JOHN B. SANFILIPPO & SON, INC. OVERVIEW
The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements. Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:
• References herein to fiscal 2022 and fiscal 2021 are to the fiscal year
for the 53 weeks ending June 30, 2022 and the fiscal year for the 52
weeks ended June 24, 2021 , respectively.
• References herein to the second quarter of fiscal 2022 and fiscal 2021
are to the quarters ended December 23, 2021 and December 24, 2020 ,
respectively.
• References herein to the first half or first
twenty-six
weeks of fiscal 2021 and fiscal 2020 are to the
twenty-six
weeks ended December 23, 2021 and December 24, 2020 , respectively.
As used herein, unless the context otherwise indicates, the terms "we", "us",
"our" or "Company" collectively refer to John B. Sanfilippo & Son, Inc. and our
wholly-owned subsidiary, JBSS Ventures, LLC . Our Company's Credit Facility and
Mortgage Facility, as defined below, are sometimes collectively referred to as
"our financing arrangements."
We are one of the leading processors and distributors of peanuts, pecans,
cashews, walnuts, almonds and other nuts in the United States . These nuts are
sold under our
Fisher, Orchard Valley Harvest ,
Squirrel Brand, Southern Style Nuts
and
Sunshine Country
brand names and under a variety of private brands. We also market and
distribute, and in most cases, manufacture or process, a diverse product line of
food and snack products, including peanut butter, almond butter, cashew butter,
candy and confections, snacks and trail mixes, snack bites, sunflower kernels,
dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack
products under our brand names and under private brands. We distribute our
products in the consumer, commercial ingredients and contract packaging
distribution channels.
The Company's long-term objective to drive profitable growth, as identified in
our Strategic Plan, includes continuing to grow
Fisher,
Orchard Valley Harvest , Squirrel Brand
and
Southern Style Nuts
into leading brands and providing integrated nut solutions to grow
non-branded
business across key customers. We plan to execute on our Strategic Plan to grow
our branded business by reaching new consumers via product and pack innovation,
expanding distribution across current and alternative channels, diversifying our
product offerings and focusing on new ways for consumers to buy our products,
with an emphasis on increasing our sales via
e-commerce
platforms and retailers.
We face a number of challenges in the future, which include intensified
competition on pricing and for market share from both private brand and name
brand nut products. We face changing industry trends as consumer preferences
evolve. We have observed consumers shopping in smaller store formats like
grocery, using delivery apps for shopping and generally migrating more of their
shopping online. Additionally, in recent months we have faced challenges with
shortages and cost increases for shipping pallets, resin-based packaging,
imported materials, transportation and shipping availability and labor at our
production facilities. We have also experienced supply chain issues related to
transportation delays. These shortages and related challenges have impacted our
operations and resulted in increased expenses and manufacturing inefficiencies
that have adversely impacted (and may continue to impact) our net income. We
anticipate pricing relief in some of these areas in the coming quarters if and
as shortages decrease, but we expect that some costs may remain elevated or
unpredictable for a longer period of time. We are working with our vendors,
customers and suppliers to source additional raw materials and packaging
supplies and to remain flexible in obtaining the transportation and labor
services we need. If these shortages and other supply chain issues continue, and
we cannot secure adequate supplies to fulfill customer orders or cannot obtain
the transportation and labor services we need, they could have an unfavorable
impact on net sales and our operations in the remainder of this fiscal year. In
addition, there is an additional risk of not being able to pass (in part or in
full) such potential cost increases onto our customers in a timely manner.
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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
to accelerate that growth across a variety of established and emerging
platforms. We will continue to face the ongoing challenges specific to our
business, such as food safety and regulatory compliance and the maintenance and
growth of our customer base for branded and private label products. See the
information referenced in Part II, Item 1A - "Risk Factors" of this report for
additional information about our risks, challenges and uncertainties.
COVID-19
Impacts
We will continue to face challenges in our fiscal 2022 as a result of the
COVID-19
pandemic and the uncertainty of future local, state and federal restrictions
aimed to mitigate and control the pandemic. During the fourth quarter of fiscal
2021 and into the first half of fiscal 2022, as various
COVID-19
vaccines became more widely distributed and accepted by the public and indoor
dining restrictions were again loosened, we saw a significant improvement in
quarterly sales volume with our foodservice, restaurant, convenience store and
non-essential
retail customers. However, demand from these customers could be negatively
impacted in the third quarter if conditions deteriorate as a result of the
recent surge in
COVID-19
cases due to the Omicron variant, a more contagious strain of
COVID-19.
