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 For the Twenty-six Weeks Ended December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Net sales $ 233,575 $ 246,423 $ 443,848 $ 464,269 Cost of sales 180,780 196,443 351,721 372,041 Gross profit 52,795 49,980 92,127 92,228 Operating expenses: Selling expenses 17,694 16,103 29,778 30,215 Administrative expenses 7,305 9,411 15,680 18,485 Total operating expenses 24,999 25,514 45,458 48,700 Income from operations 27,796 24,466 46,669 43,528 Other expense: Interest expense including $ 165 , $ 232 , $ 332 and $ 479 to related parties 376 435 826 956 Rental and miscellaneous expense, net 365 274 797 678 Other expense 629 567 1,259 1,133 Total other expense, net 1,370 1,276 2,882 2,767 Income before income taxes 26,426 23,190 43,787 40,761 Income tax expense 6,541 5,729 11,090 10,374 Net income $ 19,885 $ 17,461 $ 32,697 $ 30,387 Other comprehensive income: Amortization of prior service cost and actuarial loss included in net periodic pension cost 414 344 830 687 Income tax expense related to pension adjustments ( 103 ) ( 86 ) ( 207 ) ( 172 ) Other comprehensive income, net of tax 311 258 623 515 Comprehensive income $ 20,196 $ 17,719 $ 33,320 $ 30,902 Net income per common share-basic $ 1.73 $ 1.52 $ 2.85 $ 2.65 Net income per common share-diluted $ 1.72 $ 1.52 $ 2.83 $ 2.64 The accompanying unaudited notes are an integral part of these consolidated financial statements. 3 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 24, 2020 June 25, 2020 December 26, 2019 ASSETS CURRENT ASSETS: Cash $ 1,763 $ 1,535 $ 1,393 Accounts receivable, less allowance for doubtful accounts of $ 325 , $ 391 and $ 425 60,495 56,953 52,653 Inventories 155,371 172,068 172,340 Prepaid expenses and other current assets 9,872 8,315 5,992 TOTAL CURRENT ASSETS 227,501 238,871 232,378 PROPERTY, PLANT AND EQUIPMENT: Land 9,277 9,285 9,285 Buildings 110,611 110,294 109,671 Machinery and equipment 224,458 218,021 212,532 Furniture and leasehold improvements 5,199 5,179 5,160 Vehicles 642 682 682 Construction in progress 6,577 2,244 3,817 356,764 345,705 341,147 Less: Accumulated depreciation 244,447 239,013 233,825 112,317 106,692 107,322 Rental investment property, less accumulated depreciation of $ 12,422 , $ 12,018 and $ 11,615 16,701 17,105 17,508 TOTAL PROPERTY, PLANT AND EQUIPMENT 129,018 123,797 124,830 Intangible assets, net 10,968 12,125 13,282 Cash surrender value of officers’ life insurance and other assets 9,017 11,875 9,124 Deferred income taxes 7,288 6,788 5,616 Goodwill 9,650 9,650 9,650 Operating lease right-of-use assets 4,119 4,351 4,823 TOTAL ASSETS $ 397,561 $ 407,457 $ 399,703 The accompanying unaudited notes are an integral part of these consolidated financial statements. 4 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 24, 2020 June 25, 2020 December 26, 2019 LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $ 9,169 $ 27,008 $ 13,495 Current maturities of long-term debt, including related party debt of $ 605 , $ 585 and $ 565 and net of unamortized debt issuance costs of $ 20 , $ 25 and $ 30 3,780 5,285 7,110 Accounts payable 52,140 36,323 70,979 Bank overdraft 1,510 2,041 1,349 Accrued payroll and related benefits 13,470 25,641 13,429 Other accrued expenses 10,907 10,729 11,027 Income taxes payable 7,012 5,141 347 TOTAL CURRENT LIABILITIES 97,988 112,168 117,736 LONG-TERM LIABILITIES: Long-term debt, less current maturities, including related party debt of $ 8,639 , $ 8,947 and $ 9,244 and net of unamortized debt issuance costs of $ 10 , $ 19 and $ 30 12,817 14,730 16,597 Retirement plan 32,146 31,573 25,212 Long-term operating lease liabilities, net of current portion 2,704 2,990 3,456 Other 7,899 7,758 7,786 TOTAL LONG-TERM LIABILITIES 55,566 57,051 53,051 TOTAL LIABILITIES 153,554 169,219 170,787 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, 8,983,588 , 8,939,890 and 8,937,236 shares issued 90 89 89 Capital in excess of par value 125,032 123,899 122,984 Retained earnings 128,070 124,058 111,807 Accumulated other comprehensive loss ( 8,007 ) ( 8,630 ) ( 4,786 ) Treasury stock, at cost; 117,900 shares of Common Stock ( 1,204 ) ( 1,204 ) ( 1,204 ) TOTAL STOCKHOLDERS’ EQUITY 244,007 238,238 228,916 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 397,561 $ 407,457 $ 399,703 The accompanying unaudited notes are an integral part of these consolidated financial statements. 