Summary of Significant Accounting Policies

9 Months Ended

Feb. 26, 2022

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of Cal-Maine Foods, Inc. and its subsidiaries (the "Company,"

"we," "us," "our") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles in the

United States of America ("GAAP") for complete financial statements and should be read in conjunction with our Annual

Report on Form 10-K for the fiscal year ended May 29, 2021 (the "2021 Annual Report"). These statements reflect all

adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented

and, in the opinion of management, consist of adjustments of a normal recurring nature. Operating results for the interim

periods are not necessarily indicative of operating results for the entire fiscal year.

Fiscal Year

The Company's fiscal year ends on the Saturday closest to May 31. Each of the three-month periods and year-to-date periods

ended on February 26, 2022 and February 27, 2021 included 13 weeks and 39 weeks, respectively

.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and

assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results

could differ from those estimates.

The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly

changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future

periods in response to COVID-19.

Investment Securities

Our investment securities are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC

320”). The Company considers all its debt 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. We classify these securities as

current, because the amounts invested are available for current operations. Available-for-sale securities are carried at fair value,

with unrealized gains and losses reported as a separate component of stockholders’ equity. The Company regularly evaluates

changes to the rating of its debt securities by credit agencies and economic conditions to assess and record any expected credit

losses through the allowance for credit losses, limited to the amount that fair value was less than the amortized cost basis. The

cost basis for realized gains and losses on available-for-sale securities is determined by the specific identification method.

Gains and losses are recognized in other income (expenses) as Other, net in the Company's Condensed Consolidated Statements

of Income. Investments in mutual funds are classified as “Other long-term assets” in the Company’s Condensed Consolidated

Balance Sheets.

Trade Receivables 

Trade receivables are stated at their carrying values, which include a reserve for credit losses. At February 26, 2022 and May

29, 2021, reserves for credit losses were $

725

 thousand and $

795

 thousand, respectively. The Company extends credit to

customers based on an evaluation of each customer's financial condition and credit history. Collateral is generally not required.

The Company minimizes exposure to counter party credit risk through credit analysis and approvals, credit limits, and

monitoring procedures. In determining our reserve for credit losses, receivables are assigned an expected loss based on

historical loss information adjusted as needed for economic and other forward-looking factors.

Business Combinations

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. The fair value of

non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets considers the

remaining estimated life of the assets acquired and what management believes is the market value for those assets.

Change in Accounting Principle

Effective May 31, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which is

intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial

instruments held by financial institutions and other organizations. The guidance replaces the prior “incurred loss” approach with

an “expected loss” model and requires measurement of all expected credit losses for financial assets held at the reporting date

based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted the

guidance on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of

the period of adoption. The Company evaluated its current methodology of estimating allowance for doubtful accounts and the

risk profile of its receivables portfolio and developed a model that includes the qualitative and forecasting aspects of the

“expected loss” model under the amended guidance. The Company finalized its assessment of the impact of the amended

guidance and recorded a $

422

 thousand cumulative increase to retained earnings at May 31, 2020.

Immaterial Error Correction

Effective on May 30, 2021, the Company acquired the remaining

50

% membership interest in Red River Valley Egg Farm,

LLC (“Red River”), including certain liabilities. During the Company’s third quarter of fiscal 2022, management determined

that it had not properly eliminated select intercompany sales and cost of sales transactions between Red River and the

corresponding other wholly-owned subsidiaries of the Company in its first and second quarter 2022 Condensed Consolidated

Statements of Income. The errors resulted in an overstatement of Net Sales and Cost of Sales of $

6.7

 million in the first quarter

of fiscal 2022 and $

9.2

 million in the second quarter of fiscal 2022. There was

no

 impact to Operating income (loss), Net

income (loss) or Net income (loss) per share. 

We evaluated the errors quantitatively and qualitatively in accordance with Staff Accounting Bulletin

("SAB") No. 99 Materiality, and SAB No. 108 Considering the Effects of Prior Year Misstatements when Quantifying

Misstatements in the Current Year Financial Statements, and determined that the related impact was not material to our

condensed consolidated financial statements for the first or second quarters of fiscal 2022, but that correcting the cumulative

impact of the errors would be relevant to our Condensed Consolidated Statements of Income for the third quarter

ended February 26, 2022. Accordingly, we have reflected the correction of the immaterial errors as a reduction of Net Sales and

Cost of Sales in the accompanying Condensed Consolidated Statements of Income for the thirty-nine weeks ended February 26,

2022.