What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-04-28 · 135 added, 181 removed, 118 unchanged (73% of the section changed)

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Additional information on the comparability of the periods presented is as follows:

References herein to fiscal 2021 and fiscal 2010 are to the fiscal year ending June 24, 2021 and the fiscal year ended June 25, 2020, respectively.

References herein to the third quarter of fiscal 2021 and fiscal 2020 are to the quarters ended March 25, 2021 and March 26, 2020, respectively.

References herein to the first three quarters or first thirty-nine weeks of fiscal 2021 and fiscal 2021 are to the thirty-nine weeks ended March 25, 2021 and March 26, 2020, respectively.

References herein to fiscal 2022 and fiscal 2021 are to the fiscal year for the 53 weeks ending June 30, 2022 and the fiscal year for the 52 weeks ended June 24, 2021, respectively.

References herein to the first quarter of fiscal 2022 and fiscal 2021 are to the quarters ended September 23, 2021 and September 24, 2020, respectively.

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B.

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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,

These nuts are sold under a variety of private brands and under the Fisher, Orchard Valley Harvest,

Squirrel Brand, Southern Style Nuts

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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, snacks 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.

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 private brands.

We distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

The Company’s long-term objective to drive profitable growth, as identified in our strategic plan (the “Strategic Plan”), includes continuing to grow Fisher,

The Company’s long-term objective to drive profitable growth, as identified in our Strategic Plan, includes continuing to grow Fisher,

Orchard Valley Harvest, Squirrel Brand

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business across key customers.

We plan to execute on our Strategic Plan to grow our branded business by reaching new consumers via product and packaging innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, with an emphasis on increasing our sales via e-commerce

We plan to execute on our Strategic Plan to grow our branded business by reaching new consumers via product and pack innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, with an emphasis on increasing our sales via e-commerce

platforms and retailers.

In addition, during fiscal 2021 we have invested in our people and facilities in order to research, develop, market and sell new products in snack categories we currently are not in for our branded business and private brand partners.

We face a number of challenges in the future which include intensified competition on pricing and for market share from both private brand and name brand nut products.

recipe nut sales have been negatively impacted due to this increased competition for market share.

We also face changing industry trends as consumer preferences evolve into shopping in smaller store formats like grocery and online.

Additionally, the wooden pallet industry has been impacted for several months with low inventory levels, due in part to labor and lumber shortages.

The pallet shortage has impacted our operations, primarily at our Elgin, IL facility, and led to some cost increases.

We anticipate the industry to see some relief in the coming quarters.

In the interim, we are working with our vendors, customers and JBSS facilities in other regions of the country to source additional supply.

If the shortage continues, and we cannot secure an adequate supply of wooden pallets to fulfill customer orders, this shortage could have an unfavorable impact on net sales in our fourth quarter.

We will continue to focus on seeking profitable business opportunities to maximize the utilization of our production capacity at our primary manufacturing, processing and distribution facility located in Elgin, Illinois.

We expect to redirect our promotional and advertising activity with respect to our brands to focus on more digital and e-commerce

platforms to match consumer behavior.

recipe nut sales have been negatively impacted recently due to this increased competition for market share.

We also face changing industry trends as consumer preferences evolve.

We have observed consumers shopping in smaller store formats like grocery, using delivery apps for shopping and generally migrating more of their shopping online.

Additionally, in recent months we have faced challenges with shortages and cost increases for shipping pallets, resin-based packaging, imported materials, transportation and shipping availability and labor.

These shortages and related challenges have impacted our operations and resulted in increased expenses.

We anticipate the industry will see pricing relief in some of these areas in the coming quarters if and as shortages decrease, but we expect that some costs may remain elevated for a longer period of time.

In the interim, we are working with our vendors, customers and JBSS facilities in other regions of the country to source additional supply and remain flexible in obtaining the transportation and labor services we need.

If these shortages continue and we cannot secure adequate supplies to fulfill customer orders or cannot obtain the transportation and labor services we need, they could have an unfavorable impact on net sales and our operations in the remainder of this fiscal year.

In addition, there is an additional risk of not being able to pass (in part or in full) such potential cost increases onto our customers in a timely manner.

We expect to increase our promotional and advertising activity to invest in our brands to achieve transformational growth with an omnichannel approach to win in key categories including recipe nuts, nut flours, snack nuts, trail mix and snacking.

We continue to see strong e-commerce

performance across several of our

branded products and expect that there will be additional opportunities to connect these brands to consumers’ desires for more functional snacking, baking and cooking ideas.

We will continue to face the ongoing challenges specific to our business, such as food safety and regulatory compliance and the maintenance and growth of our customer base for branded and private label products.

See the information referenced in Part II, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

We will continue to face challenges in the remainder of our fiscal 2021 (and into fiscal year 2022) as result of the COVID-19

performance across our branded portfolio and plan to accelerate that growth across a variety of established and emerging platforms.

