RISK FACTORS; FORWARD-LOOKING STATEMENTS
For information relating to important risks and uncertainties that could materially adversely affect our business, securities, financial condition or operating results, reference is made to the disclosure set forth under Item
1A . Risk Factors . In addition, because the following discussion includes numerous forward-looking statements relating to us, our results of operations, financial condition and business, reference is made to the information set forth in the section of Part I immediately preceding Item 1 above under the caption " Forward-Looking Statements ."
BACKGROUND
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs. Our fiscal year end is the Saturday closest toMay 31 . The Company, which is headquartered inJackson, Mississippi , is the largest producer and distributor of fresh shell eggs inthe United States and sells the majority of its shell eggs in states across the southwestern, southeastern, mid-western and mid-Atlantic regions ofthe United States . Our operations are fully integrated. We hatch chicks, grow and maintain flocks of pullets (female chickens, under 18 weeks of age), layers (mature female chickens) and breeders (male and female birds used to produce fertile eggs to be hatched for egg production flocks), manufacture feed, and produce, process, market and distribute shell eggs. In fiscal 2020, we sold approximately 1,069 million dozen shell eggs, which we believe represented approximately 19% of domestic shell egg consumption. Our total flock of approximately 40 million layers and 11 million pullets and breeders is the largest in theU.S. We sell most of our shell eggs to a diverse group of customers, including national and regional grocery store chains, club stores, food service distributors, and egg product consumers. The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage-free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as conventional products. While we report separate sales information for these types of eggs, there are a number of cost factors which are not specifically available for conventional or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers. Our operating results are materially impacted by market prices for eggs and feed grains (corn and soybean meal), which are highly volatile, independent of each other, and out of our control. Generally speaking, higher market prices for eggs have a positive impact on our financial results while higher market prices for feed grains have a negative impact on our financial results. Although we use a variety of pricing mechanisms in pricing agreements with our customers, we sell the majority of our conventional shell eggs based on formulas that take into account, in varying ways, independently quoted regional wholesale market prices for shell eggs or formulas related to our costs of production which include the cost of corn and soybean meal. As an example of the volatility in the market prices of shell eggs, the Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs ("UB southeastern large index") in fiscal year 2020 ranged from a low of$0.62 inJuly 2019 to a high of$3.18 inMarch 2020 . Generally, we purchase primary feed ingredients, mainly corn and soybean meal, at current market prices. Corn and soybean meal are commodities and are subject to volatile price changes due to weather, various supply and demand factors, transportation and storage costs, speculators, and agricultural, energy and trade policies in theU.S. and internationally. 23 -------------------------------------------------------------------------------- Table of Contents Specialty shell eggs have been a significant and growing portion of the market. In recent years, a significant number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to an exclusively cage-free egg supply chain by specified future dates. Additionally, several states have passed legislation requiring cage-free eggs by specified future dates, and other states are considering such legislation. For additional information, see Item 1. Business, Government Regulation. Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers. In light of the growing customer demand and increased legal requirements for cage-free eggs, we intend to continue to closely evaluate the need to expand through selective acquisitions, with a priority on those that will facilitate our ability to expand our cage-free shell egg production capabilities in key locations and markets. We plan to continue to closely evaluate the need to continue to expand and convert our own facilities to increase production of cage-free eggs based on current demand. As the ongoing production of cage-free eggs is more costly than the production of conventional eggs, aligning our cage-free production capabilities with changing demand for cage-free eggs is important to the success of our business. SinceJanuary 2020 , the coronavirus ("COVID-19") outbreak, characterized as a pandemic by theWorld Health Organization onMarch 11, 2020 , has caused significant disruptions in international andU.S. economies and markets. For a discussion of our response to COVID-19, see Part I, Item 1, Business - Response to the COVID-19 Pandemic. We discuss the pandemic and potential future implications of the pandemic in this report; however, the pandemic is an evolving and challenging situation, and its impact on our business in the future is uncertain. 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 may vary significantly. Shorter term, retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in laying hen productivity and shell egg production during the spring and early summer. Historically, shell egg prices have tended to increase with the start of the school year and tended to be highest prior to holiday periods, particularlyThanksgiving , Christmas, and Easter. Consequently, and all other things being equal, we would expect to experience lower sales and net income (and may incur net losses) in our first and fourth fiscal quarters ending in August/September and May/June, respectively. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons. Executive Overview of Results - Fiscal Years EndedMay 30, 2020 ,June 1, 2019 andJune 2, 2018 Fiscal Years Ended May 30, 2020 June 1, 2019 June 2, 2018 Net sales (in thousands)$ 1,351,609 $ 1,361,188 $ 1,502,932 Gross profit (in thousands)$ 179,588 $ 222,859 $ 361,046 Net average shell egg price (a)$ 1.231 $ 1.265 $ 1.397 Average UB Southeast Region - Shell Eggs - White Large$ 1.220 $ 1.229 $ 1.490 Feed cost per dozen produced$ 0.409
