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 2021 and fiscal 2020 are to the fiscal year
ending June 24, 2021 and the fiscal year ended June 25, 2020 ,
respectively.
• References herein to the first quarter of fiscal 2021 and fiscal 2020 are
to the quarters ended
respectively.
As used herein, unless the context otherwise indicates, the terms "we", "us", "our" or "Company" collectively refer toJohn 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 inthe United States . These nuts are sold under a variety of private brands and under the Fisher,Orchard Valley Harvest , Squirrel Brand, Southern Style Nuts and Sunshine Country brand names. 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 private brands and brand names. 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 and focusing on new ways to buy, with an emphasis on increasing our sales via e-commerce platforms and retailers. In addition, we intend to invest in our people and facilities in order to research, develop, market and sell new product offerings in fiscal 2021. We face a number of challenges in the future which include, among others, changes in commodity acquisition costs, as well as intensified competition on pricing and for market share from both private brand and name brand nut products. Our Fisher recipe nut sales have been negatively impacted in fiscal 2020 and the first quarter of fiscal 2021 due to this increased competition for market share. We also face changing industry trends as consumer preferences shift to shopping in smaller store formats like grocery and online. With restaurant closures and other limitations due to the impact of COVID-19, consumers are also doing more cooking and baking at home, which has had a positive impact on certain aspects of our consumer business but a negative impact on our foodservice business. We will continue to face challenges in our fiscal 2021 as result of the COVID-19 pandemic and the uncertainty of future local, state and federal restrictions aimed to mitigate and control the pandemic. As many of these restrictions were loosened near the conclusion of our fiscal 2020, we saw a gradual (albeit limited) increase in demand from our foodservice, restaurant, convenience store and non-essential retail customers. However, if conditions deteriorate in the future and consumers are limited in their ability to purchase meals outside their homes, we believe demand will decrease (or demand will continue to be suppressed) from our foodservice, restaurant, convenience store and non-essential retail customers and the collectability of accounts receivables from these customers could be impacted. Also, in our first quarter of fiscal 2021, we began to see signs of a shortage in capacity in the transportation industry, which our transportation service providers believe is due to driver concerns regarding health and safety from increasing COVID-19 cases and social unrest seen in certain large cities within the country. We believe this shortage in transportation capacity may continue in fiscal 2021 and may lead to increased transportation costs and potential disruptions in service to our customers and from our suppliers. 17 -------------------------------------------------------------------------------- The Company's COVID-19 crisis team, which was created in the third quarter of fiscal 2020, 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 have implemented (among other things) a temporary work from home option for the majority of our office employees, staggered shifts and breaks, installed partitions on production lines and office space where social distancing could not be consistently maintained and installed thermal scanners to measure temperature for all employees upon arrival. We update and enhance these measures as new guidance is provided. In addition, we have extended personal time off for those who are in self quarantine or ill. 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. 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. We will continue to focus on seeking profitable business opportunities to maximize the utilization of our production capacity at our primary manufacturing, processing and distribution facility located inElgin, Illinois . We expect to redirect our promotional and advertising activity with respect to our brands to focus on more digital and e-commerce platforms to match consumer behavior. We continue to see strong e-commerce and grocery performance across ourOrchard Valley Harvest and Fisher recipe brands and expect that there will be additional opportunities to connect these brands to consumers' desires for more functional snacking and baking and cooking ideas, respectively. 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 I, Item 1A - "Risk Factors" of this report for additional information about our risks, challenges and uncertainties. 18 -------------------------------------------------------------------------------- QUARTERLY HIGHLIGHTS Our net sales of$210.3 million for the first quarter of fiscal 2021 decreased 3.5% from our net sales of$217.8 million for the first quarter of fiscal 2020. Sales volume, measured as pounds sold to customers, decreased 3.5% compared to the first quarter of fiscal 2020. Gross profit decreased$2.9 million , and our gross profit margin, as a percentage of net sales, decreased to 18.7% for the first quarter of fiscal 2021 compared to 19.4% for the first quarter of fiscal 2020. Total operating expenses for the first quarter of fiscal 2021 decreased$2.7 million , or 11.8%, compared to the first quarter of fiscal 2020. As a percentage of net sales, total operating expenses in the first quarter of fiscal 2021 decreased to 9.7% from 10.6% for the first quarter of fiscal 2020. The total value of inventories on hand at the end of the first quarter of fiscal 2021 decreased$6.1 million , or 3.9%, in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2020. We expect acquisition costs for walnuts and almonds to decrease in the 2020 crop year (which falls into our current 2021 fiscal year). We also expect acquisition costs to decline or remain stable for all other major tree nuts. While we began to procure inshell walnuts during the first quarter of fiscal 2021, the total payments due to our walnut growers will not be determined until the second and/or third quarters of fiscal 2021. 