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 March 30, 2023
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. EmployerIdentification 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 April 28, 2023, 8,958,426 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.
For the Quarter Ended March 30, 2023
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
3
Consolidated Statements of Comprehensive Income for the Quarter and Thirty-Nine Weeks Ended March 30, 2023 and March 24, 2022
Consolidated Balance Sheets as of March 30, 2023, June 30, 2022 and March 24, 2022
4
Consolidated Statements of Stockholders’ Equity for the Quarter and Thirty-Nine Weeks Ended March 30, 2023 and March 24, 2022
6
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended March 30, 2023 and March 24, 2022
7
Notes to Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
29
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
Signature
32
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except share and per share amounts)
For the Quarter Ended
For the Thirty-Nine Weeks Ended
March 30,2023
March 24,2022
Net sales
$
238,535
218,584
765,464
698,120
Cost of sales
188,767
179,175
608,551
554,678
Gross profit
49,768
39,409
156,913
143,442
Operating expenses:
Selling expenses
18,109
15,584
57,921
56,896
Administrative expenses
9,841
6,401
30,296
25,871
Gain on sale of facility, net
—
(2,349
)
Total operating expenses
27,950
21,985
88,217
80,418
Income from operations
21,818
17,424
68,696
63,024
Other expense:
Interest expense including $186, $199, $568 and $591 to related parties
552
531
1,828
1,322
Rental and miscellaneous expense, net
371
403
1,084
1,074
Pension expense (excluding service costs)
349
618
1,046
1,855
Total other expense, net
1,272
1,552
3,958
4,251
Income before income taxes
20,546
15,872
64,738
58,773
Income tax expense
4,814
3,995
16,554
14,400
Net income
15,732
11,877
48,184
44,373
Other comprehensive income:
Amortization of actuarial loss included in net periodic pension cost
363
21
1,091
Income tax expense related to pension adjustments
(2
(94
(5
(284
Other comprehensive income, net of tax
5
269
16
807
Comprehensive income
15,737
12,146
48,200
45,180
Net income per common share-basic
1.36
1.03
4.16
3.85
Net income per common share-diluted
1.35
1.02
4.14
3.83
The accompanying unaudited notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
June 30,2022
ASSETS
CURRENT ASSETS:
Cash
365
415
667
Accounts receivable, less allowance for doubtful accounts of $305, $267 and $280
74,534
69,611
68,704
Inventories
190,351
204,855
211,127
Prepaid expenses and other current assets
9,325
8,283
7,653
TOTAL CURRENT ASSETS
274,575
283,164
288,151
PROPERTY, PLANT AND EQUIPMENT:
Land
9,150
Buildings
102,840
102,810
Machinery and equipment
259,289
245,111
230,842
Furniture and leasehold improvements
5,275
5,296
Vehicles
719
614
Construction in progress
8,210
6,471
18,077
385,483
369,452
366,789
Less: Accumulated depreciation
263,718
252,371
249,358
121,765
117,081
117,431
Rental investment property, less accumulated depreciation of $14,238, $13,632 and $13,431
14,885
15,491
15,692
TOTAL PROPERTY, PLANT AND EQUIPMENT
136,650
132,572
133,123
Intangible assets, net
7,100
8,065
8,509
Life insurance and other assets
6,029
8,272
6,472
Deferred income taxes
2,374
3,236
5,104
Goodwill
11,750
9,650
Operating lease right-of-use assets
6,582
2,303
2,570
TOTAL ASSETS
445,060
447,262
453,579
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility borrowings
27,825
40,439
65,863
Current maturities of long-term debt, net, including related party debt of $657, $614 and $600
657
3,149
3,961
Accounts payable
42,264
47,720
48,918
Bank overdraft
458
214
1,314
Accrued payroll and related benefits
17,061
18,888
12,646
Other accrued expenses
14,493
12,352
13,113
TOTAL CURRENT LIABILITIES
102,758
122,762
145,815
LONG-TERM LIABILITIES:
Long-term debt, less current maturities, net, including related party debt of $7,276, $7,774 and $7,933
7,276
7,774
7,933
Retirement plan
29,471
28,886
35,935
Long-term operating lease liabilities, net of current portion
4,905
1,076
1,241
Other
8,332
7,943
7,876
TOTAL LONG-TERM LIABILITIES
49,984
45,679
52,985
TOTAL LIABILITIES
152,742
168,441
198,800
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
Common Stock, non-cumulative voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized, 9,076,326, 9,047,359 and 9,046,420 shares issued
91
90
Capital in excess of par value
131,649
128,800
127,910
Retained earnings
164,220
153,589
136,175
Accumulated other comprehensive loss
(2,464
(2,480
(8,218
Treasury stock, at cost; 117,900 shares of Common Stock
(1,204
TOTAL STOCKHOLDERS’ EQUITY
292,318
278,821
254,779
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Class A
