CAL-MAINE FOODS, INC
2017 ANNUAL REPORT
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CAL-MAINE FOODS, INC.
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packing and
sale of fresh shell eggs, including conventional, cage-free, organic and nutritionally-
enhanced eggs. The Company, headquartered in Jackson, Mississippi, is the largest
producer and distributor of fresh shell eggs in the United States with fiscal 2017
sales of approximately 1.031 billion dozen shell eggs, representing approximately 20
percent of domestic shell egg consumption in the United States.
The common shares of Cal-Maine Foods, Inc. are traded on the Nasdaq Global Market
under the symbol CALM.
CAL-MAINE FOODS LOCATIONS
Alabama
Robertsdale
Arkansas
Green Forest
Searcy
Siloam Springs
Florida
Bushnell
Callahan
Dade City
Dover
Indiantown
Jacksonville
Kathleen
Kenansville
Lacoochee
Lake City
Lake Wales
Mascotte
Miami
Okeechobee
Quincy
Trilby
Wellborn
Zephyrhills
Georgia
Blackshear
Hoboken
Moniac
Patterson
Shady Dale
St. George
Kansas
Chase
Kentucky
Bremen
Guthrie
Louisiana
Hammond
Pine Grove
Mississippi
Edwards
Jackson
(Corporate Offices)
Mendenhall
North Carolina
Louisburg
Ohio
Rossburg
Union City
Oklahoma
Watts
South Carolina
Bethune
Tennessee
Clarksville
Texas
Bogata
Boling
Farwell
Flatonia
Harwood
Klesel
Linn
Luling
Pittsburg
Sandy Fork
Waelder
Wharton
Utah
Delta
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CAL-MAINE FOODS, INC
TO OUR SHAREHOLDERS
Our results for fiscal 2017 reflect the volatile and challenging egg market fundamentals that prevailed
throughout the past year. While we sold over one billion dozen shell eggs for the fourth consecutive year,
our sales revenues were affected by the significant year over year drop in market prices. Net sales for the year
were $1,074.5 million compared with $1,908.7 million for the prior-year period, as average customer selling
prices were down 42.0 percent compared with fiscal 2016.
For fiscal 2017, the egg markets were affected by increased production levels, as producers repopulated
their flocks after the 2015 avian influenza (AI)-related laying hen losses, and the younger hen population has
produced a higher number of eggs. Overall, market demand trends have not kept pace with these increased
production levels. According to Nielsen data, retail customer demand for shell eggs has followed the typical
seasonal cycles, however, relatively weak institutional and export demand have placed additional pressure on
the egg markets. During the AI-related price spike, institutional egg customers reformulated their products
to use fewer eggs, and while egg prices have since come down, these customers have not returned to their
previous usage levels. While the USDA reports that egg export demand improved over the course of the year,
U.S. egg exports are still below the peak levels prior to the AI outbreak. Together, these factors have created
an oversupply and market prices remain well below historical averages. We believe the egg markets will stay
under cyclical pressure, and we do not expect to see meaningful improvement until there is a more favorable
balance of supply and demand.
While market conditions have been extremely difficult for egg producers, we have remained focused on
executing our growth strategy and meeting the changing demands of our customers with a favorable product
mix. Our specialty egg business was a key driver of our growth strategy over the past year as we continued to
capitalize on new market opportunities. Specialty eggs, excluding co-pack sales, accounted for 43.6 percent
of total shell egg revenues for fiscal 2017, compared with 29.1 percent last year. For fiscal 2017, specialty egg
prices were down 12.4 percent compared with fiscal 2016 prices.
Throughout this past year, we made significant investments across our operations to meet anticipated demand
for cage-free eggs, as food service providers, national restaurant chains and major retailers, including our
largest customers, have stated objectives to exclusively offer cage-free eggs by various future dates. While
we expect the multi-year conversion to cage-free production will present new challenges and higher costs
for our industry, we believe it also provides additional market opportunities for Cal-Maine Foods. We are
working with our customers to facilitate a smooth transition to meet this demand. With the recent low prices
of conventional eggs and typical seasonal fluctuations, demand trends for cage-free eggs slowed down in the
fourth fiscal quarter, resulting in a higher supply of specialty eggs. We have adjusted our production levels to
meet the demands of our customers who still prefer cage-free eggs, and we are well positioned to serve our
customers as demand trends change. In addition to cage-free eggs, our product mix provides a wide variety
of healthy choices for consumers including conventional, nutritionally-enhanced and organic eggs.
Another key aspect of our growth strategy is to expand our business through selective acquisitions, and we
were pleased to make two significant acquisitions in fiscal 2017. In the second quarter, we acquired the assets of
Foodonics International, Inc. doing business as Dixie Egg Company in the commercial production, processing,
distribution and sale of shell eggs with related feed production, milling and distribution facilities located in
Georgia, Alabama and Florida. Dixie Egg Company has capacity for approximately 1.6 million laying hens with
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contract arrangements for an additional 1.5 million laying hens. In addition, Cal-Maine Foods acquired the
Egg-Land’s Best, Inc. franchise with licensing rights for portions of certain markets in Alabama, Florida and
Georgia as well as Puerto Rico, Bahamas and Cuba. During the third quarter, we completed the acquisition
of substantially all of the assets of Happy Hen Egg Farms, Inc, comprised of commercial egg production and
processing facilities with current capacity for approximately 350,000 laying hens and related distribution
facilities near Harwood and Wharton, Texas. Located near our other Texas locations, Happy Hen Egg Farms is
designed for capacity of up to 1.2 million laying hens, providing additional future expansion opportunities.
Throughout the past year, our managers across all of Cal-Maine Foods’ locations did an outstanding job in
running our operations in an effi cient and responsible manner. At the same time, we have neared completion
on various capital improvement projects designed to enhance our future capacity and effi ciency. In fi scal
2017, we were fortunate to benefi t from lower grain costs due to the favorable harvest results last fall. For the
year, our feed costs per dozen were down 3.6 percent, while overall farm production costs per dozen were at
the same level as the prior year, even with higher capital expenditures for conversion and other improvement
projects. Looking ahead, we expect to have an adequate supply of our primary feed ingredients in fi scal
2018, however, grain prices have been volatile over the summer.
We are proud of our ability to move the Company forward in fi scal 2017 amidst extraordinary market
conditions. We must acknowledge the hard work and dedication of all of our employees who continued
to meet the demands of our customers with exceptional service. With a capable and experienced team
throughout our operations, supported by the outstanding leadership of our executive management and
board of directors, we remain confi dent in our future growth prospects and believe Cal-Maine Foods is well
positioned to benefi t from a more favorable egg market environment.
As we look to fi scal 2018, we will continue to execute our growth strategy and operate our business in the
same manner, regardless of the cycles that characterize our industry. We will remain focused on managing
our operations effi ciently and providing a favorable product mix, including cage-free and other specialty
eggs, in line with customer demand. Importantly, our strong balance sheet provides us with the fl exibility
to pursue strategic acquisitions and additional growth opportunities that add value to our operations.
Together, we believe these eff orts will reward both our customers and shareholders in fi scal 2018.
Thank you for your support of Cal-Maine Foods.
Sincerely,
Fred Adams, Jr.
Chairman Emeritus
Dolph Baker
Chairman of the Board, President and
Chief Executive Offi cer
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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 JUNE 3, 2017
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-04892
CAL-MAINE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
64-0500378
(I.R.S. Employer Identification No.)
3320 W Woodrow Wilson Ave, Jackson, Mississippi 39209-3409
(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:
Common Stock, $0.01 par value per share
Name of exchange on which registered:
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 (cid:133)
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 (cid:133) 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 (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted 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 and post such files). Yes ⌧ No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ⌧
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 ⌧
Non-accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Accelerated filer (cid:133)
Smaller reporting company (cid:133)
Emerging growth company (cid:133)
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 (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) 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 26, 2016, which was the date of the last business day of the registrant’s most recently completed second fiscal
quarter, was $1,239,719,614.
As of July 21, 2017, 43,774,052 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 2017 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.
1
TABLE OF CONTENTS
Item
Part I
FORWARD-LOOKING STATEMENTS
1.
1A.
1B.
2.
3.
4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
15.
Exhibits, Financial Statement Schedules
Signatures
2
Page
Number
3
3
9
15
15
16
18
19
22
23
42
43
73
73
76
76
76
76
76
77
77
79
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 production data, expected operating schedules, expected capital costs
and other operating data, including anticipated results of operations and financial condition. Such forward-looking
statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,”
“plans,” “projected,” “contemplates,” “anticipates” or similar words. Actual production, operating schedules, results
of operations and other projections and estimates 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 our company and our industry. These statements are not guarantees of future
performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and might 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 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, such as avian influenza, pests, weather conditions and
potential for 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 (vi) 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 these forward-looking
statements will prove to be accurate. Further, the 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 publicly update these forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 1. BUSINESS
Our Business
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is the largest producer and marketer of shell eggs in
the United States. In fiscal 2017, we sold approximately 1,031.1 million dozen shell eggs, which we believe
represented approximately 20% of domestic shell egg consumption. Our total flock of approximately 36.1 million
layers and 9.5 million pullets and breeders is the largest in the U.S. 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.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of
shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and
non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free,
organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs
as non-specialty products. While we report separate sales information for these egg types, there are many cost factors
which are not specifically available for non-specialty 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.
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, 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. The strength of our position is evidenced by having the largest market
share in the grocery segment for shell eggs. We sell shell eggs to a majority of large U.S. food retailers.
3
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. They have been a
significant and growing segment of the market in recent years. A significant number of our food service customers,
large restaurant chains, and major retailers, including our largest customers, have committed to exclusive offerings
of cage-free eggs by specified future dates. We are working with our customers to ensure a smooth transition in
meeting their goals. Our focus for future expansion at our farms will be environments that are cage-free or with
equipment that can easily be converted to cage-free, based on a timeline to meet our customer’s needs.
In fiscal 2017, specialty shell eggs and co-pack specialty shell eggs represented 43.6% and 3.1% of our shell egg
sales dollars, respectively, and accounted for approximately 22.9% and 1.6%, respectively, of our total shell egg
volumes. In fiscal 2016, specialty shell eggs and co-pack specialty shell eggs represented 29.1% and 2.7% of our
shell egg sales dollars, respectively, and accounted for approximately 22.9% and 2.0%, respectively, of our total shell
egg volumes. Prices for specialty eggs are less volatile than non-specialty shell egg prices and are generally higher
due to consumer willingness to pay for the perceived increased benefits from those products. We market our specialty
shell eggs under the following brands: Egg-Land’s Best®, Land O’ Lakes®, Farmhouse®, and 4-Grain®. We are a
member of the Egg-Land’s Best, Inc. (“EB”) cooperative and produce, market and distribute Egg-Land’s Best® and
Land O’ Lakes® branded eggs, along with our associated joint ventures, under exclusive license agreements for a
number of states in the southeast, south central, and southwest U.S. as well as the New York City area. We market
cage-free eggs under our trademarked Farmhouse® brand and distribute them across the southeast and southwest
regions of the U.S. We market organic, cage-free, vegetarian, and omega-3 eggs under our 4-Grain® brand. We also
produce, market, and distribute private label specialty shell eggs to several customers.
We are a leader in industry consolidation. Since 1989, we have completed twenty acquisitions ranging in size from
600,000 layers to 7.5 million layers. Despite a market that has been characterized by increasing consolidation, the
shell egg production industry remains highly fragmented. At December 31, 2016, 56 producers, owning at least one
million layers, owned approximately 97% of total industry layers. The ten largest producers owned approximately
58% of total industry layers. We believe industry consolidation will continue and we plan to capitalize on
opportunities as they arise.
Industry Background
Based on historical consumption trends, we believe general demand for shell eggs increases in line with overall
population growth, averaging growth of about 1% per year. In 2013 and 2014, consumption of eggs grew
approximately 2% per year. 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. According to
U.S. Department of Agriculture (“USDA”), annual per capita U.S. consumption since 2000 varied between 249 and
275 eggs. In calendar year 2016, per capita U.S. consumption was estimated to be 275 eggs, or approximately five
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. (i.e. all eggs supplied domestically by the egg industry are consumed).
Slightly over 30% 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) with most of the balance sold to food service
and retail consumers (e.g. through grocery and convenience stores) and a relatively small amount exported. Our sales
are predominately to retail consumers; in fiscal 2017 and 2016, approximately 2% and 4% of our net sales was egg
products, respectively.
4
Prices for Shell Eggs
Shell egg prices are a critical component of profitability for the Company and the industry as a whole. While there
are many pricing mechanisms, we believe the majority of shell eggs sold in the U.S. in the retail and foodservice
channels are sold at prices related to the Urner Barry wholesale quotation for shell eggs. We sell the majority of our
non-specialty shell eggs at prices related to Urner Barry Spot Egg Market Quotations or formulas related to our costs
of production which include the cost of corn and soybean meal. For fiscal 2017, wholesale large shell egg prices in
the southeast region, as quoted by Urner Barry, averaged $0.85 compared with $1.79 for fiscal 2016, evidencing their
volatility. Egg prices during fiscal 2016 were impacted by the outbreak of avian influenza ("AI") primarily in the
upper Midwestern U.S. from April to June 2015, which initially caused a significant reduction in egg supplies and an
increase in egg prices. There were no positive tests for AI at any of our locations. Based on USDA reports, the
subsequent repopulation of the national laying hen flock, eventually above pre-AI levels, with a younger, more
productive hen population, along with reduced demand for egg products resulted in an oversupply of eggs, leading to
decreased egg prices in fiscal 2017.
Feed Costs for Shell Egg Production
Feed is a primary cost component in the production of shell eggs and represents over half of industry farm level
production costs. Most shell egg producers, including us, are vertically integrated, manufacturing the majority of the
feed they require for their operations. Although feed ingredients, primarily corn and soybean meal, are available from
a number of sources, prices for ingredients can fluctuate and are affected by weather, speculators, and various supply
and demand factors. Our feed cost per dozen eggs produced for fiscal 2017 was 3.6% lower than fiscal
2016. Adequate stocks from increased U.S. acreage and large per acre yields for both corn and soybeans in 2016
combined with the 2017 crop should provide adequate domestic supplies for both of our primary feed ingredients
during fiscal 2018.
Growth Strategy and Acquisitions
For many years, we have pursued a growth strategy focused on the acquisition of existing shell egg production and
processing facilities, as well as the construction of new and more efficient facilities. Since the beginning of fiscal
1989, we have completed 20 acquisitions. In addition, we have built numerous “in-line” shell egg production and
processing facilities as well as pullet growing facilities which added to our capacity. The capacity increases have
been accompanied by the retirement of older and less efficient facilities. The “in-line” facilities provide gathering,
grading and packaging of shell eggs by less labor-intensive, more efficient, mechanical means. We continue to
upgrade and modify our facilities, and invest in new facilities, to meet changing demand as many food service
customers, restaurant chains, and retailers have committed to exclusive offerings of cage-free eggs over the next
several years.
Our total flock, including pullets, layers and breeders increased from approximately 32.8 million at the end of fiscal
2012 to approximately 45.6 million as of June 3, 2017. The dozens of shell eggs sold increased from approximately
884.3 million in fiscal 2012 to approximately 1,031.1 million for fiscal 2017.
During fiscal 2017, we acquired substantially all of the egg production, processing and distribution assets of
Foodonics International, Inc. and of Happy Hen Egg Farms, Inc., which are discussed in detail later in this report.
We continue to pursue opportunities to acquire companies engaged in the production and sale of shell eggs. We will
continue to evaluate and selectively pursue acquisitions that will expand our shell egg production capabilities in
existing markets and broaden our geographic reach. We have extensive experience identifying, valuing, executing,
and integrating acquisitions and we intend to leverage that experience in the evaluation and execution of future
acquisitions. We will seek to acquire regional shell egg businesses with significant market share and long-standing
customer relationships. We believe enhancing our national presence will help us further strengthen our relationships
with existing customers, many of whom have operations across the U.S.
Federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance,
and we are subject to federal and state laws prohibiting anti-competitive conduct. We believe our sales of shell eggs
5
during the last fiscal year represented approximately 20% of domestic shell egg sales, making us the largest producer
and distributor of shell eggs in the U.S. However, because the shell egg production and distribution industry is so
fragmented, we believe there are many acquisition opportunities available to us that would not be restricted pursuant
to antitrust laws.
Through exclusive license agreements with EB in several key territories and our trademarked Farmhouse® and
4Grain® brands, we are one of the leading producers and marketers of value-added specialty shell eggs. We also
produce, market, and distribute private label specialty shell eggs to several customers. Since selling prices of specialty
shell eggs are generally less volatile than non-specialty shell egg prices, we believe growing our specialty eggs
business will enhance the stability of our margins. We expect the price of specialty eggs to remain at a premium to
regular shell eggs, and intend to grow our specialty shell egg business.
The construction of new, more efficient production and processing facilities is also an integral part of our growth
strategy. Such construction requires compliance with applicable environmental laws and regulations, including the
receipt of permits that could cause schedule delays, although we have not experienced any significant delays in the
past.
Shell Eggs
Production. Our operations are fully integrated. We hatch chicks, grow and maintain flocks of pullets, layers, and
breeders, manufacture feed, and produce, process, package, and distribute shell eggs. We produce approximately
84% of our total shell eggs sold, with 92% of such production coming from company-owned facilities, and the other
8% coming 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 purchase
approximately 16% of the total shell eggs we sell from outside producers.
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 hatcheries and obtain the balance from commercial sources. We own breeder
and hatchery facilities capable of producing 21.2 million pullet chicks per year in a computer-controlled environment.
These pullets are distributed to 43 state-of-the-art laying operations around the southwestern, southeastern, mid-
western and mid-Atlantic regions of the U.S. The facilities produce an average of 2.4 million dozen shell eggs per
day. The shell eggs are processed, graded and packaged predominantly without handling by human hands. We have
spent a cumulative total of $310.5 million over the past five years to expand and upgrade our facilities with the most
advanced equipment and technology available in our industry. We believe our constant attention to production
efficiencies and focus on automation throughout the supply chain enables us to be a low cost supplier in all the markets
in which we compete.
Feed cost represents the largest element of our farm egg production cost, ranging from 58% to 69% of total farm
production cost in the last five fiscal years. Although feed ingredients are available from a number of sources, we
have little, if any, control over the prices of the ingredients we purchase, which are affected by weather, speculators,
and various supply and demand factors. For example, the severe drought in the summer of 2012 and resulting damage
to the national corn and soybean crop resulted in high and volatile feed costs. Increases in feed costs unaccompanied
by increases in the selling price of eggs can have a material adverse effect on our operations. High feed costs can
encourage shell egg producers to reduce production, resulting in higher egg prices. Alternatively, low feed costs can
encourage industry overproduction, possibly resulting in lower egg prices.
After the eggs are produced, they are graded and packaged. Substantially all of our farms have modern “in-line”
facilities to mechanically gather, grade and package the eggs produced. The increased use of in-line facilities has
generated significant cost savings compared to the cost of eggs produced from non-in-line facilities. In addition to
greater efficiency, the in-line facilities 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.
Since shell eggs are perishable, we maintain very low egg inventories, usually consisting of approximately four days
of production.
6
Egg production activities are subject to risks inherent in the agriculture industry, such as weather conditions and
disease. These risks are outside our control and could have a material adverse effect on our operations. The
marketability of shell eggs is subject to risks such as possible changes in food consumption preferences and practices
reflecting perceived health concerns.
We operate in a cyclical industry with total demand that is generally steady and a product that is generally price-
inelastic. Thus, small increases in production or decreases in demand can have a large adverse effect on prices and
vice-versa. However, economic conditions in the egg industry are expected to exhibit less cyclicality in the
future. The industry is concentrating into fewer but stronger hands, which should help lessen the extreme cyclicality
of the past.
Marketing. Of the 1,031.1 million dozen shell eggs sold by us in fiscal 2017, our flocks produced 870.3 million.
We sell our shell eggs to a diverse group of customers, including national and local grocery store chains, club stores,
foodservice distributors, and egg product consumers. We utilize electronic ordering and invoicing systems that enable
us to manage inventory for certain customers. Our top ten customers accounted for an aggregate of 69.5%, 70.6%,
and 67.9% of net sales dollars for fiscal 2017, 2016, and 2015, respectively. Two customers, Wal-Mart Stores and
Sam’s Club, on a combined basis, accounted for 28.9%, 28.9%, and 25.7% of net sales dollars during fiscal 2017,
2016, and 2015, respectively.
The majority of eggs sold are sold based on the daily or short-term needs of our customers. Most sales to established
accounts are on open account with payment terms ranging from seven to 30 days. Although we have established
long-term relationships with many of our customers, many 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, either by our own fleet or
contracted refrigerated delivery trucks, or are picked up by our customers at our processing facilities.
We sell our shell eggs at prices generally related to independently quoted wholesale market prices or at formulas
related to our costs of production. Wholesale prices are subject to wide fluctuations. The prices of shell eggs reflect
fluctuations in the quoted market and changes in corn and soybean meal prices, and the results of our shell egg
operations are materially affected by changes in market quotations and feed costs. Egg prices reflect a number of
economic conditions, such as the supply of eggs and the demand level, which, in turn, are influenced by a number of
factors we cannot control. No representation can be made as to the future level of prices.
According to USDA reports, for the past five years, U.S. annual per capita egg consumption grew from 255 in 2012
to 275 in 2016. Looking ahead, we believe fast food restaurant consumption, high protein diet trends, industry
advertising campaigns, and improved nutritional reputation of eggs related to better scientific understanding of the
role of cholesterol in diets may result in increased per capita egg consumption levels; however, no assurance can be
given that per capita consumption will not decline in the future.
We sell the majority of our shell eggs across the southwestern, southeastern, mid-western and mid-Atlantic regions
of the U.S. We are a major factor in egg marketing in a majority of these states. Many states in our market area are
egg deficit regions where production of fresh shell eggs is less than total consumption. Competition from other
producers in specific market areas is generally based on price, service, and quality of product. Strong competition
exists in each of our markets.
Seasonality. Retail sales of shell eggs are greatest 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. We generally experience lower sales and net income in our fourth and first fiscal
quarters ending in May and August, respectively. During the past ten fiscal years, two of our first quarters resulted in
net operating losses, and during this same period, three of our fourth quarters resulted in net operating losses.
Specialty Eggs. We produce specialty eggs such as Egg-Land’s Best®, Land O’ Lakes®, 4Grain®, and Farmhouse®
branded eggs. Specialty eggs are intended to meet the demands of consumers who are sensitive to environmental,
health and/or animal welfare issues. Specialty shell eggs are becoming a more significant segment of the shell egg
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market. During our fiscal 2016 an increasing number of large restaurant chains, food service companies and grocery
chains, including our largest customers, announced goals to transition to a cage-free egg supply chain by specified
future dates. For fiscal 2017, specialty eggs accounted for 43.6% of our shell egg dollar sales and 22.9% of our
shell egg dozens sold, as compared to 29.1% of shell egg dollar sales and 22.9% of shell egg dozens sold in fiscal
2016. Additionally, specialty eggs sold through our co-pack arrangements accounted for an additional 3.1% of shell
egg dollar sales and 1.6% of shell egg dozens sold in fiscal 2017, compared with 2.7% of shell egg dollar sales and
2.0% of shell egg dozens sold in fiscal 2016. We produce and process Egg-Land’s Best® and Land O’ Lakes®
branded eggs under license from EB at our facilities under EB guidelines. The product is marketed to our established
base of customers at premium prices compared to non-specialty shell eggs. Egg-Land’s Best® branded eggs
accounted for approximately 23.2% of our shell egg dollar sales in fiscal 2017, compared to 16.8% in fiscal 2016.
Based on dozens sold, Egg-Land’s Best® branded eggs accounted for 12.5% of dozens sold for fiscal 2017, compared
to 13.6% in fiscal 2016. Land O’ Lakes® branded eggs are produced by hens that are fed a whole grain diet, free of
animal fat and animal by-products. Farmhouse® brand eggs are produced at our facilities by cage-free hens that are
provided with a diet of all grain, vegetarian feed. We market organic, wholesome, cage-free, vegetarian, and omega-
3 eggs under our 4-Grain® brand, which consists of both caged and cage-free eggs. Farmhouse®, Land O’ Lakes®,
4Grain® and other non-Egg-Land’s Best® specialty eggs accounted for 20.4% of our shell egg dollar sales in fiscal
2017, compared to 12.3% in fiscal 2016, and 10.4% of dozens sold for fiscal 2017, compared to 9.3% for fiscal 2016.
