SANFILIPPO JOHN B & SON INC - Quarter Report: 2023 September (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 28, 2023


☐	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(s)

Name of each exchange on which registered

Common Stock, $.01 par value per share

JBSS

The NASDAQ Stock Market LLC

(NASDAQ Global Select Market)

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 (§232.405 of this chapter) 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, 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.


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 26, 2023, 8,973,031 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 28, 2023

INDEX


	Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)	3
Consolidated Statements of Comprehensive Income for the Quarter Ended September 28, 2023 and September 29, 2022	3
Consolidated Balance Sheets as of September 28, 2023, June 29, 2023 and September 29, 2022	4
Consolidated Statements of Stockholders’ Equity for the Quarter Ended September 28, 2023 and September 29, 2022	6
Consolidated Statements of Cash Flows for the Quarter Ended September 28, 2023 and September 29, 2022	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 5. Other Information	25
Item 6. Exhibits	25
Signature	28

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 28, 2023		September 29, 2022
Net sales	$	234,105	$	252,601
Cost of sales		177,083		201,958
Gross profit		57,022		50,643
Operating expenses:
Selling expenses		21,992		17,982
Administrative expenses		10,453		10,247
Total operating expenses		32,445		28,229
Income from operations		24,577		22,414
Other expense:
Interest expense including $178 and $193 to related parties		227		661
Rental and miscellaneous expense, net		356		402
Pension expense (excluding service costs)		350		349
Total other expense, net		933		1,412
Income before income taxes		23,644		21,002
Income tax expense		6,056		5,457
Net income	$	17,588	$	15,545
Other comprehensive income:
Amortization of actuarial loss included in net periodic pension cost		—		7
Income tax expense related to pension adjustments		—		(1	)
Other comprehensive income, net of tax		—		6
Comprehensive income	$	17,588	$	15,551
Net income per common share-basic	$	1.52	$	1.35
Net income per common share-diluted	$	1.51	$	1.34

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

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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


	September 28, 2023		June 29, 2023		September 29, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	838	$	1,948	$	298
Accounts receivable, less allowance for doubtful accounts of $281, $283 and $305		68,363		72,734		76,401
Inventories		174,789		172,936		192,098
Prepaid expenses and other current assets		7,603		6,812		6,746
TOTAL CURRENT ASSETS		251,593		254,430		275,543
PROPERTY, PLANT AND EQUIPMENT:
Land		9,150		9,150		9,150
Buildings		104,982		104,150		102,837
Machinery and equipment		267,313		261,706		251,998
Furniture and leasehold improvements		5,275		5,275		5,296
Vehicles		729		729		614
Construction in progress		7,480		7,123		6,926
		394,929		388,133		376,821
Less: Accumulated depreciation		271,418		267,336		255,948
		123,511		120,797		120,873
Rental investment property, less accumulated depreciation of $14,641, $14,439 and $13,834		14,482		14,684		15,289
TOTAL PROPERTY, PLANT AND EQUIPMENT		137,993		135,481		136,162

Intangible assets, net		6,216		6,658		7,621
Deferred income taxes		3,461		3,592		3,231
Goodwill		11,750		11,750		9,650
Operating lease right-of-use assets		6,845		6,427		2,430
Other assets		6,995		6,949		6,134
TOTAL ASSETS	$	424,853	$	425,287	$	440,771

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

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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


	September 28, 2023			June 29, 2023			September 29, 2022
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility borrowings	$	6,008		$	—		$	42,624
Current maturities of long-term debt, net, including related party debt of $688, $672 and $628		688			672			2,046
Accounts payable		51,922			42,680			51,222
Bank overdraft		669			285			488
Accrued payroll and related benefits		12,034			27,572			12,166
Other accrued expenses		17,980			14,479			17,624
TOTAL CURRENT LIABILITIES		89,301			85,688			126,170

LONG-TERM LIABILITIES:
Long-term debt, less current maturities, net, including related party debt of $6,924, $7,102 and $7,612		6,924			7,102			7,612
Retirement plan		26,788			26,653			28,753
Long-term operating lease liabilities, net of current portion		5,136			4,771			1,242
Long-term workers' compensation liabilities		7,304			7,321			7,422
Other		2,033			1,545			409
TOTAL LONG-TERM LIABILITIES		48,185			47,392			45,438
TOTAL LIABILITIES		137,486			133,080			171,608

