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Cal-Maine Foods (CALM) Risk Analysis
Risk Overview Q1, 2022
Source: the company's latest filing for the period ended Feb 26, 2022, filed Mar 29, 2022
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1We are controlled by the family of our late founder, Fred R. Adams, Jr. and, after the settlement of Mr. Adams' estate, we expect to be controlled by Adolphus B. Baker, our Chief Executive Officer and Chairman of the Board.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams' estate, his son-in-law, Adolphus B. Baker, our Chief Executive Officer and Chairman of the Board, Mr. Baker's spouse and her three sisters (who are Mr. Adams' four daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A Common Stock, controlling approximately 52.5% of the total voting power of the Company. Additionally, such persons and Mrs. Adams also have additional voting power due to beneficial ownership of Common Stock, directly or indirectly through related entities, resulting in family voting control of approximately 65.6% of the total voting power of the Company. Mr. Baker and Mrs. Adams share voting power over 100% of the Class A Common Stock and Mr. Adams' beneficially owned Common Stock, and we expect the Company will continue to be controlled by Mrs. Adams and Mr. Baker, acting jointly, until the settlement of Mr. Adams' estate. After the settlement of Mr. Adams' estate, we expect there will be a change of control of the Company to Mr. Baker as the sole managing member of the family limited liability company that owns all of the outstanding shares of Class A Common Stock. We are and, after the settlement of Mr. Adams' estate we expect to continue to be, a "controlled company" as defined in the NASDAQ's listing standards. Accordingly, we are and we expect to continue to be exempt from certain requirements of NASDAQ's corporate governance listing standards, including the requirement to maintain a majority of independent directors on our board of directors and the requirements regarding the determination of compensation of executive officers and nomination of directors by independent directors. We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of Common Stock and Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation's assets; accordingly, such a transaction involving the Company and requiring shareholder approval cannot be effected without the approval of the Adams and Baker families. Such ownership will make an unsolicited acquisition of the Company more difficult and discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders of Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker families' controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
- Share Price & Shareholder Rights - Risk 2Sales, or the availability for sale, of substantial amounts of our Common Stock could adversely affect the market price of our Common Stock.
Following the settlement of Mr. Adams' estate, we expect Mrs. Adams, Mr. Adams' daughters, and certain other related entities (the "Stockholder Parties") will hold approximately 12 million shares of Common Stock (the "Subject Shares") that are subject to an Agreement Regarding Common Stock (the "Agreement"), which is an exhibit to this report. Pursuant to the Agreement, the Company filed a Shelf Registration Statement and Prospectus dated October 9, 2018, pursuant to which these Subject Shares will be eligible for sale in the amounts and on the terms described in the Agreement. The Stockholder Parties are working on plans to arrange for the payment of estate taxes on Mr. Adams' estate as well as liquidity. We understood those plans may involve the sale of up to 6.0 million shares of Common Stock contemplated under the Agreement. Federal estate taxes are due nine months after the date of death, although a discretionary extension of the due date to pay the federal estate taxes for up to an additional 12 months may be granted by the Internal Revenue Service. The Agreement provides that if any Stockholder Party intends to sell any of the Subject Shares, such party must give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to purchase shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price based on the 20 business-day volume weighted average price. If the Company does not exercise its right of first refusal and purchase the shares offered, such Stockholder Party will, subject to the approval of a special committee of independent directors of the Board of Directors, be permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule 144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement the Company will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its rights of first refusal, and if so such shares would be eligible for sale pursuant to the foregoing registration rights or pursuant to Rule 144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our Common Stock could result in a decline in the market price of our Common Stock.
- Accounting & Financial Operations - Risk 3Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets acquired. Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. As of May 30, 2020, we had $35.5 million of goodwill. While we believe the current carrying value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any particular period or our net worth.
- Accounting & Financial Operations - Risk 4Due to the cyclical nature of our business, our financial results fluctuate from year to year.
The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices until supply and demand returned to balance. As a result, our financial results from year to year vary significantly.
Risk Highlights Q1, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 38
- Share Price & Shareholder Rights - Risk 1Officer and Chairman of our Board of Directors controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams' son-in-law, Adolphus B. Baker,our Chief Executive Officer and Chairman of our board of directors, Mr. Baker's spouse and her three sisters (who are Mr. Adams' four daughters) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A Common Stock (which has 10 votes per share), controlling approximately 52.1% of our total voting power. Additionally, such persons and Jean Reed Adams ("Mrs. Adams"), the wife of our late founder, Fred R. Adams, Jr., also have additional voting power due to beneficial ownership of our Common Stock (which has one vote per share), directly or indirectly through related entities, resulting in family voting control of approximately 57.7% of our total voting power. Mr. Baker controls the vote of 100%of our outstanding Class A Common Stock. We understand that the Adams and Baker families intend to retain ownership of a sufficient amount of our Common Stock and our Class A Common Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of capital stock. As a result of this ownership, the Adams and Baker families have the ability to exert substantial influence over matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election and removal of directors, and any merger, consolidation, or sale of all or substantially all of our assets, or other corporate transactions. Delaware law provides that the holders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such as a merger, consolidation and sale of all or substantially all of a corporation's assets; accordingly, such a transaction involving us and requiring stockholder approval cannot be effected without the approval of the Adams and Baker families. Such ownership will make an unsolicited acquisition of our Company more difficult and discourage certain types of transactions involving a change of control of our Company, including transactions in which the holders of our Common Stock might otherwise receive a premium for their shares over then current market prices. The Adams and Baker families' controlling ownership of our capital stock may adversely affect the market price of our Common Stock.
- Share Price & Shareholder Rights - Risk 2the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. As described in Note 19 – Related Party Transaction of Part II. Item 8. Notes to the Consolidated Financial Statements, in August 2020 Mrs. Adams and the Daughters' Trust (of which the daughters of our late founder are beneficiaries) sold 6.9 million shares of Common Stock in a secondary public offering pursuant to a previously disclosed Agreement Regarding Common Stock (the "Agreement")filed as an exhibit to this report. After the sale, approximately 5.0 million shares (the "Subject Shares") remain registered under a shelf registration statement and prospectus dated October 9, 2018 for potential resale, which shares are subject to the Agreement. The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject Shares, such party must give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to purchase shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price based on the 20 business-day volume weighted average price. If the Company does not exercise its right of first refusal and purchase the shares offered, such party will, subject to the approval of a special committee of independent directors of the Board of Directors, be permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule 144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement the Company will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its rights of first refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the Agreement or pursuant to Rule 144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our Common Stock could result in a decline in the market price of our Common Stock. In addition, our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of May 29, 2021,there were 44,058,463 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans). In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of existing stockholders' equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect this dilution may have on the price of our Common Stock.
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