SANFILIPPO JOHN B & SON INC 10-Q

Item 1. Financial Statements JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Net sales $ 274,328 $ 253,207 $ 526,929 $ 479,536 Cost of sales 217,826 200,977 419,784 375,503 Gross profit 56,502 52,230 107,145 104,033 Operating expenses: Selling expenses 21,830 23,567 39,812 41,312 Administrative expenses 10,208 10,401 20,455 19,470 Gain on sale of facility, net — — — ( 2,349 ) Total operating expenses 32,038 33,968 60,267 58,433 Income from operations 24,464 18,262 46,878 45,600 Other expense: Interest expense including $ 189 , $ 203 , $ 382 and $ 392 to related parties 615 420 1,276 791 Rental and miscellaneous expense, net 311 323 713 671 Pension expense (excluding service costs) 348 619 697 1,237 Total other expense, net 1,274 1,362 2,686 2,699 Income before income taxes 23,190 16,900 44,192 42,901 Income tax expense 6,283 3,653 11,740 10,405 Net income $ 16,907 $ 13,247 $ 32,452 $ 32,496 Other comprehensive income: Amortization of actuarial loss included in net periodic pension cost 7 364 14 728 Income tax expense related to pension adjustments ( 2 ) ( 95 ) ( 3 ) ( 190 ) Other comprehensive income, net of tax 5 269 11 538 Comprehensive income $ 16,912 $ 13,516 $ 32,463 $ 33,034 Net income per common share-basic $ 1.46 $ 1.15 $ 2.81 $ 2.82 Net income per common share-diluted $ 1.45 $ 1.14 $ 2.79 $ 2.81 The accompanying unaudited notes are an integral part of these consolidated financial statements. 3 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 29, 2022 June 30, 2022 December 23, 2021 ASSETS CURRENT ASSETS: Cash $ 620 $ 415 $ 1,027 Accounts receivable, less allowance for doubtful accounts of $ 318 , $ 267 and $ 358 72,433 69,611 65,032 Inventories 173,075 204,855 178,741 Prepaid expenses and other current assets 11,693 8,283 12,764 TOTAL CURRENT ASSETS 257,821 283,164 257,564 PROPERTY, PLANT AND EQUIPMENT: Land 9,150 9,150 9,150 Buildings 102,840 102,810 102,801 Machinery and equipment 254,013 245,111 228,418 Furniture and leasehold improvements 5,312 5,296 5,296 Vehicles 614 614 614 Construction in progress 9,877 6,471 17,254 381,806 369,452 363,533 Less: Accumulated depreciation 259,597 252,371 245,607 122,209 117,081 117,926 Rental investment property, less accumulated depreciation of $ 14,036 $ 13,632 and $ 13,229 15,087 15,491 15,894 TOTAL PROPERTY, PLANT AND EQUIPMENT 137,296 132,572 133,820 Intangible assets, net 7,561 8,065 8,953 Life insurance and other assets 6,021 8,272 9,579 Deferred income taxes 2,608 3,236 4,304 Goodwill 12,030 9,650 9,650 Operating lease right-of-use assets 2,593 2,303 2,852 TOTAL ASSETS $ 425,930 $ 447,262 $ 426,722 The accompanying unaudited notes are an integral part of these consolidated financial statements. 4 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) December 29, 2022 June 30, 2022 December 23, 2021 LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $ 22,805 $ 40,439 $ 35,885 Current maturities of long-term debt, net, including related party debt of $ 642 , $ 614 and $ 586 1,497 3,149 3,909 Accounts payable 49,342 47,720 63,452 Bank overdraft 1,970 214 1,668 Accrued payroll and related benefits 14,953 18,888 12,832 Other accrued expenses 13,495 12,352 13,080 TOTAL CURRENT LIABILITIES 104,062 122,762 130,826 LONG-TERM LIABILITIES: Long-term debt, less current maturities, net, including related party debt of $ 7,446 , $ 7,774 and $ 8,088 7,446 7,774 8,943 Retirement plan 29,132 28,886 35,596 Long-term operating lease liabilities, net of current portion 1,472 1,076 1,504 Other 8,155 7,943 8,050 TOTAL LONG-TERM LIABILITIES 46,205 45,679 54,093 TOTAL LIABILITIES 150,267 168,441 184,919 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $ .01 par value; 10,000,000 shares authorized, 2,597,426 shares issued and outstanding 26 26 26 Common Stock, non-cumulative voting rights of one vote per share, $ .01 par value; 17,000,000 shares authorized, 9,072,068 , 9,047,359 and 9,044,960 shares issued 91 90 90 Capital in excess of par value 130,731 128,800 127,080 Retained earnings 148,488 153,589 124,298 Accumulated other comprehensive loss ( 2,469 ) ( 2,480 ) ( 8,487 ) Treasury stock, at cost; 117,900 shares of Common Stock ( 1,204 ) ( 1,204 ) ( 1,204 ) TOTAL STOCKHOLDERS’ EQUITY 275,663 278,821 241,803 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 425,930 $ 447,262 $ 426,722 The accompanying unaudited notes are an integral part of these consolidated financial statements. 