Our financial results could be adversely impacted if the decrease in sales to
foodservice, restaurant, convenience store and
non-essential
retail customers is not offset by an increase in sales in our consumer channel
that is driven by customers eating at home.
Also, during fiscal 2021 and into the first half of fiscal 2022, we have
experienced the implications from a shortage in capacity in the transportation
industry. Compounding this driver shortage is an increase in demand driven by
additional spending on consumer goods, which has led to periodic shortages of
shipping containers, container chassis, space on container ships and trains and
capacity constraints at U.S. ports. This tightening in transportation capacity
is expected to continue further into fiscal 2022, and it has led to increased
transportation costs and may lead to potential disruptions in service to our
customers and from our suppliers. While we have mitigated some of the impact
from transportation shortages and increased prices of transportation, we may
continue to face an unpredictable transportation environment, and there is no
guarantee our mitigation strategies will continue to be effective.
The Company's
COVID-19
crisis team continues to meet on a regular basis to discuss risks faced by the
Company and mitigation strategies. We continue to follow recommendations made by
state and federal regulators and health agencies to ensure the safety and health
of our employees as those recommendations change and evolve. We update and
enhance these measures as new guidance is provided. In addition, we have
extended personal time off for those employees who are ill or must
self-quarantine and hosted several free, voluntary
on-site
COVID-19
vaccination clinics for our employees and their family members. We highly
encourage our employees to get vaccinated (including booster shots) and provide
incentives to those who do.
We have worked closely with our domestic and global suppliers to source and
maintain a consistent supply of raw materials, ingredients and packaging. To
date, none of our manufacturing facilities have been significantly impacted by
this pandemic other than from manufacturing inefficiencies due to production
scheduling challenges. However, recent surges in
COVID-19
cases due to the Omicron variant could have a negative impact on our plant
personnel attendance rates, our suppliers' ability to maintain supply of key
materials and, therefore, our operations. We have contingency plans in place to
help reduce the negative impact if one or more of our manufacturing facilities
encounters a partial or full shut down.
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QUARTERLY HIGHLIGHTS
Our net sales of $253.2 million for the second quarter of fiscal 2022 increased
8.4% from our net sales of $233.6 million for the second quarter of fiscal 2021.
Net sales for the first
twenty-six
weeks of fiscal 2022 increased by $35.7 million , or 8.0%, to $479.5 million
compared to the first
twenty-six
weeks of fiscal 2021.
Sales volume, measured as pounds sold to customers, increased 6.0% for the
second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.
Sales volume for the first
twenty-six
weeks of fiscal 2022 increased 9.7% compared to the first
twenty-six
weeks of fiscal 2021.
Gross profit decreased by $0.6 million , and our gross profit margin, as a
percentage of net sales, decreased to 20.6% for the second quarter of fiscal
2022 compared to 22.6% for the second quarter of fiscal 2021. Gross profit
increased $11.9 million and our gross profit margin increased to 21.7% from
20.8% for the first
twenty-six
weeks of fiscal 2022 compared to the first
twenty-six
weeks of fiscal 2021.
Total operating expenses for the second quarter of fiscal 2022 increased by
$9.0 million , or 35.9%, compared to the second quarter of fiscal 2021. As a
percentage of net sales, total operating expenses in the second quarter of
fiscal 2022 increased to 13.4% from 10.7% for the second quarter of fiscal 2021.
For the first half of fiscal 2022, total operating expenses increased by
$13.0 million , to 12.2% of net sales compared to 10.2% for the first half of
fiscal 2021.
The total value of inventories on hand at the end of the second quarter of
fiscal 2022 increased by $23.4 million , or 15.0%, in comparison to the total
value of inventories on hand at the end of the second quarter of fiscal 2021.
We have seen acquisition costs for dried fruit and most major nut categories
increase in the 2021 crop year (which falls into our current 2022 fiscal year).
We completed procurement of inshell walnuts during the first half of fiscal
2022. During the third quarter, we will determine the final prices to be paid to
the walnut growers based upon current market prices and other factors such as
crop size and export demand. We have estimated the liability to our walnut
growers and our walnut inventory costs using currently available information.
