CAL-MAINE FOODS INC
For the period ended Nov 30, 2024. Filed Jan 7, 2025.
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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.
Nov 30, 2024 · Filed Jan 7, 2025
Extracted filing text, with the paragraph anchors used by the comparison.
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Notes to Condensed Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
unaudited
condensed
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 accordance
with generally
accepted accounting
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 1,
2024 (the
“2024
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
fiscal year
ends on
the Saturday
closest to
May 31.
Each of
the three-month
periods and
year-to-date periods
ended on November 30, 2024 and December 2, 2023 included
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.
Investment Securities Available-for-Sale
The Company has
determined that its
debt securities
are available-for-sale
investments. We
classify these securities
as current
because the
amounts invested
are available
for current
operations. Available
-for-sale securities
are carried
at fair
value, based
on quoted market prices as of the balance sheet
date, with unrealized gains and losses recorded in other comprehensive income.
The
amortized cost
of
debt
securities is
adjusted
for
amortization of
premiums and
accretion of
discounts
to
maturity and
is
recorded in interest income. The Company regularly evaluates
changes to the rating of its debt
securities by credit agencies and
economic conditions to
assess and record
any expected credit
losses through allowance
for credit losses,
limited to the
amount
that fair value was less than the amortized cost basis.
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
2024 and
June 1,
2024, reserves
for credit
losses were
$
thousand and
$
thousand, respectively.
extends credit
to
customers based on an evaluation of each
customer’s financial condition and credit history.
Collateral is generally not required.
The
Company
minimizes
exposure
to
counter
party
credit
risk
through
credit
analysis
and
approvals,
credit
limits,
and
monitoring
procedures.
In
determining
our
reserve
for
credit
losses,
receivables
are
assigned
an
expected
loss
based
on
historical loss information adjusted as needed for economic and other forward-looking factors.
Dividends Payable
We
accrue dividends at the
end of each quarter
according to the Company’s
dividend policy adopted by its
Board of Directors.
The Company pays
a dividend to
shareholders of its
Common Stock and Class
A Common Stock
on a quarterly
basis for each
quarter for
which the
Company reports net
computed in
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.
Index
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.
Revenue Recognition
recognizes revenue
through sale
of its
products to
customers through
retail, foodservice
distribution
channels.
The
majority
of
the
revenue
is
derived
from
agreements
or
contracts
with
based
upon
the
ordering
its
with
a
single
performance
obligation
of
delivering
the
product.
The
Company
believes
the
performance
obligation
is
met
upon
and
acceptance
of
the
product
by
our
which
occurs
upon
shipment
or
to
a
based
on
terms
of
the
sale.
Costs
paid
to
third
party
brokers
to
obtain
agreements
are
expensed as the Company’s agreements are generally less than one year.
Revenues are
recognized in
an amount
that reflects
the net
consideration we
expect to
receive in
exchange for
delivery of
the
products.
The
Company
periodically
offers
sales
incentives
or
other
programs
such
as
rebates,
discounts,
coupons,
volume-
based incentives, guaranteed sales
and other programs.
The Company records an
estimated allowance for costs
associated with
these programs, which is recorded as
a reduction in revenue at the
time of sale using historical trends
and projected redemption
rates
of
each
program.
The
Company
regularly
reviews
these
estimates
and
any
difference
between
the
costs
and
actual realization of these programs would be recognized the subsequent period.
Business Combinations
The Company applies the acquisition method of accounting, which requires that once control is obtained, all
the assets acquired
and liabilities assumed, including amounts
attributable to noncontrolling interests, are
recorded at their respective fair
values at
the date of acquisition. We determine the fair values of identifiable assets and liabilities internally,
which requires estimates and
the
use
of
various
valuation
techniques.
When
a
market
value
is
not
readily
available,
our
internal
valuation
methodology
considers the remaining estimated life of the assets acquired and what management believes is the market value for those assets.
We
typically use the income method approach for intangible assets
acquired in a business combination. Significant estimates in
valuing
certain
intangible
assets
include,
but
are
not
limited
to,
the
amount
and
timing
of
future
cash
flows,
growth
rates,
discount rates and useful lives. The
excess of the purchase price over
fair values of identifiable assets and
liabilities is recorded
as goodwill.
Loss Contingencies
Certain
conditions
may
exist
as
of
the
date
the
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.
management
and
its
legal
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 the
Company or
unasserted claims
that may
result in such
proceedings, the Company’s
legal counsel evaluates
the perceived merits
of any
legal proceedings or
unasserted
claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment
of a contingency
indicates it is
probable that a
material loss has
been incurred and
the amount of
the liability
can
be
estimated,
the
liability
would
be
accrued
in
the
statements.