a.The net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and undergrades. Compared to fiscal 2018, fiscal 2019 saw an increasingU.S. flock size result in an oversupply of eggs, particularly in the last half of the fiscal year, which led to lower selling prices for conventional eggs. This resulted in decreased gross profit and net income for fiscal 2019. 24
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Throughout the first three quarters of our fiscal year 2020, an oversupply of eggs negatively affected the price of conventional eggs, and demand for specialty eggs was negatively impacted by the low conventional egg prices. For the first three quarters of fiscal 2020, the average UB southeastern large index price was down 21.9% compared with the prior-year period, but in the fourth quarter of fiscal 2020 was 62.4% higher than the average price through the first three quarters in fiscal 2020 due to increased demand related to the pandemic, as consumers purchased more eggs in anticipation of preparing more meals at home.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain items from our consolidated statements of income expressed as a percentage of net sales. May 30, 2020 June 1, 2019 Net sales 100.0 % 100.0 % Cost of sales 86.7 % 83.6 % Gross profit 13.3 % 16.4 % Selling, general and administrative 13.0 % 12.8 % Legal settlement expense 0.1 % 0.2 % Operating income (loss) 0.2 % 3.4 % Total other income, net 1.4 % 1.8 % Income (loss) before income taxes 1.6 % 5.2 % Income tax (benefit) expense 0.1 % 1.2 % Net income (loss) 1.5 % 4.0 % Less: Income (loss) attributable to noncontrolling interest - % 0.1 % Net income (loss) attributable to Cal-Maine Foods, Inc. 1.5 % 3.9 %
Fiscal Year Ended
Net sales for the fiscal year endedMay 30, 2020 were$1,351.6 million , a decrease of$9.6 million , or 0.7%, from net sales of$1,361.2 million for fiscal 2019. The decrease was primarily due to lower sales volumes for specialty eggs, lower prices of conventional eggs during the first three quarters of fiscal 2020 and a decline in revenue from egg product sales. In fiscal 2020 and 2019, shell egg sales made up approximately 97.7% and 97.0% of our net sales, respectively. Total dozens sold in fiscal 2020 were 1,069.2 million, an increase of 30.3 million dozen, or 2.9%, compared to 1,038.9 million sold in fiscal 2019 resulting in an increase in net sales of$37.2 million for fiscal 2020 compared with the prior fiscal year. The net average selling price of shell eggs decreased from$1.265 per dozen for fiscal 2019 to$1.231 per dozen for fiscal 2020, a decrease of$0.034 per dozen, or 2.7%. Shell egg prices were lower throughout the first three quarters of fiscal 2020 as compared to fiscal 2019 primarily reflecting an oversupply of eggs in the market. Demand for specialty eggs and specialty egg prices were negatively impacted by the low conventional egg prices. For the first three quarters of fiscal 2020, the average UB southeastern large index price was down 22% compared with the prior-year period, but in the fourth quarter of fiscal 2020 was 62% higher than in the average price of the first three quarters of fiscal 2020 due to increased demand related to the pandemic, as consumers purchased more eggs in anticipation of preparing more meals at home. The UB southeastern large index price ranged from a high of$3.18 to a low of$1.02 in the fourth quarter of fiscal 2020. The decrease in sales price in fiscal 2020 from fiscal 2019 resulted in a corresponding decrease in net sales of approximately$35.3 million . 25 -------------------------------------------------------------------------------- Table of Contents Hen numbers reported by theUSDA as ofJune 1, 2020 , were 319.8 million, which is 13.9 million fewer hens than reported a year ago, when theUSDA also reported high flock productivity, which led to an oversupply of eggs and a significant decline in prices. TheUSDA reported that the hatch from January throughMay 2020 decreased 5.0%, including a 13.1% decrease in May, as compared to the same period in the prior year, which will affect future egg supply levels. During the second quarter of fiscal 2020, we lost a portion of our of conventional eggs sales to a major customer in the Southeast region, representing 4.6% of total shell egg dozens and 6.1% of conventional egg dozens for fiscal 2019. For fiscal 2020, the volume decreased by 2.8% of total shell egg dozens and 3.7% of conventional shell egg dozens due to this loss of business. However, we expect our new capacity additions and the decommissioning of some older, less efficient facilities that occurred during fiscal 2020 will help optimize our operations, improve our sales mix, and better align our production and sales within the region. The recent acquisition ofMahard Egg Farm ("Mahard") had a positive impact on our conventional shell egg volumes and continued growth of our customer base. For fiscal year 2020, the volume of total shell egg dozens increased by 3.5% and the volume of conventional shell egg dozens increased by 4.4% due to the acquisition. Furthermore, the acquisition opened up opportunities to streamline aspects of our operations, reduce costs and create efficiencies as we integrated Mahard into our operations.