Capital in
Common Stock
Excess of
Retained
Comprehensive
Treasury
Shares
Amount
Par Value
Earnings
Loss
Stock
Total
Balance, June 30, 2022
2,597,426
9,047,359
15,545
Cash dividends ($2.25 per share)
(25,981
Pension liability amortization, net of income tax expense of $1
Stock-based compensation expense
772
Balance, September 29, 2022
129,572
143,153
(2,474
269,163
16,907
Cash dividends ($1.00 per share)
(11,572
Pension liability amortization, net of income tax expense of $2
Equity award exercises, net of shares withheld for employee taxes
24,709
1
(356
(355
1,515
Balance, December 29, 2022
9,072,068
130,731
148,488
(2,469
275,663
4,258
(23
941
Balance, March 30, 2023
9,076,326
Balance, June 24, 2021
8,988,812
126,271
126,336
(9,025
242,494
19,249
Cash dividends ($3.00 per share)
(34,534
Pension liability amortization, net of income tax expense of $95
1,168
(16
703
Balance, September 23, 2021
8,989,980
126,958
111,051
(8,756
228,165
13,247
54,980
(946
1,068
Balance, December 23, 2021
9,044,960
127,080
124,298
(8,487
241,803
Pension liability amortization, net of income tax expense of $94
1,460
(48
878
Balance, March 24, 2022
9,046,420
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation and amortization
15,323
13,619
Loss (gain) on disposition of assets, net
47
(1,754
Deferred income tax expense
862
983
3,228
2,649
Change in assets and liabilities:
Accounts receivable, net
(4,923
(2,370
14,744
(63,129
535
915
(5,285
1,767
Accrued expenses
1,312
(10,046
Income taxes payable
(2,575
(1,917
Other long-term assets and liabilities
335
532
Other, net
602
1,823
Net cash provided by (used in) operating activities
72,389
(12,555
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
(15,586
(12,836
Acquisition of Just the Cheese brand
(3,500
Proceeds from disposition of assets, net
3,950
Proceeds from the sale of life insurance policies
3,225
(56
(827
Net cash used in investing activities
(19,142
(6,488
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term (repayments) borrowings
(12,614
57,210
Principal payments on long-term debt
(2,995
(2,849
Increase in bank overdraft
244
221
Dividends paid
(37,553
Taxes paid related to net share settlement of equity awards
(379
(1,010
Net cash (used in) provided by financing activities
(53,297
19,038
NET DECREASE IN CASH
(50
Cash, beginning of period
672
Cash, end of period
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
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 and other sesame snack products under our brand names and under private brands. In addition, with our acquisition of the Just the Cheese brand, we have expanded our product offerings to include baked cheese snack products on a branded and private label basis. 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 – Acquisition of Just the Cheese Brand
On December 16, 2022, we completed the acquisition of certain assets (the “Acquisition”) of Specialty Cheese Company, Inc. The acquired assets are primarily related to the manufacturing and sale of baked cheese snack products, including those products sold under the Just the Cheese brand, all finished goods inventory and intangible assets. At the time of the closing of the Acquisition, the full purchase price of $3,500 was paid in cash and funded from our Credit Facility (as defined below). Just the Cheese is one of the nation’s leading baked cheese snacking brands and offers 100% real cheese snack bars and cheese crisps. The Acquisition will provide us with a product that expands our portfolio into new snacking categories and is anticipated to accelerate growth with our private brand and food service customers. The Acquisition has been accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations”.
The final purchase price allocation was completed during the third quarter of fiscal 2023 which resulted in immaterial changes to fixed assets and customer relationships. The total purchase price of $3,500 has been allocated to the fair values of the assets acquired as follows:
240
Fixed assets
800
Identifiable intangible assets:
Customer relationships
250
Brand names
80
Non-compete agreement
30
2,100
Total purchase price
3,500
The customer relationship assets represent the value of the long-term strategic relationship with significant customers who purchase Just the Cheese brand products. The brand name asset represents the value of the established Just the Cheese brand name.
Goodwill, which is expected to be deductible for tax purposes, arises from intangible assets that do not qualify for separate recognition and expected synergies from combining the operations related to the Just the Cheese brand with those of the Company. There were no material contingencies recognized or unrecognized associated with the Acquisition.
