SANFILIPPO JOHN B & SON INC - Quarter Report: 2022 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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 29, 2022

☐	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 ☐ No

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

☐ No

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)

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

☒

As of October 28, 2022, 8,929,459 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 29, 2022

INDEX


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Comprehensive Income for the Quarter Ended September 29, 2022 and September 23, 2021		3
Consolidated Balance Sheets as of September 29, 2022, June 30, 2022 and September 23, 2021		4
Consolidated Statements of Stockholders’ Equity for the Quarter Ended September 29, 2022 and September 23, 2021		6
Consolidated Statements of Cash Flows for the Quarter Ended September 29, 2022 and September 23, 2021		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		25
Item 1A. Risk Factors		25
Item 6. Exhibits		25
SIGNATURE		29

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 29, 2022			September 23, 2021
Net sales	$	252,601		$	226,329
Cost of sales		201,958			174,526

Gross profit		50,643			51,803

Operating expenses:
Selling expenses		17,982			17,745
Administrative expenses		10,247			9,069
Gain on sale of facility, net		—			(2,349	)

Total operating expenses		28,229			24,465

Income from operations		22,414			27,338

Other expense:
Interest expense including $193 and $189 to related parties		661			371
Rental and miscellaneous expense, net		402			348
Pension expense (excluding service costs)		349			618

Total other expense, net		1,412			1,337

Income before income taxes		21,002			26,001
Income tax expense		5,457			6,752

Net income	$	15,545		$	19,249
Other comprehensive income:
Amortization of actuarial loss included in net periodic cost		7			364
Income tax expense related to pension adjustments		(1	)		(95	)

Other comprehensive income, net of tax:		6			269

Comprehensive income	$	15,551		$	19,518

Net income per common share-basic	$	1.35		$	1.67

Net income per common share-diluted	$	1.34		$	1.66

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

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JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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


	September 29, 2022		June 30, 2022		September 23, 2021
ASSETS
CURRENT ASSETS:
Cash	$	298	$	415	$	539
Accounts receivable, less allowance for doubtful accounts of $305, $267 and $311		76,401		69,611		71,890
Inventories		192,098		204,855		152,603
Prepaid expenses and other current assets		6,746		8,283		10,407

TOTAL CURRENT ASSETS		275,543		283,164		235,439

PROPERTY, PLANT AND EQUIPMENT:
Land		9,150		9,150		9,150
Buildings		102,837		102,810		102,661
Machinery and equipment		251,998		245,111		226,618
Furniture and leasehold improvements		5,296		5,296		5,295
Vehicles		614		614		614
Construction in progress		6,926		6,471		16,593

		376,821		369,452		360,931
Less: Accumulated depreciation		255,948		252,371		242,422

		120,873		117,081		118,509
Rental investment property, less accumulated depreciation of $13,834, $13,632 and $13,027		15,289		15,491		16,096

TOTAL PROPERTY, PLANT AND EQUIPMENT		136,162		132,572		134,605

Intangible assets, net		7,621		8,065		9,457
Life insurance and other assets		6,134		8,272		9,542
Deferred income taxes		3,231		3,236		5,297
Goodwill		9,650		9,650		9,650
Operating lease right-of-use assets		2,430		2,303		3,171

TOTAL ASSETS	$	440,771	$	447,262	$	407,161

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

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JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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


	September 29, 2022			June 30, 2022			September 23, 2021
LIABILITIES & STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility borrowings	$	42,624		$	40,439		$	45,264
Current maturities of long-term debt, net, including related party debt of $628, $614 and $572		2,046			3,149			3,858
Accounts payable		51,222			47,720			46,103
Bank overdraft		488			214			171
Accrued payroll and related benefits		12,166			18,888			11,410
Other accrued expenses		17,624			12,352			17,028

TOTAL CURRENT LIABILITIES		126,170			122,762			123,834

LONG-TERM LIABILITIES:
Long-term debt, less current maturities, n e t, including related party debt of $7,612, $7,774 and $8,240		7,612			7,774			9,939
Retirement plan		28,753			28,886			35,257
Long-term operating lease liabilities, net of current portion		1,242			1,076			1,804
Other		7,831			7,943			8,162

