SANFILIPPO JOHN B & SON INC, 10-K filed on 22 Aug 18
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Jun. 28, 2018
Aug. 15, 2018
Dec. 28, 2017
Document Information [Line Items]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Jun. 28, 2018    
Document Fiscal Year Focus 2018    
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 --06-28    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Public Float     $ 541,234,022
Common Stock, Non-Cumulative Voting Rights of One Vote Per Share [Member]      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   8,747,575  
Class A Common Stock [Member]      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   2,597,426  
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 28, 2018
Jun. 29, 2017
CURRENT ASSETS:    
Cash $ 1,449 $ 1,955
Accounts receivable, less allowance for doubtful accounts of $270 and $263, respectively 65,426 64,830
Inventories 174,618 182,420
Prepaid expenses and other current assets 6,309 4,172
TOTAL CURRENT ASSETS 247,802 253,377
PROPERTY, PLANT AND EQUIPMENT:    
Land 9,285 9,285
Buildings 108,540 107,015
Machinery and equipment 198,321 194,099
Furniture and leasehold improvements 5,015 4,842
Vehicles 526 498
Construction in progress 2,618 1,075
Property, plant and equipment gross 324,305 316,814
Less: Accumulated depreciation 217,689 210,606
Property, plant and equipment net 106,616 106,208
Rental investment property, less accumulated depreciation of $10,431 and $9,639, respectively 18,462 19,254
TOTAL PROPERTY, PLANT AND EQUIPMENT 125,078 125,462
OTHER LONG TERM ASSETS:    
Cash surrender value of officers' life insurance and other assets 10,565 10,125
Deferred income taxes 5,024 9,095
Goodwill 9,650  
Intangible assets, net 17,654  
TOTAL ASSETS 415,773 398,059
CURRENT LIABILITIES:    
Revolving credit facility borrowings 31,278 29,456
Current maturities of long-term debt, including related party debt of $4,341 and $474, respectively and net of unamortized debt issuance costs of $45 and $55, respectively 7,169 3,418
Accounts payable, including related party payables of $0 and $178, respectively 60,340 50,047
Bank overdraft 2,062 932
Accrued payroll and related benefits 6,415 15,958
Other accrued expenses 9,929 10,062
TOTAL CURRENT LIABILITIES 117,193 109,873
LONG-TERM LIABILITIES:    
Long-term debt, less current maturities, including related party debt of $15,507 and $10,584, respectively and net of unamortized debt issuance costs of $79 and $124, respectively 27,356 25,211
Retirement plan 21,288 20,994
Other 7,014 6,513
TOTAL LONG-TERM LIABILITIES 55,658 52,718
TOTAL LIABILITIES 172,851 162,591
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:    
Capital in excess of par value 119,952 117,772
Retained earnings 127,240 123,190
Accumulated other comprehensive loss (3,181) (4,404)
Treasury stock, at cost; 117,900 shares of Common Stock (1,204) (1,204)
TOTAL STOCKHOLDERS' EQUITY 242,922 235,468
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 415,773 398,059
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 89 88
TOTAL STOCKHOLDERS' EQUITY $ 89 $ 88
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 28, 2018
Jun. 29, 2017
Allowance for doubtful accounts for accounts receivable, current $ 270 $ 263
Accumulated depreciation of rental investment property 10,431 9,639
Current maturities of long-term debt, related party debt 4,341 474
Unamortized debt issuance costs, current 45 55
Accounts payable, related party payables 0 178
Related party debt, Non-current 15,507 10,584
Unamortized debt issuance costs, noncurrent $ 79 $ 124
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 8,865,475 8,801,641
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Jun. 28, 2018
Jun. 29, 2017
Jun. 30, 2016
Statement of Comprehensive Income [Abstract]      
Net sales $ 888,595 $ 846,635 $ 952,059
Cost of sales 749,776 704,712 814,591
Gross profit 138,819 141,923 137,468
Operating expenses:      
Selling expenses 52,922 49,392 51,114
Administrative expenses 29,788 32,054 33,192
Total operating expenses 82,710 81,446 84,306
Income from operations 56,109 60,477 53,162
Other expense:      
Interest expense including $1,103, $785 and $1,081 to related parties, respectively 3,463 2,910 3,492
Rental and miscellaneous expense, net 1,406 1,296 1,358
Other expense 1,970 2,133 1,850
Total other expense, net 6,839 6,339 6,700
Income before income taxes 49,270 54,138 46,462
Income tax expense 16,850 18,013 16,067
Net income 32,420 36,125 30,395
Other comprehensive income (loss), net of tax:      
Amortization of prior service cost and actuarial gain included in net periodic pension cost 839 820 624
Net actuarial gain (loss) arising during the period 384 1,201 (2,215)
Other comprehensive income (loss), net of tax 1,223 2,021 (1,591)
Comprehensive income $ 33,643 $ 38,146 $ 28,804
Net income per common share - basic $ 2.85 $ 3.19 $ 2.71
Net income per common share - diluted 2.83 3.17 2.68
Cash dividends declared per share $ 2.50 $ 5.00 $ 2.00
Weighted average shares outstanding - basic 11,383,080 11,317,149 11,233,975
Weighted average shares outstanding - diluted 11,449,386 11,403,605 11,332,924
v3.10.0.1
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Jun. 28, 2018
Jun. 29, 2017
Jun. 30, 2016
Statement of Comprehensive Income [Abstract]      
Interest expense to related parties $ 1,103 $ 785 $ 1,081
v3.10.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
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. 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, net of shares withheld for employee taxes 1,108 1,107         $ 1
Equity award exercises, net of shares withheld for employee taxes, 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, net of shares withheld for employee taxes 63 62         $ 1
Equity award exercises, net of shares withheld for employee taxes, 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
Net income 32,420   32,420        
Cash dividends (28,370)   (28,370)        
Pension liability amortization, net of income tax (expense) 839     839      
Pension liability adjustment, net of income tax benefit 384     384      
Equity award exercises, net of shares withheld for employee taxes (615) (616)         $ 1
Equity award exercises, net of shares withheld for employee taxes, shares             63,834
Stock-based compensation expense 2,796 2,796          
Balance at Jun. 28, 2018 $ 242,922 $ 119,952 $ 127,240 $ (3,181) $ (1,204) $ 26 $ 89
Balance, Shares at Jun. 28, 2018           2,597,426 8,865,475
v3.10.0.1
Consolidated Statements of Stockholders' Equity (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Jun. 28, 2018
Jun. 29, 2017
Jun. 30, 2016
Statement of Stockholders' Equity [Abstract]      
Cash dividends per common share $ 2.50 $ 5.00 $ 2.00
Pension liability amortization income tax expense $ (280) $ (502) $ (383)
Pension liability adjustment income tax (benefit) expense $ 127 $ 737 $ (1,358)
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Jun. 28, 2018
Jun. 29, 2017
Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 32,420 $ 36,125 $ 30,395
Depreciation and amortization 15,430 15,559 16,585
Loss on disposition of properties, net 480 71 392
Deferred income tax expense (benefit) 3,664 (1,744) (170)
Stock-based compensation expense 2,796 2,504 2,489
Change in assets and liabilities, net of Acquisition:      
Accounts receivable, net 1,751 13,243 (2,436)
Inventories 9,759 (25,847) 41,424
Prepaid expenses and other current assets (738) 201 (19)
Accounts payable 8,876 6,384 (1,126)
Accrued expenses (8,598) 1,484 421
Income taxes receivable/payable (2,659) 2,217 (805)
Other long-term liabilities 501 579 (443)
Other long-term assets 375 (266) 767
Other, net 2,097 2,158 1,774
Net cash provided by operating activities 66,154 52,668 89,248
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property, plant and equipment (13,229) (10,885) (15,018)
Acquisition of Squirrel Brand L.P. (21,727)    
Other, net (12) 342 93
Net cash used in investing activities (34,968) (10,543) (14,925)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Net short-term borrowings (repayments) 1,822 17,372 (49,069)
Principal payments on long-term debt (5,659) (3,482) (3,376)
Increase (decrease) in bank overdraft 1,130 121 (226)
Dividends paid (28,370) (56,464) (22,486)
Proceeds from the exercise of stock options 16 63 155
Tax benefit of equity award exercises     953
Taxes paid related to net share settlement of equity awards (631)    
Net cash used in financing activities (31,692) (42,390) (74,049)
NET (DECREASE) INCREASE IN CASH (506) (265) 274
Cash, beginning of period 1,955 2,220 1,946
Cash, end of period 1,449 1,955 2,220
Interest paid 3,357 2,763 3,326
Income taxes paid, excluding refunds of $40, $232, and $168, respectively 15,846 $ 17,635 $ 16,526
Supplemental disclosure of non-cash investing activities:      
Acquisition of Squirrel Brand L.P. through note payable, see Note 6 $ 11,500    
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Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Jun. 28, 2018
Jun. 29, 2017
Jun. 30, 2016
Statement of Cash Flows [Abstract]      
Income taxes paid, refunds $ 40 $ 232 $ 168
v3.10.0.1
Significant Accounting Policies
12 Months Ended
Jun. 28, 2018
Accounting Policies [Abstract]  
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, Squirrel Brand, Southern Style Nuts, 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) and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory costs are reviewed at least quarterly. Fluctuations in the market price of pecans, peanuts, walnuts, almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit margin. When net realizable values move below costs, we record adjustments to write down the carrying values of inventories to the lower of cost (first-in, first-out) and net realizable value. The results of our shelling process can also result in changes to inventory costs, such as adjustments made pursuant to actual versus expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are subject to quarterly physical verification techniques including observation, weighing and other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out over a ten to fifteen-month period, at which time revisions to any estimates 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 28, 2018
     Year Ended
June 29, 2017
     Year Ended
June 30, 2016
 

