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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-04-27 · 122 added, 201 removed, 96 unchanged (77% of the section changed)

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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).

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.

References herein to fiscal 2023 and fiscal 2022 are to the 52-week fiscal year ending June 29, 2023 and the 53-week fiscal year ended June 30, 2022, respectively.

References herein to the first quarter of fiscal 2023 and fiscal 2022 are to the quarters ended September 29, 2022 and September 23, 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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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.

These nuts are sold under our Fisher, Orchard Valley Harvest, Squirrel Brand and Southern Style Nuts brand names and under a variety of private brands.

We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and private brands.

We 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.

During fiscal 2022, we created a Long-Range Plan to define our future growth priorities.

Our Long-Range Plan focuses on growing our non-branded business across key customers, transforming Fisher, Orchard Valley Harvest and Squirrel Brand into leading brands while increasing distribution and diversifying our portfolio into high growth snacking segments.

This Long-Range Plan also contemplates increasing our sales through product innovation and targeted, opportunistic acquisitions.

We plan to execute on our Long-Range Plan by providing our non-branded customers with value-added solutions based on our extensive industry and consumer expertise.

We will grow our branded business by reaching new consumers via product expansion and packaging innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, including sales via e-commerce platforms.

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 issues and the maintenance and growth of our customer base for branded and private label products.

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

We face a number of challenges in the future, which include significant inflation, potential for economic downturn, supply chain challenges and the continued impacts of COVID-19.

We have also experienced a tightening in the labor market for those employed at our production facilities, which has led to increased labor costs.

Inflation and Consumer Trends

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.

Due to significant inflation, including higher commodity acquisition costs in fiscal 2022, we have seen higher selling prices at retail.

With higher prices across our categories and the broader food market, 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.

E-commerce platforms showed growth during the first quarter of fiscal 2023 but at a lower rate than we saw during the first quarter of fiscal 2022.

Supply Chain and Transportation

In recent quarters, we have faced challenges with shortages and cost increases for shipping pallets, packaging, imported ingredients, transportation and shipping availability.

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.

We have also experienced supply chain issues related to a shortage in capacity in the transportation industry.

Compounding the driver shortage was an increase in demand driven by additional spending on consumer goods during fiscal 2021 and fiscal 2022, 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 and has continued to ease into fiscal 2023 as inflation resulted in rising costs which decreased demand in the freight market.

However, intermodal capacity still remains tight.

Fuel prices that were at record highs during spring and summer 2022 have begun to decrease, yet still remain volatile.

While there are indicators of transportation cost improvement, and while we have mitigated some of the transportation shortages and maintained high service levels, we may continue to face an unpredictable transportation environment.

There is no guarantee that our mitigation strategies will continue to be effective, or that any transportation capacity easing will continue or transportation prices will return to more normalized levels.

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 anticipate pricing relief in some of these areas in the coming quarters if and as shortages decrease and supply chains normalize;

however, we expect that some costs may remain elevated or unpredictable for a longer period of time, particularly as the conflict in Ukraine continues.

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.

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 during the remainder of 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.

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.

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.

During fiscal 2023, we may continue to face challenges 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 fiscal 2022, as various COVID-19 vaccines and therapeutic measures became more widely distributed and accepted by the public and indoor dining restrictions were again loosened, we saw a significant improvement in sales volume with our foodservice, restaurant, convenience store and non-essential retail customers.

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.

Our net sales of $252.6 million for the first quarter of fiscal 2023 increased 11.6% from our net sales of $226.3 million for the first quarter of fiscal 2022.

Sales volume, measured as pounds sold to customers, increased 1.8% compared to the first quarter of fiscal 2022.

Gross profit decreased $1.2 million, and our gross profit margin, as a percentage of net sales, decreased to 20.0% for the first quarter of fiscal 2023 compared to 22.9% for the first quarter of fiscal 2022.

Total operating expenses for the first quarter of fiscal 2023 increased $3.8 million, or 15.4%, compared to the first quarter of fiscal 2022, primarily due to a non-recurring gain on the sale of a facility that occurred in the first quarter of fiscal 2022.

As a percentage of net sales, total operating expenses in the first quarter of fiscal 2023 increased to 11.2% from 10.8% for the first quarter of fiscal 2022.

The total value of inventories on hand at the end of the first quarter of fiscal 2023 increased $39.5 million, or 25.9%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2022.

We expect acquisition costs for most major tree nuts to be flat or decrease and acquisition costs for peanuts to increase modestly in the 2022 crop year (which falls into our current 2023 fiscal year).

