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CAL-MAINE FOODS INC

For the period ended Dec 2, 2023. Filed Jan 3, 2024.

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About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Dec 2, 2023 · Filed Jan 3, 2024

CALM$67.09-2.5%Stored close · as of Nov 10, 2026

Extracted filing text, with the paragraph anchors used by the comparison.

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Notes to Condensed Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The

unaudited

condensed

consolidated

of

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 and

in

with generally

principles in

the

United

States of

America

(“GAAP”)

for

interim

reporting and

should be

read in

conjunction with

our Annual

Report on

Form 10-K

for the fiscal

year ended

June 3,

2023 (the

“2023

Annual

Report”).

These

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 December 2, 2023 and November 26, 2022 included

13 weeks

and

26 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.

Investment Securities

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

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

at

fair

value

and

are

as

“Other

long-term

assets”

in

the

Balance

Sheets.

gains

and

losses

for

equity

are

in

other

income

(expenses) as Other, net in the Company’s

Condensed 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

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. As of December

2, 2023 and June

3,

2023,

reserves

for

credit

losses

were

$

and

$

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.

the

excess

of

the

price

over

the

fair

value

of

the

identifiable

net

assets

acquired.

is

evaluated

for

impairment

annually

by

first

performing

a

qualitative

assessment

to

whether

a

quantitative

goodwill

Index

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

unit

is

less

than

its

amount,

then

we

perform

additional

quantitative

tests

to

the

magnitude of any impairment.

Intangible Assets

Intangible

assets

are

initially

at

fair

value

in

acquisitions,

which

include

franchise

rights,

relationships, non-compete

agreements, trademark

and right

of use

intangibles. They

are amortized

over their

estimated useful

lives

of

to

years. The

gross

cost

and

accumulated

amortization

of

intangible

assets

are

removed

when

the

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.

Indefinite life assets are recorded at fair value in business acquisitions and

represents water rights. They are not amortized, but

are reviewed for impairment at least annually or more frequently if

impairment indicators arise.

Dividends Payable

We

accrue dividends at

the end of

each quarter according

to the Company’s

dividend policy adopted

by its Board

of Directors.

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

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,

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.

The dividend policy is subject to

periodic review by the Board of

Directors.

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

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

liabilities, and

such assessment

inherently

involves an

exercise

of judgment.

In assessing

loss

contingencies

related

to legal

proceedings

that are

pending against

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.

Index

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.

Note 2 - Acquisition

Effective

September 30, 2023

, the Company

acquired the assets of

Fassio Egg Farms,

Inc. (“Fassio”), related

to its commercial

shell

egg

and

business.

Fassio

owns

and

operates

shell

egg

and

facilities with

a capacity

at the

time of

acquisition of

1.2

million

laying hens,

cage-free,

a feed

mill,

pullets, a

fertilizer production

and composting

operation and

land located

in Erda, Utah,

outside Salt

Lake City.

accounted for the acquisition as a business combination.

The following table summarizes the consideration paid

for Fassio and the amounts of the assets acquired and

liabilities assumed

recognized at the acquisition date (in thousands):

Cash consideration paid

$

53,746

Fair value of contingent consideration

1,000

Total estimated purchase

54,746

Recognized amounts of identifiable assets acquired and liabilities assumed

Inventory

$

6,164

Property, plant and equipment

44,540

Intangible assets

2,272

Other long-term assets

Liabilities assumed

(143)

Total identifiable

net assets

52,976

1,770

$

54,746

Inventory consisted

primarily of

flock, feed

packaging, and

egg inventory.

Flock inventory

was valued at

value

as

management

believes

that

its

value

best

approximates

its

fair

value.

Feed

packaging

and

egg

inventory were all valued based on market prices as of September 30, 2023.

Property,

plant and

equipment were

valued utilizing

the cost

approach which

is based

on replacement

or reproduction

costs of

the assets and subtracting any depreciation resulting from physical deterioration

and/or functional or economic obsolescence.

Intangible

assets

consisted

of

water

rights

within

the

property

acquired.

Water

rights

were

valued

using

the

sales

comparison approach.

Contingent

liability

was

and

future

cash

payment

to

the

sellers

on

the

meeting

certain

return

on

profitability

milestones over

a

three-year

period,

commencing

on

the date

of

the

acquisition.