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 2021 and will be recognized in our financial results at that time. 19 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Net Sales Our net sales decreased 3.5% to$210.3 million in the first quarter of fiscal 2021 compared to net sales of$217.8 million for the first quarter of fiscal 2020. Sales volume, which is defined as pounds sold to customers, decreased 3.5% in the quarterly comparison. The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type. For the Quarter Ended September 24, September 26, Product Type 2020 2019 Peanuts 19.5 % 18.0 % Pecans 8.6 9.4 Cashews & Mixed Nuts 23.7 22.7 Walnuts 6.6 7.0 Almonds 12.7 16.6 Trail & Snack Mixes 22.8 20.5 Other 6.1 5.8 Total 100.0 % 100.0 % The following table shows a comparison of net sales by distribution channel (dollars in thousands): For the Quarter Ended September 24, September 26, $ Percent Percentage Percentage Distribution Channel 2020 of Total 2019 of Total Change Change Consumer (1)$ 166,757 79.3 %$ 157,146 72.2 %$ 9,611 6.1 % Commercial Ingredients 22,811 10.9 36,888 16.9 (14,077 ) (38.2 ) Contract Packaging 20,705 9.8 23,812 10.9 (3,107 ) (13.0 ) Total$ 210,273 100.0 %$ 217,846 100.0 %$ (7,573 ) (3.5 )%
(1) Sales of branded products were approximately 25% and 28% of total consumer
channel sales during the first quarter of fiscal 2021 and fiscal 2020,
respectively.
Fisher
branded products were approximately 65% and 64% of branded sales during the
first quarter of fiscal 2021 and fiscal 2020, respectively, with branded
produce products accounting for the majority of the remaining branded product
sales.
Net sales in the consumer distribution channel increased$9.6 million , or 6.1%, and sales volume increased 3.8% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The sales volume increase was driven by increased sales of private brand trail and snack mixes, mixed nuts, cashews and peanuts at existing customers, which was partially offset by a decline in peanut butter sales volume due to a temporary peanut supply shortage during the current quarter. Sales volume for Fisher snack nuts increased 12.6% due to increased promotional activity and distribution gains at new and existing customers for our Oven Roasted Never Fried product line. Sales volume for Fisher recipe nuts decreased 14.1% as a result of lost distribution at some customers, which was offset in part by increased sales with Internet retailers and increased sales with other existing customers in the grocery sector. Sales volume ofOrchard Valley Harvest produce products decreased 16.1% due to some lost distribution at one customer and reduced foot traffic at a major customer in the non-food sector as a result of COVID-19. Sales volume for Southern Style Nuts decreased 8.4% as a result of lower promotional activity at several customers, which was offset in part by distribution gains with new grocery customers and increased sales with Internet retailers. 20 -------------------------------------------------------------------------------- Net sales in the commercial ingredients distribution channel decreased 38.2% in dollars and 27.7% in sales volume in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The decline in sales volume was due to a 40.9% decrease in sales volume in our foodservice business which resulted from a decline in air travel and nationwide restrictions on occupancy rates in and closures of restaurants, both of which were attributable to COVID-19. Net sales in the contract packaging distribution channel decreased 13.0% in dollars and 12.2% in sales volume in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The decline in sales volume was primarily attributable to the unfavorable impact of lower convenience store foot traffic on one customer's business as a result of COVID-19, as well as the loss of peanut butter business with another customer due to the temporary peanut supply shortage cited above. Gross Profit Gross profit decreased$2.9 million , or 6.9%, to$39.3 million for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. Our gross profit margin, as a percentage of net sales, decreased to 18.7% for the first quarter of fiscal 2021 compared to 19.4% for the first quarter of fiscal 2020. The decreases in gross profit and gross profit margin were mainly attributable to the sales volume decrease discussed above. Operating Expenses Total operating expenses for the first quarter of fiscal 2021 decreased$2.7 million to$20.5 million . Operating expenses for the first quarter of fiscal 2021 decreased to 9.7% of net sales from 10.6% of net sales for the first quarter of fiscal 2020 due primarily to reductions in advertising, compensation and consulting expenses. Selling expenses for the first quarter of fiscal 2021 were$12.1 million , a decrease of$2.0 million , or 14.4%, from the first quarter of fiscal 2020. The decrease was driven primarily by a$1.1 million decrease in advertising expense due to a reduction in radio advertising campaigns and sports sponsorships, a$0.7 million decrease