Any difference between our estimated liability and the actual final liability
will be determined during the third quarter of fiscal 2022 and will be
recognized in our financial results at that time.
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RESULTS OF OPERATIONS
Net Sales
Our net sales increased 8.4% to $253.2 million in the second quarter of fiscal
2022 compared to net sales of $233.6 million for the second quarter of fiscal
2021. The increase in net sales was primarily attributable to a 6.0% increase in
sales volume, which is defined as pounds sold to customers, and a 2.3% increase
in the weighted average sales price per pound. The increase in the weighted
average selling price per pound came from a shift in product mix from lower
priced peanuts to higher priced trail and snack mixes and tree nuts as consumer
preferences favored higher priced products in the current second quarter.
For the first
twenty-six
weeks of fiscal 2022 our net sales were $479.5 million , an increase of
$35.7 million , or 8.0%, compared to the same period of fiscal 2021. The increase
in net sales was primarily attributable to a 9.7% increase in sales volume,
which was partially offset by a 1.5% decrease in the weighted average selling
price per pound for our products. The decline in the weighted average selling
price resulted from a decline in commodity acquisition costs for all major tree
nuts except cashews.
The following table summarizes sales by product type as a percentage of total
gross sales. The information is based upon gross sales, rather than net sales,
because certain adjustments, such as promotional discounts, are not allocable to
product type.
For the
Twenty-six
Weeks
For the Quarter Ended Ended
December 23,
December 24, December 23, December 24,
Product Type 2021 2020 2021 2020
Peanuts 16.6 % 18.8 % 17.1 % 19.1 %
Pecans 15.7 15.0 12.4 12.0
Cashews & Mixed Nuts 20.9 23.1 21.6 23.4
Walnuts 7.0 7.2 6.4 6.9
Almonds 9.0 9.2 9.8 10.8
Trail & Snack Mixes 25.1 22.2 26.5 22.5
Other 5.7 4.5 6.2 5.3
Total 100.0 % 100.0 % 100.0 % 100.0 %
The following table shows a comparison of net sales by distribution channel
(dollars in thousands):
For the Quarter Ended
December 23, December 24, $ Percent
Percentage Percentage
Distribution Channel 2021 of Total 2020 of Total Change Change
Consumer
(1) $ 203,479 80.3 % $ 192,029 82.2 % $ 11,450 6.0 %
Commercial Ingredients 27,756 11.0 20,536 8.8 7,220 35.2
Contract Packaging 21,972 8.7 21,010 9.0 962 4.6
Total $ 253,207 100.0 % $ 233,575 100.0 % $ 19,632 8.4 %
(1) Sales of branded products were approximately 28% and 30% of total consumer
sales during each of the second quarter of fiscal 2022 and fiscal 2021,
respectively.
Fisher
branded products were approximately 71% and 74% of branded sales during the
second quarter of fiscal 2022 and fiscal 2021, respectively, with
branded
products accounting for the majority of the remaining branded product sales.
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The following table shows a comparison of net sales by distribution channel
(dollars in thousands):
For the
Twenty-six
Weeks Ended
December 23, December 24, $ Percent
Percentage Percentage
Distribution Channel 2021 of Total 2020 of Total Change Change
Consumer
(1) $ 383,240 79.9 % $ 358,786 80.8 % $ 24,454 6.8 %
Commercial Ingredients 55,912 11.7 43,347 9.8 12,565 29.0
Contract Packaging 40,384 8.4 41,715 9.4 (1,331 ) (3.2 )
Total $ 479,536 100.0 % $ 443,848 100.0 % $ 35,688 8.0 %
(1) Sales of branded products were approximately 24% and 27% of total consumer
sales during the first
twenty-six
weeks of fiscal 2022 and fiscal 2021, respectively.
Fisherbranded products were approximately 67% and 70% of branded sales during the
first
twenty-six
weeks of fiscal 2022 and fiscal 2021, respectively, with
Orchard Valley Harvest
brandedproducts accounting for the majority of the remaining branded product sales.