5 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Dollars in thousands, except share and per share amounts) Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 30, 2022 2,597,426 $ 26 9,047,359 $ 90 $ 128,800 $ 153,589 $ ( 2,480 ) $ ( 1,204 ) $ 278,821 Net income 15,545 15,545 Cash dividends ($ 2.25 per share) ( 25,981 ) ( 25,981 ) Pension liability amortization, net of income tax expense of $ 1 6 6 Stock-based compensation expense 772 772 Balance, September 29, 2022 2,597,426 $ 26 9,047,359 $ 90 $ 129,572 $ 143,153 $ ( 2,474 ) $ ( 1,204 ) $ 269,163 Net income 16,907 16,907 Cash dividends ($ 1.00 per share) ( 11,572 ) ( 11,572 ) Pension liability amortization, net of income tax expense of $ 2 5 5 Equity award exercises , net of shares withheld for employee taxes 24,709 1 ( 356 ) ( 355 ) Stock-based compensation expense 1,515 1,515 Balance, December 29, 2022 2,597,426 $ 26 9,072,068 $ 91 $ 130,731 $ 148,488 $ ( 2,469 ) $ ( 1,204 ) $ 275,663 Class A Common Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amount Total Balance, June 24, 2021 2,597,426 $ 26 8,988,812 $ 90 $ 126,271 $ 126,336 $ ( 9,025 ) $ ( 1,204 ) $ 242,494 Net income 19,249 19,249 Cash dividends ($ 3.00 per share) ( 34,534 ) ( 34,534 ) Pension liability amortization, net of income tax expense of $ 95 269 269 Equity award exercises , net of shares withheld for employee taxes 1,168 — ( 16 ) ( 16 ) Stock-based compensation expense 703 703 Balance, September 23, 2021 2,597,426 $ 26 8,989,980 $ 90 $ 126,958 $ 111,051 $ ( 8,756 ) $ ( 1,204 ) $ 228,165 Net income 13,247 13,247 Pension liability amortization, net of income tax expense of $ 95 269 269 Equity award exercises , net of shares withheld for employee taxes 54,980 — ( 946 ) ( 946 ) Stock-based compensation expense 1,068 1,068 Balance, December 23, 2021 2,597,426 $ 26 9,044,960 $ 90 $ 127,080 $ 124,298 $ ( 8,487 ) $ ( 1,204 ) $ 241,803 The accompanying unaudited notes are an integral part of these consolidated financial statements. 6 Table of Contents JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32,452 $ 32,496 Depreciation and amortization 10,099 9,143 Loss (gain) on disposition of assets, net 19 ( 1,765 ) Deferred income tax expense 628 1,783 Stock-based compensation expense 2,287 1,771 Change in assets and liabilities: Accounts receivable, net ( 2,822 ) 1,302 Inventories 32,020 ( 30,743 ) Prepaid expenses and other current assets ( 1,885 ) ( 3,429 ) Accounts payable 1,492 16,244 Accrued expenses ( 1,794 ) ( 8,971 ) Income taxes payable ( 2,523 ) ( 3,606 ) Other long-term assets and liabilities 721 379 Other, net 258 1,216 Net cash provided by operating activities 70,952 15,820 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 11,420 ) ( 9,485 ) Acquisition of Just the Cheese brand ( 3,500 ) — Proceeds from disposition of assets, net — 3,950 Other, net ( 56 ) ( 354 ) Net cash used in investing activities ( 14,976 ) ( 5,889 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term (repayments) borrowings ( 17,634 ) 27,232 Principal payments on long-term debt ( 1,984 ) ( 1,887 ) Increase in bank overdraft 1,756 575 Dividends paid ( 37,553 ) ( 34,534 ) Taxes paid related to net share settlement of equity awards ( 356 ) ( 962 ) Net cash used in financing activities ( 55,771 ) ( 9,576 ) NET INCREASE IN CASH 205 355 Cash, beginning of period 415 672 Cash, end of period $ 620 $ 1,027 The accompanying unaudited notes are an integral part of these consolidated financial statements. 7 Table of Contents JOHN B. SANFILIPPO & SON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except where noted and per share data) Note 1 – Basis of Presentation and Description of Business As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows: • References herein to fiscal 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 second quarter of fiscal 2023 and fiscal 2022 are to the quarters ended December 29, 2022 and December 23, 2021, respectively. • References herein to the first half or first twenty-six weeks of fiscal 2023 and fiscal 2022 are to the twenty-six weeks ended December 29, 2022 and December 23, 2021, respectively. We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under our Fisher, Orchard Valley Harvest, Squirrel Brand 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 under private brands. In addition, with our acquisition of the Just the Cheese brand, we will now be able to expand our product offerings to include baked cheese snack products on a branded and private label basis. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers. The accompanying unaudited financial statements fairly present the consolidated statements of comprehensive income, consolidated balance sheets, consolidated statements of stockholders’ equity and consolidated statements of cash flows, and reflect all adjustments, consisting only of normal recurring adjustments which are necessary for the fair statement of the results of the interim periods. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The interim results of operations are not necessarily indicative of the results to be expected for a full year. The balance sheet data as of June 30, 2022 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, these unaudited financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Note 2 – Acquisition of Just the Cheese Brand On December 16, 2022 , we completed the acquisition of certain assets (the “Acquisition”) of Specialty Cheese Company, Inc. The acquired assets are primarily related to the manufacturing and sale of baked cheese snack products, including those products sold under the Just the Cheese brand, all finished goods inventory, and intangible assets. At the time of closing, the full purchase price of $ 3,500 was paid in cash and funded from our Credit Facility (as defined below) . Just the Cheese is one of the nation’s leading baked cheese snacking brands and offers 100% real cheese snack bars and cheese crisps. The Acquisition will provide us with a product that expands our portfolio into new snacking categories and is anticipated to accelerate growth with our private brand and food service customers. The Acquisition has been accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations”. 8 Table of Contents The total purchase price of $ 3,500 has been allocated on a preliminary basis to the fair values of the assets acquired as follows: Inventories $ 240 Fixed assets 500 Identifiable intangible assets: Customer relationships 270 Brand names 80 Non-compete agreement 30 Goodwill 2,380 Total purchase price $ 3,500 The customer relationship assets represent the value of the long-term strategic relationship with significant customers who purchase Just the Cheese brand products. The brand name asset represents the value of the established Just the Cheese brand name. Goodwill, which is expected to be deductible for tax purposes , arises from intangible assets that do not qualify for separate recognition and expected synergies from combining the operations related to the Just the Cheese brand with those of the Company. There were no material contingencies recognized or unrecognized associated with the acquired business. The purchase price allocation, specifically amounts allocated to goodwill and fixed assets, are based on preliminary valuations and are subject to adjustments to reflect the final valuations. Due to the immaterial financial nature of the Acquisition, unaudited pro forma results of operations of the Company (as if the Acquisition had taken place at the beginning of fiscal 2023) will not be presented. Since the Acquisition, we continue to operate in a single reportable operating segment that consists of selling various nut and nut-related products through three sales distribution channels. Note 3 – Revenue Recognition We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For each customer contract, a five-step process is followed in which we identify the contract, identify performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is transferred to the customer. When Performance Obligations Are Satisfied A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of raw and processed recipe and snack nuts, nut butters and trail mixes. Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data. Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Therefore, the timing of our revenue recognition requires little judgment. 9 Table of Contents Variable Consideration Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates, in-store display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management judgment when determining estimates. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment. We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required. Contract Balances Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. There was no contract asset balance for any periods presented. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers. Disaggregation of Revenue Revenue disaggregated by sales channel is as follows: For the Quarter Ended For the Twenty-Six Weeks Ended Distribution Channel December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Consumer $ 224,513 $ 203,479 $ 421,060 $ 383,240 Commercial Ingredients 28,419 27,756 59,926 55,912 Contract Packaging 21,396 21,972 45,943 40,384 Total $ 274,328 $ 253,207 $ 526,929 $ 479,536 Note 4 – Leases Description of Leases We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain non-lease components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order. We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. 10 Table of Contents Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 5.2 years. It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets. We have also made the policy election to not separate lease and non-lease components for all leases. The following table provides supplemental information related to operating lease right-of-use assets and liabilities: December 29, 2022 June 30, 2022 December 23, 2021 Affected Line Item in Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 2,593 $ 2,303 $ 2,852 Operating lease right-of-use assets Total lease right-of-use assets $ 2,593 $ 2,303 $ 2,852 Liabilities Current: Operating leases $ 1,166 $ 1,258 $ 1,392 Other accrued expenses Noncurrent: Operating leases 1,472 1,076 1,504 Long-term operating lease liabilities Total lease liabilities $ 2,638 $ 2,334 $ 2,896 The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions: For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Operating lease costs (a) $ 541 $ 470 $ 1,015 $ 914 Variable lease costs (b) 58 19 115 36 Total lease cost $ 599 $ 489 $ 1,130 $ 950 (a) Includes short-term leases which are immaterial. (b) Variable lease costs consist of sales tax and lease overtime charges. Supplemental cash flow and other information related to leases was as follows: For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 Operating cash flows information: Cash paid for amounts included in measurements for lease liabilities $ 807 $ 794 Non-cash activity: Right-of-use assets obtained in exchange for new operating lease obligations $ 1,049 $ 89 11 Table of Contents December 29, 2022 June 30, 2022 December 23, 2021 Weighted average remaining lease term (in years) 3.0 2.3 2.5 Weighted average discount rate 5.2 % 4.3 % 4.2 % Maturities of operating lease liabilities as of December 29, 2022 are as follows: Fiscal Year Ending June 29, 2023 (excluding the twenty-six weeks ended December 29, 2022) $ 738 June 27, 2024 936 June 26, 2025 560 June 25, 2026 372 June 24, 2027 192 June 29, 2028 65 Thereafter — Total lease payment 2,863 Less imputed interest ( 225 ) Present value of operating lease liabilities $ 2,638 At December 29, 2022, the Company had no material operating leases that had not yet commenced. Lessor Accounting We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842: Leases we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a straight-line basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of non-lease components such as recurring utility and storage fees. Leases between related parties are immaterial. Leasing revenue is as follows: For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Lease income related to lease payments $ 403 $ 408 $ 805 $ 818 The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years are as follows: Fiscal Year Ending June 29, 2023 (excluding the twenty-six weeks ended December 29, 2022) $ 927 June 27, 2024 1,869 June 26, 2025 1,282 June 25, 2026 697 June 24, 2027 614 June 29, 2028 — $ 5,389 12 Table of Contents Note 5 – Inventories Inventories consist of the following: December 29, 2022 June 30, 2022 December 23, 2021 Raw material and supplies $ 75,002 $ 77,558 $ 71,960 Work-in-process and finished goods 98,073 127,297 106,781 Total $ 173,075 $ 204,855 $ 178,741 Note 6 – Goodwill and Intangible Assets Identifiable intangible assets that are subject to amortization consist of the following: December 29, 2022 June 30, 2022 December 23, 2021 Customer relationships $ 21,370 $ 21,100 $ 21,100 Brand names 17,070 16,990 16,990 Non-compete agreement 300 270 270 38,740 38,360 38,360 Less accumulated amortization: Customer relationships ( 19,311 ) ( 18,795 ) ( 18,279 ) Brand names ( 11,598 ) ( 11,252 ) ( 10,908 ) Non-compete agreement ( 270 ) ( 248 ) ( 220 ) ( 31,179 ) ( 30,295 ) ( 29,407 ) Net intangible assets $ 7,561 $ 8,065 $ 8,953 Customer relationships are being amortized on an accelerated basis. The brand names remaining to be amortized consist of the Squirrel Brand, Southern Style Nuts and Just the Cheese brand names. Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was $ 440 and $ 884 for the quarter and twenty-six weeks ended December 29, 2022, respectively. Amortization expense for the remainder of fiscal 2023 is expected to be approximately $ 913 and expected amortization expense the next five fiscal years is as follows: Fiscal Year Ending June 27, 2024 $ 1,561 June 26, 2025 1,222 June 25, 2026 874 June 24, 2027 705 June 29, 2028 521 The intangibles related to the Just the Cheese brand acquisition, which are reflected in the above table, and the expected amortization expense are based on the preliminary valuation report with respect to such intangible assets. Any necessary adjustments will be made in the third quarter of fiscal 2023 based on the final valuation report. Our net goodwill at December 29, 2022 was comprised of $ 9,650 that relates to the Squirrel Brand acquisition completed in the second quarter of fiscal 2018 and $ 2,380 that relates to the Just the Cheese brand acquisition completed in the second quarter of fiscal 2023. The changes in the carrying amount of goodwill since June 25, 2021 are as follows: Gross goodwill balance at June 25, 2021 $ 18,416 Accumulated impairment losses ( 8,766 ) Net balance at June 25, 2021 9,650 Goodwill acquired during the period 2,380 Net balance at December 29, 2022 $ 12,030 13 Table of Contents Note 7 – Credit Facility Our Amended and Restated Credit Agreement dated March 5, 2020 provides for a $ 117,500 senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than machinery and equipment, real property and fixtures. At December 29, 2022, we had $ 90,505 of available credit under the Credit Facility which reflects borrowings of $ 22,805 and reduced availability as a result of $ 4,190 in outstanding letters of credit. As of December 29, 2022, we were in compliance with all financial covenants under the Credit Facility and Mortgage Facility. Note 8 – Earnings Per Common Share The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share: For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Weighted average number of shares outstanding – basic 11,567,068 11,531,844 11,560,250 11,525,730 Effect of dilutive securities: Restricted stock units 57,594 44,812 60,637 56,912 Weighted average number of shares outstanding – diluted 11,624,662 11,576,656 11,620,887 11,582,642 There were no anti-dilutive awards excluded from the computation of diluted earnings per share for any periods presented. Note 9 – Stock-Based Compensation Plans During the second quarter of fiscal 2023, there were 64,116 restricted stock units (“RSUs”) awarded to employees and non-employee members of the Board of Directors. The vesting period is generally three years for awards to employees and one year for awards to non-employee directors. The following is a summary of RSU activity for the first half of fiscal 2023: Restricted Stock Units Shares Weighted Average Grant Date Fair Value Outstanding at June 30, 2022 142,239 $ 70.42 Granted 64,116 74.09 Vested (a) ( 29,349 ) 89.36 Forfeited ( 2,020 ) 72.82 Outstanding at December 29, 2022 174,986 $ 68.56 (a) The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements. At December 29, 2022, there were 27,727 RSUs outstanding that were vested but deferred. 