SANFILIPPO JOHN B
Document and Entity Information (USD $)
12 Months Ended
Jun. 29, 2017
Dec. 29, 2016
Aug. 11, 2017
Common Stock, Non-Cumulative Voting Rights of One Vote Per Share [Member]
Aug. 11, 2017
Class A Common Stock [Member]
Document Information [Line Items]
 
 
 
 
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Jun. 29, 2017 
 
 
 
Document Fiscal Year Focus
2017 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Trading Symbol
JBSS 
 
 
 
Entity Registrant Name
SANFILIPPO JOHN B & SON INC 
 
 
 
Entity Central Index Key
0000880117 
 
 
 
Current Fiscal Year End Date
--06-29 
 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Filer Category
Accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
8,699,983 
2,597,426 
Entity Public Float
 
$ 593,573,553 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 29, 2017
Jun. 30, 2016
CURRENT ASSETS:
 
 
Cash
$ 1,955 
$ 2,220 
Accounts receivable, less allowance for doubtful accounts of $263 and $397, respectively
64,830 
78,088 
Inventories
182,420 
156,573 
Prepaid expenses and other current assets
4,172 
5,292 
TOTAL CURRENT ASSETS
253,377 
242,173 
PROPERTY, PLANT AND EQUIPMENT:
 
 
Land
9,285 
9,285 
Buildings
107,015 
106,505 
Machinery and equipment
194,099 
188,748 
Furniture and leasehold improvements
4,842 
4,349 
Vehicles
498 
453 
Construction in progress
1,075 
832 
Property, plant and equipment gross
316,814 
310,172 
Less: Accumulated depreciation
210,606 
200,416 
Property, plant and equipment net
106,208 
109,756 
Rental investment property, less accumulated depreciation of $9,639 and $8,847, respectively
19,254 
20,047 
TOTAL PROPERTY, PLANT AND EQUIPMENT
125,462 
129,803 
OTHER LONG TERM ASSETS:
 
 
Cash surrender value of officers' life insurance and other assets
10,125 
9,227 
Deferred income taxes
9,095 
8,590 
Intangible assets, net
1,369 
TOTAL ASSETS
398,059 
391,162 
CURRENT LIABILITIES:
 
 
Revolving credit facility borrowings
29,456 
12,084 
Current maturities of long-term debt, including related party debt of $474 and $407, respectively and net of unamortized debt issuance costs of $55 and $65, respectively
3,418 
3,342 
Accounts payable, including related party payables of $178 and $113, respectively
50,047 
43,719 
Bank overdraft
932 
811 
Accrued payroll and related benefits
15,958 
16,045 
Other accrued expenses
10,062 
7,193 
TOTAL CURRENT LIABILITIES
109,873 
83,194 
LONG-TERM LIABILITIES:
 
 
Long-term debt, less current maturities, including related party debt of $10,584 and $11,133, respectively and net of unamortized debt issuance costs of $124 and $179, respectively
25,211 
28,704 
Retirement plan
20,994 
22,137 
Other
6,513 
5,934 
TOTAL LONG-TERM LIABILITIES
52,718 
56,775 
TOTAL LIABILITIES
162,591 
139,969 
COMMITMENTS AND CONTINGENCIES
   
   
STOCKHOLDERS' EQUITY:
 
 
Capital in excess of par value
117,772 
115,136 
Retained earnings
123,190 
143,573 
Accumulated other comprehensive loss
(4,404)
(6,425)
Treasury stock, at cost; 117,900 shares of Common Stock
(1,204)
(1,204)
TOTAL STOCKHOLDERS' EQUITY
235,468 
251,193 
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
398,059 
391,162 
Class A Common Stock [Member]
 
 
STOCKHOLDERS' EQUITY:
 
 
Common Stock
26 
26 
TOTAL STOCKHOLDERS' EQUITY
26 
26 
Common Stock, Non-Cumulative Voting Rights of One Vote Per Share [Member]
 
 
STOCKHOLDERS' EQUITY:
 
 
Common Stock
88 
87 
TOTAL STOCKHOLDERS' EQUITY
$ 88 
$ 87 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 29, 2017
Jun. 30, 2016
Allowance for doubtful accounts for accounts receivable, current
$ 263 
$ 397 
Accumulated depreciation of rental investment property
9,639 
8,847 
Current maturities of long-term debt, related party debt
474 
407 
Unamortized debt issuance costs, current
55 
65 
Accounts payable, related party payables
178 
113 
Related party debt, Non-current
10,584 
11,133 
Unamortized debt issuance costs, noncurrent
$ 124 
$ 179 
Treasury stock, shares
117,900 
117,900 
Class A Common Stock [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
10,000,000 
10,000,000 
Common stock, shares issued
2,597,426 
2,597,426 
Common stock, shares outstanding
2,597,426 
2,597,426 
Common Stock, Non-Cumulative Voting Rights of One Vote Per Share [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
17,000,000 
17,000,000 
Common stock, shares issued
8,801,641 
8,725,715 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Jun. 29, 2017
Jun. 30, 2016
Jun. 25, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Net sales
$ 846,635 
$ 952,059 
$ 887,245 
Cost of sales
704,712 
814,591 
755,189 
Gross profit
141,923 
137,468 
132,056 
Operating expenses:
 
 
 
Selling expenses
49,392 
51,114 
49,646 
Administrative expenses
34,187 
35,042 
30,531 
Total operating expenses
83,579 
86,156 
80,177 
Income from operations
58,344 
51,312 
51,879 
Other expense:
 
 
 
Interest expense including $785, $1,081 and $1,110 to related parties, respectively
2,910 
3,492 
3,966 
Rental and miscellaneous expense, net
1,296 
1,358 
3,049 
Total other expense, net
4,206 
4,850 
7,015 
Income before income taxes
54,138 
46,462 
44,864 
Income tax expense
18,013 
16,067 
15,559 
Net income
36,125 
30,395 
29,305 
Other comprehensive income (loss), net of tax:
 
 
 
Amortization of prior service cost and actuarial gain included in net periodic pension cost
820 
624 
584 
Net actuarial gain (loss) arising during the period
1,201 
(2,215)
(1,915)
Other comprehensive income (loss), net of tax
2,021 
(1,591)
(1,331)
Comprehensive income
$ 38,146 
$ 28,804 
$ 27,974 
Net income per common share - basic
$ 3.19 
$ 2.71 
$ 2.63 
Net income per common share - diluted
$ 3.17 
$ 2.68 
$ 2.61 
Cash dividends declared per share
$ 5.00 
$ 2.00 
$ 1.50 
Weighted average shares outstanding - basic
11,317,149 
11,233,975 
11,150,658 
Weighted average shares outstanding - diluted
11,403,605 
11,332,924 
11,248,259 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jun. 29, 2017
Jun. 30, 2016
Jun. 25, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Interest expense to related parties
$ 785 
$ 1,081 
$ 1,110 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
Capital in Excess of Par Value [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Class A Common Stock [Member]
Common Stock, Non-Cumulative Voting Rights of One Vote Per Share [Member]
Balance at Jun. 26, 2014
$ 226,827 
$ 108,305 
$ 123,118 
$ (3,503)
$ (1,204)
$ 26 
$ 85 
Balance, Shares at Jun. 26, 2014
 
 
 
 
 
2,597,426 
8,569,105 
Net income
29,305 
 
29,305 
 
 
 
 
Cash dividends
(16,759)
 
(16,759)
 
 
 
 
Pension liability amortization, net of income tax (expense)
584 
 
 
584 
 
 
 
Pension liability adjustment, net of income tax benefit
(1,915)
 
 
(1,915)
 
 
 
Equity award exercises
1,284 
1,283 
 
 
 
 
Equity award exercises, shares
 
 
 
 
 
 
94,375 
Stock-based compensation expense
1,952 
1,952 
 
 
 
 
 
Balance at Jun. 25, 2015
241,278 
111,540 
135,664 
(4,834)
(1,204)
26 
86 
Balance, Shares at Jun. 25, 2015
 
 
 
 
 
2,597,426 
8,663,480 
Net income
30,395 
 
30,395 
 
 
 
 
Cash dividends
(22,486)
 
(22,486)
 
 
 
 
Pension liability amortization, net of income tax (expense)
624 
 
 
624 
 
 
 
Pension liability adjustment, net of income tax benefit
(2,215)
 
 
(2,215)
 
 
 
Equity award exercises
1,108 
1,107 
 
 
 
 
Equity award exercises, shares
 
 
 
 
 
 
62,235 
Stock-based compensation expense
2,489 
2,489 
 
 
 
 
 
Balance at Jun. 30, 2016
251,193 
115,136 
143,573 
(6,425)
(1,204)
26 
87 
Balance, Shares at Jun. 30, 2016
 
 
 
 
 
2,597,426 
8,725,715 
Net income
36,125 
 
36,125 
 
 
 
 
Cash dividends
(56,464)
 
(56,464)
 
 
 
 
Pension liability amortization, net of income tax (expense)
820 
 
 
820 
 
 
 
Pension liability adjustment, net of income tax benefit
1,201 
 
 
1,201 
 
 
 
Equity award exercises
63 
62 
 
 
 
 
Equity award exercises, shares
 
 
 
 
 
 
75,926 
Stock-based compensation expense
2,504 
2,504 
 
 
 
 
 
Effect of adopting ASU 2016-09
26 
70 
(44)
 
 
 
 
Balance at Jun. 29, 2017
$ 235,468 
$ 117,772 
$ 123,190 
$ (4,404)
$ (1,204)
$ 26 
$ 88 
Balance, Shares at Jun. 29, 2017
 
 
 
 
 
2,597,426 
8,801,641 
Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jun. 29, 2017
Jun. 30, 2016
Jun. 25, 2015
Statement of Stockholders' Equity [Abstract]
 
 
 
Cash dividends per common share
$ 5.00 
$ 2.00 
$ 1.50 
Pension liability amortization income tax expense
$ 502 
$ 383 
$ 373 
Pension liability adjustment income tax benefit
$ 737 
$ 1,358 
$ 1,224 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jun. 29, 2017
Jun. 30, 2016
Jun. 25, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$ 36,125 
$ 30,395 
$ 29,305 
Depreciation and amortization
15,559 
16,585 
16,284 
Loss on disposition of properties, net
71 
392 
100 
Deferred income tax benefit
(1,744)
(170)
(2,384)
Stock-based compensation expense
2,504 
2,489 
1,952 
Change in assets and liabilities:
 
 
 
