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

Table of Contents
 
 
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
OR
 
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)
 
             
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 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.
 
 
 


Table of Contents

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  


Table of Contents
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
 
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
 
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
 
  
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
of
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.
 
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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.

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.

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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

 

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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.

 

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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.

 

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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.

 

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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)

 

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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)

 

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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.

 

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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

 

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