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Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the 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:

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.

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, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands. 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 packaging 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. In addition, during fiscal 2021 we have invested in our people and facilities in order to research, develop, market and sell new products in snack categories we currently are not in for our branded business and private brand partners.

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. Our

Fisher

recipe nut sales have been negatively impacted recently due to this increased competition for market share. We also face changing industry trends as consumer preferences evolve into shopping in smaller store formats like grocery, use of delivery apps for shopping and generally migrate more of their shopping online. Additionally, in recent months we have faced challenges with shortages for shipping pallets, resin-based packaging, imported materials, transportation equipment and labor. These shortages have impacted our operations and led to some cost increases. We anticipate the industry will see pricing relief in some of these areas in the coming quarters, but others may remain elevated for a longer period of time. In the interim, we are working with our vendors, customers and JBSS facilities in other regions of the country to source additional supply. If these shortages continue and we cannot secure adequate supplies to fulfill customer orders, it could have an unfavorable impact on net sales and our operations in fiscal year 2022.

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 increase our promotional and advertising activity to invest in transformation growth with an omnichannel approach behind our brands with valuable consumers 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 plan 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 issues 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.

COVID-19

Impacts

We will continue to face challenges in fiscal year 2022 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 eased 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 the beginning of calendar 2021, consumers were limited in their ability to purchase meals outside their homes. As indoor dining restrictions continued due to the impact of

COVID-19,

consumers continued to snack, cook and bake more at home. While this trend had a positive impact on certain aspects of our consumer business, demand continued to be suppressed from our foodservice, restaurant and

non-essential

retail customers. Additionally,

COVID-19

has had an unfavorable impact on a major customer’s business

in our contract packaging distribution channel due to reduced foot traffic in convenience stores as people continued to work from home. During the fourth quarter of fiscal 2021, as the

COVID-19

vaccine became more widely distributed and accepted by the public, restrictions were again loosened and we saw a vast improvement in the quarterly comparison in our sales volume with our foodservice, restaurant, convenience store and

non-essential

retail customers. However, if vaccination rates stagnate or more contagious strains of

COVID-19

develop, our sales to foodservice, restaurant and

non-essential

retail customers may decrease.

Also, during fiscal 2021, we have seen signs of a shortage in capacity in the transportation industry, which our transportation service providers believe is due, in part, 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, which has led to periodic shortages of shipping container chassis and space on container ships and trains and capacity constraints at U.S. ports. This tightening in transportation capacity is expected to continue into fiscal 2022, 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 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 extended personal time off for those employees who are ill or must self-quarantine and hosted several free,

on-site

COVID-19

vaccination clinics for our employees and their family members.

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. However, recent surges in

COVID-19

cases, especially in southern Vietnam from where most of our cashews are sourced and extensive lockdowns are in place, could have a negative impact on our operations if shipments of raw materials are delayed. 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.

Climate Change Impacts

Similar to other commodity dependent businesses, extreme weather events from climate change can have an unfavorable impact on our business. Floods, hurricanes, wildfires, tornadoes, blizzards, droughts, mudslides and extreme temperatures can affect our ability to obtain adequate (or acceptable quality) input fruit and nut material and manufacture products in our facilities. These extreme weather events can also have an adverse impact on the transportation industry and supply chains upon which we rely. Climate change can also result in unfavorable impacts that are unique to our business, especially for normal crop development. Below are some examples of essential weather conditions that must be presen

t for normal development of the crops from which we derive the major raw materials we use in our products.

The

non-occurrence

of these weather conditions and other essential weather conditions can result in smaller crops, crop failures, or quality failures, which can lead to increased acquisition costs and supply shortages. Should climate changes significantly alter weather patterns, some of these needed input products may not be available at all, which would have a materially adverse impact on our business.

Annual Highlights

We have seen acquisition costs for all major tree nuts decrease in the 2020 crop year (which falls into our 2021 fiscal year). While we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2021, the total payments to our walnut growers were not determined until the third quarter of fiscal 2021, which is typical. The final prices paid to the walnut growers were based upon prevailing market prices and other factors, such as crop size and export demand. At June 24, 2021 there are no amounts due to walnut growers.

Results of Operations

The following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2021 to fiscal 2020 and from fiscal 2020 to fiscal 2019.

Percentage of Net Sales Percentage Change

Fiscal 2021 Compared to Fiscal 2020

Net Sales

Our net sales decreased 2.5% to $858.5 million for fiscal 2021 from $880.1 million for fiscal 2020. The decrease in net sales was primarily due to a 4.0% decline in the weighted average selling price per pound, which was attributable to lower selling prices for tree nuts as a result of lower commodity acquisition costs. The decline in the weighted average selling price per pound was partially offset by a 1.6% increase in sales volume, which is defined as pounds sold to customers.

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 from gross sales to net sales, such as promotional discounts, are not allocable to product type.