Accounts receivable, net
13,243 
(2,436)
(19,862)
Inventories
(25,847)
41,424 
(15,167)
Prepaid expenses and other current assets
201 
(19)
(1,587)
Accounts payable
6,384 
(1,126)
307 
Accrued expenses
1,484 
421 
1,798 
Income taxes receivable/payable
2,217 
(805)
2,495 
Other long-term liabilities
579 
(443)
862 
Other long-term assets
(266)
767 
(1,541)
Other, net
2,158 
1,774 
1,371 
Net cash provided by operating activities
52,668 
89,248 
13,933 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(10,885)
(15,018)
(14,392)
Proceeds from disposition of assets
90 
Other, net
341 
92 
21 
Net cash used in investing activities
(10,543)
(14,925)
(14,281)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings under revolving credit facilities
340,229 
316,945 
339,684 
Repayments of revolving credit borrowings
(322,857)
(366,014)
(319,073)
Principal payments on long-term debt
(3,482)
(3,376)
(3,349)
Increase (decrease) in bank overdraft
121 
(226)
(1,377)
Dividends paid
(56,464)
(22,486)
(16,759)
Proceeds from the exercise of stock options
63 
155 
643 
Tax benefit of equity award exercises
953 
641 
Net cash (used in) provided by financing activities
(42,390)
(74,049)
410 
NET (DECREASE) INCREASE IN CASH
(265)
274 
62 
Cash, beginning of period
2,220 
1,946 
1,884 
Cash, end of period
1,955 
2,220 
1,946 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
2,763 
3,326 
3,760 
Income taxes paid, excluding refunds of $232, $168, and $548, respectively
$ 17,635 
$ 16,526 
$ 15,288 
Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jun. 29, 2017
Jun. 30, 2016
Jun. 25, 2015
Statement of Cash Flows [Abstract]
 
 
 
Income taxes paid, refunds
$ 232 
$ 168 
$ 548 
Significant Accounting Policies
Significant Accounting Policies

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation and Description of Business

Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). However, the fiscal year ended June 30, 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under a variety of private brands and under the Fisher, Orchard Valley Harvest and Sunshine Country brand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, sesame sticks and other sesame snack products under private brands and brand names. Our products are sold through the major distribution channels to significant buyers of nuts, including food retailers, commercial ingredient users, and contract packaging customers.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, the assumptions used in estimating the retirement plan liability and pension expense, and the realizability of deferred tax assets. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts, and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other non-specifically identified customers will become credit risks. Account balances are charged off against the allowance when we conclude that it is probable the receivable will not be recovered. The reserve for estimated cash discounts is based on historical experience. The reserve for customer deductions represents known customer short payments and an estimate of future credit memos that will be issued to customers related to rebates and allowances for marketing and promotions based on agreed upon programs and historical experience.

Inventories

Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost (first-in, first-out) or market which approximates actual cost. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When expected market sales prices move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost (first-in, first-out) or market. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates are also recorded.

Property, Plant and Equipment

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

 

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

 

     Year Ended
June 29,
2017
     Year Ended
June 30,
2016
     Year Ended
June 25,
2015
 

Depreciation expense

   $ 14,190      $ 14,875      $ 14,117  
  

 

 

    

 

 

    

 

 

 

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

 

Classification

  

Estimated Useful Lives

Buildings

  

10 to 40 years

Machinery and equipment

  

5 to 10 years

Furniture and leasehold improvements

  

5 to 10 years

Vehicles

  

3 to 5 years

Computers and software

  

3 to 5 years

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

Impairment of Long-Lived Assets

We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets, to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value.

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

Facility Consolidation Project/Real Estate Transactions

In April 2005, we acquired property to be used for the Elgin Site. Two buildings are located on the Elgin Site, one of which is an office building. Approximately 75% of the office building has been built-out and 70% is currently vacant. The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in “Property, plant and equipment”.

The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. Gross rental income and rental (expense), net for the last three fiscal years are as follows:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Gross rental income

   $ 2,003      $ 1,898      $ 1,792  

Rental (expense), net

     (1,311      (1,371      (3,062

Expected future gross rental income under operating leases within the office building is as follows for the fiscal years ending:

 

June 28, 2018

   $ 1,961  

June 27, 2019

     1,859  

June 25, 2020

     1,765  

June 24, 2021

     1,534  

June 30, 2022

     1,314  

Thereafter

     3,096  
  

 

 

 
   $ 11,529  
  

 

 

 

 

Fair Value of Financial Instruments

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

Level 1- Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

Level 2- Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3- Unobservable inputs for which there is little or no market data available.

The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at June 29, 2017 and June 30, 2016 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 4 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements “Revolving Credit Facility” below) borrowings approximates fair value at June 29, 2017 and June 30, 2016 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.

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

 

     June 29,
2017
     June 30,
2016
 

Carrying value of long-term debt:

   $ 28,808      $ 32,290  

Fair value of long-term debt:

     29,316        35,479  

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

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, title has transferred (based upon terms of shipment), price is fixed, delivery occurred and collection is reasonably assured. We sell our products under some arrangements which include customer contracts which fix the sales price for periods, which typically can be up to one year, for some commercial ingredient customers and through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer customers and commercial ingredient users. Reserves for these programs are established based upon the terms of specific arrangements. Revenues are recorded net of rebates and promotion and marketing allowances. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. While customers do have the right to return products, past experience has demonstrated that product returns have generally been insignificant. Provisions for returns are reflected as a reduction in net sales and are estimated based upon customer specific circumstances. Billings for shipping and handling costs are included in revenues.

Segment Reporting

We operate in a single reportable and operating segment that consists of selling various nut and nut related products through multiple distribution channels.

Significant Customers and Concentration of Credit Risk

The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to three customers each exceeded 10% of net sales during fiscal 2017 and fiscal 2016. In fiscal 2015 two customers each exceeded 10% of net sales. Sales to these customers represented approximately 53%, 50% and 39% of our net sales in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. Net accounts receivable from these customers were 56% and 51% of net accounts receivable at June 29, 2017 and June 30, 2016, respectively.

 

Promotion, Marketing and Advertising Costs

Promotions, allowances and customer rebates are recorded at the time revenue is recognized and are reflected as reductions in sales. Annual volume rebates are estimated based upon projected volumes for the year, while promotions and allowances are recorded based upon terms of the actual arrangements. Coupon incentive costs are accrued based on an estimate of redemptions to occur.

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Marketing and advertising expense

   $ 10,064      $ 11,569      $ 11,069  
  

 

 

    

 

 

    

 

 

 

Shipping and Handling Costs

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Shipping and handling costs

   $ 17,682      $ 16,686      $ 17,699  
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Research and development expense

   $ 658      $ 653      $ 979  
  

 

 

    

 

 

    

 

 

 

Stock-Based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of ASC 718, as amended by Accounting Standard Update (“ASU”) 2016-09, by calculating compensation cost based on the grant date fair value. We then amortize compensation expense over the vesting period. We estimate the fair value of each stock option on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables). The grant date fair value of restricted stock units (“RSUs”) is generally determined based on the market price of our Common Stock on the date of grant. Beginning in fiscal 2017, forfeitures are recognized as they occur and excess tax benefits or tax deficiencies are recognized as a component of income tax expense.

Income Taxes

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

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

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

 

We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 29, 2017, we believe that our deferred tax assets are fully realizable, except for $171 of net basis differences for which we have provided a valuation allowance.

Earnings per Share

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

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of shares outstanding — basic

     11,317,149        11,233,975        11,150,658  

Effect of dilutive securities:

        

Stock options and restricted stock units

     86,456        98,949        97,601  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding — diluted

     11,403,605        11,332,924        11,248,259  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of anti-dilutive shares:

     1,068        —          —    

Weighted average exercise price per share:

   $ 65.35      $ —        $ —    

Comprehensive Income

We account for comprehensive income in accordance with ASC Topic 220, Comprehensive Income. This topic establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The topic requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This topic also requires all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation by the respective line items of net income, either on the face of the statement where net income is presented or in the notes and information about significant amounts required under U.S. GAAP to be reclassified out of accumulated other comprehensive income in their entirety. For amounts not required to be reclassified in their entirety to net income, we provide a cross-reference to other disclosures that offer additional details about those amounts.

Recent Accounting Pronouncements

 

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

In March 2016, the FASB issued ASU No. 2016-09 “Compensation-Stock Compensation (Topic 718)”. This ASU is part of the FASB’s simplification initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, statutory withholding requirements, and classification on the statement of cash flows. The Company early adopted this guidance during the first quarter of fiscal 2017. The cumulative adjustment for the impact of this change in accounting principle was immaterial. Cash flows related to excess tax benefits will be classified prospectively as operating activities in the Consolidated Statements of Cash Flows. Prior periods have not been adjusted. The Company anticipates increased volatility in income tax expense, mainly in the second quarter of each fiscal year, since historically most equity compensation granted in prior periods vests during that quarter.

In April 2015, the FASB issued ASU No. 2015-05 “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. This update provides guidance to customers about whether a cloud computing arrangement includes a software license or service contract. This update became effective for the Company beginning the first quarter of fiscal 2017. The adoption of ASU 2015-05 did not have a material impact to the Consolidated Financial Statements.

 

In April 2015, the FASB issued ASU No. 2015-03 “Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs”. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this standard required retrospective adjustment to our Consolidated Balance Sheets. As a result, Other assets decreased approximately $244 as of June 30, 2016 and this amount was allocated within Current maturities of long term debt and Long term debt. Adoption of ASU 2015-03 did not have an effect on the Company’s stockholders’ equity, results of operations or cash flows.

In February 2015, the FASB issued ASU No. 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. This update focuses on a reporting company’s consolidation evaluation to determine whether it should consolidate certain legal entities. The guidance ASU 2015-02 became effective for the Company beginning with the first quarter of fiscal 2017. The adoption of ASU 2015-02 did not have any impact to the Consolidated Financial Statements.

In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements—Going Concern (Topic 205-40)”. The guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this guidance had no impact on our Consolidated Financial Statements.

The following recent accounting pronouncements have not yet been adopted:

In May 2017, the FASB issued ASU No. 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. The amendments in this update provide guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for the Company in fiscal 2019 and should be applied prospectively to an award modified on or after the adoption date. The Company does not expect ASU 2017-09 to have a material impact to the Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendments in this update require the service cost component of pension expense to be disaggregated from the other components of net periodic benefit cost and be presented in the same line items as other employee compensation costs. All other components of net periodic benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This update is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as long as it is early adopted in the first interim period of an annual year and financial statements have not been issued or made available for issuance prior to adoption. The amendments in this update should be applied using a retrospective transition method, however, a practical expedient is offered with regard to the prior comparative periods. The Company plans to early adopt this update beginning in fiscal 2018 and does not expect the impact of this new guidance to have a significant impact on its financial position, results of operations and disclosures.