We will continue to face the ongoing challenges specific to our business, such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products.

See the information referenced in Part I, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

We continue to face challenges in fiscal year 2022 as result of the COVID-19

pandemic and the uncertainty of future local, state and federal restrictions aimed to mitigate and control the pandemic.

As many of these restrictions were eased near the conclusion of our fiscal 2020, we saw a gradual (albeit limited) increase in demand from our foodservice, restaurant, convenience store and non-essential

retail customers.

However, as conditions surrounding the pandemic deteriorated during the fall and winter of calendar 2020 and so far during calendar 2021, consumers were and continue to be limited in their ability to purchase meals outside their homes.

As indoor dining restrictions continued due to the impact of COVID-19,

consumers continued to snack, cook and bake more at home.

While this trend has had a positive impact on certain aspects of our consumer business, demand continued to be suppressed from our foodservice, restaurant and non-essential

During the fourth quarter of fiscal 2021 and into fiscal 2022, as various COVID-19

vaccines became more widely distributed and accepted by the public and indoor dining restrictions were again loosened, and we saw a significant improvement in the quarterly sales volume comparison with our foodservice, restaurant, convenience store and non-essential

retail customers.

Additionally, COVID-19

has had an unfavorable impact on a major customer’s business in our contract packaging distribution channel due to reduced foot traffic in convenience stores as people continue to work from home.

Although demand has been suppressed from our foodservice customers, the chart below indicates that the rate of decline is recovering from its low point in our fourth quarter of fiscal 2020, and we believe that as the COVID-19

vaccine becomes more widely distributed and accepted by the public, and restrictions are again loosened, sales volume with our foodservice, restaurant, convenience store and non-essential

retail customers will continue to improve.

Also, during fiscal 2021, we have seen signs of a shortage in capacity in the transportation industry, which our transportation service providers believe is due, in part, to driver concerns related to the impacts of COVID-19.

Compounding this driver shortage is an increase in demand driven by additional spending on consumer goods.

This tightening in transportation capacity, including rail and ocean freight, is expected to continue into fiscal 2022, has led to increased transportation costs and may lead to potential disruptions in service to our customers and from our suppliers.

However, if vaccination rates stagnate, more contagious strains of COVID-19

develop or indoor dining restrictions increase, our sales to foodservice, restaurant and non-essential

retail customers may decrease.

Also, during fiscal 2021 and into fiscal 2022, we have seen signs of a shortage in capacity in the transportation industry.

Compounding a driver shortage is an increase in demand driven by additional spending on consumer goods, which has led to periodic shortages of shipping containers, container chassis, space on container ships and trains and capacity constraints at U.S.

This tightening in transportation capacity is expected to continue further into fiscal 2022, and it has led to increased transportation costs and may lead to potential disruptions in service to our customers and from our suppliers.

The Company’s COVID-19

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We continue to follow recommendations made by state and federal regulators and health agencies to ensure the safety and health of our employees as those recommendations change and evolve.

We have implemented (among other things) a temporary work from home option for the majority of our office employees, staggered shifts and breaks, installed partitions on production lines and office space where social distancing could not be consistently maintained and installed thermal scanners to measure temperature for all employees upon arrival.

We update and enhance these measures as new guidance is provided.

In addition, we extended personal time off for those employees who are in self-quarantine or ill and have organized a free, voluntary COVID-19

immunization clinic, which will be on-site

at our Elgin, IL facility during our fourth fiscal quarter for interested employees and their families.

In addition, we extended personal time off for those employees who are ill or must self-quarantine and hosted several free, voluntary on-site

vaccination clinics for our employees and their family members.

We have worked closely with our domestic and global suppliers to source and maintain a consistent supply of raw materials, ingredients and packaging.

To date, none of our manufacturing facilities have been significantly impacted by this pandemic.

However, recent surges in COVID-19

cases, especially in southern Vietnam from where most of our cashews are sourced and extensive lockdowns that were in place until the end of September 2021, could have a negative impact on our operations if shipments of raw materials are delayed or otherwise disrupted.

We have contingency plans in place to help reduce the negative impact if one or more of our manufacturing facilities encounters a partial or full shut down.

QUARTERLY HIGHLIGHTS

Our net sales of $207.9 million for the third quarter of fiscal 2021 decreased 1.8% from our net sales of $211.6 million for the third quarter of fiscal 2020.

Net sales for the first thirty-nine weeks of fiscal 2021 decreased $24.2 million, or 3.6%, to $651.7 million compared to the first thirty-nine weeks of fiscal 2020.

Sales volume, measured as pounds sold to customers, decreased 0.9 million pounds, or 1.2%, in the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020.

Sales volume for the first thirty-nine weeks of fiscal 2021 decreased 1.9 million pounds, or 0.9%, compared to the first thirty-nine weeks of fiscal 2020.

