SANFILIPPO JOHN B & SON INC 10-Q

Item 1. Financial Statements JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) For the Quarter Ended September 24, 2020 September 26, 2019 Net sales $ 210,273 $ 217,846 Cost of sales 170,941 175,598 Gross profit 39,332 42,248 Operating expenses: Selling expenses 12,084 14,112 Administrative expenses 8,375 9,074 Total operating expenses 20,459 23,186 Income from operations 18,873 19,062 Other expense: Interest expense including $ 167 and $ 247 to related parties 450 521 Rental and miscellaneous expense, net 432 404 Other expense 630 566 Total other expense, net 1,512 1,491 Income before income taxes 17,361 17,571 Income tax expense 4,549 4,645 Net income $ 12,812 $ 12,926 Other comprehensive income: Amortization of prior service cost and actuarial loss included in Other expense 416 343 Income tax expense related to pension adjustments ( 104 ) ( 86 ) Other comprehensive income, net of tax: 312 257 Comprehensive income $ 13,124 $ 13,183 Net income per common share-basic $ 1.12 $ 1.13 Net income per common share-diluted $ 1.11 $ 1.12 The accompanying unaudited notes are an integral part of these consolidated financial statements. 3 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) September 24, 2020 June 25, 2020 September 26, 2019 ASSETS CURRENT ASSETS: Cash $ 743 $ 1,535 $ 887 Accounts receivable, less allowance for doubtful accounts of $ 371 , $ 391 and $ 386 69,881 56,953 60,474 Inventories 150,371 172,068 156,453 Prepaid expenses and other current assets 6,353 8,315 5,291 TOTAL CURRENT ASSETS 227,348 238,871 223,105 PROPERTY, PLANT AND EQUIPMENT: Land 9,277 9,285 9,285 Buildings 110,397 110,294 110,440 Machinery and equipment 221,545 218,021 212,403 Furniture and leasehold improvements 5,186 5,179 5,130 Vehicles 637 682 639 Construction in progress 4,370 2,244 2,454 351,412 345,705 340,351 Less: Accumulated depreciation 241,987 239,013 231,944 109,425 106,692 108,407 Rental investment property, less accumulated depreciation of $ 12,220 , $ 12,018 and $ 11,413 16,903 17,105 17,630 TOTAL PROPERTY, PLANT AND EQUIPMENT 126,328 123,797 126,037 Intangible assets, net 11,547 12,125 13,954 Cash surrender value of officers’ life insurance and other assets 10,697 11,875 9,334 Deferred income taxes 6,987 6,788 5,972 Goodwill 9,650 9,650 9,650 Operating lease right-of-use assets 4,201 4,351 5,170 TOTAL ASSETS $ 396,758 $ 407,457 $ 393,222 The accompanying unaudited notes are an integral part of these consolidated financial statements. 4 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) September 24, 2020 June 25, 2020 September 26, 2019 LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $ 44,168 $ 27,008 $ 16,042 Current maturities of long-term debt, including related party debt of $ 595 , $ 585 and $ 4,388 and net of unamortized debt issuance costs of $ 22 , $ 25 and $ 32 4,372 5,285 7,385 Accounts payable 41,441 36,323 52,365 Bank overdraft 85 2,041 1,302 Accrued payroll and related benefits 11,511 25,641 11,546 Other accrued expenses 16,058 15,870 15,767 TOTAL CURRENT LIABILITIES 117,635 112,168 104,407 LONG-TERM LIABILITIES: Long-term debt, less current maturities, including related party debt of $ 8,794 , $ 8,947 and $ 10,028 and net of unamortized debt issuance costs of $ 15 , $ 19 and $ 37 13,780 14,730 18,152 Retirement plan 31,860 31,573 24,974 Long-term operating lease liabilities, net of current portion 2,807 2,990 3,774 Other 7,377 7,758 7,865 TOTAL LONG-TERM LIABILITIES 55,824 57,051 54,765 TOTAL LIABILITIES 173,459 169,219 159,172 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, $ . 0 1 par value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding 26 26 26 Common Stock, non-cumulative voting rights of one vote per share, $ . 0 1 par value; 17,000,000 shares authorized 8,940,111 , 8,939,890 and 8,909,406 shares issued 89 89 89 Capital in excess of par value 124,521 123,899 122,890 Retained earnings 108,185 124,058 117,293 Accumulated other comprehensive loss ( 8,318 ) ( 8,630 ) ( 5,044 ) Treasury stock, at cost; 117,900 shares of Common Stock ( 1,204 ) ( 1,204 ) ( 1,204 ) TOTAL STOCKHOLDERS’ EQUITY 223,299 238,238 234,050 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 396,758 $ 407,457 $ 393,222 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 Shares Amount Shares Amount Total Balance, June 25, 2020 2,597,426 $ 26 8,939,890 $ 89 $ 123,899 $ 124,058 $ ( 8,630 ) $ ( 1,204 ) $ 238,238 Net income 12,812 12,812 Cash dividends ($ 2.50 per share) ( 28,685 ) ( 28,685 ) Pension liability amortization, net of income tax expense of $ 104 312 312 Equity award exercises 221 — — — Stock-based compensation expense 622 622 Balance, September 24, 2020 2,597,426 $ 26 8,940,111 $ 89 $ 124,521 $ 108,185 $ ( 8,318 ) $ ( 1,204 ) $ 223,299 Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 27, 2019 2,597,426 $ 26 8,909,406 $ 89 $ 122,257 $ 137,712 $ ( 4,325 ) $ ( 1,204 ) $ 254,555 Net income 12,926 12,926 Cash dividends ($ 3.00 per share) ( 34,321 ) ( 34,321 ) Pension liability amortization, net of income tax expense of $ 86 257 257 Impact of adopting ASU 2018-02 976 ( 976 ) — Stock-based compensation expense 633 633 Balance, September 26, 2019 2,597,426 $ 26 8,909,406 $ 89 $ 122,890 $ 117,293 $ ( 5,044 ) $ ( 1,204 ) $ 234,050 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 September 24, 2020 September 26, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,812 $ 12,926 Depreciation and amortization 4,368 4,412 (Gain) loss on disposition of assets, net ( 241 ) 3 Deferred income tax benefit ( 199 ) ( 249 ) Stock-based compensation expense 622 633 Change in assets and liabilities: Accounts receivable, net ( 12,928 ) 497 Inventories 21,697 571 Prepaid expenses and other current assets 1,962 356 Accounts payable 5,661 9,655 Accrued expenses ( 13,970 ) ( 10,969 ) Income taxes payable 28 3,839 Other long-term assets and liabilities 166 300 Other, net 599 494 Net cash provided by operating activities 20,577 22,468 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 6,298 ) ( 3,118 ) Other 280 16 Net cash used in investing activities ( 6,018 ) ( 3,102 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings 17,160 16,042 Principal payments on long-term debt ( 1,870 ) ( 2,192 ) (Decrease) increase in bank overdraft ( 1,956 ) 401 Dividends paid ( 28,685 ) ( 34,321 ) Net cash used in financing activities ( 15,351 ) ( 20,070 ) NET DECREASE IN CASH ( 792 ) ( 704 ) Cash, beginning of period 1,535 1,591 Cash, end of period $ 743 $ 887 Supplemental disclosure of non-cash activities: Right-of-use assets recognized at ASU No. 2016-02 transition $ — $ 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 of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows: • References herein to fiscal 2021 and fiscal 2020 are to the fiscal year ending June 24, 2021 and the fiscal year ended June 25, 2020, respectively. • References herein to the first quarter of fiscal 2021 and fiscal 2020 are to the quarters ended September 24, 2020 and September 26, 2019, respectively. We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under a variety of private brands and under the Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Sunshine Country brand 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 25, 2020 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 2020 Annual Report on Form 10-K for the fiscal year ended June 25, 2020. 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 virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, 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 the timing of our 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. The contract asset balance at September 24, 2020 was $ 57 and is recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance at June 25, 2020 or September 26, 2019. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers. Disaggregation of Revenue Revenue disaggregated by sales channel is as follows: For the Quarter Ended Distribution Channel September 24, 2020 September 26, 2019 Consumer $ 166,757 $ 157,146 Commercial Ingredients 22,811 36,888 Contract Packaging 20,705 23,812 Total $ 210,273 $ 217,846 9 Note 3 – Leases Description of Leases We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain non-lease components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order. We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 5 .0 years. It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and non-lease components for all leases. The following table provides supplemental information related to operating lease right-of-use assets and li a b ilities : September 24, 2020 June 25, 2020 September 26, 2019 Affected Line Item in Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 4,201 $ 4,351 $ 5,170 Operating lease right-of-use assets Total lease right-of-use assets $ 4,201 $ 4,351 $ 5,170 Liabilities Current: Operating leases $ 1,405 $ 1,376 $ 1,390 Other accrued expenses Noncurrent: Operating leases 2,807 2,990 3,774 Long-term operating lease liabilities Total lease liabilities $ 4,212 $ 4,366 $ 5,164 The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions: For the Quarter ended September 24, 2020 For the Quarter ended September 26, 2019 Operating lease costs (a) $ 473 $ 374 Variable lease costs (b) 20 16 Total Lease Cost $ 493 $ 390 (a) Includes short-term leases which are immaterial. (b) Variable lease costs consist of sales tax. 10 Supplemental