The fair

value of

the contingent

consideration is

estimated using

a discounted

cash flow

model. Key

assumptions

and

unobservable

inputs that

require

significant judgement

used in

the estimate

include weighted

of capital,

egg

prices, projected revenue

and expenses over which

the contingent considered

is measured, and the

probability assessments with

respect to the

likelihood of achieving

the forecasted projections.

A range of

potential outcomes cannot

be reasonably estimated

due to market volatility of egg prices.

the

excess

of

the

price

of

the

over

the

date

fair

value

of

the

net

assets acquired.

Goodwill recorded

in connection

Fassio acquisition

improved efficiencies

from integrating the assets of

Fassio with the operations

of the Company.

The Company recognized goodwill

of $1.8 million as

a result of the acquisition.

Index

Note 3 - Investment

Securities

The following represents the Company’s

investment securities as of December 2, 2023 and June 3, 2023 (in thousands):

Amortized

Cost

Gains

Losses

Estimated

Fair Value

$

6,141

$

—

$

$

6,033

2,791

—

2,789

98,202

—

97,667

1,125

—

1,119

88,470

—

88,354

10,045

—

10,083

$

206,774

$

$

$

206,045

$

2,190

$

—

$

$

2,166

Total noncurrent

$

2,190

$

—

$

$

2,166

Amortized

Cost

Gains

Losses

Estimated

Fair Value

$

16,571

$

—

$

$

16,296

56,486

—

56,409

139,979

—

1,402

138,577

—

—

101,240

—

100,769

13,459

—

13,308

Treasury bills

29,069

—

29,056

$

357,479

$

—

$

2,389

$

355,090

$

2,172

$

—

$

$

2,081

Total noncurrent

$

2,172

$

—

$

$

2,081

Available-for-sale

Proceeds from sales

and maturities of investment

securities available-for-sale

were $

196.1

million and $

65.3

million during the

twenty-six weeks ended December 2, 2023

and November 26, 2022, respectively.

Gross realized gains for the twenty-six

weeks

ended December 2, 2023 and November

26, 2022 were $

thousand and $

thousand, respectively.

Gross realized losses for the

2022 were

$

thousand and

$

thousand, respectively.

There

were

no

allowances for credit losses at December 2, 2023 and June 3, 2023.

Actual maturities

may differ

from contractual

maturities as some

borrowers have

the right to

call or prepay

obligations with

or

without penalties. Contractual maturities of current investments at December

2, 2023 are as follows (in thousands):

Estimated Fair Value

Within one year

$

145,788

1-5 years

60,257

Total

$

206,045

Noncurrent

There were

no

sales of

noncurrent investment

securities during

the twenty-six

26, 2022.

Index

Note 4 - Fair Value

Measurements

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,

including:

Quoted prices for similar assets or liabilities in active markets

Quoted prices for identical or similar assets in non-active markets

Inputs other than quoted prices that are observable for the asset or liability

Inputs derived principally from or corroborated by other observable market

data

Level 3

  • Unobservable inputs for the asset or liability that are

supported by little or no market activity and that

are

significant to the fair value of the assets or liabilities

The disclosures of fair value of certain financial assets and liabilities that are 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.

Assets and Liabilities Measured at Fair

Value

on a Recurring Basis

In

with

the

fair

value

hierarchy

above,

the

following

table

shows

the

fair

value

of

assets and

liabilities measured at fair value on a recurring basis as of December 2, 2023 and June 3,

2023 (in thousands):

Level 1

Level 2

Level 3

Balance

Assets

$

—

$

6,033

$

—

$

6,033

—

2,789

—

2,789

—

97,667

—

97,667

—

1,119

—

1,119

—

88,354

—

88,354

—

10,083

—

10,083

2,166

—

—

2,166

Total assets measured at fair

value

$

2,166

$

206,045

$

—

$

208,211

Liabilities

Contingent consideration

$

—

$

—

$

1,000

$

1,000

Total liabilities measured

at fair value

$

—

$

—

$

1,000

$

1,000

Level 1

Level 2

Level 3

Balance

Assets

$

—

$

16,296

$

—

$

16,296

—

56,409

—

56,409

—

138,577

—

138,577

—

—

—

100,769

—

100,769

—

13,308

—

13,308

Treasury bills

—

29,056

—

29,056

2,081

—

—

2,081

Total assets measured at fair

value

$

2,081

$

355,090

$

—

$

357,171

Index

Investment

–

available-for-sale

as Level

consist

of

with maturities

of

three

months

or longer

when purchased. We

classified these securities as

current because amounts

invested are readily available

for current operations.

