Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in
the
Company’s fiscal 2024 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
We aim to maintain
a strong balance
sheet and liquidity, particularly
given the cyclical
nature of our
business. We believe a
strong
balance sheet supports our growth opportunities and stockholder returns. Our priorities for the use of cash in
recent periods have
included the payment of
dividends pursuant to our
variable dividend policy, inorganic growth through acquisitions
of businesses,
organic
growth
including
construction
and
conversion
of
cage-free
facilities
and
investment
in
value-added
products,
and
maintenance capital expenditures.
Working Capital and Current Ratio
Our working
capital at
May 31,
2025 was
$1.7 billion, compared
to $1.0
billion at
June 1,
2024. The
calculation of
working
capital is defined as
current assets less current
liabilities. Our current ratio was
6.4 at May 31,
2025 compared to 5.5
at June 1,
2024. The current ratio is calculated by dividing
current assets by current liabilities. The increase
in our current ratio is primarily
due to the increase in total current assets, which increased by $726.3 million to $2.0 billion at May 31, 2025, due to increases in
cash
and
cash
equivalents
and
investment
securities
available-for-sale.
Due
to
seasonal
factors
described
in
PartI.ItemI.
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.
35
Cash Flows from Operating Activities
Net cash
provided by
operating activities
was $1.2
billion for
fiscal 2025,
compared to
$451.4 million for
fiscal 2024.
The increase
in
cash
flow
from
operating
activities
resulted
primarily
from
higher
net
average
selling
prices
per
dozen,
particularly
for
conventional eggs, increased volume of sales and
a decrease in feed ingredient costs compared
to the prior year,
partially offset
by the increase in volume and price of outside egg purchases.
Cash Flows from Investing Activities
For fiscal 2025, $575.5 million was
used in investing activities, primarily due
to purchases of investment securities,
purchases of
property, plant and equipment
and the acquisition
of assets of
ISE compared to
$412.6 million used
in investing activities
in fiscal
2024, primarily due to purchases
of investment securities, purchases of
property, plant and equipment and the Fassio acquisition.
Purchases of investment
securities were $1.2
billion in fiscal
2025 compared to
$573.6 million in
fiscal 2024. Sales
and maturities
of investment securities were
$907.6 million in fiscal
2025, compared to $358.9 million
for fiscal 2024. The increase
in sales and
maturities of investment securities is primarily due to the maturities of
short-term investments during fiscal 2025. Cash paid for
business acquisitions was $116.2 million in
fiscal 2025, primarily related to
the ISE acquisition, and
$53.7 million in fiscal 2024,
related to
the Fassio
acquisition. Purchases
of property,
plant and
equipment were
$161.3 million
and $147.1
million in
fiscal
2025 and 2024, respectively, primarily reflecting progress on our construction projects.
Cash Flows from Financing Activities
We
paid
dividends
totaling
$330.3
million
and
$91.9
million
in
fiscal
2025
and
2024,
respectively.
During
fiscal
2025,
we
repurchased $54.0 million
in shares of
Common Stock, primarily
under our share
repurchase program. See
“Share Repurchase
Program,” below.
Increase (decrease) in Cash and Cash Equivalents
As of May 31, 2025, cash increased $261.5 million since June 1, 2024, compared to a $54.9 million decrease
during fiscal 2024.
The increase is primarily due to the increase in net sales during fiscal 2025.
Acquisition of Echo Lake Foods
Subsequent to our fiscal 2025 year-end, we acquired Echo Lake Foods. The purchase price was approximately $258 million and
was funded with available cash on hand. For additional information, refer to Part II. Item 8. Notes to the Consolidated Financial
Statements,
Note 17 – Subsequent Events
.
Credit Facility
On November 15,
2021, we entered
into an Amended
and Restated Credit
Agreement (as amended,
the “Credit Agreement”)
with
a five-year term. The Credit Agreement provides
for a senior secured revolving credit facility
(the “Credit Facility”), in an initial
aggregate principal amount of up to $250 million. As of May 31, 2025, no amounts were borrowed under the Credit Facility. As
of May 31, 2025, we
had $4.7 million in outstanding
standby letters of credit, which
were issued under our Credit
Facility for the
benefit of
certain insurance
companies. On
March 25,
2025, we
entered into
the Second
Amendment to
the Credit
Facility to
amend the definition
of Change of
Control to exclude
the conversion of
all outstanding shares
of Class A
Common Stock into
Common Stock.