TOTAL LONG-TERM LIABILITIES		45,438			45,679			55,162

TOTAL LIABILITIES		171,608			168,441			178,996

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 9,047,359, 9,047,359 and 8,989,980 shares issued		90			90			90
Capital in excess of par value		129,572			128,800			126,958
Retained earnings		143,153			153,589			111,051
Accumulated other comprehensive loss		(2,474	)		(2,480	)		(8,756	)
Treasury stock, at cost; 117,900 shares of Common Stock		(1,204	)		(1,204	)		(1,204	)

TOTAL STOCKHOLDERS’ EQUITY		269,163			278,821			228,165

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	440,771		$	447,262		$	407,161

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

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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			Total
	Shares		Amount		Shares		Amount		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, June 30, 2022		2,597,426	$	26		9,047,359	$	90	$	128,800	$	153,589		$	(2,480	)	$	(1,204	)	$	278,821
Net income												15,545									15,545
Cash dividends ($2.25 per share)												(25,981	)								(25,981	)
Pension liability amortization, net of income tax expense of $1															6						6
Stock-based compensation expense										772											772

Balance, September 29, 2022		2,597,426	$	26		9,047,359	$	90	$	129,572	$	143,153		$	(2,474	)	$	(1,204	)	$	269,163


	Class A Common Stock				Common Stock				Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
	Shares		Amount		Shares		Amount		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, June 24, 2021		2,597,426	$	26		8,988,812	$	90	$	126,271		$	126,336		$	(9,025	)	$	(1,204	)	$	242,494
Net income													19,249									19,249
Cash dividends ($3.00 per share)													(34,534	)								(34,534	)
Pension liability amortization, net of income tax expense of $95																269						269
Equity award exercises, net of shares withheld for employee taxes						1,168		—		(16	)											(16	)
Stock-based compensation expense										703												703

Balance, September 23, 2021		2,597,426	$	26		8,989,980	$	90	$	126,958		$	111,051		$	(8,756	)	$	(1,204	)	$	228,165

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

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JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	For the Quarter Ended
	September 29, 2022			September 23, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,545		$	19,249
Depreciation and amortization		4,961			4,596
Loss (gain) on disposition of assets, net		5			(2,299	)
Deferred income tax expense		5			790
Stock-based compensation expense		772			703
Change in assets and liabilities:
Accounts receivable, net		(6,790	)		(5,556	)
Inventories		12,757			(4,605	)
Prepaid expenses and other current assets		1,537			(1,839	)
Accounts payable		3,216			(1,631	)
Accrued expenses		(5,265	)		(12,089	)
Income taxes payable		3,815			2,805
Other long-term assets and liabilities		215			172
Other, net		(127	)		607

Net cash provided by operating activities		30,646			903

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(5,918	)		(5,110	)
Proceeds from disposition of assets, net		—			3,945
Other, net		(56	)		(72	)

Net cash used in investing activities		(5,974	)		(1,237	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings		2,185			36,611
Principal payments on long-term debt		(1,267	)		(938	)
Increase (decrease) in bank overdraft		274			(922	)
Dividends paid		(25,981	)		(34,534	)
Taxes paid related to net share settlement of equity awards		—			(16	)

Net cash (used in) provided by financing activities		(24,789	)		201

NET DECREASE IN CASH		(117	)		(133	)
Cash, beginning of period		415			672

Cash, end of period	$	298		$	539

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

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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 2023 and fiscal 2022 are to the 52 week fiscal year ending June 29, 2023 and the 53 week fiscal year ended June 30, 2022, respectively.

•

References herein to the first quarter of fiscal 2023 and fiscal 2022 are to the quarters ended September 29, 2022 and September 23, 2021, 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 our

Fisher, Orchard Valley Harvest,

Squirrel Brand

and

Southern Style Nuts

brand names and under a variety of private brands. 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 our brand names and under private brands. Our products are sold through three primary distribution channels, 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 30, 2022 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 2022 Annual Report on Form

10-K

for the fiscal year ended June 30, 2022.

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.

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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 judgment when determining estimates. 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. Contract asset balances at September 29, 2022 and September 23, 2021 were $562 and $58, respectively, and are recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance at June 30, 2022. 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 29, 2022		September 23, 2021
Consumer	$	196,547	$	179,761
Commercial Ingredients		31,507		28,156
Contract Packaging		24,547		18,412

Total	$	252,601	$	226,329

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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.

