UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberDecember 26, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number0-19681
JOHN B. SANFILIPPO & SON, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 36-2419677 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
1703 North Randall Road Elgin, Illinois | 60123-7820 | |
(Address of Principal Executive Offices) | (Zip Code) |
(847)289-1800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Common Stock, $.01 par value per share | JBSS | The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check One)
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | 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 is a shell company (as defined in Rule12b-2 of the Exchange Act). ☐ Yes ☒ No
As of OctoberJanuary 23, 2019, 8,791,5062020, 8,821,490 shares of the Registrant’s Common Stock, $0.01 par value per share and 2,597,426 shares of the Registrant’s Class A Common Stock, $0.01 par value per share, were outstanding.
JOHN B. SANFILIPPO & SON, INC.
FORM10-Q
FOR THE QUARTER ENDED SEPTEMBERDECEMBER 26, 2019
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except share and per share amounts)
For the Quarter Ended | For the Quarter Ended | For theTwenty-six Weeks Ended | ||||||||||||||||||||||
September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||||||||
Net sales | $ | 217,846 | $ | 204,288 | $ | 246,423 | $ | 253,317 | $ | 464,269 | $ | 457,605 | ||||||||||||
Cost of sales | 175,598 | 171,334 | 196,443 | 210,434 | 372,041 | 381,768 | ||||||||||||||||||
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Gross profit | 42,248 | 32,954 | 49,980 | 42,883 | 92,228 | 75,837 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Selling expenses | 14,112 | 14,071 | 16,103 | 18,189 | 30,215 | 32,260 | ||||||||||||||||||
Administrative expenses | 9,074 | 8,831 | 9,411 | 8,054 | 18,485 | 16,885 | ||||||||||||||||||
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Total operating expenses | 23,186 | 22,902 | 25,514 | 26,243 | 48,700 | 49,145 | ||||||||||||||||||
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Income from operations | 19,062 | 10,052 | 24,466 | 16,640 | 43,528 | 26,692 | ||||||||||||||||||
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Other expense: | ||||||||||||||||||||||||
Interest expense including $247 and $309 to related parties | 521 | 879 | ||||||||||||||||||||||
Interest expense including $232, $293, $479 and $602 to related parties | 435 | 798 | 956 | 1,677 | ||||||||||||||||||||
Rental and miscellaneous expense, net | 404 | 289 | 274 | 278 | 678 | 567 | ||||||||||||||||||
Other expense | 566 | 487 | 567 | 486 | 1,133 | 973 | ||||||||||||||||||
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Total other expense, net | 1,491 | 1,655 | 1,276 | 1,562 | 2,767 | 3,217 | ||||||||||||||||||
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Income before income taxes | 17,571 | 8,397 | 23,190 | 15,078 | 40,761 | 23,475 | ||||||||||||||||||
Income tax expense | 4,645 | 1,791 | 5,729 | 3,814 | 10,374 | 5,605 | ||||||||||||||||||
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Net income | $ | 12,926 | $ | 6,606 | $ | 17,461 | $ | 11,264 | $ | 30,387 | $ | 17,870 | ||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Amortization of prior service cost and actuarial loss included in Other expense | 343 | 263 | ||||||||||||||||||||||
Amortization of prior service cost and actuarial loss included in net periodic pension cost | 344 | 263 | 687 | 526 | ||||||||||||||||||||
Income tax expense related to pension adjustments | (86 | ) | (66 | ) | (86 | ) | (66 | ) | (172 | ) | (132 | ) | ||||||||||||
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Other comprehensive income, net of tax: | 257 | 197 | ||||||||||||||||||||||
Other comprehensive income, net of tax | 258 | 197 | 515 | 394 | ||||||||||||||||||||
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Comprehensive income | $ | 13,183 | $ | 6,803 | $ | 17,719 | $ | 11,461 | $ | 30,902 | $ | 18,264 | ||||||||||||
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Net income per common share-basic | $ | 1.13 | $ | 0.58 | $ | 1.52 | $ | 0.99 | $ | 2.65 | $ | 1.57 | ||||||||||||
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Net income per common share-diluted | $ | 1.12 | $ | 0.57 | $ | 1.52 | $ | 0.98 | $ | 2.64 | $ | 1.56 | ||||||||||||
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The accompanying unaudited notes are an integral part of these consolidated financial statements.
3
JOHN B. SANFILIPPO & SON, INC.
(Unaudited)
(Dollars in thousands, except share and per share amounts)
September 26, 2019 | June 27, 2019 | September 27, 2018 | December 26, 2019 | June 27, 2019 | December 27, 2018 | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||||||||
Cash | $ | 887 | $ | 1,591 | $ | 1,215 | $ | 1,393 | $ | 1,591 | $ | 2,583 | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $386, $350 and $263 | 60,474 | 60,971 | 58,887 | |||||||||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $425, $350 and $342 | 52,653 | 60,971 | 62,580 | |||||||||||||||||||||
Inventories | 156,453 | 157,024 | 181,031 | 172,340 | 157,024 | 171,708 | ||||||||||||||||||
Prepaid expenses and other current assets | 5,291 | 5,754 | 4,190 | 5,992 | 5,754 | 6,943 | ||||||||||||||||||
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TOTAL CURRENT ASSETS | 223,105 | 225,340 | 245,323 | 232,378 | 225,340 | 243,814 | ||||||||||||||||||
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PROPERTY, PLANT AND EQUIPMENT: | ||||||||||||||||||||||||
Land | 9,285 | 9,285 | 9,285 | 9,285 | 9,285 | 9,285 | ||||||||||||||||||
Buildings | 110,440 | 109,955 | 109,110 | 109,671 | 109,955 | 109,380 | ||||||||||||||||||
Machinery and equipment | 212,403 | 210,962 | 199,871 | 212,532 | 210,962 | 206,663 | ||||||||||||||||||
Furniture and leasehold improvements | 5,130 | 5,128 | 5,015 | 5,160 | 5,128 | 5,039 | ||||||||||||||||||
Vehicles | 639 | 673 | 526 | 682 | 673 | 641 | ||||||||||||||||||
Construction in progress | 2,454 | 1,127 | 7,201 | 3,817 | 1,127 | 2,563 | ||||||||||||||||||
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340,351 | 337,130 | 331,008 | 341,147 | 337,130 | 333,571 | |||||||||||||||||||
Less: Accumulated depreciation | 231,944 | 228,778 | 220,376 | 233,825 | 228,778 | 222,976 | ||||||||||||||||||
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108,407 | 108,352 | 110,632 | 107,322 | 108,352 | 110,595 | |||||||||||||||||||
Rental investment property, less accumulated depreciation of $11,413, $11,212 and $10,629 | 17,630 | 17,831 | 18,264 | |||||||||||||||||||||
Rental investment property, less accumulated depreciation of $11,615, $11,212 and $10,827 | 17,508 | 17,831 | 18,066 | |||||||||||||||||||||
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TOTAL PROPERTY, PLANT AND EQUIPMENT | 126,037 | 126,183 | 128,896 | 124,830 | 126,183 | 128,661 | ||||||||||||||||||
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Intangible assets, net | 13,954 | 14,626 | 16,812 | 13,282 | 14,626 | 15,970 | ||||||||||||||||||
Cash surrender value of officers’ life insurance and other assets | 9,334 | 9,782 | 9,102 | 9,124 | 9,782 | 8,743 | ||||||||||||||||||
Deferred income taxes | 5,972 | 5,723 | 5,644 | 5,616 | 5,723 | 4,591 | ||||||||||||||||||
Goodwill | 9,650 | 9,650 | 9,650 | 9,650 | 9,650 | 9,650 | ||||||||||||||||||
Operating leaseright-of-use assets | 5,170 | — | — | 4,823 | — | — | ||||||||||||||||||
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TOTAL ASSETS | $ | 393,222 | $ | 391,304 | $ | 415,427 | $ | 399,703 | $ | 391,304 | $ | 411,429 | ||||||||||||
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The accompanying unaudited notes are an integral part of these consolidated financial statements.
4
JOHN B. SANFILIPPO & SON, INC.
