CAL-MAINE FOODS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS Cal-Maine Foods, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except for par value amounts) (Unaudited) August 27, 2022 May 28, 2022 Assets Current assets: Cash and cash equivalents $ 136,021 $ 59,084 Investment securities available-for-sale 145,784 115,429 Trade and other receivables, net 178,217 177,257 Income tax receivable 42,147 42,147 Inventories 265,754 263,316 Prepaid expenses and other current assets 10,965 4,286 Total current assets 778,888 661,519 Property, plant & equipment, net 688,656 677,796 Investments in unconsolidated entities 15,674 15,530 Goodwill 44,006 44,006 Intangible assets, net 17,592 18,131 Other long-term assets 9,913 10,507 Total Assets $ 1,554,729 $ 1,427,489 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 188,689 $ 148,018 Dividends payable 41,742 36,656 Total current liabilities 230,431 184,674 Other noncurrent liabilities 9,706 10,274 Deferred income taxes, net 126,629 128,196 Total liabilities 366,766 323,144 Commitments and contingencies - see Note 11 — — Stockholders’ equity: Common stock ($ 0.01 par value): Common stock - authorized 120,000 shares, issued 70,261 shares 703 703 Class A convertible common stock - authorized and issued 4,800 shares 48 48 Paid-in capital 69,017 67,989 Retained earnings 1,149,399 1,065,854 Accumulated other comprehensive loss, net of tax ( 2,350 ) ( 1,596 ) Common stock in treasury at cost – 26,125 shares at August 27, 2022 and 26,121 shares at May 28, 2022 ( 28,495 ) ( 28,447 ) Total Cal-Maine Foods, Inc. stockholders’ equity 1,188,322 1,104,551 Noncontrolling interest in consolidated entity ( 359 ) ( 206 ) Total stockholders’ equity 1,187,963 1,104,345 Total Liabilities and Stockholders’ Equity $ 1,554,729 $ 1,427,489 See Notes to Condensed Consolidated Financial Statements. Index 4 Cal-Maine Foods, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended August 27, 2022 August 28, 2021 Net sales $ 658,344 $ 324,986 Cost of sales 440,854 318,341 Gross profit 217,490 6,645 Selling, general and administrative 53,607 46,525 (Gain) loss on disposal of fixed assets 33 ( 213 ) Operating income (loss) 163,850 ( 39,667 ) Other income (expense): Interest income, net 903 232 Royalty income 428 273 Equity income of unconsolidated entities 144 135 Other, net 155 5,163 Total other income, net 1,630 5,803 Income (loss) before income taxes 165,480 ( 33,864 ) Income tax expense (benefit) 40,346 ( 15,838 ) Net income (loss) 125,134 ( 18,026 ) Less: Loss attributable to noncontrolling interest ( 153 ) — Net income (loss) attributable to Cal-Maine Foods, Inc. $ 125,287 $ ( 18,026 ) Net income (loss) per common share: Basic $ 2.58 $ ( 0.37 ) Diluted $ 2.57 $ ( 0.37 ) Weighted average shares outstanding: Basic 48,623 48,858 Diluted 48,811 48,858 See Notes to Condensed Consolidated Financial Statements. Index 5 Cal-Maine Foods, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Thirteen Weeks Ended August 27, 2022 August 28, 2021 Net income (loss) $ 125,134 $ ( 18,026 ) Other comprehensive income (loss), before tax: Unrealized holding loss on available-for-sale securities, net of reclassification adjustments ( 997 ) ( 224 ) Income tax benefit related to items of other comprehensive income 243 54 Other comprehensive loss, net of tax ( 754 ) ( 170 ) Comprehensive income (loss) 124,380 ( 18,196 ) Less: Comprehensive loss attributable to the noncontrolling interest ( 153 ) — Comprehensive income (loss) attributable to Cal-Maine Foods, Inc. $ 124,533 $ ( 18,196 ) See Notes to Condensed Consolidated Financial Statements. Index 6 Cal-Maine Foods, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Thirteen Weeks Ended August 27, 2022 August 28, 2021 Cash flows from operating activities: Net income (loss) $ 125,134 $ ( 18,026 ) Depreciation and amortization 17,312 17,389 Deferred income taxes ( 1,324 ) ( 15,838 ) Other adjustments, net 31,690 ( 7,637 ) Net cash provided by (used in) operations 172,812 ( 24,112 ) Cash flows from investing activities: Purchases of investment securities ( 51,834 ) ( 1,388 ) Sales and maturities of investment securities 20,296 39,388 Distributions from unconsolidated entities — 400 Acquisition of business, net of cash acquired — ( 44,823 ) Purchases of property, plant and equipment ( 27,662 ) ( 11,233 ) Net proceeds from disposal of property, plant and equipment 78 1,171 Net cash used in investing activities ( 59,122 ) ( 16,485 ) Cash flows from financing activities: Payments of dividends ( 36,653 ) — Purchase of common stock by treasury ( 45 ) ( 18 ) Principal payments on finance lease ( 55 ) ( 53 ) Net cash used in financing activities ( 36,753 ) ( 71 ) Net change in cash and cash equivalents 76,937 ( 40,668 ) Cash and cash equivalents at beginning of period 59,084 57,352 Cash and cash equivalents at end of period $ 136,021 $ 16,684 See Notes to Condensed Consolidated Financial Statements. Index 7 Cal-Maine Foods, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 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 and in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended May 28, 2022 (the “2022 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 ended on August 27, 2022 and August 28, 2021 included 13 weeks . 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 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 Operations. 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. As of August 27, 2022 and May 28, 2022, reserves for credit losses were $ 716 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. 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 Operations. The errors resulted in an overstatement of Net Sales and Cost of Sales of $ 6.7 million in the first Index 8 quarter of fiscal 2022 and $ 9.2 million in the second quarter of fiscal 2022. There was no impact to Operating 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 Operations for the third quarter ended February 26, 2022. Accordingly, we have reflected the correction of the immaterial error for the first quarter of fiscal 2022 as a reduction of Net Sales and Cost of Sales in the accompanying Condensed Consolidated Statements of Operations. 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 - Investment Securities The following represents the Company’s investment securities as of August 27, 2022 and May 28, 2022 (in thousands): August 27, 2022 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Municipal bonds $ 15,032 $ — $ 155 $ 14,877 Commercial paper 15,936 — 53 15,883 Corporate bonds 81,711 — 1,237 80,474 Certificates of deposits 3,263 — 48 3,215 US government and agency obligations 8,190 — 87 8,103 Asset backed securities 15,620 — 227 15,393 Treasury bills 7,870 — 31 7,839 Total current investment securities $ 147,622 $ — $ 1,838 $ 145,784 Mutual funds $ 3,467 $ — $ 130 $ 3,337 Total noncurrent investment securities $ 3,467 $ — $ 130 $ 3,337 May 28, 2022 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Municipal bonds $ 10,136 $ — $ 32 $ 10,104 Commercial paper 14,940 — 72 14,868 Corporate bonds 74,167 — 483 73,684 Certificates of deposits 1,263 — 18 1,245 US government and agency obligations 2,205 4 — 2,209 Asset backed securities 13,456 — 137 13,319 Total current investment securities $ 116,167 $ 4 $ 742 $ 115,429 Mutual funds $ 3,826 $ — $ 74 $ 3,752 Total noncurrent investment securities $ 3,826 $ — $ 74 $ 3,752 Available-for-sale Proceeds from sales and maturities of investment securities available-for-sale were $ 20.3 million and $ 39.4 million during the thirteen weeks ended August 27, 2022 and August 28, 2021, respectively. Gross realized gains for the thirteen weeks ended August 27, 2022 and August 28, 2021 were $ 2 thousand and $ 127 thousand, respectively. Gross realized losses for the thirteen weeks ended August 27, 2022 and August 28, 2021 were $ 27 thousand and $ 60 thousand, respectively. There were no allowances for credit losses at August 27, 2022 and May 28, 2022. Index 9 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 August 27, 2022 are as follows (in thousands): Estimated Fair Value Within one year $ 64,148 1-5 years 81,636 Total $ 145,784 Noncurrent There were no sales of noncurrent investment securities during the thirteen weeks ended August 27, 2022. Proceeds from sales and maturities of noncurrent investment securities were $ 385 thousand during the thirteen weeks ended August 28, 2021. Gross realized gains for the thirteen weeks ended August 28, 2021 were $ 130 thousand. There were no realized losses for the thirteen weeks ended August 28, 2021. Note 3 - Fair Value Measurements 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, 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. Lease obligations: The carrying value of the Company’s lease obligations is at its present value which approximates fair value. Index 10 