What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2022-01-27 · 145 added, 175 removed, 152 unchanged (68% 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 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.

References herein to the third quarter of fiscal 2022 and fiscal 2021 are to the quarters ended March 24, 2022 and March 25, 2021, respectively.

References herein to the first three quarters or first thirty-nine weeks of fiscal 2022 and fiscal 2021 are to the thirty-nine weeks ended March 24, 2022 and March 25, 2021, 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 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.

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 at our production facilities.

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

We face changing industry trends as consumer purchasing preferences evolve.

Due to the recent widespread inflation and increasing commodity acquisition costs, we have seen higher selling prices at retail.

With higher prices across our categories and broader food, consumers may purchase fewer snack products, shift their preferences to private brands or lower priced nuts or purchase snack products outside the nut and trail mix category.

With the inflationary environment, we are also seeing signs of consumers shifting to more value-focused channels, such as mass merchandising retailers, club stores and dollar stores.

E-commerce platforms are still showing growth but at a lower rate than we saw during the pandemic.

Additionally, in recent months we have faced challenges with shortages and cost increases for shipping pallets, packaging, imported ingredients, transportation and shipping availability and labor at our production facilities.

The conflict in Ukraine has further exacerbated supply chain disruptions, especially related to sunflower oil used in roasting our nut products and aluminum which is used in certain of our product packaging.

We have also experienced supply chain issues related to transportation delays due to congestion at the ports and a general shortage of drivers.

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 anticipate pricing relief in some of these areas in the coming quarters if and as shortages decrease and supply chains normalize, but we expect that some costs may remain elevated or unpredictable for a longer period of time.

We are working, and will continue to work, 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, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations in the remainder of this fiscal year and into fiscal year 2023.

In addition, as costs increase due to these issues or due to inflationary pressures in general, there is an additional risk of not being able to pass (in part or in full) such potential cost increases onto our customers or in a timely manner.

If we cannot align costs with prices for our products, our operating performance could be adversely impacted.

We will continue to focus our promotional and advertising activity to invest in our brands to achieve growth.

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We continue to see strong e-commerce

performance across our branded portfolio and anticipate taking various actions to accelerate that growth across a variety of established and emerging platforms.

performance across our branded portfolio and anticipate taking various actions with the goal of accelerating 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.

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retail customers.

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

We continued to see improvement during the third quarter of fiscal 2022;

however, these gains were offset in part by the impact of the 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

crisis team continues to meet on a regular basis to discuss risks faced by the Company and mitigation strategies.

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 update and enhance these measures as new guidance is provided.

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 other than from manufacturing inefficiencies due to production scheduling challenges.

However, recent surges in COVID-19

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.

during the first part of the current third quarter.

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

Compounding the associated driver shortage was an increase in demand driven by additional spending on consumer goods, which 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 began to ease during the third quarter of fiscal 2022 as inflation resulted in rising costs which drove down demand in the freight market.

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

QUARTERLY HIGHLIGHTS

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.

Our net sales of $218.6 million for the third quarter of fiscal 2022 increased 5.1% from our net sales of $207.9 million for the third quarter of fiscal 2021.

Net sales for the first thirty-nine weeks of fiscal 2022 increased $46.4 million, or 7.1%, to $698.1 million compared to the first thirty-nine weeks of fiscal 2021.

Sales volume, measured as pounds sold to customers, decreased 2.0 million pounds, or 2.8%, in the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021.

Sales volume for the first thirty-nine weeks of fiscal 2022 increased 12.3 million pounds, or 5.6%, compared to the first thirty-nine weeks of fiscal 2021.

Gross profit decreased $6.6 million, and our gross profit margin, as a percentage of net sales, decreased to 18.0% for the third quarter of fiscal 2022 compared to 22.1% for the third quarter of fiscal 2021.

Gross profit increased $5.3 million and our gross profit margin decreased to 20.5% from 21.2% for the first thirty-nine weeks of fiscal 2022 compared to the first thirty-nine weeks of fiscal 2021.

Total operating expenses for the third quarter of fiscal 2022 decreased $3.0 million, or 11.9%, compared to the third quarter of fiscal 2021.

As a percentage of net sales, total operating expenses in the third quarter of fiscal 2022 decreased to 10.1% from 12.0% for the third quarter of fiscal 2021.

For the first thirty-nine weeks of fiscal 2022, total operating expenses increased $10.0 million, and total operating expenses as a percentage of net sales increased to 11.5% from 10.8% compared to the first thirty-nine weeks of fiscal 2021.

The total value of inventories on hand at the end of the third quarter of fiscal 2022 increased $59.4 million, or 39.1%, in comparison to the total value of inventories on hand at the end of the third 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 final liability will be determined during the third quarter of fiscal 2022 and will be recognized in our financial results at that time.