(Unaudited)
(Dollars in thousands, except share and per share amounts)
September 26, 2019 | June 27, 2019 | September 27, 2018 | December 26, 2019 | June 27, 2019 | December 27, 2018 | |||||||||||||||||||
LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||||||||
Revolving credit facility borrowings | $ | 16,042 | $ | — | $ | 51,941 | $ | 13,495 | $ | — | $ | 24,541 | ||||||||||||
Current maturities of long-term debt, including related party debt of $4,388, $4,375 and $4,350 and net of unamortized debt issuance costs of $32, $35 and $42 | 7,385 | 7,338 | 7,212 | |||||||||||||||||||||
Current maturities of long-term debt, including related party debt of $565, $4,375 and $4,359 and net of unamortized debt issuance costs of $30, $35 and $40 | 7,110 | 7,338 | 7,254 | |||||||||||||||||||||
Accounts payable | 52,365 | 42,552 | 59,848 | 70,979 | 42,552 | 69,732 | ||||||||||||||||||
Bank overdraft | 1,302 | 901 | 1,121 | 1,349 | 901 | 3,887 | ||||||||||||||||||
Accrued payroll and related benefits | 11,546 | 22,101 | 10,149 | 13,429 | 22,101 | 10,293 | ||||||||||||||||||
Other accrued expenses | 15,767 | 11,014 | 9,731 | 11,374 | 11,014 | 9,808 | ||||||||||||||||||
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TOTAL CURRENT LIABILITIES | 104,407 | 83,906 | 140,002 | 117,736 | 83,906 | 125,515 | ||||||||||||||||||
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LONG-TERM LIABILITIES: | ||||||||||||||||||||||||
Long-term debt, less current maturities, including related party debt of $10,028, $11,495 and $14,416 and net of unamortized debt issuance costs of $37, $44 and $69 | 18,152 | 20,381 | 25,537 | |||||||||||||||||||||
Long-term debt, less current maturities, including related party debt of $9,244, $11,495 and $13,323 and net of unamortized debt issuance costs of $30, $44 and $60 | 16,597 | 20,381 | 23,707 | |||||||||||||||||||||
Retirement plan | 24,974 | 24,737 | 21,501 | 25,212 | 24,737 | 21,713 | ||||||||||||||||||
Long-term operating lease liabilities, net of current portion | 3,774 | — | — | 3,456 | — | — | ||||||||||||||||||
Other | 7,865 | 7,725 | 7,040 | 7,786 | 7,725 | 7,121 | ||||||||||||||||||
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TOTAL LONG-TERM LIABILITIES | 54,765 | 52,843 | 54,078 | 53,051 | 52,843 | 52,541 | ||||||||||||||||||
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TOTAL LIABILITIES | 159,172 | 136,749 | 194,080 | 170,787 | 136,749 | 178,056 | ||||||||||||||||||
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COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||||||||||||||
Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $.01 par value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding | 26 | 26 | 26 | 26 | 26 | 26 | ||||||||||||||||||
Common Stock,non-cumulative voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized 8,909,406, 8,909,406 and 8,865,475 shares issued | 89 | 89 | 89 | |||||||||||||||||||||
Common Stock,non-cumulative voting rights of one vote per share, $.01 par value; 17,000,000 shares authorized, 8,937,236, 8,909,406 and 8,898,827 shares issued | 89 | 89 | 89 | |||||||||||||||||||||
Capital in excess of par value | 122,890 | 122,257 | 120,568 | 122,984 | 122,257 | 121,133 | ||||||||||||||||||
Retained earnings | 117,293 | 137,712 | 104,852 | 111,807 | 137,712 | 116,116 | ||||||||||||||||||
Accumulated other comprehensive loss | (5,044 | ) | (4,325 | ) | (2,984 | ) | (4,786 | ) | (4,325 | ) | (2,787 | ) | ||||||||||||
Treasury stock, at cost; 117,900 shares of Common Stock | (1,204 | ) | (1,204 | ) | (1,204 | ) | (1,204 | ) | (1,204 | ) | (1,204 | ) | ||||||||||||
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TOTAL STOCKHOLDERS’ EQUITY | 234,050 | 254,555 | 221,347 | 228,916 | 254,555 | 233,373 | ||||||||||||||||||
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TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ | 393,222 | $ | 391,304 | $ | 415,427 | $ | 399,703 | $ | 391,304 | $ | 411,429 | ||||||||||||
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The accompanying unaudited notes are an integral part of these consolidated financial statements.
5
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except share and per share amounts)
Class A Common Stock | Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | 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 | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 27, 2019 | 2,597,426 | $ | 26 | 8,909,406 | $ | 89 | $ | 122,257 | $ | 137,712 | $ | (4,325 | ) | $ | (1,204 | ) | $ | 254,555 | 2,597,426 | $ | 26 | 8,909,406 | $ | 89 | $ | 122,257 | $ | 137,712 | $ | (4,325 | ) | $ | (1,204 | ) | $ | 254,555 | ||||||||||||||||||||||||||||||||||||
Net income | 12,926 | 12,926 | 12,926 | 12,926 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($3.00 per share) | (34,321 | ) | (34,321 | ) | (34,321 | ) | (34,321 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability amortization, net of income tax expense of $86 | 257 | 257 | 257 | 257 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impact of adopting ASU2018-02(a) | 976 | (976 | ) | — | 976 | (976 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 633 | 633 | 633 | 633 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 26, 2019 | 2,597,426 | $ | 26 | 8,909,406 | $ | 89 | $ | 122,890 | $ | 117,293 | $ | (5,044 | ) | $ | (1,204 | ) | $ | 234,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 17,461 | 17,461 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($2.00 per share) | (22,947 | ) | (22,947 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability amortization, net of income tax expense of $86 | 258 | 258 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity award exercises , net of shares withheld for employee taxes | 27,830 | — | (761 | ) | (761 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 855 | 855 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance, September 26, 2019 | 2,597,426 | $ | 26 | 8,909,406 | $ | 89 | $ | 122,890 | $ | 117,293 | $ | (5,044 | ) | $ | (1,204 | ) | $ | 234,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 26, 2019 | 2,597,426 | $ | 26 | 8,937,236 | $ | 89 | $ | 122,984 | $ | 111,807 | $ | (4,786 | ) | $ | (1,204 | ) | $ | 228,916 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Class A Common Stock | Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | 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 | 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 | 2,597,426 | $ | 26 | 8,865,475 | $ | 89 | $ | 119,952 | $ | 127,320 | $ | (3,181 | ) | $ | (1,204 | ) | $ | 243,002 | ||||||||||||||||||||||||||||||||||||
Net income | 6,606 | 6,606 | 6,606 | 6,606 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($2.55 per share) | (29,074 | ) | (29,074 | ) | (29,074 | ) | (29,074 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability amortization, net of income tax expense of $66 | 197 | 197 | 197 | 197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 616 | 616 | 616 | 616 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 27, 2018 | 2,597,426 | $ | 26 | 8,865,475 | $ | 89 | $ | 120,568 | $ | 104,852 | $ | (2,984 | ) | $ | (1,204 | ) | $ | 221,347 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 11,264 | 11,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability amortization, net of income tax expense of $66 | 197 | 197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity award exercises , net of shares withheld for employee taxes | 33,352 | — | (335 | ) | (335 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 900 | 900 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance, September 27, 2018 | 2,597,426 | $ | 26 | 8,865,475 | $ | 89 | $ | 120,568 | $ | 104,852 | $ | (2,984 | ) | $ | (1,204 | ) | $ | 221,347 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 27, 2018 | 2,597,426 | $ | 26 | 8,898,827 | $ | 89 | $ | 121,133 | $ | 116,116 | $ | (2,787 | ) | $ | (1,204 | ) | $ | 233,373 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(a) | See Note |
The accompanying unaudited notes are an integral part of these consolidated financial statements.
6
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Quarter Ended | For the Twenty-six Weeks Ended | |||||||||||||||
September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 12,926 | $ | 6,606 | $ | 30,387 | $ | 17,870 | ||||||||
Depreciation and amortization | 4,412 | 4,168 | 9,225 | 8,535 | ||||||||||||
Loss on disposition of assets, net | 3 | 23 | ||||||||||||||
Deferred income tax benefit | (249 | ) | (620 | ) | ||||||||||||
(Gain) loss on disposition of assets, net | (33 | ) | 57 | |||||||||||||
Deferred income tax expense | 107 | 433 | ||||||||||||||
Stock-based compensation expense | 633 | 616 | 1,488 | 1,516 | ||||||||||||
Change in assets and liabilities: | ||||||||||||||||
Accounts receivable, net | 497 | 6,536 | 8,316 | 3,041 | ||||||||||||
Inventories | 571 | (6,669 | ) | (15,316 | ) | 2,654 | ||||||||||
Prepaid expenses and other current assets | 356 | 1,094 | (345 | ) | (1,659 | ) | ||||||||||
Accounts payable | 9,655 | (1,256 | ) | 28,486 | 9,655 | |||||||||||
Accrued expenses | (10,969 | ) | 2,451 | (8,964 | ) | 2,833 | ||||||||||
Income taxes payable | 3,839 | 2,446 | (640 | ) | 2,285 | |||||||||||
Other long-term assets and liabilities | 300 | (132 | ) | 582 | 261 | |||||||||||
Other, net | 494 | 412 | 992 | 885 | ||||||||||||
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Net cash provided by operating activities | 22,468 | 15,675 | 54,285 | 48,366 | ||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property, plant and equipment | (3,118 | ) | (4,754 | ) | (6,465 | ) | (9,367 | ) | ||||||||
Proceeds from insurance recoveries | 232 | — | ||||||||||||||
Other | 16 | (14 | ) | 85 | 44 | |||||||||||
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Net cash used in investing activities | (3,102 | ) | (4,768 | ) | (6,148 | ) | (9,323 | ) | ||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Net short-term borrowings | 16,042 | 20,663 | ||||||||||||||
Net short-term borrowings (repayments) | 13,495 | (6,737 | ) | |||||||||||||
Debt issue costs | (218 | ) | — | |||||||||||||
Principal payments on long-term debt | (2,192 | ) | (1,789 | ) | (4,031 | ) | (3,588 | ) | ||||||||
Increase (Decrease) in bank overdraft | 401 | (941 | ) | |||||||||||||
Increase in bank overdraft | 448 | 1,825 | ||||||||||||||
Dividends paid | (34,321 | ) | (29,074 | ) | (57,268 | ) | (29,074 | ) | ||||||||
Taxes paid related to net share settlement of equity awards | (761 | ) | (335 | ) | ||||||||||||
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Net cash used in financing activities | (20,070 | ) | (11,141 | ) | (48,335 | ) | (37,909 | ) | ||||||||
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NET DECREASE IN CASH | (704 | ) | (234 | ) | ||||||||||||
NET (DECREASE) INCREASE IN CASH | (198 | ) | 1,134 | |||||||||||||
Cash, beginning of period | 1,591 | 1,449 | 1,591 | 1,449 | ||||||||||||
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Cash, end of period | $ | 887 | $ | 1,215 | $ | 1,393 | $ | 2,583 | ||||||||
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Supplemental disclosure ofnon-cash investing activities: | ||||||||||||||||
Supplemental disclosure ofnon-cash activities: | ||||||||||||||||
Right-of-use assets recognized at ASUNo. 2016-02 transition, see Note 3 | $ | 5,361 | $ | — | $ | 5,361 | $ | — |
The accompanying unaudited notes are an integral part of these consolidated financial statements.