In October 2016, the FASB issued ASU No. 2016-17 “Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control”. This update is amending ASU 2015-02 and affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. ASU 2016-17 will be effective for the Company in fiscal 2018 and will require retrospective application. The Company does not expect ASU 2016-17 to have any impact to the Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. This update addresses eight specific cash flow issues with the objective of reducing the perceived diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company does not expect a material impact to our statement of cash flows once ASU 2016-15 is adopted in fiscal 2019.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. A modified-retrospective approach is required in the first reporting period in which the guidance is effective through a cumulative-effect adjustment to retained earnings. We do not expect ASU 2013-13 will have a significant impact on the Consolidated Financial Statements once adopted in fiscal 2021.

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)”. The primary goal of this update is to require the lessee to recognize all lease commitments, both operating and finance, by initially recording a lease asset and liability on the balance sheet at the lease commencement date. Additionally, enhanced qualitative and quantitative disclosures will be required. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. This new guidance will be effective for the Company beginning in fiscal year 2020 and we do not expect to early adopt. This guidance must be adopted using a modified retrospective approach. The Company expects this new guidance to have a significant impact on its total assets and total liabilities, and lead to increased financial statement disclosures.

In July 2015, the FASB issued ASU No. 2015-11 “Inventory (Topic 330) Simplifying the Measurement of Inventory”. This update applies to inventory measured using first-in, first-out or average cost and requires inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update will be effective for the Company beginning in fiscal year 2018 with prospective application required. The Company does not anticipate this guidance will have a material impact to its Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” and created a new ASC Topic 606, Revenue from Contracts with Customers, and added ASC Subtopic 340-40, Other Assets and Deferred Costs — Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Several other amendments have been subsequently released, each of which provide additional narrow scope clarifications or improvements. In August 2015, the FASB issued ASU No. 2015-14 “Revenue from Contracts with Customers, Deferral of the Effective Date” which deferred the effective date of ASU 2014-09 for one year. Consequently, this new revenue recognition guidance will be effective for the Company beginning in fiscal year 2019, which is our anticipated adoption date. We have completed our initial analysis of this accounting standard update which included a review of all material customer contracts and currently do not anticipate any material changes to our revenue recognition compared to current GAAP. We are currently evaluating the method of adoption.

Inventories
Inventories

NOTE 2 — INVENTORIES

Inventories consist of the following:

 

     June 29,
2017
     June 30,
2016
 

Raw material and supplies

   $ 79,609      $ 56,005  

Work-in-process and finished goods

     102,811        100,568  
  

 

 

    

 

 

 
   $ 182,420      $ 156,573  
  

 

 

    

 

 

 
Intangible Assets
Intangible Assets

NOTE 3 — INTANGIBLE ASSETS

Intangible assets subject to amortization consist of the following:

 

     June 29,
2017
     June 30,
2016
 

Customer relationships

   $ 10,600      $ 10,600  

Brand names

     8,090        8,090  

Less accumulated amortization:

     

Customer relationships

     (10,600      (9,231

Brand names

     (8,090      (8,090
  

 

 

    

 

 

 

Net intangible assets

   $ —        $ 1,369  
  

 

 

    

 

 

 

Customer relationships relate wholly to the Orchard Valley Harvest (“OVH”) acquisition completed in fiscal 2010 which became fully amortized in fiscal 2017. The brand name consists primarily of the Fisher brand name, which we acquired in a 1995 acquisition. The Fisher brand name became fully amortized in fiscal 2011. The remainder of the brand name relates to the OVH acquisition which became fully amortized in fiscal 2015.

Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Amortization of intangible assets

   $ 1,369      $ 1,710      $ 2,167  
  

 

 

    

 

 

    

 

 

 
Revolving Credit Facility
Revolving Credit Facility

NOTE 4 — REVOLVING CREDIT FACILITY

On February 7, 2008, we entered into a Credit Agreement with a bank group (the “Bank Lenders”) providing a $117,500 revolving loan commitment and letter of credit subfacility (the “Credit Facility”). The Credit Facility is secured by substantially all our assets other than real property and fixtures.

At June 29, 2017 and June 30, 2016, the weighted average interest rate for the Credit Facility was 3.11% and 3.75%, respectively. The terms of the Credit Facility contain covenants that require us to restrict investments, indebtedness, acquisitions and certain sales of assets, cash dividends, 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 $25,000, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders are entitled to require 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 certain other defaults by us under the Credit Facility (including a default under the Mortgage Facility). As of June 29, 2017, we were in compliance with the financial covenant under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the next twelve months. As of June 29, 2017, we had $84,369 of available credit under the Credit Facility which reflects borrowings of $29,456 and reduced availability as a result of $3,675 in outstanding letters of credit. We would still be in compliance with all restrictive covenants under the Credit Facility if this entire amount were borrowed.

On July 7, 2017, we entered into the Eighth Amendment to Credit Facility (the “Eighth Amendment”). See Note 18 – “Subsequent Events”.

Long-Term Debt
Long-Term Debt

NOTE 5 — LONG-TERM DEBT

Long-term debt consists of the following:

 

     June 29,
2017
     June 30,
2016
 

Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly principal installments of $200 plus interest at 7.63% per annum through February 2023 with a final principal payment of $600 on March 1, 2023

   $ 14,200      $ 16,600  

Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly principal installments of $50 plus interest at the greater of one month LIBOR plus 3.50% per annum or 4.25% through February 2023 with a final principal payment of $150 on March 1, 2023

     3,550        4,150  

Selma, Texas facility financing obligation to related parties, due in monthly installments of $103 through September 1, 2031

     11,058        11,540  

Unamortized debt issuance costs

     (179      (244
  

 

 

    

 

 

 
     28,629        32,046  

Less: Current maturities, net of unamortized debt issuance costs

     (3,418      (3,342
  

 

 

    

 

 

 

Total long-term debt, net of unamortized debt issuance costs

   $ 25,211      $ 28,704  
  

 

 

    

 

 

 

 

On February 7, 2008, we entered into a Loan Agreement with an insurance company (the “Mortgage Lender”) providing us with two term loans, one in the amount of $36,000 (“Tranche A”) and the other in the amount of $9,000 (“Tranche B”), for an aggregate amount of $45,000 (the “Mortgage Facility”). The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the “Encumbered Properties”).

Tranche A under the Mortgage Facility accrues interest at a fixed interest rate of 7.63% per annum, payable monthly. As mentioned above, such interest rate may be reset by the Mortgage Lender on the Tranche A Reset Date. Tranche B under the Mortgage Facility accrues interest, as reset on March 1, 2016, at a floating rate of the greater of (i) one month LIBOR plus 3.50% per annum or (ii) 4.25%, payable monthly (the “Floating Rate”). The margin on such floating rate may be reset by the Mortgage Lender on each Tranche B Reset Date; provided, however, that the Mortgage Lender may also change the underlying index on each Tranche B Reset Date occurring on or after March 1, 2018. We do not currently anticipate that any change in the floating rate or the underlying index will have a material adverse effect upon our business, financial condition or results of operations.

The terms of the Mortgage Facility contain covenants that require us to maintain a specified net worth of $110,000 and maintain the Encumbered Properties. The Mortgage Lender is entitled to require immediate repayment of our obligations under the Mortgage Facility in the event we default in the payments required under the Mortgage Facility, non-compliance with the covenants or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 29, 2017, we were in compliance with all financial covenants under the Mortgage Facility. The carrying amount of assets pledged as collateral for the Mortgage Facility was approximately $73,427 at June 29, 2017.

In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14,300 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, Texas properties has a ten-year term at a fair market value rent with three five-year renewal options. Also, we currently have the option to purchase the properties from the partnerships at 95% (100% in certain circumstances) of the then fair market value, but not to be less than the $14,300 purchase price. The financing obligation is being accounted for similar to the accounting for a capital lease, whereby the purchase price was recorded as a debt obligation, as the provisions of the arrangement are not eligible for sale-leaseback accounting. The balance of the debt obligation outstanding at June 29, 2017 was $11,058.

In September 2015, we signed a lease renewal which exercised two five-year renewal options and extended the term of our Selma lease to September 18, 2026 (unless we purchase it before such date). One five-year renewal option remains. Beginning in the second quarter of fiscal 2017, the base monthly lease amount decreased to $103.

Aggregate maturities of long-term debt are as follows for the fiscal years ending:

 

June 28, 2018

   $ 3,473  

June 27, 2019

     3,508  

June 25, 2020

     3,545  

June 24, 2021

     3,585  

June 30, 2022

     3,627  

Thereafter

     11,070  
  

 

 

 
   $ 28,808  
  

 

 

 
Income Taxes
Income Taxes

NOTE 6 — INCOME TAXES

The provision for income taxes is based entirely on income before income taxes earned in the United States, and is as follows for the last three fiscal years:

 

     For the Year Ended:  
     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Current:

        

Federal

   $ 17,013      $ 14,015      $ 15,916  

State

     2,744        2,222        2,027  
  

 

 

    

 

 

    

 

 

 

Total current expense

     19,757        16,237        17,943  

Deferred:

        

Deferred federal

     (1,698      (210      (2,589

Deferred state

     (46      40        205  
  

 

 

    

 

 

    

 

 

 

Total deferred benefit

     (1,744      (170      (2,384
  

 

 

    

 

 

    

 

 

 

Total income tax expense

   $ 18,013      $ 16,067      $ 15,559  
  

 

 

    

 

 

    

 

 

 

The reconciliations of income taxes at the statutory federal income tax rate to income tax expense reported in the Consolidated Statements of Comprehensive Income for the last three fiscal years are as follows:

 

     June 29,
2017
    June 30,
2016
    June 25,
2015
 

Federal statutory income tax rate

     35.0     35.0     35.0

State income taxes, net of federal benefit

     3.3       3.2       3.4  

Research and development tax credit

     (0.1     (0.1     (0.1

Domestic manufacturing deduction

     (3.1     (3.2     (3.4

Windfall tax benefits

     (1.8     —         —    

Uncertain tax positions

     0.1       (0.6     0.3  

Other

     (0.1     0.3       (0.5
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     33.3     34.6     34.7
  

 

 

   

 

 

   

 

 

 

After the adoption of ASU 2016-09 in fiscal 2017, windfall tax benefits are a permanent difference recognized as a component of income tax expense.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement basis and the tax basis of assets and liabilities using enacted statutory tax rates applicable to future years. Deferred tax assets and liabilities are comprised of the following:

 

     June 29,
2017
     June 30,
2016
 

Deferred tax assets (liabilities):

     

Accounts receivable

   $ 423      $ 521  

Employee compensation

     1,726        1,922  

Inventory

     345        353  

Depreciation and amortization

     (12,826      (13,315

Capitalized leases

     1,508        1,440  

Goodwill and intangible assets

     4,939        5,046  

Retirement plan

     8,224        8,661  

Workers’ compensation

     2,365        2,251  

Share based compensation

     1,908        1,669  

Capital loss carryforward

     171        171  

Other

     483        42  

Less valuation allowance

     (171      (171
  

 

 

    

 

 

 

Net deferred tax asset — long term

   $ 9,095      $ 8,590  
  

 

 

    

 

 

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the character necessary during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planningstrategies in making this assessment. During fiscal 2017 the total valuation allowance did not change and in fiscal 2016 the net change in the total valuation allowance was a $4 decrease. If or when recognized, the tax benefits relating to any reversal of the valuation allowance will be recognized as a reduction of income tax expense.

