SANFILIPPO JOHN B & SON INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 24, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

0-19681

JOHN B. SANFILIPPO & SON, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		36-2419677
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1703 North Randall Road Elgin, Illinois		60123-7820
(Address of Principal Executive Offices)		(Zip Code)

(847)

289-1800

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $.01 par value per share	JBSS	The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act. (Check One)

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated

filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

☒ No

As of October 22, 2020, 8,822,211 shares of the Registrant’s Common Stock, $0.01 par value per share and 2,597,426 shares of the Registrant’s Class A Common Stock, $0.01 par value per share, were outstanding.

JOHN B. SANFILIPPO & SON, INC.

FORM

10-Q

FOR THE QUARTER ENDED SEPTEMBER 24, 2020

INDEX


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Comprehensive Income for the Quarter Ended September 24, 2020 and September 26, 2019		3
Consolidated Balance Sheets as of September 24, 2020, June 25, 2020 and September 26, 2019		4
Consolidated Statements of Stockholders’ Equity for the Quarter Ended September 24, 2020 and September 26, 2019		6
Consolidated Statements of Cash Flows for the Quarter Ended September 24, 2020 and September 26, 2019		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		27
Item 4. Controls and Procedures		27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 6. Exhibits		27
SIGNATURE		31

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	For the Quarter Ended
	September 24, 2020			September 26, 2019
Net sales	$	210,273		$	217,846
Cost of sales		170,941			175,598

Gross profit		39,332			42,248

Operating expenses:
Selling expenses		12,084			14,112
Administrative expenses		8,375			9,074

Total operating expenses		20,459			23,186

Income from operations		18,873			19,062

Other expense:
Interest expense including $167 and $247 to related parties		450			521
Rental and miscellaneous expense, net		432			404
Other expense		630			566

Total other expense, net		1,512			1,491

Income before income taxes		17,361			17,571
Income tax expense		4,549			4,645

Net income	$	12,812		$	12,926
Other comprehensive income:
Amortization of prior service cost and actuarial loss included in Other expense		416			343
Income tax expense related to pension adjustments		(104	)		(86	)

Other comprehensive income, net of tax:		312			257

Comprehensive income	$	13,124		$	13,183

Net income per common share-basic	$	1.12		$	1.13

Net income per common share-diluted	$	1.11		$	1.12

The accompanying unaudited notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	September 24, 2020		June 25, 2020		September 26, 2019
ASSETS
CURRENT ASSETS:
Cash	$	743	$	1,535	$	887
Accounts receivable, less allowance for doubtful accounts of $371, $391 and $ 386		69,881		56,953		60,474
Inventories		150,371		172,068		156,453
Prepaid expenses and other current assets		6,353		8,315		5,291

TOTAL CURRENT ASSETS		227,348		238,871		223,105

PROPERTY, PLANT AND EQUIPMENT:
Land		9,277		9,285		9,285
Buildings		110,397		110,294		110,440
Machinery and equipment		221,545		218,021		212,403
Furniture and leasehold improvements		5,186		5,179		5,130
Vehicles		637		682		639
Construction in progress		4,370		2,244		2,454

		351,412		345,705		340,351
Less: Accumulated depreciation		241,987		239,013		231,944

		109,425		106,692		108,407
Rental investment property, less accumulated depreciation of $12,220, $12,018 and $ 11,413		16,903		17,105		17,630

TOTAL PROPERTY, PLANT AND EQUIPMENT		126,328		123,797		126,037

Intangible assets, net		11,547		12,125		13,954
Cash surrender value of officers’ life insurance and other assets		10,697		11,875		9,334
Deferred income taxes		6,987		6,788		5,972
Goodwill		9,650		9,650		9,650
Operating lease right-of-use assets		4,201		4,351		5,170

TOTAL ASSETS	$	396,758	$	407,457	$	393,222

The accompanying unaudited notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	September 24, 2020			June 25, 2020			September 26, 2019
LIABILITIES & STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility borrowings	$	44,168		$	27,008		$	16,042
Current maturities of long-term debt, including related party debt of $595, $585 and $4,388 and net of unamortized debt issuance costs of $22, $25 and $32		4,372			5,285			7,385
Accounts payable		41,441			36,323			52,365
Bank overdraft		85			2,041			1,302
Accrued payroll and related benefits		11,511			25,641			11,546
Other accrued expenses		16,058			15,870			15,767

TOTAL CURRENT LIABILITIES		117,635			112,168			104,407

LONG-TERM LIABILITIES:
Long-term debt, less current maturities, including related party debt of $8,794, $8,947 and $10,028 and net of unamortized debt issuance costs of $15, $19 and $37		13,780			14,730			18,152
Retirement plan		31,860			31,573			24,974
Long-term operating lease liabilities, net of current portion		2,807			2,990			3,774
Other		7,377			7,758			7,865

TOTAL LONG-TERM LIABILITIES		55,824			57,051			54,765

TOTAL LIABILITIES		173,459			169,219			159,172

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $.01 par value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding		26			26			26
Common Stock, non-cumulative voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized 8,940,111, 8,939,890 and 8,909,406 shares issued		89			89			89
Capital in excess of par value		124,521			123,899			122,890
Retained earnings		108,185			124,058			117,293
Accumulated other comprehensive loss		(8,318	)		(8,630	)		(5,044	)
Treasury stock, at cost; 117,900 shares of Common Stock		(1,204	)		(1,204	)		(1,204	)

TOTAL STOCKHOLDERS’ EQUITY		223,299			238,238			234,050

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	396,758		$	407,457		$	393,222

The accompanying unaudited notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	Class A Common Stock				Common Stock				Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
	Shares		Amount		Shares		Amount		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, June 25, 2020		2,597,426	$	26		8,939,890	$	89	$	123,899	$	124,058		$	(8,630	)	$	(1,204	)	$	238,238
Net income												12,812									12,812
Cash dividends ($2.50 per share)												(28,685	)								(28,685	)
Pension liability amortization, net of income tax expense of $104															312						312
Equity award exercises						221		—							—						—
Stock-based compensation expense										622											622