Gross profit increased $3.2 million, and our gross profit margin, as a percentage of net sales, increased to 22.1% for the third quarter of fiscal 2021 compared to 20.2% for the third quarter of fiscal 2020.

Gross profit increased $3.1 million and our gross profit margin increased to 21.2% from 20.0% for the first thirty-nine weeks of fiscal 2021 compared to the first thirty-nine weeks of fiscal 2020.

Total operating expenses for the third quarter of fiscal 2021 increased $1.5 million, or 6.6%, compared to the third quarter of fiscal 2020.

As a percentage of net sales, total operating expenses in the third quarter of fiscal 2021 increased to 12.0% from 11.1% for the third quarter of fiscal 2020.

For the first thirty-nine weeks of fiscal 2021, total operating expenses decreased $1.7 million, and total operating expenses as a percentage of net sales increased to 10.8% from 10.7% compared to the first thirty-nine weeks of fiscal 2020.

The total value of inventories on hand at the end of the third quarter of fiscal 2021 decreased $36.8 million, or 19.5%, in comparison to the total value of inventories on hand at the end of the third quarter of fiscal 2020.

We have seen acquisition costs for all major tree nuts decrease in the 2020 crop year (which falls into our 2021 fiscal year).

We have completed procurement of inshell walnuts during the first half of fiscal 2021, and the final total payments due to our walnut growers were determined in the current quarter.

The final prices paid, and remaining to be paid to the walnut growers, were based upon current market prices and other factors, such as crop size and export demand.

A large majority of payments to walnut growers were completed in the third quarter of fiscal 2021.

Remaining amounts to be paid to walnut growers as of March 25, 2021 are final and are not subject to revision.

We increased our walnut grower liability by approximately $0.7 million during the third quarter of fiscal 2021, as the final payments to walnut growers were slightly more than the amounts estimated at the end of last quarter.

This increase is insignificant compared to our total inshell walnut procurement costs for the year, and the adjustment to cost of sales was immaterial to our results of operations.

Our net sales of $226.3 million for the first quarter of fiscal 2022 increased 7.6% from our net sales of $210.3 million for the first quarter of fiscal 2021.

Sales volume, measured as pounds sold to customers, increased 14.0% compared to the first quarter of fiscal 2021.

Gross profit increased $12.5 million, and our gross profit margin, as a percentage of net sales, increased to 22.9% for the first quarter of fiscal 2022 compared to 18.7% for the first quarter of fiscal 2021.

Total operating expenses for the first quarter of fiscal 2022 increased $4.0 million, or 19.6%, compared to the first quarter of fiscal 2021.

As a percentage of net sales, total operating expenses in the first quarter of fiscal 2022 increased to 10.8% from 9.7% for the first quarter of fiscal 2021.

The total value of inventories on hand at the end of the first quarter of fiscal 2022 increased $2.2 million, or 1.5%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2021.

We expect acquisition costs for dried fruit and most major tree nuts to increase in the 2021 crop year (which falls into our current 2022 fiscal year).

While we began to procure inshell walnuts during the first quarter of fiscal 2022, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2022.

We will determine the final prices to be paid to the walnut growers based upon current market prices and other factors such as crop size and export demand.

We have estimated the liability to our walnut growers and our walnut inventory costs using currently available information.

Any difference between our estimated liability and the actual payments will be determined during the second and/or third quarters of fiscal 2022 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

Our net sales decreased 1.8% to $207.9 million in the third quarter of fiscal 2021 compared to net sales of $211.6 million for the third quarter of fiscal 2020.

The decrease in net sales was primarily attributable to a 1.2% decrease in sales volume, which is defined as pounds sold to customers.

The decline in sales volume was due to a reduction in sales volume for almonds and peanuts, which was offset in part by increased sales volume for trail and snack mixes.

For the first thirty-nine weeks of fiscal 2021 our net sales were $651.7 million, a decrease of $24.2 million, or 3.6%, compared to the same period of fiscal 2020.

The decrease in net sales was primarily attributable to a 2.7% decline in the weighted average selling price per pound.

The decrease in the weighted average selling price per pound was attributable to lower selling prices for tree nuts, which were due to lower commodity acquisition costs.

A 0.9% decrease in sales volume, due to the same reasons cited in the quarterly comparison, also contributed to the overall decline in net sales.

Our net sales increased 7.6% to $226.3 million in the first quarter of fiscal 2022 compared to net sales of $210.3 million for the first quarter of fiscal 2021.

Sales volume, which is defined as pounds sold to customers, increased 14.0% in the quarterly comparison.

The increase in sales volume was due to an increase in sales volume for all product types.

The following table summarizes sales by product type as a percentage of total gross sales.

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For the Quarter Ended

For the Thirty-Nine Weeks

September 23,

September 24,

Cashews & Mixed Nuts

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Distribution Channel

Commercial Ingredients

Contract Packaging

Sales of branded products were approximately 20% and 24% of total consumer sales during the third quarter of fiscal 2021 and fiscal 2020, respectively.

branded products were approximately 63% and 58% of branded sales during the third quarter of fiscal 2021 and fiscal 2020, respectively, with Orchard Valley Harvest

branded products accounting for the majority of the remaining branded product sales.