in compensation related expenses and a$0.5 million decrease in freight expense due to a reduction in sales pounds shipped. Administrative expenses for the first quarter of fiscal 2021 were$8.4 million , a decrease of$0.7 million , or 7.7%, from the first quarter of fiscal 2020. The decrease was driven primarily by a$0.3 million decrease in consulting fees and a$0.3 million decrease in compensation related expenses, primarily incentive compensation. Income from Operations Due to the factors discussed above, income from operations decreased to$18.9 million , or 9.0% of net sales, for the first quarter of fiscal 2021 from$19.1 million , or 8.8% of net sales, for the first quarter of fiscal 2020. Interest Expense Interest expense was$0.5 million for both the first quarter of fiscal 2021 and fiscal 2020. Rental and Miscellaneous Expense,Net Net rental and miscellaneous expense was$0.4 million for both the first quarter of fiscal 2021 and fiscal 2020. Other Expense Other expense consists of pension related expenses other than the service cost component and was$0.6 million for both the first quarter of fiscal 2021 and fiscal 2020. Income Tax Expense Income tax expense was$4.5 million , or 26.2% of income before income taxes for the first quarter of fiscal 2021 compared to$4.6 million , or 26.4% of income before income taxes, for the first quarter of fiscal 2020. Net Income Net income was$12.8 million , or$1.12 per common share basic and$1.11 per share diluted, for the first quarter of fiscal 2021, compared to$12.9 million , or$1.13 per common share basic and$1.12 per share diluted, for the first quarter of fiscal 2020. 21 -------------------------------------------------------------------------------- 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 (especially our Fisher andOrchard Valley Harvest brands), consummate strategic 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 the past eight years 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 quarter of fiscal 2021 and 2020, respectively (dollars in thousands): September 24, September 26, $ 2020 2019 Change Operating activities$ 20,577 $ 22,468 $ (1,891 ) Investing activities (6,018 ) (3,102 ) (2,916 ) Financing activities (15,351 ) (20,070 ) 4,719 Net decrease in cash $ (792 ) $ (704 )$ (88 ) Operating Activities Net cash provided by operating activities was$20.6 million for the first quarter of fiscal 2021 compared to$22.5 million for the first quarter of fiscal 2020. Net accounts receivable were$69.9 million atSeptember 24, 2020 , an increase of$12.9 million , or 22.7%, from the balance atJune 25, 2020 , and an increase of$9.4 million , or 15.6%, from the balance atSeptember 26, 2019 . The increase in net accounts receivable atSeptember 24, 2020 compared to bothJune 25, 2020 andSeptember 26, 2019 was primarily due to extended terms that were temporarily granted to customers whose businesses were negatively impacted by the COVID-19 pandemic. An increase in net sales for the first quarter of fiscal 2021 compared to net sales for the fourth quarter of fiscal 2020 also contributed to the increase in net accounts receivable atSeptember 24, 2020 compared toJune 25, 2020 . Total inventories were$150.4 million atSeptember 24, 2020 , a decrease of$21.7 million , or 12.6%, from the inventory balance atJune 25, 2020 , and a decrease of$6.1 million , or 3.9%, from the inventory balance atSeptember 26, 2019 . The decrease in inventory atSeptember 24, 2020 compared toJune 25, 2020 was primarily due to lower quantities of tree nuts and peanuts on hand, which were partially offset by increased quantities of finished goods inventory. The decrease in inventories atSeptember 24, 2020 compared toSeptember 26, 2019 was primarily due to lower quantities of farmer stock peanuts and shelled pecans and walnuts on hand. Lower acquisition costs for almonds and cashews also contributed to the decline in total inventory value. Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased 10.6 million pounds, or 22.5%, atSeptember 24, 2020 compared toSeptember 26, 2019 . 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 2021 increased 7.8% compared to the end of the first quarter of fiscal 2020 due to a shift in product mix from lower priced farmer stock peanuts to higher priced inshell pecans. Investing Activities Cash used in investing activities, primarily all for capital expenditures, was$6.0 million during the first quarter of fiscal 2021 compared to$3.1 million for the same period last year. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements for fiscal 2021 to be approximately$23.0 million . The projected increase in capital expenditures from our previous expenditure level is due to a strategic investment for a new product line. 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. 22 -------------------------------------------------------------------------------- Financing Activities Cash used in financing activities was$15.4 million during the first quarter of fiscal 2021 compared to$20.1 million for the same period last year. The dividends paid in fiscal 2021 to date were approximately$5.6 million less than the same period of fiscal 2020. Net short-term borrowings under our Credit Facility were$17.2 million during the first quarter of fiscal 2021 compared to net borrowings of$16.0 million for the first quarter of fiscal 2020. Real Estate Matters InAugust 2008 , we completed the consolidation of ourChicago -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 67% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been built-out. There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space. Financing Arrangements OnFebruary 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 onFebruary 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"). OnMarch 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 ofFebruary 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 fromJuly 7, 2021 toMarch 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 onMarch 5, 2025 . The Mortgage Facility is secured by mortgages on essentially all of our owned real property located inElgin, Illinois ,Gustine, California andGarysburg, North Carolina (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% or (ii) a rate based upon theLondon interbank offered rate ("LIBOR") plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%. AtSeptember 24, 2020 , the weighted average interest rate for the Credit Facility was 1.7%. 