Significant Accounting Policies | NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation and Description of Business Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two 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 the Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts, Sunshine Country Management Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, the assumptions used in estimating the retirement plan liability and pension expense, and the realizability of deferred tax assets. Actual results could differ from those estimates. Accounts Receivable Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other non-specifically Inventories Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost (first-in, first-out) (first-in, first-out) Property, Plant and Equipment Property, plant and equipment are stated at cost. Major improvements that extend the useful life, add capacity or add functionality are capitalized and charged to expense through depreciation. Repairs and maintenance costs are charged to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss is recognized currently in operating income. Depreciation expense for the last three fiscal years is as follows: Year Ended June 27, Year Ended June 28, Year Ended June 29, Depreciation expense $ 14,017 $ 13,414 $ 14,190 Cost is depreciated using the straight-line method over the following estimated useful lives: Classification Estimated Useful Lives Buildings 10 to 40 years Machinery and equipment 5 to 10 years Furniture and leasehold improvements 5 to 10 years Vehicles 3 to 5 years Computers and software 3 to 5 years No interest costs were capitalized for the last three fiscal years due to the lack of any significant project requiring such capitalization. Business Combinations We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Segment Reporting We operate in a single reporting unit and operating segment that consists of selling various nut and nut related products through multiple distribution channels. Impairment of Long-Lived Assets We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets (e.g., customer relationships and brand names), to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value. We did no Goodwill Goodwill currently represents the excess of the purchase price over the fair value of the net assets from our acquisition of Squirrel Brand, L.P. which closed in November 2017. Goodwill is not amortized, but is tested annually as of the last day of each fiscal year for impairment, or whenever events or changes in circumstances indicate it is more likely than not that the carrying amount of the reporting unit is greater than its fair value. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of our single reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above). During fiscal 2019 we elected to perform a qualitative impairment test which indicated no Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. The inputs used to calculate the fair value include several subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. If the carrying value of our single reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value. Facility Consolidation Project/Real Estate Transactions In April 2005, we acquired property to be used for the Elgin Site. Two buildings are located on the Elgin Site, one of which is an office building. Approximately 65% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been built-out. The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in “Property, plant and equipment”. The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. Gross rental income and rental (expense), net for the last three fiscal years are as follows: Year ended June 27, 2019 Year ended June 28, 2018 Year ended June 29, 2017 Gross rental income $ 1,978 $ 1,988 $ 2,003 Rental (expense), net (1) (1,104 ) (1,420 ) (1,311 ) (1) Includes annual depreciation expense of approximately $800. Expected future gross rental income under operating leases within the office building is as follows for the fiscal years ending: June 25, 2020 $ 2,015 June 24, 2021 1,816 June 30, 2022 1,599 June 29, 2023 1,618 June 27, 2024 1,638 Thereafter 2,319 $ 11,005 Fair Value of Financial Instruments Authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels: Level 1- Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. Level 2- Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3- Unobservable inputs for which there is little or no market data available. The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at June 27, 2019 and June 28, 2018 because of the short-term maturities and nature of these balances. The carrying value of our Credit Facility (as defined in Note 5 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements below) borrowings approximates fair value at June 28, 2018 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk. The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs: June 27, June 28, Carrying value of long-term debt: $ 27,798 $ 34,649 Fair value of long-term debt: 27,720 33,482 The estimated fair value of long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt. Revenue Recognition The Company records revenue based on a five-step model in accordance with ASC Topic 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We sell our products under some arrangements which include customer contracts that fix the