Balance, September 24, 2020		2,597,426	$	26		8,940,111	$	89	$	124,521	$	108,185		$	(8,318	)	$	(1,204	)	$	223,299


	Class A Common Stock				Common Stock				Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
	Shares		Amount		Shares		Amount		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, June 27, 2019		2,597,426	$	26		8,909,406	$	89	$	122,257	$	137,712		$	(4,325	)	$	(1,204	)	$	254,555
Net income												12,926									12,926
Cash dividends ($3.00 per share)												(34,321	)								(34,321	)
Pension liability amortization, net of income tax expense of $86															257						257
Impact of adopting ASU 2018-02												976			(976	)					—
Stock-based compensation expense										633											633

Balance, September 26, 2019		2,597,426	$	26		8,909,406	$	89	$	122,890	$	117,293		$	(5,044	)	$	(1,204	)	$	234,050

The accompanying unaudited notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	For the Quarter Ended
	September 24, 2020			September 26, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,812		$	12,926
Depreciation and amortization		4,368			4,412
(Gain) loss on disposition of assets, net		(241	)		3
Deferred income tax benefit		(199	)		(249	)
Stock-based compensation expense		622			633
Change in assets and liabilities:
Accounts receivable, net		(12,928	)		497
Inventories		21,697			571
Prepaid expenses and other current assets		1,962			356
Accounts payable		5,661			9,655
Accrued expenses		(13,970	)		(10,969	)
Income taxes payable		28			3,839
Other long-term assets and liabilities		166			300
Other, net		599			494

Net cash provided by operating activities		20,577			22,468
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(6,298	)		(3,118	)
Other		280			16

Net cash used in investing activities		(6,018	)		(3,102	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings		17,160			16,042
Principal payments on long-term debt		(1,870	)		(2,192	)
(Decrease) increase in bank overdraft		(1,956	)		401
Dividends paid		(28,685	)		(34,321	)

Net cash used in financing activities		(15,351	)		(20,070	)
NET DECREASE IN CASH		(792	)		(704	)
Cash, beginning of period		1,535			1,591

Cash, end of period	$	743		$	887

Supplemental disclosure of non-cash activities:
Right-of-use assets recognized at ASU No. 2016-02 transition	$	—		$	5,361

The accompanying unaudited notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except where noted and per share data)

Note 1 – Basis of Presentation and Description of Business

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists of

fifty-two

weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:

•

References herein to fiscal 2021 and fiscal 2020 are to the fiscal year ending June 24, 2021 and the fiscal year ended June 25, 2020, respectively.

•

References herein to the first quarter of fiscal 2021 and fiscal 2020 are to the quarters ended September 24, 2020 and September 26, 2019, respectively.

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under a variety of private brands and under the

Fisher, Orchard Valley Harvest,

Squirrel Brand, Southern Style Nuts

and

Sunshine Country

brand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under private brands and brand names. Our products are sold through three primary distribution channels to significant buyers of nuts, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers.

The accompanying unaudited financial statements fairly present the consolidated statements of comprehensive income, consolidated balance sheets, consolidated statements of stockholders’ equity and consolidated statements of cash flows, and reflect all adjustments, consisting only of normal recurring adjustments which are necessary for the fair statement of the results of the interim periods. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

The interim results of operations are not necessarily indicative of the results to be expected for a full year. The balance sheet data as of June 25, 2020 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, these unaudited financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2020 Annual Report on Form

10-K

for the fiscal year ended June 25, 2020.

Note 2 – Revenue Recognition

We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For each customer contract, a five-step process is followed in which we identify the contract, identify performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is transferred to the customer.

When Performance Obligations Are Satisfied

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of raw and processed recipe and snack nuts, nut butters and trail mixes.

Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.

Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Therefore the timing of our revenue recognition requires little judgment.

Variable Consideration

Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates,

in-store

display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management estimate and judgment. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements.

Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment.

We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required.

Contract Balances

Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. The contract asset balance at September 24, 2020 was $57 and is recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance at June 25, 2020 or September 26, 2019. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers.

Disaggregation of Revenue

Revenue disaggregated by sales channel is as follows:


	For the Quarter Ended
Distribution Channel	September 24, 2020		September 26, 2019
Consumer	$	166,757	$	157,146
Commercial Ingredients		22,811		36,888
Contract Packaging		20,705		23,812

Total	$	210,273	$	217,846

Note 3 – Leases

Description of Leases

We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain

non-lease

components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order.

We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease

right-of-use

assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease

right-of-use

assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 5.0 years.

It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and

non-lease

components for all leases.

The following table provides supplemental information related to operating lease right-of-use assets and

ilities


	September 24, 2020		June 25, 2020		September 26, 2019		Affected Line Item in Consolidated Balance Sheet
Assets
Operating lease right-of-use assets	$	4,201	$	4,351	$	5,170	Operating lease right-of-use assets

Total lease right-of-use assets	$	4,201	$	4,351	$	5,170


Liabilities
Current:
Operating leases	$	1,405	$	1,376	$	1,390	Other accrued expenses
Noncurrent:
Operating leases		2,807		2,990		3,774	Long-term operating lease liabilities

Total lease liabilities	$	4,212	$	4,366	$	5,164

The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:


	For the Quarter ended September 24, 2020		For the Quarter ended September 26, 2019
Operating lease costs (a)	$	473	$	374
Variable lease costs (b)		20		16

Total Lease Cost	$	493	$	390

(a)	Includes short-term leases which are immaterial.

(b)	Variable lease costs consist of sales tax.