Observable inputs for these securities are yields, credit risks, default rates, and volatility.

Contingent

as

Level

consists

of

the

obligation

to

pay

an

earnout

to

the

sellers

of

Fassio

contingent on the

acquired business meeting

certain return on

profitability milestones over

a

three-year

period, commencing on

the date of

the acquisition. The fair

value of the

contingent consideration is

estimated using a

discounted cash flow

model. Key

assumptions and

unobservable inputs

that require

significant judgement

used in

the estimate

include weighted

of

capital,

egg

prices,

revenue

and

over

which

the

considered

is

measured,

and

the

probability

assessments

with

respect

to

the

likelihood

of

achieving

the

forecasted

projections.

See

further

in

Note 2 -

Acquisition

.

Note 5 - Inventories

Inventories consisted of the following as of December 2, 2023 and June

3, 2023 (in thousands):

Flocks, net of amortization

$

162,323

$

164,540

Eggs and egg products

30,485

28,318

Feed and supplies

94,462

91,560

$

287,270

$

284,418

We

grow

and

maintain

flocks

of

layers

(mature

female

chickens),

pullets

(female

chickens,

under

weeks

of

age),

and

breeders

(male

and

female

chickens

used

to

produce

fertile

eggs

to

hatch

for

egg

flocks).

Our

total

flock

at

2,

and

June 3,

consisted

of

10.6

million

and

10.8

million

pullets

and

breeders

and

43.3

million and

41.2

million layers, respectively.

Note 6 - Equity

The following reflects equity activity for the thirteen weeks ended

December 2, 2023 and November 26, 2022 (in thousands):

Ended December 2, 2023

Class A

Paid In

Amount

Amount

Amount

Capital

Total

Balance at

September 2, 2023

$

$

$

$

73,153

$

(2,291)

$

1,571,744

$

(2,013)

$

1,611,330

income, net of tax

—

—

—

—

—

—

—

—

—

1,061

—

—

—

1,061

0.116

Common

—

—

—

—

—

(5,125)

—

(5,125)

—

—

—

—

—

(557)

—

(557)

—

—

—

—

—

17,009

(431)

16,578

Balance at December

2, 2023

$

$

$

$

74,214

$

(1,614)

$

$

(2,444)

$

Index

Ended November 26, 2022

Class A

Paid In

Amount

Amount

Amount

Capital

Total

Balance at May 28,

$

$

$

(28,495)

$

69,017

$

(2,350)

$

1,149,399

$

(359)

$

1,187,963

loss, net of tax

—

—

—

—

(737)

—

—

(737)

—

—

(1)

—

—

—

1.353

Common

—

—

—

—

—

(59,708)

—

(59,708)

—

—

—

—

—

(6,494)

—

(6,494)

—

—

—

—

—

198,587

(293)

198,294

Balance at November

26, 2022

$

$

$

(28,496)

$

70,005

$

(3,087)

$

1,281,784

$

(652)

$

1,320,305

Ended December 2, 2023

Class A

Paid In

Amount

Amount

Amount

Capital

Total

Balance at June 3,

$

$

$

(30,008)

$

72,112

$

(2,886)

$

1,571,112

$

(1,498)

$

1,609,583

income, net of tax

—

—

—

—

1,272

—

—

1,272

—

—

(6)

2,102

—

—

—

2,096

0.122

Common

—

—

—

—

—

(5,390)

—

(5,390)

—

—

—

—

—

(586)

—

(586)

—

—

—

—

—

17,935

(946)

16,989

Balance at December

2, 2023

$

$

$

$

74,214

$

(1,614)

$

$

(2,444)

$

Index

Ended November 26, 2022

Class A

Paid In

Noncontrollin

g

Amount

Amount

Amount

Capital

Total

Balance at May 28,

$

$

$

(28,447)

$

67,989

$

(1,596)

$

1,065,854

$

(206)

$

1,104,345

loss, net of tax

—

—

—

—

(1,491)

—

—

(1,491)

—

—

(49)

2,016

—

—

—

1,967

Contributions

—

—

—

—

—

—

—

—

2.206

Common

—

—

—

—

—

(97,355)

—

(97,355)

—

—

—

—

—

(10,589)

—

(10,589)

—

—

—

—

—

323,874

(446)

323,428

Balance at November

26, 2022

$

$

$

(28,496)

$

70,005

$

(3,087)

$

1,281,784

(652)

$

1,320,305

Note 7 - Net Income per Common Share

Basic net income

per share is

based on the

weighted average Common

Stock and Class

A Common Stock

outstanding. Diluted

net

income

per

share

is

based

on

weighted-average

common

shares

outstanding

during

the

relevant

period

adjusted

for

the

dilutive effect of share-based awards.