Egg Products. Egg products are shell eggs broken and sold in liquid, frozen, or dried form. In fiscal 2017 egg
products represented approximately 2% of our net sales compared with approximately 4% in fiscal 2016. We sell
egg products primarily into the institutional and food service sectors in the U.S. Our egg products are sold through
our wholly owned subsidiary American Egg Products, LLC located in Blackshear, Georgia and our consolidated
subsidiary Texas Egg Products, LLC located in Waelder, Texas. Prices for egg products are related to Urner Barry
quoted price levels.
Competition. The production, processing, and distribution of shell eggs is an intensely competitive business, which
traditionally has attracted large numbers of producers. Shell egg competition is generally based on price, service, and
product quality.
The U.S. shell egg industry remains highly fragmented but is characterized by a growing concentration of producers.
In 2016, 56 producers with one million or more layers owned 97% of the 318.6 million total U.S. layers, compared
to 2000, when 63 producers with one million or more layers owned 79% of the 273 million total layers, and 1990,
when 56 producers with one million or more layers owned 64% of the 232 million total layers. We believe a
continuation of the concentration trend will result in reduced cyclicality of shell egg prices, but no assurance can be
given in that regard. A continuation of this trend could also create greater competition among fewer producers.
Patents and Trade Names. We own the trademarks Farmhouse®, Sunups®, Sunny Meadow® and 4Grain®. We do
not own any patents or proprietary technologies. 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. We do not know of any infringing uses that would materially affect the use of these trademarks, and
we actively defend and enforce them.
Government Regulation. Our facilities and operations are subject to regulation by various federal, state, and local
agencies, including, but not limited to, the United States Food and Drug Administration (“FDA”), USDA,
Environmental Protection Agency (“EPA”), Occupational Safety and Health Administration and corresponding state
agencies, among others. 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 and EPA inspections. Our feed
production facilities are subject to FDA regulation and inspections. In addition, we maintain our own inspection
program to ensure compliance with our own standards and customer specifications. We are not aware of any major
capital expenditures necessary to comply with current statutes and regulations; however, there can be no assurance
that we will not be required to incur significant costs for compliance with such statutes and regulations in the
future. In addition, rules are often proposed that, if adopted as proposed, could increase our costs. For example, in
April 2016 the USDA Agricultural Marketing Service proposed rules that, if adopted, will change requirements, and
increase our costs to produce organic eggs. As of July 2017, the proposed rules have not become effective.
8
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
are required to 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, because environmental, health and safety
laws and regulations are becoming increasingly more stringent, including those relating to animal wastes and
wastewater discharges, there can be no assurance that we will not be required to incur significant costs for compliance
with such laws and regulations in the future.
Employees. As of June 3, 2017, we had 3,578 employees, of whom 2,976 worked in egg production, processing and
marketing, 178 worked in feed mill operations and 424 were administrative employees, including our executive
officers. Approximately 3.9% of our personnel are part-time. None of our employees are covered by a collective
bargaining agreement. We consider our relations with employees to be good.
Our Corporate Information
We were founded in 1957 in Jackson, Mississippi. We were incorporated in Delaware in 1969. Our principal
executive office is located at 3320 W Woodrow Wilson Avenue, Jackson, Mississippi 39209. The telephone number
of our principal executive office is (601) 948-6813. We maintain a website at www.calmainefoods.com where general
information about our business is available. The information contained in our website is not a part of this document.
Our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, Forms
3, 4 and 5 ownership reports, and all amendments to those reports are available, free of charge, through our website
as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance
matters is also available on our website.
Our Common Stock is listed on The NASDAQ Global Select Market (“NASDAQ”) under the symbol “CALM.” On
June 2, 2017, the last sale price of our Common Stock on NASDAQ was $38.55 per share. Our fiscal year 2017
ended June 3, 2017, and the first three fiscal quarters of fiscal 2017 ended August 27, 2016, November 26, 2016, and
February 25, 2017. All references herein to a fiscal year means our fiscal year and all references to a year mean a
calendar year.
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,that we 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.
Market prices of wholesale shell eggs are volatile and decreases in these prices can adversely impact our results
of operations.
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. Small increases in production, or small decreases in demand, can 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. Shell egg prices trended upward from calendar 2002 until
late 2003 and early 2004 when they rose to then historical highs. In the early fall of calendar 2004, the demand trend
related to the increased popularity of high protein diets faded dramatically and prices fell. During the time of
9
increased demand, the egg industry geared up to produce more eggs, resulting in an oversupply of eggs. After
calendar 2006, supplies were more closely balanced with demand and egg prices again reached record levels in 2007
and 2008. Egg prices had subsequently retreated from those record price levels due to increases in industry supply
before reaching new highs in 2014. In 2015, egg prices rose again in large part due to a decrease in supply caused by
the avian influenza outbreak in the upper Midwestern U.S. from April to June 2015. While the AI outbreak
significantly impacted the supply and prices of eggs, there were no positive tests for AI at any of our locations. The
average Urner-Barry Thursday prices for the large market (i.e. generic shell eggs) in the southeastern region for the
months of June through November 2015 was $2.32 per dozen, with a peak of $2.97 during August. Subsequent to
November 2015, shell egg prices declined. The Urner Barry price index hit a decade-low level in our fiscal 2016
fourth quarter. During our first quarter of fiscal 2017 it increased slightly, but remained at significantly lower levels
than the corresponding period of last year. During our fiscal 2017 second quarter, it returned to and dropped below
the low levels seen during the fiscal 2016 fourth quarter. Early in our fiscal 2017 third quarter we saw a significant
increase but prices dropped again after Christmas. During our fiscal 2017 fourth quarter, it dropped yet again and
approached the record low levels of the fiscal 2017 second quarter. According to Nielsen data, retail customer demand
for shell eggs has remained strong. The USDA reports that egg export demand has improved since the beginning of
fiscal 2017; however, it has still not fully recovered from levels prior to the AI outbreak. We have experienced reduced
demand for egg products, as many of our commercial customers reformulated their products to use fewer eggs when
prices spiked and have been slow to resume previous egg usage. Together, these factors have created an oversupply
of eggs, with continued pressure on market prices. We expect the egg markets to remain under pressure and do not
expect to see meaningful improvement until there is a better balance of supply and demand.
Shell egg prices are also impacted by seasonal fluctuations. Retail sales of shell eggs are greatest during the fall and
winter months and lowest in the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a
natural increase in shell egg production during the spring and early summer. Shell egg prices tend to increase with
the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas and Easter.
Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in
August and May, respectively. As a result of these seasonal and quarterly fluctuations, 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 fast food restaurant consumption, high protein diet trends, industry advertising campaigns, and improved
nutritional reputation of eggs related to better scientific understanding of the role of cholesterol in diets have all
contributed to shell egg demand. However, there can be no assurance that the demand for shell eggs will not decline
in the future. Adverse publicity relating to health concerns and changes in the perception of the nutritional value of
shell eggs, 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 cost represents the largest element of our shell egg (farm) production cost, ranging from 58% to 69% of total
farm production cost in the last five fiscal years. Although feed ingredients are available from a number of sources,
we have little, if any, control over the prices of the ingredients we purchase, which are affected by weather,
speculators, various supply and demand factors, transportation and storage costs, and agricultural and energy policies
in the U.S. and internationally. For example, the severe drought in the summer of 2012 and resulting damage to the
national corn and soybean crops resulted in high and volatile feed costs. 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. Alternatively,
low feed costs can encourage industry overproduction, possibly resulting in lower egg prices.
Due to the cyclical nature of our business, our financial results fluctuate from year to year and between
different quarters within a single fiscal year.
The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant
loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in
production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices
10
until supply and demand returned to balance. As a result, our financial results from year to year vary
significantly. Additionally, as a result of seasonal fluctuations, our financial results fluctuate significantly between
different quarters within a single fiscal year.
We purchase a portion of the shell eggs we sell from outside producers and our ability to obtain such eggs at
prices and in quantities acceptable to us could fluctuate.
We produced approximately 84% and 78% of the total number of shell eggs we sold in fiscal 2017 and fiscal 2016,
respectively, and purchased the remainder from outside producers. As the wholesale price for shell eggs increases,
our cost to acquire shell eggs from outside producers increases. There can be no assurance that we will be able to
continue to acquire shell eggs from outside producers in sufficient quantities and satisfactory prices, and our inability
to do so may have a material adverse effect on our business and profitability.
Our acquisition growth strategy subjects us to various risks.
We plan to continue to pursue a growth strategy, which includes acquisitions of other companies engaged in the
production and sale of shell eggs. In fiscal year 2017, we completed the purchase of the substantially all of the egg
production assets of Foodonics International Inc. and of Happy Hen Egg Farm, Inc. 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 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.
The consideration we pay in connection with any acquisition also 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 the incurrence of
debt.
Our largest customers have historically 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.
For the fiscal years 2017, 2016, and 2015, two customers, Wal-Mart Stores and Sam’s Clubs, on a combined basis,
accounted for 28.9%, 28.9%, and 25.7% of our net sales dollars, respectively. For fiscal years 2017, 2016, and 2015,
our top ten customers accounted for 69.5%, 70.6%, and 67.9% of net sales dollars, 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 are 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.
11
Failure to comply with applicable governmental regulations, including environmental regulations, could harm
our operating results, financial condition, and reputation. Further, we may incur significant costs to comply
with any such regulations.
We are subject to federal, state and local regulations relating to grading, quality control, labeling, sanitary control,
and waste disposal. As a fully-integrated shell egg producer, our shell egg facilities are subject to regulation and
inspection by the USDA, EPA, and FDA, as well as regulation by various state and local health and agricultural
agencies, among others. All of our shell egg production and feed mill facilities are subject to FDA regulation and
inspections. In addition, rules are often proposed that, if adopted as proposed, could increase our costs. For example,
in April 2016 the USDA Agricultural Marketing Service proposed rules that, if adopted, would change requirements,
and increase our costs to produce organic eggs. As of July 2017, the proposed rules have not become effective.
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 are required to obtain permits from
governmental authorities, including, but not limited to pollution/wastewater discharge permits.
If we fail to comply with an applicable law or regulation, or fail to obtain necessary permits, we could be subject to
significant fines and penalties or other sanctions, our reputation could be harmed, and our operating results and
financial condition could be materially adversely affected. In addition, because these laws and regulations are
becoming increasingly more stringent, there can be no assurance that we will not be required to incur significant costs
for compliance with such laws and regulations in the future.
Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to or
voluntarily recall contaminated products.
Shell eggs and shell egg products are vulnerable to contamination by pathogens such as Salmonella. 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 increased 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. We do not maintain insurance to cover recall losses. 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. Despite our efforts, outbreaks of avian disease can 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. 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 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.
From April through June 2015, our industry experienced a significant avian influenza outbreak, primarily in the upper
Midwestern U.S. Based on several published industry estimates, we believe approximately 12% of the national flock
of laying hens was affected. The affected laying hens were either destroyed by the disease or euthanized. The effect
this outbreak had on our industry and our company is discussed throughout this report. There have been no positive
tests for avian influenza at any of our locations. We have significantly increased the biosecurity measures at all of our
facilities; however we cannot be certain that our flocks will not be affected by AI or other diseases in the future.
12
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. In addition, 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.
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.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of
Animals ("PETA"), and the Humane Society of the United States ("HSUS"), to require all companies that supply food
products operate their business in a manner that treats animals in conformity with certain standards developed or
approved by these animal rights groups. The standards typically require minimum cage space for hens, among other
requirements, but some of these groups have made legislative efforts to ban any form of caged housing in various
states. California’s Proposition 2 and Assembly Bill 1437 was effective January 1, 2015, and did increase the cost of
production in that State and for producers who sell there. During our fiscal 2016, many large restaurant chains, food
service companies and grocery chains, including our largest customers, announced goals to transition to a cage-free
egg supply chain by specified future dates. Changing our procedures and infrastructure to conform to these types of
laws or anticipated customer demand for these types of guidelines has resulted and will continue to result in additional
costs to our internal production of shell eggs, including capital and operating cost increases from housing and
husbandry practices and modification of existing or construction of new facilities, and the increased cost for us to
purchase shell eggs from our outside suppliers. While some of the increased costs have been passed on to our
customers, we cannot provide assurance that we can continue to pass on these costs, or additional costs we will incur,
in the future.
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.
We are controlled by the family of our founder, Fred R. Adams, Jr.
Fred R. Adams, Jr., our Founder and Chairman Emeritus, and his spouse own 27.8% of the outstanding shares of our
Common Stock, which has one vote per share. In addition, Mr. Adams and his spouse own 74.7% and his son-in-
law, Adolphus B. Baker, our President, Chief Executive Officer and Chairman of the Board, and his spouse own
25.3% of the outstanding shares of our Class A Common Stock, which has ten votes per share. Mr. Baker and his
spouse also own 1.4% of the outstanding shares of our Common Stock. A conservatorship has been established to
manage Mr. Adams’ affairs, with his spouse and Mr. Baker as co-conservators, as a result of the impairment of Mr.
Adams’ health related to his previously disclosed stroke. Mr. Adams continues to consult actively and regularly with
the Company and it is expected that he will continue to do so for as long as he is able. As a result of the
conservatorship, as of July 1, 2017, Mr. Adams, his spouse, and Mr. Baker possessed 52.3%, and Messrs. Adams and
Baker and their spouses collectively possessed 66.2%, of the total voting power represented by the outstanding shares
of our Common Stock and Class A Common Stock. These stockholdings include shares of our Common Stock
accumulated under our employee stock ownership plan for the respective accounts of Messrs. Adams and Baker and
Mr. Baker’s spouse.
13
The Adams and Baker families intend to retain ownership of a sufficient amount of Common Stock and Class A
Common Stock to assure continued ownership of over 50% of the voting power of our outstanding shares of capital
stock. Such ownership will make an unsolicited acquisition of the Company more difficult and discourage certain
types of transactions involving a change of control of our Company, including transactions in which the holders of
Common Stock might otherwise receive a premium for their shares over then current market prices. In addition,
certain provisions of our Certificate of Incorporation require that our Class A Common Stock be issued only to Fred
R. Adams, Jr. and members of his immediate family, and if shares of our Class A Common Stock, by operation of law
or otherwise, are deemed not to be owned by Mr. Adams or a member of his immediate family, the voting power of
any such shares shall be automatically reduced to one vote per share. The Adams and Baker families’ controlling
ownership of our capital stock may adversely affect the market price of our Common Stock.
Based on the Adams family’s beneficial ownership of our outstanding capital stock, we are a “controlled company,”
as defined in Rule 5615(c)(1) of the NASDAQ’s listing standards. Accordingly, we are exempt from certain
requirements of NASDAQ’s corporate governance listing standards, including the requirement to maintain a majority
of independent directors on our board of directors and the requirements regarding the determination of compensation
of executive officers and the nomination of directors by independent directors.
Current and future litigation could expose us to significant liabilities and adversely affect our business
reputation.
We and certain of our subsidiaries are involved in various legal proceedings. Litigation is inherently unpredictable,
and although we believe we have meaningful defenses in these matters, we may incur judgments or enter into
settlements of claims that could have a material adverse effect on our results of operations, cash flow and financial
condition. For a discussion of legal proceedings see Item 3 below. Such lawsuits are expensive to defend, divert
management’s attention, and may result in significant judgments or settlements. Legal proceedings may expose us
to negative publicity, which could adversely affect our business reputation and customer preference for our products
and brands.
Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations
or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets
acquired. Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. As of June 3, 2017, we had $35.5 million of goodwill. While we
believe the current carrying value of this goodwill is not impaired, any future goodwill impairment charges could
materially adversely affect our results of operations in any particular period or our net worth.
The loss of any registered trademark or other intellectual property could enable other companies to compete
more effectively with us.
We utilize intellectual property in our business. For example, we own the trademarks Farmhouse®, Sunups®, Sunny
Meadow® and 4Grain®. We also produce and market Egg-Land’s Best® and Land O’ Lakes® under license
agreements with EB. We have invested a significant amount of money in establishing and promoting our trademarked
brands. The loss or expiration of any intellectual property could enable other companies to compete more effectively
with us by allowing our competitors to make and sell products substantially similar to those we offer. This could
negatively impact our ability to produce and sell the associated products, thereby adversely affecting our operations.
Extreme weather, natural disasters or other events beyond our control could negatively impact our business.
Fire, bioterrorism, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat,
hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed
ingredients, or interfere with our operations due to power outages, fuel shortages, discharges from overtopped or
breached wastewater treatment lagoons, damage to our production and processing facilities or disruption of
14
transportation channels, among other things. Any of these factors could have a material adverse effect on our financial
results.
Failure of our information technology systems or software, or a security breach of those systems, could
adversely affect our day-to-day operations and decision making processes and have an adverse effect on our
performance.
The efficient operation of our business depends on our information technology systems. We rely on our information
technology systems to effectively manage our business data, communications, logistics, accounting 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 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, viruses, ransomware, security breaches or cyber incidents such as intentional cyber-
attacks aimed at theft of sensitive data or inadvertent cyber-security compromises.
A security breach of such information could result in damage to our reputation and negatively impact our relations
with our customers or employees. Any such damage or interruption could have a material adverse effect on our
business.
We currently participate in several joint ventures and may participate in other joint ventures in the future. We
could be adversely affected if any of our joint venture partners are unable or unwilling to fulfill their
obligations or if we have disagreements with any of our joint venture partners that are not satisfactorily
resolved.
We currently have investments in and commitments to several joint ventures and we may participate in other joint
ventures in the future. Under existing joint venture agreements, we and our joint venture partners could be required
to, among other things, provide guarantees of obligations or contribute additional capital and we may have little or
no control over the amount or timing of these obligations. If our joint venture partners are unable or unwilling to
fulfill their obligations or if we have any unresolved disagreements with our joint venture partners, we may be
required to fulfill those obligations alone, expend additional resources to continue development of projects, or we
may be required to write down our investments at amounts that could be significant.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operate farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties located in
Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Ohio, Oklahoma,
South Carolina, Tennessee, Texas and Utah. As of June 3, 2017, the facilities included three breeding facilities, two
hatcheries, six wholesale distribution centers, 22 feed mills, 44 shell egg production facilities, 26 pullet growing
facilities, 42 processing and packing facilities, and one egg products facility. We also own a significant interest in a
company that owns an egg products facility, which is consolidated in our financial statements. Most of our operations
are conducted from properties we own.
As of June 3, 2017, we owned approximately 27,001 acres of land in various locations throughout our geographic
market area. We have the ability to hatch 21.2 million pullet chicks annually, grow 25.2 million pullets annually,
house 43.2 million laying hens, and control the production of 39.2 million layers, with the remainder controlled by
contract growers. We own mills that can produce 746 tons of feed per hour, and processing facilities capable of
processing 16,260 cases of shell eggs per hour (with each case containing 30 dozen shell eggs).
Over the past five fiscal years, our capital expenditures, excluding acquisitions of shell egg production and processing
facilities from others, have totaled an aggregate amount of approximately $310.5 million.
15
ITEM 3. LEGAL PROCEEDINGS
Egg Antitrust Litigation
Since September 25, 2008, the Company has been named as one of several defendants in numerous antitrust cases
involving the United States shell egg industry. In some of these cases, the named plaintiffs allege that they purchased
eggs or egg products directly from a defendant and have sued on behalf of themselves and a putative class of others
who claim to be similarly situated. In other cases, the named plaintiffs allege that they purchased shell eggs and egg
products directly from one or more of the defendants but sue only for their own alleged damages and not on behalf
of a putative class. In the remaining cases, the named plaintiffs are individuals or companies who allege that they
purchased shell eggs indirectly from one or more of the defendants - that is, they purchased from retailers that had
previously purchased from defendants or other parties - and have sued on behalf of themselves and a putative class
of others who claim to be similarly situated.
The Judicial Panel on Multidistrict Litigation consolidated all of the putative class actions (as well as certain other
cases in which the Company was not a named defendant) for pretrial proceedings in the United States District Court
for the Eastern District of Pennsylvania. The Pennsylvania court organized the putative class actions around two
groups (direct purchasers and indirect purchasers) and named interim lead counsel for the named plaintiffs in each
group.
The Direct Purchaser Putative Class Action. The direct purchaser putative class cases were consolidated into In re:
Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the
Eastern District of Pennsylvania. As previously reported, in November 2014, the Court approved the Company’s
settlement with the direct purchaser plaintiff class and entered final judgment dismissing with prejudice the class
members’ claims against the Company.
The Indirect Purchaser Putative Class Action. The indirect purchaser putative class cases were consolidated into In
re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the
Eastern District of Pennsylvania. On April 20-21, 2015, the Court held an evidentiary hearing on the indirect
purchaser plaintiffs’ motion for class certification. On September 18, 2015, the Court denied the indirect purchaser
plaintiffs’ motion for class certification of 21 separate classes seeking damages under the laws of 21 states, holding
that the plaintiffs were not able to prove that their purported method for ascertaining class membership was reliable
or administratively feasible, that common questions would predominate, or that their proposed class approach would
be manageable in a single trial. In addition to barring any right to pursue a class monetary remedy under state law,
the Court also denied indirect purchaser plaintiffs’ request for certification of an injunctive-relief class under federal
law. However, the court allowed the indirect purchaser plaintiffs to renew their motion for class certification seeking
a federal injunction. The plaintiffs filed their renewed motion to certify an injunctive-relief class on October 23,
2015. The Company joined the other defendants in opposing that motion on November 20. The plaintiffs filed their
reply memorandum on December 11, 2015, and on March 7, 2017, the Court heard arguments on the renewed motion
for injunctive class certification. On June 27, 2017, the Court denied plaintiffs’ renewed motion for injunctive class
certification. The plaintiffs also filed a petition with the United States Court of Appeals for the Third Circuit, asking
the court to hear an immediate appeal of the trial court’s denial of the motion to certify 21 state-law damages
classes. On December 3, 2015, the Third Circuit entered an order staying its consideration of the plaintiffs’ request
for an immediate appeal of the damages-class ruling pending the trial court’s resolution of the plaintiffs’ renewed
motion to certify an injunctive-relief class. On July 11, 2017 the plaintiffs filed a petition with the Third Circuit asking
the court to hear an appeal of the June 27 order denying plaintiffs’ renewed motion for injunctive class certification.
On July 21, 2017, the Company joined other defendants in a response filed with the Third Circuit opposing the
plaintiffs' petition.
The Non-Class Cases. Six of the cases in which plaintiffs do not seek to certify a class have been consolidated with
the putative class actions into In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the
United States District Court for the Eastern District of Pennsylvania. The court granted with prejudice the defendants’
renewed motion to dismiss the non-class plaintiffs’ claims for damages arising before September 24, 2004. On July
2, 2015, the Company filed and joined several motions for summary judgment that sought either dismissal of all of
the claims in all of these cases or, in the alternative, dismissal of portions of these cases. On July 2, 2015, the non-
16
class plaintiffs filed a motion for summary judgment seeking dismissal of certain affirmative defenses based on
statutory immunities from federal antitrust law. The Court heard oral argument on the motions for summary judgment
on February 22 and 23, 2016. On September 6, 2016, the Court granted the defendants’ motion for summary judgment
against the plaintiffs’ claims arising from their purchases of egg products, dismissing those claims with prejudice. On
September 9, 2016, the Court granted in part the Company’s motion for summary judgment on liability, dismissing
as a matter of law the plaintiffs’ allegations of a side agreement to cease construction of new facilities and ruling that
the plaintiffs’ allegations against United Egg Producers (UEP) animal-welfare guidelines must be evaluated at trial
under the rule of reason. On September 12, 2016, the Court granted in part the Company’s motion for summary
judgment on damages, ruling that plaintiffs cannot recover damages on purchases of eggs from non-defendants and
cannot recover any relief on eggs and egg products produced or sold in Arizona after October 1, 2009, the date that
Arizona mandated that all eggs sold or produced in that state must be produced in compliance with the 2008 version
of the UEP animal-welfare guidelines. On September 13, 2016, the Court granted in part the plaintiffs’ motion for
summary judgment as to the applicability of the Capper-Volstead defense, ruling that United States Egg Marketers
(an industry cooperative of which the Company is a member) may invoke the defense at trial but that UEP (another
industry cooperative of which the Company is a member) cannot. The Capper-Volstead defense is a defense pursuant
to the Capper-Volstead Act (the Co-operative Marketing Associations Act), enacted by Congress in 1922, which gives
certain associations of farmers certain exemptions from antitrust laws. On October 4, 2016, certain direct action
plaintiffs (Kraft Food Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company) filed an appeal
to the United States Court of Appeals for the Third Circuit from the District Court’s Order dated September 6, 2016,
granting defendants’ motion for summary judgment and dismissing with prejudice all claims based on the purchase
of egg products. These plaintiffs filed their opening brief on March 7, 2017. The defendants filed their response brief
on April 20. These plaintiffs filed their reply brief on May 18. The court of appeals heard oral argument on July 11,
2017, but has not issued a ruling. On November 22, 2016, the non-class plaintiffs filed a motion asking the Court to
hold a status conference and asking the court to set the non-class cases for trial in June of 2017. The parties in all of
the remaining class and non-class cases submitted several different proposed trial schedules to the court, and a status
conference was held on February 9, 2017. A trial date has not yet been set.