7
JOHN B. SANFILIPPO & SON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except where noted and per share data)
Note 1 – Basis of Presentation and Description of Business
As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists offifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:
References herein to fiscal 2020 and fiscal 2019 are to the fiscal year ending June 25, 2020 and the fiscal year ended June 27, 2019, respectively.
References herein to the firstsecond quarter of fiscal 2020 and fiscal 2019 are to the quarters ended SeptemberDecember 26, 2019 and SeptemberDecember 27, 2018, respectively.
References herein to the first half or firsttwenty-six weeks of fiscal 2020 and fiscal 2019 are to thetwenty-six weeks ended December 26, 2019 and December 27, 2018, 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 a variety of private brands and under theFisher, Orchard Valley Harvest,Squirrel Brand, Southern Style Nutsand Sunshine Countrybrand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under private brands and brand names. Our products are sold through three primary distribution channels to significant buyers of nuts, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers.
The accompanying unaudited financial statements fairly present the consolidated statements of comprehensive income, consolidated balance sheets, consolidated statements of stockholders’ equity and consolidated statements of cash flows, and reflect all adjustments, consisting only of normal recurring adjustments which are necessary for the fair statement of the results of the interim periods. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
The interim results of operations are not necessarily indicative of the results to be expected for a full year. The balance sheet data as of June 27, 2019 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, these unaudited financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2019 Annual Report on Form10-K for the fiscal year ended June 27, 2019.
Note 2 – Revenue Recognition
We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For each customer contract, a five-step process is followed in which we identify the contract, identify performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is transferred to the customer.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of raw and processed recipe and snack nuts, nut butters and trail mixes.
Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.
8
Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For approximately 99% of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Therefore, for 99% of our revenues, the timing of revenue recognition requires little judgment.
Variable Consideration
Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates,in-store display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management estimate and judgment. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements.
Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment.
We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required.
Contract Balances
Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. There was no contract asset balance at SeptemberDecember 26, 2019. Contract asset balances at June 27, 2019 and SeptemberDecember 27, 2018 were $117 and $196,$65, respectively, and are recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers.
Disaggregation of Revenue
Revenue disaggregated by sales channel is as follows:
For the Quarter Ended | For the Quarter Ended | For the Twenty-six Weeks Ended | ||||||||||||||||||||||
Distribution Channel | September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | ||||||||||||||||||
Consumer | $ | 157,146 | $ | 139,444 | $ | 188,086 | $ | 195,478 | $ | 345,232 | $ | 334,922 | ||||||||||||
Commercial Ingredients | 36,888 | 37,202 | 34,247 | 31,454 | 71,135 | 68,656 | ||||||||||||||||||
Contract Packaging | 23,812 | 27,642 | 24,090 | 26,385 | 47,902 | 54,027 | ||||||||||||||||||
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Total | $ | 217,846 | $ | 204,288 | $ | 246,423 | $ | 253,317 | $ | 464,269 | $ | 457,605 | ||||||||||||
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Note 3—3 – Leases
On June 28, 2019 we adopted ASUNo. 2016-02,Leases (“Topic 842”)using the alternative transition method under ASUNo. 2018-11, which permitspermitted 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. See Note 1415 – “Recent Accounting Pronouncements” for additional information.
9
Upon adoption of the new standard, we recognized operating leaseright-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 existing lessee arrangements currentlythat were classified as operating leases willunder Topic 840 continue to be classified as operating leases since the adoption of Topic 842, and the pattern of lease expense recognition will beis 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 containnon-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 leaseright-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 leaseright-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 65.4 years.
ASUNo. 2016-02Topic 842 allows for the election as an accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. We have elected to use this policy, and 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 andnon-lease components for all leases.
The following table provides supplemental information related to operating leaseright-of-use assets and liabilities:
September 26, 2019 | Affected Line Item in Condensed Consolidated Balance Sheet | |||||
Assets | ||||||
Operating leaseright-of-use assets | $ | 5,170 | Operating leaseright-of-use assets | |||
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Total leaseright-of-use assets | $ | 5,170 | ||||
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Liabilities | ||||||
Current: | ||||||
Operating leases | $ | 1,390 | Other accrued expenses | |||
Noncurrent: | ||||||
Operating leases | 3,774 | Long-term operating lease liabilities | ||||
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Total lease liabilities | $ | 5,164 | ||||
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December 26, 2019 | Affected Line Item in Consolidated Balance Sheet | |||||
Assets | ||||||
Operating leaseright-of-use assets | $ | 4,823 | Operating leaseright-of-use assets | |||
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Total leaseright-of-use assets | $ | 4,823 | ||||
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Liabilities | ||||||
Current: | ||||||
Operating leases | $ | 1,354 | Other accrued expenses | |||
Noncurrent: | ||||||
Operating leases | 3,456 | Long-term operating lease liabilities | ||||
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Total lease liabilities | $ | 4,810 | ||||
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The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:
For the Quarter ended September 26, 2019 | For the Quarter ended December 26, 2019 | For the Twenty-six weeks ended December 26, 2019 | ||||||||||
Operating lease costs(a) | $ | 374 | $ | 460 | $ | 834 | ||||||
Variable lease costs(b) | 16 | 15 | 31 | |||||||||
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Total Lease Cost | $ | 390 | $ | 475 | $ | 865 | ||||||
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(a) | Includes short-term leases which are immaterial. |
(b) | Variable lease costs consist of sales tax. |
Supplemental cash flow and other information related to leases was as follows:
For the Quarter ended September 26, 2019 | ||||
Operating cash flows information: | ||||
Cash paid for amounts included in measurements for lease liabilities | $ | 365 | ||
Non-cash activity: | ||||
Right-of-use assets obtained in exchange for new operating lease obligations | $ | 152 |
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For the Twenty-six weeks ended December 26, 2019 | ||||
Operating cash flows information: | ||||
Cash paid for amounts included in measurements for lease liabilities | $ | 770 | ||
Non-cash activity: | ||||
Right-of-use assets obtained in exchange for new operating lease obligations | $ | 163 | ||
December 26, 2019 | ||||
Weighted Average Remaining Lease Term (in years) | 3.8 | |||
Weighted Average Discount Rate | 4.5 | % |
Maturities of operating lease liabilities as of SeptemberDecember 26, 2019 are as follows:
Fiscal year ending | ||||||||
June 25, 2020 (excluding the quarter ended September 26, 2019) | $ | 1,206 | ||||||
June 25, 2020 (excluding thetwenty-six weeks ended December 26, 2019) | $ | 792 | ||||||
June 24, 2021 | 1,439 | 1,439 | ||||||
June 30, 2022 | 1,312 | 1,316 | ||||||
June 29, 2023 | 1,064 | 1,065 | ||||||
June 27, 2024 | 469 | 469 | ||||||
Thereafter | 132 | 132 | ||||||
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Total lease payment | 5,622 | 5,213 | ||||||
Less imputed interest | (458 | ) | (403 | ) | ||||
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Present value of operating lease liabilities | $ | 5,164 | $ | 4,810 | ||||
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As of December 26, 2019 the Company has additional operating leases totaling $164 that have not yet commenced and therefore are not reflected in the Consolidated Balance Sheet and tables above. These leases will commence in the third quarter of fiscal 2020 with initial lease terms ranging from 3 to 5 years.
Disclosures related to periods prior to adoption
As the Company has not recast prior year information for its adoption of Topic 842, the following presents its future minimum lease payments for operating leases under Topic 840 on June 27, 2019:
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Fiscal year ending | ||||
June 25, 2020 | $ | 1,715 | ||
June 24, 2021 | 1,540 | |||
June 30, 2022 | 1,392 | |||
June 29, 2023 | 1,109 | |||
June 27, 2024 | 464 | |||
Thereafter | 133 | |||
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$ | 6,353 |
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 astraight-line basis over the terms of the leases. There is generally noan immaterial amount of variable lease consideration and an immaterial amount ofnon-lease components such as recurring utility and storage fees. Leases between related parties are immaterial.
Leasing revenue is as follows:
For the Quarter Ended September 26, 2019 | ||||
Gross leasing revenue from operating leases | $ | 543 |
For the Quarter ended December 26, 2019 | For the Twenty-six weeks ended December 26, 2019 | |||||||
Lease income related to lease payments | $ | 462 | $ | 1,005 |
The future minimum, undiscounted fixed lease considerationcash flows undernon-cancelable tenant operating leases for each of the next five years and thereafter is presented below and is materially consistent with our previous accounting under Topic 840.
