Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 26, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-19681 JOHN B. SANFILIPPO & SON, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 36-2419677 (State or Other Jurisdiction of ...

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the quarter ended September 26, 2019, including detailed notes on accounting policies and financial items [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For the quarter ended September 26, 2019, net sales increased 6.6% to $217.8 million, with net income rising 95.7% to $12.9 million and diluted EPS reaching $1.12 Consolidated Statements of Comprehensive Income (Q1 FY20 vs Q1 FY19) | Metric | Q1 2020 (ended Sep 26, 2019) | Q1 2019 (ended Sep 27, 2018) | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $217,846 | $204,288 | +6.6% | | **Gross Profit** | $42,248 | $32,954 | +28.2% | | **Income from Operations** | $19,062 | $10,052 | +89.6% | | **Net Income** | $12,926 | $6,606 | +95.7% | | **Net Income per Share (Diluted)** | $1.12 | $0.57 | +96.5% | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of September 26, 2019, total assets were $393.2 million, total liabilities decreased to $159.2 million, and total stockholders' equity increased to $234.1 million Key Balance Sheet Items (in thousands) | Account | Sep 26, 2019 | June 27, 2019 | Sep 27, 2018 | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $223,105 | $225,340 | $245,323 | | Inventories | $156,453 | $157,024 | $181,031 | | **Total Assets** | $393,222 | $391,304 | $415,427 | | **Total Current Liabilities** | $104,407 | $83,906 | $140,002 | | Revolving credit facility borrowings | $16,042 | $0 | $51,941 | | **Total Liabilities** | $159,172 | $136,749 | $194,080 | | **Total Stockholders' Equity** | $234,050 | $254,555 | $221,347 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased to $22.5 million, while investing activities used $3.1 million and financing activities used $20.1 million Cash Flow Summary (in thousands) | Activity | Q1 2020 (ended Sep 26, 2019) | Q1 2019 (ended Sep 27, 2018) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $22,468 | $15,675 | | **Net cash used in investing activities** | ($3,102) | ($4,768) | | **Net cash used in financing activities** | ($20,070) | ($11,141) | | **Net Decrease in Cash** | ($704) | ($234) | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the adoption of new lease standards, revenue breakdown, and subsequent events like a facility fire and special dividend declaration - The company is a leading processor and distributor of nuts (peanuts, pecans, cashews, etc.) and other snack products, sold under private brands and its own brands like Fisher and Orchard Valley Harvest[26](index=26&type=chunk) Revenue by Distribution Channel (in thousands) | Distribution Channel | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Consumer | $157,146 | $139,444 | | Commercial Ingredients | $36,888 | $37,202 | | Contract Packaging | $23,812 | $27,642 | | **Total** | **$217,846** | **$204,288** | - The company adopted the new lease standard (Topic 842) on June 28, 2019, recognizing operating lease right-of-use assets of **$5.4 million** and liabilities of **$5.3 million** on its Consolidated Balance Sheet[38](index=38&type=chunk)[40](index=40&type=chunk) - Subsequent to the quarter's end, a fire occurred at the Garysburg, NC peanut processing facility, destroying roasting equipment, but is not expected to materially affect FY2020 financial performance due to insurance and alternative supply[76](index=76&type=chunk) - On October 29, 2019, the Board of Directors declared a special cash dividend of **$2.00 per share**, payable on December 10, 2019[77](index=77&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong quarterly performance to increased sales volume and lower acquisition costs for key nuts, boosting gross profit margins and improving cash flow from operations [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Net sales increased 6.6% to $217.8 million driven by a 9.1% rise in sales volume, with gross profit surging 28.2% to $42.2 million due to higher volume and lower commodity costs - Net sales increased **6.6%** in Q1 2020, while sales volume (pounds sold) increased **9.1%** year-over-year[93](index=93&type=chunk) Net Sales by Distribution Channel (in thousands) | Distribution Channel | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Consumer | $157,146 | $139,444 | +12.7% | | Commercial Ingredients | $36,888 | $37,202 | -0.8% | | Contract Packaging | $23,812 | $27,642 | -13.9% | | **Total** | **$217,846** | **$204,288** | **+6.6%** | - The increase in consumer channel sales was driven by private brand snack nuts and trail mixes, though Fisher recipe nuts sales volume decreased **30.3%** due to lost distribution[96](index=96&type=chunk) - Gross profit margin increased to **19.4%** in Q1 2020 from **16.1%** in Q1 2019, mainly due to higher sales volume and lower commodity acquisition costs for cashews, pecans, and walnuts[99](index=99&type=chunk) - Net income for Q1 2020 was **$12.9 million** (**$1.12 per diluted share**), compared to **$6.6 million** (**$0.57 per diluted share**) in Q1 2019[109](index=109&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $22.5 million in operating cash flow, decreased inventories, and $97.5 million available credit, while forecasting $15.0 million in capital expenditures Cash Flow Summary (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Operating activities | $22,468 | $15,675 | | Investing activities | ($3,102) | ($4,768) | | Financing activities | ($20,070) | ($11,141) | - Total inventories decreased by **$24.6 million** (**13.6%**) compared to the prior year, mainly due to lower acquisition costs for pecans, cashews, and walnuts[114](index=114&type=chunk) - The company expects total capital expenditures for fiscal 2020 to be approximately **$15.0 million**[117](index=117&type=chunk) - As of September 26, 2019, the company had **$97.5 million** of available credit under its Credit Facility and was in compliance with all financial covenants[125](index=125&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There has been no material change in the company's assessment of market risk sensitivity since its last Annual Report on Form 10-K - There has been no material change in the company's market risk sensitivity since the last Annual Report on Form 10-K[137](index=137&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 26, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of September 26, 2019, the company's disclosure controls and procedures were effective[139](index=139&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[140](index=140&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, not expected to materially affect its financial position or results - The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition[65](index=65&type=chunk)[142](index=142&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) No significant changes to the risk factors identified in the company's Annual Report on Form 10-K were reported for the first quarter of fiscal 2020 - No significant changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended June 27, 2019 were reported for the first quarter of fiscal 2020[144](index=144&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - This section lists the exhibits filed with the report, including officer certifications and XBRL data[147](index=147&type=chunk)[151](index=151&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q1 fiscal 2020 increased by 6.6% to $217.8 million compared to $204.3 million in Q1 fiscal 2019, driven by a 9.1% increase in sales volume [4][10] - Gross profit rose by 28.2% to $42.2 million, with gross profit margin increasing to 19.4% from 16.1% year-over-year [8] - Net income was $12.9 million or $1.12 per diluted share, compared to $6.6 million or $0.57 per diluted share in the prior year [10] Business Line Data and Key Metrics Changes - Consumer distribution channel sales volume increased by 17.4%, contributing significantly to the overall sales volume growth [5][20] - Contract packaging distribution channel saw a decline of 13% in sales volume due to customer-related changes [5][23] - Sales volume for Fisher recipe nuts fell by 30.3%, while Orchard Valley Harvest brand increased by 12.4% [7] Market Data and Key Metrics Changes - The total nut category saw a 1% increase in sales dollars and pound volume in Q1, with overall prices remaining flat [26] - Fisher recipe nuts experienced a 22% decrease in dollars and a 25% decrease in pound sales, leading to a loss in market share [27] - The snack category increased by 2% in dollar sales and 1% in pound sales, with Fisher snack increasing 8% in sales dollars but declining 3% in pound volume [28] Company Strategy and Development Direction - The company aims to enhance its innovation pipeline across major business segments to support growth [16] - Strategic plans for the next three years are being defined to ensure sustainable growth and maintain competitive advantage [35][36] - The management team is focused on developing business plans that create shareholder value and provide relevant products and services [36] Management's Comments on Operating Environment and Future Outlook - Management noted that while raw material prices are beginning to increase, inventory positions are well balanced to mitigate negative impacts [41][42] - The company is optimistic about potential volume growth in the back half of the year due to new programs and product launches [50][51] - Management expressed confidence in the effectiveness of holiday promotional programs to compete against private brands [19] Other Important Information - The company increased its regular annual dividend by 9% to $0.60 per share and paid a special dividend of $2.40 per share in Q1 [14] - The total value of inventories declined by 13.6% year-over-year, primarily due to lower acquisition costs for key commodities [11] Q&A Session Summary Question: Impact of raw material price increases on competitive landscape - Management indicated that most prices are already committed, and while rising prices pose challenges, they are well-positioned with balanced inventory [41][42] Question: New product offerings and distribution points - The Orchard Valley Harvest brand has a current distribution of about 45%, with positive feedback on new products launched recently [44][45] Question: Addressing volume decline in Fisher recipe nuts - Management is optimistic about regaining volume through expanded distribution at other retailers and strong promotional programs [46][47] Question: Year-over-year comparisons for Fisher recipe nuts - Management expects comparisons to level off by January, with most of the impact already seen [61][63]

John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) Q4 2019 Results Conference Call August 22, 2019 10:00 AM ET Company Participants Jeffrey Sanfilippo - CEO Mike Valentine - CFO Jasper Sanfilippo - COO Conference Call Participants Chris McGinnis - Sidoti & Company Tim Call - Capital Management Operator Good day, ladies and gentlemen. Welcome to the John B. Sanfilippo & Son, Inc. Fourth Quarter and Fiscal 2019 Year-End Operating Results Conference Call. At this time, all participants are in a listen-only mode. Lat ...