The following table shows a comparison of net sales by distribution channel (dollars in thousands):

Net sales in the consumer distribution channel increased 1.8% in dollars and 6.4% in sales volume in fiscal 2021 compared to fiscal 2020. The sales volume increase was driven by an 9.0% increase in sales volume for private brand products, specifically trail mixes, snack mixes and snack nuts, from new distribution at existing customers, a shift in consumer preferences to lower priced private brand products and growth in snacking as many consumers continue to purchase food for consumption at home. Sales volume for

Fisher

snack nuts increased 12.0% due to increased promotional activity and increased sales of inshell peanuts to a major customer in preparation for our discontinuance of that product line. Sales volume of

Fisher

recipe nuts decreased 19.4% from lost distribution at three customers. Sales volume

Orchard Valley Harvest

products decreased 10.3% due to lost distribution at two customers. Sales volume of

Southern Style Nuts

decreased 7.7% due to the discontinuance of an item at a major customer and a reduction in merchandising and promotional activity, which was offset in part by distribution gains with new customers.

Net sales in the commercial ingredients distribution channel decreased 21.6% in dollars and 13.9% in sales volume compared to fiscal 2020. The decrease in sales volume was primarily due to a 13.6% decrease in sales volume in our foodservice business and a decline in sales of peanut crushing stock to peanut oil processors. The sales volume decline in our foodservice business, despite the 117.1% increase in fourth quarter sales volume, resulted from a decline in air travel and nationwide restrictions on indoor restaurant dining, which were attributable to

COVID-19.

Net sales in the contract packaging distribution channel decreased 9.3% in dollars and 8.2% in sales volume in fiscal 2021 compared to 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.

Gross Profit

Gross profit increased 5.2% to $185.0 million in fiscal 2021 from $175.8 million in fiscal 2020. Our gross profit margin, as a percentage of sales, increased to 21.5% for fiscal 2021 from 20.0% for fiscal 2020. The increases in gross profit and gross profit margin were mainly attributable to lower commodity acquisition costs for all major tree nuts and increased sales volume.

Operating Expenses

Total operating expenses for fiscal 2021 increased $2.6 million to $99.8 million. Operating expenses as a percent of net sales were 11.6% for fiscal 2021 and 11.0% for fiscal 2020. Operating expenses as a percent of net sales increased in fiscal 2021 as a result of a lower net sales base and an increase in total operating expenses. The increase in total operating expenses was mainly due to increases in freight, research and consulting, and compensation related expenses, which were partially offset by an increase in the gain on asset disposals and decreases in advertising and travel expenses.

Selling expenses for fiscal 2021 were $63.0 million, an increase of $3.7 million, or 6.3%, over the amount recorded for fiscal 2020. The increase was primarily driven by a $4.2 million increase in freight expense due to significantly higher freight rates compared to fiscal 2020 and, to a lesser extent, an increase in sales volume for our sales made on a delivered basis to customers, and a $1.1 million increase in consumer insight research and related consulting expense. These increases were partially offset by a $1.3 million decrease in advertising expense primarily due to less radio advertising and a $0.4 million decrease in travel expense due to

COVID-19

travel restrictions.

Administrative expenses for fiscal 2021 were $36.8 million, a decrease of $1.1 million, or 3.0%, from the amount recorded for fiscal 2020. The decrease was due to a $1.9 million increase in the gain on asset disposals, mainly resulting from a $2.3 million gain from the final insurance recovery recognized in the second quarter of fiscal 2021 for the Garysburg facility fire. This decrease was partially offset by a $0.6 million increase in compensation related expenses.

Income from Operations

Due to the factors discussed above, income from operations was $85.2 million, or 9.9% of net sales, for fiscal 2021, compared to $78.5 million, or 8.9% of net sales, for fiscal 2020.

Interest Expense

Interest expense was $1.4 million for fiscal 2021 compared to $2.0 million for fiscal 2020. The decrease in interest expense was due to lower average debt levels.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $1.4 million for fiscal 2021 compared to $1.6 million for fiscal 2020. The decrease during fiscal 2021 was due to less repair and maintenance expense.

Other Expense

Other expense consists of pension related expenses other than the service cost component and was $2.5 million and $2.3 million for fiscal 2021 and fiscal 2020, respectively.

Income Tax Expense

Income tax expense was $20.1 million, or 25.2% of income before income taxes, for fiscal 2021 compared to $18.6 million, or 25.6% of income before income taxes, for fiscal 2020.

Net Income

Net income was $59.7 million, or $5.19 basic and $5.17 diluted per common share, for fiscal 2021, compared to $54.1 million, or $4.72 basic and $4.69 diluted per common share, for fiscal 2020, due to the factors discussed above.

Fiscal 2020 Compared to Fiscal 2019

The discussion of our results of operations for the fiscal year ended June 25, 2020 compared to the fiscal year ended June 27, 2019 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form

10-K

for the year ended June 25, 2020 and such discussion is incorporated by reference herein.

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. See Part I, Item 1A — “Risk Factors” above. Our available credit under our Credit Facility has allowed us to devote more funds to promote our products, increase our consumer insight capabilities and efforts, consummate strategic investments and business acquisitions, such as the 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 last two fiscal years (dollars in thousands):

Total change in cash $ (863 ) $ (56 ) $ (807 )

Operating Activities.