For the years ending June 29, 2017 and June 30, 2016, unrecognized tax benefits and accrued interest and penalties were $173 and $62. Accrued interest and penalties related to uncertain tax positions are not material for any periods presented. Interest and penalties within income tax expense were not material for any period presented. The total gross amounts of unrecognized tax benefits were $174 and $24 at June 29, 2017 and June 30, 2016, respectively.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Beginning balance

   $ 24      $ 248      $ 247  

Gross increases — tax positions in prior year

     7        70        27  

Gross decreases — tax positions in prior year

     —          (8      (91

Settlements

     —          (137      (18

Gross increases — tax positions in current year

     23        17        21  

Lapse of statute of limitations

     120        (166      62  
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 174      $ 24      $ 248  
  

 

 

    

 

 

    

 

 

 

Unrecognized tax benefits, that if recognized, would affect the annual effective tax rate on income from continuing operations, are as follows:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Unrecognized tax benefits that would affect annual effective tax rate

   $ 136      $ 27      $ 261  

During fiscal 2017, the change in unrecognized tax benefits due to statute expiration was not material. We do not anticipate that total unrecognized tax benefits will significantly change in the next twelve months.

There were certain changes in state tax laws during the period the impact of which was insignificant. We file income tax returns with federal and state tax authorities within the United States of America. Our federal and Illinois tax returns are open for audit for fiscal 2015 and 2016. Our California tax returns for fiscal 2013 and 2014 are under audit and fiscal 2015 and 2016 are open for audit. No other tax jurisdictions are material to us.

Commitments and Contingencies
Commitments and Contingencies

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Operating Leases

We primarily lease certain office and material handling equipment pursuant to agreements accounted for as operating leases. Rent expense aggregated under these operating leases was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Rent expense related to operating leases

   $ 1,880      $ 1,775      $ 1,545  
  

 

 

    

 

 

    

 

 

 

Aggregate non-cancelable lease commitments under these operating leases with initial or remaining terms greater than one year are as follows:

 

Fiscal year ending       

June 28, 2018

   $ 969  

June 27, 2019

     558  

June 25, 2020

     392  

June 24, 2021

     142  

June 30, 2022

     71  

Thereafter

     6  
  

 

 

 
     $2,138  
  

 

 

 

 

Litigation

We are currently a party to various legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcomes of these proceedings, individually and in the aggregate, will not materially affect our financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur. Unfavorable outcomes could include substantial money damages in excess of any appropriate accruals which management has established. Were such unfavorable final outcomes to occur, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows.

We are subject to a class-action complaint for an employment related matter. Mediation for this matter occurred in June 2017, which for the first time we were provided with an initial monetary demand. In August 2017, we agreed in principle to a $1,200 settlement for which we are fully reserved at June 29, 2017.    The non-monetary components of the settlement are still being finalized.

Stockholders' Equity
Stockholders' Equity

NOTE 8 — STOCKHOLDERS’ EQUITY

Our Class A Common Stock, $.01 par value (the “Class A Stock”), has cumulative voting rights with respect to the election of those directors which the holders of Class A Stock are entitled to elect, and 10 votes per share on all other matters on which holders of our Class A Stock and Common Stock are entitled to vote, with the exception of election of the directors for which the holders of Common Stock are eligible to elect. In addition, each share of Class A Stock is convertible at the option of the holder at any time into one share of Common Stock and automatically converts into one share of Common Stock upon any sale or transfer other than to related individuals or certain other events as set forth in our Restated Certificate of Incorporation. Each share of our Common Stock, $.01 par value (the “Common Stock”) has noncumulative voting rights of one vote per share. The Class A Stock and the Common Stock are entitled to share equally, on a share-for-share basis, in any cash dividends declared by the Board of Directors, and the holders of the Common Stock are entitled to elect 25%, rounded up to the nearest whole number, of the members comprising the Board of Directors. During fiscal 2017, our Board of Directors adopted a dividend policy under which it intends to pay an annual cash dividend on our Common Stock and Class A Stock of at least $0.50 per share during the first quarter of each fiscal year.

Stock-Based Compensation Plans
Stock-Based Compensation Plans

NOTE 9 — STOCK-BASED COMPENSATION PLANS

At our annual meeting of stockholders on October 29, 2014, our stockholders approved a new equity incentive plan (the “2014 Omnibus Plan”) under which awards of options and other stock-based awards may be made to employees, officers or non-employee directors of our Company. A total of 1,000,000 shares of Common Stock are authorized for grants of awards thereunder, which may be in the form of options, restricted stock, RSUs, stock appreciation rights (“SARs”), performance shares, performance units, Common Stock or dividends and dividend equivalents. As of June 29, 2017, there were 820,539 shares of Common Stock that remained authorized for future grants of awards, subject to the limitations set below. Under the terms of the Omnibus Plan, the total number of shares of Common Stock with respect to which options or SARs may be granted in any calendar year to any participant may not exceed 500,000 shares (this limit applies separately with respect to each type of award). Additionally, under the terms of the Omnibus Plan, for awards of restricted stock, RSUs, performance shares or other stock-based awards that are intended to qualify as performance-based compensation: (i) the total number of shares of Common Stock that may be granted in any calendar year to any participant may not exceed 250,000 shares (this limit applies separately to each type of award) and (ii) the maximum amount that may be paid to any participant for awards that are payable in cash or property other than Common Stock in any calendar year is $5,000. For fiscal 2017, the Board of Directors adopted an equity grant cap which further restricted the number of awards that could be made to any one participant or in the aggregate. The equity grant cap limited the number of awards to 250,000 awards to all participants and 20,000 awards to any one participant for the 2017 fiscal year.    Except as set forth in the 2014 Omnibus Plan, RSUs have vesting periods of three years for awards to employees and one year for awards to non-employee members of the Board of Directors. Recipients of RSUs have the option to defer receipt of vested shares until a specified later date, typically soon after separation from the Company. The exercise price of stock options is determined as set forth in the 2014 Omnibus Plan by the Compensation Committee of our Board of Directors, and has to be at least the fair market value of the Common Stock on the date of grant. Except as set forth in the 2014 Omnibus Plan, stock options expire upon termination of employment or directorship, as applicable. Stock options granted under the 2014 Omnibus Plan are exercisable 25% annually commencing on the first anniversary date of grant and became fully exercisable on the fourth anniversary date of grant. Options generally will expire no later than ten years after the date on which they were granted. We issue new shares of Common Stock upon exercise of stock options.

We determine the fair value of stock option awards using the Black-Scholes option-pricing model; however, there were no options granted in fiscal 2017, fiscal 2016 or fiscal 2015.

 

The following is a summary of stock option activity for the year ended June 29, 2017:

 

     Shares      Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term in Years
     Aggregate
Intrinsic
Value
 

Outstanding at June 30, 2016

     9,500      $ 8.78        

Granted

     —          —          

Exercised

     (7,500      8.40        

Forfeited

     —          —          
  

 

 

          

Outstanding at June 29, 2017

     2,000      $ 10.24        2.06      $ 105  
  

 

 

          

 

 

 

Exercisable at June 29, 2017

     2,000      $ 10.24        2.06      $ 105  
  

 

 

          

 

 

 

The following table summarizes the total intrinsic value of all options exercised and the total cash received from the exercise of options for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Total intrinsic value of options exercised

   $ 374      $ 792      $ 781  

Total cash received from exercise of options

   $ 63      $ 155      $ 643  

All options were fully vested as of June 30, 2016. Exercise prices for options outstanding as of June 29, 2017 ranged from $8.71 to $14.73.

The fair value of RSUs is generally determined based on the market price of our Common Stock on the date of grant. The fair value of RSUs granted for the years ended June 29, 2017, June 30, 2016 and June 25, 2015 was $2,773, $3,212 and $2,835, respectively.

The following is a summary of RSU activity for the year ended June 29, 2017:

 

Restricted Stock Units

   Shares      Weighted-
Average
Grant-
Date
Fair Value
 

Outstanding at June 30, 2016

     228,270      $ 32.33  

Granted

     45,213        61.33  

Vested

     (68,426      27.91  

Forfeited

     (3,199      30.23  
  

 

 

    

 

 

 

Outstanding at June 29, 2017

     201,858      $ 40.36  
  

 

 

    

 

 

 

At June 29, 2017 there were 68,673 RSUs outstanding that were vested but deferred. At June 30, 2016 there were 58,561 RSUs outstanding that were vested but deferred. The non-vested RSUs at June 29, 2017 will vest over a weighted-average period of 1.2 years. The fair value of RSUs that vested for the years ended June 29, 2017, June 30, 2016 and June 25, 2015 was $1,910, $928 and $615, respectively.

The following table summarizes compensation cost charged to earnings for all equity compensation plans and the total income tax benefit recognized for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Compensation cost charged to earnings

   $ 2,504      $ 2,489      $ 1,952  

Income tax benefit recognized

     951        962        814  

At June 29, 2017, there was $3,008 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted-average period of 1.2 years.

Special Cash Dividends
Special Cash Dividends

NOTE 10 — SPECIAL CASH DIVIDENDS

Our Board of Directors declared the following special cash dividends payable in fiscal 2017 and fiscal 2016:

 

Declaration Date

  

Record Date

   Dividend Per
Share
     Total Amount     

Payment Date

November 1, 2016

  

November 30, 2016

   $ 2.50      $ 28,314     

December 13, 2016

July 7, 2016

  

July 21, 2016

   $ 2.50      $ 28,150     

August 4, 2016

October 27, 2015

  

December 2, 2015

   $ 2.00      $ 22,486     

December 11, 2015

On July 11, 2017, our Board of Directors declared a special cash dividend of $2.00 per share and a regular annual cash dividend of $0.50 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company. Refer to Note 18 – “Subsequent Events” below.