The following table shows a comparison of net sales by distribution channel (dollars in thousands):

For the Thirty-nine Weeks Ended

Distribution Channel

September 23,

September 24,

Commercial Ingredients

Contract Packaging

Sales of branded products were approximately 25% and 29% of total consumer sales during the first thirty-nine weeks of fiscal 2021 and fiscal 2020, respectively.

branded products were approximately 68% and 67% of branded sales during the first thirty-nine weeks of fiscal 2021 and fiscal 2020, respectively, with Orchard Valley Harvest

Sales of branded products were approximately 19% and 25% of total consumer channel sales during the first quarters of fiscal 2022 and fiscal 2021, respectively.

branded products were approximately 61% and 65% of branded sales during the first quarters of fiscal 2022 and fiscal 2021, respectively, with Orchard Valley Harvest

branded products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel increased 6.8% in dollars and 9.1% in sales volume in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

The sales volume increase was driven by an 11.8% increase in sales volume for private brand products, specifically snack nuts and trail and snack mixes, from new distribution at existing customers, a shift in consumer preferences to lower priced private brand products and growth in snacking as many consumers continue to purchase food for consumption at home.

Net sales in the consumer distribution channel increased $13.0 million, or 7.8%, and sales volume increased 13.0% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

The sales volume increase was driven by increased sales of private brand trail and snack mixes, which was partially offset by a decline in branded product sales during the current quarter.

Sales volume for Fisher

snack nuts decreased 3.1%, primarily as a result of reduced merchandising activity for Fisher

inshell peanuts as we are in the process of discontinuing that inshell peanut product line, which we expect will be completed by the end of the fourth quarter of fiscal 2021.

Sales volume of Fisher

recipe nuts decreased 6.4% as a result of lost distribution at two grocery customers.

snack nuts decreased 30.3% due to the discontinuance of the inshell peanut product line, which occurred in the fourth quarter of fiscal 2021.

Without considering the impact of this discontinued product line, Fisher

snack nuts sales volume increased approximately 7.0% as a result of new distribution and increased merchandising at existing customers.

Sales volume for Fisher

recipe nuts decreased 9.7% as a result of merchandising timing shifts, lost distribution at a customer, and lapping of increased at-home

cooking and baking nut consumption compared to last year’s first quarter due to COVID-19.

of Orchard Valley Harvest

products decreased 21.4% due to reduced foot traffic at a major customer in the non-food

sector as a result of COVID-19.

Sales volume of Southern Style Nuts

decreased 14.2% primarily due to the discontinuance of an item at a major customer.

In the first thirty-nine weeks of fiscal 2021, net sales in the consumer distribution channel increased 4.8% in dollars and 7.7% in sales volume, compared to the same period of fiscal 2020.

The sales volume increase occurred for the same reasons cited in the quarterly comparison.

Increased sales for Fisher

snack nuts also contributed to the sales volume increase in the consumer distribution channel.

Net sales in the commercial ingredients distribution channel decreased 30.5% in dollars and 29.8% in sales volume in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

The decline in sales volume was due to a 25.7% decrease in sales volume in our foodservice business and a decline in sales of peanut crushing stock to peanut oil processors.

The sales volume decline in our foodservice business resulted from a decline in air travel and nationwide restrictions on indoor restaurant dining, which were attributable to COVID-19.

In the first thirty-nine weeks of fiscal 2021, net sales in the commercial ingredients distribution channel decreased 36.5% in dollars and 27.1% in sales volume compared to the same period of fiscal 2020.

The decline in sales volume was primarily due to a 32.5% decrease in sales volume in our foodservice business, which occurred for the same reasons cited in the quarterly comparison.

Net sales in the contract packaging distribution channel decreased 23.2% in dollars and 19.2% in sales volume in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

The decline in sales volume was primarily attributable to the unfavorable impact of lower convenience store foot traffic on one customer’s business as a result of COVID-19.

In the first thirty-nine weeks of fiscal 2021, net sales in the contract packaging distribution channel decreased 16.2% in dollars and 15.1% in sales volume compared to the first thirty-nine weeks of fiscal 2020.

The decline in sales volume occurred for the same reason cited in the quarterly comparison, as well as the loss of peanut butter business with another customer due to a temporary peanut supply shortage that existed in the first quarter of fiscal 2021.

Gross profit increased $3.2 million, or 7.6%, to $46.0 million for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

Our gross profit margin, as a percentage of net sales, increased to 22.1% for the third quarter of fiscal 2021 compared to 20.2% for the third quarter of fiscal 2020.

The increases in gross profit and gross profit margin were mainly attributable to lower commodity acquisition costs for all major tree nuts.