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Fiscal year ending | ||||
June 25, 2020 (excluding thetwenty-six weeks ended December 26, 2019) | $ | 1,082 | ||
June 24, 2021 | 1,948 | |||
June 30, 2022 | 1,707 | |||
June 29, 2023 | 1,737 | |||
June 27, 2024 | 1,766 | |||
Thereafter | 2,512 | |||
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$ | 10,752 |
Note 4 – Inventories
Inventories consist of the following:
September 26, 2019 | June 27, 2019 | September 27, 2018 | ||||||||||
Raw material and supplies | $ | 48,989 | $ | 58,927 | $ | 55,681 | ||||||
Work-in-process and finished goods | 107,464 | 98,097 | 125,350 | |||||||||
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Total | $ | 156,453 | $ | 157,024 | $ | 181,031 | ||||||
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December 26, 2019 | June 27, 2019 | December 27, 2018 | ||||||||||
Raw material and supplies | $ | 81,135 | $ | 58,927 | $ | 87,717 | ||||||
Work-in-process and finished goods | 91,205 | 98,097 | 83,991 | |||||||||
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Total | $ | 172,340 | $ | 157,024 | $ | 171,708 | ||||||
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Note 5 – Goodwill and Intangible Assets
Identifiable intangible assets that are subject to amortization consist of the following:
September 26, 2019 | June 27, 2019 | September 27, 2018 | December 26, 2019 | June 27, 2019 | December 27, 2018 | |||||||||||||||||||
Customer relationships | $ | 21,100 | $ | 21,100 | $ | 21,100 | $ | 21,100 | $ | 21,100 | $ | 21,100 | ||||||||||||
Brand names | 16,990 | 16,990 | 16,990 | 16,990 | 16,990 | 16,990 | ||||||||||||||||||
Non-compete agreement | 270 | 270 | 270 | 270 | 270 | 270 | ||||||||||||||||||
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38,360 | 38,360 | 38,360 | 38,360 | 38,360 | 38,360 | |||||||||||||||||||
Less accumulated amortization: | ||||||||||||||||||||||||
Customer relationships | (14,952 | ) | (14,466 | ) | (12,838 | ) | (15,438 | ) | (14,466 | ) | (13,494 | ) | ||||||||||||
Brand names | (9,355 | ) | (9,182 | ) | (8,665 | ) | (9,527 | ) | (9,182 | ) | (8,838 | ) | ||||||||||||
Non-compete agreement | (99 | ) | (86 | ) | (45 | ) | (113 | ) | (86 | ) | (58 | ) | ||||||||||||
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(24,406 | ) | (23,734 | ) | (21,548 | ) | (25,078 | ) | (23,734 | ) | (22,390 | ) | |||||||||||||
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Net intangible assets | $ | 13,954 | $ | 14,626 | $ | 16,812 | $ | 13,282 | $ | 14,626 | $ | 15,970 | ||||||||||||
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Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of theSquirrel Brandand Southern Style Nuts brand names.
Total amortization expense related to intangible assets, which is a component of Administrative expense, was $672 and $1,344 for the quarter andtwenty-six weeks ended SeptemberDecember 26, 2019.2019, respectively. Amortization expense for the remainder of fiscal 2020 is expected to be approximately $1,829,$1,157 and expected amortization expense the next five fiscal years is as follows:
Fiscal year ending | ||||
June 24, 2021 | $ | 2,165 | ||
June 30, 2022 | 1,896 | |||
June 29, 2023 | 1,657 | |||
June 27, 2024 | 1,414 | |||
June 26, 2025 | 1,156 |
Our net goodwill of $9,650 relates entirely to the Squirrel Brand acquisition (the “Acquisition”) completed in the second quarter of fiscal 2018. There was no change in the carrying amount of goodwill during the quartertwenty-six weeks ended SeptemberDecember 26, 2019.
Note 6 – Credit Facility
On February 7, 2008, we entered into a Credit Agreement with a bank group providing a $117,500 revolving loan commitment and letter of credit subfacility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than real property and fixtures.
At SeptemberDecember 26, 2019, we had $97,508$100,830 of available credit under the Credit Facility which reflects borrowings of $16,042$13,495 and reduced availability as a result of $3,950$3,175 in outstanding letters of credit. As of SeptemberDecember 26, 2019, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility (as defined below).Facility.
13
Note 7 – Earnings Per Common Share
The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share:
For the Quarter Ended | For the Quarter Ended | For the Twenty-six Weeks Ended | ||||||||||||||||||||||
September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||||||||
Weighted average number of shares outstanding – basic | 11,444,560 | 11,406,009 | 11,458,524 | 11,425,566 | 11,451,542 | 11,415,787 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options and restricted stock units | 94,416 | 85,922 | 66,863 | 53,865 | 80,640 | 69,894 | ||||||||||||||||||
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Weighted average number of shares outstanding – diluted | 11,538,976 | 11,491,931 | 11,525,387 | 11,479,431 | 11,532,182 | 11,485,681 | ||||||||||||||||||
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There were no anti-dilutive awards excluded from the computation of diluted earnings per share for either periodany periods presented.
Note 8 – Stock-Based Compensation Plans
During the second quarter ended Septemberof fiscal 2020, there were 38,572 restricted stock units (“RSUs”) awarded to employees andnon-employee members of the Board of Directors. The vesting period is generally three years for awards to employees and one year for awards tonon-employee directors.
There was no stock option activity during the first half of fiscal 2020.
The following is a summary of RSU activity for the first half of fiscal 2020:
Restricted Stock Units | Shares | Weighted Average Grant Date Fair Value | ||||||
Outstanding at June 27, 2019 | 188,992 | $ | 46.79 | |||||
Activity: | ||||||||
Granted | 38,572 | 91.47 | ||||||
Vested(a) | (36,179 | ) | 60.56 | |||||
Forfeited | (7,439 | ) | 63.62 | |||||
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Outstanding at December 26, 2019 | 183,946 | $ | 52.77 | |||||
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(a) | The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements. |
At December 26, 2019, there were 58,541 RSUs outstanding that were vested but deferred.
The following table summarizes compensation expense charged to earnings for all equity compensation plans for the periods presented:
For the Quarter Ended | For the Twenty-six Weeks Ended | |||||||||||||||
December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||
Stock-based compensation expense | $ | 855 | $ | 900 | $ | 1,488 | $ | 1,516 |
As of December 26, 2019, there was no significant stock option or restricted stock unit activity.
Compensation expense attributable to stock-based compensation during the first quarter of fiscal 2020 and fiscal 2019 was $633 and $616, respectively. As of September 26, 2019, there was $3,011$5,255 of total unrecognized compensation costexpense related tonon-vested share-based compensation arrangementsRSUs granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.21.7 years.
Note 9 – Retirement Plan
The Supplemental Employee Retirement Plan is an unfunded,non-qualified deferred compensation plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. The monthly benefit is based upon each participant’s earnings and his or her number of years of service. The components of net periodic benefit cost are as follows:
For the Quarter Ended | For the Quarter Ended | For the Twenty-six Weeks Ended | ||||||||||||||||||||||
September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||||||||
Service cost | $ | 178 | $ | 152 | $ | 178 | $ | 153 | $ | 356 | $ | 305 | ||||||||||||
Interest cost | 223 | 224 | 223 | 223 | 446 | 447 | ||||||||||||||||||
Amortization of prior service cost | 239 | 239 | 240 | 240 | 479 | 479 | ||||||||||||||||||
Amortization of loss | 104 | 24 | 104 | 23 | 208 | 47 | ||||||||||||||||||
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Net periodic benefit cost | $ | 744 | $ | 639 | $ | 745 | $ | 639 | $ | 1,489 | $ | 1,278 | ||||||||||||
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The components of net periodic benefit cost other than the service cost component are included in the line item “Other expense” in the Consolidated Statements of Comprehensive Income.
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Note 10 – Accumulated Other Comprehensive Loss
The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the quartertwenty-six weeks ended SeptemberDecember 26, 2019 and SeptemberDecember 27, 2018.These changes are all related to our defined benefit pension plan.
Changes to AOCL(a) | For the Quarter Ended | For the Twenty-Six Weeks Ended | ||||||||||||||
September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||
Balance at beginning of period | $ | (4,325 | ) | $ | (3,181 | ) | $ | (4,325 | ) | $ | (3,181 | ) | ||||
Other comprehensive income before reclassifications | — | — | — | — | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 343 | 263 | 687 | 526 | ||||||||||||
Tax effect | (86 | ) | (66 | ) | (172 | ) | (132 | ) | ||||||||
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Net current-period other comprehensive income | 257 | 197 | 515 | 394 | ||||||||||||
Impact of adopting ASU2018-02(b) | (976 | ) | — | (976 | ) | — | ||||||||||
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Balance at end of period | $ | (5,044 | ) | $ | (2,984 | ) | $ | (4,786 | ) | $ | (2,787 | ) | ||||
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(a) | Amounts in parenthesis indicate debits/expense. |
(b) | See Note |
The reclassifications out of AOCL for the quarter andtwenty-six weeks ended SeptemberDecember 26, 2019 and SeptemberDecember 27, 2018 were as follows:
Reclassifications from AOCL to earnings(c) | For the Quarter Ended | Affected line item in the Consolidated Statements of Comprehensive Income | ||||||||||||||||||||||||||||||
Affected line item in the Consolidated Statements of Comprehensive Income | ||||||||||||||||||||||||||||||||
For the Quarter Ended | For the Twenty-six Weeks Ended | |||||||||||||||||||||||||||||||
Reclassifications from AOCL to earnings(c) | September 26, 2019 | September 27, 2018 | Affected line item in the Consolidated Statements of Comprehensive Income | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | |||||||||||||||||||||||||
Unrecognized prior service cost | $ | (239 | ) | $ | (239 | ) | Other expense | $ | (240 | ) | $ | (240 | ) | $ | (479 | ) | $ | (479 | ) | Other expense | ||||||||||||
Unrecognized net loss | (104 | ) | (24 | ) | Other expense | (104 | ) | (23 | ) | (208 | ) | (47 | ) | Other expense | ||||||||||||||||||
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Total before tax | (343 | ) | (263 | ) | (344 | ) | (263 | ) | (687 | ) | (526 | ) | ||||||||||||||||||||
Tax effect | 86 | 66 | Income tax expense | 86 | 66 | 172 | 132 | Income tax expense | ||||||||||||||||||||||||
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Amortization of defined pension items, net of tax | $ | (257 | ) | $ | (197 | ) | $ | (258 | ) | $ | (197 | ) | $ | (515 | ) | $ | (394 | ) | ||||||||||||||
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(c) | Amounts in parenthesis indicate debits to expense. See Note 9 – “Retirement Plan” above for additional details. |
Note 11 – Commitments and Contingent Liabilities
We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our Company’s financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial monetary damages in excess of any appropriate accruals whichthat management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows.