Net sales in the consumer distribution channel increased$11.5 million , or 6.0%, and sales volume increased 2.2% in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The sales volume increase was driven by increased sales of private brand trail and snack mixes, almonds and mixed nuts mainly from new distribution at existing customers, which was partially offset by a decrease in sales for private brand peanuts and cashews. Sales volume increases for all of our branded products with the exception of Fisher snack nuts also contributed to the sales volume increase. Sales volume of Fisher recipe nuts increased 9.6% as a result of increased distribution and merchandising activity at two existing grocery customers. Sales volume for Fisher snack nuts decreased 45.0%, primarily as a result of the discontinuance of our inshell peanut product line, which occurred in the fourth quarter of fiscal 2021, and a seasonal rotation at a club store that did not repeat in the current second quarter. Sales volume ofOrchard Valley Harvest products increased 4.1% due to increased sales at a major customer in the non-food sector, as this retailer continues to recover from COVID-19 restrictions, and new distribution at an internet retailer. These gains were partially offset by reduced merchandising activity and item discontinuance at a mass merchandising retailer. Sales volume of Southern Style Nuts increased 8.5% due to increased promotional activity at a current club store customer. In the first twenty-six weeks of fiscal 2022, net sales in the consumer distribution channel increased$24.5 million , or 6.8%, and sales volume increased 7.2% compared to the same period of fiscal 2021. The sales volume increase was driven by increased sales of private brand trail and snack mixes and mixed nuts mainly from new distribution at existing customers, which was partially offset by a decrease in sales volume for private brand peanuts and a sales volume decline for our Fisher snack nuts for the same reasons cited in the quarterly comparison. Net sales in the commercial ingredients distribution channel increased 35.2% in dollars and 27.1% in sales volume in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in sales volume was due to a 42.7% increase in sales volume in our foodservice business. The sales volume increase in our foodservice business was attributable to improved conditions in the restaurant industry from fewer COVID-19 restrictions. In the first twenty-six weeks of fiscal 2022, net sales in the commercial ingredients distribution channel increased 29.0% in dollars and 32.0% in sales volume compared to the same period of fiscal 2021. The increase in sales volume was due to a 45.2% increase in sales volume in our foodservice business, which occurred for the same reason cited in the quarterly comparison. Net sales in the contract packaging distribution channel increased 4.6% in dollars and 11.4% in sales volume in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in sales volume was primarily due to increased promotional and merchandising activity and increased distribution by a major customer in this channel. 22 -------------------------------------------------------------------------------- In the first twenty-six weeks of fiscal 2022, net sales in the contract packaging distribution channel decreased 3.2% in dollars and sales volume increased 3.8% compared to the first twenty-six weeks of fiscal 2021. The increase in sales volume occurred for the same reasons cited in the quarterly comparison, which was partially offset by promotional activity by the same customer that did not recur in the current year first quarter. Gross Profit Gross profit decreased by$0.6 million , or 1.1%, to$52.2 million for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. Our gross profit margin, as a percentage of net sales, decreased to 20.6% for the second quarter of fiscal 2022 compared to 22.6% for the second quarter of fiscal 2021. The decreases in gross profit and gross profit margin were mainly attributable to manufacturing scheduling inefficiencies due to supply chain issues, and inflationary cost increases including labor, freight and manufacturing supplies, which were partially offset by increased sales volume. Gross profit was$104.0 million for the first twenty-six weeks of fiscal 2022 compared to$92.1 million for the first twenty-six weeks of fiscal 2021. Our gross profit margin, as a percentage of sales, increased to 21.7% for the first twenty-six weeks of fiscal 2022 compared to 20.8% for the first twenty-six weeks of fiscal 2021. The increases in gross profit and gross profit margin in the year to date comparison were primarily attributable to lower commodity acquisition costs for all major tree nuts except cashews and increased sales volume, which were partially offset by the manufacturing inefficiencies and inflationary cost increases cited in the quarterly comparison. Operating Expenses Total operating expenses for the second quarter of fiscal 2022 increased by$9.0 million , or 35.9%, to$34.0 million . Operating expenses increased to 13.4% of net sales for the second quarter of fiscal 2022 compared to 10.7% of net sales for the second quarter of fiscal 2021. Selling expenses for the second quarter of fiscal 2022 were$23.6 million , an increase of$5.9 million , or 33.2%, from the second quarter of fiscal 2021. The increase was driven primarily by a$3.0 million increase in advertising, consumer insight research and related consulting expenses, a$1.9 million increase in freight expense due to higher rates and an increase in sales pounds shipped, a$0.3 million increase in commissions expense and a$0.3 million increase in payroll and payroll-related