CAL-MAINE FOODS INC
For the period ended Mar 2, 2024. Filed Apr 2, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 2, 2024 · Filed Apr 2, 2024
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Notes to Condensed Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
unaudited
condensed
consolidated
of
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 and
in
with generally
principles in
the
United
States of
America
(“GAAP”)
for
interim
reporting and
should be
read in
conjunction with
our Annual
Report on
Form 10-K
for the fiscal
year ended
June 3,
2023 (the
“2023
Annual
Report”).
These
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 March 2, 2024 and February 25, 2023 included
13 weeks
and
39 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
reported in
the consolidated
financial statements
and accompanying
notes. Actual
results
could differ from those estimates.
Investment Securities
has determined
that its
debt securities
are available-for-sale
investments. We
classify these
securities as
current
because the
amounts invested
are available
for current
operations. Available
-for-sale
securities are
carried at
fair value,
based
on quoted market prices
as of the balance sheet
date, with unrealized gains
and losses recorded in other
comprehensive income.
The
cost
of
debt
is
for
of
premiums
and
accretion
of
discounts
to
maturity
and
is
recorded in interest
income. The Company regularly
evaluates changes to the
rating of its debt
securities by credit agencies
and
economic conditions
to assess and
record any
expected credit
losses through
allowance for
credit losses,
limited to
the amount
that fair value was less than the amortized cost basis.
Investments
in
mutual
funds
are
at
fair
value
and
are
as
“Other
assets”
in
the
Balance
Sheets.
gains
and
losses
for
equity
are
in
other
income
(expenses) as Other, net in the Company’s
Condensed Consolidated Statements of Income.
The cost
basis for
realized gains
and losses
on available-for-sale
securities is
determined by
the specific
identification method.
Gains
and
losses
are
recognized
in
other
income
(expenses)
as
Other,
net
in
the
Statements of Income. Interest and dividends on securities classified as available-for-sale
are recorded in interest income.
Trade Receivables
Trade receivables
are stated at their
carrying values, which
include a reserve
for credit losses. As
of March 2,
2024 and June
3,
2023, reserves for credit losses were
$
The Company extends credit to customers
based
on
an
evaluation
of
each
customer’s
condition
and
credit
history.
Collateral
is
not
required.
The
Company
minimizes exposure
to counter
party credit
risk through
credit analysis
and approvals,
credit limits,
and monitoring
procedures.
In
determining
our
reserve
for
credit
losses,
receivables
are
assigned
an
expected
loss
based
on
historical
loss
information adjusted as needed for economic and other forward-looking
factors.
the
excess
of
the
price
over
the
fair
value
of
the
identifiable
net
assets
acquired.
is
evaluated
for
impairment
annually
by
first
performing
a
qualitative
assessment
to
whether
a
quantitative
goodwill
Index
test is
necessary.
After assessing
the totality
of events
or circumstances,
if we
determine it
is more
likely than
not that
the fair
value
of
a
unit
is
less
than
its
amount,
then
we
perform
additional
quantitative
tests
to
the
magnitude of any impairment.
Intangible Assets
Intangible
assets
are
initially
at
fair
value
in
acquisitions,
which
include
franchise
rights,
relationships, non-compete
agreements, trademark
and right
of use
intangibles. They
are amortized
over their
estimated useful
lives
of
to
years. The
gross
cost
and
accumulated
of
intangible
assets
are
removed
when
the
amounts
are fully
and
the asset
is no
longer
in use
or the
contract has
expired.
When certain
events or
changes in
operating conditions
occur,
asset lives may
be adjusted
and an impairment
assessment may
be performed
on the recoverability
of the carrying amounts.
Indefinite life assets are recorded at fair value in business acquisitions and
represents water rights. They are not amortized, but
are reviewed for impairment at least annually or more frequently if
impairment indicators arise.
Dividends Payable
We
accrue dividends at
the end of
each quarter according
to the Company’s
dividend policy adopted
by its Board
of Directors.
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
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,
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.
The dividend policy is subject to
periodic review by the Board of
Directors.