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 financial assets and liabilities measured at fair value on a recurring basis as of August 27, 2022 and May 28, 2022 (in thousands): August 27, 2022 Level 1 Level 2 Level 3 Balance Assets Municipal bonds $ — $ 14,877 $ — $ 14,877 Commercial paper — 15,883 — 15,883 Corporate bonds — 80,474 — 80,474 Certificates of deposits — 3,215 — 3,215 US government and agency obligations — 8,103 — 8,103 Asset backed securities — 15,393 — 15,393 Treasury bills — 7,839 — 7,839 Mutual funds 3,337 — — 3,337 Total assets measured at fair value $ 3,337 $ 145,784 $ — $ 149,121 May 28, 2022 Level 1 Level 2 Level 3 Balance Assets Municipal bonds $ — $ 10,104 $ — $ 10,104 Commercial paper — 14,868 — 14,868 Corporate bonds — 73,684 — 73,684 Certificates of deposits — 1,245 — 1,245 US government and agency obligations — 2,209 — 2,209 Asset backed securities — 13,319 — 13,319 Mutual funds 3,752 — — 3,752 Total assets measured at fair value $ 3,752 $ 115,429 $ — $ 119,181 Investment securities – available-for-sale classified as Level 2 consist of securities 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. Note 4 - Inventories Inventories consisted of the following as of August 27, 2022 and May 28, 2022 (in thousands): August 27, 2022 May 28, 2022 Flocks, net of amortization $ 152,264 $ 144,051 Eggs and egg products 24,548 26,936 Feed and supplies 88,942 92,329 $ 265,754 $ 263,316 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 August 27, 2022 and May 28, 2022 consisted of approximately 11.4 million and 11.5 million pullets and breeders and 41.1 million and 42.2 million layers, respectively. Note 5 - Accrued Dividends Payable and Dividends per Common Share 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 Index 11 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. For the first quarter of fiscal 2023, we will pay a cash dividend of approximately $ 0.853 per share to holders of our Common Stock and Class A Common Stock. On our Condensed Consolidated Statements of Operations, we determine dividends per common share in accordance with the computation in the following table (in thousands, except per share data): Thirteen Weeks Ended August 27, 2022 August 28, 2021 Net income (loss) attributable to Cal-Maine Foods, Inc. $ 125,287 $ ( 18,026 ) Cumulative loss to be recovered prior to payment of divided at beginning of period — ( 4,244 ) Net income available for dividend $ 125,287 $ — 1/3 of net income attributable to Cal-Maine Foods, Inc. available for dividend 41,762 — Common stock outstanding (shares) 44,136 44,057 Class A common stock outstanding (shares) 4,800 4,800 Total common stock outstanding (shares) 48,936 48,857 Dividends per common share* $ 0.853 $ — *Dividends per common share = 1/3 of Net income attributable to Cal-Maine Foods, Inc. available for dividend ÷ Total common stock outstanding (shares). Note 6 - Equity The following reflects equity activity for the thirteen weeks ended August 27, 2022 and August 28, 2021 (in thousands): Thirteen Weeks Ended August 27, 2022 Cal-Maine Foods, Inc. Stockholders Common Stock Class A Treasury Paid In Accum. Other Retained Noncontrolling Amount Amount Amount Capital Comp. Loss Earnings Interest Total Balance at May 28, 2022 $ 703 $ 48 $ ( 28,447 ) $ 67,989 $ ( 1,596 ) $ 1,065,854 $ ( 206 ) $ 1,104,345 Other comprehensive loss, net of tax — — — — ( 754 ) — — ( 754 ) Stock compensation plan transactions — — ( 48 ) 1,028 — — — 980 Dividends — — — — — ( 41,742 ) — ( 41,742 ) Net income (loss) — — — — — 125,287 ( 153 ) 125,134 Balance at August 27, 2022 $ 703 $ 48 $ ( 28,495 ) $ 69,017 $ ( 2,350 ) $ 1,149,399 $ ( 359 ) $ 1,187,963 Thirteen Weeks Ended August 28, 2021 Cal-Maine Foods, Inc. Stockholders Common Stock Class A Treasury Paid In Accum. Other Retained Amount Amount Amount Capital Comp. Loss Earnings Total Balance at May 29, 2021 $ 703 $ 48 $ ( 27,433 ) $ 64,044 $ ( 558 ) $ 975,977 $ 1,012,781 Other comprehensive loss, net of tax — — — — ( 170 ) — ( 170 ) Stock compensation plan transactions — — ( 18 ) 1,000 — — 982 Net loss — — — — — ( 18,026 ) ( 18,026 ) Balance at August 28, 2021 $ 703 $ 48 $ ( 27,451 ) $ 65,044 $ ( 728 ) $ 957,951 $ 995,567 Index 12 Note 7 - Net Income (Loss) per Common Share Basic net income (loss) 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. Restricted shares of 131 thousand were antidilutive due to the net loss for the first quarter