UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM
10-K

(Mark One)

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

For the fiscal year ended June 29, 2017

24, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

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 Number)

1703 North Randall Road

Elgin, Illinois 60123

(Address of Principal Executive Offices, Zip Code)

Registrant’s telephone number, including area code:
(847) 289-1800

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

Title of Each Class

 

Trading
Symbol
Name of Each Exchange
on Which Registered

Common Stock, $.01 par value per share
 

JBSS
The NASDAQ Stock Market LLC

(NASDAQ Global Select Market)

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

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ☐☒    No  ☒.

☐.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:    Yes  ☐    No  ☒.

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, as amended (the “Exchange Act”), 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
RegulationS-T (§
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.  ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in
Rule12b-2
of the Exchange Act.

(Check One)
Large accelerated filer ☐☒  Accelerated filer ☒☐
Non-accelerated
filer		 ☐  (Do not check if a smaller reporting company)  Smaller reporting company ☐
Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    No  ☒.

The aggregate market value of the voting Common Stock held by
non-affiliates
was $593,573,553$689,852,363 as of December 29, 2016 (8,448,24324, 2020 (8,773,399 shares at $70.26$78.63 per share).

As of August 11, 2017, 8,699,98312, 2021, 8,871,589 shares of the registrant’s Common Stock, $.01 par value (“Common Stock”) and 2,597,426 shares of the registrant’s Class A Common Stock, $.01 par value (“Class A Stock”), were outstanding. The Class A Stock is convertible at the option of the holder at any time and from time to time (and, upon the occurrence of certain events specified in the Restated Certificate of Incorporation, automatically converts) into one share of Common Stock.

Documents Incorporated by Reference:

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held November 2, 2017October 27, 2021 are incorporated by reference into Part III of this
Form10-K.

PART I

Item 1 — Business

a. General Development of Business

John B. Sanfilippo & Son, Inc. was formed as a corporation under the laws of the State of Delaware in 1979 as the successor by merger to an Illinois corporation that was incorporated in 1959. As used throughout this annual report on Form
10-K,
unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” refer collectively to John B. Sanfilippo & Son, Inc. and its 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). However, the fiscal year ended June 30, 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. Additional information on the comparability of the periods presented is as follows:

References herein to fiscal 20182022 are to the fiscal year ending June 28, 2018.30, 2022.

References herein to fiscal 2017,2021, fiscal 20162020 and fiscal 20152019 are to the fiscal years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 2015,27, 2019, respectively.

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under our
Fisher
,
Orchard Valley Harvest
,
Squirrel Brand
,
Southern Style Nuts
and
Sunshine Country
brand names and under a variety of private brands and under theFisher, Orchard Valley HarvestandSunshine Countrybrand names.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, snackssnack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brandsbrands. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and brand names. contract packaging customers.
Our website is accessible to the public at
http://www.jbssinc.com.
Information about us, including our code of ethics, annual reports on
Form 10-K,
quarterly reports onForm
10-Q,
current reports onForm
8-K
and any amendments to those reports are made available free of charge through our website as soon as reasonably practicable after such reports have been filed with the United States Securities and Exchange Commission (the “SEC”). Our materials filed with the SEC are also available on the SEC’s website at
http://www.sec.gov
. The public may read and copy any materials we file with the SEC at the SEC’s public reference room at 100 F St., NE, Washington, DC 20549. The public may obtain information about the reference room by calling the SEC at1-800-SEC-0330. References to our website addressed in thisForm
10-K
are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of thisForm
10-K.

Our headquarters and executive offices are located at 1703 North Randall Road, Elgin, Illinois 60123, and our telephone number for investor relations is
(847) 289-1800,
extension 4612.

b. Segment Reporting

We haveoperate in a single reporting unit and operating segment under which we report that consists of selling various nut and nut related products through three distribution channels. See Part II, Item 8 — “Financial Statements and Supplementary Data” for our net sales, net income and total assets.

c. Narrative Description of Business

(i) General

As stated above, we

We are one of the leading processors and distributors of tree nuts and peanuts in the United States. We manufacture and market the
Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts,
and
Sunshine Country
brand names and manufacture and distribute numerous private brands as well. Through a deliberate strategy of focused capital expenditures and complementary acquisitions, we have built a generally vertically integrated nut processing operation that enables us to control almost every step of the process for pecans, peanuts and walnuts, including procurement from growers, shelling, processing, packaging and marketing. Vertical integration allows us to enhance product quality and, in most crop years, purchase inshell pecans, peanuts and walnuts from growers at lower costs as opposed to purchasing these nut meats from other shellers. We believe that our generally vertically integrated business model typically works to our advantage in terms of cost savings and provides us with better insight into crop development.
Our generally vertically integrated model, however, can under certain circumstances resultbrands are some of the most well-recognized in reduced earnings or losses. See Part I, Item 1A — “Risk Factors”the packaged food industry. In recent years we have developed
Fisher
recipe nuts as the leading brand in the category, increased distribution of
Orchard Valley Harvest
in the produce section of many retailers, increased innovative snacking solutions with our
Fisher
snack nuts and expanded into new channels with our acquisition of
Squirrel Brand
and
Southern Style Nuts
.

Our branded and private brand products are sold through the major distribution channels to

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significant buyers of nuts, including food and other retailers (both brick and mortar and
e-commerce),
commercial ingredient users and contract packaging customers. Selling through multiple distribution channels allows us to generate multiple revenue opportunities for the nuts we process. For example, pecan halves could be sold to food retailers under our
Fisher
brand, and pecan pieces could be sold to commercial ingredient users. We process and sell all major nut types consumed in the United States, including peanuts, pecans, cashews, walnuts and almonds (our major nut types) in a wide variety of innovative packaging, thus offering our customers a complete nut product offering.

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(ii) Principal Products

Our principal products are raw and processed nuts. These products accounted for approximately 82%70%, 83%74% and 84%78% of our gross sales for fiscal 2017,2021, fiscal 20162020 and fiscal 2015,2019, respectively. The nut product line includes almonds, pecans, peanuts, black walnuts, English walnuts, cashews, macadamia nuts, pistachios, pine nuts, Brazil nuts and filberts. Our nut products are sold in numerous package styles and sizes, and we offer our nut products in a variety of different styles and seasonings. We sell our products domestically to retailers and wholesalers as well as to commercial ingredient and contract packaging customers. We also sell certain of our products to foreign customers in the retail, contract packaging and commercial ingredient markets. For more information about our revenues in our various distribution channels, see Part II, Item 8 — “Financial Statements and Supplementary Data”.

We acquire a substantial portionall of our peanuts pecans and walnuts directly from domestic growers. The majority of our pecans are acquired from domestic growers with the remainder acquired from growers in Mexico. We purchase the balance of our raw nuts from importers, trading companies and domestic processors.

We manufacture and market peanut butter in several sizes and varieties. We also market and distribute, and in many cases process and manufacture, a wide assortment of other food and snack products. These other products include snack mixes, salad toppings, snacks, snack bites, trail mixes, dried fruit and chocolate and yogurt coated products sold to retailers and wholesalers; baking ingredients sold to retailers, wholesalers, and commercial ingredient customers; bulk food products sold to retail and commercial ingredient users; an assortment of sunflower kernels, pepitas, snack mixes, almond butter, cashew butter, candy and confections, corn snacks, chickpea snacks, sesame sticks and other sesame snack products sold to retail supermarkets, mass merchandisers and commercial ingredient users and a wide variety of toppings for ice cream and yogurt sold to commercial ingredient users.

(iii) Customers and Channels

We sell our products to approximately 500255 customers through the consumer, commercial ingredient and contract packaging distribution channels. The consumer channel supplies
nut-based
products, including consumer-packaged and bulk products, to retailers including supermarket chains, wholesalers, supercenters, internet retailers and other retail outlets, across the United States. We sell products through the consumer channel under our brand names, including the
Fisher
,
Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts
and
Sunshine Country
brands, as well as under our customers’ private brands. The commercial ingredient channel supplies
nut-based
products to other manufacturers to use as ingredients in their final food products such as bakery, confection, cereal and ice cream, and produces
nut-based
products that are customized to the specifications of chefs, national restaurant chains, food servicefoodservice distributors, fast food chains, institutions and hotel kitchens. We sell products through the commercial ingredient channel under our
Fisher
brand and our customers’ private brands. Our contract packaging channel produces and packages
nut-based
snacks for other food manufacturers and marketers under their brand name.

We are dependent on a few significant customers for a majority of our total net sales, particularly in the consumer channel. Sales to our five largest customers represented approximately 60% of net sales in fiscal 2017, 62% of net sales in fiscal 2016 and 61% of net sales in fiscal 2015. Net sales to
Wal-Mart
Stores, Inc. accounted for approximately 28%34% of our net sales for fiscal 2017, 26% of our net sales in fiscal 20162021 and 24%33% of our net sales for fiscal 2015.2020 and fiscal 2019. Net sales to Target Corporation accounted for approximately 14% of our net sales for all periods presented. Netfiscal 2021, 12% of our net sales to PepsiCo Inc. accounted for approximatelyfiscal 2020 and 10% of our net sales for fiscal 2017. Net sales to The WhiteWave Foods Company accounted for approximately 10% of our net sales for fiscal 2016.2019. No other customer accounted for more than 10% of net sales for any period presented.

(iv) Sales and Distribution

We market our products through our own sales department and through a network of approximately 6055 independent brokers and various independent distributors and suppliers.

suppliers, including group purchasing organizations.

We distribute products from each of our principal facilities. The majority of our products are shipped from our facilities by contract and common carriers.

We operate a retail store at our Elgin headquarters. This store sells
Fisher
snack and baking products,
Orchard Valley Harvest, Squirrel Brand
and
Southern Style Nut
products, bulk foods and other products produced by us and other vendors.

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(v) Marketing

Marketing strategies are developed for each distribution channel and focus primarily on branded products. Branded consumer efforts concentrate on building brand awareness, developing, identifying and introducing new products, attracting new customers, increasing distribution and increasing consumption in the snack nut, recipe nut and produce categories. Private brand and commercial ingredient channel efforts are focused on category management, new product identification and introduction, brand awareness and merchandising support.

A significant portion of our branded marketing efforts are focused on compelling consumer promotional campaigns that include advertisements (e.g., television, online video, social media, magazine, newspaper, internet and television)influencer activations and partnerships, search engine marketing and online display), product sampling and coupon offers. Our integrated marketing efforts for the
Fisher
brand include sponsorships of celebritypartnerships with chefs and influencers, as well as professional sports franchises.baseball sponsorships. Additionally, shipper display units are utilized in retail stores in an effort to gain additional temporary product placement and to drive sales volume. We work with third-party information agencies, such as Information Resources, Inc. (“IRi”), to monitor the effectiveness of our marketing and measure product growth, particularly in comparison to our competition and the product category.

Commercial ingredient trade promotion typically includes periodically attending regional and national trade shows, trade publication advertising and
one-on-one
marketing. These promotional efforts highlight our processing capabilities, broad product portfolio, product customization and packaging innovation.

Through participation in several trade associations, funding of industry research and sponsorship of educational programs, we support efforts to increase awareness of the health benefits, convenience and versatility of nuts as both a snack and a recipe ingredient among existing and future consumers of nuts.

In the future, we expect to participate and fund sustainability efforts in the industry through trade associations.

(vi) Competition

Our nuts and other snack food products compete against products manufactured and sold by numerous other companies in the snack food industry, some of whom are substantially larger and have greater resources than us. In the nut industry, we compete with, among others, The Kraft Heinz CompanyHormel Foods Corp. (Planters brand), Treehouse Foods, Inc. and numerous regional snack food processors. We also compete with the Diamond and Emerald brands,brand, among others. Competitive factors in our markets include price, product quality, customer service, breadth of product line, brand name awareness, method of distribution, sales promotion, category management, service level compliance and sales promotion.innovation. The combination of our generally vertically integrated operating model with respect to pecans, peanuts and walnuts, our product quality, product offering, brand strength, innovation, distribution model and the fact that weour focus on nut and nut related products generally enable us to compete in each of these categories, but there can be no guarantee that our products will continue to be competitive with many of our larger competitors. See Part I, Item 1A — “Risk Factors”.

(vii) Raw Materials and Supplies

We purchase nuts from domestic and foreign sources. In fiscal 2017,2021, all of our walnuts, almonds and peanuts were purchased from domestic sources. We purchase our pecans from the southern United States and Mexico. Cashew nuts are imported from Vietnam India, Brazil and certain West African countries. For fiscal 2017,2021, approximately 41%34% of the dollar value of our total nut purchases was from foreign sources.

Competition in the nut shelling industry is driven by shellers’ ability to access and purchase raw nuts, to shell the nuts efficiently and to sell the nuts to processors. We shell all major domestic nut types, with the exception of almonds, and are among a few select shellers who further process, package and sell nuts to the
end-user.
Raw material pricing pressure and the high cost of equipment automation have previously contributed to a consolidation among shellers across all nut types, especially peanuts and pecans.

We are generally vertically integrated with respect to pecans, peanuts and walnuts and, unlike our major consumer distribution channel competitors who purchase nuts on the open market, we purchase a substantial portion of our pecans, peanuts and walnuts directly from growers. However, there are risks associated with vertical integration, such as susceptibility to market price volatility for pecans, peanuts and walnuts. See Part I, Item 1A — “Risk Factors”.

Due, in part, to the seasonal nature of the industry, we maintain significant inventories of peanuts, pecans and walnuts at certain times of the year, especially in the second and third quarters of our fiscal year. Fluctuations in the market price of pecans, peanuts and walnuts and other nuts may affect the value of our inventory and thus may also affect our gross profit and gross profit margin. See Part I, Item 1A — “Risk Factors”.

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We have historically purchased some of our packaging and labels from a related party.

We purchase other inventory items such as roasting oils, seasonings, plastic jars, labels,
stand-up
bags, composite and clear-plastic cans and other packaging materials from other third parties. Material costs, including tree nuts, peanuts, other commodities, packaging and other inventory itemsedible ingredients represented approximately 83%78% of our total cost of sales for fiscal 2017.

2021.

(viii) Trademarks and Patents

We market our products primarily under name brands, including the
Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts
and
Sunshine Country
brand names.
Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts
and
Sunshine Country
are registered as trademarks with the U.S. Patent and Trademark Office as well as in various other foreign jurisdictions. We do not own any trademarks for any private brands, which are owned by the respective private brand customer. Our trademarks are important as they provide our customers with information about the quality of our products. However, registration and use of our trademarks in foreign jurisdictions may be subject to certain risks in addition to other risks generally related to our intellectual property. See Part��Part I, Item 1A — “Risk Factors”. We also own several patents of various durations. We expect to continue to renew for the foreseeable future those trademarks that are important to our business and expand registration of our trademarks into new jurisdictions. We intend to protect our intellectual property rights vigorously.

(ix) Employees

Human Capital

As of June 29, 2017,24, 2021, we had approximately 1,3251,300 full-time employees including approximately 240across our five locations.
We recognize that, in order for our company to be successful, our employees must be healthy, well-trained and motivated to do their best every day. We are thus relentlessly focused on attracting, retaining and managing our employees. The key aspects of our human resources program and objectives are as follows:
Health and Safety
:
As a producer, manufacturer and processer of nuts and
nut-related
products, we are subject to extensive food and employee safety laws and regulations. We place a high priority on employee health and safety as part of our continuous improvement culture. Our total occupational injury rate continues to remain below the food manufacturing industry average. We continue to enhance our safety programs by investing in systems and controls focused on injury and accident prevention. During the 2021 fiscal year, we were able to increase significantly employee participation in our voluntary Safety Observation Program, and we implemented a cloud-based environmental health and safety platform that we believe will help us to better measure and monitor data in this area, as well as predict and prevent future safety risks.
COVID-19:
In response to the
COVID-19
pandemic, we implemented a number of health and safety protocols to protect our employees, and we regularly monitor such protocols for best practices and improvements. In 2020, we instituted a
COVID-19
task force to help oversee and promote the health and safety of our employees. The
COVID-19
task force helped guide our establishment of policies and practices in accordance with guidance from the U.S. Centers for Disease Control, federal, state and local governments, and other health authorities. The actions we took to help ensure the safety and wellness of our employees include, among other things, requiring employees to practice social distancing at our facilities, checking employees’ temperatures, increasing the frequency of the sanitation of our facilities and equipment, supplying personal protective equipment to our employees, not reducing compensation for employees that are required to quarantine due to exposure to
COVID-19,
working to educate our employees about vaccines and allowing our corporate staff to work from home. We also hosted several free
on-site
vaccination clinics for our employees and their family members. We continue to monitor guidance and best practices to help ensure the health and safety of our employees.

Diversity and Inclusion:
We recognize that our business is stronger and more successful if supported by a diverse workforce. Our goal is to maintain and promote diversity among our employees and foster an inclusive environment where differences are celebrated. In the 2021 fiscal year, we launched our Diversit
y, Equity a
nd Inclusion Council, consisting of a team of employees from different functional areas, to provide oversight and enhance our diversity and inclusion initiatives.
Training, Development and Promotion:
We believe that training, developing, and promoting our employees is an important part of our vibrant employee culture. These measures enhance our performance and are an important component of employee satisfaction. We offer training to our employees on a variety of subjects related to professional development, workplace fundamentals, business, computer applications and industry specific subjects such as our
Nutology-101
courses. We also conduct annual mandatory training for all employees covering food safety, workplace safety and various regulatory and compliance related subjects. In the 2021 fiscal year, approximately 15% of our employees received promotions and a promotion-related salary increase.
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Employee Rewards and Satisfaction:
Through our Sanfilippo Value Added (SVA) and Total Team Performance (TTP) incentive programs, we provide annual cash bonus opportunities to motivate and reward our employees and align their interests with those of our stockholders. Employees participate in the SVA or TTP program, not both. Approximately 20% of our employees participate in the SVA program and approximately 80% participate in the TTP program. In addition to the SVA and TTP incentive programs, we offer annual sales incentives to our sales and marketing employees and annual monetary leadership awards to our top performers across all functions. We are also proud to offer a comprehensive and competitive benefits package designed to meet the diverse needs of our employees at every stage of life, including a company-sponsored healthcare program and 401(k) program with a generous company matching contribution. Among other things, we periodically conduct employee surveys to monitor employee satisfaction, engagement and concerns.
Codes of Conduct; Oversight of Concerns:
We maintain codes of conduct and ethics policies designed to promote ethical conduct of our employees and agents and have implemented a robust program to address employee concerns and complaints, which includes an anonymous incident reporting system, periodic employee surveys and suggestion boxes that can result in monetary awards. Our employees are made aware of such reporting system through various communication methods, including assurances against retaliation. We regularly monitor best practices in this area to ensure our policies and practices are updated as appropriate.
(x) Seasonality

Our business is seasonal. Demand for peanut and tree nut products is highest during the last four months of the calendar year. Peanuts, pecans and walnuts, three of our principal raw materials, are primarily purchased between September and February and are processed throughout the year until the following harvest. As a result of this seasonality, our personnel requirements rise during the lastsecond quarter of the calendarour fiscal year. Our working capital requirements generally peak during the third quarter of our fiscal year.

(xi) Backlog

Because the time between order and shipment is usually less than three weeks, we believe that any backlog as of a particular date is not material to an understanding of our business as a whole.

(xii)Government Regulations, Operating Hazards and Uninsured Risks

The sale of food products for human consumption involves the risk of injury to consumers as a result of product contamination or spoilage, including the presence of shell fragments, foreign objects, insects, foreign substances, pathogens, chemicals, aflatoxin and other hazards, agents or residues introduced during the growing, storage, handling or transportation phases. We (i) maintain what we believe to be rigid quality control standards and food safety systems and are SQF 2000 Code Level 2 certified,that is evident in our annual Safe Quality Food (“SQF”) certification at each manufacturing facility, (ii) generally inspect our nut and other food products by visual examination, screening, metal detectors or electronic monitors at various stages of our shelling and processing operations, (iii) work with the United States Department of Agriculture (“USDA”) in its inspection of peanuts shipped to and from our peanut shelling facilities, (iv) maintain robust environmental pathogen programs, and (v) seek to comply with the Nutrition Labeling and Education Act by labeling each product that we sell with labels that disclose the nutritional value and content of each of our products;products and (vi) assure compliance with the United States Food and Drug Administration (“FDA”) Food Safety Modernization Act (“FSMA”) through our comprehensive Food Safety Plans which include following Current Good Manufacturing Practices and control biological, chemical and physical hazards through our Process, Sanitation, Allergen and Supply Chain Preventative Controls; however, no assurance can be given that some nut or other food products sold by us may not contain or develop harmful substances. In order to mitigate this risk, we strive to select high-quality nut suppliers and currently maintain product liability and contaminated product insurance at amounts we believe are adequate in light of our operations.

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A portion of our annual capital expenditure budget is allocated for compliance with government-mandated food safety standards. Compliance with food safety standards and other government regulations may have an impact on our operations and earnings, particularly if we fail to satisfy such standards or regulations and our products are recalled, harm our consumers or harm our Company’s reputation and standing as a leader of branded and private brand nut products. See Part I, Item 1A — “Risk Factors”.

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Item 1A — Risk Factors

We face a number of significant risks and uncertainties, and therefore, an investment in our Common Stock is subject to risks and uncertainties. The factors described below could materially and adversely affect our business, results of operations and financial condition. While each risk is described separately, some of these risks are interrelated and it is possible that certain risks could trigger the applicability of other risks described below. Also, the risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or thatrisks we view as not rising to the level of being material, could also potentially impair our business, results of operations and financial condition. Investors should consider the following factors, in addition to the other information contained in this Annual Report onForm
10-K,
including Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” before deciding to purchase our Common Stock.

Industry Risks
We and our Customers, Suppliers and Transport Partners Face Various Risks Related to Epidemics, Pandemics and Similar Outbreaks of Infectious Diseases, Including
COVID-19,
which May Have a Material Adverse Effect on our Business, Financial Condition, Liquidity and Results of Operations
Since January 2020, the
COVID-19
pandemic has caused significant disruptions in both the U.S. and international economies, including in the geographic areas where our products are manufactured and sold, and the geographic areas from which our supply inputs are obtained. The potential impacts of
COVID-19
on our business in the future are numerous, uncertain and constantly changing, particularly as vaccines have been developed in response to
COVID-19
and more contagious strains of
COVID-19
have proliferated. While we saw increases in demand during the spring of 2020 for certain of our products related to consumer pantry stocking, these trends were temporary in nature. In addition, we have seen decreases in demand for certain of our other products, including our foodservice products and with certain of our commercial ingredient customers, and these trends may continue or worsen.
COVID-19
outbreaks, or similar disease outbreaks in the future, may decrease demand for our products or certain of our products (or within certain distribution channels) due to additional stay at home orders or more restrictions on public interactions that would limit the ability of consumers and other customers to purchase our products at retailers or other points of sale. For example, we saw decreases in foodservice and restaurant demand after March 2020 as a result of the
COVID-19
situation. Should
COVID-19
cause the imposition of stay at home orders, reductions in air travel or closures and/or consumers choose not to purchase from such foodservice providers and restaurants due to safety concerns, our commercial ingredients distribution channel could be (or continue to be) materially and adversely affected. In addition, should one or more of our significant customers file or be forced into bankruptcy or reorganization as a result of
COVID-19,
we may be unable to collect or fully collect any receivables owed to us and our business, financial condition and results of operations could be materially and adversely affected.
COVID-19
had a significant adverse impact on economic activity and the gross domestic product in the United States during parts of the 2020 calendar year and has caused economic dislocations and resulted in significant inflation during the 2021 calendar year. Should an economic downturn or recession last for multiple quarters or should inflation cause an increase in prices of our products or raw materials for our products, this may result in lower demand for our products or decreased margins and have a material adverse effect on our business and results of operations.
While our production facilities are essential businesses and continue to operate, there is no guarantee that our current production operations (or current or customary production levels) will continue for our 2022 fiscal year and beyond. Our facilities are located in several different states and are subject to different governmental rules and regulations. The forced shutdown of any of our facilities (or our voluntary shutdown of our facilities due to unexpected implications of the
COVID-19
situation) could result in (among other things) reduced or no production of our products or our inability to manufacture and package products, which could have a material adverse effect on our business, liquidity and results of operations.
While we continue to take precautions to ensure that our workforce can safely work from our facilities or remotely, we cannot guarantee that our workforce or the workforce of our customers, suppliers and transportation providers will not experience disruptions due to
COVID-19.
If a significant percentage of our workforce, or the workforce of our customers, suppliers or transportation providers, is unable to work because of illness or government restrictions related to
COVID-19,
our ability to manufacture, sell and transport our products could be materially impacted. In addition, if we have to incur (or further incur) additional or unexpected costs for the safety and protection of our employees or otherwise, materially increase compensation for certain employee groups, or incur costs related to work at home technology solutions, facilities cleaning or product transportation, such actions could materially affect our business, financial condition and results of operations.
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Although our suppliers are currently providing us with adequate amounts of raw materials and packaging necessary to meet recent increased demand or customary demand levels, there is no guarantee that such suppliers will continue to do so in the future on the same terms or at all. For example, we have observed certain countries instituting travel and activity restrictions which could have an impact on the size and number of certain nut crops and other raw materials. If we fail to obtain necessary raw materials and packaging, or the costs of raw materials or packaging materially increases in response to inflation, our business, financial condition and results of operations could be materially and adversely affected.
We Cannot Control the Availability or Cost of Raw Materials and this May Have a Material Adverse Effect on Our Results of Operations, Cash Flows and Financial Condition

The availability and cost of raw materials for the production of our products, including peanuts, pecans, almonds, cashews, walnuts, pine nuts and other nuts are subject to crop size and yield fluctuations caused by factors beyond our control, such ascontrol. These factors include adverse weather conditions, natural disasters (including floods, droughts, frosts, earthquakes and hurricanes), changing climate patterns, plant diseases, foreign currency fluctuations, trade agreements, tariffs and embargos, import/export controls, prices of other crops, labor shortages, inflationary conditions, political change and unrest, changes in global customer demand, pandemics and disease, changes in government agricultural programs, federal and state government mandates related to the preceding or otherwise and purchasing behavior of certain countries, including China and India. Additionally, any determination by the USDA or other government agencies that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop, negatively impact the environment or thatdo or may cause adverse health consequences, any portion of the crop has been contaminated by aflatoxin or other agents, or any future raw material or product recalls for other reasons could reduce the supply of edible nuts and other raw materials used in our products and could cause our costs to increase significantly.

Because these raw materials are commodities, their prices are set by the market and can therefore fluctuate quickly and dramatically due to varied events, such as those described above. Furthermore, we are not able to hedge against changes in nut commodity prices because no appropriate futures, derivative or other risk-sharing market for these commodities exists.exists and we cannot create such a market. Consequently, in order to achieve or maintain profitability levels, we attempt to increase the prices of our products to reflect the increase in the costs of the raw materials that we use and sell.use. However, we may not be successful in passing along partial or full price increases to our customers, if at all. In addition, even if we are successful in passing across partial or full price increases, we may not be able to do so in a timely fashion. Our ability to raise prices and the timing of any price increases is often dependent upon the actions of our competitors, some of whom are significantly larger and more diversified than we are or own farms which produce the raw materials. Additionally, any such product price increase that we are able to pass along to our customers may ultimately reduce the demand for, and sales of, our products as customers reduce purchases, or buy lower priced products or lower margin products. Alternatively, if the prices of any raw materials significantly decrease, and we have inventories of such materials on hand, we may be unable to reduce product prices without impacting our gross margin. Any competitors who purchase such material on the open market or own the farms which produce the raw materials may be able to reduce prices in a more timely manner, and we could lose market share to such competitors. Any one or more of the foregoing aspects may have a material adverse effect on our results of operations, cash flows and financial condition.

Moreover, fluctuations in the market prices of nuts may affect the value of our inventories and profitability. We maintain significant inventories of nuts, and our financial condition could be materially and adversely affected by any significant decrease in the market price of such raw materials. See Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

Significant Private Brand Competitive Activity Could Materially and Adversely Affect Our Financial Condition and Results of Operations

Some customer buying decisions, including some of our largest customers, are based upon a periodic bidding process in which the single, successful bidder is assured the selling of the selected product to the food retailer, supercenter or mass merchandiser until the next bidding process to the exclusion of other bidders. Our sales volume may decrease significantly if our bids are too high and we lose the ability to sell products through these channels, even temporarily. Alternatively, we risk reducing our margins if our bids are successful but below our desired price points. In addition, margins could be further reduced if commodity prices subsequently rise and customers are unwilling or unable to accept price increases. Should any of our significant customers elect to introduce or expand their private brand programs and we do not participate in such programs or the programs directly compete against our branded products, our sales volume could be negatively impacted. Any of these outcomes may materially and adversely affect our financial condition and results of operations.

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Our Inability to Manage Successfully the Price Gap Between our Private Brand Snack Nut Products and Those of our Branded Competitors May Materially and Adversely Affect Our Results of Operations

Although demand for private brand snack nut products (and our private brand snack nut products in particular) has increased, our competitors’ branded snack nut products have certain advantages over our private brand snack nut products primarily due to their advertising strategies, perceived product attributes, name recognition and pricing flexibility.

At the retail level, private brand snack nut products generally sell at a discount to those of branded competitors. If branded competitors reduce the price of their products, the price of branded snack nut products offered to consumers may approximate the prices of our private brand snack nut products. Further, promotional activities by branded competitors such as temporary price reductions,buy-one-get-one-free offerings and coupons, have the same general effect as price decreases. Price decreases initiated by branded competitors could result in a decline in the demand for our private brand snack nut products, which could negatively impact our sales volumes and overall profitability. Such sales volume and profitability decreases could materially and adversely affect our results of operations.

In addition, many of our competitors with significant branded operations have more diversified product offerings among a wider variety of food categories than we have. Such competitors could, as a result of their size or diversified offerings, be in a better position to decrease their prices or offer better promotions for their branded snack nut products. If competitors are able to exploit their size or diversification to make significant price reductions and offer better promotions, it could decrease our private brand snack nut sales, which could materially and adversely affect our results of operations.

Changing Consumer Preferences and Demand Could Materially and Adversely Affect Our Financial Condition and Results of Operations

Our financial performance depends in part on our ability to anticipate and offer products to our customers that appeal to their preferences. Consumer preferences, whether for branded products or private brand products or how consumers purchase such products, can quickly change based on a number of factors beyond our control. If we fail to anticipate, identify or react quickly to these changes and are unable to develop and market new and improved products to meet consumer preferences, demand for our products could suffer. In addition, demand for our products could be affected by consumer concerns regarding the health effects of nutrients or ingredients in any of our products. The development and introduction of new products requires substantial research and development, testing and marketing expenditures, which we may be unable to fully recover if the new products do not achieve the necessary commercial success. New product introduction also results in increased costs, including from the use of new manufacturing techniques, capital expenditures, new raw materials and ingredients, and additional marketing and trade spending. Consumers are also purchasing food products outside traditional retail supermarkets, including via the Internet. If we are unable to provide our customers with our products outside traditional retail supermarkets, demand for our products could suffer. Reduction in demand as a result of changing consumer preferences or inability to provide consumers with products they demand could materially and adversely affect our financial condition and results of operations.

Negative Consumer Perception About Our Branded Products Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations

Our ability to develop, maintain and continually enhance the value of our branded products is critical to improving our operating and financial performance and implementing our Strategic Plan. The value of our branded products is based in large part on the degree to which consumers react and respond positively to these brands. Our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible or reckless manner, adverse publicity about our products (whether actual or fictitious), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, concerns about food safety or allergies, or our products becoming unavailable to consumers.

In addition, our success in enhancing the value of branded products depends on our ability to adapt to a rapidly changing media environment. We increasingly rely on social media and online advertising campaigns as well as advertising outside of traditional print and television channels. Negative posts or comments (whether actual or fictitious) about us or the type of products we produce, market or sell on online social networks, product review sites or similar online activity could seriously impact consumer demand for our products. We are subject to a variety of legal and regulatory restrictions on how we market and advertise our products. These restrictions may limit our ability to respond as the media and communications environment continues to evolve. If we do not react appropriately, then our product sales, financial condition and results of operations could be materially and adversely affected.

We Sometimes Enter Into Fixed Price Commitments without First Knowing Our Acquisition Costs, Which Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations

We enter into fixed price commitments with a portion of our commercial ingredient sales customers and certain other customers. The commitments are for a fixed period of time, typically three months to twelve months, but may be extended if remaining balances exist. Such commitments with a term of six months or more represented approximately 9% of our annual net sales in fiscal 2017. Sometimes we enter into fixed price commitments with respect to certain of our nut products before fixing our acquisition costs in order to maintain customer relationships or when, in management’s judgment, market or crop harvest conditions so warrant. To the extent we do so and our fixed prices are not properly aligned with our acquisition costs, then these fixed price commitments may result in reduced or negative gross profit margins which could have a material adverse effect on our financial condition and results of operations.

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Our Generally Vertically Integrated Model Could Materially and Adversely Affect Our Results of Operations

We have a generally vertically integrated nut processing operation that enables us to control almost every step of the process for pecans, peanuts and walnuts, including procurement from growers. Our generally vertically integrated model has in the past resulted, and may in the future result, in significant losses because we are subject to the various risks associated with purchasing a majority of our pecans, peanuts and walnuts directly from growers, including the risk of purchasing such products from growers at costs that later, due to altered market conditions, prove to be above prevailing market prices at time of sale. Accordingly, because we purchase a majority of our pecans, peanuts and walnuts directly from growers during harvest season and shell and process these nuts throughout our fiscal year, there is a possibility that, after we acquire these nuts, market conditions may change andchange. Depending on these changing market conditions, we willmay be forced to sell these nuts at reduced prices relative to our acquisition costs,cost. Any one or even atmore of the foregoing aspects may have a loss which could materially and adversely affectmaterial adverse effect on our results of operations, cash flows and financial condition.

Moreover, fluctuations in the market prices of nuts may affect the value of our inventories, margins and profitability. We enter into fixed price commitments with a portion of our commercial ingredient customers and certain other customers. The commitments are for a fixed period of time, typically three months to twelve months. Such commitments with a term of six months or more represented approximately 3% of our annual net sales in fiscal 2021. Sometimes we enter into fixed price commitments with respect to certain of our nut products before fixing our acquisition costs in order to maintain customer relationships or when, in management’s judgment, market or crop harvest conditions so warrant. To the extent we do so and our fixed prices are not properly aligned with our acquisition costs, these fixed price commitments may result in reduced or negative gross profit margins, which could have a material adverse effect on our financial condition and results of operations.