Due to the immaterial financial nature of the Acquisition, unaudited pro forma results of operations of the Company (as if the Acquisition had taken place at the beginning of fiscal 2023) will not be presented.
Since the Acquisition, we continue to operate in a single reportable operating segment that consists of selling various nut and nut-related products through three sales distribution channels.
Note 3 – 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.
9
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. There was no contract asset balance for any 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:
Distribution Channel
Consumer
185,128
173,648
606,188
556,888
Commercial Ingredients
30,901
25,514
90,827
81,426
Contract Packaging
22,506
19,422
68,449
59,806
Note 4 – 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.
10
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 5.5 years.
It is our accounting policy to not apply lease recognition requirements to short term leases, which are 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:
Affected Line Item in Consolidated Balance Sheet
Assets
Total lease right-of-use assets
Liabilities
Current:
Operating leases
1,752
1,258
1,355
Noncurrent:
Long-term operating lease liabilities
Total lease liabilities
6,657
2,334
2,596
The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:
Operating lease costs (a)
529
470
1,544
1,384
Variable lease costs (b)
74
15
189
51
Total lease cost
603
485
1,733
1,435
Supplemental cash flow and other information related to leases was as follows:
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities
1,249
1,199
Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease obligations
5,458
167
Weighted average remaining lease term (in years)
4.6
2.3
2.4
Weighted average discount rate
6.6
%
4.3
4.2
11
Maturities of operating lease liabilities as of March 30, 2023 are as follows:
Fiscal year ending
June 29, 2023 (excluding the thirty-nine weeks ended March 30, 2023)
636
June 27, 2024
1,918
June 26, 2025
1,541
June 25, 2026
1,347
June 24, 2027
1,158
June 29, 2028
1,000
Thereafter
139
Total lease payment
7,739
Less imputed interest
(1,082
Present value of operating lease liabilities
At March 30, 2023, the Company had an immaterial amount of leases that had not yet commenced.
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:
Lease income related to lease payments
419
402
1,224
1,220
The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years are as follows:
Fiscal Year Ending
465
1,869
1,282
697
4,927
Note 5 – Inventories
Inventories consist of the following:
Raw material and supplies
90,110
77,558
104,810
Work-in-process and finished goods
100,241
127,297
106,317
12
Note 6 – Goodwill and Intangible Assets
Identifiable intangible assets that are subject to amortization consist of the following:
21,350
21,100
17,070
16,990
300
270
38,720
38,360
Less accumulated amortization:
(19,572
(18,795
(18,537
(11,776
(11,252
(11,080
(272
(248
(234
(31,620
(30,295
(29,851
Net intangible assets
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 $441 and $1,325 for the quarter and thirty-nine weeks ended March 30, 2023, respectively. Amortization expense for the remainder of fiscal 2023 is expected to be approximately $442 and expected amortization expense the next five fiscal years is as follows:
1,565
1,213
880
706
528
The intangibles related to the Just the Cheese brand acquisition, which are reflected in the above table, and the expected amortization expense are based on the final valuation report with respect to such intangible assets.
Our net goodwill at March 30, 2023 was comprised of $9,650 from the Squirrel Brand acquisition completed in the second quarter of fiscal 2018 and $2,100 from the Just the Cheese brand acquisition completed in the second quarter of fiscal 2023. The changes in the carrying amount of goodwill since June 25, 2021 are as follows:
Gross goodwill balance at June 25, 2021
18,416
Accumulated impairment losses
(8,766
Net balance at June 25, 2021
Goodwill acquired during the period
Net balance at March 30, 2023
Note 7 – 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 March 30, 2023, we had $85,485 of available credit under the Credit Facility which reflects borrowings of $27,825 and reduced availability as a result of $4,190 in outstanding letters of credit. As of March 30, 2023, we were in compliance with all financial covenants under the Credit Facility.
13
Note 8 – 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:
Weighted average number of shares outstanding – basic
11,592,362
11,548,554
11,570,954
11,533,338
Effect of dilutive securities:
Restricted stock units
63,832
53,412
61,702
55,745
Weighted average number of shares outstanding – diluted
11,656,194
11,601,966
11,632,656
11,589,083
There were no anti-dilutive awards excluded from the computation of diluted earnings per share for any periods presented.
Note 9 – Stock-Based Compensation Plans
The following is a summary of restricted stock unit ("RSU") activity for the first thirty-nine weeks of fiscal 2023:
Restricted Stock Units
Weighted Average Grant Date Fair Value
Outstanding at June 30, 2022
142,239
70.42
Granted
64,351
74.11
Vested (a)
(33,607
88.62
Forfeited
(3,024
72.19
Outstanding at March 30, 2023
169,959
68.19
At March 30, 2023, there were 38,490 RSUs outstanding that were vested but deferred.