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, 9,090,931, 9,076,326 and 9,047,359 shares issued		91			91			90
Capital in excess of par value		132,733			131,986			129,572
Retained earnings		155,925			161,512			143,153
Accumulated other comprehensive loss		(204	)		(204	)		(2,474	)
Treasury stock, at cost; 117,900 shares of Common Stock		(1,204	)		(1,204	)		(1,204	)
TOTAL STOCKHOLDERS’ EQUITY		287,367			292,207			269,163
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	424,853		$	425,287		$	440,771

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

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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


														Accumulated
	Class A								Capital in					Other
	Common Stock				Common Stock				Excess of		Retained			Comprehensive			Treasury
	Shares		Amount		Shares		Amount		Par Value		Earnings			Loss			Stock			Total
Balance, June 29, 2023		2,597,426	$	26		9,076,326	$	91	$	131,986	$	161,512		$	(204	)	$	(1,204	)	$	292,207
Net income												17,588									17,588
Cash dividends ($2.00 per share)												(23,175	)								(23,175	)
Equity award exercises						14,605		—		—											—
Stock-based compensation expense										747											747
Balance, September 28, 2023		2,597,426	$	26		9,090,931	$	91	$	132,733	$	155,925		$	(204	)	$	(1,204	)	$	287,367


														Accumulated
	Class A								Capital in					Other
	Common Stock				Common Stock				Excess of		Retained			Comprehensive			Treasury
	Shares		Amount		Shares		Amount		Par Value		Earnings			Loss			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

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

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	For the Quarter Ended
	September 28, 2023			September 29, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,588		$	15,545
Depreciation and amortization		5,236			4,961
Loss on disposition of assets, net		126			5
Deferred income tax expense		131			5
Stock-based compensation expense		747			772
Change in assets and liabilities:
Accounts receivable, net		4,511			(6,790	)
Inventories		(1,853	)		12,757
Prepaid expenses and other current assets		(791	)		1,537
Accounts payable		8,796			3,216
Accrued expenses		(15,881	)		(5,265	)
Income taxes payable		3,844			3,815
Other long-term assets and liabilities		(348	)		215
Other, net		(225	)		(127	)
Net cash provided by operating activities		21,881			30,646

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(5,993	)		(5,918	)
Other, net		(53	)		(56	)
Net cash used in investing activities		(6,046	)		(5,974	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings		6,008			2,185
Principal payments on long-term debt		(162	)		(1,267	)
Increase in bank overdraft		384			274
Dividends paid		(23,175	)		(25,981	)
Net cash used in financing activities		(16,945	)		(24,789	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,110	)		(117	)
Cash and cash equivalents, beginning of period		1,948			415
Cash, end of period	$	838		$	298

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

JOHN B. SANFILIPPO & SON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1 – Basis of Presentation and Description of Business

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:

•

References herein to fiscal 2024 and fiscal 2023 are to the fiscal year ending June 27, 2024 and the fiscal year ending June 29, 2023, respectively.

•

References herein to the first quarter of fiscal 2024 and fiscal 2023 are to the quarters ended September 28, 2023 and September 29, 2022, 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, nutrition bars, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks, other sesame snack products and baked cheese snack products under our brand names, including Just the Cheese, 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 29, 2023 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 2023 Annual Report on Form 10-K for the fiscal year ended June 29, 2023.

Note 2 – Revenue Recognition

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

When Performance Obligations Are Satisfied

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

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

Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms. This allows the customer to 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 including, but not limited to, promotional allowances, volume and customer rebates, in-store display incentives and marketing allowances 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. The contract asset balance at September 29, 2022 was $562 and was recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance for the other periods presented. 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 28, 2023		September 29, 2022
Consumer	$	184,334	$	196,547
Commercial Ingredients		28,135		31,507
Contract Packaging		21,636		24,547
Total	$	234,105	$	252,601

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 5.8 years.

It is our accounting policy not to 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 Sheets. 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 28, 2023		June 29, 2023		September 29, 2022		Affected Line Item in Consolidated Balance Sheets
Assets
Operating lease right-of-use assets	$	6,845	$	6,427	$	2,430	Operating lease right-of-use assets
Total lease right-of-use assets	$	6,845	$	6,427	$	2,430

Liabilities
Current:
Operating leases	$	1,775	$	1,729	$	1,215	Other accrued expenses
Noncurrent:
Operating leases		5,136		4,771		1,242	Long-term operating lease liabilities
Total lease liabilities	$	6,911	$	6,500	$	2,457

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


	For the Quarter Ended
	September 28, 2023			September 29, 2022
Operating lease costs (a)	$	670		$	474
Variable lease costs (b)		(174	)		57
Total lease cost	$	496		$	531

(a)

Includes short-term leases which are immaterial.

