Sanfilippo John B & Son Inc: Form 10-Q for the period ended Mar 28, 2024

OVERVIEW

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements.

Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:

• References herein to fiscal 2024 and fiscal 2023 are to the fiscal year ending June 27, 2024 and the fiscal year ended June 29, 2023, respectively.
• References herein to the third quarter of fiscal 2024 and fiscal 2023 are to the quarters ended March 28, 2024 and March 30, 2023, respectively.
• References herein to the first three quarters or first thirty-nine weeks of fiscal 2024 and fiscal 2023 are to the thirty-nine weeks ended March 28, 2024 and March 30, 2023, respectively.

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC.

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under our Fisher, Orchard Valley Harvest, Squirrel Brand and Southern Style Nuts brand names and under a variety of private brands. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snack and trail mixes, nutrition bars, snack bars, snack bites, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks, other sesame snack products and baked cheese snack products under our brand names, including Just the Cheese, and under private brands. We distribute our products in the consumer, commercial ingredients and contract packaging distribution channels.

Our Long-Range Plan defines our future growth priorities and focuses on growing our private brand business across key customers, as well as transforming Fisher, Orchard Valley Harvest and Squirrel Brand into leading brands while increasing distribution and diversifying our portfolio into high growth snacking segments. We will execute on our Long-Range Plan by providing private brand customer value-added solutions based on our extensive industry and consumer expertise with innovative products such as our newly developed product line of private brand nutrition bars which we introduced during fiscal 2023. We will grow our branded business by reaching new consumers via product expansion and packaging innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, including sales via e-commerce platforms. Our Long-Range Plan also contemplates increasing our sales through product innovation and targeted, opportunistic acquisitions, such as the acquisition of the Just the Cheese brand completed during fiscal 2023 and the recent Lakeville Acquisition completed during the second quarter of fiscal 2024, which expanded our ability to produce private brand snack bars and allows us to provide our private brand customers with a complete snack bar portfolio.

We will continue to focus our promotional and advertising activity to invest in our brands to achieve growth. We intend to execute on an omnichannel approach to win in key categories including recipe nuts, snack nuts, trail mix and other snacking categories. We continue to see e-commerce growth across our branded portfolio and anticipate taking various actions with the goal of maintaining that growth across a variety of established and emerging e-commerce platforms. We continue to face the ongoing challenges and/or regulations specific to our business, such as food safety and regulatory matters, the maintenance and growth of our customer base for branded and private brand products and consumer demand for nut and nut-related products in a challenging snack food environment. See the information referenced in Part II, Item 1A — “Risk Factors” of this report for additional information about our risks, challenges and uncertainties.

We face a number of challenges in the future, which include integrating the recent Lakeville Acquisition into our existing business, the impacts of ongoing inflation in food prices, elevated interest rates that negatively impact economic growth, consumers reducing their purchases in the snack and nut category, including branded nut products, potential for economic downturn in the markets in which we operate and continued supply chain challenges. We continue to experience a tight labor market which has led to elevated labor costs.

Inflation and Consumer Trends

We face changing industry trends as consumers' purchasing preferences evolve. Due to the continued inflationary environment, we have seen higher selling prices at retail. These higher prices across our categories and the broader food market, coupled with an actual or potential economic downturn and tightening of consumer finances due to inflation, reduced government support through programs such as SNAP or a variety of other reasons, are causing consumers to purchase fewer snack products. We have seen this through the decline in the recipe and snack nut categories since fiscal 2023 and during fiscal 2024, as consumers shift their preferences to private brands or lower priced nuts or purchase snack products outside the snack and nut and trail mix category. With the inflationary environment, we are also seeing signs of consumers shifting to more value-focused retailers, such as mass merchandising retailers, club stores and dollar stores, not all of which we distribute or sell to.

Supply Chain and Transportation

In recent quarters, we have faced supply chain challenges related to certain raw material shortages, extended lead-times, supplier capacity constraints and inflationary pressures. While we do not have direct exposure to suppliers in Russia, Ukraine or Israel, the conflicts in these regions could continue to result in volatile commodity markets, supply chain disruptions and increased costs. Global supply chain pressures have eased, but we continue to see negative impacts related to macro-economics, geo-political unrest, growing political instability and climate-related events. We experienced minimal disruption from the Baltimore bridge collapse that occurred in March 2024 as ships were diverted to alternative east coast ports. Overall packaging and ingredient inflation appears to be leveling off but is expected to remain above historical levels.