cash flow and other information related to leases was as follows: For the Quarter ended September 24, 2020 For the Quarter ended September 26, 2019 Operating cash flows information: Cash paid for amounts included in measurements for lease liabilities $ 406 $ 365 Non-cash activity: Right-of-use assets obtained in exchange for new operating lease obligations $ 206 $ 152 September 24, 2020 June 25, 2020 September 26, 2019 Weighted Average Remaining Lease Term (in years) 3.2 3.4 4.0 Weighted Average Discount Rate 4.3 % 4.4 % 4.5 % Maturities of operating lease liabilities as of September 24, 2020 are as follows: Fiscal year ending June 24, 2021 (excluding the quarter ended September 24, 2020) $ 1,183 June 30, 2022 1,426 June 29, 2023 1,173 June 27, 2024 535 June 26, 2025 177 Thereafter 5 Total lease payment 4,499 Less imputed interest ( 287 ) Present value of operating lease liabilities $ 4,212 At September 24, 2020, the Company has one additional operating lease of approximately $ 255 that has not yet commenced and therefore is not reflected in the Consolidated Balance Sheet and tables above. The lease will commence in the second quarter of fiscal 2021 with an initial lease term of 6 years. Lessor Accounting We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a straight-line basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of non-lease components such as recurring utility and storage fees. Leases between related parties are immaterial. Leasing revenue is as follows: For the Quarter Ended September 24, 2020 For the Quarter Ended September 26, 2019 Lease income related to lease payments $ 451 $ 543 11 The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years and thereafter is presented below. Fiscal year ending June 24, 2021 (excluding the quarter ended September 24, 2020) $ 1,472 June 30, 2022 1,708 June 29, 2023 1,737 June 27, 2024 1,766 June 26, 2025 1,228 Thereafter 1,284 Total $ 9,195 Note 4 – Inventories Inventories consist of the following: September 24, 2020 June 25, 2020 September 26, 2019 Raw material and supplies $ 46,518 $ 69,276 $ 48,989 Work-in-process and finished goods 103,853 102,792 107,464 Total $ 150,371 $ 172,068 $ 156,453 Note 5 – Goodwill and Intangible Assets Identifiable intangible assets that are subject to amortization consist of the following: September 24, 2020 June 25, 2020 September 26, 2019 Customer relationships $ 21,100 $ 21,100 $ 21,100 Brand names 16,990 16,990 16,990 Non-compete agreement 270 270 270 38,360 38,360 38,360 Less accumulated amortization: Customer relationships ( 16,615 ) ( 16,223 ) ( 14,952 ) Brand names ( 10,045 ) ( 9,873 ) ( 9,355 ) Non-compete agreement ( 153 ) ( 139 ) ( 99 ) ( 26,813 ) ( 26,235 ) ( 24,406 ) Net intangible assets $ 11,547 $ 12,125 $ 13,954 Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of the Squirrel Brand and Southern Style Nuts brand names. Total amortization expense related to intangible assets, which is a component of Administrative expense, was $ 578 for the quarter ended September 24, 2020. Amortization expense for the remainder of fiscal 2021 is expected to be approximately $ 1,587 , and expected amortization expense for the next five fiscal years is as follows: Fiscal year ending June 30, 2022 $ 1,896 June 29, 2023 1,657 June 27, 2024 1,414 June 26, 2025 1,156 June 25, 2026 861 Our net goodwill of $ 9,650 relates entirely to the Squirrel Brand acquisition (the “Acquisition”) completed in the second quarter of fiscal 2018. There was no change in the carrying amount of goodwill during the quarter ended September 24, 2020. 12 Note 6 – Credit Facility Our Amended and Restated Credit Agreement dated March 5, 2020 provides for a $ 117,500 senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures. At September 24, 2020, we had $ 69,972 of available credit under the Credit Facility which reflects borrowings of $ 44,168 and reduced availability as a result of $ 3,360 in outstanding letters of credit. As of September 24, 2020, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility (as defined below). Note 7 – Earnings Per Common Share The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share: For the Quarter Ended September 24, 2020 September 26, 2019 Weighted average number of shares outstanding – basic 11,477,287 11,444,560 Effect of dilutive securities: Stock options and restricted stock units 73,300 94,416 Weighted average number of shares outstanding – diluted 11,550,587 11,538,976 There were no anti-dilutive awards excluded from the computation of diluted earnings per share for either period presented. Note 8 – Stock-Based Compensation Plans During the quarter ended September 24, 2020 there was no significant restricted stock unit activity. Compensation expense attributable to stock-based compensation during the first quarter of fiscal 2021 and fiscal 2020 was $ 622 and $ 633 , respectively. As of September 24, 2020, there was $ 2,685 of total unrecognized compensation cost related to non-vested, share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.0 year. 