Depreciation expense

   $ 13,414      $ 14,190      $ 14,875  
  

 

 

    

 

 

    

 

 

 

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.

Business Combinations

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

Segment Reporting

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

Impairment of Long-Lived Assets

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

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

Goodwill

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

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

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

 

Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above).    During fiscal 2018 we elected to perform qualitative impairment test which indicated no indicators of goodwill impairment.

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

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 63% of the rentable area in the office building is currently vacant, of which approximately 29% has not been built-out. The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in “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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Gross rental income

   $ 1,988      $ 2,003      $ 1,898  

Rental (expense), net (1)

     (1,420      (1,311      (1,371

 

(1)

Includes annual depreciation expense of approximately $800.

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

 

June 27, 2019

   $ 1,940  

June 25, 2020

     1,875  

June 24, 2021

     1,647  

June 30, 2022

     1,431  

June 29, 2023

     1,450  

Thereafter

     1,950  
  

 

 

 
   $ 10,293  
  

 

 

 

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 28, 2018 and June 29, 2017 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 5 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements “Revolving Credit Facility” below) borrowings approximates fair value at June 28, 2018 and June 29, 2017 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 28, 2018      June 29, 2017  

Carrying value of long-term debt:

   $ 34,649      $ 28,808  

Fair value of long-term debt:

     33,482        29,316  

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 has 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.

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 exceeded 10% of net sales during each of fiscal 2018, fiscal 2017 and fiscal 2016. Sales to these customers represented approximately 54%, 53% and 50% of our net sales in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Net accounts receivable from these customers were 62% and 56% of net accounts receivable at June 28, 2018 and June 29, 2017, 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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Marketing and advertising expense

   $ 11,290      $ 10,064      $ 11,569  
  

 

 

    

 

 

    

 

 

 

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Shipping and handling costs

   $ 20,418      $ 17,682      $ 16,686  
  

 

 

    

 

 

    

 

 

 

 

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Research and development expense

   $ 701      $ 658      $ 653  
  

 

 

    

 

 

    

 

 

 

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. 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 28, 2018, we believe that our deferred tax assets are fully realizable, except for $112 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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Weighted average number of shares outstanding — basic

     11,383,080        11,317,149        11,233,975  

Effect of dilutive securities:

        

Stock options and restricted stock units

     66,306        86,456        98,949  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding — diluted

     11,449,386        11,403,605        11,332,924  
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year ended
June 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

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 2018, the FASB issued ASU No. 2018-05 “Income Taxes (Topic 741) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. These amendments add SEC guidance to the FASB Accounting Standards Codification regarding the Tax Cuts and Jobs Act pursuant to the issuance of SAB 118 which was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform which became effective for the Company on January 1, 2018. The amendments are effective upon addition to the FASB Codification. Disclosures related to the effect of the Tax Cuts and Jobs Act appear in Note 7 – “Income Taxes”.

In March 2017, the FASB issued ASU No. 2017-07Compensation—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 (interest cost, amortization of prior service cost and amortization of unrecognized loss) must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). 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 adopted ASU 2017-07 in the first quarter of fiscal 2018. Service cost continues to be presented as a component of Administrative expense while the remaining components of net periodic benefit cost (interest cost, amortization of prior service cost and amortization of unrecognized loss) are now presented below the caption Other expense on the Consolidated Statements of Comprehensive Income. Adoption of this update required a reclassification of $2,133 and $1,850 for fiscal years 2017 and 2016, respectively, from Administrative expense to Other expense.