Business Combinations
The Company applies the acquisition
method of accounting, which
requires that once control is obtained,
all the assets acquired
and liabilities assumed,
including amounts
attributable to noncontrolling
interests, are recorded
at their respective
fair values at
the date of acquisition. We
determine the fair values of identifiable assets and liabilities
internally,
which requires estimates and
the
use
of
various
valuation
techniques.
When
a
market
value
is
not
readily
available,
our
internal
valuation
methodology
considers the remaining estimated life of the assets acquired and what
management believes is the market value for those assets.
We
typically use the income
method approach for
intangible assets acquired in
a business combination. Significant
estimates in
valuing
certain
intangible
assets
include,
but
are
not
limited
to,
the
amount
and
timing
of
future
cash
flows,
growth
rates,
discount rates and
useful lives. The
excess of the purchase
price over fair values
of identifiable assets and
liabilities is recorded
as goodwill.
Gain on Involuntary Conversions
maintains insurance
for both
property damage
and business
interruption relating
to catastrophic
events, such
as
fires, hurricanes,
tornadoes
acts of
God, and
is eligible
to participate
in U.S.
Department
of Agriculture
(“USDA”)
and
programs
for
certain
losses
due
to
disease
outbreaks
such as
highly
pathogenic
avian
influenza
(“HPAI”).
Specifically,
the
Animal
Health
Protection
Act
authorizes
USDA to
provide
payments
to
producers
for
birds and eggs
that must be
destroyed during a
disease response. Payments
received under these
programs are based
on the fair
market value
of the
poultry and/or
eggs at
the time
that HPAI
virus is
detected in
the flock.
Other covered
costs include
feed,
depopulation and disposal costs, and virus elimination costs. USDA does not
provide indemnity for income or production losses
suffered
due to
downtime or
other business
disruptions nor
for indirect
continuing expenses.
Recoveries received
for property
damage, business interruption and disease outbreaks in
excess of the net book value of damaged assets, clean-up and
demolition
costs,
and
other
direct
post-event
costs
are
within
“Gain
on
involuntary
conversions”
in
the
period
received
or
committed when all contingencies associated with the recoveries are resolved.
Loss Contingencies
Certain
conditions
may
exist
as
of
the
date
the
are
issued
that
may
result
in
a
loss
to
the
Company
but
which will
only be
resolved when
one or
more future
events occur
or fail
to occur.
The Company’s
management and
its legal
Index
counsel
assess such
liabilities, and
such assessment
inherently
involves an
exercise
of judgment.
In assessing
loss
contingencies
related
to legal
proceedings
that are
pending against
or unasserted
claims that
may result
in such
proceedings, the Company’s
legal counsel evaluates
the perceived merits
of any legal
proceedings or unasserted
claims as well
as the perceived merits of the amount of relief sought or expected to be
sought therein.
If the assessment
of a contingency
indicates it is
probable that
a material loss
has been incurred
and the amount
of the liability
can be
estimated, the
estimated liability
would be accrued
in the Company’s
financial statements.
If the assessment
indicates a
potentially material loss contingency is
not probable, but is reasonably possible,
or is probable but cannot be estimated,
then the
nature of the
contingent liability,
together with an
estimate of the
range of possible
loss if determinable
and material, would
be
disclosed. Loss
contingencies considered
remote are
generally not
disclosed unless
they involve
guarantees, in
which case
the
nature of the guarantee would be disclosed.
The Company expenses the costs of litigation as they are incurred.
New Accounting Pronouncements and Policies
No new accounting pronouncement issued or effective
during the fiscal year had or is expected to have a material
impact on our
Consolidated Financial Statements.
Note 2 - Acquisition
Effective
September 30, 2023
, the Company
acquired the assets of
Fassio Egg Farms,
Inc. (“Fassio”), related
to its commercial
shell
egg
and
business.