14 Table of Contents The following table summarizes compensation expense charged to earnings for all equity compensation plans for the periods presented: For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Stock-based compensation expense $ 1,515 $ 1,068 $ 2,287 $ 1,771 As of December 29, 2022, there was $ 6,532 of total unrecognized compensation expense related to non-vested RSUs granted under our stock-based compensation plans. We expect to recognize that cost over a weighted average period of 1.7 years. Note 10 – Retirement Plan The Supplemental Employee Retirement Plan (“Retirement Plan”) is an unfunded, non-qualified deferred compensation plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. The monthly benefit is based upon each participant’s earnings and his or her number of years of service. The components of net periodic benefit cost are as follows: For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Service cost $ 201 $ 247 $ 401 $ 495 Interest cost 341 255 683 509 Amortization of loss 7 364 14 728 Net periodic benefit cost $ 549 $ 866 $ 1,098 $ 1,732 The components of net periodic benefit cost other than the service cost component are included in the line item “Pension expense (excluding service costs)” in the Consolidated Statements of Comprehensive Income. Note 11 – Accumulated Other Comprehensive Loss The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the twenty-six weeks ended December 29, 2022 and December 23, 2021. These changes are all related to our defined benefit pension plan. Changes to AOCL (a) For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 Balance at beginning of period $ ( 2,480 ) $ ( 9,025 ) Other comprehensive income before reclassifications — — Amounts reclassified from accumulated other comprehensive loss 14 728 Tax effect ( 3 ) ( 190 ) Net current-period other comprehensive income 11 538 Balance at end of period $ ( 2,469 ) $ ( 8,487 ) (a) Amounts in parenthesis indicate debits/expense. 15 Table of Contents The reclassifications out of AOCL for the quarter and twenty-six weeks ended December 29, 2022 an d December 23, 2021 were as follows: Affected Line Item in the Consolidated Statements of Comprehensive Income Reclassifications from AOCL to Earnings (b) For the Quarter Ended For the Twenty-Six Weeks Ended December 29, 2022 December 23, 2021 December 29, 2022 December 23, 2021 Amortization of defined benefit pension items: Unrecognized net loss ( 7 ) ( 364 ) ( 14 ) ( 728 ) Pension expense (excluding service costs) Tax effect 2 95 3 190 Income tax expense Amortization of defined pension items, net of tax $ ( 5 ) $ ( 269 ) $ ( 11 ) $ ( 538 ) (b) Amounts in parenthesis indicate debits to expense. See Note 10 – “Retirement Plan” above f or a dditional details. Note 12 – Commitments and Contingent Liabilities We are currently a party to various legal proceedings in the ordinary course of business. While management pres entl y believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our Company’s financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial monetary damages in excess of any appropriate accruals, which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. Note 13 – Fair Value of Financial Instruments The Financial Accounting Standards Board defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels: Level 1 – Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. Level 2 – Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3 – Unobservable inputs for which there is little or no market data available. The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at each balance sheet date because of the short-term maturities and nature of these balances. 16 Table of Contents The carrying value of our revolving credit facility borrowings approximates fair value at each balance sheet date because interest rates on this instrument approximate current market rates (Level 2 criteria) and because of the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk. The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs: December 29, 2022 June 30, 2022 December 23, 2021 Carrying value of current and long-term debt: $ 8,944 $ 10,927 $ 12,862 Fair value of current and long-term debt: 8,118 11,179 14,282 The estimated fair value of our long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt. Note 14 – Garysburg, North Carolina Facility During the first quarter of fiscal 2022 we sold the Garysburg property and remaining equipment located at the property to a third party for $ 4,000 , subject to customary adjustments to reflect closing costs, which resulted in a $ 2,349 gain. Note 15 – Recent Accounting Pronouncements There were no recent accounting pronouncements adopted in the current fiscal year. There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Consolidated Financial Statements. 17 Table of Contents