We Operate in a Competitive Environment Which Could Materially and Adversely Affect our Financial Condition and Results of Operations

We operate in a highly competitive environment. The principal areas of competition are, among others, brand recognition, taste, flavor, quality, packaging, price, nutrition, advertising, promotion, convenience and service. Our principal products compete against food and snack products manufactured and sold by numerous regional, national and international companies, some of which are substantially larger and have greater resources than us, such as The Kraft Heinz CompanyHormel Foods Corp. (Planters brand) and Treehouse Foods, Inc.. Most of our competitors that sell
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and market the other top branded snack nut products have committed more financial, marketing and other resources to such brands when compared to the resources available to or spent by us on our brands. Additionally, many retail customersfood retailers, supercenters, mass merchandisers and internet retailers have continued to emphasize their own private label offerings as a key part of their strategy and may develop or expand their own private label nut and nut product offerings, to the exclusion of our branded products. Several other smaller competitors may be able to focus on faster-growing, niche markets that we are unable to market effectively to or otherwise sell to due to our size, operations, marketing strategy or perceptions regarding our Company. Additionally, certain food retailers are internet retailers may seek to invest in companies serving certain niche markets and/or offer shelf space, added promotional activity or other marketing efforts in exchange for ownership in such companies, which we are unable to offer to such food retailers or internet companies. Recent consolidation and mergers and acquisitions activity in the nut and snack food market has resulted in price competition as part of such consolidation or mergers and acquisitions activity. Many of our competitors buy their nuts on the open market and are thus not exposed to the risks of purchasing inshell pecans, peanuts, walnuts and walnutsother nut types directly from growers at fixed prices that later, due to altered market conditions, may prove to be above prevailing market prices. We also compete with other shellers in the commercial ingredient market and with regional processors in the retail and wholesale markets. In order to maintain or increase our market share, we must continue to price our products competitively and spend on marketing, advertising, new product innovation and shelf placement and slotting fees, which may cause a decline in gross profit margin if we are unable to increase sales volume as well as reduce our costs, which could materially and adversely affect our financial condition and results of operations.

We

Significant Private Brand Competitive Activity Could Materially and Adversely Affect Our Sales and as a Result Our Financial Condition and Results of Operations
Some customer buying decisions, including some of our largest private brand customers, are Dependent Upon Certain Significant Customers Whichbased upon a periodic bidding process in which a single, successful bidder is assured the right to sell the selected product or products to the food retailer, supercenter, mass merchandiser or internet retailer until the next bidding process to the exclusion of other bidders. Our sales volume may decrease significantly if our bids are too high and we lose the ability to sell products through these channels, even temporarily. Alternatively, we risk reducing our margins if our bids are successful, but below our desired price points. In addition, our margins could be further reduced if commodity prices subsequently rise and customers are unwilling or unable to accept price increases. The nut and snack food industry has experienced consolidation and significant mergers and acquisitions activity in recent years. If certain of our competitors elect to reduce prices in order to increase sales or market share, our market share could decrease and this could adversely affect our financial condition and results of operations.
Many food retailers, supercenters, mass merchandisers and internet retailers have sought to develop or expand their private brand offerings in recent years. Should any of our significant customers elect to introduce or expand their private brand programs, and we do not participate in such programs, the programs directly compete against our branded products or exclude our private brand or branded products due to shelf space or other concerns, our sales volume and margins could be negatively impacted. Any of these outcomes may materially and adversely affect our financial condition and results of operations.
Changing Consumer Preferences and Demand Could Materially and Adversely Affect Our Financial Condition Cash Flows and Results of Operations

We are dependent

Our financial performance depends in part on our ability to anticipate and offer products to our customers that appeal to their preferences. Consumer preferences, whether for branded products or private brand products, or how consumers purchase such products and the format, quantity or volume sizes of such products, can quickly change based on a few significant customersnumber of factors beyond our control. If we fail to anticipate, identify or react quickly to these changes and are unable to develop and market new and improved products or otherwise offer products that meet consumer preferences, demand for a large portionour products could suffer. In addition, demand for our products could be affected by consumer concerns regarding the labeling, packaging, manner of preparing our products or concerns with respect to the health effects of nutrients or ingredients in any of our total net sales, particularly inproducts or the consumer channel. Sales to our five largest customers represented approximately 60%, 62% and 61%overall sustainability or impact of net sales in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. There can be no assurance that all significant customers will continue to purchase our products in the same quantities, same product mix or on the same termsenvironment. The development and introduction of new products and packaging or alteration of existing products and packaging requires substantial research and development, testing and marketing expenditures, which we may be unable to recover fully if the new products do not achieve the necessary commercial success. New product introduction also results in increased costs, including from the use of new manufacturing techniques, capital expenditures, new raw materials and ingredients, additional labor and consulting expenses, revision of packaging and labeling and additional marketing and trade spending. Consumers are also purchasing food products outside traditional retail supermarkets, including via the Internet. If we are unable to provide our customers with our products outside traditional retail supermarkets, supercenters and club stores, demand for our products could suffer and/or we will be unable to grow our business. Reduction in demand as in the past, particularly as increasingly powerful retailers may demand lower pricing, different packaging, larger marketing support, payments for retail space, establish private brandsa result of changing consumer preferences or request other terms of sale which negatively impact our profitability. A loss of one of our largest customers, a material decrease in purchases by one of our largest customers, the inability to collect a receivable from or a significant business interruption at one of our largest customers would result in decreased sales and wouldprovide consumers with products they demand could materially and adversely affect our results of operations, financial condition and cash flows.

results of operations.

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We are Subject to Customer Pricing Pressures and Retail Consolidation Trends Which Could Materially and Adversely Affect Our Financial Condition and Results of Operations

As the retail grocery trade continues to consolidate and our retail customers grow larger, become more sophisticated, use data for purchasing decisions and obtain more purchasing power, our retail customers are demanding lower pricing, especially private brand customers, and increased free or discounted promotional programs. Further, these retail customers may begin to place a greater emphasis on the lowest-cost supplier in making purchasing decisions, especially during periods of increased or variable raw material acquisition costs. An increased focus on the lowest-cost supplier could reduce the benefits of some of our competitive advantages, which include a focus on customer service, innovation, production capacity, category management and quality. As the retail environment consolidates, many customers are reducing inventories or focusing on a limited number of brands (often the number one or number two brand by market share) or a limited number of products or SKUs in making purchasing decisions. In addition, certain customers in the retail channel, such as dollar stores and other discount sellers, have become increasingly sophisticated and may demand similar pricing to retail grocery customers. As part of the retail consolidation trend, diversified companies with substantial Internet presences have increased their food offerings or purchased retail supermarkets to expand their grocery business, particularly as such companies focus on food delivery direct to consumers. Such companies have substantial pricing power and may focus on their products to the exclusion of our products. If we fail to respond to these trends, our sales volume growth could suffer, and it may become necessary to lower our prices and increase promotional support of our products, any of which would materially and adversely affect our gross profit and gross profit margin and could materially and adversely affect our financial condition and results of operations.

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Food Safety, Allergy and Product Contamination Concerns Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations

If consumers in our principal markets lose confidence in the health or safety of nut products, particularly with respect to peanut and tree nut allergies, food borne illnesses, processes, ingredients and packaging used in the manufacturing process or other food safety matters, this could materially and adversely affect our financial condition and results of operations. Individuals with nut allergies may be at risk of serious illness or death resulting from the consumption of our nut products, including consumption of other companies’the products of our customers containing our products as an ingredient. Notwithstanding our existing food safety controls, we process peanuts and tree nuts on the same equipment, and there is no guarantee that our other products will not be cross-contaminated. Concerns generated by risks of peanut and tree nut cross-contamination and other food safety matters, including food borne illnesses, may discourage consumers from buying our products, cause production and delivery disruptions or result in product recalls. Product safety issues (i) concerning products not manufactured, distributed or sold by us and (ii) concerning products we manufacture, distribute and sell may materially and adversely affect demand for products in the nut industry as a whole, including products without actual safety problems. Decreases in demand for products in the industry generally could have a material adverse effect on our financial condition and results of operations. In addition, the cooling system at our Elgin, Illinois facility utilizes ammonia. If a leak in the system were to occur, there is a possibility that the inventory in cold storage at our Elgin, Illinois facility could be destroyed which could have a material adverse effect on our financial condition and results of operations.

The Risk Assessment Conducted by the U.S. Food and Drug Administration on the Risks of Tree Nuts May Have a Material Adverse Effect on Our Financial Condition, Results of Operations and Cash Flows

The U.S. Food and Drug Administration (“FDA”) is assessing the risks of Salmonella contamination associated with tree nuts. This assessment, which includes randomly sampling tree nuts in the marketplace, has resulted in product recalls in the nut industry. The results and impact of this risk assessment and recalls based on sampling could also lead to increased industry-specific regulation and/or additional risk-based preventive controls which may result in increased compliance costs, capital expenditures to meetFDA-imposed requirements and reputation risks to our branded and private brand products. Recalls or significant expenditures to satisfy FDA requirements could have a material adverse effect on our financial condition, results of operations and cash flows.

Product Liability, Product Recalls, Product Labeling and Product Advertising Claims May Have a Material Adverse Effect on Our Results of Operations and Cash Flows

We face risks associated with product liability claims, product recalls and other liabilities in the event: (i) our food safety and quality control procedures are ineffective or fail, (ii) we procure products or packaging from third parties that are or become subject to a recall, regardless of whether or not our food safety and quality control procedures are ineffective or fail, (iii) our products or packaging cause injury or become adulterated or misbranded, (iv) our products are determined to be promoted or labeled in a misleading fashion or do not contain required labeling or notices, (v) government authorities test our products and determine that they contain a contaminant or present a food safety risk, (vi) our products are tampered with, or (vii) one of our competitors is subject to claims, recalls or other liabilities involving products similar to ours.ours or (viii) federal, state or other government agencies or courts determine that our products could pose health risks or contain potentially harmful chemicals or other substances. In recent years, the food industry has been a target of litigation over product labeling and advertising, including nut products. Such litigation results in significant costs to defend and resolve. In addition, we do not control the labeling of other companies’the products containingof our customers that contain our products as an ingredient. A product recall of a sufficient quantity or significant adverse publicity,, a significant product liability judgment against us, a significant advertising-related liability or judgment against us or other safety concerns (whether actual or claimed) could cause our products to be unavailable for a period of time, could require us to
re-label
or
re-package
products, could result in a loss of consumer confidence in our products and expose us to liabilities in excess of any insurance we maintain for such events.events, including to our private label customers. As customers request revised and more sophisticated packaging, our packaging solutions may result in manufacturing defects or errors in the manufacture of suck packaging, which could cause us to recall the products despite having proper food safety protocols. If these kinds of events were to occur, they would have a material adverse effect on the demand for our products, subject us to costly recalls or withdrawals, require us to spend significant amounts to change our operations to remedy such issues, and, consequently, our results of operations and cash flows.

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Increased Production, Transportation and Insurance Costs Could Materially and Adversely Affect Our Financial Condition and Results of Operations
Our results are dependent on controlling a variety of costs. Beginning with the summer of 2020, we have experienced variability in transportation costs due to additional demand in shipping by a variety of market participants, a general shortage of drivers, partially due to health and safety concerns, increased fuel costs and federal regulations, which require increased monitoring of driving time using electronic monitoring technology. In addition to transportation costs, we have at times experienced increased commodity or raw material costs, increased packaging material prices, higher general water, energy and fuel costs, increased labor costs and increased insurance costs, such as for property insurance and directors’ and officers’ insurance. Maintaining the prices of our products, initiating price increases (including passing along price increases for commodities used in our products) and increasing the demand for our products (especially when prices for our products are decreasing due to commodity price decreases), all of which are important to our plans to increase profitability, may be materially and adversely affected or undermined by such increases in production and operation costs. Material and sustained increases in any of the foregoing costs could materially and adversely affect our financial condition and results of operations.
Technology Disruptions, Failures or Breaches, Hacking Activity, Ransomware Attacks or Other Cybersecurity Events Could Materially and Adversely Affect Our Financial Condition and Results of Operations
We depend on information technology to maintain and streamline our operations, including, among other things, (i) interfacing and communicating with our locations, customers and suppliers, (ii) complying with financial reporting, legal and tax regulatory requirements, (iii) maintaining logistics, inventory control and monitoring systems, (iv) providing us with real-time feedback about our business and (v) allowing continuity of operations when a significant number of our employees are working remotely. Like other companies, our information technology systems or information technology systems of our customers, vendors, counterparties and providers may be vulnerable to a variety of interruptions due to events beyond our control, including natural disasters, terrorist attacks, government-sponsored or affiliated cyber attacks, telecommunications failures, outages during replacement or upgrades, computer viruses, phishing activity, hardware failures, cloud-based technology outages, power outages, hackers, social engineering attacks, loss or theft of hardware, ransomware attacks, cyber risks and other security issues. We have technology security initiatives, cyber insurance and disaster recovery plans in place to mitigate our risk to these vulnerabilities, but these measures may not be adequate, particularly as the global dependence on technology and the sophistication of cyber threats increase and more of our employees are working remotely. In addition, if we are unable to prevent security breaches or disclosure of
non-public
information, we may suffer financial and reputational damage, litigation or remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our customers, consumers, or suppliers. If we were subject to a ransomware attack, we may be required to pay ransom in amounts that could be material to our financial condition.
In addition, we have outsourced several information technology support services and administrative functions to third-party service providers and may outsource other functions in the future to achieve cost savings and efficiencies. If the service providers to which we outsource these functions do not perform effectively, we may not be able to achieve the expected cost savings and may have to incur additional costs to correct errors made by such service providers. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, the loss of sensitive data through security breach, or otherwise. While we or any third party service provider have not experienced any significant disruption, failure or breach impacting our information technology systems, any such disruption, failure or breach could adversely affect our financial condition and results of operations.
Increases in Labor Costs or Work Stoppages or Strikes Could Materially and Adversely Affect Our Financial Condition and Results of Operations
As the number of our employees has grown, personnel costs, including the costs of medical and other employee health and welfare benefits, have increased. These costs can vary substantially as a result of an increase in the number, mix and experience of our employees and changes in health care and other employment-related laws. There are no assurances that we will succeed in reducing future increases in such costs, particularly if government regulations require us to change our health and welfare benefits, government regulations impose additional monitoring and compliance expenses, or we need to attract and retain additional qualified personnel or provide extra compensation due to the impact of
COVID-19
or any other pandemic or due to other reasons. Increases in personnel costs can also be amplified by low unemployment rates, preferences among workers in the labor market and general tight labor market conditions in any of the areas where we operate. Our inability to control such costs could materially and adversely affect our financial condition and results of operations.
Although we consider our labor relations to be good, if a significant number of our employees engaged in a work slowdown, or other type of labor unrest, it could in some cases impair our ability to supply our products to customers, which could result in reduced sales, and may distract our management from focusing on our business and strategic priorities. Any of these activities could materially and adversely affect our financial condition and results of operations.
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The Impact of Changing Climate Patterns Could Materially and Adversely Affect Our Financial Condition and Results of Operation
We have recently observed a number of changing climate patterns in the U.S. and internationally. These changing climate patterns have caused weather patterns to change, and we have experienced severe droughts, floods, frosts, hurricanes, tornadoes, cold and warmer temperatures and other previously-abnormal natural events. These weather events could impact the ability of our growers and producers to consistently provide us with the quality and quantity of nut and nut related products, and in turn cause the prices of certain nuts and raw materials to increase or change in unpredictable ways. Any long-term changes in climate patterns could prevent growers from harvesting nuts in previous quantities, or at all, as many nut products require particular soil, water and climate conditions in order to grow or have acceptable yields. Because we (and our growers) cannot predict, change or insure against changing climate patterns, our ability to react to these changes is limited. If we and our growers and producers cannot adapt to changing climate patterns, our financial condition and results of operations could be materially and adversely affected.
Business Risks
Negative Consumer Perception About Our Company, Our Values and Practices or our Branded or Private Bland Products Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations
Our ability to develop, maintain and continually enhance the value of our Company and our branded products is critical to improving our operating and financial performance and implementing our Strategic Plan. The value of our Company and our branded products is based in large part on the degree to which consumers react and respond positively to our operations and our brands. Positive views of our Company and our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible or reckless manner, negative perception about the actions or values of our Company, adverse publicity about our products and Company operations (whether actual or fictitious), product recalls or failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, concerns about food safety or allergies, or our products becoming unavailable to consumers, concerns about the sustainability of our operations and products or the actual impact or perceptions about the impact that our operations or products have on the environment. Customer, vendor and stockholder views on our sustainability and environmental practices and values of our Company can change quickly due to events beyond our control and we may not be able to effectively change our practices or communicate our practices and values to avoid negative perceptions.
In addition, our success in enhancing the value of our Company and our branded products depends on our ability to adapt to a rapidly changing media environment. We increasingly rely on social media and online advertising campaigns as well as advertising outside of traditional print and television channels. Negative posts or comments (whether actual or fictitious) about us or the type of products we produce, market or sell on online social networks, product review sites, message boards or similar online activity could seriously impact consumer demand for our products. We are subject to a variety of legal and regulatory restrictions on how we market and advertise our products. These restrictions may limit our ability to respond as the media and communications environment continues to evolve. If we do not react appropriately or effectively, then our product sales, financial condition and results of operations could be materially and adversely affected.
We are Dependent Upon Certain Significant Customers Which Could Materially and Adversely Affect Our Financial Condition, Cash Flows and Results of Operations
We are dependent on a few significant customers for a large portion of our total net sales, particularly in the consumer channel. Sales to our five largest customers represented approximately 61%, 60% and 59% of net sales in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. There can be no assurance that all significant customers will continue to purchase our branded or private brand products in the same quantities, same product mix or on the same terms as in the past, particularly as increasingly powerful retailers demand lower pricing, different packaging, larger marketing support, payments for retail space, establish private brands or request other terms of sale which negatively impact our profitability or sales. Many of our largest customers emphasize sales at physical locations and a significant shift to Internet sales may impact the amount and types of products they purchase from us. A loss of one of our largest customers, a material decrease in purchases by one of our largest customers, the inability to collect a receivable from or a significant business interruption at one of our largest customers would result in decreased sales and would materially and adversely affect our results of operations, financial condition and cash flows.
We are Dependent on Certain Key Personnel and the Loss of Any of Their Services or Our Inability to Attract, Retain and Motivate a Qualified and Diverse Workforce Could Have a Material Adverse Effect on Our Results of Operations

Our future success will be largely dependent on the personal efforts of our senior operating management team, including Jeffrey T. Sanfilippo, Chief Executive Officer, Michael J. Valentine, Chief Financial Officer, Group President and Secretary, James A. Valentine, Chief Information Officer and Jasper B. Sanfilippo, Jr., Chief Operating Officer, President and Assistant Secretary.team. We believe that the expertise and knowledge of these individualskey members of management in the industry, and in their respective fields, is a critical factor to our growth and success. Although some of our officers own significant amounts of our Class A Stock, these individuals have not entered into any employment or
non-compete agreement
agreements with us, nor do we have key officer insurance coverage policies in effect. The
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departure of any of these individuals or their inability to perform their duties due to illness, disability, injury or other similar events could have a material adverse effect on our business and prospects and that in turn would have a material adverse effect on our results of operations. Our success is also dependent upon our ability to attract, retain and retain additionalmotivate a qualified personnel,and diverse workforce, and there can be no assurance that we will be able to do so.

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so, particularly during times of increased labor costs or labor shortages.

Our Products are Processed at a Limited Number of Production Facilities and any Significant Disruption at any of Our Production Facilities or Disruption with a Third Party Supplier Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations
Our products are shelled, manufactured or otherwise processed at our various production facilities. However, certain nut and
nut-related
products, including the shelling of peanuts, walnuts and pecans and processing and packaging of certain other products, are conducted only at a single location. If any of these production facilities experiences a disruption for any reason, including a work stoppage, power failure, fire, pandemic, terrorism, cyberattack, labor event or weather related condition or natural disaster, this could result in a significant reduction or elimination of the availability of some of our products. In addition, a dispute with, or disruption at, a significant third party supplier, service provider or distributor may impact our ability to produce, package, market, transport and sell our products. If we were not able to obtain alternate production, shelling or processing capability in a timely manner or on satisfactory terms, this could have a material adverse effect on our financial condition and results of operations.
Unsuccessful Implementation of Our Strategic Plan Could Materially and Adversely Affect Our Financial Condition and Results of Operations
We developed a strategic plan (the “Strategic Plan”), to help us achieve long-term profitable growth. As part of this Strategic Plan, we have taken a number of actions including, among other things, promotion of our branded recipe and snack nut products, expanding distribution in traditional retail channels and alternative channels and other strategies related to increasing sales of
non-branded
business at existing key customers. In addition to these actions, we intend to improve our research and development and marketing capabilities to improve the quality, innovation, manufacture and sales of our products. We have launched, and will launch in the future, projects to improve our branded and private brand product portfolio, which may require significant capital expenditures, consulting and employee costs, research and development expenses and related product manufacturing expenses. We are taking these actions in order to increase sales in all of our distribution channels and in particular our consumer distribution channel. There are no assurances that we will be successful in achieving any portion of our Strategic Plan, including the development of any aspect of our branded or private brand business, or any other efficiency measures.
In addition, we have in the past, as part of our Strategic Plan, engaged in strategic acquisitions and joint ventures including the acquisition of Squirrel Brand, L.P. in November 2017 (the “Acquisition”). As part of our Strategic Plan, we have and intend to make investments in and enter into strategic relationships with growth-stage companies to take advantage of our manufacturing and supply chain expertise. However, we may be unsuccessful in managing completed acquisitions, joint ventures, or investments; identifying additional acquisitions or joint ventures, or negotiating favorable financial or other terms with third parties which are attractive or advantageous to grow or otherwise supplement our existing business. In addition, the identification, negotiation and completion of any acquisition, joint venture, or investment may divert management’s attention from ordinary business matters, require a number of
one-time
or ongoing advisory costs, result in the loss of employees or customers of our business or the acquired business, involve the assumption of unknown and potentially significant liabilities or result in impairment charges if the assumptions underlying the purchase are not satisfied. Due to various uncertainties inherent in such activities, we may be unable to achieve a substantial portion of any anticipated benefits or cost savings from previous acquisitions, joint ventures, or investments or other anticipated benefits in the timeframe we anticipate, or at all.
Any inability to realize the anticipated benefits from the Strategic Plan could materially and adversely affect our financial condition and results of operations.
Regulatory and Legal Risks
We are Subject to Government Regulation Which Could Materially and Adversely Affect Our Results of Operations

We are subject to extensive regulation by the FDA, the USDA, the United States Environmental Protection Agency (“EPA”) and other state, local and foreign authorities in jurisdictions where our products are manufactured, processed or sold. We are also subject to California’s Proposition 65, which requires that clear and reasonable warnings be given to consumers who are exposed to certain chemicals deemed by the state of California to be dangerous. Among other things, these regulations govern the manufacturing, importation, processing, packaging, storage, distribution, advertising and labeling of our products. Our manufacturing and processing facilities and products are subject to periodic compliance inspections by federal, state, local and foreign authorities. We are also subject to environmental regulations governing the discharge of air emissions, water and food waste, the usage and storage of
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pesticides, and the generation, handling, storage, transportation, treatment and disposal of waste materials. Amendments to existing statutes and regulations, adoption of new statutes and regulations, increased production at our existing facilities as well as our expansion into new operations and jurisdictions may require us to obtain additional licenses and permits and could require us to adapt or alter methods of operations at costs that could be substantial. Due to changing climate patterns and concerns over the environmental impact or sustainability of our products, we may be subject to additional governmental regulations focused on how we produce or source raw materials for our products. Compliance with applicable laws and regulations may be time-consuming, expensive or costly to us in different ways and could materially and adversely affect our results of operations. Failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as possible criminal sanctions, or other litigation and claims, which could materially and adversely affect our results of operations.

Specifically
,
governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives and import and export restrictions on agricultural commodities and commodity products, can influence the planting, location and size of certain crops, whether commodity products are traded, the volume and types of imports and exports, and the viability and volume of production of certain of our products. In addition, international trade disputes can adversely affect commodity trade flows by limiting or disrupting trade between countries or regions. Future government policies may adversely affect the supply of, demand for, and prices of our products, restrict our ability to do business in its existing and target markets, and negatively impact our revenues and operating results.

The Food Safety Modernization Act (“FSMA”)FSMA gives the FDA expanded authorities over the safety of the national food supply, including increased inspections and mandatory recalls, as well as stricter enforcement actions, each of which could result in additional compliance costs and civil remedies, including fines, injunctions, withdrawals, recalls or seizures and confiscations. The FSMA further instructed the FDA to develop new rules and regulations, including the performance of hazard analyses, implementation of preventive plans to control hazards, and foreign supplier verification provisions. We currently have “hazard analysis and critical control points” (“HACCP”) procedures in place that may appropriately address many of the existing or future concerns as a result of FSMA; however, the new FDA rules and regulations will likely require us to change certain of our operational processes and procedures, and implement new ones, and there could also be unforeseen issues, requirements and costs that arise from these new FDA rules and regulations.FSMA. HACCP is a management system in which food safety is addressed through the analysis and control of hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product.

We are a publicly traded company and subject to changing rules and regulations of federal and state governments as well as other regulatory entities. These entities, including the Public Company Accounting Oversight Board, the SEC, the Department of Justice and the Nasdaq Global Select Market, have issued a significant number of new and increasingly complex requirements and regulations over the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. Failure to comply with any law or regulation could subject us to civil or criminal remedies, including fines and injunctions, which could materially and adversely affect our results of operations.

Operational, Legal, Economic, Political and Social Risks of Doing Business in Emerging Markets and Other Foreign Countries May Have a Material Adverse Effect on Our Results of Operations

Approximately 41%34% of the dollar value of our total nut purchases for fiscal 20172021 were made from foreign countries. We purchase our cashews from Vietnam India, Brazil and certain West African countries and some of our pecans from Mexico. To this extent, we are exposed to various risks inherent in emerging markets, including increased governmental ownership and regulation of the economy, greater likelihood of inflation and adverse economic conditions, governmental attempts to control inflation, such as setting interest rates and maintaining wage and price controls, supply reduction into the United States from increased demand in foreign countries, international competition, compliance with, and subjection to, foreign laws, including our ability to protect our intellectual property, such as our brands, compliance with U.S. laws and regulations related to conduct in foreign countries, such as the Foreign Corrupt Practices Act, currency exchange rates, potential for contractual defaults or forced renegotiations on purchase contracts with limited legal recourse, foreign countries’ response to the
COVID-19
pandemic, tariffs, quotas, duties, import and export restrictions and other barriers to trade that may reduce our profitability or sales and civil unrest, armed hostilities and significant political instability.

The existence of risks in emerging markets and other foreign countries could jeopardize or limit our ability to purchase sufficient supplies of cashews, pecans and other imported raw materials and limit our ability to make international sales, and may materially and adversely affect our results of operations by increasing the costs of doing business overseas.

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Litigation Could Materially and Adversely Affect Our Financial Condition and Results of Operations
We have been the subject of litigation and investigations in the past, and we may become the subject of litigation and investigations in the future, which may include lawsuits or claims related to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, wage and hour matters, environmental matters, debt obligations or other aspects of our business. Plaintiffs or regulatory bodies could seek recovery of very large or indeterminate amounts, and the magnitude
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of the potential loss relating to lawsuits and investigations is difficult to estimate accurately. Additionally, many of our customer contracts require us to indemnify and assume the defense of any third party claim against the customer, increasing the risk of litigation related to our operations. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, such litigation and investigations may be expensive to defend and may divert time, money and management attention away from our operations and negatively impact our financial performance. We maintain insurance in amounts we believe to be adequate based on our business operations. However, we may incur claims or liabilities for which we are not insured, that exceed the amount of our insurance coverage or that our insurers may raise various objections and exceptions to coverage. A judgment or settlement for significant monetary damages or requiring other significant changes to our business or assets could materially and adversely affect our financial condition and results of operations. Any adverse publicity resulting from allegations or investigations may also adversely affect our reputation and the reputation of our products, which in turn could materially and adversely affect our financial condition and results of operations or result in serious and adverse operational consequences.
Inability to Protect Our Intellectual Property or Avoid Intellectual Property Disputes Could Materially and Adversely Affect Our Financial Condition and Results of Operations
We consider our intellectual property rights, particularly and most notably our brand trademarks (such as our
Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts
and
Sunshine Country
trademarks), but also our patents, trade secrets,
know-how
copyrights and licensing agreements, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, service mark, trademark, copyright and trade secret laws, as well as licensing agreements, third party nondisclosure and assignment agreements and policing of third party misuses of our intellectual property both domestically and internationally. Our failure to obtain or adequately protect our trademarks, products, new features of our products, or our trade secrets and technology, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially and adversely affect our financial condition and results of operations.
In addition, we may be unaware of intellectual property rights of others that may cover some of our technology, brands or products. Any disputes regarding patents or other intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Third party claims of intellectual property infringement might also require us to enter into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain products if found to be liable for infringing activity. Any such activities could materially and adversely affect our financial condition and results of operations.
Financial Risks
Certain of Our Stockholders Possess a Majority of Aggregate Voting Power in the Company and Members of The Sanfilippo Group Have Pledged a Substantial Amount of their Class A Stock, Which May Make a Takeover or Change in Control More or Less Difficult and Could Materially and Adversely Affect Our Financial Condition and Results of Operations
As of August 18, 2021, Jeffrey T. Sanfilippo, Jasper B. Sanfilippo, Jr., Lisa A. Sanfilippo, John E. Sanfilippo and James J. Sanfilippo (the “Sanfilippo Group”) own or control Common Stock (one vote per share) and Class A Stock (ten votes per share on all matters other than the election of Common Stock directors) representing approximately a 50.8% voting interest in the Company. As of August 18, 2021, Michael J. Valentine (the “Valentine Group”) owns or controls Common Stock (one vote per share) and Class A Stock (ten votes per share on all matters other than the election of Common Stock directors) representing approximately a 23.9% voting interest in the Company. In addition, the Sanfilippo Group and the Valentine Group as holders of the Class A Stock are entitled to elect seven Class A Directors, which represents 70% of our entire Board of Directors. As a result, the Sanfilippo Group and the Valentine Group together are able to direct the election of a majority of the members to the Board of Directors. In addition, the Sanfilippo Group is able to exert certain influence on our business, or take certain actions, that cannot be counteracted by another stockholder or group of stockholders. The Sanfilippo Group is able to determine the outcome of nearly all matters submitted to a vote of our stockholders, including any amendments to our certificate of incorporation or bylaws. The Sanfilippo Group has the power to prevent or cause dividends, or a change in control or sale of the Company, which may or may not be in the best interests of other stockholders, and can take other actions that may be less favorable to other stockholders and more favorable to the Sanfilippo Group, subject to applicable legal limitations, which could materially and adversely affect our financial condition, results of operations and cash flows.
In addition, several members of the Sanfilippo Group that beneficially own a significant interest in our Company have pledged a substantial portion of the Company’s Class A Stock that they own to secure loans made to them by financial institutions, although most of such pledges are by trusts rather than individual directors or officers. If a stockholder defaults on any of its obligations under these pledge agreements or the related loan documents, these banks may have the right to sell the pledged shares. Such a sale could cause our Company’s stock price to decline. Many of the occurrences that could result in a foreclosure of the pledged shares are out of
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our control and are unrelated to our operations. Because these shares are pledged to secure loans, the occurrence of an event of default could result in a sale of pledged shares that could cause a change of control of our Company, even when such a change may not be in the best interests of our stockholders, and it could also result in a default under certain material contracts to which we are a party, including an event of default under the Credit Agreement by and among the Company, Wells Fargo Capital Finance (f/k/a Wells Fargo Foothill, LLC), as the arranger and administrative agent and a syndicate of lenders, dated February 7, 2008 and subsequently amended and restated in March 2020 (as amended and restated, the “Credit Facility”), which could materially and adversely affect our financial condition, results of operations and cash flows.
We Cannot Guarantee the Timing, Amount or Payment of Dividends
Although the Board of Directors has adopted a dividend policy under which the Company intends to pay a regular annual cash dividend on its Common Stock and Class A Stock, whether any such subsequent dividend (or any special dividend) is declared and the timing and amount thereof is subject to the discretion of the Board of Directors. Decisions of the Board of Directors in respect of dividends will be based on a variety of factors, including the cash flows, earnings and financial position of the Company as well as the borrowing availability and other restrictions under our Credit Facility. The Board of Directors is not required to declare dividends and the number and amount of dividends is restricted under our Credit Facility and could be restricted under future financing or other arrangements. The Board of Directors will also regularly review and may modify or terminate our dividend policy. Accordingly, we cannot provide any assurances that our Company will pay annual or special cash dividends in the future, and if so, the amount or timing thereof. Any reduction in or elimination of our dividend policy or dividend payments could have a negative effect on the price of our Common Stock.
Impairment in the Carrying Value of Goodwill or Other Intangibles Could Result in the Incurrence of Impairment Charges and Negatively Impact our Financial Condition
At June 24, 2021, we had goodwill of $9.6 million and other intangible assets of $10.0 million, net. The net carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date (or subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of customer relationships, brand names, and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net of accumulated amortization. Goodwill is not amortized but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated for impairment whenever events or changes in circumstance indicate that the carrying amounts of these assets may not be recoverable. Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, lower than expected revenue and profit growth rates, changes in industry earnings multiples, changes in discount rates based on changes in cost of capital (interest rates, etc.) or the bankruptcy of a significant customer and could result in the incurrence of impairment charges and negatively impact our net worth.
The Way in Which We Measure Inventory May Have a Material Adverse Effect on Our Results of Operations

We physically acquire our inshell nut inventories of pecans, peanuts and walnuts from growers and farmers in large quantities at harvest times, which are primarily during the second and third quarters of our fiscal year, and receive nut shipments in bulk truckloads. The weights of these nuts are measured using truck scales at the time of receipt, and inventories are recorded on the basis of those measurements. The nuts are then stored in bulk in large warehouses to be shelled or processed throughout the year. Bulk-stored nut inventories are relieved on the basis of continuous high-speed bulk weighing systems as the nuts are shelled or processed or on the basis of calculations derived from the weight of the shelled nuts that are produced. While we perform various procedures periodically to confirm the accuracy of our bulk-stored nut inventories, these inventories are estimates that must be periodically adjusted to account for positive or negative variations in quantities and yields, and such adjustments directly affect earnings. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates, which historically averaged less than 1.0% (but it cannot be guaranteed to continue under this level) of inventory purchases, are also recorded. The precise amount of our bulk-stored nut inventories is not known until the entire quantity of the particular nut is depleted, which may not necessarily occur every year. Prior crop year inventories may still be on hand as the new crop year inventories are purchased. The majority of bulk-stored nut inventories at June 29, 201724, 2021 will be processed during the first quarterhalf of fiscal 20182022 and any adjustment to our bulk stored nut inventory quantity will be recorded at that time. There can be no assurance that any bulk stored nut inventory quantity adjustments will not have a material adverse effect on our results of operations in the future.