The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except percentage data):
Fiscal Year Ended May 30, 2020 June 1, 2019 Total net sales$ 1,351,609 $ 1,361,188 Conventional$ 830,278 62.9 %$ 810,306 61.4 % Specialty 485,465 36.8 % 504,169 38.2 % Egg sales, net 1,315,743 99.7 % 1,314,475 99.6 % Other 4,452 0.3 % 5,205 0.4 % Net shell egg sales$ 1,320,195 100.0 %$ 1,319,680 100.0 % Net shell egg sales as a percent of total net sales 97.7 % 97.0 % Dozens sold: Conventional 813,255 76.1 % 778,052 74.9 % Specialty 255,895 23.9 % 260,848 25.1 % Total dozens sold 1,069,150 100.0 % 1,038,900 100.0 % Net average selling price per dozen: Conventional$ 1.021 $ 1.041 Specialty$ 1.897 $ 1.933 All shell eggs$ 1.231 $ 1.265 Conventional shell eggs include all shell egg sales not specifically identified as specialty shell egg sales. In fiscal 2020, conventional shell eggs represented approximately 62.9% of our shell egg revenue, compared to 61.4% for fiscal 2019. Sales of conventional shell eggs accounted for approximately 76.1% and 74.9% of total shell egg volume in fiscal 2020 and 2019, respectively. Revenue from conventional egg sales increased by$20.0 million from fiscal 2019 to fiscal 2020 due to an increase in volume, as net average selling prices decreased. Our net average selling price for conventional eggs was$1.021 per dozen for fiscal 2020 compared to$1.041 per dozen for fiscal 2019. 26
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Specialty eggs, which include nutritionally enhanced, cage-free, organic and brown eggs, continued to make up a significant portion of our total shell egg revenue and dozens sold. For fiscal 2020, specialty eggs accounted for 36.8% of shell egg revenue, compared to 38.2% in fiscal 2019. Specialty eggs accounted for 23.9% of shell egg volume in fiscal 2020 compared with 25.1% fiscal 2019. Revenue from specialty egg sales decreased by$18.7 million from fiscal 2019 to fiscal 2020 due to decreases in both volume and prices. Our net average selling price for specialty eggs was$1.897 per dozen for fiscal 2020 compared to$1.933 per dozen for fiscal 2019. Specialty egg retail prices are less cyclical than conventional shell egg prices and are generally higher due to consumer willingness to pay more for specialty eggs. Specialty egg prices decreased in fiscal 2020 primarily due to higher priced organic egg sales volumes decreasing as a proportion of total specialty sales.
The shell egg sales classified as "Other sales" represent hard cooked eggs, hatching eggs, other egg products, hens, and manure, which are included with our shell egg operations.