(b)

Variable lease costs consist of sales tax and lease overtime charges.

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


	For the Quarter Ended
	September 28, 2023		September 29, 2022
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities	$	578	$	402

Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease obligations	$	860	$	496


	September 28, 2023			June 29, 2023			September 29, 2022
Weighted average remaining lease term (in years)		4.4			4.4			2.5
Weighted average discount rate		6.8	%		6.7	%		4.6	%

Maturities of operating lease liabilities as of September 28, 2023 are as follows:


Fiscal Year Ending
June 27, 2024 (excluding the quarter ended September 28, 2023)	$	1,709
June 26, 2025		1,827
June 25, 2026		1,622
June 24, 2027		1,372
June 29, 2028		1,210
June 28, 2029		252
Thereafter		—
Total lease payment		7,992
Less imputed interest		(1,081	)
Present value of operating lease liabilities	$	6,911

At September 28, 2023, the Company has additional operating leases of approximately $351 that have not yet commenced and therefore are not reflected in the Consolidated Balance Sheets and tables above. The leases are scheduled to commence in the second quarter of fiscal 2024 with an initial lease term ranging from 2 to 6 years.

Lessor Accounting

We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842: 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 28, 2023		September 29, 2022
Lease income related to lease payments	$	444	$	402

The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years and thereafter are as follows:


Fiscal Year Ending
June 27, 2024 (excluding the quarter ended September 28, 2023)	$	1,543
June 26, 2025		1,477
June 25, 2026		972
June 24, 2027		930
June 29, 2028		328
June 28, 2029		336
Thereafter		1,478
	$	7,064

Note 4 – Inventories

Inventories consist of the following:


	September 28, 2023		June 29, 2023		September 29, 2022
Raw material and supplies	$	49,565	$	65,430	$	60,657
Work-in-process and finished goods		125,224		107,506		131,441
Total	$	174,789	$	172,936	$	192,098

Note 5 – Goodwill and Intangible Assets

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


	September 28, 2023			June 29, 2023			September 29, 2022
Customer relationships	$	21,350		$	21,350		$	21,100
Brand names		17,070			17,070			16,990
Non-compete agreement		300			300			270
		38,720			38,720			38,360
Less accumulated amortization:
Customer relationships		(20,095	)		(19,834	)		(19,053	)
Brand names		(12,134	)		(11,955	)		(11,425	)
Non-compete agreement		(275	)		(273	)		(261	)
		(32,504	)		(32,062	)		(30,739	)
Net intangible assets	$	6,216		$	6,658		$	7,621

Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of the Squirrel Brand, Southern Style Nuts and Just the Cheese brand names.

Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was $442 for the quarter ended September 28, 2023. Amortization expense for the remainder of fiscal 2024 is expected to be approximately $1,123 and expected amortization expense the next five fiscal years is as follows:


Fiscal Year Ending
June 26, 2025	$	1,213
June 25, 2026		880
June 24, 2027		706
June 29, 2028		528
June 28, 2029		400

Our net goodwill at September 28, 2023 was comprised of $9,650 from the Squirrel Brand acquisition completed in fiscal 2018 and $2,100 from the Just the Cheese brand acquisition completed in fiscal 2023. The changes in the carrying amount of goodwill since June 30, 2022 are as follows:


Gross goodwill balance at June 30, 2022	$	18,416
Accumulated impairment losses		(8,766	)
Net goodwill balance at June 30, 2022		9,650
Goodwill acquired during fiscal 2023		2,100
Net balance at June 29, 2023		11,750
Goodwill acquired during fiscal 2024		—
Net balance at September 28, 2023	$	11,750

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 28, 2023, we had $107,302 of available credit under the Credit Facility which reflects borrowings of $6,008 and reduced availability as a result of $4,190 in outstanding letters of credit. As of September 28, 2023, we were in compliance with all financial covenants under the Credit Facility.

For information about the most recent amendment to our Amended and Restated Credit Agreement (as defined below) see Note 14‒Subsequent Events.

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 28, 2023		September 29, 2022
Weighted average number of shares outstanding – basic		11,594,960		11,553,432
Effect of dilutive securities:
Restricted stock units		79,782		63,681
Weighted average number of shares outstanding – diluted		11,674,742		11,617,113

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

Note 8 – Stock-Based Compensation Plans

During the quarter ended September 28, 2023 there was no significant restricted stock unit ("RSU") activity. Compensation expense attributable to stock-based compensation during the first quarter of fiscal 2024 and fiscal 2023 was $747 and $772, respectively. As of September 28, 2023, there was $3,341 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 1.1 years.