Certain of Our Stockholders Possess a Majority of Aggregate Voting Power in the Company and Members of The Sanfilippo Group Have Pledged a Substantial Amount of their Class A Stock, Which May Make a Takeover or Change in Control More or Less Difficult and Could Materially and Adversely Affect Our Financial Condition and Results of Operations

As of August 23, 2017, Jasper B. Sanfilippo Sr., Marian Sanfilippo, Jeffrey T. Sanfilippo, Jasper B. Sanfilippo, Jr., Lisa A. Sanfilippo, John E. Sanfilippo and James J. Sanfilippo (the “Sanfilippo Group”) own or control Common Stock (one vote per share) and Class A Stock (ten votes per share on all matters other than the election of Common Stock directors) representing approximately a 51.0% voting interest in the Company. As of August 23, 2017, Michael J. Valentine and Mathias A. Valentine (the “Valentine Group”) own or control Common Stock (one vote per share) and Class A Stock (ten votes per share on all matters other than the election of Common Stock directors) representing approximately a 24.0% voting interest in the Company. In addition, the Sanfilippo Group and the Valentine Group as holders of the Class A Stock are entitled to elect six Class A Directors which represents 67% of our entire Board of Directors. As a result, the Sanfilippo Group and the Valentine Group together are able to direct the election of a majority of the members to the Board of Directors. In addition, the Sanfilippo Group is able to exert certain influence on our business, or take certain actions, that cannot be counteracted by another stockholder or group of stockholders. The Sanfilippo Group is able to determine the outcome of nearly all matters submitted to a vote of our stockholders, including any amendments to our certificate of incorporation or bylaws. The Sanfilippo Group has the power to prevent or cause dividends, or a change in control or sale of the Company, which may or may not be in the best interests of other stockholders, and can take other actions that may be less favorable to other stockholders and more favorable to the Sanfilippo Group, subject to applicable legal limitations, which could materially and adversely affect our financial condition, results of operations and cash flows.

In addition, several members of the Sanfilippo Group that beneficially own a significant interest in our Company have pledged a substantial portion of the Company’s Class A Stock that they own to secure loans made to them by commercial banks. If a stockholder defaults on any of its obligations under these pledge agreements or the related loan documents, these banks may have the right to sell the pledged shares. Such a sale could cause our Company’s stock price to decline. Many of the occurrences that could result in a foreclosure of the pledged shares are out of our control and are unrelated to our operations. Because these shares are pledged to secure loans, the occurrence of an event of default could result in a sale of pledged shares that could cause a change of control of our Company, even when such a change may not be in the best interests of our stockholders, and it could also result in a default under certain material contracts to which we are a party, including an event of default under the Credit Agreement by and among the Company, Wells Fargo Capital Finance (f/k/a Wells Fargo Foothill, LLC), as the arranger and administrative agent and a syndicate of lenders, dated February 7, 2008 (as amended, the “Credit Facility”), which could materially and adversely affect our financial condition, results of operations and cash flows.

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Essentially all of Our Real Property is Encumbered, Which Could Materially and Adversely Affect Our Ability to Obtain Additional Capital if Required Which Could Materially and Adversely Affect Our Financial Condition, Results of Operations and Cash Flows

Our financing arrangements include a mortgage facility, which is secured by essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina. Because essentially all of our owned real property is encumbered, such properties are not available as a means of securing further capital in the event that additional capital is required because of unexpected events, losses or other circumstances, which could materially and adversely affect our financial condition, results of operations and cash flows.

General Economic Conditions and Increased Production Costs Could Materially and Adversely Affect Our Financial Condition and Results of Operations

General economic conditions and the effects of a recession, including uncertainty in economic conditions and an economic downturn, and political uncertainties, including political action or inaction having an impact on the economy, could have a material adverse effect on our cash flow from operations, results of operations and financial condition. These conditions may include, among other things, higher unemployment, increased commodity costs, increased raw material costs, increased packaging material prices, decreases or alterations in consumer demand, changes in buying patterns, adverse changes in tax rates, interest rate and capital market volatility, adverse changes in the purchasing power of the U.S. dollar and higher general water, energy, transportation and fuel costs. Maintaining the prices of our products, initiating price increases (including passing along price increases for commodities used in our products) and increasing the demand for our products (especially when prices for our products are decreasing due to commodity price decreases), all of which are important to our plans to increase profitability, may be materially and adversely affected by general economic conditions and increases in production costs. Among other considerations, nuts and our other products are not essential products and therefore demand and sales volume could decrease. In addition, a general economic downturn could cause one or more of our vendors, suppliers, distributors and customers to experience cash flow problems and, therefore, such vendors, suppliers, distributors and customers may be forced to reduce their output, shut down their operations or file for bankruptcy protection, which in some cases would make it difficult for us to continue production of certain products, could require us to reduce sales of our products or could result in uncollectable accounts receivable. Financial difficulties or solvency problems at these vendors, suppliers and distributors could materially adversely affect their ability to supply us with products or adequate products, which could disrupt our operations. It may be difficult to find a replacement for certain vendors, suppliers or distributors without significant delay or increase in cost. Any of the foregoing could materially and adversely affect our financial condition and results of operations.

Litigation Could Materially and Adversely Affect Our Financial Condition and Results of Operations

We have been the subject of litigation and investigations in the past, and we may become the subject of litigation and investigations in the future, which may include lawsuits or claims related to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, wage and hour matters, environmental matters or other aspects of our business. Plaintiffs or regulatory bodies could seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to lawsuits and investigations is difficult to accurately estimate. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, such litigation and investigations may be expensive to defend and may divert time, money and management attention away from our operations and negatively impact our financial performance. We maintain insurance in amounts we believe to be adequate based on our business operations. However, we may incur claims or liabilities for which we are not insured, that exceed the amount of our insurance coverage or that our insurers may raise various objections and exceptions to coverage. A judgment or settlement for significant monetary damages or requiring other significant changes to our business or assets could materially and adversely affect our financial condition and results of operations. Any adverse publicity resulting from allegations or investigations may also adversely affect our reputation and the reputation of our products, which in turn could materially and adversely affect our financial condition and results of operations.

Technology Disruptions, Failures or Breaches Could Materially and Adversely Affect Our Financial Condition and Results of Operations

We depend on information technology to maintain and streamline our operations, including, among other things, (i) interfacing with our locations, customers and suppliers, (ii) complying with financial reporting, legal and tax regulatory requirements, (iii) maintaining logistics, inventory control and monitoring systems and (iv) providing us with real-time feedback about our business. Like other companies, our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, outages during replacement or upgrades, computer viruses, hardware failures, power outages, hackers, ransomware attacks, cyber risks and other security issues. We have technology security initiatives, cyber insurance and disaster recovery plans in place to mitigate our risk to these vulnerabilities, but these measures may not be adequate, particularly as the global dependence on technology increases. In addition, if we are unable to prevent security breaches or disclosure ofnon-public information, we may suffer financial and reputational damage, litigation or remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our customers, consumers, or suppliers.

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In addition, we have outsourced several information technology support services and administrative functions to third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. If the service providers to which we outsource these functions do not perform effectively, we may not be able to achieve the expected cost savings and may have to incur additional costs to correct errors made by such service providers. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, the loss of sensitive data through security breach, or otherwise. While we or any third party service provider have not experienced any significant disruption, failure or breach impacting our information technology systems, any such disruption, failure or breach could adversely affect our financial condition and results of operations.

Our Products are Processed at a Limited Number of Production Facilities and any Significant Disruption at any of Our Production Facilities or Disruption with a Third Party Supplier Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations

Our products are shelled, manufactured or otherwise processed at our five production facilities. However, certain nut andnut-related products, including the shelling of peanuts, walnuts and pecans and processing and packaging of certain other products, are conducted only at a single location. If any of these production facilities experiences a disruption for any reason, including a work stoppage, power failure, fire, pandemic, terrorism or weather related condition or natural disaster, this could result in a significant reduction or elimination of the availability of some of our products. In addition, a dispute with, or disruption at, a significant third party supplier, service provider or distributor may impact our ability to produce, package, market, transport and sell our products. If we were not able to obtain alternate production, shelling or processing capability in a timely manner or on satisfactory terms, this could have a material adverse effect on our financial condition and results of operations.

Inability to Protect Our Intellectual Property or Avoid Intellectual Property Disputes Could Materially and Adversely Affect Our Financial Condition and Results of Operations

We consider our intellectual property rights, particularly and most notably our brand trademarks (such as ourFisher, Orchard Valley HarvestandSunshine Country trademarks), but also our patents, trade secrets,know-how copyrights and licensing agreements, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, service mark, trademark, copyright and trade secret laws, as well as licensing agreements, third party nondisclosure and assignment agreements and policing of third party misuses of our intellectual property both domestically and internationally. Our failure to obtain or adequately protect our trademarks, products, new features of our products, or our trade secrets and technology, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially and adversely affect our financial condition and results of operations.

In addition, we may be unaware of intellectual property rights of others that may cover some of our technology, brands or products. Any disputes regarding patents or other intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Third party claims of intellectual property infringement might also require us to enter into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain products if found to be liable for infringing activity. Any such activities could materially and adversely affect our financial condition and results of operations.

Unsuccessful Implementation of Our Strategic Plan Could Materially and Adversely Affect Our Financial Condition and Results of Operations

We developed a strategic plan (the “Strategic Plan”), most recently updated in fiscal 2016, to help us achieve long-term profitable growth. As part of this Strategic Plan, we have taken a number of actions including, among other things, promotion of our branded and snack nut products, expanding distribution in traditional retail channels and alternative channels and other strategies related to increasing sales ofnon-branded business at existing key customers. We are taking these actions in order to increase sales in all of our distribution channels. There are no assurances that we will be successful in achieving any portion of our Strategic Plan, or any other efficiency measures.

In addition, we have in the past, as part of our Strategic Plan, engaged in strategic acquisitions and joint ventures. However, we may be unable to successfully manage completed acquisitions or joint ventures, identify additional acquisitions or joint ventures, or negotiate favorable financial or other terms with third parties which are attractive or advantageous to grow or otherwise supplement our existing business. In addition, the identification and completion of any acquisition or joint venture may divert management’s attention from ordinary business matters, require a number ofone-time or ongoing advisory costs, result in the loss of employees or customers of our business or the acquired business, involve the assumption of unknown and potentially significant liabilities or result in impairment charges if the assumptions underlying the purchase are not satisfied. Due to various uncertainties inherent in such activities, we may be unable to achieve a substantial portion of any anticipated benefits or cost savings from previous acquisitions or joint ventures or other anticipated benefits in the timeframe we anticipate, or at all.

Any inability to realize the anticipated benefits from the Strategic Plan could materially and adversely affect our financial condition and results of operations.

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Increases in Labor Costs or Work Stoppages or Strikes Could Materially and Adversely Affect Our Financial Condition and Results of Operations

As the number of our employees has grown, personnel costs, including the costs of medical and other employee health and welfare benefits, have increased. These costs can vary substantially as a result of an increase in the number, mix and experience of our employees and changes in health care and other employment-related laws. There are no assurances that we will succeed in reducing future increases in such costs, particularly if government regulations require us to change our health and welfare benefits, government regulations impose additional monitoring and compliance expenses or we need to attract and retain additional qualified personnel. Our inability to control such costs could materially and adversely affect our financial condition and results of operations.

Although we consider our labor relations to be good, if a significant number of our employees engaged in a work slowdown, or other type of labor unrest, it could in some cases impair our ability to supply our products to customers, which could result in reduced sales, and may distract our management from focusing on our business and strategic priorities. Any of these activities could materially and adversely affect our financial condition and results of operations.

We Cannot Guarantee the Timing, Amount or Payment of Dividends

Although the Board of Directors has adopted a dividend policy under which the Company intends to pay an annual cash dividend on its Common Stock and Class A Stock, whether any such subsequent dividend (or any special dividend) is declared and the timing and amount thereof is subject to the discretion of the Board of Directors. Decisions of the Board of Directors in respect of dividends will be based on a variety of factors, including the cash flows, earnings and financial position of the Company as well as the borrowing availability and other restrictions under our Credit Facility. The Board of Directors is not required to declare dividends and the number and amount of dividends is restricted under our Credit Facility and could be restricted under future financing or other arrangements. The Board of Directors will also regularly review and may modify or terminate our dividend policy. Accordingly, we cannot provide any assurances that our Company will pay annual or special cash dividends in the future, and if so, the amount or timing thereof. Any reduction in or elimination of our dividend policy or dividend payments could have a negative effect on the price of our Common Stock.

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Item 1B — Unresolved Staff Comments

None.

Item 2 — Properties

We own or lease five principal production facilities.facilities, one of which is currently classified as held for sale. Our primary processing and distribution facility is located at our Elgin, Illinois site which also houses our primary manufacturing operations and corporate headquarters (the “Elgin Site”). The remaining principal production facilities are located in Bainbridge, Georgia; Garysburg, North Carolina; Selma, Texas and Gustine, California. In addition, we operate a retail store at the Elgin Site.

As described below in Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”, the Mortgage Facility (as defined below) is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina.

We believe that our facilities are generally well maintained and in good operating condition.

a. Principal Facilities

The following table provides certain information regarding our principal facilities:

Location

  Square
Footage		   

Type of

Interest

  

Description of Principal Use

  Date Company
Constructed,
Acquired or
First
Occupied		 

Bainbridge, Georgia

   300,000   Owned and Leased  

Peanut shelling, purchasing, processing, packaging,

warehousing and distribution

   1987 

Garysburg, North Carolina

   160,000   Owned  

Peanut shelling, purchasing, processing, packaging,

warehousing and distribution

   1994 

Selma, Texas(1)

   300,000   Leased  Pecan shelling, processing, bulk packaging, warehousing and distribution   1992 

Gustine, California

   215,000   Owned  Walnut shelling, processing, packaging, warehousing and distribution   1993 

Elgin, Illinois(2)
(Elgin Office Building)

   400,000   Owned  Rental property   2005 

Elgin, Illinois
(Elgin Warehouse Building)

   1,001,000   Owned  Processing, packaging, warehousing, distribution and corporate offices   2005 

Location
  
Square
Footage
   
Type of

Interest
  
Description of Principal Use
  
Date Company
Constructed,
Acquired or
First
Occupied
 
Bainbridge, Georgia
   300,000   Owned
and
Leased		  Peanut shelling, purchasing, processing, packaging, warehousing and distribution   1987 
Garysburg, North Carolina
(1)
   160,000   Owned  Formerly used for peanut shelling, purchasing, warehousing and distribution   1994 
Selma, Texas
(2)
   300,000   Leased  Pecan shelling, processing, bulk packaging, warehousing and distribution   1992 
Gustine, California
   215,000   Owned  Walnut shelling, processing, packaging, warehousing and distribution   1993 
Elgin, Illinois
(3)

(Elgin Office Building)
   400,000   Owned  Rental property   2005 
Elgin, Illinois
(Elgin Warehouse Building)
   1,001,000   Owned  
Processing, packaging,
warehousing, distribution and corporate offices
   2005 
(1)
After the fire that occurred at our Garysburg facility during fiscal 2020, the Company considered strategic alternatives for the facility and decided to cease all operations permanently at the end of fiscal 2021. As of June 24, 2021, the facility and its related assets have been reclassified as held for sale on the Consolidated Balance Sheets. See Note 19 — “Garysburg, North Carolina Facility” to the Consolidated Financial Statements.
(2)
The sale and lease back of the Selma properties to related party partnerships was consummated in fiscal 2007. SeeNote 5- “Long-Term7 —“Long-Term Debt” to the Consolidated Financial Statements.
(2)(3)
The Elgin Office Building (part of the Elgin Site) was acquired in April 2005. Approximately 30%70% of the Elgin Office Building is currently being leased to unrelated third parties. vacant. Approximately 29% of the rentable area has not been
built-out.
The remainingvacant portion of the office building may be leased to third parties; however, there can be no assurance that we will be able to lease the unoccupied space. Further capital expenditures will likely be necessary to fully lease all of the remaining space.

14

16

b. Manufacturing Capability, Utilization, Technology and Engineering

Our principal production facilities are equipped with modern processing and packaging machinery and equipment.

The Elgin Site was designed to our specifications with what we believe to be
state-of-the-art
equipment. The layout is designed to efficiently move products from raw storage to processing to packaging to distribution. The Elgin Site was designed to minimize the risk of cross contamination between tree nuts and peanuts. As currently configured, the Elgin Site can accommodate an increase in production capacity of 20%15% to 35%20% of our current capacity.

capacity, however certain production lines are at full capacity, and finished good storage space is nearing full capacity during peak shipping periods. Additional storage and production space may be needed to fulfill any meaningful increases in future demand.

The Selma facility containsis used for our automated pecan shelling, andpackaging, bulk packaging, operation.warehousing and distribution operations. The facility’s pecan shelling production lines currently have the capacity to shell in excess of 90 million inshell pounds of pecans annually. During fiscal 2017,2021, we processed approximately 3233 million inshell pounds of pecans at the Selma facility.

The quantity of pecans processed varies depending on the amount of inshell nuts purchased due to, among other things, commodity acquisition cost risk, the size and cost of the crop, the impact of international demand and expected demand based on our current sales forecast.

The Bainbridge facility is located in the largest peanut producing region in the United States.States and is used for peanut shelling and peanut butter production. This facility takes direct delivery of farmer stock peanuts and cleans, shells, sizes, inspects, blanches, roasts and packages them for sale to our customers. The production line at the Bainbridge facility is almost entirely automated and has the capacity to shell approximately 120 million inshell pounds of peanuts annually. During fiscal 2017,2021, the Bainbridge facility shelled approximately 8689 million inshell pounds of peanuts.

The Garysburg facility has the capacity to process approximately 60 million inshell pounds of farmer stock peanuts annually. During fiscal 2017, the Garysburg facility processed approximately 16 million inshell pounds of peanuts.

The Gustine facility is used for walnut shelling, pasteurization, processing, bulk packaging, warehousing and distribution. This facility has the capacity to shell in excess of 60 million inshell pounds of walnuts annually. During fiscal 2017,2021, the Gustine facility shelled approximately 3928 million inshell pounds of walnuts.

The quantity of walnuts shelled will vary depending on the amount of inshell nuts purchased due to, among other things, commodity acquisition cost risk, the size and cost of the crop, the impact of international demand, and expected demand based on our current sales forecast.

The Garysburg facility had the capacity to process approximately 60 million inshell pounds of farmer stock peanuts annually. During fiscal 2021, the Garysburg facility processed approximately 5 million inshell pounds of peanuts. Due to a fire that occurred at our Garysburg facility during fiscal 2020, the Company considered strategic alternatives for the facility and decided to cease all operations permanently at the facility by the end of fiscal 2021. See Note 19 — “Garysburg, North Carolina Facility” of the Notes to Consolidated Financial Statements for additional detail regarding the facility and the Company’s plan to sell these assets.
The Bainbridge, Garysburg, Selma and Gustine facilities are equipped to handle the processing, packaging, warehousing and distribution, and in the case of our Bainbridge and Garysburg facilities,facility, the purchasing of nuts. Furthermore, at our Elgin Site, we process, package, warehouse and distribute nuts. We currently have more than sufficient capacity at our facilities to handle the aforementioned operations.

Item 3 — Legal Proceedings

We are a party to various lawsuits, proceedings and other matters arising out of the conduct of our business. Currently, it is management’s opinion that the ultimate resolution of these matters will not have a material adverse effect upon our business, financial condition, results of operation or cash flows.

We are subject to a class-action complaint for an employment related matter. Mediation for this matter occurred in June 2017, which for the first time we were provided with an initial monetary demand. In August 2017, we agreed in principle to a $1.2 million settlement for which we are fully reserved at June 29, 2017. Thenon-monetary components of the settlement are still being finalized.

For a discussion of our class-action complaint and legal proceedings, investigations, settlements and other contingencies, see Note 7 -9 — “Commitments and Contingent Liabilities” in the Notes to Consolidated Financial Statements in Part II, Item 8 of thisForm
10-K.

Item 4 — Mine Safety Disclosures

Not applicable.

15

17

EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3) of Form
10-K
and Instruction 3 to Item 401(b) of Regulation
S-K,
the following executive officer description information is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for our annual meeting of stockholders to be held on November 2, 2017.October 27, 2021. Below are our executive officers as of August 23, 2017:

18, 2021:

Jeffrey T. Sanfilippo, Chief Executive Officer
, age 5458 — Mr. Sanfilippo has been employed by us since 1991 and in November 2006 was named our Chief Executive Officer. Mr. Sanfilippo served as our Executive Vice President Sales and Marketing from January 2001 to November 2006. He served as our Senior Vice President Sales and Marketing from August 1999 to January 2001. Mr. Sanfilippo has been a member of our Board of Directors since August 1999. He served as General Manager West Coast Operations from September 1991 to September 1993. He served as Vice President West Coast Operations and Sales from October 1993 to September 1995, and Mr. Sanfilippo served as Vice President Sales and Marketing from October 1995 to August 1999.

Michael J. Valentine, Chief Financial Officer, Group President and Secretary
, age 5862 — Mr. Valentine has been employed by us since 1987. In November 2006, Mr. Valentine was named our Chief Financial Officer and Group President and, in May 2007, Mr. Valentine was named our Secretary. In April 2021, Mr. Valentine announced that he would voluntarily step down as Chief Financial Officer following the filing of this Report. He will continue in his roles as Group President and Secretary and will also continue to serve as a Director of the Company. Mr. Valentine served as our Executive Vice President Finance, Chief Financial Officer and Secretary from January 2001 to November 2006. Mr. Valentine served as our Senior Vice President and Secretary from August 1999 to January 2001. He has been a member of our Board of Directors since April 1997. Mr. Valentine served as our Vice President and Secretary from December 1995 to August 1999. He served as an Assistant Secretary and the General Manager of External Operations for us from June 1987 and 1990, respectively, to December 1995. Mr. Valentine’s responsibilities also include peanut, almond, imported nut, packaging and other ingredient procurement and our contract packaging business.

Jasper B. Sanfilippo, Jr., Chief Operating Officer, President and Assistant Secretary
, age 4953 — Mr. Sanfilippo has been employed by us since 1991. In November 2006, Mr. Sanfilippo was named our Chief Operating Officer and President and, in May 2007, Mr. Sanfilippo was named our Treasurer and held that position until January 2009. Mr. Sanfilippo served as our Executive Vice President Operations, retaining his position as Assistant Secretary, which he assumed in December 1995 from 2001 to November 2006. Mr. Sanfilippo became a member of our Board of Directors in December 2003. He became our Senior Vice President Operations in August 1999 and served as Vice President Operations from December 1995 to August 1999. Prior to that, Mr. Sanfilippo was the General Manager of our Gustine, California facility beginning in October 1995, and from June 1992 to October 1995 he served as Assistant Treasurer and worked in our Financial Relations Department. Mr. Sanfilippo is responsible for overseeing our plant operations, researchas well as walnut and development, and product innovation.

pecan procurement.

James A. Valentine, Chief InformationSenior Technical Officer
, age 5357 — Mr. Valentine has been employed by us since 1986 and in November 2006January 2018 was named our Senior Technical Officer. He served as our Chief Information Officer.Officer from November 2006 to January 2018. He served as our Executive Vice President Information Technology from August 2001 to November 2006. Mr. Valentine served as Senior Vice President Information Technology from January 2000 to August 2001 and as Vice President of Management Information Systems from January 1995 to January 2000. Mr. Valentine is responsible for overseeingproviding insight and guidance to executive management regarding strategic direction of our information technology functions that support our corporate strategy.
Shayn E. Wallace, Executive Vice President, Sales and managing cyber risks.

Thomas J. Fordonski,Marketing,

age 50 — Mr. Wallace joined us in March 2019 as Senior Vice President, Human Resources, age 64 — Mr. Fordonski joined us in August 2007 as Vice President of Human Resources andCommercial Ingredients. In May 2020, he was promoted to SeniorExecutive Vice President, of Human Resources in January 2010. Previously, he was Director of Human Resources for Continental AG, a German-based global manufacturer of electronic automotive equipment.Sales and Marketing. Prior to that, Mr. Fordonski was at Motorola, Incorporatedhe served as President for 25 years,Spectrum Brands. His career path also includes senior roles with his career culminatingmajor food companies such as the Director of Human Resources for the global supply chainH.J. Heinz, The Kellogg Company, Dean Foods, Sara Lee Food & Beverage and Morton Salt where he held senior leadership positions in the messagingSales and cellular communications business.Marketing. He is currently responsible for leading our human resources activitiesSales and functions.

Marketing departments.

Frank S. Pellegrino, Executive Vice President, Finance and Administration, and Treasurer
, age 47 — Mr. Pellegrino has been employed by us since January 2007. In August 2020, Mr. Pellegrino was promoted to Executive Vice President, Finance and Administration. Mr. Pellegrino will be appointed as Chief Financial Officer upon Mr. Valentine stepping down as Chief Financial Officer (pursuant to his succession plan) following the filing of this Report. Mr. Pellegrino served as our Senior Vice President, Finance Corporate Controllerfrom August 2012 to August 2020 and, Treasurer, age 43 —in August 2016, he was appointed Treasurer. Mr. Pellegrino joined us in January 2007served as Director of Accounting and was appointed Corporate Controller in September 2007. In January 2009, he was named Vice President Finance and Corporate Controller. InController from January 2009 to August 2012, he was promoted2012. He served as Corporate Controller from September 2007 to Senior Vice President, Finance. In August 2016, he was appointed Treasurer.January 2009 and as Director of Accounting from January 2007 to September 2007. Previously, Mr. Pellegrino was Internal Audit Manager at W.W. Grainger, a
business-to-business distributor, from June 2003 to January 2007.
distributor. Prior to that, he was a Manager in the Assurance Practice of PricewaterhouseCoopers LLP, where he was employed from 1996 to 2003.LLP. Mr. Pellegrino is responsible for our accounting, finance and financetreasury functions.

16

Christopher Gardier, Senior Vice President, Consumer Sales, age 57 — Mr. Gardier joined us in May 2010 as Vice President, Consumer Sales. In August 2012, Mr. Gardier was promoted to Senior Vice President, Consumer Sales. Previously, Mr. Gardier was the Vice President Sales for the Snacks Division at The Hain Celestial Group, whereJanuary 2018 he led a national sales team of eight regional managers selling natural and organic salty snack brands. Prior to that, Mr. Gardier was a Customer Vice President, Central Region at Pepperidge Farm for six years, where he led a team of independent biscuit and bakery distributors covering 13 Midwestern states. Prior to that, Mr. Gardier was a Director of National Accounts at Frito Lay for almost five years, where he led a sales and operations teambecame responsible for the mass merchandising channel. Mr. Gardier isoverseeing our information technology department and in June 2019 became responsible for leadingoverseeing our Consumer Sales efforts, including ourFisherandOrchard Valley Harvest brands.

Howard Brandeisky, Senior Vice President, Global Marketing and Customer Solutions, age 56 — Mr. Brandeisky joined us in April 2010 as Vice President, Marketing & Innovation. His role was expanded to include Customer Solutions in March 2011. In October 2013, he was promoted to Senior Vice President, Global Marketing and Customer Solutions. Previously, he was an independent consultant in the food industry for a year. Prior to that, Mr. Brandeisky was at Kraft Foods, Inc. for 24 years, with his career culminating as a Vice President of Marketing. He is responsible for leading the marketing, consumer insights, creative services, and customer solutions activities and functions.

Stephen C. Chester, Senior Vice President, Commercial Ingredients, age 57 — Mr. Chester joined us in June 2013 as Vice President of Commercial Ingredients and was promoted to Senior Vice President of Commercial Ingredients in August 2016. Previously he was Vice President of Marketing and R&D for Ventura Foods, a $2 billion food manufacturer selling to consumer, foodservice, and industrial channels. Prior to that, Mr. Chester has worked for other large consumer-focused food companies such a Frito Lay and Best Foods as well asmid-sizedB-to-B focused food companies. He has functional experience in sales, marketing, R&D, and general management. Mr. Chester is also a U.S. Navy veteran. He is responsible for leading our Commercial Ingredients business which includes foodservice and industrial channels.

department.

18
RELATIONSHIPS AMONG CERTAIN DIRECTORS AND EXECUTIVE OFFICERS

Below are the relationships among certain directors and executive offices as of August 18, 2021:
Mathias A. Valentine, a director of the Company, is (i) the father of Michael J. Valentine, an executive officer and director of the Company, and James A. Valentine, an executive officer of the Company and (ii) the uncle of Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo, executive officers and directors of the Company, and James J. Sanfilippo, a directorJohn E. Sanfilippo and Lisa A. Sanfilippo, directors of the Company.

Michael J. Valentine, Chief Financial Officer, Group President and Secretary and a director of the Company, is (i) the son of Mathias A. Valentine, (ii) the brother of James A. Valentine and (iii) the cousin of Jasper B. Sanfilippo, Jr., Jeffrey T. Sanfilippo, and James J. Sanfilippo, John E. Sanfilippo and Lisa A. Sanfilippo.

Jeffrey T. Sanfilippo, Chief Executive Officer and a director of the Company, is (i) the brother of Jasper B. Sanfilippo, Jr., James J. Sanfilippo, John E. Sanfilippo and James J.Lisa A. Sanfilippo, (ii) the nephew of Mathias A. Valentine and (iii) the cousin of Michael J. Valentine and James A. Valentine.

Jasper B. Sanfilippo, Jr., Chief Operating Officer, President and a director of the Company, is (i) the brother of Jeffrey T. Sanfilippo, and James J. Sanfilippo, John E. Sanfilippo and Lisa A. Sanfilippo, (ii) the nephew of Mathias A. Valentine and (iii) the cousin of Michael J. Valentine and James A. Valentine.

James J. Sanfilippo, a director of the Company, is (i) the brother of Jeffrey T. Sanfilippo and Jasper B. Sanfilippo, Jr., Jeffrey T. Sanfilippo, John E. Sanfilippo and Lisa A. Sanfilippo, (ii) the nephew of Mathias A. Valentine and (iii) the cousin of Michael J. Valentine and James A. Valentine.

James A. Valentine, Chief InformationSenior Technical Officer of the Company, is (i) the son of Mathias A. Valentine, (ii) the brother of Michael J. Valentine and (iii) the cousin of Jasper B. Sanfilippo, Jr., Jeffrey T. Sanfilippo, and James J. Sanfilippo, John E. Sanfilippo and Lisa A. Sanfilippo.

Timothy R. Donovan,

John E. Sanfilippo, a director of the Company, is (i) a nephew by marriage of Mathias A. Valentine and (ii) the first cousin by marriagebrother of Jasper B. Sanfilippo, Jr., Jeffrey T. Sanfilippo, James J. Sanfilippo and Lisa A. Sanfilippo, (ii) the nephew of Mathias A. Valentine and (iii) the cousin of Michael J. Valentine and James A. Valentine.

17

Lisa A. Sanfilippo, a director of the Company, is (i) the sister of Jasper B. Sanfilippo, Jr., Jeffrey T. Sanfilippo, James J. Sanfilippo and John E. Sanfilippo, (ii) the niece of Mathias A. Valentine and (iii) the cousin of Michael J. Valentine and James A. Valentine.
19

PART II

Item 5 — Market for Registrant’s Common Equity and Related Stockholder Matters

We have two classes of stock: Class A Stock and Common Stock. The holders of Common Stock are entitled to elect 25% of the total members of the Board of Directors, rounded up to the nearest whole number, and the holders of Class A Stock are entitled to elect the remaining directors. With respect to matters other than the election of directors or any matters for which class voting is required by law, the holders of Common Stock are entitled to one vote per share while the holders of Class A Stock are entitled to ten votes per share. Our Class A Stock is not registered under the Securities Act of 1933 and there is no established public trading market for the Class A Stock. However, each share of Class A Stock is convertible at the option of the holder at any time and from time to time (and, upon the occurrence of certain events specified in our Restated Certificate of Incorporation, automatically converts) into one share of Common Stock.

Our Common Stock is quoted on the NASDAQ Global Select Market and our trading symbol is “JBSS”. The following tables set forth, for the quarters indicated, the high and low reported sales prices for the Common Stock as reported on the NASDAQ Global Select Market.

   Price Range of
Common Stock		 

Year Ended June 29, 2017

  High   Low 

4th Quarter

  $74.69   $59.16 

3rd Quarter

  $72.98   $56.95 

2nd Quarter

  $72.24   $46.34 

1st Quarter

  $54.18   $40.75 
   Price Range of
Common Stock		 

Year Ended June 30, 2016

  High   Low 

4th Quarter

  $72.84   $41.61 

3rd Quarter

  $72.55   $47.85 

2nd Quarter

  $66.29   $48.79 

1st Quarter

  $57.23   $34.57 

18

The graph below compares our cumulative five-year total stockholder return on our Common Stock with the cumulative total returns of the Russell 2000 Consumer Staples Index and the Russell 2000 Index. The graph tracks the performance of a $100 investment in our Common Stock, in each index (with the reinvestment of all dividends) from June 29, 2012July 1, 2016 to June 29, 2017.

24, 2021.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among John B. Sanfilippo & Son, Inc., the Russell 2000 Index,

and the Russell 2000 Consumer Staples Index


*
$100 invested on June 29, 2012July 1, 2016 in stock or June 30, 2016 in index, including reinvestment of dividends.

Indexes calculated on
month-end
basis.

The information contained in the preceding performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that we specifically incorporate it by reference in such filing.

As of August 11, 201718, 2021 there were 4447 holders and 1716 holders of record of our Common Stock and Class A Stock, respectively.

Under our Restated Certificate of Incorporation, the Class A Stock and the Common Stock are entitled to share equally on a share for share basis in any dividends declared by the Board of Directors on our common equity. Our current financing agreements, as amended and restated on July 7, 2017,March 5, 2020, allow us to make up to four cash dividends or distributions of our stock in any fiscal year in an amount not to exceed $60$75 million in the aggregate per fiscal year. See Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financing Arrangements.”

On November 1, 2016 our Board of Directors declared a cash dividend of $2.50 that was paid to holders of Common Stock and Class A Stock on December 13, 2016. On July 7, 2016 our Board of Directors declared a cash dividend of $2.50 that was paid to holders of Common Stock and Class A Stock on August 4, 2016. On October 27, 2015 our Board of Directors declared a cash dividend of $2.00 that was paid to holders of Common Stock and Class A Stock on December 11, 2015.

On

20
In January 31, 2017, our Board of Directors adopted a dividend policy under which it intends to pay ana regular annual cash dividend on our Common Stock and Class A Stock. The Board of Directors contemplated that the regular annual dividend would be declared around the conclusion of the Company’s fiscal year and paid in the first quarter of each fiscal year. One of the key factors that will be taken into account in determining theWe have paid or declared an annual dividend amount (and whether any such dividend will be paid) will be the liquidity position of the Company, in particular the borrowing availability under our Credit Facility.

19

each year since 2017.

The Board of Directors will review the dividend policy regularly and any future annual or special dividends (whether such are paid and, if so, the amount and timing of payment) will be at the discretion of the Board of Directors, after taking into account a variety of factors, including cash flows, borrowing availability under our Credit Facility, and earnings and financial position of the Company. There can be no assurance that dividends will be declared or paid in the future. Pursuant to our Restated Certificate of Incorporation, any dividends paid on our Common Stock must be equivalent to the dividends paid on our Class A Stock.

