SANFILIPPO JOHN B & SON INC 10-K

Item 8 — Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of John B. Sanfilippo & Son, Inc. and its subsidiaries (the “Company”) as of June 24, 2021 and June 25, 2020, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended June 24, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 24, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 24, 2021 and June 25, 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 24, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 24, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 35 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of the Projected Benefit Obligation related to the Supplemental Employee Retirement Plan (SERP) As described in Note 14 to the consolidated financial statements, the Company’s projected benefit obligation related to the SERP is $35.5 million as of June 24, 2021. The SERP is an unfunded, non-qualified benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. The most significant assumption related to the Company’s SERP is the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future. The principal considerations for our determination that performing procedures relating to the valuation of the projected benefit obligation related to the SERP is a critical audit matter are (i) the significant judgment by management to determine the projected benefit obligation and the significant assumption related to discount rate, (ii) the significant auditor judgment, subjectivity and effort in evaluating management’s significant assumption related to the discount rate, and (iii) the audit effort included the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s determination of the projected benefit obligation related to the SERP, including the control over the development of the significant assumption related to the discount rate. These procedures also included, among others (i) testing management’s process for determining the projected benefit obligation, (ii) evaluating the appropriateness of the valuation method, (iii) testing the completeness and accuracy of underlying data used in the valuation of the projected benefit obligation, and (iv) evaluating the reasonableness of the discount rate. Evaluating management’s assumption related to the discount rate involved evaluating whether the assumption used by management is reasonable considering the consistency with external market data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the valuation method and the reasonableness of the discount rate. /s/ PricewaterhouseCoopers LLP Chicago, Illinois August 18, 2021 We have served as the Company’s auditor since 1982. 36 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS June 24, 2021 and June 25, 2020 (dollars in thousands, except share and per share amounts) June 24, 2021 June 25, 2020 ASSETS CURRENT ASSETS: Cash $ 672 $ 1,535 Accounts receivable, less allowance for doubtful accounts of $ 291 and $ 391 , respectively 66,334 56,953 Inventories 147,998 172,068 Prepaid expenses and other current assets 8,568 8,315 Assets held for sale 1,595 — TOTAL CURRENT ASSETS 225,167 238,871 PROPERTY, PLANT AND EQUIPMENT: Land 9,150 9,285 Buildings 102,666 110,294 Machinery and equipment 225,529 218,021 Furniture and leasehold improvements 5,287 5,179 Vehicles 614 682 Construction in progress 12,301 2,244 355,547 345,705 Less: Accumulated depreciation 238,471 239,013 117,076 106,692 Rental investment property, less accumulated depreciation of $ 12,825 and $ 12,018 , respectively 16,298 17,105 TOTAL PROPERTY, PLANT AND EQUIPMENT 133,374 123,797 OTHER LONG TERM ASSETS: Intangible assets, net 9,961 12,125 Cash surrender value of officers’ life insurance and other assets 10,732 11,875 Deferred income taxes 6,087 6,788 Goodwill 9,650 9,650 Operating lease right-of-use assets 3,484 4,351 TOTAL ASSETS $ 398,455 $ 407,457 The accompanying notes are an integral part of these consolidated financial statements. 37 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS June 24, 2021 and June 25, 2020 (dollars in thousands, except share and per share amounts) June 24, 2021 June 25, 2020 LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $ 8,653 $ 27,008 Current maturities of long-term debt, including related party debt of $ 627 and $ 585 , respectively and net of unamortized debt issuance costs of $ 15 and $ 25 , respectively 3,875 5,285 Accounts payable 48,861 36,323 Bank overdraft 1,093 2,041 Accrued payroll and related benefits 24,109 25,641 Other accrued expenses 13,613 15,870 TOTAL CURRENT LIABILITIES 100,204 112,168 LONG-TERM LIABILITIES: Long-term debt, less current maturities, including related party debt of $ 8,320 and $ 8,947 , respectively and net of unamortized debt issuance costs of $ 4 and $ 19 , respectively 10,855 14,730 Retirement plan 34,919 31,573 Long-term operating lease liabilities, net of current portion 2,103 2,990 Other 7,880 7,758 TOTAL LONG-TERM LIABILITIES 55,757 57,051 TOTAL LIABILITIES 155,961 169,219 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $ .01 p ar value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding 26 26 Common Stock, non-cumulative voting rights of one vote per share, $ .01 par value; 17,000,000 shares authorized, 8,988,812 and 8,939,890 shares issued, respectively 90 89 Capital in excess of par value 126,271 123,899 Retained earnings 126,336 124,058 Accumulated other comprehensive loss ( 9,025 ) ( 8,630 ) Treasury stock, at cost; 117,900 shares of Common Stock ( 1,204 ) ( 1,204 ) TOTAL STOCKHOLDERS’ EQUITY 242,494 238,238 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 398,455 $ 407,457 The accompanying notes are an integral part of these consolidated financial statements. 38 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended June 24, 2021, June 25, 2020 and June 27, 2019 (dollars in thousands, except share and per share amounts) Year Ended June 24, 2021 Year Ended June 25, 2020 Year Ended June 27, 2019 Net sales $ 858,482 $ 880,092 $ 876,201 Cost of sales 673,495 704,317 717,931 Gross profit 184,987 175,775 158,270 Operating expenses: Selling expenses 63,020 59,312 61,756 Administrative expenses 36,789 37,916 37,990 Total operating expenses 99,809 97,228 99,746 Income from operations 85,178 78,547 58,524 Other expense: Interest expense including $ 653 , $ 821 and $ 1,143 to related parties, respectively 1,441 2,005 3,060 Rental and miscellaneous expense, net 1,399 1,565 1,089 Other expense 2,519 2,266 1,947 Total other expense, net 5,359 5,836 6,096 Income before income taxes 79,819 72,711 52,428 Income tax expense 20,078 18,601 12,962 Net income 59,741 54,110 39,466 Other comprehensive loss, net of tax: Amortization of prior service cost and actuarial loss included in net periodic pension cost 1,229 1,016 778 Net actuarial loss arising during the period ( 1,624 ) ( 4,345 ) ( 1,922 ) Other comprehensive loss, net of tax ( 395 ) ( 3,329 ) ( 1,144 ) Comprehensive income $ 59,346 $ 50,781 $ 38,322 Net income per common share — basic $ 5.19 $ 4.72 $ 3.45 Net income per common share — diluted $ 5.17 $ 4.69 $ 3.43 Cash dividends declared per share $ 5.00 $ 6.00 $ 2.55 Weighted average shares outstanding — basic 11,500,494 11,463,968 11,430,174 Weighted average shares outstanding — diluted 11,559,280 11,536,791 11,501,412 The accompanying notes are an integral part of these consolidated financial statements 39 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the years ended June 24, 2021, June 25, 2020 and June 27, 2019 (dollars in thousands, except per share amounts) Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 28, 2018 2,597,426 $ 26 8,865,475 $ 89 $ 119,952 $ 127,320 $ ( 3,181 ) $ ( 1,204 ) $ 243,002 Net income 39,466 39,466 Cash dividends ($ 2.55 per common share) ( 29,074 ) ( 29,074 ) Pension liability amortization, net of income tax expense of $ 274 778 778 Pension liability