Net cash provided by operating activities was $104.7 million in fiscal 2021, an increase of $41.1 million compared to fiscal 2020. The increase in operating cash flow was due to a decreased use of working capital for inventory, combined with a $5.6 million increase in net income driven by lower commodity acquisition costs for all major tree nuts compared to fiscal 2020. Inventories decreased $24.1 million in fiscal 2021 compared to a $15.0 million increase in inventories in fiscal 2020 which resulted in a net favorable change in cash of $39.1 million.

Total inventories were $148.0 million at June 24, 2021, a decrease of $24.1 million, or 14.0%, from the inventory balance at June 25, 2020. The decrease was primarily due to lower commodity acquisition costs for all major tree nuts and decreased quantities of peanuts, pecans and finished goods on hand, which was partially offset by increased quantities of walnuts on hand.

Raw nut and dried fruit input stocks, some of which are classified as work in process, decreased 8.6 million pounds, or 15.3%, at June 24, 2021 compared to June 25, 2020. The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of fiscal 2021 fell by 11.9% compared to the end of fiscal 2020, primarily due to lower commodity acquisition costs for all major tree nuts.

Investing Activities.

Cash used in investing activities was $23.0 million in fiscal 2021. Capital expenditures accounted for a $25.2 million use of cash in fiscal 2021, which was offset in part by $2.5 million of proceeds from insurance recoveries related to a fire in our Garysburg, North Carolina facility.

Cash used in investing activities was $14.0 million in fiscal 2020. Capital expenditures accounted for a $15.0 million use of cash in fiscal 2020, which was offset in part by $1.1 million of proceeds from insurance recoveries related to the fire noted above.

We expect total capital expenditures for equipment purchases and upgrades, facility maintenance 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 capital expenditures.

Financing Activities.

Cash used in financing activities was $82.6 million during fiscal 2021. We paid dividends totaling $57.5 million in fiscal 2021. We repaid $5.3 million of long-term debt during fiscal 2021, $3.1 million of which was related to the Mortgage Facility (as defined below). There was a net decrease in borrowings outstanding under our Credit Facility of $18.4 million during fiscal 2021 which occurred, in part, as a result of the decrease in inventory.

Cash used in financing activities was $49.6 million during fiscal 2020. We paid dividends totaling $68.7 million in fiscal 2020. We repaid $7.7 million of long-term debt during fiscal 2020, $3.0 million of which was related to the Mortgage Facility. There was a net increase in borrowings outstanding under our Credit Facility of $27.0 million during fiscal 2020 which occurred, in part, as a result of the increase in inventory.

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 (the “Mortgage Facility”).

Credit 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”).

At June 24, 2021, 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 borrowing levels against the Credit Facility and projected positive cash flow for July. 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 June 24, 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 June 24, 2021, we had $104.6 million of available credit under the Credit Facility. If this entire amount were borrowed at June 24, 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 June 24, 2021, we were in compliance with all covenants under the Mortgage Facility and a total principal amount of $5.8 million was outstanding.

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 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. The lease for the Selma Properties had an initial

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, and the payments are reassessed at the end of each five-year renewal option. The monthly payments will increase, beginning in September 2021, based on the change in the consumer price index in accordance with the lease. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the lessor at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. At June 24, 2021, $8.9 million of the debt obligation was outstanding.

Squirrel Brand Seller-Financed Note

In November 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 of $11.5 million, which was repaid in full during the second quarter of fiscal 2021.

Off-Balance

Sheet Arrangements

As of June 24, 2021, we were not involved in any

off-balance

sheet arrangements, as defined in Item 303(a)(4)(ii) of

Regulation S-K

promulgated by the SEC.

Contractual Cash Obligations

At June 24, 2021, we had the following contractual cash obligations for long-term debt (including scheduled interest payments), operating leases, the Credit Facility, purchase obligations, retirement plans and other long-term liabilities (amounts in this subsection in thousands):

Total Less Than1 Year 1-3 Years 3-5 Years More Than5 Years

Revolving credit facility borrowings 8,653 8,653 — — —

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The accounting policies as disclosed in the Notes to Consolidated Financial Statements are applied in the preparation of our financial statements and accounting for the underlying transactions and balances. The policies discussed below are considered by our management to be critical for an understanding of our financial statements because the application of these policies places the most significant demands on management’s judgment, with financial reporting results relying on estimation regarding the effect of matters that are inherently uncertain. Specific risks, if applicable, for these critical accounting policies are described in the following paragraphs. For a detailed discussion on the application of these and other accounting policies, see Note 1 — “Significant Accounting Policies” of the Notes to Consolidated Financial Statements.

Preparation of this Annual Report on Form

10-K

requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. See “Forward-Looking Statements” below.

Revenue Recognition

The Company records revenue based on a five-step model in accordance with Accounting Standards Codification (“ASC”) Topic 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We sell our products under some arrangements which include customer contracts that fix the sales price for periods, which typically can be up to one year for some commercial ingredient customers. We also sell our products through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer and some commercial ingredient users. We recognize revenue as performance obligations are fulfilled, which occurs when control passes to our customers. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. We reduce revenue for estimated promotion allowances, volume and customer rebates and marketing allowances, among others. These reductions in revenue are considered variable consideration and are recorded in the same period the related sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. See Note 2 — “Revenue Recognition” below for additional information on revenue recognition.

