SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 24, 2004
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19681
JOHN B. SANFILIPPO & SON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2419677
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2299 Busse Road
Elk Grove Village, Illinois 60007
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(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code: (847) 593-2300
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ].
The aggregate market value of the voting Common Stock held by non-
affiliates was $273,669,606 as of December 24, 2003 (5,505,323 shares
at $49.71 per share).
As of September 1, 2004, 8,079,224 shares of the Company's Common
Stock, $.01 par value ("Common Stock"), including 117,900 treasury
shares, and 2,597,426 shares of the Company's Class A Common Stock,
$.01 par value ("Class A Stock"), were outstanding.
Documents Incorporated by Reference:
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Portions of the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held October 26, 2004 are incorporated
by reference into Part III of this Report.
PART I
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Item 1 -- Business
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a. General Development of Business
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(i) Background
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John B. Sanfilippo & Son, Inc. (the "Company" or "JBSS") was
incorporated under the laws of the State of Delaware in 1979 as the
successor by merger to an Illinois corporation that was incorporated
in 1959. As used herein, unless the context otherwise indicates, the
terms "Company" or "JBSS" refer collectively to John B. Sanfilippo &
Son, Inc. and its wholly owned subsidiary, JBS International, Inc.
References herein to fiscal 2004 are to the fiscal year ended June 24,
2004. References herein to fiscal 2003 are to the fiscal year ended
June 26, 2003. References herein to fiscal 2002 are to the fiscal year
ended June 27, 2002.
The Company is one of the leading processors and marketers of tree
nuts and peanuts in the United States. These nuts are sold under a
variety of private labels and under the Company's Fisher, Evon's,
Flavor Tree, Sunshine Country, Texas Pride and Tom Scott brand names.
The Company also markets and distributes, and in most cases
manufactures or processes, a diverse product line of food and snack
items, including peanut butter, candy and confections, natural snacks
and trail mixes, sunflower seeds, corn snacks, sesame sticks and other
sesame snack products.
The Company's headquarters and executive offices are located at 2299
Busse Road, Elk Grove Village, Illinois 60007, and its telephone
number for investor relations is (847) 593-2300, extension 6612.
(ii) Recent Developments -- Stock Offering
-------------------------------------------
In April 2004, the Company completed an underwritten stock offering of
an additional 1,150,000 shares of Common Stock at a price of $35.75
per share, or $34.00 after the underwriting discount. Total net
proceeds to the Company were approximately $38.6 million, after
deducting offering costs. Approximately $16.0 million of the net
proceeds were used to prepay long-term debt, and the remaining $22.6
million was used to reduce outstanding balances under the Company's
bank credit facility.
b. Narrative Description of Business
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(i) General
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As stated above, the Company is one of the leading processors and
marketers of tree nuts and peanuts in the United States. Through a
deliberate strategy of capital expenditures and complementary
acquisitions, the Company has built a vertically integrated nut
processing operation that enables it to control every step of the
process, including procurement from growers, shelling, processing,
packing and marketing. Vertical integration allows the Company to gain
an early understanding of raw material pricing and supply trends, to
enhance product quality and to capture additional processing margins.
Products are sold through the major distribution channels to
significant buyers of nuts, including food retailers, industrial users
for food manufacturing, food service companies and international
customers. Selling through a wide array of distribution channels
allows the Company to generate multiple revenue opportunities for the
nuts it processes. For example, whole almonds could be sold to food
retailers and almond pieces could be sold to industrial users. The
Company processes and sells all major nut types consumed in the United
States, including peanuts, pecans, cashews, walnuts and almonds in a
wide variety of package styles, whereas most of the Company's
competitors focus either on fewer nut types or narrower varieties of
packaging options. The Company processes all major nut types, thus
offering its customers a complete nut product offering. In addition,
the Company is less susceptible to any single nut type's price or crop
volume swings.
2
(ii) Principal Products
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(A) Raw and Processed Nuts
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The Company's principal products are raw and processed nuts. These
products accounted for approximately 90.7%, 88.6% and 88.6% of the
Company's gross sales for fiscal 2004, fiscal 2003 and fiscal 2002,
respectively. The nut product line includes peanuts, almonds, Brazil
nuts, pecans, pistachios, filberts, cashews, English walnuts, black
walnuts, pine nuts and macadamia nuts. The Company's nut products are
sold in numerous package styles and sizes, from poly-cellophane
packages, composite cans, vacuum packed tins, plastic jars and glass
jars for retail sales, to large cases and sacks for bulk sales to
industrial, food service and government customers. In addition, the
Company offers its nut products in a variety of different styles and
seasonings, including natural (with skins), blanched (without skins),
oil roasted, dry roasted, unsalted, honey roasted, butter toffee,
praline and cinnamon toasted. The Company sells its products
domestically to retailers and wholesalers as well as to industrial,
food service and government customers. The Company also sells certain
of its products to foreign customers in the retail, food service and
industrial markets.
The Company acquires a substantial portion of its peanut, pecan,
almond and walnut requirements directly from domestic growers. The
balance of the Company's raw nut supply is purchased from importers
and domestic processors. In fiscal 2004, the majority of the
Company's peanuts, pecans and walnuts were shelled at the Company's
four shelling facilities, and the remaining portion was purchased
shelled from processors and growers. See "Raw Materials and Supplies"
and Item 2 -- "Properties -- Manufacturing Capability, Utilization,
Technology and Engineering" below.
(B) Peanut Butter
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The Company manufactures and markets peanut butter in several sizes
and varieties, including creamy, crunchy and natural. Peanut butter
accounted for approximately 3.6%, 4.0% and 4.0% of the Company's gross
sales for fiscal 2004, fiscal 2003 and fiscal 2002, respectively.
(C) Candy and Confections
--------------------------
The Company markets and distributes a wide assortment of candy and
confections, accounting for approximately 1.1%, 1.7% and 2.6% of the
Company's gross sales for fiscal 2004, fiscal 2003 and fiscal 2002,
respectively. Most of these products are purchased from various candy
manufacturers and sold to retailers in bulk or retail packages under
private labels or the Evon's brand. The majority of the Company's
candy and confections sales and chocolate chip sales (included below
in Other Products) are pursuant to a contract with a single customer
that expires in May 2005. It is expected that this customer will
initiate a competitive bidding process for these products. While the
Company's candy and confections and chocolate chip operations would be
significantly curtailed if the Company is unsuccessful in this
process, the effect on the Company's results of operations would not
be significant.
(D) Other Products
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The Company also markets and distributes, and in many cases processes
and manufactures, a wide assortment of other food and snack products.
These products accounted for approximately 4.6%, 5.7% and 6.3% of the
Company's gross sales for fiscal 2004, fiscal 2003 and fiscal 2002,
respectively. These other products include: natural snacks, trail
mixes and chocolate and yogurt coated products sold to retailers and
wholesalers; baking ingredients (including chocolate chips, peanut
butter chips, flaked coconut and chopped, diced, crushed and sliced
nuts) sold to retailers, wholesalers, industrial and food service
customers; bulk food products sold to retail and food service
customers; an assortment of corn snacks, sunflower seeds, party mixes,
sesame sticks and other sesame snack products sold to retail
supermarkets, vending companies, mass merchandisers and industrial
customers; and a wide variety of toppings for ice cream and yogurt
sold to food service customers.
3
(iii) Customers
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The Company sells products to approximately 3,200 customers, including
approximately 100 international accounts. Retailers of the Company's
products include grocery chains, mass merchandisers, drug store
chains, convenience stores and membership clubs. The Company markets
many of its products directly to approximately 500 retail stores in
Illinois and six other states through its store-door delivery system
discussed below. Wholesale distributors purchase products from the
Company for resale to regional retail grocery chains and convenience
stores.
The Company's industrial customers include bakeries, ice cream and
candy manufacturers and other food and snack processors. Food service
customers include hospitals, schools, universities, airlines, retail
and wholesale restaurant businesses and national food service
franchises. In addition, the Company packages and distributes
products manufactured or processed by others. Sales to Wal-Mart
Stores, Inc. accounted for approximately 19%, 17% and 16% of the
Company's net sales for fiscal 2004, fiscal 2003 and fiscal 2002,
respectively.
(iv) Sales and Distribution
----------------------------
The Company markets its products through its own sales department and
through a network of approximately 150 independent brokers and various
independent distributors and suppliers. The Company's sales
department consists of 60 employees, including 19 regional managers
and 4 sales specialists who manage internal sales efforts and 4 who
oversee the food broker network.
The Company distributes its products from its Illinois, Georgia,
California, North Carolina and Texas production facilities and from
public warehouse and distribution facilities located in various other
states. The majority of the Company's products are shipped from the
Company's production, warehouse and distribution facilities by
contract and common carriers.
JBSS distributes its products to approximately 500 convenience stores,
supermarkets and other retail customer locations through its
store-door delivery system. Under this system, JBSS uses its own fleet
of step-vans to market and distribute nuts, snacks and candy directly
to retail customers on a store-by-store basis. Presently, the
store-door delivery system consists of 20 route salespeople covering
routes located in Illinois and other Midwestern states. District and
regional route managers, as well as sales and marketing personnel
operating out of JBSS's corporate offices, are responsible for
monitoring and managing the route salespeople.
In the Chicago area, JBSS operates thrift stores at two of its
production facilities and at four other retail stores. These stores
sell bulk foods and other products produced by JBSS and by other
vendors.