Gross profit increased $3.1 million, or 2.3%, to $138.2 million for the first thirty-nine weeks of fiscal 2021 compared to the first thirty-nine weeks of fiscal 2020.

Our gross profit margin increased to 21.2% for the first thirty-nine weeks of fiscal 2021 compared to 20.0% for the first thirty-nine weeks of fiscal 2020.

The increases in gross profit and gross profit margin in the year to date comparison occurred for the same reason cited in the quarterly comparison.

produce products decreased 6.3% due to a temporary distribution loss at a customer in the club channel, which was partially offset by a 29.1% increase at a major customer in the non-food

sector, as this retailer continues to recover from COVID-19

restrictions.

Net sales in the commercial ingredients distribution channel increased 23.4% in dollars and 37.2% in sales volume in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

The sales volume increase was due to a 47.8% increase in food service sales volume, which was attributable to the continuing recovery of the restaurant industry from fewer COVID -19

restrictions.

Net sales in the contract packaging distribution channel decreased 11.1% in dollars and 3.9% in sales volume in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

The decline in sales volume was primarily attributable to promotional activity by a customer that did not repeat in the current first quarter.

Gross profit increased $12.4 million, or 31.7%, to $51.8 million for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

Our gross profit margin, as a percentage of net sales, increased to 22.9% for the first quarter of fiscal 2022 compared to 18.7% for the first quarter of fiscal 2021.

The increases in gross profit dollars and gross profit margin were primarily due to lower commodity acquisition costs for all major tree nuts except cashews and increased sales volume.

Operating Expenses

Total operating expenses for the third quarter of fiscal 2021 increased $1.5 million, or 6.6%, to $24.9 million.

Operating expenses increased to 12.0% of net sales for the third quarter of fiscal 2021 compared to 11.1% of net sales for the third quarter of fiscal 2020.

Selling expenses for the third quarter of fiscal 2021 were $15.1 million, an increase of $1.2 million, or 8.7%, from the third quarter of fiscal 2020.

The increase was driven by a $1.5 million increase in freight expense due to significantly higher freight rates compared to last year’s third quarter and, to a lesser extent, an increase in sales volume for our sales made on a delivered basis to customers.

This increase was partially offset by a $0.3 million decrease in commission expense.

Administrative expenses for the third quarter of fiscal 2021 were $9.9 million, an increase of $0.3 million, or 3.5%, compared to the third quarter of fiscal 2020.

The increase was primarily due to $0.7 million decrease in the gain on asset disposals due to an insurance recovery recognized in last year’s third quarter.

The insurance recovery, which was the first of two recoveries, related to a fire in our Garysburg, North Carolina facility that occurred in the second quarter of fiscal 2020.

This increase was largely offset by a $0.5 million decrease in incentive compensation expense.

Total operating expenses for the first thirty-nine weeks of fiscal 2021 decreased $1.7 million, or 2.4%, to $70.4 million.

Operating expenses increased to 10.8% of net sales for the first three quarters of fiscal 2021 compared to 10.7% of net sales for the three quarters of fiscal 2020.

Selling expenses for the first thirty-nine weeks of fiscal 2021 were $44.9 million, an increase of $0.8 million, or 1.8%, from the amount recorded for the first thirty-nine weeks of fiscal 2020.

The increase was driven by a $1.8 million increase in freight expense for the same reasons discussed in the quarterly comparison and was partially offset by a $1.0 million decrease in advertising expense due to less radio advertising.

Administrative expenses for the first thirty-nine weeks of fiscal 2021 were $25.5 million, a decrease of $2.5 million, or 8.8%, compared to the same period of fiscal 2020.

The decrease was due to a $1.8 million increase in the gain on asset disposals, mainly resulting from a $2.3 million gain from the final insurance recovery recognized in the second quarter of fiscal 2021 for the Garysburg facility fire, and a $0.6 million decrease in compensation related expenses, primarily incentive compensation expense.

Total operating expenses for the first quarter of fiscal 2022 increased $4.0 million to $24.5 million.

Operating expenses for the first quarter of fiscal 2022 increased to 10.8% of net sales from 9.7% of net sales for the first quarter of fiscal 2021 due primarily to increases in freight, advertising, compensation and consulting expenses which were partially offset by a gain on sale of assets.

Selling expenses for the first quarter of fiscal 2022 were $17.7 million, an increase of $5.7 million, or 46.8%, from the first quarter of fiscal 2021.

The increase was driven primarily by a $2.4 million increase in freight expense due to significantly higher freight rates and an increase in sales made on a delivered basis compared to fiscal 2021, a $2.1 million increase in advertising expense due to an increase in marketing research and sports sponsorships, and a $0.5 million increase in compensation related expenses.

Administrative expenses for the first quarter of fiscal 2022 were $9.1 million, an increase of $0.7 million, or 8.3%, from the first quarter of fiscal 2021.

The increase was driven primarily by a $0.2 million increase in charitable donations and a $0.2 million increase in compensation related expenses.