Supplemental cash flow and other information related to leases was as follows:


	For the Quarter ended September 24, 2020		For the Quarter ended September 26, 2019
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities	$	406	$	365

Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease obligations	$	206	$	152


	September 24, 2020			June 25, 2020			September 26, 2019
Weighted Average Remaining Lease Term (in years)		3.2			3.4			4.0
Weighted Average Discount Rate		4.3	%		4.4	%		4.5	%

Maturities of operating lease liabilities as of September 24, 2020 are as follows:


Fiscal year ending
June 24, 2021 (excluding the quarter ended September 24, 2020)	$	1,183
June 30, 2022		1,426
June 29, 2023		1,173
June 27, 2024		535
June 26, 2025		177
Thereafter		5

Total lease payment		4,499
Less imputed interest		(287	)

Present value of operating lease liabilities	$	4,212

At September 24, 2020, the Company has one additional operating lease of approximately $255 that has not yet commenced and therefore is not reflected in the Consolidated Balance Sheet and tables above. The lease will commence in the second quarter of fiscal 2021 with an initial lease term of 6 years.

Lessor Accounting

We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a

straight-line

basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of

non-lease

components such as recurring utility and storage fees. Leases between related parties are immaterial.

Leasing revenue is as follows:


	For the Quarter Ended September 24, 2020		For the Quarter Ended September 26, 2019
Lease income related to lease payments	$	451	$	543

The future minimum, undiscounted fixed cash flows under

non-cancelable

tenant operating leases for each of the next five years and thereafter is presented below.


Fiscal year ending
June 24, 2021 (excluding the quarter ended September 24, 2020)	$	1,472
June 30, 2022		1,708
June 29, 2023		1,737
June 27, 2024		1,766
June 26, 2025		1,228
Thereafter		1,284

Total	$	9,195

Note 4 – Inventories

Inventories consist of the following:


	September 24, 2020		June 25, 2020		September 26, 2019
Raw material and supplies	$	46,518	$	69,276	$	48,989
Work-in-process and finished goods		103,853		102,792		107,464

Total	$	150,371	$	172,068	$	156,453

Note 5 – Goodwill and Intangible Assets

Identifiable intangible assets that are subject to amortization consist of the following:


	September 24, 2020			June 25, 2020			September 26, 2019
Customer relationships	$	21,100		$	21,100		$	21,100
Brand names		16,990			16,990			16,990
Non-compete agreement		270			270			270

		38,360			38,360			38,360
Less accumulated amortization:
Customer relationships		(16,615	)		(16,223	)		(14,952	)
Brand names		(10,045	)		(9,873	)		(9,355	)
Non-compete agreement		(153	)		(139	)		(99	)

		(26,813	)		(26,235	)		(24,406	)

Net intangible assets	$	11,547		$	12,125		$	13,954

Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of the

Squirrel Brand

and

Southern Style Nuts

brand names.

Total amortization expense related to intangible assets, which is a component of Administrative expense, was $578 for the quarter ended September 24, 2020. Amortization expense for the remainder of fiscal 2021 is expected to be approximately $1,587, and expected amortization expense for the next five fiscal years is as follows:


Fiscal year ending
June 30, 2022	$	1,896
June 29, 2023		1,657
June 27, 2024		1,414
June 26, 2025		1,156
June 25, 2026		861

Our net goodwill of $9,650 relates entirely to the Squirrel Brand acquisition (the “Acquisition”) completed in the second quarter of fiscal 2018. There was no change in the carrying amount of goodwill during the quarter ended September 24, 2020.

Note 6 – Credit Facility

Our Amended and Restated Credit Agreement dated March 5, 2020 provides for a $117,500 senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures.

At September 24, 2020, we had $69,972 of available credit under the Credit Facility which reflects borrowings of $44,168 and reduced availability as a result of $3,360 in outstanding letters of credit. As of September 24, 2020, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility

(as defined below).

Note 7 – Earnings Per Common Share

The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share:


	For the Quarter Ended
	September 24, 2020		September 26, 2019
Weighted average number of shares outstanding – basic		11,477,287		11,444,560
Effect of dilutive securities:
Stock options and restricted stock units		73,300		94,416

Weighted average number of shares outstanding – diluted		11,550,587		11,538,976

There were no anti-dilutive awards excluded from the computation of diluted earnings per share for either period presented.

Note 8 – Stock-Based Compensation Plans

During the quarter ended September 24, 2020 there was no significant restricted stock unit activity. Compensation expense attributable to stock-based compensation during the first quarter of fiscal 2021 and fiscal 2020 was $622 and $633, respectively. As of September 24, 2020, there was $2,685 of total unrecognized compensation cost related to

non-vested,

share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.0 year.

Note 9 – Retirement Plan

The Supplemental Employee Retirement Plan is an unfunded,

non-qualified

deferred compensation plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. The monthly benefit is based upon each participant’s earnings and his or her number of years of service. The components of net periodic benefit cost are as follows:


	For the Quarter Ended
	September 24, 2020		September 26, 2019
Service cost	$	236	$	178
Interest cost		214		223
Amortization of prior service cost		120		239
Amortization of loss		296		104

Net periodic benefit cost	$	866	$	744

The components of net periodic benefit cost other than the service cost component are included in the line item “Other expense” in the Consolidated Statements of Comprehensive Income.

Note 10 – Accumulated Other Comprehensive Loss

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the quarter ended September 24, 2020 and September 26, 2019.

These changes are all related to our defined benefit pension plan.


Changes to AOCL (a)	For the Quarter Ended
Changes to AOCL (a)	September 24, 2020			September 26, 2019
Balance at beginning of period	$	(8,630	)	$	(4,325	)
Other comprehensive income before reclassifications		—			—
Amounts reclassified from accumulated other comprehensive loss		416			343
Tax effect		(104	)		(86	)

Net current-period other comprehensive income		312			257
Impact of adopting ASU 2018-02		—			(976	)

Balance at end of period	$	(8,318	)	$	(5,044	)

(a)	Amounts in parenthesis indicate debits/expense.