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 September 24, 2020 September 26, 2019 Service cost $ 236 $ 178 Interest cost 214 223 Amortization of prior service cost 120 239 Amortization of loss 296 104 Net periodic benefit cost $ 866 $ 744 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. 13 Note 10 – Accumulated Other Comprehensive Loss The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the quarter ended September 24, 2020 and September 26, 2019. These changes are all related to our defined benefit pension plan. Changes to AOCL (a) For the Quarter Ended September 24, 2020 September 26, 2019 Balance at beginning of period $ ( 8,630 ) $ ( 4,325 ) Other comprehensive income before reclassifications — — Amounts reclassified from accumulated other comprehensive loss 416 343 Tax effect ( 104 ) ( 86 ) Net current-period other comprehensive income 312 257 Impact of adopting ASU 2018-02 — ( 976 ) Balance at end of period $ ( 8,318 ) $ ( 5,044 ) (a) Amounts in parenthesis indicate debits/expense. The reclassifications out of AOCL for the quarter ended September 24, 2020 and September 26, 2019 were as f o llows: Reclassifications from AOCL to earnings (b) For the Quarter Ended Affected line item in the Consolidated Statements of Comprehensive Income September 24, 2020 September 26, 2019 Amortization of defined benefit pension items: Unrecognized prior service cost $ ( 120 ) $ ( 239 ) Other expense Unrecognized net loss ( 296 ) ( 104 ) Other expense Total before tax ( 416 ) ( 343 ) Tax effect 104 86 Income tax expense Amortization of defined pension items, net of tax $ ( 312 ) $ ( 257 ) (b) Amounts in parenthesis indicate debits to expense. See Note 9 – “Retirement Plan” above for additional details. Note 11 – Commitments and Contingent Liabilitie s We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our Company’s financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial monetary damages in excess of any appropriate accruals, which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. 14 Note 12 – Fair Value of Financial Instruments 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 24, 2020 June 25, 2020 September 26, 2019 Carrying value of long-term debt: $ 18,189 $ 20,059 $ 25,606 Fair value of long-term debt: 18,489 20,186 25,710 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 business in the second quarter of fiscal 2018, we incurred $ 11,500 of unsecured debt pursuant to a promissory note (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 was considered a related party. Late 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 not reflected as related party debt on our Consolidated Balance Sheet as of September 24, 2020. There was no related party interest paid to this former executive officer during the current first quarter, and interest paid while the former executive officer was a related party was $ 70 for the quarter ended September 26, 2019. 15 Note 14 – Recent Accounting Pronouncements The following recent accounting pronouncements have been adopted in the current fiscal year: In August 2018, the FASB issued ASU No. 2018-15 “ Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ”. The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). ASU No. 2018-15 was adopted using the prospective method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements. In August 2018, the FASB issued ASU No. 2018-14 “ Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans ”. The amendments in this Update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU No. 2018-14 was adopted on a retrospective basis to all periods presented in the first quarter of fiscal 2021 and had no impact on our quarterly Consolidated Financial Statements. In January 2017, the FASB issued ASU No. 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this Update eliminate the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. ASU No. 2017-04 was adopted in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements. In June 2016, the FASB issued ASU No. 2016-13 “ Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ”. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU No. 2016-13 was adopted using a modified retrospective transition method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements. There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Consolidated Financial Statements. 16