Note 9 – Retirement Plan

The Supplemental Employee Retirement Plan (“Retirement Plan”) is an unfunded, non-qualified deferred compensation plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. The monthly benefit is based upon each participant’s earnings and his or her number of years of service. The components of net periodic benefit cost are as follows:


	For the Quarter Ended
	September 28, 2023		September 29, 2022
Service cost	$	63	$	200
Interest cost		350		342
Amortization of loss		—		7
Net periodic benefit cost	$	413	$	549

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.

Note 10 – Accumulated Other Comprehensive Loss

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the quarter ended September 28, 2023 and September 29, 2022. These changes are all related to our defined benefit pension plan.


	For the Quarter Ended
Changes to AOCL (a)	September 28, 2023			September 29, 2022
Balance at beginning of period	$	(204	)	$	(2,480	)
Other comprehensive income before reclassifications		—			—
Amounts reclassified from accumulated other comprehensive loss		—			7
Tax effect		—			(1	)
Net current-period other comprehensive income		—			6
Balance at end of period	$	(204	)	$	(2,474	)

(a)

Amounts in parenthesis indicate debits/expense.

The reclassifications out of AOCL for the quarter ended September 28, 2023 and September 29, 2022 were as follows:


	For the Quarter Ended					Affected Line Item
Reclassifications from AOCL to Earnings (b)	September 28, 2023		September 29, 2022			Consolidated Statements of Comprehensive Income
Amortization of defined benefit pension items:
Unrecognized net loss	$	—	$	(7	)	Pension expense (excluding service costs)
Tax effect		—		1		Income tax expense
Amortization of defined pension items, net of tax	$	—	$	(6	)

(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.

Note 12 – Fair Value of Financial Instruments

The Financial Accounting Standards Board 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 28, 2023		June 29, 2023		September 29, 2022
Carrying value of current and long-term debt:	$	7,612	$	7,774	$	9,660
Fair value of current and long-term debt:		7,033		7,421		9,583

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

Note 13 – 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 14 – Subsequent Events

On September 29, 2023, we completed the acquisition of certain assets from TreeHouse Foods, Inc. (the “Seller”) relating to its snack bars business. The acquired assets include inventory, a manufacturing facility and related equipment located in Lakeville, Minnesota, and customer relationships, among others (the "Lakeville Acquisition"). The initial purchase price was approximately $61,252 in cash, which included approximately $37,346 of inventory, and is subject to certain post-closing adjustments. In November 2023, we expect to receive $2,435 from the Seller for a purchase price adjustment to the final inventory acquired, for a revised net purchase price of approximately $58,817. The initial accounting for this business combination is incomplete as we are awaiting the fair value analysis and therefore the required ASC 805 disclosures are not available to be made. The purchase price for the Lakeville Acquisition was funded from borrowings under the Credit Facility as amended by the Second Amendment.

On September 29, 2023, we entered into the Second Amendment to our Amended and Restated Credit Agreement (the "Second Amendment"), which (among other things) increased the borrowing capacity under the Credit Facility to $150,000 from $117,500 to provide extra available capacity for the short-term working capital requirements of the business acquired pursuant to the Lakeville Acquisition. The Second Amendment also extends the maturity date of the Credit Facility to September 29, 2028.

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 2024 and fiscal 2023 are to the fiscal year ending June 27, 2024 and the fiscal year ending June 29, 2023, respectively.

•

References herein to the first quarter of fiscal 2024 and fiscal 2023 are to the quarters ended September 28, 2023 and September 29, 2022, 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, nutrition bars, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks, other sesame snack products and baked cheese snack products under our brand names, including Just the Cheese, and under 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, as well as transforming Fisher, Orchard Valley Harvest and Squirrel Brand into leading brands while increasing distribution and diversifying our portfolio into high growth snacking segments. We will execute on our Long-Range Plan by providing non-branded customer value-added solutions based on our extensive industry and consumer expertise with innovative products such as our newly developed product line of private brand nutrition bars which were introduced during fiscal 2023. 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. This Long-Range Plan also contemplates increasing our sales through product innovation and targeted, opportunistic acquisitions, such as the acquisition of the Just the Cheese brand completed during fiscal 2023 and the recent Lakeville Acquisition completed in the second quarter of fiscal 2024, which will expand our ability to produce private brand snack bars.