5 Table of Contents 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 Net income 19,885 19,885 Pension liability amortization, net of income tax expense of $ 103 311 311 Equity award exercises, net of shares withheld for employee taxes 43,477 1 ( 487 ) ( 486 ) Stock-based compensation expense 998 998 Balance, December 24, 2020 2,597,426 $ 26 8,983,588 $ 90 $ 125,032 $ 128,070 $ ( 8,007 ) $ ( 1,204 ) $ 244,007 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 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 Balance, December 26, 2019 2,597,426 $ 26 8,937,236 $ 89 $ 122,984 $ 111,807 $ ( 4,786 ) $ ( 1,204 ) $ 228,916 The accompanying unaudited notes are an integral part of these consolidated financial statements. 6 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Twenty-six Weeks Ended December 24, 2020 December 26, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32,697 $ 30,387 Depreciation and amortization 9,089 9,225 Gain on disposition of assets, net ( 2,530 ) ( 33 ) Deferred income tax (benefit) expense ( 500 ) 107 Stock-based compensation expense 1,620 1,488 Change in assets and liabilities: Accounts receivable, net ( 1,247 ) 8,316 Inventories 16,697 ( 15,316 ) Prepaid expenses and other current assets ( 1,557 ) ( 345 ) Accounts payable 16,244 28,486 Accrued expenses ( 11,993 ) ( 8,964 ) Income taxes payable 1,871 ( 640 ) Other long-term assets and liabilities 344 582 Other, net 1,200 992 Net cash provided by operating activities 61,935 54,285 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 11,121 ) ( 6,465 ) Proceeds from insurance recoveries — 232 Other 387 85 Net cash used in investing activities ( 10,734 ) ( 6,148 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term (repayments) borrowings ( 17,839 ) 13,495 Debt issue costs — ( 218 ) Principal payments on long-term debt ( 3,432 ) ( 4,031 ) (Decrease) increase in bank overdraft ( 531 ) 448 Dividends paid ( 28,685 ) ( 57,268 ) Taxes paid related to net share settlement of equity awards ( 486 ) ( 761 ) Net cash used in financing activities ( 50,973 ) ( 48,335 ) NET INCREASE (DECREASE) IN CASH 228 ( 198 ) Cash, beginning of period 1,535 1,591 Cash, end of period $ 1,763 $ 1,393 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 Table of Contents 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 second quarter of fiscal 2021 and fiscal 2020 are to the quarters ended December 24, 2020 and December 26, 2019, respectively. • References herein to the first half or first twenty-six weeks of fiscal 2021 and fiscal 2020 are to the twenty-six weeks ended December 24, 2020 and December 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. 8 Table of Contents Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data. Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, 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. There was no contract asset balance for any periods presented. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers. Disaggregation of Revenue Revenue disaggregated by sales channel is as follows: For the Quarter Ended For the Twenty-six Weeks Ended Distribution Channel December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Consumer $ 192,029 $ 188,086 $ 358,786 $ 345,232 Commercial Ingredients 20,536 34,247 43,347 71,135 Contract Packaging 21,010 24,090 41,715 47,902 Total $ 233,575 $ 246,423 $ 443,848 $ 464,269 9 Table of Contents 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 5.5 years. It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and non-lease components for all leases. The following table provides supplemental information related to operating lease right-of-use assets and liabilities: December 24, 2020 June 25, 2020 December 26, 2019 Affected Line Item in Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 4,119 $ 4,351 $ 4,823 Operating lease right-of-use assets Total lease right-of-use assets $ 4,119 $ 4,351 $ 4,823 Liabilities Current: Operating leases $ 1,429 $ 1,376 $ 1,354 Other accrued expenses Noncurrent: Operating leases 2,704 2,990 3,456 Long-term operating lease liabilities Total lease liabilities $ 4,133 $ 4,366 $ 4,810 The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions: For the Quarter Ended For the Twenty-six Weeks Ended December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Operating lease costs (a) $ 477 $ 460 $ 950 $ 834 Variable lease costs (b) 17 15 37 31 Total Lease Cost $ 494 $ 475 $ 987 $ 865 (a) Includes short-term leases which are immaterial. (b) Variable lease costs consist of sales tax. 10 Table of Contents Supplemental cash flow and other information related to leases was as follows: For the Twenty-six Weeks Ended December 24, 2020 December 26, 2019 Operating cash flows information: Cash paid for amounts included in measurements for lease liabilities $ 810 $ 770 Non-cash activity: Right-of-use assets obtained in exchange for new operating