The following table summarizes compensation expense charged to earnings for all equity compensation plans for the periods presented:
As of March 30, 2023, there was $5,539 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 1.6 years.
14
Note 10 – 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:
Service cost
200
248
601
743
Interest cost
342
255
1,025
764
Amortization of loss
Net periodic benefit cost
549
866
1,647
2,598
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 11 – Accumulated Other Comprehensive Loss
The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the thirty-nine weeks ended March 30, 2023 and March 24, 2022. These changes are all related to our defined benefit pension plan.
Changes to AOCL (a)
Balance at beginning of period
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Tax effect
Net current-period other comprehensive income
Balance at end of period
The reclassifications out of AOCL for the quarter and thirty-nine weeks ended March 30, 2023 and March 24, 2022 were as follows:
Affected Line Itemin the Consolidated
Reclassifications from AOCL to Earnings (b)
Statements of Comprehensive Income
Amortization of defined benefit pension items:
Unrecognized net loss
(7
(363
(21
(1,091
2
94
284
Amortization of defined pension items, net of tax
(269
(807
Note 12 – 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 13 – 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:
Carrying value of current and long-term debt:
10,927
11,901
Fair value of current and long-term debt:
6,865
11,179
12,669
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 14 – 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 15 – 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 16 – Subsequent Event
On May 2, 2023, our Board of Directors declared a special cash dividend of $1.50 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “May 2023 Dividends”). The May 2023 Dividends will be paid on June 22, 2023 to stockholders of record as of the close of business on June 1, 2023.
17
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:
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, nutrition bars, 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. In addition, with our acquisition of the Just the Cheese brand, we have expanded our product offerings to include baked cheese snack products on a branded and private label basis. 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 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 with innovative products such as our newly developed product line of private brand nutrition bars which were introduced during the current third quarter. 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 the second quarter of fiscal 2023.
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 and other input prices, rising interest rates that reduce economic growth, potential for economic downturn in the markets in which we operate and continued supply chain challenges. 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 consumers' 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, and also due to any actual or potential economic downturn, consumers may purchase fewer snack products. We have seen this through the decline in the recipe and snack nut categories during the current fiscal year, 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 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 nut products and sunflower lecithin used in many confectionery ingredients. Global supply is improving but is reliant on continued Ukraine shipments. We have been able to temporarily mitigate our risk for these ingredients by working with customers and suppliers to secure additional sourcing or reformulate products. Overall packaging costs appear to be leveling off but remain well above historical levels. In addition, we are seeing some relief in select ingredient categories with reformulations and substitutions, but lead-times remain long compared to historical lead-times.
We have also experienced supply chain issues related to a shortage in capacity in the transportation industry. This tightening in transportation capacity began to ease during the third quarter of fiscal 2022 and has continued to ease into fiscal 2023 due to inflationary costs decreasing demand in the freight market. Although 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. 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 despite our mitigation of some of the transportation shortages and maintaining 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, that any transportation capacity easing will continue or that 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 negatively 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 to create a challenge in securing adequate supplies to fulfill customer orders, or we cannot obtain the transportation and labor services needed, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations during the remainder of fiscal year 2023 and into 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.
19
QUARTERLY HIGHLIGHTS
Our net sales of $238.5 million for the third quarter of fiscal 2023 increased 9.1% from our net sales of $218.6 million for the third quarter of fiscal 2022. Net sales for the first thirty-nine weeks of fiscal 2023 increased by $67.3 million, or 9.6%, to $765.5 million compared to the first thirty-nine weeks of fiscal 2022.
Sales volume, measured as pounds sold to customers, increased 5.0% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Sales volume for the first thirty-nine weeks of fiscal 2023 increased 0.8% compared to the first thirty-nine weeks of fiscal 2022.
Gross profit increased by $10.4 million, and our gross profit margin, as a percentage of net sales, increased to 20.9% for the third quarter of fiscal 2023 compared to 18.0% for the third quarter of fiscal 2022. Gross profit increased $13.5 million, and our gross profit margin was unchanged at 20.5% for both the first thirty-nine weeks of fiscal 2023 and fiscal 2022.