Allegations in Each Case. In all of the cases described above, the plaintiffs allege that the Company and certain other
large domestic egg producers conspired to reduce the domestic supply of eggs in a concerted effort to raise the price
of eggs to artificially high levels. In each case, plaintiffs allege that all defendants agreed to reduce the domestic
supply of eggs by: (a) agreeing to limit production; (b) manipulating egg exports; and (c) implementing industry-
wide animal welfare guidelines that reduced the number of hens and eggs.
The named plaintiffs in the remaining indirect purchaser putative class action seek treble damages under the statutes
and common-law of various states and injunctive relief under the Sherman Act on behalf of themselves and all other
putative class members in the United States. Although plaintiffs allege a class period starting in October, 2006 and
running “through the present,” the Court denied the plaintiffs’ motion to certify classes seeking damages under the
laws of 21 states and denied without prejudice the plaintiffs’ motion to certify an injunctive-relief class, although the
plaintiffs have filed a renewed motion to certify an injunctive-relief class, as discussed above.
Five of the original six non-class cases remain pending against the Company. The principal plaintiffs in these cases
are: The Kroger Co.; Publix Super Markets, Inc.; SUPERVALU, Inc.; Safeway, Inc.; Albertsons LLC; H.E. Butt
Grocery Co.; The Great Atlantic & Pacific Tea Company, Inc.; Walgreen Co.; Hy-Vee, Inc.; and Giant Eagle, Inc. In
four of these remaining non-class cases, the plaintiffs seek treble damages and injunctive relief under the Sherman
Act. In one of those four cases, the plaintiffs purchased only egg products, and as noted above, the Court dismissed
with prejudice all claims arising from the purchase of egg products. On October 4, 2016, the four plaintiffs in that
case (Kraft Food Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company) appealed that
decision to the United States Court of Appeals for the Third Circuit. In the fifth remaining non-class case, the plaintiff
seeks treble damages and injunctive relief under the Sherman Act and the Ohio antitrust act (known as the Valentine
Act).
The Pennsylvania court has entered a series of orders related to case management, discovery, class certification,
summary judgment, and scheduling. The Court has also denied all four motions that the plaintiffs filed to exclude
testimony from certain expert witnesses retained by the defendants. The Pennsylvania court has not set a trial date for
any of the Company’s remaining consolidated cases (non-class and indirect purchaser cases). As noted above, the
court held a hearing on the parties’ proposed trial schedules but has not yet set a trial date.
17
The Company intends to continue to defend the remaining cases as vigorously as possible based on defenses which
the Company believes are meritorious and provable. While management believes that the likelihood of a material
adverse outcome in the overall egg antitrust litigation has been significantly reduced as a result of the settlements and
rulings described above, there is still a reasonable possibility of a material adverse outcome in the remaining egg
antitrust litigation. At the present time, however, it is not possible to estimate the amount of monetary exposure, if
any, to the Company because of these cases. Accordingly, adjustments, if any, which might result from the resolution
of these remaining legal matters, have not been reflected in the financial statements.
State of Oklahoma Watershed Pollution Litigation
On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of
Oklahoma, against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and
its affiliate, George’s, Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. The State of Oklahoma
claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This
watershed provides water to eastern Oklahoma. The complaint seeks injunctive relief and monetary damages, but the
claim for monetary damages has been dismissed by the court. Cal-Maine Foods, Inc. discontinued operations in the
watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request
for injunctive relief unless the court orders substantial affirmative remediation. Since the litigation began, Cal-Maine
Foods, Inc. purchased 100% of the membership interests of Benton County Foods, LLC, which is an ongoing
commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in
the litigation.
The trial in the case began in September 2009 and concluded in February 2010. The case was tried to the court without
a jury and the court has not yet issued its ruling. Management believes the risk of material loss related to this matter
to be remote.
Florida Civil Investigative Demand
On November 4, 2008, the Company received an antitrust civil investigative demand from the Attorney General of
the State of Florida. The demand seeks production of documents and responses to interrogatories relating to the
production and sale of eggs and egg products. The Company is cooperating with this investigation and has, on three
occasions, entered into an agreement with the State of Florida tolling the statute of limitations applicable to any
supposed claims the State is investigating. No allegations of wrongdoing have been made against the Company in
this matter.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business.
Although the outcome of these matters cannot be determined with certainty, management, upon the advice of counsel,
is of the opinion that the final outcome should not have a material effect on the Company’s consolidated results of
operations or financial position.
At this time, it is not possible for us to predict the ultimate outcome of the matters set forth above.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
18
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock is traded on the NASDAQ Global Select Market under the symbol “CALM”. The closing price
for our Common Stock on July 17, 2017 was $35.55 per share. The following table sets forth the high and low daily
sales prices and dividends per share for each of the four quarters of fiscal 2016 and fiscal 2017.
Fiscal Year
Ended
May 28, 2016
June 3, 2017
Fiscal Quarter
High
Low
Dividends (1)
Sales Price
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 57.94 $ 44.13 $
63.25
56.50
55.43
50.27
44.94
44.65
$ 45.75 $ 40.11 $
46.15
45.45
41.25
36.50
37.95
36.35
0.983
0.751
0.441
—
—
—
—
—
(1) Represents dividends paid with respect to such quarter, after the end of the quarter. See “Dividends” below.
There is no public trading market for the Class A Common Stock. All outstanding Class A shares are owned by Fred
R. Adams, Jr., our Founder and Chairman Emeritus, his son-in-law Adolphus Baker, and their spouses. For additional
information about our capital stock, see Note 14 to the Notes to Consolidated Financial Statements in this report.
Issuer Purchases of Equity Securities
There were no purchases of our Common Stock made by or on behalf of our company or any affiliated purchaser
during our fiscal 2017 fourth quarter.
19
Stock Performance Graph
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested
basis, for the Company, the NASDAQ Composite Total Return, and the NASDAQ 100 Total Return for the five years
ended June 3, 2017. As the only publicly held company in the shell egg business, the Company uses the NASDAQ
100 Total Return index in lieu of a published industry index or peer group. The graph assumes $100 was invested on
June 2, 2012 in the stock or index. Each date plotted indicates the last day of a fiscal quarter.
Stockholders
At July 17, 2017, there were approximately 333 record holders of our Common Stock and approximately 47,927
beneficial owners whose shares were held by nominees or broker dealers.
Dividends
Cal-Maine has a dividend policy adopted by its Board of Directors. Pursuant to the policy, Cal-Maine pays a dividend
to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the
Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with generally accepted
accounting principles in an amount equal to one-third (1/3) of such quarterly income. Dividends are paid to
shareholders of record as of the 60th day following the last day of such quarter, except for the fourth fiscal quarter. For
the fourth quarter, the Company will pay dividends to shareholders of record on the 65th day after the quarter end.
Dividends are payable on the 15th day following the record date. Following a quarter for which the Company does
not report net income attributable to Cal-Maine Foods, Inc., the Company will not pay a dividend for a subsequent
profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter
for which a dividend was paid. At June 3, 2017, cumulative losses that must be recovered prior to paying a dividend
were $74.7 million. The Company’s loan agreements provide that unless otherwise approved by its lenders, the
20
Company must limit dividends paid in any quarter to not exceed an amount equal to one-third of the previous quarter’s
consolidated net income, which dividends are allowed to be paid if there are no events of default.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended
June 3, 2017.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
— $
—
— $
—
—
—
503,242
—
503,242
(a) There were no outstanding options, warrants or rights as of June 3, 2017. There were 247,735 shares of
restricted stock outstanding under our 2012 Omnibus Long-Term Incentive Plan as of June 3, 2017.
(b) There were no outstanding options, warrants or rights as of June 3, 2017.
(c) Shares available for future issuance as of June 3, 2017 under our 2012 Omnibus Long-Term Incentive
Plan.
For additional information, see Note 11 to Notes to the Consolidated Financial Statements.
21
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data (in thousands, except
per share data)
June 3,
2017 ^
May 28,
2016
May 30,
2015
May 31,
2014 *
June 1,
2013 †
Fiscal Years Ended
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Loss (gain) on disposal of fixed assets
Legal settlement expense
Operating income (loss)
Other income (expense):
Interest income (expense), net
Equity in income of affiliates
Patronage dividends
Other, net
Total other income
Income (loss) before income tax and noncontrolling
interest
Income tax expense (benefit)
Net income (loss) including noncontrolling interest
Less: Net income (loss) attributable to noncontrolling
interest
Net income (loss) attributable to Cal-Maine Foods, Inc.
Net income (loss) per common share:
Basic
Diluted
Cash dividends per common share
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet Data (in thousands)
Working capital
Total assets
Total debt (including current maturities)
Total stockholders’ equity
$
53 wks
1,074,513 $
1,028,963
52 wks
1,908,650 $
1,260,576
45,550
173,980
3,664
—
648,074
177,760
(1,563)
—
(132,094)
471,877
2,785
1,390
7,665
5,960
3,158
5,016
6,930
268
17,800
15,372
(114,294)
(39,867)
(74,427)
487,249
169,202
318,047
52 wks
1,576,128 $
1,180,407
395,721
160,386
568
—
234,767
(515)
2,657
6,893
2,747
11,782
246,549
84,268
162,281
(149)
2,006
(74,278) $
316,041 $
1,027
161,254 $
52 wks
1,440,907 $
1,138,143
52 wks
1,288,104
1,073,555
302,764
156,712
651
—
145,401
(2,656)
3,512
6,139
9,446
16,441
161,842
52,035
109,807
600
214,549
126,956
1,496
28,000
58,097
(3,906)
3,480
14,300
3,597
17,471
75,568
24,807
50,761
338
109,207 $
50,423
$
$
$
$
(1.54) $
(1.54) $
— $
6.56 $
6.53 $
2.18 $
3.35 $
3.33 $
1.11 $
2.27 $
2.26 $
0.73 $
48,362
48,362
48,195
48,365
48,136
48,437
48,095
48,297
$
371,527 $
542,832 $
1,033,094
1,111,765
10,939
844,493
25,570
917,361
407,418 $
928,653
50,860
704,562
354,743 $
811,661
61,093
594,745
Operating Data:
Total number of layers at period-end (thousands)
Total shell eggs sold (millions of dozens)
36,086
1,031.1
33,922
1,053.6
33,696
1,063.1
32,372
1,013.7
1.05
1.05
0.38
47,967
48,088
304,681
745,627
65,020
518,044
30,967
948.5
^ Results for fiscal 2017 include the results of operations (subsequent to acquisition) of the commerical egg assets acquired from Foodonics
International, Inc., which were consolidated with our operations as of October 16, 2016, and the commercial egg assets of Happy Hen Egg Farms,
Inc., which were consolidated with our operations as of February 19, 2017.
* Results for fiscal 2014 include the results of operations (subsequent to acquisition) of our joint venture partner’s 50% interest in Delta Egg Farm,
LLC, which was consolidated with our operations as of March 1, 2014. Prior to March 1, 2014, our equity in earnings in Delta Egg Farm, LLC are
included in Equity in income of affiliates.
† Results for fiscal 2013 include the results of operations (subsequent to acquisition) of the commercial egg assets acquired from Pilgrim’s Pride
Corporation, which were consolidated with our operations as of August 10, 2012, and the commercial egg assets from Maxim Production Co., Inc.,
which were consolidated with our operations as of November 15, 2012.
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS; FORWARD-LOOKING STATEMENTS
For information relating to important risks and uncertainties that could materially adversely affect our business,
securities, financial condition or operating results, reference is made to the disclosure set forth under Item 1A above
under the caption “Risk Factors.” In addition, because the following discussion includes numerous forward-looking
statements relating to us, our results of operations, financial condition and business, reference is made to the
information set forth in the section of Part I immediately preceding Item 1 above under the caption “Forward-Looking
Statements.”
OVERVIEW
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is primarily engaged in the production, grading,
packaging, marketing and distribution of fresh shell eggs. Our fiscal year end is the Saturday nearest to May 31 which
was June 3, 2017 (53 weeks), May 28, 2016 (52 weeks), and May 30, 2015 (52 weeks) for the most recent three fiscal
years.
Our operations are fully integrated. We hatch chicks, grow and maintain flocks of pullets (female chickens, under 18
weeks of age), layers (mature female chickens) and breeders (male and female birds used to produce fertile eggs to
be hatched for egg production flocks), manufacture feed, and produce, process and distribute shell eggs. We are the
largest producer and marketer of shell eggs in the U.S. We market the majority of our shell eggs in the southwestern,
southeastern, mid-western, and mid-Atlantic regions of the U.S. We market shell eggs through our extensive
distribution network to a diverse group of customers, including national and regional grocery store chains, club stores,
foodservice distributors, and egg product consumers.
Our operating results are directly tied to egg prices, which are highly volatile and subject to wide fluctuations, and
are outside of our control. For example, the annual average Urner-Barry Southeastern Regional Large Egg Market
Price per dozen eggs, for our fiscal 2005-2017 ranged from a low of $0.72 during fiscal 2005 to a high of $2.97 during
fiscal 2016. The shell egg industry has traditionally been subject to periods of high profitability followed by periods
of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number
of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell
egg prices until supply and demand returned to balance. As a result, our financial results from year to year may vary
significantly. Shorter term, retail sales of shell eggs historically have been greatest during the fall and winter months
and lowest during the summer months. Our need for working capital generally is highest in the last and first fiscal
quarters ending in May and August, respectively, when egg prices are normally at seasonal lows. Prices for shell
eggs fluctuate in response to seasonal factors and a natural increase in shell egg production in the spring and early
summer. Shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods,
particularly Thanksgiving, Christmas, and Easter. Consequently, we generally experience lower sales and net income
in our first and fourth fiscal quarters ending in August and May, respectively. Because of the seasonal and quarterly
fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are
not necessarily meaningful comparisons.
From April through June 2015, our industry experienced a significant avian influenza (“AI”) outbreak, primarily in
the upper Midwestern U.S. There were no positive tests for AI at any of our locations. Based on several published
industry estimates, we believe approximately 12% of the national flock of laying hens was affected. During April
through June 2015, the affected laying hens were either destroyed by the disease or euthanized. The USDA data
showed the supply of laying hens decreased substantially. Since that time, it began to recover and eventually exceed
pre-AI levels by late 2016. In February 2017, the USDA issued revised data that showed the size of the laying hen
flock for calendar years 2015 and 2016 was meaningfully higher in both years than previously reported.
23
Egg prices increased significantly during the summer and fall of 2015. The average Urner-Barry Thursday prices for
the large market (i.e. generic shell eggs) in the southeastern region for the months of June through November 2015
was $2.32 per dozen, with a peak of $2.97 in August. Subsequent to November 2015, shell egg prices declined. The
Urner Barry price index ("UB index") hit a decade-low level in our fiscal 2016 fourth quarter. During our first quarter
of fiscal 2017 it increased slightly, but remained at significantly lower levels than the corresponding period of last
year. During our fiscal 2017 second quarter, the UB index returned to and dropped below the low levels seen during
the fiscal 2016 fourth quarter. Early in our fiscal 2017 third quarter we saw a significant increase, but prices dropped
after Christmas. During our fiscal 2017 fourth quarter, the UB index dropped again and approached the record low
levels of the fiscal 2017 second quarter.
According to Nielsen data, retail customer demand for shell eggs has remained strong. The USDA reports that egg
export demand has improved since the beginning of fiscal 2017; however, it has still not fully recovered from levels
prior to the AI outbreak. Additionally, the industry experienced reduced demand for egg products, as many
commercial customers reformulated their products to use fewer eggs when prices spiked and have been slow to
resume previous egg usage. Together with the increased supply of laying hens, these factors have created an
oversupply of eggs, with continued pressure on market prices. Accordingly, our net average selling price per dozen
shell eggs for fiscal 2017 was $1.007 compared to $1.735 for fiscal 2016. Recent USDA reports show the chick hatch
has been trending down, suggesting there may be a moderation in the size of the laying hen flock as the year
progresses. We expect the egg markets to remain under pressure and we do not expect meaningful price improvement
until there is a better balance of supply and demand.
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S. For accounting
purposes, we classify nutritionally enhanced, cage-free, organic and brown eggs as specialty shell eggs. They have
been a significant and growing segment of the market in recent years. During our fiscal 2016 an increasing number
of large restaurant chains, food service companies and grocery chains, including our largest customers, announced
goals to transition to a cage-free egg supply chain by specified future dates. We are working with our customers to
achieve smooth progress in meeting their goals. Our focus for future expansion at our farms will be environments
that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline to meet our
customer’s needs.
For fiscal 2017, we produced approximately 84% of the total number of shell eggs sold by us, with approximately
8% of such shell egg production provided by contract producers. Contract producers utilize their facilities to produce
shell eggs from layers owned by us. We own the shell eggs produced under these arrangements. For fiscal 2017,
approximately 16% of the total number of shell eggs sold by us were purchased from outside producers for resale.
Our cost of production is materially affected by feed costs, which are highly volatile and subject to wide
fluctuation. For fiscal 2017, feed costs averaged about 58% of our total farm egg production cost. Changes in market
prices for corn and soybean meal, the primary ingredients in the feed we use, result in changes in our cost of goods
sold. For our last five fiscal years, average feed cost per dozen sold ranged from a low of $0.40 in fiscal 2017 to a
high of $0.54 in fiscal 2013. The cost of our primary feed ingredients, which are commodities, are subject to factors
over which we have little or no control such as volatile price changes caused by weather, size of harvest, transportation
and storage costs, demand and the agricultural and energy policies of the U.S. and foreign governments. Subsequent
to our fiscal year end, grain prices have increased and we expect this volatility to continue in fiscal 2018. In spite of
this volatility, we expect to have an adequate supply of our primary feed ingredients in fiscal 2018.
During the second quarter of fiscal 2017, the Company acquired substantially all of the egg production assets and
assumed certain liabilities of Foodonics International, Inc. and its related entities doing business as Dixie Egg
Company (collectively, "Foodonics") for $68.6 million of cash and $3.0 million of deferred purchase price. The
acquired assets include commercial egg production and processing facilities with capacity for 1.6 million laying hens,
contract grower arrangements for an additional 1.5 million laying hens, and related feed production, and distribution
facilities in Georgia, Alabama, and Florida. The Company acquired Foodonics' interest in American Egg Products,
LLC ("AEP") and the Eggland's Best franchise with licensing rights for certain markets in Alabama, Florida, and
Georgia as well as Puerto Rico, Bahamas and Cuba. The Company now owns 100% of AEP. The acquired operations
of Foodonics are included in the accompanying financial statements as of October 16, 2016.
24
During the third quarter of fiscal 2017, the Company acquired substantially all of the egg production, processing and
distribution assets of Happy Hen Egg Farms, Inc. and its affiliates (collectively, "Happy Hen") for $17.2 million. The
assets include commercial egg production and processing facilities with current capacity for 350,000 laying hens and
related distribution facilities located near Harwood and Wharton, Texas. The site is designed for capacity of up to
1.2 million laying hens. The operations of Happy Hen are included in the accompanying financial statements as of
February 19, 2017. The Company closed this acquisition on March 3, 2017.
We effected a 2-for-1 stock split for shares of our common stock and Class A common stock in October 2014, and all
per share amounts in this report have been adjusted as necessary to reflect the split.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain items from our consolidated statements of
operations expressed as a percentage of net sales.
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Loss (gain) on disposal of fixed assets
Operating income (loss)
Other income
Income (loss) before income taxes and noncontrolling interest
Income tax expense (benefit)
Net income (loss) including noncontrolling interest
Less: Net income (loss) attributable to noncontrolling interest
June 3, 2017 May 28, 2016 May 30, 2015
100.0%
74.9%
25.1%
10.2%
—%
14.9%
0.7%
15.6%
5.3%
10.3%
0.1%
100.0 %
66.0 %
34.0 %
9.3 %
(0.1)%
24.8 %
0.8 %
25.6 %
8.9 %
16.7 %
0.1 %
100.0 %
95.8 %
4.2 %
16.2 %
0.3 %
(12.3)%
1.7 %
(10.6)%
(3.7)%
(6.9)%
— %
Net income (loss) attributable to Cal-Maine Foods, Inc.
(6.9)%
16.6 %
10.2%
Executive Overview of Results – June 3, 2017, May 28, 2016, and May 30, 2015
Our operating results are significantly affected by wholesale shell egg market prices and feed costs, which can
fluctuate widely and are outside of our control. The majority of our shell eggs are sold at prices related to the Urner
Barry Spot Egg Market Quotations for the southeastern and southcentral regions of the country, or formulas related
to our costs of production which include the cost of corn and soybean meal. The following table shows our net
income (loss), net average shell egg selling price, feed cost per dozen produced, and the average Urner Barry
wholesale large shell egg prices in the southeast region, for each of our three most recent fiscal years.
Fiscal Year ended
June 3, 2017
May 28, 2016 May 30, 2015
Net income (loss) attributable to Cal-Maine Foods, Inc. -
(in thousands)
Gross profit (in thousands)
Net average shell egg selling price (rounded)
Average Urner Barry Spot Egg Market Quotations1
Feed cost per dozen produced
$
(74,278) $
45,550
1.01
0.85
0.399
$
316,041
648,074
1.74
1.79
0.414
161,254
395,721
1.43
1.53
0.439
1- Average Thursday price for the large market (i.e. generic shell eggs) in the southeastern region
The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant
loss. The periods of high profitability have often reflected increased consumer demand relative to supply while the
periods of significant loss have often reflected excess supply for the then prevailing consumer demand. Historically,
demand for shell eggs increases in line with overall population growth. As reflected above, our operating results
fluctuate with changes in the spot egg market quote and feed costs. The net average shell egg selling price is the
25
blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and
undergrades. In fiscal 2015 and 2016, our net average net selling price increased, reflecting strong demand for shell
eggs across our markets as well as supply constraints resulting from the outbreak of avian influenza ("AI"), and feed
costs decreased over the previous year. In fiscal 2017, our net average selling price and dozens sold decreased over
the previous year primarily due to oversupply of eggs resulting from the repopulation of the national flock of laying
hens to levels exceeding the pre-AI flock and a reduced demand for egg products. In fiscal 2017, feed costs continued
to decrease over prior years. Gross profit and net income for fiscal 2017 decreased significantly compared to the
prior year, primarily due to decreased selling prices.
Fiscal Year Ended June 3, 2017 Compared to Fiscal Year Ended May 28, 2016
NET SALES
In fiscal 2017, approximately 98% of our net sales consisted of shell eggs and approximately 2% was egg
products. Net sales for the fiscal year ended June 3, 2017 were $1,074.5 million, a decrease of $834.2 million, or
43.7%, from net sales of $1,908.7 million for fiscal 2016. In fiscal 2017 total dozens of eggs sold decreased and egg
selling prices decreased as compared to fiscal 2016. In fiscal 2017 total dozens of shell eggs sold were 1,031.1 million,
a decrease of 22.5 million dozen, or 2.1%, compared to 1,053.6 million sold in fiscal 2016 resulting in a decrease in
net sales of $22.6 million for fiscal 2017 compared with the prior year. We believe the decrease was primarily due to
an oversupply of eggs in fiscal 2017 contrasted with fiscal 2016 in which we experienced supply constraints resulting
from the AI outbreak. Our average selling price of shell eggs decreased from $1.735 per dozen for fiscal 2016 to
$1.007 per dozen for fiscal 2017, a decrease of $0.728 per dozen, or 42.0%, primarily reflecting pressure on market
prices induced by the oversupply of eggs compared with the prior year in which we experienced higher egg prices
resulting from the AI outbreak. The decrease in sales price in fiscal 2017 from fiscal 2016 resulted in a corresponding
decrease in net sales of approximately $750.7 million. The remainder of our decrease in net sales was the result of
decreased sales of egg products which is discussed later in this section. Our operating results are significantly affected
by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels
can have a large effect on shell egg prices.