(v) Marketing
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Marketing strategies are developed by distribution channel. Private
label and branded consumer efforts are focused on building brand
awareness, attracting new customers and increasing consumption in the
snack and baking nut categories. Industrial and food service efforts
are focused on trade-oriented marketing.
The Company's consumer promotional campaigns include newspaper
advertisements, coupon offers and co-op advertising with select retail
customers. The Company also conducts an integrated marketing campaign
using multiple media outlets for the promotion of the Fisher brand.
The Company also designs and manufactures point of purchase displays
and bulk food dispensers for use by several of its retail customers.
These displays, and other shelving and pegboard displays purchased by
the Company, are installed by Company personnel. The Company believes
that controlling the type, style and format of display fixtures
benefits the customer and, ultimately, the Company by presenting the
Company's products in a consistent, attractive point of sale
presentation. Additionally, shipper display units are utilized in
retail stores, in an effort to gain additional temporary product
placement and to drive sales volume.
4
Industrial and food service trade promotion includes attending
regional and national trade shows, trade publication advertising and
one-on-one marketing. These promotional efforts highlight the
Company's processing capabilities, broad product portfolio, product
customization and packaging innovation. Additionally, the Company has
established a number of co-branding relationships with industrial
customers.
Through participation in several trade associations, funding of
industry research and sponsorship of educational programs, the Company
supports efforts to increase awareness of the health benefits,
convenience and versatility of nuts as both a snack and a recipe
ingredient among existing and next generation consumers of nuts.
(vi) Competition
-----------------
The Company's nuts and other snack food products compete against
products manufactured and sold by numerous other companies in the
snack food industry, some of which are substantially larger and have
greater resources than the Company. In the nut industry, the Company
competes with, among others, Planters, Ralcorp Holdings, Inc. and
numerous regional snack food processors. Competitive factors in the
Company's markets include price, product quality, customer service,
breadth of product line, brand name awareness, method of distribution
and sales promotion. See "Forward Looking Statements -- Factors That
May Affect Future Results -- Competitive Environment" below.
(vii) Raw Materials and Supplies
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The Company purchases nuts from domestic and foreign sources. In
fiscal 2004, all of the Company's peanuts were purchased from the
southeastern United States and all of its walnuts and almonds were
purchased from California. The Company purchases its pecans from the
southern United States and Mexico. Cashew nuts are imported from
India, Africa, Brazil and Southeast Asia. For fiscal 2004,
approximately 33% of the Company's nut purchases were from foreign
sources.
Competition in the nut shelling industry is driven by shellers'
ability to access and purchase raw nuts, to shell the nuts efficiently
and to sell the nuts to processors. The Company is the only sheller of
all five major domestic nut types and is among a select few shellers
who further process, package and sell nuts to the end-user. Raw
material pricing pressure, the inability of some shellers to extend
credit to raw material suppliers and the high cost of equipment
automation have contributed to a consolidation among shellers across
all nut types, especially peanuts.
The Company sponsors a seed exchange program under which it provides
peanut seed to growers in return for a commitment to repay the dollar
value of that seed, plus interest, in the form of farmer stock, or
peanuts at harvest. Approximately 89% of the farmer stock peanuts
(approximately 42% of the Company's total peanut usage) purchased by
the Company in fiscal 2004 were grown from seed provided by the
Company. The Company also contracts for the growing of a limited
number of generations of peanut seeds to increase seed quality and
maintain desired genetic characteristics of the peanut seed used in
processing.
The availability and cost of raw materials for the production of the
Company's products, including peanuts, pecans, walnuts, almonds, other
nuts, dried fruit, coconut and chocolate, are subject to crop size and
yield fluctuations caused by factors beyond the Company's control,
such as weather conditions and plant diseases. These fluctuations can
adversely impact the Company's profitability. Additionally, the supply
of edible nuts and other raw materials used in the Company's products
could be reduced upon a determination by the USDA or any other
government agency that certain pesticides, herbicides or other
chemicals used by growers have left harmful residues on portions of
the crop or that the crop has been contaminated by aflatoxin or other
agents.
Due, in part, to the seasonal nature of the industry, the Company
maintains significant inventories of peanuts, pecans, walnuts and
almonds at certain times of the year, especially in the second and
third quarters of the Company's fiscal year. Fluctuations in the
market price of peanuts, pecans, walnuts, almonds and other nuts may
affect the value of the Company's inventory and thus the Company's
gross profit and gross profit margin. See "Introduction", "Fiscal
2004 Compared to Fiscal 2003 -- Gross Profit" and "Fiscal 2003
Compared to Fiscal 2002 -- Gross Profit" under Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
5
The Company purchases other inventory items, such as roasting oils,
seasonings, glass jars, plastic jars, labels, composite cans and other
packaging materials, from third parties.
(viii) Trademarks and Patents
-----------------------------
The Company markets its products primarily under private labels and
the Fisher, Evon's, Sunshine Country, Flavor Tree, Texas Pride and Tom
Scott brand names, which are registered as trademarks with the U.S.
Patent and Trademark Office as well as in various other jurisdictions.
The Company also owns several patents of various durations. The
Company expects to continue to renew for the foreseeable future those
trademarks that are important to the Company's business.
(ix) Employees
----------------
As of June 24, 2004, the Company had approximately 1,730 active
employees, including approximately 190 corporate staff employees and
1,540 production and distribution employees. The Company's labor
requirements typically peak during the last quarter of the calendar
year, at which time temporary labor is generally used to supplement
the full-time work force.
(x) Seasonality
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The Company's business is seasonal. Demand for peanut and other nut
products is highest during the months of October, November and
December. Peanuts, pecans, walnuts and almonds, the Company's
principal raw materials, are primarily purchased between August and
February and are processed throughout the year until the following
harvest. As a result of this seasonality, the Company's personnel,
working capital requirements and inventories peak during the last four
months of the calendar year. This seasonality also impacts capacity
utilization at the Company's Chicago area facilities, with these
facilities routinely operating at full capacity during the last four
months of the calendar year. See Item 8 -- "Financial Statements and
Supplementary Data" and Item 7 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Introduction".
(xi) Backlog
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Because the time between order and shipment is usually less than three
weeks, the Company believes that backlog as of a particular date is
not indicative of annual sales.
(xii) 2002 Farm Bill
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The Farm Security and Rural Investment Act of 2002 (the "2002 Farm
Bill") terminated the federal peanut quota program beginning with the
2002 crop year. Under the former federal peanut quota program, the
Company was required by the U.S. government to pay a minimum price for
peanuts, most recently $610 per ton. The 2002 Farm Bill replaced the
federal peanut quota program with a fixed payment system through the
2007 crop year that can be either coupled or decoupled. A coupled
system is tied to the actual amount of production, while a decoupled
system is not. The series of loans and subsidies established by the
2002 Farm Bill is similar to the systems used for other crops such as
grains and cotton. To compensate farmers for the elimination of the
peanut quota, the 2002 Farm Bill provides a buy-out at a specified
rate for each pound of peanuts that had been in that farmer's quota
under the prior program. This buy-out price has been lower than the
support price in effect under the former peanut quota program since
the 2002 Farm Bill was enacted. Additionally, among other provisions,
the Secretary of Agriculture may make certain counter-cyclical
payments whenever the Secretary believes that the effective price for
peanuts is less than the target price.
The termination of the federal peanut quota program has resulted in a
decrease in the Company's cost for peanuts due to the elimination of
the support price, thus increasing the gross profit and gross profit
margin on peanut sales. This positive effect on the Company's gross
margin was partially offset by a decrease in peanut selling prices.
There are no assurances that selling prices for peanuts will not be
adversely affected in the future or that the termination of the
federal peanut quota program will not have an adverse effect on the
Company's gross profit and gross profit margin.
6
(xiii) Operating Hazards and Uninsured Risks
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The sale of food products for human consumption involves the risk of
injury to consumers as a result of product contamination or spoilage,
including the presence of foreign objects, substances, chemicals,
aflatoxin and other agents, or residues introduced during the growing,
storage, handling or transportation phases. Although the Company
maintains rigid quality control standards, inspects its products by
visual examination, metal detectors or electronic monitors at various
stages of its shelling and processing operations for all of its nut
and other food products, permits the USDA to inspect all lots of
peanuts shipped to and from the Company's production facilities, and
complies with the Nutrition Labeling and Education Act by labeling
each product that it sells with labels that disclose the nutritional
value and content of each of the Company's products, no assurance can
be given that some nut or other food products sold by the Company may
not contain or develop harmful substances. The Company currently
maintains product liability insurance of $1 million per occurrence and
umbrella coverage of up to $50 million which management and the
Company's insurance carriers believe to be adequate.
Item 2 -- Properties
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The Company presently owns or leases seven principal production
facilities. Two of these facilities are located in Elk Grove Village,
Illinois. The first Elk Grove Village facility, the Busse Road
facility, serves as the Company's corporate headquarters and main
processing facility. The other Elk Grove Village facility is located
on Arthur Avenue adjacent to the Busse Road facility. The remaining
principal production facilities are located in Bainbridge, Georgia;
Garysburg, North Carolina; Selma, Texas; Gustine, California; and
Arlington Heights, Illinois. The Company also leases warehousing
facilities in Des Plaines, Illinois and Elk Grove Village, Illinois.
In addition, the Company operates thrift stores out of the Busse Road
facility and the Des Plaines facility, and owns one retail store and
leases three additional retail stores in the Chicago area. The Company
also leases space in public warehouse facilities in various states.
The Company believes that its facilities are generally well maintained
and in good operating condition.