Through a review of our contracts, 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 4.8 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 liabilities:


	September 29, 2022		June 30, 2022		September 23, 2021		Affected Line Item in Consolidated Balance Sheet
Assets
Operating lease right-of-use assets	$	2,430	$	2,303	$	3,171	Operating lease right-of-use assets

Total lease right-of-use assets	$	2,430	$	2,303	$	3,171

Liabilities
Current:
Operating leases	$	1,215	$	1,258	$	1,412	Other accrued expenses
Noncurrent:
Operating leases		1,242		1,076		1,804	Long-term operating lease liabilities

Total lease liabilities	$	2,457	$	2,334	$	3,216

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


	For the Quarter Ended
	September 29, 2022		September 23, 2021
Operating lease costs (a)	$	474	$	444
Variable lease costs (b)		57		17

Total lease cost	$	531	$	461

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

(b)	Variable lease costs consist of sales tax and lease overtime charges.

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


	For the Quarter Ended
	September 29, 2022		September 23, 2021
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities	$	402	$	397

Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease obligations	$	496	$	45


	September 29, 2022			June 30, 2022			September 23, 2021

Weighted average remaining lease term (in years)		2.5			2.3			2.6
Weighted average discount rate		4.6	%		4.3	%		4.2	%

Maturities of operating lease liabilities as of September 29, 2022 are as follows:


Fiscal Year Ending

June 29, 2023 (excluding the quarter ended September 29, 2022)	$	1,055
June 27, 2024		808
June 26, 2025		432
June 25, 2026		244
June 24, 2027		65
June 29, 2028		3
Thereafter		—

Total lease payments		2,607
Less imputed interest		(150	)

Present value of operating lease liabilities	$	2,457

At September 29, 2022, the Company has additional operating leases of approximately $505 that have not yet commenced and therefore are not reflected in the Consolidated Balance Sheet and tables above. The leases are scheduled to commence in the second and third quarters of fiscal 2023 with initial lease terms ranging from 3 to 5 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:

Leases

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 29, 2022		September 23, 2021
Lease income related to lease payments	$	402	$	410

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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 29, 2023 (excluding the quarter ended September 29, 2022)	$	1,348
June 27, 2024		1,818
June 26, 2025		1,228
June 25, 2026		670
June 24, 2027		614
June 29, 2028		—

Total	$	5,678

Note 4 – Inventories

Inventories consist of the following:


	September 29, 2022		June 30, 2022		September 23, 2021
Raw material and supplies	$	60,657	$	77,558	$	55,159
Work-in-process and finished goods		131,441		127,297		97,444

Total	$	192,098	$	204,855	$	152,603

Note 5 – Goodwill and Intangible Assets

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


	September 29, 2022			June 30, 2022			September 23, 2021
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		(19,053	)		(18,795	)		(17,961	)
Brand names		(11,425	)		(11,252	)		(10,735	)
Non-compete agreement		(261	)		(248	)		(207	)

		(30,739	)		(30,295	)		(28,903	)

Net intangible assets	$	7,621		$	8,065		$	9,457

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 classified in administrative expense in the Consolidated Statement of Comprehensive Income, was $444 for the quarter ended September 29, 2022. Amortization expense for the remainder of fiscal 2023 is expected to be approximately $1,213, and expected amortization expense for the next five fiscal years is as follows:


Fiscal Year Ending
June 27, 2024			1,414
June 26, 2025			1,156
June 25, 2026			861
June 24, 2027			690
June 29, 2028			521

Our net goodwill of $9,650 relates entirely to the Squirrel Brand acquisition completed in the second quarter of fiscal 2018. There was no change in the carrying amount of goodwill during the quarter ended September 29, 2022.

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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 29, 2022, we had $70,686 of available credit under the Credit Facility which reflects borrowings of $42,624 and reduced availability as a result of $4,190 in outstanding letters of credit. As of September 29, 2022, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility.

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 29, 2022		September 23, 2021
Weighted average number of shares outstanding – basic		11,553,432		11,519,472
Effect of dilutive securities:
Restricted stock units		63,681		69,012

Weighted average number of shares outstanding – diluted		11,617,113		11,588,484

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 29, 2022 there was no significant restricted stock unit (“RSU”) activity. Compensation expense attributable to stock-based compensation during the first quarter of fiscal 2023 and fiscal 2022 was $772 and $703, respectively. As of September 29, 2022, there was $3,359 of total unrecognized compensation expense related to

non-vested

RSUs granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.2 years.

Note 9 – Retirement Plan

The Supplemental Employee Retirement Plan is an unfunded,

non-qualified

benefit 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 29, 2022		September 23, 2021
Service cost	$	200	$	248
Interest cost		342		254
Amortization of loss		7		364

Net periodic benefit cost	$	549	$	866

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

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Note 10 – Accumulated Other Comprehensive Loss

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the quarter ended September 29, 2022 and September 23, 2021.