expenses. Administrative expenses for the second quarter of fiscal 2022 were$10.4 million compared to$7.3 million for the second quarter of fiscal 2021. The increase was due to a$2.8 million decrease in the gain on asset disposals, primarily driven by an insurance settlement gain of$2.3 million in the second quarter of fiscal 2021 related to the fire that occurred in ourGarysburg, North Carolina facility that did not reoccur in the current quarter. Total operating expenses for the first twenty-six weeks of fiscal 2022 increased by$13.0 million , or 28.5%, to$58.4 million . Operating expenses increased to 12.2% of net sales for the first half of fiscal 2022 compared to 10.2% of net sales for the first half of fiscal 2021. Selling expenses for the first twenty-six weeks of fiscal 2022 were$41.3 million , an increase of$11.5 million , or 38.7%, from the amount recorded for the first twenty-six weeks of fiscal 2021. The increase was driven primarily by a$5.3 million increase in advertising, consumer insight research and related consulting expenses, a$4.3 million increase in freight expense for the same reasons cited in the quarterly comparison, a$0.8 million increase in payroll and payroll related expenses and a$0.5 million increase in commissions expense. Administrative expenses for the first twenty-six weeks of fiscal 2022 were$19.5 million , an increase of$3.8 million , or 24.2%, compared to the same period of fiscal 2021. The increase was primarily due to a$3.1 million decrease in the gain on asset disposals, mainly resulting from the insurance settlement discussed above combined with losses on current year disposals. A$0.3 million increase in payroll and payroll-related expenses also contributed to the increase. The$2.3 million gain on sale of facility, net is the result of the sale of ourGarysburg, North Carolina facility that occurred in the first quarter of fiscal 2022. 23 -------------------------------------------------------------------------------- Income from Operations Due to the factors discussed above, income from operations was$18.3 million , or 7.2% of net sales, for the second quarter of fiscal 2022 compared to$27.8 million , or 11.9% of net sales, for the second quarter of fiscal 2021. Due to the factors discussed above, income from operations was$45.6 million , or 9.5% of net sales, for the first twenty-six weeks of fiscal 2022 compared to$46.7 million , or 10.5% of net sales, for the first twenty-six weeks of fiscal 2021. Interest Expense Interest expense was$0.4 million for both the second quarter of fiscal 2022 and fiscal 2021. Interest expense was$0.8 million for both the first two quarters of fiscal 2022 and fiscal 2021. Rental and Miscellaneous Expense,Net Net rental and miscellaneous expense was$0.3 million for the second quarter of fiscal 2022 compared to$0.4 million for the second quarter of fiscal 2021. Net rental and miscellaneous expense was$0.7 million for the first twenty-six weeks of fiscal 2022 compared to$0.8 million for the first twenty-six weeks of fiscal 2021. Other Expense Other expense consists of pension related expenses other than the service cost component and was$0.6 million for both the second quarter of fiscal 2022 and fiscal 2021. Other expense was$1.2 million for the first twenty-six weeks of fiscal 2022 compared to$1.3 million for the first twenty-six weeks of fiscal 2021. Income Tax Expense Income tax expense was$3.7 million , or 21.6% of income before income taxes (the "Effective Tax Rate"), for the second quarter of fiscal 2022 compared to$6.5 million , or 24.8% of income before income taxes, for the second quarter of fiscal 2021. For the first twenty-six weeks of fiscal 2022, income tax expense was$10.4 million , or 24.3% of income before income taxes, compared to$11.1 million , or 25.3% of income before income taxes, for the comparable period last year. The decrease in the Effective Tax Rate for both the quarterly and twenty-six week periods is mainly due to the favorable impact of$0.7 million of discrete tax benefits recognized in the current second quarter. Net Income Net income was$13.2 million , or$1.15 per common share basic and$1.14 per common share diluted, for the second quarter of fiscal 2022, compared to$19.9 million , or$1.73 per common share basic and$1.72 per common share diluted, for the second quarter of fiscal 2021. Net income was$32.5 million , or$2.82 per common share basic and$2.81 per common share diluted, for the first twenty-six weeks of fiscal 2022, compared to net income of$32.7 million , or$2.85 per common share basic and$2.83 per common share diluted, for the first twenty-six weeks of fiscal 2021. LIQUIDITY AND CAPITAL RESOURCES
General
The primary uses of cash are to fund our current operations, fulfill contractual
obligations, pursue our Strategic Plan through growing our branded and private
label nut programs and repay indebtedness. Also, various uncertainties could
result in additional uses of cash. The primary sources of cash are results of
operations and availability under our Credit Facility. We anticipate that
expected net cash flow generated from operations and amounts available pursuant
to the Credit Facility will be sufficient to fund our operations for the next
twelve months. Our available credit under our Credit Facility has allowed us to
devote more funds to promote our products, increase consumer insight
capabilities and promotional efforts, consummate strategic investments and
business acquisitions such as the fiscal 2018 acquisition of the Squirrel Brand
business, reinvest in the Company through capital expenditures, develop new
products, pay cash dividends and explore other growth strategies outlined in our
Strategic Plan.