adjustment, net of income tax benefit of $ 675 ( 1,922 ) ( 1,922 ) Equity award exercises, net of shares withheld for employee taxes 43,931 — ( 339 ) ( 339 ) Stock-based compensation expense 2,644 2,644 Balance, June 27, 2019 2,597,426 $ 26 8,909,406 $ 89 $ 122,257 $ 137,712 $ ( 4,325 ) $ ( 1,204 ) $ 254,555 Net income 54,110 54,110 Cash dividends ($ 6.00 per common share) ( 68,740 ) ( 68,740 ) Pension liability amortization, net of income tax expense of $ 358 1,016 1,016 Pension liability adjustment, net of income tax benefit of $ 1,527 ( 4,345 ) ( 4,345 ) Equity award exercises, net of shares withheld for employee taxes 30,484 — ( 830 ) ( 830 ) Impact of adopting ASU 2018-02 976 ( 976 ) 0 Stock-based compensation expense 2,472 2,472 Balance, June 25, 2020 2,597,426 $ 26 8,939,890 $ 89 $ 123,899 $ 124,058 $ ( 8,630 ) $ ( 1,204 ) $ 238,238 Net income 59,741 59,741 Cash dividends ($ 5.00 per common share) ( 57,463 ) ( 57,463 ) Pension liability amortization, net of income tax expense of $ 432 1,229 1,229 Pension liability adjustment, net of income tax benefit of $ 571 ( 1,624 ) ( 1,624 ) Equity award exercises, net of shares withheld for employee taxes 48,922 1 ( 536 ) ( 535 ) Stock-based compensation expense 2,908 2,908 Balance, June 24, 2021 2,597,426 $ 26 8,988,812 $ 90 $ 126,271 $ 126,336 $ ( 9,025 ) $ ( 1,204 ) $ 242,494 The accompanying notes are an integral part of these consolidated financial statements. 40 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 24, 2021, June 25, 2020 and June 27, 2019 (dollars in thousands) Year Ended June 24, 2021 Year Ended June 25, 2020 Year Ended June 29, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 59,741 $ 54,110 $ 39,466 Depreciation and amortization 18,308 17,934 17,045 Gain on disposition of properties, net ( 2,717 ) ( 844 ) ( 164 ) Deferred income tax expense (benefit) 840 104 ( 298 ) Stock-based compensation expense 2,908 2,472 2,644 Change in assets and liabilities: Accounts receivable, net ( 9,391 ) 4,015 4,447 Inventories 24,070 ( 15,044 ) 17,338 Prepaid expenses and other current assets ( 253 ) ( 2,668 ) ( 470 ) Accounts payable 11,442 ( 6,721 ) ( 16,958 ) Accrued expenses ( 1,487 ) 2,898 15,784 Income taxes receivable/payable ( 2,302 ) 4,154 2,348 Other long-term liabilities ( 765 ) ( 887 ) 711 Other long-term assets 1,481 1,749 ( 404 ) Other, net 2,822 2,341 1,970 Net cash provided by operating activities 104,697 63,613 83,459 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 25,176 ) ( 15,022 ) ( 15,075 ) Proceeds from insurance recoveries 2,506 1,109 429 Other, net ( 280 ) ( 136 ) 32 Net cash used in investing activities ( 22,950 ) ( 14,049 ) ( 14,614 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term (repayments) borrowings ( 18,355 ) 27,008 ( 31,278 ) Debt issue costs — ( 459 ) — Principal payments on long-term debt ( 5,309 ) ( 7,739 ) ( 6,851 ) (Decrease) increase in bank overdraft ( 948 ) 1,140 ( 1,161 ) Dividends paid ( 57,463 ) ( 68,740 ) ( 29,074 ) Proceeds from the exercise of stock options — 4 — Taxes paid related to net share settlement of equity awards ( 535 ) ( 834 ) ( 339 ) Net cash used in financing activities ( 82,610 ) ( 49,620 ) ( 68,703 ) NET (DECREASE) INCREASE IN CASH ( 863 ) ( 56 ) 142 Cash, beginning of period 1,535 1,591 1,449 Cash, end of period $ 672 $ 1,535 $ 1,591 Supplemental disclosures of cash flow information: Interest paid $ 1,319 $ 1,954 $ 2,872 Income taxes paid, excluding refunds of $ 545 , $ 18 , and $ 16 , respectively 21,967 14,415 10,883 Supplemental disclosure of non-cash activities: Right-of-use assets recognized at ASU No. 2016-02 transition — 5,361 — The accompanying notes are an integral part of these consolidated financial statements. 41 JOHN B. SANFILIPPO & SON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation and Description of Business Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under our Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Sunshine Country brand names and under a variety of private brands. 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, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers. Management Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, and the assumption used in estimating the annual discount rate utilized in determining the retirement plan liability. Actual results could differ from those estimates, particularly due to any further impact of COVID-19 and its variants on the Company and its customers. Accounts Receivable Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other non-specifically identified customers will become credit risks. Account balances are charged off against the allowance when we conclude that it is probable the receivable will not be recovered. The reserve for estimated cash discounts is based on historical experience. The reserve for customer deductions represents known customer short payments and an estimate of future credit memos that will be issued to customers related to rebates and allowances for marketing and promotions based on agreed upon programs and historical experience. Inventories Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost (first-in, first-out) and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When net realizable values move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost (first-in, first-out) and net realizable value. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates, which historically averaged less than 1.0 % of inventory purchases, are also recorded. We enter into walnut purchase agreements with growers typically in our first fiscal quarter, under which they deliver their walnut crop to us during the fall harvest season (which typically occurs in our first and second fiscal quarters). Pursuant to our walnut purchase agreements, we determine the final price for this inventory after receipt and typically by the end of our third fiscal quarter. Since the ultimate purchase price to be paid is determined subsequent to receiving the walnut crop, we typically estimate the final purchase price for our first and second quarter interim financial statements based on crop size, quality, current market prices and other factors. Any such changes in estimates, which could be significant, are accounted for in the period of change by adjusting inventory on hand or cost of goods sold if the inventory has been sold. Changes in estimates may affect the ending inventory balances, as well as gross profit. There were no significant adjustments recorded in any of the periods presented. 42 Property, Plant and Equipment Property, plant and equipment are stated at cost. Major improvements that extend the useful life, add capacity or add functionality are capitalized and charged to expense through depreciation. Repairs and maintenance costs are charged to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss is recognized currently in operating income. Depreciation expense for the last three fiscal years is as follows: Year Ended June 24, 2021 Year Ended June 25, 2020 Year Ended June 27, 2019 Depreciation expense $ 16,144 $ 15,433 $ 14,017 Cost is depreciated using the straight-line method over the following estimated useful lives: Classification Estimated Useful Lives Buildings 10 to 40 years Machinery and equipment 5 to 10 years Furniture and leasehold improvements 5 to 10 years Vehicles 3 to 5 years Computers and software 3 to 10 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 three distribution channels. Impairment of Long-Lived Assets We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets (e.g., customer relationships and brand names), to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value. We did no t record any impairment of long-lived assets for the last three fiscal years. Goodwill Goodwill currently represents the excess of the purchase price over the fair value of the net assets from our acquisition of Squirrel Brand, L.P. which closed in November 2017. 