The gain on asset disposal, net is the result of the sale of our Garysburg, North Carolina facility that occurred in the first quarter of 2022.

Income from Operations

Due to the factors discussed above, income from operations was $21.1 million, or 10.1% of net sales, for the third quarter of fiscal 2021 compared to $19.4 million, or 9.2% of net sales, for the third quarter of fiscal 2020.

Due to the factors discussed above, income from operations was $67.8 million, or 10.4% of net sales, for the first thirty-nine weeks of fiscal 2021 compared to $62.9 million, or 9.3% of net sales, for the first thirty-nine weeks of fiscal 2020.

Due to the factors discussed above, income from operations increased to $27.3 million, or 12.1% of net sales, for the first quarter of fiscal 2022 from $18.9 million, or 9.0% of net sales, for the first quarter of fiscal 2021.

Interest Expense

Interest expense was $0.3 million for the third quarter of fiscal 2021 compared to $0.6 million in the third quarter of fiscal 2020.

Interest expense for the first three quarters of fiscal 2021 was $1.1 million compared to $1.5 million for the first three quarters of fiscal 2020.

The decrease in interest expense for both the quarterly and year to date comparisons was a result of lower average debt levels.

Interest expense was $0.4 million for the first quarter of 2022 compared to $0.5 million for the first quarter of 2021.

The decrease was due to lower average debt levels.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.4 million for the third quarter of fiscal 2021 compared to $0.3 million for the third quarter of fiscal 2020.

Net rental and miscellaneous expense was $1.2 million for the first thirty-nine weeks of fiscal 2021 compared to $1.0 million for the first thirty-nine weeks of fiscal 2020.

Net rental and miscellaneous expense was $0.3 million for the first quarter of 2022 compared to $0.4 million for the first quarter of 2021.

Other Expense

Other expense consists of pension related expenses other than the service cost component and was $0.6 million for both the third quarter of fiscal 2021 and fiscal 2020.

Other expense was $1.9 million for the first thirty-nine weeks of fiscal 2021 compared to $1.7 million for the first thirty-nine weeks of fiscal 2020.

Other expense consists of pension related expenses other than the service cost component and was $0.6 million for both the first quarter of fiscal 2022 and fiscal 2021.

Income Tax Expense

Income tax expense was $5.1 million, or 25.7% of income before income taxes, for the third quarter of fiscal 2021 compared to $4.5 million, or 25.0% of income before income taxes, for the third quarter of fiscal 2020.

For the first thirty-nine weeks of fiscal 2021, income tax expense was $16.2 million, or 25.4% of income before income taxes, compared to $14.9 million, or 25.3% of income before income taxes, for the comparable period last year.

Net income was $14.7 million, or $1.28 per common share basic and $1.27 per common share diluted, for the third quarter of fiscal 2021, compared to $13.5 million, or $1.17 per common share basic and diluted, for the third quarter of fiscal 2020.

Net income was $47.4 million, or $4.12 per common share basic and $4.10 per common share diluted, for the first thirty-nine weeks of fiscal 2021, compared to net income of $43.9 million, or $3.83 per common share basic and $3.80 per common share diluted, for the first thirty-nine weeks of fiscal 2020.

Income tax expense was $6.8 million, or 26.0% of income before income taxes for the first quarter of fiscal 2022 compared to $4.5 million, or 26.2% of income before income taxes, for the first quarter of fiscal 2021.

Net income was $19.2 million, or $1.67 per common share basic and $1.66 per share diluted, for the first quarter of fiscal 2022, compared to $12.8 million, or $1.12 per common share basic and $1.11 per share diluted, for the first quarter of fiscal 2021.

LIQUIDITY AND CAPITAL RESOURCES

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We anticipate that expected net cash flow generated from operations and amounts available pursuant to the Credit Facility will be sufficient to fund our operations for the next twelve months.

Our available credit under our Credit Facility has allowed us to devote more funds to promote our products, consummate strategic investments and business acquisitions, such as the fiscal 2018 acquisition of the Squirrel Brand business, reinvest in the Company through capital expenditures, develop new products, pay cash dividends and explore other growth strategies outlined in our Strategic Plan.

Our available credit under our Credit Facility has allowed us to devote more funds to promote our products (especially our Fisher

and Orchard Valley Harvest

brands), consummate strategic business acquisitions and investments such as the fiscal 2018 acquisition of the Squirrel Brand business, reinvest in the Company through capital expenditures, develop new products, pay cash dividends the past eight years and explore other growth strategies outlined in our Strategic Plan.

Cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements, which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell.

Current market trends in nut prices and crop estimates also impact nut procurement.