26
The table below represents an analysis of our non-specialty and specialty, as well as co-pack specialty, shell egg
sales. Following the table is a discussion of the information presented in the table.
Fiscal Years Ended
Quarters Ended
(53 weeks)
June 3, 2017
(52 weeks)
(14 weeks)
(13 Weeks)
May 28, 2016
June 3, 2017
May 28, 2016
Total net sales
$ 1,074,513
$ 1,908,650
(Amounts in thousands)
(Amounts in thousands)
$ 303,020
$ 274,584
1.0%
3.1%
43.6%
49,282
534,754
457,617
548,858
52.3% 1,243,377
32,689
10,423
Non-specialty shell
egg sales
Specialty shell egg
sales
Co-pack specialty
shell egg sales
Other sales
10,533
Net shell egg sales $ 1,049,587 100.0% $ 1,837,946
Net shell egg sales
as a percent of total
net sales
Dozens sold:
Non-specialty shell
egg
Specialty shell egg
Co-pack specialty
shell egg
Total dozens sold
20,936
1.6%
1,031,130 100.0% 1,053,597
778,538
236,067
241,603
791,058
16,525
22.9%
75.5%
98%
67.7% 145,454
54.3%
163,882
55.6%
29.1% 112,744
42.0%
118,356
40.2%
2.7%
0.5%
7,198
2,594
2.7%
1.0%
9,021
3,245
3.1%
1.1%
100.0% $ 267,990
100.0% $ 294,504
100.0%
96%
98%
97%
75.1% 207,428
76.0%
189,850
22.9%
61,862
22.7%
58,856
75.0%
23.3%
2.0%
3,725
1.3%
4,371
1.7%
100.0% 273,015
100.0%
253,077
100.0%
Net average selling
price per dozen:
All shell eggs
Non-specialty shell
eggs
$
$
1.007
0.705
Specialty shell eggs $
1.939
$
$
$
1.735
1.572
2.213
$
$
$
0.973
$
1.152
0.701
$
0.863
1.823
$
2.011
Non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell
egg sales. This market is characterized generally by an inelasticity of demand, and small increases in production or
decreases in demand can have a large adverse effect on prices and vice-versa. In fiscal 2017, non-specialty shell eggs
represented approximately 52.3% of our shell egg revenue, compared to 67.7% for fiscal 2016, reflecting the large
decrease in net average selling price for non-specialty eggs from $1.572 per dozen in fiscal 2016 to $0.705 per dozen
in fiscal 2017. Sales of non-specialty shell eggs accounted for approximately 75.5% and 75.1% of total shell egg
volumes in fiscal 2017 and 2016, respectively.
For the fourteen-week period ended June 3, 2017, non-specialty shell eggs represented approximately 54.3% of our
shell egg revenue, compared to 55.6% for the thirteen-week period ended May 28, 2016, reflecting the large decrease
in net average selling price for non-specialty eggs during the current period compared to the same period of last year
($0.701 per dozen in the 2017 period compared to $0.863 per dozen in the 2016 period) partially offset by an increase
in non-specialty dozens sold. For the fourteen-week period ended June 3, 2017, non-specialty shell eggs accounted
for approximately 76.0% of the total shell egg volume, compared to 75.0% for the thirteen-week period ended May
27
28, 2016. The volume increase for both non-specialty and specialty shell eggs for the fiscal 2017 fourth quarter
reflected the extra week of production in the period.
Specialty eggs, which include nutritionally enhanced, cage-free, organic and brown eggs, continued to make up a
significant portion of our total shell egg revenue and dozens sold in fiscal 2017. For fiscal 2017, specialty eggs
accounted for 43.6% of shell egg revenue, compared to 29.1% in fiscal 2016. Specialty eggs accounted for 22.9% of
shell egg volume in both fiscal 2017 and fiscal 2016. Additionally, for fiscal 2017, specialty eggs sold through co-
pack arrangements accounted for 3.1% of shell egg revenue, compared to 2.7% in fiscal 2016, and 1.6% of shell egg
volume in fiscal 2017 compared to 2.0% in fiscal 2016. Our net average selling price for specialty eggs was $1.939
per dozen for fiscal 2017 compared to $2.213 per dozen for fiscal 2016. Specialty egg retail prices are less cyclical
than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the perceived
increased benefits from these products. This effect was particularly evident in recent quarters as non-specialty egg
prices declined more than specialty egg prices. However, as non-specialty egg prices declined, we experienced some
margin and volume pressures on specialty egg sales.
For the fourteen-week period ended June 3, 2017, specialty shell eggs and specialty shell eggs sold through co-pack
arrangements represented approximately 42.0% and 2.7%, of our shell egg revenue, compared to 40.2% and 3.1%,
respectively, for the thirteen-week period ended May 28, 2016. As previously discussed, selling prices for non-
specialty eggs were lower during the current fiscal 2017 fourth quarter resulting in a larger percentage of our shell
egg sales being attributable to the less cyclical specialty shell eggs. For the fourteen-week period ended June 3, 2017,
specialty shell eggs and specialty shell eggs sold through co-pack arrangements accounted for approximately 22.7%
and 1.3% of the total shell egg volume, compared to 23.3% and 1.7%, respectively, for the thirteen-week period ended
May 28, 2016. Our net average selling price for specialty eggs was $1.823 per dozen for the fiscal 2017 fourth quarter
compared to $2.011 per dozen for the fiscal 2016 fourth quarter.
As previously disclosed, the loss of a portion of a major customer's co-pack business in the fourth quarter of fiscal
2016 also had a negative impact on our fiscal 2017 dozens sold and revenue.
The shell egg sales classified as “Other sales” represent hard cooked eggs, hatching eggs, other egg products, hens,
and manure, which are included with our shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. Our egg products are sold
through our wholly-owned subsidiary American Egg Products, LLC (“AEP”) and our consolidated subsidiary Texas
Egg Products, LLC (“TEP”). For fiscal 2017 egg product sales were $24.9 million, a decrease of $45.8 million, or
64.7%, compared to $70.7 million for fiscal 2016. Egg products volume for fiscal 2017 was 65.3 million pounds, an
increase of 6.8 million pounds, or 11.6%, compared to 58.5 million pounds for fiscal 2016. In fiscal 2017, the selling
price per pound was $0.382 compared to $1.213 for fiscal 2016, a decrease of 68.5%. The decrease in market prices
for egg products in the current fiscal year is due to reduced demand for egg products and extraordinarily high prices
for the prior fiscal year which reflected the shortage of supply caused by AI.
28
COST OF SALES
Cost of sales consists of costs directly related to producing, processing and packing shell eggs, purchases of shell
eggs from outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm
production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and
other related farm production costs. The following table presents the key variables affecting our cost of sales:
(Amounts in thousands)
Cost of sales:
Farm production
Processing and packaging
Outside egg purchases and other
Total shell eggs
Egg products
Other
Total
Farm production cost (per dozen
produced)
Feed
Other
Total
Fiscal Year Ended
Quarter Ended
(53 weeks)
June 3,
2017
(52 weeks)
May 28,
2016
(14 weeks) (13 weeks)
May 28,
2016
June 3,
2017
Percent
Change
$ 598,412 $ 562,521
184,586
464,008
202,225
207,495
1,008,132
19,766
1,065
1,211,115
48,584
877
$ 1,028,963 $ 1,260,576
6.4 % $ 159,482 $ 135,187
54,896
45,089
9.6 %
41,663
75,311
(55.3)%
256,041
6,075
462
255,587
(16.8)%
6,473
(59.3)%
21.4 %
280
(18.4)% $ 262,578 $ 262,340
Percent
Change
18.0 %
21.8 %
(44.7)%
0.2 %
(6.1)%
65.0 %
0.1 %
$
0.399 $
0.294
$
0.693 $
0.414
0.279
0.693
(3.6)% $
5.4 %
— % $
0.381 $
0.298
0.679 $
0.396
0.290
0.686
(3.8)%
2.8 %
(1.0)%
Outside egg purchases (average cost
per dozen)
$
1.01 $
1.72
(41.3)% $
0.90
$
1.11
(18.9)%
Dozen produced
Dozen sold
870,252
1,031,130
819,307
1,053,597
6.2 %
(2.1)%
237,006
273,015
198,950
253,077
19.1 %
7.9 %
Cost of sales for the fiscal year ended June 3, 2017 was $1,029.0 million, a decrease of $231.6 million, or 18.4%,
compared to 1,260.6 million for fiscal 2016. Comparing fiscal 2017 to fiscal 2016, average cost per dozen purchased
from outside shell egg producers and cost of feed ingredients decreased while dozens produced increased. For the
2017 fiscal year we produced 84.4% of the eggs sold by us, as compared to 77.8% for the previous year. The increase
is the result of our acquisitions and expansion projects completed at our existing facilties. Feed cost for fiscal 2017
was $0.399 per dozen, compared to 0.414 per dozen for the prior fiscal year, a decrease of 3.6%. The decrease in
feed cost per dozen resulted in a decrease in cost of sales of $13.1 million for fiscal 2017 compared with fiscal 2016.
For the fourteen weeks ended June 3, 2017, compared to the thirteen weeks ended May 28, 2016, cost of sales
increased $238,000, or 0.1%, from $262.3 million in the fourth quarter of fiscal 2016, to $262.6 million in the current
period. Feed cost per dozen for the fourth quarter of fiscal 2017 was $0.381, compared to $0.396 for the same quarter
of fiscal 2016, a decrease of 3.8%.
Gross profit, as a percentage of net sales, was 4.2% for fiscal 2017, compared to 34.0% for fiscal 2016. The decline
resulted primarily from lower selling prices.
29
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
(Amounts in thousands)
Specialty egg
Delivery expense
Payroll and overhead
Stock compensation
Other expenses
Total
53 Weeks
June 3, 2017
Fiscal Years Ended
52 Weeks
May 28, 2016
Change
$
$
56,522 $
53,282
35,101
3,427
25,648
173,980 $
61,294 $
49,629
39,149
3,018
24,670
177,760 $
(4,772)
3,653
(4,048)
409
978
(3,780)
Change
(7.8)%
7.4 %
(10.3)%
13.6 %
4.0 %
(2.1)%
Selling, general and administrative expenses ("SG&A"), which include costs of marketing, distribution, accounting
and corporate overhead, were $174.0 million in fiscal 2017, a decrease of $3.8 million, or 2.1%, compared to $177.8
million for fiscal 2016. As a percent of net sales, selling, general and administrative expense increased from 9.3% in
fiscal 2016 to 16.2% in fiscal 2017, due to the reduction of net sales in fiscal 2017.
The impact of the fiscal 2017 acquisitions was an $8.1 million increase in SG&A compared to fiscal 2016. The
decrease in specialty egg expense for fiscal 2017 compared to fiscal 2016 is attributable to a 2.3% decrease in specialty
shell egg dozens sold resulting in a decrease in advertising promotions and franchise expense. Payroll and overhead
decreased $4.0 million, or 10.3%, compared to the same period of last year primarily due to increased bonuses in the
2016 fiscal year and decreased bonuses in fiscal 2017, partially offset by fiscal 2017 having one more week than
fiscal 2016. As a percentage of net sales, payroll and overhead is 3.3% and 2.1% for fiscal 2017 and 2016,
respectively. As a percentage of net sales, delivery expense is 5.0% and 2.6% for fiscal 2017 and 2016, respectively,
increasing due to the reduced net sales in the current fiscal year as well as a 4.1% increase due to the impact of the
acquisitions.
(Amounts in thousands)
Specialty egg
Delivery expense
Payroll and overhead
Stock compensation
Other expenses
Total
14 Weeks
June 3, 2017
Quarters Ended
13 Weeks
May 28, 2016
Change
Change
$
$
14,364 $
13,712
11,156
947
7,816
47,995 $
13,768 $
11,945
9,450
843
6,398
42,404 $
596
1,767
1,706
104
1,418
5,591
4.3%
14.8%
18.1%
12.3%
22.2%
13.2%
SG&A expense was $48.0 million for the fourteen weeks ended June 3, 2017, an increase of $5.6 million, or 13.2%,
compared to $42.4 million for the thirteen weeks ended May 28, 2016. The increase in specialty egg expense for the
fiscal 2017 fourth quarter is attributable to a 5.1% increase in specialty egg dozens sold due to the extra week in the
current fiscal quarter resulting in an increase in advertising promotions and franchise expense. Payroll and overhead
increased $1.7 million, or 18.1%, compared to the same period of last year due to the Foodonics and Happy Hen
acquisitions as well as the extra week in the fiscal 2017 fourth quarter, partially offset by reduced bonus accruals in
2017. Delivery expense increased $1.8 million for the fourteen weeks ended June 3, 2017 compared to the
corresponding thirteen week period ended May 28, 2016, primarily due to the Foodonics acquisition. Other expenses
for the fourteen weeks ended June 3, 2017 are up $1.4 million, or 22.2%, compared to the corresponding thirteen
week period ended May 28, 2016, primarily due to an extra week in the current period, an increase in legal and audit
fees in the current period, and the impact of the acquisitions.
30
LOSS (GAIN) ON DISPOSAL OF FIXED ASSETS
In fiscal 2017, we recorded a $3.7 million loss due to the retirement of layer houses at certain locations. In fiscal
2016 we recorded a gain on disposal of fixed assets of $1.6 million primarily due to the sale of property in
Albuquerque, New Mexico.
OPERATING INCOME (LOSS)
As a result of the above, our operating loss was $132.1 million for fiscal 2017, compared to operating income of
$471.9 million for fiscal 2016.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of income (expenses) not directly charged to, or related to, operations such as
interest expense, interest income, patronage dividends, and equity in earnings of affiliates, among other items. Total
other income for fiscal 2017 was $17.8 million compared to $15.4 million for fiscal 2016. As a percent of net sales,
total other income was 1.7% for fiscal 2017, compared to 0.8% for fiscal 2016.
The Company recorded interest income of $3.1 million in fiscal 2017, compared to $4.3 million for the same period
of last year. We recorded interest expense of $1.4 million and $2.3 million, of which $1.1 million was capitalized in
both fiscal 2017 and 2016. Interest income from available for sale securities decreased due to lower average invested
balances. The reduction of interest expense resulted from lower levels of outstanding debt.
Patronage dividends, which represent distributions from our membership in Eggland's Best, Inc., increased $735,000
from $6.9 million in fiscal 2016 to $7.7 million in fiscal 2017.
Equity in income of affiliates for fiscal 2017 was $1.4 million compared to $5.0 million for fiscal 2016. The decrease
of $3.6 million is primarily due to losses at our Red River joint venture and decreased income from specialty egg
sales in our other unconsolidated specialty egg joint ventures.
Other, net for fiscal 2017 was $6.0 million of income compared to $269,000 for fiscal 2016. The increase of $5.7
million is primarily due to our receipt in the fourth quarter of fiscal 2017 of payment of claims related to the Deepwater
Horizon Economic and Property Damages Settlement Program. Our recovery, net of applicable fees, was $5.5
million.
INCOME TAXES
For the fiscal year ended June 3, 2017, our pre-tax loss was $114.3 million, compared to pre-tax income of $487.2
million for fiscal 2016. Income tax benefit of $39.9 million was recorded for fiscal 2017 with an effective income tax
rate of 34.9%, compared to income tax expense of $169.2 million for fiscal 2016 with an effective income tax rate of
34.8%.
For the fourteen weeks ended June 3, 2017, our pretax loss was $33.2 million and our income tax benefit was $8.5
million with an effective income tax rate of 25.9%. The low effective rate is due to the Company’s decision to carry
back fiscal 2017 net operating losses to recover a portion of taxes paid in fiscal 2015. The net operating loss carryback
resulted in a $4.1 million decrease in the income tax benefit, as the carryback reduced fiscal 2015 taxable income and
as a result reduced the benefit of domestic manufacturers deductions, a portion of which were therefore reversed in
the fourth quarter of fiscal 2017.
Items causing our effective rate to differ from the federal statutory income tax rate of 35% are state income taxes and
certain items included in income or loss for financial reporting purposes that are not included in taxable income or
loss for income tax purposes, including tax exempt interest income, the domestic manufacturers deduction, and net
income or loss attributable to noncontrolling interest.
31
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
Net loss attributable to noncontrolling interest for fiscal 2017 was $149,000 compared to net income of $2.0 million
for fiscal 2016.
NET INCOME (LOSS) ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
As a result of the above, net loss for fiscal 2017 was $74.3 million, or $1.54 per basic and diluted share, compared to
net income of $316.0 million, or $6.56 per basic share and $6.53 per diluted share for fiscal 2016.
Fiscal Year Ended May 28, 2016 Compared to Fiscal Year Ended May 30, 2015
NET SALES
In fiscal 2016, approximately 96% of our net sales consisted of shell eggs and approximately 4% was egg
products. Net sales for the fiscal year ended May 28, 2016 were $1,908.7 million, an increase of $332.6 million, or
21.1%, from net sales of $1,576.1 million for fiscal 2015. In fiscal 2016 total dozens of eggs sold decreased and egg
selling prices increased as compared to fiscal 2015. In fiscal 2016 total dozens of shell eggs sold were 1,053.6 million,
a decrease of 9.5 million dozen, or 0.9%, compared to 1,063.1 million sold in fiscal 2015 resulting in a decrease in
net sales of $13.6 million for fiscal 2016 compared with the prior year which we believe was primarily due to supply
constraints and higher prices resulting from the AI outbreak. Our average selling price of shell eggs increased from
$1.429 per dozen for fiscal 2015 to $1.735 per dozen for fiscal 2016, an increase of $0.306 per dozen, or 21.4%,
primarily reflecting higher egg prices resulting from the AI outbreak and a higher percentage of specialty egg
sales. The increase in sales price in fiscal 2016 over 2015 resulted in a corresponding increase in net sales of $325.1
million. The remainder of our increase in sales over the prior fiscal year not related to shell egg volume or prices was
the result of increased sales from egg products which is discussed later in this section. Our operating results are
significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in
production or demand levels can have a large effect on shell egg prices.
32
The table below represents an analysis of our non-specialty and specialty, as well as co-pack specialty, shell egg
sales. Following the table is a discussion of the information presented in the table.
Fiscal Years Ended
(52 weeks)
Quarters Ended
(13 weeks)
May 28, 2016
May 30, 2015
May 28, 2016
May 30, 2015
(Amounts in thousands)
(Amounts in thousands)
Total net sales
$ 1,908,650
$ 1,576,128
$ 303,020
$ 403,011
2.7%
0.6%
29.1%
43,282
416,127
534,754
1,243,377
67.7% 1,059,070
49,282
10,533
Non-specialty shell
egg sales
Specialty shell egg
sales
Co-pack specialty
shell egg sales
Other sales
11,769
Net shell egg sales $ 1,837,946 100.0% $ 1,530,248
Net shell egg sales
as a percent of total
net sales
Dozens sold:
Non- specialty shell
egg
Specialty shell egg
Co-pack specialty
shell egg
Total dozens sold
20,936
1,053,597
791,058
241,603
100% 1,063,086
830,770
210,606
21,710
22.9%
75.1%
96%
2%
69.2% 163,882
55.6%
268,625
68.5%
27.2% 118,356
40.2%
110,696
28.2%
2.8%
0.8%
9,021
3,245
3.1%
1.1%
10,278
2,710
2.6%
0.7%
100.0% $ 294,504
100.0% $ 392,309
100.0%
97%
97%
97%
78.1% 189,850
75%
204,138
77.1%
19.8%
58,856
23.3%
55,699
21%
2.1%
4,371
1.7%
5,046
100% 253,077
100%
264,883
1.9%
100%
Net average selling
price per dozen
$
1.74
$
1.43
$
1.15
$
1.47
Non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell
egg sales. This market is characterized generally by an inelasticity of demand, and small increases in production or
decreases in demand can have a large adverse effect on prices and vice-versa. In fiscal 2016, non-specialty shell eggs
represented approximately 67.7% of our shell egg revenue, compared to 69.2% for fiscal 2015. Sales of non-
specialty shell eggs accounted for approximately 75.1% and 78.1% of total shell egg volumes in fiscal 2016 and 2015,
respectively.
For the thirteen-week period ended May 28, 2016, non-specialty shell eggs represented approximately 55.6% of our
shell egg revenue, compared to 68.5% for the thirteen-week period ended May 30, 2015, reflecting the large decrease
in net average selling price for non-specialty eggs during the fiscal 2016 fourth quarter compared to the same period
of the prior year. For the thirteen-week period ended May 28, 2016, non-specialty shell eggs accounted for
approximately 75.0% of the total shell egg volume, compared to 77.1% for the comparable period of 2015.
33
Specialty eggs, which include nutritionally enhanced, cage-free, organic and brown eggs, continued to make up a
larger portion of our total shell egg revenue and dozens in fiscal 2016. For fiscal 2016, specialty eggs accounted for
29.1% of shell egg revenue, compared to 27.2% in fiscal 2015, and 22.9% of shell egg volume in fiscal 2016,
compared to 19.8% in fiscal 2015. Additionally, for fiscal 2016, specialty eggs sold through co-pack arrangements
accounted for 2.7% of shell egg revenue, compared to 2.8% in fiscal 2015, and 2.0% of shell egg volume in fiscal
2016 and 2015. Specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally
higher due to consumer willingness to pay for the perceived increased benefits from these products. This effect was
particularly evident in our fourth fiscal quarter of 2016, as non-specialty egg prices declined more than specialty egg
prices. However, as non-specialty egg prices have declined, we are experiencing some margin and volume pressures
on specialty egg sales.
For the thirteen-week period ended May 28, 2016, specialty shell eggs and specialty shell eggs sold through co-pack
arrangements represented approximately 40.2% and 3.1%, of our shell egg revenue, compared to 28.2% and 2.6%,
respectively, for the comparable period of fiscal 2015. As previously discussed, selling prices for non-specialty eggs
decreased during the fiscal 2016 fourth quarter resulting in a larger percentage of our shell egg sales being attributable
to the less cyclical specialty shell eggs. For the thirteen-week period ended May 28, 2016, specialty shell eggs and
specialty shell eggs sold through co-pack arrangements accounted for approximately 23.3% and 1.7% of the total
shell egg volume, compared to 21.0% and 1.9%, respectively, for the comparable period of fiscal 2015.
As discussed above, while egg prices increased substantially after the AI outbreak during the early part of our fiscal
2016, egg prices declined to a decade-low level during our fiscal 2016 fourth quarter, and were 21.7 percent lower
than our average selling price in our fiscal 2015 fourth quarter. In addition, our sales for the fourth quarter of fiscal
2016 reflect lower volumes primarily related to the loss of a portion of a major customer’s co-pack business.
The shell egg sales classified as “Other sales” represent hard cooked eggs, hatching eggs, other egg products, hens,
and manure, which are included with our shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried form. Our egg products are sold
through our consolidated subsidiaries American Egg Products, LLC (“AEP”) and Texas Egg Products, LLC
(“TEP”). For fiscal 2016 egg product sales were $70.7 million, an increase of $25.3 million, or 55.7%, compared to
$45.4 million for fiscal 2015. Egg products volume for fiscal 2016 was 58.5 million pounds, an increase of 7.5 million
pounds, or 14.7%, compared to 51.0 million pounds for fiscal 2015. The increases in our sales volume and market
prices for egg products in the current fiscal year were due to a shortage of supply from the AI affected locations of
other producers, as the AI outbreak had a disproportionately large impact on suppliers of egg products. In fiscal 2016,
the selling price per pound was $1.213 compared to $0.891 for fiscal 2015, an increase of 36.1%.