Pursuant

The frequency and amount of cash dividends declared for each class of common stock for the two most recently completed fiscal years and dividends declared as of the date of this Report are as follows:
On July 10, 2019 our Board of Directors declared an annual and special cash dividend of $0.60 and $2.40, respectively, that was paid to holders of Common Stock and Class A Stock on August 20, 2019.
On October 29, 2019 our Board of Directors declared a special cash dividend of $2.00 that was paid to holders of Common Stock and Class A Stock on December 10, 2019.
On April 29, 2020 our Board of Directors declared a special cash dividend of $1.00 that was paid to holders of Common Stock and Class A Stock on June 17, 2020.
On July 9, 2020 our Board of Directors declared an annual and special cash dividend of $0.65 and $1.85, respectively, that was paid to holders of Common Stock and Class A Stock on August 21, 2020.
On January 27, 2021 our Board of Directors declared a special cash dividend of $2.50 that was paid to holders of Common Stock and Class A Stock on March 16, 2021.
Subsequent to the dividend policy,end of fiscal 2021, the Board of Directors declared an annual and special cash dividend of $0.50$0.70 and $2.30 per share, respectively, that waswill be paid to holders of our Common Stock and Class A Stock on August 15, 2017. In addition, the Board of Directors declared a special dividend of $2.00 per share that was paid to holders of our Common Stock and Class A Stock on August 15, 2017.

25, 2021.

For purposes of the calculation of the aggregate market value of our voting stock held by
non-affiliates
as set forth on the cover page of this Report, we did not consider any of the siblings or spouses of Jasper B. Sanfilippo, Sr. (our former chairman of the board) or Mathias A. Valentine, or any of the lineal descendants of either Jasper B. Sanfilippo, Sr., Mathias A. Valentine or such siblings (other than those who are our executive officers, directors or those in the foregoing who have formed a group within the meaning of Section 13(d)(3) of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), with either Jasper B. Sanfilippo, Sr. or Mathias A. Valentine) as an affiliate. See “Review of Related Party Transactions” and “Security Ownership of Certain Beneficial Owners and Management” contained in our Proxy Statement for the 20172021 Annual Meeting and “Relationships Among Certain Directors and Executive Officers” appearing immediately before Part II of this Report.

Securities Authorized under Equity Compensation Plans

The following table sets forth information as of June 29, 2017,24, 2021, with respect to equity securities authorized for issuance pursuant to equity compensation plans previously approved by our stockholders and equity compensation plans not previously approved by our stockholders.

21
Equity Compensation Plan Information

Plan Category

  (a) Number of
securities to be
issued upon
exercise of options,
warrants and rights		   (b) Weighted
average
exercise price
of outstanding
options,
warrants and
rights		   (c) Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in Column
(a))		 

Equity compensation plans approved by
stockholders — stock options

   2,000   $10.24    820,539 

Equity compensation plans approved by
stockholders — restricted stock units

   201,858    —      820,539 

Equity compensation plans not approved by stockholders

   —      —      —   

20

Plan Category
  (a) Number of
securities to be
issued upon
exercise of options,
warrants and rights		   (b) Weighted
average
exercise price
of outstanding
options,
warrants and
rights		   (c) Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in Column
(a))		 
Equity compensation plans approved by stockholders — stock options
   —      —      645,841 
Equity compensation plans approved by stockholders — restricted stock units
   159,846    —      645,841 
Equity compensation plans not approved by stockholders
   —      —      —   
22

Item 6 — Selected Financial Data

The following historical consolidated financial data as of and for the years ended June 29, 2017, June 30, 2016,24, 2021, June 25, 2015,2020, June 26, 201427, 2019, June 28, 2018, and June 27, 201329, 2017 was derived from our consolidated financial statements. The financial data should be read in conjunction with our audited consolidated financial statements and notes thereto, which are included elsewhere herein, and with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The information below is not necessarily indicative of the results of future operations. The fiscal year ended June 30, 2016 contained an extra week compared to the other fiscal years presented.

Consolidated Statement of Comprehensive Income Data:
(dollars in thousands, except per share data)

   Year Ended 
   June 29,
2017		   June 30,
2016		   June 25,
2015		   June 26,
2014		  June 27,
2013		 

Net sales

  $846,635   $952,059   $887,245   $778,622  $734,334 

Cost of sales

   704,712    814,591    755,189    655,757   614,372 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Gross profit

   141,923    137,468    132,056    122,865   119,962 

Selling and administrative expenses

   83,579    86,156    80,177    77,510   78,343 

Gain on sale of assets held for sale, net

   —      —      —      (1,641)   —   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Income from operations

   58,344    51,312    51,879    46,996   41,619 

Interest expense

   2,910    3,492    3,966    4,354   4,754 

Rental and miscellaneous expense, net

   1,296    1,358    3,049    2,810   1,569 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Income before income taxes

   54,138    46,462    44,864    39,832   35,296 

Income tax expense

   18,013    16,067    15,559    13,545   13,536 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

  $36,125   $30,395   $29,305   $26,287  $21,760 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Basic earnings per common share

  $3.19   $2.71   $2.63   $2.38  $2.00 

Diluted earnings per common share

  $3.17   $2.68   $2.61   $2.36  $1.98 

Cash dividends declared per share

  $5.00   $2.00   $1.50   $1.50  $1.00 

   
Year Ended
 
   
June 24,
2021
   
June 25,
2020
   
June 27,
2019
   
June 28,
2018
   
June 29,
2017
 
Net sales
  $858,482   $880,092   $876,201   $888,931   $846,635 
Cost of sales
   673,495    704,317    717,931    750,032    704,712 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
   184,987    175,775    158,270    138,899    141,923 
Selling and administrative expenses
   99,809    97,228    99,746    82,710    81,446 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income from operations
   85,178    78,547    58,524    56,189    60,477 
Interest expense
   1,441    2,005    3,060    3,463    2,910 
Rental and miscellaneous expense, net
   1,399    1,565    1,089    1,406    1,296 
Other expense
   2,519    2,266    1,947    1,970    2,133 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
   79,819    72,711    52,428    49,350    54,138 
Income tax expense
   20,078    18,601    12,962    16,850    18,013 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
  $59,741   $54,110   $39,466   $32,500   $36,125 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Basic earnings per common share
  $5.19   $4.72   $3.45   $2.86   $3.19 
Diluted earnings per common share
  $5.17   $4.69   $3.43   $2.84   $3.17 
Cash dividends declared per share
  $5.00   $6.00   $2.55   $2.50   $5.00 
Consolidated Balance Sheet Data:
(dollars in thousands)

   June 29,
2017		   June 30,
2016		   June 25,
2015		   June 26,
2014		   June 27,
2013		 

Working capital(1)

  $143,504   $158,979   $150,280   $137,228   $115,087 

Total assets(1)

   398,059    391,162    431,616    394,207    374,245 

Long-term debt, less current maturities(1)

   25,211    28,704    32,046    35,347    33,261 

Total debt(1)

   58,085    44,130    96,500    79,153    73,723 

Stockholders’ equity

   235,468    251,193    241,278    226,827    215,304 

(1)Effective the first quarter of fiscal 2017 we adopted ASUNo. 2015-03 which changes the presentation of debt issuance costs. Prior periods have been adjusted for this new accounting standard.

21

   
June 24,
2021
   
June 25,
2020
   
June 27,
2019
   
June 28,
2018
   
June 29,
2017
 
Working capital
  $124,963   $126,703   $141,434   $130,689   $143,504 
Total assets
   398,455    407,457    391,304    415,853    398,059 
Long-term debt, less current maturities
   10,855    14,730    20,381    27,356    25,211 
Total debt
   23,383    47,023    27,719    65,803    58,085 
Stockholders’ equity
   242,494    238,238    254,555    243,002    235,468 
23

Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the 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 weekthirteen-week quarters). However, the fiscal year ended June 30, 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. Additional information on the comparability of the periods presented is as follows:

References herein to fiscal 20182021, fiscal 2020 and fiscal 2019 are to the fiscal years for the 52 weeks ended June 24, 2021, June 25, 2020 and June 27, 2019, respectively.
References herein to fiscal 2022 are to the fiscal year for the 53 weeks ending June 28, 2018.

References herein to fiscal 2017, fiscal 2016 and fiscal 2015 are to the fiscal years ended June 29, 2017, June 30, 2016 and June 25, 2015, respectively.2022.

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

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under our
Fisher, Orchard Valley Harvest,
Squirrel Brand, Southern Style Nuts
and
Sunshine Country
brand names and under a variety of private brands and under theFisher, Orchard Valley Harvestand Sunshine Countrybrand names.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, snackssnack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands and brand names.brands. We distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

The Company’s long-term objective to drive profitable growth, as identified in our strategic plan (the “Strategic Plan”),Strategic Plan, includes continuing to grow
Fisher, and
 Orchard Valley Harvest, Squirrel Brand
and
Southern Style Nuts
 into leading nut brands by focusing on consumers demanding quality nuts in the snacking, recipe and produce categories and providing integrated nut solutions to grow
non-branded
business at existingacross key customers in each distribution channel.customers. We executedplan to execute on our Strategic Plan to grow our branded business by reaching new consumers via product 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, with an emphasis on increasing our sales via
e-commerce
platforms and retailers. In addition, during fiscal 2017 by expanding2021 we have invested in our distributionpeople and product offeringsfacilities in order to research, develop, market and sell new products in snack categories we currently are not in for ourFisherrecipe nuts branded business andOrchard Valley Harvest produce nuts and by expanding distribution of peanuts and trail mixes to contract packaging customers.

In the third quarter of fiscal 2017, our Board of Directors adopted a dividend policy under which it intends to pay an annual cash dividend on our Common Stock and Class A Stock of at least $0.50 per share. It is contemplated that this annual dividend would be declared around the conclusion of the Company’s fiscal year and paid in the first quarter of each fiscal year. One of the key factors that will be considered in determining the annual dividend amount (and whether any such dividend will be paid) will be the liquidity position of the Company, in particular the borrowing availability under our Credit Facility. The Board of Directors paid an annual dividend of $0.50 per share and a special dividend of $2.00 per share in August 2017.

private brand partners.

We face a number of challenges in the future which include among others, volatile commodity costs for certain tree nuts, especially cashews, and intensified competition on pricing and for market share from both private brand and name brand nut products. Acquisition costsOur
Fisher
recipe nut sales have been negatively impacted recently due to this increased competition for almonds declined significantly duringmarket share. We also face changing industry trends as consumer preferences evolve into shopping in smaller store formats like grocery, use of delivery apps for shopping and generally migrate more of their shopping online. Additionally, in recent months we have faced challenges with shortages for shipping pallets, resin-based packaging, imported materials, transportation equipment and labor. These shortages have impacted our operations and led to some cost increases. We anticipate the second halfindustry will see pricing relief in some of fiscal 2016, which has resultedthese areas in lower selling pricesthe coming quarters, but others may remain elevated for products that contain almonds. Since salesa longer period of almonds comprise a significant percentagetime. In the interim, we are working with our vendors, customers and JBSS facilities in other regions of our totalthe country to source additional supply. If these shortages continue and we cannot secure adequate supplies to fulfill customer orders, it could have an unfavorable impact on net sales we anticipate that lower selling prices will continue to resultand our operations in a significant reduction in net sales in future comparisons until the impact of lower retail prices ultimately drives increased sales volume for almonds.

fiscal year 2022.

We will continue to focus on seeking profitable business opportunities to further utilizemaximize the utilization of our additional production capacity at our primary manufacturing, processing and distribution facility located in Elgin, Site.Illinois. We expect to maintainincrease our recent level of promotional and advertising activity forto invest in transformation growth with an omnichannel approach behind ourOrchard Valley Harvest brands with valuable consumers to win in key categories including recipe nuts, nut flours, snack nuts, trail mix andFisherbrands. snacking. We continue to see domestic sales and volume growth in ourOrchard Valley Harvest brand and expect to continue to focus on this portion ofstrong
e-commerce
performance across our branded business.portfolio and plan to accelerate 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.base for branded and private label products. See the information referenced in Part I, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

22

COVID-19
Impacts
We will continue to face challenges in fiscal year 2022 as result of the
COVID-19
pandemic and the uncertainty of future local, state and federal restrictions aimed to mitigate and control the pandemic. As many of these restrictions were eased near the conclusion of our fiscal 2020, we saw a gradual (albeit limited) increase in demand from our foodservice, restaurant, convenience store and
non-essential
retail customers. However, as conditions surrounding the pandemic deteriorated during the fall and winter of calendar 2020 and the beginning of calendar 2021, consumers were limited in their ability to purchase meals outside their homes. As indoor dining restrictions continued due to the impact of
COVID-19,
consumers continued to snack, cook and bake more at home. While this trend had a positive impact on certain aspects of our consumer business, demand continued to be suppressed from our foodservice, restaurant and
non-essential
retail customers. Additionally,
COVID-19
has had an unfavorable impact on a major customer’s business
24

in our contract packaging distribution channel due to reduced foot traffic in convenience stores as people continued to work from home. During the fourth quarter of fiscal 2021, as the
COVID-19
vaccine became more widely distributed and accepted by the public, restrictions were again loosened and we saw a vast improvement in the quarterly comparison in our sales volume with our foodservice, restaurant, convenience store and
non-essential
retail customers. However, if vaccination rates stagnate or more contagious strains of
COVID-19
develop, our sales to foodservice, restaurant and
non-essential
retail customers may decrease.
Also, during fiscal 2021, we have seen signs of a shortage in capacity in the transportation industry, which our transportation service providers believe is due, in part, to driver concerns related to the impacts of
COVID-19.
Compounding this driver shortage is an increase in demand driven by additional spending on consumer goods, which has led to periodic shortages of shipping container chassis and space on container ships and trains and capacity constraints at U.S. ports. This tightening in transportation capacity is expected to continue into fiscal 2022, has led to increased transportation costs and may lead to potential disruptions in service to our customers and from our suppliers.
The Company’s
COVID-19
crisis team continues to meet on a regular basis to discuss risks faced by the Company and mitigation strategies. We continue to follow recommendations made by state and federal regulators and health agencies to ensure the safety and health of our employees as those recommendations change and evolve. We update and enhance these measures as new guidance is provided. In addition, we extended personal time off for those employees who are ill or must self-quarantine and hosted several free,
on-site
COVID-19
vaccination clinics for our employees and their family members.
We have worked closely with our domestic and global suppliers to source and maintain a consistent supply of raw materials, ingredients and packaging. To date, none of our manufacturing facilities have been significantly impacted by this pandemic. However, recent surges in
COVID-19
cases, especially in southern Vietnam from where most of our cashews are sourced and extensive lockdowns are in place, could have a negative impact on our operations if shipments of raw materials are delayed. We have contingency plans in place to help reduce the negative impact if one or more of our manufacturing facilities encounters a partial or full shut down.
Climate Change Impacts
Similar to other commodity dependent businesses, extreme weather events from climate change can have an unfavorable impact on our business. Floods, hurricanes, wildfires, tornadoes, blizzards, droughts, mudslides and extreme temperatures can affect our ability to obtain adequate (or acceptable quality) input fruit and nut material and manufacture products in our facilities. These extreme weather events can also have an adverse impact on the transportation industry and supply chains upon which we rely. Climate change can also result in unfavorable impacts that are unique to our business, especially for normal crop development. Below are some examples of essential weather conditions that must be presen
t for normal development of the crops from which we derive the major raw materials we use in our products.
Almonds, pecans and walnuts require a minimum of approximately 200, 250 and 700 chilling hours, respectively, during the winter to allow for an adequate amount of dormancy time so the tress can rest.
Peanuts require adequate rainfall or access to water for irrigation for the period starting about 7 weeks after planting and ending about 15 weeks after planting.
Cashews require a minimum of approximately 2,000 hours of sunlight per year. Sunlight is especially critical during the flowering period.
Almonds require bees for pollination. For bees to pollinate effectively during the bloom period, temperatures cannot be less than about 55 degrees Fahrenheit, winds cannot exceed about 15 MPH, and there must be little or no rainfall during that period.
Cranberries require adequate snow and ice coverage during the winter to protect vines from freezing.
Raisins require hot days (about 93 – 100 degrees Fahrenheit) and cool nights (about 55 – 65 degrees Fahrenheit) during the growing season for optimum quality and sugar levels.
The
non-occurrence
of these weather conditions and other essential weather conditions can result in smaller crops, crop failures, or quality failures, which can lead to increased acquisition costs and supply shortages. Should climate changes significantly alter weather patterns, some of these needed input products may not be available at all, which would have a materially adverse impact on our business.
25
Annual Highlights

Our net sales for fiscal 20172021 decreased by $105.4$21.6 million, or 11.1%2.5%, to $846.6$858.5 million compared to fiscal 2016.2020.

Gross profit increased by $4.5$9.2 million, and our gross profit margin, as a percentage of net sales, increased to 16.8%21.5% in fiscal 20172021 from 14.4%20.0% in fiscal 2016.2020.

Total operating expenses for fiscal 2017 decreased by2021 increased $2.6 million; however, our operatingmillion, or 2.7%, to $99.8 million. Operating expenses, as a percentage of net sales, were 9.9%increased to 11.6% compared to 9.0%11.0% of net sales in fiscal 2016.2020.

Diluted earnings per share increased approximately 18.3%10.2% compared to last fiscal year.

Our strong financial position allowed us to pay two special cash dividends with a combined total of $56.5 million.$57.5 million during fiscal 2021.

The total value of inventories on hand at the end of fiscal 2017 increased by $25.82021 decreased $24.1 million, or 16.5%14.0%, in comparison to the total value of inventories on hand at the end of fiscal 2016.2020.

We have seen a significant increase in acquisition costcosts for pecansall major tree nuts decrease in the 20162020 crop year (which falls into our 20172021 fiscal year), as well as an increase in cashew acquisition costs. Conversely, we have seen acquisition costs for domestic tree nuts such as almonds decrease in the 2016 crop year.. While we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2017,2021, the total payments to our walnut growers were not determined until the third quarter of fiscal 2017,2021, which is typical. The final prices paid to the walnut growers were based upon prevailing market prices and other factors, such as crop size and export demand. At June 29, 201724, 2021 there are no amounts due to walnut growers.

Results of Operations

The following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 20172021 to fiscal 20162020 and from fiscal 20162020 to fiscal 2015.

   Percentage of Net Sales  Percentage Change 
   Fiscal
2017		  Fiscal
2016		  Fiscal
2015		  Fiscal 2017
vs. 2016		  Fiscal 2016
vs. 2015		 

Net sales

   100.0%   100.0%   100.0%   (11.1)%   7.3% 

Gross profit

   16.8   14.4   14.9   3.2   4.1 

Selling expenses

   5.9   5.3   5.6   (3.4)   3.0 

Administrative expenses

   4.0   3.7   3.4   (2.4)   14.8 

2019.

   
Percentage of Net Sales
  
Percentage Change
 
   
Fiscal
2021
  
Fiscal
2020
  
Fiscal
2019
  
Fiscal
2021
vs.
2020
  
Fiscal
2020
vs.
2019
 
Net sales
   100.0%   100.0%   100.0%   (2.5)%   0.4% 
Gross profit
   21.5   20.0   18.1   5.2   11.1 
Selling expenses
   7.3   6.7   7.1   6.3   (4.0) 
Administrative expenses
   4.3   4.3   4.3   (3.0)   (0.2) 
Fiscal 20172021 Compared to Fiscal 2016

2020

Net Sales

Our net sales decreased 11.1%2.5% to $846.6$858.5 million for fiscal 20172021 from $952.1$880.1 million for fiscal 2016. Sales volume (measured as pounds sold to customers) decreased by 3.7% for fiscal 2017 in comparison to sales volume for fiscal 2016.2020. The decrease in net sales was primarily due to a 7.6% decrease4.0% decline in the weighted average salesselling price per pound, which primarily occurredwas attributable to lower selling prices for tree nuts as a result of lower commodity acquisition costs. The decline in the weighted average selling prices for almonds and walnuts.

price per pound was partially offset by a 1.6% increase in sales volume, which is defined as pounds sold to customers.

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 from gross sales to net sales, such as promotional discounts, are not allocable to product type.

Product Type

  Fiscal 2017  Fiscal 2016 

Peanuts

   15.7%   13.9% 

Pecans

   16.2   13.1 

Cashews & Mixed Nuts

   24.3   23.3 

Walnuts

   8.4   9.4 

Almonds

   16.3   23.0 

Trail & Snack Mixes

   13.9   12.4 

Other

   5.2   4.9 
  

 

 

  

 

 

 

Total

   100.0%   100.0% 
  

 

 

  

 

 

 

23

Product Type
  
Fiscal
2021
  
Fiscal
2020
 
Peanuts
   19.3%   18.2% 
Pecans
   10.0   10.3 
Cashews & Mixed Nuts
   23.3   23.2 
Walnuts
   6.2   7.2 
Almonds
   10.8   14.7 
Trail & Snack Mixes
   24.7   21.1 
Other
   5.7   5.3 
  
 
 
  
 
 
 
Total
   100.0%   100.0% 
  
 
 
  
 
 
 
26

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

Distribution Channel

  Fiscal 2017   Fiscal 2016 (2)   Change   Percent
Change		 

Consumer(1)

  $530,366   $566,793   $(36,427)    (6.4)% 

Commercial Ingredients

   164,732    244,240    (79,508)    (32.6) 

Contract Packaging

   151,537    141,026    10,511    7.5 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $846,635   $952,059   $(105,424)    (11.1)% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Distribution Channel
  
Fiscal
2021
   
Fiscal 2021
Percent of
Total
  
Fiscal
2020
   
Fiscal
2020 Percent
of Total
  
$ Change
  
Fiscal 2021 to
Fiscal 2020
Percent
Change
 
Consumer
(1
)
  $686,049    79.9%  $673,989    76.6%  $12,060   1.8% 
Commercial Ingredients
   92,911    10.8   118,464    13.5   (25,553)   (21.6) 
Contract Packaging
   79,522    9.3   87,639    9.9   (8,117)   (9.3) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Total
  $858,482    100.0%  $880,092    100.0%  $(21,610)   (2.5)% 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
(1)
Sales of branded products were approximately 38%24% and 36%27% of total consumer channel sales during fiscal 20172021 and 2016,2020, respectively.
Fisher
branded products were approximately 85%66% and 87%68% of branded sales during fiscal 20172021 and 20162020 respectively, with
Orchard Valley Harvest
branded produce products accounting for the majority of the remaining branded product sales.
(2)Fiscal 2016 information has been revised to conform with the current year presentation. In fiscal 2017, we consolidated our bulk export business into our commercial ingredients channel and the remaining portion of our export business into our other sales channels.

Net sales in the consumer distribution channel decreased byincreased 1.8% in dollars and 6.4% in dollars, however, sales volume increased by 1.1% in fiscal 20172021 compared to fiscal 2016.2020. The decreasesales volume increase was driven by an 9.0% increase in net sales was primarilyvolume for private brand products, specifically trail mixes, snack mixes and snack nuts, from new distribution at existing customers, a shift in consumer preferences to lower priced private brand products and growth in snacking as many consumers continue to purchase food for consumption at home. Sales volume for
Fisher
snack nuts increased 12.0% due to increased promotional activity and increased sales of inshell peanuts to a 7.4% decreasemajor customer in the weighted average sales price per pound, which primarily occurred as a resultpreparation for our discontinuance of lower selling prices for almonds and walnuts. IRi market data from June 2017 indicates that product line. Sales volume of
Fisher
recipe nuts continuedecreased 19.4% from lost distribution at three customers. Sales volume
of
Orchard Valley Harvest
products decreased 10.3% due to belost distribution at two customers. Sales volume of
Southern Style Nuts
decreased 7.7% due to the branded market share leaderdiscontinuance of an item at a major customer and a reduction in the overall recipe nut category.Fisher recipe nut sales volume increased 9.8% from fiscal 2016, primarily due tomerchandising and promotional activity, which was offset in part by distribution gains with new customers, the introduction of larger package sizes for walnuts, and increased promotional activity. Partially offsetting the sales volume increase noted above, sales volume forFisher snack nuts decreased 4.3%, primarily as a result of decreased promotional activity. An increase in the combined sales volume of 23.1% of Orchard Valley Harvest andSunshine Countryproduce products, due to increased merchandising activity, also contributed to the sales volume increase. Private brand sales volume for fiscal 2017 was relatively unchanged compared to fiscal 2016.

customers.

Net sales in the commercial ingredients distribution channel decreased by 32.6%21.6% in dollars and 23.4%13.9% in sales volume compared to fiscal 2016.2020. The decrease in sales volume decrease was primarily due to the loss of a bulk almond butter customer13.6% decrease in the second quarter this year combined with decreasedsales volume in our foodservice business and a decline in sales of bulk inshell walnuts duepeanut crushing stock to lower walnut inventory quantities.

peanut oil processors. The sales volume decline in our foodservice business, despite the 117.1% increase in fourth quarter sales volume, resulted from a decline in air travel and nationwide restrictions on indoor restaurant dining, which were attributable to

COVID-19.
Net sales in the contract packaging distribution channel increased by 7.5%decreased 9.3% in dollars and 9.2%8.2% in sales volume in fiscal 20172021 compared to fiscal 2016.2020. The decline in sales volume increase was primarily dueattributable to distribution gains and product line expansions implemented by severalthe unfavorable impact of our existing customers in this channel.

lower convenience store foot traffic on one customer’s business as a result of

COVID-19.
Gross Profit

Gross profit increased 3.2%5.2% to $141.9$185.0 million in fiscal 20172021 from $137.5$175.8 million in fiscal 2016.2020. Our gross profit margin, as a percentage of sales, increased to 16.8%21.5% for fiscal 20172021 from 14.4%20.0% for fiscal 2016.

2020. The increases in gross profit and gross profit margin were mainly attributable to lower commodity acquisition costs for almondsall major tree nuts and improved alignment of selling prices and acquisition costs for pecans and walnuts.

increased sales volume.

Operating Expenses

Total operating expenses for fiscal 2017 decreased by2021 increased $2.6 million to $83.6$99.8 million. Operating expenses as a percent of net sales was 9.9%were 11.6% for fiscal 20172021 and 9.0%11.0% for fiscal 2016.2020. Operating expenses as a percent of net sales increased in fiscal 20172021 as a result of a lower net sales base.

base and an increase in total operating expenses. The increase in total operating expenses was mainly due to increases in freight, research and consulting, and compensation related expenses, which were partially offset by an increase in the gain on asset disposals and decreases in advertising and travel expenses.

Selling expenses for fiscal 20172021 were $49.4$63.0 million, a decreasean increase of $1.7$3.7 million, or 3.4%6.3%, over the amount recorded for fiscal 2016.2020. The decreaseincrease was primarily driven primarily by a $1.5$4.2 million increase in freight expense due to significantly higher freight rates compared to fiscal 2020 and, to a lesser extent, an increase in sales volume for our sales made on a delivered basis to customers, and a $1.1 million increase in consumer insight research and related consulting expense. These increases were partially offset by a $1.3 million decrease in sampling and advertising expense primarily due to less radio advertising and a $1.0$0.4 million decrease in sales commissions expense, and a $0.9 million decrease in compensation-related expenses. Partially offsetting the above was a $1.4 million increase in shippingtravel expense due to an increase in delivered sales pounds.

COVID-19
travel restrictions.
Administrative expenses for fiscal 20172021 were $34.2$36.8 million, a decrease of $0.9$1.1 million, or 2.4%3.0%, from the amount recorded for fiscal 20162020. The decrease was due primarily to a $1.4$1.9 million increase in the gain on asset disposals, mainly resulting from a $2.3 million gain from the final insurance recovery recognized in the second quarter of fiscal 2021 for the Garysburg facility fire. This decrease in compensation-related expenses and a $0.5 million decrease in bad debt and miscellaneous expense, which werewas partially offset by a $0.8$0.6 million increase in net litigation settlements.

compensation related expenses.

27
Income from Operations

Due to the factors discussed above, our income from our operations was $58.3$85.2 million, or 6.9%9.9% of net sales, for fiscal 2017,2021, compared to $51.3$78.5 million, or 5.4%8.9% of net sales, for fiscal 2016.

24

2020.

Interest Expense

Interest expense was $2.9$1.4 million for fiscal 20172021 compared to $3.5$2.0 million for fiscal 2016.2020. The decrease in interest expense was due primarily to lower average debt levels during the first half of the 2017 fiscal year.

levels.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $1.3 million for fiscal 2017 compared to $1.4 million for fiscal 2016.

Income Tax Expense

Income tax expense was $18.0 million, or 33.3% of income before income taxes (the “Effective Tax Rate”), for fiscal 2017 compared to $16.1 million, or 34.6% of income before income taxes, for fiscal 2016. The Effective Tax Rate was favorably impacted by approximately $0.9 million of excess tax benefits that reduced the Effective Tax Rate by 180 basis points. Prior to the adoption of ASU2016-09, which occurred in the first quarter of fiscal 2017, excess tax benefits were recorded in Capital in excess of par value on the Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Equity.

Net Income

Net income was $36.1 million, or $3.19 basic and $3.17 diluted per common share, for fiscal 2017, compared to $30.4 million, or $2.71 basic and $2.68 diluted per common share, for fiscal 2016, due to the factors discussed above.

Fiscal 2016 Compared to Fiscal 2015

Net Sales

Our net sales increased 7.3% to $952.1 million for fiscal 2016 from $887.2 million for fiscal 2015. Sales volume (measured as pounds sold to customers) increased by 6.6% for fiscal 2016 in comparison to sales volume for fiscal 2015. Sales volume increased for all major nut types except almonds and pecans.

The following 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 from gross sales to net sales, such as promotional discounts, are not allocable to product type.

Product Type

  Fiscal 2016  Fiscal 2015 

Peanuts

   13.9%   13.7% 

Pecans

   13.1   12.7 

Cashews & Mixed Nuts

   23.3   22.0 

Walnuts

   9.4   11.0 

Almonds

   23.0   23.4 

Trail & Snack Mixes

   12.4   12.0 

Other

   4.9   5.2 
  

 

 

  

 

 

 

Total

   100.0%   100.0% 
  

 

 

  

 

 

 

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

Distribution Channel

  Fiscal 2016   Fiscal 2015   Change   Percent
Change		 

Consumer(1)

  $561,191   $529,076   $32,115    6.1% 

Commercial Ingredients

   222,535    207,370    15,165    7.3 

Contract Packaging

   137,053    114,799    22,254    19.4 

Export(2)

   31,280    36,000    (4,720)    (13.1) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $952,059   $887,245   $64,814    7.3% 
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)Sales of branded products were approximately 35% and 32% of total consumer channel sales during fiscal 2016 and 2015, respectively.Fisher branded products were approximately 87% and 90% of branded sales during fiscal 2016 and 2015 respectively, with branded produce products accounting for the remaining branded product sales.

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(2)Export sales consist primarily of bulk products and consumer branded and private brand products. Consumer branded and private brand products accounted for approximately 60% and 65% of total sales in the export channel during fiscal 2016 and fiscal 2015, respectively. In fiscal 2017 we consolidated our bulk export business into our commercial ingredients channel and the remaining portion of our export consumer products business into our other sales channels.

Net sales in the consumer distribution channel increased by 6.1% in dollars and 4.5% in sales volume in fiscal 2016 compared to fiscal 2015. IRi market data from June 2016 indicates thatFisher recipe nuts continue to be the branded market share leader in the overall recipe nut category. TotalFisher brand sales volume increased by 12.0% in fiscal 2016 compared to fiscal 2015 due primarily to new distribution gains and increased promotional activity. Sales volume forFisher snack nuts and peanut butter increased a combined 21.0%, primarily as a result of increased promotional activity and new distribution gains.Fisher recipe nut sales volume increased 5.8% from fiscal 2015, primarily as a result of increased distribution to existing customers. A 41.0% increase in combined sales volume of Orchard Valley Harvest andSunshine Countryproduce products due to new distribution gains also contributed to the sales volume increase. Private brand sales volume increased by 1.4% in fiscal 2016 compared to fiscal 2015.

Net sales in the commercial ingredients distribution channel increased by 7.3% in dollars and 6.9% in sales volume compared to fiscal 2015. The sales volume increase was primarily due to an increase in sales of peanuts to peanut oil stock crushers and to other peanut shellers and increased sales of cashew products to an existing customer. In August 2016, we were notified by a significant customer in the commercial ingredients sales channel of its intent to move some or all of its almond butter requirements to a vertically integrated almond butter supplier during our second quarter of fiscal 2017. Almond butter sales to this customer in fiscal 2016 were approximately $90.0 million while the gross profit margin on this business was substantially lower than our total gross profit margin for fiscal 2016. Although demand for almond butter has increased considerably in recent years, net sales in our commercial ingredients sales channel in fiscal 2017 will likely decline if this lost sales volume cannot be replaced through organic growth or expansion of products at existing customers.

Net sales in the contract packaging distribution channel increased by 19.4% in dollars and 10.4% in sales volume in fiscal 2016 compared to fiscal 2015. The sales volume increase was primarily due to increased sales with existing customers due in large part to new item introductions and increased promotional activity implemented by customers in this channel.

Net sales in the export distribution channel decreased 13.1% in dollars for fiscal 2016, though sales volume increased 15.6% compared to fiscal 2015. The sales volume increase was primarily due to increased sales of bulk walnuts.

Gross Profit

Gross profit increased 4.1% to $137.5 million in fiscal 2016 from $132.1 million in fiscal 2015. Our gross profit margin decreased to 14.4% of net sales for fiscal 2016 from 14.9% for fiscal 2015.

The increase in gross profit resulted primarily from increased sales volume. The decline in gross profit margin was primarily attributable to a decline in gross profit on sales of walnuts in the third quarter.

Operating Expenses

Total operating expenses for fiscal 2016 increased by $6.0 million to $86.2 million. Operating expenses as a percent of net sales were 9.0% for both fiscal 2016 and fiscal 2015.

Selling expenses for fiscal 2016 were $51.1 million, an increase of $1.5 million, or 3.0%, over the amount recorded for fiscal 2015. The increase was driven primarily by a $2.3 million increase in compensation-related expenses and a $0.5 million increase in

marketing and advertising expense. Partially offsetting these increases was a $1.7 million decrease in shipping expense driven primarily by decreasing fuel costs and an increase in customers using their own freight carriers to pick up their orders.

Administrative expenses for fiscal 2016 were $35.0 million, an increase of $4.5 million, or 14.8%, from the amount recorded for fiscal 2015 due primarily to a $3.3 million combined increase in both incentive and ordinary compensation-related expenses.

Income from Operations

Due to the factors discussed above, our income from our operations was $51.3 million, or 5.4% of net sales, for fiscal 2016, compared to $51.9 million, or 5.8% of net sales, for fiscal 2015.

Interest Expense

Interest expense was $3.5 million for fiscal 2016 compared to $4.0 million for fiscal 2015. The decrease in interest expense was due primarily to lower debt levels.