Total operating expenses for the third quarter of fiscal 2023 increased by $6.0 million, or 27.1%, compared to the third quarter of fiscal 2022. As a percentage of net sales, total operating expenses in the third quarter of fiscal 2023 increased to 11.7% from 10.1% for the third quarter of fiscal 2022. For the first thirty-nine weeks of fiscal 2023, total operating expenses increased $7.8 million, and total operating expenses as a percentage of net sales was unchanged at 11.5% compared to the first thirty-nine weeks of fiscal 2022.
The total value of inventories on hand at the end of the third quarter of fiscal 2023 decreased $20.8 million, or 9.8%, in comparison to the total value of inventories on hand at the end of the third quarter of fiscal 2022.
We have seen acquisition costs for all major tree nuts decrease and acquisition costs for peanuts increase modestly in the 2022 crop year (which falls into our current 2023 fiscal year). We completed procurement of inshell walnuts during the first half of fiscal 2022, and the final total payments due to our walnut growers were determined in the current quarter. The final prices paid, and remaining to be paid to the walnut growers, were based upon current market prices and other factors, such as crop size and export demand. A large majority of payments to walnut growers were completed in the third quarter of fiscal 2023. Remaining amounts to be paid to walnut growers as of March 30, 2023 are final and are not subject to revision. We increased our walnut grower liability by approximately $1.2 million during the third quarter of fiscal 2023, as the final payments due to walnut growers are slightly more than the amounts estimated at the end of the second quarter. This increase is insignificant compared to our total inshell walnut procurement costs for the year, and the portion of the adjustment to cost of sales was immaterial to our results of operations.
20
RESULTS OF OPERATIONS
Net Sales
Our net sales increased 9.1% to $238.5 million in the third quarter of fiscal 2023 compared to net sales of $218.6 million for the third quarter of fiscal 2022. The increase in net sales was attributable to a 5.0% increase in sales volume, which is defined as pounds sold to customers, and a 3.9% increase in the weighted average sales price per pound. The increase in the weighted average selling price per pound was mainly due to the normalization of selling prices with tree nut acquisition costs, as well as higher commodity acquisition costs for peanuts and dried fruit. The increase in sales volume was primarily driven by increased sales of peanut butter.
For the first thirty-nine weeks of fiscal 2023 our net sales were $765.5 million, an increase of $67.3 million, or 9.6%, compared to the same period of fiscal 2022. The increase in net sales was primarily attributable to a 8.8% increase in the weighted average selling price per pound, and a 0.8% increase in sales volume. The increase in the weighted average selling price resulted from higher commodity acquisition costs for pecans, cashews, peanuts and dried fruit.
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.
Product Type
Peanuts & Peanut Butter
20.1
18.8
18.5
17.6
Pecans
8.0
6.9
12.2
10.7
Cashews & Mixed Nuts
22.0
23.8
20.9
22.7
Walnuts
4.8
5.8
5.9
Almonds
9.3
8.9
10.1
Trail & Snack Mixes
28.2
28.4
27.0
26.7
7.6
6.8
6.7
6.3
100.0
The following table shows a comparison of net sales by distribution channel (dollars in thousands):
Percentageof Total
$ Change
%Change
Consumer (1)
77.6
79.4
11,480
13.0
11.7
5,387
21.1
9.4
3,084
15.9
19,951
9.1
79.2
79.8
49,300
11.9
11.6
9,401
11.5
8.6
8,643
14.5
67,344
9.6
Net sales in the consumer distribution channel increased $11.5 million, or 6.6%, and sales volume increased 2.1% in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. The sales volume increase was mostly driven by an increase in private brand sales volume due to new private brand peanut butter business at a mass merchandising retailer and increased peanut butter distribution at a grocery store retailer. Also contributing to the increase was a 20.8% increase in sales volume of Orchard Valley Harvest products due to the timing of sales to a major customer in the non-food sector who delayed their orders from the previous quarter and increased promotional support at the same customer. These increases were substantially offset by lost private brand distribution at a grocery store retailer that occurred in the fourth quarter of fiscal 2022. Sales volume of Fisher snack nuts decreased 16.7% due to decreased merchandising activity at a major customer and a seasonal rotation at a club store that did not repeat in the current quarter. Sales volume of Fisher recipe nuts increased 6.4% as a result of increased distribution at a mass merchandising retailer.
In the first thirty-nine weeks of fiscal 2023, net sales in the consumer distribution channel increased $49.3 million, or 8.9%, and sales volume decreased 0.3% compared to the same period of fiscal 2022. The sales volume decrease was driven by lost private brand distribution at the grocery store retailer cited in the quarterly comparison, which was largely offset by increased distribution at a mass merchandising retailer and at a grocery store retailer.