We also expect acquisition costs for dried fruit to increase modestly.

While we began to procure inshell walnuts during the first quarter of fiscal 2023, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2023.

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

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

Any difference between our estimated liability and the actual payments will be determined during the second and/or third quarters of fiscal 2023 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

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.

Our net sales increased 11.6% to $252.6 million in the first quarter of fiscal 2023 compared to net sales of $226.3 million for the first quarter of fiscal 2022.

The increase in net sales was primarily attributable to a 9.6% increase in the weighted average sales price per pound and a 1.8% increase 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 in the third quarter of fiscal 2022 in response to higher commodity acquisition costs for all major tree nuts and peanuts.

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

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For the Quarter Ended

For the Thirty-Nine

September 29,

September 23,

Cashews & Mixed Nuts

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Distribution Channel

Commercial Ingredients

Contract Packaging

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 Thirty-nine Weeks Ended

Distribution Channel

September 29,

September 23,

Commercial Ingredients

Contract Packaging

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 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 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.

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.

Sales of branded products were approximately 21% and 19% of total consumer channel sales during the first quarters of fiscal 2023 and fiscal 2022, respectively.

Fisher branded products were approximately 65% and 61% of branded sales during the first quarters of fiscal 2023 and fiscal 2022, 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 9.3% in dollars and decreased 0.6% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The sales volume decrease was driven by lost private brand distribution at a grocery customer that occurred in the fourth quarter of fiscal 2022, which was largely offset by increased distribution and a new product offering at a mass merchandising retailer.

Sales volume for Fisher snack nuts decreased 3.0% primarily due to an item discontinuance with a customer.

Sales volume for Fisher recipe nuts increased 20.0% due to increased distribution at a mass merchandising retailer and at two grocery store customers.

Sales volume of Orchard Valley Harvest produce products increased 15.7% from increased distribution at a major customer in the non-food sector as this retailer continues to recover from COVID-19 restrictions and increased distribution at a customer in the club channel.

Net sales in the commercial ingredients distribution channel increased 11.9% in dollars and 2.4% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The sales volume increase was due to a 15.0% increase in sales volume to foodservice customers, which was related to new distribution at existing customers and the continued recovery in the restaurant industry from the impacts of COVID-19 restrictions.

These increases were partially offset by a decrease in sales of peanut crushing stock to peanut oil processors and lower sales of bulk products to other food manufacturers.

Net sales in the contract packaging distribution channel increased 33.3% in dollars and 19.3% in sales volume in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The increase in sales volume was primarily attributable to the timing of promotional activity by a major customer and business with a new customer.

Gross profit decreased $1.2 million, or 2.2%, to $50.6 million for the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022, primarily due to higher acquisition costs for all major tree nuts and peanuts and other inflationary cost increases, including labor and manufacturing supplies.

Our gross profit margin, as a percentage of net sales, decreased to 20.0% for the first quarter of fiscal 2023 compared to 22.9% for the first quarter of fiscal 2022, driven by the reasons noted above, which were substantially offset by an increase in the weighted average selling price per pound and 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.

Total operating expenses for the first quarter of fiscal 2023 increased $3.8 million to $28.2 million.

Operating expenses for the first quarter of fiscal 2023 increased to 11.2% of net sales from 10.8% of net sales for the first quarter of fiscal 2022 as the increase in total expense was largely offset by a higher net sales base.

Selling expenses for the first quarter of fiscal 2023 were $18.0 million, an increase of $0.2 million, or 1.3%, from the first quarter of fiscal 2022.

The increase was driven primarily by a $0.9 million increase in base and incentive compensation expense, primarily related to incentive compensation, which was largely offset by a $0.7 million decrease in advertising, consumer insight research and related consulting expenses.

Administrative expenses for the first quarter of fiscal 2023 were $10.2 million, an increase of $1.2 million, or 13.0%, from the first quarter of fiscal 2022.

The increase was driven by a $1.2 million increase in base and incentive compensation expense, primarily related to incentive compensation.

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

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.

Due to the factors discussed above, income from operations decreased to $22.4 million, or 8.9% of net sales, for the first quarter of fiscal 2023 from $27.3 million, or 12.1% of net sales, for the first quarter of fiscal 2022.

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.

Interest expense was $0.7 million for the first quarter of 2023 compared to $0.4 million for the first quarter of 2022.

The increase in interest expense was primarily due to higher weighted average interest rates combined with higher average short-term debt levels.

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.