Fassio
owns
and
operates
shell
egg
and
facilities with
a capacity
at the
time of
1.2
million
laying hens,
a feed
mill,
pullets, a
fertilizer production
and composting
operation and
land located
in Erda, Utah,
outside Salt
Lake City.
accounted for the acquisition as a business combination.
table summarizes
the consideration
paid for
the Fassio
of assets
acquired and
assumed recognized at the acquisition date (in thousands):
Cash consideration paid
$
53,746
Fair value of contingent consideration
1,000
Total estimated purchase
54,746
Recognized amounts of identifiable assets acquired and
liabilities assumed
Inventory
$
6,164
Property, plant and equipment
44,540
Intangible assets
2,272
Other long-term assets
Liabilities assumed
(143)
Total identifiable
net assets
52,976
1,770
$
54,746
Inventory consisted
primarily of
flock, feed
packaging, and
egg inventory.
Flock inventory
was valued at
value
as
management
believes
that
its
value
best
approximates
its
fair
value.
Feed
packaging
and
egg
inventory were all valued based on market prices as of September 30, 2023.
Property,
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.
Intangible
assets
consisted
of
water
rights
within
the
property
acquired.
Water
rights
were
valued
using
the
sales
comparison approach.
Index
Contingent
liability
was
and
future
cash
payment
to
the
sellers
on
the
meeting
certain
return
on
profitability
milestones over
a
three-year
period,
commencing
on
the date
of
the
acquisition.
The fair
value of
the contingent
consideration is
estimated using
a discounted
cash flow
model. Key
assumptions
and
unobservable
inputs that
require
significant judgement
used in
the estimate
include weighted
of capital,
egg
prices, projected revenue
and expenses over which
the contingent considered
is measured, and the
probability assessments with
respect to the
likelihood of achieving
the forecasted projections.
A range of
potential outcomes cannot
be reasonably estimated
due to market volatility of egg prices.
the
excess
of
the
price
of
the
over
the
acquisition
date
fair
value
of
the
net
assets acquired.
Goodwill recorded
in connection
Fassio acquisition
is primarily
improved efficiencies
from integrating the assets of
Fassio with the operations
of the Company.
The Company recognized goodwill
of $
1.8
million as
a result of the acquisition.
Note 3 - Investment
Securities
The following represents the Company’s
investment securities as of March 2, 2024 and June 3, 2023 (in thousands):
Amortized
Cost
Gains
Losses
Estimated
Fair Value
$
6,147
$
—
$
$
6,084
42,864
—
42,825
121,430
—
121,063
1,830
—
1,828
115,165
—
114,966
9,418
—
9,503
31,455
—
31,451
$
328,309
$
$
$
327,720
$
1,108
$
$
—
$
1,124
Total noncurrent
$
1,108
$
$
—
$
1,124
Amortized
Cost
Gains
Losses
Estimated
Fair Value
$
16,571
$
—
$
$
16,296
56,486
—
56,409
139,979
—
1,402
138,577
—
—
101,240
—
100,769
13,459
—
13,308
29,069
—
29,056
$
357,479
$
—
$
2,389
$
355,090
$
2,172
$
—
$
$
2,081
Total noncurrent
$
2,172
$
—
$
$
2,081
Available-for-sale
Proceeds
from
sales and
maturities of
investment
securities available-for-sale
were $
273.9
million
and $
132.7
million
during
2, 2024
and February
25, 2023,
respectively.
Gross realized
gains for
weeks
2, 2024
and February
were $
thousand and
$
Gross realized
losses for
the
thirty-nine weeks ended March 2, 2024 and February
25, 2023 were $
no
allowances
for credit losses at March 2, 2024 and June 3, 2023.
Index
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 March
2, 2024 are as follows (in thousands):
Estimated Fair Value
Within one year
$
213,556
1-5 years
114,164
Total
$
327,720
Noncurrent
Proceeds from sales and maturities of noncurrent investment securities
were $
1.5
million and $
1.8
million during the thirty-nine
weeks ended March 2, 2024
and February 25, 2023, respectively.
Gross realized gains for the thirty-nine
2024 and February 25,
2023 were $
no
realized losses for the
weeks ended March 2, 2024. Gross realized losses for the thirty-nine
weeks ended February 25, 2023 were $
thousand.
Note 4 - Fair Value
Measurements
is required
to categorize
both financial
and nonfinancial
liabilities based
on the
following fair
value
hierarchy. The
fair value
of an
asset is
the price
at which
the asset
could be
sold in
an orderly
transaction between
unrelated,
knowledgeable, and willing
parties able to engage in
the transaction. A liability’s
fair value is defined
as the amount that would
be
paid
to
transfer
the
liability
to
a
new
obligor
in
a
transaction
between
such
parties,
not
the
amount
that
would
be paid
to
settle the liability with the creditor.