While we have seen stabilization in truckload capacity and volume at U.S. ports and improvements with driver hiring, there are still warehouse and dock staff shortages and fuel and energy concerns due to continued unrest abroad coupled with persistent inflation. We have seen continued trucking company bankruptcies which may cause instability in the transportation industry, however, we expect to be able to hold freight rates flat for the remainder of fiscal 2024. While there are indicators of transportation cost improvement, and despite our mitigation of some of the transportation shortages, we may continue to face an unpredictable transportation environment. There is no guarantee that our mitigation strategies will continue to be effective, that any transportation capacity easing will continue or that transportation prices will return to more normalized levels.

We have remained agile by proactively identifying risks, modifying inventory plans and diversifying our supplier base to mitigate risk of customer order shortages and maintain our supply chain. We continue to proactively manage our business in response to the evolving global economic environment and related uncertainty and intend to take steps to mitigate impacts to our supply chain. If these supply chain pressures continue, or we cannot obtain the transportation and labor services needed to fulfill customer orders, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations in the remaining quarter of fiscal 2024. Furthermore, the cocoa market has seen a significant increase in price fueled by speculation of a short crop and shortages may begin in the marketplace in the near term. Additionally, as costs increase due to these issues or due to overall inflationary pressures, there is an additional risk of not being able to pass (in part or in full) such potential cost increases onto our customers or in a timely manner. If we cannot align costs with prices for our products, our operating performance could be adversely impacted.

QUARTERLY HIGHLIGHTS

Our net sales of $271.9 million for the third quarter of fiscal 2024 increased $33.3 million, or 14.0%, from our net sales of $238.5 million for the third quarter of fiscal 2023. Net sales for the first thirty-nine weeks of fiscal 2024 increased by $31.7 million, or 4.1%, to $797.2 million compared to the first thirty-nine weeks of fiscal 2023.

Sales volume, measured as pounds sold to customers, increased 22.6% compared to the third quarter of fiscal 2023. Sales volume for the first thirty-nine weeks of fiscal 2024 increased 8.8% compared to the first thirty-nine weeks of fiscal 2023.

Gross profit decreased $0.6 million, and our gross profit margin, as a percentage of net sales, decreased to 18.1% for the third quarter of fiscal 2024 compared to 20.9% for the third quarter of fiscal 2023. Gross profit increased $7.2 million, and our gross profit margin increased to 20.6% from 20.5% for the first thirty-nine weeks of fiscal 2024 compared to the first thirty-nine weeks of fiscal 2023.

Total operating expenses for the third quarter of fiscal 2024 increased by $2.9 million, or 10.3%, compared to the third quarter of fiscal 2023. As a percentage of net sales, total operating expenses in the third quarter of fiscal 2024 decreased to 11.3% from 11.7% for the third quarter of fiscal 2023. Total operating expenses for the first thirty-nine weeks of fiscal 2024 increased by $5.4 million, or 6.1%, compared to the first thirty-nine weeks of fiscal 2023. As a percentage of net sales, total operating expenses for the first thirty-nine weeks of fiscal 2024 increased to 11.7% from 11.5% for the first thirty-nine weeks of fiscal 2023.

The total value of inventories on hand at the end of the third quarter of fiscal 2024 increased $20.3 million, or 10.7%, in comparison to the total value of inventories on hand at the end of the third quarter of fiscal 2023.

We have seen acquisition costs for all major tree nuts, other than walnuts, remain flat or decrease, and we have seen acquisition costs for peanuts increase modestly in the 2023 crop year (which falls into our current 2024 fiscal year). We completed procurement of inshell walnuts during the first half of fiscal 2024 and the final total payments due to our walnut growers were determined in the current quarter. The final prices paid, and remaining to be paid to the walnut growers, were based upon current market prices and other factors, such as crop size and export demand. A large majority of payments to walnut growers were completed in the third quarter of fiscal 2024. Remaining amounts to be paid to walnut growers as of March 28, 2024 are final and are not subject to revision. We decreased our walnut grower liability by approximately $0.3 million during the third quarter of fiscal 2024, as the final payments due to walnut growers are slightly less than the amounts estimated at the end of the second quarter. This decrease is insignificant compared to our total inshell walnut procurement costs for the year, and the portion of the adjustment to cost of sales was immaterial to our results of operations.