sales price for periods, which typically can be up to one year for some commercial ingredient customers, and through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer and some commercial ingredient users. We recognize revenues as performance obligations are Significant Customers and Concentration of Credit Risk The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to two customers exceeded 10% of net sales during fiscal 2019. Sales to three customers exceeded 10% of net sales during fiscal 2018 and fiscal 2017. customers represented approximately 43%, 54% and 53% of our net sales in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. from these customers were 40% and 62% of net accounts receivable at June 27, 2019 and June 28, 2018, respectively. Marketing and Advertising Costs Marketing and advertising costs are incurred to promote and support branded products in the consumer distribution channel. These costs are generally expensed as incurred, recorded in selling expenses and were as follows for the last three fiscal years: Year ended June 27, Year ended June 28, Year ended June 29, Marketing and advertising expense $ 11,936 $ 11,290 $ 10,064 Shipping and Handling Costs Shipping and handling costs, which include freight and other expenses to prepare finished goods for shipment, are included in selling expenses. Shipping and handling costs for the last three fiscal years were as follows: Year ended June 27, Year ended June 28, Year ended June 29, Shipping and handling costs $ 23,086 $ 20,418 $ 17,682 Research and Development Expenses Research and development expense represents the cost of our research and development personnel and their related expenses and is charged to selling expenses as incurred. Research and development expenses for the last three fiscal years were as follows: Year ended June 27, Year ended June 28, Year ended June 29, Research and development expense $ 892 $ 701 $ 658 Stock-Based Compensation We account for stock-based employee compensation arrangements in accordance with the provisions of ASC 718, as amended by Accounting Standard Update (“ASU”) 2016-09, Income Taxes We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns. Such items give rise to differences in the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. In estimating future tax consequences, we consider all expected future events other than changes in tax law or rates. We record liabilities for uncertain income tax positions based on a two-step We recognize interest and penalties accrued related to unrecognized tax benefits in the Income tax expense caption in the Consolidated Statement of Comprehensive Income. We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 27, 2019, we believe that our deferred tax assets are fully realizable. Earnings per Share Basic earnings per common share are calculated using the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock. The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share: Year ended June 27, Year ended June 28, Year ended June 29, Weighted average number of shares outstanding — basic 11,430,174 11,383,080 11,317,149 Effect of dilutive securities: Stock options and restricted stock units 71,238 66,306 86,456 Weighted average number of shares outstanding — diluted 11,501,412 11,449,386 11,403,605 The following table presents a summary of anti-dilutive awards excluded from the computation of diluted earnings per share: Year ended June 27, Year ended June 28, Year ended June 29, Weighted average number of anti-dilutive shares: — — 1,068 Weighted average exercise price per share: $ — $ — $ 65.35 Comprehensive Income We account for comprehensive income in accordance with ASC Topic 220, Comprehensive Income non-owner Recent Accounting Pronouncements The following recent accounting pronouncements have been adopted in the current fiscal year: In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) Revenue from Contracts with Customers 340-40, Other Assets and Deferred Costs — Contracts with Customers. Revenue Recognition In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments No. 2016-15 In May 2017, the FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting No. 2017-09 No. 2017-09 In August 2018, the SEC issued Release No. 33-10532 3-04 S-X 10-Q 10-K. In March 2019, the SEC issued Release No. 33-10618, S-K. 10-K. The following recent accounting pronouncements have not yet been adopted: In August 2018, the FASB issued ASU No. 2018-15 Intangibles – Goodwill and Other – Internal-Use 350-40): internal-use In August 2018, the FASB issued ASU No. 2018-14 Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement Fair Value Measurement In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) No. 2016-02 No. 2016-02 No. 2018-11 Leases (Topic 842): Targeted Improvements non-lease No. 2018-10 Codification Improvements to Topic 842, Leases No. 2016-02. No. 2018-20 Leases (Topic 842) – Narrow Scope Improvements for Lessors non-lease No. 2019-01 Leases (Topic 842) – Codification Improvements No. 2016-02. We have implemented processes and information technology tools to assist in our ongoing lease data analysis. We have also updated our accounting policies and internal controls that are impacted by the new guidance, to ensure readiness for adoption in the first quarter of fiscal 2020. We plan to adopt ASU 2016-02 use-of-hindsight right-of-use non-lease |