Level 1
- Quoted prices in active markets for identical assets or liabilities
Level 2
- Inputs
other than
quoted
prices included
in Level
1 that
are observable
for the
asset or
liability,
either
directly or indirectly,
including:
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
- Unobservable inputs for the asset or liability that are
supported by little or no market activity and that
are
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:
The carrying amount approximates fair value due to the
short maturity of these instruments.
Index
Assets and Liabilities Measured at Fair
Value
on a Recurring Basis
In
with
the
fair
value
hierarchy
described
above,
the
following
table
shows
the
fair
value
of
liabilities measured at fair value on a recurring basis as of March 2, 2024 and June
3, 2023 (in thousands):
Level 1
Level 2
Level 3
Balance
Assets
$
—
$
6,084
$
—
$
6,084
—
42,825
—
42,825
—
121,063
—
121,063
—
1,828
—
1,828
—
114,966
—
114,966
—
9,503
—
9,503
—
31,451
—
31,451
1,124
—
—
1,124
Total assets measured at fair
value
$
1,124
$
327,720
$
—
$
328,844
Liabilities
Contingent consideration
$
—
$
—
$
1,000
$
1,000
Total liabilities measured
at fair value
$
—
$
—
$
1,000
$
1,000
Level 1
Level 2
Level 3
Balance
Assets
$
—
$
16,296
$
—
$
16,296
—
56,409
—
56,409
—
138,577
—
138,577
—
—
—
100,769
—
100,769
—
13,308
—
13,308
—
29,056
—
29,056
2,081
—
—
2,081
Total assets measured at fair
value
$
2,081
$
355,090
$
—
$
357,171
Investment
–
available-for-sale
as Level
consist
of
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.
Contingent
as
Level
consists
of
the
obligation
to
pay
an
earnout
to
the
sellers
of
Fassio
contingent on the
acquired business meeting
certain return on
profitability milestones over
a
three-year
period, commencing on
the date of
the acquisition. The fair
value of the
contingent consideration is
estimated using a
discounted cash flow
model. Key
assumptions and
unobservable inputs
that require
significant judgement
used in
the estimate
include weighted
of
capital,
egg
prices,
revenue
and
over
which
the
considered
is
measured,
and
the
probability
assessments
with
respect
to
the
likelihood
of
achieving
the
forecasted
projections.
See
further
in
Note 2 -
Acquisition
.
Note 5 - Inventories
Inventories consisted of the following as of March 2, 2024 and June 3,
2023 (in thousands):
Flocks, net of amortization
$
150,441
$
164,540
Eggs and egg products
26,770
28,318
Feed and supplies
92,033
91,560
$
269,244
$
284,418
Index
We
grow
and
maintain
flocks
of
layers
(mature
female
chickens),
pullets
(female
chickens,
under
weeks
of
age),
and
breeders (male and female
chickens used to produce fertile
eggs to hatch for egg
production flocks). Our total
flock at March 2,
2024 and June
3, 2023 consisted of
10.9
million and
10.8
million pullets and breeders
and
42.2
million and
41.2
million layers, respectively.