RESULTS OF OPERATIONS

Net Sales

In the third quarter of fiscal 2024, our net sales increased 14.0% to $271.9 million compared to net sales of $238.5 million for the third quarter of fiscal 2023, primarily due to the Lakeville Acquisition, which closed on the first day of our second quarter and increased quarterly net sales by approximately $46.9 million. Sales volume, which is defined as pounds sold to customers, increased 22.6%, also due to the Lakeville Acquisition. The Lakeville Acquisition increased our quarterly sales volume by 18.1 million pounds, or 24.1%, over the third quarter of fiscal 2023. Sales volume for the third quarter, excluding the impact of the Lakeville Acquisition, decreased 1.4%, from softness in consumer demand, and the weighted average sales price per pound decreased 4.3% primarily from lower commodity acquisition costs for all major nut types except walnuts and peanuts.

For the first thirty-nine weeks of fiscal 2024 our net sales were $797.2 million, an increase of $31.7 million, or 4.1%, compared to the same period of fiscal 2023. Excluding the impact of the Lakeville Acquisition, net sales decreased 5.7% to $721.6 million, which was primarily attributable to a 3.8% decline in sales volume. In addition to the decline in sales volume, a 2.0% decrease in weighted average selling price per pound also contributed to the decline in net sales.

The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.

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

(1) Sales of branded products were approximately 14% and 18% of total consumer sales during the third quarter of fiscal 2024 and fiscal 2023, respectively. Fisher branded products were approximately 54% and 52% of branded sales during the third quarter of fiscal 2024 and fiscal 2023, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

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

(1) Sales of branded products were approximately 19% and 22% of total consumer sales during the first thirty-nine weeks of fiscal 2024 and fiscal 2023, respectively. Fisher branded products were approximately 65% and 66% of branded sales during the first thirty-nine weeks of fiscal 2024 and fiscal 2023, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel increased $40.9 million, or 22.1%, and sales volume increased 33.1% in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 due to the Lakeville Acquisition. Excluding the Lakeville Acquisition, net sales in the consumer distribution channel decreased $6.0 million, or 3.2%, and sales volume increased 0.3%. Private brand sales volume increased 38.6% driven by the Lakeville Acquisition, whose sales volume is almost exclusively private brand bars. Excluding the Lakeville Acquisition, private brand sales volume increased approximately 0.5%. Sales volume of Fisher snack nuts decreased 15.8% due to lost distribution as a mass merchandising retailer and decreased sales volume at several grocery store retailers which was partially offset by an increase in e-commerce sales volume.

In the first thirty-nine weeks of fiscal 2024, net sales in the consumer distribution channel increased $45.5 million, or 7.5%, and sales volume increased 13.9% compared to the same period of fiscal 2023 due to the Lakeville Acquisition. Excluding the Lakeville Acquisition, net sales in the consumer distribution channel decreased $29.5 million, or 4.9%, and sales volume decreased 2.8%. Private brand sales volume increased 17.7% driven by the Lakeville Acquisition. Excluding the Lakeville Acquisition, private brand sales volume decreased 2.3% due to softness in consumer spending at two mass merchandising retailers. These sales volume decreases were partially offset by increased distribution of seasonal items at a grocery store retailer. Sales volume of Fisher recipe nuts decreased 9.5% due to soft customer demand across mass merchandising and grocery store retailers and less merchandising activity at several grocery store retailers. Sales volume of Fisher snack nuts decreased 16.4% for the reasons already cited in the quarterly comparison. Sales volume of Southern Style Nuts decreased 27.5% due to reduced distribution and fewer promotional programs at a club store customer. The above decreases in sales volume were partially offset by a 4.3% increase in sales volume for Orchard Valley Harvest primarily due to increased distribution at a major customer in the non-food sector.