The following table sets forth certain cash flow information for the first three quarters of fiscal 2021 and 2020, respectively (dollars in thousands):

For the Thirty-Nine

The following table sets forth certain cash flow information for the first quarter of fiscal 2022 and 2021, respectively (dollars in thousands):

September 23,

September 24,

Operating activities

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Operating Activities

Net cash provided by operating activities was $77.0 million for the first thirty-nine weeks of fiscal 2021 compared to $35.0 million for the comparative period of fiscal 2020.

The increase in operating cash flow was primarily due to a decreased use of working capital for inventory compared to the first thirty-nine weeks of fiscal 2020.

Total inventories were $151.8 million at March 25, 2021, a decrease of $20.3 million, or 11.8%, from the inventory balance at June 25, 2020, and a decrease of $36.8 million, or 19.5%, from the inventory balance at March 26, 2020.

The decrease in inventory at March 25, 2021 compared to June 25, 2020 was primarily due to lower commodity acquisition costs for all major tree nuts and lower quantities of peanuts and almonds on hand, which was partially offset by greater quantities of walnuts and pecans on hand.

The decrease in inventories at March 25, 2021 compared to March 26, 2020 was primarily due to lower commodity acquisition costs for all major tree nuts, as well as lower quantities of peanuts, almonds and pecans on hand.

Raw nut and dried fruit input stocks, some of which are classified as work-in-process,

decreased 10.6 million pounds, or 14.7%, at March 25, 2021 compared to March 26, 2020.

The weighted average cost per pound of raw nut input stocks on hand at the end of the third quarter of fiscal 2021 decreased 17.8% compared to the end of the third quarter of fiscal 2020 primarily due to lower commodity acquisition costs for all major tree nuts.

Net cash provided by operating activities was $0.9 million for the first quarter of fiscal 2022 compared to $20.6 million for the first quarter of fiscal 2021.

The decrease in operating cash flow is due primarily to an increased use of working capital for inventory, partially offset by a $6.4 million increase in net income.

Inventories increased $4.6 million in fiscal 2022 compared to a $21.7 million decrease in inventories in fiscal 2021 which resulted in a net change of $26.3 million.

Total inventories were $152.6 million at September 23, 2021, an increase of $4.6 million, or 3.1%, from the inventory balance at June 24, 2021, and an increase of $2.2 million, or 1.5%, from the inventory balance at September 24, 2020.

The increase in inventory at September 23, 2021 compared to June 24, 2021 was primarily due to increased quantities of almonds, ingredients, finished goods and packaging which was partially offset by lower quantities of farmer stock pecans, peanuts, walnuts and cashews on hand.

The increase in inventories at September 23, 2021 compared to September 24, 2020 was primarily due to increased quantities of almonds, ingredients and packaging, which was partially offset by lower quantities of farmer stock pecans, peanuts and cashews on hand.

Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased 6.0 million pounds, or 7.2%, at September 23, 2021 compared to September 24, 2020.

The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of the first quarter of fiscal 2022 increased 11.1% compared to the end of the first quarter of fiscal 2021 as the quantities of lower priced peanuts decreased more significantly than the decline in the total quantity of higher priced tree nut and dried fruit input stocks.

Investing Activities

Cash used in investing activities was $13.6 million during the first thirty-nine weeks of fiscal 2021 compared to $10.5 million for the same period last year.

Cash used in investing activities was $1.2 million during the first quarter of fiscal 2022 compared to $6.0 million for the same period last year.

The decrease in cash used in investing activities is due to the $3.9 million net proceeds from disposition of properties.

Capital expenditures were $5.1 million during fiscal 2022 and $6.3 million during fiscal 2021.

We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2022 to be approximately $18.0 million.

The projected increase in capital expenditures from our previous expenditure level is due to a strategic investment for a new product line.

Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for planned capital expenditures.

Financing Activities

Cash used by financing activities was $63.9 million during the first thirty-nine weeks of fiscal 2021 compared to $25.0 million for the same period last year.

Net repayments under our Credit Facility were $1.0 million during the first three quarters of fiscal 2021 compared to borrowings of $38.2 million during the first three quarters of fiscal 2020.

The decrease in short term borrowings under our Credit Facility was due to less cash used for working capital for inventory due primarily to lower commodity acquisition costs for all major tree nuts.

Cash provided by financing activities was $0.2 million during the first quarter of fiscal 2022 compared to $15.4 million used in financing activities for the same period last year.

The dividends paid in fiscal 2022 to date were approximately $5.8 million more than the same period of fiscal 2021.

Offsetting this usage of cash is an increase in net short-term borrowings under our Credit Facility needed for working capital purposes.

Net short-term borrowings were $36.6 million during the first quarter of fiscal 2022 compared to net borrowings of $17.2 million for the first quarter of fiscal 2021.

Real Estate Matters

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On February 7, 2008, we entered into the Former Credit Agreement (as defined below) with a bank group (the “Bank Lenders”) providing a $117.5 million revolving loan commitment and letter of credit subfacility.

Also on February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $36.0 million (“Tranche A”) and the other in the amount of $9.0 million (“Tranche B”), for an aggregate amount of $45.0 million (the “Mortgage Facility”).

