Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in
the
Company's fiscal 2020 Annual Report on Form 10-K.
CAPITAL RESOURCES AND LIQUIDITY
Our
working
capital
at
May
29,
2021
was
$303.5 million,
compared
to
$429.1 million
at
May
30,
2020.
The
calculation
of
working capital is defined as current assets less current liabilities. Our current ratio
was 5.77 at May 29, 2021 compared to 5.60
at May 30, 2020. The
current ratio is calculated
by dividing current assets by
current liabilities. Due to seasonal
factors described
Part I. Item I. Business – Seasonality
, we generally expect our need for working capital to be highest in
the fourth and first fiscal
quarters ending in May/June and August/September, respectively.
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28
We
had no
long-term debt outstanding
at the
end of
fiscal 2021
and 2020.
On July 10,
2018, we
entered into a
$100.0 million
Senior Secured
Revolving Credit
Facility (the
“Revolving Credit
Facility”). As
of May
29, 2021,
no amounts
were borrowed
under the Revolving Credit Facility.
We have
$4.1 million in outstanding standby letters of credit, which were
issued under our
Revolving
Credit
Facility
for
the
benefit
of
certain
insurance
companies.
Refer
to
Part
II.
Item
8.
Notes
to
the
Financial
Statements,
Note 10 – Credit Facility
for further information regarding our long-term debt.
Net cash provided
by operating activities
was $26.1 million
for fiscal year
2021 compared with
$73.6 million for fiscal
year 2020.
Decreased gross profit margins resulting primarily from lower selling prices for shell
eggs, and increased feed costs contributed
greatly to
our decrease
in cash
flow from
operations. The
increase in
accounts receivables
balance at
fiscal 2021
compared to
prior fiscal
2020 is
due to
the income
tax receivable
related to
the CARES
Act, which
is expected
to be
received in
our third
quarter of fiscal 2022.
For fiscal 2021,
approximately $129.1 million was provided
from the sale
and maturity of
investments securities available-for-
sale, $88.3 million
was used
to purchase
short-term investments
and net
payments of
$6.7 million were
received from
investments
in unconsolidated entities. Approximately $95.1 million was
used to purchase or
construct property, plant
and equipment, most
of
which
related
to
the
expansion
of
our
cage-free
shell
egg
production
capacity. Refer
to
the
table
of
material
construction
projects presented
below for
additional information
on purchases
and construction
of property,
plant and
equipment. The
net
result of these and other activities as of May 29, 2021 was a decrease in cash of $20.8 million from May 30, 2020.
For fiscal 2020, approximately
$204.3 million was provided
from the sale and
maturity of investments securities
available-for-
sale,
$107.2
million
was
used
to
purchase
short-term
investments
and
net
payments
of
$7.1
million
were
received
from
investments
i
n
unconsolidated
entities.
We
used
$44.7
million
to
acquire
Mahard
and
the
remaining
interest
in
TEP.
Approximately $124.2
million was
used to
purchase or
construct property,
plant and
equipment, most
of which
related to
the
expansion of our cage-free shell
egg production capacity. Refer to the table of material construction
projects presented below for
additional
information
on
purchases
and
construction
of
property,
plant
and
equipment.
We
used
$1.5
million
for
principal
payments on long-term
debt. The net
result of these
and other activities
as of May
30, 2020 was
an increase in
cash of $8.9
million
from June 1, 2019.
We
continue to
monitor the
increasing demand
for cage-free
eggs and
to engage
with our
customers in
an effort
to achieve
a
smooth
transition
to
meet
their
announced
commitment
timeline
for
cage-free
egg
sales.
We
have
invested
approximately
$476 million in facilities, equipment and
related operations to expand our
cage-free production starting with our
first facility in
2008, which includes
the $48.5 million
acquisition of the
remaining 50% interest
in Red River
discussed in
Note 20 –
Subsequent
Events
in
Part
II.
Item
8.
Notes
to
the
Consolidated
Financial
Statements.
The
following
table
presents
current
material
construction projects approved as of May 29, 2021 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
May 29, 2021
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
$
140,876
$
93,612
$
47,264
$
140,876
$
93,612
$
47,264
We believe
our current cash balances, investments, cash flows from
operations, and Revolving Credit Facility will be sufficient
to fund our current capital needs. As we monitor the demand for cage-free eggs and
our growth strategy described in
Part I. Item
I. Business – Growth Strategy,
there may be a need for long-term
debt financing. We
believe with our strong balance sheet that
we will have adequate access to capital markets if that need arises.
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29
CONTRACTUAL OBLIGATIONS
The
following
table
summarizes
by
fiscal
year
the
future
estimated
cash
payments,
in
thousands,
to
be
made
under
existing
contractual obligations as of
May 29, 2021. Further information
on debt obligations is
contained in
Note 10 – CreditFacility
, and
on lease obligations in
Note 15 – Leases
, each in Part II. Item 8. Notes to the Consolidated Financial Statements. As of May 29,
2021, we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Finance leases
$
697
$
239
$
458
$
—
$
—
Operating leases
1,882
802
1,049
31
—
Purchase obligations:
Feed ingredients and fuel
(a)
89,779
89,779
—
—
—
Construction contracts and other equipment
38,063
38,063
—
—
—
Red River
(b)
48,500
48,500
—
—
—
Total
$
178,921
$
177,383
$
1,507
$
31
$
—
(a)
Actual purchase obligations may change based on the contractual terms and agreements
(b)
Represents the cash paid for the acquisition of Red River
IMPACT OF RECENTLY
ISSUED ACCOUNTING STANDARDS
For information on changes in accounting principles and new accounting principles, see “
New Accounting Pronouncements and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
Note 1 - Summary of Significant Accounting Policies
.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements
in accordance with U.S. GAAP
requires management to make estimates
and assumptions
that affect the
reported amounts
of assets
and liabilities
at the
date of
the financial
statements and
the reported
amounts of
revenues
and expenses during the
reporting period. Actual results could
differ from these estimates.
Critical accounting estimates
are those
estimates made
in accordance
with GAAP that
involve a significant
level of estimation
uncertainty and
have had
or are reasonably
likely to have a
material impact on the
financial condition or
results of operations. Our
critical accounting estimates
are described
below.
INVESTMENTS IN SECURITIES
Our investment
securities are
accounted for
in accordance
with ASC
320, “Investments
- Debt
and Equity
Securities” (“ASC
320”). The
Company considers
all of
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 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
Consolidated Statements of
Income. Investments
in mutual funds are classified as “Other long-term assets” in the Company’s Consolidated Balance Sheets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade receivables
are stated
at their
carrying values,
which include
a reserve
for credit
losses. 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
pooled according
to age,
with each
pool assigned
an
expected loss based on historical loss information adjusted as needed for economic and other forward-looking factors.
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30
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. If market
prices for
eggs and
feed grains
move substantially
lower,
we record
adjustments to
write down
the carrying