The reclassifications out of AOCL for the quarter ended September 24, 2020 and September 26, 2019 were as f

llows:


Reclassifications from AOCL to earnings (b)	For the Quarter Ended						Affected line item in the Consolidated Statements of Comprehensive Income

	September 24, 2020			September 26, 2019
Amortization of defined benefit pension items:
Unrecognized prior service cost	$	(120	)	$	(239	)		Other expense
Unrecognized net loss		(296	)		(104	)		Other expense

Total before tax		(416	)		(343	)
Tax effect		104			86			Income tax expense

Amortization of defined pension items, net of tax	$	(312	)	$	(257	)

(b)	Amounts in parenthesis indicate debits to expense. See Note 9 – “Retirement Plan” above for additional details.

Note 11 – Commitments and Contingent Liabilitie

We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our Company’s financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial monetary damages in excess of any appropriate accruals, which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows.

Note 12 – Fair Value of Financial Instruments

The Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels:


Level 1		– Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

Level 2		– Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3		– Unobservable inputs for which there is little or no market data available.

The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at each balance sheet date because of the short-term maturities and nature of these balances.

The carrying value of our revolving credit facility borrowings approximates fair value at each balance sheet date because interest rates on this instrument approximate current market rates (Level 2 criteria), and because of the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.

The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs:


	September 24, 2020		June 25, 2020		September 26, 2019
Carrying value of long-term debt:	$	18,189	$	20,059	$	25,606
Fair value of long-term debt:		18,489		20,186		25,710

The estimated fair value of our long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt.

Note 13 – Related Party Transaction

In connection with the acquisition of the Squirrel Brand business in the second quarter of fiscal 2018, we incurred $11,500 of unsecured debt

pursuant to a promissory note (the “Promissory Note”)

to the principal owner and seller of the Squirrel Brand business, who was subsequently appointed as an executive officer of the Company and was considered a related party. Late in the second quarter of fiscal 2020, the employment of this executive officer with the Company ceased. He is no longer considered a related party, and therefore the outstanding balance on the Promissory Note is not reflected as related party debt on our Consolidated Balance Sheet as of September 24, 2020. There was no related party interest paid to this former executive officer during the current first quarter, and interest paid while the former executive officer was a related party was $70 for the quarter ended September 26, 2019.

Note 14 – Recent Accounting Pronouncements

The following recent accounting pronouncements have been adopted in the current fiscal year:

In August 2018, the FASB issued ASU

No. 2018-15

“

Intangibles – Goodwill and Other –

Internal-Use

Software (Subtopic

350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

”. The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software (and hosting arrangements that include an internal use software license). ASU

No. 2018-15

was adopted using the prospective method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU

No. 2018-14

“

Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic

715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

”. The amendments in this Update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU

No. 2018-14

was adopted on a retrospective basis to all periods presented in the first quarter of fiscal 2021 and had no impact on our quarterly Consolidated Financial Statements.

In January 2017, the FASB issued ASU

No. 2017-04

“Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”.

The amendments in this Update eliminate the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. ASU

No. 2017-04

was adopted in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In June 2016, the FASB issued ASU

No. 2016-13

“

Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

”. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU

No. 2016-13

was adopted using a modified retrospective transition method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Consolidated Financial Statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements.

Our fiscal year ends on the final Thursday of June each year, and typically consists of

fifty-two

weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:

•

References herein to fiscal 2021 and fiscal 2020 are to the fiscal year ending June 24, 2021 and the fiscal year ended June 25, 2020, respectively.

•

References herein to the first quarter of fiscal 2021 and fiscal 2020 are to the quarters ended September 24, 2020 and September 26, 2019, respectively.

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our Company’s Credit Facility and Mortgage Facility, as defined below, are sometimes collectively referred to as “our financing arrangements.”

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under a variety of private brands and under the

Fisher, Orchard Valley Harvest,

Squirrel Brand, Southern Style Nuts

and

Sunshine Country

brand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under private brands and brand names. We distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

The Company’s long-term objective to drive profitable growth, as identified in our Strategic Plan, includes continuing to grow

Fisher,

Orchard Valley Harvest, Squirrel Brand

and

Southern Style Nuts

into leading brands and providing integrated nut solutions to grow

non-branded

business across key customers. We plan to execute on our Strategic Plan to grow our branded business by reaching new consumers via product and pack innovation, expanding distribution across current and alternative channels and focusing on new ways to buy, with an emphasis on increasing our sales via

e-commerce

platforms and retailers. In addition, we intend to invest in our people and facilities in order to research, develop, market and sell new product offerings in fiscal 2021.

We face a number of challenges in the future which include, among others, changes in commodity acquisition costs, as well as intensified competition on pricing and for market share from both private brand and name brand nut products. Our

Fisher

recipe nut sales have been negatively impacted in fiscal 2020 and the first quarter of fiscal 2021 due to this increased competition for market share. We also face changing industry trends as consumer preferences shift to shopping in smaller store formats like grocery and online. With restaurant closures and other limitations due to the impact of

COVID-19,

consumers are also doing more cooking and baking at home, which has had a positive impact on certain aspects of our consumer business but a negative impact on our foodservice business.

We will continue to face challenges in our fiscal 2021 as result of the

COVID-19

pandemic and the uncertainty of future local, state and federal restrictions aimed to mitigate and control the pandemic. As many of these restrictions were loosened near the conclusion of our fiscal 2020, we saw a gradual (albeit limited) increase in demand from our foodservice, restaurant, convenience store and

non-essential

retail customers. However, if conditions deteriorate in the future and consumers are limited in their ability to purchase meals outside their homes, we believe demand will decrease (or demand will continue to be suppressed) from our foodservice, restaurant, convenience store and

non-essential

retail customers and the collectability of accounts receivables from these customers could be impacted. Also, in our first quarter of fiscal 2021, we began to see signs of a shortage in capacity in the transportation industry, which our transportation service providers believe is due to driver concerns regarding health and safety from increasing

COVID-19

cases and social unrest seen in certain large cities within the country. We believe this shortage in transportation capacity may continue in fiscal 2021 and may lead to increased transportation costs and potential disruptions in service to our customers and from our suppliers.