The

following

table

a

reconciliation

of

the

numerators

and

denominators

used

to

basic

and

diluted

net

income per common share (amounts in thousands, except per share data):

Ended

Ended

Numerator

$

16,578

$

198,294

$

16,989

$

323,428

Less: Loss attributable to

noncontrolling interest

(431)

(293)

(946)

(446)

Net income attributable to Cal-Maine

Foods, Inc.

$

17,009

$

198,587

$

17,935

$

323,874

Denominator

Weighted-average

common shares

outstanding, basic

48,690

48,624

48,691

48,624

Effect of dilutive restricted shares

Weighted-average

common shares

outstanding, diluted

48,866

48,840

48,854

48,827

Net income per common share

attributable to Cal-Maine Foods, Inc.

Basic

$

0.35

$

4.08

$

0.37

$

6.66

Diluted

$

0.35

$

4.07

$

0.37

$

6.63

Index

Note 8 - Revenue from Contracts with Customers

Satisfaction of Performance Obligation

The vast majority of the Company’s

revenue is derived from agreements with customers based on the customer

placing an order

for products. Pricing

for the most part

is determined when

the Company and

the customer agree

upon the specific

order, which

establishes the contract for that order.

Revenues are

recognized in

an amount

that reflects

the net

consideration we

expect to

receive in

exchange for

the goods.

Our

shell

eggs

are

sold

at

prices

related

to

independently

quoted

wholesale

market

prices

or

formulas

related

to

our

costs

of

production.

The

sales

predominantly

contain

a

single

obligation.

We

recognize

revenue

upon

satisfaction

of

the

obligation

with

the

customer,

which

typically

occurs

within

days

of

the

Company

and

the

customer agreeing upon the order.

Returns and Refunds

Some of our contracts include a guaranteed sale clause, pursuant to which we

credit the customer’s account for product that the

customer is unable to sell before expiration. The Company records an allowance for

expected customer returns using historical

return data compared to current period sales and accounts receivable.

The allowance is recorded as a reduction of sales in the

same period the revenue is recognized.

Sales Incentives Provided to Customers

The

Company

periodically

incentive

offers

to

its

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

by customers,

are

treated

as

a

reduction

to

sales

price

based

on

future

redemption

rates.

Redemption

rates

are

using

the

historical

experience

for

similar

inducement

offers.

Current discount

and

inducement

offers

are

presented

as a

net amount

in

‘‘Net sales.’’

Disaggregation of Revenue

The following table provides revenue disaggregated by product category

(in thousands):

Ended

Ended

Conventional shell egg sales

$

280,599

$

541,917

$

505,879

$

967,506

Specialty shell egg sales

217,905

227,778

426,586

428,598

20,012

28,052

42,235

55,692

Other

4,718

3,953

7,878

8,248

$

523,234

$

801,700

$

982,578

$

Contract Costs

The Company can incur costs to

obtain or fulfill a contract with a

customer. If the

amortization period of these costs is less

than

one year,

they are

expensed as

incurred. When

the amortization

period is

greater than

one year,

a contract

asset is

recognized

and

is amortized

over the

contract life

as a

reduction in

net sales.

As of

June 3,

balance for

contract assets was immaterial.

Contract Balances

The Company receives payment from customers based on specified terms that are

generally less than 30 days from delivery.

There are rarely contract assets or liabilities related to performance under the

contract.

Note 9 - Stock Based Compensation

Total

stock-based

compensation

expense

was

$

2.1

and

$

2.0

million

for

the

weeks

ended

2,

and

November 26, 2022, respectively.

