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 second quarter of fiscal 2021 and fiscal 2020
are to the quarters ended December 24, 2020 and December 26, 2019 ,
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 24, 2020 and December 26, 2019 , 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 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
for our branded business and private brand partners in fiscal 2021.
We face a number of challenges in the future which include, among others,
decreasing 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 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. As
restaurant closures and other
out-of-home
dining limitations continue due to the impact of
COVID-19,
consumers are also doing more snacking and cooking and baking at home. While
these developments have had a positive impact on certain aspects of our consumer
business, they have had a negative impact on our foodservice business.
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 in Elgin, 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
performance across our
Orchard 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 II, Item 1A - "Risk Factors" of
this report for additional information about our risks, challenges and
uncertainties.
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COVID-19
Impacts
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, as conditions surrounding the pandemic deteriorated
during the fall and winter of calendar 2020 and into calendar 2021, consumers
were and continue to be limited in their ability to purchase meals outside their
homes, and therefore, demand continued to be suppressed from our foodservice,
restaurant, convenience store and
non-essential
retail customers. Although demand has been suppressed from our foodservice
customers, the chart below indicates that the rate of decline is recovering from
its low point in our fourth quarter of fiscal 2020, and we believe that as the
COVID-19
vaccine becomes more widely distributed and accepted by the public, and
restrictions are again loosened, sales volume with our foodservice, restaurant,
convenience store and
non-essential
retail customers will continue to improve and we expect to eventually return to
pre-pandemic
levels.
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Also, in the first half of fiscal 2021, we have seen signs of a shortage in
capacity in the transportation industry, which our transportation service
providers believe is due to driver concerns related to the impacts of
COVID-19.
Compounding this driver shortage is an increase in demand driven by additional
spending on consumer goods. This tightening in transportation capacity is
expected to continue through the third quarter of fiscal 2021, has led to
increased transportation costs and may lead to potential disruptions in service
to our customers and from our suppliers.
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.
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QUARTERLY HIGHLIGHTS
Our net sales of $233.6 million for the second quarter of fiscal 2021 decreased
5.2% from our net sales of $246.4 million for the second quarter of fiscal 2020.
Net sales for the first
twenty-six
weeks of fiscal 2021 decreased by $20.4 million , or 4.4%, to $443.8 million
compared to the first
twenty-six
weeks of fiscal 2020.
Sales volume, measured as pounds sold to customers, increased 1.8% for the
second quarter of fiscal 2021 compared to the second quarter of fiscal 2020.
Sales volume for the first
twenty-six
weeks of fiscal 2021 decreased 0.7% compared to the first
twenty-six
weeks of fiscal 2020.
Gross profit increased by $2.8 million , and our gross profit margin, as a
percentage of net sales, increased to 22.6% for the second quarter of fiscal
2021 compared to 20.3% for the second quarter of fiscal 2020. Gross profit
dollars remained relatively unchanged and our gross profit margin increased to
20.8% from 19.9% for the first
twenty-six
weeks of fiscal 2021 compared to the first
twenty-six
weeks of fiscal 2020.
Total operating expenses for the second quarter of fiscal 2021 decreased by
$0.5 million , or 2.0%, compared to the second quarter of fiscal 2020. As a
percentage of net sales, total operating expenses in the second quarter of
fiscal 2021 increased to 10.7% from 10.4% for the second quarter of fiscal 2020.
For the first half of fiscal 2021, total operating expenses decreased by
$3.2 million , to 10.2% of net sales compared to 10.5% for the first half of
fiscal 2020.
The total value of inventories on hand at the end of the second quarter of
fiscal 2021 decreased by $17.0 million , or 9.8%, in comparison to the total
value of inventories on hand at the end of the second quarter of fiscal 2020.
We have seen acquisition costs for all major tree nuts decrease in the 2020 crop
year (which falls into our current 2021 fiscal year). We completed procurement
of inshell walnuts during the first half of fiscal 2021. 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 2021 and will be recognized in our financial results
at that time.
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RESULTS OF OPERATIONS
Net Sales
Our net sales decreased 5.2% to $233.6 million in the second quarter of fiscal
2021 compared to net sales of $246.4 million for the second quarter of fiscal
2020. The decrease in net sales was primarily attributable to lower selling
prices for tree nuts, which were due to lower commodity acquisition costs. The
decline in net sales from lower selling prices was partially offset by a 1.8%
increase in sales volume, which is defined as pounds sold to customers.
For the first
twenty-six
weeks of fiscal 2021 our net sales were $443.8 million , a decrease of
$20.4 million , or 4.4%, compared to the same period of fiscal 2020. The decrease
in net sales was primarily attributable to lower selling prices resulting
primarily for the same reasons cited in the quarterly comparison. A 0.7%
decrease in sales volume also contributed to the overall decline in net sales.