Employee Benefit Plans
Employee Benefit Plans

NOTE 11 — EMPLOYEE BENEFIT PLANS

We maintain a contributory plan established pursuant to the provisions of section 401(k) of the Internal Revenue Code. The plan provides retirement benefits for all nonunion employees meeting minimum age and service requirements. We currently match 100% of the first three percent contributed by each employee and 50% of the next two percent contributed, up to certain maximums specified in the plan. Our expense for the 401(k) plan was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

401(k) plan expense

   $ 1,664      $ 1,604      $ 1,550  

During the first quarter of fiscal 2009, we recorded a long-term liability of $868 for the withdrawal from the multiemployer plan (“Route pension”) for the step-van drivers that were employed for our store-door delivery system that was discontinued during fiscal 2008. Pursuant to terms of settlement with a labor union, we are making monthly payments of $8 (including interest) through April 2022.

The total Route pension liability was as follows for the last two fiscal years:

 

     June 29,
2017
     June 30,
2016
 

Route pension liability

   $ 397      $ 466  

Virtually all of our salaried employees participate in our Sanfilippo Value Added Plan (as amended, the “SVA Plan”) which is a cash incentive plan (an economic value added-based program) administered by our Compensation Committee. We accrue expense related to the SVA Plan in the annual period that the economic performance underlying such performance occurs. This method of expense recognition properly matches the expense associated with improved economic performance with the period the improved performance occurs on a systematic and rational basis. The SVA Plan payments are paid to participants in the first quarter of the following fiscal year.

Retirement Plan
Retirement Plan

NOTE 12 — RETIREMENT PLAN

The Supplemental Employee Retirement Plan (“SERP”) is an unfunded, non-qualified benefit plan that will provide eligible participants with monthly benefits upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are based on age at retirement, years of credited service, and average compensation. We use our fiscal year-end as the measurement date for the obligation calculation. Accounting guidance in ASC Topic 715, Compensation — Retirement Benefits requires the recognition of the funded status of the SERP on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are recorded as a component of “Accumulated Other Comprehensive Loss” (“AOCL”).

The following table presents the changes in the projected benefit obligation for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
 

Change in projected benefit obligation

     

Projected benefit obligation at beginning of year

   $ 22,791      $ 18,538  

Service cost

     631        491  

Interest cost

     811        843  

Actuarial (gain) loss

     (1,938      3,573  

Benefits paid

     (654      (654
  

 

 

    

 

 

 

Projected benefit obligation at end of year

   $ 21,641      $ 22,791  
  

 

 

    

 

 

 

The accumulated benefit obligation, which represents benefits earned up to the measurement date, was $17,774 and $18,247 at June 29, 2017 and June 30, 2016, respectively.

Components of the actuarial (gain) loss portion of the change in projected benefit obligation are presented below for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Actuarial Loss

        

Change in assumed pay increases

   $ 124      $ 68      $ 342  

Change in discount rate

     (1,402      3,509        (801

Change in mortality assumptions

     (193      (132      2,150  

Change in bonus assumption

     —          —          1,191  

Other

     (467      128        257  
  

 

 

    

 

 

    

 

 

 

Actuarial (gain) loss

   $ (1,938    $ 3,573      $ 3,139  
  

 

 

    

 

 

    

 

 

 

The components of the net periodic pension cost are as follows for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Service cost

   $ 631      $ 491      $ 386  

Interest cost

     811        843        642  

Recognized loss amortization

     365        50        —    

Prior service cost amortization

     957        957        957  
  

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 2,764      $ 2,341      $ 1,985  
  

 

 

    

 

 

    

 

 

 

Significant assumptions related to our SERP include the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future, the average rate of compensation expense increase by SERP participants, and anticipated mortality rates. The RP-2014 white collar fully generational mortality table with mortality improvement scale MP-2016 was utilized in the preparation of our pension obligation as of June 29, 2017.

We used the following assumptions to calculate the benefit obligation of our SERP as of the following dates:

 

     June 29,
2017
  June 30,
2016

Discount rate

   3.99%   3.61%

Rate of compensation increases

   4.50%   4.50%

Bonus payment

   60% - 85% of base,
paid 4 of 5
years
  60% - 85% of base,
paid 4 of 5
years

We used the following assumptions to calculate the net periodic costs of our SERP as follows for the fiscal years ended:

 

     June 29,
2017
  June 30,
2016
  June 25,
2015

Discount rate

   3.61%   4.63%   4.37%

Rate of compensation increases

   4.50%   4.50%   4.50%

Mortality

   RP-2014 white
collar with MP-
2015 scale
  RP-2014
white collar with
MP-
2014 scale
  IRS 2014
(Unisex)

Bonus payment

   60% -85% of
base,
paid 4 of 5
years
  60% -85% of
base,
paid 4 of 5
years
  60% - 85% of
base,
paid 3 of 5
years

The assumed discount rate is based, in part, upon a discount rate modeling process that considers both high quality long-term indices and the duration of the SERP plan relative to the durations implicit in the broader indices. The discount rate is utilized principally in calculating the actuarial present value of our obligation and periodic expense pursuant to the SERP. To the extent the discount rate increases or decreases, our SERP obligation is decreased or increased, respectively.

The following table presents the benefits expected to be paid in the next ten fiscal years:

 

Fiscal year       
        2018    $ 647  
        2019      631  
        2020      612  
        2021      727  
        2022      699  
2023 — 2027      4,635  

At June 29, 2017 and June 30, 2016 the current portion of the SERP liability was $647 and $653, respectively, and recorded in Accrued payroll and related benefits on the Consolidated Balance Sheets.

The following table presents the components of AOCL that have not yet been recognized in net pension expense:

 

     June 29,
2017
     June 30,
2016
 

Unrecognized net loss

   $ (3,624    $ (5,926

Unrecognized prior service cost

     (3,349      (4,306

Tax effect

     2,569        3,807  
  

 

 

    

 

 

 

Net amount unrecognized

   $ (4,404    $ (6,425
  

 

 

    

 

 

 

We expect to recognize $957 of the prior service cost and $162 of net loss into net periodic pension expense during the fiscal year ending June 28, 2018.

Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss

NOTE 13 — ACCUMULATED OTHER COMPREHENSIVE LOSS

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the last two fiscal years. These changes are all related to our defined benefit pension plan.

 

Changes to AOCL (a)    Year
Ended
June 29,
2017
    Year
Ended
June 30,
2016
 

Balance at beginning of period

   $ (6,425   $ (4,834

Other comprehensive income (loss) before reclassifications

     1,938       (3,573

Amounts reclassified from accumulated other comprehensive loss

     1,322       1,007  

Tax effect

     (1,239     975  
  

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     2,021       (1,591
  

 

 

   

 

 

 

Balance at end of period

   $ (4,404   $ (6,425
  

 

 

   

 

 

 

 

(a) Amounts in parenthesis indicate debits/expense.

The reclassifications out of accumulated other comprehensive loss for the last two fiscal years were as follows:

 

Reclassifications from AOCL to earnings (b)    Year
Ended
June 29,
2017
     Year
Ended
June 30,
2016
     Affected line item in the
Consolidated Statements of
Comprehensive Income
 

Amortization of defined benefit pension items:

        

Unrecognized prior service cost

   $ (957    $ (957      Administrative expenses  

Unrecognized net loss

     (365      (50      Administrative expenses  
  

 

 

    

 

 

    

Total before tax

     (1,322      (1,007   

Tax effect

     502        383        Income tax expense  
  

 

 

    

 

 

    

Amortization of defined pension items, net of tax

   $ (820    $ (624   
  

 

 

    

 

 

    

 

(b)  Amounts in parenthesis indicate debits to expense. See Note 12 — “Retirement Plan” above for additional details.
Product Type Sales Mix
Product Type Sales Mix

NOTE 15 — PRODUCT TYPE SALES MIX

The following 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 types, for the fiscal year ended:

 

Product Type

   June 29,
2017
    June 30,
2016
    June 25,
2015
 

Peanuts

     15.7     13.9     13.7

Pecans

     16.2       13.1       12.7  

Cashews & Mixed Nuts

     24.3       23.3       22.0  

Walnuts

     8.4       9.4       11.0  

Almonds

     16.3       23.0       23.4  

Trail & Snack Mixes

     13.9       12.4       12.0  

Other

     5.2       4.9       5.2  
  

 

 

   

 

 

   

 

 

 
     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 
Valuation and Qualifying Accounts and Reserves
Valuation and Qualifying Accounts and Reserves

NOTE 16 — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

The following table details the activity in various allowance and reserve accounts.

 

Description

   Balance at
Beginning
of Period
     Additions      Deductions      Balance at
End of Period
 

June 29, 2017

           

Allowance for doubtful accounts

   $ 397      $ 58      $ (192    $ 263  

Reserve for cash discounts

     975        12,274        (12,399      850  

Reserve for customer deductions

     2,918        16,116        (16,055      2,979  

Deferred tax asset valuation allowance

     171        —          —          171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,461      $ 28,448      $ (28,646    $ 4,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2016

           

Allowance for doubtful accounts

   $ 235      $ 199      $ (37    $ 397  

Reserve for cash discounts

     800        12,928        (12,753      975  

Reserve for customer deductions

     1,931        15,351        (14,364      2,918  

Deferred tax asset valuation allowance

     175        —          (4      171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,141      $ 28,478      $ (27,158    $ 4,461  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 25, 2015

           

Allowance for doubtful accounts

   $ 209      $ 36      $ (10    $ 235  

Reserve for cash discounts

     650        12,341        (12,191      800  

Reserve for customer deductions

     2,351        9,541        (9,961      1,931  

Deferred tax asset valuation allowance

     175        —          —          175  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,385      $ 21,918      $ (22,162    $ 3,141  
  

 

 

    

 

 

    

 

 

    

 

 

 
Supplementary Quarterly Data (Unaudited)
Supplementary Quarterly Data (Unaudited)

NOTE 17 — SUPPLEMENTARY QUARTERLY DATA (Unaudited)

The following unaudited quarterly consolidated financial data are presented for fiscal 2017 and fiscal 2016. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results.