The Company’s

COVID-19

crisis team, which was created in the third quarter of fiscal 2020, continues to meet on a regular basis to discuss risks faced by the Company and mitigation strategies. We continue to follow recommendations made by state and federal regulators and health agencies to ensure the safety and health of our employees as those recommendations change and evolve. We have implemented (among other things) a temporary work from home option for the majority of our office employees, staggered shifts and breaks, installed partitions on production lines and office space where social distancing could not be consistently maintained and installed thermal scanners to measure temperature for all employees upon arrival. We update and enhance these measures as new guidance is provided. In addition, we have extended personal time off for those who are in self quarantine or ill.

We have worked closely with our domestic and global suppliers to source and maintain a consistent supply of raw materials, ingredients and packaging. To date, none of our manufacturing facilities have been significantly impacted by this pandemic. We have contingency plans in place to help reduce the negative impact if one or more of our manufacturing facilities encounters a partial or full shut down.

We will continue to focus on seeking profitable business opportunities to maximize the utilization of our production capacity at our primary manufacturing, processing and distribution facility located in Elgin, Illinois. We expect to redirect our promotional and advertising activity with respect to our brands to focus on more digital and

e-commerce

platforms to match consumer behavior. We continue to see strong

e-commerce

and grocery performance across our

Orchard Valley Harvest

and

Fisher

recipe brands and expect that there will be additional opportunities to connect these brands to consumers’ desires for more functional snacking and baking and cooking ideas, respectively. We will continue to face the ongoing challenges specific to our business, such as food safety and regulatory compliance and the maintenance and growth of our customer base for branded and private label products. See the information referenced in Part I, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

QUARTERLY HIGHLIGHTS

Our net sales of $210.3 million for the first quarter of fiscal 2021 decreased 3.5% from our net sales of $217.8 million for the first quarter of fiscal 2020.

Sales volume, measured as pounds sold to customers, decreased 3.5% compared to the first quarter of fiscal 2020.

Gross profit decreased $2.9 million, and our gross profit margin, as a percentage of net sales, decreased to 18.7% for the first quarter of fiscal 2021 compared to 19.4% for the first quarter of fiscal 2020.

Total operating expenses for the first quarter of fiscal 2021 decreased $2.7 million, or 11.8%, compared to the first quarter of fiscal 2020. As a percentage of net sales, total operating expenses in the first quarter of fiscal 2021 decreased to 9.7% from 10.6% for the first quarter of fiscal 2020.

The total value of inventories on hand at the end of the first quarter of fiscal 2021 decreased $6.1 million, or 3.9%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2020.

We expect acquisition costs for walnuts and almonds to decrease in the 2020 crop year (which falls into our current 2021 fiscal year). We also expect acquisition costs to decline or remain stable for all other major tree nuts. While we began to procure inshell walnuts during the first quarter of fiscal 2021, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2021. We will determine the final prices to be paid to the walnut growers based upon current market prices and other factors such as crop size and export demand. We have estimated the liability to our walnut growers and our walnut inventory costs using currently available information. Any difference between our estimated liability and the actual payments will be determined during the second and/or third quarters of fiscal 2021 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

Net Sales

Our net sales decreased 3.5% to $210.3 million in the first quarter of fiscal 2021 compared to net sales of $217.8 million for the first quarter of fiscal 2020. Sales volume, which is defined as pounds sold to customers, decreased 3.5% in the quarterly comparison.

The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.


	For the Quarter Ended
Product Type	September 24, 2020			September 26, 2019
Peanuts		19.5	%		18.0	%
Pecans		8.6			9.4
Cashews & Mixed Nuts		23.7			22.7
Walnuts		6.6			7.0
Almonds		12.7			16.6
Trail & Snack Mixes		22.8			20.5
Other		6.1			5.8

Total		100.0	%		100.0	%

The following table shows a comparison of net sales by distribution channel (dollars in thousands):


	For the Quarter Ended
Distribution Channel	September 24, 2020		Percentage of Total			September 26, 2019		Percentage of Total			$ Change			Percent Change
Consumer (1)	$	166,757		79.3	%	$	157,146		72.2	%	$	9,611			6.1	%
Commercial Ingredients		22,811		10.9			36,888		16.9			(14,077	)		(38.2	)
Contract Packaging		20,705		9.8			23,812		10.9			(3,107	)		(13.0	)

Total	$	210,273		100.0	%	$	217,846		100.0	%	$	(7,573	)		(3.5	)%

(1)

Sales of branded products were approximately 25% and 28% of total consumer channel sales during the first quarter of fiscal 2021 and fiscal 2020, respectively.

Fisher

branded products were approximately 65% and 64% of branded sales during the first quarter of fiscal 2021 and fiscal 2020, respectively, with branded produce products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel increased $9.6 million, or 6.1%, and sales volume increased 3.8% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The sales volume increase was driven by increased sales of private brand trail and snack mixes, mixed nuts, cashews and peanuts at existing customers, which was partially offset by a decline in peanut butter sales volume due to a temporary peanut supply shortage during the current quarter. Sales volume for

Fisher

snack nuts increased 12.6% due to increased promotional activity and distribution gains at new and existing customers for our

Oven Roasted Never Fried

product line. Sales volume for

Fisher

recipe nuts decreased 14.1% as a result of lost distribution at some customers, which was offset in part by increased sales with Internet retailers and increased sales with other existing customers in the grocery sector. Sales volume

Orchard Valley Harvest

produce products decreased 16.1% due to some lost distribution at one customer and reduced foot traffic at a major customer in the

non-food

sector as a result of

COVID-19.

Sales volume for

Southern Style Nuts

decreased 8.4% as a result of lower promotional activity at several customers, which was offset in part by distribution gains with new grocery customers and increased sales with Internet retailers.

Net sales in the commercial ingredients distribution channel decreased 38.2% in dollars and 27.7% in sales volume in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The decline in sales volume was due to a 40.9% decrease in sales volume in our foodservice business which resulted from a decline in air travel and nationwide restrictions on occupancy rates in and closures of restaurants, both of which were attributable to

COVID-19.