lease obligations $ 490 $ 163 December 24, 2020 June 25, 2020 December 26, 2019 Weighted Average Remaining Lease Term (in years) 3.1 3.4 3.8 Weighted Average Discount Rate 4.3 % 4.4 % 4.5 % Maturities of operating lease liabilities as of December 24, 2020 are as follows: Fiscal year ending June 24, 2021 (excluding the twenty-six weeks ended December 24, 2020) $ 801 June 30, 2022 1,489 June 29, 2023 1,236 June 27, 2024 593 June 26, 2025 231 June 25, 2026 59 Thereafter — Total lease payment 4,409 Less imputed interest ( 276 ) Present value of operating lease liabilities $ 4,133 At December 24, 2020, the Company has one additional operating lease of approximately $ 83 that has not yet commenced and therefore is not reflected in the Consolidated Balance Sheet and tables above. The lease is scheduled to commence in the third quarter of fiscal 2021 with an initial lease term of 5 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 For the Twenty-six weeks ended December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Lease income related to lease payments $ 452 $ 462 $ 903 $ 1,005 11 Table of Contents 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 twenty-six weeks ended December 24, 2020) $ 983 June 30, 2022 1,708 June 29, 2023 1,737 June 27, 2024 1,766 June 26, 2025 1,228 June 25, 2026 670 Thereafter 614 $ 8,706 Note 4 – Inventories Inventories consist of the following: December 24, 2020 June 25, 2020 December 26, 2019 Raw material and supplies $ 66,793 $ 69,276 $ $$ 81,135 Work-in-process and finished goods 88,578 102,792 91,205 Total $ 155,371 $ 172,068 $ 172,340 Note 5 – Goodwill and Intangible Assets Identifiable intangible assets that are subject to amortization consist of the following: December 24, 2020 June 25, 2020 December 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 ( 17,008 ) ( 16,223 ) ( 15,438 ) Brand names ( 10,217 ) ( 9,873 ) ( 9,527 ) Non-compete agreement ( 167 ) ( 139 ) ( 113 ) ( 27,392 ) ( 26,235 ) ( 25,078 ) Net intangible assets $ 10,968 $ 12,125 $ 13,282 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 $ 579 and $ 1,157 for the quarter and twenty-six weeks ended December 24, 2020, respectively. Amortization expense for the remainder of fiscal 2021 is expected to be approximately $ 1,008 and expected amortization expense the next five fiscal years is as follows: Fiscal year ending June 30, 2022 $ 1,896 June 29, 2023 1,657 June 27, 2024 1,414 June 26, 2025 1,156 June 25, 2026 861 12 Table of Contents 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 twenty-six weeks ended December 24, 2020. 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 December 24, 2020, we had $ 105,146 of available credit under the Credit Facility which reflects borrowings of $ 9,169 and reduced availability as a result of $ 3,185 in outstanding letters of credit. As of December 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 For the Twenty-six Weeks Ended December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Weighted average number of shares outstanding – basic 11,493,759 11,458,524 11,485,523 11,451,542 Effect of dilutive securities: Restricted stock units 39,767 66,863 56,534 80,640 Weighted average number of shares outstanding – diluted 11,533,526 11,525,387 11,542,057 11,532,182 There were no anti-dilutive awards excluded from the computation of diluted earnings per share for any periods presented. Note 8 – Stock-Based Compensation Plans During the second quarter of fiscal 2021, there were 54,966 restricted stock units (“RSUs”) awarded to employees and non-employee members of the Board of Directors. The vesting period is generally three years for awards to employees and one year for awards to non-employee directors. There were no stock option grants or other option activity during the first half of fiscal 2021. The following is a summary of RSU activity for the first half of fiscal 2021: Restricted Stock Units Shares Weighted Average Grant Date Fair Value Outstanding at June 25, 2020 166,879 $ 51.62 Activity: Granted 54,966 68.97 Vested (a) ( 50,602 ) 47.76 Forfeited ( 1,064 ) 68.66 Outstanding at December 24, 2020 170,179 $ 58.27 (a) The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements. At December 24, 2020, there were 52,351 RSUs outstanding that were vested but deferred. 