Net sales in the commercial ingredients distribution channel decreased $3.9 million, or 12.8%, and sales volume decreased 2.4% in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. The sales volume decrease was due to competitive pricing pressure coupled with non-recurring peanut butter sales at a foodservice distributor that occurred in fiscal 2023. This decrease was partially offset by new peanut butter business at two other food service distributors and new sales volume of loose granola associated with the Lakeville Acquisition. Excluding the Lakeville Acquisition, sales volume decreased 3.0%.

In the first thirty-nine weeks of fiscal 2024, net sales in the commercial ingredients distribution channel decreased $8.0 million, or 8.8%, and sales volume decreased 0.7% compared to the same period of fiscal 2023. Excluding the Lakeville Acquisition, sales volume decreased 2.1% due to the reason cited in the quarterly comparison and an 11.4% decrease in sales volume of peanut crushing stock to peanut oil processors due to reduced peanut shelling.

Net sales in the contract packaging distribution channel decreased $3.6 million, or 15.9%, and sales volume decreased 11.3% in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. The decrease in sales volume was due to decreased cashew and mixed nuts distribution by a major customer due to soft consumer demand.

In the first thirty-nine weeks of fiscal 2024, net sales in the contract packaging distribution channel decreased $5.7 million, or 8.4%, and sales volume decreased 13.4% compared to the same period of fiscal 2023. The sales volume decrease was attributable to the reason cited in the quarterly comparison.

Gross Profit

Gross profit decreased by $0.6 million, or 1.2%, to $49.2 million for the third quarter of fiscal 2024 compared to $49.8 million for the third quarter of fiscal 2023. Excluding the Lakeville Acquisition, gross profit decreased approximately 7.2%, or $3.6 million. The decrease in gross profit was due to higher commodity acquisition costs for peanuts and walnuts, reduced production volume and increased expenditures relating to facility repairs and maintenance, noncompliant inventory and incentive compensation. Our gross profit margin, as a percentage of net sales, decreased to 18.1% for the third quarter of fiscal 2024 compared to 20.9% for the third quarter of fiscal 2023 mainly related to the higher sales base due to the Lakeville Acquisition.

Gross profit was $164.1 million for the first thirty-nine weeks of fiscal 2024 compared to $156.9 million for the first thirty-nine weeks of fiscal 2023. Our gross profit margin, as a percentage of net sales, increased slightly to 20.6% for the first thirty-nine weeks of fiscal 2024 compared to 20.5% for the first thirty-nine weeks of fiscal 2023.

Operating Expenses

Total operating expenses for the third quarter of fiscal 2024 increased by $2.9 million, or 10.3%, to $30.8 million. Operating expenses decreased to 11.3% of net sales for the third quarter of fiscal 2024 compared to 11.7% of net sales for the third quarter of fiscal 2023.

Selling expenses for the third quarter of fiscal 2024 were $18.7 million, an increase of $0.5 million, or 3.0%, from the third quarter of fiscal 2023. The increase was driven by a $0.8 million increase in incentive compensation expense, a $0.6 million increase in outside distribution expense, primarily related to the Lakeville Acquisition. These increases were partially offset by a $0.6 million decrease in advertising and consumer insight research expense.

Administrative expenses for the third quarter of fiscal 2024 increased $2.3 million, or 23.7%, to $12.2 million compared to $9.8 million for the third quarter of fiscal 2023. The increase was due to a $2.3 million increase in compensation-related expenses.

Total operating expenses for the first thirty-nine weeks of fiscal 2024 increased by $5.4 million, or 6.1%, to $93.6 million. Operating expenses increased to 11.7% of net sales for the first thirty-nine weeks of fiscal 2024 compared to 11.5% of net sales for the first thirty-nine weeks of fiscal 2023. The increase is net of the $2.2 million net gain on bargain purchase that occurred in the second quarter of fiscal 2024 due to the Lakeville Acquisition.

Selling expenses for the first thirty-nine weeks of fiscal 2024 were $61.6 million, an increase of $3.7 million, or 6.4%, from the first thirty-nine weeks of fiscal 2023. The increase was driven primarily by a $2.8 million increase in advertising and consumer insight research expense, a $1.2 million increase in compensation-related expenses, a $1.1 million increase in outside distribution expense, which was primarily due to the Lakeville Acquisition, an increase in consulting expenses of $0.4 million. These increases were offset by a $1.6 million decrease in freight expense due to lower freight rates and fewer delivered sales pounds.