7
a. Principal Facilities
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The following table provides certain information regarding the
Company's principal facilities:
Date
Company
Constructed,
Type Acquired or
Square of Description of First
Location Footage Interest Principal Use Occupied
- ------------------------------ ------- -------- ------------------ ------------
Elk Grove Village, Illinois(1) 300,000 Leased/ Processing, 1981
(Busse Road facility) Owned packaging,
warehousing,
distribution, JBSS
corporate offices
and thrift store
Elk Grove Village, Illinois 83,000 Owned Processing, 1989
(Arthur Avenue facility) packaging,
warehousing and
distribution
Des Plaines, Illinois(2) 68,000 Leased Warehousing and 1974
thrift store
Bainbridge, Georgia(3) 245,000 Owned Peanut shelling, 1987
purchasing,
processing,
packaging,
warehousing and
distribution
Garysburg, North Carolina 160,000 Owned Peanut shelling, 1994
purchasing,
processing,
packaging,
warehousing and
distribution
Selma, Texas 305,000 Owned Pecan shelling, 1992
processing,
packaging,
warehousing and
distribution
Gustine, California 215,000 Owned Walnut shelling, 1993
processing,
packaging,
warehousing and
distribution
Arlington Heights, Illinois(4) 83,000 Owned Processing, 1994
packaging,
warehousing and
distribution
Elk Grove Village, Illinois(5) 230,000 Leased Warehousing and 2003
(2400 Arthur facility) distribution
(1) Approximately 240,000 square feet of the Busse Road facility is
leased from the Busse Land Trust under a lease that expires on May
31, 2015. Under the terms of the lease, the Company has a right of
first refusal and a right of first offer with respect to this
portion of the Busse Road facility. The remaining 60,000 square
8
feet of space at the Busse Road facility (the "Addition") was
constructed by the Company in 1994 on property owned by the Busse
Land Trust and on property owned by the Company. Accordingly, (i)
the Company and the Busse Land Trust entered into a ground lease
with a term beginning January 1, 1995 pursuant to which the Company
leases from the Busse Land Trust the land on which a portion of the
Addition is situated (the "Busse Addition Property"), and (ii) the
Company, the Busse Land Trust and the sole beneficiary of the Busse
Land Trust entered into a party wall agreement effective as of
January 1, 1995, which sets forth the respective rights and
obligations of the Company and the Busse Land Trust with respect to
the common wall which separates the existing Busse Road facility and
the Addition. The ground lease has a term that expires on May 31,
2015 (the same date on which the Company's lease for the Busse Road
facility expires). The Company has an option to extend the term of
the ground lease for one five-year term, an option to purchase the
Busse Addition Property at its then appraised fair market value at
any time during the term of the ground lease, and a right of first
refusal with respect to the Busse Addition Property. See
"Compensation Committee Interlocks, Insider Participation and
Certain Transactions -- Lease Arrangements" contained in the
Company's Proxy Statement for the 2004 Annual Meeting.
(2) The Des Plaines facility is leased under a lease that expires
on October 31, 2010. The Des Plaines facility is also subject to a
mortgage securing a loan from an unrelated third party lender to the
related party lessor in the original principal amount of
approximately $1.6 million. The rights of the Company under the
lease are subject and subordinate to the rights of the lender.
Accordingly, a default by the lessor under the loan could result in
foreclosure on the facility and thereby adversely affect the
Company's leasehold interest. See "Compensation Committee
Interlocks, Insider Participation and Certain Transactions -- Lease
Arrangements" contained in the Company's Proxy Statement for the
2004 Annual Meeting.
(3) The Bainbridge facility is subject to a mortgage and deed of trust
securing $6.75 million (excluding accrued and unpaid interest) in
industrial development bonds. See Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
(4) The Arlington Heights facility is subject to a mortgage dated
September 27, 1995 securing a loan of $2.5 million with a maturity
date of October 1, 2015.
(5) The 2400 Arthur facility is leased under a lease that expires on
March 31, 2008.
b. Manufacturing Capability, Utilization, Technology and Engineering
- -----------------------------------------------------------------------
The Company's principal production facilities are equipped with modern
processing and packaging machinery and equipment.
The physical structure and the layout of the production line at the
Busse Road facility were designed so that peanuts and other nuts can
be processed, jarred and packed in cases for distribution on a
completely automated basis. The facility also has production lines
for chocolate chips, candies, peanut butter and other products
processed or packaged by the Company. This processing facility is
well utilized.
The Selma facility contains the Company's automated pecan shelling and
bulk packaging operation. The facility's pecan shelling production
lines currently have the capacity to shell in excess of 90 million
inshell pounds of pecans annually. For fiscal 2004, the Company
processed approximately 49 million inshell pounds of pecans at the
Selma, Texas facility. The Selma facility is well utilized.
The Bainbridge facility is located in the largest peanut producing
region in the United States. This facility takes direct delivery of
farmer stock peanuts and cleans, shells, sizes, inspects, blanches,
roasts and packages them for sale to the Company's customers. The
production line at the Bainbridge facility is almost entirely
automated and has the capacity to shell approximately 120 million
inshell pounds of peanuts annually. During fiscal 2004, the
Bainbridge facility shelled approximately 79 million inshell pounds of
peanuts.
9
The Garysburg facility has the capacity to process approximately 70
million inshell pounds of farmer stock peanuts annually. For fiscal
2004, the Garysburg facility processed approximately 24 million pounds
of inshell peanuts.
The Gustine facility is used for walnut shelling, walnut and almond
processing and marketing operations. This facility has the capacity
to shell approximately 50 million inshell pounds of walnuts annually.
For fiscal 2004, the Gustine facility shelled approximately 45
million inshell pounds of walnuts. The Gustine facility has the
capacity to process in excess of 70 million pounds of almonds
annually. For fiscal 2003, the Gustine facility processed
approximately 19 million pounds of almonds.
The Arlington Heights facility is used for the production and
packaging the majority of the Company's Fisher Nut products, the
"stand-up pouch" packaging for its Flavor Tree brand products and for
the production and packaging of the Company's sunflower meats. The
Arlington Heights facility is well utilized.
c. Facility Consolidation Project
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The possibility of continued growth at current levels, and the
seasonality of the Company's business that has caused full-capacity
utilization rates at the Company's Chicago area facilities, has led
the Company to explore additional means of expanding its production
capacity and enhancing its operations efficiency. As a result, the
Company is planning for the consolidation of its five Chicago area
facilities into a single location through the construction of a new
production facility, currently contemplated in Elgin, Illinois. See
Item 7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Expenditures and -- Capital
Resources".
This facility consolidation project is anticipated to achieve two
primary objectives. First, the consolidation is intended to generate
cost savings through the elimination of redundant costs and
improvements in manufacturing efficiencies. Second, the new facility
is expected to initially increase production capacity by 25% to 40%
and would provide substantially more square footage than the aggregate
space now available in the Company's existing Chicago area facilities
to support future growth in the Company's business.
The Company has already taken certain preliminary steps in furtherance
of this facility consolidation project, including the Company and
certain partnerships controlled by executive officers and directors of
the Company entering into a Development Agreement with the City of
Elgin for the development and purchase of the land where the new
facility would be constructed. The Development Agreement is subject
to certain conditions, including but not limited to the completion of
environmental and asbestos remediation procedures, the inclusion of
the property in the Elgin enterprise zone and the establishment of a
tax incremental financing district covering the property. The Company
has paid a $450 thousand deposit to the State of Illinois in
connection with the purchase of this land.
The Company currently expects to break ground during fiscal 2005. It
is anticipated that the project will take four to five years from the
time that the property is acquired to the time the new facility is
fully placed in service. The Company estimates the total cost of the
project to be between $75 and $85 million, which would be financed
through a combination of debt, proceeds from the sale of existing
facilities and available cash flow from operations, provided that the
project occurs. Although the Company currently believes the new
facility would be accretive within three to four years of
groundbreaking, there can be no assurances as to the timing or the
impact on the Company's net income. See "Factors That May Affect
Future Results -- Risks and Uncertainties Regarding Facility
Consolidation Project."
Item 3 -- Legal Proceedings
- ---------------------------
On June 17, 2003, the Company received a subpoena for the production
of documents and records from a grand jury in connection with an
investigation of a portion of the peanut shelling industry by the
Antitrust Division of the United States Department of Justice. The
Company believes the investigation relates to procurement pricing
practices but, given the early stage of the investigation, it could
concern other or additional business practices. The Company has
responded to the subpoena and has produced documents to the Department
of Justice, and two employees of the Company received subpoenas to
appear before the grand jury. The investigation, of which the Company
and the employees are subjects, is on-going. The investigation may
10
have a material adverse effect on the Company's business, financial
condition and results of operations, and on the peanut shelling
industry.
The Company is party to various lawsuits, proceedings and other
matters arising out of the conduct of its business. Currently, it is
management's opinion that the ultimate resolution of these matters
will not have a material adverse effect upon the business, financial
condition or results of operations of the Company.
Item 4 -- Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted during the fourth quarter of fiscal 2004 to a
vote of security holders, through solicitation of proxies or
otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Pursuant to General Instruction G (3) of Form 10-K and Instruction 3
to Item 401(b) of Regulation S-K, the following information is
included as an unnumbered item in Part I of this Report in lieu of
being included in the Proxy Statement for the Company's annual meeting
of stockholders to be held on October 26, 2004:
JASPER B. SANFILIPPO, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER, age 73 -- Mr. Sanfilippo has been employed by the Company
since 1953. Mr. Sanfilippo served as the Company's President from
1982 to December 1995 and was the Company's Treasurer from 1959 to
October 1991. He became the Company's Chairman of the Board and Chief
Executive Officer in October 1991 and has been a member of the
Company's Board of Directors since 1959. Mr. Sanfilippo was also a
member of the Company's Compensation Committee until April 28, 2004
(when that committee was terminated and its responsibilities assumed
by the Compensation, Nominating and Corporate Governance Committee)
and the Stock Option Committee until February 27, 1997 (when that
Committee was disbanded).