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

Remaining amounts to be paid to walnut growers as of March 24, 2022 are final and are not subject to revision.

We decreased our walnut grower liability by approximately $1.3 million during the third quarter of fiscal 2022, as the final payments due to walnut growers are slightly less than the amounts estimated at the end of the second quarter.

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

RESULTS OF OPERATIONS

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.

Our net sales increased 5.1% to $218.6 million in the third quarter of fiscal 2022 compared to net sales of $207.9 million for the third quarter of fiscal 2021.

The increase in net sales was primarily attributable to an 8.1% increase in the weighted average sales price per pound and was offset in part by a 2.8% decrease in sales pounds, which is defined as pounds sold to customers.

The increase in the weighted average selling price per pound was attributable to price increases implemented during the current third quarter in response to higher commodity acquisition costs for all major tree nuts and peanuts and increases in freight, labor and other input costs.

For the first thirty-nine weeks of fiscal 2022 our net sales were $698.1 million, an increase of $46.4 million, or 7.1%, compared to the same period of fiscal 2021.

The increase in net sales was primarily attributable to a 5.6% increase in sales volume and a 1.5% increase in the weighted average selling price per pound.

The increase in the weighted average selling price resulted mainly from an increase in commodity acquisition costs for peanuts and all major tree nuts except walnuts.

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 Twenty-six

For the Thirty-Nine

Cashews & Mixed Nuts

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Contract Packaging

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.

Sales of branded products were approximately 18% and 20% of total consumer sales during the third quarters of fiscal 2022 and fiscal 2021, respectively.

branded products were approximately 55% and 63% of branded sales during the third quarter of fiscal 2022 and fiscal 2021, 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 Twenty-six

For the Thirty-nine Weeks Ended

Distribution Channel

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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 of branded products were approximately 22% and 25% of total consumer sales during the first thirty-nine weeks of fiscal 2022 and fiscal 2021, respectively.

branded products were approximately 64% and 68% of branded sales during the first thirty-nine weeks 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 2.5% in dollars and decreased 5.8% in sales volume in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

The sales volume decrease was driven primarily by a 57.1% decrease in peanut butter sales volume due to the planned downtime associated with the upgrade of our peanut butter line that occurred and was completed in the current third quarter.

The discontinuance of our inshell peanut product line, which occurred in the fourth quarter of fiscal 2021, also contributed to the sales volume decrease.

Sales volume for Fisher

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.

snack nuts decreased 23.5%, primarily due to discontinuance of our inshell peanut product line, which was partially offset by distribution gains of our Oven Roasted Never Fried

product line at existing customers.

Sales volume of Fisher

recipe nuts decreased 24.5% as a result of the later Easter holiday this year, higher at-home

cooking and baking nut consumption in our prior fiscal year due to COVID-19

restrictions and reduced purchases due to the impact of higher selling prices at retail.

of Orchard Valley Harvest

products increased 4.1% due to increased sales at a major customer in the non-food

products increased 12.5% due to increased promotional activity at a grocery customer and increased distribution at a major customer in the non-food

sector, as this retailer continues to recover from 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.

restrictions.

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

decreased 2.0% primarily due to reduced purchases as a result of higher selling prices at a mass merchandising retailer.

In the first thirty-nine weeks of fiscal 2022, net sales in the consumer distribution channel increased 5.4% in dollars and 2.8% in sales volume, compared to the same period of fiscal 2021.

The sales volume increase was driven by increases for private brand trail and snack mixes and mixed nuts mainly from new distribution at existing customers.

This increase was partially offset by decreases in sales volume for private brand peanuts and cashews and a sales volume decline for peanut butter and 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.

Net sales in the commercial ingredients distribution channel increased 21.2% in dollars and 11.2% in sales volume in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

The increase in sales volume was due to a 19.9% 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.

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.

restrictions, which was offset in part by the impact of the Omicron surge that occurred during the beginning of the current third quarter.

In the first thirty-nine weeks of fiscal 2022, net sales in the commercial ingredients distribution channel increased 26.4% in dollars and 24.8% in sales volume compared to the same period of fiscal 2021.

The increase in sales volume was primarily due to a 36.6% 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 11.5% in dollars and 3.1% in sales volume in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

The increase in sales volume was primarily attributable to business with a new customer that started to ship in the third quarter.

In the first thirty-nine weeks of fiscal 2022, net sales in the contract packaging distribution channel increased 1.1% in dollars and 3.6% in sales volume compared to the first thirty-nine weeks of fiscal 2021.

The increase in sales volume occurred for the same reason cited in the quarterly comparison, as well as increased distribution and new product offerings by a major customer in this channel.

Gross profit decreased $6.6 million, or 14.4%, to $39.4 million for the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

Our gross profit margin, as a percentage of net sales, decreased to 18.0% for the third quarter of fiscal 2022 compared to 22.1% for the third quarter of fiscal 2021.

