John B. Sanfilippo & Son(JBSS) - 2022 Q4 - Annual Report

PART I Item 1 — Business John B. Sanfilippo & Son, Inc. is a leading U.S. nut processor and distributor, utilizing vertical integration and selling through consumer, commercial, and contract packaging channels with seasonal demand - The company is a major processor and distributor of various nuts, including peanuts, pecans, cashews, walnuts, and almonds, under brands like Fisher, Orchard Valley Harvest, Squirrel Brand, and Southern Style Nuts, as well as private labels[14] - A key strategy is vertical integration for pecans, peanuts, and walnuts, which involves controlling the process from grower procurement to final marketing, aiming to enhance quality and lower costs[18] - Products are distributed through three primary channels: consumer (food retailers), commercial ingredients (for other manufacturers), and contract packaging[14][24] - The business experiences seasonality, with the highest demand for nut products occurring in the last four months of the calendar year, and raw material procurement concentrated between September and February[47] Principal Products and Raw Materials Raw and processed nuts, including various types and mixes, constitute 94% of gross sales, with 32% of nut purchases sourced internationally - Raw and processed nuts, including trail and snack mixes, accounted for approximately 94% of gross sales in fiscal 2022[21] - The company sources all its walnuts, almonds, and peanuts domestically, while pecans are sourced from the southern U.S. and Mexico, and cashews are imported from Vietnam and certain West African countries[33] - In fiscal 2022, approximately 32% of the total dollar value of nut purchases was from foreign sources[33] Customers and Channels The company serves 265 customers across three channels, with Wal-Mart and Target collectively accounting for 49% of fiscal 2022 net sales Major Customer Concentration (as % of Net Sales) | Customer | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Wal-Mart Stores, Inc. | 35% | 34% | 33% | | Target Corporation | 14% | 14% | 12% | - No other single customer accounted for more than 10% of net sales in the presented periods[25] Competition Operating in a highly competitive snack food industry, the company faces larger rivals like Hormel (Planters) and competes on price, quality, and brand - The company competes with major players like Hormel Foods Corp. (Planters brand) and the Diamond brand, as well as numerous regional snack food processors[32] - Key competitive factors are price, product quality, customer service, breadth of product line, brand name awareness, distribution method, sales promotion, and innovation[32] Human Capital As of June 30, 2022, the company employed 1,300 full-time staff, focusing on health, diversity, development, and rewards, including leadership programs and wage adjustments - The company employed approximately 1,300 full-time employees as of June 30, 2022[40] - In fiscal 2022, a pilot Leadership Development program resulted in approximately 36% of its 41 participants moving into higher-level jobs[43] - Over 38% of employees received market-based wage adjustments in fiscal 2022, and approximately 16% received promotions[43][45] - The company offers annual cash bonus opportunities through its SVA (20% of employees) and TTP (80% of employees) incentive programs[45] Item 1A — Risk Factors The company faces significant industry, business, regulatory, legal, and financial risks, including pandemic impacts, raw material volatility, customer dependence, and family voting control Industry Risks Industry risks include pandemic disruptions, volatile raw material costs, intense competition, changing consumer preferences, and food safety concerns - The COVID-19 pandemic and similar outbreaks pose risks of decreased demand, supply chain disruption, and economic downturns, which could affect product demand and margins[51][53] - The availability and cost of raw materials (nuts, fruits, oils) are subject to uncontrollable factors like weather, plant diseases, and global demand, and the company cannot hedge against these commodity price fluctuations[58][59] - The company operates in a highly competitive environment against larger companies with greater resources, such as Hormel Foods Corp. (Planters brand), and faces pressure from private label offerings[62] - Changing consumer preferences, concerns about health and sustainability, and the shift to e-commerce require continuous product innovation and investment, which may not be recovered if new products fail[65] - Food safety risks, particularly related to nut allergies and cross-contamination, could lead to product recalls, loss of consumer confidence, and significant liabilities[68] Business Risks Business risks include high customer concentration, reliance on key management, limited production facilities, and the potential failure of the Long-Range Plan - The company is highly dependent on a few significant customers, with the five largest customers accounting for approximately 63% of net sales in fiscal 2022[80] - Future success is largely dependent on the senior operating management team, who have not entered into employment or non-compete agreements[82] - Products are processed at a limited number of facilities, and a significant disruption at any one of them could materially impact the availability of products[83] - Failure to successfully implement the Long-Range Plan, which involves growing branded products and pursuing strategic acquisitions, could adversely affect financial results[84][86] Regulatory and Legal Risks Regulatory and legal risks include extensive government oversight, costly food safety compliance, international operational hazards, and potential