Note 6 - Equity
The following reflects equity activity for the thirteen weeks ended
March 2, 2024 and February 25, 2023 (in thousands):
Ended March 2, 2024
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at December
2, 2023
$
$
$
(30,014)
$
74,214
$
(1,614)
$
1,583,071
$
(2,444)
$
1,623,964
—
—
—
—
—
—
—
—
(1,583)
1,012
—
—
—
(571)
0.997
Common
—
—
—
—
—
(44,111)
—
(44,111)
—
—
—
—
—
(4,786)
—
(4,786)
—
—
—
—
—
146,712
(349)
146,363
Balance at March 2,
$
$
$
$
75,226
$
(1,514)
$
$
(2,793)
$
Ended February 25, 2023
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at November
26, 2022
$
$
$
(28,496)
$
70,005
$
(3,087)
$
1,281,784
$
(652)
$
1,320,305
—
—
—
—
—
—
—
—
(1,500)
—
—
—
(528)
2.199
Common
—
—
—
—
—
(97,123)
—
(97,123)
—
—
—
—
—
(10,555)
—
(10,555)
—
—
—
—
—
323,219
(450)
322,769
Balance at February
$
$
$
(29,996)
$
70,977
$
(3,067)
$
1,497,325
$
(1,102)
$
1,534,888
Index
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at June 3,
$
$
$
(30,008)
$
72,112
$
(2,886)
$
1,571,112
$
(1,498)
$
1,609,583
—
—
—
—
1,372
—
—
1,372
—
—
(1,589)
3,114
—
—
—
1,525
1.119
Common
—
—
—
—
—
(49,501)
—
(49,501)
—
—
—
—
—
(5,372)
—
(5,372)
—
—
—
—
—
164,647
(1,295)
163,352
Balance at March 2,
$
$
$
$
75,226
$
(1,514)
$
$
(2,793)
$
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at May 28,
$
$
$
(28,447)
$
67,989
$
(1,596)
$
1,065,854
$
(206)
$
1,104,345
loss, net of tax
—
—
—
—
(1,471)
—
—
(1,471)
—
—
(1,549)
2,988
—
—
—
1,439
4.403
Common
—
—
—
—
—
(194,478)
—
(194,478)
—
—
—
—
—
(21,144)
—
(21,144)
—
—
—
—
—
647,093
(896)
646,197
Balance at February
$
$
$
(29,996)
$
70,977
$
(3,067)
$
1,497,325
(1,102)
$
1,534,888
Note 7 - Net Income per Common Share
Basic net income
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
during
the
relevant
period
for
the
dilutive effect of share-based awards.
Index
The
following
table
a
reconciliation
of
the
numerators
and
denominators
used
to
basic
and
diluted
net
income per common share (amounts in thousands, except per share data):
Ended
Numerator
$
146,363
$
322,769
$
163,352
$
646,197
Less: Loss attributable to
noncontrolling interest
(349)
(450)
(1,295)
(896)
Net income attributable to Cal-Maine
$
146,712
$
323,219
$
164,647
$
647,093
Denominator
Weighted-average
common shares
outstanding, basic
48,727
48,653
48,702
48,634
Effect of dilutive restricted shares
Weighted-average
common shares
outstanding, diluted
48,884
48,842
48,865
48,832
Net income per common share
attributable to Cal-Maine Foods, Inc.
Basic
$
3.01
$
6.64
$
3.38
$
13.31
Diluted
$
3.00
$
6.62
$
3.37
$
13.25
Note 8 - Revenue from Contracts with Customers
Satisfaction of Performance Obligation
The vast majority of the Company’s
revenue is derived from agreements with customers based on the customer
placing an order
for products. Pricing
for the most part
is determined when
the Company and
the customer agree
upon the specific
order, which
establishes the contract for that order.
Revenues are
recognized in
an amount
that reflects
the net
consideration we
expect to
receive in
exchange for
the goods.
Our
shell
eggs
are
sold
at
prices
related
to
independently
quoted
wholesale
market
prices
or
formulas
related
to
our
costs
of
production.
The
sales
predominantly
contain
a
single
obligation.
We
recognize
revenue
upon
satisfaction
of
the
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 allowance for
expected customer returns using historical
return data compared to current period sales and accounts receivable.
The allowance is recorded as a reduction of sales in the
same period the revenue is recognized.
Sales Incentives Provided to Customers
The
Company
periodically
incentive
offers
to
its
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),
similar offers.
Current discount
offers,
when accepted
by customers,
are treated
as a
to
the sales
price
of the
related
transaction,
while inducement
offers,
when
by customers,
are
treated
as
a
to
sales
price
based
on
future
redemption
rates.
Redemption
rates
are
using
the
historical
experience
for
similar
inducement
offers.
Current discount
and
inducement
offers
are
presented
as a
net amount
in
‘‘Net sales.’’
