SANFILIPPO JOHN B & SON INC 10-Q

Item 1. Financial Statements JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Net sales $ 253,207 $ 233,575 $ 479,536 $ 443,848 Cost of sales 200,977 180,780 375,503 351,721 Gross profit 52,230 52,795 104,033 92,127 Operating expenses: Selling expenses 23,567 17,694 41,312 29,778 Administrative expenses 10,401 7,305 19,470 15,680 Gain on sale of facility, net — — ( 2,349 ) — Total operating expenses 33,968 24,999 58,433 45,458 Income from operations 18,262 27,796 45,600 46,669 Other expense: Interest expense including $ 203 , $ 165 , $ 392 and $ 332 to related parties 420 376 791 826 Rental and miscellaneous expense, net 323 365 671 797 Other expense 619 629 1,237 1,259 Total other expense, net 1,362 1,370 2,699 2,882 Income before income taxes 16,900 26,426 42,901 43,787 Income tax expense 3,653 6,541 10,405 11,090 Net income $ 13,247 $ 19,885 $ 32,496 $ 32,697 Other comprehensive income: Amortization of prior service cost and actuarial loss included in net periodic pension cost 364 414 728 830 Income tax expense related to pension adjustments ( 95 ) ( 103 ) ( 190 ) ( 207 ) Other comprehensive income, net of tax 269 311 538 623 Comprehensive income $ 13,516 $ 20,196 $ 33,034 $ 33,320 Net income per common share-basic $ 1.15 $ 1.73 $ 2.82 $ 2.85 Net income per common share-diluted $ 1.14 $ 1.72 $ 2.81 $ 2.83 The accompanying unaudited notes are an integral part of these consolidated financial statements. 3 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 23, 2021 June 24, 2021 December 24, 2020 ASSETS CURRENT ASSETS: Cash $ 1,027 $ 672 $ 1,763 Accounts receivable, less allowance for doubtful accounts of $ 358 , $ 291 and $ 325 65,032 66,334 60,495 Inventories 178,741 147,998 155,371 Prepaid expenses and other current assets 12,764 8,568 9,872 Assets held for sale — 1,595 — TOTAL CURRENT ASSETS 257,564 225,167 227,501 PROPERTY, PLANT AND EQUIPMENT: Land 9,150 9,150 9,277 Buildings 102,801 102,666 110,611 Machinery and equipment 228,418 225,529 224,458 Furniture and leasehold improvements 5,296 5,287 5,199 Vehicles 614 614 642 Construction in progress 17,254 12,301 6,577 363,533 355,547 356,764 Less: Accumulated depreciation 245,607 238,471 244,447 117,926 117,076 112,317 Rental investment property, less accumulated depreciation of $ 13,229 , $ 12,825 and $ 12,422 15,894 16,298 16,701 TOTAL PROPERTY, PLANT AND EQUIPMENT 133,820 133,374 129,018 Intangible assets, net 8,953 9,961 10,968 Cash surrender value of officers’ life insurance and other assets 9,579 10,732 9,017 Deferred income taxes 4,304 6,087 7,288 Goodwill 9,650 9,650 9,650 Operating lease right-of-use assets 2,852 3,484 4,119 TOTAL ASSETS $ 426,722 $ 398,455 $ 397,561 The accompanying unaudited notes are an integral part of these consolidated financial statements. 4 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 23, 2021 June 24, 2021 December 24, 2020 LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $ 35,885 $ 8,653 $ 9,169 Current maturities of long-term debt, including related party debt of $ 586 , $ 627 and $ 605 and net of unamortized debt issuance costs of $ 9 , $ 15 and $ 20 3,909 3,875 3,780 Accounts payable 63,452 48,861 52,140 Bank overdraft 1,668 1,093 1,510 Accrued payroll and related benefits 12,832 24,109 13,470 Other accrued expenses 13,080 10,774 10,907 Income taxes payable — 2,839 7,012 TOTAL CURRENT LIABILITIES 130,826 100,204 97,988 LONG-TERM LIABILITIES: Long-term debt, less current maturities, including related party debt of $ 8,088 , $ 8,320 and $ 8,639 and net of unamortized debt issuance costs of $ 1 , $ 4 and $ 10 8,943 10,855 12,817 Retirement plan 35,596 34,919 32,146 Long-term operating lease liabilities, net of current portion 1,504 2,103 2,704 Other 8,050 7,880 7,899 TOTAL LONG-TERM LIABILITIES 54,093 55,757 55,566 TOTAL LIABILITIES 184,919 155,961 153,554 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $ .01 par value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding 26 26 26 Common Stock, non-cumulative voting rights of one vote per share, $ .01 par value; 17,000,000 shares authorized, 9,044,960 , 8,988,812 and 8,983,588 shares issued 90 90 90 Capital in excess of par value 127,080 126,271 125,032 Retained earnings 124,298 126,336 128,070 Accumulated other comprehensive loss ( 8,487 ) ( 9,025 ) ( 8,007 ) Treasury stock, at cost; 117,900 shares of Common Stock ( 1,204 ) ( 1,204 ) ( 1,204 ) TOTAL STOCKHOLDERS’ EQUITY 241,803 242,494 244,007 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 426,722 $ 398,455 $ 397,561 The accompanying unaudited notes are an integral part of these consolidated financial statements. 