The following table summarizes sales by product type as a percentage of total
gross sales. The information is based upon gross sales, rather than net sales,
because certain adjustments, such as promotional discounts, are not allocable to
product type.
For the Quarter Ended For the Twenty-six Weeks Ended
December 24, December 26,
December 24, December 26,
Product Type 2020 2019 2020 2019
Peanuts 18.8 % 15.8 % 19.1 % 16.8 %
Pecans 15.0 16.2 12.0 13.0
Cashews & Mixed Nuts 23.1 22.7 23.4 22.7
Walnuts 7.2 8.7 6.9 7.9
Almonds 9.2 13.2 10.8 14.8
Trail & Snack Mixes 22.2 18.3 22.5 19.3
Other 4.5 5.1 5.3 5.5
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 24, December 26, $ Percent
Percentage Percentage
Distribution Channel 2020 of Total 2019 of Total Change Change
Consumer
(1) $ 192,029 82.2 % $ 188,086 76.3 % $ 3,943 2.1 %
Commercial Ingredients 20,536 8.8 34,247 13.9 (13,711 ) (40.0 )
Contract Packaging 21,010 9.0 24,090 9.8 (3,080 ) (12.8 )
Total $ 233,575 100.0 % $ 246,423 100.0 % $ (12,848 ) (5.2 )%
(1) Sales of branded products were approximately 30% and 33% of total consumer
sales during each of the second quarter of fiscal 2021 and fiscal 2020,
respectively.
Fisher
branded products were approximately 74% and 76% of branded sales during the
second quarter of fiscal 2021 and fiscal 2020, respectively, with branded
produce
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 24, December 26, $ Percent
Percentage Percentage
Distribution Channel 2020 of Total 2019 of Total Change Change
Consumer
(1) $ 358,786 80.8 % $ 345,232 74.4 % $ 13,554 3.9 %
Commercial Ingredients 43,347 9.8 71,135 15.3 (27,788 ) (39.1 )
Contract Packaging 41,715 9.4 47,902 10.3 (6,187 ) (12.9 )
Total $ 443,848 100.0 % $ 464,269 100.0 % $ (20,421 ) (4.4 )%
(1) Sales of branded products were approximately 27% and 31% of total consumer
sales during the first
twenty-six
weeks of fiscal 2021 and fiscal 2020, respectively.
Fisherbranded products were approximately 70% and 71% of branded sales during the
first
twenty-six
weeks of fiscal 2021 and fiscal 2020, respectively, with branded produce
products accounting for majority of the remaining branded product sales.
Net sales in the consumer distribution channel increased$3.9 million , or 2.1%, and sales volume increased 9.9% in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020. The sales volume increase was driven by increased sales of private brand peanuts, trail mixes and snack mixes, as consumer preferences have shifted to lower priced products due to current economic conditions. Sales volume for Fisher snack nuts increased 30.2%, primarily as a result of increased promotional activity. Sales volume of Fisher recipe nuts decreased 18.4% as a result of lost distribution at some customers, which was offset in part by increased sales with an Internet retailer. Sales volume ofOrchard Valley Harvest products decreased 13.0% due to reduced foot traffic at a major customer in the non-food sector as a result of COVID-19, reduced promotional activity and lost distribution at some customers. Sales volume of Southern Style Nuts decreased 4.2% due to a reduction in merchandising and promotional activity, which was offset in part by distribution gains with new customers. In the first twenty-six weeks of fiscal 2021, net sales in the consumer distribution channel increased$13.6 million , or 3.9%, and sales volume increased 7.0% compared to the same period of fiscal 2020. The sales volume increase occurred for the same reason cited in the quarterly comparison. Net sales in the commercial ingredients distribution channel decreased by 40.0% in dollars and 23.6% in sales volume in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020. The decline in sales volume was due to a 29.4% decrease in sales volume in our foodservice business. The sales volume decline in our foodservice business resulted from a decline in air travel and nationwide restrictions on indoor restaurant dining and closures of restaurants, all of which were attributable to COVID-19. In the first twenty-six weeks of fiscal 2021, net sales in the commercial ingredients distribution channel decreased by 39.1% in dollars and 25.6% in sales volume compared to the same period of fiscal 2020. The decline in sales volume was due to a 35.5% decrease in sales volume in our foodservice business, which occurred for the same reasons cited in the quarterly comparison. Net sales in the contract packaging distribution channel decreased by 12.8% in dollars and 14.1% in sales volume in the second quarter of fiscal 2021 compared to the second 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. In the first twenty-six weeks of fiscal 2021, net sales in the contract packaging distribution channel decreased by 12.9% in dollars and 13.2% in sales volume compared to the first twenty-six weeks of fiscal 2020. The decline in sales volume occurred for the same reason cited in the quarterly comparison, as well as the loss of peanut butter business with another customer due to a temporary peanut supply shortage that existed in the first quarter of fiscal 2021. Gross Profit Gross profit increased by$2.8 million , or 5.6%, to$52.8 million for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020. Our gross profit margin, as a percentage of net sales, increased to 22.6% for the second quarter of fiscal 2021 compared to 20.3% for the second quarter of fiscal 2020. The increases in gross profit and gross profit margin were mainly attributable to lower commodity acquisition costs for tree nuts and the sales volume increase discussed above. 