13 Table of Contents 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 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Stock-based compensation expense $ 998 $ 855 $ 1,620 $ 1,488 As of December 24, 2020, there was $ 5,406 of total unrecognized compensation expense related to non-vested RSUs granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.8 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 Twenty-six Weeks Ended December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Service cost $ 236 $ 178 $ 472 $ 356 Interest cost 215 223 429 446 Amortization of prior service cost 119 240 239 479 Amortization of loss 295 104 591 208 Net periodic benefit cost $ 865 $ 745 $ 1,731 $ 1,489 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. 14 Table of Contents Note 10 – Accumulated Other Comprehensive Loss The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the twenty-six weeks ended December 24, 2020 and December 26, 2019. These changes are all related to our defined benefit pension plan. For the Twenty-Six Weeks Ended Changes to AOCL (a) December 24, 2020 December 26, 2019 Balance at beginning of period $ ( 8,630 ) $ ( 4,325 ) Other comprehensive income before reclassifications — — Amounts reclassified from accumulated other comprehensive loss 830 687 Tax effect ( 207 ) ( 172 ) Net current-period other comprehensive income 623 515 Impact of adopting ASU 2018-02 — ( 976 ) Balance at end of period $ ( 8,007 ) $ ( 4,786 ) (a) Amounts in parenthesis indicate debits/expense. The reclassifications out of AOCL for the quarter and twenty-six weeks ended December 24, 2020 and December 26, 2019 were as follows: For the Quarter Ended For the Twenty-six Weeks Ended Affected line item in the Consolidated Statements of Comprehensive Income Reclassifications from AOCL to earnings (b) December 24, 2020 December 26, 2019 December 24, 2020 December 26, 2019 Amortization of defined benefit pension items: Unrecognized prior service cost $ ( 119 ) $ ( 240 ) $ ( 239 ) $ ( 479 ) Other expense Unrecognized net loss ( 295 ) ( 104 ) ( 591 ) ( 208 ) Other expense Total before tax ( 414 ) ( 344 ) ( 830 ) ( 687 ) Tax effect 103 86 207 172 Income tax expense Amortization of defined pension items, net of tax $ ( 311 ) $ ( 258 ) $ ( 623 ) $ ( 515 ) (b) 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, 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. 15 Table of Contents 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: December 24, 2020 June 25, 2020 December 26, 2019 Carrying value of long-term debt: $ 16,627 $ 20,059 $ 23,767 Fair value of long-term debt: 17,180 20,186 24,164 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 for any periods presented. There was no related party interest paid to this former executive officer during the twenty-six weeks ended December 24, 2020, and interest paid while the former executive officer was a related party was $ 57 and $ 127 for the quarter and twenty-six weeks ended December 26, 2019, respectively. Note 14 – Garysburg, North Carolina Facility On October 7, 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. The fire occurred in our roasting room where all of the roasting equipment was destroyed. The fire also damaged some equipment in our packaging room and a portion of the roof. During fiscal 2020, the building and roof were repaired and brought back to their original condition. After evaluating our options with regard to our peanut production operations, the Company currently plans to cease all operations permanently at the Garysburg facility. We completed shelling of the 2019 peanut crop during the 16 Table of Contents second quarter of this fiscal year and the facility will continue to be used to store and ship inshell peanuts through the remainder of fiscal 2021. We also expect to spend the remainder of the 2021 fiscal year cleaning and preparing the facility for sale or other utilization in our operations. Employee separation and related closure costs were immaterial for all periods presented. We have adequate property damage and business interruption insurance in respect to this event, subject to applicable deductibles. Insurance claims have been filed under our property damage and business interruption policies. Insurance proceeds totaling $ 2,934 were received from the insurance carrier in fiscal 2020, and a receivable of $ 2,523 for the estimated final payment was recorded in the current second quarter. Insurance proceeds received for damage to capital equipment are recorded as investing activities on the Consolidated Statements of Cash Flows when received. Note 15 – 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. Note 16 – Subsequent Event On January 27, 2021 , our Board of Directors declared a special cash dividend of $ 2.50 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “January 2021 Dividends”). The January 2021 Dividends will be paid on March 16, 2021 to stockholders of record as of the close of business on February 26, 2021 . 17 Table of Contents