Impairment of Long-Lived Assets

We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets (e.g., customer relationships and brand names), to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value. We also evaluate the amortization periods assigned to our intangible assets to determine whether events or changes in circumstances require a revised estimate of useful lives. We did not record any impairment of long-lived assets or amortizable identifiable intangible assets in any of the last three fiscal years.

Goodwill

Goodwill is not amortized, but is tested annually for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of our single reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. The inputs used to estimate fair value include several subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Our market capitalization is also an estimate of fair value that is considered in our qualitative impairment analysis which is a level 1 input in the fair value hierarchy. If the carrying value of our single reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value.

Retirement Plan

In order to measure the annual expense and calculate the liability associated with our retirement plan, management must make a variety of estimates including, but not limited to, discount rates, compensation increases and anticipated mortality rates. The estimates used by management are based on our historical experience as well as current facts and circumstances. We use a third-party specialist to assist management in appropriately measuring the expense associated with this employment-related benefit. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

We recognize net actuarial gains or losses in excess of 10% of the plan’s projected benefit obligation into current period expense over the average remaining expected service period of active participants.

The most significant assumption for pension plan accounting is the discount rate. We select a discount rate each year (as of our fiscal

year-end

measurement date) for our plan based upon a hypothetical corporate bond portfolio for which the cash flows match the

year-by-year

projected benefit cash flows for our pension plan. The hypothetical bond portfolio is comprised of high-quality fixed income debt securities (usually Moody’s Aa3 or higher) available at the measurement date. Based on this information, the discount rate selected by us for determination of pension expense was 2.69% for fiscal 2021, 3.56% for fiscal 2020, and 4.14% for fiscal 2019. A

25-basis

point increase or decrease in our discount rate assumption for fiscal 2021 would have resulted in an immaterial change in our pension expense for fiscal 2021. For our

year-end

pension obligation determination, we selected discount rates of 2.89% and 2.69% for fiscal years 2021 and 2020, respectively.

Recent Accounting Pronouncements

Refer to Note 1 — “Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

Forward-Looking Statements

The statements contained in this Annual Report on Form

10-K,

and in the Chief Executive Officer’s letter to stockholders accompanying the Annual Report on Form

10-K

delivered to stockholders, that are not historical (including statements concerning our expectations regarding market risk) are “forward-looking statements.” These forward-looking statements may be followed (and therefore identified) by a cross reference to Part I, Item 1A — “Risk Factors” or may be otherwise identified by the use of forward-looking words and phrases such as “will”, “anticipates”, “intends”, “may”, “believes”, “should” and “expects”, and they are based on our current expectations or beliefs concerning future events and involve risks and uncertainties. We undertake 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. We caution that such statements are qualified by important factors, including the factors described in Part I, Item 1A — “Risk Factors” and other factors, risks and uncertainties that are beyond our control, that could cause results to differ materially from our current expectations and/or those in the forward-looking statements, as well as the timing and occurrence (or nonoccurrence) of transactions and other factors, risk, uncertainties and events which may be subject to circumstances beyond our control. Consequently, results actually achieved may differ materially from the expected results included in these statements.

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of changes in interest rates, commodity prices of raw material purchases and foreign exchange. We have not entered into any arrangements to hedge against changes in market interest rates, commodity prices or foreign currency fluctuations.

We are unable to engage in hedging activity related to commodity prices, because there are no established futures markets for nuts; therefore, we can only attempt to pass on the commodity cost increases in the form of price increases to our customers. A hypothetical 1% increase in material costs, without a corresponding price increase, would have decreased gross profit approximately $5.3 million for fiscal 2021. See Part I, Item 1A — “Risk Factors” for a further discussion of the risks and uncertainties related to commodity prices of raw materials and the impact thereof on our business.

Approximately 34% of the dollar value of our total nut purchases for fiscal 2021 were made from foreign countries, and while these purchases were payable in U.S. dollars, the underlying costs may fluctuate with changes in the value of the U.S. dollar relative to the currency in the foreign country from where the nuts are purchased, or to other major foreign currencies such as the euro.

We are exposed to interest rate risk on our Credit Facility, our only variable rate credit facility, because we have not entered into any hedging instruments which fix the floating rate or offset an increase in the floating rate. A hypothetical 10% adverse change in weighted-average interest rates would have had less than a $0.1 million impact on our net income and cash flows from operating activities for fiscal 2021.

Item 8 — Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of John B. Sanfilippo & Son, Inc. and its subsidiaries (the “Company”) as of June 24, 2021 and June 25, 2020, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended June 24, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 24, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 24, 2021 and June 25, 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 24, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 24, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of the Projected Benefit Obligation related to the Supplemental Employee Retirement Plan (SERP)

As described in Note 14 to the consolidated financial statements, the Company’s projected benefit obligation related to the SERP is $35.5 million as of June 24, 2021. The SERP is an unfunded,

non-qualified

benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. The most significant assumption related to the Company’s SERP is the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future.