Part I [Business](index=3&type=section&id=Item%201%20%E2%80%94%20Business) John B. Sanfilippo & Son, Inc. is a leading U.S. nut processor and distributor, operating a vertically integrated model and serving consumer, commercial, and contract packaging channels [General Development of Business](index=3&type=section&id=a.%20General%20Development%20of%20Business) The company is a leading U.S. processor and distributor of various nuts and snack products under its own brands and private labels - The company is a major processor and distributor of peanuts, pecans, cashews, walnuts, and almonds in the U.S[13](index=13&type=chunk) - Key brands include Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts, and Sunshine Country[13](index=13&type=chunk) [Narrative Description of Business](index=3&type=section&id=c.%20Narrative%20Description%20of%20Business) The company leverages vertical integration for quality and cost, distributes diverse nut products across channels, relies on major customers, and sources raw materials globally - The company employs a generally vertically integrated model for pecans, peanuts, and walnuts, controlling the process from procurement to marketing, which is believed to enhance product quality and provide cost advantages[17](index=17&type=chunk) Principal Product Sales Contribution | Fiscal Year | Gross Sales from Principal Nut Products | | :--- | :--- | | 2019 | ~78% | | 2018 | ~79% | | 2017 | ~82% | Major Customer Sales Concentration (% of Net Sales) | Customer | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Wal-Mart Stores, Inc. | 33% | 30% | 28% | | Target Corporation | 10% | 13% | 14% | | PepsiCo, Inc. | N/A | 11% | 10% | - The business is seasonal, with highest demand in the last four months of the calendar year, leading to peak working capital needs in the third fiscal quarter due to procurement of peanuts, pecans, and walnuts mainly between September and February[40](index=40&type=chunk) - For fiscal 2019, approximately **35%** of the dollar value of total nut purchases was from foreign sources, including cashews from Vietnam, India, Brazil, and West Africa, and some pecans from Mexico[33](index=33&type=chunk) [Risk Factors](index=7&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) The company faces significant risks related to raw material costs and availability, intense competition, customer dependency, operational challenges, and governance concentration - The availability and cost of raw nuts are subject to fluctuations from weather, disease, and global demand, and the company cannot hedge against these commodity price changes[45](index=45&type=chunk)[46](index=46&type=chunk) - The company is dependent on a few significant customers, with the top five accounting for approximately **59%** of net sales in fiscal 2019, making the loss of a major customer a material financial risk[60](index=60&type=chunk) - The vertically integrated model for pecans, peanuts, and walnuts exposes the company to the risk of purchasing these nuts at costs that may later prove to be above prevailing market prices, potentially leading to losses[58](index=58&type=chunk) - Food safety risks, including nut allergies, cross-contamination, and product recalls, could lead to loss of consumer confidence, liability claims, and decreased demand[64](index=64&type=chunk)[65](index=65&type=chunk) - The Sanfilippo Group and Valentine Group collectively hold a majority voting interest (approximately **74.9%** combined), allowing them to direct the election of the board and influence key corporate decisions[76](index=76&type=chunk) [Unresolved Staff Comments](index=16&type=section&id=Item%201B%20%E2%80%94%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[96](index=96&type=chunk) [Properties](index=16&type=section&id=Item%202%20%E2%80%94%20Properties) The company owns or leases five principal production facilities in Illinois, Georgia, North Carolina, Texas, and California, with the primary processing and corporate headquarters in Elgin, Illinois Principal Facilities | Location | Square Footage | Interest | Principal Use | | :--- | :--- | :--- | :--- | | Bainbridge, Georgia | 300,000 | Owned and Leased | Peanut shelling, processing, packaging | | Garysburg, North Carolina | 160,000 | Owned | Peanut shelling, processing, packaging | | Selma, Texas | 300,000 | Leased | Pecan shelling, processing, packaging | | Gustine, California | 215,000 | Owned | Walnut shelling, processing, packaging | | Elgin, Illinois | 1,001,000 | Owned | Processing, packaging, distribution, corporate offices | FY 2019 Shelling Facility Utilization | Facility/Nut | Annual Capacity (inshell lbs) | Processed in FY 2019 (inshell lbs) | | :--- | :--- | :--- | | Selma (Pecans) | >90 million | ~39 million | | Bainbridge (Peanuts) | ~120 million | ~78 million | | Garysburg (Peanuts) | ~60 million | ~10 million | | Gustine (Walnuts) | >60 million | ~30 million | [Legal Proceedings](index=17&type=section&id=Item%203%20%E2%80%94%20Legal%20Proceedings) The company states that the ultimate resolution of current legal proceedings is not expected to have a material adverse effect on its business - Management believes that ongoing legal proceedings will not materially impact the company's financial condition or results[109](index=109&type=chunk) - A **$1.2 million** settlement for an employment-related class-action complaint was paid in the first quarter of fiscal 2019[110](index=110&type=chunk) [Mine Safety Disclosures](index=17&type=section&id=Item%204%20%E2%80%94%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[112](index=112&type=chunk) [Executive Officers of the Registrant](index=18&type=section&id=EXECUTIVE%20OFFICERS%20OF%20THE%20REGISTRANT) This section provides biographical information for the company's executive officers as of August 21, 2019, highlighting long tenures and familial relationships among leadership - Key executive officers include Jeffrey T. Sanfilippo (CEO), Michael J. Valentine (CFO, Group President), and Jasper B. Sanfilippo, Jr. (COO, President)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - Significant familial relationships exist among the Sanfilippo and Valentine family members who serve as directors and executive officers[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) Part II [Market for Registrant's Common Equity and Related Stockholder Matters](index=20&type=section&id=Item%205%20%E2%80%94%20Market%20for%20Registrant%27s%20Common%20Equity%20and%20Related%20Stockholder%20Matters) The company's common stock trades on NASDAQ, features two stock classes with differing voting rights, and maintains a dividend policy subject to financing limitations - The company has two classes of stock: Common Stock (Symbol: JBSS) and non-publicly traded Class A Stock, which has superior voting rights (**10 votes per share** vs. **1** for Common Stock)[132](index=132&type=chunk)[133](index=133&type=chunk) Recent Cash Dividends Declared (per share) | Declaration Date | Type | Amount | Payment Date | | :--- | :--- | :--- | :--- | | July 10, 2018 | Annual & Special | $0.55 & $2.00 | August 17, 2018 | | July 11, 2017 | Annual & Special | $0.50 & $2.00 | August 15, 2017 | | July 10, 2019 (Subsequent) | Annual & Special | $0.60 & $2.40 | August 20, 2019 | Equity Compensation Plan Information (as of June 27, 2019) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities available for future issuance | | :--- | :--- | :--- | :--- | | Approved by stockholders - stock options | 500 | $8.71 | 726,248 | | Approved by stockholders - RSUs | 188,992 | — | 726,248 | | Not approved by stockholders | — | — | — | [Selected Financial Data](index=22&type=section&id=Item%206%20%E2%80%94%20Selected%20Financial%20Data) This section provides a five-year summary of the company's consolidated financial performance and position, including key income statement and balance sheet metrics Consolidated Statement of Comprehensive Income Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $876,201 | $888,931 | $846,635 | $952,059 | $887,245 | | Gross profit | $158,270 | $138,899 | $141,923 | $137,468 | $132,056 | | Income from operations | $58,524 | $56,189 | $60,477 | $53,162 | $53,478 | | Net income | $39,466 | $32,500 | $36,125 | $30,395 | $29,305 | | Diluted EPS | $3.43 | $2.84 | $3.17 | $2.68 | $2.61 | Consolidated Balance Sheet Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Working capital | $141,434 | $130,689 | $143,504 | $158,979 | $150,280 | | Total assets | $391,304 | $415,853 | $398,059 | $391,162 | $431,616 | | Total debt | $27,719 | $65,803 | $58,085 | $44,130 | $96,500 | | Stockholders' equity | $254,555 | $243,002 | $235,468 | $251,193 | $241,278 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%207%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2019 saw a slight net sales decrease offset by improved gross profit and net income due to lower commodity costs, while liquidity strengthened with reduced debt [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Fiscal 2019 net sales declined due to lower prices despite volume growth, while gross profit and net income improved from reduced commodity costs, despite higher operating expenses FY 2019 vs. FY 2018 Performance | Metric | FY 2019 | FY 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $876.2M | $888.9M | (1.4)% | | Gross Profit | $158.3M | $138.9M | 13.9% | | Gross Profit Margin | 18.1% | 15.6% | +2.5 p.p. | | Operating Expenses | $99.7M | $82.7M | 20.6% | | Net Income | $39.5M | $32.5M | 21.5% | Net Sales by Distribution Channel (in thousands) | Distribution Channel | FY 2019 | FY 2018 | % Change | | :--- | :--- | :--- | :--- | | Consumer | $625,581 | $589,867 | 6.1% | | Commercial Ingredients | $140,103 | $154,114 | (9.1)% | | Contract Packaging | $110,517 | $144,950 | (23.8)% | | **Total** | **$876,201** | **$888,931** | **(1.4)%** | - The increase in gross profit and margin was mainly attributable to lower commodity acquisition costs for walnuts, pecans, and cashews[166](index=166&type=chunk) - The increase in operating expenses was primarily due to higher incentive compensation, other compensation, shipping, and advertising expenses, along with costs related to a potential acquisition that was not pursued[167](index=167&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strong, driven by increased operating cash flow and substantial debt reduction, supported by available credit facilities and covenant compliance Cash Flow Summary (in thousands) | Activity | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $83,459 | $66,154 | | Net cash used in investing activities | ($14,614) | ($34,968) | | Net cash used in financing activities | ($68,703) | ($31,692) | - Total inventories decreased by **$17.3 million** (**9.9%**) from fiscal 2018 to 2019, primarily due to lower quantities of peanuts and cashews and lower acquisition costs for cashews, walnuts, and pecans[181](index=181&type=chunk) - Total debt decreased from **$65.8 million** at the end of FY2018 to **$27.7 million** at the end of FY2019, largely due to a **$31.3 million** net paydown on the revolving credit facility[148](index=148&type=chunk)[185](index=185&type=chunk) Contractual Cash Obligations (in thousands) | Obligation | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $34,051 | $8,738 | $11,316 | $5,062 | $8,935 | | Operating leases | $6,353 | $1,715 | $2,932 | $1,573 | $133 | | Purchase obligations | $202,184 | $202,184 | — | — | — | | Retirement plans | $25,719 | $803 | $1,679 | $1,373 | $21,864 | | **Total** | **$268,307** | **$213,440** | **$15,927** | **$8,008** | **$30,932** | [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant judgments and estimates for revenue recognition, inventory valuation, asset impairment, income taxes, and retirement plan liabilities - **Revenue Recognition:** Revenue is recognized when control passes to the customer, with estimates for variable consideration (promotional allowances, rebates) recorded as a reduction to revenue[202](index=202&type=chunk) - **Inventories:** Valued at the lower of cost (FIFO) or net realizable value, involving significant bulk-stored nut inventories and interim estimates for final walnut crop prices[203](index=203&type=chunk)[204](index=204&type=chunk) - **Goodwill:** Tested annually for impairment, with a qualitative assessment in FY2019 indicating no impairment was more likely than not[207](index=207&type=chunk)[208](index=208&type=chunk) - **Retirement Plan (SERP):** The plan's liability and expense are calculated using significant estimates for discount rates, compensation increases, and mortality rates, with the discount rate for pension expense at **4.14%** in fiscal 2019[214](index=214&type=chunk)[216](index=216&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%207A%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to unhedged market risks from commodity price volatility, foreign exchange fluctuations, and interest rates, with commodity risk being the most significant - The company cannot hedge against nut commodity price fluctuations because no futures markets exist, and a hypothetical **1%** increase in material costs would have reduced FY2019 gross profit by about **$5.8 million**[222](index=222&type=chunk) - Approximately **35%** of the dollar value of total nut purchases in fiscal 2019 were from foreign countries, exposing the company to indirect foreign currency risk as underlying costs may fluctuate[223](index=223&type=chunk) - Interest rate risk is tied to the variable-rate Credit Facility, where a hypothetical **10%** adverse change in weighted-average interest rates would have had an immaterial (**$0.1 million**) impact on FY2019 net income[224](index=224&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208%20%E2%80%94%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's audited consolidated financial statements for fiscal years 2017-2019, along with PricewaterhouseCoopers LLP's unqualified audit opinion on both the financial statements and internal controls - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects and that the company maintained effective internal control over financial reporting as of June 27, 2019[227](index=227&type=chunk) - The company adopted the new revenue recognition standard (ASC 606) in fiscal 2019 using the full retrospective method, with prior periods adjusted accordingly[228](index=228&type=chunk)[287](index=287&type=chunk) Product Sales Mix (% of Gross Sales) | Product Type | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Peanuts | 18.0% | 15.7% | 15.7% | | Pecans | 12.9% | 14.0% | 16.2% | | Cashews & Mixed Nuts | 23.0% | 24.6% | 24.3% | | Walnuts | 8.9% | 9.0% | 8.4% | | Almonds | 14.4% | 15.5% | 16.3% | | Trail & Snack Mixes | 17.3% | 15.5% | 13.9% | | Other | 5.5% | 5.7% | 5.2% | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=65&type=section&id=Item%209%20%E2%80%94%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[372](index=372&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%209A%20%E2%80%94%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 27, 2019, with no material changes reported in the fourth quarter - Management, including the CEO and CFO, concluded that as of June 27, 2019, the company's disclosure controls and procedures and its internal control over financial reporting were effective[373](index=373&type=chunk)[374](index=374&type=chunk) - There were no changes in internal control over financial reporting during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[376](index=376&type=chunk) [Other Information](index=65&type=section&id=Item%209B%20%E2%80%94%20Other%20Information) This item is not applicable - Not applicable[378](index=378&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=65&type=section&id=Item%2010%20%E2%80%94%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, and corporate governance practices, including audit committee details and Section 16(a) compliance, is incorporated by reference from the 2019 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2019 Annual Meeting Proxy Statement[378](index=378&type=chunk) - The company has adopted a Code of Ethics and a Code of Conduct, available at www.jbssinc.com[380](index=380&type=chunk) [Executive Compensation](index=66&type=section&id=Item%2011%20%E2%80%94%20Executive%20Compensation) This section incorporates by reference the detailed information on executive and director compensation from the company's Proxy Statement for the 2019 Annual Meeting - Information regarding executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the 2019 Annual Meeting Proxy Statement[381](index=381&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=66&type=section&id=Item%2012%20%E2%80%94%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding the security ownership of certain beneficial owners and management is incorporated by reference from the company's Proxy Statement for the 2019 Annual Meeting - Information on security ownership of beneficial owners and management is incorporated by reference from the 2019 Annual Meeting Proxy Statement[382](index=382&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=66&type=section&id=Item%2013%20%E2%80%94%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates by reference information concerning related party transactions and the independence of the Board of Directors from the company's Proxy Statement for the 2019 Annual Meeting - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2019 Annual Meeting Proxy Statement[383](index=383&type=chunk) [Principal Accounting Fees and Services](index=66&type=section&id=Item%2014%20%E2%80%94%20Principal%20Accounting%20Fees%20and%20Services) Information regarding the fees paid to and services provided by the principal independent registered public accounting firm, PricewaterhouseCoopers LLP, is incorporated by reference from the company's Proxy Statement for the 2019 Annual Meeting - Information on principal accounting fees and services is incorporated by reference from the 2019 Annual Meeting Proxy Statement[384](index=384&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=66&type=section&id=Item%2015%20%E2%80%94%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, noting the omission of schedules where information is already provided elsewhere - The following financial statements are included in the report: Report of Independent Registered Public Accounting Firm, Consolidated Statements of Comprehensive Income, Consolidated Balance Sheets, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[385](index=385&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the information is already provided in the financial statements or notes[386](index=386&type=chunk) [Form 10-K Summary](index=66&type=section&id=Item%2016%20%E2%80%94%20Form%2010-K%20Summary) The company has not provided a summary for the Form 10-K - None[390](index=390&type=chunk)

John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) Q3 2019 Earnings Conference Call May 2, 2019 10:00 AM ET Company Participants Mike Valentine – Chief Financial Officer Jeffrey Sanfilippo – Chief Executive Officer Conference Call Participants Craig Bibb – CJS Securities Operator Good day, ladies and gentlemen. Welcome to the John B. Sanfilippo & Son Third Quarter Fiscal 2019 Operating Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer s ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements for the quarter and thirty-nine weeks ended March 28, 2019, detailing comprehensive income, balance sheets, equity, and cash flows [Consolidated Statements of Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement details the company's financial performance for the quarter and thirty-nine weeks ended March 28, 2019, showing net sales, gross profit, and net income trends Q3 FY2019 vs Q3 FY2018 Performance (in thousands) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Net Sales | $201,834 | $202,786 | | Gross Profit | $38,815 | $33,107 | | Income from Operations | $15,408 | $14,024 | | Net Income | $10,331 | $8,552 | | Diluted EPS | $0.90 | $0.75 | Thirty-Nine Weeks FY2019 vs FY2018 Performance (in thousands) | Metric | 39 Weeks 2019 | 39 Weeks 2018 | | :--- | :--- | :--- | | Net Sales | $659,439 | $677,255 | | Gross Profit | $114,652 | $105,959 | | Income from Operations | $42,100 | $45,741 | | Net Income | $28,201 | $26,872 | | Diluted EPS | $2.45 | $2.35 | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This statement presents the company's financial position as of March 28, 2019, detailing assets, liabilities, and stockholders' equity Key Balance Sheet Items (in thousands) | Account | March 28, 2019 | March 29, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $243,935 | $258,472 | | Inventories | $178,909 | $184,770 | | **Total Assets** | $409,749 | $426,256 | | **Total Current Liabilities** | $114,368 | $132,384 | | Revolving credit facility borrowings | $35,099 | $56,579 | | **Total Liabilities** | $165,331 | $190,170 | | **Total Stockholders' Equity** | $244,418 | $236,086 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement outlines the changes in stockholders' equity for the periods ended March 28, 2019, reflecting impacts from net income, dividends, and stock-based compensation - Total stockholders' equity increased from **$243.0 million** at the beginning of the period (June 28, 2018) to **$244.4 million** at March 28, 2019[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the thirty-nine weeks ended March 28, 2019 Cash Flow Summary (in thousands) | Activity | 39 Weeks Ended Mar 28, 2019 | 39 Weeks Ended Mar 29, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,817 | $33,065 | | Net cash used in investing activities | $(11,848) | $(30,853) | | Net cash used in financing activities | $(31,328) | $(3,154) | | **Net Decrease in Cash** | **$(359)** | **$(942)** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's accounting policies, significant financial statement line items, and recent accounting pronouncements - The company adopted the new revenue recognition standard, ASU No. 2014-09 (Topic 606), on June 29, 2018, using the full retrospective method. The impact on prior period comparative information was not material[24](index=24&type=chunk)[42](index=42&type=chunk) - Goodwill of **$9.65 million** relates entirely to the Squirrel Brand acquisition completed in the second quarter of fiscal 2018. Net intangible assets were **$15.3 million** as of March 28, 2019[45](index=45&type=chunk)[46](index=46&type=chunk) - As of March 28, 2019, the company had **$79.4 million** of available credit under its revolving Credit Facility and was in compliance with all financial covenants[48](index=48&type=chunk)[132](index=132&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, including sales, gross profit, operating expenses, and liquidity, for the third quarter and first thirty-nine weeks of fiscal 2019 [Overview](index=19&type=section&id=OVERVIEW) This section provides an overview of the company's business as a leading nut processor and distributor, outlining its strategic focus and key market challenges - The company's strategic plan focuses on growing its Fisher, Orchard Valley Harvest, Squirrel Brand, and Southern Style Nuts brands[81](index=81&type=chunk) - Future challenges include deflation in commodity costs for most tree nuts (except almonds), intensified market competition, and changing industry trends like retail consolidation[82](index=82&type=chunk) [Quarterly Highlights](index=20&type=section&id=QUARTERLY%20HIGHLIGHTS) This section highlights key financial performance indicators for Q3 FY2019, including changes in net sales, sales volume, gross profit margin, and operating expenses Q3 FY2019 Key Performance Indicators vs. Q3 FY2018 | Metric | Change | | :--- | :--- | | Net Sales | ▼ 0.5% | | Sales Volume (pounds) | ▲ 3.0% | | Gross Profit Margin | ▲ to 19.2% from 16.3% | | Total Operating Expenses | ▲ 22.7% | [Results of Operations](index=21&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the financial results for Q3 FY19, analyzing net sales by channel, gross profit margin improvements, and the increase in operating expenses - The consumer distribution channel net sales increased by **5.2%** in Q3 FY19, driven by an **8.2%** increase in sales volume, particularly in private brand snack nuts and trail mixes[97](index=97&type=chunk) - Gross profit margin for Q3 FY19 increased to **19.2%** from **16.3%** year-over-year, mainly due to lower acquisition costs for walnuts, peanuts, cashews, and pecans[102](index=102&type=chunk) - Operating expenses in Q3 FY19 increased by **$4.3 million** (**22.7%**), driven by higher incentive compensation, advertising for the new Fisher snack line, and legal expenses[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - The effective tax rate for Q3 FY19 was **25.2%**, down from **29.9%** in Q3 FY18[115](index=115&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's liquidity position, primary cash sources, capital expenditure plans, and compliance with credit facility covenants - Net cash provided by operating activities increased to **$42.8 million** for the first thirty-nine weeks of fiscal 2019, up from **$33.1 million** in the prior year, mainly due to a reduced use of working capital for inventory[121](index=121&type=chunk) - Total capital expenditures for fiscal 2019 are expected to be approximately **$15.0 million**[124](index=124&type=chunk) - As of March 28, 2019, the company had **$79.4 million** of available credit under its Credit Facility and was in compliance with all covenants[132](index=132&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports that there has been no material change in its assessment of sensitivity to market risk since the disclosures made in its Annual Report on Form 10-K for the fiscal year ended June 28, 2018 - There has been no material change in the company's assessment of its sensitivity to market risk since its last annual report[144](index=144&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded that they were effective as of the end of the period, March 28, 2019. There were no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 28, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[146](index=146&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[147](index=147&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines the company's involvement in various legal proceedings, noting that their outcomes are not expected to materially affect financial position - The company is party to various legal proceedings in the ordinary course of business, which are not expected to have a material impact on its financial condition[61](index=61&type=chunk)[149](index=149&type=chunk) - A **$1.2 million** settlement for an employment-related class-action complaint was paid in the first quarter of fiscal 2019[62](index=62&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company states that there were no significant changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended June 28, 2018, during the third quarter of fiscal 2019 - There were no significant changes to the risk factors identified in the Form 10-K for the fiscal year ended June 28, 2018[151](index=151&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and required certifications - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[160](index=160&type=chunk)[161](index=161&type=chunk) - XBRL (eXtensible Business Reporting Language) data files are included as exhibits, providing interactive data for financial reporting[161](index=161&type=chunk)

John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) Q2 2019 Earnings Conference Call January 31, 2019 10:00 AM ET Company Participants Michael Valentine - Chief Financial Officer, Group President and Secretary Jeffrey Sanfilippo - Chairman and Chief Executive Officer Jasper Sanfilippo - Chief Operating Officer, President and Assistant Secretary Conference Call Participants Craig Bibb - CJS Securities Inc. Timothy Call - Capital Management Corporation Operator Good day, ladies and gentlemen, and thank you for stand ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis for John B. Sanfilippo & Son, Inc [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for John B. Sanfilippo & Son, Inc., including comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, revenue recognition, inventory, intangible assets, debt, equity, and recent accounting pronouncements [Consolidated Statements of Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the company's unaudited comprehensive income statements for the quarter and twenty-six weeks, highlighting key financial performance metrics Consolidated Statements of Comprehensive Income (Quarter Ended) | Metric | Dec 27, 2018 (Thousands) | Dec 28, 2017 (Thousands) | Change (YoY) | % Change (YoY) | | :----------------------------- | :----------------------- | :----------------------- | :----------- | :------------- | | Net sales | $253,317 | $258,805 | $(5,488) | -2.1% | | Gross profit | $42,883 | $37,733 | $5,150 | 13.6% | | Total operating expenses | $26,243 | $23,631 | $2,612 | 11.1% | | Income from operations | $16,640 | $14,102 | $2,538 | 18.0% | | Net income | $11,264 | $7,609 | $3,655 | 48.0% | | Net income per common share-basic | $0.99 | $0.67 | $0.32 | 47.8% | | Net income per common share-diluted | $0.98 | $0.67 | $0.31 | 46.3% | Consolidated Statements of Comprehensive Income (Twenty-six Weeks Ended) | Metric | Dec 27, 2018 (Thousands) | Dec 28, 2017 (Thousands) | Change (YoY) | % Change (YoY) | | :----------------------------- | :----------------------- | :----------------------- | :----------- | :------------- | | Net sales | $457,605 | $474,469 | $(16,864) | -3.6% | | Cost of sales | $381,768 | $401,617 | $(19,849) | -4.9% | | Gross profit | $75,837 | $72,852 | $2,985 | 4.1% | | Total operating expenses | $49,145 | $41,135 | $8,010 | 19.5% | | Income from operations | $26,692 | $31,717 | $(5,025) | -15.8% | | Net income | $17,870 | $18,320 | $(450) | -2.5% | | Net income per common share-basic | $1.57 | $1.61 | $(0.04) | -2.5% | | Net income per common share-diluted | $1.56 | $1.60 | $(0.04) | -2.5% | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's consolidated balance sheets, providing a snapshot of assets, liabilities, and stockholders' equity at various reporting dates Consolidated Balance Sheet Highlights (Thousands) | Metric | Dec 27, 2018 | June 28, 2018 | Dec 28, 2017 | | :------------------------------------------ | :----------- | :------------ | :----------- | | Cash | $2,583 | $1,449 | $3,052 | | Accounts receivable, net | $62,580 | $65,426 | $70,437 | | Inventories | $171,708 | $174,362 | $168,424 | | Total Current Assets | $243,814 | $247,882 | $255,930 | | Total Property, Plant and Equipment, net | $128,661 | $125,078 | $126,662 | | Goodwill | $9,650 | $9,650 | $9,638 | | Intangible assets, net | $15,970 | $17,654 | $19,341 | | Total Assets | $411,429 | $415,853 | $426,607 | | Revolving credit facility borrowings | $24,541 | $31,278 | $30,000 | | Accounts payable | $69,732 | $60,340 | $84,834 | | Total Current Liabilities | $125,515 | $117,193 | $140,722 | | Total Long-Term Liabilities | $52,541 | $55,658 | $59,312 | | Total Liabilities | $178,056 | $172,851 | $200,034 | | Total Stockholders' Equity | $233,373 | $243,002 | $226,573 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines the changes in the company's