If
the
assessment
indicates
a
potentially
material
loss
contingency
is
not
probable,
but
is
possible,
or
is
probable
but
cannot
be
estimated,
then
the
nature
of
the
liability,
together
with
an
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.
Index
Note 2 - Acquisitions
Acquisition of ISE America, Inc. Assets
Effective
June 28, 2024
, the
Company acquired
substantially all
of the
commercial shell
egg production,
egg
products breaking facilities
of ISE America,
Inc. and certain
of its affiliates
(“ISE”). The assets
acquired included commercial
shell
egg
and
facilities
with
a
at
the
time
of
of
4.7
million
laying
hens, including
1.0
million cage-free, and
1.2
million pullets, feed mills,
4,000
acres of land, inventories
and an
egg products breaking facility. The acquired assets also include an extensive customer distribution network across the Northeast
and
Mid-Atlantic
states,
and
in
Maryland,
New
Jersey,
Delaware
and
South
Carolina.
The
Company
accounted for the acquisition as a business combination.
Pending the
finalization of
valuation, the following
table summarizes
the consideration paid
for the
ISE assets
and the amounts of assets acquired and liabilities assumed recognized at the acquisition date (in thousands):
Cash consideration paid
$
111,521
Recognized amounts of identifiable assets acquired and liabilities assumed
Inventories
$
20,547
Property, plant and equipment
90,572
Intangible assets
Liabilities assumed
(308)
Total identifiable net assets
$
111,521
Inventories consisted primarily of flock, feed ingredients, packaging, and egg inventory. Flock inventory was valued at carrying
value
as
management
believes
that
its
carrying
value
best
approximates
its
fair
value.
Feed
ingredients,
packaging
and
egg
inventory were all valued based on market prices as of June 28, 2024.
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.
Intangible
assets
consisted
of
lists
acquired.
Customers
lists
were
valued
using
the
income
method
approach.
Other Acquisitions
Effective
30,
2024,
the
Company
the
remaining
9.23
%
in
our
majority-owned
subsidiary,
MeadowCreek Foods LLC.
Note 3 - Investment
Securities
The following represents the Company’s investment securities as of November 30, 2024 and June 1, 2024 (in thousands):
Amortized
Cost
Gains
Losses
Estimated
Fair Value
$
13,727
$
—
$
$
13,705
71,143
—
71,148
301,630
—
301,820
5,606
—
5,607
151,606
—
151,402
—
112,569
—
112,558
Total current investment securities
$
656,924
$
$
$
656,887
Index
Amortized
Cost
Gains
Losses
Estimated
Fair Value
$
4,100
$
—
$
$
4,059
137,856
—
137,735
233,289
—
232,592
3,505
—
3,491
154,520
—
154,269
3,154
—
3,124
39,239
—
39,229
Total current investment securities
$
575,663
$
—
$
1,164
$
574,499
Available-for-sale
Proceeds from
available-for-sale
were $
426.5
$
196.1
million during
weeks ended November
and December
2, 2023,
Gross realized
gains for
weeks ended November 30, 2024 and December 2, 2023 were $
thousand and $
thousand, respectively. There were
no
gross
realized
losses
for
the
weeks
ended
30,
Gross
realized
losses
for
the
weeks
ended
December 2, 2023 were $
thousand. There was
no
allowance for credit losses at November 30, 2024 and June 1, 2024.
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 30, 2024 are as follows (in thousands):
Estimated Fair Value
Within one year
$
401,873
1-5 years
255,014
Total
$
656,887
Note 4 - Fair Value Measurements
is required
to categorize
both financial
and nonfinancial
assets and
liabilities based
on the
following fair
value
hierarchy. The
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
the
hierarchy described
above, the
following
table shows
the
of
financial assets
and
liabilities measured at fair value on a recurring basis as of November 30, 2024 and June 1, 2024 (in thousands):
Level 1
Level 2
Level 3
Balance
Assets
$
—
$
13,705
$
—
$
13,705
—
71,148
—
71,148
—
301,820
—
301,820
—
5,607
—
5,607
—
151,402
—
151,402
—
—
—
112,558
—
112,558
Total assets measured at fair value
$
—
$
656,887
$
—
$
656,887
Liabilities
$
—
$
—
$
13,000
$
13,000
Total liabilities measured at fair value
$
—
$
—
$
13,000
$
13,000
Level 1
Level 2
Level 3
Balance
Assets
$
—
$
4,059
$
—
$
4,059
—
137,735
—
137,735
—
232,592
—
232,592
—
3,491
—
3,491
—
154,269
—
154,269
—
3,124
—
3,124
—
39,229
—
39,229
Total assets measured at fair value
$
—
$
574,499
$
—
$
574,499
Liabilities
$
—
$
—
$
6,500
$
6,500
Total liabilities measured at fair value
$
—
$
—
$
6,500
$
6,500
Investment securities
–
available-for-sale
classified as
Level 2
consist of
securities with
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.
classified as
Level 3
consists of
the potential
obligation to
pay an
earnout to
Fassio Egg
Farms, Inc.