Net sales in the contract packaging distribution channel decreased 13.0% in dollars and 12.2% in sales volume in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The decline in sales volume was primarily attributable to the unfavorable impact of lower convenience store foot traffic on one customer’s business as a result of

COVID-19,

as well as the loss of peanut butter business with another customer due to the temporary peanut supply shortage cited above.

Gross Profit

Gross profit decreased $2.9 million, or 6.9%, to $39.3 million for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. Our gross profit margin, as a percentage of net sales, decreased to 18.7% for the first quarter of fiscal 2021 compared to 19.4% for the first quarter of fiscal 2020. The decreases in gross profit and gross profit margin were mainly attributable to the sales volume decrease discussed above.

Operating Expenses

Total operating expenses for the first quarter of fiscal 2021 decreased $2.7 million to $20.5 million. Operating expenses for the first quarter of fiscal 2021 decreased to 9.7% of net sales from 10.6% of net sales for the first quarter of fiscal 2020 due primarily to reductions in advertising, compensation and consulting expenses.

Selling expenses for the first quarter of fiscal 2021 were $12.1 million, a decrease of $2.0 million, or 14.4%, from the first quarter of fiscal 2020. The decrease was driven primarily by a $1.1 million decrease in advertising expense due to a reduction in radio advertising campaigns and sports sponsorships, a $0.7 million decrease in compensation related expenses and a $0.5 million decrease in freight expense due to a reduction in sales pounds shipped.

Administrative expenses for the first quarter of fiscal 2021 were $8.4 million, a decrease of $0.7 million, or 7.7%, from the first quarter of fiscal 2020. The decrease was driven primarily by a $0.3 million decrease in consulting fees and a $0.3 million decrease in compensation related expenses, primarily incentive compensation.

Income from Operations

Due to the factors discussed above, income from operations decreased to $18.9 million, or 9.0% of net sales, for the first quarter of fiscal 2021 from $19.1 million, or 8.8% of net sales, for the first quarter of fiscal 2020.

Interest Expense

Interest expense was $0.5 million for both the first quarter of fiscal 2021 and fiscal 2020.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.4 million for both the first quarter of fiscal 2021 and fiscal 2020.

Other Expense

Other expense consists of pension related expenses other than the service cost component and was $0.6 million for both the first quarter of fiscal 2021 and fiscal 2020.

Income Tax Expense

Income tax expense was $4.5 million, or 26.2% of income before income taxes for the first quarter of fiscal 2021 compared to $4.6 million, or 26.4% of income before income taxes, for the first quarter of fiscal 2020.

Net Income

Net income was $12.8 million, or $1.12 per common share basic and $1.11 per share diluted, for the first quarter of fiscal 2021, compared to $12.9 million, or $1.13 per common share basic and $1.12 per share diluted, for the first quarter of fiscal 2020.

LIQUIDITY AND CAPITAL RESOURCES

General

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Strategic Plan through growing our branded and private label nut programs and repay indebtedness. Also, various uncertainties could result in additional uses of cash. The primary sources of cash are results of operations and availability under our Credit Facility. We anticipate that expected net cash flow generated from operations and amounts available pursuant to the Credit Facility will be sufficient to fund our operations for the next twelve months. Our available credit under our Credit Facility has allowed us to devote more funds to promote our products (especially our

Fisher

and

Orchard Valley Harvest

brands), consummate strategic business acquisitions such as the fiscal 2018 acquisition of the Squirrel Brand business, reinvest in the Company through capital expenditures, develop new products, pay cash dividends the past eight years and explore other growth strategies outlined in our Strategic Plan.

Cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements, which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell. Current market trends in nut prices and crop estimates also impact nut procurement.

The following table sets forth certain cash flow information for the first quarter of fiscal 2021 and 2020, respectively (dollars in thousands):


	September 24, 2020			September 26, 2019			$ Change
Operating activities	$	20,577		$	22,468		$	(1,891	)
Investing activities		(6,018	)		(3,102	)		(2,916	)
Financing activities		(15,351	)		(20,070	)		4,719

Net decrease in cash	$	(792	)	$	(704	)	$	(88	)

Operating Activities

Net cash provided by operating activities was $20.6 million for the first quarter of fiscal 2021 compared to $22.5 million for the first quarter of fiscal 2020.

Net accounts receivable were $69.9 million at September 24, 2020, an increase of $12.9 million, or 22.7%, from the balance at June 25, 2020, and an increase of $9.4 million, or 15.6%, from the balance at September 26, 2019. The increase in net accounts receivable at September 24, 2020 compared to both June 25, 2020 and September 26, 2019 was primarily due to extended terms that were temporarily granted to customers whose businesses were negatively impacted by the

COVID-19

pandemic. An increase in net sales for the first quarter of fiscal 2021 compared to net sales for the fourth quarter of fiscal 2020 also contributed to the increase in net accounts receivable at September 24, 2020 compared to June 25, 2020.

Total inventories were $150.4 million at September 24, 2020, a decrease of $21.7 million, or 12.6%, from the inventory balance at June 25, 2020, and a decrease of $6.1 million, or 3.9%, from the inventory balance at September 26, 2019. The decrease in inventory at September 24, 2020 compared to June 25, 2020 was primarily due to lower quantities of tree nuts and peanuts on hand, which were partially offset by increased quantities of finished goods inventory. The decrease in inventories at September 24, 2020 compared to September 26, 2019 was primarily due to lower quantities of farmer stock peanuts and shelled pecans and walnuts on hand. Lower acquisition costs for almonds and cashews also contributed to the decline in total inventory value.

Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased 10.6 million pounds, or 22.5%, at September 24, 2020 compared to September 26, 2019. The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of the first quarter of fiscal 2021 increased 7.8% compared to the end of the first quarter of fiscal 2020 due to a shift in product mix from lower priced farmer stock peanuts to higher priced inshell pecans.

Investing Activities

Cash used in investing activities, primarily all for capital expenditures, was $6.0 million during the first quarter of fiscal 2021 compared to $3.1 million for the same period last year. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2021 to be approximately $23.0 million. The projected increase in capital expenditures from our previous expenditure level is due to a strategic investment for a new product line. Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for planned capital expenditures.