43 Goodwill is no t amortized, but is tested annually as of the last day of each fiscal year for impairment, or whenever events or changes in circumstances indicate it is more likely than not that the carrying amount of the reporting unit is greater than its fair value. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of our single reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above). During fiscal 2021 we elected to perform a qualitative impairment test which showed no indicators of goodwill impairment. Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. The inputs used to estimate fair value include several subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Our market capitalization is also an estimate of fair value that is considered in our qualitative impairment analysis which is a level 1 input in the fair value hierarchy. If the carrying value of our single reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value. Elgin Rental Property In April 2005, we acquired property to be used for the Elgin Site. Two buildings are located on the Elgin Site, one of which is an office building. Approximately 70 % 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 the caption “Property, plant and equipment”. The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. See Note 3 — “Leases” below for additional information. Fair Value of Financial Instruments Authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels: Level 1- Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. Level 2- Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3- Unobservable inputs for which there is little or no market data available. The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at June 24, 2021 and June 25, 2020 because of the short-term maturities and nature of these balances. The carrying value of our Credit Facility (as defined in Note 6 — “Revolving Credit Facility” below) borrowings approximates fair value at June 24, 2021 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk. 44 The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs: June 24, 2021 June 25, 2020 Carrying value of long-term debt: $ 14,749 $ 20,059 Fair value of long-term debt: 16,210 20,186 The estimated fair value of long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt. Revenue Recognition The Company records revenue based on a five-step model in accordance with ASC Topic 606, Revenue from Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue 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. We also sell our products through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer and some commercial ingredient users. We recognize revenues as performance obligations are fulfilled, which occurs when control passes to our customers. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. We reduce revenue for estimated promotion allowances, volume and customer rebates and marketing allowances, among others. These reductions in revenue are considered variable consideration and are recorded in the same period the related sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. See Note 2 — “Revenue Recognition” below for additional information on revenue recognition. Significant Customers and Concentration of Credit Risk The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to two customers exceeded 10 % of net sales during fiscal 2021, fiscal 2020 and fiscal 2019. In total, sales to these customers represented approximately 48 %, 45 % and 43 % of our net sales in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. In total, net accounts receivable from these customers were 46 % and 44 % of net accounts receivable at June 24, 2021 and June 25, 2020, respectively. Marketing and Advertising Costs Marketing and advertising costs, including consumer insight research and related consulting expenses, are incurred to promote and support branded products in the consumer distribution channel. These costs are generally expensed as incurred, recorded in selling expenses and were as follows for the last three fiscal years: Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Marketing and advertising expense $ 9,172 $ 8,997 $ 11,936 45 Shipping and Handling Costs Shipping and handling costs, which include freight and other expenses to prepare finished goods for shipment, are included in selling expenses. Shipping and handling costs for the last three fiscal years were as follows: ​​​​​​​ Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Shipping and handling costs $ 26,456 $ 21,613 $ 23,086 Research and Development Expenses Research and development expense represents the cost of our research and development personnel and their related expenses and is charged to selling expenses as incurred. Research and development expenses for the last three fiscal years were as follows: ​​​​​​​ Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Research and development expense $ 2,000 $ 999 $ 892 Stock-Based Compensation We account for stock-based employee compensation arrangements in accordance with the provisions of ASC Topic 718, Compensation — Stock Compensation , by calculating compensation cost based on the grant date fair value. We then amortize compensation expense over the vesting period. The grant date fair value of restricted stock units (“RSUs”) is generally determined based on the market price of our Common Stock on the date of grant. Forfeitures are recognized as they occur, and excess tax benefits or tax deficiencies are recognized as a component of income tax expense. Income Taxes We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns. Such items give rise to differences in the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. In estimating future tax consequences, we consider all expected future events other than changes in tax law or rates. We record liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, we perform the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes in facts, circumstances, and new information may require us to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur. We recognize interest and penalties accrued related to unrecognized tax benefits in the “Income 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 24, 2021, we believe that our deferred tax assets are fully realizable. 46 Earnings per Share Basic earnings per common share are calculated using the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock. The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share: Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Weighted average number of shares outstanding — basic 11,500,494 11,463,968 11,430,174 Effect of dilutive securities: Stock options and restricted stock units 58,786 72,823 71,238 Weighted average number of shares outstanding — diluted 11,559,280 11,536,791 11,501,412 The following table presents a summary of anti-dilutive awards excluded from the computation of diluted earnings per share: Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Weighted average number of anti-dilutive shares: — 7,010 — Weighted average exercise price per share: $ — $ 90.26 $ — Comprehensive Income We account for comprehensive income in accordance with ASC Topic 220, Comprehensive Income . This topic establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The topic requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This topic also requires all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation by the respective line items of net income, either on the face of the statement where net income is presented or in the notes and information about significant amounts required under U.S. GAAP to be reclassified out of accumulated other comprehensive income in their entirety. For amounts not required to be reclassified in their entirety to net income, we provide a cross-reference to other disclosures that offer additional details about those amounts. Recent Accounting Pronouncements 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 did not have a material impact on our Consolidated Financial Statements. 