34
COST OF SALES
Cost of sales consists of costs directly related to producing, processing and packing shell eggs, purchases of shell
eggs from outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm
production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and
other related farm production costs. The following table presents the key variables affecting our cost of sales:
(Amounts in thousands)
Cost of sales:
Farm production
Processing and packaging
Outside egg purchases and other
Total shell eggs
Egg products
Other
Total
Farm production cost (per dozen
produced)
Feed
Other
Total
Fiscal Year Ended
May 28,
2016
May 30,
2015
Percent
Change
May 28,
2016
Quarter Ended
May 30,
2015
Percent
Change
$
562,521 $ 558,580
173,181
184,586
413,863
464,008
1,211,115
48,584
877
1,145,624
33,886
897
$ 1,260,576 $ 1,180,407
0.7 % $ 135,187 $ 138,580
45,089
45,056
6.6 %
75,311
101,029
12.1 %
5.7 % 255,587
284,665
6,473
8,640
43.4 %
280
311
(2.2)%
6.8 % $ 262,340 $ 293,616
(2.4)%
0.1 %
(25.5)%
(10.2)%
(25.1)%
(10)%
(10.7)%
$
$
0.414 $
0.279
0.693 $
0.439
0.266
0.705
(5.7)% $
4.9 %
(1.7)% $
0.396 $
0.29
0.686 $
0.406
0.272
0.678
(2.5)%
6.6 %
1.2 %
Outside egg purchases (average cost
per dozen)
$
1.72 $
1.41
22 % $
1.11
$
1.43
(22.4)%
Dozen produced
Dozen sold
819,307
1,053,597
798,842
1,063,086
2.6 % 198,950
(0.9)% 253,077
201,763
264,883
(1.4)%
(4.5)%
Cost of sales for the fiscal year ended May 28, 2016 was $1,260.6 million, an increase of $80.2 million, or 6.8%,
compared to $1,180.4 million for fiscal 2015. Comparing fiscal 2016 to fiscal 2015, dozens produced and average
cost per dozen purchased from outside shell egg producers increased while cost of feed ingredients decreased. During
our fiscal 2016 we produced 77.8% of the eggs sold by us, as compared to 75.1% for fiscal 2015. Feed cost for fiscal
2016 was $0.414 per dozen, compared to $0.439 per dozen for the prior fiscal year, a decrease of 5.7%. The decrease
in feed cost per dozen resulted in a decrease in cost of sales of $20.6 million for fiscal 2016 compared with 2015.
For the thirteen weeks ended May 28, 2016, compared to the same period of 2015, cost of sales decreased from $293.6
million in the fourth quarter of fiscal 2015, to $262.3 million in the fourth quarter of fiscal 2016. This decrease of
$31.3 million, or 10.7%, was primarily the result of decreased cost of outside egg purchases from $1.43 per dozen in
the fourth quarter of fiscal 2015 to $1.11 in the comparable period of fiscal 2016. Feed cost per dozen for the fourth
quarter of fiscal 2016 was $0.396, compared to $0.406 for the same quarter of fiscal 2015, a decrease of 2.5%.
Gross profit increased from 25.1% of net sales for fiscal 2015, to 34.0% of net sales for fiscal 2016. The improvement
is the result of lower feed costs and increased egg selling prices.
35
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Fiscal Years Ended
52 Weeks
(Amounts in thousands)
Stock compensation expense
Specialty egg expense
Payroll and overhead
Other expenses
Delivery expense
Total
May 28, 2016
May 30, 2015
Change
Change
$
$
3,018 $
61,294
39,149
24,670
49,629
177,760 $
2,955 $
53,966
31,965
24,501
46,999
160,386 $
63
7,328
7,184
169
2,630
17,374
2.1%
13.6%
22.5%
0.7%
5.6%
10.8%
SG&A, which include costs of marketing, distribution, accounting and corporate overhead, were $177.8 million in
fiscal 2016, an increase of $17.4 million, or 10.8%, compared to $160.4 million for fiscal 2015. The increase in
specialty egg expense for fiscal 2016 compared to fiscal 2015 is attributable to a 14.7% increase in specialty shell
egg dozens sold resulting in an increase in advertising promotions and franchise expense. Payroll and overhead
increased $7.2 million, or 22.5%, compared to the same period of prior year primarily due to increased bonus accruals
in the 2016 fiscal year. As a percentage of net sales, payroll and overhead is 2.1% 2.0% for fiscal 2016 and 2015,
respectively. As a percentage of net sales, delivery expense is 2.6% and 3.0% for fiscal 2016 and 2015,
respectively. As a percent of net sales, selling, general and administrative expense decreased from 10.2% in fiscal
2015 to 9.3% in fiscal 2016.
Quarters Ended
13 Weeks
(Amounts in thousands)
Stock compensation expense
Specialty egg expense
Payroll and overhead
Other expenses
Delivery expense
Total
May 28, 2016
May 30, 2015
Change
Change
$
$
843 $
13,768
9,450
6,398
11,945
42,404 $
1,290 $
14,217
8,920
6,679
11,738
42,844 $
(447)
(449)
530
(281)
207
(440)
(34.7)%
(3.2)%
5.9 %
(4.2)%
1.8 %
(1)%
SG&A expense was $42.4 million for the thirteen-week period ended May 28, 2016, a decrease of $440,000, or 1.0%,
compared to $42.8 million for the thirteen-week period ended May 30, 2015.
LOSS (GAIN) ON DISPOSAL OF FIXED ASSETS
In fiscal 2016 we recorded a gain on the disposal of fixed assets of $1.6 million due to the sale of property in
Albuquerque, New Mexico, compared with a loss on the disposal of fixed assets of $568,000 in fiscal 2015.
OPERATING INCOME
As a result of the above, our operating income was $470.3 million for fiscal 2016, compared to $235.3 million for
fiscal 2015. Operating income as a percent of net sales was 24.7% and 14.9% for fiscal 2016 and 2015, respectively.
OTHER INCOME (EXPENSE)
Total other income (expense) consists of income (expenses) not directly charged to, or related to, operations such as
interest expense, interest income, patronage dividends, and equity in earnings of affiliates, among other items. Total
other income for fiscal 2016 was $15.4 million compared to $11.8 million for fiscal 2015. As a percent of net sales,
total other income was 0.8% for fiscal 2016, compared to 0.7% for fiscal 2015.
36
Net interest income for fiscal 2016 was $3.2 million compared to net interest expense of $515,000 for fiscal
2015. Interest income from available for sale securities increased due to higher average invested balances and higher
rates of return. The reduction of interest expense resulted from the Company reducing outstanding debt.
Equity in income of affiliates for fiscal 2016 was $5.0 million compared to $2.7 million for fiscal 2015. The increase
of $2.3 million is primarily due to our interest in the Southwest Specialty Egg, LLC joint venture as well as increased
income from specialty egg sales and patronage dividends in our other unconsolidated specialty egg joint ventures.
INCOME TAXES
For the fiscal year ended May 28, 2016, our pre-tax income was $487.2 million, compared to $246.5 million for fiscal
2015. Income tax expense of $169.2 million was recorded for fiscal 2016 with an effective income tax rate of 34.8%,
compared to $84.3 million for fiscal 2015 with an effective income tax rate of 34.3%.
Items causing our effective rate to differ from the federal statutory income tax rate of 35% are state income taxes and
certain items included in income or loss for financial reporting purposes that are not included in taxable income or
loss for income tax purposes, including tax exempt interest income, the domestic manufacturers deduction, and net
income or loss attributable to noncontrolling interest.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
Net income attributable to noncontrolling interest for fiscal 2016 was $2.0 million compared to $1.0 million for fiscal
2015.
NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
As a result of the above, net income for fiscal 2016 was $316.0 million, or $6.56 per basic share and $6.53 per diluted
share, compared to $161.3 million, or $3.35 per basic share and $3.33 per diluted share for fiscal 2015.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at June 3, 2017 was $371.5 million, compared to $542.8 million at May 28, 2016. The calculation
of working capital is defined as current assets less current liabilities. Our current ratio was 6.74 at June 3, 2017
compared to 7.50 at May 28, 2016. The current ratio is calculated by dividing current assets by current liabilities. Our
need for working capital generally is highest in the last and first fiscal quarters ending in May and August,
respectively, when egg prices are normally at seasonal lows. We have $3.7 million in outstanding standby letters of
credit, which are collateralized with cash. Our long-term debt and capital leases at June 3, 2017, including current
maturities, amounted to $10.9 million, compared to $25.6 million at May 28, 2016. See Note 9 in the Notes to
Consolidated Financial Statements for information regarding our long-term debt instruments.
Net cash used in operating activities was $49.3 million for fiscal year 2017 compared with net cash provided by
operating activities of $381.8 million for fiscal year 2016. Decreased gross profit margins resulting from lower egg
prices contributed greatly to our decrease in cash flow from operations.
For fiscal 2017, approximately $251.7 million was provided from the sale of short-term investments, $29.8 million
was used to purchase short-term investments and net payments of $6.6 million were received from notes receivable
and investments in affiliates. We used $85.8 million to acquire assets from Foodonics and Happy Hen. We invested
$19.9 million in the Red River Valley Egg Farm LLC joint venture. For additional information see Note 3 to Notes
to Consolidated Financial Statements. Approximately $66.7 million was used to purchase property, plant and
equipment. Refer to the table of material construction projects presented below for additional information on
purchases of property, plant and equipment. Approximately $16.5 million was used for principal payments on long-
term debt. The net result of these and other activities was a decrease in cash of $11.5 million from May 28, 2016.
For the fiscal year ended May 28, 2016, $381.8 million in net cash was provided by operating activities. This
compares to $195.3 million of net cash provided by operating activities for the fiscal year ended May 30,
37
2015. Improved gross profit margins contributed greatly to our positive cash flow from operations in fiscal 2016
compared to fiscal 2015. As discussed above, our gross profit margins increased in fiscal 2016 primarily as a result
of an increase in egg prices and a decrease in feed costs compared to fiscal 2015.
For fiscal 2016, approximately $292.5 million was provided from the sale of short-term investments, $403.2 million
was used to purchase short-term investments and net payments of $5.4 million were received from notes receivable
and investments in affiliates. We invested $34.0 million in the Red River Valley Egg Farm LLC joint
venture. Approximately $76.1 million was used to purchase property, plant and equipment. Approximately $120.9
million was used to pay dividends on common stock and $25.3 million was used for principal payments on long-term
debt. The net result of these and other activities was an increase in cash of $20.4 million from May 30, 2015.
Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes. Unless
otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum
levels of working capital (current ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible
net worth, plus 45% of cumulative net income since the fiscal year ended May 28, 2005); (2) limit dividends paid in
any given quarter to not exceed an amount equal to one third of the previous quarter’s consolidated net income
(allowed if no events of default); (3) maintain minimum total funded debt to total capitalization (debt to total tangible
capitalization ratio not to exceed 55%); and (4) maintain various cash-flow coverage ratios (1.25 to 1), among other
restrictions. At June 3, 2017, we were in compliance with the financial covenant requirements of all loan agreements.
Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding
borrowings in the event we undergo a change in control, as defined in the applicable loan agreement. Our debt
agreements require Fred R. Adams, Jr., our Founder and Chairman Emeritus, or his family, to maintain ownership of
Company shares representing not less than 50% of the outstanding voting power of the Company.
In recent years we have made significant investments in new and remodeled facilities to meet the increasing demand
for cage-free, organic and other specialty eggs, including through our previously discussed Red River joint venture.
We have contributed $53.9 million to the joint venture to fund our share of construction, startup costs, and operating
losses. We estimate that we will make additional contributions of approximately $8 million to fund our share of
remaining construction costs. Additionally, the following table represents material construction projects approved as
of July 20, 2017 (in thousands):
Project
Location
Projected
Completion
Projected
Cost
Spent as of
June 3,
2017
Remaining
Projected
Cost
Refurbish Cage-Free Layer Houses
Cage-Free Layer Houses
Convertible/Cage-Free Layer Houses
Cage-Free Layer Houses
Layer Complex Improvements
Convertible/Cage-Free Layer House with
Pullets
Convertible/Cage-Free Layer Houses with
Pullets
July 2017
July 2017
Shady Dale, GA
Lake City, FL
Green Forest, AR September 2017
September 2017
September 2017
South Texas
Bethune, SC
$
5,264 $
8,785
8,991
4,104
1,758
4,898 $
8,415
8,583
3,404
1,605
366
370
408
700
153
South Texas
September 2017
12,350
11,350
1,000
Guthrie, KY
January 2018
13,252
9,841
3,411
$
54,504 $
48,096 $
6,408
Looking forward to the next fiscal year, we believe current cash balances, investments, borrowing capacity, and cash
flows from operations will be sufficient to fund our current and projected capital needs.
38
CONTRACTUAL OBLIGATIONS
The following table summarizes by fiscal year the future estimated cash payments, in thousands, to be made under
existing contractual obligations. Further information on debt obligations is contained in Note 9, and on lease
obligations in Note 8, in the Notes to the Consolidated Financial Statements.
Total
2018
2019
2020
2021
2022
Thereafter
$ 10,939
$
4,826 $
3,533 $
1,696 $
205
$
215 $
Long-Term Debt & Capital
Leases (Principal)
Long-Term Debt & Capital
Leases (Interest)
Operating Leases
901
1,182
506
502
247
208
70
162
Total
$ 13,022 $
5,834 $
3,988 $
1,928 $
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
34
160
399 $
25
150
390 $
464
19
—
483
For information on changes in accounting principles and new accounting principles, see “Impact of Recently Issued
Accounting Standards” in Note 1 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. generally accepted accounting standards requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Management suggests our Summary of Significant Accounting Policies, as described in Note 1 of the notes to
consolidated financial statements, be read in conjunction with this Management’s Discussion and Analysis of
Financial Condition and Results of Operations. We believe the critical accounting policies that most impact our
consolidated financial statements are described below.
INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE
Our investment securities are accounted for in accordance with ASC 320, “Investments-Debt and Equity Securities”
(“ASC 320”). The Company considers all investment securities for which there is a determinable fair market value
and no restrictions on the Company's ability to sell within the next 12 months as available-for-sale, and carries them
at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains
and losses are included in other income. The cost basis for realized gains and losses on available-for-sale securities is
determined on the specific identification method.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In the normal course of business, we extend credit to our customers on a short-term basis. Although credit risk
associated with our customers is considered minimal, we routinely review our accounts receivable balances and make
provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer’s
inability to meet its financial obligations to us (e.g. bankruptcy filings), a specific reserve is recorded to reduce the
receivable to the amount expected to be collected. For all other customers, we recognize reserves for bad debt based
on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due.
39
INVENTORIES
Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method)
or market. If market prices for eggs and feed grains move substantially lower, we record adjustments to write-down
the carrying values of eggs and feed inventories to fair market value. The cost associated with flock inventories,
consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated
during the growing period of approximately 22 weeks. Capitalized flock costs are then amortized over the flock’s
productive life, generally one to two years. Flock mortality is charged to cost of sales as incurred. High mortality
from disease or extreme temperatures would result in abnormal write-downs to flock inventories. Management
continually monitors each flock and attempts to take appropriate actions to minimize the risk of mortality loss.
LONG-LIVED ASSETS
Depreciable long-lived assets are primarily comprised of buildings and improvements and machinery and
equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25
years for buildings and improvements and 3 to 12 years for machinery and equipment. An increase or decrease in
the estimated useful lives would result in changes to depreciation expense. When property and equipment are retired,
sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from
the accounts and any gain or loss is included in operations. We continually reevaluate the carrying value of our long-
lived assets, for events or changes in circumstances which indicate the carrying value may not be recoverable from
the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) are less than the carrying amount of the asset, an
impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the
asset.
INTANGIBLE ASSETS
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include
franchise fees, non-compete agreements and customer relationship intangibles. They are amortized over their
estimated useful lives of 3 to 25 years. The gross cost and accumulated amortization of intangible assets are removed
when the recorded amounts are fully amortized and the asset is no longer in use.
INVESTMENT IN AFFILIATES
We have invested in other companies engaged in the production, processing and distribution of shell eggs and egg
products. These investments are recorded using the cost or equity method, and are not consolidated in our financial
statements. Changes in the ownership percentages of these investments might alter the accounting methods currently
used. Our investment in these companies amounted to $65.7 million at June 3, 2017. The combined total assets and
total liabilities of these companies were approximately $299.9 million and $37.1 million, respectively, at June 3,
2017.
GOODWILL
At June 3, 2017, goodwill represented 3.4% of total assets and 4.2% of stockholders’ equity. Goodwill relates to the
following:
40
Fiscal Year
1999
2006
2007
2008
2009
2009
2009
2010
2013
2014
2017
2017
Description
Amount
Acquisition of Hudson Brothers, Inc.
Acquisition of Hillandale Farms, LLC
Acquisition of Green Forest Foods, LLC
Revised Hillandale incremental purchase price
Revised Hillandale incremental purchase price
Acquisition of Zephyr Egg, LLC
Acquisition of Tampa Farms, LLC
Revised Hillandale incremental purchase price
Acquisition of Maxim Production Co., Inc.
Purchase of joint venture partner’s 50% in Delta Egg
Acquisition of Foodonics International, Inc.
Acquisition of Happy Hen Egg Farms, Inc.
Total Goodwill
$
$
3,147
869
179
9,257
2,527
1,876
4,600
(338)
2,300
4,779
3,389
2,940
35,525
Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a
quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional
quantitative tests to determine the magnitude of any impairment.
REVENUE RECOGNITION AND DELIVERY COSTS
The Company recognizes revenue only when all of the following criteria have been met:
• Persuasive evidence of an arrangement exists;
• Delivery has occurred;
• The fee for the arrangement is determinable; and
• Collectability is reasonably assured.
The Company believes the above criteria are met upon delivery and acceptance of the product by our customers.
Costs to deliver product to customers are included in selling, general and administrative expenses in the
accompanying Consolidated Statements of Operations and totaled $53.3 million, $49.6 million, and $47.0 million in
fiscal years 2017, 2016, and 2015, respectively. Sales revenue reported in the accompanying Consolidated Statements
of Operations is reduced to reflect estimated returns and allowances. The Company records an estimated sales
allowance for returns and discounts at the time of sale using historical trends based on actual sales returns and sales.
SALES INCENTIVES PROVIDED TO CUSTOMERS
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include
current discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future
discounts subject to a minimum current purchase), and other similar offers. Current discount offers, when accepted
by customers, are treated as a reduction to the sales price of the related transaction, while inducement offers, when
accepted by customers, are treated as a reduction to sales price based on estimated future redemption rates.
Redemption rates are estimated using the Company’s historical experience for similar inducement offers. Current
discount and inducement offers are presented as a net amount in ‘‘Net sales.’’
STOCK BASED COMPENSATION
We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”
(“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options,
restricted stock and performance-based shares to be recognized in the statement of operations based on their fair
values. ASC 718 requires the benefits of tax deductions in excess of recognized compensation cost to be reported as
41
a financing cash flow. See Note 11: Stock Compensation Plans in the Notes to the Consolidated Financial Statements
for more information.
INCOME TAXES
We determine our effective tax rate by estimating our permanent differences resulting from differing treatment of
items for tax and accounting purposes. We are periodically audited by taxing authorities. Any audit adjustments
affecting permanent differences could have an impact on our effective tax rate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISK
Our primary exposure to market risk arises from changes in the prices of eggs, corn and soybean meal, which are
commodities subject to significant price fluctuations due to market conditions that are largely beyond our
control. FWe are focused on growing our specialty shell egg business because the selling prices of specialty shell
eggs are generally not as volatile as non-specialty shell egg prices. The following table outlines the impact of price
changes for corn and soybean meal on feed cost per dozen:
Feed ingredient
Approximate change in feed ingredient cost
Approximate
impact on feed
costs per dozen
Approximate dollar
impact on farm
production cost for the
2017 fiscal year
Corn
Soybean Meal
$ 0.25 change in the average market price
per bushel
$ 25.00 change in the average market price
per ton
$
$
0.01
$
0.01
$
8,702,520
8,702,520
We generally do not enter into long-term contracts to purchase corn and soybean meal or hedge against increases in
the price of corn and soybean meal.
INTEREST RATE RISK
The fair value of our debt is sensitive to changes in the general level of U.S. interest rates. We maintain all of our
debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. Under our current policies, we do
not use interest rate derivative instruments to manage our exposure to interest rate changes. A 1% adverse move
(decrease) in interest rates would adversely affect the net fair value of our debt by $144,000 at June 3, 2017.
We are not a party to any other material market risk sensitive instruments requiring disclosure.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Jackson, Mississippi
We have audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc. and Subsidiaries as of
June 3, 2017 and May 28, 2016, and the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity and cash flows for each of the years in the three-year period ended June 3, 2017. Our audits also
included the consolidated financial statement schedule listed in the Index at Item 15(a). These consolidated financial
statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Cal-Maine Foods, Inc. and Subsidiaries as of June 3, 2017 and May 28, 2016, and the results of
their operations and their cash flows for each of the years in the three-year period ended June 3, 2017, in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the related
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Cal-Maine Foods, Inc. and Subsidiaries internal control over financial reporting as of June 3, 2017, based on
criteria established in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated July 21, 2017, expressed an unqualified opinion.
/s/Frost, PLLC
Little Rock, Arkansas
July 21, 2017
43
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except for par value amounts)
June 3,
2017
May 28,
2016
Assets
Current assets:
Cash and cash equivalents
Investment securities available-for-sale
Receivables:
Trade receivables, less allowance for doubtful accounts of $386 in 2017 and $727 in 2016
Income tax receivable
Other
Inventories
Prepaid expenses and other current assets
Total current assets
Other assets:
Other investments
Goodwill
Other intangible assets
Other long-lived assets
Property, plant and equipment, less accumulated depreciation
Total assets
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable
Accrued wages and benefits
Accrued expenses and other liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt, less current maturities
Other noncurrent liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies – See Notes 8, 9, and 13
Stockholders' equity:
Common stock, $.01 par value
120,000 shares authorized and 70,261 shares issued in 2017 and 2016
43,777 and 43,737 shares outstanding in 2017 and 2016, respectively
Class A convertible common stock, $.01 par value
4,800 shares authorized, issued and outstanding in 2017 and 2016, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Common stock in treasury, at cost – 26,484 and 26,524 shares in 2017 and 2016, respectively
Total Cal-Maine Foods, Inc. stockholders' equity
Noncontrolling interest in consolidated entities
Total stockholders’ equity
Total liabilities and stockholders' equity
See accompanying notes.
44
$
$
$
$
17,564 $
138,462
61,261
52,691
3,248
117,200
160,692
2,288
436,206
69,296
35,525
29,149
4,734
138,704
458,184
1,033,094 $
30,629 $
15,809
13,415
4,826
64,679
6,113
7,527
110,282
188,601
703
48
49,932
816,046
(128)
(23,914)
842,687
1,806
844,493
1,033,094 $
29,046
360,499
62,012
11,830
5,436
79,278
154,799
2,661
626,283
53,975
29,196
4,958
5,079
93,208
392,274
1,111,765
36,262
23,198
7,671
16,320
83,451
9,250
6,321
95,382
194,404
703
48
46,404
890,440
(48)
(22,272)
915,275
2,086
917,361
1,111,765
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
Fiscal years ended
Net sales
Cost of sales
Gross profit
Selling, general and administrative
(Gain) loss on disposal of fixed assets
Operating income (loss)
Other income (expense):
Interest expense
Interest income
Patronage dividends
Equity in income of affiliates
Other, net
Total other income
Income (loss) before income taxes and noncontrolling interest
Income tax expense (benefit)
Net income (loss) including noncontrolling interest
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Cal-Maine Foods, Inc.
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See accompanying notes.