5 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Dollars in thousands, except share and per share amounts) Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 24, 2021 2,597,426 $ 26 8,988,812 $ 90 $ 126,271 $ 126,336 $ ( 9,025 ) $ ( 1,204 ) $ 242,494 Net income 19,249 19,249 Cash dividends ($ 3.00 per share) ( 34,534 ) ( 34,534 ) Pension liability amortization, net of income tax expense of $ 95 269 269 Equity award exercises , net of shares withheld for employee taxes 1,168 — ( 16 ) ( 16 ) Stock-based compensation expense 703 703 Balance, September 23, 2021 2,597,426 $ 26 8,989,980 $ 90 $ 126,958 $ 111,051 $ ( 8,756 ) $ ( 1,204 ) $ 228,165 Net income 13,247 13,247 Pension liability amortization, net of income tax expense of $ 95 269 269 Equity award exercises, net of shares withheld for employee taxes 54,980 — ( 946 ) ( 946 ) Stock-based compensation expense 1,068 1,068 Balance, December 23, 2021 2,597,426 $ 26 9,044,960 $ 90 $ 127,080 $ 124,298 $ ( 8,487 ) $ ( 1,204 ) $ 241,803 Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 25, 2020 2,597,426 $ 26 8,939,890 $ 89 $ 123,899 $ 124,058 $ ( 8,630 ) $ ( 1,204 ) $ 238,238 Net income 12,812 12,812 Cash dividends ($ 2.50 per share) ( 28,685 ) ( 28,685 ) Pension liability amortization, net of income tax expense of $ 104 312 312 Equity award exercises 221 — — — Stock-based compensation expense 622 622 Balance, September 24, 2020 2,597,426 $ 26 8,940,111 $ 89 $ 124,521 $ 108,185 $ ( 8,318 ) $ ( 1,204 ) $ 223,299 Net income 19,885 19,885 Pension liability amortization, net of income tax expense of $ 103 311 311 Equity award exercises , net of shares withheld for employee taxes 43,477 1 ( 487 ) ( 486 ) Stock-based compensation expense 998 998 Balance, December 24, 2020 2,597,426 $ 26 8,983,588 $ 90 $ 125,032 $ 128,070 $ ( 8,007 ) $ ( 1,204 ) $ 244,007 The accompanying unaudited notes are an integral part of these consolidated financial statements. 6 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32,496 $ 32,697 Depreciation and amortization 9,143 9,089 Gain on disposition of assets, net ( 1,765 ) ( 2,530 ) Deferred income tax expense (benefit) 1,783 ( 500 ) Stock-based compensation expense 1,771 1,620 Change in assets and liabilities: Accounts receivable, net 1,302 ( 1,247 ) Inventories ( 30,743 ) 16,697 Prepaid expenses and other current assets ( 3,429 ) ( 1,557 ) Accounts payable 16,244 16,244 Accrued expenses ( 8,971 ) ( 11,993 ) Income taxes payable ( 3,606 ) 1,871 Other long-term assets and liabilities 379 344 Other, net 1,216 1,200 Net cash provided by operating activities 15,820 61,935 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 9,485 ) ( 11,121 ) Proceeds from dispositions of assets, net 3,950 294 Other ( 354 ) 93 Net cash used in investing activities ( 5,889 ) ( 10,734 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings (repayments) 27,232 ( 17,839 ) Principal payments on long-term debt ( 1,887 ) ( 3,432 ) Increase (decrease) in bank overdraft 575 ( 531 ) Dividends paid ( 34,534 ) ( 28,685 ) Taxes paid related to net share settlement of equity awards ( 962 ) ( 486 ) Net cash used in financing activities ( 9,576 ) ( 50,973 ) NET INCREASE IN CASH 355 228 Cash, beginning of period 672 1,535 Cash, end of period $ 1,027 $ 1,763 The accompanying unaudited notes are an integral part of these consolidated financial statements. 7 JOHN B. SANFILIPPO & SON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except where noted and per share data) Note 1 – Basis of Presentation and Description of Business As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows: • References herein to fiscal 2022 and fiscal 2021 are to the 53 week fiscal year ending June 30, 2022 and the 52 week fiscal year ended June 24, 2021, 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 2022 and fiscal 2021 are to the twenty-six weeks ended December 23, 2021 and December 24, 2020, respectively. We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States. These nuts are sold under our Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Sunshine Country brand names and under a variety of private brands. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers. The accompanying unaudited financial statements fairly present the consolidated statements of comprehensive income, consolidated balance sheets, consolidated statements of stockholders’ equity and consolidated statements of cash flows, and reflect all adjustments, consisting only of normal recurring adjustments which are necessary for the fair statement of the results of the interim periods. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The interim results of operations are not necessarily indicative of the results to be expected for a full year. The balance sheet data as of June 24, 2021 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, these unaudited financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K for the fiscal year ended June 24, 2021. Note 2 – Revenue Recognition We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For each customer contract, a five-step process is followed in which we identify the contract, identify performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is transferred to the customer. When Performance Obligations Are Satisfied A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of raw and processed recipe and snack nuts, nut butters and trail mixes. 8 Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data. Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Therefore, the timing of our revenue recognition requires little judgment. Variable Consideration Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates, in-store display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management judgment when determining estimates. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment. We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required. Contract Balances Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. The contract asset balance at June 24, 2021 was $ 74 and was recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance for the other periods presented. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers. Disaggregation of Revenue Revenue disaggregated by sales channel is as follows: For the Quarter Ended For the Twenty-six Weeks Ended Distribution Channel December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Consumer $ 203,479 $ 192,029 $ 383,240 $ 358,786 Commercial Ingredients 27,756 20,536 55,912 43,347 Contract Packaging 21,972 21,010 40,384 41,715 Total $ 253,207 $ 233,575 $ 479,536 $ 443,848 9 Note 3 – Leases Description of Leases We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain non-lease components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order. We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 4.8 years. It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and non-lease components for all leases. The following table provides supplemental information related to operating lease right-of-use assets and liabilities: December 23, 2021 June 24, 2021 December 24, 2020 Affected Line Item in Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 2,852 $ 3,484 $ 4,119 Operating lease right-of-use assets Total lease right-of-use assets $ 2,852 $ 3,484 $ 4,119 Liabilities Current: Operating leases $ 1,392 $ 1,430 $ 1,429 Other accrued expenses Noncurrent: Operating leases 1,504 2,103 2,704 Long-term operating lease liabilities Total lease liabilities $ 2,896 $ 3,533 $ 4,133 The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions: For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Operating lease costs (a) $ 470 $ 477 $ 914 $ 950 Variable lease costs (b) 19 17 36 37 Total Lease Cost $ 489 $ 494 $ 950 $ 987 (a) Includes short-term leases which are immaterial. (b) Variable lease costs consist of sales tax. 10 Supplemental cash flow and other information related to leases was as follows: For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 Operating cash flows information: Cash paid for amounts included in measurements for lease liabilities $ 794 $ 810 Non-cash activity: Right-of-use assets obtained in exchange for new operating lease obligations $ 89 $ 490 December 23, 2021 June 24, 2021 December 24, 2020 Weighted Average Remaining Lease Term (in years) 2.5 2.8 3.1 Weighted Average Discount Rate 4.2 % 4.3 % 4.3 % Maturities of operating lease liabilities as of December 23, 2021 are as follows: Fiscal year ending June 30, 2022 (excluding the twenty-six weeks ended December 23, 2021) $ 772 June 29, 2023 1,280 June 27, 2024 637 June 26, 2025 260 June 25, 2026 86 June 24, 2027 7 Thereafter — Total lease payment 3,042 Less imputed interest ( 146 ) Present value of operating lease liabilities $ 2,896 Lessor Accounting We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a straight-line basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of non-lease components such as recurring utility and storage fees. Leases between related parties are immaterial. Leasing revenue is as follows: For the Quarter ended For the Twenty-six weeks ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Lease income related to lease payments $ 408 $ 452 $ 818 $ 903 11 The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years and thereafter is presented below. Fiscal year ending June 30, 2022 (excluding the twenty-six weeks ended December 23, 2021) $ 880 June 29, 2023 1,794 June 27, 2024 1,818 June 26, 2025 1,228 June 25, 2026 670 June 24, 2027 614 Thereafter — $ 7,004 Note 4 – Inventories Inventories consist of the following: December 23, 