1.56
$
1.24
25.8
%
$
1.45
$
1.13
28.3
%
Dozens produced
256,786
251,914
1.9
%
493,244
483,075
2.1
%
Percent produced to sold
93.0%
92.1%
1.0
%
92.1%
89.9%
2.4
%
Farm Production
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Feed costs per dozen produced increased 29.0% in the second quarter of fiscal 2022 compared to the second quarter of
fiscal 2021. This increase was primarily due to increased prices for corn, our primary feed ingredient. Feed ingredient
costs started trending higher midway through the second quarter of fiscal 2021 and have remained elevated compared
to historical costs. Though these feed costs began trending higher in fiscal 2021, we initially benefitted from filling our
storage bins at harvest and locking in the basis portion of our grain purchases several months in advance, which
reduced our feed costs in fiscal 2021. As feed costs have remained elevated entering into our second quarter of fiscal
2022, we did not experience the same benefits, which increased our feed costs compared to the same period of fiscal
2021.
-
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, our 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.
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
-
Feed costs per dozen produced increased 34.6% in the twenty-six weeks ended November 27, 2021 compared to the
same period of fiscal 2021, primarily due to higher feed ingredient prices resulting from increased export demand, as
well as weather-related shortfalls in production and yields, which have placed additional pressure on domestic
supplies.
-
Other farm production costs 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.
27
Processing, packaging, and warehouse
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Cost of packaging materials increased 5.3% compared to the second quarter of fiscal 2021 as supply chain constraints
caused by the pandemic increased costs for packaging products and manufacturer s implemented pandemic surcharges.
-
Labor costs increased 18.4% due to wage increases in response to labor shortages, primarily due to the pandemic and
its effects.
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
-
Cost of packaging materials increased 7.0% compared to the twenty-six weeks ended November 27, 2021 as supply
chain constraints caused by the pandemic increased costs for packaging products and manufacturers implemented
pandemic surcharges.
-
Labor costs increased 14.8% due to wage increases in response to labor shortages, primarily due to the pandemic and
its effects.
Egg purchases and other (including change in inventory)
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Costs in this category increased primarily due to higher egg prices, offset slightly by the decrease in the volume of
outside egg purchases, as our percentage of produced to sold increased to 93.0%.
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
-
Costs in this category increased primarily due to higher egg prices, offset slightly by the decrease in the volume of
outside egg purchases, as our percentage of produced to sold increased to 92.1%.
Looking forward throughout the rest of fiscal 2022, corn and soybean supplies remained tight relative to demand, primarily
related to lower carry-out stock. We expect market prices to remain volatile given the ongoing disruptions related to the
COVID-19 global pandemic, weather fluctuations and geopolitical issues.
GROSS PROFIT
Gross profit for the second quarter of fiscal 2022 was $43.7 million compared to $58.5 million for the same period of fiscal
2021. The decrease of $14.7 million was primarily due to the increased cost of feed ingredients and processing costs.
Gross profit for the twenty-six weeks ended November 27, 2021 was $50.4 million compared to $75.2 million for the same
period of fiscal 2021. The decrease of $24.8 million was primarily due to the increased cost of feed ingredients and processing
costs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses ("SGA") include costs of marketing, distribution, accounting, and corporate
overhead. The following table presents an analysis of our SGA expenses (in thousands):
Thirteen Weeks Ended
November 27, 2021
November 28, 2020
$ Change
% Change
Specialty egg expense
$
14,262
$
14,039
$
223
1.6
%
Delivery expense
14,395
13,052
1,343
10.3
%
Payroll, taxes and benefits
11,303
10,030
1,273
12.7
%
Stock compensation expense
975
931
44
4.7
%
Other expenses
6,845
5,821
1,024
17.6
%
Total
$
47,780
$
43,873
$
3,907
8.9
%
Second Quarter – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Advertising and franchise fees increased in the second quarter of fiscal 2022 compared to the second quarter of fiscal
2021, due to increased advertising expense.
28
Delivery expense
-
The increased delivery expense is primarily due to the increase in fuel and labor costs for both our fleet and contract
trucking.
Payroll, taxes and benefits expense
-
The increase in payroll, taxes and benefits is primarily due to an increase in employee health insurance costs.
Other expenses
-
The increase in other expenses is primarily due to increased premiums for property and casualty insurance due to
insurance market conditions.
Twenty-six Weeks Ended
November 27, 2021
November 28, 2020
$ Change
% Change
Specialty egg expense
$
27,977
$
26,736
$
1,241
4.6
%
Delivery expense
28,331
25,546
2,785
10.9
%
Payroll, taxes and benefits
21,242
21,331
(89)
(0.4)
%
Stock compensation expense
1,976
1,824
152
8.3
%
Other expenses
14,779
12,401
2,378
19.2
%
Total
$
94,305
$
87,838
$
6,467
7.4
%
Twenty-six weeks – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Advertising and franchise fees increased in the twenty-six weeks ended November 27, 2021 compared to the same
period of fiscal 2021 due to increased advertising expense.