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 ofSeptember 24, 2020 , 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. AtSeptember 24, 2020 , we had$70.0 million of available credit under the Credit Facility. If this entire amount were borrowed atSeptember 24, 2020 , we would still be in compliance with all restrictive covenants under the Credit Facility. 23 -------------------------------------------------------------------------------- Mortgage Facility The Mortgage Facility matures onMarch 1, 2023 . OnMarch 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 onJune 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 theEncumbered 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 ofSeptember 24, 2020 , we were in compliance with all covenants under the Mortgage Facility and a total principal amount of$8.2 million was outstanding. Selma Property InSeptember 2006 , we sold ourSelma, 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 theSelma Properties has a ten-year term at a fair market value rent with three five-year renewal options. InSeptember 2015 , we exercised two of the five-year renewal options which extended the lease term toSeptember 2026 . The lease extension also reduced the monthly lease payment on theSelma Properties , beginning inSeptember 2016 , to reflect then current market conditions. One five-year renewal option remains. Also, we have an option to purchase theSelma 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 theSelma Properties transaction. As ofSeptember 24, 2020 ,$9.4 million of the debt obligation was outstanding. Squirrel Brand Seller-Financed Note InNovember 2017 we completed the Squirrel Brand acquisition. The acquisition was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for$11.5 million ("Promissory Note"). The principal owner and seller of the Squirrel Brand business was subsequently appointed as an executive officer of the Company and was considered a related party until the employment of this executive officer with the Company ceased during fiscal 2020. The Promissory Note is unsecured, bears interest at 5.5% per annum and is payable in equal monthly principal payments of$0.3 million , plus interest, which began inJanuary 2018 . Upon an event of default, as defined in the Promissory Note, the interest rate increases to 7.5% until such event of default is cured. We can pre-pay the Promissory Note at any time during the three-year period without penalty. AtSeptember 24, 2020 , the principal amount of$0.6 million of the Promissory Note was outstanding. 24 -------------------------------------------------------------------------------- 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 endedJune 25, 2020 . 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. 25 -------------------------------------------------------------------------------- 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) the risks associated with our vertically integrated model with respect to pecans, peanuts and walnuts; (ii) sales activity for the Company's products, such as a decline in sales (of branded products, private label products or otherwise) to one or more key customers, 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; (iii) changes in the availability and costs of raw materials and the impact of fixed price commitments with customers; (iv) 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; (v) 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; (vi) 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; (vii) 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; (viii) the ability of the Company to control expenses, such as transportation, compensation, medical and administrative expense; (ix) the potential negative impact of government regulations and laws and regulations pertaining to food safety, such as the Food Safety Modernization Act; (x) uncertainty in economic conditions, including the potential for economic downturn, particularly in light of the outbreak of COVID-19; (xi) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company's control; (xii) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xiii) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to illness or quarantine; (xiv) the ability to implement our Strategic Plan, including growing our branded and private brand product sales and expanding into alternative sales channels; (xv) technology disruptions or failures, including disruptions due to employees working remotely; (xvi) the inability to protect the Company's brand value, intellectual property or avoid intellectual property disputes; (xvii) the Company's ability to manage successfully the price gap between its private brand products and those of its branded competitors; and (xviii) the ability of the Company to respond to or manage the outbreak of COVID-19 or other infectious diseases and the various implications thereof. 26
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