1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-K
☑
For The Fiscal Year Ended
May 29, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number:
001-38695
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware
64-0500378
(State or other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
1052 Highland Colony Pkwy, Suite 200
,
Ridgeland
,
Mississippi
39157
(Address of principal executive offices) (Zip Code)
(
601
)
948-6813
(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:
Common Stock, $0.01 par value per share
CALM
The
NASDAQ
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes
☑
No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☑
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.
Yes
☑
No
☐
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).
Yes
☑
No
☐
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.
Large accelerated filer
☑
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 has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐
No
☑
The aggregate market value, as reported by The NASDAQ Global Select Market, of the registrant’s Common Stock, $0.01 par value, held by
non-affiliates at November 28, 2020, which was the date of the last business day of the registrant’s most recently completed second fiscal
quarter, was $
1,512,923,967
.
As of July 19, 2021,
44,058,463
4,800,000
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement
for its 2021 annual meeting of stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
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PART I.
FORWARD -LOOKING STATEMENTS
This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to 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
coronavirus (“COVID-19”) pandemic, potential future impact on our business of new legislation, rules or policies, potential
outcomes of legal proceedings, and projected operating data, 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 results could differ materially from those projected in the
forward-looking statements. The forward-looking statements are based on management’s current intent, belief, expectations,
estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance
and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The
factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among
others, (i) the risk factors set forth in Item 1A Risk Factors and elsewhere in this report as well as those included in other reports
we file from time to time with the Securities and Exchange Commission (the “SEC”) (including our Quarterly Reports on Form
10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including disease, pests,
weather conditions, and potential for product recall), (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, 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.
ITEM 1. BUSINESS
Our Business
We are the largest producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable producer
and reliable supplier of consistent, high quality fresh shell eggs and egg products in the country, demonstrating a "Culture of
Sustainability" in everything we do, and creating value for our shareholders, customers, team members and communities. We sell
most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs.
Our integrated operations consist of hatching chicks, growing and maintaining flocks of pullets, layers, and breeders,
manufacturing feed, and producing, processing, packaging, and distributing shell eggs. Layers are mature female chickens, pullets
are female chickens usually under 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to be
hatched for egg production flocks.
Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs. Specialty
eggs encompass a broad range of products. We classify nutritionally enhanced, cage-free, organic and brown eggs as specialty
eggs for accounting and reporting purposes. We classify all other shell eggs as conventional products. While we report separate
sales information for these egg types, there are many cost factors that are not specifically available for conventional or specialty
eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated
basis based on the demands of our customers.
Over time, we have acquired other companies in our industry. Since 1989 through our fiscal year ended May 29, 2021, we have
completed 22 acquisitions ranging in size from 160 thousand layers to 7.5 million layers. In addition, subsequent to our fiscal
2021, we acquired the remaining 50% membership interest in Red River Valley Egg Farm, LLC, effective June 1, 2021. For
further description of this transaction, refer to Part II. Item 8. Notes to the Consolidated Financial Statements,
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When we use “we,” “us,” “our,” or the “Company” in this report, we mean Cal-Maine Foods, Inc. and our consolidated
subsidiaries, unless otherwise indicated or the context otherwise requires. Our fiscal year 2021 ended May 29, 2021, and the first
three fiscal quarters of fiscal 2021 ended August 29, 2020, November 28, 2020, and February 27, 2021. All references herein to
a fiscal year means our fiscal year and all references to a year mean a calendar year.
Industry Background
According to the U.S. Department of Agriculture (“USDA”) Agricultural Marketing Service in 2020, approximately 72% of eggs
produced in the U.S. were sold as shell eggs, with 66% sold to retail outlets (e.g. through grocery and convenience stores), 3%
sold to foodservice customers and 3% exported. The remaining 28% of eggs produced in the U.S. are sold as egg products (shell
eggs broken and sold in liquid, frozen, or dried form) to institutions (e.g. companies producing baked goods). For information
about egg producers in the U.S., see “Competition” below.
Based on historical consumption trends, we believe general demand for eggs increases basically in line with overall population
growth, averaging about 2% per year. Specific events can impact egg consumption in a particular period. For example, in 2015,
egg consumption decreased approximately 4% over the prior year primarily due to a shortage of eggs resulting from an outbreak
of avian influenza ("AI") in the spring of that year. In 2016, consumption rebounded and increased 7% over 2015 and 3% over
the pre-shortage level of 2014. According to the USDA, annual per capita U.S. consumption since 2016 varied between 278 and
293 eggs. In calendar year 2020, per capita U.S. consumption was estimated to be 287 eggs, or approximately six eggs per person
per week. Per capita consumption is determined by dividing the total supply of eggs by the entire population in the U.S. (assuming
all eggs produced domestically by the egg industry are consumed). Sales prices of eggs are dependent upon many factors other
than consumption. For information about shell egg prices see “Prices for Shell Eggs” below.