MATHIAS A. VALENTINE, PRESIDENT, age 71 -- Mr. Valentine has been
employed by the Company since 1960 and was named its President in
December 1995. He served as the Company's Secretary from 1969 to
December 1995, as its Executive Vice President from 1987 to October
1991 and as its Senior Executive Vice President and Treasurer from
October 1991 to December 1995. He has been a member of the Company's
Board of Directors since 1969. Mr. Valentine was also a member of the
Company's Compensation Committee until April 28, 2004 (when that
committee was terminated and its responsibilities assumed by the
Compensation, Nominating and Corporate Governance Committee) and the
Stock Option Committee until February 27, 1997 (when that Committee
was disbanded).
MICHAEL J. VALENTINE, EXECUTIVE VICE PRESIDENT FINANCE, CHIEF
FINANCIAL OFFICER AND SECRETARY, age 45 -- Mr. Valentine has been
employed by the Company since 1987 and in January 2001 was named its
Executive Vice President Finance, Chief Financial Officer and
Secretary. Mr. Valentine served as the Company's Senior Vice
President and Secretary from August 1999 to January 2001. Mr.
Valentine has been a member of the Company's Board of Directors since
April 1997. Mr. Valentine served as the Company's Vice President and
Secretary from December 1995 to August 1999. He served as an
Assistant Secretary and the General Manager of External Operations for
the Company from June 1987 and 1990, respectively, to December 1995.
Mr. Valentine's responsibilities also include the Company's peanut
operations, including sales and procurement.
JEFFREY T. SANFILIPPO, EXECUTIVE VICE PRESIDENT SALES AND MARKETING,
age 41 -- Mr. Sanfilippo has been employed by the Company since 1991
and in January 2001 was named its Executive Vice President Sales and
Marketing. Mr. Sanfilippo served as the Company's Senior Vice
President Sales and Marketing from August 1999 to January 2001. Mr.
Sanfilippo has been a member of the Company's Board of Directors since
August 1999. He served as General Manager West Coast Operations from
September 1991 to September 1993. He served as Vice President West
Coast Operations and Sales from October 1993 to September 1995. He
served as Vice President Sales and Marketing from October 1995 to
August 1999.
JASPER B. SANFILIPPO, JR., EXECUTIVE VICE PRESIDENT OF OPERATIONS AND
ASSISTANT SECRETARY, age 36 -- Mr. Sanfilippo became a member of the
Company's Board of Directors in December 2003. Mr. Sanfilippo has
been employed by the Company since 1992 and in 2001 was named
Executive Vice President Operations, retaining his position as
Assistant Secretary, which he assumed in December 1995. He became the
Company's Senior Vice President Operations in August 1999 and served
as Vice President Operations between December 1995 and August 1999.
11
Prior to that, Mr. Sanfilippo was the General Manager of the Company's
Gustine, California facility beginning in October 1995, and from June
1992 to October 1995 he served as Assistant Treasurer and worked in
the Company's Financial Relations Department. Mr. Sanfilippo is
responsible for the Company's non-peanut shelling operations,
including plant operations and procurement.
JAMES A. VALENTINE, EXECUTIVE VICE PRESIDENT INFORMATION TECHNOLOGY,
age 40 -- Mr. Valentine has been employed by the Company since 1986
and in August 2001 was named Executive Vice President Information
Technology. Mr. Valentine served as Senior Vice President Information
Technology from January 2000 to August 2001 and as Vice President of
Management Information Systems from January 1995 to January 2000.
JAMES M. BARKER, SENIOR VICE PRESIDENT SALES AND MARKETING, age 39 --
Mr. Barker has been employed by the Company since 1996 and in March
2001 was named Senior Vice President Sales and Marketing. He served
as Vice President of Sales and Marketing from December 1998 to March
2001, Vice President of Marketing from December 1996 to December 1998
and Director of Marketing from January 1996 to December 1996.
WILLIAM R. POKRAJAC, VICE PRESIDENT OF FINANCE, age 50 -- Mr. Pokrajac
has been with the Company since 1985 and was named Vice President of
Finance and Controller in August 2001. He served as the Company's
Controller from 1987 to August 2003. Mr. Pokrajac is responsible for
the Company's accounting and inventory control functions.
WALTER R. TANKERSLEY, JR., SENIOR VICE PRESIDENT INDUSTRIAL SALES, age
53 -- Mr. Tankersley has been with the Company since 2002 as the Vice
President of Industrial Sales, and was named Senior Vice President in
August 2003. He was previously Director of Industrial Sales at Mauna
Loa Macadamia Co. from September 2000 to December 2001 and Vice
President of Sales and Marketing with the Young Pecan Company from
November 1992 to August 2000.
EVERARDO SORIA, SENIOR VICE PRESIDENT PECAN OPERATIONS AND
PROCUREMENT, age 47 -- Mr. Soria has been with the Company since 1985.
Mr. Soria was named Director of Pecan Operations in July 1995 and was
named Vice President Pecan Operations and Procurement in January 2002.
Mr. Soria was named Senior Vice President Pecan Operations and
Procurement in August 2003. Mr. Soria is responsible for the
procurement of pecans and for the shelling of pecans at the Company's
Selma, Texas facility.
HERBERT J. MARROS, CONTROLLER, age 46 -- Mr. Marros has been with the
Company since 1995 as Assistant Controller and was named Controller in
August 2003. Mr. Marros is responsible for the Company's financial
reporting.
CHARLES M. NICKETTA, SENIOR VICE PRESIDENT OF MANUFACTURING, age 56 --
Mr. Nicketta has been with the Company since 1983. Mr. Nicketta was
named Director of Manufacturing in July 1985 and was named Vice
President of Manufacturing in August 2001. Mr. Nicketta was named
Senior Vice President of Manufacturing in August 2004. Mr. Nicketta is
responsible for the Company's production design, engineering and
facilities expansion.
ARTHUR L. TIMP, SENIOR VICE PRESIDENT OF CORPORATE OPERATIONS, age 62
- -- Mr. Timp has been with the Company since 1995 as the Director of
Operations. Mr. Timp was named Vice President of Corporate Operations
in August 1999, and was named Senior Vice President of Corporate
Operations in August 2004. Mr. Timp is responsible for the production
operations for all of the Company's facilities, except for the pecan
shelling facility.
The Company is currently studying a succession plan for the
retirement of the Chief Executive Officer and President which may
include consulting arrangements and other post-employment
compensation arrangements. The Company did not implement a
retirement plan for those officers in fiscal 2004.
12
RELATIONSHIPS AMONG CERTAIN DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------------------------------------
Jasper B. Sanfilippo, Chairman of the Board and Chief Executive
Officer and a director of the Company, is (i) the father of Jasper B.
Sanfilippo, Jr. and Jeffrey T. Sanfilippo, executive officers and
directors of the Company, (ii) the brother-in-law of Mathias A.
Valentine, President and a director of the Company, and (iii) the
uncle of Michael J. Valentine, an executive officer and a director of
the Company and James A. Valentine, an executive officer of the
Company. Mathias A. Valentine, President and a director of the
Company, is (i) the brother-in-law of Jasper B. Sanfilippo, (ii) the
uncle of Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo, and
(iii) the father of Michael J. Valentine and James A. Valentine.
Michael J. Valentine, Executive Vice President, Chief Financial
Officer and Secretary and a director of the Company, is (i) the son of
Mathias A. Valentine, (ii) the brother of James A. Valentine, (iii)
the nephew of Jasper B. Sanfilippo, and (iv) the cousin of Jasper B.
Sanfilippo, Jr. and Jeffrey T. Sanfilippo. Jeffrey T. Sanfilippo,
Executive Vice President Sales and Marketing and a director of the
Company, is (i) the son of Jasper B. Sanfilippo, (ii) the brother of
Jasper B. Sanfilippo, Jr., (iii) the nephew of Mathias A Valentine,
and (iv) the cousin of Michael J. Valentine and James A. Valentine.
Jasper B. Sanfilippo, Jr., Executive Vice President of Operations and
a director of the Company, is (i) the son of Jasper B. Sanfilippo,
(ii) the brother of Jeffrey T. Sanfilippo, (iii) the nephew of Mathias
A. Valentine, and (iv) the cousin of Michael J. Valentine and James A.
Valentine. James A. Valentine, Executive Vice President Information
Technology, is (i) the son of Mathias A. Valentine, (ii) the brother
of Michael J Valentine, (iii) the nephew of Jasper B. Sanfilippo, and
(iv) the cousin of Jasper B. Sanfilippo, Jr. and Jeffrey T.
Sanfilippo.
PART II
-------
Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters
- -----------------------------------------------------------
The Company has two classes of stock: Class A Common Stock ("Class A
Stock") and Common Stock. The holders of Common Stock are entitled to
elect 25% of the members of the Board of Directors, rounded up to the
nearest whole number, and the holders of Class A Stock are entitled
to elect the remaining directors. With respect to matters other than
the election of directors or any matters for which class voting is
required by law, the holders of Common Stock are entitled to one vote
per share while the holders of Class A Stock are entitled to ten
votes per share. The Company's Class A Stock is not registered under
the Securities Act of 1933 and there is no established public trading
market for the Class A Stock. However, each share of Class A Stock
is convertible at the option of the holder at any time and from time
to time (and, upon the occurrence of certain events specified in the
Company's Restated Certificate of Incorporation, automatically
converts) into one share of Common Stock.