In October 2016, the FASB issued ASU No. 2016-17Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control”. This update amends 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 is effective for the Company in fiscal 2018 and requires retrospective application. The adoption of ASU 2016-17 did not have any impact to our Consolidated Financial Statements.

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. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other causes. This update became effective for the Company beginning in fiscal year 2018 with prospective application required. The adoption of ASU 2015-11 did not have any impact to our Consolidated Financial Statements.

 

The following recent accounting pronouncements have not yet been adopted:

In June 2018 the FASB issued ASU 2018-07Compensation- Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting” The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This update is effective beginning in fiscal 2020 and, based on our historical use of share-based payment awards, we do not expect this update to have a material impact on our Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-02Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments in this Update also require certain disclosures about stranded tax effects. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. This update is effective beginning in fiscal 2020 and we do not expect this update to have a material impact on our Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09Compensation—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 on our Consolidated Financial Statements.

In January 2017, the FASB issued ASC Update No. 2017-04Intangibles—Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment”. The purpose of this update is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. This update is effective beginning in fiscal 2021. We do not expect this update to have a material impact on our Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15Statement 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. 2016-13Financial 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 our Consolidated Financial Statements once adopted in fiscal 2021.

 

In February 2016, the FASB issued ASU No. 2016-02Leases (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. Under ASU No. 2016-02 the guidance was be adopted using a modified retrospective approach, with elective reliefs, with application of the new guidance for all periods presented. In July 2018, the FASB issued ASU No. 2018-11Leases (Topic 842): Targeted Improvements” which provides for another transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this update also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component, similar to the expedient provided for lessees. In July 2018, the FASB also issued ASU No. 2018-10Codification Improvements to Topic 842, Leases” which affects narrow aspects of the guidance issued in ASU No. 2016-02. Based on our current portfolio of leases, the Company expects the impact of these new standards to significantly increase total assets and total liabilities, and lead to increased financial statement disclosures.

In May 2014, the FASB issued ASU No. 2014-09Revenue 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. 2015-14Revenue 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 analysis of this accounting standard update which included a review of all material customer contracts and sales incentives. On June 29, 2018 we adopted the new standard utilizing the full retrospective method. The Company’s adoption of ASU 2014-09 in fiscal 2019 is not expected to have a material impact on our revenue recognition compared to previous GAAP.

v3.10.0.1
Inventories
12 Months Ended
Jun. 28, 2018
Inventory Disclosure [Abstract]  
Inventories

NOTE 2 — INVENTORIES

Inventories consist of the following:

 

     June 28, 2018      June 29, 2017  

Raw material and supplies

   $ 73,209      $ 79,609  

Work-in-process and finished goods

     101,409        102,811  
  

 

 

    

 

 

 
   $ 174,618      $ 182,420  
  

 

 

    

 

 

 
v3.10.0.1
Acquisition of Squirrel Brand L.P.
12 Months Ended
Jun. 28, 2018
Business Combinations [Abstract]  
Acquisition of Squirrel Brand L.P.

NOTE 3 – ACQUISITION OF SQUIRREL BRAND L.P.

On November 30, 2017, we acquired certain assets and assumed certain liabilities (the “Acquisition”) of Squirrel Brand L.P. (“Squirrel Brand”) for a purchase price of $31,500. After giving effect to the working capital adjustments, the purchase price was $33,227, of which a net cash payment of $21,727 was made and $11,500 was financed by the seller through a three-year unsecured promissory note (the “Promissory Note”). The cash portion of the acquisition price was funded from our Credit Facility, as defined below.

The Squirrel Brand business is one of the nation’s leading suppliers of indulgent and premium roasted nuts and snack mixes under its Squirrel Brand and Southern Style Nuts brands. Prior to the Acquisition, Squirrel Brand was a customer in our Contract Packaging sales channel for fourteen years. The Acquisition has been accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations”. As a result of the Acquisition, we expanded our customer base and branded product portfolio, as well as increased our customer reach, especially into alternative distribution channels.

 

The total purchase price has been allocated to the fair values of the assets acquired and liabilities assumed as follows:

 

Accounts receivable

   $ 2,362  

Inventories

     1,957  

Other assets

     63  

Identifiable intangible assets:

  

Customer relationships

     10,500  

Brand names

     8,900  

Non-compete agreement

     270  

Goodwill

     9,650  

Accounts payable and accrued expenses

     (475
  

 

 

 

Total Purchase Price

   $ 33,227  
  

 

 

 

The customer relationship assets represent the value of the long-term strategic relationship the Squirrel Brand business has with its significant customers, which we are amortizing over a weighted-average life of 7.5 years. The assets were valued using an income approach, specifically the “multi-period excess earnings” method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the GAAP fair value hierarchy.

The brand name assets represent the value of the established Squirrel Brand and Southern Style Nuts names. We applied the income approach through a relief from royalty method analysis to determine the fair value of the brand name assets. We are amortizing the brand name assets over a weighted-average life of 13.8 years.

The non-compete agreement is being amortized on a straight-line basis over five years.

Goodwill, which is expected to be deductible for income tax purposes, arises from intangible assets that do not qualify for separate recognition and expected synergies from combining the operations of Squirrel Brand with the Company. There were no material contingencies recognized or unrecognized associated with the acquired business.

The following reflects the unaudited pro forma results of operations of the Company as if the Acquisition had taken place at the beginning of fiscal 2017. This pro forma information does not purport to represent what the Company’s actual results would have been if the Acquisition had occurred as of the date indicated or what such results would be for any future periods.

 

     Year-Ended
June 28, 2018
     Year-Ended
June 29, 2017
 

Pro forma net sales

   $ 893,740      $ 863,267  

Pro forma net income

     32,995        36,723  

Pro forma diluted earnings per share

   $ 2.88      $ 3.22  

These unaudited pro forma results have been calculated after applying our accounting policies and adjusting the results of the Squirrel Brand business to reflect elimination of transaction costs and to record additional amortization and interest expense that would have been charged, assuming the fair value adjustment to intangible assets since July 1, 2016, net of related income taxes in respect of pro forma net income and diluted earnings per share performance. Transaction costs of $500, already recorded in Administrative expenses, are excluded from the pro forma net income for the year ended June 28, 2018 stated above.

Net sales of approximately $25,422 since the Acquisition closed on November 30, 2017 are included in our consolidated financial results as of June 28, 2018.