Index

Unrecognized

compensation

expense

as a

result

of non

-vested

shares

of

restricted

stock outstanding

under

the

Amended

and

Restated

Omnibus

Long-Term

Incentive

Plan

at

2,

of

$

5.0

million

will

be

over

a

weighted

average period of

1.7

years. Refer to Part

II Item 8,

Notes to Consolidated

Financial Statements and

Supplementary Data, Note

14 - Stock Compensation Plans in our 2023 Annual Report for further information

on our stock compensation plans.

The Company’s restricted share activity

for the twenty-six weeks ended December 2, 2023 follows:

Number of

Shares

Weighted

Average Grant

Date Fair Value

Outstanding, June 3, 2023

294,140

$

43.72

Vested

(305)

37.70

Forfeited

(1,329)

44.68

Outstanding, December 2, 2023

292,506

$

43.72

Note 10 - Commitments and Contingencies

LEGAL PROCEEDINGS

State of Texas

v. Cal-Maine Foods, Inc. d/b/a Wharton;

and Wharton County Foods, LLC

On April

23, 2020,

and its subsidiary

Wharton County

Foods, LLC (“WCF”)

were named

as defendants in

State

of

Texas

v.

Foods,

Inc.

d/b/a

Wharton;

and

Wharton

County

Foods,

LLC,

Cause

No.

2020-25427,

in

the

Court of

Harris County,

Texas.

The State

of Texas

(the “State”)

asserted claims

based on

and WCF’s

alleged

violation

of

the

Texas

Deceptive

Trade

Practices—Consumer

Protection

Act,

Tex.

Bus.

&

Com.

Code

§§

17.41-17.63

(“DTPA”).

The

State

claimed

that

the

Company

and

WCF

offered

shell

eggs

at

excessive

or

exorbitant

prices

during

the

state

of

emergency

and

made

misleading

about

shell

egg

prices.

The

State

sought

temporary

and

permanent

injunctions

against

the

Company

and

WCF

to

prevent

further

alleged

violations

of

the

DTPA,

along

with

over

$

100,000

in damages. On August 13, 2020, the court granted the defendants’ motion to dismiss the State’s

original petition with

prejudice. On September

11, 2020,

the State filed a

notice of appeal,

which was assigned to

the Texas

Court of Appeals

for the

First

District.

On

August

16,

2022,

the

appeals

court

reversed

and

remanded

the

case

back

to

the

trial

court

for

further

proceedings. On October 31, 2022,

the Company and WCF appealed

the First District Court’s

decision to the Supreme Court

of

Texas.

On

September

29,

2023,

the

Supreme

Court

of

Texas

denied

the

Petition

for

Review

so

the

case

will

be

remanded

to the

trial court

for further

proceedings.

Management believes

the risk

of material

loss related

to this

matter to

be

remote.

Bell et al. v. Cal-Maine Foods et al.

On

April

30, 2020,

was named

as one

of several

in

Bell et

al. v.

Foods et

al.,

Case No.

1:20-cv-461,

in

the

Western

of

Texas,

Austin

Division.

The

include

numerous

grocery

stores,

retailers,

producers, and farms. Plaintiffs assert that defendants

violated the DTPA

by allegedly demanding exorbitant or

excessive prices

for

eggs during

the

state of

emergency.

request

certification

of a

class of

all consumers

who purchased

eggs

in

Texas

sold,

distributed,

produced,

or

handled

by

any

of

the

during

the

state

of

emergency.

Plaintiffs seek to enjoin

the Company and other

defendants from selling eggs

at a price more than

10% greater than the price

of

eggs prior

to the

declaration

of the

state of

emergency

and damages

in the

amount

of $

10,000

per violation,

or $

250,000

for

each violation

impacting anyone

over 65

years old.

On December

1, 2020,

and

certain other

defendants filed

a

dismiss the

amended

class action

complaint. The

plaintiffs

subsequently filed

a motion

to strike,

and the

dismiss and

related proceedings

were referred

to a

magistrate judge.

On July

14, 2021,

the magistrate

judge

issued

a

report

and

recommendation

to

the

court

that

the

defendants’

motion

to

dismiss

be

granted

and

the

case

be

dismissed without prejudice for lack of subject matter jurisdiction. On

September 20, 2021, the court dismissed the case without

prejudice.

On

July

13,

2022,

the

court

denied

the

motion

to

set

aside

or

amend

the

judgment

to

amend

their

complaint.

Index

On March 15, 2022,

plaintiffs filed a

second suit against the

Company and several

defendants in Bell et

al. v.