The principal considerations for our determination that performing procedures relating to the valuation of the projected benefit obligation related to the SERP is a critical audit matter are (i) the significant judgment by management to determine the projected benefit obligation and the significant assumption related to discount rate, (ii) the significant auditor judgment, subjectivity and effort in evaluating management’s significant assumption related to the discount rate, and (iii) the audit effort included the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s determination of the projected benefit obligation related to the SERP, including the control over the development of the significant assumption related to the discount rate. These procedures also included, among others (i) testing management’s process for determining the projected benefit obligation, (ii) evaluating the appropriateness of the valuation method, (iii) testing the completeness and accuracy of underlying data used in the valuation of the projected benefit obligation, and (iv) evaluating the reasonableness of the discount rate. Evaluating management’s assumption related to the discount rate involved evaluating whether the assumption used by management is reasonable considering the consistency with external market data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the valuation method and the reasonableness of the discount rate.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

August 18, 2021

We have served as the Company’s auditor since 1982.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

June 24, 2021 and June 25, 2020

(dollars in thousands, except share and per share amounts)

ASSETS

CURRENT ASSETS:

Prepaid expenses and other current assets 8,568 8,315

Assets held for sale 1,595 —

PROPERTY, PLANT AND EQUIPMENT:

Furniture and leasehold improvements 5,287 5,179

OTHER LONG TERM ASSETS:

Cash surrender value of officers’ life insurance and other assets 10,732 11,875

Operating lease right-of-use assets 3,484 4,351

The accompanying notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED BALANCE SHEETS

June 24, 2021 and June 25, 2020

(dollars in thousands, except share and per share amounts)

LIABILITIES & STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Revolving credit facility borrowings $ 8,653 $ 27,008

LONG-TERM LIABILITIES:

Long-term operating lease liabilities, net of current portion 2,103 2,990

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:

Accumulated other comprehensive loss (9,025 ) (8,630 )

Treasury stock, at cost; 117,900 shares of Common Stock (1,204 ) (1,204 )

The accompanying notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended June 24, 2021, June 25, 2020 and June 27, 2019

(dollars in thousands, except share and per share amounts)

Operating expenses:

Other expense:

Other comprehensive loss, net of tax:

Net actuarial loss arising during the period (1,624 ) (4,345 ) (1,922 )

Other comprehensive loss, net of tax (395 ) (3,329 ) (1,144 )

Net income per common share — basic $ 5.19 $ 4.72 $ 3.45

Net income per common share — diluted $ 5.17 $ 4.69 $ 3.43

Cash dividends declared per share $ 5.00 $ 6.00 $ 2.55

The accompanying notes are an integral part of these consolidated financial statements

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended June 24, 2021, June 25, 2020 and June 27, 2019

(dollars in thousands, except per share amounts)

Shares Amount Shares Amount Total

Pension liability amortization, net of income tax expense of $274 778 778

Stock-based compensation expense 2,644 2,644

Pension liability amortization, net of income tax expense of $358 1,016 1,016

Stock-based compensation expense 2,472 2,472

Pension liability amortization, net of income tax expense of $432 1,229 1,229

Stock-based compensation expense 2,908 2,908

The accompanying notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 24, 2021, June 25, 2020 and June 27, 2019

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Gain on disposition of properties, net (2,717 ) (844 ) (164 )

Deferred income tax expense (benefit) 840 104 (298 )

Change in assets and liabilities:

Prepaid expenses and other current assets (253 ) (2,668 ) (470 )

CASH FLOWS FROM INVESTING ACTIVITIES:

CASH FLOWS FROM FINANCING ACTIVITIES:

Debt issue costs — (459 ) —

Principal payments on long-term debt (5,309 ) (7,739 ) (6,851 )

(Decrease) increase in bank overdraft (948 ) 1,140 (1,161 )

Proceeds from the exercise of stock options — 4 —

Taxes paid related to net share settlement of equity awards (535 ) (834 ) (339 )

NET (DECREASE) INCREASE IN CASH (863 ) (56 ) 142

Supplemental disclosures of cash flow information:

Supplemental disclosure of non-cash activities:

Right-of-use assets recognized at ASU No. 2016-02 transition — 5,361 —

The accompanying notes are an integral part of these consolidated financial statements.

JOHN B. SANFILIPPO & SON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation and Description of Business

Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of

fifty-two

weeks (four thirteen-week quarters). The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

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, snack and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks and other sesame snack products under our brand names and under private brands. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and contract packaging customers.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, and the assumption used in estimating the annual discount rate utilized in determining the retirement plan liability. Actual results could differ from those estimates, particularly due to any further impact of

COVID-19

and its variants on the Company and its customers.

Accounts Receivable

Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other

non-specifically

identified customers will become credit risks. Account balances are charged off against the allowance when we conclude that it is probable the receivable will not be recovered. The reserve for estimated cash discounts is based on historical experience. The reserve for customer deductions represents known customer short payments and an estimate of future credit memos that will be issued to customers related to rebates and allowances for marketing and promotions based on agreed upon programs and historical experience.