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, snack nuts, trail mix and other snacking categories. We continue to see e-commerce growth 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 the impacts of ongoing inflation in food prices, rising interest rates that reduce economic growth, consumers reducing their purchases in the nut category, including branded nut products, potential for economic downturn in the markets in which we operate and continued supply chain challenges. We continue to experience a tight labor market which has led to increased labor costs.

Inflation and Consumer Trends

We face changing industry trends as consumers' purchasing preferences evolve. Due to the ongoing inflationary environment, we have seen higher selling prices at retail. With higher prices across our categories and the broader food market, and also due to any actual or potential economic downturn or tightening of consumer finances due to inflation or other causes, consumers are purchasing fewer snack products. We have seen this through the decline in the recipe and snack nut categories since fiscal 2023 and into fiscal 2024, as consumers 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 retailers, such as mass merchandising retailers, club stores and dollar stores, not all of which we distribute or sell to.

Supply Chain and Transportation

In the first quarter of fiscal 2024, we faced supply chain challenges related to certain raw material shortages, extended lead-times, supplier capacity constraints and inflationary pressures. While we do not have direct exposure to suppliers in Russia, Ukraine or Israel, the conflicts in these regions could continue to result in volatile commodity markets, supply chain disruptions and increased costs. Global supply chain pressures have eased, but we continue to see negative impacts related to macro-economics, geo-political unrest, growing political instability and climate-related events. Overall packaging and ingredient inflation appears to be leveling off but is expected to remain above historical levels. We anticipate pricing relief in some areas in the current fiscal year, if and as shortages decrease and supply chains improve. However, we expect that some costs may remain above historical levels or unpredictable for a longer period.

While we have seen stabilization in truckload capacity and volume at U.S. ports and improvements with driver hiring, there are still warehouse and dock staff shortages and fuel and energy concerns due to continued unrest abroad coupled with persistent inflation. Instability and prices in the transportation industry may increase further into fiscal 2024 due to the bankruptcy of a major U.S.-based trucking company. Fuel prices that were at record highs during spring and summer 2022 have continued to decrease, yet still remain volatile and unpredictable. While there are indicators of transportation cost improvement, and despite our mitigation of some of the transportation shortages, we may continue to face an unpredictable transportation environment. There is no guarantee that our mitigation strategies will continue to be effective, that any transportation capacity easing will continue or that transportation prices will return to more normalized levels.

We have remained agile by proactively identifying risks, modifying inventory plans and diversifying our supplier base to mitigate risk of customer order shortages and maintain our supply chain. We will continue to proactively manage our business in response to the evolving global economic environment and related uncertainty. We continue to prioritize and take steps to mitigate impacts to our supply chain. If these supply chain pressures continue, or we cannot obtain the transportation and labor services needed to fulfill customer orders, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations during fiscal 2024. Additionally, as costs increase due to these issues or due to overall inflationary pressures, 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.

QUARTERLY HIGHLIGHTS

Our net sales of $234.1 million for the first quarter of fiscal 2024 decreased 7.3% from our net sales of $252.6 million for the first quarter of fiscal 2023.

Sales volume, measured as pounds sold to customers, decreased 7.3% compared to the first quarter of fiscal 2023.

Gross profit increased $6.4 million, and our gross profit margin, as a percentage of net sales, increased to 24.4% for the first quarter of fiscal 2024 compared to 20.0% for the first quarter of fiscal 2023.

Total operating expenses for the first quarter of fiscal 2024 increased by $4.2 million, or 14.9%, compared to the first quarter of fiscal 2023. As a percentage of net sales, total operating expenses in the first quarter of fiscal 2024 increased to 13.9% from 11.2% for the first quarter of fiscal 2023.

The total value of inventories on hand at the end of the first quarter of fiscal 2024 decreased $17.3 million, or 9.0%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2023.

We expect acquisition costs for most major tree nuts, other than walnuts, to be flat or decrease, and we expect acquisition costs for peanuts to increase modestly in the 2023 crop year (which falls into our current 2024 fiscal year). While we began to procure inshell walnuts during the first quarter of fiscal 2024, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2024. 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 2024 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

Net Sales

Our net sales decreased 7.3% to $234.1 million in the first quarter of fiscal 2024 compared to net sales of $252.6 million for the first quarter of fiscal 2023. The decrease in net sales was attributable to a 7.3% decrease in sales volume, which is defined as pounds sold to customers. The decrease in sales volume was driven by decreased sales volume for all product types.