Cal-Maine Foods

et al.,

Case No.

1:22-cv-246, in

the Western

District of

Texas,

Austin Division

alleging the

same assertions

as laid

out in

the

first

complaint.

On

August

12,

2022,

the

Company

and

other

in

the

case

filed

a

motion

to

dismiss

the

class action

complaint. On

January 9,

court entered

an order

and final

judgement granting

dismiss.

On February

8, 2023,

the plaintiffs

appealed

the lower

court’s

judgement

to the

Court of

Appeals for

the Fifth

Circuit, Case No.

23-50112.

The parties filed

their respective appellate

briefs, but the

court has not

ruled on these

submissions.

Management believes the risk of material loss related to both matters to be remote.

Kraft Foods Global, Inc. et al. v.

United Egg Producers, Inc. et al.

As previously

reported, on

September 25,

2008, the

Company

was named

as one

of several

in numerous

antitrust

cases involving

the United

States shell

egg

industry.

settled all

of these

cases, except

for

the claims

of certain

plaintiffs who sought substantial

damages allegedly arising from

the purchase of egg products (as

opposed to shell eggs). These

remaining plaintiffs

are Kraft Food

Global, Inc.,

General Mills, Inc.,

and Nestle USA,

Inc. (the

“Egg Products

Plaintiffs”) and,

until a subsequent settlement was reached as described below,

The Kellogg Company.

On September

13, 2019,

the case

Egg Products

Plaintiffs was

remanded from

a multi-district

litigation proceeding

in

the

United

States

Court

for

the

Eastern

of

Pennsylvania,

In

re

Processed

Egg

Antitrust

Litigation,

MDL No. 2002, to

the United States District Court

for the Northern District

of Illinois, Kraft Foods Global,

Inc. et al. v.

United

Egg

Producers,

Inc.

et

al., Case

No.

1:11-cv-8808,

for

trial. The

Egg

alleged

that

the

Company

and

other

violated

Section

of

the

Sherman

Act,

U.S.C.

§

1,

by

agreeing

to

limit

the

of

eggs

and

thereby

illegally

to

raise

the

prices

that

plaintiffs

paid

for

processed

egg

products.

In

particular,

the

Egg

attacked

certain features of

the United Egg

Producers animal-welfare guidelines

and program used by

the Company and

many other egg

producers.

On October 24, 2019,

the Company entered into

a confidential settlement agreement

with The Kellogg Company

dismissing all

claims against the

Company for an

amount that did

not have a

material impact on

financial condition or

results

of operations.

On November

11,

2019, a

stipulation

for dismissal

was filed

court, and

on March

28, 2022,

the court

dismissed the Company with prejudice.

The trial of this case began

on October 17, 2023. On December

1, 2023, the jury returned a decision

awarding the Egg Products

$

17.8

million

in damages.

If the

jury’s

decision

is ultimately

upheld,

the defendants

would

be jointly

and

severally

liable

for

treble

damages,

or

$

53.3

subject

to

credit

for

the

Kellogg

settlement

above

and

certain

other

settlements with

previous

settling defendants,

plus the

Egg Product

Plaintiffs’

reasonable

attorneys’

fees. This

decision is

not

final and

remains subject

to the

defendants’ motion

for a

directed verdict

noted below

and appeals

by the

parties. During

our

second fiscal quarter

of 2024, we

recorded an accrued

expense of $

19.6

million in

selling, general and

administrative expenses

in

the

of

Income

and

as

other

noncurrent

in

the

Condensed Consolidated

Balance Sheets. The

accrual represents

our estimate of

proportional share

of the reasonably

possible ultimate damages

award, excluding the Egg

Product Plaintiffs’ attorneys’

fees that we believe

would

be approximately offset

by the credits noted

above. We

and the other

defendants are discussing

apportionment, and our

accrual

may change in

the future based on

the outcome of

those discussions. Our

accrual may also

be revised in

whole or in

part in the

future to the extent we

are successful in further proceedings

in the litigation.

On November 29, 2023, the

defendants, including

the Company,

filed a

motion for

judgment as

a matter

of law

in their

favor,

known as

a directed

verdict, notwithstanding

the

jury’s decision. The Company intends

to continue to vigorously defend the claims asserted by the Egg Products Plaintiffs.