Inventories

Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost

(first-in,

first-out)

and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When net realizable values move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost

(first-in,

first-out)

and net realizable value. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates, which historically averaged less than 1.0% of inventory purchases, are also recorded.

We enter into walnut purchase agreements with growers typically in our first fiscal quarter, under which they deliver their walnut crop to us during the fall harvest season (which typically occurs in our first and second fiscal quarters). Pursuant to our walnut purchase agreements, we determine the final price for this inventory after receipt and typically by the end of our third fiscal quarter. Since the ultimate purchase price to be paid is determined subsequent to receiving the walnut crop, we typically estimate the final purchase price for our first and second quarter interim financial statements based on crop size, quality, current market prices and other factors. Any such changes in estimates, which could be significant, are accounted for in the period of change by adjusting inventory on hand or cost of goods sold if the inventory has been sold. Changes in estimates may affect the ending inventory balances, as well as gross profit. There were no significant adjustments recorded in any of the periods presented.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Major improvements that extend the useful life, add capacity or add functionality are capitalized and charged to expense through depreciation. Repairs and maintenance costs are charged to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss is recognized currently in operating income.

Depreciation expense for the last three fiscal years is as follows:

Cost is depreciated using the straight-line method over the following estimated useful lives:

Classification Estimated Useful Lives

Buildings 10 to 40 years

Machinery and equipment 5 to 10 years

Furniture and leasehold improvements 5 to 10 years

Vehicles 3 to 5 years

Computers and software 3 to 10 years

No interest costs were capitalized for the last three fiscal years due to the lack of any significant project requiring such capitalization.

Business Combinations

We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

Segment Reporting

We operate in a

single

reporting unit and operating segment that consists of selling various nut and nut related products through three distribution channels.

Impairment of Long-Lived Assets

We did not record any impairment of long-lived assets for the last three fiscal years.

Goodwill

Goodwill currently represents the excess of the purchase price over the fair value of the net assets from our acquisition of Squirrel Brand, L.P. which closed in November 2017.

Goodwill is not amortized, but is tested annually as of the last day of each fiscal year for impairment, or whenever events or changes in circumstances indicate it is more likely than not that the carrying amount of the reporting unit is greater than its fair value. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which we operate, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above). During fiscal 2021 we elected to perform a qualitative impairment test which showed no indicators of goodwill impairment.

Elgin Rental Property

In April 2005, we acquired property to be used for the Elgin Site. Two buildings are located on the Elgin Site, one of which is an office building. Approximately 70% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been

built-out.

The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in the caption “Property, plant and equipment”.

The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”.

See Note 3 — “Leases” below for additional information.

Fair Value of Financial Instruments

Authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at June 24, 2021 and June 25, 2020 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 6 — “Revolving Credit Facility” below) borrowings approximates fair value at June 24, 2021 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.

The following table summarizes the carrying value and fair value estimate of our current and long-term debt, excluding unamortized debt issuance costs:

Carrying value of long-term debt: $ 14,749 $ 20,059

The estimated fair value of long-term debt was determined using a market approach based upon Level 2 observable inputs, which estimates fair value based on interest rates currently offered on loans with similar terms to borrowers of similar credit quality or broker quotes. In addition, there have been no significant changes in the underlying assets securing our long-term debt.

Revenue Recognition

The Company records revenue based on a five-step model in accordance with ASC Topic 606,

Revenue from Contracts with Customers

. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We sell our products under some arrangements which include customer contracts that fix the sales price for periods, which typically can be up to one year for some commercial ingredient customers. We also sell our products through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer and some commercial ingredient users. We recognize revenues as performance obligations are fulfilled, which occurs when control passes to our customers. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. We reduce revenue for estimated promotion allowances, volume and customer rebates and marketing allowances, among others. These reductions in revenue are considered variable consideration and are recorded in the same period the related sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. See Note 2 — “Revenue Recognition” below for additional information on revenue recognition.

Significant Customers and Concentration of Credit Risk

The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to two customers exceeded 10% of net sales during fiscal 2021, fiscal 2020 and fiscal 2019. In total, sales to these customers represented approximately 48%, 45% and 43% of our net sales in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. In total, net accounts receivable from these customers were 46% and 44% of net accounts receivable at June 24, 2021 and June 25, 2020, respectively.

Marketing and Advertising Costs

Marketing and advertising costs, including consumer insight research and related consulting expenses, are incurred to promote and support branded products in the consumer distribution channel. These costs are generally expensed as incurred, recorded in selling expenses and were as follows for the last three fiscal years:

Shipping and Handling Costs

Shipping and handling costs, which include freight and other expenses to prepare finished goods for shipment, are included in selling expenses. Shipping and handling costs for the last three fiscal years were as follows:

Research and Development Expenses

Research and development expense represents the cost of our research and development personnel and their related expenses and is charged to selling expenses as incurred. Research and development expenses for the last three fiscal years were as follows:

Research and development expense $ 2,000 $ 999 $ 892

Stock-Based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of ASC Topic 718,

Compensation — Stock Compensation

, by calculating compensation cost based on the grant date fair value. We then amortize compensation expense over the vesting period. The grant date fair value of restricted stock units (“RSUs”) is generally determined based on the market price of our Common Stock on the date of grant. Forfeitures are recognized as they occur, and excess tax benefits or tax deficiencies are recognized as a component of income tax expense.