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 28, 2023			September 29, 2022
Peanuts & Peanut Butter		20.1	%		19.3	%
Pecans		9.2			10.3
Cashews & Mixed Nuts		21.0			20.1
Walnuts		4.9			5.7
Almonds		9.1			9.0
Trail & Snack Mixes		28.0			28.9
Other		7.7			6.7
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 28, 2023		Percentage of Total			September 29, 2022		Percentage of Total			$ Change			% Change
Consumer (1)	$	184,334		78.8	%	$	196,547		77.8	%	$	(12,213	)		(6.2	)%
Commercial Ingredients		28,135		12.0			31,507		12.5			(3,372	)		(10.7	)
Contract Packaging		21,636		9.2			24,547		9.7			(2,911	)		(11.9	)
Total	$	234,105		100.0	%	$	252,601		100.0	%	$	(18,496	)		(7.3	)%

(1)

Sales of branded products were approximately 20% and 21% of total consumer sales during the first quarter of fiscal 2024 and fiscal 2023, respectively. Fisher branded products were approximately 62% and 65% of branded sales during the first quarter of fiscal 2024 and fiscal 2023, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel decreased $12.2 million, or 6.2%, and sales volume decreased 5.8% in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The sales volume decrease was mostly driven by a decrease in private brand sales volume due to fewer promotional programs and lower seasonal sales volume for snack and trail mixes at two current mass merchandising retailers and a decrease in peanut sales volume at the same two mass merchandisers. Also contributing to the decrease was a 30.9% decrease in sales volume of Fisher snack nuts due to increased competitive pricing pressures, discontinuance of a product line at a mass merchandising retailer and timing of holiday sales orders for a customer in the non-food sector. Sales volume of Fisher recipe nuts decreased 10.8% mainly due to a one-time order at an existing grocery customer in the same quarter of our prior fiscal year that did not recur in the current quarter and timing of holiday sales orders for another grocery customer. Sales volume for Southern Style Nuts decreased 36.6% mainly from reduced distribution and promotional programs at a club store customer.

Net sales in the commercial ingredients distribution channel decreased 10.7% in dollars and 5.5% in sales volume in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The decrease in sales volume was due to a 50.3% decrease in sales volume of peanut crushing stock to peanut oil processors due to reduced peanut shelling.

Net sales in the contract packaging distribution channel decreased 11.9% in dollars and 19.4% in sales volume in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The decrease in sales volume was primarily due to decreased peanut distribution and timing of holiday sales orders for a major customer.

Gross Profit

Gross profit increased by $6.4 million, or 12.6%, to $57.0 million for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 due to lower acquisition costs for all major tree nuts which was partially offset by decreased sales volume. Our gross profit margin, as a percentage of net sales, increased to 24.4% for the first quarter of fiscal 2024 compared to 20.0% for the first quarter of fiscal 2023 due to lower acquisition costs for all major tree nuts, which was partially offset by higher acquisition costs for peanuts. The increase was also due to manufacturing efficiencies and decreased peanut sales volume.

Operating Expenses

Total operating expenses for the first quarter of fiscal 2024 increased by $4.2 million, or 14.9%, to $32.4 million. Operating expenses increased to 13.9% of net sales for the first quarter of fiscal 2024 compared to 11.2% of net sales for the first quarter of fiscal 2023 due to an increase in total expense and a lower net sales base.

Selling expenses for the first quarter of fiscal 2024 were $22.0 million, an increase of $4.0 million, or 22.3%, from the first quarter of fiscal 2023. The increase was driven primarily by a $4.4 million increase in advertising, consumer insight research and related consulting expenses, a $0.3 million increase in sample expense related to nutrition bars which launched in the third quarter of fiscal 2023 and a $0.2 million increase in consulting expenses. These increases were partially offset by a $0.8 million decrease in freight expense due to a decrease in freight rates.

Administrative expenses for the first quarter of fiscal 2024 were $10.5 million compared to $10.2 million for the first quarter of fiscal 2023. The increase was due to a $0.3 increase in charitable food donations.

Income from Operations

Due to the factors discussed above, income from operations was $24.6 million, or 10.5% of net sales, for the first quarter of fiscal 2024 compared to $22.4 million, or 8.9% of net sales, for the first quarter of fiscal 2023.

Interest Expense

Interest expense was $0.2 million for the first quarter of fiscal 2024 compared to $0.7 million for the first quarter of fiscal 2023. The decrease in interest expense was due to lower average debt levels.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.4 million for both the first quarter of fiscal 2024 and fiscal 2023.