Net sales in the commercial ingredients distribution channel increased 21.1% in dollars and 18.9% in sales volume in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. The increase in sales volume was due to a 30.5% increase in sales volume to foodservice customers due to increased peanut butter distribution at existing customers.
In the first thirty-nine weeks of fiscal 2023, net sales in the commercial ingredients distribution channel increased 11.5% in dollars and 3.9% in sales volume compared to the same period of fiscal 2022. The increase in sales volume was due to a 15.3% increase in sales volume to foodservice customers for the reason cited in the quarterly comparison and also due to the continued recovery in the restaurant industry from the impacts of COVID-19 restrictions. This increase was partially offset by lower sales of bulk products to other food manufacturers as a result of reduced consumption from softened consumer spending.
Net sales in the contract packaging distribution channel increased 15.9% in dollars and 7.5% in sales volume in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. The increase in sales volume was primarily due to increased peanut and cashew distribution by an existing major customer.
In the first thirty-nine weeks of fiscal 2023, net sales in the contract packaging distribution channel increased 14.5% in dollars and sales volume increased 4.2% compared to the same period of fiscal 2022. The increase in sales volume was primarily attributable to the reason cited in the quarterly comparison and business with a new customer.
Gross Profit
Gross profit increased by $10.4 million, or 26.3%, to $49.8 million for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Our gross profit margin, as a percentage of net sales, increased to 20.9% for the third quarter of fiscal 2023 compared to 18.0% for the third quarter of fiscal 2022, as gross profit margins returned to more normalized levels. The prior comparable quarter gross profit margin was negatively impacted by higher than anticipated commodity acquisition costs and other inflationary cost increases. The increase in gross profit was mainly due to the reasons noted above and increased sales volume.
22
Gross profit was $156.9 million for the first thirty-nine weeks of fiscal 2023 compared to $143.4 million for the first thirty-nine weeks of fiscal 2022 primarily due to a higher net sales base. Our gross profit margin, as a percentage of sales, was unchanged at 20.5% for both the first thirty-nine weeks of fiscal 2023 and fiscal 2022.
Operating Expenses
Total operating expenses for the third quarter of fiscal 2023 increased by $6.0 million, or 27.1%, to $28.0 million. Operating expenses increased to 11.7% of net sales for the third quarter of fiscal 2023 compared to 10.1% of net sales for the third quarter of fiscal 2022.
Selling expenses for the third quarter of fiscal 2023 were $18.1 million, an increase of $2.5 million, or 16.2%, from the third quarter of fiscal 2022. The increase was driven primarily by a $2.3 million increase in compensation expense, primarily related to incentive compensation, a $0.4 million increase in consumer insight research and related consulting expenses, a $0.2 million increase in sales broker commission expense and a $0.2 million increase in sample expense related to a new product line launched in the current third quarter. 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 third quarter of fiscal 2023 were $9.8 million compared to $6.4 million for the third quarter of fiscal 2022. The increase was due to a $2.8 million increase in compensation expense, primarily related to incentive compensation, and a $0.5 million decrease in miscellaneous income as a result of a one-time gain in the comparable quarter which did not reoccur in the current quarter.
Total operating expenses for the first thirty-nine weeks of fiscal 2023 increased by $7.8 million, or 9.7%, to $88.2 million. Operating expenses as a percentage of net sales was unchanged at 11.5% for both the first thirty-nine weeks of fiscal 2023 and fiscal 2022.
Selling expenses for the first thirty-nine weeks of fiscal 2023 were $57.9 million, an increase of $1.0 million, or 1.8%, from the amount recorded for the first thirty-nine weeks of fiscal 2022. The increase was driven primarily by a $3.1 million increase in compensation expense, primarily related to incentive compensation, a $0.7 million increase in sales broker commission expense and a $0.4 million increase in sample expense for the same reason cited in the quarterly comparison. These increases were partially offset by a $2.1 million decrease in freight expense due to a decrease in freight rates and $1.7 million decrease in advertising, consumer insight research and related consulting expenses.
Administrative expenses for the first thirty-nine weeks of fiscal 2023 were $30.3 million, an increase of $4.4 million, or 17.1%, compared to the same period of fiscal 2022. The increase was primarily due to a $4.0 million increase in compensation expense, primarily related to incentive compensation, and a $0.6 million increase in audit and legal expenses primarily for Acquisition-related costs, which were partially offset by a $0.5 million decrease in the loss on asset disposals.
The $2.3 million gain on sale of facility in the first thirty-nine weeks 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 was $21.8 million, or 9.1% of net sales, for the third quarter of fiscal 2023 compared to $17.4 million, or 8.0% of net sales, for the third quarter of fiscal 2022.