June 3,
2017
1,074,513 $
$
1,028,963
45,550
173,980
3,664
(132,094)
(318)
3,103
7,665
1,390
5,960
17,800
(114,294)
(39,867)
(74,427)
(149)
May 28,
2016
May 30,
2015
1,908,650 $
1,260,576
648,074
177,760
(1,563)
471,877
1,576,128
1,180,407
395,721
160,386
568
234,767
(1,156)
(2,313)
4,314
6,930
5,016
268
15,372
487,249
169,202
318,047
2,006
1,798
6,893
2,657
2,747
11,782
246,549
84,268
162,281
1,027
161,254
3.35
3.33
48,136
48,437
$
$
$
(74,278) $
316,041 $
(1.54) $
(1.54) $
6.56 $
6.53 $
48,362
48,362
48,195
48,365
45
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Fiscal years ended
June 3,
2017
(74,427) $
$
May 28,
2016
318,047 $
May 30,
2015
162,281
177
(334)
(157)
(77)
(80)
(74,507)
(149)
(74,358) $
(25)
(118)
(143)
(73)
(70)
(143)
(741)
(884)
(345)
(539)
317,977
2,006
161,742
1,027
315,971 $
160,715
Net income (loss), including noncontrolling interests
Other comprehensive income, before tax:
Unrealized holding gain (loss) on available-for-sale securities, net of reclassification adjustments
Increase in accumulated postretirement benefits obligation, net of reclassification adjustments
Other comprehensive loss, before tax
Income tax benefit related to items of other comprehensive income (loss)
Other comprehensive loss, net of tax
Comprehensive income (loss)
Less: comprehensive income (loss) attributable to the noncontrolling interest
Comprehensive income (loss) attributable to Cal-Maine Foods, Inc.
$
See accompanying notes.
46
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S
Cal-Maine Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
June 3,
2017
May 28,
2016
May 30,
2015
$
(74,427) $
318,047 $
162,281
49,113
14,833
(1,390)
3,664
3,427
—
—
(209)
(37,222)
2,386
(9,491)
(49,316)
(29,849)
251,690
(85,822)
—
(19,900)
6,586
(66,657)
84
56,132
44,592
19,392
(5,016)
(1,563)
3,071
(798)
—
—
21,160
(8,539)
(8,508)
381,838
(403,204)
292,452
—
—
(33,959)
5,427
(76,125)
2,860
40,708
5,108
(2,657)
568
2,268
(584)
256
—
(18,961)
(143)
6,486
195,330
(202,506)
146,779
—
(8,160)
—
2,019
(82,263)
2,499
(212,549)
(141,632)
(16,510)
(73)
(1,715)
—
(18,298)
(11,482)
29,046
17,564 $
(25,290)
(918)
(1,760)
(120,942)
(148,910)
20,379
8,667
29,046 $
(10,233)
(940)
531
(48,910)
(59,552)
(5,854)
14,521
8,667
(15,233) $
317
166,840 $
1,067
75,533
2,313
$
$
Cash flows from operating activities
Net income (loss) including noncontrolling interests
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
Deferred income taxes
Equity in income of affiliates
(Gain) loss on disposal of property, plant and equipment
Stock compensation expense, net of amounts paid
Recovery of note receivable
Loss on fair value adjustment of contingent consideration
Other
Change in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in receivables and other assets
(Increase) decrease in inventories
Increase (decrease) in accounts payable, accrued expenses and other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchases of investments
Sales of investments
Acquisition of businesses, net of cash acquired
Investment in Southwest Specialty Egg LLC
Investment in Red River Valley Egg Farm LLC
Payments received on notes receivable and from investments in affiliates
Purchases of property, plant and equipment
Net proceeds from disposal of property, plant and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Principal payments on long-term debt
Distributions to noncontrolling interest partners
(Purchase of) proceeds from common stock by treasury (including tax benefit on nonqualifying
disposition of incentive stock options)
Payments of dividends
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid during the year for:
Income taxes paid (refunds received), net
Interest (net of amount capitalized)
See accompanying notes.
48
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 3, 2017
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Cal-Maine Foods, Inc. and its subsidiaries (“we,” “us,”
“our,” or the “Company”). All significant intercompany transactions and accounts have been eliminated in
consolidation.
Business
The Company is principally engaged in the production, processing and distribution of shell eggs. The Company’s
operations are significantly affected by the market price fluctuation of its principal product, shell eggs, and the costs
of its principal feed ingredients, corn, soybean meal, and other grains.
The Company sells shell eggs to a diverse group of customers, including national and local grocery store chains, club
stores, foodservice distributors, and egg product consumers. The Company’s sales are primarily in the southeastern,
southwestern, mid-western and mid-Atlantic regions of the United States. Credit is extended based upon an evaluation
of each customer’s financial condition and credit history and generally collateral is not required. Credit losses have
consistently been within management’s expectations. Two customers, Wal-Mart and Sam’s Club, on a combined
basis, accounted for 28.9%, 28.9% and 25.7% of the Company’s net sales in fiscal years 2017, 2016, and 2015,
respectively.
Fiscal Year
The Company’s fiscal year-end is on the Saturday nearest May 31, which was June 3, 2017 (53 weeks), May 28, 2016
(52 weeks), and May 30, 2015 (52 weeks) for the most recent three fiscal years.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be
cash equivalents. We maintain bank accounts that are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000. At June 3, 2017 and routinely throughout these years, the Company maintained cash balances with
certain financial institutions in excess of federally insured amounts. The Company has not experienced any losses in
such accounts. The Company manages this risk through maintaining cash deposits and other highly liquid
investments in high quality financial institutions.
We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for
receiving cash, concentration accounts where funds are moved to, and zero-balance disbursement accounts for
funding payroll and accounts payable. Checks issued, but not presented to the banks for payment, may result in
negative book cash balances, which are included in accounts payable. At June 3, 2017, and May 28, 2016, checks
outstanding in excess of related book cash balances totaled $2.0 million and zero, respectively.
49
Investment Securities
Our investment securities are accounted for in accordance with ASC 320, “Investments-Debt and Equity Securities”
(“ASC 320”). The Company considers all of its investment securities for which there is a determinable fair market
value and there are no restrictions on the Company's ability to sell within the next 12 months as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. We had unrealized gains, net of tax, of $473,000 and $363,000 at June 3, 2017
and May 28, 2016, respectively, which are included in the line item “Accumulated other comprehensive income (loss),
net of tax” on our Consolidated Balance Sheet. Realized gains and losses are included in other income. The cost basis
for realized gains and losses on available-for-sale securities is determined on the specific identification method.
At June 3, 2017 and May 28, 2016, we had $138.5 million and $360.5 million, respectively, of current investment
securities available-for-sale consisting of commercial paper, U.S. government obligations, government agency bonds,
taxable municipal bonds, tax-exempt municipal bonds, zero coupon municipal bonds and corporate bonds with
maturities of three months or longer when purchased. We classified these securities as current, because the amounts
invested are available for current operations. At June 3, 2017 and May 28, 2016 we had $2.5 million and $1.9 million,
respectively, of investments in mutual funds which are considered long term and are a part of “Other Investments” in
the Consolidated Balance Sheet.
Investment in Affiliates
The equity method of accounting is used when the Company has a 20% to 50% interest in other entities or when the
Company exercises significant influence over the entity. Under the equity method, original investments are recorded
at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities. Nonmarketable
investments in which the Company has less than a 20% interest and in which it does not have the ability to exercise
significant influence over the investee are initially recorded at cost, and periodically reviewed for impairment.
Trade Receivables and Allowance for Doubtful Accounts
Trade receivables are comprised primarily of amounts owed to the Company from customers, which amounted to
$61.3 million at June 3, 2017 and $62.0 million at May 28, 2016. They are presented net of an allowance for doubtful
accounts of $386,000 at June 3, 2017 and $727,000 at May 28, 2016. The Company extends credit to customers based
upon an evaluation of each customer’s financial condition and credit history. Although credit risks associated with
our customers are considered minimal, we routinely review our accounts receivable balances and make provisions
for probable doubtful accounts. In circumstances where management is aware of a specific customer’s inability to
meet its financial obligations to us (e.g., bankruptcy filings), a reserve is recorded to reduce the receivable to the
amount expected to be collected. For all other customers, we recognize reserves for bad debt based on the length of
time the receivables are past due, generally 100% for amounts more than 60 days past due. Collateral is generally not
required. Credit losses have consistently been within management’s expectations. At both June 3, 2017 and May 28,
2016 two customers accounted for approximately 27% and 29% of the Company’s trade accounts receivable,
respectively.
Inventories
Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method)
or market.
The cost associated with flocks, consisting principally of chick purchases, feed, labor, contractor payments and
overhead costs, are accumulated during a growing period of approximately 22 weeks. Flock costs are amortized to
cost of sales over the productive lives of the flocks, generally one to two years. Flock mortality is charged to cost of
sales as incurred.
The Company does not disclose the gross cost and accumulated amortization with respect to its flock inventories
since this information is not utilized by management in the operation of the Company.
50
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the
estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and
equipment. Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive
capacity of assets are capitalized. When property, plant, and equipment are retired, sold, or otherwise disposed of, the
asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is
included in operations. The Company capitalizes interest cost incurred on funds used to construct property, plant, and
equipment as part of the asset to which it relates, and is amortized over the asset’s estimated useful life.
Impairment of Long-Lived Assets
The Company reviews the carrying value of long-lived assets, other than goodwill, for impairment whenever events
and circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. In cases where expected future cash flows (undiscounted and
without interest charges) are less than the carrying value, an impairment loss is recognized equal to an amount by
which the carrying value exceeds the fair value of assets. The factors considered by management in performing this
assessment include current operating results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition, and other economic factors.
Intangible Assets
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include
franchise fees, non-compete agreements and customer relationship intangibles, and are amortized over their estimated
useful lives of 3 to 25 years. The gross cost and accumulated amortization of intangible assets are removed when
the recorded amounts have been fully amortized and the asset is no longer in use or the contract has expired. Included
in other long-lived assets are loan acquisition costs, which are amortized over the life of the related loan.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired.
Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a
quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional
quantitative tests to determine the magnitude of any impairment.
Accrued Self Insurance
We use a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for health
and welfare, workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks
retained are estimated, in part, by considering claims experience, demographic factors, severity factors and other
actuarial assumptions.
51
Dividends
Cal-Maine pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for
each quarter for which the Company reports net income computed in accordance with generally accepted accounting
principles in an amount equal to one-third (1/3) of such quarterly income. Dividends are paid to shareholders of record
as of the 60th day following the last day of such quarter, except for the fourth fiscal quarter. For the fourth quarter,
the Company will pay dividends to shareholders of record on the 65th day after the quarter end. Dividends are payable
on the 15th day following the record date. Following a quarter for which the Company does not report net income,
the Company will not pay a dividend for a subsequent profitable quarter until the Company is profitable on a
cumulative basis computed from the date of the last quarter for which a dividend was paid. Dividends payable, which
would represent accrued unpaid dividends applicable to the Company's fourth quarter, were zero at June 3, 2017 and
May 28, 2016. At June 3, 2017, cumulative losses that must be recovered prior to paying a dividend were $74.7
million.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is
recorded as treasury stock. The grant of restricted stock through the Company’s share-based compensation plans is
funded through the issuance of treasury stock. Gains and losses on the subsequent reissuance of shares in accordance
with the Company’s share-based compensation plans are credited or charged to paid-in capital in excess of par value
using the average-cost method.
Revenue Recognition and Delivery Costs
The Company recognizes revenue only when all of the following criteria have been met:
• Persuasive evidence of an arrangement exists;
• Delivery has occurred;
• The fee for the arrangement is determinable; and
• Collectability is reasonably assured.
The Company believes the above criteria are met upon delivery and acceptance of the product by our customers.
Costs to deliver product to customers are included in selling, general and administrative expenses in the
accompanying Consolidated Statements of Operations and totaled $53.3 million, $49.6 million, and $47.0 million in
fiscal years 2017, 2016, and 2015, respectively. Sales revenue reported in the accompanying consolidated statements
of income is reduced to reflect estimated returns and allowances. The Company records an estimated sales allowance
for returns and discounts at the time of sale using historical trends based on actual sales returns and sales.
Sales Incentives provided to Customers
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include
current discount offers (e.g., percentage discounts off current purchases), inducement offers (e.g., offers for future
discounts subject to a minimum current purchase), and other similar offers. Current discount offers, when accepted
by customers, are treated as a reduction to the sales price of the related transaction, while inducement offers, when
accepted by customers, are treated as a reduction to sales price based on estimated future redemption rates.
Redemption rates are estimated using the Company’s historical experience for similar inducement offers. Current
discount and inducement offers are presented as a net amount in ‘‘Net sales.’’
Advertising Costs
The Company expensed advertising costs as incurred of $12.1 million, $10.3 million, and $9.3 million in fiscal
2017, 2016, and 2015, respectively.
52
Income Taxes
Income taxes are provided using the liability method. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company’s policy with respect to evaluating uncertain tax positions is based upon
whether management believes it is more likely than not the uncertain tax positions will be sustained upon review by
the taxing authorities. The tax positions must meet the more-likely-than-not recognition threshold with consideration
given to the amounts and probabilities of the outcomes that could be realized upon settlement using the facts,
circumstances and information at the reporting date. The Company will reflect only the portion of the tax benefit that
will be sustained upon resolution of the position and applicable interest on the portion of the tax benefit not
recognized. The Company shall initially and subsequently measure the largest amount of tax benefit that is greater
than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. Based upon management’s assessment, there are no uncertain tax positions expected to have a material
impact on the Company’s consolidated financial statements.
Stock Based Compensation
We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”
(“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options,
restricted stock and performance-based shares to be recognized in the statement of operations based on their fair
values. ASC 718 requires the benefits of tax deductions in excess of recognized compensation cost to be reported as
a financing cash flow. See Note 11: Stock Compensation Plans for more information.
Net Income (Loss) per Common Share
Basic net income per share is based on the weighted average common and Class A shares outstanding. Diluted net
income per share includes any dilutive effects of stock options outstanding and unvested restricted shares.
Basic net income per share was calculated by dividing net income by the weighted-average number of common and
Class A shares outstanding during the period. Diluted net income per share was calculated by dividing net income
by the weighted-average number of common shares outstanding during the period plus the dilutive effects of stock
options and unvested restricted shares. Due to the net loss in the year ended June 3, 2017, restricted shares in the
amount of 131,292 were excluded from the calculation of diluted earnings per share because their inclusion would
have been antidilutive. The computations of basic net income per share and diluted net income per share are as
follows (in thousands):
Net income (loss) attributable to Cal-Maine Foods, Inc.
$
(74,278) $
316,041 $
161,254
June 3, 2017 May 28, 2016 May 30, 2015
Basic weighted-average common shares (including Class A)
48,362
48,195
48,136
Effect of dilutive securities:
Common stock options and restricted stock
Dilutive potential common shares
Net income (loss) per common share:
Basic
Diluted
—
48,362
170
48,365
301
48,437
$
$
(1.54) $
(1.54) $
6.56 $
6.53 $
3.35
3.33
53
Contingencies
Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company
but which will only be resolved when one or more future events occur or fail to occur. The Company’s management
and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or
unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits
of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of
the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the
assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable
but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible
loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
The Company expenses the costs of litigation as they are incurred.
Impact of Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-
09, Revenue from Contracts with Customers (ASU 2014-09). The standard provides companies with a single model
for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition
guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when
control of the goods or services transfers to the customer in an amount that reflects the consideration that is expected
to be received for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective
date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017. Early adoption is not
permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods
presented, or apply the requirements in the year of adoption, through a cumulative adjustment. To date the Company’s
assessments efforts include evaluation of certain revenue contracts with customers and the method of retrospective
application, either full or modified. We currently expect to utilize the full retrospective transition on date of
adoption. Based on the findings to date, the Company does not expect ASU 2014-09 to have a material impact on
the results of operations or financial position; however, the Company’s assessment is not complete. The Company
plans to complete its review and method of adoption in fiscal 2018.
In February 2016, the FASB issued ASU 2016-02, Leases. The purpose of the standard is to improve transparency
and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance
sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater
than twelve months. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and
interim periods within those annual periods. Early adoption is permitted. Based on the findings to date, the Company
does not expect ASU 2016-02 to have a material impact on the results of operations or financial position; however,
the Company’s assessment is not complete.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Compensation Accounting.
ASU 2016-09 requires recording excess tax benefits on the statement of operations as opposed to additional paid-in-
capital, and treated as an operating activity on the statement of cash flows. ASU 2016-09 also allows companies to
make an accounting policy election to either estimate the number of awards that are expected to vest or account for
forfeitures when they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15,
2017 with early adoption permitted. The Company adopted ASU 2016-09 during the third quarter of fiscal 2017 and
it did not have a material impact on the consolidated financial statement presentation.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes step
2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment
54
charge for the amount by which the carrying amount exceeds the reporting units' fair value. The guidance is effective
for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, our fiscal 2021.
Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January
1, 2017, and the prospective transition method should be applied. We do not expect the adoption of this guidance to
have a material impact on our consolidated financial statements.
Reclassification
Certain prior period amounts have been reclassified to conform with current presentation. Such reclassifications had
no impact on previously reported net income or shareholders' equity.
2. Acquisition
Foodonics Acquisition
On October 16, 2016, the Company acquired substantially all of the egg production assets and assumed certain
liabilities of Foodonics International, Inc. and its related entities doing business as Dixie Egg Company (collectively,
"Foodonics") for $68.6 million of cash and $3.0 million of deferred purchase price. The acquired assets include
commercial egg production and processing facilities with capacity for 1.6 million laying hens, contract grower
arrangements for an additional 1.5 million laying hens, and related feed production, milling and distribution facilities
in Georgia, Alabama, and Florida. The Company also acquired Foodonics' interest in American Egg Products, LLC
("AEP") and the Eggland's Best franchise with licensing rights for certain markets in Alabama, Florida, and Georgia
as well as Puerto Rico, Bahamas and Cuba. The Company now owns 100% of AEP. The acquired operations of
Foodonics are included in the accompanying financial statements as of October 16, 2016.
The following table presents the final fair values of the assets acquired and liabilities assumed (in thousands):
Inventory
Property, plant and equipment
Intangible assets
Liabilities assumed
Total identifiable net assets
Goodwill
Purchase price
Deferred purchase price
Cash consideration paid
$
$
7,669
38,590
24,000
(2,034)
68,225
3,389
71,614
(3,000)
68,614
Happy Hen Acquisition
On February 19, 2017, the Company acquired substantially all of the egg production, processing and distribution
assets of Happy Hen Egg Farms, Inc. and its affiliates (collectively, "Happy Hen"). The assets include commercial
egg production and processing facilities with current capacity for 350,000 laying hens and related distribution
facilities located near Harwood and Wharton, Texas. The site is designed for capacity of up to 1.2 million laying
hens. The operations of Happy Hen are included in the accompanying financial statements as of February 19, 2017.
The Company closed this acquisition on March 3, 2017.
The following table presents the final fair values of the assets acquired (in thousands):
55
Inventory
Property, plant and equipment
Intangible assets
Total identifiable net assets
Goodwill
Cash consideration paid
$
$
609
11,259
2,400
14,268
2,940
17,208
These fair value measurements were primarily based on significant inputs that are not observable in the markets. The
cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent
economic utility, was utilized for certain property, plant and equipment. The cost to replace given assets reflects the
estimated reproduction or replacement cost of the asset, less an allowance for loss in value due to depreciation. The
market approach, which indicates value for a subject asset based on available market pricing for comparable assets,
was utilized for inventory and the Eggland's Best franchise of Foodonics. The cost of the Eggland's Best franchise
will be amortized over a period of 15 years. Customer relationships and trademarks will be amortized over a period
of 8 years. Non-compete agreements will be amortized over a period of 10 years. Goodwill on business combination
recognizes the difference in the fair value of the assets acquired and liabilities assumed, net of the acquisition price.
Goodwill associated with the acquisition is tax deductible over 15 years.
Pro-forma information, which is usually presented for information purposes only and is not necessarily indicative of
the results of operations that actually would have been achieved had the acquisition been completed as of an earlier
time, was not material to the Company's Consolidated Financial Statements.
3. Investment in Affiliates
The Company has several in non-consolidated affiliates that are accounted for using the equity method of accounting.
As of June 3, 2017, the Company owns 50% of each of Red River Valley Egg Farm, LLC, Specialty Eggs, LLC,
Southwest Specialty, LLC, and Dallas Reinsurance, Co., LTD. Investment in affiliates are included in “Other
Investments” in the accompanying Consolidated Balance Sheets and totaled $62.8 million and $47.5 million at June 3,
2017 and at May 28, 2016, respectively.
Equity in income of affiliates of $1.4 million, $5.0 million, and $2.7 million from these entities has been included in
the Consolidated Statements of Operations for fiscal 2017, 2016, and 2015, respectively.
The condensed consolidated financial information for the Company's unconsolidated joint ventures was as follows:
Net sales
Net income
Total assets
Total liabilities
Total equity
June 3, 2017
For the fiscal year ended
May 28, 2016
May 30, 2015
86,072
2,804
131,871
6,543
125,328
91,320
10,090
100,700
5,697
95,003
61,632
5,323
30,739
4,659
26,080
The Company is also a member of Eggland’s Best, Inc. (“EB”), which is a cooperative. At June 3, 2017 and May 28,
2016, “Other Investments” as shown on the Company’s Consolidated Balance Sheet includes the cost of the
Company’s investment in EB plus any qualified written allocations. The Company cannot exert significant influence
over EB’s operating and financial activities; therefore, the Company accounts for this investment using the cost
method. The carrying value of this investment at June 3, 2017 and May 28, 2016 was $2.9 million and $3.5 million,
respectively.
56
The Company regularly transacts business with its cost and equity method affiliates. The following relates to the
Company’s transactions with these unconsolidated affiliates (in thousands):
Sales to affiliates
Purchases from affiliates
Dividends from affiliates
Accounts receivable from affiliates
Accounts payable to affiliates
4. Inventories
June 3, 2017
For the fiscal year ended
May 28, 2016
May 30, 2015
$
59,073 $
73,713
6,581
61,094 $
79,419
4,550
46,989
62,659
1,250
June 3, 2017
May 28, 2016
$
4,643 $
3,617
3,483
1,464
Inventories consisted of the following (in thousands):
Flocks, net of accumulated amortization
Eggs
Feed and supplies
June 3, 2017
$98,059
14,911
47,722
$160,692
May 28, 2016
$94,312
11,519
48,968
$154,799
We grow and maintain flocks of layers (mature female chickens), pullets (female chickens, under 18 weeks of age),
and breeders (male and female chickens used to produce fertile eggs to hatch for egg production flocks). Our total
flock at June 3, 2017, consisted of approximately 9.5 million pullets and breeders and 36.1 million layers.
The Company expensed amortization and mortality associated with the flocks to cost of sales as follows (in
thousands):
Amortization
Mortality
Total flock costs charge to cost of sales
5. Goodwill and Other Intangible Assets
$
$
June 3, 2017 May 28, 2016 May 30, 2015
108,570
3,803
112,373
106,459 $
3,665
110,124 $
118,859 $
5,213
124,072 $
Goodwill and other intangibles consisted of the following (in thousands):
Franchise
Customer
Non-
compete
Right of use
Other Intangibles
Goodwill
rights
relationships
agreements
intangible
Balance May 30, 2015
$
Additions
Amortization
Balance May 28, 2016
Additions
Amortization
Balance June 3, 2017
$
29,196 $
—
—
29,196
6,329
—
35,525 $
870 $
—
(473 )
397
24,000
(1,183 )
23,214 $
5,773 $
48 $
149 $
—
(2,088)
3,685
1,900
(925)
—
(20)
28
100
(24)
—
(21)
128
—
(62)
4,660 $
104 $
66 $
Water
rights
Total other
Trademark
intangibles
720 $
—
—
720
—
—
720 $
— $
—
—
—
400
(15)
385 $
7,560
—
(2,602)
4,958
26,400
(2,209)
29,149
57
For the Other Intangibles listed above, the gross carrying amounts and accumulated amortization are as
follows (in thousands):
Other intangible assets:
Franchise rights
Customer relationships
Non-compete agreements
Right of use intangible
Water rights *
Trademark
Total
June 3, 2017
May 28, 2016
Gross carrying
amount
Accumulated
amortization
Gross carrying
amount
Accumulated
amortization
$
$
29,284 $
19,544
200
191
720
400
50,339 $
(6,070) $
(14,884)
(96)
(125)
—
(15)
(21,190) $
5,284 $
17,644
100
191
720
—
23,939 $
(4,887)
(13,959)
(72)
(63)
—
—
(18,981)
*
Water rights are an indefinite life intangible asset.