47 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. In August 2020, the SEC issued Release No. 33-10825, Modernization of Regulation S-K Items 101, 103 and 105, which modernizes the description of business, legal proceedings and risk factor disclosures. These rules amend certain SEC disclosure requirements to improve disclosure for investors and to simplify compliance for registrants, including new requirements for human capital disclosures and a summary of risk factors, if the page-length requirement for a summary is met. The Company has adopted the provisions of this new rule beginning with the 2021 Annual Report on Form 10-K. The adoption only impacted the Company’s disclosures and did not impact the consolidated financial statements. The following recent accounting pronouncements have not yet been adopted: In March 2020, the FASB issued ASU No. 2020-04 “ Reference Rate Reform (Topic 848) ”. The amendments in this Update are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update are effective upon issuance and can be taken at any point in time (at the beginning of an interim period) through December 31, 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements. In December 2019, the FASB issued ASU No. 2019-12 “ Income Taxes (Topic 740) ”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions, providing updated requirements and specifications in certain areas and by making minor codification improvements. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted. This Update is effective for the Company beginning in fiscal 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements. NOTE 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. Nature of Products We manufacture and sell the following: • branded products under our own proprietary brands to retailers on a national basis; • private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels; • private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators; • branded products under co-pack agreements to other major branded companies for their distribution; and • products to our industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers. 48 When Performance Obligations Are Satisfied A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of 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. 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. The performance obligations in our contracts are satisfied within one year, and typically much less. As such, we have not disclosed the transaction price allocated to remaining performance obligations for any periods presented. Significant Payment Terms Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. On a limited basis some payment terms may be extended, however, no payment terms beyond six months are granted at contract inception. The average customer payment is received within approximately 31 days of the invoice date . As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be six months or less. Shipping All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in selling expense. Variable Consideration Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates, in-store display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management judgment when determining estimates. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment. We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required. Product Returns While customers generally have the right to return defective or non-conforming products, past experience has demonstrated that product returns have generally been immaterial. Customer remedies may include either a cash refund or an exchange of the returned product. As a result, the right of return and related refund liability for non-conforming or defective goods is estimated and recorded as a reduction in revenue, if necessary. 49 Contract Balances Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. The contract asset balance at June 24, 2021 is $ 74 and is recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance at June 25, 2020. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers. Contract Costs The Company does not incur significant fulfillment costs requiring capitalization. Disaggregation of Revenue Revenue disaggregated by distribution channel is as follows: For the Year Ended Distribution Channel June 24, 2021 June 25, 2020 Consumer $ 686,049 $ 673,989 Commercial Ingredients 92,911 118,464 Contract Packaging 79,522 87,639 Total $ 858,482 $ 880,092 NOTE 3 — LEASES On June 28, 2019 we adopted ASU No. 2016-02, Leases (“Topic 842”) using the alternative transition method under ASU No. 2018-11, which permitted application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under the previous lease accounting guidance in Topic 840. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedients regarding hindsight or land easements. Upon adoption of the new standard, we recognized operating lease right-of-use assets and liabilities on our Consolidated Balance Sheet of $ 5,361 and $ 5,320 respectively. We utilized a portfolio approach to establish discount rates for leases that are similar. Discount rates ranging from 4.2 % to 5.8 % were used when determining the present value of future lease payments. All of our lessee arrangements that were classified as operating leases under Topic 840 continue to be classified as operating leases since the adoption of Topic 842, and the pattern of lease expense recognition is unchanged. The adoption of Topic 842 did not materially impact our consolidated net earnings and had no impact on cash flows. Description of Leases We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain non-lease components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order. We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company 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 5.2 years. It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and non-lease components for all leases. The following table provides supplemental information related to operating lease right-of-use assets and liabilities: June 24, 2021 June 25, 2020 Affected Line Item in Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 3,484 $ 4,351 Operating lease right-of-use assets Total lease right-of-use assets $ 3,484 $ 4,351 Liabilities Current: Operating leases $ 1,430 $ 1,376 Other accrued expenses Noncurrent: Operating leases 2,103 2,990 Long-term operating lease liabilities Total lease liabilities $ 3,533 $ 4,366 50 The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions: For the Year Ended June 24, 2021 For the Year Ended June 25, 2020 Operating lease costs (a) $ 1,841 $ 1,701 Variable lease costs (b) 71 63 Total Lease Cost $ 1,912 $ 1,764 (a) Includes short-term leases which are immaterial. (b) Variable lease costs consist of sales tax. Rental expense under operating leases agreements was $ 1,981 in fiscal year 2019. Supplemental cash flow and other information related to leases was as follows: For the Year Ended June 24, 2021 For the Year Ended June 25, 2020 Operating cash flows information: Cash paid for amounts included in measurements for lease liabilities $ 1,562 $ 1,545 Non-cash activity: Right-of-use assets obtained in exchange for new operating lease obligations $ 574 $ 393 June 24, 2021 June 25, 2020 Weighted Average Remaining Lease Term (in years) 2.8 3.4 Weighted Average Discount Rate 4.3 % 4.4 % Maturities of operating lease liabilities as of June 24, 2021 are as follows: Fiscal year ending June 30, 2022 $ 1,545 June 29, 2023 1,254 June 27, 2024 611 June 26, 2025 248 June 25, 2026 77 Thereafter 4 Total lease payments 3,739 Less imputed interest ( 206 ) Present value of operating lease liabilities $ 3,533 Lessor Accounting We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a straight-line basis over the terms of the leases. There is 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. 