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


Changes to AOCL (a)	For the Quarter Ended
Changes to AOCL (a)	September 29, 2022			September 23, 2021
Balance at beginning of period	$	(2,480	)	$	(9,025	)
Other comprehensive income before reclassifications		—			—
Amounts reclassified from accumulated other comprehensive loss		7			364
Tax effect		(1	)		(95	)

Net current-period other comprehensive income		6			269

Balance at end of period	$	(2,474	)	$	(8,756	)

(a)	Amounts in parenthesis indicate debits/expense.

The reclassifications out of AOCL for the quarter ended September 29, 2022 and September 23, 2021 were as follows:


	For the Quarter Ended						Affected Line Item in the Consolidated Statements of Comprehensive Income

Reclassifications from AOCL to Earnings (b)	September 29, 2022			September 23, 2021
Amortization of defined benefit pension items:
Unrecognized net loss		(7	)		(364	)	Pension expense (excluding service costs)
Tax effect		1			95		Income tax expense

Amortization of defined pension items, net of tax	$	(6	)	$	(269	)

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

Note 11 – Commitments and Contingent Liabilities

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.

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Note 12 – Fair Value of Financial Instruments

Authoritative guidance issued by 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 29, 2022		June 30, 2022		September 23, 2021

Carrying value of current and long-term debt:	$	9,660	$	10,927	$	13,812
Fair value of current and long-term debt:		9,583		11,179		15,360

The estimated fair value of our current and 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 – Garysburg, North Carolina Facility

During the first quarter of fiscal 2022 we sold the Garysburg property and remaining equipment located at the property to a third party for $4,000, subject to customary adjustments to reflect closing costs, which resulted in a $2,349 gain.

Note 14 – Recent Accounting Pronouncements

There were no recent accounting pronouncements adopted in the current fiscal year.

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.

Note 15 – Subsequent Event

On November 3, 2022, our Board of Directors declared a special cash dividend of $1.00 per share on all issued

and

outstanding shares

Common Stock and Class A Stock of the Company (the “November 2022 Dividends”). The November 2022 Dividends will be paid on December 21, 2022 to stockholders of record as of the close of business on December 2, 2022.

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 2023 and fiscal 2022 are to the 52-week fiscal year ending June 29, 2023 and the 53-week fiscal year ended June 30, 2022, respectively.

•

References herein to the first quarter of fiscal 2023 and fiscal 2022 are to the quarters ended September 29, 2022 and September 23, 2021, 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 our Fisher, Orchard Valley Harvest, Squirrel Brand and Southern Style Nuts brand names and under a variety of private brands. 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, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and private brands. We distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

During fiscal 2022, we created a Long-Range Plan to define our future growth priorities. Our Long-Range Plan focuses on growing our non-branded business across key customers, transforming Fisher, Orchard Valley Harvest and Squirrel Brand into leading brands while increasing distribution and diversifying our portfolio into high growth snacking segments. This Long-Range Plan also contemplates increasing our sales through product innovation and targeted, opportunistic acquisitions. We plan to execute on our Long-Range Plan by providing our non-branded customers with value-added solutions based on our extensive industry and consumer expertise. We will grow our branded business by reaching new consumers via product expansion and packaging innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, including sales via e-commerce platforms.

We will continue to focus our promotional and advertising activity to invest in our brands to achieve growth. We intend to execute an omnichannel approach to win in key categories including recipe nuts, nut flours, snack nuts, trail mix and snacking. We continue to see strong e-commerce performance across our branded portfolio and anticipate taking various actions with the goal of accelerating that growth across a variety of established and emerging platforms. We will continue to face the ongoing challenges specific to our business, such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products. See the information referenced in Part II, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

We face a number of challenges in the future, which include significant inflation, potential for economic downturn, supply chain challenges and the continued impacts of COVID-19. We have also experienced a tightening in the labor market for those employed at our production facilities, which has led to increased labor costs.

Inflation and Consumer Trends

We face changing industry trends as consumer purchasing preferences evolve. Due to significant inflation, including higher commodity acquisition costs in fiscal 2022, we have seen higher selling prices at retail. With higher prices across our categories and the broader food market, consumers may purchase fewer snack products, shift their preferences to private brands or lower priced nuts or purchase snack products outside the nut and trail mix category. With the inflationary environment, we are also seeing signs of consumers shifting to more value-focused channels, such as mass merchandising retailers, club stores and dollar stores. E-commerce platforms showed growth during the first quarter of fiscal 2023 but at a lower rate than we saw during the first quarter of fiscal 2022.