The decreases in gross profit and gross profit margin were mainly attributable to higher commodity acquisition costs for pecans, almonds and walnuts and other inflationary cost increases including labor, freight and manufacturing supplies.

Gross profit increased $5.3 million, or 3.8%, to $143.4 million for the first thirty-nine weeks of fiscal 2022 compared to the first thirty-nine weeks of fiscal 2021.

Our gross profit margin decreased to 20.5% for the first thirty-nine weeks of fiscal 2022 compared to 21.2% for the first thirty-nine weeks of fiscal 2021.

The increase in gross profit in the year to date comparison was due to increased sales volume, which was partially offset by the reasons cited in the quarterly comparison.

The decrease in gross profit margin was attributable to higher commodity acquisition costs for pecans, cashews and almonds, which was largely offset by increased sales volume.

Operating Expenses

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.

Total operating expenses for the third quarter of fiscal 2022 decreased $3.0 million, or 11.9%, to $22.0 million.

Operating expenses decreased to 10.1% of net sales for the third quarter of fiscal 2022 compared to 12.0% of net sales for the third quarter of fiscal 2021.

Selling expenses for the third quarter of fiscal 2022 were $15.6 million, an increase of $0.5 million, or 3.3%, from the third quarter of fiscal 2021.

The increase was driven by a $0.8 million increase in freight expense due to higher freight rates compared to last year’s third quarter, a $0.5 million increase in sales broker commission expense and a $0.4 million increase in advertising, consumer insight research and related consulting expenses.

These increases were largely offset by a $1.6 million decrease in compensation expense, primarily related to incentive compensation.

Administrative expenses for the third quarter of fiscal 2022 were $6.4 million, a decrease of $3.5 million, or 35.1%, compared to the third quarter of fiscal 2021.

The decrease was primarily due to $3.1 million decrease in compensation expense, primarily related to incentive compensation, and a $0.7 million increase in miscellaneous income.

The increase in miscellaneous income was largely a result of the Sanfilippo family’s exercise of their contractual purchase option and our resulting sale of certain life insurance policies to the Sanfilippo family for past premiums paid of $3.2 million.

Previously these life insurance policies were recorded at their cash surrender value.

The sale resulted in a $0.5 million gain.

Total operating expenses for the first thirty-nine weeks of fiscal 2022 increased $10.0 million, or 14.2%, to $80.4 million.

Operating expenses increased to 11.5% of net sales for the first three quarters of fiscal 2022 compared to 10.8% of net sales for the three quarters of fiscal 2021.

Selling expenses for the first thirty-nine weeks of fiscal 2022 were $56.9 million, an increase of $12.0 million, or 26.8%, from the amount recorded for the first thirty-nine weeks of fiscal 2021.

The increase was driven by a $5.7 million increase in advertising, consumer insight research and related consulting expenses, a $5.1 million increase in freight expense for the same reason discussed in the quarterly comparison, as well as an increase in sales volume made on a delivered basis, and a $1.0 million increase in sales broker commission expense.

These increases were slightly offset by a $0.9 million decrease in compensation expense, primarily related to incentive compensation.

Administrative expenses for the first thirty-nine weeks of fiscal 2022 were $25.9 million, an increase of $0.3 million, or 1.3%, compared to the same period of fiscal 2021.

The increase was primarily due to a $3.3 million decrease in the gain on asset disposals, mainly resulting from an insurance settlement gain of $2.3 million in fiscal 2021 related to the fire that occurred in our Garysburg, North Carolina facility combined with losses on current year disposals.

This was largely offset by a $2.8 million decrease in compensation expense, primarily related to incentive compensation.

The $2.3 million gain on sale of facility 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 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.

Due to the factors discussed above, income from operations was $17.4 million, or 8.0% of net sales, for the third quarter of fiscal 2022 compared to $21.1 million, or 10.1% of net sales, for the third quarter of fiscal 2021.

Due to the factors discussed above, income from operations was $63.0 million, or 9.0% of net sales, for the first thirty-nine weeks of fiscal 2022 compared to $67.8 million, or 10.4% of net sales, for the first thirty-nine weeks of fiscal 2021.

Interest Expense

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.

Interest expense was $0.5 million for the third quarter of fiscal 2022 compared to $0.3 million in the third quarter of fiscal 2021.

Interest expense for the first three quarters of fiscal 2022 was $1.3 million compared to $1.1 million for the first three quarters of fiscal 2021.

The increase in interest expense for both the quarterly and year to date comparisons was a result of higher average short-term debt levels driven mainly by increased commodity acquisition costs.

Rental and Miscellaneous Expense, Net

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.

Net rental and miscellaneous expense was $0.4 million for both the third quarter of fiscal 2022 and fiscal 2021.