Pension Expense (Excluding Service Costs)

Pension expense (excluding service costs) was $0.4 million for the first quarter of fiscal 2024 compared to $0.3 million for the first quarter of fiscal 2023.

Income Tax Expense

Income tax expense was $6.1 million, or 25.6% of income before income taxes, for the first quarter of fiscal 2024 compared to $5.5 million, or 26.0% of income before income taxes, for the first quarter of fiscal 2023.

Net Income

Net income was $17.6 million, or $1.52 per common share basic and $1.51 per common share diluted, for the first quarter of fiscal 2024, compared to $15.5 million, or $1.35 per common share basic and $1.34 per common share diluted, for the first quarter of fiscal 2023.

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 programs, consummate and integrate business acquisitions, return cash to our stockholders through dividends, repay indebtedness and pay amounts owed under the Retirement Plan. 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, such as the acquisition of the Just the Cheese brand in fiscal 2023 and the Lakeville Acquisition disclosed in Note 14‒Subsequent Events, 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 2024 and 2023, respectively (dollars in thousands):


	September 28, 2023			September 29, 2022			$ Change
Operating activities	$	21,881		$	30,646		$	(8,765	)
Investing activities		(6,046	)		(5,974	)		(72	)
Financing activities		(16,945	)		(24,789	)		7,844
Total change in cash	$	(1,110	)	$	(117	)	$	(993	)

Operating Activities Net cash provided by operating activities was $21.9 million for the first quarter of fiscal 2024 compared to net cash provided by operating activities of $30.6 million for the first quarter of fiscal 2023. The decrease in operating cash flow was primarily due to changes in working capital, primarily accounts receivable and inventory.

Total inventories were $174.8 million at September 28, 2023, an increase of $1.9 million, or 1.1%, from the inventory balance at June 29, 2023, and a decrease of $17.3 million, or 9.0%, from the inventory balance at September 29, 2022. The decrease in inventories at September 28, 2023 compared to September 29, 2022 was primarily due to the early shell out of inshell pecans, lower acquisition costs for all major tree nuts and lower quantities of finished goods and work in process, which were partially offset by higher on hand quantities of pecans.

Raw nut and dried fruit input stocks, some of which are classified as work-in-process, decreased by 3.6 million pounds, or 11.6%, at September 28, 2023 compared to September 29, 2022 due to lower quantities of inshell peanuts, almonds and dried fruit on hand, partially offset by higher quantities of cashews on hand. The weighted average cost per pound of raw nut input stocks on hand at the end of the first quarter of fiscal 2024 decreased 2.6% compared to the end of the first quarter of fiscal 2023 primarily due to lower commodity acquisition costs for all major tree nuts, which was partially offset by higher on hand quantities of pecans.

Investing Activities Cash used in investing activities was unchanged at $6.0 million during the first quarter of fiscal 2024 compared to the same period last year. Capital asset purchases were $6.0 million during the first quarter of fiscal 2024 compared to $5.9 million for the first quarter of fiscal 2023. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements, including for our newly acquired bar business in Lakeville, Minnesota, to be approximately $28.0 million for fiscal 2024. 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 $16.9 million during the first quarter of fiscal 2024 compared to $24.8 million for the same period last year. Net borrowings under our Credit Facility were $6.0 million during the first quarter of fiscal 2024 compared to net borrowings of $2.2 million for the first quarter of fiscal 2023. The increase in credit facility borrowings was primarily due to increased use of working capital for inventory in the current quarter. Dividends paid in the first quarter of fiscal 2024 were approximately $2.8 million lower than dividends paid in the same period last year. Long term debt payments in the first quarter of

fiscal 2024 were approximately $1.1 million lower than payments in the same period last year due to the mortgage that was repaid in full in the third quarter of the fiscal 2023.

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 65% 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.

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.

On May 8, 2023, we entered into the First Amendment to our Amended and Restated Credit Agreement (the "First Amendment") which replaced the London interbank offered rate (LIBOR) interest rate option with the Secured Overnight Financing Rate ("SOFR"). The First Amendment updated the accrued interest rate to a rate based on SOFR plus an applicable margin based upon the borrowing base calculation, ranging from 1.35% to 1.85%.

On September 29, 2023, we entered into the Second Amendment, which (among other things) increased the amount available to borrow under the Credit Facility to $150.0 million (from $117.5 million) and extended the maturity date to September 29, 2028 (from March 5, 2025).

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 on SOFR plus an applicable margin as noted above.