Supply Chain and Transportation

In recent quarters, we have faced challenges with shortages and cost increases for shipping pallets, packaging, imported ingredients, transportation and shipping availability. The conflict in Ukraine has further exacerbated supply chain disruptions, especially related to sunflower oil used in roasting our nut products and aluminum which is used in certain of our product packaging.

We have also experienced supply chain issues related to a shortage in capacity in the transportation industry. Compounding the driver shortage was an increase in demand driven by additional spending on consumer goods during fiscal 2021 and fiscal 2022, which led to periodic shortages of shipping containers, container chassis, space on container ships and trains and capacity constraints at U.S. ports. This tightening in transportation capacity began to ease during the third quarter of fiscal 2022 and has continued to ease into fiscal 2023 as inflation resulted in rising costs which decreased demand in the freight market. However, intermodal capacity still remains tight. Fuel prices that were at record highs during spring and summer 2022 have begun to decrease, yet still remain volatile. While there are indicators of transportation cost improvement, and while we have mitigated some of the transportation shortages and maintained high service levels, we may continue to face an unpredictable transportation environment. There is no guarantee that our mitigation strategies will continue to be effective, or that any transportation capacity easing will continue or transportation prices will return to more normalized levels.

These shortages and related challenges have impacted our operations and resulted in increased expenses and manufacturing inefficiencies that have adversely impacted (and may continue to impact) our net income. We anticipate pricing relief in some of these areas in the coming quarters if and as shortages decrease and supply chains normalize; however, we expect that some costs may remain elevated or unpredictable for a longer period of time, particularly as the conflict in Ukraine continues.

We are working, and will continue to work, with our vendors, customers and suppliers to source additional raw materials and packaging supplies and to remain flexible in obtaining the transportation and labor services we need. If these shortages and other supply chain issues continue and we cannot secure adequate supplies to fulfill customer orders or cannot obtain the transportation and labor services we need, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations during the remainder of fiscal year 2023. In addition, as costs increase due to these issues or due to inflationary pressures in general, there is an additional risk of not being able to pass (in part or in full) such potential cost increases onto our customers or in a timely manner. If we cannot align costs with prices for our products, our operating performance could be adversely impacted.

COVID-19

During fiscal 2023, we may continue to face challenges as a result of the COVID-19 pandemic and the uncertainty of future local, state and federal restrictions aimed to mitigate and control the pandemic. During fiscal 2022, as various COVID-19 vaccines and therapeutic measures became more widely distributed and accepted by the public and indoor dining restrictions were again loosened, we saw a significant improvement in sales volume with our foodservice, restaurant, convenience store and non-essential retail customers.

QUARTERLY HIGHLIGHTS

Our net sales of $252.6 million for the first quarter of fiscal 2023 increased 11.6% from our net sales of $226.3 million for the first quarter of fiscal 2022.

Sales volume, measured as pounds sold to customers, increased 1.8% compared to the first quarter of fiscal 2022.

Gross profit decreased $1.2 million, and our gross profit margin, as a percentage of net sales, decreased to 20.0% for the first quarter of fiscal 2023 compared to 22.9% for the first quarter of fiscal 2022.

Total operating expenses for the first quarter of fiscal 2023 increased $3.8 million, or 15.4%, compared to the first quarter of fiscal 2022, primarily due to a non-recurring gain on the sale of a facility that occurred in the first quarter of fiscal 2022. As a percentage of net sales, total operating expenses in the first quarter of fiscal 2023 increased to 11.2% from 10.8% for the first quarter of fiscal 2022.

The total value of inventories on hand at the end of the first quarter of fiscal 2023 increased $39.5 million, or 25.9%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2022.

We expect acquisition costs for most major tree nuts to be flat or decrease and acquisition costs for peanuts to increase modestly in the 2022 crop year (which falls into our current 2023 fiscal year). We also expect acquisition costs for dried fruit to increase modestly. While we began to procure inshell walnuts during the first quarter of fiscal 2023, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2023. 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 2023 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

Net Sales

Our net sales increased 11.6% to $252.6 million in the first quarter of fiscal 2023 compared to net sales of $226.3 million for the first quarter of fiscal 2022. The increase in net sales was primarily attributable to a 9.6% increase in the weighted average sales price per pound and a 1.8% increase in sales pounds, which is defined as pounds sold to customers. The increase in the weighted average selling price per pound was attributable to price increases implemented in the third quarter of fiscal 2022 in response to higher commodity acquisition costs for all major tree nuts and peanuts.