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Note 12 – Fair Value of Financial Instruments
TheAuthoritative guidance issued by the Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels:
Level 1 | – | Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. | ||
Level 2 | – | Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. | ||
Level 3 | – | Unobservable inputs for which there is little or no market data available. |
The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at each balance sheet date because of the short-term maturities and nature of these balances.
The carrying value of our revolving credit facility borrowings approximates fair value at each balance sheet date because interest rates on this instrument approximate current market rates (Level 2 criteria), and because of the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.
The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs:
September 26, 2019 | June 27, 2019 | September 27, 2018 | December 26, 2019 | June 27, 2019 | December 27, 2018 | |||||||||||||||||||
Carrying value of long-term debt: | $ | 25,606 | $ | 27,798 | $ | 32,860 | $ | 23,767 | $ | 27,798 | $ | 31,061 | ||||||||||||
Fair value of long-term debt: | 25,710 | 27,720 | 31,600 | 24,164 | 27,720 | 30,176 |
The estimated fair value of our long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt.
Note 13 – Related Party Transaction
In connection with the acquisition of the Squirrel Brand businessAcquisition in the second quarter of fiscal 2018, we incurred $11,500 of unsecured debt (the “Promissory Note”) to the principal owner and seller of the Squirrel Brand business, who was subsequently appointed as an executive officer of the Company and iswas considered a related party. The interest rateLate in the second quarter of fiscal 2020, the employment of this executive officer with the Company ceased. He is no longer considered a related party, and therefore the outstanding balance on the Promissory Note is 5.5% per annum and the outstanding balance at Septembernot reflected as related party debt on our Consolidated Balance Sheet as of December 26, 2019 was $4,472.2019. Interest paid on the Promissory Note for the quarter andtwenty-six weeks ended SeptemberDecember 26, 2019 while the executive officer was $70.still a related party was $57 and $127, respectively, and is reflected as related party interest on our Consolidated Statements of Comprehensive Income.
Note 14 – Garysburg, North Carolina Facility
On October 7, 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. No personnel were injured, and there was no damage to our peanut shelling and inventory storage areas. 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. We have contracted with a third party to roast and salt our inshell peanuts to meet our current production requirements. We do not expect any negative impact on our customer service levels or a material adverse impact on our operating or financial results for the 2020 fiscal year.
After evaluating our options with regard to our peanut production operations, the Company is considering strategic alternatives for this facility and currently plans to permanently cease all operations at the Garysburg facility once we have finished shelling the current crop of peanuts at this facility, which is estimated to take approximately sixteen months. We have ceased roasting operations in the current second quarter, which resulted in a partial reduction in the workforce at this facility, and recognized an immaterial amount of separation costs in the second quarter of fiscal 2020.
We have adequate property damage and business interruption insurance, subject to applicable deductibles. To date, approximately $1,500 inclean-up costs and damage to capital assets has been incurred. Insurance claims have been filed under our property damage and business interruption policies, and an advance payment of $1,500 was received from the insurance carrier in our current second quarter. Insurance proceeds received for damage to capital equipment were recorded as investing activities on the Consolidated Statements of Cash Flows.
Note 1415 – Recent Accounting Pronouncements
The following recent accounting pronouncements have been adopted in the current fiscal year:
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 beare required. ASUNo. 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. This new guidance isbecame effective for the Company beginning in fiscal year 2020. Under ASUNo. 2016-02 the guidance was to be adopted using a modified retrospective approach, with elective reliefs, with application of the new guidance for all periods presented. In July 2018, the FASB issued ASUNo. 2018-11 “Leases (Topic 842): Targeted Improvements” which provides for another transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to not separatenon-lease components from the associated lease component, similar to the expedient provided for lessees. In July 2018, the FASB also issued ASUNo. 2018-10 “Codification Improvements to Topic 842, Leases” which affects narrow aspects of the guidance issued in ASUNo. 2016-02. In December 2018, the FASB issued ASUNo. 2018-20 “Leases (Topic 842) – Narrow Scope Improvements for Lessors” which provides specific guidance for lessors on the issues of sales taxes and other similar taxes collected
16
from lessees, certain lessor costs, and recognition of variable payments for contracts with lease andnon-lease components. In March 2019, the FASB issued ASUNo. 2019-01 “Leases (Topic 842) – Codification Improvements” which clarifies transition disclosure requirements for annual and interim periods after the date of adoption of ASUNo. 2016-02.
We have implemented processes and information technology tools to assist in our ongoing lease data analysis.compliance with Topic 842. We have also updated our accounting policies and internal controls that are impacted by the new guidance. We adopted ASUNo. 2016-02 utilizing the modified retrospective transition method and did not recast comparative periods in transition to the new standard. In addition, the new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect theuse-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The adoption of this standard resulted in the recognition of operating leaseright-of-use assets and liabilities on our Consolidated Balance Sheet of $5,361 and $5,320, respectively.respectively, during the first quarter of fiscal 2020. The new standard also provides practical expedients for an entity’s initial and ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. We also elected the practical expedient to not separate lease andnon-lease components for all of our leases. Refer to Note 3 – Leases“Leases” for additional information regarding the Company’s leases.
In February 2018, the FASB issued ASUNo. 2018-02“Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow a reclassification from accumulated other comprehensive income (loss) (“AOCL”) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this Update also require certain disclosures about stranded tax effects. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted ASUNo. 2018-02 in the first quarter of fiscal 2020 and reclassified $976 from AOCL to retained earnings. Refer to Note 10 – Accumulated“Accumulated Other Comprehensive LossLoss” for additional detail. ASU2018-02 was not applied retrospectively. No other income tax effects related to the application of the Tax Cuts and Jobs Act were reclassified from AOCL to retained earnings.
There are noThe following recent accounting pronouncements that have been issued and not yet adoptedbeen adopted:
In December 2019, the FASB issued ASUNo. 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, 2020, including interim periods within that are expectedfiscal year. Early adoption is permitted. This Update is effective for the Company beginning in fiscal 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements.
Note 15 – Subsequent Events
On October 7, 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. No personnel were injured, and there was no damage to our peanut shelling and inventory storage areas. 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. Due to order lead times for roasting equipment, we do not expect to have roasting capability for inshell peanuts for approximately one year. We have already secured supply of inshell roasted peanuts to meet our near term production requirements, and we will package those peanuts in our other facilities. We are currently evaluating our options with regard to our peanut production operations, which include (among other things) complete restoration of these damaged equipment or outsourcing our roasted inshell peanut requirements. We have adequate property damage and business interruption insurance (subject to applicable deductibles) and do not expect this event to have a material effect on our financial performance for the 2020 fiscal year.
On October 29, 2019, our Board of Directors declared a special cash dividend of $2.00 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “October 2019 Dividend”). The October 2019 Dividend will be paid on December 10, 2019 to stockholders of record as of the close of business on November 26, 2019.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements.
Our fiscal year ends on the final Thursday of June each year, and typically consists offifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:
References herein to fiscal 2020 and fiscal 2019 are to the fiscal year ending June 25, 2020 and the fiscal year ended June 27, 2019, respectively.
References herein to the firstsecond quarter of fiscal 2020 and fiscal 2019 are to the quarters ended SeptemberDecember 26, 2019 and SeptemberDecember 27, 2018, respectively.
References herein to the first half or firsttwenty-six weeks of fiscal 2020 and fiscal 2019 are to thetwenty-six weeks ended December 26, 2019 and December 27, 2018, respectively.
As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our Company’s 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 a variety of private brands and under theFisher, Orchard Valley Harvest,Squirrel Brand, Southern Style Nutsand Sunshine Countrybrand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under private brands and brand names. 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”), includes continuing to growFisher, Orchard Valley Harvest, Squirrel Brandand Southern Style Nuts into leading nut brands by focusing on consumers demanding quality nuts in the snacking, recipe, trail and snack mix and produce categories, providing integrated nut solutions to grownon-branded business at existing key customers in each distribution channel and expanding our offerings into alternative distribution channels. We are executing on our Strategic Plan by continuing to expand distribution of ourOrchard Valley HarvestandSouthern Style Nutsproducts, and growing our consumer distribution channel with private brand products.products and expanding distribution with new foodservice customers.
We face a number of challenges in the future which include, among others, potential acquisition cost volatility for almonds and increasing commodity costs for walnuts, as well as intensified competition on pricing and for market share from both private brand and name brand nut products. OurFisherrecipe nut sales have been negatively impacted recently due to this increased competition for market share. We also face changing industry trends resulting in retail consolidation and Internet price competition for nut andnut-related products.
We will continue to focus on seeking profitable business opportunities to maximize the utilization of our production capacity at our primary manufacturing, processing and distribution facility located in Elgin, Illinois (the “Elgin Site”) and evaluate facility expansion to meet customer demand. We expect to maintain our current level of promotional and advertising activity for ourOrchard Valley Harvest andFishersnack brands. We continue to see significant domestic sales and volume growth in ourOrchard Valley Harvest brand and will continue to focus on this portion of our branded business as well as ourSquirrel BrandandSouthern Style Nuts brands. We will continue to face the ongoing challenges specific to our business, such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products. See the information referenced in Part II, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.