We sell liquid and frozen egg products primarily to the institutional, food
service, and food manufacturing sectors in the
Egg products accounted for approximately 2.3% and 3.0% of our net sales in fiscal 2020 and 2019, respectively. For fiscal 2020, egg product sales were$31.4 million , a decrease of$10.1 million , or 24.3%, compared to$41.5 million for fiscal 2019. Egg products volume for fiscal 2020 was 66.0 million pounds, an increase of 5.1 million pounds, or 8.4%, compared to 60.8 million pounds for fiscal 2019. In fiscal 2020, the selling price per pound was$0.476 compared to$0.685 for fiscal 2019, a decrease of 30.5%. The decline in revenue is attributable to the lower selling prices brought on by an oversupply of eggs throughout the first three quarters in fiscal 2020, followed by a decline in food service demand in the fourth quarter of fiscal 2020 due to the COVID-19 pandemic. COST OF SALES Cost of sales consists of costs directly related to producing, processing and packing shell eggs, purchases of shell eggs from outside producers, processing and packing of liquid and frozen egg products and other non-egg costs. Farm production costs are those costs incurred at the egg production facility, including feed, facility, hen amortization, and other related farm production costs. 27 -------------------------------------------------------------------------------- Table of Contents The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data): Fiscal Year Ended May 30, 2020 June 1, 2019 % Change Cost of Sales: Farm production$ 677,181 $ 635,797 6.5 % Processing, packaging, and warehouse 234,243 222,765 5.2 % Egg purchases and other (including change in inventory) 232,027 249,605 (7.0) % Total shell eggs 1,143,451 1,108,167 3.2 % Egg products 25,651 29,020 (11.6) % Other 2,919 1,142 155.6 % Total$ 1,172,021 $ 1,138,329 3.0 % Farm production cost (per dozen produced) Feed$ 0.409 $ 0.415 (1.4) % Other$ 0.329 $ 0.319 3.1 % Total$ 0.738 $ 0.734 0.5 % Outside egg purchases (average cost per dozen)$ 1.26 $ 1.26 - % Dozen produced 927,799 876,705 5.8 % Dozen sold 1,069,150 1,038,900 2.9 % Cost of sales for the fiscal year endedMay 30, 2020 was$1,172.0 million , an increase of$33.7 million , or 3.0%, compared to$1,138.3 million for fiscal 2019, primarily attributable to the increase in dozens produced driven primarily by the Mahard acquisition. For the 2020 fiscal year, we produced 86.8% of the eggs sold by us, compared to 84.4% for the previous year. Feed cost for fiscal 2020 was$0.409 per dozen, compared to$0.415 per dozen for the prior fiscal year, a decrease of 1.4%. The decrease in feed cost per dozen resulted in a decrease in cost of sales of$5.6 million for fiscal 2020 compared with fiscal 2019. Included in cost of sales for fiscal 2020 is a non-cash impairment loss on fixed assets of$2.9 million (included in the line item "Other" in the table above) related to decommissioning some of our older, less efficient production facilities as we continue to invest in new facilities to meet the increasing demand for specialty eggs and reduce production costs. We continue to proactively monitor and manage operations during the COVID-19 pandemic, including additional related costs that we have incurred or many incur in the future. In fiscal 2020, we spent an additional$2.8 million related to the pandemic. The majority of the expenses were related to supplemental pay including employee benefits and additional labor. Looking forward to fiscal 2021, according toUSDA reports, current supplies of corn and soybeans are favorable, and we believe we will continue to have an adequate supply of both grains in fiscal 2021. However, current ongoing uncertainties and supply chain disruptions related to the COVID-19 outbreak, weather and geopolitical issues surrounding trade agreements and international tariffs may lead to further price volatility. 28 -------------------------------------------------------------------------------- Table of Contents GROSS PROFIT Gross profit, as a percentage of net sales, was 13.3% for fiscal 2020, compared to 16.4% for fiscal 2019. The decrease resulted primarily from lower selling prices for conventional eggs through the first three quarters in fiscal 2020.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses ("SGA") include costs of marketing, distribution, accounting, and corporate overhead. The following table presents an analysis of our SGA expenses (in thousands):
Fiscal Years Ended May 30, 2020 June 1, 2019 $ Change % Change Specialty egg expense$ 49,237 $ 53,263 $ (4,026) (7.6) % Delivery expense 52,230 53,595 (1,365) (2.5) % Payroll, taxes and benefits 44,156 42,454 1,702 4.0 % Stock compensation expense 3,617 3,619 (2) (0.1) % Other expenses 28,997 24,114 4,883 20.2 % Total$ 178,237 $ 177,045 $ 1,192 0.7 % For fiscal year 2020, SGA was$178.2 million compared to$177.0 million for fiscal 2019. Specialty egg expense decreased$4.0 million , or 7.6%, compared to the same period of the prior year. Specialty egg expense typically fluctuates directly with specialty egg dozens sold, which decreased 1.9% for fiscal 2020. Franchise fees and advertising expense combined decreased$4.1 million for fiscal 2020. Both are components of specialty egg expense and are driven by specialty dozens sold.