2021 June 24, 2021 December 24, 2020 Raw material and supplies $ 71,960 $ 64,219 $ 66,793 Work-in-process and finished goods 106,781 83,779 88,578 Total $ 178,741 $ 147,998 $ 155,371 Note 5 – Goodwill and Intangible Assets Identifiable intangible assets that are subject to amortization consist of the following: December 23, 2021 June 24, 2021 December 24, 2020 Customer relationships $ 21,100 $ 21,100 $ 21,100 Brand names 16,990 16,990 16,990 Non-compete agreement 270 270 270 38,360 38,360 38,360 Less accumulated amortization: Customer relationships ( 18,279 ) ( 17,643 ) ( 17,008 ) Brand names ( 10,908 ) ( 10,562 ) ( 10,217 ) Non-compete agreement ( 220 ) ( 194 ) ( 167 ) ( 29,407 ) ( 28,399 ) ( 27,392 ) Net intangible assets $ 8,953 $ 9,961 $ 10,968 Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of the Squirrel Brand and Southern Style Nuts brand names. Total amortization expense related to intangible assets, which is a component of “Administrative expenses” on the Consolidated Statements of Comprehensive Income, was $ 504 and $ 1,008 for the quarter and twenty-six weeks ended December 23, 2021, respectively. Amortization expense for the remainder of fiscal 2022 is expected to be approximately $ 888 and expected amortization expense the next five fiscal years is as follows: Fiscal year ending June 29, 2023 $ 1,657 June 27, 2024 1,414 June 26, 2025 1,156 June 25, 2026 861 June 24, 2027 690 Our net goodwill of $ 9,650 relates entirely to the Squirrel Brand acquisition completed in the second quarter of fiscal 2018. There was no change in the carrying amount of goodwill during the twenty-six weeks ended December 23, 2021. 12 Note 6 – Credit Facility Our Amended and Restated Credit Agreement dated March 5, 2020 provides for a $ 117,500 senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures. At December 23, 2021, we had $ 77,330 of available credit under the Credit Facility which reflects borrowings of $ 35,885 and reduced availability as a result of $ 4,285 in outstanding letters of credit. As of December 23, 2021, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility. Note 7 – Earnings Per Common Share The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share: For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Weighted average number of shares outstanding – basic 11,531,844 11,493,759 11,525,730 11,485,523 Effect of dilutive securities: Restricted stock units 44,812 39,767 56,912 56,534 Weighted average number of shares outstanding – diluted 11,576,656 11,533,526 11,582,642 11,542,057 There were no anti-dilutive awards excluded from the computation of diluted earnings per share for any periods presented. Note 8 – Stock-Based Compensation Plans During the second quarter of fiscal 2022, there were 53,524 restricted stock units (“RSUs”) awarded to employees and non-employee members of the Board of Directors. The vesting period is generally three years for awards to employees and one year for awards to non-employee directors. The following is a summary of RSU activity for the first half of fiscal 2022: Restricted Stock Units Shares Weighted Average Grant Date Fair Value Outstanding at June 24, 2021 159,846 $ 58.05 Activity: Granted 53,524 75.94 Vested (a) ( 67,598 ) 45.91 Forfeited — — Outstanding at December 23, 2021 145,772 $ 70.25 (a) The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements. At December 23, 2021, there were 23,356 RSUs outstanding that were vested but deferred. 13 The following table summarizes compensation expense charged to earnings for all equity compensation plans for the periods presented: For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Stock-based compensation expense $ 1,068 $ 998 $ 1,771 $ 1,620 As of December 23, 2021, there was $ 6,064 of total unrecognized compensation expense related to non-vested RSUs granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.9 years. Note 9 – Retirement Plan The Supplemental Employee Retirement Plan is an unfunded, non-qualified deferred compensation plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. The monthly benefit is based upon each participant’s earnings and his or her number of years of service. The components of net periodic benefit cost are as follows: For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Service cost $ 247 $ 236 $ 495 $ 472 Interest cost 255 215 509 429 Amortization of prior service cost — 119 — 239 Amortization of loss 364 295 728 591 Net periodic benefit cost $ 866 $ 865 $ 1,732 $ 1,731 The components of net periodic benefit cost other than the service cost component are included in the line item “Other expense” in the Consolidated Statements of Comprehensive Income. 