State of Oklahoma Watershed Pollution

Litigation

On June

18, 2005,

the State

of Oklahoma

filed suit,

in the

District Court

for the

Northern District

of Oklahoma,

against Cal-Maine

Foods,

Inc. and

Tyson

Foods,

Inc., Cobb-Vantress,

Inc., Cargill,

Inc., George’s,

Inc., Peterson

Farms, Inc.

and

Simmons

Foods,

Inc.,

and

certain

of

their

affiliates.

The

State

of

Oklahoma

claims

that

through

the

disposal

of

chicken

litter the

defendants polluted

the Illinois

River Watershed.

This watershed

provides water

to eastern

Oklahoma. The

complaint

sought

injunctive

relief

and

damages,

but

the

claim

for

damages

was dismissed

by

the

court.

Foods,

Inc.

discontinued

in

the

watershed

in

or

around

Since

the

began,

Foods,

Inc.

purchased

%

of

the

membership

interests

of

Benton

County

Foods,

LLC,

which

is

an

ongoing

shell

egg

operation within

the Illinois

River Watershed.

Benton County

Foods, LLC

is not

a defendant

in the

litigation. We

also have

a

number of small contract producers that operate in the area.

Index

The non-jury trial in the case began in September 2009

and concluded in February 2010. On January 18, 2023, the court entered

findings of

fact and

conclusions of

law in favor

of the

State of

Oklahoma, but

no penalties

were assessed.

The court

found the

liable

for

state

law

nuisance,

federal

common

law

nuisance,

and

state

law

trespass.

The

court

also

found

the

producers

vicariously

liable

for

the

actions

of

their

contract

producers.

The

court

directed

the

parties

to

confer

in

attempt

to

reach agreement

on appropriate

remedies. On

June 12,

court ordered

the parties

to mediate

before the

retired Tenth

Circuit Chief Judge Deanell

Reece Tacha.

On October 26, 2023, the parties

filed separate status reports informing

the court that

the mediation

was unsuccessful.

Also on

October 26,

defendants filed

a post-trial

dismiss and

supporting

brief arguing

that the

case should

be dismissed

due to

the state record

before the

court, the resulting

mootness of

the case,

and

violation

of

due

process.

On

10,

2023,

the

State

of

Oklahoma

filed

its

response

in

opposition

to

the

motion

to

dismiss and on

November 17, 2023,

the defendants filed

their reply.

The court has not

ruled on the motion.

While management

believes there

is a

reasonable

possibility of

a material

loss from

the case,

at the

present time,

it is

not possible

to estimate

the

amount

of

exposure,

if

any,

to

the

Company

due

to

a

range

of

factors,

the

following,

among

others:

uncertainties

inherent

in

any

assessment

of

costs

associated

with

injunctive

relief

or

other

penalties

based

on

a

decision in a

case tried over

13 years ago based

on environmental conditions

that existed at the

time, the lack

of guidance from

the court as to what

might be considered appropriate

remedies, the ongoing litigation

with the State of Oklahoma

and motion to

dismiss before

the court, and

uncertainty regarding

what our proportionate

share of any

remedy would be,

although we believe

that our share compared to the other defendants is small.

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.

Note 11 - Subsequent Events

On

12,

2023,

the

Company

reported

that

one

of

the

in

Kansas

experienced

an

outbreak

of

highly pathogenic

avian influenza

(“HPAI”),

affecting

684,000

laying hens.

Subsequent

to the

initial outbreak,

nearby

in

Kansas

experienced

an outbreak

of

HPAI,

affecting

an additional

842,000

laying

hens and

240,000

pullets. The total of the combined outbreaks represented

3.3

% of our total flock as of December 2, 2023.

The

Company

has

and

continues

to

follow

all

guidelines

by

the

United

States

Department

of

Agriculture

(the

“USDA”)

and

other

regulatory

agencies

to

depopulate

and

sanitize

the

facilities.

As

such,

will

be

eligible

to

participate

in

the

USDA

indemnity

program

and

other

programs

designed

to

compensate

for

the

loss of

birds

and

eggs.

The

plans

are

to

repopulate

the

and

resume

normal

at

the

within

5 months

.

Due

to

volatility in

the market

prices of

eggs and

uncertain future

supply,

demand and

other market

conditions, an

estimate of

the net

income effect cannot be reasonably made.

Index

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

FINANCIAL

CONDITION

AND

RESULTS

OF

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