22 -------------------------------------------------------------------------------- Table of Contents Gross profit was$92.1 million for the first twenty-six weeks of fiscal 2021 compared to$92.2 million for the first twenty-six weeks of fiscal 2020. Our gross profit margin increased to 20.8% for the first twenty-six weeks of fiscal 2021 compared to 19.9% for the first twenty-six weeks of fiscal 2020. The increase in gross profit margin in the year to date comparison was primarily attributable to lower commodity acquisition costs for tree nuts. Operating Expenses Total operating expenses for the second quarter of fiscal 2021 decreased by$0.5 million , or 2.0%, to$25.0 million . Operating expenses increased to 10.7% of net sales for the second quarter of fiscal 2021 compared to 10.4% of net sales for the second quarter of fiscal 2020. Selling expenses for the second quarter of fiscal 2021 were$17.7 million , an increase of$1.6 million , or 9.9%, from the second quarter of fiscal 2020. The increase was driven primarily by a$1.0 million increase in advertising expense primarily related to online advertising for our branded products and a$0.7 million increase in freight expense due to higher rates and an increase in sales pounds shipped. Administrative expenses for the second quarter of fiscal 2021 were$7.3 million compared to$9.4 million for the second quarter of fiscal 2020. The decrease was primarily due to a$2.3 million gain on the estimated final insurance settlement related to the fire that occurred in ourGarysburg, North Carolina facility in the second quarter of fiscal 2020. Total operating expenses for the first twenty-six weeks of fiscal 2021 decreased by$3.2 million , or 6.7%, to$45.5 million . Operating expenses decreased to 10.2% of net sales for the first half of fiscal 2021 compared to 10.5% of net sales for the first half of fiscal 2020. Selling expenses for the first twenty-six weeks of fiscal 2021 were$29.8 million , a decrease of$0.4 million , or 1.4%, from the amount recorded for the first twenty-six weeks of fiscal 2020. The decrease was driven primarily by a$0.5 million decrease in payroll related and incentive compensation expense and a$0.3 million decrease in travel expense due to COVID-19 travel restrictions. These decreases were partially offset by a$0.3 million increase in freight expense for the same reasons discussed in the quarterly comparison. Administrative expenses for the first twenty-six weeks of fiscal 2021 were$15.7 million , a decrease of$2.8 million , or 15.2%, compared to the same period of fiscal 2020. The decrease was primarily due to$2.5 million gain on asset disposals, mainly resulting from the insurance settlement discussed above, combined with a$0.3 million decrease in consulting expense. Income from Operations Due to the factors discussed above, income from operations was$27.8 million , or 11.9% of net sales, for the second quarter of fiscal 2021 compared to$24.5 million , or 9.9% of net sales, for the second quarter of fiscal 2020. Due to the factors discussed above, income from operations was$46.7 million , or 10.5% of net sales, for the first twenty-six weeks of fiscal 2021 compared to$43.5 million , or 9.4% of net sales, for the first twenty-six weeks of fiscal 2020. Interest Expense Interest expense was$0.4 million for both the second quarter of fiscal 2021 and fiscal 2020. Interest expense for the first two quarters of fiscal 2021 was$0.8 million compared to$1.0 million for the first two quarters of fiscal 2020. The decrease in interest expense in the year to date comparison resulted from lower weighted average interest rates from the reduction of long-term debt and was largely offset by higher average short-term debt levels. 23 -------------------------------------------------------------------------------- Table of Contents Rental and Miscellaneous Expense,Net Net rental and miscellaneous expense was$0.4 million for the second quarter of fiscal 2021 compared to$0.3 million for the second quarter of fiscal 2020. Net rental and miscellaneous expense was$0.8 million for the first twenty-six weeks of fiscal 2021 compared to$0.7 million for the first twenty-six weeks of 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 second quarter of fiscal 2021 and fiscal 2020. Other expense was$1.3 million for the first twenty-six weeks of fiscal 2021 compared to$1.1 million for the first twenty-six weeks of fiscal 2020. Income Tax Expense Income tax expense was$6.5 million , or 24.8% of income before income taxes (the "Effective Tax Rate"), for the second quarter of fiscal 2021 compared to$5.7 million , or 24.7% of income before income taxes, for the second quarter of fiscal 2020. For the first twenty-six weeks of fiscal 2020, income tax expense was$11.1 million , or 25.3% of income before income taxes, compared to$10.4 million , or 25.5% of income before income taxes, for the comparable period last year. Net Income Net income was$19.9 million , or$1.73 per common share basic and$1.72 per common share diluted, for the second quarter of fiscal 2021, compared to$17.5 million , or$1.52 per common share basic and diluted for the second quarter of fiscal 2020. Net income was$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, compared to net income of$30.4 million , or$2.65 per common share basic and$2.64 per common share diluted, for the first twenty-six weeks of fiscal 2020. 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 branded products, 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 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 half