Net rental and miscellaneous expense was $1.1 million for the first thirty-nine weeks of fiscal 2022 compared to $1.2 million for the first thirty-nine 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 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.

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 2022 and fiscal 2021.

Other expense was $1.9 million for both the first thirty-nine weeks of fiscal 2022 and fiscal 2021.

Income Tax Expense

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.

Income tax expense was $4.0 million, or 25.2% of income before income taxes, for the third quarter of fiscal 2022 compared to $5.1 million, or 25.7% of income before income taxes, for the third quarter of fiscal 2021.

For the first thirty-nine weeks of fiscal 2022, income tax expense was $14.4 million, or 24.5% of income before income taxes, compared to $16.2 million, or 25.4% of income before income taxes, for the comparable period last year.

Net income was $11.9 million, or $1.03 per common share basic and $1.02 per common share diluted, for the third quarter of fiscal 2022, compared to $14.7 million, or $1.28 per common share basic and $1.27 per common share diluted, for the third quarter of fiscal 2021.

Net income was $44.4 million, or $3.85 per common share basic and $3.83 per common share diluted, for the first thirty-nine weeks of fiscal 2022, compared to net income of $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.

LIQUIDITY AND CAPITAL RESOURCES

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Strategic Plan through growing our branded and private label nut programs and repay indebtedness.

Also, various uncertainties could result in additional uses of cash.

Also, various uncertainties, including cost uncertainties, could result in additional uses of cash.

The primary sources of cash are results of operations and availability under our Credit Facility.

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, 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.

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, reinvest in the Company through capital expenditures, develop new products, pay cash dividends, consummate strategic investments and business acquisitions 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 half of fiscal 2022 and 2021, respectively (dollars in thousands):

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

For the Thirty-Nine

Operating activities

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Financing activities

Net increase in cash

Net decrease in cash

Operating Activities

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.

Net cash used in operating activities was $12.6 million for the first thirty-nine weeks of fiscal 2022 compared to net cash provided by operating activities of $77.0 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 thirty-nine weeks of fiscal 2021 primarily due to increasing commodity acquisition costs.

Total inventories were $211.1 million at March 24, 2022, an increase of $63.1 million, or 42.7%, from the inventory balance at June 24, 2021, and an increase of $59.4 million, or 39.1%, from the inventory balance at March 25, 2021.

The increase in inventory at March 24, 2022 compared to June 24, 2021 was due to greater quantities of pecans, walnuts, almonds and finished goods on hand combined with higher commodity acquisition costs for all major tree nuts.

The increase in inventories at March 24, 2022 compared to March 25, 2021 was primarily due to higher commodity acquisition costs for all raw nut and dried fruit input stocks, as well as higher quantities of almonds and finished goods on hand.

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

decreased 0.4 million pounds, or 0.7%, at March 24, 2022 compared to March 25, 2021.

The weighted average cost per pound of raw nut input stocks on hand at the end of the third quarter of fiscal 2022 increased 52.1% compared to the end of the third quarter of fiscal 2021 primarily due to higher commodity acquisition costs for all input stock items.

Investing Activities

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.

Cash used in investing activities was $6.5 million during the first thirty-nine weeks of fiscal 2022 compared to $13.6 million for the same period last year.

Capital asset purchases were $12.8 million during the first three quarters of fiscal 2022 compared to $15.8 million for the first three quarters of fiscal 2021.

Partially offsetting the fiscal 2022 cash outflows for capital asset purchases was $4.0 million of cash proceeds resulting from the sale of our Garysburg, North Carolina facility and $3.2 million of cash proceeds resulting from the Sanfilippo family’s exercise of their contractual purchase option and our resulting sale of certain life insurance policies to the Sanfilippo family.

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 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.

Cash provided by financing activities was $19.0 million during the first thirty-nine weeks of fiscal 2022 compared to cash used of $63.9 million for the same period last year.

Net borrowings under our Credit Facility were $57.2 million during the first three quarters of fiscal 2022 compared to repayments of $1.0 million during the first three quarters of fiscal 2021.

The increase in short term borrowings under our Credit Facility was primarily due to increasing commodity acquisition costs.

Dividends paid in the first three quarters of 2022 were approximately $22.9 million less than dividends paid in the same period last year.

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 (as amended, 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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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%.

At March 24, 2022, the weighted average interest rate for the Credit Facility was 2.2%.

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).

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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 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.

As of March 24, 2022, 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 24, 2022, we had $47.4 million of available credit under the Credit Facility.

If this entire amount were borrowed at March 24, 2022, 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 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.

As of March 24, 2022, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $3.4 million was outstanding.

Selma Property

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

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

As of March 24, 2022, $8.5 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 (including inflationary 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 inputs, transportation and labor;

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

or armed hostilities;

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

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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