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QUARTERLY HIGHLIGHTS
Our net sales of $217.8$246.4 million for the firstsecond quarter of fiscal 2020 increased 6.6%decreased 2.7% from our net sales of $204.3$253.3 million for the second quarter of fiscal 2019. Net sales for the first quartertwenty-six weeks of fiscal 2020 increased by $6.7 million, or 1.5%, to $464.3 million from net sales of $457.6 million for the firsttwenty-six weeks of fiscal 2019.
Sales volume, measured as pounds sold to customers, increased 9.1%4.8% for the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019. Sales volume for the first quartertwenty-six weeks of fiscal 2020 increased 6.8% compared to the firsttwenty-six weeks of fiscal 2019.
Gross profit increased by $9.3$7.1 million, and our gross profit margin, as a percentage of net sales, increased to 19.4%20.3% for the firstsecond quarter of fiscal 2020 compared to 16.1%16.9% for the second quarter of fiscal 2019. Gross profit increased by $16.4 million and our gross profit margin increased to 19.9% from 16.6% for the first quartertwenty-six weeks of fiscal 2020 compared to the firsttwenty-six weeks of fiscal 2019.
Total operating expenses for the firstsecond quarter of fiscal 2020 increaseddecreased by $0.3$0.7 million, or 1.2%2.8%, compared to the firstsecond quarter of fiscal 2019. As a percentage of net sales, total operating expenses in the firstsecond quarter of fiscal 2020 was unchanged at 10.4% compared to the second quarter of fiscal 2019. For the first half of fiscal 2020, total operating expenses decreased by $0.4 million, to 10.6% from 11.2%10.5% of net sales compared to 10.7% for the first quarterhalf of fiscal 2019.
The total value of inventories on hand at the end of the firstsecond quarter of fiscal 2020 decreasedincreased by $24.6$0.6 million, or 13.6%0.4%, in comparison to the total value of inventories on hand at the end of the firstsecond quarter of fiscal 2019.
We have seen acquisition costs for walnuts begin to increase in the 2019 crop year (which falls into our current 2020 fiscal year). We also continue to see declining acquisition costs for cashews. While we began to procurepecans. We completed procurement of inshell walnuts during the first quarter of fiscal 2020, the total payments due to our walnut growers will not be determined until the second and/or third quartershalf of fiscal 2020. WeDuring the third quarter, we will determine the final prices to be paid to the walnut growers based upon current market prices and other factors such as crop size and export demand. We have estimated the liability to our walnut growers and our walnut inventory costs using currently available information. Any difference between our estimated liability and the actual paymentsfinal liability will be determined during the second and/or third quartersquarter of fiscal 2020 and will be recognized in our financial results at that time.
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RESULTS OF OPERATIONS
Net Sales
Our net sales increased 6.6%decreased 2.7% to $217.8$246.4 million in the firstsecond quarter of fiscal 2020 compared to net sales of $204.3$253.3 million for the firstsecond quarter of fiscal 2019. SalesThe decrease in net sales was primarily attributable to lower selling prices, which resulted from a shift in sales volume from higher priced pecans and walnuts to lower priced trail and snack mixes, peanuts and cashews. Lower selling prices for pecans and cashews, which were due to lower commodity acquisition costs, also contributed to the overall reduction in selling prices. The decline in net sales from lower selling prices was largely offset by a 4.8% increase in sales volume, which is defined as pounds sold to customers, increased 9.1%customers.
For the firsttwenty-six weeks of fiscal 2020 our net sales were $464.3 million, an increase of $6.7 million, or 1.5%, compared to the same period of fiscal 2019. The increase in net sales was due to a 6.8% increase in sales volume and was largely offset by lower selling prices resulting primarily for the same reasons cited in the quarterly comparison. The weighted average sales price per pound decreased approximately 2.3% primarily due to lower selling prices for cashews, pecans and walnuts as a result of lower commodity acquisition costs.
The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.
For the Quarter Ended | For the Quarter Ended | For the Twenty-six Weeks Ended | ||||||||||||||||||||||
Product Type | September 26, 2019 | September 27, 2018 | December 26, 2019 | December 27, 2018 | December 26, 2019 | December 27, 2018 | ||||||||||||||||||
Peanuts | 18.0 | % | 19.2 | % | 15.8 | % | 15.7 | % | 16.8 | % | 17.2 | % | ||||||||||||
Pecans | 9.4 | 11.6 | 16.2 | 20.5 | 13.0 | 16.5 | ||||||||||||||||||
Cashews & Mixed Nuts | 22.7 | 22.6 | 22.7 | 22.1 | 22.7 | 22.3 | ||||||||||||||||||
Walnuts | 7.0 | 10.1 | 8.7 | 10.5 | 7.9 | 10.3 | ||||||||||||||||||
Almonds | 16.6 | 14.1 | 13.2 | 11.8 | 14.8 | 12.8 | ||||||||||||||||||
Trail & Snack Mixes | 20.5 | 17.1 | 18.3 | 14.5 | 19.3 | 15.6 | ||||||||||||||||||
Other | 5.8 | 5.3 | 5.1 | 4.9 | 5.5 | 5.3 | ||||||||||||||||||
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Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
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The following table shows a comparison of net sales by distribution channel (dollars in thousands):
For the Quarter Ended | For the Quarter Ended | |||||||||||||||||||||||||||||||
Distribution Channel | September 26, 2019 | September 27, 2018 | Change | Percent Change | December 26, 2019 | December 27, 2018 | Change | Percent Change | ||||||||||||||||||||||||
Consumer(1) | $ | 157,146 | $ | 139,444 | $ | 17,702 | 12.7 | % | $ | 188,086 | $ | 195,478 | $ | (7,392 | ) | (3.8 | )% | |||||||||||||||
Commercial Ingredients | 36,888 | 37,202 | (314 | ) | (0.8 | ) | 34,247 | 31,454 | 2,793 | 8.9 | ||||||||||||||||||||||
Contract Packaging | 23,812 | 27,642 | (3,830 | ) | (13.9 | ) | 24,090 | 26,385 | (2,295 | ) | (8.7 | ) | ||||||||||||||||||||
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Total | $ | 217,846 | $ | 204,288 | $ | 13,558 | 6.6 | % | $ | 246,423 | $ | 253,317 | $ | (6,894 | ) | (2.7 | )% | |||||||||||||||
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(1) | Sales of branded products were approximately |
The following table shows a comparison of net sales by distribution channel (dollars in thousands):
For theTwenty-six Weeks Ended | ||||||||||||||||
Distribution Channel | December 26, 2019 | December 27, 2018 | Change | Percent Change | ||||||||||||
Consumer(1) | $ | 345,232 | $ | 334,922 | $ | 10,310 | 3.1 | % | ||||||||
Commercial Ingredients | 71,135 | 68,656 | 2,479 | 3.6 | ||||||||||||
Contract Packaging | 47,902 | 54,027 | (6,125 | ) | (11.3 | ) | ||||||||||
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Total | $ | 464,269 | $ | 457,605 | $ | 6,664 | 1.5 | % | ||||||||
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(1) | Sales of branded products were approximately 31% and 43% of total consumer sales during the firsttwenty-six weeks of fiscal 2020 and fiscal 2019, respectively.Fisher branded products were approximately 71% and 75% of branded sales during the firsttwenty-six weeks of fiscal 2020 and fiscal 2019, respectively, with branded produce andSquirrel Brandproducts accounting for most of the remaining branded product sales. |
Net sales in the consumer distribution channel increased $17.7decreased $7.4 million, or 12.7%3.8%, and sales volume increased 17.4%4.2% in the firstsecond quarter of fiscal 2020 compared to the firstsecond quarter of fiscal 2019. The sales volume increase was driven by increased sales of private brand snack nuts and trail and snack mixes from distribution gains with new and existing and newprivate brand customers. Sales volume forFisher snack nuts decreased 8.0%6.4%, primarily as a result of reduced promotional activity for inshell peanuts. Sales volume ofFisher recipe nuts decreased 29.8% from lost airlineholiday display distribution at a major customer in favor of their private brand recipe nuts. Sales volumeof Orchard Valley Harvest products increased 6.5% due to distribution gains at new and club business.existing customers and the introduction of new products. Sales volume ofSouthern Style Nuts increased 42.9% due to increased promotional activity.
In the firsttwenty-six weeks of fiscal 2020, net sales in the consumer distribution channel increased $10.3 million, or 3.1%, and sales volume increased 10.0% compared to the same period of fiscal 2019. The sales volume increase occurred for the same reason cited in the quarterly comparison. Increased sales for ourOrchard Valley Harvest andSouthern Style Nutbrands also contributed to the sales volume increase in the consumer distribution channel. Sales volume forFisher recipe nuts decreased 30.3% mainly due30.0% in the year to date comparison as a result of lost distribution for some items due to the continued expansionat a major customer in favor of their private brand recipe nut offerings at a major customer. Sales volumeof Orchard Valley Harvest produce products increased 12.4% due to increased sales with existing customers. The 40.3% sales volume increase ofSouthern Style Nuts was due to distribution gains with new grocery customers.nuts.
Net sales and sales volume in the commercial ingredients distribution channel were relatively unchangedincreased by 8.9% in dollars and 14.5% in sales volume in the firstsecond quarter of fiscal 2020 compared to the firstsecond quarter of fiscal 2019. In the firsttwenty-six weeks of fiscal 2020, net sales in the commercial ingredients distribution channel increased by 3.6% in dollars and 6.3% in sales volume compared to the same period of fiscal 2019. The sales volume increase, for both the quarterly andtwenty-six week period, was primarily due to distribution gains with new food service customers and increased sales of peanut crushing stock to peanut oil processors.