litigation - The business is subject to extensive regulation by the FDA, USDA, and EPA, with compliance, particularly under the Food Safety Modernization Act (FSMA), being costly and critical[87][89] - Approximately 32% of the dollar value of total nut purchases in fiscal 2022 were from foreign countries, exposing the company to international risks like tariffs, political instability, and supply chain disruptions[91] - The company faces potential litigation related to product liability, labeling, employment, and other business aspects, which can be expensive to defend[94] - Protecting intellectual property, especially trademarks like Fisher and Orchard Valley Harvest, is crucial, and failure to do so could diminish competitiveness[95] Financial Risks Financial risks include majority voting control by founding families, pledged stock collateral, potential impairment of goodwill, and inventory valuation uncertainties - The Sanfilippo Group and Valentine Group control approximately 50.7% and 23.8% of the company's voting interest, respectively, giving them the ability to direct the election of the majority of the Board and influence corporate actions[97] - Several stockholders in the Sanfilippo Group have pledged shares of Class A Stock to secure loans, which could lead to a forced sale and a change of control if they default[99] - The company had goodwill of $9.6M and other intangible assets of $8.1M as of June 30, 2022, which are subject to impairment risk[101] - The valuation of bulk-stored nut inventories involves estimates that are subject to periodic adjustments, which directly affect earnings, with the precise amount not known until the entire quantity is depleted[102] Item 1B — Unresolved Staff Comments The company reports no unresolved staff comments - None[104] Item 2 — Properties The company operates four main production facilities, including Elgin (headquarters), Selma (pecans), Bainbridge (peanuts), and Gustine (walnuts), with varying utilization rates Principal Production Facilities and FY2022 Utilization | Location | Primary Use | Annual Capacity | FY2022 Processed/Shelled | | :--- | :--- | :--- | :--- | | Selma, TX | Pecan Shelling | >90M inshell lbs | ~38M inshell lbs | | Bainbridge, GA | Peanut Shelling | ~120M inshell lbs | ~100M inshell lbs | | Gustine, CA | Walnut Shelling | >60M inshell lbs | ~34M inshell lbs | - The primary processing and distribution facility in Elgin, IL, can accommodate a 15% to 20% increase in production capacity, but certain production lines and finished goods storage are nearing full capacity[112] - The Garysburg, North Carolina facility, which ceased operations in fiscal 2021, was sold during the first quarter of fiscal 2022[110] Item 3 — Legal Proceedings Management anticipates that ongoing legal proceedings will not materially adversely affect the company's financial condition, results, or cash flows - Management does not expect current legal proceedings to have a material adverse effect on the company's financials[117] Item 4 — Mine Safety Disclosures This item is not applicable to the company - Not applicable[119] PART II Item 5 — Market for Registrant's Common Equity and Related Stockholder Matters The company has dual-class stock (JBSS and Class A), pays annual cash dividends, and declared $3.00 per share in fiscal 2022 - The company has a dual-class stock structure: Common Stock (1 vote/share, traded as JBSS) and Class A Stock (10 votes/share, not publicly traded)[134] Recent Dividends Declared Per Share | Declaration Date | Type | Amount | Payment Date | | :--- | :--- | :--- | :--- | | July 8, 2021 | Annual & Special | $3.00 | Aug 25, 2021 | | Jan 27, 2021 | Special | $2.50 | Mar 16, 2021 | | July 9, 2020 | Annual & Special | $2.50 | Aug 21, 2020 | | Post FY2022 | Annual & Special | $2.25 | Aug 31, 2022 | - As of June 30, 2022, there were 593,034 securities remaining available for future issuance under equity compensation plans approved by stockholders[146] Item 6 — Selected Financial Data This section summarizes five years of financial data, reporting fiscal 2022 net sales of $955.9 million, net income of $61.8 million, and total assets of $447.3 million Selected Financial Data (in thousands, except per share data) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net sales | $955,868 | $858,482 | $880,092 | | Gross profit | $199,627 | $184,987 | $175,775 | | Income from operations | $87,437 | $85,178 | $78,547 | | Net income | $61,787 | $59,741 | $54,110 | | Diluted EPS | $5.33 | $5.17 | $4.69 | | Total assets | $447,262 | $398,455 | $407,457 | | Total debt | $51,362 | $23,383 | $47,023 | Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses fiscal 2022 performance, noting an 11.3% net sales increase to $955.9 million, a gross margin decline, and a significant decrease in operating cash flow due to inventory investment Results of Operations (FY2022 vs. FY2021) Fiscal 2022 net sales increased 11.3% to $955.9 million, driven by volume and price, though gross margin declined due to higher commodity and input costs FY2022 vs. FY2021 Performance (in millions) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $955.9M | $858.5M | 11.3% | | Gross Profit | $199.6M | $185.0M | 7.9% | | Gross Profit Margin | 20.9% | 21.5% | (0.6) p.p. | | Net Income | $61.8M | $59.7M | 3.5% | | Diluted EPS | $5.33 | $5.17 | 3.1% | - The increase in net sales was attributed to a 6.9% increase in sales volume and a 4.2% increase in the weighted average selling price per pound[168] Net Sales by Distribution Channel (FY2022 vs FY2021, in millions) | Distribution Channel | FY 2022 Sales | % Change from FY2021 | | :--- | :--- | :--- | | Consumer | $749.9M | +9.3% | | Commercial Ingredients | $120.6M | +29.8% | | Contract Packaging | $85.4M | +7.4% | Liquidity and Capital Resources Fiscal 2022 operating cash flow significantly decreased to $19.6 million due to increased inventory investment, while the company utilized its credit facility for liquidity Cash Flow Summary (in thousands) | Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,604 | $104,697 | | Net cash used in investing activities | ($11,376) | ($22,950) | | Net cash used in financing activities | ($8,485) | ($82,610) | - The decrease in operating cash flow was primarily due to an $81.0M higher use of cash for inventory in FY2022, compared to a $24.1M decrease in FY2021[190] - Total debt stood at $51.4M at the end of fiscal 2022, up from $23.4M at the end of fiscal 2021[149] - As of June 30, 2022, the company had $71.9M of available credit under its Revolving Credit Facility[203] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, impairment assessments for assets and goodwill, and retirement plan accounting estimates - Critical policies involve significant management judgment and estimates[208] - Key areas of estimation include: customer deductions for revenue recognition, recoverability of long-lived assets and goodwill, quantity of bulk inventories, and assumptions for the retirement plan liability (e.g., discount rates)[210][211][212][216] Item 7A — Quantitative and Qualitative Disclosures About Market Risk The company faces unhedged market risks from interest rates, commodity prices (especially nuts), and foreign exchange, with a 1% material cost increase impacting FY2022 gross profit by $5.9 million - The company does not hedge against commodity price risk, and a hypothetical 1% increase in material costs would have reduced FY2022 gross profit by about $5.9M[223] - Approximately 32% of the dollar value of total nut purchases for fiscal 2022 were from foreign countries, creating exposure to foreign currency fluctuations, although purchases are made in U.S. dollars[224] - A hypothetical 10% adverse change in weighted-average interest rates on its variable rate debt would have had less than a $0.1M impact on net income for fiscal 2022[225] Item 8 — Financial Statements and Supplementary Data This section presents the independent auditor's unqualified opinion and the company's consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 30, 2022[228] - The auditor identified the valuation of the projected benefit obligation for the Supplemental Employee Retirement Plan (SERP) as a critical audit matter, due to the significant management judgment involved in determining the discount rate[235][236] Consolidated Financial Statements The consolidated financial statements show total assets of $447.3 million and stockholders' equity of $278.8 million as of June 30, 2022, with fiscal 2022 net sales of $955.9 million Key Balance Sheet Figures (in thousands) | Account | June 30, 2022 | June 24, 2021 | | :--- | :--- | :--- | | Total Current Assets | $283,164 | $225,167 | | Total Assets | $447,262 | $398,455 | | Total Current Liabilities | $122,762 | $100,204 | | Total Liabilities | $168,441 | $155,961 | | Total Stockholders' Equity | $278,821 | $242,494 | Key Income Statement Figures (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $955,868 | $858,482 | $880,092 | | Gross Profit | $199,627 | $184,987 | $175,775 | | Income from Operations | $87,437 | $85,178 | $78,547 | | Net Income | $61,787 | $59,741 | $54,110 | Notes to Consolidated Financial Statements Notes to the financial statements provide detailed disclosures on accounting policies, including revenue recognition, inventories, goodwill, debt, and the retirement plan - Note 2 (Revenue Recognition): Revenue is disaggregated by channel, with the Consumer channel representing $749.9M of the $955.9M total net sales in FY2022[310] - Note 5 (Goodwill and Intangible Assets): As of June 30, 2022, the company had net goodwill of $9.65M and net intangible assets of $8.07M[325][326] - Note 14 (Retirement Plan): The projected benefit obligation for the SERP was $29.5M at June 30, 2022, a decrease from $35.5M at the prior year-end, primarily due to a significant actuarial gain from a higher discount rate (4.68% vs 2.89%)[351][354] Item 9A — Controls and Procedures Management and the independent auditor concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2022 - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[370] - Management concluded that internal control over financial reporting was effective as of June 30, 2022, a conclusion audited and affirmed by PricewaterhouseCoopers LLP[371][372] PART III Item 10 — Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held November 3, 2022[376] Item 11 — Executive Compensation Information on executive and director compensation is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the definitive Proxy Statement for the 2022 Annual Meeting[378] Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the definitive Proxy Statement for the 2022 Annual Meeting[379] Item 13 — Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the definitive Proxy Statement for the 2022 Annual Meeting[380] Item 14 — Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2022 Proxy Statement - This section incorporates information by reference from the definitive Proxy Statement for the 2022 Annual Meeting[381] PART IV Item 15 — Exhibits, Financial Statement Schedules This section lists financial statements included in Item 8, notes the omission of schedules, and refers to the Exhibit Index - The financial statements are included in Part II, Item 8, and all financial statement schedules are omitted[382][383] - A list of exhibits filed with the report is provided in the Exhibit Index[384] Item 16 — Form 10-K Summary The company reports that there is no Form 10-K summary - None[387]