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.
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The following table sets forth certain cash flow information for the first half of fiscal 2022 and 2021, respectively (dollars in thousands):
December 23, December 24,
2021 2020 $ Change
Operating activities $ 15,820 $ 61,935 $ (46,115 )
Investing activities (5,889 ) (10,734 ) 4,845
Financing activities (9,576 ) (50,973 ) 41,397
Net increase in cash $ 355 $ 228 $ 127
Operating Activities
Net cash provided by operating activities was $15.8 million for the first
twenty-six
weeks of fiscal 2022 compared to $61.9 million for the comparative period of
fiscal 2021. The decrease in operating cash flow was primarily due to an
increased use of working capital for inventory compared to the first
twenty-six
weeks of fiscal 2021 primarily due to increasing commodity acquisition costs.
Total inventories were $178.7 million at December 23, 2021 , an increase of
$30.7 million , or 20.8%, from the inventory balance at June 24, 2021 , and an
increase of $23.4 million , or 15.0%, from the inventory balance at December 24,
2020 . The increase in inventory at December 23, 2021 compared to June 24, 2021
was primarily due to higher commodity acquisition costs for almost all tree
nuts, peanuts, dried fruit and other raw materials and higher quantities of
inshell walnuts on hand, which were partially offset by lower quantities of
inshell pecans on hand. The increase in inventories at December 23, 2021
compared to December 24, 2020 was primarily due to higher commodity acquisition
costs as noted above, which were partially offset by lower quantities of inshell
pecans and cashews on hand.
Raw nut and dried fruit input stocks, some of which are classified as work in
process, decreased by 9.9 million pounds, or 16.7%, at December 23, 2021
compared to December 24, 2020 due to lower quantities of inshell pecans, peanuts
and cashews on hand. The weighted average cost per pound of raw nut input stocks
on hand at the end of the second quarter of fiscal 2022 increased 24.4% compared
to the end of the second quarter of fiscal 2021 primarily due to higher
commodity acquisition costs for almost all input stock items, which was
partially offset by lower quantities of inshell pecans and cashews.
Investing Activities
Cash used in investing activities was $5.9 million during the first
twenty-six
weeks of fiscal 2022 compared to $10.7 million for the same period last year.
Capital asset purchases were $9.5 million during the first half of fiscal 2022
compared to $11.1 million for the first half of fiscal 2021. Partially
offsetting the fiscal 2022 cash outflows for capital asset purchases was
$4.0 million cash proceeds (subject to customary adjustments to reflect closing
costs) resulting from the sale of our Garysburg, North Carolina facility. We
expect total capital expenditures for new equipment, facility upgrades, and food
safety enhancements for fiscal 2022 to be approximately $18.0 million . Absent
any material acquisitions or other significant investments, we believe that cash
on hand, combined with cash provided by operations and borrowings available
under the Credit Facility, will be sufficient to meet the cash requirements
for planned capital expenditures.
Financing Activities
Cash used in financing activities was $9.6 million during the first
twenty-six
weeks of fiscal 2022 compared to $51.0 million for the same period last year.
Net borrowings under our Credit Facility were $27.2 million during the first
half of fiscal 2022 compared to net repayments of $17.8 million for the first
half of fiscal 2021. The increase in credit facility borrowings was primarily
due to increasing commodity acquisition costs. Dividends paid in the first half
of fiscal 2022 were approximately $5.8 million higher than dividends paid in the
same period last year.