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 29, 2022			September 23, 2021
Peanuts		19.3	%		17.7	%
Pecans		10.3			8.6
Cashews & Mixed Nuts		20.1			22.4
Walnuts		5.7			5.7
Almonds		9.0			10.6
Trail & Snack Mixes		28.9			28.2
Other		6.7			6.8

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 29, 2022		Percentage of Total			September 23, 2021		Percentage of Total			$ Change		Percent Change
Consumer ⁽¹⁾	$	196,547		77.8	%	$	179,761		79.4	%	$	16,786		9.3	%
Commercial Ingredients		31,507		12.5			28,156		12.4			3,351		11.9
Contract Packaging		24,547		9.7			18,412		8.2			6,135		33.3

Total	$	252,601		100.0	%	$	226,329		100.0	%	$	26,272		11.6	%

⁽¹⁾

Sales of branded products were approximately 21% and 19% of total consumer channel sales during the first quarters of fiscal 2023 and fiscal 2022, respectively. Fisher branded products were approximately 65% and 61% of branded sales during the first quarters of fiscal 2023 and fiscal 2022, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel increased 9.3% in dollars and decreased 0.6% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. The sales volume decrease was driven by lost private brand distribution at a grocery customer that occurred in the fourth quarter of fiscal 2022, which was largely offset by increased distribution and a new product offering at a mass merchandising retailer. Sales volume for Fisher snack nuts decreased 3.0% primarily due to an item discontinuance with a customer. Sales volume for Fisher recipe nuts increased 20.0% due to increased distribution at a mass merchandising retailer and at two grocery store customers. Sales volume of Orchard Valley Harvest produce products increased 15.7% from increased distribution at a major customer in the non-food sector as this retailer continues to recover from COVID-19 restrictions and increased distribution at a customer in the club channel.

Net sales in the commercial ingredients distribution channel increased 11.9% in dollars and 2.4% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. The sales volume increase was due to a 15.0% increase in sales volume to foodservice customers, which was related to new distribution at existing customers and the continued recovery in the restaurant industry from the impacts of COVID-19 restrictions. These increases were partially offset by a decrease in sales of peanut crushing stock to peanut oil processors and lower sales of bulk products to other food manufacturers.

Net sales in the contract packaging distribution channel increased 33.3% in dollars and 19.3% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. The increase in sales volume was primarily attributable to the timing of promotional activity by a major customer and business with a new customer.

Gross Profit

Gross profit decreased $1.2 million, or 2.2%, to $50.6 million for the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022, primarily due to higher acquisition costs for all major tree nuts and peanuts and other inflationary cost increases, including labor and manufacturing supplies. Our gross profit margin, as a percentage of net sales, decreased to 20.0% for the first quarter of fiscal 2023 compared to 22.9% for the first quarter of fiscal 2022, driven by the reasons noted above, which were substantially offset by an increase in the weighted average selling price per pound and increased sales volume.

Operating Expenses

Total operating expenses for the first quarter of fiscal 2023 increased $3.8 million to $28.2 million. Operating expenses for the first quarter of fiscal 2023 increased to 11.2% of net sales from 10.8% of net sales for the first quarter of fiscal 2022 as the increase in total expense was largely offset by a higher net sales base.

Selling expenses for the first quarter of fiscal 2023 were $18.0 million, an increase of $0.2 million, or 1.3%, from the first quarter of fiscal 2022. The increase was driven primarily by a $0.9 million increase in base and incentive compensation expense, primarily related to incentive compensation, which was largely offset by a $0.7 million decrease in advertising, consumer insight research and related consulting expenses.

Administrative expenses for the first quarter of fiscal 2023 were $10.2 million, an increase of $1.2 million, or 13.0%, from the first quarter of fiscal 2022. The increase was driven by a $1.2 million increase in base and incentive compensation expense, primarily related to incentive compensation.

The $2.3 million gain on sale of facility in the first quarter of fiscal 2022 was the result of the sale of our Garysburg, North Carolina facility.

Income from Operations

Due to the factors discussed above, income from operations decreased to $22.4 million, or 8.9% of net sales, for the first quarter of fiscal 2023 from $27.3 million, or 12.1% of net sales, for the first quarter of fiscal 2022.