At September 28, 2023, the weighted average interest rate for the Credit Facility was 7.3%. 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. As of September 28, 2023, 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 28, 2023, we had $107.3 million of available credit under the Credit Facility. If this entire amount were borrowed at September 28, 2023, we would still be in compliance with all restrictive covenants under the Credit Facility.

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 28, 2023, $7.6 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 29, 2023.

Recent Accounting Pronouncements

Refer to Note 13 – “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 release 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, or to customers or in the nut category 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; (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; (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; (xii) the ability to implement our Long-Range Plan, including growing our branded and private brand product sales, diversifying our product offerings (including by the launch of new products) and expanding into alternative sales channels; (xiii) technology disruptions or failures or the occurrence of cybersecurity incidents or breaches; (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) our ability to operate and integrate the acquired snack bar related assets of TreeHouse and realize efficiencies and synergies from such acquisition.

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 29, 2023.

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 28, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 28, 2023, 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 28, 2023 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 29, 2023. There were no significant changes to the risk factors identified on the Form 10-K for the fiscal year ended June 29, 2023 during the first quarter of fiscal 2024.

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 29, 2023.

Item 5. Other Information

Rule 10b5-1 Trading Arrangement

The following table shows our directors and officers that adopted a trading plan intended to satisfy the conditions under Rule 10b5-1(c) of the Exchange Act:


Name & Position	Adoption Date	Shares of the Company's Common Stock		Expiration Date(1)
Ellen C. Taaffe, Director	September 20, 2023		1,070	June 20, 2024
Jeffrey T. Sanfilippo, Chief Executive Officer	September 25, 2023		5,212	September 25, 2024
Jasper B. Sanfilippo, Jr., Chief Operating Officer	September 25, 2023		5,212	September 25, 2024
James J. Sanfilippo, Director	September 26, 2023		1,070	September 30, 2024

(1)

The plan expires on the date in this column, or upon the earlier completion of all authorized transactions under the Rule 10b5-1 plan.

During the three months ended September 28, 2023, other than noted above, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

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

2.1	Asset Purchase Agreement, dated as of September 5, 2023, by and among John B. Sanfilippo & Son, Inc. and TreeHouse Foods, Inc., Bay Valley Foods, LLC and TreeHouse Private Brands, Inc. (incorporated by reference from Exhibit 2.1 to the Form 8-K filed on September 8, 2023)

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 2021, 2022 and 2023 awards cycle) (incorporated by reference from Exhibit 10.38 to the Form 10-Q for the quarter ended December 24, 2015)

*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 2021 and 2022 awards cycle) (incorporated by reference from Exhibit 10.10 to the Form 10-Q for the quarter ended December 24, 2020)

*10.10	Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 2023 awards cycle) (incorporated by reference from Exhibit 10.10 to the Form 10-Q for the quarter ended December 29, 2022)

*10.11	2023 Omnibus Incentive Plan (incorporated by reference from Annex A to the form DEF 14A filed on September 12, 2023)

*10.12	Amended and Restated Sanfilippo Value Added Plan, dated August 23, 2023

10.13	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)

10.14	First Amendment to Amended and Restated Credit Agreement dated as of May 8, 2023 (incorporated by reference from Exhibit 10.13 to the Form 10-K filed on August 23, 2023)

10.15	Second Amendment to Amended and Restated Credit Agreement dated as of September 29, 2023 (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on October 2, 2023)


Exhibit No.	Description

*10.16	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)

*10.17	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)

*10.18	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)

*10.19	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)

*10.20	Separation Benefits & General Release Agreement, effective June 29, 2023, between John B. Sanfilippo & Son, Inc. and Shayn E. Wallace (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on June 30, 2023)

*10.21	Retirement Agreement and General Release, dated January 23, 2023 by and between John B. Sanfilippo & Son, Inc. and Michael Valentine (incorporated by reference from Exhibit 10.20 to the Form 10-Q for the quarter ended March 30, 2023)

*10.22	Nonqualified Deferred Compensation Plan Adoption Agreement of the Company dated as of November 22, 2022 (incorporated by reference from Exhibit 10.18 to the Form 10-Q for the quarter ended December 29, 2022)

*10.23	John B. Sanfilippo & Son, Inc. Nonqualified Deferred Compensation Plan dated as of November 22, 2022 (incorporated by reference from Exhibit 10.19 to the Form 10-Q for the quarter ended December 29, 2022)

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 2, 2023.


JOHN B. SANFILIPPO & SON, INC.

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

SANFILIPPO JOHN B & SON INC - Quarter Report: 2023 September (Form 10-Q)

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