Payroll, taxes and benefits increased
Other expenses increased$4.9 million or 20.2% compared to fiscal 2019. This increase is primarily due to increased property and casualty insurance premiums and an increase in charitable donations.
OPERATING INCOME
As a result of the above, our operating income was
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged to, or related to, operations such as interest income and expense, equity in income or loss of unconsolidated entities, and patronage dividends, among other items.
The Company recorded interest income of$5.0 million in fiscal 2020, compared to$8.0 million for fiscal 2019. We recorded interest expense of$498,000 and$644,000 in fiscal 2020 and 2019, respectively. The decrease in interest income resulted from significantly lower investment balances, partially offset by higher interest rates. Patronage dividends, which represent distributions from our membership inEggland's Best, Inc. ("EB"), decreased$386,000 from$10.5 million in fiscal 2019 to$10.1 million in fiscal 2020. Patronage dividends are paid once a year based on profits of EB as well as their available cash. 29
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Equity in income from unconsolidated entities for fiscal 2020 was
Other, net for fiscal 2020 was income of$3.7 million compared to$2.4 million for fiscal 2019. The increase is primarily driven by realized and unrealized gains in investment securities available-for-sale.
INCOME TAXES
OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was enacted. The most significant provision of the CARES Act that materially affected the Company's income taxes included the five-year carryback allowance for taxable net operating losses generated in the tax years 2018 through 2020, our fiscal years 2019 through 2021. The Tax Cut and Jobs Act enacted inDecember 2017 disallowed the carrying back of taxable net operating losses to offset prior years' taxable income. The CARES Act allows us to carry those losses generated or that maybe generated during our fiscal years 2019 through 2021 back to offset taxable income recognized during the prior five years. The Company is electing to utilize that provision, which will provide additional liquidity in the form of an income tax refund currently estimated to be approximately$6.9 million . We believe we will receive the refund during our second fiscal quarter of 2021. Additionally, we recorded an income tax benefit of approximately$2.4 million related to the carryback provisions in the fourth quarter of fiscal 2020. For more information regarding the income tax effects of the CARES Act, refer to "Part II, Item 8, Notes to Consolidated Financial Statements, Note 1 7 - Income Taxes ." For the fiscal year endedMay 30, 2020 , our pre-tax income was$20.1 million , compared to$70.8 million for fiscal 2019. Income tax expense of$1.7 million was recorded for fiscal 2020 compared to$15.7 million for fiscal 2019. Our fiscal 2020 effective tax rate decreased to 8.6% from 22.5% in fiscal 2019, driven primarily by the net operating loss carryback provisions allowed under the CARES Act, which became law during the fourth quarter of fiscal 2020. Excluding the effects of the CARES Act, the Company's fiscal 2020 effective tax rate would have been approximately 24.1%. AtMay 30, 2020 , the Company had an income tax receivable of$9.9 million compared to$9.7 million atJune 1, 2019 . During the fourth quarter of fiscal 2020, the Company received an$8.4 million federal tax refund related to the filing of its fiscal 2019 tax return. The Company recorded an income tax receivable of$6.9 million related to the decision to carryback fiscal 2020 taxable net operating losses to recover a portion of taxes paid in fiscal 2015. An additional$1.6 million income tax receivable was recorded for claims for refund filed with state taxing authorities. For the thirteen weeks endedMay 30, 2020 , our pretax income was$77.6 million and our income tax expense was$17.1 million with an effective tax rate of 22.03%, including the impact of the CARES Act. Our income tax provision for the fourth quarter of fiscal 2020 reflects the carryback of taxable net operating losses generated during periods in which the statutory federal income tax rate was 21% to periods in which the statutory federal income tax rate was 35%, as permitted by the CARES Act. The low effective rate was primarily related to the$2.4 million income tax benefit recorded in connection with the CARES Act. Items causing our effective tax rate to differ from the federal statutory income tax rate of 21% are state income taxes, certain federal tax credits and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, certain nondeductible expenses, and net income or loss attributable to noncontrolling interest. 30 -------------------------------------------------------------------------------- Table of Contents NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST Net income (loss) attributable to noncontrolling interest for fiscal 2020 was a loss of$63 thousand compared to income of$833 thousand for fiscal 2019. During fiscal 2020, we acquired the remaining 27.9% interest in our majority-owned subsidiary TEP.