stockholders' equity over the reporting periods, including net income, dividends, and other comprehensive income items Changes in Stockholders' Equity (June 28, 2018 to Dec 27, 2018) | Item | Amount (Thousands) | | :------------------------------------------ | :----------------- | | Balance, June 28, 2018 | $243,002 | | Net income (Q1 FY19) | $6,606 | | Cash dividends ($2.55 per share) | $(29,074) | | Pension liability amortization, net of tax | $197 | | Stock-based compensation expense (Q1 FY19) | $616 | | Balance, September 27, 2018 | $221,347 | | Net income (Q2 FY19) | $11,264 | | Pension liability amortization, net of tax | $197 | | Equity award exercises, net of taxes | $(335) | | Stock-based compensation expense (Q2 FY19) | $900 | | Balance, December 27, 2018 | $233,373 | Changes in Stockholders' Equity (June 29, 2017 to Dec 28, 2017) | Item | Amount (Thousands) | | :------------------------------------------ | :----------------- | | Balance, June 29, 2017 | $235,468 | | Net income (Q1 FY18) | $10,711 | | Cash dividends ($2.50 per share) | $(28,370) | | Pension liability amortization, net of tax | $171 | | Equity award exercises | $16 | | Stock-based compensation expense (Q1 FY18) | $538 | | Balance, September 28, 2017 | $218,534 | | Net income (Q2 FY18) | $7,609 | | Pension liability amortization, net of tax | $170 | | Equity award exercises, net of taxes | $(631) | | Stock-based compensation expense (Q2 FY18) | $891 | | Balance, December 28, 2017 | $226,573 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's consolidated cash flow statements, categorizing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows (Twenty-six Weeks Ended) | Cash Flow Activity | Dec 27, 2018 (Thousands) | Dec 28, 2017 (Thousands) | Change (YoY) | | :-------------------------------- | :----------------------- | :----------------------- | :----------- | | Net cash provided by operating activities | $48,366 | $58,431 | $(10,065) |\n| Net cash used in investing activities | $(9,323) | $(28,803) | $19,480 |\n| Net cash used in financing activities | $(37,909) | $(28,531) | $(9,378) |\n| NET INCREASE IN CASH | $1,134 | $1,097 | $37 |\n| Cash, end of period | $2,583 | $3,052 | $(469) | - Non-cash investing activities for the twenty-six weeks ended December 28, 2017, included the acquisition of Squirrel Brand L.P. through a note payable of **$11.5 million**[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes to the consolidated financial statements, covering accounting policies, specific accounts, and recent pronouncements [Note 1 – Basis of Presentation and Description of Business](index=8&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation%20and%20Description%20of%20Business) John B. Sanfilippo & Son, Inc. is a leading processor and distributor of various nuts and snack products in the U.S., sold under private brands and proprietary brand names like Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts, and Sunshine Country. Products are distributed through consumer, commercial ingredients, and contract packaging channels. The fiscal year ends on the final Thursday of June - The Company is a leading processor and distributor of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States[22](index=22&type=chunk) - Products are sold under private brands and proprietary brand names including Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts, and Sunshine Country[22](index=22&type=chunk) - Distribution channels include food retailers (consumer), commercial ingredient users, and contract packaging customers[22](index=22&type=chunk) [Note 2 – Revenue Recognition](index=8&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) The Company adopted ASU No. 2014-09 (Topic 606) on June 29, 2018, using the full retrospective method, which required recasting prior period comparative information. Revenue is generally recognized at a point in time when product control transfers to the customer (approximately 99% of revenues), with some contract packaging revenue recognized over time for customized products with no alternative use. The adoption had an immaterial impact on the comparative Consolidated Balance Sheet and Consolidated Statement of Cash Flows - Adopted ASU No. 2014-09 (Topic 606) on June 29, 2018, using the full retrospective method, recasting prior period comparative information[25](index=25&type=chunk)[71](index=71&type=chunk) - Revenue recognition generally occurs at a point in time when product control is transferred to the customer (**approximately 99% of revenues**)[30](index=30&type=chunk) - Certain contract packaging sales for customized products with no alternative use are recognized over time, resulting in revenue recognition approximately one month earlier than previous guidance, though the amount is generally immaterial to total revenue[30](index=30&type=chunk) Revenue Disaggregated by Sales Channel (Thousands) | Distribution Channel | Dec 27, 2018 (Quarter) | Dec 28, 2017 (Quarter) | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :------------------- | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Consumer | $195,679 | $181,533 | $335,370 | $317,501 | | Commercial Ingredients | $31,253 | $35,578 | $68,208 | $71,987 | | Contract Packaging | $26,385 | $41,694 | $54,027 | $84,981 | | Total | $253,317 | $258,805 | $457,605 | $474,469 | Impact of Topic 606 Adoption on Financials (Quarter Ended Dec 28, 2017) | Metric | As Previously Reported (Thousands) | Impact of Adoption (Thousands) | As Adjusted (Thousands) | | :-------------------- | :--------------------------------- | :----------------------------- | :---------------------- | | Net sales | $259,118 | $(313) | $258,805 | | Gross profit | $37,880 | $(147) | $37,733 | | Income from operations | $14,249 | $(147) | $14,102 | | Net income | $7,756 | $(147) | $7,609 | | EPS-basic | $0.68 | $(0.01) | $0.67 | | EPS-diluted | $0.68 | $(0.01) | $0.67 | [Note 3 – Inventories](index=11&type=section&id=Note%203%20%E2%80%93%20Inventories) Inventories are primarily composed of raw materials and supplies, and work-in-process and finished goods. As of December 27, 2018, total inventories were $171.7 million Inventories (Thousands) | Category | Dec 27, 2018 | June 28, 2018 | Dec 28, 2017 | | :------------------------ | :----------- | :------------ | :----------- | | Raw material and supplies | $87,717 | $73,209 | $80,867 | | Work-in-process and finished goods | $83,991 | $101,153 | $87,557 | | Total | $171,708 | $174,362 | $168,424 | [Note 4 – Goodwill and Intangible Assets](index=11&type=section&id=Note%204%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) The Company's identifiable intangible assets, subject to amortization, include customer relationships, brand names (Squirrel Brand and Southern Style Nuts), and a non-compete agreement. Goodwill of $9.65 million relates entirely to the Squirrel Brand acquisition in fiscal 2018, with no change in its carrying amount during the first twenty-six weeks of fiscal 2019 Net Intangible Assets (Thousands) | Category | Dec 27, 2018 | June 28, 2018 | Dec 28, 2017 | | :-------------------- | :----------- | :------------ | :----------- | | Customer relationships | $21,100 | $21,100 | $21,100 | | Brand names | $16,990 | $16,990 | $16,990 | | Non-compete agreement | $270 | $270 | $270 | | Less accumulated amortization | $(22,390) | $(20,706) | $(19,019) | | Net intangible assets | $15,970 | $17,654 | $19,341 | - Total amortization expense related to intangible assets was **$842 thousand** for the quarter and **$1.7 million** for the twenty-six weeks ended December 27, 2018[49](index=49&type=chunk) - Goodwill of **$9.7 million** relates entirely to the Squirrel Brand acquisition and remained unchanged during the twenty-six weeks ended December 27, 2018[49](index=49&type=chunk) [Note 5 – Credit Facility](index=12&type=section&id=Note%205%20%E2%80%93%20Credit%20Facility) The Company has a $117.5 million revolving loan commitment and letter of credit subfacility. As of December 27, 2018, $89.9 million of available credit remained, and the Company was in compliance with all financial covenants - The Credit Facility provides a **$117.5 million** revolving loan commitment[50](index=50&type=chunk) - As of December 27, 2018, available credit under the Credit Facility was **$89.9 million**, reflecting borrowings of **$24.5 million** and **$3.1 million** in outstanding letters of credit[51](index=51&type=chunk) - The Company was in compliance with all financial covenants under the Credit Facility and Mortgage Facility as of December 27, 2018[51](index=51&type=chunk) [Note 6 – Earnings Per Common Share](index=12&type=section&id=Note%206%20%E2%80%93%20Earnings%20Per%20Common%20Share) This section provides the reconciliation of weighted average shares outstanding used in computing basic and diluted earnings per share, including the effect of dilutive securities such as stock options and restricted stock units Weighted Average Shares Outstanding (Thousands) | Metric | Dec 27, 2018 (Quarter) | Dec 28, 2017 (Quarter) | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :------------------------------------ | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Weighted average shares outstanding – basic | 11,425,566 | 11,375,512 | 11,415,787 | 11,363,409 | | Effect of dilutive securities | 53,865 | 50,786 | 69,894 | 70,824 | | Weighted average shares outstanding – diluted | 11,479,431 | 11,426,298 | 11,485,681 | 11,434,233 | [Note 7 – Stock-Based Compensation Plans](index=12&type=section&id=Note%207%20%E2%80%93%20Stock-Based%20Compensation%20Plans) During the second quarter of fiscal 2019, 56,700 restricted stock units (RSUs) were awarded to employees and non-employee directors. Total unrecognized compensation expense related to non-vested RSUs was $5.2 million as of December 27, 2018, expected to be recognized over a weighted average period of 1.9 years - **56,700 restricted stock units (RSUs)** were awarded to employees and non-employee directors during the second quarter of fiscal 2019, with vesting periods generally three years for employees and one year for directors[53](index=53&type=chunk)[56](index=56&type=chunk) Stock-Based Compensation Expense (Thousands) | Period | Dec 27, 2018 (Quarter) | Dec 28, 2017 (Quarter) | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :------------------------------ | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Stock-based compensation expense | $900 | $891 | $1,516 | $1,429 | - As of December 27, 2018, total unrecognized compensation expense for non-vested RSUs was **$5.2 million**, to be recognized over a weighted average period of **1.9 years**[58](index=58&type=chunk) [Note 8 – Retirement Plan](index=13&type=section&id=Note%208%20%E2%80%93%20Retirement%20Plan) The Company maintains an unfunded, non-qualified Supplemental Employee Retirement Plan. Net periodic benefit cost for the quarter ended December 27, 2018, was $639 thousand, and $1,278 thousand for the twenty-six weeks ended December 27, 2018 Net Periodic Benefit Cost (Thousands) | Component | Dec 27, 2018 (Quarter) | Dec 28, 2017 (Quarter) | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :-------------------------- | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Service cost | $153 | $152 | $305 | $304 | | Interest cost | $223 | $212 | $447 | $425 | | Amortization of prior service cost | $240 | $240 | $479 | $479 | | Amortization of loss | $23 | $41 | $47 | $81 | | Net periodic benefit cost | $639 | $645 | $1,278 | $1,289 | [Note 9 – Accumulated Other Comprehensive Loss](index=14&type=section&id=Note%209%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Loss) Changes in accumulated other comprehensive loss (AOCL) are entirely related to the defined benefit pension plan. For the twenty-six weeks ended December 27, 2018, AOCL decreased from $(3,181) thousand to $(2,787) thousand, primarily due to reclassifications of pension items, net of tax Changes to Accumulated Other Comprehensive Loss (Thousands) | Item | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :------------------------------------------ | :---------------------- | :---------------------- | | Balance at beginning of period | $(3,181) | $(4,404) | | Amounts reclassified from AOCL | $526 | $560 | | Tax effect | $(132) | $(219) | | Net current-period other comprehensive income | $394 | $341 | | Balance at end of period | $(2,787) | $(4,063) | [Note 10 – Commitments and Contingent Liabilities](index=14&type=section&id=Note%2010%20%E2%80%93%20Commitments%20and%20Contingent%20Liabilities) The Company is involved in various legal proceedings in the ordinary course of business. While management believes outcomes will not materially affect financial position, unfavorable outcomes could occur. A class-action employment-related settlement of $1.2 million was paid in the first quarter of fiscal 2019, for which the Company was fully reserved - The Company is a party to various legal proceedings in the ordinary course of business, with management believing ultimate outcomes will not materially affect financial position, results of operations, or cash flows[64](index=64&type=chunk) - A **$1.2 million** class-action settlement for an employment-related matter, fully reserved at June 29, 2017, was paid in the first quarter of fiscal 2019[66](index=66&type=chunk) [Note 11 – Fair Value of Financial Instruments](index=15&type=section&id=Note%2011%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) The fair value of cash, trade accounts receivable, accounts payable, and revolving credit facility borrowings approximates their carrying values due to short-term maturities and nature. The fair value of long-term debt is estimated using a market approach based on Level 2 observable inputs - Carrying values of cash, trade accounts receivable, accounts payable, and revolving credit facility borrowings approximate their fair values[67](index=67&type=chunk)[68](index=68&type=chunk) Carrying Value and Fair Value of Long-Term Debt (Thousands) | Metric | Dec 27, 2018 | June 28, 2018 | Dec 28, 2017 | | :-------------------------- | :----------- | :------------ | :----------- | | Carrying value of long-term debt | $31,061 | $34,649 | $38,256 | | Fair value of long-term debt | $30,176 | $33,482 | $38,584 | - Fair value of long-term debt is determined using a market approach based on Level 2 observable inputs[69](index=69&type=chunk) [Note 12 – Related Party Transaction](index=15&type=section&id=Note%2012%20%E2%80%93%20Related%20Party%20Transaction) In connection with the Squirrel Brand acquisition, the Company incurred $11.5 million in unsecured debt to the principal owner and seller, who is now a related party. The outstanding balance of this Promissory Note was $7.347 million as of December 27, 2018, bearing an interest rate of 5.5% per annum - Incurred **$11.5 million** of unsecured debt to the principal owner and seller of Squirrel Brand business (a related party) in connection with the acquisition[70](index=70&type=chunk) - The Promissory Note bears an interest rate of **5.5% per annum**, and the outstanding balance was **$7.3 million** at December 27, 2018[70](index=70&type=chunk) - Interest paid on the Promissory Note was **$110 thousand** for the quarter and **$233 thousand** for the twenty-six weeks ended December 27, 2018[70](index=70&type=chunk) [Note 13 – Recent Accounting Pronouncements](index=16&type=section&id=Note%2013%20%E2%80%93%20Recent%20Accounting%20Pronouncements) The Company adopted ASU No. 2014-09 (Revenue from Contracts with Customers), ASU No. 2016-15 (Statement of Cash Flows), and ASU No. 2017-09 (Stock Compensation) in fiscal 2019. Only Topic 606 had a material impact on the income statement. Several other ASUs, including those related to Leases (Topic 842), Cloud Computing, Defined Benefit Plans, and Fair Value Measurement, are not yet adopted but are expected to be effective in fiscal 2020 or 2021. The Leases standard is expected to significantly increase total assets and liabilities - Adopted ASU No. 2014-09 (Topic 606) on June 29, 2018, using the full retrospective method, impacting revenue recognition[71](index=71&type=chunk) - Adopted ASU No. 2016-15 (Statement of Cash Flows) and ASU No. 2017-09 (Stock Compensation) in the first quarter of fiscal 2019, with no material impact on financial statements[72](index=72&type=chunk)[73](index=73&type=chunk) - ASU No. 2016-02 (Leases, Topic 842) will be effective for the Company in fiscal year 2020 and is expected to significantly increase total assets and total liabilities[79](index=79&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the Company's business, strategic objectives, and challenges, followed by a detailed analysis of financial performance for the second quarter and first twenty-six weeks of fiscal 2019 compared to the prior year. It also discusses the Company's liquidity, capital resources, and financing arrangements [OVERVIEW](index=18&type=section&id=OVERVIEW) John B. Sanfilippo & Son, Inc. is a leading U.S. processor and distributor of nuts and snack products, sold under various brands and private labels across consumer, commercial ingredients, and contract packaging channels. The Company's strategic plan focuses on growing its branded nut business (Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts), expanding non-branded business, and entering alternative distribution channels. Key challenges include commodity cost deflation (except almonds), rising transportation costs, and intensified competition - The Company is a leading processor and distributor of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States[82](index=82&type=chunk) - Strategic plan aims to grow Fisher, Orchard Valley Harvest, Squirrel Brand, and Southern Style Nuts into leading brands, expand non-branded business, and enter alternative distribution channels[83](index=83&type=chunk) - Challenges include commodity cost deflation (except almonds), rising transportation costs, intensified competition, retail consolidation, and Internet price competition[84](index=84&type=chunk) [QUARTERLY HIGHLIGHTS](index=19&type=section&id=QUARTERLY%20HIGHLIGHTS) For the second quarter of fiscal 2019, net sales decreased by 2.1% to $253.3 million, while gross profit increased by 13.6% to $42.9 million, with gross profit margin rising to 16.9%. Total operating expenses increased by 11.1% to $26.2 million. For the first twenty-six weeks, net sales decreased by 3.6% to $457.6 million, gross profit increased by 4.1% to $75.8 million, and total operating expenses increased by 19.5% to $49.1 million Quarterly Financial Highlights (YoY Change) | Metric | Q2 FY19 (Millions) | Q2 FY18 (Millions) | Change (YoY) | % Change (YoY) | | :----------------------- | :----------------- | :----------------- | :----------- | :------------- | | Net sales | $253.3 | $258.8 | $(5.5) | -2.1% | | Sales volume (pounds) | Relatively unchanged | - | - | - | | Gross profit | $42.9 | $37.7 | $5.2 | 13.6% | | Gross profit margin | 16.9% | 14.6% | 2.3 pp | - | | Total operating expenses | $26.2 | $23.6 | $2.6 | 11.1% | | Operating expenses (% of net sales) | 10.4% | 9.1% | 1.3 pp | - | | Inventories | $171.7 | $168.4 | $3.3 | 1.9% | Twenty-Six Weeks Financial Highlights (YoY Change) | Metric | H1 FY19 (Millions) | H1 FY18 (Millions) | Change (YoY) | % Change (YoY) | | :----------------------- | :----------------- | :----------------- | :----------- | :------------- | | Net sales | $457.6 | $474.5 | $(16.9) | -3.6% | | Sales volume (pounds) | Decreased 1.9% | - | - | - | | Gross profit | $75.8 | $72.8 | $3.0 | 4.1% | | Gross profit margin | 16.6% | 15.4% | 1.2 pp | - | | Total operating expenses | $49.1 | $41.1 | $8.0 | 19.5% | | Operating expenses (% of net sales) | 10.7% | 8.7% | 2.0 pp | - | - Acquisition costs for walnuts, pecans, and cashews declined in the 2018 crop year (fiscal 2019)[92](index=92&type=chunk) [RESULTS OF OPERATIONS](index=20&type=section&id=RESULTS%20OF%20OPERATIONS) Net sales decreased due to a shift from higher-priced tree nuts to lower-priced peanuts, despite relatively unchanged sales volume for the quarter. Gross profit and margin improved due to decreased commodity acquisition costs. Operating expenses increased significantly due to higher compensation, freight, and amortization expenses. Income from operations increased for the quarter but decreased for the twenty-six weeks. Net income increased for the quarter, driven by a lower effective tax rate, but slightly decreased for the twenty-six weeks [Net Sales](index=20&type=section&id=Net%20Sales) Net sales decreased by 2.1% for the quarter and 3.6% for the twenty-six weeks, primarily due to a shift in sales volume from higher-priced tree nuts to lower-priced peanuts. Sales volume in the consumer channel increased significantly, driven by private brand snack nuts, trail mixes, Orchard Valley Harvest, and Fisher snack nuts, partially offset by declines in Fisher