In connection with the Company's public offering in April 2004, the
holders of Class A Stock entered into an agreement with the Company
under which they have waived their right to convert Class A Stock to
Common Stock and agreed not to transfer or otherwise dispose of their
shares of Class A Stock in a manner that could result in conversion
of such shares into Common Stock pursuant to the Company's
certificate of incorporation. These agreements were required since
the number of authorized shares of Common Stock is currently
insufficient to allow for the conversion of all outstanding shares of
Class A Stock. These agreements will remain in effect until the
Company's certificate of incorporation is amended to increase the
number of authorized shares of Common Stock. A proposal to increase
the authorized shares of Common Stock will be submitted to the
stockholders for approval at the Company's 2004 annual meeting. The
holders of Class A Stock hold sufficient votes to approve this
proposal. See "Amendment of Restated Certificate of Incorporation"
contained in the Company's Proxy Statement for the 2004 Annual
Meeting.
The Common Stock of the Company is quoted on the NASDAQ National
Market and its trading symbol is "JBSS". The following tables set
forth, for the quarters indicated, the high and low reported last
sales prices for the Common Stock as reported on the NASDAQ national
market.
13
Price Range of
Common Stock
--------------
Year Ended June 24, 2004 High Low
------------------------ ------ ------
4th Quarter $37.85 $23.20
3rd Quarter $54.90 $32.17
2nd Quarter $50.20 $21.00
1st Quarter $21.64 $12.50
Price Range of
Common Stock
--------------
Year Ended June 26, 2003 High Low
------------------------ ------ ------
4th Quarter $19.40 $13.83
3rd Quarter $14.23 $ 9.80
2nd Quarter $ 9.81 $ 6.55
1st Quarter $ 6.99 $ 5.70
As of September 1, 2004, there were approximately 83 holders and 16
holders of record of the Company's Common Stock and Class A Stock,
respectively.
Under the Company's Restated Certificate of Incorporation, the Class
A Stock and the Common Stock are entitled to share equally on a share
for share basis in any dividends declared by the Board of Directors
on the Company's common equity.
No dividends have been declared since 1995. The Company does not
expect to pay any cash dividends in the foreseeable future because
cash flow from operations will be used to finance future growth. In
addition, the Company's current loan agreements restrict the payment
of annual dividends to amounts specified in the loan agreements. The
declaration and payment of future dividends will be at the sole
discretion of the Board of Directors and will depend on the Company's
profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of
Directors. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity and Capital
Resources."
For purposes of the calculation of the aggregate market value of the
Company's voting stock held by nonaffiliates of the Company as set
forth on the cover page of this Report, the Company did not consider
any of the siblings of Jasper B. Sanfilippo, or any of the lineal
descendants (all of whom are adults and some of whom are employed by
the Company) of either Jasper B. Sanfilippo, Mathias A. Valentine or
such siblings (other than those who are executive officers of the
Company) as an affiliate of the Company. See "Compensation Committee
Interlocks, Insider Participation and Certain Transactions" and
"Security Ownership of Certain Beneficial Owners and Management"
contained in the Company's Proxy Statement for the 2004 Annual Meeting
and "Executive Officers of the Registrant -- Relationships Among
Certain Directors and Executive Officers" appearing immediately after
Part I of this Report.
14
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
------------------------------------------------------------------
The following table summarizes the Company's equity compensation plans
as of June 24, 2004:
Number of
securities remaining
available for future
issuance under
equity
Number of compensation plans
securities to be Weighted average (excluding
issued upon exercise price of securities reflected
exercise of options outstanding options in the first column)
------------------- ------------------- --------------------
Equity compensation plans
approved by stockholders 262,815 $10.41 293,500
Equity compensation plans
not approved by
stockholders 500 $6.00 --
------- -------
Total 251,575 $10.41 293,500
======= =======
Item 6 -- Selected Financial Data
- ---------------------------------
The following historical consolidated financial data as of and for
the years ended June 24, 2004, June 26, 2003, June 27, 2002, June 28,
2001 and June 29, 2000 were derived from the Company's consolidated
financial statements. The financial data should be read in
conjunction with the Company's audited consolidated financial
statements and notes thereto, which are included elsewhere herein,
and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The information below is not necessarily
indicative of the results of future operations. No dividends have
been declared since 1995.
Statement of Operations Data: $ in thousands, except per share data)
Year Ended
----------------------------------------------------
June 24, June 26, June 27, June 28, June 29,
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Net sales $520,811 $419,677 $352,799 $342,357 $326,619
Cost of sales 428,967 346,755 294,999 283,052 271,668
-------- -------- -------- -------- --------
Gross profit 91,844 72,922 57,800 59,305 54,951
Selling and administrative
expenses 50,780 44,093 39,898 38,904 36,354
-------- -------- -------- -------- --------
Income from operations 41,064 28,829 17,902 20,401 18,597
Interest expense (3,434) (4,681) (5,757) (8,365) (8,036)
Debt extinguishment fees (972) -- -- -- --
Other income 440 486 590 622 701
-------- -------- -------- -------- --------
Income before income taxes 37,098 24,634 12,735 12,658 11,262
Income tax expense 14,468 9,607 5,044 5,063 4,505
-------- -------- -------- -------- --------
Net income $ 22,630 $ 15,027 $ 7,691 $ 7,595 $ 6,757
======== ======== ======== ======== ========
Basic earnings per
common share $ 2.35 $ 1.63 $ 0.84 $ 0.83 $ 0.74
Diluted earnings per
common share $ 2.32 $ 1.61 $ 0.84 $ 0.83 $ 0.74
15
Balance Sheet Data: ($ in thousands)
June 24, June 26, June 27, June 28, June 29,
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Working capital $122,854 $ 75,182 $ 67,645 $ 55,055 $ 60,168
Total assets 245,119 223,727 206,815 211,007 217,031
Long-term debt, less
current maturities 12,620 29,640 40,421 39,109 51,779
Total debt 19,166 70,118 69,623 89,307 99,355
Stockholders' equity 181,360 118,781 102,060 94,346 86,751
Item 7 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------------------------------------------------
INTRODUCTION
- ------------
Fiscal 2004 was another record year for the Company in terms of both
sales and earnings. Net sales for fiscal 2004 were $520.8 million
compared to $419.7 million for fiscal 2003, an increase of $101.1
million, or 24.1%. The net sales growth was accomplished through
double-digit increases throughout all major distribution channels.
The sales growth experienced in fiscal 2004 follows a 19.0% increase
in fiscal 2003. Net income increased to $22.6 million, an increase of
$7.6 million, or 50.6%, over net income in fiscal 2003.
The Company believes that a portion of the increase in net sales for
fiscal 2004 is attributable to the growing awareness of the health
benefits of nuts and the current trend toward a low carbohydrate/high
protein diet. The Company continually reviews nut consumption data
prepared by various trade associations, marketing organizations and
the USDA to monitor trends in the business. Crop estimates are also
reviewed to determine the available supply of various nuts, although
due to the susceptibility of crops to wide year-over-year variations,
this information is typically only useful for short periods of time.
Business strategies are developed through analysis of this consumption
and supply information.
The Company's gross profit margin was 17.6% in fiscal 2004, a slight
improvement over the 17.4% achieved in fiscal 2003. Improvements in
gross profit margin, realized due primarily to higher unit volume,
were offset by significantly higher commodity costs.
Selling and administrative expenses decreased to 9.8% of net sales
for fiscal 2004 compared to 10.5% of net sales for fiscal 2003. This
decrease was due primarily to the fixed nature of certain of these
expenses in relation to a larger revenue base. The increase of $6.7
million in selling and administrative expenses for fiscal 2004
compared to fiscal 2003 was due primarily to increases in freight and
broker commissions, directly related to the increase in net sales,
and increases in incentive compensation due to improved operating
results.
In April 2004, the Company completed an underwritten stock offering of
an additional 1,150,000 shares of Common Stock at a price of $35.75
per share, or $34.00 after the underwriting discount. Total net
proceeds to the Company were approximately $38.6 million, after
deducting offering costs. Approximately $16.0 million of the net
proceeds were used to prepay long-term debt, and the remaining $22.6
million was used to reduce outstanding balances under the Company's
bank credit facility. Debt extinguishment fees of $1.0 million, or
$0.06 per share after taxes, were recorded related to the debt
prepayments. Total debt at June 24, 2004 was $19.2 million, compared
to $70.1 million at June 26, 2003 due to the net proceeds received
from the stock offering and positive cash flow from operating
activities during fiscal 2004.
The Company's business is seasonal. Demand for peanut and other nut
products is highest during the months of October, November and
December. Peanuts, pecans, walnuts, almonds and cashews, the
Company's principal raw materials, are purchased primarily during the
period from August to February and are processed throughout the year.
As a result of this seasonality, the Company's personnel and working
capital requirements peak during the last four months of the calendar
16
year. This seasonality also impacts capacity utilization at the
Company's Chicago area facilities, as these facilities are routinely
operating at full capacity for the last four months of the calendar
year.