NET INCOME ATTRIBUTABLE TO CAL-
As a result of the above, net income for fiscal 2020 was$18.4 million , or$0.38 per basic and diluted share, compared to$54.2 million , or$1.12 per basic and diluted share for fiscal 2019.
Fiscal Year Ended
The discussion of our results of operations for the fiscal year endedJune 1, 2019 compared to the fiscal year endedJune 2, 2018 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's fiscal 2019 Annual Report on Form 10-K.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital atMay 30, 2020 was$429.1 million , compared to$492.8 million atJune 1, 2019 . The calculation of working capital is defined as current assets less current liabilities. Our current ratio was 5.6 atMay 30, 2020 compared to 7.6 atJune 1, 2019 . The current ratio is calculated by dividing current assets by current liabilities. Due to seasonal factors described under the heading "Background" above, we generally expect our need for working capital to be highest in the last and first fiscal quarters ending in May/June and August/September, respectively. During the second quarter of fiscal 2020, we retired all outstanding long-term debt. As such there was no long-term debt atMay 30, 2020 , compared to$1.5 million atJune 1, 2019 . OnJuly 10, 2018 , we entered into a$100.0 million Senior Secured Revolving Credit Facility ("the Revolving Credit Facility"). As ofMay 30, 2020 , no amounts were borrowed under the Revolving Credit Facility. We have$4.3 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 Facilities and Long-Term De b t for further information regarding our long-term debt. Net cash provided by operating activities was$73.6 million for fiscal year 2020 compared with$115.1 million for fiscal year 2019. Decreased gross profit margins resulting primarily from lower selling prices for conventional eggs through the first three quarters contributed greatly to our decrease in cash flow from operations. The increase in accounts receivables balance at fiscal 2020 compared to prior fiscal 2019 is due to higher prices and quantities sold of shell eggs in the fourth quarter of fiscal 2020 compared to the same period in fiscal 2019. Increase in accounts payable balance at fiscal 2020 compared to prior fiscal 2019 is due to higher prices quantities purchased of shell eggs in the fourth quarter of fiscal 2020 compared to the same period in fiscal 2019. For fiscal 2020, approximately$204.3 million was provided from the sale and maturity of short-term investments,$107.2 million was used to purchase short-term investments and net payments of$7.1 million were received from investments in 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 ofMay 30, 2020 was an increase in cash of$8.9 million fromJune 1, 2019 .
For fiscal 2019, approximately
31 -------------------------------------------------------------------------------- Table of Contents investments in unconsolidated entities. We used$17.9 million to acquireFeatherland Egg Farms . We invested$4.3 million in unconsolidated entities. Approximately$68.0 million was used to purchase property, plant and equipment. Approximately$3.8 million was used for principal payments on long-term debt and$41.7 million for the payment of dividends. The net result of these and other activities as ofJune 1, 2019 was an increase in cash of$20.8 million fromJune 2, 2018 . We continue to monitor the increasing demand for cage-free, organic and other specialty eggs in order to meet our customers' demand. We have invested over$371.7 million in facilities, equipment and related operations to expand our cage-free production starting with our first facility in 2008. The following table presents current material construction projects approved as ofMay 30, 2020 (in thousands): Spent as of May Remaining Project(s) Type Projected Completion Projected Cost 30, 2020 Projected Cost Convertible/Cage-Free Layer Houses & Pullet Houses Fiscal 2021 38,032 28,412 9,620 Cage-Free Layer & Pullet Houses/Processing Facility Fiscal 2022 87,204 50,411 36,793$ 125,236 $ 78,823 $ 46,413
We believe our current cash balances, investments, cash flows from operations, and Revolving Credit Facility will be sufficient to fund our current and projected capital needs for at least the next twelve months.
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
10 , and on lease obligations in Note 15 , in Part II, Item 8 Notes
to the Consolidated Financial Statements. As of
Total 2021 2022 2023 2024 2025 Thereafter Finance leases$ 937 $ 239 $ 239 $ 239 $ 218 $ - $ - Operating leases 2,817 930 806 539 380 130 32 Total$ 3,754 $ 1,170 $ 1,046 $ 779 $ 598 $ 130 $ 32
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 Pol icies .
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance withU.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.
Management suggests our Summary of Significant Accounting Policies, as described in Note 1 in Part II, Item 8, Notes to the Consolidated Financial Statements, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. We believe the critical accounting policies that most impact our consolidated financial statements are described below.