Administrative expenses for the first thirty-nine weeks of fiscal 2024 increased $3.9 million, or 12.8%, to $34.2 million compared the first thirty-nine weeks of fiscal 2023. The increase was due to a $3.1 million increase in compensation-related expenses and an increase in charitable food donations of $0.8 million.

Income from Operations

Due to the factors discussed above, income from operations was $18.4 million, or 6.7% of net sales, for the third quarter of fiscal 2024 compared to $21.8 million, or 9.1% of net sales, for the third quarter of fiscal 2023.

Due to the factors discussed above, income from operations was $70.5 million, or 8.8% of net sales, for the first thirty-nine weeks of fiscal 2024 compared to $68.7 million, or 9.0% of net sales, for the first thirty-nine weeks of fiscal 2023.

Interest Expense

Interest expense was $0.8 million for the third quarter of fiscal 2024 compared to $0.6 million for the third quarter of fiscal 2023. Interest expense was $2.1 million for the first thirty-nine weeks of fiscal 2024 and $1.8 million for the first thirty-nine weeks of fiscal 2023. The increase in interest expense for both periods was due to higher average debt levels, primarily due to the Lakeville Acquisition.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.3 million for the third quarter of fiscal 2024 and $0.4 million for the third quarter of fiscal 2023.

Net rental and miscellaneous expense was $0.9 million for the first thirty-nine weeks of fiscal 2024 and $1.1 million for the first thirty-nine weeks of fiscal 2023.

Pension Expense (Excluding Service Costs)

Pension expense (excluding service costs) was $0.4 million for the third quarter of fiscal 2024 compared to $0.3 million for the third quarter of fiscal 2023.

Pension expense (excluding service costs) was $1.1 million for the first thirty-nine weeks of fiscal 2024 and $1.0 million for the first thirty-nine weeks of fiscal 2023.

Income Tax Expense

Income tax expense was $3.4 million, or 20.2% of income before income taxes ("effective tax rate"), for the third quarter of fiscal 2024 compared to $4.8 million, or 23.4% of income before income taxes, for the third quarter of fiscal 2023. The effective tax rate decreased in the current third quarter primarily due to an increase in our estimated research and development tax credit.

Income tax expense was $16.2 million, or 24.4% of income before income taxes, for the first thirty-nine weeks of fiscal 2024 compared to $16.6 million, or 25.6% of income before income taxes, for the first thirty-nine weeks of fiscal 2023.

Net Income

Net income was $13.5 million, or $1.16 per common share basic and $1.15 per common share diluted, for the third quarter of fiscal 2024, compared to $15.7 million, or $1.36 per common share basic and $1.35 per common share diluted, for the third quarter of fiscal 2023.

Net income was $50.2 million, or $4.33 per common share basic and $4.30 per common share diluted, for the first thirty-nine weeks of fiscal 2024, compared to $48.2 million, or $4.16 per common share basic and $4.14 per common share diluted, for the first thirty-nine weeks of fiscal 2023.

LIQUIDITY AND CAPITAL RESOURCES

General

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Long-Range Plan through growing our branded and private brand programs, consummate and integrate business acquisitions, return cash to our stockholders through dividends, repay indebtedness and pay amounts owed under the Retirement Plan. Also, various uncertainties, including cost uncertainties, could result in additional uses of cash. The primary sources of cash are results of operations and availability under our Credit Facility. We anticipate that expected net cash flow generated from operations and amounts available pursuant to the Credit Facility will be sufficient to fund our operations for the next twelve months. Our available credit under our Credit Facility has allowed us to devote more funds to promote our products, increase consumer insight capabilities and promotional efforts, reinvest in the Company through capital expenditures, develop new products, pay cash dividends, consummate strategic investments and business acquisitions, such as the recent Lakeville Acquisition and the acquisition of the Just the Cheese brand in fiscal 2023, and explore other growth strategies outlined in our Long-Range Plan.

Cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements, which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell. Current market trends in nut prices and crop estimates also impact nut procurement.