On 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”).

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The Amended and Restated Credit Facility is secured by substantially all of our assets other than machinery and equipment, real property, and fixtures and matures on March 5, 2025.

The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).

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”).

Credit Facility

At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% (“Base Rate”) or (ii) a rate based upon the London interbank offered rate (“LIBOR”) plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%.

At March 25, 2021, the weighted average interest rate for the Credit Facility was 2.0%.

At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% or (ii) a rate based upon the London interbank offered rate (“LIBOR”) plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%.

At September 23, 2021, the weighted average interest rate for the Credit Facility was 2.1%.

The terms of the Credit Facility contain covenants that, among other things, require us to restrict investments, indebtedness, acquisitions and certain sales of assets and limit annual cash dividends or distributions, transactions with affiliates, redemptions of capital stock and prepayment of indebtedness (if such prepayment, among other things, is of a subordinate debt).

If loan availability under the borrowing base calculation falls below $25.0 million, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months.

If loan availability under the borrowing base calculation falls below $25.0 million, we will be required to maintain a

specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months.

All cash received from customers is required to be applied against the Credit Facility.

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with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility (including a default under the Mortgage Facility).

As of March 25, 2021, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future.

At March 25, 2021, we had $88.3 million of available credit under the Credit Facility.

If this entire amount were borrowed at March 25, 2021, we would still be in compliance with all restrictive covenants under the Credit Facility.

As of September 23, 2021, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future.

At September 23, 2021, we had $68.0 million of available credit under the Credit Facility.

If this entire amount were borrowed at September 23, 2021, we would still be in compliance with all restrictive covenants under the Credit Facility.

Mortgage Facility

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with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility.

As of March 25, 2021, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $6.6 million was outstanding.

As of September 23, 2021, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $5.0 million was outstanding.

Selma Property

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The lease extension also reduced the monthly lease payment on the Selma Properties, beginning in September 2016, to reflect then current market conditions.

At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments increased to $114 beginning in September 2021.

One five-year renewal option remains.

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No gain or loss was recorded on the Selma Properties transaction.

As of March 25, 2021, $9.1 million of the debt obligation was outstanding.

Squirrel Brand Seller-Financed Note

In November 2017 we completed the Squirrel Brand acquisition.

The acquisition was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for $11.5 million, which was repaid in full during the second quarter of fiscal 2021.

As of September 23, 2021, $8.8 million of the debt obligation was outstanding.

Critical Accounting Policies and Estimates

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FORWARD LOOKING STATEMENTS

Some of the statements in this report are forward-looking.

Some of the statements in this report are forward-looking (including statements concerning our expectations regarding market risk and the impact of the purchasing decisions of major customers).

These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties.

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Among the factors that could cause results to differ materially from current expectations are:

(i) the risks associated with our vertically integrated model with respect to pecans, peanuts and walnuts;

(ii) sales activity for the Company’s products, such as a decline in sales to one or more key customers (of branded products, private label products or otherwise), or to customers generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products;

(iii) changes in the availability and costs of raw materials and the impact of fixed price commitments with customers;

(iv) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases;

(v) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively;

(vi) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures, including competition in the recipe nut category;

(vii) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products;

(viii) the ability of the Company to control expenses, such as transportation, compensation, medical and administrative expenses;

(ix) the potential negative impact of government regulations and laws and regulations pertaining to food safety, such as the Food Safety Modernization Act;

(x) uncertainty in economic conditions, including the potential for economic downturn, particularly in light of the outbreak of COVID-19;

(xi) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control;

(xii) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued;

(xiii) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to illness or quarantine;

(xiv) the ability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels;

(xv) technology disruptions or failures, including disruptions due to employees working remotely;

(xvi) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes;

(xvii) the Company’s ability to manage successfully the price gap between its private brand products and those of its branded competitors;

and (xviii) the ability of the Company to respond to or manage the outbreak of COVID-19

(i) sales activity for the Company’s products, such as a decline in sales to one or more key customers (of branded products, private label products or otherwise), or to customers generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products;

(ii) changes in the availability and costs of raw materials and ingredients and the impact of fixed price commitments with customers;

(iii) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases;

(iv) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively;

(v) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures, including competition in the recipe nut category;

(vi) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products;

(vii) the ability of the Company to control costs and manage shortages in areas such as transportation and labor;

(viii) uncertainty in economic conditions, including the potential for inflation or economic downturn, particularly in light of COVID-19;

(ix) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control;

(x) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued;

(xi) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to labor shortages, illness or quarantine;

(xii) the ability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels;

(xiii) technology disruptions or failures;

(xiv) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes;

(xv) our ability to manage the impacts of changing weather patterns on raw material availability due to climate change;

and (xvi) the ability of the Company to respond to or manage the outbreak of COVID-19

or other infectious diseases and the various implications thereof.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis