What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-27 compared with 2021-10-27 · 182 added, 108 removed, 145 unchanged (67% of the section changed)

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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.

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

References herein to the first half or first twenty-six

weeks of fiscal 2021 and fiscal 2020 are to the twenty-six

weeks ended December 23, 2021 and December 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 a variety of private brands and under the Fisher, Orchard Valley Harvest,

These nuts are sold under our 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, 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 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 distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

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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 recently due to this increased competition for market share.

We also face changing industry trends as consumer preferences evolve.

We 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.

We have also experienced supply chain issues related to transportation delays.

These shortages and related challenges have impacted our operations and resulted in increased expenses and manufacturing inefficiencies that have adversely impacted (and may continue to impact) our net income.

We anticipate 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 or unpredictable for a longer period of time.

We are working with our vendors, customers and suppliers to source additional raw materials and packaging supplies and to remain flexible in obtaining the transportation and labor services we need.

If these shortages and other supply chain issues 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 will continue to focus our promotional and advertising activity to invest in our brands to achieve growth.

We intend to execute 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 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

performance across our branded portfolio and anticipate taking various actions 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 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 our fiscal 2022 as a result of the COVID-19

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

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

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

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

retail customers.

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.

However, demand from these customers could be negatively impacted in the third quarter if conditions deteriorate as a result of the recent surge in COVID-19

cases due to the Omicron variant, a more contagious strain of COVID-19.

Our financial results could be adversely impacted if the decrease in sales to foodservice, restaurant, convenience store and non-essential

retail customers is not offset by an increase in sales in our consumer channel that is driven by customers eating at home.

Also, during fiscal 2021 and into the first half of fiscal 2022, we have experienced the implications from a shortage in capacity in the transportation industry.

Compounding this 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.

While we have mitigated some of the impact from transportation shortages and increased prices of transportation, we may continue to face an unpredictable transportation environment, and there is no guarantee our mitigation strategies will continue to be effective.

The Company’s COVID-19

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

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

In addition, we have 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 highly encourage our employees to get vaccinated (including booster shots) and provide incentives to those who do.

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.

To date, none of our manufacturing facilities have been significantly impacted by this pandemic other than from manufacturing inefficiencies due to production scheduling challenges.

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.

cases due to the Omicron variant could have a negative impact on our plant personnel attendance rates, our suppliers’ ability to maintain supply of key materials and, therefore, our operations.

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 $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.

Our net sales of $253.2 million for the second quarter of fiscal 2022 increased 8.4% from our net sales of $233.6 million for the second quarter of fiscal 2021.

Net sales for the first twenty-six

weeks of fiscal 2022 increased by $35.7 million, or 8.0%, to $479.5 million compared to the first twenty-six

weeks of fiscal 2021.

Sales volume, measured as pounds sold to customers, increased 6.0% for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

Sales volume for the first twenty-six

weeks of fiscal 2022 increased 9.7% compared to the first twenty-six

weeks of fiscal 2021.

Gross profit decreased by $0.6 million, and our gross profit margin, as a percentage of net sales, decreased to 20.6% for the second quarter of fiscal 2022 compared to 22.6% for the second quarter of fiscal 2021.

Gross profit increased $11.9 million and our gross profit margin increased to 21.7% from 20.8% for the first twenty-six

weeks of fiscal 2022 compared to the first twenty-six

weeks of fiscal 2021.

Total operating expenses for the second quarter of fiscal 2022 increased by $9.0 million, or 35.9%, compared to the second quarter of fiscal 2021.

As a percentage of net sales, total operating expenses in the second quarter of fiscal 2022 increased to 13.4% from 10.7% for the second quarter of fiscal 2021.

For the first half of fiscal 2022, total operating expenses increased by $13.0 million, to 12.2% of net sales compared to 10.2% for the first half of fiscal 2021.

The total value of inventories on hand at the end of the second quarter of fiscal 2022 increased by $23.4 million, or 15.0%, in comparison to the total value of inventories on hand at the end of the second quarter of fiscal 2021.

We have seen acquisition costs for dried fruit and most major nut categories increase in the 2021 crop year (which falls into our current 2022 fiscal year).

We completed procurement of inshell walnuts during the first half of fiscal 2022.

During the third quarter, 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.

Any difference between our estimated liability and the actual final liability will be determined during the third quarter of fiscal 2022 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

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.

Our net sales increased 8.4% to $253.2 million in the second quarter of fiscal 2022 compared to net sales of $233.6 million for the second quarter of fiscal 2021.

The increase in net sales was primarily attributable to a 6.0% increase in sales volume, which is defined as pounds sold to customers, and a 2.3% increase in the weighted average sales price per pound.

The increase in the weighted average selling price per pound came from a shift in product mix from lower priced peanuts to higher priced trail and snack mixes and tree nuts as consumer preferences favored higher priced products in the current second quarter.

For the first twenty-six

weeks of fiscal 2022 our net sales were $479.5 million, an increase of $35.7 million, or 8.0%, compared to the same period of fiscal 2021.

The increase in net sales was primarily attributable to a 9.7% increase in sales volume, which was partially offset by a 1.5% decrease in the weighted average selling price per pound for our products.

The decline in the weighted average selling price resulted from a decline in commodity acquisition costs for all major tree nuts except cashews.

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

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For the Quarter Ended

September 23,

September 24,

For the Twenty-six

Cashews & Mixed Nuts

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Distribution Channel

September 23,

September 24,

Commercial Ingredients

Contract Packaging

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 $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 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 of branded products were approximately 28% and 30% of total consumer sales during each of the second quarter of fiscal 2022 and fiscal 2021, respectively.

branded products were approximately 71% and 74% of branded sales during the second quarter of fiscal 2022 and fiscal 2021, respectively, with Orchard Valley Harvest

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 Twenty-six

Distribution Channel

Commercial Ingredients

Contract Packaging

Sales of branded products were approximately 24% and 27% of total consumer sales during the first twenty-six

weeks of fiscal 2022 and fiscal 2021, respectively.

branded products were approximately 67% and 70% of branded sales during the first twenty-six

weeks of fiscal 2022 and fiscal 2021, respectively, with Orchard Valley Harvest

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

Net sales in the consumer distribution channel increased $11.5 million, or 6.0%, and sales volume increased 2.2% in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

The sales volume increase was driven by increased sales of private brand trail and snack mixes, almonds and mixed nuts mainly from new distribution at existing customers, which was partially offset by a decrease in sales for private brand peanuts and cashews.

Sales volume increases for all of our branded products with the exception of Fisher

snack nuts also contributed to the sales volume increase.

Sales volume of Fisher

recipe nuts increased 9.6% as a result of increased distribution and merchandising activity at two existing grocery 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.

snack nuts decreased 45.0%, primarily as a result of the discontinuance of our inshell peanut product line, which occurred in the fourth quarter of fiscal 2021, and a seasonal rotation at a club store that did not repeat in the current second quarter.

of Orchard Valley Harvest

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

products increased 4.1% due to increased sales 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, and new distribution at an internet retailer.

These gains were partially offset by reduced merchandising activity and item discontinuance at a mass merchandising retailer.

Sales volume of Southern Style Nuts

increased 8.5% due to increased promotional activity at a current club store customer.

In the first twenty-six

weeks of fiscal 2022, net sales in the consumer distribution channel increased $24.5 million, or 6.8%, and sales volume increased 7.2% compared to the same period of fiscal 2021.

The sales volume increase was driven by increased sales of private brand trail and snack mixes and mixed nuts mainly from new distribution at existing customers, which was partially offset by a decrease in sales volume for private brand peanuts and a sales volume decline for our Fisher

snack nuts for the same reasons cited in the quarterly comparison.

Net sales in the commercial ingredients distribution channel increased 35.2% in dollars and 27.1% in sales volume in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

The increase in sales volume was due to a 42.7% increase in sales volume in our foodservice business.

The sales volume increase in our foodservice business was attributable to improved conditions in 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.

In the first twenty-six

weeks of fiscal 2022, net sales in the commercial ingredients distribution channel increased 29.0% in dollars and 32.0% in sales volume compared to the same period of fiscal 2021.

The increase in sales volume was due to a 45.2% increase in sales volume in our foodservice business, which occurred for the same reason cited in the quarterly comparison.

Net sales in the contract packaging distribution channel increased 4.6% in dollars and 11.4% in sales volume in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

The increase in sales volume was primarily due to increased promotional and merchandising activity and increased distribution by a major customer in this channel.

In the first twenty-six

weeks of fiscal 2022, net sales in the contract packaging distribution channel decreased 3.2% in dollars and sales volume increased 3.8% compared to the first twenty-six

weeks of fiscal 2021.

The increase in sales volume occurred for the same reasons cited in the quarterly comparison, which was partially offset by promotional activity by the same customer that did not recur in the current year first quarter.

Gross profit decreased by $0.6 million, or 1.1%, to $52.2 million for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

Our gross profit margin, as a percentage of net sales, decreased to 20.6% for the second quarter of fiscal 2022 compared to 22.6% for the second quarter of fiscal 2021.

The decreases in gross profit and gross profit margin were mainly attributable to manufacturing scheduling inefficiencies due to supply chain issues, and inflationary cost increases including labor, freight and manufacturing supplies, which were partially offset by increased sales volume.

Gross profit was $104.0 million for the first twenty-six

weeks of fiscal 2022 compared to $92.1 million for the first twenty-six

weeks of fiscal 2021.

Our gross profit margin, as a percentage of sales, increased to 21.7% for the first twenty-six

weeks of fiscal 2022 compared to 20.8% for the first twenty-six

weeks of fiscal 2021.

The increases in gross profit and gross profit margin in the year to date comparison were primarily attributable to lower commodity acquisition costs for all major tree nuts except cashews and increased sales volume, which were partially offset by the manufacturing inefficiencies and inflationary cost increases cited in the quarterly comparison.

Operating Expenses

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.

Total operating expenses for the second quarter of fiscal 2022 increased by $9.0 million, or 35.9%, to $34.0 million.

Operating expenses increased to 13.4% of net sales for the second quarter of fiscal 2022 compared to 10.7% of net sales for the second quarter of fiscal 2021.

Selling expenses for the second quarter of fiscal 2022 were $23.6 million, an increase of $5.9 million, or 33.2%, from the second quarter of fiscal 2021.

The increase was driven primarily by a $3.0 million increase in advertising, consumer insight research and related consulting expenses, a $1.9 million increase in freight expense due to higher rates and an increase in sales pounds shipped, a $0.3 million increase in commissions expense and a $0.3 million increase in payroll and payroll-related expenses.

Administrative expenses for the second quarter of fiscal 2022 were $10.4 million compared to $7.3 million for the second quarter of fiscal 2021.

The increase was due to a $2.8 million decrease in the gain on asset disposals, primarily driven by an insurance settlement gain of $2.3 million in the second quarter of fiscal 2021 related to the fire that occurred in our Garysburg, North Carolina facility that did not reoccur in the current quarter.

Total operating expenses for the first twenty-six

weeks of fiscal 2022 increased by $13.0 million, or 28.5%, to $58.4 million.

Operating expenses increased to 12.2% of net sales for the first half of fiscal 2022 compared to 10.2% of net sales for the first half of fiscal 2021.

Selling expenses for the first twenty-six

weeks of fiscal 2022 were $41.3 million, an increase of $11.5 million, or 38.7%, from the amount recorded for the first twenty-six

weeks of fiscal 2021.

The increase was driven primarily by a $5.3 million increase in advertising, consumer insight research and related consulting expenses, a $4.3 million increase in freight expense for the same reasons cited in the quarterly comparison, a $0.8 million increase in payroll and payroll related expenses and a $0.5 million increase in commissions expense.

Administrative expenses for the first twenty-six

weeks of fiscal 2022 were $19.5 million, an increase of $3.8 million, or 24.2%, compared to the same period of fiscal 2021.

The increase was primarily due to a $3.1 million decrease in the gain on asset disposals, mainly resulting from the insurance settlement discussed above combined with losses on current year disposals.

A $0.3 million increase in payroll and payroll-related expenses also contributed to the increase.

The $2.3 million gain on sale of facility, net is the result of the sale of our Garysburg, North Carolina facility that occurred in the first quarter of fiscal 2022.

Income from Operations

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.

Due to the factors discussed above, income from operations was $18.3 million, or 7.2% of net sales, for the second quarter of fiscal 2022 compared to $27.8 million, or 11.9% of net sales, for the second quarter of fiscal 2021.

Due to the factors discussed above, income from operations was $45.6 million, or 9.5% of net sales, for the first twenty-six

weeks of fiscal 2022 compared to $46.7 million, or 10.5% of net sales, for the first twenty-six

weeks of fiscal 2021.

Interest Expense

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.

Interest expense was $0.4 million for both the second quarter of fiscal 2022 and fiscal 2021.

Interest expense was $0.8 million for both the first two quarters of fiscal 2022 and fiscal 2021.

Rental and Miscellaneous Expense, Net

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.

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

Net rental and miscellaneous expense was $0.7 million for the first twenty-six

weeks of fiscal 2022 compared to $0.8 million for the first twenty-six

weeks of fiscal 2021.

Other Expense

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.

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

Other expense was $1.2 million for the first twenty-six

weeks of fiscal 2022 compared to $1.3 million for the first twenty-six

weeks of fiscal 2021.

Income Tax Expense

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.

Income tax expense was $3.7 million, or 21.6% of income before income taxes (the “Effective Tax Rate”), for the second quarter of fiscal 2022 compared to $6.5 million, or 24.8% of income before income taxes, for the second quarter of fiscal 2021.

For the first twenty-six

weeks of fiscal 2022, income tax expense was $10.4 million, or 24.3% of income before income taxes, compared to $11.1 million, or 25.3% of income before income taxes, for the comparable period last year.

The decrease in the Effective Tax Rate for both the quarterly and twenty-six

week periods is mainly due to the favorable impact of $0.7 million of discrete tax benefits recognized in the current second quarter.

Net income was $13.2 million, or $1.15 per common share basic and $1.14 per common share diluted, for the second quarter of fiscal 2022, compared to $19.9 million, or $1.73 per common share basic and $1.72 per common share diluted, for the second quarter of fiscal 2021.

Net income was $32.5 million, or $2.82 per common share basic and $2.81 per common share diluted, for the first twenty-six

weeks of fiscal 2022, compared to net income of $32.7 million, or $2.85 per common share basic and $2.83 per common share diluted, for the first twenty-six

weeks 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 (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.

Our available credit under our Credit Facility has allowed us to devote more funds to promote our products, increase consumer insight capabilities and promotional efforts, 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.

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 quarter of fiscal 2022 and 2021, respectively (dollars in thousands):

September 23,

September 24,

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

Operating activities

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Financing activities

Net decrease in cash

Net increase in cash

Operating Activities

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.

Net cash provided by operating activities was $15.8 million for the first twenty-six

weeks of fiscal 2022 compared to $61.9 million for the comparative period of fiscal 2021.

The decrease in operating cash flow was primarily due to an increased use of working capital for inventory compared to the first twenty-six

weeks of fiscal 2021 primarily due to increasing commodity acquisition costs.

Total inventories were $178.7 million at December 23, 2021, an increase of $30.7 million, or 20.8%, from the inventory balance at June 24, 2021, and an increase of $23.4 million, or 15.0%, from the inventory balance at December 24, 2020.

The increase in inventory at December 23, 2021 compared to June 24, 2021 was primarily due to higher commodity acquisition costs for almost all tree nuts, peanuts, dried fruit and other raw materials and higher quantities of inshell walnuts on hand, which were partially offset by lower quantities of inshell pecans on hand.

The increase in inventories at December 23, 2021 compared to December 24, 2020 was primarily due to higher commodity acquisition costs as noted above, which were partially offset by lower quantities of inshell pecans and cashews on hand.

Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased by 9.9 million pounds, or 16.7%, at December 23, 2021 compared to December 24, 2020 due to lower quantities of inshell pecans, peanuts and cashews on hand.

The weighted average cost per pound of raw nut input stocks on hand at the end of the second quarter of fiscal 2022 increased 24.4% compared to the end of the second quarter of fiscal 2021 primarily due to higher commodity acquisition costs for almost all input stock items, which was partially offset by lower quantities of inshell pecans and cashews.

Investing Activities

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.

Cash used in investing activities was $5.9 million during the first twenty-six

weeks of fiscal 2022 compared to $10.7 million for the same period last year.

Capital asset purchases were $9.5 million during the first half of fiscal 2022 compared to $11.1 million for the first half of fiscal 2021.

Partially offsetting the fiscal 2022 cash outflows for capital asset purchases was $4.0 million cash proceeds (subject to customary adjustments to reflect closing costs) resulting from the sale of our Garysburg, North Carolina facility.

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

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Financing Activities

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.

Cash used in financing activities was $9.6 million during the first twenty-six

weeks of fiscal 2022 compared to $51.0 million for the same period last year.

Net borrowings under our Credit Facility were $27.2 million during the first half of fiscal 2022 compared to net repayments of $17.8 million for the first half of fiscal 2021.

The increase in credit facility borrowings was primarily due to increasing commodity acquisition costs.

Dividends paid in the first half of fiscal 2022 were approximately $5.8 million higher than dividends paid in the same period last year.

Real Estate Matters

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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% 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%.

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 December 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 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.

As of December 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 December 23, 2021, we had $77.3 million of available credit under the Credit Facility.

If this entire amount were borrowed at December 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 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.

As of December 23, 2021, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $4.2 million was outstanding.

Selma Property

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

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

As of December 23, 2021, $8.7 million of the debt obligation was outstanding.

Critical Accounting Policies and Estimates

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(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;

(vii) the ability of the Company to control costs (including inflationary 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;

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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