26

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $1.4 million for fiscal 20162021 compared to $3.0$1.6 million for fiscal 2015.2020. The decrease during fiscal 2021 was primarily due to repairs toless repair and maintenance expense.
Other Expense
Other expense consists of pension related expenses other than the exterior of our office building located at the Elgin Site being completed duringservice cost component and was $2.5 million and $2.3 million for fiscal 2015 while no such repair expenses were incurred in2021 and fiscal 2016.

2020, respectively.

Income Tax Expense

Income tax expense was $16.1$20.1 million, or 34.6%25.2% of income before income taxes, for fiscal 20162021 compared to $15.6$18.6 million, or 34.7%25.6% of income before income taxes, for fiscal 2015.

2020.

Net Income

Net income was $30.4$59.7 million, or $2.71$5.19 basic and $2.68$5.17 diluted per common share, for fiscal 2016,2021, compared to $29.3$54.1 million, or $2.63$4.72 basic and $2.61$4.69 diluted per common share, for fiscal 2015,2020, due to the factors discussed above.

Fiscal 2020 Compared to Fiscal 2019
The discussion of our results of operations for the fiscal year ended June 25, 2020 compared to the fiscal year ended June 27, 2019 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form
10-K
for the year ended June 25, 2020 and such discussion is incorporated by reference herein.
Liquidity and Capital Resources

General

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Strategic Plan through growing our branded and private label nut programs and repay indebtedness. Also, various uncertainties could result in additional uses of cash. The primary sources of cash are results of operations and availability under our Credit Agreement, dated February 7, 2008 and subsequently amended most recently in July 2017 (as amended, the “Credit Facility”), that provides a revolving loan commitment and letter of credit subfacility.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. See Part I, Item 1A — “Risk Factors” above. Our available credit under our Credit Facility has allowed us to consummate business acquisitions, devote more funds to promote our branded products, (especiallyincrease ourFisher consumer insight capabilities andOrchard Valley Harvest brands), efforts, consummate strategic investments and business acquisitions, such as the 2018 acquisition of the Squirrel Brand business, reinvest in the Company through capital expenditures, develop new products, pay a special cash dividend the past five years,dividends and explore other growth strategies outlined in our Strategic Plan.

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

28
The following table sets forth certain cash flow information for the last threetwo fiscal years (dollars in thousands):

   June 29,
2017		   June 30,
2016		   2017 to
2016
$ Change		   June 25,
2015		 

Operating activities

  $52,668   $89,248   $(36,580)   $13,933 

Investing activities

   (10,543)    (14,925)    4,382    (14,281) 

Financing activities

   (42,390)    (74,049)    31,659    410 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash flow

  $(265)   $274   $(539)   $62 
  

 

 

   

 

 

   

 

 

   

 

 

 

   
June 24,
2021
   
June 25,
2020
   
2021 to
2020
$ Change
 
Operating activities
  $104,697   $63,613   $41,084 
Investing activities
   (22,950)    (14,049)    (8,901) 
Financing activities
   (82,610)    (49,620)    (32,990) 
  
 
 
   
 
 
   
 
 
 
Total change in cash
  $(863)   $(56)   $(807) 
  
 
 
   
 
 
   
 
 
 
Operating Activities.
Net cash provided by operating activities was $52.7$104.7 million in fiscal 2017, a decrease2021, an increase of $36.6$41.1 million compared to fiscal 2016. This decrease2020. The increase in operating cash flow was due primarily to a largerdecreased use of working capital for inventory, combined with a $5.6 million increase in fiscal 2017net income driven by lower commodity acquisition costs for all major tree nuts compared to fiscal 2016.2020. Inventories increased $25.8decreased $24.1 million in fiscal 20172021 compared to a $41.4$15.0 million decreaseincrease in inventories in fiscal 2016. Partially offsetting this use2020 which resulted in a net favorable change in cash of cash was a decrease in accounts receivable of $13.3 million in fiscal 2017 compared to an increase in accounts receivable of $2.5 million in fiscal 2016.

Net accounts receivable$39.1 million.

Total inventories were $64.8$148.0 million at June 29, 2017,24, 2021, a decrease of $13.3$24.1 million, or 17.0%14.0%, from the balance at June 30, 2016. The decrease in net accounts receivable from June 30, 2016 to June 29, 2017 is due primarily to lower dollar sales in June 2017 compared to June 2016.

Total inventories were $182.4 million at June 29, 2017, an increase of $25.8 million, or 16.5% from the inventory balance at June 30, 2016.25, 2020. The increasedecrease was primarily due to larger quantities of pecans, almonds and peanuts on hand combined with higherlower commodity acquisition costs for all major tree nuts and decreased quantities of peanuts, pecans and peanutsfinished goods on hand, which was partially offset by increased quantities of walnuts on hand.

Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased 8.6 million pounds, or 15.3%, at June 24, 2021 compared to fiscal 2016. Increased quantities of finished goods andwork-in-process inventories also contributed to the increase in total inventories.

June 25, 2020. The weighted average cost per pound of raw nut and dried fruit input stocks on hand at June 29, 2017 increasedthe end of fiscal 2021 fell by 5.5%11.9% compared to June 30, 2016 mainlythe end of fiscal 2020, primarily due to higherlower commodity acquisition costs for peanuts and all major tree nuts except almonds.

27

Net cash provided by operating activities was $89.2 million in fiscal 2016, an increase of $75.3 million compared to fiscal 2015. This increase was due primarily to a reduced use of working capital for inventory and accounts receivable in fiscal 2016 compared to fiscal 2015.

Net accounts receivable were $78.1 million at June 30, 2016, a slight increase of $2.5 million, or 3.2%, from the balance at June 25, 2015. The increase in net accounts receivable was due primarily to higher dollar sales in the month of June 2016 than in the month of June 2015.

Total inventories were $156.6 million at June 30, 2016, a decrease of $41.4 million, or 20.9%, from the inventory balance at June 25, 2015. This decrease was primarily driven by the decrease in walnut acquisition costs and lower amounts of finished goods andwork-in-process inventories on hand.

The weighted average cost per pound of raw nut and dried fruit input stocks on hand at June 30, 2016 decreased by 31.6% compared to June 25, 2015 mainly due to significantly lower acquisition costs for walnuts and to a lesser extent almonds. Pounds of raw nut input stocks on hand at the end of June 30, 2016 increased by 8.6 million pounds, or 20.0%, when compared to the quantity of raw nut input stocks on hand at June 25, 2015, due primarily to increased quantities of peanuts and inshell walnuts. The weighted average cost per pound of finished goods on hand at June 30, 2016 decreased by 11.0% over the weighted average cost per pound of finished goods on hand at June 25, 2015 primarily due to the above noted decreased acquisition costs.

nuts.

Investing Activities.
Cash used in investing activities was $10.5$23.0 million in fiscal 2017.2021. Capital expenditures accounted for a $10.9$25.2 million use of cash in fiscal 2017.

2021, which was offset in part by $2.5 million of proceeds from insurance recoveries related to a fire in our Garysburg, North Carolina facility.

Cash used in investing activities was $14.9$14.0 million in fiscal 2016.2020. Capital expenditures accounted for a $15.0 million use of cash in fiscal 2016.

Cash used2020, which was offset in investing activities was $14.3part by $1.1 million in fiscal 2015. Capital expenditures accounted for a $14.4 million use of cash in fiscal 2015.

proceeds from insurance recoveries related to the fire noted above.

We expect total capital expenditures for equipment purchases and upgrades, facility maintenance and food safety enhancements for fiscal 20182022 to be approximately $14$18.0 million. Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for capital expenditures.

Financing Activities.
Cash used in financing activities was $42.4$82.6 million during fiscal 2017.2021. We paid two special dividends totaling $57.5 million in fiscal 2017 for a combined total of $56.5 million.2021. We repaid $3.5$5.3 million of long-term debt during fiscal 2017, $3.02021, $3.1 million of which was related to the Mortgage Facility (as defined below). Partially offsetting these usesThere was a net decrease in cashborrowings outstanding under our Credit Facility of $18.4 million during fiscal 2021 which occurred, in part, as a result of the decrease in inventory.
Cash used in financing activities was $49.6 million during fiscal 2020. We paid dividends totaling $68.7 million in fiscal 2020. We repaid $7.7 million of long-term debt during fiscal 2020, $3.0 million of which was related to the Mortgage Facility. There was a net increase in borrowings outstanding under our Credit Facility of $17.4$27.0 million during fiscal 20172020 which occurred, in part, as a result of the increase in inventory.

Cash used in financing activities was $74.0 million during fiscal 2016. We paid a $22.5 million special dividend in December 2015. We repaid $3.4 million of long-term debt during fiscal 2016, $3.0 million of which was related to the Mortgage Facility (as defined below). In addition to these uses of cash there was a net decrease in borrowings outstanding under our Credit Facility of $49.1 million during fiscal 2016 which occurred in part as a result of the decrease in inventory.

Cash provided by financing activities was $0.4 million during fiscal 2015. We paid a $16.8 million special dividend in December 2014. We repaid $3.3 million of long-term debt during fiscal 2015, $3.0 million of which was related to the Mortgage Facility (as defined below). Offsetting these uses of cash was a net increase in borrowings outstanding under our Credit Facility of $20.6 million during fiscal 2015 which occurred in part as a result of the increase in inventory.

28

Financing Arrangements

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

29
Credit 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.fixtures and matures on March 5, 2025. The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois and Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).

On September 30, 2014, we entered into

At June 24, 2021, the Sixth Amendment to the Credit Facility (the “Sixth Amendment”) which extended the maturity date of the Credit Facility from July 15, 2016 to July 15, 2019 and reduced the interest rates charged for loan advances and letter of credit borrowings. The aggregate revolving loan commitment amount did not change. In addition, the Sixth Amendment allows the Company to, without obtaining Bank Lender consent, (i) make up to two cash dividends or distributions on our stock each fiscal year, or (ii) purchase, acquire, redeem or retire stock in any fiscal year, in any case, in an amount not to exceed $25.0 million, individually or in the aggregate, as long as the excess availability under the Credit Facility remains over $30.0 million after giving effect to any such dividend, distribution, purchase or redemption. The Sixth Amendment also increased the amount of permitted acquisitions from $50.0 million to $100.0 million and removed the annual limit on capital expenditures.

On July 7, 2016, we entered into the Seventh Amendment to Credit Agreement (the “Seventh Amendment”) which extended the maturity date of the Credit Agreement from July 15, 2019 to July 7, 2021, and reduced by twenty-five basis points the interest rates charged for loan advances and letter of credit borrowings. The unused line fee was reduced to 0.25% per annum. The aggregate revolving loan commitment remained unchanged. In addition, the Seventh Amendment allows the Company to, without obtaining Bank Lender consent, (i) make up to one cash dividend or distribution on our stock per quarter, or (ii) purchase, acquire, redeem or retire stock in any fiscal quarter, in any case, in an amount not to exceed $60.0 million in the aggregate per fiscal year, as long as no default or event of default exists and the excess availability under the Credit Agreement remains over $30.0 million immediately before and after giving effect to any such dividend, distribution, purchase or redemption. The Seventh Amendment also permits an additional 5% of outstanding accounts receivable from a major customer to be included as eligible in the borrowing base calculation and reduced the amount available for letter of credit usage to $10.0 million.

As of June 29, 2017, the weighted average interest rate for the Credit Facility was 3.11%at the Base Rate of 3.5%. There were no borrowings under LIBOR contracts due to the low borrowing levels against the Credit Facility and projected positive cash flow for July. 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 certain other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of June 29, 2017,24, 2021, 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. As ofAt June 29, 2017,24, 2021, we had $84.4$104.6 million of available credit under the Credit Facility. WeIf this entire amount were borrowed at June 24, 2021, we would still be in compliance with all restrictive covenants under the Credit Facility if this entire amount were borrowed.

After the conclusion of the 2017 fiscal year, on July 7, 2017, we entered into the Eighth Amendment to Credit Agreement (the “Eighth Amendment”) which eliminated the quarterly restriction on cash dividends and distributions and allows the Company to, without obtaining lender consent, make up to four cash dividends or distributions on its stock per fiscal year, or purchase, acquire, redeem or retire its stock in any fiscal year, in an amount not to exceed $60.0 million in the aggregate per fiscal year, as long as no default or event of default exists and the excess availability under the Credit Agreement remains over $30.0 million immediately before and after giving effect to any such dividend, distribution, purchase or redemption.

Facility.

Mortgage Facility

We are subject to interest rate resets for each of Tranche A and Tranche B. Specifically, on March 1, 2018 (the “Tranche A Reset Date” and the “Tranche B Reset Date”) and every two years thereafter, the Mortgage Lender may reset the interest rates for each of Tranche A and Tranche B, respectively, in its sole and absolute discretion. If the reset interest rate for Tranche A is unacceptable to us and we (i) do not have sufficient funds to repay amounts due with respect to Tranche A on the Tranche A Reset Date, or (ii) are unable to refinance amounts due with respect to Tranche A on the Tranche A Reset Date on terms more favorable than the reset interest rates, then, depending on the extent of the changes in the reset interest rates, our interest expense would increase.

29

The Mortgage Facility matures on March 1, 2023. Tranche A underOn March 1, 2018 the interest rate on the Mortgage Facility accrues interestwas fixed at a fixed interest rate of 7.63%4.25% per annum, payable monthly. As mentioned above, such interest rate may be reset byannum. Monthly principal payments on the Mortgage Lender on the Tranche A Reset Date. Monthly principal paymentsFacility in the amount of $0.2$0.3 million commenced on June 1, 2008. Tranche B under the Mortgage Facility accrues interest, as reset on March 1, 2016, at a floating rate of the greater of (i) one month LIBOR plus 3.50% per annum or (ii) 4.25%, payable monthly (the “Floating Rate”). The margin on such Floating Rate may be reset by the Mortgage Lender on each Tranche B Reset Date; provided, however, that the Mortgage Lender may also change the underlying index on each Tranche B Reset Date occurring on or after March 1, 2018. Monthly principal payments in the amount of $0.1 million commenced on June 1, 2008. We do not currently anticipate that any change in the Floating Rate or the underlying index will have a material adverse effect upon our business, financial condition or results of operations.

The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $110.0 million and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility,
non-compliance
with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 29, 2017,24, 2021, we were in compliance with all covenants under the Mortgage Facility.

Facility and a total principal amount of $5.8 million was outstanding.

Selma Property

In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has aten-year term at a fair market value rent with three five-year renewal options. Also, we currently have an option to purchase the Selma Properties from the partnerships 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. AsThe lease for the Selma Properties had an initial
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, and the payments are reassessed at the end of each five-year renewal option. The monthly payments will increase, beginning in September 2021, based on the change in the consumer price index in accordance with the lease. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the lessor at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. At June 29, 2017, $11.124, 2021, $8.9 million of the debt obligation was outstanding.

Squirrel Brand Seller-Financed Note
In September 2015,November 2017 we exercised two five-year renewal optionscompleted the
Squirrel Brand
acquisition. The Acquisition was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note of $11.5 million, which extended the Selma lease to September 18, 2026 (unless we purchase it before such date) and reduced the base monthly lease amount we pay on the Selma Propertieswas repaid in full during the second quarter of fiscal 2017.

2021.

30

Off-Balance
Sheet Arrangements

As of June 29, 2017,24, 2021, we were not involved in any
off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K
promulgated by the SEC.

Contractual Cash Obligations

At June 29, 2017,24, 2021, we had the following contractual cash obligations for long-term debt (including scheduled interest payments), operating leases, the Credit Facility, purchase obligations, retirement plans and other long-term liabilities (amounts in this subsection in thousands):

   Total   Less Than
1 Year		   1-3
Years		   3-5
Years		   More
Than 5
Years		 

Long-term debt obligations(1)

  $38,947   $5,376   $10,128   $9,293   $14,150 

Minimum operating lease commitments

   2,138    969    950    213    6 

Revolving credit facility borrowings

   29,456    29,456    —      —      —   

Purchase obligations(2)

   177,842    177,842    —      —      —   

Retirement plans(3)

   22,105    745    1,438    1,597    18,325 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual cash obligations

  $270,488   $214,388   $12,516   $11,103   $32,481 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   
Total
   
Less Than
1 Year
   
1-3 Years
   
3-5 Years
   
More Than
5 Years
 
Long-term debt obligations
(1)
  $19,831   $4,793   $5,312   $2,727   $6,999 
Minimum operating lease commitments
   3,739    1,545    1,865    325    4 
Revolving credit facility borrowings
   8,653    8,653    —      —      —   
Purchase obligations
(2)
   240,492    240,492    —      —      —   
Retirement plans
(3)
   35,628    709    1,465    2,775    30,679 
Other
   284    94    98    52    40 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total contractual cash obligations
  $308,627   $256,286   $8,740   $5,879   $37,722 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(1)Interest obligations on floating rate debt instruments are calculated using interest rates in effect at June 29, 2017.
See Note 57 — “Long-Term Debt” of the Notes to Consolidated Financial Statements for further detail on the Company’s long-term debt obligations.
(2)
The purchase obligations primarily represent $177,842 of inventory purchase commitments; however, these amounts exclude purchase commitments under walnut purchase agreements due to the uncertainty of pricing and quantity.
(3)
Represents projected retirement obligations. SeeNote 11-“Employee13 — “Employee Benefit Plans” andNote 12-“Retirement14 — “Retirement Plan” of the Notes to Consolidated Financial Statements for further details.

31

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The accounting policies as disclosed in the Notes to Consolidated Financial Statements are applied in the preparation of our financial statements and accounting for the underlying transactions and balances. The policies discussed below are considered by our management to be critical for an understanding of our financial statements because the application of these policies places the most significant demands on management’s judgment, with financial reporting results relying on estimation regarding the effect of matters that are inherently uncertain. Specific risks, if applicable, for these critical accounting policies are described in the following paragraphs. For a detailed discussion on the application of these and other accounting policies, see Note1-“Significant 1 — “Significant Accounting Policies” of the Notes to Consolidated Financial Statements.

Preparation of this Annual Report on Form
10-K
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. See “Forward-Looking Statements” below.

Revenue Recognition

We

The Company records revenue based on a five-step model in accordance with Accounting Standards Codification (“ASC”) Topic 606. The core principle of the guidance is that an entity should recognize revenue when persuasive evidenceto depict the transfer of promised goods or services to customers in an arrangement exists, title has transferred (based upon terms of shipment), price is fixed, delivery occurs and collection is reasonably assured.amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We sell our products under some arrangements which include customer contracts that fix the sales price for periods, which typically can be up to one year for some commercial ingredient customers, andcustomers. We also sell our products through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer and some commercial ingredient users. ReservesWe recognize revenue as performance obligations are fulfilled, which occurs when control passes to our customers. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. We reduce revenue for these programsestimated promotion allowances, volume and customer rebates and marketing allowances, among others. These reductions in revenue are established based upon the terms of specific arrangements. Revenuesconsidered variable consideration and are recorded net of rebates and promotion and marketing allowances. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. While customers do have the right to return products, past experience has demonstrated that product returns have generally been insignificant. Provisions for returns are reflected as a reduction in net sales and are estimated based upon customer specific circumstances. Evaluating these estimates requires our management’s judgment, and changes in our assumptions could impact the amount recorded for our sales, cost of sales and net income.

Inventories

Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost(first-in,first-out) or market which approximates actual cost. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almondssame period the related sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and other nuts may affect the value of inventory and gross profit and gross profit margin. When expected market sales prices moveexperience. See Note 2 — “Revenue Recognition” below costs, we record adjustments to write down the carrying values of inventories to the lower of cost(first-in,first-out) or market which approximates actual cost. No such adjustments have been required in any of the periods presented. The results of our shelling process can also result in changes to our inventory costs based upon actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based upon our inventory systems and are subject to verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates, which historically averaged less than 1.0% of inventory purchases, are also recorded.

We enter into walnut purchase agreements with growers typically in our first fiscal quarter, under which they deliver their walnut crop to us during the fall harvest season (which typically occurs in our first and second fiscal quarters), and pursuant to our walnut purchase agreements, we determine the final price for this inventory after receipt and typically by the end of our third fiscal quarter. Since the ultimate purchase price to be paid is determined subsequent to receiving the walnut crop, we typically estimate the final purchase price for our first and second quarter interim financial statements basedadditional information on crop size, quality, current market prices and other factors. Any such changes in estimates, which could be significant, are accounted for in the period of change by adjusting inventory on hand or cost of goods sold if the inventory has been sold. Changes in estimates may affect the ending inventory balances, as well as gross profit. There were no significant adjustments recorded in any of the periods presented.

revenue recognition.

Impairment of Long-Lived Assets

We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets (e.g., customer relationships and brand names), to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value. We also evaluate the amortization periods assigned to our intangible assets to determine whether events or changes in circumstances require a revised estimate of useful lives. We did not record any impairment of long-lived assets or amortizable identifiable intangible assets in any of the last three fiscal years.

32

Income Taxes

We account

Goodwill
Goodwill is not amortized, but is tested annually for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences ofimpairment whenever events that have been reportedor changes in our financial statements or tax returns. Such items give rise to differences in the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded to reducecircumstances indicate the carrying amount of deferred tax assetsthe asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that all or a portion of the asset will not be realized. In estimating future tax consequences, we consider all expected future events other than changes in tax law or rates.

We record liabilities for uncertain income tax positions based on atwo-step process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater(more than 50%) that the estimated fair value of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have aour single reporting unit is less than 50% likelihoodits carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

32
Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of being sustained, no tax benefitour single reporting unit are identified (similar to impairment indicators above).
Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. The inputs used to estimate fair value include several subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Our market capitalization is recorded. For tax positionsalso an estimate of fair value that have met the recognition thresholdis considered in our qualitative impairment analysis which is a level 1 input in the first step,fair value hierarchy. If the carrying value of our single reporting unit exceeds its fair value, we performrecognize an impairment loss equal to the second step of measuringdifference between the benefit to be recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes in facts, circumstances,carrying value and new information may require us to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur.

We recognize interest and penalties accrued related to unrecognized tax benefits in the Income tax expense caption in the Consolidated Statement of Comprehensive Income.

We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 29, 2017, we believe that our deferred tax assets are fully realizable, except for $171 of net basis differences for which we have provided a valuation allowance.

estimated fair value.

Retirement Plan

In order to measure the annual expense and calculate the liability associated with our retirement plan, management must make a variety of estimates including, but not limited to, discount rates, compensation increases and anticipated mortality rates. The estimates used by management are based on our historical experience as well as current facts and circumstances. We use a third-party specialist to assist management in appropriately measuring the expense associated with this employment-related benefit. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

We recognize net actuarial gains or losses in excess of 10% of the plan’s projected benefit obligation into current period expense over the average remaining expected service period of active participants.

One

The most significant assumption for pension plan accounting is the discount rate. We select a discount rate each year (as of our fiscal
year-end
measurement date) for our plan based upon a hypothetical corporate bond portfolio for which the cash flows match the
year-by-year
projected benefit cash flows for our pension plan. The hypothetical bond portfolio is comprised of high-quality fixed income debt securities (usually Moody’s Aa3 or higher) available at the measurement date. Based on this information, the discount rate selected by us for determination of pension expense was 3.61%2.69% for fiscal 2017, 4.63%2021, 3.56% for fiscal 2016,2020, and 4.37%4.14% for fiscal 2015.2019. A
25-basis
point increase or decrease in our discount rate assumption for fiscal 20172021 would have resulted in an immaterial change in our pension expense for fiscal 2017.2021. For our
year-end
pension obligation determination, we selected discount rates of 3.99%2.89% and 3.61%2.69% for fiscal years 20172021 and 2016,2020, respectively.

The rate of compensation increase is another significant assumption used in the development of accounting information for pension plans. We determine this assumption based on our long-term plans for compensation increases and current economic conditions. Based on this information, we selected 4.5% for both fiscal years 2017 and 2016 as the rate of compensation increase for determining ouryear-end pension obligation. We also used 4.5% for the rate of compensation increase for determination of pension expense for each of fiscal years 2017, 2016, and 2015.

TheRP-2014 white collar fully generational mortality table with mortality improvement scaleMP-2016 published by the Society of Actuaries Retirement Plan Experience Committee was utilized in the preparation of our pension obligation as of June 29, 2017.

33

Recent Accounting Pronouncements

Refer to Note 1 — “Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

Forward-Looking Statements

The statements contained in this Annual Report on Form
10-K,
and in the Chief Executive Officer’s letter to stockholders accompanying the Annual Report on Form
10-K
delivered to stockholders, that are not historical (including statements concerning our expectations regarding market risk) are “forward-looking statements.” These forward-looking statements may be followed (and therefore identified) by a cross reference to Part I, Item 1A — “Risk Factors” or may be otherwise identified by the use of forward-looking words and phrases such as “will”, “anticipates”, “intends”, “may”, “believes”, “should” and “expects”, and they are based on our current expectations or beliefs concerning future events and involve risks and uncertainties. We undertake 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. We caution that such statements are qualified by important factors, including the factors described in Part I, Item 1A — “Risk Factors” and other factors, risks and uncertainties that are beyond our control, that could cause results to differ materially from our current expectations and/or those in the forward-looking statements, as well as the timing and occurrence (or nonoccurrence) of transactions and other factors, risk, uncertainties and events which may be subject to circumstances beyond our control. Consequently, results actually achieved may differ materially from the expected results included in these statements.

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of changes in interest rates, commodity prices of raw material purchases and foreign exchange. We have not entered into any arrangements to hedge against changes in market interest rates, commodity prices or foreign currency fluctuations.

We are unable to engage in hedging activity related to commodity prices, because there are no established futures markets for nuts; therefore, we can only attempt to pass on the commodity cost increases in the form of price increases to our customers. A hypothetical 1% increase in material costs, without a corresponding price increase, would have decreased gross profit approximately $5.9$5.3 million for fiscal 2017.2021. See Part I, Item 1A — “Risk Factors” for a further discussion of the risks and uncertainties related to commodity prices of raw materials and the impact thereof on our business.

Approximately 41%34% of the dollar value of our total nut purchases for fiscal 20172021 were made from foreign countries, and while these purchases were payable in U.S. dollars, the underlying costs may fluctuate with changes in the value of the U.S. dollar relative to the currency in the foreign country from where the nuts are purchased, or to other major foreign currencies such as the euro.

We are exposed to interest rate risk on our Credit Facility, our only variable rate credit facility;facility, because we have not entered into any hedging instruments which fix the floating rate or offset an increase in the floating rate. A hypothetical 10% adverse change in weighted-average interest rates would have had less than a $0.1 million impact on our net income and cash flows from operating activities for fiscal 2017. In addition, the fixed interest rate on our Mortgage Facility resets in our 2018 fiscal year and in the future as well.

2021.

34

Item 8 — Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc.

In our opinion,

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of John B. Sanfilippo & Son, Inc. and its subsidiaries (the “Company”) as of June 29, 201724, 2021 and June 30, 2016,25, 2020, and the resultsrelated consolidated statements of their operationscomprehensive income, of stockholders’ equity and theirof cash flows for each of the three years in the period ended June 29, 201724, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 24, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 24, 2021 and June 25, 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 24, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 29, 2017,24, 2021, based on criteria established in Internal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofCOSO.
Change in Accounting Principle
As discussed in Note 3 to the Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.Reporting. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation

Definition and the manner in which it accounts for debt issuance costs in 2017.

Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

35
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Projected Benefit Obligation related to the Supplemental Employee Retirement Plan (SERP)
As described in Note 14 to the consolidated financial statements, the Company’s projected benefit obligation related to the SERP is $35.5 million as of June 24, 2021. The SERP is an unfunded,
non-qualified
benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. The most significant assumption related to the Company’s SERP is the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future.
The principal considerations for our determination that performing procedures relating to the valuation of the projected benefit obligation related to the SERP is a critical audit matter are (i) the significant judgment by management to determine the projected benefit obligation and the significant assumption related to discount rate, (ii) the significant auditor judgment, subjectivity and effort in evaluating management’s significant assumption related to the discount rate, and (iii) the audit effort included the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s determination of the projected benefit obligation related to the SERP, including the control over the development of the significant assumption related to the discount rate. These procedures also included, among others (i) testing management’s process for determining the projected benefit obligation, (ii) evaluating the appropriateness of the valuation method, (iii) testing the completeness and accuracy of underlying data used in the valuation of the projected benefit obligation, and (iv) evaluating the reasonableness of the discount rate. Evaluating management’s assumption related to the discount rate involved evaluating whether the assumption used by management is reasonable considering the consistency with external market data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the valuation method and the reasonableness of the discount rate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois

August 23, 2017

35

18, 2021

We have served as the Company’s auditor since 1982.
36

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

June 29, 201724, 2021 and June 30, 2016

25, 2020

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

   June 29,
2017		   June 30,
2016		 

ASSETS

    

CURRENT ASSETS:

    

Cash

  $1,955   $2,220 

Accounts receivable, less allowance for doubtful accounts of $263 and $397, respectively

   64,830    78,088 

Inventories

   182,420    156,573 

Prepaid expenses and other current assets

   4,172    5,292 
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

   253,377    242,173 
  

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT:

    

Land

   9,285    9,285 

Buildings

   107,015    106,505 

Machinery and equipment

   194,099    188,748 

Furniture and leasehold improvements

   4,842    4,349 

Vehicles

   498    453 

Construction in progress

   1,075    832 
  

 

 

   

 

 

 
   316,814    310,172 

Less: Accumulated depreciation

   210,606    200,416 
  

 

 

   

 

 

 
   106,208    109,756 

Rental investment property, less accumulated depreciation of $9,639 and $8,847, respectively

   19,254    20,047 
  

 

 

   

 

 

 

TOTAL PROPERTY, PLANT AND EQUIPMENT

   125,462    129,803 
  

 

 

   

 

 

 

OTHER LONG TERM ASSETS:

    

Cash surrender value of officers’ life insurance and other assets

   10,125    9,227 

Deferred income taxes

   9,095    8,590 

Intangible assets, net

   —      1,369 
  

 

 

   

 

 

 

TOTAL ASSETS

  $398,059   $391,162 
  

 

 

   

 

 

 

   
June 24,
2021
   
June 25,
2020
 
ASSETS
          
CURRENT ASSETS:
          
Cash
  $672   $1,535 
Accounts receivable, less allowance for doubtful accounts of $291 and $391, respectively
   66,334    56,953 
Inventories
   147,998    172,068 
Prepaid expenses and other current assets
   8,568    8,315 
Assets held for sale
   1,595    —   
   
 
 
   
 
 
 
TOTAL CURRENT ASSETS
   225,167    238,871 
   
 
 
   
 
 
 
PROPERTY, PLANT AND EQUIPMENT:
          
Land
   9,150    9,285 
Buildings
   102,666    110,294 
Machinery and equipment
   225,529    218,021 
Furniture and leasehold improvements
   5,287    5,179 
Vehicles
   614    682 
Construction in progress
   12,301    2,244 
   
 
 
   
 
 
 
    355,547    345,705 
Less: Accumulated depreciation
   238,471    239,013 
   
 
 
   
 
 
 
    117,076    106,692 
Rental investment property, less accumulated depreciation of $12,825 and $12,018, respectively
   16,298    17,105 
   
 
 
   
 
 
 
TOTAL PROPERTY, PLANT AND EQUIPMENT
   133,374    123,797 
   
 
 
   
 
 
 
OTHER LONG TERM ASSETS:
          
Intangible assets, net
   9,961    12,125 
Cash surrender value of officers’ life insurance and other assets
   10,732    11,875 
Deferred income taxes
   6,087    6,788 
Goodwill
   9,650    9,650 
Operating lease
right-of-use
assets
   3,484    4,351 
   
 
 
   
 
 
 
TOTAL ASSETS
  $398,455   $407,457 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

36

37

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

June 29, 201724, 2021 and June 30, 2016

25, 2020

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

   June 29,
2017		  June 30,
2016		 

LIABILITIES & STOCKHOLDERS’ EQUITY

   

CURRENT LIABILITIES:

   

Revolving credit facility borrowings

  $29,456  $12,084 

Current maturities of long-term debt, including related party debt of $474 and $407, respectively and net of unamortized debt issuance costs of $55 and $65, respectively

   3,418   3,342 

Accounts payable, including related party payables of $178 and $113, respectively

   50,047   43,719 

Bank overdraft

   932   811 

Accrued payroll and related benefits

   15,958   16,045 

Other accrued expenses

   10,062   7,193 
  

 

 

  

 

 

 

TOTAL CURRENT LIABILITIES

   109,873   83,194 
  

 

 

  

 

 

 

LONG-TERM LIABILITIES:

   

Long-term debt, less current maturities, including related party debt of $10,584 and $11,133, respectively and net of unamortized debt issuance costs of $124 and $179, respectively

   25,211   28,704 

Retirement plan

   20,994   22,137 

Other

   6,513   5,934 
  

 

 

  

 

 

 

TOTAL LONG-TERM LIABILITIES

   52,718   56,775 
  

 

 

  

 

 

 

TOTAL LIABILITIES

   162,591   139,969 
  

 

 

  

 

 

 

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 

Common Stock,non-cumulative voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized, 8,801,641 and 8,725,715 shares issued, respectively

   88   87 

Capital in excess of par value

   117,772   115,136 

Retained earnings

   123,190   143,573 

Accumulated other comprehensive loss

   (4,404)   (6,425) 

Treasury stock, at cost; 117,900 shares of Common Stock

   (1,204)   (1,204) 
  

 

 

  

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

   235,468   251,193 
  

 

 

  

 

 

 

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

  $398,059  $391,162 
  

 

 

  

 

 

 

   
June 24,
2021
  
June 25,
2020
 
LIABILITIES & STOCKHOLDERS’ EQUITY
         
CURRENT LIABILITIES:
         
Revolving credit facility borrowings
  $8,653  $27,008 
Current maturities of long-term debt, including related party debt of $627 and $585, respectively and net of unamortized debt issuance costs of $15 and $25, respectively
   3,875   5,285 
Accounts payable
   48,861   36,323 
Bank overdraft
   1,093   2,041 
Accrued payroll and related benefits
   24,109   25,641 
Other accrued expenses
   13,613   15,870 
   
 
 
  
 
 
 
TOTAL CURRENT LIABILITIES
   100,204   112,168 
   
 
 
  
 
 
 
LONG-TERM LIABILITIES:
         
Long-term debt, less current maturities, including related party debt of $8,320 and $8,947, respectively and net of unamortized debt issuance costs of $4 and $19, respectively
   10,855   14,730 
Retirement plan
   34,919   31,573 
Long-term operating lease liabilities, net of current portion
   2,103   2,990 
Other
   7,880   7,758 
   
 
 
  
 
 
 
TOTAL LONG-TERM LIABILITIES
   55,757   57,051 
   
 
 
  
 
 
 
TOTAL LIABILITIES
   155,961   169,219 
   
 
 
  
 
 
 
COMMITMENTS AND CONTINGENCIES
   0   0 
STOCKHOLDERS’ EQUITY:
         
Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $
.01
 p
ar value;
10,000,000
shares authorized,
2,597,426
shares issued and outstanding
   26   26 
Common Stock,
non-cumulative
voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized,
8,988,812
and
8,939,890
shares issued, respectively
   90   89 
Capital in excess of par value
   126,271   123,899 
Retained earnings
   126,336   124,058 
Accumulated other comprehensive loss
   (9,025)   (8,630) 
Treasury stock, at cost; 117,900 shares of Common Stock
   (1,204)   (1,204) 
   
 
 
  
 
 
 
TOTAL STOCKHOLDERS’ EQUITY
   242,494   238,238 
   
 
 
  
 
 
 
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
  $398,455  $407,457 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

37

38

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 2015

27, 2019

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

   Year Ended
June 29, 2017
(52 Weeks)		   Year Ended
June 30, 2016
(53 Weeks)		  Year Ended
June 25, 2015
(52 Weeks)		 

Net sales

  $846,635   $952,059  $887,245 

Cost of sales

   704,712    814,591   755,189 
  

 

 

   

 

 

  

 

 

 

Gross profit

   141,923    137,468   132,056 
  

 

 

   

 

 

  

 

 

 

Operating expenses:

     

Selling expenses

   49,392    51,114   49,646 

Administrative expenses

   34,187    35,042   30,531 
  

 

 

   

 

 

  

 

 

 

Total operating expenses

   83,579    86,156   80,177 
  

 

 

   

 

 

  

 

 

 

Income from operations

   58,344    51,312   51,879 
  

 

 

   

 

 

  

 

 

 

Other expense:

     

Interest expense including $785, $1,081 and $1,110 to related parties, respectively

   2,910    3,492   3,966 

Rental and miscellaneous expense, net

   1,296    1,358   3,049 
  

 

 

   

 

 

  

 

 

 

Total other expense, net

   4,206    4,850   7,015 
  

 

 

   

 

 

  

 

 

 

Income before income taxes

   54,138    46,462   44,864 

Income tax expense

   18,013    16,067   15,559 
  

 

 

   

 

 

  

 

 

 

Net income

   36,125    30,395   29,305 

Other comprehensive income (loss), net of tax:

     

Amortization of prior service cost and actuarial gain included in net periodic pension cost

   820    624   584 

Net actuarial gain (loss) arising during the period

   1,201    (2,215)   (1,915) 
  

 

 

   

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

   2,021    (1,591)   (1,331) 
  

 

 

   

 

 

  

 

 

 

Comprehensive income

  $38,146   $28,804  $27,974 
  

 

 

   

 

 

  

 

 

 

Net income per common share — basic

  $3.19   $2.71  $2.63 
  

 

 

   

 

 

  

 

 

 

Net income per common share — diluted

  $3.17   $2.68  $2.61 
  

 

 

   

 

 

  

 

 

 

Cash dividends declared per share

  $5.00   $2.00  $1.50 
  

 

 

   

 

 

  

 

 

 

Weighted average shares outstanding — basic

   11,317,149    11,233,975   11,150,658 
  

 

 

   

 

 

  

 

 

 

Weighted average shares outstanding — diluted

   11,403,605    11,332,924   11,248,259 
  

 

 

   

 

 

  

 

 

 

   
Year Ended
June 24, 2021
  
Year Ended
June 25, 2020
  
Year Ended
June 27, 2019
 
Net sales
  $858,482  $880,092  $876,201 
Cost of sales
   673,495   704,317   717,931 
   
 
 
  
 
 
  
 
 
 
Gross profit
   184,987   175,775   158,270 
   
 
 
  
 
 
  
 
 
 
Operating expenses:
 ��           
Selling expenses
   63,020   59,312   61,756 
Administrative expenses
   36,789   37,916   37,990 
   
 
 
  
 
 
  
 
 
 
Total operating expenses
   99,809   97,228   99,746 
   
 
 
  
 
 
  
 
 
 
Income from operations
   85,178   78,547   58,524 
   
 
 
  
 
 
  
 
 
 
Other expense:
             
Interest expense including $653, $821 and $1,143 to related parties, respectively
   1,441   2,005   3,060 
Rental and miscellaneous expense, net
   1,399   1,565   1,089 
Other expense
   2,519   2,266   1,947 
   
 
 
  
 
 
  
 
 
 
Total other expense, net
   5,359   5,836   6,096 
   
 
 
  
 
 
  
 
 
 
Income before income taxes
   79,819   72,711   52,428 
Income tax expense
   20,078   18,601   12,962 
   
 
 
  
 
 
  
 
 
 
Net income
   59,741   54,110   39,466 
Other comprehensive loss, net of tax:
             
Amortization of prior service cost and actuarial loss included in net periodic pension cost
   1,229   1,016   778 
Net actuarial loss arising during the period
   (1,624)   (4,345)   (1,922) 
   
 
 
  
 
 
  
 
 
 
Other comprehensive loss, net of tax
   (395)   (3,329)   (1,144) 
   
 
 
  
 
 
  
 
 
 
Comprehensive income
  $59,346  $50,781  $38,322 
   
 
 
  
 
 
  
 
 
 
Net income per common share — basic
  $5.19  $4.72  $3.45 
   
 
 
  
 
 
  
 
 
 
Net income per common share — diluted
  $5.17  $4.69  $3.43 
   
 
 
  
 
 
  
 
 
 
Cash dividends declared per share
  $5.00  $6.00  $2.55 
   
 
 
  
 
 
  
 
 
 
Weighted average shares outstanding — basic
   11,500,494   11,463,968   11,430,174 
   
 
 
  
 
 
  
 
 
 
Weighted average shares outstanding — diluted
   11,559,280   11,536,791   11,501,412 
   
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements

38

39

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 2015

27, 2019

(dollars in thousands, except per share amounts)

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

Balance, June 26, 2014

   2,597,426   $26    8,569,105   $85   $108,305   $123,118  $(3,503)  $(1,204)  $226,827 

Net income

             29,305     29,305 

Cash dividends ($1.50 per common share)

             (16,759)     (16,759) 

Pension liability amortization, net of income tax expense of $373

              584    584 

Pension liability adjustment, net of income tax benefit of $1,224

              (1,915)    (1,915) 

Equity award exercises

       94,375    1    1,283       1,284 

Stock-based compensation expense

           1,952       1,952 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, June 25, 2015

   2,597,426   $26    8,663,480   $86   $111,540   $135,664  $(4,834)  $(1,204)  $241,278 

Net income

             30,395     30,395 

Cash dividends ($2.00 per common share)

             (22,486)     (22,486) 

Pension liability amortization, net of income tax expense of $383

              624    624 

Pension liability adjustment, net of income tax benefit of $1,358

              (2,215)    (2,215) 

Equity award exercises

       62,235    1    1,107       1,108 

Stock-based compensation expense

           2,489       2,489 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, June 30, 2016

   2,597,426   $26    8,725,715   $87   $115,136   $143,573  $(6,425)  $(1,204)  $251,193 

Net income

             36,125     36,125 

Cash dividends ($5.00 per common share)

             (56,464)     (56,464) 

Pension liability amortization, net of income tax expense of $502

              820    820 

Pension liability adjustment, net of income tax expense of $737

              1,201    1,201 

Equity award exercises

       75,926    1    62       63 

Stock-based compensation expense

           2,504       2,504 

Effect of adopting ASU2016-09

           70    (44)     26 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, June 29, 2017

   2,597,426   $26    8,801,641   $88   $117,772   $123,190  $(4,404)  $(1,204)  $235,468 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

   
Class A Common
Stock
   
Common Stock
   
Capital in
Excess of
Par Value
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Loss
  
Treasury
Stock
    
   
Shares
   
Amount
   
Shares
   
Amount
  
Total
 
Balance, June 28, 2018
   2,597,426   $26    8,865,475   $89   $119,952  $127,320  $(3,181)  $(1,204)  $243,002 
Net income
                           39,466           39,466 
Cash dividends ($2.55 per common share)
                           (29,074)           (29,074) 
Pension liability amortization, net of income tax expense of $274
                               778       778 
Pension liability adjustment, net of income tax benefit of $675
                               (1,922)       (1,922) 
Equity award exercises, net of shares withheld for employee taxes
             43,931    —      (339)               (339) 
Stock-based compensation expense
                       2,644               2,644 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, June 27, 2019
   2,597,426   $26    8,909,406   $89   $122,257  $137,712  $(4,325)  $(1,204)  $254,555 
Net income
                           54,110           54,110 
Cash dividends ($6.00 per common share)
                           (68,740)           (68,740) 
Pension liability amortization, net of income tax expense of $358
                               1,016       1,016 
Pension liability adjustment, net of income tax benefit of $1,527
                               (4,345)       (4,345) 
Equity award exercises, net of shares withheld for employee taxes
             30,484    —      (830)               (830) 
Impact of adopting ASU
2018-02
                           976   (976)       0 
Stock-based compensation expense
                       2,472               2,472 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, June 25, 2020
   2,597,426   $26    8,939,890   $89   $123,899  $124,058  $(8,630)  $(1,204)  $238,238 
Net income
                           59,741           59,741 
Cash dividends ($5.00 per common share)
                           (57,463)           (57,463) 
Pension liability amortization, net of income tax expense of $432
                               1,229       1,229 
Pension liability adjustment, net of income tax benefit of $571
                               (1,624)       (1,624) 
Equity award exercises, net of shares withheld for employee taxes
             48,922    1    (536)               (535) 
Stock-based compensation expense
                       2,908               2,908 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, June 24, 2021
   2,597,426   $26    8,988,812   $90   $126,271  $126,336  $(9,025)  $(1,204)  $242,494 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

39

40

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 2015

27, 2019

(dollars in thousands)

   Year Ended
June 29,
2017
(52 Weeks)		  Year Ended
June 30,
2016
(53 Weeks)		  Year Ended
June 25,
2015
(52 Weeks)		 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

  $36,125  $30,395  $29,305 

Depreciation and amortization

   15,559   16,585   16,284 

Loss on disposition of properties, net

   71   392   100 

Deferred income tax benefit

   (1,744)   (170)   (2,384) 

Stock-based compensation expense

   2,504   2,489   1,952 

Change in assets and liabilities:

    

Accounts receivable, net

   13,243   (2,436)   (19,862) 

Inventories

   (25,847)   41,424   (15,167) 

Prepaid expenses and other current assets

   201   (19)   (1,587) 

Accounts payable

   6,384   (1,126)   307 

Accrued expenses

   1,484   421   1,798 

Income taxes receivable/payable

   2,217   (805)   2,495 

Other long-term liabilities

   579   (443)   862 

Other long-term assets

   (266)   767   (1,541) 

Other, net

   2,158   1,774   1,371 
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   52,668   89,248   13,933 
  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchases of property, plant and equipment

   (10,885)   (15,018)   (14,392) 

Proceeds from disposition of assets

   1   1   90 

Other, net

   341   92   21 
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (10,543)   (14,925)   (14,281) 
  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Borrowings under revolving credit facilities

   340,229   316,945   339,684 

Repayments of revolving credit borrowings

   (322,857)   (366,014)   (319,073) 

Principal payments on long-term debt

   (3,482)   (3,376)   (3,349) 

Increase (decrease) in bank overdraft

   121   (226)   (1,377) 

Dividends paid

   (56,464)   (22,486)   (16,759) 

Proceeds from the exercise of stock options

   63   155   643 

Tax benefit of equity award exercises

   —     953   641 
  

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

   (42,390)   (74,049)   410 
  

 

 

  

 

 

  

 

 

 

NET (DECREASE) INCREASE IN CASH

   (265)   274   62 

Cash, beginning of period

   2,220   1,946   1,884 
  

 

 

  

 

 

  

 

 

 

Cash, end of period

  $1,955  $2,220  $1,946 
  

 

 

  

 

 

  

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

  $2,763  $3,326  $3,760 

Income taxes paid, excluding refunds of $232, $168, and $548, respectively

   17,635   16,526   15,288 

   
Year Ended
June 24,
2021
  
Year Ended
June 25,
2020
  
Year Ended
June 29,
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES:
             
Net income
  $59,741  $54,110  $39,466 
Depreciation and amortization
   18,308   17,934   17,045 
Gain on disposition of properties, net
   (2,717)   (844)   (164) 
Deferred income tax expense (benefit)
   840   104   (298) 
Stock-based compensation expense
   2,908   2,472   2,644 
Change in assets and liabilities:
             
Accounts receivable, net
   (9,391)   4,015   4,447 
Inventories
   24,070   (15,044)   17,338 
Prepaid expenses and other current assets
   (253)   (2,668)   (470) 
Accounts payable
   11,442   (6,721)   (16,958) 
Accrued expenses
   (1,487)   2,898   15,784 
Income taxes receivable/payable
   (2,302)   4,154   2,348 
Other long-term liabilities
   (765)   (887)   711 
Other long-term assets
   1,481   1,749   (404) 
Other, net
   2,822   2,341   1,970 
   
 
 
  
 
 
  
 
 
 
Net cash provided by operating activities
   104,697   63,613   83,459 
   
 
 
  
 
 
  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Purchases of property, plant and equipment
   (25,176)   (15,022)   (15,075) 
Proceeds from insurance recoveries
   2,506   1,109   429 
Other, net
   (280)   (136)   32 
   
 
 
  
 
 
  
 
 
 
Net cash used in investing activities
   (22,950)   (14,049)   (14,614) 
   
 
 
  
 
 
  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Net short-term (repayments) borrowings
   (18,355)   27,008   (31,278) 
Debt issue costs
   —     (459)   —   
Principal payments on long-term debt
   (5,309)   (7,739)   (6,851) 
(Decrease) increase in bank overdraft
   (948)   1,140   (1,161) 
Dividends paid
   (57,463)   (68,740)   (29,074) 
Proceeds from the exercise of stock options
   —     4   —   
Taxes paid related to net share settlement of equity awards
   (535)   (834)   (339) 
   
 
 
  
 
 
  
 
 
 
Net cash used in financing activities
   (82,610)   (49,620)   (68,703) 
   
 
 
  
 
 
  
 
 
 
NET (DECREASE) INCREASE IN CASH
   (863)   (56)   142 
Cash, beginning of period
   1,535   1,591   1,449 
   
 
 
  
 
 
  
 
 
 
Cash, end of period
  $672  $1,535  $1,591 
   
 
 
  
 
 
  
 
 
 
Supplemental disclosures of cash flow information:
             
Interest paid
  $1,319  $1,954  $2,872 
Income taxes paid, excluding refunds of $545, $18, and $16, respectively
   21,967   14,415   10,883 
Supplemental disclosure of
non-cash
activities:
             
Right-of-use
assets recognized at ASU
No. 2016-02
transition
   —     5,361   —   
The accompanying notes are an integral part of these consolidated financial statements.

40

41

JOHN B. SANFILIPPO & SON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation and Description of Business

Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of
fifty-two
weeks (four thirteen weekthirteen-week quarters). However, the fiscal year ended June 30, 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

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, Southern Style Nuts
and
Sunshine Country
brand names and under a variety of private brands and under theFisher, Orchard Valley HarvestandSunshine Countrybrand names.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, snackssnack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands and brand names.brands. Our products are sold through the majorthree primary distribution channels, to significant buyers of nuts, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, and the assumptionsassumption used in estimating the annual discount rate utilized in determining the retirement plan liability and pension expense, and the realizability of deferred tax assets.liability. Actual results could differ from those estimates.

estimates, particularly due to any further impact of

COVID-19
and its variants on the Company and its customers.
Accounts Receivable

Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other
non-specifically
identified customers will become credit risks. Account balances are charged off against the allowance when we conclude that it is probable the receivable will not be recovered. The reserve for estimated cash discounts is based on historical experience. The reserve for customer deductions represents known customer short payments and an estimate of future credit memos that will be issued to customers related to rebates and allowances for marketing and promotions based on agreed upon programs and historical experience.

Inventories

Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost(first-in,
(first-in,
first-out) or market which approximates actual cost.
and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When expected market sales pricesnet realizable values move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost(first-in,
(first-in,
first-out) or market.
and net realizable value. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates, which historically averaged less than 1.0% of inventory purchases, are also recorded.

We enter into walnut purchase agreements with growers typically in our first fiscal quarter, under which they deliver their walnut crop to us during the fall harvest season (which typically occurs in our first and second fiscal quarters). Pursuant to our walnut purchase agreements, we determine the final price for this inventory after receipt and typically by the end of our third fiscal quarter. Since the ultimate purchase price to be paid is determined subsequent to receiving the walnut crop, we typically estimate the final purchase price for our first and second quarter interim financial statements based on crop size, quality, current market prices and other factors. Any such changes in estimates, which could be significant, are accounted for in the period of change by adjusting inventory on hand or cost of goods sold if the inventory has been sold. Changes in estimates may affect the ending inventory balances, as well as gross profit. There were no significant adjustments recorded in any of the periods presented.
42
Property, Plant and Equipment

Property, plant and equipment are stated at cost. Major improvements that extend the useful life, add capacity or add functionality are capitalized and charged to expense through depreciation. Repairs and maintenance costs are charged to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss is recognized currently in operating income.

41

Depreciation expense for the last three fiscal years is as follows:

   Year Ended
June 29,
2017		   Year Ended
June 30,
2016		   Year Ended
June 25,
2015		 

Depreciation expense

  $14,190   $14,875   $14,117 
  

 

 

   

 

 

   

 

 

 

   
Year Ended
June 24,
2021
   
Year Ended
June 25,
2020
   
Year Ended
June 27,
2019
 
Depreciation expense
  $16,144   $15,433   $14,017 
   
 
 
   
 
 
   
 
 
 
Cost is depreciated using the straight-line method over the following estimated useful lives:

Classification

  

Estimated Useful Lives

Buildings

  

10
to 40
years

Machinery and equipment

  

5
to 10
years

Furniture and leasehold improvements

  

5
to 10
years

Vehicles

  

3
to 5
years

Computers and software

  

3
to 5 10
years

No interest

NaNinterest costs were capitalized for the last three fiscal years due to the lack of any significant project requiring such capitalization.

Business Combinations
We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Segment Reporting
We operate in a
single
reporting unit and operating segment that consists of selling various nut and nut related products through three distribution channels.
Impairment of Long-Lived Assets

We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets (e.g., customer relationships and brand names), to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value.

We did not0t record any impairment of long-lived assets for the last three fiscal years.

Facility Consolidation Project/Real Estate Transactions

Goodwill
Goodwill currently represents the excess of the purchase price over the fair value of the net assets from our acquisition of Squirrel Brand, L.P. which closed in November 2017.
43
Goodwill is 0t amortized, but is tested annually as of the last day of each fiscal year for impairment, or whenever events or changes in circumstances indicate it is more likely than not that the carrying amount of the reporting unit is greater than its fair value. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of our single reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above). During fiscal 2021 we elected to perform a qualitative impairment test which showed no indicators of goodwill impairment.
Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. The inputs used to estimate fair value include several subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Our market capitalization is also an estimate of fair value that is considered in our qualitative impairment analysis which is a level 1 input in the fair value hierarchy. If the carrying value of our single reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value.
Elgin Rental Property
In April 2005, we acquired property to be used for the Elgin Site. Two buildingsNaNbuildings are located on the Elgin Site, one of which is an office building. Approximately 75%70% of the rentable area in the office building has beenbuilt-out and 70% is currently vacant. Approximately 29% of the rentable area has not been
built-out.
The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in the caption “Property, plant and equipment”.

The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. Gross rental income and rental (expense), net
See Note 3 — “Leases” below for the last three fiscal years are as follows:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Gross rental income

  $2,003   $1,898   $1,792 

Rental (expense), net

   (1,311)    (1,371)    (3,062) 

Expected future gross rental income under operating leases within the office building is as follows for the fiscal years ending:

June 28, 2018

  $1,961 

June 27, 2019

   1,859 

June 25, 2020

   1,765 

June 24, 2021

   1,534 

June 30, 2022

   1,314 

Thereafter

   3,096 
  

 

 

 
  $11,529 
  

 

 

 

42

additional information.

Fair Value of Financial Instruments

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

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

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

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

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 June 29, 201724, 2021 and June 30, 201625, 2020 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 4 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements6 — “Revolving Credit Facility” below) borrowings approximates fair value at June 29, 2017 and June 30, 201624, 2021 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.

44
The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs:

   June 29,
2017		   June 30,
2016		 

Carrying value of long-term debt:

  $28,808   $32,290 

Fair value of long-term debt:

   29,316    35,479 

   
June 24,
2021
   
June 25,
2020
 
Carrying value of long-term debt:
  $14,749   $20,059 
Fair value of long-term debt:
   16,210    20,186 
The estimated fair value of 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.

Revenue Recognition

We

The Company records revenue based on a five-step model in accordance with ASC Topic 606,
Revenue from Contracts with Customers
. The core principle of the guidance is that an entity should recognize revenue when persuasive evidenceto depict the transfer of promised goods or services to customers in an arrangement exists, title has transferred (based upon terms of shipment), price is fixed, delivery occurred and collection is reasonably assured.amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We sell our products under some arrangements which include customer contracts whichthat fix the sales price for periods, which typically can be up to one year for some commercial ingredient customers andcustomers. We also sell our products through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer customers and some commercial ingredient users. ReservesWe recognize revenues as performance obligations are fulfilled, which occurs when control passes to our customers. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. We reduce revenue for these programsestimated promotion allowances, volume and customer rebates and marketing allowances, among others. These reductions in revenue are established based upon the terms of specific arrangements. Revenuesconsidered variable consideration and are recorded net of rebatesin the same period the related sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and promotion and marketing allowances. Revenues are also recorded net of expected customer deductions which are providedexperience. See Note 2 — “Revenue Recognition” below for based upon past experiences. While customers do have the right to return products, past experience has demonstrated that product returns have generally been insignificant. Provisions for returns are reflected as a reduction in net sales and are estimated based upon customer specific circumstances. Billings for shipping and handling costs are included in revenues.

Segment Reporting

We operate in a single reportable and operating segment that consists of selling various nut and nut related products through multiple distribution channels.

additional information on revenue recognition.

Significant Customers and Concentration of Credit Risk

The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to three customers each2customers exceeded 10% of net sales during fiscal 20172021, fiscal 2020 and fiscal 2016.2019. In fiscal 2015 two customers each exceeded 10% of net sales. Salestotal, sales to these customers represented approximately 53%48%, 50%45% and 39%43% of our net sales in fiscal 2017,2021, fiscal 20162020 and fiscal 2015,2019, respectively. NetIn total, net accounts receivable from these customers were 56%46% and 51%44% of net accounts receivable at June 29, 201724, 2021 and June 30, 2016,25, 2020, respectively.

43

Promotion,

Marketing and Advertising Costs

Promotions, allowances and customer rebates are recorded at the time revenue is recognized and are reflected as reductions in sales. Annual volume rebates are estimated based upon projected volumes for the year, while promotions and allowances are recorded based upon terms of the actual arrangements. Coupon incentive costs are accrued based on an estimate of redemptions to occur.

Marketing and advertising costs, including consumer insight research and related consulting expenses, are incurred to promote and support branded products in the consumer distribution channel. These costs are generally expensed as incurred, recorded in selling expenses and were as follows for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Marketing and advertising expense

  $10,064   $11,569   $11,069 
  

 

 

   

 

 

   

 

 

 

   
Year ended
June 24,
2021
   
Year ended
June 25,
2020
   
Year ended
June 27,
2019
 
Marketing and advertising expense
  $9,172   $8,997   $11,936 
   
 
 
   
 
 
   
 
 
 
45
Shipping and Handling Costs

Shipping and handling costs, which include freight and other expenses to prepare finished goods for shipment, are included in selling expenses. Shipping and handling costs for the last three fiscal years were as follows:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Shipping and handling costs

  $17,682   $16,686   $17,699 
  

 

 

   

 

 

   

 

 

 

​​​​​​​

   
Year ended
June 24,
2021
   
Year ended
June 25,
2020
   
Year ended
June 27,
2019
 
Shipping and handling costs
  $26,456   $21,613   $23,086 
   
 
 
   
 
 
   
 
 
 
Research and Development Expenses

Research and development expense represents the cost of our research and development personnel and their related expenses and is charged to selling expenses as incurred. Research and development expenses for the last three fiscal years were as follows:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Research and development expense

  $658   $653   $979 
  

 

 

   

 

 

   

 

 

 

​​​​​​​

   
Year ended
June 24,
2021
   
Year ended
June 25,
2020
   
Year ended
June 27,
2019
 
Research and development expense
  $2,000   $999   $892 
   
 
 
   
 
 
   
 
 
 
Stock-Based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of ASC Topic 718, as amended by Accounting Standard Update (“ASU”)2016-09,
Compensation — Stock Compensation
, by calculating compensation cost based on the grant date fair value. We then amortize compensation expense over the vesting period. We estimate the fair value of each stock option on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables). The grant date fair value of restricted stock units (“RSUs”) is generally determined based on the market price of our Common Stock on the date of grant. Beginning in fiscal 2017, forfeituresForfeitures are recognized as they occur, and excess tax benefits or tax deficiencies are recognized as a component of income tax expense.

Income Taxes

We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns. Such items give rise to differences in the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. In estimating future tax consequences, we consider all expected future events other than changes in tax law or rates.

We record liabilities for uncertain income tax positions based on a
two-step
process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, we perform the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes in facts, circumstances, and new information may require us to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur.

We recognize interest and penalties accrued related to unrecognized tax benefits in the Income“Income tax expenseexpense” caption in the Consolidated Statement of Comprehensive Income.

44

We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 29, 2017,24, 2021, we believe that our deferred tax assets are fully realizable, except for $171 of net basis differences for which we have provided a valuation allowance.

realizable.

46
Earnings per Share

Basic earnings per common share are calculated using the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock.

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

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Weighted average number of shares outstanding — basic

   11,317,149    11,233,975    11,150,658 

Effect of dilutive securities:

      

Stock options and restricted stock units

   86,456    98,949    97,601 
  

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — diluted

   11,403,605    11,332,924    11,248,259 
  

 

 

   

 

 

   

 

 

 

                                                                                  
     
Year ended
June 24,
2021
     
Year ended
June 25,
2020
     
Year ended
June 27,
2019
 
Weighted average number of shares outstanding — basic
     11,500,494      11,463,968      11,430,174 
Effect of dilutive securities:
                     
Stock options and restricted stock units
     58,786      72,823      71,238 
     
 
 
     
 
 
     
 
 
 
Weighted average number of shares outstanding — diluted
     11,559,280      11,536,791      11,501,412 
     
 
 
     
 
 
     
 
 
 
The following table presents a summary of anti-dilutive awards excluded from the computation of diluted earnings per share:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Weighted average number of anti-dilutive shares:

   1,068    —      —   

Weighted average exercise price per share:

  $65.35   $—     $—   

                                                                                  
   
Year ended
June 24,
2021
   
Year ended
June 25,
2020
  
Year ended

June 27,
2019
 
Weighted average number of anti-dilutive shares:
   0      7,010   0   
Weighted average exercise price per share:
  $0     $90.26  $0   
Comprehensive Income

We account for comprehensive income in accordance with ASC Topic 220,
Comprehensive Income
. This topic establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The topic requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This topic also requires all
non-owner
changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation by the respective line items of net income, either on the face of the statement where net income is presented or in the notes and information about significant amounts required under U.S. GAAP to be reclassified out of accumulated other comprehensive income in their entirety. For amounts not required to be reclassified in their entirety to net income, we provide a cross-reference to other disclosures that offer additional details about those amounts.

Recent Accounting Pronouncements

45

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

In March 2016,August 2018, the FASB issued ASU
No. 2016-09 “Compensation-Stock Compensation (Topic 718)2018-15
“
Intangibles – Goodwill and Other –
Internal-Use
Software (Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
”. This ASU is part of the FASB’s simplification initiative. The areas for simplificationamendments in this update involve several aspects ofUpdate align the accountingrequirements for share-based payment transactions, includingcapitalizing implementation costs incurred in a hosting arrangement that is a service contract with the income tax consequences, forfeitures, classification of awards as either equityrequirements for capitalizing implementation costs incurred to develop or liabilities, statutory withholding requirements, and classification onobtain
internal-use
software (and hosting arrangements that include an internal use software license). ASU
No. 2018-15
was adopted using the statement of cash flows. The Company early adopted this guidance duringprospective method in the first quarter of fiscal 2017. The cumulative adjustment for the impact of this change in accounting principle was immaterial. Cash flows related to excess tax benefits will be classified prospectively as operating activities in the Consolidated Statements of Cash Flows. Prior periods have not been adjusted. The Company anticipates increased volatility in income tax expense, mainly in the second quarter of each fiscal year, since historically most equity compensation granted in prior periods vests during that quarter.

In April 2015, the FASB issued ASUNo. 2015-05 “Intangibles — Goodwill2021 and Other —Internal-Use Software (Subtopic350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. This update provides guidance to customers about whether a cloud computing arrangement includes a software license or service contract. This update became effective for the Company beginning the first quarter of fiscal 2017. The adoption of ASU2015-05 did not have a material impact to theon our Consolidated Financial Statements.

46

In April 2015,August 2018, the FASB issued ASU
No. 2015-03 “Interest-Imputation2018-14
“
Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic
715-20):
Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans
”. The amendments in this Update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of Interest (Subtopic835-30) Simplifying the Presentation of Debt Issuance Costs”. This update requires that debt issuance costs relateddisclosures, and add disclosure requirements identified as relevant. ASU
No. 2018-14
was adopted on a retrospective basis to a recognized debt liability beall periods presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. ASU2015-03 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this standard required retrospective adjustment to our Consolidated Balance Sheets. As a result, Other assets decreased approximately $244 as of June 30, 20162021 and this amount was allocated within Current maturities of long term debt and Long term debt. Adoption of ASU2015-03 did not have an effecta material impact on the Company’s stockholders’ equity, results of operations or cash flows.

our Consolidated Financial Statements.

47
In February 2015,January 2017, the FASB issued ASU
No. 2015-02 “Consolidation2017-04
“Intangibles—Goodwill and Other (Topic 810)350): AmendmentsSimplifying the Test for Goodwill Impairment”.
The amendments in this Update eliminate the need for entities to calculate the Consolidation Analysis”. This update focuses onimplied fair value of goodwill by assigning the fair value of a reporting company’s consolidation evaluationunit to determine whether it should consolidate certain legal entities. The guidance ASU2015-02 became effectiveall of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the Company beginning withamount by which the carrying value exceeds the reporting unit’s fair value. ASU
No. 2017-04
was adopted in the first quarter of fiscal 2017. The adoption of ASU2015-022021 and did not have any impact to the Consolidated Financial Statements.

In August 2014, the FASB issued ASUNo. 2014-15 “Presentation of Financial Statements—Going Concern (Topic205-40)”. The guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU2014-15 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this guidance had nomaterial impact on our Consolidated Financial Statements.

The following recent accounting pronouncements have not yet been adopted:

In May 2017, the FASB issued ASUNo. 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. The amendments in this update provide guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU2017-09 will be effective for the Company in fiscal 2019 and should be applied prospectively to an award modified on or after the adoption date. The Company does not expect ASU2017-09 to have a material impact to the Consolidated Financial Statements.

In March 2017, the FASB issued ASUNo. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendments in this update require the service cost component of pension expense to be disaggregated from the other components of net periodic benefit cost and be presented in the same line items as other employee compensation costs. All other components of net periodic benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This update is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as long as it is early adopted in the first interim period of an annual year and financial statements have not been issued or made available for issuance prior to adoption. The amendments in this update should be applied using a retrospective transition method, however, a practical expedient is offered with regard to the prior comparative periods. The Company plans to early adopt this update beginning in fiscal 2018 and does not expect the impact of this new guidance to have a significant impact on its financial position, results of operations and disclosures.

In October 2016, the FASB issued ASUNo. 2016-17 “Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control”. This update is amending ASU2015-02 and affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. ASU2016-17 will be effective for the Company in fiscal 2018 and will require retrospective application. The Company does not expect ASU2016-17 to have any impact to the Consolidated Financial Statements.

In August 2016, the FASB issued ASUNo. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. This update addresses eight specific cash flow issues with the objective of reducing the perceived diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company does not expect a material impact to our statement of cash flows once ASU2016-15 is adopted in fiscal 2019.

47

In June 2016, the FASB issued ASU
No. 2016-13 “Financial
“
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”Instruments
”. The main objective of this updateUpdate is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this updateUpdate replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU
No. 2016-13
was adopted using a modified retrospective transition method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.
In August 2020, the SEC issued Release
No. 33-10825,
Modernization of Regulation
S-K
Items 101, 103 and 105,
which modernizes the description of business, legal proceedings and risk factor disclosures. These rules amend certain SEC disclosure requirements to improve disclosure for investors and to simplify compliance for registrants, including new requirements for human capital disclosures and a summary of risk factors, if the page-length requirement for a summary is met. The Company has adopted the provisions of this new rule beginning with the 2021 Annual Report on Form
10-K.
The adoption only impacted the Company’s disclosures and did not impact the consolidated financial statements.
The following recent accounting pronouncements have not yet been adopted:
In March 2020, the FASB issued ASU
No. 2020-04
“
Reference Rate Reform (Topic 848)
”. The amendments in this updateUpdate are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update are effective upon issuance and can be taken at any point in time (at the beginning of an interim period) through December 31, 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements.
In December 2019, the FASB issued ASU
No. 2019-12
“
Income Taxes (Topic 740)
”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions, providing updated requirements and specifications in certain areas and by making minor codification improvements. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. A modified-retrospective approach is required in the first reporting period in which the guidance is effective through a cumulative-effect adjustment to retained earnings. We do not expect ASU2013-13 will have a significant impact on the Consolidated Financial Statements once adopted in fiscal 2021.

In February 2016, the FASB issued ASUNo. 2016-02 “Leases (Topic 842)”. The primary goal of this update is to require the lessee to recognize all lease commitments, both operating and finance, by initially recording a lease asset and liability on the balance sheet at the lease commencement date. Additionally, enhanced qualitative and quantitative disclosures will be required. ASU2016-02 is effective for public business entities for annual periods,2020, including interim periods within those annual periods, beginning after December 15, 2018.that fiscal year. Early adoption is permitted. This new guidance will beUpdate is effective for the Company beginning in fiscal year 2020 and we2022. We do not expect to early adopt. This guidance must be adopted using a modified retrospective approach. The Company expects this new guidanceaccounting Update to have a significant impact on its total assets and total liabilities, and lead to increased financial statement disclosures.

In July 2015, the FASB issued ASUNo. 2015-11 “Inventory (Topic 330) Simplifying the Measurement of Inventory”. This update applies to inventory measured usingfirst-in,first-out or average cost and requires inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update will be effective for the Company beginning in fiscal year 2018 with prospective application required. The Company does not anticipate this guidance will have a material impact to itson our Consolidated Financial Statements.