Income Taxes

We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns. Such items give rise to differences in the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. In estimating future tax consequences, we consider all expected future events other than changes in tax law or rates.

We record liabilities for uncertain income tax positions based on a

two-step

process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, we perform the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes in facts, circumstances, and new information may require us to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur.

We recognize interest and penalties accrued related to unrecognized tax benefits in the “Income tax expense” caption in the Consolidated Statement of Comprehensive Income.

We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 24, 2021, we believe that our deferred tax assets are fully realizable.

Earnings per Share

Basic earnings per common share are calculated using the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock.

The following table presents the reconciliation of the weighted average shares outstanding used in computing basic and diluted earnings per share:

Effect of dilutive securities:

The following table presents a summary of anti-dilutive awards excluded from the computation of diluted earnings per share:

Weighted average number of anti-dilutive shares: — 7,010 —

Weighted average exercise price per share: $ — $ 90.26 $ —

Comprehensive Income

We account for comprehensive income in accordance with ASC Topic 220,

Comprehensive Income

. This topic establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The topic requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This topic also requires all

non-owner

changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation by the respective line items of net income, either on the face of the statement where net income is presented or in the notes and information about significant amounts required under U.S. GAAP to be reclassified out of accumulated other comprehensive income in their entirety. For amounts not required to be reclassified in their entirety to net income, we provide a cross-reference to other disclosures that offer additional details about those amounts.

Recent Accounting Pronouncements

The following recent accounting pronouncements have been adopted in the current fiscal year:

In August 2018, the FASB issued ASU

No. 2018-15

“

Intangibles – Goodwill and Other –

Internal-Use

Software (Subtopic

350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

”. The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software (and hosting arrangements that include an internal use software license). ASU

No. 2018-15

was adopted using the prospective method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU

No. 2018-14

“

Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic

715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

”. The amendments in this Update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU

No. 2018-14

was adopted on a retrospective basis to all periods presented in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU

No. 2017-04

“Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”.

The amendments in this Update eliminate the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. ASU

No. 2017-04

was adopted in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In June 2016, the FASB issued ASU

No. 2016-13

“

Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

”. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU

No. 2016-13

was adopted using a modified retrospective transition method in the first quarter of fiscal 2021 and did not have a material impact on our Consolidated Financial Statements.

In August 2020, the SEC issued Release

No. 33-10825,

Modernization of Regulation

S-K

Items 101, 103 and 105,

which modernizes the description of business, legal proceedings and risk factor disclosures. These rules amend certain SEC disclosure requirements to improve disclosure for investors and to simplify compliance for registrants, including new requirements for human capital disclosures and a summary of risk factors, if the page-length requirement for a summary is met. The Company has adopted the provisions of this new rule beginning with the 2021 Annual Report on Form

10-K.

The adoption only impacted the Company’s disclosures and did not impact the consolidated financial statements.

The following recent accounting pronouncements have not yet been adopted:

In March 2020, the FASB issued ASU

No. 2020-04

“

Reference Rate Reform (Topic 848)

”. The amendments in this Update are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update are effective upon issuance and can be taken at any point in time (at the beginning of an interim period) through December 31, 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements.

In December 2019, the FASB issued ASU

No. 2019-12

“

Income Taxes (Topic 740)

”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions, providing updated requirements and specifications in certain areas and by making minor codification improvements. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted. This Update is effective for the Company beginning in fiscal 2022. We do not expect this accounting Update to have a material impact on our Consolidated Financial Statements.

NOTE 2 — REVENUE RECOGNITION

We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For each customer contract, a five-step process is followed in which we identify the contract, identify performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is transferred to the customer.

Nature of Products

We manufacture and sell the following:

When Performance Obligations Are Satisfied

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are primarily for the delivery of raw and processed recipe and snack nuts, nut butters and trail mixes.

Our customer contracts do not include more than one performance obligation. If a contract were to contain more than one performance obligation, we are required to allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.

Revenue recognition is generally completed at a point in time when product control is transferred to the customer. For virtually all of our revenues, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Therefore the timing of our revenue recognition requires little judgment.

The performance obligations in our contracts are satisfied within one year, and typically much less. As such, we have not disclosed the transaction price allocated to remaining performance obligations for any periods presented.

Significant Payment Terms

Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. On a limited basis some payment terms may be extended, however, no payment terms beyond six months are granted at contract inception. The average customer payment is received within approximately 31 days of the invoice date. As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be six months or less.

Shipping

All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in selling expense.

Variable Consideration

Some of our products are sold through specific incentive programs consisting of promotional allowances, volume and customer rebates,

in-store

display incentives and marketing allowances, among others, to consumer and some commercial ingredient customers. The ultimate cost of these programs is dependent on certain factors such as actual purchase volumes or customer activities and is dependent on significant management judgment when determining estimates. The Company accounts for these programs as variable consideration and recognizes a reduction in revenue (and a corresponding reduction in the transaction price) in the same period as the underlying program based upon the terms of the specific arrangements.

Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are also offered through various programs to customers and consumers. A provision for estimated trade promotions is recorded as a reduction of revenue (and a reduction in the transaction price) in the same period when the sale is recognized. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. Evaluating these estimates requires management judgment.

We generally use the most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration and trade promotions at least quarterly based on the terms of the agreements and historical experience. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe, therefore, no additional constraint on the variable consideration is required.

Product Returns

While customers generally have the right to return defective or

non-conforming

products, past experience has demonstrated that product returns have generally been immaterial. Customer remedies may include either a cash refund or an exchange of the returned product. As a result, the right of return and related refund liability for

non-conforming

or defective goods is estimated and recorded as a reduction in revenue, if necessary.

Contract Balances

Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. The contract asset balance at June 24, 2021 is $74 and is recorded in the caption “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. There was no contract asset balance at June 25, 2020. The Company generally does not have material deferred revenue or contract liability balances arising from transactions with customers.

Contract Costs

The Company does not incur significant fulfillment costs requiring capitalization.

Disaggregation of Revenue

Revenue disaggregated by distribution channel is as follows:

For the Year Ended

NOTE 3 — LEASES

On June 28, 2019 we adopted ASU No. 2016-02, Leases (“Topic 842”)

using

the alternative transition method under ASU No.

2018-11,

which permitted application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under the previous lease accounting guidance in Topic 840. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedients regarding hindsight or land easements. Upon adoption of the new standard, we recognized operating lease right-of-use assets and liabilities on our Consolidated Balance Sheet of $5,361 and $5,320 respectively. We utilized a portfolio approach to establish discount rates for leases that are similar. Discount rates ranging from 4.2% to 5.8% were used when determining the present value of future lease payments. All of our lessee arrangements that were classified as operating leases under Topic 840 continue to be classified as operating leases since the adoption of Topic 842, and the pattern of lease expense recognition is unchanged. The adoption of Topic 842 did not materially impact our consolidated net earnings and had no impact on cash flows.

Description of Leases

We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge, Georgia facility. Our leases generally do not contain

non-lease

components and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order.

We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease

right-of-use

assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease

right-of-use

assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 5.2 years.

It is our accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We have also made the policy election to not separate lease and

non-lease

components for all leases.

The following table provides supplemental information related to operating lease

right-of-use

assets and liabilities:

June 24, 2021 June 25, 2020 Affected Line Item in ConsolidatedBalance Sheet

Assets

Total lease right-of-use assets $ 3,484 $ 4,351

Liabilities

Current:

Operating leases $ 1,430 $ 1,376 Other accrued expenses

Noncurrent:

Operating leases 2,103 2,990 Long-term operating lease liabilities

The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:

For the Year Ended June 24, 2021 For the Year Ended June 25, 2020

Operating lease costs (a) $ 1,841 $ 1,701

Variable lease costs (b) 71 63

(a) Includes short-term leases which are immaterial.

(b) Variable lease costs consist of sales tax.

Rental expense under operating leases agreements was $1,981 in fiscal year 2019.

Supplemental cash flow and other information related to leases was as follows:

For the Year Ended June 24, 2021 For the Year Ended June 25, 2020

Operating cash flows information:

Non-cash activity:

Weighted Average Remaining Lease Term (in years) 2.8 3.4

Weighted Average Discount Rate 4.3 % 4.4 %

Maturities of operating lease liabilities as of June 24, 2021 are as follows:

Fiscal year ending

Thereafter 4

Total lease payments 3,739

Less imputed interest (206 )

Present value of operating lease liabilities $ 3,533

Lessor Accounting

We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a

straight-line

basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of

non-lease

components such as recurring utility and storage fees. Leases between related parties are immaterial.

Leasing revenue is as follows:

For the Year Ended June 24, 2021 For the Year Ended June 25, 2020

Lease income related to lease payments $ 1,827 $ 1,967

Gross rental income was $1,978 in fiscal year 2019.

The future minimum, undiscounted fixed cash flows under

non-cancelable

tenant operating leases for each of the next five years and thereafter is presented below.

Fiscal year ending

NOTE 4 — INVENTORIES

Inventories consist of the following:

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

Intangible assets subject to amortization consist of the following:

Less accumulated amortization:

Non-compete agreements (194 ) (139 )

Customer relationships relate to the Squirrel Brand acquisition completed in fiscal 2018 and the Orchard Valley Harvest (“OVH”) acquisition completed in fiscal 2010. The customer relationships resulting from the OVH acquisition were fully amortized in fiscal 2017. The brand names consist primarily of the

Squirrel Brand

and

Southern Style Nuts

brand names acquired in fiscal 2018 and the

JBSS US Equity

JBSS · 10-K · period ended 2021-06-24

Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

Item 8 — Financial Statements and Supplementary Data

JBSS US Equity☆

JBSS · 10-K · period ended 2021-06-24

Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

Item 8 — Financial Statements and Supplementary Data

JBSS US Equity