51 Leasing revenue is as follows: For the Year Ended June 24, 2021 For the Year Ended June 25, 2020 Lease income related to lease payments $ 1,827 $ 1,967 Gross rental income was $ 1,978 in fiscal year 2019. The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years and thereafter is presented below. Fiscal year ending June 30, 2022 $ 1,750 June 29, 2023 1,794 June 27, 2024 1,818 June 26, 2025 1,228 June 25, 2026 670 Thereafter 614 $ 7,874 NOTE 4 — INVENTORIES Inventories consist of the following: June 24, 2021 June 25, 2020 Raw material and supplies $ 64,219 $ 69,276 Work-in-process and finished goods 83,779 102,792 $ 147,998 $ 172,068 NOTE 5 – GOODWILL AND INTANGIBLE ASSETS Intangible assets subject to amortization consist of the following: June 24, 2021 June 25, 2020 Customer relationships $ 21,100 $ 21,100 Non-compete agreements 270 270 Brand names 16,990 16,990 Total intangible assets, gross 38,360 38,360 Less accumulated amortization: Customer relationships ( 17,643 ) ( 16,223 ) Non-compete agreements ( 194 ) ( 139 ) Brand names ( 10,562 ) ( 9,873 ) Total accumulated amortization ( 28,399 ) ( 26,235 ) Net intangible assets $ 9,961 $ 12,125 Customer relationships relate to the Squirrel Brand acquisition completed in fiscal 2018 and the Orchard Valley Harvest (“OVH”) acquisition completed in fiscal 2010. The customer relationships resulting from the OVH acquisition were fully amortized in fiscal 2017. The brand names consist primarily of the Squirrel Brand and Southern Style Nuts brand names acquired in fiscal 2018 and the Fisher brand name, which we acquired in a 1995 acquisition. The Fisher brand name was fully amortized in fiscal 2011. The remainder of the brand name relates to the OVH acquisition, which was fully amortized in fiscal 2015. 52 Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was as follows for the last three fiscal years: Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Amortization of intangible assets $ 2,164 $ 2,501 $ 3,028 Expected amortization expense the next five fiscal years is as follows: Fiscal year ending June 30, 2022 1,896 June 29, 2023 1,657 June 27, 2024 1,414 June 26, 2025 1,156 June 25, 2026 861 Our net goodwill of $ 9,650 relates entirely to the Squirrel Brand acquisition completed in fiscal 2018. The changes in the carrying amount of goodwill during the two fiscal years ended June 24, 2021 are as follows: Gross goodwill balance at June 28, 2019 $ 18,416 Accumulated impairment losses ( 8,766 ) Net balance at June 28, 2019 9,650 Fiscal 2020 and 2021 activity — Balance at June 24, 2021 $ 9,650 NOTE 6 — REVOLVING CREDIT FACILITY On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement dated as of February 7, 2008 (the “Former Credit Agreement”). The Amended and Restated Credit Agreement provides for a $ 117,500 senior secured revolving credit facility (the “Credit Facility”) with the same borrowing capacity, interest rates and applicable margin as the Former Credit Agreement and extends the term of the Former Credit Agreement from July 7, 2021 to March 5, 2025. The Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures. At June 24, 2021, the interest rate for the Credit Facility was at the Base Rate of 3.5 %. There were no borrowings under LIBOR contracts due to the low borrowing levels against the Credit Facility and projected positive cash flow for July. At June 25, 2020, the weighted average interest rate for the Credit Facility was 2.40 %. The terms of the Credit Facility contain covenants that require us to restrict investments, indebtedness, acquisitions and certain sales of assets, cash dividends, redemptions of capital stock and prepayment of indebtedness (if such prepayment, among other things, is of a subordinate debt). If loan availability under the Borrowing Base Calculation falls below $ 25,000 , we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders are entitled to require immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company, non-compliance with the financial covenant or upon the occurrence of certain other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of June 24, 2021, we were in compliance with the financial covenant under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the next twelve months. At June 24, 2021, we had $ 104,561 of available credit under the Credit Facility which reflects borrowings of $ 8,653 and reduced availability as a result of $ 4,286 in outstanding letters of credit. We would still be in compliance with all restrictive covenants under the Credit Facility if this entire amount were borrowed. 53 NOTE 7 — LONG-TERM DEBT Long-term debt consists of the following: June 24, 2021 June 25, 2020 Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly installments of $ 230 including interest at 4.25 % per annum with a final payment due March 1, 2023 $ 4,642 $ 7,144 Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly installments of $ 57 including interest at 4.25 % per annum with a final payment due March 1, 2023 1,160 1,786 Squirrel Brand Seller-Financed Note (“Promissory Note”), unsecured, due in monthly principal installments of $ 319 plus interest at 5.5 % per annum beginning in J anuary 20 18 through November 30, 2020 — 1,597 Selma, Texas facility financing obligation to related parties, due in monthly installments of $ 103 through September 1, 2021 and $ 114 through September 1, 2026 8,947 9,532 Unamortized debt issuance costs ( 19 ) ( 44 ) 14,730 20,015 Less: Current maturities, net of unamortized debt issuance costs ( 3,875 ) ( 5,285 ) Total long-term debt, net of unamortized debt issuance costs $ 10,855 $ 14,730 On February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $ 36,000 (“Tranche A”) and the other in the amount of $ 9,000 (“Tranche B”), for an aggregate amount of $ 45,000 (the “Mortgage Facility”). The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois and Gustine, California (the “Encumbered Properties”). On March 1, 2018 the interest rate on the Mortgage Facility was fixed at 4.25% per annum. The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $ 110,000 and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility, non-compliance with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 24, 2021, we were in compliance with all financial covenants under the Mortgage Facility. The carrying amount of assets pledged as collateral for the Mortgage Facility was approximately $ 62,348 at June 24, 2021. In September 2006, we sold our Selma, Texas properties to two related party partnerships for $ 14,300 and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma, Texas properties had an initial ten -year term at a fair market value rent with three five-year renewal options. In September 2015, we signed a lease renewal which exercised two five-year renewal options and extended the term of our Selma lease to September 18, 2026. The lease extension also reduced the base monthly lease amount to $ 103 , beginning in September 2016. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments will increase to $ 114 beginning in September 2021. One five-year renewal option remains. Also, we currently have the option to purchase the properties from the lessor at 95 % ( 100 % in certain circumstances) of the then fair market value, but not to be less than the $ 14,300 purchase price. The financing obligation is being accounted for similar to the accounting for a capital lease, whereby the purchase price was recorded as a debt obligation, as the provisions of the arrangement are not eligible for sale-leaseback accounting. The balance of the debt obligation outstanding at June 24, 2021 was $ 8,947 . In November 2017 , we completed the Squirrel Brand acquisition which was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for $ 11,500 . The principal owner and seller of the Squirrel Brand business was subsequently appointed as an executive officer of the Company and was considered a related party until the employment of this executive officer with the Company ceased in the second quarter of fiscal 2020. During fiscal 2021, the Promissory Note was paid in full. Interest paid on the Promissory Note while the former executive officer was a related party was $ 127 for the fiscal year ended June 25, 2020 and $ 413 for the fiscal year ended June 27, 2019. 54 Aggregate maturities of long-term debt are as follows for the fiscal years ending: June 30, 2022 3,890 June 29, 2023 3,213 June 27, 2024 722 June 26, 2025 775 June 25, 2026 831 Thereafter 5,318 $ 14,749 NOTE 8 — INCOME TAXES The provision for income taxes is based entirely on income before income taxes earned in the United States, and is as follows for the last three fiscal years: For the Year Ended: June 24, 2021 June 25, 2020 June 27, 2019 Current: Federal $ 15,228 $ 14,588 $ 10,309 State 4,010 3,909 2,951 Total current expense 19,238 18,497 13,260 Deferred: Deferred federal 891 137 395 Deferred state ( 51 ) ( 33 ) ( 693 ) Total deferred expense (benefit) 840 104 ( 298 ) Total income tax expense $ 20,078 $ 18,601 $ 12,962 The reconciliations of income taxes at the statutory federal income tax rate to income tax expense reported in the Consolidated Statements of Comprehensive Income for the last three fiscal years are as follows: June 24, 2021 June 25, 2020 June 27, 2019 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.9 4.2 3.1 Section 162(m) limitation 1.1 1.2 1.1 Research and development tax credit ( 0.5 ) ( 0.3 ) ( 0.3 ) Windfall tax benefits ( 0.4 ) ( 0.4 ) ( 0.2 ) Uncertain tax positions 0.1 — 0.1 Other — ( 0.1 ) ( 0.1 ) Effective tax rate 25.2 % 25.6 % 24.7 % 55 Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement basis and the tax basis of assets and liabilities using enacted statutory tax rates applicable to future years. Deferred tax assets and liabilities are comprised of the following: June 24, 2021 June 25, 2020 Deferred tax assets (liabilities): Accounts receivable $ 349 $ 355 Employee compensation 1,338 1,534 Inventory 198 189 Depreciation and amortization ( 12,456 ) ( 11,260 ) Capitalized leases 1,159 1,145 Goodwill and intangible assets 2,500 2,885 Retirement plan 9,242 8,373 Workers’ compensation 1,991 1,932 Share based compensation 1,397 1,344 Other 369 291 Net deferred tax asset 6,087 6,788 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the character necessary during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. If or when recognized, the tax benefits relating to any reversal of the valuation allowance will be recognized as a reduction of income tax expense. For the years ending June 24, 2021 and June 25, 2020, unrecognized tax benefits and accrued interest and penalties were $ 321 and $ 204 . Accrued interest and penalties related to uncertain tax positions are not material for any periods presented. Interest and penalties within income tax expense were not material for any period presented. The total gross amounts of unrecognized tax benefits were $ 326 and $ 203 at June 24, 2021 and June 25, 2020, respectively. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows: June 24, 2021 June 25, 2020 June 27, 2019 Beginning balance $ 203 $ 240 $ 207 Gross increases — tax positions in prior year 49 16 — Gross decreases — tax positions in prior year — ( 24 ) ( 6 ) Settlements — — — Gross increases — tax positions in current year 110 60 39 Lapse of statute of limitations ( 36 ) ( 89 ) — Ending balance $ 326 $ 203 $ 240 Unrecognized tax benefits, that if recognized, would affect the annual effective tax rate on income from continuing operations, are as follows: June 24, 2021 June 25, 2020 June 27, 2019 Unrecognized tax benefits that would affect annual effective tax rate $ 311 $ 196 $ 217 During fiscal 2021, the change in unrecognized tax benefits due to statute expiration was not material. We do not anticipate that total unrecognized tax benefits will significantly change in the next twelve months. 56 We file income tax returns with federal and state tax authorities within the United States of America. Our federal and Illinois tax returns are open for audit for fiscal 2018 through 2020 . Our California tax returns for fiscal 2017 through 2020 are open for audit. No other tax jurisdictions are material to us. NOTE 9 — COMMITMENTS AND CONTINGENCIES Litigation We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial money damages in excess of any appropriate accruals which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. NOTE 10 — STOCKHOLDERS’ EQUITY Our Class A Common Stock, $ .01 par value (the “Class A Stock”), has cumulative voting rights with respect to the election of those directors which the holders of Class A Stock are entitled to elect, and 10 votes per share on all other matters on which holders of our Class A Stock and Common Stock are entitled to vote, with the exception of election of the directors for which the holders of Common Stock are eligible to elect. In addition, each share of Class A Stock is convertible at the option of the holder at any time into one share of Common Stock and automatically converts into one share of Common Stock upon any sale or transfer other than to related individuals or certain other events as set forth in our Restated Certificate of Incorporation. Each share of our Common Stock, $ .01 par value (the “Common Stock”) has noncumulative voting rights of one vote per share. The Class A Stock and the Common Stock are entitled to share equally, on a share-for-share basis, in any cash dividends declared by the Board of Directors, and the holders of the Common Stock are entitled to elect 25 %, rounded up to the nearest whole number, of the members comprising the Board of Directors. During fiscal 2017, our Board of Directors adopted a dividend policy under which it intends to pay an annual cash dividend on our Common Stock and Class A Stock during the first quarter of each fiscal year. NOTE 11 — STOCK-BASED COMPENSATION PLANS At our annual meeting of stockholders on October 29, 2014, our stockholders approved a new equity incentive plan (the “2014 Omnibus Plan”) under which awards of options and other stock-based awards may be made to employees, officers or non-employee directors of our Company. A total of 1,000,000 shares of Common Stock are authorized for grants of awards thereunder, which may be in the form of options, restricted stock, RSUs, stock appreciation rights (“SARs”), performance shares, performance units, Common Stock or dividends and dividend equivalents. As of June 24, 2021, there were 645,841 shares of Common Stock that remained authorized for future grants of awards, subject to the limitations set below. Under the terms of the Omnibus Plan, the total number of shares of Common Stock with respect to which options or SARs may be granted in any calendar year to any participant may not exceed 500,000 shares (this limit applies separately with respect to each type of award). Additionally, under the terms of the 2014 Omnibus Plan, for awards of restricted stock, RSUs, performance shares or other stock-based awards that are intended to qualify as performance-based compensation: (i) the total number of shares of Common Stock that may be granted in any calendar year to any participant may not exceed 250,000 shares (this limit applies separately to each type of award) and (ii) the maximum amount that may be paid to any participant for awards that are payable in cash or property other than Common Stock in any calendar year is $ 5,000 . During fiscal 2017, the Board of Directors adopted an equity grant cap which further restricted the number of awards that could be made to any one participant or in the aggregate. The equity grant cap limited the number of awards to 250,000 awards to all participants and 20,000 awards to any one participant in a fiscal year. Except as set forth in the 2014 Omnibus Plan, RSUs have vesting periods of three years for awards to employees and one year for awards to non-employee members of the Board of Directors. Recipients of RSUs have the option to defer receipt of vested shares until a specified later date, typically soon after separation from the Company. The exercise price of stock options is determined as set forth in the 2014 Omnibus Plan by the Compensation Committee of our Board of Directors and must be at least the fair market value of the Common Stock on the date of grant. Except as set forth in the 2014 Omnibus Plan, stock options expire upon termination of employment or directorship, as applicable. Stock options granted under the 2014 Omnibus Plan are exercisable 25 % annually commencing on the first anniversary date of grant and become fully exercisable on the fourth anniversary date of grant. Options generally will expire no later than ten years after the date on which they were granted. We issue new shares of Common Stock upon the vesting of RSUs and upon exercise of stock options. The fair value of RSUs is generally determined based on the market price of our Common Stock on the date of grant. The fair value of RSUs granted for the years ended June 24, 2021, June 25, 2020 and June 27, 2019 was $ 3,829 , $ 3,528 and $ 3,334 , respectively. 57 The following is a summary of RSU activity for the year ended June 24, 2021: Restricted Stock Units Shares Weighted- Average Grant-Date Fair Value Outstanding at June 25, 2020 166,879 $ 51.62 Granted 55,404 69.12 Vested (a) ( 55,826 ) 48.46 Forfeited ( 6,611 ) 69.35 Outstanding at June 24, 2021 159,846 $ 58.05 (a) The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements. At June 24, 2021 there were 51,069 RSUs outstanding that were vested but deferred. At June 25, 2020 there were 57,871 RSUs outstanding that were vested but deferred. The non-vested RSUs at June 24, 2021 will vest over a weighted-average period of 1.4 years. The fair value of RSUs that vested for the years ended June 24, 2021, June 25, 2020 and June 27, 2019 was $ 2,706 , $ 2,321 and $ 2,744 , respectively. The following table summarizes compensation cost charged to earnings for all equity compensation plans and the total income tax benefit recognized for the last three fiscal years: Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 Compensation cost charged to earnings $ 2,908 $ 2,472 $ 2,644 Income tax benefit recognized 727 618 661 At June 24, 2021, there was $ 3,770 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted-average period of 1.4 years. NOTE 12 — CASH DIVIDENDS Our Board of Directors declared the following cash dividends payable in fiscal 2021 and fiscal 2020: Declaration Date Record Date Dividend Per Share (a) Total Amount Payment Date January 27, 2021 February 26, 2021 $ 2.50 $ 28,778 March 16, 2021 July 9, 2020 August 7, 2020 $ 2.50 $ 28,685 August 21, 2020 April 29, 2020 May 27, 2020 $ 1.00 $ 11,472 June 17, 2020 October 29, 2019 November 26, 2019 $ 2.00 $ 22,947 December 10, 2019 July 10, 2019 August 6, 2019 $ 3.00 $ 34,321 August 20, 2019 (a) The dividends declared on July 10, 2019 and July 9, 2020 include both the annual and special dividend declared on such date. On July 8, 2021 , our Board of Directors declared a special cash dividend of $ 2.30 per share and a regular annual cash dividend of $ 0.70 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company. Refer to Note 20 — “Subsequent Event” below. 58 NOTE 13 — EMPLOYEE BENEFIT PLANS We maintain a contributory plan established pursuant to the provisions of section 401(k) of the Internal Revenue Code. The plan provides retirement benefits for all nonunion employees meeting minimum age and service requirements. We currently match 100 % of the first three percent contributed by each employee and 50 % of the next two percent contributed, up to certain maximums specified in the plan. Expense for the 401(k) plan was as follows for the last three fiscal years: ​​​​​​​ Year ended June 24, 2021 Year ended June 25, 2020 Year ended June 27, 2019 401(k) plan expense $ 2,119 $ 2,116 $ 2,040 Virtually all of our salaried employees participate in our Sanfilippo Value Added Plan (as amended, the “SVA Plan”), which is a cash incentive plan (an economic value added-based program) administered by our Compensation Committee. We accrue expense related to the SVA Plan in the annual period that the economic performance underlying such performance occurs. This method of expense recognition properly matches the expense associated with improved economic performance with the period the improved performance occurs on a systematic and rational basis. The SVA Plan payments, if any, are paid to participants in the first quarter of the following fiscal year. 59 NOTE 14 — RETIREMENT PLAN The Supplemental Employee Retirement Plan (“SERP”) is an unfunded, non-qualified benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. We use our fiscal year-end as the measurement date for the obligation calculation. Accounting guidance in ASC Topic 715, Compensation — Retirement Benefits , requires the recognition of the funded status of the SERP on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are recorded as a component of “Accumulated Other Comprehensive Loss” (“AOCL”). The following table presents the changes in the projected benefit obligation for the fiscal years ended: June 24, 2021 June 25, 2020 Change in projected benefit obligation Projected benefit obligation at beginning of year $ 32,204 $ 25,382 Service cost 944 712 Interest cost 858 892 Actuarial loss 2,195 5,872 Benefits paid ( 654 ) ( 654 ) Projected benefit obligation at end of year $ 35,547 $ 32,204 The accumulated benefit obligation, which represents benefits earned up to the measurement date, was $ 28,927 and $ 25,839 at June 24, 2021 and June 25, 2020, respectively. Components of the actuarial loss portion of the change in projected benefit obligation are presented below for the fiscal years ended: June 24, 2021 June 25, 2020 June 27, 2019 Actuarial Loss Change in assumed pay increases $ 3,319 $ 2,352 $ 293 Change in discount rate ( 1,134 ) 4,285 2,174 Change in mortality assumptions ( 329 ) ( 1,083 ) ( 69 ) Other 339 318 199 Actuarial loss $ 2,195 $ 5,872 $ 2,597 The components of the net periodic pension cost are as follows for the fiscal years ended: June 24, 2021 June 25, 2020 June 27, 2019 Service cost $ 944 $ 712 $ 610 Interest cost 858 892 895 Recognized loss amortization 1,183 417 95 Prior service cost amortization 478 957 957 Net periodic pension cost $ 3,463 $ 2,978 $ 2,557 The most significant assumption related to our SERP is the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future. 60 We used the following assumptions to calculate the benefit obligation of our SERP as of the following dates: June 24, 2021 June 25, 2020 Discount rate 2.89 % 2.69 % Average rate of compensation increases 3.38 % 3.38 % Bonus payment 45% - 110% of base, paid 4 of 5 years 60% - 95% of base, paid 4 of 5 years We used the following assumptions to calculate the net periodic costs of our SERP as follows for the fiscal years ended: June 24, 2021 June 25, 2020 June 27, 2019 Discount rate 2.69 % 3.56 % 4.14 % Rate of compensation increases 3.38 % 4.13 % 3.38 % Mortality Pri-2012 white collar with MP- 2019 scale RP-2014 white collar with MP- 2018 scale RP-2014 white collar with MP- 2017 scale Bonus payment 60% - 95% of base, paid 4 of 5 years 60% - 85% of base, paid 4 of 5 years 60% - 85% of base, paid 4 of 5 years The assumed discount rate is based, in part, upon a discount rate modeling process that considers both high quality long-term indices and the duration of the SERP relative to the durations implicit in the broader indices. The discount rate is utilized principally in calculating the actuarial present value of our obligation and periodic expense pursuant to the SERP. To the extent the discount rate increases or decreases, our SERP obligation is decreased or increased, respectively. The following table presents the benefits expected to be paid in the next ten fiscal years: Fiscal year 2022 $ 628 2023 762 2024 703 2025 1,420 2026 1,355 2027 — 2031 8,404 At June 24, 2021 and June 25, 2020, the current portion of the SERP liability was $ 628 and $ 631 , respectively, and recorded in the caption “Accrued payroll and related benefits” on the Consolidated Balance Sheets. The following table presents the components of AOCL that have not yet been recognized in net pension expense: June 24, 2021 June 25, 2020 Unrecognized net loss $ ( 11,921 ) $ ( 10,909 ) Unrecognized prior service cost — ( 478 ) Tax effect 2,896 2,757 Net amount unrecognized $ ( 9,025 ) $ ( 8,630 ) 61 NOTE 15 — ACCUMULATED OTHER COMPREHENSIVE LOSS The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the last two fiscal years. These changes are all related to our defined benefit pension plan. Changes to AOCL (a) Year Ended June 24, 2021 Year Ended June 25, 2020 Balance at beginning of period $ ( 8,630 ) $ ( 4,325 ) Other comprehensive loss before reclassifications ( 2,195 ) ( 5,872 ) Amounts reclassified from accumulated other comprehensive loss 1,661 1,374 Tax effect 139 1,169 Net current-period other comprehensive loss ( 395 ) ( 3,329 ) Impact of adopting ASU 2018-02 — ( 976 ) Balance at end of period $ ( 9,025 ) $ ( 8,630 ) (a) Amounts in parenthesis indicate debits/expense. The reclassifications out of accumulated other comprehensive loss for the last two fiscal years were as follows: Reclassifications from AOCL to earnings (b) Year Ended June 24, 2021 Year Ended June 25, 2020 Affected line item in the Consolidated Statements of Comprehensive Income Amortization of defined benefit pension items: Unrecognized prior service cost $ ( 478 ) $ ( 957 ) Other expense Unrecognized net loss ( 1,183 ) ( 417 ) Other expense Total before tax ( 1,661 ) ( 1,374 ) Tax effect 432 358 Income tax expense Amortization of defined pension items, net of tax $ ( 1,229 ) $ ( 1,016 ) (b) Amounts in parenthesis indicate debits to expense. See Note 14 — “Retirement Plan” above for additional details. 62 NOTE 16 — PRODUCT TYPE SALES MIX The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product types, for the fiscal year ended: Product Type June 24, 2021 June 25, 2020 June 27, 2019 Peanuts 19.3 % 18.2 % 18.0 % Pecans 10.0 10.3 12.9 Cashews & Mixed Nuts 23.3 23.2 23.0 Walnuts 6.2 7.2 8.9 Almonds 10.8 14.7 14.4 Trail & Snack Mixes 24.7 21.1 17.3 Other 5.7 5.3 5.5 100.0 % 100.0 % 100.0 % NOTE 17 — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES The following table details the activity in various allowance and reserve accounts. Description Balance at Beginning of Period Additions Deductions Balance at End of Period June 24, 2021 Allowance for doubtful accounts $ 391 $ 203 $ ( 303 ) $ 291 Reserve for cash discounts 975 15,548 ( 15,473 ) 1,050 Reserve for customer deductions 5,477 28,516 ( 27,376 ) 6,617 Total $ 6,843 $ 44,267 $ ( 43,152 ) $ 7,958 June 25, 2020 Allowance for doubtful accounts $ 350 $ 209 $ ( 168 ) $ 391 Reserve for cash discounts 925 15,650 ( 15,600 ) 975 Reserve for customer deductions 4,757 27,036 ( 26,316 ) 5,477 Total $ 6,032 $ 42,895 $ ( 42,084 ) $ 6,843 June 27, 2019 Allowance for doubtful accounts $ 270 $ 150 $ ( 70 ) $ 350 Reserve for cash discounts 950 14,721 ( 14,746 ) 925 Reserve for customer deductions 5,038 24,581 ( 24,862 ) 4,757 Deferred tax asset valuation allowance 112 — ( 112 ) — Total $ 6,370 $ 39,452 $ ( 39,790 ) $ 6,032 63 NOTE 18 — SUPPLEMENTARY QUARTERLY DATA (Unaudited) The following unaudited quarterly consolidated financial data are presented for fiscal 2021 and fiscal 2020. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results. First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended June 24, 2021: Net sales $ 210,273 $ 233,575 $ 207,892 $ 206,742 Gross profit 39,332 52,795 46,046 46,814 Income from operations 18,873 27,796 21,097 17,412 Net income 12,812 19,885 14,701 12,343 Basic earnings per common share $ 1.12 $ 1.73 $ 1.28 $ 1.07 Diluted earnings per common share $ 1.11 $ 1.72 $ 1.27 $ 1.07 Cash dividends declared per common share $ 2.50 $ — $ 2.50 $ — First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended June 25, 2020: Net sales $ 217,846 $ 246,423 $ 211,624 $ 204,199 * Gross profit 42,248 49,980 42,805 40,742 Income from operations 19,062 24,466 19,397 15,622 Net income 12,926 17,461 13,466 10,257 Basic earnings per common share $ 1.13 $ 1.52 $ 1.17 $ 0.89 Diluted earnings per common share $ 1.12 $ 1.52 $ 1.17 $ 0.89 Cash dividends declared per common share $ 3.00 $ 2.00 $ — $ 1.00 * The decrease in net sales was primarily attributable to a 3.3 % decrease in weighted average selling price per pound, combined with a decrease in sales volume for foodservice customers in our commercial ingredients distribution channel as a result of the COVID-19 pandemic. NOTE 19 — GARYSBURG, NORTH CAROLINA FACILITY On October 7, 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. The fire occurred in our roasting room where all of the roasting equipment was destroyed. The fire also damaged some equipment in our packaging room and a portion of the roof. During fiscal 2020, the building and roof were repaired and brought back to their original condition. Insurance proceeds totaling $ 2,934 were received from the insurance carrier in fiscal 2020, and the final payment of $ 2,730 was received during the third quarter of this fiscal year. Insurance proceeds received for damage to capital equipment are recorded as investing activities on the Consolidated Statements of Cash Flows when received. We completed shelling of the 2019 peanut crop during the second quarter of this fiscal year and the facility was used to store and ship inshell peanuts through the remainder of fiscal 2021. During fiscal 2020 we manufactured and sold approximately 6 million pounds of inshell peanuts from this facility and discontinued that product line at the end of the current fiscal year. We spent the fourth quarter of fiscal 2021 cleaning and preparing the facility for sale. After evaluating our options with regard to our peanut production operations, the Company decided to cease all operations permanently at the Garysburg facility at the end of fiscal 2021 and sell the facility and its related assets. The planned sale of this property meets the criteria of an asset “Held for Sale” in accordance with ASC 360, Property, Plant and Equipment . Assets held for sale are required to be measured at the lower of their carrying value or fair value less costs to sell. No adjustment of the carrying value was required. Assets classified as held for sale are no longer depreciated, and a current asset of $ 1,595 consisting of the building, land and remaining machinery and equipment is presented in the consolidated balance sheets as of June 24, 2021. Employee separation and related closure costs were immaterial for all periods presented. NOTE 20 — SUBSEQUENT EVENT On July 8, 2021 , our Board of Directors declared a special cash dividend of $ 2.30 per share and a regular annual cash dividend of $ 0.70 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “August 2021 Dividends”). The August 2021 Dividends will be paid on August 25, 2021 to stockholders of record as of the close of business on August 10, 2021 . 64 Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.