Due to the factors discussed above, income from operations was $68.7 million, or 9.0% of net sales, for the first thirty-nine weeks of fiscal 2023 compared to $63.0 million, or 9.0% of net sales, for the first thirty-nine weeks of fiscal 2022.
Interest Expense
Interest expense was $0.6 million for the third quarter of fiscal 2023 compared to $0.5 million for the third quarter of fiscal 2022. Interest expense was $1.8 million for the first thirty-nine weeks of fiscal 2023 compared to $1.3 million for the first thirty-nine weeks of fiscal 2022. The increase in interest expense for both the quarterly and year to date comparisons was due to higher weighted average interest rates.
Rental and Miscellaneous Expense, Net
Net rental and miscellaneous expense was $0.4 million for both the third quarter of fiscal 2023 and fiscal 2022. Net rental and miscellaneous expense was $1.1 million for both the first thirty-nine weeks of fiscal 2023 and fiscal 2022.
23
Pension Expense (Excluding Service Costs)
Pension expense (excluding service costs) was $0.3 million for the third quarter of fiscal 2023 compared to $0.6 million for the third quarter of fiscal 2022. Pension expense (excluding service costs) was $1.0 million for the first thirty-nine weeks of fiscal 2023 compared to $1.9 million for the first thirty-nine weeks of fiscal 2022. The decrease in pension expense (excluding service costs) for both the quarterly and year to date comparisons was primarily due to a decrease in the unrecognized net loss remaining to be amortized, which was a result of a large actuarial gain in the prior fiscal year.
Income Tax Expense
Income tax expense was $4.8 million, or 23.4% of income before income taxes (the “Effective Tax Rate”), for the third quarter of fiscal 2023 compared to $4.0 million, or 25.2% of income before income taxes, for the third quarter of fiscal 2022. The decrease in the Effective Tax Rate for the quarterly comparison is primarily due to a decrease in state income tax expense. For the first thirty-nine weeks of fiscal 2023, income tax expense was $16.6 million, or 25.6% of income before income taxes, compared to $14.4 million, or 24.5% of income before income taxes, for the comparable period last year. The increase in the Effective Tax Rate for the current thirty-nine week period is mainly due to the favorable impact of $0.7 million of discrete tax benefits from share-based compensation recognized in the second quarter of fiscal 2022 that did not reoccur in the current fiscal year.
Net Income
Net income was $15.7 million, or $1.36 per common share basic and $1.35 per common share diluted, for the third quarter of fiscal 2023, compared to $11.9 million, or $1.03 per common share basic and $1.02 per common share diluted, for the third quarter of fiscal 2022.
Net income was $48.2 million, or $4.16 per common share basic and $4.14 per common share diluted, for the first thirty-nine weeks of fiscal 2023, compared to net income of $44.4 million, or $3.85 per common share basic and $3.83 per common share diluted, for the first thirty-nine weeks of fiscal 2022.
24
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, 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, 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 three quarters of fiscal 2023 and 2022, respectively (dollars in thousands):
$Change
Operating activities
84,944
Investing activities
(12,654
Financing activities
(72,335
Net decrease in cash
(45
Operating Activities Net cash provided by operating activities was $72.4 million for the first thirty-nine weeks of fiscal 2023 compared to net cash used in operating activities of $12.6 million for the comparative period of fiscal 2022. The increase in operating cash flow was primarily due to a decreased use of working capital for inventory compared to the first thirty-nine weeks of fiscal 2022 as a result of decreasing commodity acquisition costs.
Total inventories were $190.4 million at March 30, 2023, a decrease of $14.5 million, or 7.1%, from the inventory balance at June 30, 2022, and a decrease of $20.8 million, or 9.8%, from the inventory balance at March 24, 2022. The decrease in inventories at March 30, 2023 compared to June 30, 2022 was primarily due to lower commodity acquisition costs for all major tree nuts and lower quantities of work-in-process and finished goods on hand, which were partially offset by higher quantities of pecans, walnuts, cashews and other raw materials. The decrease in inventories at March 30, 2023 compared to March 24, 2022 was primarily due to lower commodity acquisition costs for all major tree nuts. This decrease was partially offset by higher acquisition costs for peanuts and other raw materials and higher quantities of other raw materials and cashews on hand.