Index
Disaggregation of Revenue
The following table provides revenue disaggregated by product category
(in thousands):
Ended
Conventional shell egg sales
$
413,619
$
689,022
$
919,498
$
1,656,528
Specialty shell egg sales
262,293
272,205
688,879
700,803
Egg products
21,759
32,582
63,994
88,274
Other
5,405
3,684
13,283
11,932
$
703,076
$
997,493
$
$
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
over
the
life
as
a
in
net
sales.
As
of
March
2,
and
June
3,
2023,
the
balance
for
contract assets was 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 9 - Stock Based Compensation
Total
stock-based
expense
was
$
3.2
and
$
3.1
million
for
the
weeks
ended
March
2,
and
February 25, 2023, respectively.
Unrecognized
expense
as a
result
of non
-vested
shares
of
restricted
stock outstanding
under
the
Amended
and
Restated 2012
Omnibus Long-Term
Incentive Plan
at March 2,
2024 of
$
8.6
million will be
recorded over
a weighted average
period
of
2.2
years.
Refer
to
Part
II
Item
8,
Notes
to
and
Data,
Note 14
Stock Compensation Plans in our 2023 Annual Report for further information
on our stock compensation plans.
The Company’s restricted share activity
for the thirty-nine weeks ended March 2, 2024 follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Outstanding, June 3, 2023
294,140
$
43.72
Granted
86,363
54.91
Vested
(99,360)
37.70
Forfeited
(1,329)
44.68
Outstanding, March 2, 2024
279,814
$
49.31
Index
Note 10 - Commitments and Contingencies
LEGAL PROCEEDINGS
State of Texas
v. Cal-Maine Foods, Inc. d/b/a Wharton;
and Wharton County Foods, LLC
On April
23, 2020,
and its subsidiary
Wharton County
Foods, LLC (“WCF”)
were named
as defendants in
State
of
Texas
v.
Foods,
Inc.
d/b/a
Wharton;
and
Wharton
County
Foods,
LLC,
Cause
No.
2020-25427,
in
the
Court of
Harris County,
Texas.
The State
of Texas
(the “State”)
asserted claims
based on
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
state
of
emergency
and
made
misleading
about
shell
egg
prices.
The
State
sought
temporary
and
permanent
injunctions
against
the
Company
and
WCF
to
prevent
further
alleged
violations
of
the
DTPA,
along
with
over
$
100,000
in damages. On August 13, 2020, the court granted the defendants’ motion to dismiss the State’s
original petition with
prejudice. On September
11, 2020,
the State filed a
notice of appeal,
which was assigned to
the Texas
Court of Appeals
for the
First
District.
On
August
16,
2022,
the
appeals
court
reversed
and
remanded
the
case
back
to
the
trial
court
for
further
proceedings. On October 31, 2022,
the Company and WCF appealed
the First District Court’s
decision to the Supreme Court
of
Texas.
On
September
29,
2023,
the
Supreme
Court
of
Texas
denied
the
Petition
for
Review
so
the
case
will
be
remanded to the
trial court for further
proceedings. The district
court has set
a case management conference
for April 12, 2024.
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,
was named
as one
of several
in
Bell et
al. v.
Foods et
al.,
Case No.
1:20-cv-461,
in
the
Western
of
Texas,
Austin
Division.
The
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
state of
emergency.
request
certification
of a
class of
all consumers
who purchased
eggs
in
Texas
sold,
distributed,
produced,
or
handled
by
any
of
the
during
the
state
of
emergency.
Plaintiffs seek to enjoin
the Company and other
defendants from selling eggs
at a price more than
10% greater than the price
of
eggs prior
to the
declaration
of the
state of
emergency
and damages
in the
amount
of $
10,000
per violation,
or $
250,000
for
each violation
impacting anyone
over 65
years old.
On December
1, 2020,
and
certain other
defendants filed
a
dismiss the
amended
class action
complaint. The
plaintiffs
subsequently filed
a motion
to strike,
and the
dismiss and
related proceedings
were referred
to a
magistrate judge.
On July
14, 2021,
the magistrate
judge
issued
a
report
and
recommendation
to
the
court
that
the
defendants’
motion
to
dismiss
be
granted
and
the
case
be
dismissed without prejudice for lack of subject matter jurisdiction. On
September 20, 2021, the court dismissed the case without
prejudice.