recipe nuts and the commercial ingredients and contract packaging channels - Net sales decreased **2.1% to $253.3 million** in Q2 FY19 (vs. $258.8 million in Q2 FY18) and **3.6% to $457.6 million** for the first twenty-six weeks (vs. $474.5 million in H1 FY18)[95](index=95&type=chunk)[96](index=96&type=chunk) - The decrease in net sales was primarily due to a shift in sales volume from higher-priced tree nuts to lower-priced peanuts[95](index=95&type=chunk) Sales by Product Type as % of Total Gross Sales | Product Type | Dec 27, 2018 (Quarter) | Dec 28, 2017 (Quarter) | Dec 27, 2018 (26 Weeks) | Dec 28, 2017 (26 Weeks) | | :---------------- | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Peanuts | 15.7% | 13.0% | 17.2% | 14.3% | | Pecans | 20.5% | 20.5% | 16.5% | 17.4% | | Cashews & Mixed Nuts | 22.1% | 26.0% | 22.3% | 25.4% | | Walnuts | 10.5% | 9.8% | 10.3% | 9.2% | | Almonds | 11.8% | 12.5% | 12.8% | 13.8% | | Trail & Snack Mixes | 14.5% | 12.9% | 15.6% | 14.6% | | Other | 4.9% | 5.3% | 5.3% | 5.3% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | Net Sales by Distribution Channel (Quarter Ended, Thousands) | Distribution Channel | Dec 27, 2018 | Dec 28, 2017 | Change | % Change | | :------------------- | :----------- | :----------- | :----- | :------- | | Consumer | $195,679 | $181,533 | $14,146 | 7.8% | | Commercial Ingredients | $31,253 | $35,578 | $(4,325) | -12.2% | | Contract Packaging | $26,385 | $41,694 | $(15,309) | -36.7% | | Total | $253,317 | $258,805 | $(5,488) | -2.1% | Net Sales by Distribution Channel (Twenty-six Weeks Ended, Thousands) | Distribution Channel | Dec 27, 2018 | Dec 28, 2017 | Change | % Change | | :------------------- | :----------- | :----------- | :----- | :------- | | Consumer | $335,370 | $317,501 | $17,869 | 5.6% | | Commercial Ingredients | $68,208 | $71,987 | $(3,779) | -5.2% | | Contract Packaging | $54,027 | $84,981 | $(30,954) | -36.4% | | Total | $457,605 | $474,469 | $(16,864) | -3.6% | - Consumer channel sales volume increased **12.8%** in Q2 FY19 and **10.1%** in H1 FY19, driven by private brand snack nuts, trail mixes, Orchard Valley Harvest, and Fisher snack nuts[100](index=100&type=chunk)[101](index=101&type=chunk) - Commercial ingredients sales volume decreased **13.9%** in Q2 FY19 and **10.7%** in H1 FY19, mainly due to a decline in peanut crushing stock and lack of excess walnut inventory for export[102](index=102&type=chunk) - Contract packaging sales volume decreased **33.6%** in Q2 FY19 and **30.7%** in H1 FY19, due to loss of bulk business, product line discontinuance, and the reclassification of Squirrel Brand sales post-acquisition[103](index=103&type=chunk) [Gross Profit](index=22&type=section&id=Gross%20Profit) Gross profit increased by $5.2 million (13.6%) for the second quarter and $3.0 million (4.1%) for the first twenty-six weeks of fiscal 2019. Gross profit margin improved to 16.9% and 16.6% for the respective periods, primarily due to decreased commodity acquisition costs for pecans, walnuts, and peanuts - Gross profit increased by **$5.2 million (13.6%)** to **$42.9 million** in Q2 FY19, and by **$3.0 million (4.1%)** to **$75.8 million** in H1 FY19[106](index=106&type=chunk)[107](index=107&type=chunk) - Gross profit margin increased to **16.9%** in Q2 FY19 (from 14.6%) and to **16.6%** in H1 FY19 (from 15.4%)[106](index=106&type=chunk)[107](index=107&type=chunk) - Increases in gross profit and margin were mainly due to decreased commodity acquisition costs for pecans, walnuts, and peanuts[106](index=106&type=chunk)[107](index=107&type=chunk) [Operating Expenses](index=22&type=section&id=Operating%20Expenses) Total operating expenses increased by $2.6 million (11.1%) for the second quarter and $8.0 million (19.5%) for the first twenty-six weeks of fiscal 2019. This was driven by higher selling expenses (increased compensation, freight, and advertising) and administrative expenses (increased compensation and amortization related to the Squirrel Brand acquisition) - Total operating expenses increased by **$2.6 million (11.1%)** to **$26.2 million** in Q2 FY19 and by **$8.0 million (19.5%)** to **$49.1 million** in H1 FY19[108](index=108&type=chunk)[111](index=111&type=chunk) - Selling expenses increased by **$2.3 million (14.8%)** in Q2 FY19 and **$5.5 million (20.4%)** in H1 FY19, primarily due to higher incentive and base compensation, rising freight costs, and increased advertising for the new Fisher snack line[109](index=109&type=chunk)[112](index=112&type=chunk) - Administrative expenses increased in Q2 FY19 (**$0.3 million**) and H1 FY19 (**$2.5 million**), driven by higher incentive compensation and amortization expense related to the Squirrel Brand acquisition, partially offset by decreased acquisition-related transaction expenses and personnel expense[110](index=110&type=chunk)[113](index=113&type=chunk) [Income from Operations](index=22&type=section&id=Income%20from%20Operations) Income from operations increased to $16.6 million (6.6% of net sales) for the second quarter of fiscal 2019, up from $14.1 million (5.4% of net sales) in the prior year. However, for the first twenty-six weeks, income from operations decreased to $26.7 million (5.8% of net sales) from $31.7 million (6.7% of net sales) in the prior year - Income from operations was **$16.6 million (6.6% of net sales)** in Q2 FY19, up from **$14.1 million (5.4% of net sales)** in Q2 FY18[114](index=114&type=chunk) - Income from operations was **$26.7 million (5.8% of net sales)** in H1 FY19, down from **$31.7 million (6.7% of net sales)** in H1 FY18[114](index=114&type=chunk) [Interest Expense](index=23&type=section&id=Interest%20Expense) Interest expense remained flat at $0.8 million for the second quarter of fiscal 2019 compared to the prior year. For the first twenty-six weeks, interest expense increased to $1.7 million from $1.6 million, primarily due to higher average debt levels and interest rates driven by the Squirrel Brand acquisition - Interest expense was **$0.8 million** for Q2 FY19 and Q2 FY18[116](index=116&type=chunk) - Interest expense for H1 FY19 was **$1.7 million**, up from **$1.6 million** in H1 FY18, primarily due to higher average debt levels and interest rates from the Squirrel Brand acquisition[116](index=116&type=chunk) [Rental and Miscellaneous Expense, Net](index=23&type=section&id=Rental%20and%20Miscellaneous%20Expense%2C%20Net) Net rental and miscellaneous expense was $0.3 million for the second quarter of fiscal 2019, up from $0.2 million in the prior year. For the first twenty-six weeks, it decreased to $0.6 million from $0.9 million - Net rental and miscellaneous expense was **$0.3 million** in Q2 FY19 (vs. $0.2 million in Q2 FY18) and **$0.6 million** in H1 FY19 (vs. $0.9 million in H1 FY18)[117](index=117&type=chunk) [Other Expense](index=23&type=section&id=Other%20Expense) Other expense, consisting of pension-related expenses (excluding service cost), remained consistent at $0.5 million for the second quarter and $1.0 million for the first twenty-six weeks of fiscal 2019 compared to the prior year - Other expense (pension-related, excluding service cost) was **$0.5 million** for Q2 FY19 and Q2 FY18, and **$1.0 million** for H1 FY19 and H1 FY18[118](index=118&type=chunk) [Income Tax Expense](index=23&type=section&id=Income%20Tax%20Expense) Income tax expense decreased to $3.8 million (25.3% effective tax rate) for the second quarter and $5.6 million (23.9% effective tax rate) for the first twenty-six weeks of fiscal 2019. This reduction was primarily due to a $2.4 million non-cash charge in Q2 FY18 to reduce deferred tax assets following the Tax Cuts and Jobs Act of 2017 - Income tax expense was **$3.8 million (25.3% effective tax rate)** in Q2 FY19, down from **$5.0 million (39.4% effective tax rate)** in Q2 FY18[119](index=119&type=chunk) - Income tax expense was **$5.6 million (23.9% effective tax rate)** in H1 FY19, down from **$10.0 million (35.2% effective tax rate)** in H1 FY18[119](index=119&type=chunk) - The decrease in effective tax rate was due to a **$2.4 million** non-cash charge in Q2 FY18 to reduce deferred tax assets following the Tax Cuts and Jobs Act of 2017[119](index=119&type=chunk) [Net Income](index=23&type=section&id=Net%20Income) Net income for the second quarter of fiscal 2019 increased to $11.3 million ($0.99 basic EPS) from $7.6 million ($0.67 basic EPS) in the prior year. For the first twenty-six weeks, net income slightly decreased to $17.9 million ($1.57 basic EPS) from $18.3 million ($1.61 basic EPS) in the prior year - Net income was **$11.3 million ($0.99 basic EPS, $0.98 diluted EPS)** in Q2 FY19, up from **$7.6 million ($0.67 basic and diluted EPS)** in Q2 FY18[120](index=120&type=chunk) - Net income was **$17.9 million ($1.57 basic EPS, $1.56 diluted EPS)** in H1 FY19, down from **$18.3 million ($1.61 basic EPS, $1.60 diluted EPS)** in H1 FY18[121](index=121&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=23&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The Company's primary cash uses are operations, contractual obligations, strategic plan initiatives, and debt repayment, funded by operations and its Credit Facility. Operating cash flow decreased due to changes in accounts payable and inventory timing. Investing activities used less cash due to no major acquisitions in the current period. Financing activities used more cash due to higher dividend payments and increased long-term debt payments related to the Squirrel Brand acquisition [General](index=23&type=section&id=General) The Company's primary uses of cash are for operations, contractual obligations, strategic growth initiatives (branded and private label nuts), and debt repayment. Cash sources include operations and the Credit Facility. Management anticipates sufficient liquidity for the next twelve months, supported by cash flow from operations and available credit - Primary uses of cash are to fund current operations, fulfill contractual obligations, pursue the Strategic Plan (growing branded and private label nut programs), and repay indebtedness[123](index=123&type=chunk) - Primary sources of cash are results of operations and availability under the Credit Facility[123](index=123&type=chunk) - Expected net cash flow from operations and Credit Facility availability are anticipated to be sufficient for the next twelve months[123](index=123&type=chunk) [Operating Activities](index=24&type=section&id=Operating%20Activities) Net