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Net sales in the contract packaging distribution channel decreased by 13.9%8.7% in dollars and 13.0%2.5% in sales volume in the firstsecond quarter of fiscal 2020 compared to the firstsecond quarter of fiscal 2019. The decline in sales volume mainlyprimarily came from a reduction in promotional and merchandising activity by some customers in this channel. In the firsttwenty-six weeks of fiscal 2020, net sales in the contract packaging distribution channel decreased by 11.3% in dollars and 7.9% in sales volume compared to the firsttwenty-six weeks of fiscal 2019. The decline in sales volume occurred for the same reason cited in the quarterly comparison, as well as from a reduction in unit ounce weights implemented by a major contract packaging customer for its entire product line and reduced promotional activity by another costumer.customer.
Gross Profit
Gross profit increased by $9.3$7.1 million, or 28.2%16.5%, to $42.2$50.0 million for the firstsecond quarter of fiscal 2020 compared to the firstsecond quarter of fiscal 2019. Our gross profit margin, as a percentage of net sales, increased to 19.4%20.3% for the firstsecond quarter of fiscal 2020 compared to 16.1%16.9% for the firstsecond quarter of fiscal 2019. The increases in gross profit and gross profit margin were mainly attributable to the sales volume increase discussed above, as well as manufacturing efficiencies, reduced manufacturing spending and lower commodity acquisition costs for cashews, pecans and walnuts.cashews.
Gross profit increased by $16.4 million, or 21.6%, to $92.2 million for the firsttwenty-six weeks of fiscal 2020 compared to the firsttwenty-six weeks of fiscal 2019. Our gross profit margin increased to 19.9% for the firsttwenty-six weeks of fiscal 2020 compared to 16.6% for the firsttwenty-six weeks of fiscal 2019. The increases in gross profit and gross profit margin in the year to date comparison occurred primarily for the same reasons cited in the quarterly comparison.
Operating Expenses
Total operating expenses for the first quarter of fiscal 2020 increased by $0.3 million to $23.2 million. Operating expenses for the firstsecond quarter of fiscal 2020 decreased by $0.7 million, or 2.8%, to 10.6%$25.5 million. As a percentage of net sales, from 11.2% of net salesoperating expenses remain unchanged at 10.4% for the firstsecond quarter of fiscal 2019 due primarily2020 compared to a higher net sales base.the second quarter of fiscal 2019.
Selling expenses were $14.1 million for both periods presented. An increase of $0.7 million in payroll related and incentive compensation expense was offset by a decrease in transportation costs of $0.5 million due to decreasing costs per shipped pound and a decrease in advertising expense of $0.3 million due to a decrease in radio advertising.
Administrative expenses for the firstsecond quarter of fiscal 2020 were $9.1$16.1 million, an increasea decrease of $0.2$2.1 million, or 2.8%11.5%, from the firstsecond quarter of fiscal 2019. The increasedecrease was driven primarily by a $0.5$2.5 million decrease in advertising expense primarily related to TV and magazine advertising and a $0.9 million decrease in freight expense. Partially offsetting these decreases were a $0.7 million increase in payroll related and incentive compensation expense whichand a $0.4 million increase in commission expense.
Administrative expenses for the second quarter of fiscal 2020 were $9.4 million compared to $8.1 million for the second quarter of fiscal 2019. The increase was primarily due to a $1.0 million increase in compensation related expenses, primarily incentive compensation, a $0.2 million increase in building repairs and maintenance expense.
Total operating expenses for the firsttwenty-six weeks of fiscal 2020 decreased by $0.4 million, or 0.9%, to $48.7 million. Operating expenses decreased to 10.5% of net sales for the first half of fiscal 2020 compared to 10.7% of net sales for the first half of fiscal 2019.
Selling expenses for the firsttwenty-six weeks of fiscal 2020 were $30.2 million, a decrease of $2.0 million, or 6.3%, from the amount recorded for the firsttwenty-six weeks of fiscal 2019. The decrease was driven primarily by a $2.9 million decrease in advertising expense and a $1.3 million decrease in freight expense. These decreases were partially offset by a decrease$1.4 million increase in payroll related and incentive compensation expense and a $0.5 million increase in commission expense.
Administrative expenses for the firsttwenty-six weeks of $0.2fiscal 2020 were $18.5 million, in amortization expense relatedan increase of $1.6 million, or 9.5%, compared to the intangible assets acquiredsame period of fiscal 2019. The increase was primarily due to $1.5 million increase in the Acquisition.compensation related expenses, primarily incentive compensation, and a $0.3 million increase in building repairs and maintenance expense.
Income from Operations
Due to the factors discussed above, income from operations increased to $19.1was $24.5 million, or 8.8%9.9% of net sales, for the firstsecond quarter of fiscal 2020 from $10.1compared to $16.6 million, or 4.9%6.6% of net sales, for the second quarter of fiscal 2019.
Due to the factors discussed above, income from operations was $43.5 million, or 9.4% of net sales, for the first quartertwenty-six weeks of fiscal 2020 compared to $26.7 million, or 5.8% of net sales, for the firsttwenty-six weeks of fiscal 2019.
Interest Expense
Interest expense was $0.5$0.4 million for the firstsecond quarter of fiscal 2020 compared to $0.9$0.8 million in the second quarter of fiscal 2019. Interest expense for the first quartertwo quarters of fiscal 2020 was $1.0 million compared to $1.7 million for the first two quarters of fiscal 2019. The decrease in interest expense was due to lower average debt levels.
Rental and Miscellaneous Expense, Net
Net rental and miscellaneous expense was $0.4$0.3 million for the second quarter of both fiscal 2020 and fiscal 2019. Net rental and miscellaneous expense was $0.7 million for the first quartertwenty-six weeks of fiscal 2020 compared to $0.3$0.6 million for the first quartertwenty-six weeks of fiscal 2019.
Other Expense
Other expense consists of pension related expenses other than the service cost component. Other expensecomponent and was $0.6 million for the firstsecond quarter of fiscal 2020 compared to $0.5 million for the firstsecond quarter of fiscal 2019. Other expense was $1.1 million for the firsttwenty-six weeks of fiscal 2020 compared to $1.0 million for the firsttwenty-six weeks of fiscal 2019.
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Income Tax Expense
Income tax expense was $4.6$5.7 million, or 26.4%24.7% of income before income taxes (“Effective(the “Effective Tax Rate”), for the firstsecond quarter of fiscal 2020 compared to $1.8$3.8 million, or 21.3%25.3% of income before income taxes, for the firstsecond quarter of fiscal 2019. For the firsttwenty-six weeks of fiscal 2020, income tax expense was $10.4 million, or 25.5% of income before income taxes, compared to $5.6 million, or 23.9% of income before income taxes, for the comparable period last year. The effective tax rate was lowerEffective Tax Rate in the first quarter of fiscal 2019 primarilycomparativetwenty-six week period was reduced due to ana change in the rate that our deferred tax assets are measured due to the impact of Tax Reform. This change increased our net deferred tax assets and reduced income tax benefit recognized for an increaseexpense in the deferred state tax rate caused by the Tax Cuts and Jobs Act of 2017. The decrease in the federal tax rate reduced the federal benefit impacting our state tax rate. This income tax benefit reduced our first quarter fiscal 2019 effective tax rate approximately 5.8%.comparative twenty-six week period.
Net Income
Net income was $12.9$17.5 million, or $1.13$1.52 per common share basic and $1.12 per share diluted, for the firstsecond quarter of fiscal 2020, compared to $6.6$11.3 million, or $0.58$0.99 per common share basic and $0.57$0.98 per common share diluted, for the second quarter of fiscal 2019.
Net income was $30.4 million, or $2.65 per common share basic and $2.64 per share diluted, for the first quartertwenty-six weeks of fiscal 2020, compared to net income of $17.9 million, or $1.57 per common share basic and $1.56 per share diluted, for the firsttwenty-six weeks of fiscal 2019.
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 November 2017 (as amended, the “Credit Facility”), that provides a revolving loan commitment and letter of credit subfacility. We anticipate that expected net cash flow generated from operations and amounts available pursuant to the Credit Facility will be sufficient to fund our operations for the next twelve months. Our available credit under our Credit Facility has historically allowed us to devote more funds to promote our products and invest in our brands (especially ourFisherandOrchard Valley Harvest brands), consummate strategic business acquisitions such as the fiscal 2018 acquisition of the Squirrel Brand business, reinvest in the Company through capital expenditures, develop new products, pay cash dividends the past eightseven years 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.
The following table sets forth certain cash flow information for the first quarterhalf of fiscal 2020 and 2019, respectively (dollars in thousands):
September 26, 2019 | September 27, 2018 | $ Change | December 26, 2019 | December 27, 2018 | $ Change | |||||||||||||||||||
Operating activities | $ | 22,468 | $ | 15,675 | $ | 6,793 | $ | 54,285 | $ | 48,366 | $ | 5,919 | ||||||||||||
Investing activities | (3,102 | ) | (4,768 | ) | 1,666 | (6,148 | ) | (9,323 | ) | 3,175 | ||||||||||||||
Financing activities | (20,070 | ) | (11,141 | ) | (8,929 | ) | (48,335 | ) | (37,909 | ) | (10,426 | ) | ||||||||||||
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Net decrease in cash | $ | (704 | ) | $ | (234 | ) | $ | (470 | ) | |||||||||||||||
Net increase in cash | $ | (198 | ) | $ | 1,134 | $ | (1,332 | ) | ||||||||||||||||
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Operating ActivitiesNet cash provided by operating activities was $22.5$54.3 million for the first quartertwenty-six weeks of fiscal 2020 compared to $15.7$48.4 million for the first quartercomparative period of fiscal 2019. The increase in operating cash flow was due primarily to a $6.3$12.5 million increase in net income driven by increased sales and improved profitability.profitability, which was partially offset due to an increased use of working capital for inventory compared to the firsttwenty-six weeks of fiscal 2019.