In May 2014, the FASB issued ASUNo. 2014-09 “Revenue from Contracts with Customers (Topic 606)” and created a new ASC Topic 606, Revenue from Contracts with Customers, and added ASC Subtopic340-40, Other Assets and Deferred Costs

NOTE 2 — Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. Under the new guidance, an entity shouldREVENUE RECOGNITION
We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectswe expect to be entitled in exchange for those goods or services. SeveralFor 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.
Nature of Products
We manufacture and sell the following:
branded products under our own proprietary brands to retailers on a national basis;
private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels;
private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators;
branded products under
co-pack
agreements to other amendments have been subsequently released,major branded companies for their distribution; and
products to our industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers.
48
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 which provide additional narrow scope clarificationsraw 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 improvements. In August 2015,delivered to the FASB issued ASUNo. 2015-14 “Revenue from Contracts with Customers, Deferralcustomer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the Effective Date” which deferredremaining benefits from the effective dateasset at that point in time. Therefore the timing of ASU2014-09 for one year. Consequently, this newour revenue recognition guidancerequires little judgment.
The performance obligations in our contracts are satisfied within one year, and typically much less. As such, we have not disclosed the transaction price allocated to remaining performance obligations for any periods presented.
Significant Payment Terms
Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. On a limited basis some payment terms may be extended, however, no payment terms beyond six months are granted at contract inception. The average customer payment is received within approximately 31 days of the invoice date. As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be effectivesix months or less.
Shipping
All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in selling expense.
Variable Consideration
Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates,
in-store
display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management judgment when determining estimates. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements.
Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment.
We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required.
Product Returns
While customers generally have the right to return defective or
non-conforming
products, past experience has demonstrated that product returns have generally been immaterial. Customer remedies may include either a cash refund or an exchange of the returned product. As a result, the right of return and related refund liability for
non-conforming
or defective goods is estimated and recorded as a reduction in revenue, if necessary.
49
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 June 24, 2021 is $74 and is recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was 0 contract asset balance at June 25, 2020. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers.
Contract Costs
The Company does not incur significant fulfillment costs requiring capitalization.
Disaggregation of Revenue
Revenue disaggregated by distribution channel is as follows:
   
For the Year Ended
 
Distribution Channel
  
June 24,
2021
   
June 25,
2020
 
Consumer
  $686,049   $673,989 
Commercial Ingredients
   92,911    118,464 
Contract Packaging
   79,522    87,639 
   
 
 
   
 
 
 
Total
  $858,482   $880,092 
   
 
 
   
 
 
 
NOTE 3 — LEASES
On June 28, 2019 we adopted ASU No. 2016-02, Leases (“Topic 842”)
using
the alternative transition method under ASU No.
2018-11,
which permitted application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under the previous lease accounting guidance in Topic 840. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedients regarding hindsight or land easements. Upon adoption of the new standard, we recognized operating lease right-of-use assets and liabilities on our Consolidated Balance Sheet of $5,361 and $5,320 respectively. We utilized a portfolio approach to establish discount rates for leases that are similar. Discount rates ranging from 4.2% to 5.8% were used when determining the present value of future lease payments. All of our lessee arrangements that were classified as operating leases under Topic 840 continue to be classified as operating leases since the adoption of Topic 842, and the pattern of lease expense recognition is unchanged. The adoption of Topic 842 did not materially impact our consolidated net earnings and had no impact on cash flows.
Description of Leases
We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain
non-lease
components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order.
We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease
right-of-use
assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease
right-of-use
assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company beginningwill 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 5.2 years.
It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and
non-lease
components for all leases.
The following table provides supplemental information related to operating lease
right-of-use
assets and liabilities:
   
June 24,

2021
   
June 25,

2020
   
Affected Line Item in Consolidated
Balance Sheet
Assets
             
Operating lease
right-of-use
assets
  $3,484   $4,351   
Operating lease
right-of-use
assets
   
 
 
   
 
 
    
Total lease
right-of-use
assets
  $3,484   $4,351    
   
 
 
   
 
 
    
Liabilities
             
Current:
             
Operating leases
  $1,430   $1,376   
Other accrued expenses
Noncurrent:
             
Operating leases
   2,103    2,990   
Long-term operating lease liabilities
   
 
 
   
 
 
    
Total lease liabilities
  $3,533   $4,366    
   
 
 
   
 
 
    
50
The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:
   
For the
Year Ended

June 24, 2021
   
For the
Year Ended

June 25, 2020
 
Operating lease costs
(a)
  $1,841   $1,701 
Variable lease costs
(b)
   71    63 
   
 
 
   
 
 
 
Total Lease Cost
  $1,912   $1,764 
   
 
 
   
 
 
 
(a) 
Includes short-term leases which are immaterial.
(b) 
Variable lease costs consist of sales tax.
Rental expense under operating leases agreements was $1,981 in fiscal year 2019, which2019.
Supplemental cash flow and other information related to leases was as follows:
   
For the Year Ended
June 24, 2021
   
For the Year Ended
June 25, 2020
 
Operating cash flows information:
          
Cash paid for amounts included in measurements for lease liabilities
  $1,562   $1,545 
Non-cash
activity:
          
Right-of-use
assets obtained in exchange for new operating lease obligations
  $574   $393 
   
June 24, 2021
  
June 25, 2020
 
Weighted Average Remaining Lease Term (in years)
   2.8   3.4 
Weighted Average Discount Rate
   4.3%   4.4% 
Maturities of operating lease liabilities as of June 24, 2021 are as follows:
Fiscal year ending
     
June 30, 2022
  $1,545 
June 29, 2023
   1,254 
June 27, 2024
   611 
June 26, 2025
   248 
June 25, 2026
   77 
Thereafter
   4 
   
 
 
 
Total lease payments
   3,739 
Less imputed interest
   (206) 
   
 
 
 
Present value of operating lease liabilities
  $3,533 
   
 
 
 
Lessor Accounting
We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a
straight-line
basis over the terms of the leases. There is our anticipated adoption date. We have completed our initial analysisgenerally no variable lease consideration and an immaterial amount of this accounting standard update which included a review
non-lease
components such as recurring utility and storage fees. Leases between related parties are immaterial.
51
Leasing revenue is as follows:
   
For the Year Ended

June 24, 2021
   
For the Year Ended

June 25, 2020
 
Lease income related to lease payments
  $1,827   $1,967 
Gross rental income was $1,978 in fiscal year 2019.
The future minimum, undiscounted fixed cash flows under
non-cancelable
tenant operating leases for each of all material customer contractsthe next five years and currently do not anticipate any material changes to our revenue recognition compared to current GAAP. We are currently evaluating the method of adoption.

thereafter is presented below.

Fiscal year ending
     
June 30, 2022
  $1,750 
June 29, 2023
   1,794 
June 27, 2024
   1,818 
June 26, 2025
   1,228 
June 25, 2026
   670 
Thereafter
   614 
   
 
 
 
   $ 7,874 
   
 
 
 
NOTE 24 — INVENTORIES

Inventories consist of the following:

   June 29,
2017		   June 30,
2016		 

Raw material and supplies

  $79,609   $56,005 

Work-in-process and finished goods

   102,811    100,568 
  

 

 

   

 

 

 
  $182,420   $156,573 
  

 

 

   

 

 

 

   
June 24,

2021
   
June 25,

2020
 
Raw material and supplies
  $64,219   $69,276 
Work-in-process
and finished goods
   83,779    102,792 
   
 
 
   
 
 
 
   $147,998   $172,068 
   
 
 
   
 
 
 
NOTE 3 —5 – GOODWILL AND INTANGIBLE ASSETS

Intangible assets subject to amortization consist of the following:

   June 29,
2017		   June 30,
2016		 

Customer relationships

  $10,600   $10,600 

Brand names

   8,090    8,090 

Less accumulated amortization:

    

Customer relationships

   (10,600)    (9,231) 

Brand names

   (8,090)    (8,090) 
  

 

 

   

 

 

 

Net intangible assets

  $—     $1,369 
  

 

 

   

 

 

 

48

   
June 24, 2021
   
June 25, 2020
 
Customer relationships
  $21,100   $21,100 
Non-compete
agreements
   270    270 
Brand names
   16,990    16,990 
   
 
 
   
 
 
 
Total intangible assets, gross
   38,360    38,360 
   
 
 
   
 
 
 
Less accumulated amortization:
          
Customer relationships
   (17,643)    (16,223) 
Non-compete
agreements
   (194)    (139) 
Brand names
   (10,562)    (9,873) 
   
 
 
   
 
 
 
Total accumulated amortization
   (28,399)    (26,235) 
   
 
 
   
 
 
 
Net intangible assets
  $9,961   $12,125 
   
 
 
   
 
 
 
Customer relationships relate wholly to the Squirrel Brand acquisition completed in fiscal 2018 and the Orchard Valley Harvest (“OVH”) acquisition completed in fiscal 2010 which became2010. The customer relationships resulting from the OVH acquisition were fully amortized in fiscal 2017. The brand name consistsnames consist primarily of the
Squirrel Brand
and
Southern Style Nuts
brand names acquired in fiscal 2018 and the
Fisher
brand name, which we acquired in a 1995 acquisition. The
Fisher
brand name becamewas fully amortized in fiscal 2011. The remainder of the brand name relates to the OVH acquisition, which becamewas fully amortized in fiscal 2015.

52
Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was as follows for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Amortization of intangible assets

  $1,369   $1,710   $2,167 
  

 

 

   

 

 

   

 

 

 

   
Year ended

June 24,

2021
   
Year ended

June 25,

2020
   
Year ended

June 27,

2019
 
Amortization of intangible assets
  $2,164   $2,501   $3,028 
   
 
 
   
 
 
   
 
 
 
Expected amortization expense the next five fiscal years is as follows:
Fiscal year ending
June 30, 2022
1,896
June 29, 2023
1,657
June 27, 2024
1,414
June 26, 2025
1,156
June 25, 2026
861
Our net goodwill of $9,650 relates entirely to the Squirrel Brand acquisition completed in fiscal 2018. The changes in the carrying amount of goodwill during the two fiscal years ended June 24, 2021 are as follows:
Gross goodwill balance at June 28, 2019
  $ 18,416 
Accumulated impairment losses
   (8,766) 
   
 
 
 
Net balance at June 28, 2019
   9,650 
Fiscal 2020 and 2021 activity
   0   
   
 
 
 
Balance at June 24, 2021
  $9,650 
   
 
��
 
NOTE 46 — REVOLVING CREDIT 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 we entered into a(the “Former Credit Agreement”). The Amended and Restated Credit Agreement with a bank group (the “Bank Lenders”) providingprovides for a $117,500 senior secured revolving loan commitment and letter of credit subfacilityfacility (the “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 Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures.

At June 29, 201724, 2021, the interest rate for the Credit Facility was at the Base Rate of 3.5%. There were no borrowings under LIBOR contracts due to the low borrowing levels against the Credit Facility and projected positive cash flow for July. At June 30, 2016,25, 2020, the weighted average interest rate for the Credit Facility was 3.11% and 3.75%, respectively.2.40%. The terms of the Credit Facility contain covenants that require us to restrict investments, indebtedness, acquisitions and certain sales of assets, cash dividends, 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 $25,000, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders are entitled to require 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 certain other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of June 29, 2017,24, 2021, we were in compliance with the financial covenant under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the next twelve months. As ofAt June 29, 2017,24, 2021, we had $84,369$104,561 of available credit under the Credit Facility which reflects borrowings of $29,456$8,653 and reduced availability as a result of $3,675$4,286 in outstanding letters of credit. We would still be in compliance with all restrictive covenants under the Credit Facility if this entire amount were borrowed.

On July

53
NOTE 7 2017, we entered into the Eighth Amendment to Credit Facility (the “Eighth Amendment”). See Note 18 – “Subsequent Events”.

NOTE 5 — LONG-TERM DEBT

Long-term debt consists of the following:

   June 29,
2017		   June 30,
2016		 

Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly principal installments of $200 plus interest at 7.63% per annum through February 2023 with a final principal payment of $600 on March 1, 2023

  $14,200   $16,600 

Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly principal installments of $50 plus interest at the greater of one month LIBOR plus 3.50% per annum or 4.25% through February 2023 with a final principal payment of $150 on March 1, 2023

   3,550    4,150 

Selma, Texas facility financing obligation to related parties, due in monthly installments of $103 through September 1, 2031

   11,058    11,540 

Unamortized debt issuance costs

   (179)    (244) 
  

 

 

   

 

 

 
   28,629    32,046 

Less: Current maturities, net of unamortized debt issuance costs

   (3,418)    (3,342) 
  

 

 

   

 

 

 

Total long-term debt, net of unamortized debt issuance costs

  $25,211   $28,704 
  

 

 

   

 

 

 

49

   
June 24,

2021
   
June 25,

2020
 
Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly installments of $230 including interest at 4.25% per annum with a final payment due March 1, 2023
  $4,642   $7,144 
Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly installments of $57 including interest at 4.25% per annum with a final payment due March 1, 2023
   1,160    1,786 
Squirrel Brand Seller-Financed Note (“Promissory Note”), unsecured, due in monthly principal installments of $319 plus interest at 5.5% per annum beginning in January 2018 through November 30, 2020
   0      1,597 
Selma, Texas facility financing obligation to related parties, due in monthly installments of $103 through
September 1, 2021
and $
114
through September 1, 2026
   8,947    9,532 
Unamortized debt issuance costs
   (19)    (44) 
   
 
 
   
 
 
 
    14,730    20,015 
Less: Current maturities, net of unamortized debt issuance costs
   (3,875)    (5,285) 
   
 
 
   
 
 
 
Total long-term debt, net of unamortized debt issuance costs
  $10,855   $14,730 
   
 
 
   
 
 
 
On February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $36,000 (“Tranche A”) and the other in the amount of $9,000 (“Tranche B”), for an aggregate amount of $45,000 (the “Mortgage Facility”). The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois and Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).

Tranche A under On March 1, 2018 the interest rate on the Mortgage Facility accrues interestwas fixed at a fixed interest rate of 7.63%4.25% per annum, payable monthly. As mentioned above, such interest rate may be reset by the Mortgage Lender on the Tranche A Reset Date. Tranche B under the Mortgage Facility accrues interest, as reset on March 1, 2016, at a floating rate of the greater of (i) one month LIBOR plus 3.50% per annum or (ii) 4.25%, payable monthly (the “Floating Rate”). The margin on such floating rate may be reset by the Mortgage Lender on each Tranche B Reset Date; provided, however, that the Mortgage Lender may also change the underlying index on each Tranche B Reset Date occurring on or after March 1, 2018. We do not currently anticipate that any change in the floating rate or the underlying index will have a material adverse effect upon our business, financial condition or results of operations.

annum.

The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $110,000 and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility,
non-compliance
with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 29, 2017,24, 2021, we were in compliance with all financial covenants under the Mortgage Facility. The carrying amount of assets pledged as collateral for the Mortgage Facility was approximately $73,427$62,348 at June 29, 2017.

24, 2021.

In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14,300 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, Texas properties has aten-yearhad an initial
ten-year
term at a fair market value rent with three five-year renewal options. In September 2015, we signed a lease renewal which exercised two five-year renewal options and extended the term of our Selma lease to September 18, 2026. The lease extension also reduced the base monthly lease amount to $103, beginning in September 2016. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments will increase to $114 beginning in September 2021. One five-year renewal option remains. Also, we currently have the option to purchase the properties from the partnershipslessor at 95% (100% in certain circumstances) of the then fair market value, but not to be less than the $14,300 purchase price. The financing obligation is being accounted for similar to the accounting for a capital lease, whereby the purchase price was recorded as a debt obligation, as the provisions of the arrangement are not eligible for sale-leaseback accounting. The balance of the debt obligation outstanding at June 29,24, 2021 was $8,947.
In
November 2017
, we completed the Squirrel Brand acquisition which was $11,058.

In September 2015, we signedfinanced by a lease renewal which exercised two five-year renewal optionscombination of cash (drawn under the Credit Facility) and extendeda three-year seller-financed note for $11,500. The principal owner and seller of the termSquirrel Brand business was subsequently appointed as an executive officer of our Selma lease to September 18, 2026 (unless we purchase it before such date). One five-year renewal option remains. Beginningthe Company and was considered a related party until the employment of this executive officer with the Company ceased in the second quarter of fiscal 2017,2020. During fiscal 2021, the base monthly lease amount decreased to $103.

Promissory Note was paid in full. Interest paid on the Promissory Note while the former executive officer was a related party was $127 for the fiscal year ended June 25, 2020 and $413 for the fiscal year ended June 27, 2019.

54
Aggregate maturities of long-term debt are as follows for the fiscal years ending:

June 28, 2018

  $3,473 

June 27, 2019

   3,508 

June 25, 2020

   3,545 

June 24, 2021

   3,585 

June 30, 2022

   3,627 

Thereafter

   11,070 
  

 

 

 
  $28,808 
  

 

 

 

50

June 30, 2022
   3,890 
June 29, 2023
   3,213 
June 27, 2024
   722 
June 26, 2025
   775 
June 25, 2026
   831 
Thereafter
   5,318 
   
 
 
 
   $14,749 
   
 
 
 
NOTE 68 — INCOME TAXES

The provision for income taxes is based entirely on income before income taxes earned in the United States, and is as follows for the last three fiscal years:

   For the Year Ended: 
   June 29,
2017		   June 30,
2016		   June 25,
2015		 

Current:

      

Federal

  $17,013   $14,015   $15,916 

State

   2,744    2,222    2,027 
  

 

 

   

 

 

   

 

 

 

Total current expense

   19,757    16,237    17,943 

Deferred:

      

Deferred federal

   (1,698)    (210)    (2,589) 

Deferred state

   (46)    40    205 
  

 

 

   

 

 

   

 

 

 

Total deferred benefit

   (1,744)    (170)    (2,384) 
  

 

 

   

 

 

   

 

 

 

Total income tax expense

  $18,013   $16,067   $15,559 
  

 

 

   

 

 

   

 

 

 

                                                                
  
For the Year Ended:
 
  
 June 24, 

2021
     
June 25,

2020
     
June 27,

2019
 
Current:
                  
Federal
 $15,228     $14,588     $10,309 
State
  4,010      3,909      2,951 
  
 
 
     
 
 
     
 
 
 
Total current expense
  19,238      18,497      13,260 
Deferred:
                  
Deferred federal
  891      137      395 
Deferred state
  (51)      (33)      (693) 
  
 
 
     
 
 
     
 
 
 
Total deferred expense (benefit)
  840      104      (298) 
  
 
 
     
 
 
     
 
 
 
Total income tax expense
 $20,078     $18,601     $12,962 
  
 
 
     
 
 
     
 
 
 
The reconciliations of income taxes at the statutory federal income tax rate to income tax expense reported in the Consolidated Statements of Comprehensive Income for the last three fiscal years are as follows:

   June 29,
2017		  June 30,
2016		  June 25,
2015		 

Federal statutory income tax rate

   35.0%   35.0%   35.0% 

State income taxes, net of federal benefit

   3.3   3.2   3.4 

Research and development tax credit

   (0.1)   (0.1)   (0.1) 

Domestic manufacturing deduction

   (3.1)   (3.2)   (3.4) 

Windfall tax benefits

   (1.8)   —     —   

Uncertain tax positions

   0.1   (0.6)   0.3 

Other

   (0.1)   0.3   (0.5) 
  

 

 

  

 

 

  

 

 

 

Effective tax rate

   33.3%   34.6%   34.7% 
  

 

 

  

 

 

  

 

 

 

After the adoption of ASU2016-09 in fiscal 2017, windfall tax benefits are a permanent difference recognized as a component of income tax expense.

                                                                
   
    June 24,    

2021
  
June 25,

2020
  
June 27,

2019
 
Federal statutory income tax rate
   21.0%   21.0%   21.0% 
State income taxes, net of federal benefit
   3.9   4.2   3.1 
Section 162(m) limitation
   1.1   1.2   1.1 
Research and development tax credit
   (0.5)   (0.3)   (0.3) 
Windfall tax benefits
   (0.4)   (0.4)   (0.2) 
Uncertain tax positions
   0.1   0     0.1 
Other
   0     (0.1)   (0.1) 
   
 
 
  
 
 
  
 
 
 
Effective tax rate
   25.2%   25.6%   24.7% 
   
 
 
  
 
 
  
 
 
 
55
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement basis and the tax basis of assets and liabilities using enacted statutory tax rates applicable to future years. Deferred tax assets and liabilities are comprised of the following:

   June 29,
2017		   June 30,
2016		 

Deferred tax assets (liabilities):

    

Accounts receivable

  $423   $521 

Employee compensation

   1,726    1,922 

Inventory

   345    353 

Depreciation and amortization

   (12,826)    (13,315) 

Capitalized leases

   1,508    1,440 

Goodwill and intangible assets

   4,939    5,046 

Retirement plan

   8,224    8,661 

Workers’ compensation

   2,365    2,251 

Share based compensation

   1,908    1,669 

Capital loss carryforward

   171    171 

Other

   483    42 

Less valuation allowance

   (171)    (171) 
  

 

 

   

 

 

 

Net deferred tax asset — long term

  $9,095   $8,590 
  

 

 

   

 

 

 

51

   
June 24,

2021
   
June 25,

2020
 
Deferred tax assets (liabilities):
          
Accounts receivable
  $349   $355 
Employee compensation
   1,338    1,534 
Inventory
   198    189 
Depreciation and amortization
   (12,456)    (11,260) 
Capitalized leases
   1,159    1,145 
Goodwill and intangible assets
   2,500    2,885 
Retirement plan
   9,242    8,373 
Workers’ compensation
   1,991    1,932 
Share based compensation
   1,397    1,344 
Other
   369    291 
   
 
 
   
 
 
 
Net deferred tax asset
   6,087    6,788 
   
 
 
   
 
 
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the character necessary during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and
tax-planning
strategies in making this assessment. During fiscal 2017 the total valuation allowance did not change and in fiscal 2016 the net change in the total valuation allowance was a $4 decrease. If or when recognized, the tax benefits relating to any reversal of the valuation allowance will be recognized as a reduction of income tax expense.

For the years ending June 29, 201724, 2021 and June 30, 2016,25, 2020, unrecognized tax benefits and accrued interest and penalties were $173$321 and $62.$204. Accrued interest and penalties related to uncertain tax positions are not material for any periods presented. Interest and penalties within income tax expense were not material for any period presented. The total gross amounts of unrecognized tax benefits were $174$326 and $24$203 at June 29, 201724, 2021 and June 30, 2016,25, 2020, respectively.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

   June 29,
2017		   June 30,
2016		   June 25,
2015		 

Beginning balance

  $24   $248   $247 

Gross increases — tax positions in prior year

   7    70    27 

Gross decreases — tax positions in prior year

   —      (8)    (91) 

Settlements

   —      (137)    (18) 

Gross increases — tax positions in current year

   23    17    21 

Lapse of statute of limitations

   120    (166)    62 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $174   $24   $248 
  

 

 

   

 

 

   

 

 

 

   
June 24,

2021
   
June 25,

2020
   
June 27,

2019
 
Beginning balance
  $203   $240   $207 
Gross increases — tax positions in prior year
   49    16    —   
Gross decreases — tax positions in prior year
   —      (24)    (6) 
Settlements
   —      —      —   
Gross increases — tax positions in current year
   110    60    39 
Lapse of statute of limitations
   (36)    (89)    —   
   
 
 
   
 
 
   
 
 
 
Ending balance
  $326   $203   $240 
   
 
 
   
 
 
   
 
 
 
Unrecognized tax benefits, that if recognized, would affect the annual effective tax rate on income from continuing operations, are as follows:

   June 29,
2017		   June 30,
2016		   June 25,
2015		 

Unrecognized tax benefits that would affect annual effective tax rate

  $136   $27   $261 

   
June 24,

2021
   
June 25,

2020
   
June 27,

2019
 
Unrecognized tax benefits that would affect annual effective tax rate
  $311   $196   $217 
During fiscal 2017,2021, the change in unrecognized tax benefits due to statute expiration was not material. We do not anticipate that total unrecognized tax benefits will significantly change in the next twelve months.

There were certain changes in state tax laws during the period the impact of which was insignificant.

56
We file income tax returns with federal and state tax authorities within the United States of America. Our federal and Illinois tax returns are open for audit for fiscal 2015 and 2016.2018 through 2020. Our California tax returns for fiscal 2013 and 2014 are under audit and fiscal 2015 and 2016 2017 through 2020 are open for audit. No other tax jurisdictions are material to us.

NOTE 79 — COMMITMENTS AND CONTINGENCIES

Operating Leases

We primarily lease certain office and material handling equipment pursuant to agreements accounted for as operating leases. Rent expense aggregated under these operating leases was as follows for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Rent expense related to operating leases

  $1,880   $1,775   $1,545 
  

 

 

   

 

 

   

 

 

 

Aggregatenon-cancelable lease commitments under these operating leases with initial or remaining terms greater than one year are as follows:

Fiscal year ending    

June 28, 2018

  $969 

June 27, 2019

   558 

June 25, 2020

   392 

June 24, 2021

   142 

June 30, 2022

   71 

Thereafter

   6 
  

 

 

 
   $2,138 
  

 

 

 

52

Litigation

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 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 money 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.

We are subject to a class-action complaint for an employment related matter. Mediation for this matter occurred in June 2017, which for the first time we were provided with an initial monetary demand. In August 2017, we agreed in principle to a $1,200 settlement for which we are fully reserved at June 29, 2017.    Thenon-monetary components of the settlement are still being finalized.

NOTE 810 — STOCKHOLDERS’ EQUITY

Our Class A Common Stock, $.01$.01 par value (the “Class A Stock”), has cumulative voting rights with respect to the election of those directors which the holders of Class A Stock are entitled to elect, and 10 votes per share on all other matters on which holders of our Class A Stock and Common Stock are entitled to vote, with the exception of election of the directors for which the holders of Common Stock are eligible to elect. In addition, each share of Class A Stock is convertible at the option of the holder at any time into one share1share of Common Stock and automatically converts into one share of Common Stock upon any sale or transfer other than to related individuals or certain other events as set forth in our Restated Certificate of Incorporation. Each share of our Common Stock, $.01$.01 par value (the “Common Stock”) has noncumulative voting rights of one vote1vote per share. The Class A Stock and the Common Stock are entitled to share equally, on a
share-for-share
basis, in any cash dividends declared by the Board of Directors, and the holders of the Common Stock are entitled to elect 25%, rounded up to the nearest whole number, of the members comprising the Board of Directors. During fiscal 2017, our Board of Directors adopted a dividend policy under which it intends to pay an annual cash dividend on our Common Stock and Class A Stock of at least $0.50 per share during the first quarter of each fiscal year.

NOTE 911 — STOCK-BASED COMPENSATION PLANS

At our annual meeting of stockholders on October 29, 2014, our stockholders approved a new equity incentive plan (the “2014 Omnibus Plan”) under which awards of options and other stock-based awards may be made to employees, officers or
non-employee
directors of our Company. A total of 1,000,000 shares of Common Stock are authorized for grants of awards thereunder, which may be in the form of options, restricted stock, RSUs, stock appreciation rights (“SARs”), performance shares, performance units, Common Stock or dividends and dividend equivalents. As of June 29, 2017,24, 2021, there were 820,539645,841 shares of Common Stock that remained authorized for future grants of awards, subject to the limitations set below. Under the terms of the Omnibus Plan, the total number of shares of Common Stock with respect to which options or SARs may be granted in any calendar year to any participant may not exceed 500,000 shares (this limit applies separately with respect to each type of award). Additionally, under the terms of the 2014 Omnibus Plan, for awards of restricted stock, RSUs, performance shares or other stock-based awards that are intended to qualify as performance-based compensation: (i) the total number of shares of Common Stock that may be granted in any calendar year to any participant may not exceed 250,000 shares (this limit applies separately to each type of award) and (ii) the maximum amount that may be paid to any participant for awards that are payable in cash or property other than Common Stock in any calendar year is $5,000. ForDuring fiscal 2017, the Board of Directors adopted an equity grant cap which further restricted the number of awards that could be made to any one participant or in the aggregate. The equity grant cap limited the number of awards to 250,000 awards to all participants and 20,000 awards to any one participant for the 2017in a fiscal year. Except as set forth in the 2014 Omnibus Plan, RSUs have vesting periods of three years for awards to employees and one year for awards to
non-employee
members of the Board of Directors. Recipients of RSUs have the option to defer receipt of vested shares until a specified later date, typically soon after separation from the Company. The exercise price of stock options is determined as set forth in the 2014 Omnibus Plan by the Compensation Committee of our Board of Directors and has tomust be at least the fair market value of the Common Stock on the date of grant. Except as set forth in the 2014 Omnibus Plan, stock options expire upon termination of employment or directorship, as applicable. Stock options granted under the 2014 Omnibus Plan are exercisable 25% annually commencing on the first anniversary date of grant and becamebecome fully exercisable on the fourth anniversary date of grant. Options generally will expire no later than ten years after the date on which they were granted. We issue new shares of Common Stock upon the vesting of RSUs and upon exercise of stock options.

We determine the fair value of stock option awards using the Black-Scholes option-pricing model; however, there were no options granted in fiscal 2017, fiscal 2016 or fiscal 2015.

53

The following is a summary of stock option activity for the year ended June 29, 2017:

   Shares   Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Term in Years		   Aggregate
Intrinsic
Value		 

Outstanding at June 30, 2016

   9,500   $8.78     

Granted

   —      —       

Exercised

   (7,500)    8.40     

Forfeited

   —      —       
  

 

 

       

Outstanding at June 29, 2017

   2,000   $10.24    2.06   $105 
  

 

 

       

 

 

 

Exercisable at June 29, 2017

   2,000   $10.24    2.06   $105 
  

 

 

       

 

 

 

The following table summarizes the total intrinsic value of all options exercised and the total cash received from the exercise of options for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Total intrinsic value of options exercised

  $374   $792   $781 

Total cash received from exercise of options

  $63   $155   $643 

All options were fully vested as of June 30, 2016. Exercise prices for options outstanding as of June 29, 2017 ranged from $8.71 to $14.73.

The fair value of RSUs is generally determined based on the market price of our Common Stock on the date of grant. The fair value of RSUs granted for the years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 201527, 2019 was $2,773, $3,212$3,829, $3,528 and $2,835,$3,334, respectively.

57
The following is a summary of RSU activity for the year ended June 29, 2017:

Restricted Stock Units

  Shares   Weighted-
Average
Grant-
Date
Fair Value		 

Outstanding at June 30, 2016

   228,270   $32.33 

Granted

   45,213    61.33 

Vested

   (68,426)    27.91 

Forfeited

   (3,199)    30.23 
  

 

 

   

 

 

 

Outstanding at June 29, 2017

   201,858   $40.36 
  

 

 

   

 

 

 

24, 2021:

Restricted Stock Units
  
Shares
   
Weighted-

Average

Grant-Date

Fair Value
 
Outstanding at June 25, 2020
   166,879   $51.62 
Granted
   55,404    69.12 
Vested
(a)
   (55,826)    48.46 
Forfeited
   (6,611)    69.35 
   
 
 
   
 
 
 
Outstanding at June 24, 2021
   159,846   $58.05 
   
 
 
   
 
 
 
(a)
The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements.
At June 29, 201724, 2021 there were 68,67351,069 RSUs outstanding that were vested but deferred. At June 30, 201625, 2020 there were 58,56157,871 RSUs outstanding that were vested but deferred. The
non-vested
RSUs at June 29, 201724, 2021 will vest over a weighted-average period of 1.21.4 years. The fair value of RSUs that vested for the years ended June 29, 2017,24, 2021, June 30, 201625, 2020 and June 25, 201527, 2019 was $1,910, $928$2,706, $2,321 and $615,$2,744, respectively.

The following table summarizes compensation cost charged to earnings for all equity compensation plans and the total income tax benefit recognized for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

Compensation cost charged to earnings

  $2,504   $2,489   $1,952 

Income tax benefit recognized

   951    962    814 

   
Year ended

June 24,

2021
   
Year ended

June 25,

2020
   
Year ended

June 27,

2019
 
Compensation cost charged to earnings
  $2,908   $2,472   $2,644 
Income tax benefit recognized
   727    618    661 
At June 29, 2017,24, 2021, there was $3,008$3,770 of total unrecognized compensation cost related to
non-vested
share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted-average period of 1.21.4 years.

54

NOTE 1012 — SPECIAL CASH DIVIDENDS

Our Board of Directors declared the following special cash dividends payable in fiscal 20172021 and fiscal 2016:

Declaration Date

  

Record Date

  Dividend Per
Share		   Total Amount   

Payment Date

November 1, 2016

  

November 30, 2016

  $2.50   $28,314   

December 13, 2016

July 7, 2016

  

July 21, 2016

  $2.50   $28,150   

August 4, 2016

October 27, 2015

  

December 2, 2015

  $2.00   $22,486   

December 11, 2015

2020:

Declaration Date
  
Record Date
  
Dividend Per
Share
(a)
   
Total
Amount
   
Payment Date
January 27, 2021
  February 26, 2021  $2.50   $28,778   March 16, 2021
July 9, 2020
  August 7, 2020  $2.50   $28,685   August 21, 2020
April 29, 2020
  May 27, 2020  $1.00   $11,472   June 17, 2020
October 29, 2019
  November 26, 2019  $2.00   $22,947   December 10, 2019
July 10, 2019
  August 6, 2019  $3.00   $34,321   August 20, 2019
(a)
The dividends declared on July 10, 2019 and July 9, 2020 include both the annual and special dividend declared on such date.
On July 11, 2017,8, 2021, our Board of Directors declared a special cash dividend of $2.00$2.30 per share and a regular annual cash dividend of $0.50$0.70 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company. Refer to Note 18 –20 — “Subsequent Events”Event” below.

58
NOTE 1113 — EMPLOYEE BENEFIT PLANS

We maintain a contributory plan established pursuant to the provisions of section 401(k) of the Internal Revenue Code. The plan provides retirement benefits for all nonunion employees meeting minimum age and service requirements. We currently match 100% of the first three percent contributed by each employee and 50% of the next two percent contributed, up to certain maximums specified in the plan. Our expenseExpense for the 401(k) plan was as follows for the last three fiscal years:

   Year ended
June 29,
2017		   Year ended
June 30,
2016		   Year ended
June 25,
2015		 

401(k) plan expense

  $1,664   $1,604   $1,550 

During the first quarter of fiscal 2009, we recorded a long-term liability of $868 for the withdrawal from the multiemployer plan (“Route pension”) for thestep-van drivers that were employed for our store-door delivery system that was discontinued during fiscal 2008. Pursuant to terms of settlement with a labor union, we are making monthly payments of $8 (including interest) through April 2022.

The total Route pension liability was as follows for the last two fiscal years:

   June 29,
2017		   June 30,
2016		 

Route pension liability

  $397   $466 

​​​​​​​

   
Year ended
June 24,
2021
   
Year ended
June 25,
2020
   
Year ended
June 27,
2019
 
401(k) plan expense
  $2,119   $2,116   $2,040 
Virtually all of our salaried employees participate in our Sanfilippo Value Added Plan (as amended, the “SVA Plan”), which is a cash incentive plan (an economic value added-based program) administered by our Compensation Committee. We accrue expense related to the SVA Plan in the annual period that the economic performance underlying such performance occurs. This method of expense recognition properly matches the expense associated with improved economic performance with the period the improved performance occurs on a systematic and rational basis. The SVA Plan payments, if any, are paid to participants in the first quarter of the following fiscal year.