of fiscal 2021 and 2020, respectively (dollars in thousands):
December 24, December 26, $
2020 2019 Change
Operating activities $ 61,935 $ 54,285 $ 7,650
Investing activities (10,734 ) (6,148 ) (4,586 )
Financing activities (50,973 ) (48,335 ) (2,638 )
Net increase in cash $ 228 $ (198 ) $ 426
24-------------------------------------------------------------------------------- Table of Contents Operating Activities Net cash provided by operating activities was$61.9 million for the first twenty-six weeks of fiscal 2021 compared to$54.3 million for the comparative period of fiscal 2020. The increase in operating cash flow was primarily due to a decreased use of working capital for inventory compared to the first twenty-six weeks of fiscal 2020. Total inventories were$155.4 million atDecember 24, 2020 , a decrease of$16.7 million , or 9.7%, from the inventory balance atJune 25, 2020 , and a decrease of$17.0 million , or 9.8%, from the inventory balance atDecember 26, 2019 . The decrease in inventory atDecember 24, 2020 compared toJune 25, 2020 was primarily due to lower commodity acquisition costs for all major tree nuts and lower quantities of peanuts and pecans on hand, which was partially offset by greater quantities of walnuts on hand. The decrease in inventories atDecember 24, 2020 compared toDecember 26, 2019 was primarily due lower commodity acquisition costs for all major tree nuts and lower quantities of peanuts on hand. Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased by 14.2 million pounds, or 19.4%, atDecember 24, 2020 compared toDecember 26, 2019 due to lower quantities of peanuts on hand. The weighted average cost per pound of raw nut input stocks on hand at the end of the second quarter of fiscal 2021 decreased 4.6% compared to the end of the second quarter of fiscal 2020 primarily due to lower commodity acquisition costs for all major tree nuts, which was partially offset by a shift in product mix from lower priced peanuts to higher priced walnuts and pecans. Investing Activities Cash used in investing activities was$10.7 million during the first twenty-six weeks of fiscal 2021 compared to$6.1 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. Financing Activities Cash used in financing activities was$51.0 million during the first twenty-six weeks of fiscal 2021 compared to$48.3 million for the same period last year. Dividends paid in the first half of fiscal 2021 were approximately$28.6 million lower than dividends paid in the same period last year. Net repayments under our Credit Facility were$17.8 million during the first half of fiscal 2021 compared to net short-term borrowings of$13.5 million for the first half 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 "). 25 -------------------------------------------------------------------------------- Table of Contents 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 theLondon interbank offered rate ("LIBOR") plus an applicable margin based upon the borrowing base calculation, ranging from 1.25% to 1.75%. AtDecember 24, 2020 , the interest rate for the Credit Facility was at the Base Rate of 3.5%. There were no borrowings under LIBOR contracts due to the low debt against the Credit Facility and projected positive cash flow for January. 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 ofDecember 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. AtDecember 24, 2020 , we had$105.1 million of available credit under the Credit Facility. If this entire amount were borrowed atDecember 24, 2020 , we would still be in compliance with all restrictive covenants under the Credit Facility. 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 ofDecember 24, 2020 , we were in compliance with all covenants under the Mortgage Facility and a total principal amount of$7.4 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 ofDecember 24, 2020 ,$9.2 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"). As ofDecember 24, 2020 , the Promissory Note was repaid in full. 26 -------------------------------------------------------------------------------- Table of Contents 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 15 - "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. 27
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FORWARD LOOKING STATEMENTS
Some of the statements in this report are forward-looking. These forward-looking
statements may be generally identified by the use of forward-looking words and
phrases such as "will", "intends", "may", "believes", "anticipates", "should"
and "expects" and are based on the Company's current expectations or beliefs
concerning future events and involve risks and uncertainties. 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 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; (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 expenses; (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.
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