The possibility of continued growth at current levels, and the
seasonality of the Company's business that has caused full-capacity
utilization rates at the Company's Chicago area facilities, has led
the Company to explore additional means of expanding its production
capacity and enhancing its operations efficiency. As a result, the
Company is planning for the consolidation of its five Chicago area
facilities into a single location through the construction of a new
production facility, currently contemplated in Elgin, Illinois.
This facility consolidation project is anticipated to achieve two
primary objectives. First, the consolidation is intended to generate
cost savings through the elimination of redundant costs and
improvements in manufacturing efficiencies. Second, the new facility
is expected to initially increase production capacity by 25% to 40%
and would provide substantially more square footage than the aggregate
space now available in the Company's existing Chicago area facilities
to support future growth in the Company's business.
The Company has already taken certain preliminary steps in
furtherance of this facility consolidation project, including the
Company and certain partnerships controlled by executive officers and
directors of the Company entering into a Development Agreement with
the City of Elgin for the development and purchase of the land where
the new facility would be constructed. The Development Agreement is
subject to certain conditions, including but not limited to the
completion of environmental and asbestos remediation procedures, the
inclusion of the property in the Elgin enterprise zone and the
establishment of a tax incremental financing district covering the
property. The Company has paid a $450 thousand deposit to the State
of Illinois in connection with the purchase of this land.
The Company currently expects to break ground during fiscal 2005. It
is anticipated that the project will take four to five years from the
time that the property is acquired to the time the new facility is
fully placed in service. The Company estimates the total cost of the
project to be between $75 and $85 million, which would be financed
through a combination of debt, proceeds from the sale of existing
facilities and available cash flow from operations, provided that the
project occurs. Although the Company believes the new facility would
be accretive within three to four years of groundbreaking, there can
be no assurances as to the timing or the impact on the Company's net
income. See "Factors That May Affect Future Results -- Risks and
Uncertainties Regarding Facility Consolidation Project."
The Company faces a number of challenges as it works to continue its
record growth. As a result of recent unit volume sales growth, the
Company's Chicago area processing facilities operate at full capacity
at certain times during the year. If the Company continues to
experience growth in unit volume sales, it could exceed its capacity
to meet the demand for its products, especially prior to the
completion of the planned facility consolidation project. Assuming
the Company proceeds with the facility consolidation project, which
will require approximately four to five years to complete, the Company
nevertheless faces potential disruptive effects on its business, such
as cost overruns for the construction of the new facility or business
interruptions that may result from the transfer of production to the
new facility. In addition, the Company will continue to face the
ongoing challenges of its business such as food safety and regulatory
issues, the antitrust investigation of a portion of the peanut
shelling industry and the maintenance and growth of its customer base.
See "Factors That May Affect Future Results."
Total inventories were approximately $127.5 million at June 24, 2004,
an increase of approximately $15.4 million, or 13.8%, over the
balance at June 26, 2003. This increase is due primarily to an
increase in the quantity of inshell pecans on hand due to greater
purchases in fiscal 2004 than in fiscal 2003. Net accounts receivable
were approximately $33.7 million at June 24, 2004, an increase of
approximately $4.6 million, or 15.8%, over the balance at June 26,
2003. This increase is due primarily to higher monthly sales in June
2004 than in June 2003.
The Company's fiscal year ends on the final Thursday of June each
year, and typically consists of fifty-two weeks (four thirteen week
quarters). References herein to fiscal 2004 are to the fiscal year
ended June 24, 2004. References herein to fiscal 2003 are to the
fiscal year ended June 26, 2003. References herein to fiscal 2002
are to the fiscal year ended June 27, 2002. As used herein, unless
the context otherwise indicates, the terms "Company" and "JBSS" refer
collectively to John B. Sanfilippo & Son, Inc. and its wholly owned
subsidiary, JBS International, Inc.
17
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the percentage relationship of certain
items to net sales for the periods indicated and the percentage
increase of such items from fiscal 2003 to fiscal 2004 and from
fiscal 2002 to fiscal 2003.
Percentage of Net Sales Percentage Increase
------------------------------------ ------------------------------------------
Fiscal 2004 Fiscal 2003 Fiscal 2002 Fiscal 2004 vs. 2003 Fiscal 2003 vs. 2002
----------- ----------- ----------- -------------------- --------------------
Net sales 100.0% 100.0% 100.0% 24.1% 19.0%
Gross profit 17.6 17.4 16.4 25.9 26.2
Selling expenses 7.2 8.0 8.7 11.3 9.7
Administrative expenses 2.6 2.5 2.7 27.4 13.1
Income from operations 7.9 6.9 5.1 42.4 61.0
Fiscal 2004 Compared to Fiscal 2003
- -----------------------------------
Net Sales. Net sales increased to approximately $520.8 million for
fiscal 2004 from approximately $419.7 million for fiscal 2003, an
increase of approximately $101.1 million or 24.1%. The increase in net
sales was due primarily to higher unit volume sales in all of the
Company's distribution channels and across all major nut types. Unit
volume increased approximately 13.0% for fiscal 2004 compared to
fiscal 2003. The unit volume increases are attributable primarily to
the growth of the industry as a whole due to the growing awareness of
the health benefits of nuts and the current trend toward high
protein/low carbohydrate diets. In addition to the overall growth of
the nut industry, the Company was able to increase its sales to
certain mass merchandisers. The Company's focus on providing these
customers with a broad-based portfolio of products, the increased
shelf space for the Company's products in their stores and the further
leveraging of the Fisher brand name were also contributing factors to
the Company's growth in net sales. The remainder of the increase in
net sales for fiscal 2004 compared to fiscal 2003 was due to higher
average selling prices, primarily in the industrial and export
distribution channels for most of the Company's major nut types.
The Company experienced significant growth in most of its key
distribution channels. The increase in net sales in the consumer
distribution channel was due primarily to an increase in Fisher brand
and private label business through the expansion of business to
existing customers. A significant portion of this expansion in the
distribution of Fisher products came from short-term promotional
activity, which may not result in a permanent increase in net sales.
This increase was driven by higher nut consumption and the Company's
increased Fisher brand marketing and promotions, especially in the
Chicago area. The increase in net sales in the industrial
distribution channel was due primarily to the increased usage of nuts
as ingredients in food products such as cereals and food bars, and
higher selling prices on fixed-price contracts due to higher
commodity costs. The increase in net sales in the export distribution
channel was due primarily to higher almond and pecan sales to the
Asian and European markets. The increase in net sales in the food
service distribution channel was due primarily to the food service
industry rebounding from a decline in business during fiscal 2003.
Net sales in the contract packaging distribution channel increased as
new products were introduced by the Company's larger customers in
this channel.
The Company believes it is well-positioned for sales growth
throughout its major distribution channels. The Company expects the
increased demand for nuts to continue and thereby generate new
selling opportunities in the near term, especially in the consumer
distribution channel. The Company believes that industrial customers
will continue to develop new products that contain nuts as an
ingredient in the near term in order to capitalize on the increasing
awareness of the health benefits of nuts. The Company also expects
its food service business to improve as nuts are used more frequently
in menu choices.
The following table shows a comparison of sales by distribution
channel, and as a percentage of total net sales (dollars in
thousands):
18
Distribution Channel Fiscal 2004 Fiscal 2003
-------------------- ----------------- ------------------
Consumer $289,586 55.6% $237,767 56.7%
Industrial 110,813 21.3 86,176 20.5
Food Service 48,969 9.4 36,755 8.8
Contract Packaging 33,074 6.3 26,195 6.2
Export 38,369 7.4 32,784 7.8
-------- ----- -------- -----
Total $520,811 100.0% $419,677 100.0%
======== ===== ======== =====
The following table shows an annual comparison of sales by product
type as a percentage of total gross sales. The table is based on gross
sales, rather than net sales, because certain adjustments, such as
promotional discounts are not allocable to product type.
Product Type Fiscal 2004 Fiscal 2003
------------ ----------- -----------
Peanuts 25.2% 25.3%
Pecans 20.1 17.7
Cashews & Mixed Nuts 22.5 24.1
Walnuts 9.9 10.9
Almonds 12.1 10.1
Other 10.2 11.9
----- -----
Total 100.0% 100.0%
===== =====
Gross Profit. Gross profit in fiscal 2004 increased 25.9% to
approximately $91.8 million from approximately $72.9 million for
fiscal 2003. Gross profit margin increased slightly to 17.6% for
fiscal 2004 from 17.4% for fiscal 2003. The increase in gross profit
margin was due primarily to: (i) the increase in unit volume as
certain costs of sales are of a fixed nature, (ii) lower peanut costs
in the first quarter of fiscal 2004 compared to the first quarter of
fiscal 2003, and (iii) better than anticipated results in the
Company's pecan shelling operation. These favorable results became
apparent as the remaining balance of the 2002 pecan crop was shelled
during the first quarter of fiscal 2004. Offsetting the increase in
gross profit margin were certain factors that caused a decrease in
gross profit margin for fiscal 2004 compared to fiscal 2003. These
factors include: (i) significantly higher commodity costs, especially
for almonds and purchased pecans which were not offset by price
increases in the consumer distribution channel, (ii) lower margins on
fixed-price industrial and export almond contracts as almond prices
rose after certain contracts were priced, (iii) the necessity to
purchase certain quantities of pecans and almonds on the spot market
to fulfill customer requirements, (iv) an increase in workers'
compensation expense, and (v) an increase in the amount due to almond
growers recorded in the first quarter of fiscal 2004 related to the
final settlement of the 2002 almond crop. Typically, final prices for
almonds are not determined until the first quarter of the Company's
fiscal year.