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 market conditions.
OPERATING INCOME (LOSS)
For the second quarter of fiscal 2022, we recorded an operating loss of $2.1 million compared to operating income of $14.5
million for the same period of fiscal 2021.
For the twenty-six weeks ended November 27, 2021, we recorded an operating loss of $41.7 million compared to an operating
loss of $12.7 million for the same period of fiscal 2021.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged or related to operations, such as interest income and
expense, royalty income, equity income or loss of unconsolidated entities, and patronage income, among other items.
For the second quarter of fiscal 2022, we earned $207 thousand of interest income compared to $727 thousand for the same
period of fiscal 2021. The decrease resulted from significantly lower investment balances. The Company recorded interest
expense of $78 thousand and $64 thousand for the second quarters ended November 27, 2021 and November 28, 2020,
respectively.
For the twenty-six weeks ended November 27, 2021, we earned $497 thousand of interest income compared to $1.7 million for
the same period of fiscal 2021. The decrease resulted from significantly lower investment balances. The Company recorded
interest expense of $136 thousand and $135 thousand for the twenty-six weeks ended November 27, 2021 and November 28,
2020, respectively.
29
For the second quarter of fiscal 2022, equity income of unconsolidated entities was $264 thousand compared to $58 thousand in
the prior-year period.
For the twenty-six weeks ended November 27, 2021, equity income of unconsolidated entities was $399 thousand compared to
$14 thousand in the prior-year period.
Other, net for the second quarter ended November 27, 2021, was income of $1.9 million compared to income of $436 thousand
for the same period of fiscal 2021, which is primarily due to a $1.4 million payment related to review and adjustment of our
various marketing agreements.
Other, net for the twenty-six weeks ended November 27, 2021, was income of $7.0 million compared to income of $948
thousand for the same period of 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 $1.4 million payment related to review and adjustment of our various marketing agreements.
INCOME TAXES
As of November 27, 2021, we remain under audit by the Internal Revenue Service (IRS) for the fiscal years 2013 through 2015.
The IRS has proposed adjustments related to the Company’s research and development credits claimed during the years under
audit. Management is continuing to evaluate those proposed adjustments and does not anticipate the adjustments would result in
a material change to its consolidated financial statements. Using the facts, circumstances and information known at the
reporting date, the Company believes it is reasonably possible an adjustment to the previously recognized tax benefits related to
the research and development credits is necessary. As such, we recorded a tax benefit of approximately $520 thousand during
the second quarter of fiscal 2022.
For the second quarter of fiscal 2022, pre-tax income was $468 thousand compared to $15.9 million for the same period of
fiscal 2021. We recorded an income tax benefit of $677 thousand for the second quarter of fiscal 2022, which includes the
discrete tax benefit described above. Excluding the discrete tax benefit, income tax benefit was $157 thousand for the second
quarter of fiscal 2022 with an adjusted effective tax rate of 33.5%. Income tax expense was $3.8 million for the comparable
period of fiscal 2021, which reflects an effective tax rate of 23.6%.
For the twenty-six weeks ended November 27, 2021, pre-tax loss was $33.4 million compared to $9.6 million for the same
period of fiscal 2021. We recorded an income tax benefit of $16.5 million, which includes the discrete tax benefit of $8.3
million as discussed in Note 2 – Acquisitions of the Notes to Condensed Consolidated Financial Statements in this Quarterly
Report. Excluding the discrete tax benefit, income tax benefit was $8.2 million with an adjusted effective tax rate of 24.6%,
compared to $2.4 million for the comparable period of fiscal 2021, which reflects an effective tax rate of 24.6%.
At November 27, 2021 and May 29, 2021, trade and other receivables included income taxes receivables of $42.8 million and
$42.5 million, respectively.
Our effective tax rate differs from the federal statutory income tax rate due to state income taxes, certain federal tax credits and
certain items included in income for financial reporting purposes that are not included in taxable income for income tax
purposes, including tax exempt interest income, certain nondeductible expenses and net income or loss attributable to our
noncontrolling interest.
NET LOSS
Net income for the second quarter ended November 27, 2021, was $1.2 million, or $0.02 per basic and diluted share, compared
to net income of $12.2 million or $0.25 per basic and diluted share for the same period of fiscal 2021.
Net loss for the twenty-six weeks ended November 27, 2021, was $16.9 million, or $0.34 per basic and diluted share, compared
to net loss of $7.2 million or $0.15 per basic and diluted share for the same period of fiscal 2021.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at November 27, 2021 was $364.7 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 4.13 at November 27, 2021,
compared with 5.77 at May 29, 2021.
30
We had no long -term debt outstanding at November 27, 2021 or May 29, 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 November 27, 2021, no amounts were borrowed under the Credit Facility. We have $4.1 million in outstanding
standby letters of credit, issued under our Credit Facility for the benefit of certain insurance companies. For additional
information, see
Note 7 – Credit Facility
Quarterly Report.