Real Estate Matters
In August 2008 , we completed the consolidation of our Chicago -based facilities
into the Elgin Site. The Elgin Site includes both an office building and a
warehouse. We are currently attempting to find additional tenants for the
available space in the office building at the Elgin Site. Until additional
tenant(s) are found, we will not receive the benefit of rental income associated
with such space. Approximately 70% of the rentable area in the office building
is currently vacant. Approximately 29% of the rentable area has not been
built-out.
There can be no assurance that we will be able to lease the unoccupied space and
further capital expenditures will likely be necessary to lease the remaining
space.
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Financing Arrangements
On February 7, 2008 , we entered into the Former Credit Agreement (as defined
below) with a bank group (the "Bank Lenders") providing a $117.5 million
revolving loan commitment and letter of credit subfacility. Also on February 7,
2008 , we entered into a Loan Agreement with an insurance company (the "Mortgage
Lender") providing us with two term loans, one in the amount of $36.0 million
("Tranche A") and the other in the amount of $9.0 million ("Tranche B"), for an
aggregate amount of $45.0 million (as amended, the "Mortgage Facility").
On March 5, 2020 , we entered into an Amended and Restated Credit Agreement (the
"Amended and Restated Credit Agreement") which amended and restated our Credit
Agreement dated as of February 7, 2008 (the "Former Credit Agreement"). The
Amended and Restated Credit Agreement provides for a $117.5 million senior
secured revolving credit facility with the same borrowing capacity, interest
rates and applicable margin as the Former Credit Agreement and extends the term
of the Former Credit Agreement from July 7, 2021 to March 5, 2025 .
The Amended and Restated Credit Facility is secured by substantially all of our
assets other than machinery and equipment, real property, and fixtures and
matures on March 5, 2025 . The Mortgage Facility is secured by mortgages on
essentially all of our owned real property located in Elgin, Illinois and
Gustine, California (the "Encumbered Properties ").
Credit Facility
At our election, borrowings under the Credit Facility currently accrue interest
at either (i) a rate determined pursuant to the administrative agent's prime
rate plus an applicable margin determined by reference to the amount of loans
which may be advanced under the borrowing base calculation, ranging from 0.25%
to 0.75% ("Base Rate") or (ii) a rate based upon the London interbank offered
rate ("LIBOR") plus an applicable margin based upon the borrowing base
calculation, ranging from 1.25% to 1.75%.
At December 23, 2021 , the weighted average interest rate for the Credit Facility
was 2.1%. The terms of the Credit Facility contain covenants that, among other
things, require us to restrict investments, indebtedness, acquisitions and
certain sales of assets and limit annual cash dividends or distributions,
transactions with affiliates, redemptions of capital stock and prepayment of
indebtedness (if such prepayment, among other things, is of a subordinate debt).
If loan availability under the borrowing base calculation falls below
$25.0 million , we will be required to maintain a specified fixed charge coverage
ratio, tested on a monthly basis, until loan availability equals or exceeds
$25.0 million for three consecutive months. All cash received from customers is
required to be applied against the Credit Facility. The Bank Lenders have the
option to accelerate and demand immediate repayment of our obligations under the
Credit Facility in the event of default on the payments required under the
Credit Facility, a change in control in the ownership of the Company,
non-compliance
with the financial covenant or upon the occurrence of other defaults by us under
the Credit Facility (including a default under the Mortgage Facility). As of
December 23, 2021 , we were in compliance with all covenants under the Credit
Facility and we currently expect to be in compliance with the financial covenant
in the Credit Facility for the foreseeable future. At December 23, 2021 , we had
$77.3 million of available credit under the Credit Facility. If this entire
amount were borrowed at December 23, 2021 , we would still be in compliance with
all restrictive covenants under the Credit Facility.
Mortgage Facility
The Mortgage Facility matures on March 1, 2023 . On March 1, 2018 the interest
rate on the Mortgage Facility was fixed at 4.25% per annum. Monthly principal
payments on the Mortgage Facility in the amount of $0.3 million commenced on
June 1, 2008 .
The terms of the Mortgage Facility contain covenants that require us to maintain
a specified net worth of $110.0 million and maintain the Encumbered Properties .