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

Year Ended June 29, 2017:

           

Net sales

   $ 222,293      $ 249,375      $ 173,376      $ 201,591  

Gross profit

     36,475        43,389        28,426        33,633  

Income from operations

     16,556        19,742        10,430        11,616  

Net income

     10,180        12,885        6,336        6,724  

Basic earnings per common share

   $ 0.90      $ 1.14      $ 0.56      $ 0.59  

Diluted earnings per common share

   $ 0.89      $ 1.13      $ 0.55      $ 0.59  

Cash dividends declared per common share

   $ 2.50      $ 2.50      $ —        $ —    

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter*
 

Year Ended June 30, 2016:

           

Net sales

   $ 225,777      $ 279,002      $ 215,742      $ 231,538  

Gross profit

     33,205        45,011        25,588        33,664  

Income from operations

     13,745        19,692        5,469        12,406  

Net income

     7,990        12,050        3,078        7,277  

Basic earnings per common share

   $ 0.71      $ 1.07      $ 0.27      $ 0.65  

Diluted earnings per common share

   $ 0.71      $ 1.07      $ 0.27      $ 0.64  

Cash dividends declared per common share

   $ —        $ 2.00      $ —        $ —    

 

* The fourth quarter of fiscal 2016 contained one additional week compared to fiscal 2017.
Subsequent Events
Subsequent Events

NOTE 18 — SUBSEQUENT EVENTS

On July 7, 2017, we entered into the Eighth Amendment to Credit Agreement (the “Eighth Amendment”) which eliminated the quarterly restriction on cash dividends and distributions and allows the Company to, without obtaining lender consent, make up to four cash dividends or distributions on its stock per fiscal year, or purchase, acquire, redeem or retire its stock in any fiscal year, in an amount not to exceed $60,000 in the aggregate per fiscal year, as long as no default or event of default exists and the excess availability under the Credit Agreement remains over $30,000 immediately before and after giving effect to any such dividend, distribution, purchase or redemption.

On July 11, 2017, our Board of Directors declared a special cash dividend of $2.00 per share and a regular annual cash dividend of $0.50 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “July 2017 Dividends”). The July 2017 Dividends of approximately $28,370 were paid on August 15, 2017 to stockholders of record as of the close of business on August 2, 2017.

Significant Accounting Policies (Policies)

Basis of Presentation and Consolidation and Description of Business

Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and our wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). However, the fiscal year ended June 30, 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under a variety of private brands and under the Fisher, Orchard Valley Harvest and Sunshine Country brand names. We also market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including peanut butter, almond butter, cashew butter, candy and confections, snacks and trail mixes, snack bites, sunflower kernels, dried fruit, corn snacks, sesame sticks and other sesame snack products under private brands and brand names. Our products are sold through the major distribution channels to significant buyers of nuts, including food retailers, commercial ingredient users, and contract packaging customers.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include reserves for customer deductions, the quantity of bulk inventories, the evaluation of recoverability of long-lived assets, the assumptions used in estimating the retirement plan liability and pension expense, and the realizability of deferred tax assets. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivable are stated at the amounts charged to customers, less allowances for doubtful accounts, and reserves for estimated cash discounts and customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks and estimating the extent that other non-specifically identified customers will become credit risks. Account balances are charged off against the allowance when we conclude that it is probable the receivable will not be recovered. The reserve for estimated cash discounts is based on historical experience. The reserve for customer deductions represents known customer short payments and an estimate of future credit memos that will be issued to customers related to rebates and allowances for marketing and promotions based on agreed upon programs and historical experience.

Inventories

Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts, dried fruit and processed and packaged nut products, are stated at the lower of cost (first-in, first-out) or market which approximates actual cost. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When expected market sales prices move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost (first-in, first-out) or market. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates are also recorded.

Property, Plant and Equipment

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

 

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

 

     Year Ended
June 29,
2017
     Year Ended
June 30,
2016
     Year Ended
June 25,
2015
 

Depreciation expense

   $ 14,190      $ 14,875      $ 14,117  
  

 

 

    

 

 

    

 

 

 

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

 

Classification

  

Estimated Useful Lives

Buildings

  

10 to 40 years

Machinery and equipment

  

5 to 10 years

Furniture and leasehold improvements

  

5 to 10 years

Vehicles

  

3 to 5 years

Computers and software

  

3 to 5 years

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

Impairment of Long-Lived Assets

We review held and used long-lived assets, including our rental investment property and amortizable identifiable intangible assets, to assess recoverability from projected undiscounted cash flows whenever events or changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates there is an impairment, the carrying value of the asset is reduced to its estimated fair value.

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

Facility Consolidation Project/Real Estate Transactions

In April 2005, we acquired property to be used for the Elgin Site. Two buildings are located on the Elgin Site, one of which is an office building. Approximately 75% of the office building has been built-out and 70% is currently vacant. The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in “Property, plant and equipment”.

The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. Gross rental income and rental (expense), net for the last three fiscal years are as follows:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Gross rental income

   $ 2,003      $ 1,898      $ 1,792  

Rental (expense), net

     (1,311      (1,371      (3,062

Expected future gross rental income under operating leases within the office building is as follows for the fiscal years ending:

 

June 28, 2018

   $ 1,961  

June 27, 2019

     1,859  

June 25, 2020

     1,765  

June 24, 2021

     1,534  

June 30, 2022

     1,314  

Thereafter

     3,096  
  

 

 

 
   $ 11,529  

Fair Value of Financial Instruments

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

Level 1- Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

Level 2- Observable inputs other than quoted prices in active markets. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3- Unobservable inputs for which there is little or no market data available.

The carrying values of cash, trade accounts receivable and accounts payable approximate their fair values at June 29, 2017 and June 30, 2016 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 4 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements “Revolving Credit Facility” below) borrowings approximates fair value at June 29, 2017 and June 30, 2016 because interest rates on this instrument approximate current market rates (Level 2 criteria), the short-term maturity and nature of this balance. In addition, there has been no significant change in our inherent credit risk.

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

 

     June 29,
2017
     June 30,
2016
 

Carrying value of long-term debt:

   $ 28,808      $ 32,290  

Fair value of long-term debt:

     29,316        35,479  

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

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, title has transferred (based upon terms of shipment), price is fixed, delivery occurred and collection is reasonably assured. We sell our products under some arrangements which include customer contracts which fix the sales price for periods, which typically can be up to one year, for some commercial ingredient customers and through specific programs consisting of promotion allowances, volume and customer rebates and marketing allowances, among others, to consumer customers and commercial ingredient users. Reserves for these programs are established based upon the terms of specific arrangements. Revenues are recorded net of rebates and promotion and marketing allowances. Revenues are also recorded net of expected customer deductions which are provided for based upon past experiences. While customers do have the right to return products, past experience has demonstrated that product returns have generally been insignificant. Provisions for returns are reflected as a reduction in net sales and are estimated based upon customer specific circumstances. Billings for shipping and handling costs are included in revenues.

Segment Reporting

We operate in a single reportable and operating segment that consists of selling various nut and nut related products through multiple distribution channels.

Significant Customers and Concentration of Credit Risk

The highly competitive nature of our business provides an environment for the loss of customers and the opportunity to gain new customers. We are subject to concentrations of credit risk, primarily in trade accounts receivable, and we attempt to mitigate this risk through our credit evaluation process, collection terms and through geographical dispersion of sales. Sales to three customers each exceeded 10% of net sales during fiscal 2017 and fiscal 2016. In fiscal 2015 two customers each exceeded 10% of net sales. Sales to these customers represented approximately 53%, 50% and 39% of our net sales in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. Net accounts receivable from these customers were 56% and 51% of net accounts receivable at June 29, 2017 and June 30, 2016, respectively.

Promotion, Marketing and Advertising Costs

Promotions, allowances and customer rebates are recorded at the time revenue is recognized and are reflected as reductions in sales. Annual volume rebates are estimated based upon projected volumes for the year, while promotions and allowances are recorded based upon terms of the actual arrangements. Coupon incentive costs are accrued based on an estimate of redemptions to occur.

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Marketing and advertising expense

   $ 10,064      $ 11,569      $ 11,069  
  

 

 

    

 

 

    

 

 

 

Shipping and Handling Costs

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Shipping and handling costs

   $ 17,682      $ 16,686      $ 17,699  
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Research and development expense

   $ 658      $ 653      $ 979  
  

 

 

    

 

 

    

 

 

 

Stock-Based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of ASC 718, as amended by Accounting Standard Update (“ASU”) 2016-09, by calculating compensation cost based on the grant date fair value. We then amortize compensation expense over the vesting period. We estimate the fair value of each stock option on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables). The grant date fair value of restricted stock units (“RSUs”) is generally determined based on the market price of our Common Stock on the date of grant. Beginning in fiscal 2017, forfeitures are recognized as they occur and excess tax benefits or tax deficiencies are recognized as a component of income tax expense.

Income Taxes

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

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

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

 

We evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities. As of June 29, 2017, we believe that our deferred tax assets are fully realizable, except for $171 of net basis differences for which we have provided a valuation allowance.

Earnings per Share

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

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of shares outstanding — basic

     11,317,149        11,233,975        11,150,658  

Effect of dilutive securities:

        

Stock options and restricted stock units

     86,456        98,949        97,601  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding — diluted

     11,403,605        11,332,924        11,248,259  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of anti-dilutive shares:

     1,068        —          —    

Weighted average exercise price per share:

   $ 65.35      $ —        $ —    

Comprehensive Income

We account for comprehensive income in accordance with ASC Topic 220, Comprehensive Income. This topic establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The topic requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This topic also requires all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation by the respective line items of net income, either on the face of the statement where net income is presented or in the notes and information about significant amounts required under U.S. GAAP to be reclassified out of accumulated other comprehensive income in their entirety. For amounts not required to be reclassified in their entirety to net income, we provide a cross-reference to other disclosures that offer additional details about those amounts.

Recent Accounting Pronouncements

 

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

In March 2016, the FASB issued ASU No. 2016-09 “Compensation-Stock Compensation (Topic 718)”. This ASU is part of the FASB’s simplification initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, statutory withholding requirements, and classification on the statement of cash flows. The Company early adopted this guidance during the first quarter of fiscal 2017. The cumulative adjustment for the impact of this change in accounting principle was immaterial. Cash flows related to excess tax benefits will be classified prospectively as operating activities in the Consolidated Statements of Cash Flows. Prior periods have not been adjusted. The Company anticipates increased volatility in income tax expense, mainly in the second quarter of each fiscal year, since historically most equity compensation granted in prior periods vests during that quarter.

In April 2015, the FASB issued ASU No. 2015-05 “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. This update provides guidance to customers about whether a cloud computing arrangement includes a software license or service contract. This update became effective for the Company beginning the first quarter of fiscal 2017. The adoption of ASU 2015-05 did not have a material impact to the Consolidated Financial Statements.

 

In April 2015, the FASB issued ASU No. 2015-03 “Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs”. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this standard required retrospective adjustment to our Consolidated Balance Sheets. As a result, Other assets decreased approximately $244 as of June 30, 2016 and this amount was allocated within Current maturities of long term debt and Long term debt. Adoption of ASU 2015-03 did not have an effect on the Company’s stockholders’ equity, results of operations or cash flows.

In February 2015, the FASB issued ASU No. 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. This update focuses on a reporting company’s consolidation evaluation to determine whether it should consolidate certain legal entities. The guidance ASU 2015-02 became effective for the Company beginning with the first quarter of fiscal 2017. The adoption of ASU 2015-02 did not have any impact to the Consolidated Financial Statements.