No significant residual value is estimated for these intangible assets. Aggregate amortization expense for
the fiscal years ended 2017, 2016, and 2015 totaled $2.2 million, $2.6 million, and $2.9 million,
respectively. The following table represents the total estimated amortization of intangible assets for the five
succeeding years (in thousands):
For fiscal period
Estimated amortization expense
2018
2019
2020
2021
2022
Thereafter
Total
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Land and improvements
Buildings and improvements
Machinery and equipment
Construction-in-progress
Less: accumulated depreciation
$
$
2,818
2,790
2,765
2,228
1,864
15,964
28,429
June 3,
2017
May 28,
2016
$
$
87,276 $
342,933
460,218
36,752
927,179
468,995
458,184 $
80,775
291,888
399,804
50,178
822,645
430,371
392,274
Depreciation expense was $48.8 million, $41.4 million and $37.3 million in fiscal years 2017, 2016 and 2015,
respectively.
The Company maintains insurance for both property damage and business interruption relating to catastrophic events,
such as fires. Insurance recoveries received for property damage and business interruption in excess of the net book
58
value of damaged assets, clean-up and demolition costs, and post-event costs are recognized as income in the period
received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance
recoveries related to business interruption are recorded within “Cost of sales” and any gains or losses related to
property damage are recorded within “Other income (expense).” Insurance recoveries related to business interruption
are classified as operating cash flows and recoveries related to property damage are classified as investing cash flows
in the statement of cash flows. Insurance claims incurred or finalized during the fiscal years ended 2017, 2016, and
2015 are discussed below.
In the second quarter of fiscal 2015, a contract producer owned pullet complex in Florida was damaged by fire. The
fire destroyed two contract producer owned pullet houses that contained the Company’s flocks. In the third quarter
of fiscal 2015, the Company’s Shady Dale, Georgia complex was damaged by a fire. The fire destroyed two pullet
houses. These claims were resolved in fiscal 2016 and did not have a material impact on the Company’s results of
operations.
7. Leases
Future minimum payments under non-cancelable operating leases that have initial or remaining non-cancelable terms
in excess of one year at June 3, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Total minimum lease payments
$
$
502
208
162
160
150
1,182
Substantially all of the leases require the Company to pay taxes, maintenance, insurance and certain other operating
expenses applicable to the leased assets. Vehicle rent expense totaled $475,000, $190,000 and $101,000 in fiscal
2017, 2016 and 2015, respectively. Rent expense excluding vehicle rent was $3.5 million, $3.9 million, and $3.0
million in fiscal 2017, 2016 and 2015, respectively, primarily for the lease of certain operating facilities and
equipment.
8. Credit Facilities and Long-Term Debt
Long-term debt consisted of the following (in thousands except interest rate and installment data):
Note payable at 6.20%, due in monthly principal installments of $250,000, plus interest,
maturing in fiscal 2020
Note payable at 6.35%, due in monthly principal installments of $100,000, plus interest, paid
off in fiscal 2017
Note payable at 5.40%, due in monthly principal installments of $125,000, plus interest,
maturing in fiscal 2019
Note payable at 6.40%, due in monthly principal installments of $35,000, plus interest, paid off
in fiscal 2017
Capital lease obligations
Total debt
Less: current maturities
June 3,
2017
May 28,
2016
$
7,500 $
10,500
—
9,100
1,750
3,250
—
1,689
10,939
4,826
2,720
—
25,570
16,320
Long-term debt, less current maturities
$
6,113 $
9,250
59
The aggregate annual fiscal year maturities of long-term debt at June 3, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
$
$
4,826
3,533
1,696
205
215
464
10,939
Certain property, plant, and equipment is pledged as collateral on our notes payable and senior secured notes. Unless
otherwise approved by our lenders, we are required by provisions of our loan agreements to (1) maintain minimum
levels of working capital (ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth,
plus 45% of cumulative net income); (2) limit dividends paid in any given quarter to not exceed an amount equal to
one third of the previous quarter’s consolidated net income (allowed if no events of default), (3) maintain minimum
total funded debt to total capitalization (debt to total tangible capitalization not to exceed 55%); and (4) maintain
various current and cash-flow coverage ratios (1.25 to 1), among other restrictions. At June 3, 2017, we were in
compliance with the financial covenant requirements of all loan agreements. Under certain of the loan agreements,
the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change
in control, as defined in the applicable loan agreement. Our debt agreements require Fred R. Adams, Jr., the
Company’s Founder and Chairman Emeritus, or his family, to maintain ownership of Company shares representing
not less than 50% of the outstanding voting power of the Company. We are in compliance with those covenants at
June 3, 2017.
Interest, net of amount capitalized, of $317,000, $1.1 million, and $2.3 million was paid during fiscal 2017, 2016 and
2015, respectively. Interest of $1.1 million, $1.1 million and $1.2 million was capitalized for construction of certain
facilities during fiscal 2017, 2016 and 2015, respectively.
9. Employee Benefit Plans
The Company maintains a medical plan that is qualified under Section 401(a) of the Internal Revenue Code and is
not subject to tax under present income tax laws. The plan is funded by contributions from the Company and its
employees. Under its plan, the Company self-insures its portion of medical claims for substantially all full-time
employees. The Company uses stop-loss insurance to limit its portion of medical claims to $225,000 per
occurrence. The Company's expenses including accruals for incurred but not reported claims were approximately
$14.0 million, $11.8 million, and $9.6 million in fiscal years 2017, 2016 and 2015, respectively. The liability
recorded for incurred but not reported claims was $900,000 as of June 3, 2017 and $770,000 as of May 28, 2016.
The Company has a KSOP plan that covers substantially all employees (“the Plan”). The Company makes cash
contributions to the Plan at a rate of 3% of participants' eligible compensation, plus an additional amount determined
at the discretion of the Board of Directors. Contributions can be made in cash or the Company's common stock, and
vest immediately. The Company's cash contributions to the Plan were $3.2 million, $2.9 million, and $2.8 million
in fiscal years 2017, 2016 and 2015, respectively. The Company did not make direct contributions of the Company’s
common stock in fiscal years 2017, 2016, or 2015. Dividends on the Company’s common stock are paid to the Plan
in cash. The Plan acquires the Company’s common stock, which is listed on the NASDAQ, by using the dividends
and the Company’s cash contribution to purchase shares in the public markets. The Plan sold common stock on the
NASDAQ to pay benefits to Plan participants. Participants may make contributions to the Plan up to the maximum
allowed by the Internal Revenue Service regulations. The Company does not match participant contributions.
The Company has deferred compensation agreements with certain officers for payments to be made over specified
periods beginning when the officers reach age 65 or over as specified in the agreements. Amounts accrued for the
agreements are based upon deferred compensation earned over the estimated remaining service period of each
officer. Payments made under the plan were $110,000, $102,000, and $97,000 in fiscal years 2017, 2016, and 2015,
respectively. The liability recorded related to these agreements was $1.6 million at June 3, 2017 and May 28, 2016.
60
In December 2006, the Company adopted an additional deferred compensation plan to provide deferred compensation
to named officers of the Company. The awards issued under this plan were $290,000, $284,000, and $241,000 in
fiscal 2017, 2016 and 2015, respectively. Payments made under the plan were $147,000 and $128,000 in fiscal 2017
and 2016, respectively. The liability recorded related to these agreements was $2.5 million and $1.9 million at June 3,
2017 and May 28, 2016, respectively.
Deferred compensation expense for both plans totaled $616,000, $347,000 and $470,000 in fiscal 2017, 2016 and
2015, respectively.
Postretirement Medical Plan
The Company maintains an unfunded postretirement medical plan to provide limited health benefits to certain
qualified retired employees and officers. Retired non-officers and spouses are eligible for coverage until attainment
of Medicare eligibility, at which time coverage ceases. Retired officers and spouses are eligible for lifetime benefits
under the plan. Officers and their spouses, who retired prior to May 1, 2012, must participate in Medicare Plans A
and B. Officers, and their spouses, who retire on or after May 1, 2012 must participate in Medicare Plans A, B, and
D.
The plan is accounted for in accordance with ASC 715, “Compensation – Retirement Benefits”, whereby an employer
recognizes the funded status of a defined benefit postretirement plan as an asset or liability, and recognizes changes
in the funded status in the year the change occurs through comprehensive income. Additionally, this expense is
recognized on an accrual basis over the employees’ approximate period of employment. The liability associated with
the plan was $2.3 million and $1.8 million as of June 3, 2017 and May 28, 2016, respectively. The remaining
disclosures associated with ASC 715 are immaterial to the Company’s financial statements.
10. Stock Compensation Plans
On October 5, 2012, shareholders approved the Cal-Maine Foods, Inc. 2012 Omnibus Long-Term Incentive Plan
(“2012 Plan”). The purpose of the 2012 Plan is to assist us and our subsidiaries in attracting and retaining selected
individuals who, serving as our employees, outside directors and consultants, are expected to contribute to our success
and to achieve long-term objectives which will benefit our shareholders through the additional incentives inherent in
the awards under the 2012 Plan. The maximum number of shares of common stock that are available for awards under
the 2012 Plan is 1,000,000 shares issuable from the Company’s treasury stock. Awards may be granted under the
2012 Plan to any employee, any non-employee member of the Company’s Board of Directors, and any consultant
who is a natural person and provides services to us or one of our subsidiaries (except for incentive stock options
which may be granted only to our employees).
In January 2017, the Company granted 86,215 restricted shares from treasury. The restricted shares vest three years
from the grant date, or upon death or disability, change in control, or retirement (subject to certain requirements). The
restricted shares contain no other service or performance conditions. Restricted stock is awarded in the name of the
recipient and except for the right of disposal, constitutes issued and outstanding shares of the Company’s common
receive
the period of
stock
dividends. Compensation expense is a fixed amount based on the grant date closing price and is amortized over the
vesting period.
for all corporate purposes during
restriction
including
right
the
to
Our unrecognized compensation expense as a result of non-vested shares was $5.9 million as of June 3, 2017 and $5.6
million as of May 28, 2016. The unrecognized compensation expense will be amortized to stock compensation
expense over a period of 2.1 years.
The Company recognized stock compensation expense of $3.4 million, $1.7 million, and $2.3 million for equity
awards in fiscal 2017, 2016, and 2015, respectively.
61
A summary of our equity award activity and related information for our restricted stock is as follows:
Outstanding, May 30, 2015
Granted
Vested
Forfeited
Outstanding, May 28, 2016
Granted
Vested
Forfeited
Outstanding, June 3, 2017
Number
of
Shares
Weighted
Average
Grant Date
Fair Value
335,140 $
78,560
(122,140)
(2,660)
288,900 $
86,215
(121,148)
(6,232)
247,735 $
27.24
49.39
20.76
31.29
35.97
43.00
26.90
39.66
42.76
On July 28, 2005, the Company’s Board of Directors approved the Cal-Maine Foods, Inc. Stock Appreciation Rights
Plan (the "Rights Plan"). The Rights Plan covers 2,000,000 shares of Common Stock of the Company. Stock
Appreciation Rights ("SARs") were granted to employees or non-employee members of the Board of Directors. Upon
exercise of a SAR, the holder received cash equal to the difference between the fair market value of a single share of
Common Stock at the time of exercise and the strike price which is equal to the fair market value of a single share of
Common Stock on the date of the grant. The SARs had a ten year term and vested over five years. The last remaining
SARs were exercised during fiscal 2016 which effectively terminated this plan.
A summary of our liability award activity and related information is as follows:
Outstanding, May 30, 2015
Granted
Exercised
Forfeited
Outstanding, May 28, 2016
Weighted
Average
Weighted
Average
Remaining
Aggregate
Strike Price
Contractual
Per Right
Life (in Years)
Intrinsic
Value
3.40
—
3.40
—
—
— $
—
Number
Of
Rights
26,900 $
—
(26,900)
—
— $
Total payments for liability awards exercised totaled zero, $1.4 million, and $373,000 for fiscal 2017, 2016 and 2015,
respectively.
62
11. Income Taxes
Income tax expense (benefit) consisted of the following:
Current:
Federal
State
Deferred:
Federal
State
June 3,
2017
Fiscal year ended
May 28,
2016
May 30,
2015
$
$
(48,030) $
(6,670)
(54,700)
13,076
1,757
14,833
(39,867) $
132,250 $
17,560
149,810
17,096
2,296
19,392
169,202 $
70,900
8,260
79,160
4,503
605
5,108
84,268
Significant components of the Company’s deferred tax liabilities and assets were as follows:
Deferred tax liabilities:
Property, plant and equipment
Inventories
Investment in affiliates
Other comprehensive income
Other
Total deferred tax liabilities
Deferred tax assets:
Accrued expenses
Other
Total deferred tax assets
Net deferred tax liabilities
June 3,
2017
May 28,
2016
68,830 $
38,270
8,563
290
4,656
120,609
4,308
6,019
10,327
110,282 $
60,998
39,068
1,438
223
4,343
106,070
3,374
7,314
10,688
95,382
$
$
The differences between income tax expense (benefit) at the Company’s effective income tax rate and income tax
expense at the statutory federal income tax rate were as follows:
Statutory federal income tax (benefit)
State income tax (benefit)
Domestic manufacturers deduction
Tax exempt interest income
Other, net
Fiscal year end
June 3,
2017
May 28,
2016
May 30,
2015
$
(39,950) $
(3,193)
4,095
(206)
(613)
169,835 $
12,906
(13,332)
(233)
26
$
(39,867) $
169,202 $
85,933
5,762
(7,308)
(184)
65
84,268
63
We had no significant unrecognized tax benefits at June 3, 2017 or at May 28, 2016. Accordingly, we do not have any
accrued interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred
related to uncertain tax positions, such amounts would be recognized in income tax expense.
We are under a limited scope audit by the IRS for the fiscal years 2013 through 2015. We are subject to income tax
in many jurisdictions within the U.S., and certain jurisdictions are under audit by state and local tax authorities. The
resolutions of these audits are not expected to be material to our consolidated financial statements. Tax periods for
all years after fiscal year 2013 remain open to examination by the federal and state taxing jurisdictions to which we
are subject.
12. Contingencies
Financial Instruments
The Company maintains standby letters of credit (“LOC”) with a bank totaling $3.7 million at June 3, 2017. These
LOCs are collateralized with cash. The cash that collateralizes the LOCs is included in the line item “Other assets”
in the consolidated balance sheets. The outstanding LOCs are for the benefit of certain insurance companies. None
of the LOCs are recorded as a liability on the Consolidated Balance Sheets.
Litigation
The Company is a defendant in certain legal actions, and intends to vigorously defend its position in these actions.
The Company assesses the likelihood of material adverse judgments or outcomes to the extent losses are reasonably
estimable. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the
amount of the liability can be reasonably estimated, the estimated liability is accrued in the Company’s financial
statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably
possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate
of the range of possible loss if determinable and material, would be disclosed.
Egg Antitrust Litigation
Since September 25, 2008, the Company has been named as one of several defendants in numerous antitrust cases
involving the United States shell egg industry. In some of these cases, the named plaintiffs allege that they purchased
eggs or egg products directly from a defendant and have sued on behalf of themselves and a putative class of others
who claim to be similarly situated. In other cases, the named plaintiffs allege that they purchased shell eggs and egg
products directly from one or more of the defendants but sue only for their own alleged damages and not on behalf
of a putative class. In the remaining cases, the named plaintiffs are individuals or companies who allege that they
purchased shell eggs indirectly from one or more of the defendants - that is, they purchased from retailers that had
previously purchased from defendants or other parties - and have sued on behalf of themselves and a putative class
of others who claim to be similarly situated.
The Judicial Panel on Multidistrict Litigation consolidated all of the putative class actions (as well as certain other
cases in which the Company was not a named defendant) for pretrial proceedings in the United States District Court
for the Eastern District of Pennsylvania. The Pennsylvania court organized the putative class actions around two
groups (direct purchasers and indirect purchasers) and named interim lead counsel for the named plaintiffs in each
group.
The Direct Purchaser Putative Class Action. The direct purchaser putative class cases were consolidated into In re:
Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the
Eastern District of Pennsylvania. As previously reported, in November 2014, the Court approved the Company’s
settlement with the direct purchaser plaintiff class and entered final judgment dismissing with prejudice the class
members’ claims against the Company.
The Indirect Purchaser Putative Class Action. The indirect purchaser putative class cases were consolidated into In
re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the United States District Court for the
Eastern District of Pennsylvania. On April 20-21, 2015, the Court held an evidentiary hearing on the indirect
64
purchaser plaintiffs’ motion for class certification. On September 18, 2015, the Court denied the indirect purchaser
plaintiffs’ motion for class certification of 21 separate classes seeking damages under the laws of 21 states, holding
that the plaintiffs were not able to prove that their purported method for ascertaining class membership was reliable
or administratively feasible, that common questions would predominate, or that their proposed class approach would
be manageable in a single trial. In addition to barring any right to pursue a class monetary remedy under state law,
the Court also denied indirect purchaser plaintiffs’ request for certification of an injunctive-relief class under federal
law. However, the court allowed the indirect purchaser plaintiffs to renew their motion for class certification seeking
a federal injunction. The plaintiffs filed their renewed motion to certify an injunctive-relief class on October 23,
2015. The Company joined the other defendants in opposing that motion on November 20. The plaintiffs filed their
reply memorandum on December 11, 2015, and on March 7, 2017, the Court heard arguments on the renewed motion
for injunctive class certification. On June 27, 2017, the Court denied plaintiffs’ renewed motion for injunctive class
certification. The plaintiffs also filed a petition with the United States Court of Appeals for the Third Circuit, asking
the court to hear an immediate appeal of the trial court’s denial of the motion to certify 21 state-law damages
classes. On December 3, 2015, the Third Circuit entered an order staying its consideration of the plaintiffs’ request
for an immediate appeal of the damages-class ruling pending the trial court’s resolution of the plaintiffs’ renewed
motion to certify an injunctive-relief class. On July 11, 2017 the plaintiffs filed a petition with the Third Circuit
asking the court to hear an appeal of the June 27 order denying plaintiffs’ renewed motion for injunctive class
certification. On July 21, 2017, the Company joined other defendants in a response filed with the Third Circuit
opposing the plaintiffs' petition.
The Non-Class Cases. Six of the cases in which plaintiffs do not seek to certify a class have been consolidated with
the putative class actions into In re: Processed Egg Products Antitrust Litigation, No. 2:08-md-02002-GP, in the
United States District Court for the Eastern District of Pennsylvania. The court granted with prejudice the defendants’
renewed motion to dismiss the non-class plaintiffs’ claims for damages arising before September 24, 2004. On July
2, 2015, the Company filed and joined several motions for summary judgment that sought either dismissal of all of
the claims in all of these cases or, in the alternative, dismissal of portions of these cases. On July 2, 2015, the non-
class plaintiffs filed a motion for summary judgment seeking dismissal of certain affirmative defenses based on
statutory immunities from federal antitrust law. The Court heard oral argument on the motions for summary judgment
on February 22 and 23, 2016. On September 6, 2016, the Court granted the defendants’ motion for summary judgment
against the plaintiffs’ claims arising from their purchases of egg products, dismissing those claims with prejudice. On
September 9, 2016, the Court granted in part the Company’s motion for summary judgment on liability, dismissing
as a matter of law the plaintiffs’ allegations of a side agreement to cease construction of new facilities and ruling that
the plaintiffs’ allegations against United Egg Producers (UEP) animal-welfare guidelines must be evaluated at trial
under the rule of reason. On September 12, 2016, the Court granted in part the Company’s motion for summary
judgment on damages, ruling that plaintiffs cannot recover damages on purchases of eggs from non-defendants and
cannot recover any relief on eggs and egg products produced or sold in Arizona after October 1, 2009, the date that
Arizona mandated that all eggs sold or produced in that state must be produced in compliance with the 2008 version
of the UEP animal-welfare guidelines. On September 13, 2016, the Court granted in part the plaintiffs’ motion for
summary judgment as to the applicability of the Capper-Volstead defense, ruling that United States Egg Marketers
(an industry cooperative of which the Company is a member) may invoke the defense at trial but that UEP (another
industry cooperative of which the Company is a member) cannot. The Capper-Volstead defense is a defense pursuant
to the Capper-Volstead Act (the Co-operative Marketing Associations Act), enacted by Congress in 1922, which gives
certain associations of farmers certain exemptions from antitrust laws. On October 4, 2016, certain direct action
plaintiffs (Kraft Food Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company) filed an appeal
to the United States Court of Appeals for the Third Circuit from the District Court’s Order dated September 6, 2016,
granting defendants’ motion for summary judgment and dismissing with prejudice all claims based on the purchase
of egg products. These plaintiffs filed their opening brief on March 7, 2017. The defendants filed their response brief
on April 20. These plaintiffs filed their reply brief on May 18. The court of appeals heard oral argument on July 11,
2017, but has not issued a ruling. On November 22, 2016, the non-class plaintiffs filed a motion asking the Court to
hold a status conference and asking the court to set the non-class cases for trial in June of 2017. The parties in all of
the remaining class and non-class cases submitted several different proposed trial schedules to the court, and a status
conference was held on February 9, 2017. A trial date has not yet been set.
Allegations in Each Case. In all of the cases described above, the plaintiffs allege that the Company and certain other
large domestic egg producers conspired to reduce the domestic supply of eggs in a concerted effort to raise the price
65
of eggs to artificially high levels. In each case, plaintiffs allege that all defendants agreed to reduce the domestic
supply of eggs by: (a) agreeing to limit production; (b) manipulating egg exports; and (c) implementing industry-
wide animal welfare guidelines that reduced the number of hens and eggs.
The named plaintiffs in the remaining indirect purchaser putative class action seek treble damages under the statutes
and common-law of various states and injunctive relief under the Sherman Act on behalf of themselves and all other
putative class members in the United States. Although plaintiffs allege a class period starting in October, 2006 and
running “through the present,” the Court denied the plaintiffs’ motion to certify classes seeking damages under the
laws of 21 states and denied without prejudice the plaintiffs’ motion to certify an injunctive-relief class, although the
plaintiffs have filed a renewed motion to certify an injunctive-relief class, as discussed above.
Five of the original six non-class cases remain pending against the Company. The principal plaintiffs in these cases
are: The Kroger Co.; Publix Super Markets, Inc.; SUPERVALU, Inc.; Safeway, Inc.; Albertsons LLC; H.E. Butt
Grocery Co.; The Great Atlantic & Pacific Tea Company, Inc.; Walgreen Co.; Hy-Vee, Inc.; and Giant Eagle, Inc. In
four of these remaining non-class cases, the plaintiffs seek treble damages and injunctive relief under the Sherman
Act. In one of those four cases, the plaintiffs purchased only egg products, and as noted above, the Court dismissed
with prejudice all claims arising from the purchase of egg products. On October 4, 2016, the four plaintiffs in that
case (Kraft Food Global, Inc., General Mills, Inc., Nestle USA, Inc., and The Kellogg Company) appealed that
decision to the United States Court of Appeals for the Third Circuit. In the fifth remaining non-class case, the plaintiff
seeks treble damages and injunctive relief under the Sherman Act and the Ohio antitrust act (known as the Valentine
Act).
The Pennsylvania court has entered a series of orders related to case management, discovery, class certification,
summary judgment, and scheduling. The Court has also denied all four motions that the plaintiffs filed to exclude
testimony from certain expert witnesses retained by the defendants. The Pennsylvania court has not set a trial date for
any of the Company’s remaining consolidated cases (non-class and indirect purchaser cases). As noted above, the
court held a hearing on the parties’ proposed trial schedules but has not yet set a trial date.
The Company intends to continue to defend the remaining cases as vigorously as possible based on defenses which
the Company believes are meritorious and provable. While management believes that the likelihood of a material
adverse outcome in the overall egg antitrust litigation has been significantly reduced as a result of the settlements and
rulings described above, there is still a reasonable possibility of a material adverse outcome in the remaining egg
antitrust litigation. At the present time, however, it is not possible to estimate the amount of monetary exposure, if
any, to the Company because of these cases. Accordingly, adjustments, if any, which might result from the resolution
of these remaining legal matters, have not been reflected in the financial statements.