(“Fassio”)
on
the
business
meeting
certain
return
on
profitability
milestones
over
a
three-year
period,
commencing on the date of the acquisition in the second quarter of fiscal
- The fair value of the contingent consideration is
using
a
discounted
cash
flow
model.
Key
assumptions
and
unobservable
inputs
that
require
significant
judgement
used
in
the
include
weighted
average
cost
of
capital,
egg
prices,
projected
revenue
and
over
which
the
contingent considered
is measured,
and the
probability assessments
with respect
to the
likelihood of
achieving the
forecasted
projections.
The following table shows the beginning and ending balances in fair value of the contingent consideration:
Fassio Contingent Consideration
Balance, June 1, 2024
$
6,500
Fair value adjustments
6,500
Balance, November 30, 2024
$
13,000
Index
Adjustments to the fair value of contingent consideration are recorded within selling, general and administrative expenses in the
condensed consolidated statements of income.
Note 5 - Inventories
Inventories consisted of the following as of November 30, 2024 and June 1, 2024 (in thousands):
Flocks, net of amortization
$
166,634
$
149,985
Eggs and egg products
34,182
25,217
Feed and supplies
98,549
86,580
$
299,365
$
261,782
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
flocks).
Our
total
flock
at
2024 and
June 1,
2024 consisted
of approximately
12.0
11.8
million pullets
and breeders
and
48.1
39.9
million layers, respectively.
Note 6 - Equity
The following reflects equity activity for the thirteen weeks ended November 30, 2024 and December 2, 2023 (in thousands):
Thirteen Weeks Ended November 30, 2024
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at August 31,
$
$
$
(31,632)
$
77,503
$
(474)
$
1,856,405
$
(3,490)
$
1,899,063
—
—
—
—
(434)
—
—
(434)
—
—
(29)
1,097
—
—
—
1,068
Contributions to
Crepini Foods LLC
—
—
—
—
—
—
6,485
6,485
Aquisition of
noncontrolling
interest in
MeadowCreek Foods
LLC
—
—
—
—
—
(3,826)
3,826
—
1.489
Common
—
—
—
—
—
(65,911)
—
(65,911)
—
—
—
—
—
(7,147)
—
(7,147)
—
—
—
—
—
219,064
(705)
218,359
Balance at November
$
$
$
$
78,600
$
(908)
$
$
6,116
$
Index
Thirteen Weeks Ended December 2, 2023
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at September
2, 2023
$
$
$
$
73,153
$
(2,291)
$
1,571,744
$
(2,013)
$
1,611,330
—
—
—
—
—
—
—
—
—
1,061
—
—
—
1,061
0.116
Common
—
—
—
—
—
(5,125)
—
(5,125)
—
—
—
—
—
(557)
—
(557)
—
—
—
—
—
17,009
(431)
16,578
Balance at December
2, 2023
$
$
$
$
74,214
$
(1,614)
$
1,583,071
$
(2,444)
$
1,623,964
Ended November 30, 2024
Class A
Paid In
Accum.
Other
Amount
Amount
Amount
Capital
Total
Balance at June 1,
$
$
$
(31,597)
$
76,371
$
(1,773)
$
1,756,395
$
(3,104)
$
1,797,043
—
—
—
—
—
—
—
—
(64)
2,229
—
—
—
2,165
Contributions to
Crepini Foods LLC
—
—
—
—
—
—
6,485
6,485
Aquisition of
noncontrolling
interest in
MeadowCreek Foods
LLC
—
—
—
—
—
(3,826)
3,826
—
2.509
Common
—
—
—
—
—
(110,986)
—
(110,986)
—
—
—
—
—
(12,038)
—
(12,038)
—
—
—
—
—
369,040
(1,091)
367,949
Balance at November
$
$
$
$
78,600
$
(908)
$
$
6,116
$
Index
Ended December 2, 2023
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
loss, net of tax
—
—
—
—
1,272
—
—
1,272
—
—
(6)
2,102
—
—
—
2,096
0.122
Common
—
—
—
—
—
(5,390)
—
(5,390)
—
—
—
—
—
(586)
—
(586)
—
—
—
—
—
17,935
(946)
16,989
Balance at December
2, 2023
$
$
$
$
74,214
$
(1,614)
$
1,583,071
$
(2,444)
$
1,623,964
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
outstanding
during
the
relevant
period
adjusted
for
the
dilutive effect of share-based awards.