Interest Expense

Interest expense was $0.7 million for the first quarter of 2023 compared to $0.4 million for the first quarter of 2022. The increase in interest expense was primarily due to higher weighted average interest rates combined with higher average short-term debt levels.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.4 million for the first quarter of 2023 compared to $0.3 million for the first quarter of 2022.

Pension Expense (Excluding Service Costs)

Pension expense (excluding service costs) was $0.3 million for the first quarter of 2023 compared to $0.6 million for the first quarter of fiscal 2022. The decrease in pension expense (excluding service costs) is primarily due to a decrease in the unrecognized net loss remaining to be amortized, which was a result of a large actuarial gain in the prior fiscal year.

Income Tax Expense

Income tax expense was $5.5 million, or 26.0% of income before income taxes for the first quarter of fiscal 2023 compared to $6.8 million, or 26.0% of income before income taxes, for the first quarter of fiscal 2022.

Net Income

Net income was $15.5 million, or $1.35 per common share basic and $1.34 per share diluted, for the first quarter of fiscal 2023, compared to $19.2 million, or $1.67 per common share basic and $1.66 per share diluted, for the first quarter of fiscal 2022.

LIQUIDITY AND CAPITAL RESOURCES

General

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Long-Range Plan through growing our branded and private label nut programs and repay indebtedness. Also, various uncertainties, including cost 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, increase consumer insight capabilities and promotional efforts, reinvest in the Company through capital expenditures, develop new products, pay cash dividends, consummate strategic investments and business acquisitions and explore other growth strategies outlined in our Long-Range 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 2023 and 2022, respectively (dollars in thousands):


	September 29, 2022			September 23, 2021			$ Change
Operating activities	$	30,646		$	903		$	29,743
Investing activities		(5,974	)		(1,237	)		(4,737	)
Financing activities		(24,789	)		201			(24,990	)

Net decrease in cash	$	(117	)	$	(133	)	$	16

Operating Activities Net cash provided by operating activities was $30.6 million for the first quarter of fiscal 2023 compared to $0.9 million for the first quarter of fiscal 2022. The increase in operating cash flow is due primarily to a decreased use of working capital, mainly for inventory. Inventories decreased $12.8 million in fiscal 2023 compared to a $4.6 million increase in inventories in fiscal 2022, which resulted in a net source of cash of $17.4 million.

Total inventories were $192.1 million at September 29, 2022, a decrease of $12.8 million, or 6.2%, from the inventory balance at June 30, 2022, and an increase of $39.5 million, or 25.9%, from the inventory balance at September 23, 2021. The decrease in inventory at September 29, 2022 compared to June 30, 2022 was primarily due to lower quantities of pecans and walnuts on hand, which was partially offset by increased quantities of finished goods. The increase in inventory at September 29, 2022 compared to September 23, 2021 was primarily due to greater quantities of finished goods, work in process and inshell pecans on hand combined with higher commodity acquisition costs for pecans.

Raw nut and dried fruit input stocks, some of which are classified as work in process, increased 0.6 million pounds, or 1.9%, at September 29, 2022 compared to September 23, 2021. 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 2023 increased 20.6% compared to the end of the first quarter of fiscal 2022 primarily due to higher commodity acquisition costs for pecans.

Investing Activities Cash used in investing activities was $6.0 million during the first quarter of fiscal 2023 compared to $1.2 million for the same period last year. The increase in cash used in investing activities was mainly attributable to the $3.9 million of net proceeds received from the disposition of the Garysburg, North Carolina facility which occurred in the first quarter of fiscal 2022 and did not recur in the current quarter. Capital expenditures were $5.9 million during the first quarter of fiscal 2023 and $5.1 million during fiscal 2022. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2023 to be approximately $18.0 million. 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 $24.8 million during the first quarter of fiscal 2023 compared to cash provided of $0.2 million for the same period last year. Net short-term borrowings under our Credit Facility were $2.2 million during the first quarter of fiscal 2023 compared to net borrowings of $36.6 million for the first quarter of fiscal 2022. The decrease in short term borrowings was primarily due to a decreased use of working capital in the current quarter. The dividends paid in fiscal 2023 were approximately $8.6 million less than the same period of fiscal 2022.