In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements—Going Concern (Topic 205-40)”. The guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 was effective for the Company beginning with the first quarter of fiscal 2017. The adoption of this guidance had no impact on our Consolidated Financial Statements.

The following recent accounting pronouncements have not yet been adopted:

In May 2017, the FASB issued ASU No. 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. The amendments in this update provide guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for the Company in fiscal 2019 and should be applied prospectively to an award modified on or after the adoption date. The Company does not expect ASU 2017-09 to have a material impact to the Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendments in this update require the service cost component of pension expense to be disaggregated from the other components of net periodic benefit cost and be presented in the same line items as other employee compensation costs. All other components of net periodic benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This update is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as long as it is early adopted in the first interim period of an annual year and financial statements have not been issued or made available for issuance prior to adoption. The amendments in this update should be applied using a retrospective transition method, however, a practical expedient is offered with regard to the prior comparative periods. The Company plans to early adopt this update beginning in fiscal 2018 and does not expect the impact of this new guidance to have a significant impact on its financial position, results of operations and disclosures.

In October 2016, the FASB issued ASU No. 2016-17 “Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control”. This update is amending ASU 2015-02 and affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. ASU 2016-17 will be effective for the Company in fiscal 2018 and will require retrospective application. The Company does not expect ASU 2016-17 to have any impact to the Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. This update addresses eight specific cash flow issues with the objective of reducing the perceived diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company does not expect a material impact to our statement of cash flows once ASU 2016-15 is adopted in fiscal 2019.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. A modified-retrospective approach is required in the first reporting period in which the guidance is effective through a cumulative-effect adjustment to retained earnings. We do not expect ASU 2013-13 will have a significant impact on the Consolidated Financial Statements once adopted in fiscal 2021.

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)”. The primary goal of this update is to require the lessee to recognize all lease commitments, both operating and finance, by initially recording a lease asset and liability on the balance sheet at the lease commencement date. Additionally, enhanced qualitative and quantitative disclosures will be required. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. This new guidance will be effective for the Company beginning in fiscal year 2020 and we do not expect to early adopt. This guidance must be adopted using a modified retrospective approach. The Company expects this new guidance to have a significant impact on its total assets and total liabilities, and lead to increased financial statement disclosures.

In July 2015, the FASB issued ASU No. 2015-11Inventory (Topic 330) Simplifying the Measurement of Inventory”. This update applies to inventory measured using first-in, first-out or average cost and requires inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update will be effective for the Company beginning in fiscal year 2018 with prospective application required. The Company does not anticipate this guidance will have a material impact to its Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” and created a new ASC Topic 606, Revenue from Contracts with Customers, and added ASC Subtopic 340-40, Other Assets and Deferred Costs — Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Several other amendments have been subsequently released, each of which provide additional narrow scope clarifications or improvements. In August 2015, the FASB issued ASU No. 2015-14 “Revenue from Contracts with Customers, Deferral of the Effective Date” which deferred the effective date of ASU 2014-09 for one year. Consequently, this new revenue recognition guidance will be effective for the Company beginning in fiscal year 2019, which is our anticipated adoption date. We have completed our initial analysis of this accounting standard update which included a review of all material customer contracts and currently do not anticipate any material changes to our revenue recognition compared to current GAAP. We are currently evaluating the method of adoption.

Significant Accounting Policies (Tables)

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

 

     Year Ended
June 29,
2017
     Year Ended
June 30,
2016
     Year Ended
June 25,
2015
 

Depreciation expense

   $ 14,190      $ 14,875      $ 14,117  
  

 

 

    

 

 

    

 

 

 

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

 

Classification

  

Estimated Useful Lives

Buildings

  

10 to 40 years

Machinery and equipment

  

5 to 10 years

Furniture and leasehold improvements

  

5 to 10 years

Vehicles

  

3 to 5 years

Computers and software

  

3 to 5 years

The net rental expense from the office building is included in the caption “Rental and miscellaneous expense, net”. Gross rental income and rental (expense), net for the last three fiscal years are as follows:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Gross rental income

   $ 2,003      $ 1,898      $ 1,792  

Rental (expense), net

     (1,311      (1,371      (3,062

Expected future gross rental income under operating leases within the office building is as follows for the fiscal years ending:

 

June 28, 2018

   $ 1,961  

June 27, 2019

     1,859  

June 25, 2020

     1,765  

June 24, 2021

     1,534  

June 30, 2022

     1,314  

Thereafter

     3,096  
  

 

 

 
   $ 11,529  
  

 

 

 

 

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

 

     June 29,
2017
     June 30,
2016
 

Carrying value of long-term debt:

   $ 28,808      $ 32,290  

Fair value of long-term debt:

     29,316        35,479  

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Marketing and advertising expense

   $ 10,064      $ 11,569      $ 11,069  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Shipping and handling costs

   $ 17,682      $ 16,686      $ 17,699  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Research and development expense

   $ 658      $ 653      $ 979  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of shares outstanding — basic

     11,317,149        11,233,975        11,150,658  

Effect of dilutive securities:

        

Stock options and restricted stock units

     86,456        98,949        97,601  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding — diluted

     11,403,605        11,332,924        11,248,259  
  

 

 

    

 

 

    

 

 

 

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

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Weighted average number of anti-dilutive shares:

     1,068        —          —    

Weighted average exercise price per share:

   $ 65.35      $ —        $ —    
Inventories (Tables)
Components of Inventories

Inventories consist of the following:

 

     June 29,
2017
     June 30,
2016
 

Raw material and supplies

   $ 79,609      $ 56,005  

Work-in-process and finished goods

     102,811        100,568  
  

 

 

    

 

 

 
   $ 182,420      $ 156,573  
  

 

 

    

 

 

 
Intangible Assets (Tables)

Intangible assets subject to amortization consist of the following:

 

     June 29,
2017
     June 30,
2016
 

Customer relationships

   $ 10,600      $ 10,600  

Brand names

     8,090        8,090  

Less accumulated amortization:

     

Customer relationships

     (10,600      (9,231

Brand names

     (8,090      (8,090
  

 

 

    

 

 

 

Net intangible assets

   $ —        $ 1,369  
  

 

 

    

 

 

 

Total amortization expense related to intangible assets, which is classified in administrative expense in the Consolidated Statement of Comprehensive Income, was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Amortization of intangible assets

   $ 1,369      $ 1,710      $ 2,167  
  

 

 

    

 

 

    

 

 

 
Long-Term Debt (Tables)

Long-term debt consists of the following:

 

     June 29,
2017
     June 30,
2016
 

Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly principal installments of $200 plus interest at 7.63% per annum through February 2023 with a final principal payment of $600 on March 1, 2023

   $ 14,200      $ 16,600  

Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly principal installments of $50 plus interest at the greater of one month LIBOR plus 3.50% per annum or 4.25% through February 2023 with a final principal payment of $150 on March 1, 2023

     3,550        4,150  

Selma, Texas facility financing obligation to related parties, due in monthly installments of $103 through September 1, 2031

     11,058        11,540  

Unamortized debt issuance costs

     (179      (244
  

 

 

    

 

 

 
     28,629        32,046  

Less: Current maturities, net of unamortized debt issuance costs

     (3,418      (3,342
  

 

 

    

 

 

 

Total long-term debt, net of unamortized debt issuance costs

   $ 25,211      $ 28,704  
  

 

 

    

 

 

 

Aggregate maturities of long-term debt are as follows for the fiscal years ending:

 

June 28, 2018

   $ 3,473  

June 27, 2019

     3,508  

June 25, 2020

     3,545  

June 24, 2021

     3,585  

June 30, 2022

     3,627  

Thereafter

     11,070  
  

 

 

 
   $ 28,808  
  

 

 

 
Income Taxes (Tables)

The provision for income taxes is based entirely on income before income taxes earned in the United States, and is as follows for the last three fiscal years:

 

     For the Year Ended:  
     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Current:

        

Federal

   $ 17,013      $ 14,015      $ 15,916  

State

     2,744        2,222        2,027  
  

 

 

    

 

 

    

 

 

 

Total current expense

     19,757        16,237        17,943  

Deferred:

        

Deferred federal

     (1,698      (210      (2,589

Deferred state

     (46      40        205  
  

 

 

    

 

 

    

 

 

 

Total deferred benefit

     (1,744      (170      (2,384
  

 

 

    

 

 

    

 

 

 

Total income tax expense

   $ 18,013      $ 16,067      $ 15,559  
  

 

 

    

 

 

    

 

 

 

The reconciliations of income taxes at the statutory federal income tax rate to income tax expense reported in the Consolidated Statements of Comprehensive Income for the last three fiscal years are as follows:

 

     June 29,
2017
    June 30,
2016
    June 25,
2015
 

Federal statutory income tax rate

     35.0     35.0     35.0

State income taxes, net of federal benefit

     3.3       3.2       3.4  

Research and development tax credit

     (0.1     (0.1     (0.1

Domestic manufacturing deduction

     (3.1     (3.2     (3.4

Windfall tax benefits

     (1.8     —         —    

Uncertain tax positions

     0.1       (0.6     0.3  

Other

     (0.1     0.3       (0.5
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     33.3     34.6     34.7
  

 

 

   

 

 

   

 

 

 

Deferred tax assets and liabilities are comprised of the following:

 

     June 29,
2017
     June 30,
2016
 

Deferred tax assets (liabilities):

     

Accounts receivable

   $ 423      $ 521  

Employee compensation

     1,726        1,922  

Inventory

     345        353  

Depreciation and amortization

     (12,826      (13,315

Capitalized leases

     1,508        1,440  

Goodwill and intangible assets

     4,939        5,046  

Retirement plan

     8,224        8,661  

Workers’ compensation

     2,365        2,251  

Share based compensation

     1,908        1,669  

Capital loss carryforward

     171        171  

Other

     483        42  

Less valuation allowance

     (171      (171
  

 

 

    

 

 

 

Net deferred tax asset — long term

   $ 9,095      $ 8,590  
  

 

 

    

 

 

 

 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Beginning balance

   $ 24      $ 248      $ 247  

Gross increases — tax positions in prior year

     7        70        27  

Gross decreases — tax positions in prior year

     —          (8      (91

Settlements

     —          (137      (18

Gross increases — tax positions in current year

     23        17        21  

Lapse of statute of limitations

     120        (166      62  
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 174      $ 24      $ 248  
  

 

 

    

 

 

    

 

 

 

Unrecognized tax benefits, that if recognized, would affect the annual effective tax rate on income from continuing operations, are as follows:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Unrecognized tax benefits that would affect annual effective tax rate

   $ 136      $ 27      $ 261  
Commitments and Contingencies (Tables)

Rent expense aggregated under these operating leases was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Rent expense related to operating leases