Since the Acquisition, we continue to operate in a single operating segment that consists of selling various nut and nut-related products through three sales distribution channels.

v3.10.0.1
Goodwill and Intangible Assets
12 Months Ended
Jun. 28, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

NOTE 4 — GOODWILL AND INTANGIBLE ASSETS

Intangible assets subject to amortization consist of the following:

 

     June 28, 2018      June 29, 2017  

Customer relationships

   $ 21,100      $ 10,600  

Non-compete agreements

     270        —    

Brand names

     16,990        8,090  
  

 

 

    

 

 

 

Total intangible assets, gross

     38,360        18,690  
  

 

 

    

 

 

 

Less accumulated amortization:

     

Customer relationships

     (12,182      (10,600

Non-compete agreements

     (32      —    

Brand names

     (8,492      (8,090
  

 

 

    

 

 

 

Total accumulated amortization

     (20,706      (18,690
  

 

 

    

 

 

 

Net intangible assets

   $ 17,654      $ —    
  

 

 

    

 

 

 

Customer relationships relate to the Squirrel Brand acquisition completed in fiscal 2018 and the Orchard Valley Harvest (“OVH”) acquisition completed in fiscal 2010. The customer relationships resulting from the OVH acquisition were fully amortized in fiscal 2017. The brand names consist primarily of the Squirrel Brand and Southern Style Nuts brand names acquired in fiscal 2018 and the Fisher brand name, which we acquired in a 1995 acquisition. The Fisher brand name was fully amortized in fiscal 2011. The remainder of the brand name relates to the OVH acquisition which was fully amortized in fiscal 2015. The weighted-average amortization period of the remaining intangible assets is 11.3 years.

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Amortization of intangible assets

   $ 2,016      $ 1,369      $ 1,710  
  

 

 

    

 

 

    

 

 

 

Expected amortization expense the next five fiscal years is as follows:

 

Fiscal year ending

      

June 27, 2019

   $ 3,028  

June 25, 2020

     2,501  

June 24, 2021

     2,165  

June 30, 2022

     1,896  

June 29, 2023

     1,657  

Our net goodwill of $9,650 relates entirely to the Squirrel Brand acquisition completed in fiscal 2018. The changes in the carrying amount of goodwill during the two fiscal years ended June 28, 2018 are as follows:

 

Gross goodwill balance at July 1, 2016

   $ 8,766  

Accumulated amortization and impairments

     (8,766
  

 

 

 

Net balance at July 1, 2016

     —    

Goodwill acquired during fiscal 2018

     9,650  
  

 

 

 

Net balance at June 28, 2018

   $ 9,650  
  

 

 

 
v3.10.0.1
Revolving Credit Facility
12 Months Ended
Jun. 28, 2018
Text Block [Abstract]  
Revolving Credit Facility

NOTE 5 — 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 28, 2018 and June 29, 2017, the weighted average interest rate for the Credit Facility was 3.90% and 3.11%, 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 28, 2018, 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. At June 28, 2018, we had $82,972 of available credit under the Credit Facility which reflects borrowings of $31,278 and reduced availability as a result of $3,250 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 our Credit Facility 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 our stock per fiscal year, or purchase, acquire, redeem or retire 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 Facility remains over $30,000 immediately before and after giving effect to any such dividend, distribution, purchase or redemption.

On November 29, 2017, we entered into the Consent and Ninth Amendment to our Credit Agreement (the “Ninth Amendment”). The Ninth Amendment provides lender consent for us to incur unsecured debt (in particular, the Promissory Note) in connection with our acquisition of the Squirrel Brand business, and for: (i) the incurrence of unsecured debt in connection with the Acquisition and (ii) the Acquisition to constitute a “Permitted Acquisition” under the terms of the Credit Agreement. The Ninth Amendment also modified our collateral reporting requirements.

v3.10.0.1
Long-Term Debt
12 Months Ended
Jun. 28, 2018
Debt Disclosure [Abstract]  
Long-Term Debt

NOTE 6 — LONG-TERM DEBT

Long-term debt consists of the following:

 

     June 28,
2018
     June 29,
2017
 

Mortgage Facility (“Tranche A”), collateralized by real property, due in monthly installments of $230 including interest at 4.25% per annum with a final payment due March 1, 2023

   $ 11,841      $ 14,200  

Mortgage Facility (“Tranche B”), collateralized by real property, due in monthly installments of $57 including interest at 4.25% per annum with a final payment due March 1, 2023

     2,960        3,550  

Squirrel Brand Seller-Financed Note to a related party, unsecured, due in monthly principal installments of $319 plus interest at 5.5% per annum beginning in January 2018 through November 30, 2020

     9,264        —    

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

     10,584        11,058  

Unamortized debt issuance costs

     (124      (179
  

 

 

    

 

 

 
     34,525        28,629  

Less: Current maturities, net of unamortized debt issuance costs

     (7,169      (3,418
  

 

 

    

 

 

 

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

   $ 27,356      $ 25,211  
  

 

 

    

 

 

 

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”).

On March 1, 2018 the interest rate on the Mortgage Facility was fixed at 4.25% per annum. Prior to March 1, 2018, Tranche A accrued interest at a fixed interest rate of 7.63% per annum, payable monthly and Tranche B accrued 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 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 28, 2018, 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 $71,427 at June 28, 2018.

 

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 had an initial 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. 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. During fiscal 2017 the base monthly lease amount was reduced to $103. The balance of the debt obligation outstanding at June 28, 2018 was $10,584.

In November 2017, we completed the Squirrel Brand acquisition which was financed by a combination of cash (drawn under the Credit Facility) and a three-year seller-financed note for $11,500 (“Promissory Note”). The principal owner and seller of the Squirrel Brand business was subsequently appointed as an executive officer of the Company and is considered a related party. The Promissory Note is unsecured, bears interest at 5.5% per annum and is payable in equal monthly principal payments of $319, plus interest which began in January 2018. Upon an event of default, as defined in the Promissory Note, the interest rate increases to 7.5% until such event of default is cured. We can pre-pay the Promissory Note at any time during the three-year period without penalty. At June 28, 2018, the principal amount of $9,264 of the Promissory Note was outstanding. Interest paid on the Promissory Note for the fiscal year ended June 28, 2018 was $338.

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

 

June 27, 2019

   $ 7,214  

June 25, 2020

     7,376  

June 24, 2021

     5,309  

June 30, 2022

     3,890  

June 29, 2023

     3,213  

Thereafter

     7,647  
  

 

 

 
   $ 34,649  
  

 

 

 
v3.10.0.1
Income Taxes
12 Months Ended
Jun. 28, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 7 — INCOME TAXES

H.R.1, originally known as the Tax Cuts and Jobs Act of 2017 (“Tax Reform”), was enacted on December 22, 2017. The changes to U.S. Tax law include, among other items, (i) a reduction in the federal corporate income tax rate from a maximum of 35% to a flat 21%, (ii) repealing the exception for deductibility of performance-based compensation to covered employees, along with expanding the number of covered employees, and (iii) allowing immediate expensing of machinery and equipment contracted for purchase after September 27, 2017. Tax Reform also establishes new tax provisions that will affect our fiscal year 2019, including, but not limited to eliminating the deduction for domestic manufacturing activities.