Real Estate Matters

In August 2008, we completed the consolidation of our Chicago-based facilities into our Elgin headquarters (“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 70% 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 (as amended, 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 and Gustine, California (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 29, 2022, the weighted average interest rate for the Credit Facility was 5.4%. 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 29, 2022, 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 29, 2022, we had $70.7 million of available credit under the Credit Facility. If this entire amount were borrowed at September 29, 2022, 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.

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. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments increased to $114 beginning in September 2021. 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 29, 2022, $8.2 million of the debt obligation 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 30, 2022.

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. 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) sales activity for the Company’s products, such as a decline in sales to one or more key customers (of branded products, private label products or otherwise), 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; (ii) changes in the availability and costs of raw materials and ingredients and the impact of fixed price commitments with customers; (iii) 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; (iv) 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; (v) 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; (vi) 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; (vii) the ability of the Company to control costs (including inflationary costs) and manage shortages in areas such as inputs, transportation and labor; (viii) uncertainty in economic conditions, including the potential for inflation or economic downturn, particularly in light of COVID-19 or armed hostilities; (ix) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control; (x) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xi) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to labor shortages, illness or quarantine; (xii) the ability to implement our Long-Range Plan, including growing our branded and private brand product sales and expanding into alternative sales channels; (xiii) technology disruptions or failures; (xiv) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; (xv) our ability to manage the impacts of changing weather patterns on raw material availability due to climate change; and (xvi) 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 30, 2022.

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 29, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 29, 2022, 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 29, 2022 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 30, 2022. There were no significant changes to the risk factors identified on the Form 10-K for the fiscal year ended June 30, 2022 during the first quarter of fiscal 2023.

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 30, 2022.

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)

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)

*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)

*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)

*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)

*10.4		Form of Indemnification Agreement (incorporated by reference from Exhibit 10.01 to the Form 8-K filed on May 5, 2009)

*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)

*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)

*10.7		Form of Non-Employee Director Restricted Stock Unit Award Agreement (non-deferral) under 2014 Omnibus Plan (fiscal 2020, 2021 and 2022 awards cycle) (incorporated by reference from Exhibit 10.38 to the Form 10-Q for the quarter ended December 24, 2015)


Exhibit No.		Description

*10.8		Form of Non-Employee Director Restricted Stock Unit Award Agreement (deferral) under 2014 Omnibus Plan (fiscal 2021 and 2022 awards cycle) (incorporated by reference from Exhibit 10.39 to the Form 10-Q for the quarter ended December 24, 2015)

*10.9		Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 2020 awards cycle) (incorporated by reference from Exhibit 10.20 to the Form 10-Q for the quarter ended December 28, 2017)

*10.10		Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 2021 and 2022 awards cycle) (incorporated by reference from Exhibit 10.10 to the Form 10-Q for the quarter ended December 24, 2020)

*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)

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)

10.13		Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number One among John E. Sanfilippo, as trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990, Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, dated December 31, 2003 (incorporated by reference from Exhibit 10.34 to the Form 10-Q for the quarter ended December 25, 2003)

10.14		Amendment, dated February 12, 2004, to Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number One among John E. Sanfilippo, as trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990, Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, dated December 31, 2003 (incorporated by reference from Exhibit 10.46 to the Form 10-Q for the quarter ended March 25, 2004)


Exhibit No.		Description

10.15		Split-Dollar Insurance Agreement Notice of Termination and Purchase Agreement, by and among John B. Sanfilippo & Son, Inc., John E. Sanfilippo, on behalf of and as sole trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990 and Marian R. Sanfilippo, dated December 24, 2021. (incorporated by reference from Exhibit 10.15 to the Form 10-Q for the quarter ended March 24, 2022)

10.16		Amendment No. 1 to the Split-Dollar Insurance Agreement Notice of Termination and Purchase Agreement, by and among John B. Sanfilippo & Son, Inc., John E. Sanfilippo, on behalf of and as sole trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990 and Marian R. Sanfilippo, dated February 21, 2022. (incorporated by reference from Exhibit 10.16 to the Form 10-Q for the quarter ended March 24, 2022)

*10.17		Executive Transition Agreement, dated November 3, 2021, by and between John B. Sanfilippo & Son, Inc. and Christopher Gardier

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

31.2		Certification of Frank S. Pellegrino 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 Frank S. Pellegrino 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		Inline eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline 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 November 3, 2022.


JOHN B. SANFILIPPO & SON, INC.

By

		/s/ FRANK S. PELLEGRINO
		Frank S. Pellegrino
		Chief Financial Officer, Executive Vice President, Finance and Administration