The following table sets forth certain cash flow information for the first half of fiscal 2024 and 2023, respectively (dollars in thousands):

Operating Activities Net cash provided by operating activities was $66.4 million for the first thirty-nine weeks of fiscal 2024 compared to net cash provided by operating activities of $72.4 million for the comparative period of fiscal 2023. The decrease in operating cash flow was primarily due to changes in working capital.

Total inventories were $210.7 million at March 28, 2024, an increase of $37.7 million, or 21.8%, from the inventory balance at June 29, 2023, and an increase of $20.3 million, or 10.7%, from the inventory balance at March 30, 2023. The increase in inventories at March 28, 2024 compared to March 30, 2023 was primarily due to the Lakeville Acquisition and higher quantities of pecans and walnuts on hand, higher commodity acquisition costs for walnuts, partially offset by lower quantities of work-in-process and finished goods inventory on hand.

Raw nut and dried fruit input stocks, some of which are classified as work-in-process, increased by 13.9 million pounds, or 22.4%, at March 28, 2024 compared to March 30, 2023 due to higher quantities of walnuts and pecans on hand due to increased procurement from a larger crop combined with softness in demand. The weighted average cost per pound of raw nut input stocks on hand at the end of the third quarter of fiscal 2024 decreased 11.7% compared to the end of the third quarter of fiscal 2023 primarily due to higher quantities of peanuts, inshell walnuts and pecans.

Investing Activities Cash used in investing activities was $76.5 million during the first thirty-nine weeks of fiscal 2024 compared to $19.1 million for the same period last year. The increase in cash used in investing activities was primarily due to the $59.0 million net purchase price for the Lakeville Acquisition. This was partially offset by the $3.5 million purchase price for the acquisition of the Just the Cheese brand in the second quarter of fiscal 2023. Capital asset purchases were $17.5 million during the first thirty-nine weeks of fiscal 2024 compared to $15.6 million for the first thirty-nine weeks of fiscal 2023. We expect total capital expenditures for new equipment, facility upgrades, and food safety enhancements, including for our newly acquired bar business in Lakeville, Minnesota, to be approximately $28.0 million for fiscal 2024. Absent any additional material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations and borrowings available under the Credit Facility, will be sufficient to meet the cash requirements for planned capital expenditures.

Financing Activities Cash provided by financing activities was $8.5 million during the first thirty-nine weeks of fiscal 2024 compared to cash used of $53.3 million for the same period last year. Net borrowings under our Credit Facility were $32.1 million during the first thirty-nine weeks of fiscal 2024 compared to net repayments of $12.6 million for the first thirty-nine weeks of fiscal 2023. The increase in credit facility borrowings was primarily due to funding the Lakeville Acquisition in the second quarter of fiscal 2024. Dividends paid in the first three quarters of fiscal 2024 were approximately $14.4 million lower than dividends paid in the same period last year. Long-term debt payments in the first three quarters of fiscal 2024 were approximately $2.5 million lower than payments in the same period last year due to the mortgage that was repaid in full in the third quarter of the fiscal 2023.

Real Estate Matters

In August 2008, we completed the consolidation of our Chicago-based facilities into our Elgin headquarters (“Elgin Site”). The Elgin Site includes both an office building and a warehouse. We are currently attempting to find additional tenants for the available space in the office building at the Elgin Site. Until additional tenant(s) are found, we will not receive the benefit of rental income associated with such space. Approximately 65% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been built-out. There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space.

On April 23, 2024, the Company entered into a 7.5 year lease for a warehouse of approximately 444,600 square feet. The warehouse is located in Huntley, IL near the Elgin Site and will be utilized to store finished goods inventory and as a distribution center. We leased the warehouse in Huntley, IL as a result of our current and expanded operations occupying existing warehouse and finished goods space at our Elgin Site.

Financing Arrangements

On February 7, 2008, we entered into the Former Credit Agreement (as defined below) with a bank group (the “Bank Lenders”) providing a $117.5 million revolving loan commitment and letter of credit subfacility.

On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement (the “Former Credit Agreement”). The Amended and Restated Credit Agreement provided for a $117.5 million senior secured revolving credit facility with the same borrowing capacity, interest rates and applicable margin as the Former Credit Agreement and extended the term of the Former Credit Agreement from July 7, 2021 to March 5, 2025.

The Amended and Restated Credit Facility is secured by substantially all of our assets other than machinery and equipment, real property.