Selling and Administrative Expenses. Selling and
administrative expenses as a percentage of net sales decreased to 9.8%
for fiscal 2004 from 10.5% for fiscal 2003. Selling expenses as a
percentage of net sales decreased to 7.2% for fiscal 2004 from 8.0%
for fiscal 2003. This decrease was due primarily to the fixed nature
of certain of these expenses relative to a larger revenue base. The
approximately $3.8 million increase in selling expenses for fiscal
2004 compared to fiscal 2003 is due to expenses directly related to
the unit volume growth in sales, such as freight and broker
commissions. Administrative expenses as a percentage of net sales
increased slightly to 2.6% for fiscal 2004 from 2.5% for fiscal 2003.
The approximately $2.9 million increase in administrative expenses
was due primarily to higher incentive compensation expenses due to
improved operating results. Also contributing to the increase was the
receipt of a contract settlement payment in fiscal 2003 from a
customer who previously chose not to honor a supply contract.
19
Income from Operations. Due to the factors discussed above,
income from operations increased to approximately $41.1 million, or
7.9% of net sales, for fiscal 2004 from approximately $28.8 million,
or 6.9% of net sales, for fiscal 2003.
Interest Expense. Interest expense decreased to approximately $3.4
million for fiscal 2004 from approximately $4.7 million for fiscal
2003. The decrease in interest expense for fiscal 2004 when compared
to fiscal 2003 occurred primarily because the Company used the $38.6
million net proceeds from its public stock offering, completed in
April 2004, to pay down most of its long-term and short-term debt.
Additionally, the Company experienced lower average interest rates on
its borrowings compared to fiscal 2003 and further reduced its debt
balances by making scheduled debt payments during fiscal 2004.
Debt Extinguishment Fees. The Company incurred approximately $1.0
million in prepayment penalties in fiscal 2004, including
approximately $0.1 million of unamortized origination fees due to the
repayment of the entire outstanding balances under two long-term
financing facilities on June 2, 2004 with the net proceeds from its
public stock offering.
Income Taxes. Income tax expense was approximately $14.5
million, or 39.0% of income before income taxes, for fiscal 2004,
compared to approximately $9.6 million, or 39.0% of income before
income taxes, for fiscal 2003.
Net Income. Net income was approximately $22.6 million, or $2.35
basic per common share ($2.32 diluted), for fiscal 2004, compared to
approximately $15.0 million, or $1.63 basic per common share ($1.61
diluted), for fiscal 2003, due to the factors discussed above.
Fiscal 2003 Compared to Fiscal 2002
- -----------------------------------
Net Sales. Net sales increased from approximately $352.8 million for
fiscal 2002 to approximately $419.7 million for fiscal 2003, an
increase of approximately $66.9 million or 19.0%. The increase in net
sales was due primarily to higher unit volume sales to the Company's
retail, export and industrial customers. The increase in net sales to
retail customers was due primarily to an increase in private label
business through the addition of new customers and the expansion of
business to existing customers. The increase in net sales to export
customers was due primarily to higher almond sales to the Asian market
and increased snack nut sales to the Canadian market. The increase in
sales to industrial customers is due primarily to the increased usage
of nuts as ingredients in food products
The following table shows a comparison of sales by distribution
channel, and as a percentage of total net sales (dollars in
thousands):
Distribution Channel Fiscal 2003 Fiscal 2002
-------------------- ----------------- ------------------
Consumer $237,767 56.7% $200,731 56.9%
Industrial 86,176 20.5 72,326 20.5
Food Service 36,755 8.8 38,057 10.8
Contract Packaging 26,195 6.2 22,703 6.4
Export 32,784 7.8 18,983 5.4
-------- ----- -------- -----
Total $419,677 100.0% $352,800 100.0%
======== ===== ======== =====
The following table shows an annual comparison of sales by product
type as a percentage of total gross sales. The table is based on gross
sales, rather than net sales, because certain adjustments, such as
promotional discounts are not allocable to product type.
20
Product Type Fiscal 2003 Fiscal 2002
------------ ----------- -----------
Peanuts 25.3% 27.8%
Pecans 17.7 18.8
Cashews & Mixed Nuts 24.1 21.4
Walnuts 10.9 11.7
Almonds 10.1 7.7
Other 11.9 12.6
----- -----
Total 100.0% 100.0%
===== =====
Gross Profit. Gross profit in fiscal 2003 increased 26.2% to
approximately $72.9 million from approximately $57.8 million for
fiscal 2002. Gross profit margin increased from 16.4% for fiscal 2002
to 17.4% for fiscal 2003. The increase in gross profit margin was due
primarily to: (i) the increase in unit volume as certain costs of
sales are of a fixed nature, (ii) changes in the sales mix, and (iii)
generally lower commodity costs, especially for peanuts which were
directly impacted by the 2002 Farm Bill.
Selling and Administrative Expenses. Selling and
administrative expenses as a percentage of net sales decreased from
11.3% for fiscal 2002 to 10.5% for fiscal 2003. Selling expenses as a
percentage of net sales decreased from 8.7% for fiscal 2002 to 8.0%
for fiscal 2003. This decrease was due primarily to: (i) continuous
efforts to control expenses and (ii) the fixed nature of certain of
these expenses relative to a larger revenue base. Administrative
expenses as a percentage of net sales decreased from 2.7% for fiscal
2002 to 2.5% for fiscal 2003. This decrease was due primarily to the
fixed nature of these expenses over a larger revenue base.
Administrative expenses, in gross dollars, increased from
approximately $9.4 million in fiscal 2002 to approximately $10.6
million in fiscal 2003, an increase of approximately $1.2 million, or
13.1%. This increase is due primarily to higher incentive
compensation expenses due to improved operating results.
Income from Operations. Due to the factors discussed above,
income from operations increased from approximately $17.9 million, or
5.1% of net sales, for fiscal 2002 to approximately $28.8 million, or
6.9% of net sales, for fiscal 2003.
Interest Expense. Interest expense decreased from approximately $5.8
million for fiscal 2002 to approximately $4.7 million for fiscal 2003.
The decrease in interest expense was due primarily to: (i) lower
average levels of borrowings and (ii) lower interest rates associated
with the Bank Credit Facility, as defined below.
Income Taxes. Income tax expense was approximately $9.6 million, or
39.0% of income before income taxes, for fiscal 2003, compared to
approximately $5.0 million, or 39.6% of income before income taxes,
for fiscal 2002.
Net Income. Net income was approximately $15.0 million, or $1.63
basic per common share ($1.61 diluted), for fiscal 2003, compared to
approximately $7.7 million, or $0.84 basic per common share ($0.84
diluted), for fiscal 2002, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
General
- -------
The primary uses of cash are to fund the Company's current
operations, fulfill contractual obligations and repay indebtedness.
Also, various uncertainties could result in additional uses of cash,
such as those pertaining to the antitrust investigation of a portion
of the peanut shelling industry or other litigation.
Cash flows from operating activities have historically been driven by
income from operations but are also influenced by inventory balances,
which can change based upon fluctuations in both quantities and
market prices of the various nuts the Company sells. Current market
trends in nut prices and crop estimates also impact nut procurement.
21
Net cash provided by operating activities was approximately $20.2
million for fiscal 2004 compared to approximately $5.9 million for
fiscal 2003. The increase in cash provided by operating activities
for fiscal 2004, when compared to fiscal 2003, was due primarily to
improved operating results. Nut purchases were approximately 30.0%
greater in fiscal 2004 than in fiscal 2003.
The Company completed an underwritten public offering of 1,150,000
shares of Common Stock in April, 2004 at a price of $35.75 per share,
or $34.00 per share after the underwriting discount. Total proceeds
to the Company were approximately $38.6 million, after deducting
offering costs. In conjunction with the offering, an equal number of
shares were sold by selling stockholders, all of whom are directors
and executive officers of the Company or are related to directors and
executive officers of the Company. The net proceeds to the Company
were immediately used to reduce the outstanding borrowings under the
Company's Bank Credit Facility (as defined below).
Immediately prior to the offering, 1,070,000 shares of the Company's
Class A Common Stock were converted to Common Stock by the selling
stockholders for sale in the offering. The selling stockholders also
included in the offering 80,000 shares of previously outstanding
Common Stock. The Company did not receive any proceeds from the sale
of these shares, and the selling stockholders paid their pro rata
share of the offering expenses.
The Company repaid approximately $26.5 million of long-term debt in
fiscal 2004 compared to approximately $5.7 million in fiscal 2003, an
increase of approximately $20.8 million. Approximately $16.0 million
in long-term debt was prepaid on June 2, 2004. The remainder of the
increase is due to the first scheduled $5.0 million payment on the
subordinated portion of the Additional Long-Term Financing being made
in fiscal 2004.
Financing Arrangements
- ----------------------
The Company's bank credit facility (the "Bank Credit Facility")
is comprised of (i) a working capital revolving loan which provides
working capital financing of up to approximately $73.1 million, in the
aggregate, and matures, as amended, on May 31, 2006, and (ii) a $6.9
million letter of credit (the "IDB Letter of Credit") to secure the
industrial development bonds described below which matures on June 1,
2006. Borrowings under the working capital revolving loan accrue
interest at a rate (the weighted average of which was 2.83% at June
24, 2004) determined pursuant to a formula based on the agent bank's
quoted rate and the Eurodollar Interbank rate. As of June 24, 2004 the
Company had approximately $64.7 million of available credit under the
Bank Credit Facility.