Since we have a June fiscal year-end, the lower corporate income tax rate was phased in during the 2018 calendar year, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 28, 2018, and a U.S. statutory federal rate of 21% for subsequent fiscal years. Our net deferred tax asset balances are recorded at the tax rate expected to be in effect during the period in which the related temporary differences reverse. Therefore, this reduction in the corporate federal income tax rate required a non-cash reduction of our net deferred tax asset balances and a corresponding non-cash increase in income tax expense of $3,119 during the year ended June 28, 2018, which is approximately $711 more than we initially estimated at the end of our second fiscal quarter. This net measurement period adjustment increased our annual effective tax rate approximately 1.4%. Our accounting for the income tax effects of Tax Reform are completed as of June 28, 2018.

 

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 28,
2018
     June 29,
2017
     June 30,
2016
 

Current:

        

Federal

   $ 10,722      $ 17,013      $ 14,015  

State

     2,464        2,744        2,222  
  

 

 

    

 

 

    

 

 

 

Total current expense

     13,186        19,757        16,237  

Deferred:

        

Deferred federal

     3,902        (1,698      (210

Deferred state

     (238      (46      40  
  

 

 

    

 

 

    

 

 

 

Total deferred expense (benefit)

     3,664        (1,744      (170
  

 

 

    

 

 

    

 

 

 

Total income tax expense

   $ 16,850      $ 18,013      $ 16,067  
  

 

 

    

 

 

    

 

 

 

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 28,
2018
    June 29,
2017
    June 30,
2016
 

Federal statutory income tax rate

     28.1     35.0     35.0

State income taxes, net of federal benefit

     3.1       3.3       3.2  

Impact of Tax Reform

     6.3       —         —    

Research and development tax credit

     (0.2     (0.1     (0.1

Domestic manufacturing deduction

     (2.2     (3.1     (3.2

Windfall tax benefits

     (1.0     (1.8     —    

Uncertain tax positions

     0.1       0.1       (0.6

Other

     —         (0.1     0.3  
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     34.2     33.3     34.6
  

 

 

   

 

 

   

 

 

 

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 28,
2018
     June 29,
2017
 

Deferred tax assets (liabilities):

     

Accounts receivable

   $ 305      $ 423  

Employee compensation

     810        1,726  

Inventory

     273        345  

Depreciation and amortization

     (9,504      (12,826

Capitalized leases

     1,020        1,508  

Goodwill and intangible assets

     3,160        4,939  

Retirement plan

     5,484        8,224  

Workers’ compensation

     1,692        2,365  

Share based compensation

     1,281        1,908  

Capital loss carryforward

     112        171  

Other

     503        483  

Less valuation allowance

     (112      (171
  

 

 

    

 

 

 

Net deferred tax asset — long term

     5,024        9,095  
  

 

 

    

 

 

 

 

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-planning strategies in making this assessment. During fiscal 2018 and fiscal 2017 the net change in the total valuation allowance was not significant. 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 28, 2018 and June 29, 2017, unrecognized tax benefits and accrued interest and penalties were $214 and $173. 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 $207 and $174 at June 28, 2018 and June 29, 2017, respectively.

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

 

     June 28,
2018
     June 29,
2017
     June 30,
2016
 

Beginning balance

   $ 174      $ 24      $ 248  

Gross increases — tax positions in prior year

     6        7        70  

Gross decreases — tax positions in prior year

     —          —          (8

Settlements

     —          —          (137

Gross increases — tax positions in current year

     27        23        17  

Lapse of statute of limitations

     —          120        (166
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 207      $ 174      $ 24  
  

 

 

    

 

 

    

 

 

 

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

 

     June 28,
2018
     June 29,
2017
     June 30,
2016
 

Unrecognized tax benefits that would affect annual effective tax rate

   $ 177      $ 136      $ 27  

During fiscal 2018, 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 through 2017. Our California tax returns for fiscal 2015 through 2017 are open for audit. No other tax jurisdictions are material to us.

v3.10.0.1
Commitments and Contingencies
12 Months Ended
Jun. 28, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Operating Leases

We primarily lease 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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Rent expense related to operating leases

   $ 1,988      $ 1,880      $ 1,775  
  

 

 

    

 

 

    

 

 

 

 

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 27, 2019

   $ 1,405  

June 25, 2020

     1,199  

June 24, 2021

     904  

June 30, 2022

     762  

June 29, 2023

     494  

Thereafter

     14  
  

 

 

 
   $ 4,778  
  

 

 

 

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. In August 2017, we agreed in principle to a $1.2 million settlement for which we are fully reserved at June 28, 2018.    The non-monetary components of the settlement including the notice and claims administration were finalized in June 2018. The motion for final approval is expected to be approved in mid-August 2018 and final payment is expected during the first quarter of fiscal 2019.

v3.10.0.1
Stockholders' Equity
12 Months Ended
Jun. 28, 2018
Federal Home Loan Banks [Abstract]  
Stockholders' Equity

NOTE 9 — 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 during the first quarter of each fiscal year.

v3.10.0.1
Stock-Based Compensation Plans
12 Months Ended
Jun. 28, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation Plans

NOTE 10 — 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 28, 2018, there were 770,995 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 2014 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. During 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. 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 must 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 2018, fiscal 2017 or fiscal 2016.

The following is a summary of stock option activity for the year ended June 28, 2018:

 

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

Outstanding at June 29, 2017

     2,000      $ 10.24        

Granted

     —          —          

Exercised

     1,500        10.74        

Forfeited

     —          —          
  

 

 

          

Outstanding at June 28, 2018

     500      $ 8.71        3.6      $ 33  
  

 

 

          

 

 

 

Exercisable at June 28, 2018

     500      $ 8.71        3.6      $ 33  
  

 

 

          

 

 

 

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 28,
2018
     Year ended
June 29,
2017
     Year ended
June 30,
2016
 

Total intrinsic value of options exercised

   $ 79      $ 374      $ 792  

Total cash received from exercise of options

   $ 16      $ 63      $ 155  

All options were fully vested as of June 30, 2016. Exercise price for options outstanding as of June 28, 2018 was $8.71.

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 28, 2018, June 29, 2017 and June 30, 2016 was $3,296, $2,773 and $3,212, respectively.

The following is a summary of RSU activity for the year ended June 28, 2018:

 

Restricted Stock Units

   Shares      Weighted-
Average
Grant-Date
Fair Value
 

Outstanding at June 29, 2017

     201,858      $ 40.36  

Granted

     60,582        54.41  

Vested (a)

     (73,372      36.52  

Forfeited

     —          —    
  

 

 

    

 

 

 

Outstanding at June 28, 2018

     189,068      $ 46.35  
  

 

 

    

 

 

 

 

(a)

The number of RSUs vested includes shares that were withheld on behalf of employees to satisfy statutory tax withholding requirements.