On May 8, 2023, we entered into the First Amendment to our Amended and Restated Credit Facility (the “First Amendment”) which replaced the London interbank offered rate (LIBOR) interest rate option with the Secured Overnight Financing Rate (“SOFR”). The First Amendment updated the accrued interest rate to a rate based on SOFR plus an applicable margin based upon the borrowing base calculation, ranging from 1.35% to 1.85%.

On September 29, 2023, we entered into the Second Amendment to our Amended and Restated Credit Facility, which (among other things) increased the amount available to borrow under the Credit Facility to $150.0 million, increased from $117.5 million, extended the maturity date to September 29, 2028 (from March 5, 2025) and allows the Company to pay up to $100 million in dividends per year, subject to meeting availability tests.

Credit Facility

At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% or (ii) a rate based on SOFR plus an applicable margin as noted above.

At March 28, 2024, the weighted average interest rate for the Credit Facility was 8.1%. The terms of the Credit Facility contain covenants that, among other things, require us to restrict investments, indebtedness, acquisitions and certain sales of assets and limit annual cash dividends or distributions, transactions with affiliates, redemptions of capital stock and prepayment of indebtedness (if such prepayment, among other things, is of a subordinate debt). If loan availability under the borrowing base calculation falls below $25.0 million, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders have the option to accelerate and demand immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company, non-compliance with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility. As of March 28, 2024, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future. At March 28, 2024, we had $114.1 million of available credit under the Credit Facility. If this entire amount were borrowed at March 28, 2024, we would still be in compliance with all restrictive covenants under the Credit Facility.

Selma Property

In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has a ten-year term at a fair market value rent with three five-year renewal options. In September 2015, we exercised two of the five-year renewal options which extended the lease term to September 2026. The lease extension also reduced the monthly lease payment on the Selma Properties, beginning in September 2016, to reflect then current market conditions. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments increased to $114 beginning in September 2021. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the owner at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. The provisions of the arrangement are not eligible for sale-leaseback accounting and the $14.3 million was recorded as a debt obligation. No gain or loss was recorded on the Selma Properties transaction. As of March 28, 2024, $7.3 million of the debt obligation was outstanding.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended June 29, 2023.

Recent Accounting Pronouncements

Refer to Note 14 – “Recent Accounting Pronouncements” of the Notes to Consolidated Financial Statements, contained in Part I, Item 1 of this form 10-Q, for a discussion of recently issued and adopted accounting pronouncements.

FORWARD LOOKING STATEMENTS

Some of the statements in this release are forward-looking. These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where expressly required to do so by law. Among the factors that could cause results to differ materially from current expectations are: (i) sales activity for the Company’s products, such as a decline in sales to one or more key customers, or to customers or in the nut category generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products; (ii) changes in the availability and costs of raw materials and ingredients and the impact of fixed price commitments with customers; (iii) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases; (iv) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively; (v) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures; (vi) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products; (vii) the ability of the Company to control costs (including inflationary costs) and manage shortages in areas such as inputs, transportation and labor; (viii) uncertainty in economic conditions, including the potential for inflation or economic downturn leading to decreased consumer demand; (ix) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control; (x) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xi) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to labor shortages; (xii) the ability to implement our Long-Range Plan, including growing our branded and private brand product sales, diversifying our product offerings (including by the launch of new products) and expanding into alternative sales channels; (xiii) technology disruptions or failures or the occurrence of cybersecurity incidents or breaches; (xiv) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; (xv) our ability to manage the impacts of changing weather patterns on raw material availability due to climate change; and (xvi) our ability to operate and integrate the acquired snack bar related assets of TreeHouse and realize efficiencies and synergies from such acquisition.

There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Part I - Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2023.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March 28, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 28, 2024, the Company’s disclosure controls and procedures were effective.

In connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended March 28, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

In addition to the other information set forth in this report on Form 10-Q, you should also consider the factors, risks and uncertainties which could materially affect our Company’s business, financial condition or future results as discussed in Part I, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 29, 2023. There were no significant changes to the risk factors identified on the Form 10-K for the fiscal year ended June 29, 2023 during the third quarter of fiscal 2024.

See Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in this Form 10-Q, and see Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2023.