   $ 1,880      $ 1,775      $ 1,545  
  

 

 

    

 

 

    

 

 

 

Aggregate non-cancelable lease commitments under these operating leases with initial or remaining terms greater than one year are as follows:

 

Fiscal year ending       

June 28, 2018

   $ 969  

June 27, 2019

     558  

June 25, 2020

     392  

June 24, 2021

     142  

June 30, 2022

     71  

Thereafter

     6  
  

 

 

 
     $2,138  
  

 

 

 
Stock-Based Compensation Plans (Tables)

The following is a summary of stock option activity for the year ended June 29, 2017:

 

     Shares      Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term in Years
     Aggregate
Intrinsic
Value
 

Outstanding at June 30, 2016

     9,500      $ 8.78        

Granted

     —          —          

Exercised

     (7,500      8.40        

Forfeited

     —          —          
  

 

 

          

Outstanding at June 29, 2017

     2,000      $ 10.24        2.06      $ 105  
  

 

 

          

 

 

 

Exercisable at June 29, 2017

     2,000      $ 10.24        2.06      $ 105  
  

 

 

          

 

 

 

The following table summarizes the total intrinsic value of all options exercised and the total cash received from the exercise of options for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Total intrinsic value of options exercised

   $ 374      $ 792      $ 781  

Total cash received from exercise of options

   $ 63      $ 155      $ 643  

The following is a summary of RSU activity for the year ended June 29, 2017:

 

Restricted Stock Units

   Shares      Weighted-
Average
Grant-
Date
Fair Value
 

Outstanding at June 30, 2016

     228,270      $ 32.33  

Granted

     45,213        61.33  

Vested

     (68,426      27.91  

Forfeited

     (3,199      30.23  
  

 

 

    

 

 

 

Outstanding at June 29, 2017

     201,858      $ 40.36  
  

 

 

    

 

 

 

The following table summarizes compensation cost charged to earnings for all equity compensation plans and the total income tax benefit recognized for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

Compensation cost charged to earnings

   $ 2,504      $ 2,489      $ 1,952  

Income tax benefit recognized

     951        962        814  
Special Cash Dividends (Tables)
Summary of Special Cash Dividends

Our Board of Directors declared the following special cash dividends payable in fiscal 2017 and fiscal 2016:

 

Declaration Date

  

Record Date

   Dividend Per
Share
     Total Amount     

Payment Date

November 1, 2016

  

November 30, 2016

   $ 2.50      $ 28,314     

December 13, 2016

July 7, 2016

  

July 21, 2016

   $ 2.50      $ 28,150     

August 4, 2016

October 27, 2015

  

December 2, 2015

   $ 2.00      $ 22,486     

December 11, 2015

Employee Benefit Plans (Tables)

Our expense for the 401(k) plan was as follows for the last three fiscal years:

 

     Year ended
June 29,
2017
     Year ended
June 30,
2016
     Year ended
June 25,
2015
 

401(k) plan expense

   $ 1,664      $ 1,604      $ 1,550  

The total Route pension liability was as follows for the last two fiscal years:

 

     June 29,
2017
     June 30,
2016
 

Route pension liability

   $ 397      $ 466  
Retirement Plan (Tables)

The following table presents the changes in the projected benefit obligation for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
 

Change in projected benefit obligation

     

Projected benefit obligation at beginning of year

   $ 22,791      $ 18,538  

Service cost

     631        491  

Interest cost

     811        843  

Actuarial (gain) loss

     (1,938      3,573  

Benefits paid

     (654      (654
  

 

 

    

 

 

 

Projected benefit obligation at end of year

   $ 21,641      $ 22,791  
  

 

 

    

 

 

 

Components of the actuarial (gain) loss portion of the change in projected benefit obligation are presented below for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Actuarial Loss

        

Change in assumed pay increases

   $ 124      $ 68      $ 342  

Change in discount rate

     (1,402      3,509        (801

Change in mortality assumptions

     (193      (132      2,150  

Change in bonus assumption

     —          —          1,191  

Other

     (467      128        257  
  

 

 

    

 

 

    

 

 

 

Actuarial (gain) loss

   $ (1,938    $ 3,573      $ 3,139  
  

 

 

    

 

 

    

 

 

 

The components of the net periodic pension cost are as follows for the fiscal years ended:

 

     June 29,
2017
     June 30,
2016
     June 25,
2015
 

Service cost

   $ 631      $ 491      $ 386  

Interest cost

     811        843        642  

Recognized loss amortization

     365        50        —    

Prior service cost amortization

     957        957        957  
  

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 2,764      $ 2,341      $ 1,985  
  

 

 

    

 

 

    

 

 

 

We used the following assumptions to calculate the benefit obligation of our SERP as of the following dates:

 

     June 29,
2017
  June 30,
2016

Discount rate

   3.99%   3.61%

Rate of compensation increases

   4.50%   4.50%

Bonus payment

   60% - 85% of base,
paid 4 of 5
years
  60% - 85% of base,
paid 4 of 5
years

We used the following assumptions to calculate the net periodic costs of our SERP as follows for the fiscal years ended:

 

     June 29,
2017
  June 30,
2016
  June 25,
2015

Discount rate

   3.61%   4.63%   4.37%

Rate of compensation increases

   4.50%   4.50%   4.50%

Mortality

   RP-2014 white
collar with MP-
2015 scale
  RP-2014
white collar with
MP-
2014 scale
  IRS 2014
(Unisex)

Bonus payment

   60% -85% of
base,
paid 4 of 5
years
  60% -85% of
base,
paid 4 of 5
years
  60% - 85% of
base,
paid 3 of 5
years

The following table presents the benefits expected to be paid in the next ten fiscal years:

 

Fiscal year       
        2018    $ 647  
        2019      631  
        2020      612  
        2021      727  
        2022      699  
2023 — 2027      4,635  

The following table presents the components of AOCL that have not yet been recognized in net pension expense:

 

     June 29,
2017
     June 30,
2016
 

Unrecognized net loss

   $ (3,624    $ (5,926

Unrecognized prior service cost

     (3,349      (4,306

Tax effect

     2,569        3,807  
  

 

 

    

 

 

 

Net amount unrecognized

   $ (4,404    $ (6,425
  

 

 

    

 

 

 
Accumulated Other Comprehensive Loss (Tables)

The table below sets forth the changes to accumulated other comprehensive loss (“AOCL”) for the last two fiscal years. These changes are all related to our defined benefit pension plan.

 

Changes to AOCL (a)    Year
Ended
June 29,
2017
    Year
Ended
June 30,
2016
 

Balance at beginning of period

   $ (6,425   $ (4,834

Other comprehensive income (loss) before reclassifications

     1,938       (3,573

Amounts reclassified from accumulated other comprehensive loss

     1,322       1,007  

Tax effect

     (1,239     975  
  

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     2,021       (1,591
  

 

 

   

 

 

 

Balance at end of period

   $ (4,404   $ (6,425
  

 

 

   

 

 

 

 

(a) Amounts in parenthesis indicate debits/expense.

The reclassifications out of accumulated other comprehensive loss for the last two fiscal years were as follows:

 

Reclassifications from AOCL to earnings (b)    Year
Ended
June 29,
2017
     Year
Ended
June 30,
2016
     Affected line item in the
Consolidated Statements of
Comprehensive Income
 

Amortization of defined benefit pension items:

        

Unrecognized prior service cost

   $ (957    $ (957      Administrative expenses  

Unrecognized net loss

     (365      (50      Administrative expenses  
  

 

 

    

 

 

    

Total before tax

     (1,322      (1,007   

Tax effect

     502        383        Income tax expense  
  

 

 

    

 

 

    

Amortization of defined pension items, net of tax

   $ (820    $ (624   
  

 

 

    

 

 

    

 

(b)  Amounts in parenthesis indicate debits to expense. See Note 12 — “Retirement Plan” above for additional details.
Product Type Sales Mix (Tables)
Schedule of Sales by Product Type as Percentage of Gross Sales

The following 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 types, for the fiscal year ended:

 

Product Type

   June 29,
2017
    June 30,
2016
    June 25,
2015
 

Peanuts

     15.7     13.9     13.7

Pecans

     16.2       13.1       12.7  

Cashews & Mixed Nuts

     24.3       23.3       22.0  

Walnuts

     8.4       9.4       11.0  

Almonds

     16.3       23.0       23.4  

Trail & Snack Mixes

     13.9       12.4       12.0  

Other

     5.2       4.9       5.2  
  

 

 

   

 

 

   

 

 

 
     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 
Valuation and Qualifying Accounts and Reserves (Tables)
Activity in Various Allowance and Reserve Accounts

The following table details the activity in various allowance and reserve accounts.

 

Description

   Balance at
Beginning
of Period
     Additions      Deductions      Balance at
End of Period
 

June 29, 2017

           

Allowance for doubtful accounts

   $ 397      $ 58      $ (192    $ 263  

Reserve for cash discounts

     975        12,274        (12,399      850  

Reserve for customer deductions

     2,918        16,116        (16,055      2,979  

Deferred tax asset valuation allowance

     171        —          —          171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,461      $ 28,448      $ (28,646    $ 4,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2016

           

Allowance for doubtful accounts

   $ 235      $ 199      $ (37    $ 397  

Reserve for cash discounts

     800        12,928        (12,753      975  

Reserve for customer deductions

     1,931        15,351        (14,364      2,918  

Deferred tax asset valuation allowance

     175        —          (4      171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,141      $ 28,478      $ (27,158    $ 4,461  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 25, 2015

           

Allowance for doubtful accounts

   $ 209      $ 36      $ (10    $ 235  

Reserve for cash discounts

     650        12,341        (12,191      800  

Reserve for customer deductions

     2,351        9,541        (9,961      1,931  

Deferred tax asset valuation allowance

     175        —          —          175  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,385      $ 21,918      $ (22,162    $ 3,141  
  

 

 

    

 

 

    

 

 

    

 

 

 
Supplementary Quarterly Data (Unaudited) (Tables)
Unaudited Quarterly Consolidated Financial Data

The following unaudited quarterly consolidated financial data are presented for fiscal 2017 and fiscal 2016. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results.

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

Year Ended June 29, 2017:

           

Net sales

   $ 222,293      $ 249,375      $ 173,376      $ 201,591  

Gross profit

     36,475        43,389        28,426        33,633  

Income from operations

     16,556        19,742        10,430        11,616  

Net income

     10,180        12,885        6,336        6,724  

Basic earnings per common share

   $ 0.90      $ 1.14      $ 0.56      $ 0.59  

Diluted earnings per common share

   $ 0.89      $ 1.13      $ 0.55      $ 0.59  

Cash dividends declared per common share

   $ 2.50      $ 2.50      $