Summary of Significant Accounting Policies

12 Months Ended

Jun. 03, 2023

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1 - Summary of Significant Accounting Policies

Nature of Operations

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, including conventional, cage-free, organic, brown, free -range, pasture-raised and

nutritionally-enhanced eggs. The Company, which is headquartered in Ridgeland, Mississippi, is the largest producer and

distributor of fresh shell eggs in the United States and sells the majority of its shell eggs in states across the southwestern,

southeastern, mid-western and mid-Atlantic regions of the United States.

Principles of Consolidation

The consolidated financial statements include the accounts of all wholly-owned subsidiaries and of majority-owned subsidiaries

over which we exercise control. All significant intercompany transactions and accounts have been eliminated in consolidation.

Fiscal Year

The Company’s fiscal year-end is on the Saturday closest to May 31. The fiscal year ended

June 3, 2023

, included

53

 weeks and

the fiscal years ended May 28, 2022 and May 29, 2021 included

52

 weeks.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”)

in the United States of America 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 up to $250,000. The

Company routinely maintains cash balances with certain financial institutions in excess of federally insured amounts. The

Company has not experienced any loss 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 to which funds are moved, and zero-balance disbursement accounts for funding 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.

Investment Securities

The Company has determined that its debt securities are available-for-sale investments. We classify these securities as current

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

quoted market prices as of the balance sheet date, with unrealized gains and losses recorded in other comprehensive income. The

amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and is recorded

in interest income. The Company regularly evaluates changes to the rating of its debt securities by credit agencies and economic

conditions to assess and record any expected credit losses through allowance for credit losses, limited to the amount that fair

value was less than the amortized cost basis. 

Investments in mutual funds are recorded at fair value and are classified as “Other long-term assets” in the Company’s

Consolidated Balance Sheets. Unrealized gains and losses for equity securities are recorded in other income (expenses) as Other,

net in the Company’s Consolidated Statements of Income.

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 Consolidated Statements of Income.

Interest and dividends on securities classified as available-for-sale are recorded in interest income.

Trade Receivables 

Trade receivables are stated at their carrying values, which include a reserve for credit losses. At June 3, 2023 and May 28, 2022,

reserves for credit losses were $

579

 thousand and $

775

 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. At June 3, 2023 and May 28, 2022,

one

 customer accounted for

approximately

30.1

% and

27.9

% of the Company’s trade accounts receivable, respectively.

Inventories

Inventories of eggs, feed, supplies and flocks are valued principally at the lower of cost (first-in, first-out method) or net realizable

value.

The cost associated with flocks, consisting principally of chicks, 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.

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 amortizes such cost

over the asset’s estimated useful life. When certain events or changes in operating conditions occur, asset lives may be adjusted

and an impairment assessment may be performed on the recoverability of the carrying amounts.

Investments in Unconsolidated Entities

The equity method of accounting is used when the Company can exert significant influence over an entity, but does not control

its financial and operating decisions. 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. Equity investments without readily determinable fair values,

when the Company does not have the ability to exercise significant influence over the investee, are recorded at cost, less

impairment, plus or minus observable price changes.

The Company is a member of Eggland’s Best, Inc. and ProEgg, Inc., which are cooperatives. These investments are recorded at

cost, plus or minus any allocated equities and retains.

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. During the fourth quarter of 2023, we elected to change the date of our annual impairment assessment from year-

end to the first day of the fourth quarter. The change was made to more closely align the impairment assessment date with our

annual planning and forecasting process. The change in impairment assessment date did not have any impact on goodwill or the

impairment of goodwill. The change has been applied prospectively and would not have an impact on a retrospective basis.

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

5

 to

15

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 or the contract has expired. When certain events or changes in operating conditions

occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

Accrued Self Insurance

We use a combination of insurance and self-insurance mechanisms to provide coverage 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.

Dividend Payable

We accrue dividends at the end of each quarter according to the Company’s dividend policy adopted by its Board of Directors.

The Company pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each

quarter for which the Company reports net income attributable to Cal-Maine Foods, Inc. computed in accordance with GAAP in

an amount equal to one-third (

1/3

) of such quarterly income. Dividends are paid to shareholders of record as of the 60th day

following the last day of such quarter, except for the fourth fiscal quarter. For the fourth quarter, the Company pays dividends to

shareholders of record on the 65th day after the quarter end. Dividends are payable on the 15th day following the record date.

Following a quarter for which the Company does not report net income attributable to Cal-Maine Foods, Inc., the Company will

not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the

date of the most recent quarter for which a dividend was paid.

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

Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within

days of the Company and customer agreeing upon the order. See

 for further discussion of the

policy.

The Company believes the performance obligation is 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 Income. 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.

Advertising Costs

The Company expensed advertising costs as incurred of $

3.4

 million, $

12.6

 million, and $

11.7

 million in fiscal 2023, 2022, and

2021, respectively.

Income Taxes

Income taxes are accounted for 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 initially and subsequently measures the largest amount of

tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority that has full knowledge of all

relevant information. The Company records interest and penalties on uncertain tax positions as a component of income tax

expense. 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

The Company recognizes all share-based payments to employees and directors, including grants of employee stock options,

restricted stock and performance-based shares, in the Consolidated Statements of Income based on their fair values. The benefits

of tax deductions in excess of recognized compensation cost are reported as a financing cash flow. See

 for more information.

Business Combinations

The Company applies the acquisition method of accounting, which requires that once control is obtained, all the assets acquired

and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values at

the date of acquisition. We determine the fair values of identifiable assets and liabilities internally, which requires estimates and

the use of various valuation techniques. When a market value is not readily available, our internal valuation methodology

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

We typically use the income method approach for intangible assets acquired in a business combination. Significant estimates in

valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates, discount

rates and useful lives. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill.

Loss Contingencies

Certain conditions may exist as of the date the 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.

New Accounting Pronouncements and Policies

No new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our

Consolidated Financial Statements.