The
following
table
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):
Ended
Numerator
$
218,359
$
16,578
$
367,949
$
16,989
Less: Loss attributable to
noncontrolling interest
(705)
(431)
(1,091)
(946)
Net income attributable to Cal-Maine
$
219,064
$
17,009
$
369,040
$
17,935
Denominator
Weighted-average common shares
outstanding, basic
48,765
48,690
48,762
48,691
Effect of dilutive restricted shares
Weighted-average common shares
outstanding, diluted
48,970
48,866
48,953
48,854
Net income per common share
attributable to Cal-Maine Foods, Inc.
Basic
$
4.49
$
0.35
$
7.57
$
0.37
Diluted
$
4.47
$
0.35
$
7.54
$
0.37
Index
Note 8 - Revenue from Contracts with Customers
Net revenue is primarily generated through the sales of shell eggs and egg products. The Company’s shell egg product offerings
include specialty and conventional shell eggs.
Specialty shell eggs include cage-free, organic,
brown, free-range, pasture-raised
and nutritionally enhanced eggs. Conventional shell egg sales represent all other shell egg sales not
sold as specialty shell eggs.
egg products
offerings include
liquid and
frozen egg
products, as
well as
ready-to-eat products
such as
hard-
cooked
eggs,
egg
wraps,
protein
pancakes,
crepes
and
wrap-ups.
Liquid
and
frozen
egg
are
sold
to
the
institutional,
foodservice
and
food
manufacturing
sectors.
Ready-to-eat
are
sold
within
the
retail
and
foodservice channels.
The following table provides revenue disaggregated by product category (in thousands):
Ended
Conventional shell egg sales
$
616,891
$
280,599
$
1,101,627
$
505,879
Specialty shell egg sales
286,970
217,905
543,747
426,586
40,651
20,012
75,826
42,235
Other
10,159
4,718
19,342
7,878
$
954,671
$
523,234
$
$
982,578
Note 9 - Stock Based Compensation
Total stock-based compensation expense was $
2.2
million and $
2.1
million for the twenty-six weeks ended November 30, 2024
and December 2, 2023, respectively.
Unrecognized compensation
expense as
a result
of non-vested
shares of
restricted stock
outstanding under
the Amended
and
Restated
Omnibus
Long-Term
Incentive
Plan
at
30,
of
$
5.1
million
will
be
over
a
weighted
average period of
1.7
years. Refer to Part II
Item 8, Notes to Consolidated
Financial Statements and Supplementary Data, Note
14 - Stock Compensation Plans in our 2024 Annual Report for further information on our stock compensation plans.
The Company’s restricted share activity for the twenty-six weeks ended November 30, 2024 follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Outstanding, June 1, 2024
277,954
$
49.38
Vested
(3,016)
45.07
Forfeited
(2,892)
52.88
Outstanding, November 30, 2024
272,046
$
49.39
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, 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
Court of
Harris County,
Texas.
The State
of Texas
(the “State”)
asserted claims
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
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
Index
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 and
remanded to
the
trial court
for further
proceedings. The
district court
entered a
pre-trial order
scheduling pre-trial
proceedings and
tentatively
setting
a
trial
date
for
August
11,
On
2024,
the
State
filed
an
amended petition,
to
address
a
procedural
deficiency
that
required
the
State
to
plead
it
was
seeking
monetary
relief
over
$
1.0
million
restitution, civil
penalties, attorney’s
fees and
costs. Management
believes the
risk of
material loss
related to
this matter
to be
remote.
Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.
As previously
reported, on
September 25,
2008, the
Company was
named as
one of
several defendants
in numerous
antitrust
cases involving
the United
States shell
egg industry.
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.
On September
13, 2019,
the case
Plaintiffs was
remanded from
a multi-district
litigation proceeding
in
the
United
States
Court
for
the
Eastern
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
Plaintiffs
alleged that
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
Plaintiffs
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 with
the 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
Plaintiffs $
17.8
million in damages. On
November 6, 2024, the
court entered a final
judgement against the Company and
other
defendants,
jointly
and
severally,
totaling
$
43.6
million
after
trebling.