On
July
13,
2022,
the
court
denied
the
motion
to
set
aside
or
amend
the
to
amend
their
complaint.
On March 15, 2022,
plaintiffs filed a
second suit against the
Company and several
defendants in Bell et
al. v.
Cal-Maine Foods
et al.,
Case No.
1:22-cv-246, in
the Western
District of
Texas,
Austin Division
alleging the
same assertions
as laid
out in
the
first
complaint.
On
August
12,
2022,
the
Company
and
other
in
the
case
filed
a
motion
to
dismiss
the
class action
complaint. On
January 9,
court entered
an order
and final
judgement granting
dismiss.
On February
8, 2023,
the plaintiffs
appealed
the lower
court’s
judgement
to the
Court of
Appeals for
the Fifth
Circuit, Case No. 23-50112. On February
12, 2024, the court affirmed the judgment of the district court.
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
in numerous
antitrust
cases involving
the United
States shell
egg
industry.
settled all
of these
cases, except
for
the claims
of certain
plaintiffs who sought substantial
damages allegedly arising from
the purchase of egg products (as
opposed to shell eggs). These
remaining plaintiffs
are Kraft Food
Global, Inc.,
General Mills, Inc.,
and Nestle USA,
Inc. (the
“Egg Products
Plaintiffs”) and,
until a subsequent settlement was reached as described below,
The Kellogg Company.
Index
On September
13, 2019,
the case
Egg Products
Plaintiffs was
remanded from
a multi-district
litigation proceeding
in
the
United
States
Court
for
the
Eastern
of
Pennsylvania,
In
re
Processed
Egg
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
alleged
that
the
Company
and
other
violated
Section
of
the
Sherman
Act,
U.S.C.
§
1,
by
agreeing
to
limit
the
of
eggs
and
thereby
illegally
to
raise
the
prices
that
plaintiffs
paid
for
processed
egg
products.
In
particular,
the
Egg
attacked
certain features of
the United Egg
Producers animal-welfare guidelines
and program used by
the Company and
many other egg
producers.
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
financial condition or
results
of operations.
On November
11,
2019, a
stipulation
for dismissal
was filed
court, and
on March
28, 2022,
the court
dismissed the Company with prejudice.
The trial of this case began
on October 17, 2023. On December
1, 2023, the jury returned a decision
awarding the Egg Products
$
17.8
million
in damages.
If the
jury’s
decision
is ultimately
upheld,
the defendants
would
be jointly
and
severally
liable
for
treble
damages,
or
$
53.3
subject
to
credit
for
the
Kellogg
settlement
described
above
and
certain
other
settlements with
previous
settling defendants,
plus the
Egg Product
Plaintiffs’
reasonable
attorneys’
fees. This
decision is
not
final and
remains subject
to the
defendants’ motion
for a
directed verdict
noted below
and appeals
by the
parties. During
our
second fiscal quarter
of 2024, we
recorded an accrued
expense of $
19.6
million in selling,
general and
administrative expenses
in
the
of
Income
and
as
other
noncurrent
in
the
Condensed Consolidated
Balance Sheets. The
accrual represents
our estimate of
proportional share
of the reasonably
possible ultimate damages
award, excluding the Egg
Product Plaintiffs’ attorneys’
fees that we believe
would
be
offset
by the
credits
noted above.
We
have
entered
into a
allocation
and joint
defense
agreement
with
the
other
major
producer
defendant
remaining
in
the
case,
and
are
in
discussions
with
other
their
contributions. Our accrual may change in the future
based on the outcome of those discussions. Our accrual
may also be revised
in whole or in
part in the future
to the extent we
are successful in further
proceedings in the litigation.
On November 29, 2023,
the
defendants,
the
Company,
filed
a
motion
for
as
a
matter
of
law
in
their
favor,
known
as
a
directed
verdict, notwithstanding
the jury’s
decision. The
Company intends
to continue
to vigorously
defend the
claims asserted
by the
Egg Products Plaintiffs.
