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CALM Cal-Maine Foods

Filed: 19 Jul 21, 6:49am
 
 
 
 
1
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
 
20549
 
FORM
10-K
 
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
 
Global Select Market
 
 
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
 
shares of
 
the registrant’s
 
Common Stock,
 
$0.01 par
 
value, and
4,800,000
 
shares of the
 
registrant’s
 
Class A
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.
 
 
 
3
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,
 
 
 
4
 
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.
 
 
calm-20210529_10Kp5i0.jpg
 
5
 
 
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:
 
calm-20210529_10Kp6i0.jpg
 
6
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
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®
 
and
Land O’ Lakes®
 
branded eggs are
 
produced and processed
 
under license from
 
Eggland's Best, Inc.
 
("EB")
at our facilities under EB guidelines.
Land O’ Lakes®
 
branded eggs are produced by hens that
 
are fed a whole-grain vegetarian
diet. Our Farmhouse Eggs® brand eggs are produced at our facilities by
 
cage-free hens that are provided with a vegetarian diet.
We market
 
organic, vegetarian, and omega-3 eggs under our
4-Grain®
 
brand, which consists of both caged and cage-free eggs.
We also produce, market, and distribute private label specialty shell eggs to several customers.
 
Egg Products
 
 
Egg products are shell eggs broken and sold in liquid, frozen, or dried form. We
 
sell liquid and frozen egg products primarily to
the institutional, foodservice, and
 
food manufacturing sectors
 
in the U.S.
 
Our egg products
 
are sold through
 
our wholly owned
subsidiaries American Egg Products, LLC located in Georgia and Texas Egg Products, LLC located in Texas.
 
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.
 
 
8
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
 
magazine
 
in
 
its
 
2021
 
survey,
 
66
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.
 
 
9
Trademarks and License Agreements
 
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
 
and
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.
 
 
 
11
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
 
and
 
 
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
 
12
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.
 
 
13
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.
 
 
 
14
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
 
of Part
 
II. Item
 
8. Notes
 
to the
 
Consolidated Financial
 
Statements, in
 
August 2020
 
Mrs.
 
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
 <