On
December
4,
2024,
the
Company
filed
a
renewed
motion for judgment as a matter of law or for a new trial, and a motion to alter or amend the judgment.
On December 13, 2024,
the
court
granted
20,
motion
to
stay
enforcement
of
the
judgment
and
entered
an
agreed
order
requiring the
defendants to
post security
during post-judgment
proceedings and
appeal, and
stayed proceedings
to enforce
the
judgment until the disposition of the post-judgment motions and ultimate appeals. On
December 17, 2024, the Company posted
a bond
in the
approximate amount
of $
23.9
million, representing
a portion
of the
total bond
required to
preserve the
right to
appeal the trial court’s
decision. Another defendant posted a
bond for the remaining amount,
The Company intends to continue
to vigorously defend the claims asserted by the Egg Products Plaintiffs.
If the
jury’s
decision is
ultimately upheld,
would be
jointly and
severally liable
with other
defendants for
treble
damages,
or
$
43.6
subject
to
credit
for
certain
settlements
with
previous
settling
defendants,
plus
the
Egg
Product
Plaintiffs’
reasonable
attorneys’
fees.
During
our
second
fiscal
quarter
of
2024,
we
an
accrued
expense
of
$
19.6
million in
selling, general
and administrative
expenses in
Condensed Consolidated
Statements of
Income and
classified
as
other
noncurrent
liabilities
in
the
Balance
Sheets.
Although
less
than
the
bond
posted
by
the
Company,
the
accrual
represents
our
of
the
proportional
share
of
the
possible ultimate damages award, excluding the Egg Product Plaintiffs’
attorneys’ fees that we believe would be approximately
offset by the credits noted
above. We
have entered into a judgment 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 and may
also be revised
in whole or
in part in
the
future to the extent we are successful in further proceedings in the litigation.
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
and Tyson
Foods, Inc.,
Cobb-Vantress,
Inc., Cargill,
Inc., George’s,
Inc., Peterson
Farms, Inc.
and
Simmons Foods,
Inc.,
and
certain
of
their affiliates.
The
State of
Oklahoma claims
that
through
the disposal
of
chicken
litter the defendants
polluted the Illinois
River Watershed.
This watershed provides
water to eastern
Oklahoma. The complaint
sought
injunctive relief
and
monetary damages,
but
the
claim for
monetary damages
was
dismissed by
the
court. Cal-Maine
Foods,
Inc.
discontinued
in
the
watershed
in
or
around
Since
the
litigation
began,
Foods,
Inc.
Index
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
contract producers.
The
court directed
the
parties
to
confer
in attempt
to
reach
agreement
on
remedies.
On
June
12,
2023,
the
court
ordered
the
parties
to
mediate
before
retired
Tenth
Circuit
Chief
Judge
Deanell
Reece
Tacha,
but
the
mediation
was
unsuccessful.
On
June
26,
2024,
the
district
court
denied
motion
to
dismiss
the
case.
On
September
13,
2024,
a
status
hearing
was
held
and
the
court
scheduled
an
evidentiary hearing
for December
3, 2024,
to determine
whether any
legal remedy
is available
the now
14 year
old
record
and
changed
circumstances
of
the
Illinois
River
watershed.
On
5,
the
court
denied
September 20,
2024 motion
to certify
an interlocutory
appeal. The
evidentiary hearing
proceeded as
scheduled and
concluded
on
December
17,
The
court
directed
the
parties
to
present
their
proposed
findings
of
fact
and
conclusions
of
law
and
supporting briefs by
January 30, 2025.
While management believes there
is a reasonable
possibility of a material
loss from the
case, at the present
time, it is not
possible to estimate the
amount of monetary exposure,
if any,
to the Company due
to a range
of
factors,
including the
following,
among others:
uncertainties inherent
in
any
assessment of
potential costs
associated with
injunctive relief or other penalties
based on a decision
in a case tried over
14 years ago based on
environmental conditions that
existed
at
the
time,
the
lack
of
guidance
from
the
court
as
to
what
might
be
considered
remedies,
the
ongoing
litigation
with
the
State
of
Oklahoma,
and
uncertainty
what
our
proportionate
share
of
any
remedy
would
be,
although we believe that our share compared to the other defendants is small.
Other Matters
In addition to the above,
the Company is involved in
various other claims and litigation
incidental to its business. Although
the
outcome of
these matters
cannot be determined
with certainty,
management, upon the
advice of counsel,
is of
the opinion that
the final outcome should not have a material effect on the Company’s consolidated results of operations or financial position.
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.