At June 28, 2018 there were 61,008 RSUs outstanding that were vested but deferred. At June 29, 2017 there were 68,673 RSUs outstanding that were vested but deferred. The non-vested RSUs at June 28, 2018 will vest over a weighted-average period of 1.5 years. The fair value of RSUs that vested for the years ended June 28, 2018, June 29, 2017 and June 30, 2016 was $2,680, $1,910 and $928, 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 28,
2018
     Year ended
June 29,
2017
     Year ended
June 30,
2016
 

Compensation cost charged to earnings

   $ 2,796      $ 2,504      $ 2,489  

Income tax benefit recognized

     895        951        962  

At June 28, 2018, there was $3,507 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 1.5 years.

v3.10.0.1
Cash Dividends
12 Months Ended
Jun. 28, 2018
Text Block [Abstract]  
Cash Dividends

NOTE 11 — CASH DIVIDENDS

Our Board of Directors declared the following cash dividends payable in fiscal 2018 and fiscal 2017:

 

Declaration Date

  

Record Date

   Dividend Per
Share
     Total
Amount
    

Payment Date

July 11, 2017

  

August 2, 2017

   $ 2.50      $ 28,370     

August 15, 2017

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

On July 10, 2018, our Board of Directors declared a special cash dividend of $2.00 per share and a regular annual cash dividend of $0.55 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company. Refer to Note 19 – “Subsequent Events” below.

v3.10.0.1
Employee Benefit Plans
12 Months Ended
Jun. 28, 2018
Postemployment Benefits [Abstract]  
Employee Benefit Plans

NOTE 12 — 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. Expense for the 401(k) plan was as follows for the last three fiscal years:

 

     Year ended
June 28,
2018
     Year ended
June 29,
2017
     Year ended
June 30,
2016
 

401(k) plan expense

   $ 1,741      $ 1,664      $ 1,604  

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 28,
2018
     June 29,
2017
 

Route pension liability

   $ 323      $ 397  

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, if any, are paid to participants in the first quarter of the following fiscal year.

v3.10.0.1
Retirement Plan
12 Months Ended
Jun. 28, 2018
Retirement Benefits [Abstract]  
Retirement Plan

NOTE 13 — 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 28,
2018
     June 29,
2017
 

Change in projected benefit obligation

     

Projected benefit obligation at beginning of year

   $ 21,641      $ 22,791  

Service cost

     607        631  

Interest cost

     851        811  

Actuarial gain

     (511      (1,938

Benefits paid

     (654      (654
  

 

 

    

 

 

 

Projected benefit obligation at end of year

   $ 21,934      $ 21,641  
  

 

 

    

 

 

 

The accumulated benefit obligation, which represents benefits earned up to the measurement date, was $18,582 and $17,774 at June 28, 2018 and June 29, 2017, respectively.

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

 

     June 28,
2018
     June 29,
2017
     June 30,
2016
 

Actuarial (Gain) Loss

        

Change in assumed pay increases

   $ (56    $ 124      $ 68  

Change in discount rate

     (523      (1,402      3,509  

Change in mortality assumptions

     (117      (193      (132

Other

     185        (467      128  
  

 

 

    

 

 

    

 

 

 

Actuarial (gain) loss

   $ (511    $ (1,938    $ 3,573  
  

 

 

    

 

 

    

 

 

 

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

 

     June 28,
2018
     June 29,
2017
     June 30,
2016
 

Service cost

   $ 607      $ 631      $ 491  

Interest cost

     851        811        843  

Recognized loss amortization

     162        365        50  

Prior service cost amortization

     957        957        957  
  

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 2,577      $ 2,764      $ 2,341  
  

 

 

    

 

 

    

 

 

 

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-2017 was utilized in the preparation of our pension obligation as of June 28, 2018.

 

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

 

     June 28,
2018
    June 29,
2017
 

Discount rate

     4.14 %     3.99 %

Average rate of compensation increases

     3.38     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 28,
2018
    June 29,
2017
    June 30,
2016
 

Discount rate

     3.99 %     3.61 %     4.63 %

Rate of compensation increases

     4.50     4.50     4.50

Mortality

    

RP-2014 white
collar with MP-
2016 scale


 
   

RP-2014 white
collar with MP-
2015 scale


 
   

RP-2014 white
collar with MP-
2014 scale


 

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 4 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       

2019

   $ 646  

2020

     628  

2021

     744  

2022

     716  

2023

     684  

2024 — 2028

     5,694  

At June 28, 2018 and June 29, 2017, the current portion of the SERP liability was $646 and $647, 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 28,
2018
     June 29,
2017
 

Unrecognized net loss

   $ (2,951    $ (3,624

Unrecognized prior service cost

     (2,392      (3,349

Tax effect

     2,162        2,569  
  

 

 

    

 

 

 

Net amount unrecognized

   $ (3,181    $ (4,404
  

 

 

    

 

 

 

We expect to recognize $957 of the prior service cost and $95 of net loss into net periodic pension expense during the fiscal year ending June 27, 2019.

v3.10.0.1
Accumulated Other Comprehensive Loss
12 Months Ended
Jun. 28, 2018
Equity [Abstract]  
Accumulated Other Comprehensive Loss

NOTE 14 — 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 28,
2018
     Year
Ended
June 29,
2017
 

Balance at beginning of period

   $ (4,404    $ (6,425

Other comprehensive income before reclassifications

     511        1,938  

Amounts reclassified from accumulated other comprehensive loss

     1,119        1,322  

Tax effect

     (407      (1,239
  

 

 

    

 

 

 

Net current-period other comprehensive income

     1,223        2,021  
  

 

 

    

 

 

 

Balance at end of period

   $ (3,181    $ (4,404
  

 

 

    

 

 

 

 

(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 28,
2018
     Year
Ended
June 29,
2017
     Affected line item in the
Consolidated Statements of
Comprehensive Income
 

Amortization of defined benefit pension items:

        

Unrecognized prior service cost

   $ (957    $ (957      Other expense  

Unrecognized net loss

     (162      (365      Other expense  
  

 

 

    

 

 

    

Total before tax

     (1,119      (1,322   

Tax effect

     280        502        Income tax expense  
  

 

 

    

 

 

    

Amortization of defined pension items, net of tax

   $ (839    $ (820   
  

 

 

    

 

 

    

 

  (b) 

Amounts in parenthesis indicate debits to expense. See Note 13 — “Retirement Plan” above for additional details.