Total inventories were $156.5$172.3 million at SeptemberDecember 26, 2019, a decreasean increase of $15.3 million, or 9.8%, from the inventory balance at June 27, 2019, and an increase of $0.6 million, or 0.4%, from the inventory balance at June 27, 2019, and a decrease of $24.6 million, or 13.6%, from the inventory balance at SeptemberDecember 27, 2018. The decreaseincrease in inventoriesinventory at SeptemberDecember 26, 2019 compared to SeptemberJune 27, 20182019 was primarily attributabledue to greater quantities of walnuts on hand at a higher acquisition cost, which was partially offset by lower acquisition costs for pecans, cashews and walnuts in addition to lower quantities on hand for finished goods.pecans.
Raw nut and dried fruit input stocks, some of which are classified as work in process, increaseddecreased by 2.99.8 million pounds, or 6.5%11.8%, at SeptemberDecember 26, 2019 compared to SeptemberDecember 27, 2018. The increase was attributable mainly2018 due to increasedlower quantities of inshell peanuts and pecans on hand, which was partially offset by decreases in the quantity on hand of
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most other major nut types.hand. The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of the firstsecond quarter of fiscal 2020 decreased 25.9%increased 7.1% compared to the end of the firstsecond quarter of fiscal 2019 primarily due to a higher acquisition cost for walnuts, which was offset in part by lower acquisition costs for pecans, cashews and walnuts and a shift in product mix to peanuts.
Investing ActivitiesCash used in investing activities primarily all for capital expenditures, was $3.1$6.1 million during the first quartertwenty-six weeks of fiscal 2020 compared to $4.8$9.3 million for the same period last year. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2020 to be approximately $15.0$17 to $20 million. Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for planned capital expenditures.
Financing ActivitiesCash used in financing activities was $20.1$48.3 million during the first quartertwenty-six weeks of fiscal 2020 compared to $11.1$37.9 million for the same period last year. We paid $57.3 million of dividends in the first half of fiscal 2020 compared to $29.1 million during the same period last year. Net short-term borrowings under our Credit Facility were $16.0$13.5 million during the first quarterhalf of fiscal 2020 compared to net borrowingsrepayments of $20.7$6.7 million for the first quarterhalf of fiscal 2019. The decreaseincrease in short term borrowings under our Credit Facility was primarily due to an increase in net income and operating cash flows. Thehigher dividends paid in fiscal 2020 to date were approximately $5.2 million more than the same period of fiscal 2019.and was partially offset by an increased operating cash flows.
Real Estate Matters
In August 2008, we completed the consolidation of our Chicago-based facilities into the Elgin Site. The Elgin Site includes both an office building and a warehouse. We are currently attempting to find additional tenants for the available space in the office building at the Elgin Site. Until additional tenant(s) are found, we will not receive the benefit of rental income associated with such space. Approximately 63% of the rentable area in the office building is currently vacant. Approximatelyvacant, of which approximately 29% of the rentable area has not beenbuilt-out. There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space.
Financing Arrangements
On February 7, 2008, we entered into the Credit Facility 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”).
On November 29, 2017, we entered into the Consent and Ninth Amendment to our Credit Agreement (the “Ninth Amendment”) which provided lender consent to incur unsecured debt in connection with our acquisition of the assets of the Squirrel Brand business, and for the acquisition of the Squirrel Brand business to constitute a “Permitted Acquisition” under the terms of the Credit Facility. The Ninth Amendment also modified our collateral reporting requirements.
The Credit Facility, as most recently amended in November 2017, is secured by substantially all of our assets other than machinery and equipment, real property, and fixtures and matures on July 7, 2021. The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).
Credit Facility
At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% or (ii) a rate based upon the London interbank offered rate (“LIBOR”) plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%.
At SeptemberDecember 26, 2019, the weighted average interest rate for the Credit Facility was 4.7%3.8%. 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
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specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders have the option to accelerate and demand immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company,non-compliance with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of SeptemberDecember 26, 2019, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future. At SeptemberDecember 26, 2019, we had $97.5$100.8 million of available credit under the Credit Facility. If this entire amount were borrowed at SeptemberDecember 26, 2019, we would still be in compliance with all restrictive covenants under the Credit Facility.
We are currently updating the Credit Facility agreement and expect the term to extend another five years. The legal costs incurred to date have been capitalized and will be amortized over the length of the new agreement.
Mortgage Facility
The Mortgage Facility matures on March 1, 2023. On March 1, 2018 the interest rate on the Mortgage Facility was fixed at 4.25% per annum for the remainder of the term. Monthly principal payments on Tranche A in the amount of $0.2 million commenced on June 1, 2008. Monthly principal payments on Tranche B in the amount of $0.1 million commenced on June 1, 2008.
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 SeptemberDecember 26, 2019, we were in compliance with all covenants under the Mortgage Facility.
Selma Property
In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has aten-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. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the owner at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. The provisions of the arrangement are not eligible for sale-leaseback accounting and the $14.3 million was recorded as a debt obligation. No gain or loss was recorded on the Selma Properties transaction. As of SeptemberDecember 26, 2019, $9.9$9.8 million of the debt obligation was outstanding.
Squirrel Brand Seller-Financed Note
In November 2017 we completed the Squirrel Brand acquisition.Acquisition. The acquisitionAcquisition was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for $11.5 million (“Promissory Note”). The principal owner and seller of the Squirrel Brand business was subsequently appointed as an executive officer of the Company and iswas considered a related party.party until the employment of this executive officer with the Company ceased late in the second quarter of fiscal 2020. The Promissory Note is unsecured, bears interest at 5.5% per annum and is payable in equal monthly principal payments of $0.3 million, plus interest, which began in January 2018. Upon an event of default, as defined in the Promissory Note, the interest rate increases to 7.5% until such event of default is cured. We canpre-pay the Promissory Note at any time during the three-year period without penalty. At SeptemberDecember 26, 2019, the principal amount of $4.5$3.5 million of the Promissory Note was outstanding.
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Critical Accounting Policies and Estimates
For information regarding our Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form10-K for the fiscal year ended June 27, 2019.
Recent Accounting Pronouncements
Refer to Note 1415 – “Recent Accounting Pronouncements” of the Notes to Consolidated Financial Statements, contained in Part I, Item 1 of this form10-Q, for a discussion of recently issued and adopted accounting pronouncements.
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FORWARD LOOKING STATEMENTS
Some of the statements in this report are forward-looking (including statements concerning our expectations regarding market risk and the impact of the purchasing decisions of major customers). These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where expressly required to do so by law. Among the factors that could cause results to differ materially from current expectations are: (i) the risks associated with our vertically integrated model with respect to pecans, peanuts and walnuts; (ii) sales activity for the Company’s products, such as a decline in sales (of branded products, private label products or otherwise) to one or more key customers, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products; (iii) changes in the availability and costs of raw materials and the impact of fixed price commitments with customers; (iv) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases; (v) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively; (vi) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures;pressures, including competition in the recipe nut category; (vii) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products; (viii) the ability of the Company to control expenses, such as compensation, medical and administrative expense; (ix) the potential negative impact of government regulations and laws and regulations pertaining to food safety, such as the Food Safety Modernization Act; (x) uncertainty in economic conditions, including the potential for economic downturn; (xi) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control; (xii) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xiii) losses due to significant disruptions at any of our production or processing facilities; (xiv) the inability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels; (xv) technology disruptions or failures; (xvi) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; and (xvii) the Company’s ability to manage successfully the price gap between its private brand products and those of its branded competitors.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Part I—Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form10-K for the fiscal year ended June 27, 2019.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule13a-15(e)) as of SeptemberDecember 26, 2019. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of SeptemberDecember 26, 2019, the Company’s disclosure controls and procedures were effective.
In connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule13a-15(f)) during the quarter ended SeptemberDecember 26, 2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
For a discussion of legal proceedings, see Note 11 – “Commitments and Contingent Liabilities” in Part I, Item 1 of this Form10-Q.
In addition to the other information set forth in this report on Form10-Q, you should also consider the factors, risks and uncertainties which could materially affect our Company’s business, financial condition or future results as discussed in Part I, Item 1A – “Risk Factors” of our Annual Report on Form10-K for the fiscal year ended June 27, 2019. There were no significant changes to the risk factors identified on the Form10-K for the fiscal year ended June 27, 2019 during the firstsecond quarter of fiscal 2020.
See Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in this Form10-Q, and see Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in the Company’s Annual Report on Form10-K for the fiscal year ended June 27, 2019.
The exhibits filed herewith are listed in the exhibit index below.
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EXHIBIT INDEX
(Pursuant to Item 601 of RegulationS-K)
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31
Exhibit No. | Description | |
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 amended | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Indicates a management contract or compensatory plan or arrangement. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on OctoberJanuary 30, 2019.2020.
JOHN B. SANFILIPPO & SON, INC. | ||
By | ||
/s/ MICHAEL J. VALENTINE | ||
Michael J. Valentine | ||
Chief Financial Officer, Group President and Secretary |
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