Prices for Shell Eggs
Wholesale shell egg sales prices are a critical component of revenue for the Company. Wholesale shell egg prices are volatile,
cyclical, and impacted by a number of factors, including consumer demand, seasonal fluctuations, disease, and by the number
and productivity of laying hens in the U.S. While we use several different pricing mechanisms in pricing agreements with our
customers, we believe the majority of conventional shell eggs sold in the U.S. in the retail and foodservice channels are sold at
prices that take into account, in varying ways, independently quoted wholesale market prices as published by Urner Barry
Publications, Inc. ("UB") for shell eggs. We sell the majority of our conventional shell eggs based on formulas that take into
account, in varying ways, independently quoted regional wholesale market prices for shell eggs or formulas related to our costs
of production, which include the cost of corn and soybean meal. We do not sell eggs directly to consumers or set the prices at
which eggs are sold to consumers.
The weekly average price for the southeast region for large white conventional shell eggs as quoted by UB is shown below for
the past three fiscal years along with the five-year average price. As further discussed in
, conventional shell egg prices experienced a brief but significant increase during the fourth
quarter of fiscal 2020 related to the onset of the COVID-19 pandemic. The actual prices that we realize on any given transaction
will not necessarily equal quoted market prices because of the individualized terms that we negotiate with individual customers
which are influenced by many factors.
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Specialty eggs are sold at prices and terms negotiated directly with customers. Historically, prices for specialty eggs have
experienced less volatility than prices for conventional shell eggs and have generally been higher due to customer and consumer
willingness to pay more for specialty eggs.
Feed Costs for Shell Egg Production
Feed is a primary cost component in the production of shell eggs and represented 58.2% of our fiscal 2021 farm production costs.
We routinely fill our storage bins during harvest season when prices for feed ingredients are generally lower. To ensure continued
availability of feed ingredients, we may enter into contracts for future purchases of corn and soybean meal, and as part of these
contracts, we may lock-in the basis portion of our grain purchases several months in advance. Ordinarily, we do not enter long-
term contracts beyond a year to purchase corn and soybean meal or hedge against increases in the price of corn and soybean meal.
As the quality and composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we
formulate and produce the vast majority of our own feed at our feed mills located near our production plants. Our annual feed
requirements for fiscal 2021 were 1.8 million tons of finished feed, of which we manufactured 1.6 million tons. We currently
have the capacity to store 152 thousand tons of corn and soybean meal, and we replenish these stores as needed throughout the
year.
Our primary feed ingredients, corn and soybean meal, are commodities 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. We purchase the vast majority of our corn and soybean meal from U.S sources but may be forced to
purchase internationally when U.S. supplies are not readily available. Feed grains are currently available from an adequate number
of sources in the U.S. As a point of reference, a multi-year comparison of the monthly average of daily closing prices per Chicago
Board of Trade are shown below for corn and soybean meal:
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Shell Egg Production
We produced approximately 90.5% of our total shell eggs sold in fiscal 2021, with 91% of such production coming from company-
owned facilities, and 9% from contract producers. Under a typical arrangement with a contract producer, we own the flock,
furnish all feed and critical supplies, own the shell eggs produced and assume market risks. The contract producers own and
operate their facilities and are paid a fee based on production with incentives for performance. We purchased approximately 9.5%
of the total shell eggs we sold during fiscal 2021 from outside suppliers.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We produce the majority
of our chicks in our own breeder farms and hatcheries in a computer-controlled environment and obtain the balance from
commercial sources.
After the eggs are produced, they are graded and packaged. Substantially all our farms have modern “in-line” facilities which
mechanically gather, grade and package the eggs at the same location where they are laid. The in-line facilities generate significant
efficiencies and cost savings compared to the cost of eggs produced from non-in-line facilities, which process eggs laid at another
location and transported to the facility. The in-line facilities also produce a higher percentage of USDA Grade A eggs, which sell
at higher prices. Eggs produced on farms owned by contractors are brought to our processing plants to be graded and packaged.
Because shell eggs are perishable, we do not maintain large egg inventories. Our egg inventory averaged six days of sales over
the course of fiscal 2021. We believe our constant focus on production efficiencies and automation throughout the supply chain
enable us to be a low-cost supplier in our markets.