v3.10.0.1
Transactions with Related Parties
12 Months Ended
Jun. 28, 2018
Related Party Transactions [Abstract]  
Transactions with Related Parties

NOTE 15 — TRANSACTIONS WITH RELATED PARTIES

In addition to the related party transactions described in Note 6, we also purchased materials from a company that until July 2017 was owned by three members of our Board of Directors, two of whom are also executive officers, and individuals directly related to them. Purchases from this related party aggregated to the following for the years ending:

 

     Year ended
June 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Purchases from related party

   $ 360      $ 8,043      $ 7,138  
  

 

 

    

 

 

    

 

 

 

Accounts payable to this related entity was $178 at June 29, 2017.

v3.10.0.1
Product Type Sales Mix
12 Months Ended
Jun. 28, 2018
Asset Retirement Obligation Disclosure [Abstract]  
Product Type Sales Mix

NOTE 16 — 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 28,
2018
    June 29,
2017
    June 30,
2016
 

Peanuts

     15.7     15.7     13.9

Pecans

     14.0       16.2       13.1  

Cashews & Mixed Nuts

     24.6       24.3       23.3  

Walnuts

     9.0       8.4       9.4  

Almonds

     15.5       16.3       23.0  

Trail & Snack Mixes

     15.5       13.9       12.4  

Other

     5.7       5.2       4.9  
  

 

 

   

 

 

   

 

 

 
     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 
v3.10.0.1
Valuation and Qualifying Accounts and Reserves
12 Months Ended
Jun. 28, 2018
SEC Schedule, 12-09, Valuation and Qualifying Accounts [Abstract]  
Valuation and Qualifying Accounts and Reserves

NOTE 17 — 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 28, 2018

           

Allowance for doubtful accounts

   $ 263      $ 52      $ (45    $ 270  

Reserve for cash discounts

     850        13,889        (13,789      950  

Reserve for customer deductions

     2,979        22,420        (20,361      5,038  

Deferred tax asset valuation allowance

     171        —          (59      112  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,263      $ 36,361      $ (34,254    $ 6,370  
  

 

 

    

 

 

    

 

 

    

 

 

 

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  
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.10.0.1
Supplementary Quarterly Data (Unaudited)
12 Months Ended
Jun. 28, 2018
Quarterly Financial Information Disclosure [Abstract]  
Supplementary Quarterly Data (Unaudited)

NOTE 18 — SUPPLEMENTARY QUARTERLY DATA (Unaudited)

The following unaudited quarterly consolidated financial data are presented for fiscal 2018 and fiscal 2017. 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 28, 2018:

           

Net sales

   $ 214,791      $ 259,118      $ 203,181      $ 211,505  

Gross profit

     34,840        37,880        33,186        32,913  

Income from operations

     17,336        14,249        14,103        10,421  

Net income

     10,432        7,756        8,631        5,601  

Basic earnings per common share

   $ 0.92      $ 0.68      $ 0.76      $ 0.49  

Diluted earnings per common share

   $ 0.91      $ 0.68      $ 0.75      $ 0.49  

Cash dividends declared per common share

   $ 2.50      $ —        $ —        $ —    

 

     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

     17,089        20,275        10,964        12,149  

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      $ —        $ —    
v3.10.0.1
Subsequent Event
12 Months Ended
Jun. 28, 2018
Subsequent Events [Abstract]  
Subsequent Event

NOTE 19 — SUBSEQUENT EVENT

On July 10, 2018, our Board of Directors declared a special cash dividend of $2.00 per share and a regular annual cash dividend of $0.55 per share on all issued and outstanding shares of Common Stock and Class A Stock of the Company (the “August 2018 Dividends”). The August 2018 Dividends will be paid on August 17, 2018 to stockholders of record as of the close of business on August 3, 2018.

v3.10.0.1
Significant Accounting Policies (Policies)
12 Months Ended
Jun. 28, 2018
Accounting Policies [Abstract]  
Basis of Presentation and Consolidation and Description of Business

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, Squirrel Brand, Southern Style Nuts, 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

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

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

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

Property, Plant and Equipment

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 28, 2018
     Year Ended
June 29, 2017
     Year Ended
June 30, 2016
 

Depreciation expense

   $ 13,414      $ 14,190      $ 14,875  
  

 

 

    

 

 

    

 

 

 

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.

Business Combinations

Business Combinations

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

Segment Reporting

Segment Reporting

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

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

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

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

Goodwill

Goodwill

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

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

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

 

Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of our single reporting unit are identified (similar to impairment indicators above).    During fiscal 2018 we elected to perform qualitative impairment test which indicated no indicators of goodwill impairment.

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

Facility Consolidation Project/Real Estate Transactions

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 63% of the rentable area in the office building is currently vacant, of which approximately 29% has not been built-out. The other building, a warehouse, was expanded and modified for use as our principal processing facility and headquarters. The allocation of the purchase price to the two buildings was determined through a third-party appraisal. The value assigned to the office building is included in rental investment property on the balance sheet. The value assigned to the warehouse building is included in “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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Gross rental income

   $ 1,988      $ 2,003      $ 1,898  

Rental (expense), net (1)

     (1,420      (1,311      (1,371

 

(1)

Includes annual depreciation expense of approximately $800.

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

 

June 27, 2019

   $ 1,940  

June 25, 2020

     1,875  

June 24, 2021

     1,647  

June 30, 2022

     1,431  

June 29, 2023

     1,450  

Thereafter

     1,950  
  

 

 

 
   $ 10,293  
  

 

 

 
Fair Value of Financial Instruments

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 28, 2018 and June 29, 2017 because of the short-term maturities and nature of these balances.

The carrying value of our Credit Facility (as defined in Note 5 – “Revolving Credit Facility” in the Notes to Consolidated Financial Statements “Revolving Credit Facility” below) borrowings approximates fair value at June 28, 2018 and June 29, 2017 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 28, 2018      June 29, 2017  

Carrying value of long-term debt:

   $ 34,649      $ 28,808  

Fair value of long-term debt:

     33,482        29,316  

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

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, title has transferred (based upon terms of shipment), price is fixed, delivery has 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.

Significant Customers and Concentration of Credit Risk

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 exceeded 10% of net sales during each of fiscal 2018, fiscal 2017 and fiscal 2016. Sales to these customers represented approximately 54%, 53% and 50% of our net sales in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Net accounts receivable from these customers were 62% and 56% of net accounts receivable at June 28, 2018 and June 29, 2017, respectively.