of fiscal 2022. These shares were not included in the diluted net loss per share calculation. The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income (loss) per common share (amounts in thousands, except per share data): Thirteen Weeks Ended August 27, 2022 August 28, 2021 Numerator Net income (loss) $ 125,134 $ ( 18,026 ) Less: Loss attributable to noncontrolling interest ( 153 ) — Net income (loss) attributable to Cal-Maine Foods, Inc. $ 125,287 $ ( 18,026 ) Denominator Weighted-average common shares outstanding, basic 48,623 48,858 Effect of dilutive restricted shares 188 — Weighted-average common shares outstanding, diluted 48,811 48,858 Net income (loss) per common share attributable to Cal-Maine Foods, Inc. Basic $ 2.58 $ ( 0.37 ) Diluted $ 2.57 $ ( 0.37 ) 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 Company’s sales predominantly contain a single performance obligation. We recognize revenue upon satisfaction of the performance 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 returns and refunds by using historical return data and comparing to current period sales and accounts receivable. The allowance is recorded as a reduction in sales with a corresponding reduction in trade accounts receivable. 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 the 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.’’ Index 13 Disaggregation of Revenue The following table provides revenue disaggregated by product category (in thousands): Thirteen Weeks Ended August 27, 2022 August 28, 2021 Conventional shell egg sales $ 425,589 $ 182,030 Specialty shell egg sales 200,820 132,458 Egg products 27,640 9,366 Other 4,295 1,132 $ 658,344 $ 324,986 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 August 27, 2022 and May 28, 2022, the balance for contract assets is 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 $ 1.0 million for the thirteen weeks ended August 27, 2022 and August 28, 2021. Unrecognized compensation expense as a result of non -vested shares of restricted stock outstanding under the Amended and Restated 2012 Omnibus Long-Term Incentive Plan at August 27, 2022 of $ 5.9 million will be recorded over a weighted average period of 1.9 years. Refer to Part II Item 8, Notes to Consolidated Financial Statements and Supplementary Data, Note 16: Stock Compensation Plans in our 2022 Annual Report for further information on our stock compensation plans. The Company’s restricted share activity for the thirteen weeks ended August 27, 2022 follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding, May 28, 2022 317,844 $ 39.12 Vested ( 3,240 ) 38.31 Forfeited ( 2,778 ) 39.48 Outstanding, August 27, 2022 311,826 $ 39.12 Note 10 – Income Taxes For the first quarters of fiscal 2023 and 2022, the Company recorded income tax expense of $ 40.3 million and income tax benefit of $ 15.8 million which reflects an effective tax rate of 24.4 % and 46.8 %, respectively. Excluding the impact of discrete items related to an $ 8.3 million net tax benefit recorded in the first quarter of fiscal 2022 in connection with the Red River Valley Egg Farm, LLC acquisition, the adjusted effective tax rate for the first quarter of fiscal 2022 is 22.4 %. Our effective tax rate differs from the federal statutory income tax rate due to state income taxes, certain federal tax credits and certain items included in income for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income, certain nondeductible expenses and net income or loss attributable to noncontrolling interest. Index 14 Note 11 - Commitments and Contingencies Financial Instruments The Company maintained standby letters of credit (“LOCs”) totaling $ 4.1 million at August 27, 2022, which were issued under the Company's Credit Facility. The outstanding LOCs are for the benefit of certain insurance companies and are not recorded as a liability on the consolidated balance sheets. LEGAL PROCEEDINGS State of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC On April 23, 2020, the Company and its subsidiary Wharton County Foods, LLC (“WCF”) were named as defendants in State of Texas v. Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC, Cause No. 2020-25427, in the District Court of Harris County, Texas. The State of Texas (the “State”) asserted claims based on the Company’s 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 COVID-19 state of emergency and made misleading statements 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. The Company and WCF are considering whether to appeal this decision from the First District. 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, the Company was named as one of several defendants in Bell et al. v. Cal-Maine Foods et al., Case No. 1:20-cv-461, in the Western District of Texas, Austin Division. The defendants 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 COVID-19 state of emergency. Plaintiffs request certification of a class of all consumers who purchased eggs in Texas sold, distributed, produced, or handled by any of the defendants during the COVID-19 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, the Company and certain other defendants filed a motion to dismiss the plaintiffs’ amended class action complaint. The plaintiffs subsequently filed a motion to strike, and the motion to dismiss and related proceedings were referred to a United States 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 plaintiffs’ motion to set aside or amend the judgment to amend their complaint. 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 defendants in the case filed a motion to dismiss the plaintiffs’ class action complaint. On September 6, 2022, the plaintiffs’ filed their opposition to the motion to dismiss and the Company and other defendants filed their reply on September 13, 2022. The court has not issued a ruling. 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 defendants in numerous antitrust cases involving the United States shell egg industry. The Company 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 The Kellogg Company. On September 13, 2019, the case with the Egg Products Plaintiffs was remanded from a multi-district litigation proceeding in the United States District Court for the Eastern District of Pennsylvania, In re Processed Egg Products 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 Index 15 Egg Producers, Inc. et al., Case No. 1:11-cv-8808, for trial. The Egg Products Plaintiffs allege that the Company and other defendants violated Section 1 of the Sherman Act, 15. U.S.C. § 1, by agreeing to limit the production of eggs and thereby illegally to raise the prices that plaintiffs paid for processed egg products. In particular, the Egg Products Plaintiffs are attacking certain features of the United Egg Producers animal-welfare guidelines and program used by the Company and many other egg producers. The Egg Products Plaintiffs seek to enjoin the Company and other defendants from engaging in antitrust violations and seek treble money damages. On May 2, 2022, the court set trial for October 24, 2022, but on September 20, 2022, the court cancelled the trial date due to COVID-19 protocols and converted the trial date to a status hearing to reschedule the jury trial. We anticipate the trial being rescheduled for the first or second calendar quarter of 2023. In addition, 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 the Company’s financial condition or results of operations. On November 11, 2019, a stipulation for dismissal was filed with the court, and on March 28, 2022, the court dismissed the Company with prejudice. The Company intends to continue to defend the remaining case with the Egg Products Plaintiffs as vigorously as possible based on defenses which the Company believes are meritorious and provable. Adjustments, if any, which might result from the resolution of this remaining matter with the Egg Products Plaintiffs have not been reflected in the financial statements. While management believes that there is still a reasonable possibility of a material adverse outcome from the case with the Egg Products Plaintiffs, at the present time, it is not possible to estimate the amount of monetary exposure, if any, to the Company due to a range of factors, including the following, among others: two earlier trials based on substantially the same facts and legal arguments resulted in findings of no conspiracy and/or damages; this trial will be before a different judge and jury in a different court than prior related cases; there are significant factual issues to be resolved; and there are requests for damages other than compensatory damages (i.e., injunction and treble money damages). 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 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. 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. Index 16