32 -------------------------------------------------------------------------------- Table of Contents INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE Our investment securities are accounted for in accordance with ASC 320, "Investments-Debt and Equity Securities " ("ASC 320"). The Company considers all debt securities for which there is a determinable fair market value and no restrictions on the Company's ability to sell within the next 12 months as available-for-sale, and carries them at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses are included in other income. The cost basis for realized gains and losses on available-for-sale securities is determined on the specific identification method.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In the normal course of business, we extend credit to our customers on a short-term basis. Although credit risk associated with our customers is considered minimal, we routinely review our accounts receivable balances and make provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer's inability to meet its financial obligations to us (e.g. bankruptcy filings), a specific reserve is recorded to reduce the receivable to the amount expected to be collected. For all other customers, we recognize reserves for bad debt based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due.
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 values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 22 weeks. Capitalized flock costs are then amortized over the flock's productive life, generally one to two years. Flock mortality is charged to cost of sales as incurred. High mortality from disease or extreme temperatures will result in abnormal write-downs to flock inventories. Management continually monitors each flock and attempts to take appropriate actions to minimize the risk of mortality loss.
LONG-LIVED ASSETS
Depreciable long-lived assets are primarily comprised of buildings, improvements, machinery and equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to depreciation expense. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. We continually reevaluate the carrying value of our long-lived assets, for events or changes in circumstances which indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value.
INTANGIBLE ASSETS
Included in other intangible assets are separable intangible assets acquired in business acquisitions, which include franchise fees, non-compete agreements and customer relationship intangibles. They are amortized over their estimated useful lives of 5 to 15 years. The gross cost and accumulated amortization of intangible assets are removed when the recorded amounts are fully amortized and the asset is no longer in use. 33 -------------------------------------------------------------------------------- Table of Contents EQUITY AND COST METHOD INVESTMENTS We have invested in other companies engaged in the production, processing and distribution of shell eggs and egg products. These investments are recorded using the cost or equity method, and are not consolidated in our financial statements. Changes in the ownership percentages of these investments might alter the accounting methods currently used. Our investment in these companies is shown on the Company's Consolidated Balance Sheet in the amounts presented for "Investment in unconsolidated entities" and "Other long-term assets".
Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill 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 reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of any impairment.
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Fiscal Year Description Amount 1999 Acquisition of Hudson Brothers, Inc.$ 3,147 2006 Acquisition of Hillandale Farms, LLC 869 2007 Acquisition of Green Forest Foods, LLC 179 2008 Revised Hillandale incremental purchase price 9,257 2009 Revised Hillandale incremental purchase price 2,527 2009 Acquisition of Zephyr Egg, LLC 1,876 2009 Acquisition of Tampa Farms, LLC 4,600 2010 Revised Hillandale incremental purchase price (338) 2013 Acquisition of Maxim Production Co., Inc. 2,300 2014 Purchase of joint venture partner's 50% in Delta Egg 4,779 2017 Acquisition of Foodonics International, Inc. 3,389 2017 Acquisition of Happy Hen Egg Farms, Inc. 2,940 Total Goodwill$ 35,525
REVENUE RECOGNITION AND DELIVERY COSTS
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within days of the Company and customer agreeing upon the order. See Note 1 4 : Revenue Recognition in Part II, Item 8, Notes to Consolidated Financial Statements for further discussion of the policy. The Company believes the performance obligation is met upon delivery and acceptance of the product by our customers. Costs to deliver product to customers are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income. Sales revenue reported in the accompanying Consolidated Statements of Income is reduced to reflect estimated returns and allowances. The Company records an estimated sales allowance for returns and discounts at the time of sale using historical trends based on actual sales returns and sales.
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 34 -------------------------------------------------------------------------------- Table of Contents 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 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.''
STOCK BASED COMPENSATION
We account for share-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance-based shares to be recognized in the statement of income based on their fair values. ASC 718 requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. See Note 1 6 - Stock Compensation Plans in Part II, Item 8, Notes to the Consolidated Financial Statements for more information.
INCOME TAXES
We determine our effective tax rate by estimating our permanent differences resulting from differing treatment of items for tax and accounting purposes. We are periodically audited by taxing authorities. Any audit adjustments affecting permanent differences could have an impact on our effective tax rate.
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