Promotion, Marketing and Advertising Costs

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Marketing and advertising expense

   $ 11,290      $ 10,064      $ 11,569  
  

 

 

    

 

 

    

 

 

 
Shipping and Handling Costs

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Shipping and handling costs

   $ 20,418      $ 17,682      $ 16,686  
  

 

 

    

 

 

    

 

 

 
Research and Development Expenses

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Research and development expense

   $ 701      $ 658      $ 653  
  

 

 

    

 

 

    

 

 

 
Stock-Based Compensation

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. 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

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 28, 2018, we believe that our deferred tax assets are fully realizable, except for $112 of net basis differences for which we have provided a valuation allowance.

Earnings per Share

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Weighted average number of shares outstanding — basic

     11,383,080        11,317,149        11,233,975  

Effect of dilutive securities:

        

Stock options and restricted stock units

     66,306        86,456        98,949  
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares outstanding — diluted

     11,449,386        11,403,605        11,332,924  
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year ended
June 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Weighted average number of anti-dilutive shares:

     —          1,068      —    

Weighted average exercise price per share:

   $ —        $ 65.35    $ —    
Comprehensive Income

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

Recent Accounting Pronouncements

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

In March 2018, the FASB issued ASU No. 2018-05 “Income Taxes (Topic 741) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. These amendments add SEC guidance to the FASB Accounting Standards Codification regarding the Tax Cuts and Jobs Act pursuant to the issuance of SAB 118 which was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform which became effective for the Company on January 1, 2018. The amendments are effective upon addition to the FASB Codification. Disclosures related to the effect of the Tax Cuts and Jobs Act appear in Note 7 – “Income Taxes”.

In March 2017, the FASB issued ASU No. 2017-07Compensation—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 (interest cost, amortization of prior service cost and amortization of unrecognized loss) must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). 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 adopted ASU 2017-07 in the first quarter of fiscal 2018. Service cost continues to be presented as a component of Administrative expense while the remaining components of net periodic benefit cost (interest cost, amortization of prior service cost and amortization of unrecognized loss) are now presented below the caption Other expense on the Consolidated Statements of Comprehensive Income. Adoption of this update required a reclassification of $2,133 and $1,850 for fiscal years 2017 and 2016, respectively, from Administrative expense to Other expense.

In October 2016, the FASB issued ASU No. 2016-17Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control”. This update amends 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 is effective for the Company in fiscal 2018 and requires retrospective application. The adoption of ASU 2016-17 did not have any impact to our Consolidated Financial Statements.

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. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other causes. This update became effective for the Company beginning in fiscal year 2018 with prospective application required. The adoption of ASU 2015-11 did not have any impact to our Consolidated Financial Statements.

 

The following recent accounting pronouncements have not yet been adopted:

In June 2018 the FASB issued ASU 2018-07Compensation- Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting” The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This update is effective beginning in fiscal 2020 and, based on our historical use of share-based payment awards, we do not expect this update to have a material impact on our Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-02Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments in this Update also require certain disclosures about stranded tax effects. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. This update is effective beginning in fiscal 2020 and we do not expect this update to have a material impact on our Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09Compensation—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 on our Consolidated Financial Statements.

In January 2017, the FASB issued ASC Update No. 2017-04Intangibles—Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment”. The purpose of this update is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, commonly referred to as “Step 2”. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. This update is effective beginning in fiscal 2021. We do not expect this update to have a material impact on our Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15Statement 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. 2016-13Financial 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 our Consolidated Financial Statements once adopted in fiscal 2021.

 

In February 2016, the FASB issued ASU No. 2016-02Leases (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. Under ASU No. 2016-02 the guidance was be adopted using a modified retrospective approach, with elective reliefs, with application of the new guidance for all periods presented. In July 2018, the FASB issued ASU No. 2018-11Leases (Topic 842): Targeted Improvements” which provides for another transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this update also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component, similar to the expedient provided for lessees. In July 2018, the FASB also issued ASU No. 2018-10Codification Improvements to Topic 842, Leases” which affects narrow aspects of the guidance issued in ASU No. 2016-02. Based on our current portfolio of leases, the Company expects the impact of these new standards to significantly increase total assets and total liabilities, and lead to increased financial statement disclosures.

In May 2014, the FASB issued ASU No. 2014-09Revenue 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. 2015-14Revenue 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 analysis of this accounting standard update which included a review of all material customer contracts and sales incentives. On June 29, 2018 we adopted the new standard utilizing the full retrospective method. The Company’s adoption of ASU 2014-09 in fiscal 2019 is not expected to have a material impact on our revenue recognition compared to previous GAAP.

v3.10.0.1
Significant Accounting Policies (Tables)
12 Months Ended
Jun. 28, 2018
Accounting Policies [Abstract]  
Depreciation Expense for Last Three Fiscal Years

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

 

     Year Ended
June 28, 2018
     Year Ended
June 29, 2017
     Year Ended
June 30, 2016
 

Depreciation expense

   $ 13,414      $ 14,190      $ 14,875  
  

 

 

    

 

 

    

 

 

 
Estimated Useful Lives of Property, Plant and Equipment

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  
Schedule of Gross Rental Income and Rental (Expense)

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Gross rental income

   $ 1,988      $ 2,003      $ 1,898  

Rental (expense), net (1)

     (1,420      (1,311      (1,371

 

(1)

Includes annual depreciation expense of approximately $800.

Expected Future Gross Rental Income Under Operating Leases within Office Building

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

 

June 27, 2019

   $ 1,940  

June 25, 2020

     1,875  

June 24, 2021

     1,647  

June 30, 2022

     1,431  

June 29, 2023

     1,450  

Thereafter

     1,950  
  

 

 

 
   $ 10,293  
  

 

 

 
Carrying Value and Fair Value Estimate of Current and Long-Term Debt

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

 

     June 28, 2018      June 29, 2017  

Carrying value of long-term debt:

   $ 34,649      $ 28,808  

Fair value of long-term debt:

     33,482        29,316  
Marketing and Advertising Expenses, Recorded in Selling Expenses

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Marketing and advertising expense

   $ 11,290      $ 10,064      $ 11,569  
  

 

 

    

 

 

    

 

 

 
Shipping and Handling Cost for Last Three Fiscal Years

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Shipping and handling costs

   $ 20,418      $ 17,682      $ 16,686  
  

 

 

    

 

 

    

 

 

 
Research and Development Expenses for Last Three Fiscal Years

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 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Research and development expense

   $ 701      $ 658      $ 653  
  

 

 

    

 

 

    

 

 

 
Weighted Average Shares Outstanding Used in Computing Basic and Diluted Earnings Per Share

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

 

     Year ended
June 28, 2018
     Year ended
June 29, 2017
     Year ended
June 30, 2016
 

Weighted average number of shares outstanding — basic

     11,383,080        11,317,149        11,233,975  

Effect of dilutive securities:

        

Stock options and restricted stock units

     66,306        86,456        98,949