Financing Activities

Cash used in financing activities was $15.4 million during the first quarter of fiscal 2021 compared to $20.1 million for the same period last year. The dividends paid in fiscal 2021 to date were approximately $5.6 million less than the same period of fiscal 2020. Net short-term borrowings under our Credit Facility were $17.2 million during the first quarter of fiscal 2021 compared to net borrowings of $16.0 million for the first quarter of fiscal 2020.

Real Estate Matters

In August 2008, we completed the consolidation of our Chicago-based facilities into the Elgin Site. The Elgin Site includes both an office building and a warehouse. We are currently attempting to find additional tenants for the available space in the office building at the Elgin Site. Until additional tenant(s) are found, we will not receive the benefit of rental income associated with such space. Approximately 67% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been

built-out.

There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space.

Financing Arrangements

On February 7, 2008, we entered into the Former Credit Agreement (as defined below) with a bank group (the “Bank Lenders”) providing a $117.5 million revolving loan commitment and letter of credit subfacility. Also on February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $36.0 million (“Tranche A”) and the other in the amount of $9.0 million (“Tranche B”), for an aggregate amount of $45.0 million (the “Mortgage Facility”).

On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement dated as of February 7, 2008 (the “Former Credit Agreement”). The Amended and Restated Credit Agreement provides for a $117.5 million senior secured revolving credit facility with the same borrowing capacity, interest rates and applicable margin as the Former Credit Agreement and extends the term of the Former Credit Agreement from July 7, 2021 to March 5, 2025.

The Amended and Restated Credit Facility is secured by substantially all of our assets other than machinery and equipment, real property, and fixtures and matures on March 5, 2025. The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).

Credit Facility

At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% or (ii) a rate based upon the London interbank offered rate (“LIBOR”) plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%.

At September 24, 2020, the weighted average interest rate for the Credit Facility was 1.7%. The terms of the Credit Facility contain covenants that, among other things, require us to restrict investments, indebtedness, acquisitions and certain sales of assets and limit annual cash dividends or distributions, transactions with affiliates, redemptions of capital stock and prepayment of indebtedness (if such prepayment, among other things, is of a subordinate debt). If loan availability under the borrowing base calculation falls below $25.0 million, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders have the option to accelerate and demand immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company,

non-compliance

with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of September 24, 2020, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future. At September 24, 2020, we had $70.0 million of available credit under the Credit Facility. If this entire amount were borrowed at September 24, 2020, we would still be in compliance with all restrictive covenants under the Credit Facility.

Mortgage Facility

The Mortgage Facility matures on March 1, 2023. On March 1, 2018 the interest rate on the Mortgage Facility was fixed at 4.25% per annum. Monthly principal payments on the Mortgage Facility in the amount of $0.3 million commenced on June 1, 2008.

The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $110.0 million and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility,

non-compliance

with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of September 24, 2020, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $8.2 million was outstanding.

Selma Property

In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has a

ten-year

term at a fair market value rent with three five-year renewal options. In September 2015, we exercised two of the five-year renewal options which extended the lease term to September 2026. The lease extension also reduced the monthly lease payment on the Selma Properties, beginning in September 2016, to reflect then current market conditions. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the owner at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. The provisions of the arrangement are not eligible for sale-leaseback accounting, and the $14.3 million was recorded as a debt obligation. No gain or loss was recorded on the Selma Properties transaction. As of September 24, 2020, $9.4 million of the debt obligation was outstanding.

Squirrel Brand Seller-Financed Note

In November 2017 we completed the Squirrel Brand acquisition. The acquisition was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for $11.5 million (“Promissory Note”). The principal owner and seller of the Squirrel Brand business was subsequently appointed as an executive officer of the Company and was considered a related party until the employment of this executive officer with the Company ceased during fiscal 2020. The Promissory Note is unsecured, bears interest at 5.5% per annum and is payable in equal monthly principal payments of $0.3 million, plus interest, which began in January 2018. Upon an event of default, as defined in the Promissory Note, the interest rate increases to 7.5% until such event of default is cured. We can

pre-pay

the Promissory Note at any time during the three-year period without penalty. At September 24, 2020, the principal amount of $0.6 million of the Promissory Note was outstanding.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form

10-K

for the fiscal year ended June 25, 2020.

Recent Accounting Pronouncements

Refer to Note 14 – “Recent Accounting Pronouncements” of the Notes to Consolidated Financial Statements, contained in Part I, Item 1 of this form

10-Q,

for a discussion of recently issued and adopted accounting pronouncements.

FORWARD LOOKING STATEMENTS

Some of the statements in this report are forward-looking (including statements concerning our expectations regarding market risk and the impact of the purchasing decisions of major customers). These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where expressly required to do so by law. Among the factors that could cause results to differ materially from current expectations are: (i) the risks associated with our vertically integrated model with respect to pecans, peanuts and walnuts; (ii) sales activity for the Company’s products, such as a decline in sales (of branded products, private label products or otherwise) to one or more key customers, or to customers generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products; (iii) changes in the availability and costs of raw materials and the impact of fixed price commitments with customers; (iv) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases; (v) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively; (vi) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures, including competition in the recipe nut category; (vii) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products; (viii) the ability of the Company to control expenses, such as transportation, compensation, medical and administrative expense; (ix) the potential negative impact of government regulations and laws and regulations pertaining to food safety, such as the Food Safety Modernization Act; (x) uncertainty in economic conditions, including the potential for economic downturn, particularly in light of the outbreak of

COVID-19;

(xi) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control; (xii) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xiii) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to illness or quarantine; (xiv) the ability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels; (xv) technology disruptions or failures, including disruptions due to employees working remotely; (xvi) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; (xvii) the Company’s ability to manage successfully the price gap between its private brand products and those of its branded competitors; and (xviii) the ability of the Company to respond to or manage the outbreak of

COVID-19

or other infectious diseases and the various implications thereof.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Part I – Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form

10-K

for the fiscal year ended June 25, 2020.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule

13a-15(e))

as of September 24, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 24, 2020, the Company’s disclosure controls and procedures were effective.

In connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule

13a-15(f))

during the quarter ended September 24, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see Note 11 – “Commitments and Contingent Liabilities” in Part I, Item 1 of this Form

10-Q.

Item 1A. Risk Factors

In addition to the other information set forth in this report on Form

10-Q,

you should also consider the factors, risks and uncertainties which could materially affect our Company’s business, financial condition or future results as discussed in Part I, Item 1A – “Risk Factors” of our Annual Report on Form

10-K

for the fiscal year ended June 25, 2020. There were no significant changes to the risk factors identified on the Form

10-K

for the fiscal year ended June 25, 2020 during the first quarter of fiscal 2021.

See Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in this Form

10-Q,

and see Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in the Company’s Annual Report on Form

10-K

for the fiscal year ended June 25, 2020.

Item 6. Exhibits

The exhibits filed herewith are listed in the exhibit index below.

EXHIBIT INDEX

(Pursuant to Item 601 of Regulation

S-K)


Exhibit No.		Description

3.1		Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Form 10-Q for the quarter ended March 24, 2005) https://www.sec.gov/Archives/edgar/data/880117/000088011705000010/exhibit3.txt

3.2		Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Form 10-K for the fiscal year ended June 25, 2015) https://www.sec.gov/Archives/edgar/data/880117/000119312515298303/d110976dex32.htm

*10.1		Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, Mathias Valentine, Mary Valentine and the Company, dated December 31, 2003 (incorporated by reference from Exhibit 10.35 to the Form 10-Q for the quarter ended December 25, 2003) https://www.sec.gov/Archives/edgar/data/880117/000095013404000734/c82327exv10w35.txt

*10.2		Amendment, dated February 12, 2004, to Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, Mathias Valentine, Mary Valentine and the Company, dated December 31, 2003 (incorporated by reference from Exhibit 10.47 to the Form 10-Q for the quarter ended March 25, 2004) https://www.sec.gov/Archives/edgar/data/880117/000088011704000018/exhibit1047.txt

*10.3		Restated Supplemental Retirement Plan (incorporated by reference from Exhibit 10.16 to the Form 10-K for the fiscal year ended June 28, 2007) https://www.sec.gov/Archives/edgar/data/880117/000095013707014005/c18246exv10w16.htm

*10.4		Form of Indemnification Agreement (incorporated by reference from Exhibit 10.01 to the Form 8-K filed on May 5, 2009) https://www.sec.gov/Archives/edgar/data/880117/000095013709003593/c51080exv10w01.htm

*10.5		2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 filed on October 28, 2014) https://www.sec.gov/Archives/edgar/data/880117/000119312514385024/d810070dex41.htm

*10.6		Amendment No. 1 to the 2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.12 to the Form 10-K for the year ended June 30, 2016) https://www.sec.gov/Archives/edgar/data/880117/000119312516689942/d217852dex1012.htm

*10.7		Form of Non-Employee Director Restricted Stock Unit Award Agreement (non-deferral) under 2014 Omnibus Plan (fiscal 2017, 2018, 2019 and 2020 awards cycle) (incorporated by reference from Exhibit 10.38 to the Form 10-Q for the quarter ended December 24, 2015) https://www.sec.gov/Archives/edgar/data/880117/000119312516441870/d119129dex1038.htm


Exhibit No		Description

*10.8		Form of Non-Employee Director Restricted Stock Unit Award Agreement (deferral) under 2014 Omnibus Plan (fiscal 2017, 2018, 2019 and 2020 awards cycle) (incorporated by reference from Exhibit 10.39 to the Form 10-Q for the quarter ended December 24, 2015) https://www.sec.gov/Archives/edgar/data/880117/000119312516441870/d119129dex1039.htm

*10.9		Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 2017 awards cycle) (incorporated by reference from Exhibit 10.19 to the Form 10-Q for the quarter ended December 29, 2016) https://www.sec.gov/Archives/edgar/data/880117/000119312517027474/d323255dex1019.htm

*10.10		Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 2018, 2019 and 2020 awards cycle) (incorporated by reference from Exhibit 10.20 to the Form 10-Q for the quarter ended December 28, 2017) https://www.sec.gov/Archives/edgar/data/880117/000119312518032207/d516665dex1020.htm

*10.11		Amended and Restated Sanfilippo Value Added Plan, dated August 20, 2015 (incorporated by reference from Exhibit 10.11 to the Form 10-K for the year ended June 25, 2015) https://www.sec.gov/Archives/edgar/data/880117/000119312515298303/d110976dex1011.htm

10.12		Amended and restated Credit Agreement dated as of March 5, 2020, by and among John B. Sanfilippo & Son, Inc., Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and the administrative agent, and Southwest Georgia Farm Credit, ACA, as a lender. (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on March 11, 2020) https://www.sec.gov/Archives/edgar/data/880117/000119312520070312/d767975dex101.htm

*10.13		Employment agreement, dated as of November 30, 2017, by and between the Company and J. Brent Meyer (incorporated by reference from Exhibit 10.36 to the Form 10-Q for the quarter ended December 28, 2017) https://www.sec.gov/Archives/edgar/data/880117/000119312518032207/d516665dex1036.htm

*10.14		Separation Agreement, dated as of December 10, 2019, by and between the Company and J. Brent Meyer (incorporated by reference from Exhibit 10.29 to the Form 10-Q for the quarter ended December 26, 2019) https://www.sec.gov/Archives/edgar/data/880117/000119312520019640/d874511dex1029.htm

31.1		Certification of Jeffrey T. Sanfilippo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended


Exhibit No.		Description

31.2		Certification of Michael J. Valentine pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

32.1		Certification of Jeffrey T. Sanfilippo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended

32.2		Certification of Michael J. Valentine pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Indicates a management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on October 28, 2020.


JOHN B. SANFILIPPO & SON, INC.

By		/s/ MICHAEL J. VALENTINE
		Michael J. Valentine
		Chief Financial Officer, Group President and Secretary