State of Oklahoma Watershed Pollution
Litigation
On June
18, 2005,
the State
of Oklahoma
filed suit,
in the
District Court
for the
Northern District
of Oklahoma,
against Cal-Maine
Foods,
Inc. and
Tyson
Foods,
Inc., Cobb-Vantress,
Inc., Cargill,
Inc., George’s,
Inc., Peterson
Farms, Inc.
and
Simmons
Foods,
Inc.,
and
certain
of
their
affiliates.
The
State
of
Oklahoma
claims
that
through
the
disposal
of
chicken
litter the
defendants polluted
the Illinois
River Watershed.
This watershed
provides water
to eastern
Oklahoma. The
complaint
sought
injunctive
relief
and
damages,
but
the
claim
for
damages
was dismissed
by
the
court.
Foods,
Inc.
discontinued
in
the
watershed
in
or
around
Since
the
litigation
began,
Foods,
Inc.
purchased
%
of
the
membership
interests
of
Benton
County
Foods,
LLC,
which
is
an
ongoing
shell
egg
operation within
the Illinois
River Watershed.
Benton County
Foods, LLC
is not
a defendant
in the
litigation. We
also have
a
number of small contract producers that operate in the area.
The non-jury trial in the case began in September 2009
and concluded in February 2010. On January 18, 2023, the court entered
findings of
fact and
conclusions of
law in favor
of the
State of
Oklahoma, but
no penalties
were assessed.
The court
found the
liable
for
state
law
nuisance,
federal
common
law
nuisance,
and
state
law
trespass.
The
court
also
found
the
producers
vicariously
liable
for
the
actions
of
their
producers.
The
court
directed
the
parties
to
confer
in
attempt
to
reach agreement
on appropriate
remedies. On
June 12,
court ordered
the parties
to mediate
before the
retired Tenth
Circuit Chief Judge Deanell
Reece Tacha.
On October 26, 2023, the parties
filed separate status reports informing
the court that
the mediation
was unsuccessful.
Also on
October 26,
defendants filed
a post-trial
dismiss and
supporting
brief arguing
that the
case should
be dismissed
due to
the state record
before the
court, the resulting
mootness of
the case,
and
violation
of
due
process.
On
November
10,
2023,
the
State
of
Oklahoma
filed
its
response
in
opposition
to
the
motion
to
dismiss and on
November 17, 2023,
the defendants filed
their reply.
The court has not
ruled on the motion.
While management
believes there
is a
reasonable
possibility of
a material
loss from
the case,
at the
present time,
it is
not possible
to estimate
the
amount
of
exposure,
if
any,
to
the
Company
due
to
a
range
of
factors,
the
following,
among
others:
uncertainties
inherent
in
any
assessment
of
costs
associated
with
injunctive
relief
or
other
penalties
based
on
a
decision in a
case tried over
13 years ago based
on environmental conditions
that existed at the
time, the lack
of guidance from
the court as to what
might be considered appropriate
remedies, the ongoing litigation
with the State of Oklahoma
and motion to
dismiss before
the court, and
uncertainty regarding
what our proportionate
share of any
remedy would be,
although we believe
that our share compared to the other defendants is small.
Index
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 11 - Subsequent Events
On March
14, 2024,
completed the
previously announced
acquisition from
Tyson
of a
closed broiler
processing plant, hatchery and feed mill in Dexter,
Missouri.
On
April
1,
2024,
one
of
the
located
in
Parmer
County,
Texas,
tested
for
HPAI,
affecting
1.6
million laying hens
and
337,000
pullets, or approximately
3.6
% of the Company’s
total flock as of
The
Company
has
and
continues
to
follow
all
guidelines
by
the
United
States
Department
of
Agriculture
(the
“USDA”)
and
other
regulatory
agencies
to
depopulate
and
sanitize
the
facilities.
As
such,
will
be
eligible
to
participate
in
the
USDA
program
and
other
programs
designed
to
compensate
for
the
loss of
birds
and
eggs.
The
plans
are
to
repopulate
the
and
resume
normal
at
the
within
6-8
months.
Due
to
volatility in
the market
prices of
eggs and
uncertain future
supply,
demand and
other market
conditions, an
estimate of
the net
income effect cannot be reasonably made.
Index
ITEM
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.