SANFILIPPO JOHN B & SON INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements. 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 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 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. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our Company’s Credit Facility and Mortgage Facility, as defined below, are sometimes collectively referred to as “our financing arrangements.” 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, 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. The Company’s long-term objective to drive profitable growth, as identified in our Strategic Plan, includes continuing to grow Fisher, Orchard Valley Harvest, Squirrel Brand and Southern Style Nuts into leading brands and providing integrated nut solutions to grow non-branded business across key customers. We plan to execute on our Strategic Plan to grow our branded business by reaching new consumers via product and pack innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, with an emphasis on increasing our sales via e-commerce platforms and retailers. 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 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 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 17 Table of Contents 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. 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 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. See the information referenced in Part II, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties. COVID-19 Impacts 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 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. 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, 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. ports. 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. 18 Table of Contents QUARTERLY HIGHLIGHTS 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 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. 19 Table of Contents RESULTS OF OPERATIONS Net Sales 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. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type. For the Quarter Ended For the Thirty-Nine Weeks Ended Product Type March 24, 2022 March 25, 2021 March 24, 2022 March 25, 2021 Peanuts 18.8 % 19.5 % 17.6 % 19.2 % Pecans 6.9 7.8 10.7 10.7 Cashews & Mixed Nuts 23.8 23.1 22.7 23.3 Walnuts 4.6 5.4 5.9 6.4 Almonds 10.7 10.5 10.1 10.7 Trail & Snack Mixes 28.4 27.8 26.7 24.1 Other 6.8 5.9 6.3 5.6 Total 100.0 % 100.0 % 100.0 % 100.0 % The following table shows a comparison of net sales by distribution channel (dollars in thousands): For the Quarter Ended Distribution Channel March 24, 2022 Percentage of Total March 25, 2021 Percentage of Total $ Change Percent Change Consumer (1) $ 173,648 79.4 % $ 169,415 81.5 % $ 4,233 2.5 % Commercial Ingredients 25,514 11.7 21,052 10.1 4,462 21.2 Contract Packaging 19,422 8.9 17,425 8.4 1,997 11.5 Total $ 218,584 100.0 % $ 207,892 100.0 % $ 10,692 5.1 % (1) Sales of branded products were approximately 18% and 20% of total consumer sales during the third quarters of fiscal 2022 and fiscal 2021, respectively. Fisher 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. 20 Table of Contents The following table shows a comparison of net sales by distribution channel (dollars in thousands): For the Thirty-nine Weeks Ended Distribution Channel March 24, 2022 Percentage of Total March 25, 2021 Percentage of Total $ Change Percent Change Consumer (1) $ 556,888 79.8 % $ 528,201 81.0 % $ 28,687 5.4 % Commercial Ingredients 81,426 11.6 64,399 9.9 17,027 26.4 Contract Packaging 59,806 8.6 59,140 9.1 666 1.1 Total $ 698,120 100.0 % $ 651,740 100.0 % $ 46,380 7.1 % (1) 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. Fisher 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 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. Sales volume of Orchard Valley Harvest 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. Sales volume of Southern Style Nuts 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 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, 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. 21 Table of Contents Gross Profit 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 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. 22 Table of Contents Income from Operations 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 $0.5 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 $0.4 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 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 $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 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. 23 Table of Contents LIQUIDITY AND CAPITAL RESOURCES General 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, 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, 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 three quarters of fiscal 2022 and 2021, respectively (dollars in thousands): For the Thirty-Nine Weeks Ended March 24, 2022 March 25, 2021 $ Change Operating activities $ (12,555 ) $ 77,026 $ (89,581 ) Investing activities (6,488 ) (13,620 ) 7,132 Financing activities 19,038 (63,898 ) 82,936 Net decrease in cash $ (5 ) $ (492 ) $ 487 Operating Activities 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 $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. Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for planned capital expenditures. 24 Table of Contents Financing Activities 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 In August 2008, we completed the consolidation of our Chicago-based facilities into the Elgin Site. The Elgin Site includes both an office building and a warehouse. We are currently attempting to find additional tenants for the available space in the office building at the Elgin Site. Until additional tenant(s) are found, we will not receive the benefit of rental income associated with such space. Approximately 70% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been built-out. There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space. Financing Arrangements On February 7, 2008, we entered into the Former Credit Agreement (as defined below) with a bank group (the “Bank Lenders”) providing a $117.5 million revolving loan commitment and letter of credit subfacility. Also on February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $36.0 million (“Tranche A”) and the other in the amount of $9.0 million (“Tranche B”), for an aggregate amount of $45.0 million (the “Mortgage Facility”). On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement dated as of February 7, 2008 (the “Former Credit Agreement”). The Amended and Restated Credit Agreement provides for a $117.5 million senior secured revolving credit facility with the same borrowing capacity, interest rates and applicable margin as the Former Credit Agreement and extends the term of the Former Credit Agreement from July 7, 2021 to March 5, 2025. The Amended and Restated Credit Facility is secured by substantially all of our assets other than machinery and equipment, real property, and fixtures and matures on March 5, 2025. The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois and Gustine, California (the “Encumbered Properties”). Credit Facility At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% (“Base Rate”) or (ii) a rate based upon the London interbank offered rate (“LIBOR”) plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%. At March 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). 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. The Bank Lenders have the option to accelerate and demand immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company, non-compliance with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility (including a default under the Mortgage 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. 25 Table of Contents Mortgage Facility The Mortgage Facility matures on March 1, 2023. On March 1, 2018 the interest rate on the Mortgage Facility was fixed at 4.25% per annum. Monthly principal payments on the Mortgage Facility in the amount of $0.3 million commenced on June 1, 2008. The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $110.0 million and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility, non-compliance with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of 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 In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has a ten-year term at a fair market value rent with three five-year renewal options. In September 2015, we exercised two of the five-year renewal options which extended the lease term to September 2026. The lease extension also reduced the monthly lease payment on the Selma Properties, beginning in September 2016, to reflect then current market conditions. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments increased to $114 beginning in September 2021. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the owner at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. The provisions of the arrangement are not eligible for sale-leaseback accounting and the $14.3 million was recorded as a debt obligation. No gain or loss was recorded on the Selma Properties transaction. As of March 24, 2022, $8.5 million of the debt obligation was outstanding. Critical Accounting Policies and Estimates For information regarding our Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended June 24, 2021. Recent Accounting Pronouncements Refer to Note 14 – “Recent Accounting Pronouncements” of the Notes to Consolidated Financial Statements, contained in Part I, Item 1 of this form 10-Q, for a discussion of recently issued and adopted accounting pronouncements. 26 Table of Contents FORWARD LOOKING STATEMENTS Some of the statements in this report are forward-looking (including statements concerning our expectations regarding market risk and the impact of the purchasing decisions of major customers). These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where expressly required to do so by law. Among the factors that could cause results to differ materially from current expectations are: (i) sales activity for the Company’s products, such as a decline in sales to one or more key customers (of branded products, private label products or otherwise), or to customers generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products; (ii) changes in the availability and costs of raw materials and ingredients and the impact of fixed price commitments with customers; (iii) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases; (iv) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively; (v) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures, including competition in the recipe nut category; (vi) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products; (vii) the ability of the Company to control costs (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; (x) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xi) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to labor shortages, illness or quarantine; (xii) the ability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels; (xiii) technology disruptions or failures; (xiv) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; (xv) our ability to manage the impacts of changing weather patterns on raw material availability due to climate change; and (xvi) the ability of the Company to respond to or manage the outbreak of COVID-19 or other infectious diseases and the various implications thereof. 27 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Part I—Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended June 24, 2021.