59
NOTE 1214 — RETIREMENT PLAN

The Supplemental Employee Retirement Plan (“SERP”) is an unfunded,
non-qualified
benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. We use our fiscal
year-end
as the measurement date for the obligation calculation. Accounting guidance in ASC Topic 715,
Compensation — Retirement Benefits
, requires the recognition of the funded status of the SERP on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are recorded as a component of “Accumulated Other Comprehensive Loss” (“AOCL”).

The following table presents the changes in the projected benefit obligation for the fiscal years ended:

55

   June 29,
2017		   June 30,
2016		 

Change in projected benefit obligation

    

Projected benefit obligation at beginning of year

  $22,791   $18,538 

Service cost

   631    491 

Interest cost

   811    843 

Actuarial (gain) loss

   (1,938)    3,573 

Benefits paid

   (654)    (654) 
  

 

 

   

 

 

 

Projected benefit obligation at end of year

  $21,641   $22,791 
  

 

 

   

 

 

 

   
June 24,
2021
   
June 25,
2020
 
Change in projected benefit obligation
          
Projected benefit obligation at beginning of year
  $32,204   $25,382 
Service cost
   944    712 
Interest cost
   858    892 
Actuarial loss
   2,195    5,872 
Benefits paid
   (654)    (654) 
   
 
 
   
 
 
 
Projected benefit obligation at end of year
  $35,547   $32,204 
   
 
 
   
 
 
 
The accumulated benefit obligation, which represents benefits earned up to the measurement date, was $17,774$28,927 and $18,247$25,839 at June 29, 201724, 2021 and June 30, 2016,25, 2020, respectively.

Components of the actuarial (gain) loss portion of the change in projected benefit obligation are presented below for the fiscal years ended:

   June 29,
2017		   June 30,
2016		   June 25,
2015		 

Actuarial Loss

      

Change in assumed pay increases

  $124   $68   $342 

Change in discount rate

   (1,402)    3,509    (801) 

Change in mortality assumptions

   (193)    (132)    2,150 

Change in bonus assumption

   —      —      1,191 

Other

   (467)    128    257 
  

 

 

   

 

 

   

 

 

 

Actuarial (gain) loss

  $(1,938)   $3,573   $3,139 
  

 

 

   

 

 

   

 

 

 

                                                       
   
June 24,
2021
   
June 25,
2020
   
June 27,
2019
 
Actuarial Loss
               
Change in assumed pay increases
  $3,319   $2,352   $293 
Change in discount rate
   (1,134)    4,285    2,174 
Change in mortality assumptions
   (329)    (1,083)    (69) 
Other
   339    318    199 
   
 
 
   
 
 
   
 
 
 
Actuarial loss
  $2,195   $5,872   $2,597 
   
 
 
   
 
 
   
 
 
 
The components of the net periodic pension cost are as follows for the fiscal years ended:

   June 29,
2017		   June 30,
2016		   June 25,
2015		 

Service cost

  $631   $491   $386 

Interest cost

   811    843    642 

Recognized loss amortization

   365    50    —   

Prior service cost amortization

   957    957    957 
  

 

 

   

 

 

   

 

 

 

Net periodic pension cost

  $2,764   $2,341   $1,985 
  

 

 

   

 

 

   

 

 

 

Significant assumptions

                                                       
   
June 24,
2021
   
June 25,
2020
   
June 27,
2019
 
Service cost
  $944   $712   $610 
Interest cost
   858    892    895 
Recognized loss amortization
   1,183    417    95 
Prior service cost amortization
   478    957    957 
   
 
 
   
 
 
   
 
 
 
Net periodic pension cost
  $3,463   $2,978   $2,557 
   
 
 
   
 
 
   
 
 
 
The most significant assumption related to our SERP includeis the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future, the average rate of compensation expense increase by SERP participants, and anticipated mortality rates. TheRP-2014 white collar fully generational mortality table with mortality improvement scaleMP-2016 was utilized in the preparation of our pension obligation as of June 29, 2017.

future.

60
We used the following assumptions to calculate the benefit obligation of our SERP as of the following dates:

   June 29,
2017		 June 30,
2016

Discount rate

  3.99% 3.61%

Rate of compensation increases

  4.50% 4.50%

Bonus payment

  60% - 85% of base,
paid 4 of 5
years		 60% - 85% of base,
paid 4 of 5
years

   
June 24,

2021
 
June 25,
2020
Discount rate
  2.89% 2.69%
Average rate of compensation increases
  3.38% 3.38%
Bonus payment  
45% - 110%

of base,
paid 4 of 5
years		 
60% - 95%

of base,
paid 4 of 5
years
We used the following assumptions to calculate the net periodic costs of our SERP as follows for the fiscal years ended:

56

   June 29,
2017		 June 30,
2016		 June 25,
2015

Discount rate

  3.61% 4.63% 4.37%

Rate of compensation increases

  4.50% 4.50% 4.50%

Mortality

  RP-2014 white
collar with MP-
2015 scale		 RP-2014
white collar with
MP-
2014 scale		 IRS 2014
(Unisex)

Bonus payment

  60% -85% of
base,
paid 4 of 5
years		 60% -85% of
base,
paid 4 of 5
years		 60% - 85% of
base,
paid 3 of 5
years

   
June 24,

2021
 
June 25,

2020
 
June 27,

2019
Discount rate
  2.69% 3.56% 4.14%
Rate of compensation increases
  3.38% 4.13% 3.38%
Mortality
  
Pri-2012 white

collar with MP-
2019 scale		 
RP-2014 white

collar with MP-
2018 scale		 
RP-2014 white

collar with MP-
2017 scale
Bonus payment
  60% - 95% of
base, paid 4 of 5
years		 60% - 85% of
base, paid 4 of 5
years		 60% - 85% of
base, paid 4 of 5
years
The assumed discount rate is based, in part, upon a discount rate modeling process that considers both high quality long-term indices and the duration of the SERP plan relative to the durations implicit in the broader indices. The discount rate is utilized principally in calculating the actuarial present value of our obligation and periodic expense pursuant to the SERP. To the extent the discount rate increases or decreases, our SERP obligation is decreased or increased, respectively.

The following table presents the benefits expected to be paid in the next ten fiscal years:

Fiscal year    
        2018  $647 
        2019   631 
        2020   612 
        2021   727 
        2022   699 
2023 — 2027   4,635 

Fiscal year
    
2022
  $628 
2023
   762 
2024
   703 
2025
   1,420 
2026
   1,355 
2027 — 2031
   8,404 
At June 29, 201724, 2021 and June 30, 201625, 2020, the current portion of the SERP liability was $647$628 and $653,$631, respectively, and recorded in Accruedthe caption “Accrued payroll and related benefitsbenefits” on the Consolidated Balance Sheets.

The following table presents the components of AOCL that have not yet been recognized in net pension expense:

   June 29,
2017		   June 30,
2016		 

Unrecognized net loss

  $(3,624)   $(5,926) 

Unrecognized prior service cost

   (3,349)    (4,306) 

Tax effect

   2,569    3,807 
  

 

 

   

 

 

 

Net amount unrecognized

  $(4,404)   $(6,425) 
  

 

 

   

 

 

 

We expect to recognize $957 of the prior service cost and $162 of net loss into net periodic pension expense during the fiscal year ending June 28, 2018.

   
June 24,
2021
   
June 25,
2020
 
Unrecognized net loss
  $(11,921)   $(10,909) 
Unrecognized prior service cost
   —      (478) 
Tax effect
   2,896    2,757 
   
 
 
   
 
 
 
Net amount unrecognized
  $(9,025)   $(8,630) 
   
 
 
   
 
 
 
61
NOTE 1315 — ACCUMULATED OTHER COMPREHENSIVE LOSS

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the last two fiscal years. These changes are all related to our defined benefit pension plan.

Changes to AOCL(a)  Year
Ended
June 29,
2017		  Year
Ended
June 30,
2016		 

Balance at beginning of period

  $(6,425)  $(4,834) 

Other comprehensive income (loss) before reclassifications

   1,938   (3,573) 

Amounts reclassified from accumulated other comprehensive loss

   1,322   1,007 

Tax effect

   (1,239)   975 
  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   2,021   (1,591) 
  

 

 

  

 

 

 

Balance at end of period

  $(4,404)  $(6,425) 
  

 

 

  

 

 

 

Changes to AOCL
(a)
  
Year

Ended

June 24,

2021
   
Year

Ended

June 25,

2020
 
Balance at beginning of period
  $(8,630)   $(4,325) 
Other comprehensive loss before reclassifications
   (2,195)    (5,872) 
Amounts reclassified from accumulated other comprehensive loss
   1,661    1,374 
Tax effect
   139    1,169 
   
 
 
   
 
 
 
Net current-period other comprehensive loss
   (395)    (3,329) 
Impact of adopting ASU
2018-02
   —      (976) 
   
 
 
   
 
 
 
Balance at end of period
  $(9,025)   $(8,630) 
   
 
 
   
 
 
 
(a)
Amounts in parenthesis indicate debits/expense.

The reclassifications out of accumulated other comprehensive loss for the last two fiscal years were as follows:

57

Reclassifications from AOCL to earnings(b)  Year
Ended
June 29,
2017		   Year
Ended
June 30,
2016		   Affected line item in the
Consolidated Statements of
Comprehensive Income		 

Amortization of defined benefit pension items:

      

Unrecognized prior service cost

  $(957)   $(957)    Administrative expenses 

Unrecognized net loss

   (365)    (50)    Administrative expenses 
  

 

 

   

 

 

   

Total before tax

   (1,322)    (1,007)   

Tax effect

   502    383    Income tax expense 
  

 

 

   

 

 

   

Amortization of defined pension items, net of tax

  $(820)   $(624)   
  

 

 

   

 

 

   

Reclassifications from AOCL to earnings
(b)
  
Year

Ended
June 24,

2021
   
Year

Ended

June 25,

2020
   
Affected line item in the
Consolidated Statements of

Comprehensive Income
 
Amortization of defined benefit pension items:
               
Unrecognized prior service cost
  $(478)   $(957)    Other expense 
Unrecognized net loss
   (1,183)    (417)    Other expense 
   
 
 
   
 
 
      
Total before tax
   (1,661)    (1,374)      
Tax effect
   432    358    Income tax expense 
   
 
 
   
 
 
      
Amortization of defined pension items, net of tax
  $(1,229)   $(1,016)      
   
 
 
   
 
 
      
(b)
Amounts in parenthesis indicate debits to expense. See Note 1214 — “Retirement Plan” above for additional details.

62
NOTE 14 — TRANSACTIONS WITH RELATED PARTIES

In addition to the related party transactions described in Note 5, we also purchased materials from a company that was formerly owned by three members of our Board of Directors, two of whom are also executive officers, and individuals directly related to them during the fiscal years listed below. Purchases from this related party aggregated to the following for the years ending:

   Year
ended
June 29,
2017		   Year
ended
June 30,
2016		   Year
ended
June 25,
2015		 

Purchases from related party

  $8,043   $7,138   $10,969 
  

 

 

   

 

 

   

 

 

 

Accounts payable to this related entity aggregated to the following for the fiscal years ending:

June 29, 2017

  $178 

June 30, 2016

   113 

NOTE 1516 — PRODUCT TYPE SALES MIX

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 types, for the fiscal year ended:

Product Type

  June 29,
2017		  June 30,
2016		  June 25,
2015		 

Peanuts

   15.7%   13.9%   13.7% 

Pecans

   16.2   13.1   12.7 

Cashews & Mixed Nuts

   24.3   23.3   22.0 

Walnuts

   8.4   9.4   11.0 

Almonds

   16.3   23.0   23.4 

Trail & Snack Mixes

   13.9   12.4   12.0 

Other

   5.2   4.9   5.2 
  

 

 

  

 

 

  

 

 

 
   100.0%   100.0%   100.0% 
  

 

 

  

 

 

  

 

 

 

58

Product Type
  
June 24,

2021
  
June 25,

2020
  
June 27,

2019
 
Peanuts
   19.3%   18.2%   18.0% 
Pecans
   10.0   10.3   12.9 
Cashews & Mixed Nuts
   23.3   23.2   23.0 
Walnuts
   6.2   7.2   8.9 
Almonds
   10.8   14.7   14.4 
Trail & Snack Mixes
   24.7   21.1   17.3 
Other
   5.7   5.3   5.5 
   
 
 
  
 
 
  
 
 
 
    100.0%   100.0%   100.0% 
   
 
 
  
 
 
  
 
 
 
NOTE 1617 — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

The following table details the activity in various allowance and reserve accounts.

Description

  Balance at
Beginning
of Period		   Additions   Deductions   Balance at
End of Period		 

June 29, 2017

        

Allowance for doubtful accounts

  $397   $58   $(192)   $263 

Reserve for cash discounts

   975    12,274    (12,399)    850 

Reserve for customer deductions

   2,918    16,116    (16,055)    2,979 

Deferred tax asset valuation allowance

   171    —      —      171 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $4,461   $28,448   $(28,646)   $4,263 
  

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2016

        

Allowance for doubtful accounts

  $235   $199   $(37)   $397 

Reserve for cash discounts

   800    12,928    (12,753)    975 

Reserve for customer deductions

   1,931    15,351    (14,364)    2,918 

Deferred tax asset valuation allowance

   175    —      (4)    171 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $3,141   $28,478   $(27,158)   $4,461 
  

 

 

   

 

 

   

 

 

   

 

 

 

June 25, 2015

        

Allowance for doubtful accounts

  $209   $36   $(10)   $235 

Reserve for cash discounts

   650    12,341    (12,191)    800 

Reserve for customer deductions

   2,351    9,541    (9,961)    1,931 

Deferred tax asset valuation allowance

   175    —      —      175 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $3,385   $21,918   $(22,162)   $3,141 
  

 

 

   

 

 

   

 

 

   

 

 

 

Description
  
Balance at

Beginning

of Period
   
Additions
   
Deductions
   
Balance at

End of Period
 
June 24, 2021
                    
Allowance for doubtful accounts
  $391   $203   $(303)   $291 
Reserve for cash discounts
   975    15,548    (15,473)    1,050 
Reserve for customer deductions
   5,477    28,516    (27,376)    6,617 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $6,843   $44,267   $(43,152)   $7,958 
   
 
 
   
 
 
   
 
 
   
 
 
 
June 25, 2020
                    
Allowance for doubtful accounts
  $350   $209   $(168)   $391 
Reserve for cash discounts
   925    15,650    (15,600)    975 
Reserve for customer deductions
   4,757    27,036    (26,316)    5,477 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $6,032   $42,895   $(42,084)   $6,843 
   
 
 
   
 
 
   
 
 
   
 
 
 
June 27, 2019
                    
Allowance for doubtful accounts
  $270   $150   $(70)   $350 
Reserve for cash discounts
   950    14,721    (14,746)    925 
Reserve for customer deductions
   5,038    24,581    (24,862)    4,757 
Deferred tax asset valuation allowance
   112    —      (112)    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $6,370   $39,452   $(39,790)   $6,032 
   
 
 
   
 
 
   
 
 
   
 
 
 
63
NOTE 1718 — SUPPLEMENTARY QUARTERLY DATA (Unaudited)

The following unaudited quarterly consolidated financial data are presented for fiscal 20172021 and fiscal 2016.2020. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results.

   First
Quarter		   Second
Quarter		   Third
Quarter		   Fourth
Quarter		 

Year Ended June 29, 2017:

        

Net sales

  $222,293   $249,375   $173,376   $201,591 

Gross profit

   36,475    43,389    28,426    33,633 

Income from operations

   16,556    19,742    10,430    11,616 

Net income

   10,180    12,885    6,336    6,724 

Basic earnings per common share

  $0.90   $1.14   $0.56   $0.59 

Diluted earnings per common share

  $0.89   $1.13   $0.55   $0.59 

Cash dividends declared per common share

  $2.50   $2.50   $—     $—   

   First
Quarter		   Second
Quarter		   Third
Quarter		   Fourth
Quarter*		 

Year Ended June 30, 2016:

        

Net sales

  $225,777   $279,002   $215,742   $231,538 

Gross profit

   33,205    45,011    25,588    33,664 

Income from operations

   13,745    19,692    5,469    12,406 

Net income

   7,990    12,050    3,078    7,277 

Basic earnings per common share

  $0.71   $1.07   $0.27   $0.65 

Diluted earnings per common share

  $0.71   $1.07   $0.27   $0.64 

Cash dividends declared per common share

  $—     $2.00   $—     $—   

                                                                                     
   
First
Quarter
   
Second
Quarter
   
Third
Quarter
   
Fourth
Quarter
 
Year Ended June 24, 2021:
                    
Net sales
  $210,273   $233,575   $207,892   $206,742  
Gross profit
   39,332    52,795    46,046    46,814 
Income from operations
   18,873    27,796    21,097    17,412 
Net income
   12,812    19,885    14,701    12,343 
Basic earnings per common share
  $1.12   $1.73   $1.28   $1.07 
Diluted earnings per common share
  $1.11   $1.72   $1.27   $1.07 
Cash dividends declared per common share
  $2.50   $0     $2.50   $0   
                                                                                     
   
First
Quarter
   
Second
Quarter
   
Third
Quarter
   
Fourth
Quarter
 
Year Ended June 25, 2020:
                    
Net sales
  $217,846   $246,423   $211,624   $204,199* 
Gross profit
   42,248    49,980    42,805    40,742 
Income from operations
   19,062    24,466    19,397    15,622 
Net income
   12,926    17,461    13,466    10,257 
Basic earnings per common share
  $1.13   $1.52   $1.17   $0.89 
Diluted earnings per common share
  $1.12   $1.52   $1.17   $0.89 
Cash dividends declared per common share
  $3.00   $2.00   $0     $1.00 
*
The fourth quarterdecrease in net sales was primarily attributable to a 3.3% decrease in weighted average selling price per pound, combined with a decrease in sales volume for foodservice customers in our commercial ingredients distribution channel as a result of fiscal 2016 contained one additional week compared to fiscal 2017.the
COVID-19
pandemic.

59

NOTE 1819
—
GARYSBURG, NORTH CAROLINA FACILITY
On October 7, 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. The fire occurred in our roasting room where all of the roasting equipment was destroyed. The fire also damaged some equipment in our packaging room and a portion of the roof. During fiscal 2020, the building and roof were repaired and brought back to their original condition.
Insurance proceeds totaling $2,934 were received from the insurance carrier in fiscal 2020, and the final payment of $2,730 was received during the third quarter of this fiscal year. Insurance proceeds received for damage to capital equipment are recorded as investing activities on the Consolidated Statements of Cash Flows when received.
We completed shelling of the 2019 peanut crop during the second quarter of this fiscal year and the facility was used to store and ship inshell peanuts through the remainder of fiscal 2021. During fiscal 2020 we manufactured and sold approximately 6 million pounds of inshell peanuts from this facility and discontinued that product line at the end of the current fiscal year.
We spent the fourth quarter of fiscal 2021 cleaning and preparing the facility for sale. After evaluating our options with regard to our peanut production operations, the Company decided to cease all operations permanently at the Garysburg facility at the end of fiscal 2021 and sell the facility and its related assets. The planned sale of this property meets the criteria of an asset “Held for Sale” in accordance with ASC 360,
Property, Plant and Equipment
. Assets held for sale are required to be measured at the lower of their carrying value or fair value less costs to sell. No adjustment of the carrying value was required. Assets classified as held for sale are no longer depreciated, and a current asset of $1,595 consisting of the building, land and remaining machinery and equipment is presented in the consolidated balance sheets as of June 24, 2021. Employee separation and related closure costs were immaterial for all periods presented.
NOTE 20 — SUBSEQUENT EVENTS

EVENT

On July 7, 2017, we entered into the Eighth Amendment to Credit Agreement (the “Eighth Amendment”) which eliminated the quarterly restriction on cash dividends and distributions and allows the Company to, without obtaining lender consent, make up to four cash dividends or distributions on its stock per fiscal year, or purchase, acquire, redeem or retire its stock in any fiscal year, in an amount not to exceed $60,000 in the aggregate per fiscal year, as long as no default or event of default exists and the excess availability under the Credit Agreement remains over $30,000 immediately before and after giving effect to any such dividend, distribution, purchase or redemption.

On July 11, 2017,8, 2021, our Board of Directors declared a special cash dividend of $2.00$2.30 per share and a regular annual cash dividend of $0.50$0.70 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “July 2017“August 2021 Dividends”). The July 2017August 2021 Dividends of approximately $28,370 werewill be paid on August 15, 201725, 2021 to stockholders of record as of the close of business on August 2, 2017.

60

10, 2021.

64

Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A — Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act, as of the end of the period covered by this Annual Report on Form
10-K.
Based on this evaluation, our CEO and CFO concluded that, as of June 29, 2017,24, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of June 29, 2017,24, 2021, based on the
Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of June 29, 2017.

24, 2021.

The effectiveness of our internal control over financial reporting as of June 29, 201724, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report contained in this Annual Report on Form
10-K.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the fourth fiscal quarter ended June 29, 201724, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that the Disclosure Controls and Procedures or our Internal Control over Financial Reporting will prevent or detect all errors and all fraud. A control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control’s objectives will be met. Further, the design of a control must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal controls, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control, misstatements due to error or fraud may occur and may not be detected.

Item 9B — Other Information

Not applicable

PART III

Item 10 — Directors, Executive Officers and Corporate Governance

The Sections entitled “Nominees for Election by The Holders of Common Stock,” “Nominees for Election by The Holders of Class A Stock”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance — Board Meetings and Committees — Audit Committee” and “Corporate Governance — Independence of the Audit Committee” of our Proxy Statement for the 20172021 Annual Meeting and filed pursuant to Regulation 14A are incorporated herein by reference. Other certain information relating to the directors and executive officers of the Company is included immediately before Part II of this Report.

65
We have adopted a Code of Ethics applicable to the principal executive, financial and accounting officers (“Code of Ethics”) and a separate Code of Conduct applicable to all employees and directors generally (“Code of Conduct”). The Code of Ethics and Code of Conduct are available on our website at
www.jbssinc.com
.

61

Item 11 — Executive Compensation

The Sections entitled “Compensation of Directors and Executive Officers”, “Compensation Discussion and Analysis”, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” of our Proxy Statement for the 20172021 Annual Meeting are incorporated herein by reference.

Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The Section entitled “Security Ownership of Certain Beneficial Owners and Management” of our Proxy Statement for the 20172021 Annual Meeting is incorporated herein by reference. Other certain information relating to the directors and executive officers of the Company is included immediately before Part II of this Report.

Item 13 — Certain Relationships and Related Transactions, and Director Independence

The Sections entitled “Corporate Governance — Independence of the Board of Directors” and “Review of Related Party Transactions” of our Proxy Statement for the 20172021 Annual Meeting are incorporated herein by reference. Other certain information relating to the directorsexecutive officers and executive officerscertain of the directors of the Company is included immediately before Part II of this Report.

Item 14 — Principal Accounting Fees and Services

The information under the proposal entitled “Ratify the Audit Committee’s Appointment of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for the 20182022 fiscal year” of our Proxy Statement for the 20172021 Annual Meeting is incorporated herein by reference.

PART IV

Item 15 — Exhibits, Financial Statement Schedules

(a) (1) Financial Statements

The following financial statements are included in Part II, Item 8 — “Financial Statements and Supplementary Data”:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Comprehensive Income for the Year Ended June 29, 2017,24, 2021, the Year Ended June 30, 201625, 2020 and the Year Ended June 25, 2015

27, 2019

Consolidated Balance Sheets as of June 29, 201724, 2021 and June 30, 2016

25, 2020

Consolidated Statements of Stockholders’ Equity for the Year Ended June 29, 2017,24, 2021, the Year Ended June 30, 201625, 2020 and the Year Ended June 25, 2015

27, 2019

Consolidated Statements of Cash Flows for the Year Ended June 29, 2017,24, 2021, the Year Ended June 30, 201625, 2020 and the Year Ended June 25, 2015

27, 2019 Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

(a) (3) Exhibits

The exhibits required by Item 601 of Regulation
S-K
and filed herewith are listed in the Exhibit Index which follows the signature page and immediately precedes the exhibits filed.

(b) Exhibits

See Item 15(a)(3) above.

62

(c) Financial Statement Schedules

See Item 15(a)(2) above.

Item 16 — Form
10-K
Summary

None

63

None.
66

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

JOHN B. SANFILIPPO & SON, INC.
Date: August 23, 2017By:/s/ Jeffrey T. Sanfilippo
Jeffrey T. Sanfilippo
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name

Title

Date

/s/ Jeffrey T. Sanfilippo

Jeffrey T. Sanfilippo

Chief Executive Officer and Director

(Principal Executive Officer)

August 23, 2017

/s/ Michael J. Valentine

Michael J. Valentine

Chief Financial Officer, Group President, Secretary and Director (Principal Financial Officer)August 23, 2017

/s/ Frank S. Pellegrino

Frank S. Pellegrino

Senior Vice President, Finance, Corporate Controller and Treasurer

(Principal Accounting Officer)

August 23, 2017

/s/ Mathias A. Valentine

Mathias A. Valentine

DirectorAugust 23, 2017

/s/ Jim Edgar

Jim Edgar

DirectorAugust 23, 2017

/s/ Timothy R. Donovan

Timothy R. Donovan

DirectorAugust 23, 2017

/s/ Jasper B. Sanfilippo, Jr.

Jasper B. Sanfilippo, Jr.

DirectorAugust 23, 2017

/s/ Daniel M. Wright

Daniel M. Wright

DirectorAugust 23, 2017

/s/ Ellen C. Taaffe

Ellen C. Taaffe

DirectorAugust 23, 2017

/s/ James J. Sanfilippo

James J. Sanfilippo

DirectorAugust 23, 2017

64

EXHIBIT INDEX

(Pursuant to Item 601 of Regulation
S-K)

No.

Description

Location

    3.1  
Exhibit
No.
  
Description
    3.1
Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to theForm 10-Q for the quarter ended March 24, 20052005)
    3.2
  Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to theForm 10-K for the fiscal year ended June 25, 20152015)
  *10.1  
    4.1
  1998 Equity Incentive PlanExhibit 10 to theForm 10-Q for the quarter ended September 24, 1998Description of Company’s Securities
*
10.2  10.1  First Amendment to the 1998 Equity Incentive PlanExhibit 10.35 to theForm 10-Q for the quarter ended December 28, 2000
  *10.3  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 theForm 10-Q for the quarter ended December 25, 20032003)
*
10.4  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 theForm 10-Q for the quarter ended March 25, 20042004)
*
10.5  10.3  Restated Supplemental Retirement Plan (incorporated by reference from Exhibit 10.16 to theForm 10-K for the fiscal year ended June 28, 20072007)
*
10.6  10.4  2008 Equity Incentive Plan, as amendedExhibit 10.24 to theForm 10-K for the fiscal year ended June 28, 2012
  *10.7  Form of Indemnification Agreement (incorporated by reference from Exhibit 10.01 to theForm 8-K filed on May 5, 20092009)
*
10.8  10.5  2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 4.1 to the Registration Statement onForm S-8 filed on October 28, 2014 (FileNo. 333-199637)2014)
67
  *
10.9  
Exhibit
No.
  
Description
*10.6
Amendment No. 1 to the 2014 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.12 to theForm 10-K for the year ended June 30, 20162016)
*
10.1010.7  Form ofNon-Employee Director Restricted Stock Unit Award Agreement(non-deferral) under 2014 Omnibus Plan (fiscal 20162018, 2019, 2020 and 20172021 awards cycle) (incorporated by reference from Exhibit 10.38 to theForm 10-Q for the quarter ended December 24, 20152015)

65

No.

*10.8
  

Description

Location

  *10.11Form ofNon-Employee Director Restricted Stock Unit Award Agreement (deferral) under 2014 Omnibus Plan (fiscal 20162020 and 20172021 awards cycle) (incorporated by reference from Exhibit 10.39 to theForm 10-Q for the quarter ended December 24, 20152015)
*
10.1210.9  Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 20162018, 2019 and 2020 awards cycle) (incorporated by reference from Exhibit 10.4010.20 to theForm 10-Q for the quarter ended December 24, 201528, 2017)
*
10.1310.10  Form of Employee Restricted Stock Unit Award Agreement under 2014 Omnibus Plan (fiscal 20172021 awards cycle) (incorporated by reference from Exhibit 10.1810.10 to theForm 10-Q for the quarter ended December 29, 201624, 2020)
*
10.1410.11  Retirement Agreement and General Release with Walter “Bobby” Tankersley, effective August 25, 2016Exhibit 10.19 to theForm 10-K for the year ended June 30, 2016
  *10.15Amended and Restated Sanfilippo Value Added Plan, dated August 20, 2015 (incorporated by reference from Exhibit 10.11 to theForm 10-K for the year ended June 25, 20152015)
  10.16
  10.12
  Credit Agreement, dated as of February 7, 2008, byAmended and among the Company, the financial institutions named therein as lenders, Wells Fargo Foothill, LLC (“WFF”), as the arranger and administrative agent for the lenders, and Wachovia Capital Finance Corporation (Central), in its capacity as documentation agentExhibit 10.1 to theForm 8-K filed on February 8, 2008
  10.17Security Agreement, dated as of February 7, 2008, by the Company in favor of WFF, as administrative agent for the lendersExhibit 10.2 to theForm 8-K filed on February 8, 2008
  10.18Loan Agreement, dated as of February 7, 2008, by and between the Company and Transamerica Financial Life Insurance Company (“TFLIC”)Exhibit 10.3 to theForm 8-K filed on February 8, 2008
  10.19First Amendment torestated Credit Agreement dated as of March 8, 2010, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent and Burdale Financial Limited, as a lenderFiled herewith
  10.20Second Amendment to Credit Agreement, dated as of July 15, 2011, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent, and Southwest Georgia Farm Credit, ACA for itself and as agent/nominee for Southwest Georgia Farm Credit, FLCA, as a lenderExhibit 10.1 to theForm 8-K filed on July 18, 2011
  10.21Third Amendment to Credit Agreement, dated as of October 31, 2011, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent, and Southwest Georgia Farm Credit, ACA, for itself and as agent/nominee for Southwest Georgia Farm Credit, FLCA, as a lenderExhibit 10.34 to theForm 10-Q for the quarter ended September 29, 2011
  10.22Consent and Fourth Amendment to Credit Agreement, dated as of January 22, 2013, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent, and Southwest Georgia Farm Credit, ACA, for itself and as agent/nominee for Southwest Georgia Farm Credit, FLCA, as a lenderExhibit 99.1 to theForm 8-K filed on February 4, 2013
  10.23Consent and Fifth Amendment to Credit Agreement, dated as of December 16, 2013, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent, and Southwest Georgia Farm Credit, ACA, for itself and as agent/nominee for Southwest Georgia Farm Credit, FLCA, as a lenderExhibit 99.1 to theForm 8-K filed on December 17, 2013

66

No.

Description

Location

  10.24Sixth Amendment to Credit Agreement, dated as of September 30, 2014, by and among the Company, Wells Fargo Capital Finance, LLC (f/k/a WFF), as a lender and administrative agent, and Southwest Georgia Farm Credit, ACA, as lender.Exhibit 10.1 to theForm 8-K filed on October 3, 2014
  10.25Seventh Amendment to Credit Agreement, dated as of July 7, 2016,5, 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 99.210.1 to theForm 8-K filed on July 7, 2016March 11, 2020)
  10.26
*10.13
  Eighth Amendment to Credit Agreement, dated as of July 7, 2017, byAmended and amongRestated John B. Sanfilippo & Son, Inc., Wells Fargo Capital Finance, LLC (f/k/a WFF), Split-Dollar Insurance Agreement Number One among John E. Sanfilippo, as a lendertrustee of the Jasper and the administrative agent,Marian Sanfilippo Irrevocable Trust, dated September 23, 1990, Jasper B. Sanfilippo, Marian R. Sanfilippo and Southwest Georgia Farm Credit, ACA, as a lender.Registrant, dated December 31, 2003 (incorporated by reference from Exhibit 99.110.34 to theForm 8-K filed on July 11, 201710-Q for the quarter ended December 25, 2003)
68
  10.27
Exhibit
No.
  First Amendment to Security Agreement, dated as of September 30, 2014, by the Company in favor of Wells Fargo Capital Finance, LLC (f/k/a WFF), as administrative agent for the lendersExhibit 10.2 to theForm 8-K filed on October 3, 2014
Description
*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)
  14
  Code of Ethics, as amended (incorporated by reference from Exhibit 14 to the Form 10-K for the fiscal year ended June 25, 20152015)
  21
  Subsidiaries of the CompanyFiled herewith
  23
��  Consent of PricewaterhouseCoopers LLPFiled herewith
  31.1
  Certification of Jeffrey T. Sanfilippo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amendedFiled herewith
  31.2
  Certification of Michael J. Valentine pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amendedFiled herewith
  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 amendedFurnished herewith
  32.2
  Certification of Michael J. Valentine pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amendedFurnished herewith
101.INS
  XBRLInline eXtensible Business Reporting Language (XBRL) Instance DocumentFiled herewith - 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 DocumentFiled herewith
101.CAL
  Inline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.DEF
  Inline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LAB
  Inline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PRE
  Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
  Filed herewithCover Page Interactive Data File (embedded within the Inline XBRL document)

*
Indicates a management contract or compensatory plan or arrangement.

67

69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
JOHN B. SANFILIPPO & SON, INC.
Date: August 18, 2021By:
/s/ Jeffrey T. Sanfilippo
Jeffrey T. Sanfilippo
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Jeffrey T. Sanfilippo
Jeffrey T. Sanfilippo
Chief Executive Officer and Director
(Principal Executive Officer)
August 18, 2021
/s/ Michael J. Valentine
Michael J. Valentine
Chief Financial Officer, Group President, Secretary and
Director (Principal Financial Officer)
August 18, 2021
/s/ Frank S. Pellegrino
Frank S. Pellegrino
Executive Vice President, Finance and Administration and Treasurer
(Principal Accounting Officer)
August 18, 2021
/s/ Mathias A. Valentine
Mathias A. Valentine
DirectorAugust 18, 2021
/s/ Jim R. Edgar
Jim R. Edgar
DirectorAugust 18, 2021
/s/ Pamela Forbes Lieberman
Pamela Forbes Lieberman
DirectorAugust 18, 2021
/s/ Jasper B. Sanfilippo, Jr.
Jasper B. Sanfilippo, Jr.
DirectorAugust 18, 2021
/s/ Ellen C. Taaffe
Ellen C. Taaffe
DirectorAugust 18, 2021
/s/ James J. Sanfilippo
James J. Sanfilippo
DirectorAugust 18, 2021
/s/ John E. Sanfilippo
John E. Sanfilippo
DirectorAugust 18, 2021
/s/ Lisa A. Sanfilippo
Lisa A. Sanfilippo
DirectorAugust 18, 2021
70