State of Oklahoma Watershed Pollution Litigation
On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of
Oklahoma, against Cal-Maine Foods, Inc. and Tyson Foods, Inc. and affiliates, Cobb-Vantress, Inc., Cargill, Inc. and
its affiliate, George’s, Inc. and its affiliate, Peterson Farms, Inc. and Simmons Foods, Inc. The State of Oklahoma
claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This
watershed provides water to eastern Oklahoma. The complaint seeks injunctive relief and monetary damages, but the
claim for monetary damages has been dismissed by the court. Cal-Maine Foods, Inc. discontinued operations in the
watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request
for injunctive relief unless the court orders substantial affirmative remediation. Since the litigation began, Cal-Maine
Foods, Inc. purchased 100% of the membership interests of Benton County Foods, LLC, which is an ongoing
commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in
the litigation.
The trial in the case began in September 2009 and concluded in February 2010. The case was tried to the court without
a jury and the court has not yet issued its ruling. Management believes the risk of material loss related to this matter
to be remote.
66
Florida Civil Investigative Demand
On November 4, 2008, the Company received an antitrust civil investigative demand from the Attorney General of
the State of Florida. The demand seeks production of documents and responses to interrogatories relating to the
production and sale of eggs and egg products. The Company is cooperating with this investigation and has, on three
occasions, entered into an agreement with the State of Florida tolling the statute of limitations applicable to any
supposed claims the State is investigating. No allegations of wrongdoing have been made against the Company in
this matter.
Other Matters
In addition to the above, the Company is involved in various other claims and litigation incidental to its business.
Although the outcome of these matters cannot be determined with certainty, management, upon the advice of counsel,
is of the opinion that the final outcome should not have a material effect on the Company’s consolidated results of
operations or financial position.
At this time, it is not possible for us to predict the ultimate outcome of the matters set forth above.
13. Description of Rights and Privileges of Capital Stock—Capital Structure Consists of Common Stock and
Class A Common Stock
The Company has two classes of capital stock: Common Stock and Class A Common Stock. Holders of shares of the
Company’s capital stock vote as a single class on all matters submitted to a vote of the stockholders, with each share
of Common Stock entitled to one vote and each share of Class A Common Stock entitled to ten votes. The Common
Stock and Class A Common Stock have equal liquidation rights and the same dividend rights. In the case of any stock
dividend, holders of Common Stock are entitled to receive the same percentage dividend (payable only in shares of
Common Stock) as the holders of Class A Common Stock receive (payable only in shares of Class A Common Stock).
Upon liquidation, dissolution, or winding-up of the Company, the holders of Common Stock are entitled to share
ratably with the holders of Class A Common Stock in all assets available for distribution after payment in full of
creditors. The Class A Common Stock may only be issued to Fred R. Adams, Jr., the Company’s Founder and
Chairman Emeritus, and members of his immediate family, as defined in the Company's articles of incorporation. In
the event any share of Class A Common Stock, by operation of law or otherwise is, or shall be deemed to be owned
by any person other than Mr. Adams or a member of his immediate family, the voting power of such stock will be
reduced from ten votes per share to one vote per share. Also, shares of Class A Common Stock shall be automatically
converted into Common Stock on a share per share basis in the event the beneficial or record ownership of any such
share of Class A Common Stock is transferred to any person other than Mr. Adams or a member of his immediate
family. Each share of Class A Common Stock is convertible, at the option of its holder, into one share of Common
Stock at any time. The holders of Common Stock and Class A Common Stock are not entitled to preemptive or
subscription rights. In any merger, consolidation or business combination, the consideration to be received per share
by holders of Common Stock must be identical to that received by holders of Class A Common Stock, except that if
any such transaction in which shares of Capital Stock are distributed, such shares may differ as to voting rights to the
extent that voting rights now differ among the classes of capital stock. No class of capital stock may be combined or
subdivided unless the other classes of capital stock are combined or subdivided in the same proportion. No dividend
may be declared and paid on Class A Common Stock unless the dividend is payable only to the holders of Class A
Common Stock and a dividend is declared and paid to Common Stock concurrently.
On July 25, 2014, the Board of Directors approved an amendment to the Company’s Amended and Restated
Certificate of Incorporation to authorize an additional 60,000,000 shares of common stock and an additional
2,400,000 shares of Class A common stock. The primary purpose of the amendment was to provide a sufficient
number of authorized shares in order to effect a 2-for-1 stock split of the Company’s common stock and Class A
common stock. The amendment was approved by the Company’s stockholders at the Company’s annual meeting on
October 3, 2014 and the Board of Directors approved the 2-for-1 stock split on the same day. The new shares were
distributed on October 31, 2014 to shareholders of record at the close of business on October 17, 2014.
Unless otherwise noted, all prior period share and per share information contained in this report was adjusted to reflect
the effect of the stock split.
67
14. Fair Value Measures
The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following
fair value hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction
between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is
defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties,
not the amount that would be paid to settle the liability with the creditor.
• Level 1 - Quoted prices in active markets for identical assets or liabilities.
• Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly.
• Level 3 - Unobservable inputs for the asset or liability supported by little or no market activity and are
significant to the fair value of the assets or liabilities.
The disclosure of fair value of certain financial assets and liabilities recorded at cost are as follows:
Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount approximates fair value
due to the short maturity of these instruments.
Long-term debt: The carrying value of the Company’s long-term debt is at its stated value. We have not elected to
carry our long-term debt at fair value. Fair values for debt are based on quoted market prices or published forward
interest rate curves, which are level 2 inputs. Estimated fair values are management’s estimates, which is a level 3
input; however, when there is no readily available market data, the estimated fair values may not represent the amounts
that could be realized in a current transaction, and the fair values could change significantly. The fair value of the
Company’s debt is sensitive to changes in the general level of U.S. interest rates. The Company maintains all of its
debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. Under its current policies, the
Company does not use interest rate derivative instruments to manage its exposure to interest rate changes. A one
percent (1%) adverse move (i.e. decrease) in interest rates would adversely affect the net fair value of the Company’s
debt by $144,000 at June 3, 2017. The fair value and carrying value of the Company’s long-term debt were as follows
(in thousands):
5.40 – 6.40% Notes payable
Long-term leases
June 3, 2017
May 28, 2016
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
9,250 $
1,689
10,939 $
9,295 $
1,520
10,815 $
25,570 $
—
25,570 $
25,824
—
25,824
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following table shows the fair value of our financial
assets and liabilities that are required to be measured at fair value on a recurring basis as of June 3, 2017 and May 28,
2016 (in thousands):
68
June 3, 2017
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Instruments
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Balance
— $
20,216 $
— $
—
—
—
2,459
2,459 $
36,873
75,790
5,583
—
—
—
—
—
138,462 $
— $
140,921
20,216
36,873
75,790
5,583
2,459
May 28, 2016
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Instruments
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Balance
— $
18,814 $
— $
—
—
—
—
5,503
5,503 $
79,643
240,537
2,046
15,893
—
—
—
—
—
—
356,933 $
— $
18,814
79,643
240,537
2,046
15,893
5,503
362,436
Assets
US government and agency obligations
Municipal bonds
Corporate bonds
Asset backed securities
Mutual funds
Total assets measured at fair value
Assets
US government and agency obligations
Municipal bonds
Corporate bonds
Foreign government obligations
Asset backed securities
Mutual funds
Total assets measured at fair value
$
$
$
$
Our investment securities – available-for-sale classified as level 2 consist of U.S. government and agency obligations,
taxable and tax exempt municipal bonds, zero coupon municipal bonds, asset-backed securities, foreign government
obligations, and corporate bonds with maturities of three months or longer when purchased. We classified these
securities as current, because amounts invested are available for current operations. Observable inputs for these
securities are yields, credit risks, default rates, and volatility.
The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with
business acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation
and are subject to recurring revaluations. The fair value of non-financial assets acquired is determined internally. Our
internal valuation methodology for non-financial assets takes into account the remaining estimated life of the assets
acquired and what management believes is the market value for those assets.
69
15. Investment Securities
Investment securities consisted of the following (in thousands):
June 3, 2017
Gains in
Losses in
Accumulated
Accumulated
Estimated
Amortized
Cost
Other
Comprehensive
Other
Comprehensive
Fair
Value
Income
Income
20,259 $
36,839
75,769
5,583
—
138,450 $
1,706
1,706 $
—
34
21
—
—
55 $
753
753
43 $
—
—
—
—
43 $
—
— $
20,216
36,873
75,790
5,583
—
138,462
2,459
2,459
May 28, 2016
Gains in
Losses in
Accumulated
Accumulated
Estimated
Amortized
Cost
Other
Comprehensive
Other
Comprehensive
Fair
Value
Income
Income
18,809 $
79,481
240,593
2,044
15,908
3,565
360,400 $
1,448
1,448 $
5
162
—
2
—
1
170 $
489
489
— $
—
56
—
15
—
71 $
—
— $
18,814
79,643
240,537
2,046
15,893
3,566
360,499
1,937
1,937
$
$
$
$
$
$
US government and agency obligations
Municipal bonds
Corporate bonds
Asset backed securities
Mutual funds
Total current investment securities
Mutual funds
Total noncurrent investment securities
US government and agency obligations
Municipal bonds
Corporate bonds
Foreign government obligations
Asset backed securities
Mutual funds
Total current investment securities
Mutual funds
Total noncurrent investment securities
Proceeds from the sales of available-for-sale securities were $251.7 million, $292.5 million, and $146.8 million during
fiscal 2017, 2016, and 2015, respectively. Gross realized gains on those sales during fiscal 2017, 2016, and 2015
were $231,000, $131,000, and $82,000, respectively. Gross realized losses on those sales during fiscal 2017, 2016,
and 2014 were $7,000, $110,000, and $7,000, respectively. For purposes of determining gross realized gains and
losses, the cost of securities sold is based on the specific identification method.
Unrealized holding gains and (losses), net of taxes, for fiscal 2017, 2016, and 2015 were as follows (in thousands):
Current Investments
Noncurrent Investments
Total unrealized holding gains (losses)
June 3, 2017
(54)
164
110
May 28, 2016
22
(31)
(9)
May 30, 2015
(146)
59
(87)
70
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. Contractual maturities of investment securities at June 3,
2017, are as follows (in thousands):
Within one year
1-3 years
$
$
Estimated Fair Value
82,331
56,131
138,462
16. Quarterly Financial Data: (unaudited, amount in thousands, except per share data):
Net sales
Gross profit
Net income (loss) attributable to Cal-Maine Foods, Inc.
Net income (loss) per share:
Basic
Diluted
$
$
$
Fiscal Year 2017
First
Quarter
239,845 $
(9,569)
(30,936)
Third
Quarter
Second
Quarter
253,544 $ 306,540 $
3,948
(23,010)
39,165
4,139
Fourth
Quarter
274,584
12,006
(24,471)
(0.64) $
(0.64) $
(0.48) $
(0.48) $
0.09 $
0.09 $
(0.51)
(0.51)
During the Company's fourth quarter of fiscal 2017, we decided to carry back fiscal 2017 net operating losses to
recover taxes paid in fiscal 2015, which affects the comparability between quarters. The net operating loss carryback
resulted in a $4.1 million decrease in the income tax benefit, as the carryback reduced prior year taxable income and
as a result reduced the benefit of prior year domestic manufacturers deductions, a portion of which were therefore
reversed in the fourth quarter of fiscal 2017.
Fiscal Year 2016
First
Quarter
609,895 $
263,071
143,023
Third
Quarter
Second
Quarter
545,975 $ 449,760 $
211,597
109,230
132,726
64,164
Fourth
Quarter
303,020
40,680
(376)
2.97 $
2.95 $
2.27 $
2.26 $
1.33 $
1.33 $
(0.01)
(0.01)
Net sales
Gross profit
Net income (loss) attributable to Cal-Maine Foods, Inc.
Net income (loss) per share:
Basic
Diluted
$
$
$
71
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 3, 2017, May 28, 2016, and May 30, 2015
(in thousands)
Description
Year ended June 3, 2017
Allowance for doubtful accounts
Year ended May 28, 2016
Allowance for doubtful accounts
Year ended May 30, 2015
Allowance for doubtful accounts
Balance at
Beginning of
Period
Charged to
Cost and
Expense
Write-off
of Accounts
Balance at
End of
Period
$
$
$
727 $
(176) $
513 $
225 $
430 $
432 $
165 $
11 $
349 $
386
727
513
72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including our principal executive and
principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our
Chief Executive Officer and Chief Financial Officer, together with other financial officers, such officers concluded
that our disclosure controls and procedures were effective as of June 3, 2017 at the reasonable assurance level.
Internal Control Over Financial Reporting
(a) Management’s Report on Internal Control Over Financial Reporting
The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308 of the
Securities and Exchange Commission’s Regulation S-K, the report of management on our internal control over
financial reporting.
1. Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. “Internal control over financial reporting” is a process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer, together with other financial officers, and
effected by our Board of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our management and
directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
2. Our management, in accordance with Rule 13a-15(c) under the Exchange Act and with the participation
of our Chief Executive Officer and Chief Financial Officer, together with other financial officers,
evaluated the effectiveness of our internal control over financial reporting as of June 3, 2017. The
framework on which management’s evaluation of our internal control over financial reporting is based is
the “Internal Control – Integrated Framework” published in 2013 by the Committee of Sponsoring
Organizations (“COSO”) of the Treadway Commission.
73
3. Management has determined that our internal control over financial reporting as of June 3, 2017 is
effective. It is noted that internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives, but rather reasonable assurance of achieving such objectives.
4. The attestation report of FROST, PLLC on our internal control over financial reporting, which includes
that firm’s opinion on the effectiveness of our internal control over financial reporting, is set forth below.
(b) Attestation Report of the Registrant’s Public Accounting Firm
74
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Cal-Maine Foods, Inc. and Subsidiaries
Jackson, Mississippi
We have audited Cal-Maine Foods, Inc. and Subsidiaries’ internal control over financial reporting as of June 3, 2017,
based on criteria established in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Cal-Maine Foods, Inc. and Subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the entity’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion.
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. An entity’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the entity are being made only in accordance with authorizations of management and directors of the entity; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the entity’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, Cal-Maine Foods, Inc. and Subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of June 3, 2017, based on criteria established in 2013 Internal Control-Integrated
Framework issued by the COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets and the related consolidated statements of operations, comprehensive income
(loss), stockholders’ equity and cash flows of Cal-Maine Foods, Inc. and Subsidiaries, and our report dated July 21,
2017, expressed an unqualified opinion.
/s/Frost, PLLC
Little Rock, Arkansas
July 21, 2017
75
(c) Changes in Internal Control Over Financial Reporting
In connection with its evaluation of the effectiveness, as of June 3, 2017, of our internal control over financial
reporting, management determined that there was no change in our internal control over financial reporting that
occurred during the fourth quarter ended June 3, 2017, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information concerning directors, executive officers and corporate governance is
incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 in connection with our 2017 Annual Meeting of Shareholders.
We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees, including the chief executive
and principal financial and accounting officers of the Company. We will provide a copy of the code free of charge to
any person that requests a copy by writing to:
Cal-Maine Foods, Inc.
P.O. Box 2960
Jackson, Mississippi 39207
Attn.: Investor Relations
Requests can be made by phone at (601) 948-6813.
A copy is also available at our website www.calmainefoods.com. We intend to disclose any amendments to, or
waivers from, the Code of Conduct and Ethics for Directors, Officers and Employees on our website promptly
following the date of any such amendment or waiver. Information contained on our website is not a part of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is incorporated by reference from our definitive proxy statement
which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with our
2017 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information concerning security ownership of certain beneficial owners and management and related stockholder
matters is incorporated by reference from our definitive proxy statement which is to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 in connection with our 2017 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information concerning certain relationships and related transactions, and director independence is incorporated
by reference from our definitive proxy statement which is to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with our 2017 Annual Meeting of Shareholders.
76
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning principal accounting fees and services is incorporated by reference from our definitive
proxy statement which is to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in
connection with our 2017 Annual Meeting of Shareholders.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following consolidated financial statements and notes thereto of Cal-Maine Foods, Inc. and subsidiaries are
included in Item 8 and are filed herewith:
Report of Independent Registered Public Accounting Firms.
Consolidated Balance Sheets – June 3, 2017 and May 28, 2016
Consolidated Statements of Operations – Fiscal Years Ended June 3, 2017, May 28, 2016, and May
30, 2015
Consolidated Statements of Comprehensive Income (Loss) – Fiscal Years Ended June 3, 2017, May
28, 2016, and May 30, 2015
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended June 3,
2017, May 28, 2016, and May 30, 2015
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 3, 2017, May 28, 2016, and
May 30, 2015
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
43
44
45
46
47
48
49 - 71
72
All other schedules are omitted either because they are not applicable or required, or because the required information
is included in the financial statements or notes thereto.
(a)(3) Exhibits Required by Item 601 of Regulation S-K
See Part (b) of this Item 15.
(b)
Exhibits Required by Item 601 of Regulation S-K
77
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number Exhibit
3.1
3.2
10.1*
10.2*
10.3
10.4*
10.5*
10.6*
10.7*
21**
23.1**
31.1**
31.2**
32***
99.1
Composite Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 in the
Registrant’s Form 10-Q for the quarter ended November 29, 2014, filed December 29, 2014).
Composite Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 in the Registrant’s Form 10-Q
for the quarter ended March 2, 2013, filed April 5, 2013).
Wage Continuation Plan, dated as of April 15, 1988, between Joe Wyatt and the Registrant (incorporated by
reference to Exhibit 10.8 in the Registrant’s Form S-1 Registration Statement No. 333-14809, filed October
25, 1996).
Deferred Compensation Plan, dated December 28, 2006 (incorporated by reference to Exhibit 10.15 in the
Registrant’s Form 8-K, filed January 4, 2007).
Loan Agreement, dated as of November 12, 2009, between the Registrant and Metropolitan Life Insurance
Company (incorporated by reference to Exhibit 10.3(e) in the Registrant’s Form 8-K, filed November 17,
2009).
Cal-Maine Foods, Inc. KSOP, as amended and restated, effective April 1, 2012 (incorporated by reference to
Exhibit 4.4 in the Registrant’s Form S-8, filed March 30, 2012).
Cal-Maine Foods, Inc. KSOP Trust, as amended and restated, effective April 1, 2012 (incorporated by
reference to Exhibit 4.5 in the Registrant’s Form S-8, filed March 30, 2012).
2012 Omnibus Long-Term Incentive Plan (incorporated by reference to Appendix B to the Registrant’s Proxy
Statement for the Annual Meeting held October 5, 2012, filed September 6, 2012).
Form of Restricted Stock Agreement for 2012 Omnibus Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.13 in the Registrant’s Form 10-K for the year ended May 31, 2014, filed July 28, 2014).
Subsidiaries of the Registrant
Consent of FROST, PLLC
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Chief Financial Officer
Section 1350 Certifications of the Chief Executive Officer and the Chief Financial Officer
Press release dated July 24, 2017 announcing interim and annual financial information (incorporated by
reference to Exhibit 99.1 in the Company’s Form 8-K, filed July 24, 2017).
101.INS***+ XBRL Instance Document Exhibit
101.SCH***+ XBRL Taxonomy Extension Schema Document Exhibit
101.CAL***+ XBRL Taxonomy Extension Calculation Linkbase Document Exhibit
101.DEF***+ XBRL Taxonomy Extension Definition Linkbase Document Exhibit
101.LAB***+ XBRL Taxonomy Extension Label Linkbase Document Exhibit
101.PRE***+ XBRL Taxonomy Extension Presentation Linkbase Document
* Management contract or compensatory plan or arrangement
** Filed herewith as an Exhibit
*** Furnished herewith as an Exhibit
† Submitted electronically with this Annual Report on Form 10-K
The Company has not filed instruments with respect to long-term debt where the total amount of securities authorized
thereunder does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish to the Securities and Exchange Commission, upon request, copies of any such
instrument.
(c)
Financial Statement Schedules Required by Regulation S-X
The financial statement schedule required by Regulation S-X is filed at page 73. All other schedules for which
provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have been omitted.
78
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Jackson, Mississippi.
SIGNATURES
CAL-MAINE FOODS, INC.
/s/ Adolphus B. Baker
Adolphus B. Baker
President, Chief Executive Officer and Chairman of the Board
Date:
July 21, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
/s/ Adolphus B. Baker
Adolphus B. Baker
/s/ Timothy A. Dawson
Timothy A. Dawson
President, Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Vice President, Chief Financial
Officer and Director
(Principal Financial Officer)
/s/ Michael D. Castleberry
Michael D. Castleberry
Vice President, Controller
(Principal Accounting Officer)
/s/ Sherman Miller
Sherman Miller
/s/ Letitia C. Hughes
Letitia C. Hughes
/s/ James E. Poole
James E. Poole
/s/ Steve W. Sanders
Steve W. Sanders
Vice President, Chief Operating
Officer and Director
Director
Director
Director
Date
July 21, 2017
July 21, 2017
July 21, 2017
July 21, 2017
July 21, 2017
July 21, 2017
July 21, 2017
79
Subsidiaries of Cal-Maine Foods, Inc.
Name of Subsidiary
Southern Equipment Distributors, Inc.
South Texas Applicators, Inc.
American Egg Products, LLC
Texas Egg Products, LLC
Benton County Foods, LLC
Wharton County Foods, LLC
Place of Incorporation or
Organization
Mississippi
Delaware
Georgia
Texas
Arkansas
Texas
Exhibit 21
Percentage of
Outstanding Stock
or Ownership
Interest Held by
Registrant
100%
100%
100%
72.1% (1)
100%
100%
(1) Limited liability company of which Cal-Maine Foods, Inc. and Wharton County Foods, LLC are
members and have 50.3% and 21.8%, respectively.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-
180470) of Cal-Maine Foods, Inc. pertaining to the Cal-Maine Foods, Inc. KSOP and the Registration
Statement (Form S-8 No. 333-184310) pertaining to the Cal-Maine Foods, Inc. 2012 Omnibus Long-Term
Incentive Plan, of our reports dated July 21, 2017, relating to the consolidated financial statements and
financial statement schedules, and the effectiveness of Cal-Maine Foods, Inc. and Subsidiaries’ internal
control over financial reporting, which appear in the Annual Report to Shareholders, which is incorporated
by reference in this Annual Report on Form 10-K.
/s/Frost, PLLC
Little Rock, Arkansas
July 21, 2017
Exhibit 31.1
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Adolphus B. Baker, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cal-Maine Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ Adolphus B. Baker
Adolphus B. Baker
President, Chief Executive Officer, and Chairman of the Board
Date : July 21, 2017
Exhibit 31.2
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Timothy A. Dawson, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cal-Maine Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ Timothy A. Dawson
Timothy A. Dawson
Vice President and Chief Financial Officer
Date: July 21, 2017
Exhibit 32
Certifications Pursuant to 18 U.S.C. §1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief
Financial Officer of Cal-Maine Foods, Inc. (the “Company”), hereby certify, based on our
knowledge, that the Annual Report on Form 10-K of the Company for the fiscal year ended June
3, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that the information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
/s/ Adolphus B. Baker
Adolphus B. Baker
President, Chief Executive Officer, and Chairman of the Board
/s/ Timothy A. Dawson
Timothy A. Dawson
Chief Financial Officer
Date: July 21, 2017
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CORPORATE INFORMATION
Corporate Information
Cal-Maine Foods, Inc.
3320 W. Woodrow Wilson Avenue
Jackson, Mississippi 39209-3409
(601) 948-6813
www.calmainefoods.com
Transfer Agent
Computershare Investor Services
P.O. Box 505000
Louisville, Kentucky 40233
800-254-5196
www.computershare.com/investor
Independent Registered
Public Accounting Firm
Frost, PLLC
425 West Capitol, Suite 3300
Little Rock, Arkansas 72201
Annual Meeting
10:00 a.m. Central Time
October 6, 2017
Cal-Maine Foods, Inc. Corporate Offices
3320 W. Woodrow Wilson Avenue
Jackson, Mississippi
Form 10-K
The Form 10-K, including the financial statements and
schedules thereto, for the year ended June 3, 2017,
as well as other information about Cal-Maine Foods,
Inc. may be obtained without charge by writing to
Ms. Jenny Davis, Investor Relations, at the Company’s
corporate offices.
2017 CALM Annual Report.indd 4
8/15/17 1:43 PM
CAL-MAINE FOODS, INC
3320 W. Woodrow Wilson Avenue
Jackson, Mississippi 39209-3409
(601) 948-6813
www.calmainefoods.com
2017 CALM Annual Report.indd 1
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