The Mortgage Lender is entitled to require immediate repayment of our
obligations under the Mortgage Facility in the event we default in the payments
required under the Mortgage Facility,
non-compliance
with the covenants or upon the occurrence of certain other defaults by us under
the Mortgage Facility. As of December 23, 2021 , we were in compliance with all
covenants under the Mortgage Facility and a total principal amount of
$4.2 million was outstanding.
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Selma Property
In September 2006 , we sold our Selma, Texas properties (the "Selma Properties ")
to two related party partnerships for $14.3 million and are leasing them back.
The selling price was determined by an independent appraiser to be the fair
market value which also approximated our carrying value. The lease for the Selma
Properties has a
ten-year
term at a fair market value rent with three five-year renewal options. In
September 2015 , we exercised two of the five-year renewal options which extended
the lease term to September 2026 . The lease extension also reduced the monthly
lease payment on the Selma Properties , beginning in September 2016 , to reflect
then current market conditions. At the end of each five-year renewal option, the
base monthly lease amounts are reassessed, and the monthly payments increased to
$114 beginning in September 2021 . One five-year renewal option remains. Also, we
have an option to purchase the Selma Properties from the owner at 95% (100% in
certain circumstances) of the then fair market value, but not less than the
original $14.3 million purchase price. The provisions of the arrangement are not
eligible for sale-leaseback accounting and the $14.3 million was recorded as a
debt obligation. No gain or loss was recorded on the Selma Properties
transaction. As of December 23, 2021 , $8.7 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.
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FORWARD LOOKING STATEMENTS
Some of the statements in this report are forward-looking (including statements
concerning our expectations regarding market risk and the impact of the
purchasing decisions of major customers). These forward-looking statements may
be generally identified by the use of forward-looking words and phrases such as
"will", "intends", "may", "believes", "anticipates", "should" and "expects" and
are based on the Company's current expectations or beliefs concerning future
events and involve risks and uncertainties. Consequently, the Company's actual
results could differ materially. The Company undertakes no obligation to update
publicly or otherwise revise any forward-looking statements, whether as a result
of new information, future events or other factors that affect the subject of
these statements, except where expressly required to do so by law. Among the
factors that could cause results to differ materially from current expectations
are: (i) sales activity for the Company's products, such as a decline in sales
to one or more key customers (of branded products, private label products or
otherwise), or to customers generally, in some or all channels, a change in
product mix to lower price products, a decline in sales of private brand
products or changing consumer preferences, including a shift from higher margin
products to lower margin products; (ii) changes in the availability and costs of
raw materials and ingredients and the impact of fixed price commitments with
customers; (iii) the ability to pass on price increases to customers if
commodity costs rise and the potential for a negative impact on demand for, and
sales of, our products from price increases; (iv) the ability to measure and
estimate bulk inventory, fluctuations in the value and quantity of the Company's
nut inventories due to fluctuations in the market prices of nuts and bulk
inventory estimation adjustments, respectively; (v) the Company's ability to
appropriately respond to, or lessen the negative impact of, competitive and
pricing pressures, including competition in the recipe nut category; (vi) losses
associated with product recalls, product contamination, food labeling or other
food safety issues, or the potential for lost sales or product liability if
customers lose confidence in the safety of the Company's products or in nuts or
nut products in general, or are harmed as a result of using the Company's
products; (vii) the ability of the Company to control costs (including
inflationary costs) and manage shortages in areas such as transportation and
labor; (viii) uncertainty in economic conditions, including the potential for
inflation or economic downturn, particularly in light of
COVID-19;
(ix) the timing and occurrence (or nonoccurrence) of other transactions and
events which may be subject to circumstances beyond the Company's control;
(x) the adverse effect of labor unrest or disputes, litigation and/or legal
settlements, including potential unfavorable outcomes exceeding any amounts
accrued; (xi) losses due to significant disruptions at any of our production or
processing facilities or employee unavailability due to labor shortages, illness
or quarantine; (xii) the ability to implement our Strategic Plan, including
growing our branded and private brand product sales and expanding into
alternative sales channels; (xiii) technology disruptions or failures; (xiv) the
inability to protect the Company's brand value, intellectual property or avoid
intellectual property disputes; (xv) our ability to manage the impacts of
changing weather patterns on raw material availability due to climate change;
and (xvi) the ability of the Company to respond to or manage the outbreak of
COVID-19
or other infectious diseases and the various implications thereof.
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