Raw nut and dried fruit input stocks, some of which are classified as work-in-process, increased by 1.1 million pounds, or 1.8%, at March 30, 2023 compared to March 24, 2022 due to higher quantities of inshell walnuts and cashews on hand, partially offset by lower quantities of almonds and inshell pecans. The weighted average cost per pound of raw nut input stocks on hand at the end of the third quarter of fiscal 2023 decreased 24.1% compared to the end of the third quarter of fiscal 2022 primarily due to lower commodity acquisition costs for all major tree nuts.
Investing Activities Cash used in investing activities was $19.1 million during the first thirty-nine weeks of fiscal 2023 compared to $6.5 million for the same period last year. The increase in cash used in investing activities was partially 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 the $3.2 million of cash proceeds resulting from the Sanfilippo family's exercise of their contractual purchase option and our resulting sale of certain life insurance policies to the Sanfilippo family, which occurred in the third quarter of fiscal 2022. Neither event reoccurred in the current fiscal year. The $3.5 million purchase price for the acquisition of the Just the Cheese brand also contributed to the increase in cash used for investing activities. Capital asset purchases were $15.6 million during the first thirty-nine weeks of fiscal 2023 compared to $12.8 million for the first thirty-nine weeks of fiscal 2022. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2023 to be approximately $20.0 to $23.0 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.
25
Financing Activities Cash used in financing activities was $53.3 million during the first thirty-nine weeks of fiscal 2023 compared to cash provided of $19.0 million for the same period last year. Net repayments under our Credit Facility were $12.6 million during the first thirty-nine weeks of fiscal 2023 compared to net borrowings of $57.2 million for the first thirty-nine weeks of fiscal 2022. The decrease in credit facility borrowings was primarily due to decreasing commodity acquisition costs. Dividends paid in the first half of fiscal 2023 were approximately $3.0 million higher than dividends paid in the same period last year.
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 69% 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 providing us with term loans 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 was secured by mortgages on essentially all of our owned real property located in Elgin, Illinois and Gustine, California, but such mortgages have been released in connection with the maturity and repayment of such facility as described below.
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 plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%.
At March 30, 2023, the weighted average interest rate for the Credit Facility was 7.2%. 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 March 30, 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 March 30, 2023, we had $85.5 million of available credit under the Credit Facility. If this entire amount were borrowed at March 30, 2023, we would still be in compliance with all restrictive covenants under the Credit Facility.
Mortgage Facility
The Mortgage Facility was repaid in full in February 2023 and the related mortgages on our owned real property located in Elgin, Illinois and Gustine, California have been released.
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 March 30, 2023, $7.9 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 15 – “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; (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, diversifying our product offerings 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) 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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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.
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 March 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 30, 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 March 30, 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II—OTHER INFORMATION
For a discussion of legal proceedings, see Note 12 – “Commitments and Contingent Liabilities” in Part I, Item 1 of this Form 10-Q.
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 third 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.
The exhibits filed herewith are listed in the exhibit index below.
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
No.
Description
3.1
Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Form 10-Q for the quarter ended March 24, 2005)
3.2
Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Form 10-K for the fiscal year ended June 25, 2015)
*10.1
Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, Mathias Valentine, Mary Valentine and the Company, dated December 31, 2003 (incorporated by reference from Exhibit 10.35 to the Form 10-Q for the quarter ended December 25, 2003)
*10.2
Amendment, dated February 12, 2004, to Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, Mathias Valentine, Mary Valentine and the Company, dated December 31, 2003 (incorporated by reference from Exhibit 10.47 to the Form 10-Q for the quarter ended March 25, 2004)
*10.3
Restated Supplemental Retirement Plan (incorporated by reference from Exhibit 10.16 to the Form 10-K for the fiscal year ended June 28, 2007)
*10.4
Form of Indemnification Agreement (incorporated by reference from Exhibit 10.01 to the Form 8-K filed on May 5, 2009)
*10.5
2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 filed on October 28, 2014)
*10.6
Amendment No. 1 to the 2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.12 to the Form 10-K for the year ended June 30, 2016)
*10.7
Form of Non-Employee Director Restricted Stock Unit Award Agreement (non-deferral) under 2014 Omnibus Plan (fiscal 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, 2022 and 2023 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
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)
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 (incorporated by reference from Exhibit 10.17 to the Form 10-Q for the quarter ended September 29, 2022)
*10.18
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)
*10.19
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)
*10.20
Retirement Agreement and General Release, dated January 23, 2023 by and between John B. Sanfilippo & Son, Inc. and Michael Valentine
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.
31
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 May 2, 2023.
By
/s/ Frank S. Pellegrino
Frank S. Pellegrino
Chief Financial Officer, Executive
Vice President, Finance and Administration