For the twenty-six weeks ended November 27, 2021, $15.5 million in net cash was used in operating activities, compared to
$10.7 million used in operating activities for the comparable period in fiscal 2021. This is primarily due to the increased costs
of feed ingredients compared to the prior-year period.
We continue to invest in our facilities, with $28.6 million used to purchase property, plant and equipment for the twenty-six
weeks ended November 27, 2021, compared to $52.4 million in the same period of fiscal 2021. We also acquired the remaining
50% membership interest in Red River during our first quarter of fiscal 2022 for $48.5 million. Sales and maturities of
investment securities, net of purchases, were $41.5 million for the twenty-six weeks ended November 27, 2021, compared to
$29.4 million for the comparable period in fiscal 2021. We received $400 thousand in distributions from an unconsolidated
entity in the first two quarters of fiscal 2022 compared to $2.70 million for the same period fiscal of 2021.
As of November 27, 2021, cash decreased $41.9 million since May 29, 2021, compared to a decrease of $30.8 million during
the same period of fiscal 2021.
We continue to monitor the increasing demand for cage-free eggs and to engage with our customers in an effort to achieve a
smooth transition to meet their announced commitment timeline for cage-free egg sales. We have invested approximately $488
million in facilities, equipment and related operations to expand our cage-free production starting with our first facility in 2008.
During October 2021, we announced a new $23.0 million capital project to expand our cage-free egg production at our
Okeechobee, Florida, production facility, and a new planned $18.5 million strategic investment that will specialize in high
value commercial product solutions targeting specific needs in the food industry. See “
” for additional
information. The following table presents material construction projects approved as of November 27, 2021 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
November 27, 2021
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
132,443
104,477
27,966
Cage-Free Layer & Pullet Houses
Fiscal 2023
23,771
11
23,760
$
156,214
$
104,488
$
51,726
We believe our current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient to fund our
current capital needs.
RECENTLY ISSUED/ADOPTED ACCOUNTING STANDARDS
For information on changes in accounting principles and new accounting policies, see
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates made in accordance with U.S. generally accepted accounting principles that
involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our
financial condition or results of operations. There have been no changes to our critical accounting estimates identified in our
2021 Annual Report.
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk during the twenty-six weeks ended November 27, 2021
from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2021 Annual
Report.
ITEM 4. CONTROLS
AND
PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed
by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer
and Chief Financial Officer, together with other financial officers, such officers concluded that our disclosure controls and
procedures were effective as of November 27, 2021 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended November 27, 2021
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the discussion of certain legal proceedings involving the Company and/or its subsidiaries in (i) our 2021 Annual
Report, Part I Item 3: Legal Proceedings, and Part II Item 8, Notes to Consolidated Financial Statements and Supplementary
Data, Note 18: Commitments and Contingencies, and (ii) in this Quarterly Report in
of the Notes to Condensed Consolidated Financial Statements, which discussions are incorporated herein by reference.
ITEM 1A. RISK
FACTORS
There have been no material changes in the risk factors previously disclosed in the Company’s 2021 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no purchases of our Common Stock made by or on behalf of our Company or any affiliated purchaser during the
second quarter of fiscal 2022.
32
ITEM 6. EXHIBITS
Exhibits
No.
Description
3.1
3.2
10.1
10.2
31.1*
31.2*
32**
101.SCH*+
Inline XBRL Taxonomy Extension Schema Document
101.CAL*+
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*+
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*+
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*+
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith as an Exhibit.
**
Furnished herewith as an Exhibit.
+
Submitted electronically with this Quarterly Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAL-MAINE FOODS, INC.
(Registrant)
Date:
December 28, 2021
/s/ Max P. Bowman
Max P. Bowman
Vice President, Chief Financial Officer
(Principal Financial Officer)
Date:
December 28, 2021
/s/ Matthew S. Glover
Matthew S. Glover
Vice President – Accounting
(Principal Accounting Officer)
Exhibit 31.1
1
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Adolphus B. Baker, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Cal-Maine Foods, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d)
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Adolphus B. Baker
Adolphus B. Baker
Chief Executive Officer and Chairman of the Board
Date:
December 28, 2021
Exhibit 31.2
1
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Max P. Bowman, certify that
1.
I have reviewed this Quarterly Report on Form 10-Q of Cal-Maine Foods, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Max P. Bowman
Max P. Bowman
Vice President and Chief Financial Officer
Date:
December 28, 2021
Exhibit 32
1
Certifications Pursuant to 18 U.S.C. §1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Cal-Maine Foods, Inc. (the “Company”),
hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended
November 27, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Adolphus B. Baker
Adolphus B. Baker
Chief Executive Officer and Chairman of the Board
/s/ Max P. Bowman
Max P. Bowman
Vice President and Chief Financial Officer
Date:
December 28, 2021