Net rental and miscellaneous expense was $0.4 million for the first quarter of 2023 compared to $0.3 million for the first quarter of 2022.

Pension Expense (Excluding Service Costs)

Pension expense (excluding service costs) was $0.3 million for the first quarter of 2023 compared to $0.6 million for the first quarter of fiscal 2022.

The decrease in pension expense (excluding service costs) is primarily due to a decrease in the unrecognized net loss remaining to be amortized, which was a result of a large actuarial gain in the prior fiscal year.

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 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.

Income tax expense was $5.5 million, or 26.0% of income before income taxes for the first quarter of fiscal 2023 compared to $6.8 million, or 26.0% of income before income taxes, for the first quarter of fiscal 2022.

Net income was $15.5 million, or $1.35 per common share basic and $1.34 per share diluted, for the first quarter of fiscal 2023, compared to $19.2 million, or $1.67 per common share basic and $1.66 per share diluted, for the first quarter of fiscal 2022.

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.

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Long-Range 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.

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

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

The following table sets forth certain cash flow information for the first quarter of fiscal 2023 and 2022, respectively (dollars in thousands):

September 29,

September 23,

Operating activities

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Net decrease in cash

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.

Operating Activities Net cash provided by operating activities was $30.6 million for the first quarter of fiscal 2023 compared to $0.9 million for the first quarter of fiscal 2022.

The increase in operating cash flow is due primarily to a decreased use of working capital, mainly for inventory.

Inventories decreased $12.8 million in fiscal 2023 compared to a $4.6 million increase in inventories in fiscal 2022, which resulted in a net source of cash of $17.4 million.

Total inventories were $192.1 million at September 29, 2022, a decrease of $12.8 million, or 6.2%, from the inventory balance at June 30, 2022, and an increase of $39.5 million, or 25.9%, from the inventory balance at September 23, 2021.

The decrease in inventory at September 29, 2022 compared to June 30, 2022 was primarily due to lower quantities of pecans and walnuts on hand, which was partially offset by increased quantities of finished goods.

The increase in inventory at September 29, 2022 compared to September 23, 2021 was primarily due to greater quantities of finished goods, work in process and inshell pecans on hand combined with higher commodity acquisition costs for pecans.

Raw nut and dried fruit input stocks, some of which are classified as work in process, increased 0.6 million pounds, or 1.9%, at September 29, 2022 compared to September 23, 2021.

The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of the first quarter of fiscal 2023 increased 20.6% compared to the end of the first quarter of fiscal 2022 primarily due to higher commodity acquisition costs for pecans.

Investing Activities Cash used in investing activities was $6.0 million during the first quarter of fiscal 2023 compared to $1.2 million for the same period last year.

The increase in cash used in investing activities was mainly attributable to the $3.9 million of net proceeds received from the disposition of the Garysburg, North Carolina facility which occurred in the first quarter of fiscal 2022 and did not recur in the current quarter.

Capital expenditures were $5.9 million during the first quarter of fiscal 2023 and $5.1 million during fiscal 2022.

We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2023 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.

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.

Financing Activities Cash used in financing activities was $24.8 million during the first quarter of fiscal 2023 compared to cash provided of $0.2 million for the same period last year.

Net short-term borrowings under our Credit Facility were $2.2 million during the first quarter of fiscal 2023 compared to net borrowings of $36.6 million for the first quarter of fiscal 2022.

The decrease in short term borrowings was primarily due to a decreased use of working capital in the current quarter.

The dividends paid in fiscal 2023 were approximately $8.6 million less than the same period of fiscal 2022.

Real Estate Matters

In August 2008, we completed the consolidation of our Chicago-based facilities into the Elgin Site.

In August 2008, we completed the consolidation of our Chicago-based facilities into our Elgin headquarters (“Elgin Site”).

The Elgin Site includes both an office building and a warehouse.

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

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

On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement dated as of February 7, 2008 (the “Former Credit Agreement”).

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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%.

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

At September 29, 2022, the weighted average interest rate for the Credit Facility was 5.4%.

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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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.

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 September 29, 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 September 29, 2022, we had $70.7 million of available credit under the Credit Facility.

If this entire amount were borrowed at September 29, 2022, we would still be in compliance with all restrictive covenants under the Credit Facility.

Mortgage Facility

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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

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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.

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.

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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.

As of September 29, 2022, $8.2 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.

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.

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).

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

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

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(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;

(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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(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;

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

(xiii) technology disruptions or failures;

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(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.

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.

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.

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 30, 2022.

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