Refer to
Part II.
Item 8.
Notes to
the Financial
Statements,
Note 10– CreditFacility
for further
information
regarding our long-term debt.
Share Repurchase Program
On
February
25,
2025,
the
Board
approved
a
new
$500
million
share
repurchase
program.
The
share
repurchase
program
authorizes the Company, in management’s discretion, to repurchase Common Stock from time to time for
an aggregate purchase
price up
to $500
million (exclusive
of any
fees, taxes,
commissions or
other expenses
related to
such repurchases),
subject to
market
conditions
and
other
factors.
The
actual
timing,
number
and
value
of
shares
repurchased
under
the
program
will
be
determined by
management in
its discretion
and will
depend on
a number
of factors,
including, but
not limited
to, the
market
price of the Common Stock and general market and economic conditions.
36
The Company expects to strategically and opportunistically repurchase shares from time to time through solicited or unsolicited
transactions in the
open market, in
privately negotiated transactions
or by other
means in accordance
with securities laws.
The
Company expects that share repurchases under the program will be
funded from one or a combination of existing cash balances
and future free
cash flow.
The share repurchase
program does not
obligate the Company
to repurchase any
specific amount of
shares, does
not have an
expiration date, and
may be suspended,
modified or
discontinued at
any time without
prior notice. During
fiscal
2025,
the
Company
repurchased
approximately
$50
million
in
shares
under
the
program.
See
PartII.Item5.Issuer
Purchases of Equity Securities
and Part II. Item 8. Notes to the Financial Statements,
Note 11 – Equity
for further information.
Dividends
In
accordance
with
our
variable
dividend
policy,
we
will
pay
a
cash
dividend
totaling
approximately
$114.2
million,
or
approximately $2.362 per share, to holders
of our Common Stock with respect
to our fourth quarter of fiscal
2025. The amount
paid per
share will vary
based on
the number of
outstanding shares on
the record date.
The dividend is
payable on August
19,
2025 to holders of record on August 4, 2025.
Material Cash Requirements
Material cash
requirements for operating
activities primarily consist
of feed
ingredients, processing, packaging
and warehouse
costs, employee related costs, and
other general operating expenses, which
we expect to be paid
from our cash from operations
and cash and investment
securities on hand for
at least the next
12 months. While volatile
egg prices and feed
ingredient costs,
among
other
things, make
long-term predictions
difficult,
we
have
substantial liquid
assets and
availability under
our
Credit
Facility to fund future operating requirements.
Our material cash requirements for capital expenditures consist primarily of our projects to increase our cage-free production
capacity. We
continue to monitor the increasing demand for cage-free eggs and to engage with our customers in efforts to help
them achieve their announced timelines for cage-free egg sales. The following table presents material construction
projects
approved as of May 31, 2025 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
May 31, 2025
Remaining
Projected Cost
Feed Mill
Fiscal 2026
$
9,800
$
4,936
$
4,864
Egg Products Expansion
Fiscal 2026
19,576
10,958
8,618
Cage-Free Layer & Pullet Houses
Fiscal 2026
219,004
179,281
39,723
$
248,380
$
195,175
$
53,205
As of May
31, 2025, we
had $75.5 million
of purchase obligations
outstanding, all of
which is due
within one year.
Purchase
obligations primarily
include contractual
agreements to
purchase feed ingredients
and commitments
to make
capital expenditures.
Timing
of payments
and actual
amounts paid
may be
different depending
on the
timing of
the receipt
of goods
or services
or
changes to agreed-upon amounts for some obligations.
We
believe our
current cash
balances, investments,
projected cash
flows from
operations, and
available borrowings
under our
Credit Facility will
be sufficient
to fund our
capital needs for
at least the
next 12 months
and to fund
our capital commitments
currently in place thereafter.
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 materially
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.
37
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.
The
excess
of
the
purchase
price
over
fair
values
of
identifiable
assets
and
liabilities
is
recorded
as
goodwill.
We
typically use
the income
method approach
for intangible
assets acquired
in a
business combination.
Significant judgment
exists in valuing certain
intangible assets and the
most significant assumptions
requiring judgment involve estimating
the amount
and timing of future
cash flows, growth rates,
discount rates selected to
measure the risks inherent
in the future cash
flows and
the asset’s expected useful lives.
The
fair
values of
identifiable assets
and
liabilities are
generally
determined internally
and
requires estimates
and
the
use
of
various valuation