14 Note 10 – Accumulated Other Comprehensive Loss The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the twenty-six weeks ended December 23, 2021 and December 24, 2020. These changes are all related to our defined benefit pension plan. For the Twenty-Six Weeks Ended Changes to AOCL (a) December 23, 2021 December 24, 2020 Balance at beginning of period $ ( 9,025 ) $ ( 8,630 ) Other comprehensive income before reclassifications — — Amounts reclassified from accumulated other comprehensive loss 728 830 Tax effect ( 190 ) ( 207 ) Net current-period other comprehensive income 538 623 Balance at end of period $ ( 8,487 ) $ ( 8,007 ) (a) Amounts in parenthesis indicate debits/expense. The reclassifications out of AOCL for the quarter and twenty-six weeks ended December 23, 2021 and December 24, 2020 were as follows: Affected line item in the Consolidated Statements of Comprehensive Income Reclassifications from AOCL to earnings (b) For the Quarter Ended For the Twenty-six Weeks Ended December 23, 2021 December 24, 2020 December 23, 2021 December 24, 2020 Amortization of defined benefit pension items: Unrecognized prior service cost $ — $ ( 119 ) $ — $ ( 239 ) Other expense Unrecognized net loss ( 364 ) ( 295 ) ( 728 ) ( 591 ) Other expense Total before tax ( 364 ) ( 414 ) ( 728 ) ( 830 ) Tax effect 95 103 190 207 Income tax expense Amortization of defined pension items, net of tax $ ( 269 ) $ ( 311 ) $ ( 538 ) $ ( 623 ) (b) Amounts in parenthesis indicate debits to expense. See Note 9 – “Retirement Plan” above for additional details. Note 11 – Commitments and Contingent Liabilities We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our Company’s financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial monetary damages in excess of any appropriate accruals, which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. 15 Note 12 – Fair Value of Financial Instruments The Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels: Level 1 – Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. Level 2 – Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3 – Unobservable inputs for which there is little or no market data available. The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at each balance sheet date because of the short-term maturities and nature of these balances. The carrying value of our revolving credit facility borrowings approximates fair value at each balance sheet date because interest rates on this instrument approximate current market rates (Level 2 criteria), and because of the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk. The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs: December 23, 2021 June 24, 2021 December 24, 2020 Carrying value of long-term debt: $ 12,862 $ 14,749 $ 16,627 Fair value of long-term debt: 14,282 16,210 17,180 The estimated fair value of our long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt. Note 13 – Garysburg, North Carolina Facility In October 2019 we experienced a fire at our peanut processing facility located in Garysburg, North Carolina. During fiscal 2020, the building and roof were repaired and brought back to their original condition. We completed shelling of the 2019 peanut crop during the second quarter of fiscal 2021 and the facility was used to store and ship inshell peanuts through the remainder of fiscal 2021, at which time the Company decided to permanently cease all operations at the Garysburg facility. During the first quarter of fiscal 2022 we sold the Garysburg property and remaining equipment located at the property to a third party for $ 4,000 , subject to customary adjustments to reflect closing costs, which resulted in a $ 2,349 gain. 16 Note 14 – Recent Accounting Pronouncements The following recent accounting pronouncements have been adopted in the current fiscal year: In December 2019, the FASB issued ASU No. 2019-12 “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” . The amendments in this Update were issued as part of FASB’s initiative to reduce complexity in accounting standards. The amendments simplify the accounting for income taxes by removing certain exceptions in Topic 740 and improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU No. 2019-12 was adopted using a prospective method in the first quarter of fiscal 2022 and did not have a material impact on our Consolidated Financial Statements. In October 2020, the FASB issued ASU No. 2020-10 “Codification Improvements” . This ASU was issued to address a wide variety of topics in the Accounting Standard Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU No. 2020-10 was adopted in the first quarter of fiscal 2022 and did not have a material impact on our Consolidated Financial Statements. There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Consolidated Financial Statements. 17