We do not use artificial hormones in the production of our eggs. Hormone use in the poultry and egg production industry has
been effectively banned in the U.S. since the 1950s. We have an extensive written protocol that allows the use of medically
important antibiotics only when animal health is at risk, consistent with guidance from the United States Food and Drug
Administration ("FDA") and the Guidance for Judicious Therapeutic Use of Antimicrobials in Poultry, developed by the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S., which continues to be a
significant and growing segment of the market. We classify nutritionally enhanced, cage-free, organic and brown eggs as specialty
eggs for accounting and reporting purposes. Specialty eggs are intended to meet the demands of consumers who are sensitive to
environmental, health and/or animal welfare issues.
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As defined by the USDA, eggs packed in USDA grade marked consumer packages labeled as cage-free are laid by hens that are
able to roam vertically and horizontally in indoor houses, and have access to fresh food and water. Cage-free systems must allow
hens to exhibit natural behaviors and include enrichments such as scratch areas, perches and nests. Hens must have access to
litter, protection from predators and be able to move in a barn in a manner that promotes bird welfare.
A significant number of our customers have announced goals to offer cage-free eggs exclusively on or before 2026, subject in
most cases to availability of supply, affordability and customer demand, among other contingencies. Additionally, several states
have passed legislation requiring the sale and production of only cage-free eggs within this time period and other states are
considering such requirements. Our customers typically do not commit to long-term purchases of specific quantities or type of
eggs with us, and as a result, it is difficult to accurately predict customer requirements for cage-free eggs. We are, however,
engaging with our customers in an effort to achieve a smooth transition in meeting their announced goals and needs. Sales of
cage-free eggs represented approximately 23% of our shell egg revenues for fiscal year 2021, and currently our production
capacity exceeds customer requirements, which we believe positions us well, as our customer base is primarily outside of states
that have mandated cage-free production and sales We have invested significant capital in recent years to acquire and construct
cage-free facilities, and we expect our focus for future expansion will continue to include cage-free facilities, as our customers
transition to meet consumer demand and comply with evolving legal requirements. At the same time, we understand the
importance of our continued ability to provide affordable conventional eggs in order to provide our customers with a variety of
egg choices and to address hunger in our communities.
Egg-Land’s Best®
Land O’ Lakes®
at our facilities under EB guidelines.
Land O’ Lakes®
diet. Our Farmhouse Eggs® brand eggs are produced at our facilities by cage-free hens that are provided with a vegetarian diet.
We market organic, vegetarian, and omega-3 eggs under our
4-Grain®
We also produce, market, and distribute private label specialty shell eggs to several customers.
Egg Products
Egg products are shell eggs broken and sold in liquid, frozen, or dried form. We sell liquid and frozen egg products primarily to
the institutional, foodservice, and food manufacturing sectors in the U.S. Our egg products are sold through our wholly owned
subsidiaries American Egg Products, LLC located in Georgia and Texas Egg Products, LLC located in Texas.
Summary of Conventional and Specialty Shell Egg and Egg Product Sales
The following table sets forth the contribution as a percentage of revenue and volumes of dozens sold of conventional and
specialty shell egg and egg product sales for the following fiscal years:
2021
2020
2019
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
56.8
%
73.2
%
61.4
%
76.1
%
59.4
%
74.9
%
Specialty Eggs
Egg-Land’s Best®
20.9
%
13.5
%
19.2
%
12.7
%
19.9
%
13.5
%
Other Specialty Eggs
19.1
%
13.3
%
16.7
%
11.2
%
17.3
%
11.6
%
Total Specialty Eggs
40.0
%
26.8
%
35.9
%
23.9
%
37.2
%
25.1
%
Egg Products
2.7
%
2.3
%
3.0
%
Marketing and Distribution
We sell most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. through our
extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores,
companies servicing independent supermarkets in the U.S., foodservice distributors and egg product consumers. Some of our
sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of
certain products is outsourced to another producer. Although we face intense competition from numerous other companies, we
believe that we have the largest market share for the sale of shell eggs in the grocery segment, including large U.S. food retailers.
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We are a member of the 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, Nevada, and Texas; portions of states in California, North Carolina
Oklahoma, South Carolina, Utah, as well as the whole New York City area.
The majority of eggs sold are based on the daily or short-term needs of our customers. Most sales to established accounts are on
payment terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we sell are either delivered to our customers’ warehouse or retail stores, by our own fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
Customers
Our top three customers accounted for an aggregate of 48.6%, 51.1% and 52.2% of net sales dollars for fiscal 2021, 2020, and
2019, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.8%, 32.1% and 33.7% for fiscal
2021, 2020, and 2019, respectively.
In fiscal 2021, approximately 90.5% of our revenue related to sales to retail customers, 6.8% to sales to foodservice providers
and 2.7% to egg products sales. Retail customers include primarily national and regional grocery store chains, club stores, and
companies servicing independent supermarkets in the U.S. Foodservice customers include primarily companies that sell food
products and related items to restaurants, healthcare and education facilities, and hotels.
Competition
The production, processing, and distribution of shell eggs is an intensely competitive business, which has traditionally attracted
large numbers of producers. Shell egg competition is generally based on price, service, and product quality.
The shell egg production industry remains highly fragmented. According to
Egg Industry
producers, each owning at least 500 thousand layers, owned approximately 99% of total industry layers. The ten largest producers
owned approximately 53% of total industry layers compared to 54% in the prior year. We believe industry consolidation will
continue, and we plan to capitalize on opportunities as they arise. We believe further concentration will result in reduced
cyclicality of shell egg prices, but no assurance can be given in that regard. A continuation of this trend could create greater
competition among fewer producers.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring
and early summer. Historically, shell egg prices tend to increase with the start of the school year and tend to be highest prior to
holiday periods, particularly Thanksgiving, Christmas, and Easter. Consequently, and all other things being equal, we would
expect to experience lower selling prices, sales volumes and net income (and may incur net losses) in our first and fourth fiscal
quarters ending in August/September and May/June, respectively.
Growth Strategy
Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers. In light of the growing
customer demand and increased legal requirements for cage-free eggs, we intend to continue to closely evaluate the need to
expand through selective acquisitions, with a priority on those that will facilitate our ability to expand our cage-free shell egg
production capabilities in key locations and markets. We will continue to closely evaluate the need to continue to expand and
convert our own facilities to increase production of cage-free eggs based on a timeline designed to meet the anticipated needs of
our customers and comply with evolving legal requirements. As the ongoing production of cage-free eggs is more costly than the
production of conventional eggs, aligning our cage-free production capabilities with changing demand for cage-free eggs is
important to the success of our business.
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Trademarks and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
4Grain®
. We produce and market Egg-Land's Best®
and Land O’ Lakes® branded eggs under license agreements with EB. We believe these trademarks and license agreements are
important to our business.
Government Regulation
Our facilities and operations are subject to regulation by various federal, state, and local agencies, including, but not limited to,
the FDA, USDA, Environmental Protection Agency ("EPA"), Occupational Safety and Health Administration ("OSHA") and
corresponding state agencies or laws. The applicable regulations relate to grading, quality control, labeling, sanitary control and
reuse or disposal of waste. Our shell egg facilities are subject to periodic USDA, FDA, EPA, and OSHA inspections. Our feed
production facilities are subject to FDA regulation and inspections. We maintain our own inspection program to monitor
compliance with our own standards and customer specifications. It is possible that we will be required to incur significant costs
for compliance with such statutes and regulations. In the future, additional rules could be proposed that, if adopted, could increase
our costs.
California, Colorado, Massachusetts, Michigan, Nevada, Oregon, Rhode Island, and Washington have passed minimum space
and/or cage-free requirements, mandating the sale of only cage-free eggs in their states, with implementation of these laws ranging
from January 2022 to January 2026. These states represent approximately 24% of the U.S. total population according to the 2020
U.S. Census. While our direct sales into these states have not been material, these laws will affect sourcing, production and pricing
of eggs (conventional as well as specialty) as the national demand for cage-free production could be greater than the current
supply which would increase the price of cage-free eggs, unless more cage-free production capacity is constructed. Likewise,
the national supply for eggs from conventional production could exceed consumer demand which would decrease the price of
conventional eggs.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities, including, but not limited to,
wastewater discharge permits. We have made, and will continue to make, capital and other expenditures relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures necessary to comply with such laws and regulations; however, as environmental, health and safety laws and
regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, it is
possible that we will have to incur significant costs for compliance with such laws and regulations in the future.
Human Capital Resources
As of May 29, 2021, we had 3,286 employees, of whom 2,642 worked in egg production, processing, and marketing, 188 worked
in feed mill operations and 456, including our executive officers, were administrative employees. Approximately 4.1% of our
personnel are part-time, and we utilize temporary employment agencies and independent contractors to augment our
staffing needs when necessary. For fiscal 2021, the average monthly full-time equivalent for contingent workers were 840. None
of our employees are covered by a collective bargaining agreement. We consider our relations with employees to be good.
Culture and Values
We are proud to be contributing corporate citizens where we live and work and to help to create healthy, prosperous
communities. Our colleagues help us continue to enhance our community contributions, which are driven by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to realize full potential.
Health and Safety
Our top priority is the health and safety of our employees, who continue to produce high-quality, affordable egg choices for our
customers and contribute to a stable food supply. Our enterprise safety committee comprises two corporate safety managers, eight
area compliance managers, 53 local site compliance managers, feed mill managers, and general managers. The committee
oversees health and safety regularly reviews our written policies and changes to OSHA regulation standards, and shares
information as it relates to outcomes from incidents in order to improve future performance. The committee’s goals include
10
working to ensure that our engagements with our consumers, customers, and regulators evidence our strong commitment to our
workers’ health and safety.
Our commitment to our colleagues’ health includes a strong commitment to on-site worker safety, including a focus on accident
prevention and life safety. Training and safety personnel conduct monthly multi-lingual training that covers topics such as slip-
and-fall avoidance, respiratory protection, prevention of hazardous communication of chemicals, the proper use of personal
protective equipment, hearing conservation, emergency response, lockout tagout of equipment, and forklift safety, among others.
To help drive our focus on colleague safety, we developed safety committees at each of our sites that employee representation
from each department. We regularly provide health and safety information to employees via company bulletin boards. Our local
site farm and feed mill management has an open-door policy with employees to discuss improvement ideas. We have also
installed dry hydrogen peroxide biodefense systems in our processing facilities. New colleagues undergo a two-day orientation
period reviewing our safety and health programs and policies as they relate to their job tasks and then are placed with experienced
team members to learn the job tasks. At the 30-day anniversary of the employees’ hire date, their supervisor has a one-on-one
meeting to discuss any questions the employee may still be unsure about as it relates to their job tasks, health and safety policies
and procedures, or any other matters.
We review the success of our safety programs on a monthly basis to monitor their effectiveness and the development of any
trends that need to be addressed. During fiscal year 2021 our recordable incident rates decreased by 21% compared to fiscal 2020.
Diversity, Equity and Inclusion
Our culture seeks to embrace the diversity and inclusion of all our team members. This culture is driven by our board and
executive management team. Our board comprises seven members, four of whom are independent. Women comprise 29% of our
board and 14% of our board members identify as a racial or ethnic minority. As of May 29, 2021, our total workforce comprised
30% women and 52% of colleagues who identify as racial or ethnic minorities. Our Policy against Harassment, Discrimination,
Unlawful or Unethical Conduct and Retaliation; Reporting Procedure affirms our commitment to supporting our employees
regardless of race, color, religion, sex, national origin or any other basis protected by applicable law.
Cal-Maine Foods strives to ensure that our colleagues are treated equitably. We are an Equal Opportunity Employer that prohibits,
by policy and practice, any violation of applicable federal, state, or local law regarding employment. Discrimination because of
race, color, religion, sex, pregnancy, age, national origin, citizenship status, veteran status, physical or mental disability, genetic
information, or any other basis protected by applicable law is prohibited. We value diversity in our workplaces or in work-related
situations. We maintain strong protocols to help our colleagues perform their jobs free from harassment and discrimination. Our
focus on equitable treatment extends to recruitment, employment applications, hiring, placement, job assignments, career
development, training, remuneration, benefits, discharge and other matters tied to terms and conditions of employment. We are
committed to offer our colleagues opportunities commensurate with our operational needs, their experiences, goals and
contributions.
Recruitment, Development and Retention
We believe in compensating our colleagues with fair and competitive wages, in addition to offering
competitive benefits. Approximately 78% of our employees are paid at hourly rates, with the majority paid at rates above the
federal minimum wage requirement. Our annual average weekly wage across all employees for fiscal year
2021 was $878.30. We offer our full-time eligible employees a range of benefits including company-paid life insurance. The
Company provides a comprehensive self-insured health plan and pays approximately 85% of the costs of the plan for participating
employees and their families as of December 31, 2020. Recent benchmarking of our health plan indicates comparable benefits, at
lower employee contributions, when compared to an applicable Agriculture and Food Manufacturing sector grouping, as well
as peer group data. In addition, we offer employees the opportunity to purchase an extensive range of other group
plan benefits, such as dental, vision, cancer, disability and voluntary life. After one year of employment, full-time employees,
who meet eligibility requirements, may elect to participate in our KSOP retirement plan, which offers a range of investment
alternatives and includes many positive features, such as automatic enrollment with scheduled automatic contribution
increases and loan provisions. And, regardless of the employees’ election to contribute to the KSOP, the
Company contributes shares of Company stock or cash equivalent to 3% of pre-tax earnings for each pay period that hours
are worked.
We provide extensive training and development related to safety, regulatory compliance, and task training. We invest in
developing our future leaders through our Management Intern, Management Trainee, and informal mentoring programs.
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Sustainability
We understand that a healthy environment and responsible management of our flocks and natural resources are vital to the
production of high-quality eggs and egg products and to the success of our Company. We have engaged in agricultural production
for more than 60 years. Our agricultural practices continue to evolve with increased focus on sustainability factors as we continue
to strive to meet the need for nutritious, affordable foods to feed a growing population even as we exercise responsible natural
resource stewardship. We plan to publish our most recent Sustainability update in late July 2021, which will be available on our
website. Information contained in our website is not a part of this report.
COVID-19 Pandemic
For information regarding our response to the COVID-19 pandemic, and its impact on our business, see
Our Corporate Information
We maintain a website at www.calmainefoods.com where general information about our business and corporate governance
matters is available. The information contained in our website is not a part of this report. Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports are
available, free of charge, through our website as soon as reasonably practicable after we file them with the SEC. In addition, the
SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Information concerning corporate governance matters is also available on our
website. Cal-Maine Foods, Inc. is a Delaware corporation, incorporated in 1969.
ITEM 1A. RISK FACTORS
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our
control. The following is a description of the known factors that may materially affect our business, financial condition or results
of operations. They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on
Form 10-K, including under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
in making any investment decisions with respect to our securities. Additional risks or uncertainties that are not currently known
to us, or that we are aware of but currently deem to be immaterial or that could apply to any company could also materially
adversely affect our business, financial condition or results of operations.
INDUSTRY RISK FACTORS
Market prices of wholesale shell eggs are volatile, and decreases in these prices can adversely impact our revenues and
profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. As a result, our prior performance should not be presumed to be an accurate indication of future performance. Under
certain circumstances, small increases in production, or small decreases in demand, within the industry might have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell eggs have been volatile and cyclical. Shell egg prices have risen in the past during periods of
high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein diets are popular. Shell egg
prices have also risen in the past during periods of constrained supply, such as the avian influenza outbreak in 2015, which we
believe, based on published industry estimates, impacted approximately 12% of the national flock of laying hens. During times
when prices are high, the egg industry has typically geared up to produce more eggs primarily by increasing the number of layers,
ultimately resulting in an oversupply of eggs, which was subsequently followed by a period of lower prices.
As discussed above under the heading “Seasonality” in Part I. Item 1. Business, seasonal fluctuations impact shell egg prices.
Therefore, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily
meaningful comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the increase in meals prepared at home due to COVID-19 pandemic, high protein diet trends, industry advertising
campaigns, and the improved nutritional reputation of eggs (related to better scientific understanding of the role of cholesterol in
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diets) have all contributed to shell egg demand. However, it is possible that the demand for shell eggs will decline in the future.
Adverse publicity relating to health concerns and changes in the perception of the nutritional value of shell eggs, changes in
consumer views regarding consumption of animal-based products, as well as movement away from high protein diets, could
adversely affect demand for shell eggs, which would have a material adverse effect on our future results of operations and
financial condition.
Feed costs are volatile and increases in these costs can adversely impact our results of operations.
Feed costs are the largest element of our shell egg (farm) production cost, ranging from 55% to 58% of total farm production cost
in the last five fiscal years. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources,
we do not have control over the prices of the ingredients we purchase, which are affected by weather, various supply and demand
factors, transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and
internationally. Increases in feed costs unaccompanied by increases in the selling price of eggs can have a material adverse effect
on the results of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly
resulting in lower egg prices and lower revenue.
Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to, or we may
voluntarily, recall contaminated products.
Shell eggs and shell egg products are vulnerable to contamination by pathogens such as Salmonella. The Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg Rule issued by the FDA "Prevention of Salmonella Enteritidis in Shell Eggs During Production, Storage, and Transportation,”
and the FDA’s Food Safety Modernization Act. Shipment of contaminated products, even if inadvertent, could result in a violation
of law and lead to increased risk of exposure to product liability claims, product recalls and scrutiny by federal and state regulatory
agencies. In addition, products purchased from other producers could contain contaminants that might be inadvertently
redistributed by us. As such, we might decide or be required to recall a product if we or regulators believe it poses a potential
health risk. Any product recall could result in a loss of consumer confidence in our products, adversely affect our reputation with
existing and potential customers and have a material adverse effect on our business, results of operations and financial condition.
Agricultural risks, including outbreaks of avian disease, could harm our business.
Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. The Company
maintains controls and procedures to reduce the risk of exposing our flocks to harmful diseases; however, despite these efforts,
outbreaks of avian disease can and do still occur and may adversely impact the health of our flocks. An outbreak of avian disease
could have a material adverse impact on our financial results by increasing government restrictions on the sale and distribution
of our products and requiring us to euthanize the affected layers. Negative publicity from an outbreak within our industry can
negatively impact customer perception, even if the outbreak does not directly impact our flocks. If a substantial portion of our
layers or production facilities are affected by any of these factors in any given quarter or year, our business, financial condition,
and results of operations could be materially and adversely affected.
BUSINESS AND OPERATIONAL RISK FACTORS
The COVID-19 pandemic has had an adverse impact on our business and operations
Since early 2020, the coronavirus ("COVID-19") outbreak, characterized as a pandemic by the World Health Organization on
March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. The effects of COVID-19
have had, and may continue to have if a resurgence occurs, a negative impact on our business through disruptions in the supply
chain such as increased costs and decreased availability of packaging supplies; the pandemic has also increased labor costs and
medical costs.
During the initial outbreak of COVID-19, we saw an increase in demand for eggs as consumers prepared more meals at home.
Egg prices initially rose during the fourth quarter of fiscal 2020, but prices quickly decreased as the demand shock subsided and
eggs that normally would go to foodservice businesses (e.g. restaurants) entered the retail market (e.g. grocery stores). As a result
of the pandemic, the foodservice market for shell eggs was depressed for most of fiscal 2021. As vaccination rates continue to
rise and governmental restrictions are lifted, foodservice demand may increase and demand in retail channels, where we sell most
of our eggs, could decrease.
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Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to pursue a growth strategy that includes selective acquisitions
of other companies engaged in the production and sale of shell eggs, with a priority on those that will facilitate our ability to
expand our cage-free shell egg production capabilities in key locations and markets. The number of existing companies with
cage-free capacity that we may be able to purchase is limited, as most production of shell eggs by other companies in our markets
currently does not meet customer or legal requirements to be designated as cage-free.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct
prior to our acquisition of a business that were unknown to us at the time of acquisition. We could incur significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase. We may over-estimate or under-
estimate the demand for cage-free eggs, which could cause our acquisition strategy to be less-than-optimal for our future growth
and profitability.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No assurance can be given that companies we acquire in the future will contribute positively to our results of operations or
financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold
levels of significance, and we cannot guarantee that such approvals would be obtained.
The consideration we pay in connection with any acquisition affects our financial results. If we pay cash, we could be required
to use a portion of our available cash to consummate the acquisition. To the extent we issue shares of our Common Stock, existing
stockholders may be diluted. In addition, acquisitions may result in additional debt.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by, one or more of our large customers.
Our top three customers accounted for an aggregate of 48.6%, 51.1% and 52.2% of net sales dollars for fiscal 2021, 2020, and
2019, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 29.8%, 32.1% and 33.7% of net
sales dollars for fiscal 2021, 2020, and 2019, respectively. Although we have established long-term relationships with most of
our customers who continue to purchase from us based on our ability to service their needs, they are free to acquire shell eggs
from other sources. If, for any reason, one or more of our large customers were to purchase significantly less of our shell eggs in
the future or terminate their purchases from us, and we were not able to sell our shell eggs to new customers at comparable levels,
it would have a material adverse effect on our business, financial condition, and results of operations.
Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for virtually all of our net sales in recent years, is intensely
competitive. We compete with a large number of competitors that may prove to be more successful than we are in marketing and
selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of these companies.
Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market share, which would
negatively affect our business, results of operations, and financial condition.
We are dependent on our management team, and the loss of any key member of this team may adversely affect the
implementation of our business plan in a timely manner.
Our success depends largely upon the continued service of our senior management team. The loss or interruption of service of
one or more of our key executive officers could adversely affect our ability to manage our operations effectively and/or pursue
our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers
nor do we carry any significant key-man life insurance coverage on any such persons. Competition could cause us to lose talented
employees, and unplanned turnover could deplete institutional knowledge and result in increased costs due to increased
competition for employees.
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Our business is dependent on our information technology systems and software, and failure to protect against or
effectively respond to cyber-attacks, security breaches, or other incidents involving those systems, could adversely affect
day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation,
or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage
or interruption from circumstances beyond our control, including systems failures, natural disasters, terrorist attacks,
viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and are increasing in
the number of attempts and frequency by groups and individuals with a wide range of motives.
A security breach of sensitive information could result in damage to our reputation and our relations with our customers or
employees. Any such damage or interruption could have a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 78% of our employees are paid at hourly rates, often in entry-level positions. While the
majority are paid at rates above the federal minimum wage requirements, any significant increase in local, state or federal
minimum wage requirements could increase our labor costs. In addition, any regulatory changes requiring us to provide additional
employee benefits or mandating increases in other employee-related costs, such as unemployment insurance or workers
compensation, would increase our costs. A shortage in the labor pool, which may be caused by competition from other employers,
the remote locations of many of our farms, or changes in government provided support or immigration laws, particularly in times
of lower unemployment, could adversely affect our business and results of operations. A shortage of labor available to us could
cause our farms to operate with reduced staff, which could negatively impact our production capacity and efficiencies and could
require us to increase wages to attract labor. Accordingly, any significant labor shortages or increases in our labor costs could
have a material adverse effect on our results of operations.
We are controlled by the family of our late founder, Fred R. Adams, Jr., and Adolphus B. Baker, our Chief Executive
Officer and Chairman of our Board of Directors controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams’ son-in-law, Adolphus B. Baker,
our Chief Executive Officer and Chairman of our board of directors, Mr. Baker’s spouse and her three sisters (who are Mr.
Adams’ four daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A
Common Stock (which has 10 votes per share), controlling approximately 52.1% of our total voting power. Additionally, such
persons and Jean Reed Adams (“Mrs. Adams”), the wife of our late founder, Fred R. Adams, Jr., also have additional voting
power due to beneficial ownership of our Common Stock (which has one vote per share), directly or indirectly through related
entities, resulting in family voting control of approximately 57.7% of our total voting power. Mr. Baker controls the vote of 100%
of our outstanding Class A Common Stock.
We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of our Common Stock and
our Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of
capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over
matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election
and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate
transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve
certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation’s
assets; accordingly, such a transaction involving us and requiring stockholder approval cannot be effected without the approval
of the Adams and Baker families. Such ownership will make an unsolicited acquisition of our Company more difficult and
discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders
of our Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker
families’ controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and you may
experience significant dilution as a result of future issuances of our securities, which could materially and adversely affect
the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. As described in
15
Adams and the Daughters’ Trust (of which the daughters of our late founder are beneficiaries) sold 6.9 million shares of Common
Stock in a secondary public offering pursuant to a previously disclosed Agreement Regarding Common Stock (the “Agreement”)
filed as an exhibit to this report. After the sale, approximately 5.0 million shares (the “Subject Shares”) remain registered under
a shelf registration statement and prospectus dated October 9, 2018 for potential resale, which shares are subject to the Agreement.
The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject Shares, such party must
give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to purchase
shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price based on the
20 business-day volume weighted average price. If the Company does not exercise its right of first refusal and purchase the shares
offered, such party will, subject to the approval of a special committee of independent directors of the Board of Directors, be
permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule 144 under the
Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement the Company
will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its rights of first
refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the Agreement or pursuant to Rule
144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our Common Stock could
result in a decline in the market price of our Common Stock.
In addition, our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of May 29, 2021,
there were 44,058,463 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common
Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue
additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans).
In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or
exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares
of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of
existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such
issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect
this dilution may have on the price of our Common Stock.
LEGAL AND REGULATORY RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices to comply with developing standards or subject us to marketing costs to defend challenges to our current
practices and protect our image with our customers. In particular, changes in customer preferences and new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of Animals and
the Humane Society of the United States, to require companies that supply food products to operate their business in a manner
that treats animals in conformity with certain standards developed or approved by these groups. In general, we may incur
additional costs to conform our practices to address these standards or to defend our existing practices and protect our image with
our customers. The standards promoted by these groups change over time, but typically require minimum cage space for hens,
among other requirements, and some of these groups have led successful legislative efforts to ban any form of caged housing in
various states. As discussed in Part I. Item 1. Business - Government Regulation, several states have passed minimum space
and/or cage-free requirements for hens, and other states are considering such requirements. In addition, in recent years, many
large restaurant chains, foodservice companies and grocery chains, including our largest customers, announced goals to transition
to an exclusively cage-free egg supply chain by specified future dates, in some cases subject to available supply, affordability
and consumer demand.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and new laws has
resulted and will continue to result in additional costs, including capital and operating cost increases. The USDA reported that
the estimated cage-free flock is 86.0 million hens as of June 1, 2021, which is approximately