cash provided by operating activities decreased by $10.1 million to $48.4 million for the first twenty-six weeks of fiscal 2019, primarily due to a reduction in accounts payable and accrued expenses, and the timing of cash paid for inventory. Inventories increased by $3.3 million YoY, driven by higher quantities of peanuts, pecans, and walnuts, partially offset by lower acquisition costs - Net cash provided by operating activities was **$48.4 million** for H1 FY19, a decrease of **$10.1 million** from **$58.4 million** in H1 FY18[126](index=126&type=chunk) - The decrease was primarily due to a reduction in accounts payable and accrued expenses (use of cash) and the timing of cash paid for inventory[126](index=126&type=chunk) - Total inventories increased by **$3.3 million (1.9%)** to **$171.7 million** at Dec 27, 2018, compared to Dec 28, 2017, mainly due to greater quantities of peanuts, pecans, and walnuts on hand, mostly offset by lower acquisition costs[127](index=127&type=chunk) [Investing Activities](index=24&type=section&id=Investing%20Activities) Cash used in investing activities decreased significantly to $9.3 million for the first twenty-six weeks of fiscal 2019, compared to $28.8 million in the prior year. This reduction was mainly due to no business acquisitions in the current period, whereas the prior year included a $21.9 million cash portion for the Squirrel Brand acquisition. Capital expenditures increased by $2.4 million, primarily for upgrades at the Bainbridge, Georgia peanut shelling facility - Cash used in investing activities was **$9.3 million** in H1 FY19, a decrease of **$19.5 million** from **$28.8 million** in H1 FY18[130](index=130&type=chunk) - No cash was spent on business acquisitions in H1 FY19, compared to **$21.9 million** for the Squirrel Brand acquisition in H1 FY18[130](index=130&type=chunk) - Capital expenditures increased by **$2.4 million** in H1 FY19 compared to H1 FY18, primarily for upgrades at the Bainbridge, Georgia peanut shelling facility[130](index=130&type=chunk) [Financing Activities](index=24&type=section&id=Financing%20Activities) Cash used in financing activities increased to $37.9 million for the first twenty-six weeks of fiscal 2019, up from $28.5 million in the prior year. This was driven by higher dividend payments ($29.1 million vs. $28.4 million) and increased principal payments on long-term debt related to the Squirrel Brand acquisition. Net repayments under the Credit Facility were $6.7 million, compared to net borrowings of $0.5 million in the prior year - Cash used in financing activities was **$37.9 million** in H1 FY19, an increase of **$9.4 million** from **$28.5 million** in H1 FY18[131](index=131&type=chunk) - Dividends paid were **$29.1 million** in H1 FY19, compared to **$28.4 million** in H1 FY18[131](index=131&type=chunk) - Net repayments under the Credit Facility were **$6.7 million** in H1 FY19, compared to net borrowings of **$0.5 million** in H1 FY18[132](index=132&type=chunk) - Payments on long-term debt increased by approximately **$1.5 million** in H1 FY19 due to debt incurred for the Squirrel Brand acquisition[132](index=132&type=chunk) [Real Estate Matters](index=25&type=section&id=Real%20Estate%20Matters) The Company is seeking additional tenants for vacant office space at its Elgin Site, with approximately 63% of the rentable area currently vacant. Further capital expenditures may be needed to lease the remaining space - Approximately **63%** of the rentable area in the office building at the Elgin Site is currently vacant, with **29%** of that unbuilt[133](index=133&type=chunk) - Further capital expenditures will likely be necessary to lease the remaining space[133](index=133&type=chunk) [Financing Arrangements](index=25&type=section&id=Financing%20Arrangements) The Company maintains a $117.5 million Credit Facility and a $45.0 million Mortgage Facility. The Credit Facility, secured by most assets (excluding real property), matures in July 2021 and had a weighted average interest rate of 5.03% at December 27, 2018. The Mortgage Facility, secured by owned real property, matures in March 2023 with a fixed interest rate of 4.25%. The Company also has a $10.3 million debt obligation related to a sale-leaseback of Selma Properties and a $7.3 million seller-financed Promissory Note from the Squirrel Brand acquisition [Credit Facility](index=25&type=section&id=Credit%20Facility) This section details the Company's $117.5 million revolving Credit Facility, including its security, maturity, interest rates, and compliance status - The Credit Facility provides a **$117.5 million** revolving loan commitment and letter of credit subfacility, secured by substantially all assets (excluding real property and fixtures), maturing on **July 7, 2021**[134](index=134&type=chunk)[136](index=136&type=chunk) - Interest accrues at either prime rate plus **0.25%-0.75%** or LIBOR plus **1.25%-1.75%**; weighted average interest rate was **5.03%** at December 27, 2018[137](index=137&type=chunk)[138](index=138&type=chunk) - As of December 27, 2018, the Company had **$89.9 million** of available credit and was in compliance with all covenants[138](index=138&type=chunk) [Mortgage Facility](index=26&type=section&id=Mortgage%20Facility) This section describes the Company's $45.0 million Mortgage Facility, outlining its structure, collateral, maturity, and fixed interest rate - The Mortgage Facility provides **$45.0 million** in term loans (Tranche A: **$36.0 million**, Tranche B: **$9.0 million**), secured by owned real property in Elgin, Illinois, Gustine, California, and Garysburg, North Carolina[134](index=134&type=chunk)[136](index=136&type=chunk) - Matures on **March 1, 2023**, with the interest rate fixed at **4.25% per annum** from March 1, 2018[140](index=140&type=chunk) - The Company was in compliance with all covenants under the Mortgage Facility as of December 27, 2018[141](index=141&type=chunk) [Selma Property](index=26&type=section&id=Selma%20Property) This section explains the Company's sale-leaseback arrangement for its Selma, Texas properties, including the associated debt obligation and lease term - The Company sold its Selma, Texas properties to related party partnerships for **$14.3 million** in 2006 and leases them back[142](index=142&type=chunk) - The lease term was extended to **September 2026**, and a **$10.3 million** debt obligation related to this transaction was outstanding as of December 27, 2018[142](index=142&type=chunk) [Squirrel Brand Seller-Financed Note](index=26&type=section&id=Squirrel%20Brand%20Seller-Financed%20Note) This section details the $11.5 million unsecured seller-financed Promissory Note incurred during the Squirrel Brand acquisition, including its interest rate and outstanding balance - The Squirrel Brand acquisition in November 2017 included a three-year seller-financed Promissory Note for **$11.5 million** to a related party[143](index=143&type=chunk) - The note is unsecured, bears **5.5% interest per annum**, and had a principal amount of **$7.3 million** outstanding at December 27, 2018[143](index=143&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section refers to the 'Critical Accounting Policies and Estimates' section in the Company's Form 10-K for the fiscal year ended June 28, 2018, for detailed information - Refer to the 'Critical Accounting Policies and Estimates' section of 'Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations' in the 2018 Annual Report on Form 10-K for detailed information[144](index=144&type=chunk) [Recent Accounting Pronouncements](index=26&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 13 – 'Recent Accounting Pronouncements' in Part I, Item 1 of this Form 10-Q for a discussion of recently issued and adopted accounting pronouncements [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There has been no material change in the Company's assessment of its sensitivity to market risk since the presentation in its Annual Report on Form 10-K for the fiscal year ended June 28, 2018 - No material change in the assessment of sensitivity to market risk since the Annual Report on Form 10-K for the fiscal year ended June 28, 2018[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 27, 2018, concluding they were effective. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of December 27, 2018[152](index=152&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended December 27, 2018[153](index=153&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes information on legal proceedings, risk factors, exhibits, and the official signature for the report [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) For a discussion of legal proceedings, refer to Note 10 – 'Commitments and Contingent Liabilities' in Part I, Item 1 of this Form 10-Q - Refer to Note 10 – 'Commitments and Contingent Liabilities' for details on legal proceedings[155](index=155&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There were no significant changes to the risk factors identified in the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2018, during the second quarter of fiscal 2019 - No significant changes to the risk factors identified in the Annual Report on Form 10-K for the fiscal year ended June 28, 2018, during the second quarter of fiscal 2019[157](index=157&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, equity incentive plans, various amendments to credit and security agreements, and certifications - The exhibit index includes the Restated Certificate of Incorporation, Amended and Restated Bylaws, various Equity Incentive Plans (1998, 2008, 2014 Omnibus), and related award agreements[163](index=163&type=chunk)[164](index=164&type=chunk) - Key financing documents such as the Credit Agreement (and its nine amendments), Security Agreement, and Loan Agreement with Transamerica Financial Life Insurance Company are listed[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[167](index=167&type=chunk)[168](index=168&type=chunk) [SIGNATURE](index=34&type=section&id=SIGNATURE) This section contains the signature of Michael J. Valentine, Chief Financial Officer, Group President, and Secretary, certifying the filing of the report on behalf of John B. Sanfilippo & Son, Inc. on January 30, 2019 - The report was signed by Michael J. Valentine, Chief Financial Officer, Group President and Secretary, on January 30, 2019[171](index=171&type=chunk)[173](index=173&type=chunk)