The terms of the Bank Credit Facility, as amended, include certain
restrictive covenants that, among other things: (i) require the
Company to maintain specified financial ratios; (ii) limit the
Company's annual capital expenditures; and (iii) require that Jasper
B. Sanfilippo (the Company's Chairman of the Board and Chief Executive
Officer) and Mathias A. Valentine (a director and the Company's
President) together with their respective immediate family members and
certain trusts created for the benefit of their respective sons and
daughters, continue to own shares representing the right to elect a
majority of the directors of the Company. In addition, the Bank
Credit Facility limits dividends to the lesser of (a) 25% of net
income for the previous fiscal year, or (b) $5.0 million, and
prohibits the Company from redeeming shares of capital stock. As of
June 24, 2004, the Company was in compliance with all restrictive
covenants, as amended, under the Bank Credit Facility.
As of June 24, 2004, the Company had approximately $6.8
million in aggregate principal amount of industrial development bonds
outstanding, which was used to finance the acquisition, construction
and equipping of the Company's Bainbridge, Georgia facility. The
bonds bear interest payable semiannually at 4.00% (which was reset on
June 1, 2002) through May 2006. On June 1, 2006, and on each
subsequent interest reset date for the bonds, the Company is required
to redeem the bonds at face value plus any accrued and unpaid
interest, unless a bondholder elects to retain his or her bonds. Any
bonds redeemed by the Company at the demand of a bondholder on the
reset date are required to be remarketed by the underwriter of the
bonds on a "best efforts" basis. Funds for the redemption of bonds on
the demand of any bondholder are required to be obtained from the
following sources in the following order of priority: (i) funds
supplied by the Company for redemption; (ii) proceeds from the
remarketing of the bonds; (iii) proceeds from a drawing under the IDB
Letter of Credit; or (iv) in the event funds from the foregoing
22
sources are insufficient, a mandatory payment by the Company.
Drawings under the IDB Letter of Credit to redeem bonds on the demand
of any bondholder are payable in full by the Company upon demand of
the lenders under the Bank Credit Facility. In addition, the Company
is required to redeem the bonds in varying annual installments,
ranging from approximately $0.3 million in fiscal 2005 to
approximately $0.8 million in fiscal 2017. The scheduled June 1, 2004
payment of approximately $0.3 million was not made until July 1,
2004, due to an administrative error by the trustee. The Company is
also required to redeem the bonds in certain other circumstances; for
example, within 180 days after any determination that interest on the
bonds is taxable. The Company has the option, subject to certain
conditions, to redeem the bonds at face value plus accrued interest,
if any.
Capital Expenditures
- --------------------
The Company made approximately $11.1 million of capital expenditures
in fiscal 2004 compared to approximately $7.9 million in fiscal 2003.
The most significant project completed in fiscal 2004 was the
expansion of the storage capacity for inshell pecans at the Selma,
Texas location. Approximately $4.6 million was spent in total on this
project, approximately $3.6 million of which was incurred in fiscal
2004. Capital expenditures for fiscal 2005 are expected to be between
$10 million and $11 million, excluding any amounts for the planned
facility consolidation project.
Ground breaking on the facility consolidation project is expected to
occur in the latter half of fiscal 2005. The facility consolidation
project is expected to occur over a four to five year period at a
total cost of $75.0 to $85.0 million, provided that the project
occurs. The Company and certain partnerships controlled by executive
officers and directors of the Company have entered into a Development
Agreement with the City of Elgin for the development and purchase of
the land where the new facility would be constructed. The Development
Agreement is subject to certain conditions, including but not limited
to the completion of environmental and asbestos remediation
procedures, the inclusion of the property in the Elgin enterprise zone
and the establishment of a tax incremental financing district covering
the property. The Company has paid a $450 thousand deposit to the
State of Illinois in connection with the purchase of this land.
Capital Resources
- -----------------
As of June 24, 2004, the Company had approximately $64.7 million of
available credit under the Bank Credit Facility. Scheduled long-term
debt payments for fiscal 2005 are approximately $1.3 million.
Scheduled operating lease payments are approximately $1.5 million. The
Company believes that cash flow from operating activities and funds
available under the Bank Credit Facility will be sufficient to meet
working capital requirements and anticipated capital expenditures for
the near future. However, if the facility consolidation project
proceeds, the Company expects that additional financing will be
required to fund the project. The Company has not yet made any
decisions regarding the amount, nature or timing of such additional
financing.
Contractual Cash Obligations
- ----------------------------
At June 24, 2004, the Company had the following contractual cash
obligations for long-term debt and operating leases (amounts in
thousands):
Year Year Year Year Year
Ending Ending Ending Ending Ending
June 30, June 29, June 28, June 26, June 25,
2005 2006 2007 2008 2009 Thereafter
-------- -------- -------- -------- -------- ----------
Long-term debt $2,398 $7,987 $1,575 $1,575 $1,575 $2,944
Minimum operating
lease commitments 1,459 1,092 304 205 65 2
------ ------- ------- ------ ------ ------
Total contractual
cash obligations $3,857 $9,079 $1,879 $1,780 $1,640 $2,946
====== ====== ====== ====== ====== ======
As of June 24, 2004, the Company was committed to purchasing
approximately $61.6 million of inventory in fiscal 2005. These
commitments do not exceed the Company's projected requirements over
the related terms and are in the normal course of business.
23
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The accounting policies as disclosed in the Notes to Consolidated
Financial Statements are applied in the preparation of the Company's
financial statements and accounting for the underlying transactions
and balances. The policies discussed below are considered by the
Company's management to be critical for an understanding of the
Company's financial statements because the application of these
policies places the most significant demands on management's
judgment, with financial reporting results relying on estimation
regarding the effect of matters that are inherently uncertain.
Specific risks, if applicable, for these critical accounting policies
are described in the following paragraphs. For a detailed discussion
on the application of these and other accounting policies, see Note 2
of the Notes to Consolidated Financial Statements.
Preparation of this Annual Report on Form 10-K requires the Company
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and
liabilities at the date of the Company's financial statements, and
the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
Revenue Recognition
- -------------------
The Company recognizes revenue when a persuasive arrangement exists,
title has transferred (based upon terms of shipment), price is fixed,
delivery occurs and collection is reasonably assured. The Company
sells its products under various arrangements which include customer
contracts which fix the sales price for periods typically of up to
one year for some industrial customers and through specific programs,
consisting of promotion allowances, volume and customer rebates and
marketing allowances, among others, to consumer and food service
customers. Revenues are recorded net of rebates and promotion and
marketing allowances. While customers do have the right to return
products, past experience has demonstrated that product returns have
been insignificant. Provisions for returns are reflected as a
reduction in net sales and are estimated based upon customer specific
circumstances.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventory costs are reviewed each quarter. Fluctuations in
the market price of peanuts, pecans, walnuts, almonds and other nuts
may affect the value of inventory and gross profit and gross profit
margin. If expected market sales prices were to move below cost, the
Company would record adjustments to write down the carrying values of
inventories to fair market value. The results of the Company's
shelling process can also result in changes to its inventory costs.
Impairment of Long-Lived Assets
- -------------------------------
The Company reviews long-lived assets to assess recoverability from
projected undiscounted cash flows whenever events or changes in facts
and circumstances indicate that the carrying value of the assets may
not be recoverable, for example, in connection with the Company's
planned facility consolidation project if it proceeds. An impairment
loss is recognized in operating results when future undiscounted cash
flows are less than the assets' carrying value. The impairment loss
would adjust the carrying value to the assets' fair value. To date
the Company has not recorded any impairment charges.
Promotion and Advertising Costs
- -------------------------------
Promotion allowances, customer rebates and marketing allowances 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 promotion and marketing
allowances are recorded based upon the terms of the actual
arrangements. Coupon incentives have not been significant and are
recorded at the time of distribution. The Company expenses the costs
of advertising, which include newspaper and other advertising
activities, as incurred.
24
Introductory Funds
- ------------------
The ability to sell to certain retail customers often requires
upfront payments to be made by the Company. Such payments are
frequently made pursuant to contracts that stipulate the term of the
agreement, the quantity and type of products to be sold and any
exclusivity requirements. The cost of these payments is recorded as
an asset and is amortized on a straight-line basis over the term of
the contract. The Company expenses payments if no written arrangement
exists.
Related Party Transactions
- --------------------------
As discussed in Notes 6 and Note 12 of the Notes to Consolidated
Financial Statements, the Company leases space from related parties
and transacts with other related parties in the normal course of
business. The Company believes that these related party transactions
are conducted on terms that are competitive with other non-related
entities.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51" and a revised interpretation of FIN No. 46R in December
2003. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. FIN 46 became effective immediately for
all new variable interest entities created or acquired after January
31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 became effective during the
second quarter of fiscal 2004. The adoption of FIN 46 did not have a
significant effect on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends and
clarifies financial accounting and reporting for certain derivative
instruments. SFAS 149 became effective during the first quarter of
fiscal 2004. The adoption of SFAS 149 did not have any effect on the
Company's consolidated financial statements, as the Company does not
have any derivative instruments.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which establishes standards for the classification and
measurement of certain financial instruments with characteristics of
both liabilities and equity. The adoption of SFAS 150 did not have
any effect on the Company's consolidated financial statements as the
Company does not have any financial instruments within the scope of
this pronouncement.
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this Annual Report on Form 10-K, and in
the Chairman's letter to stockholders accompanying the Annual Report
on Form 10-K delivered to stockholders, that are not historical
(including statements concerning the Company's expectations regarding
market risk) are "forward looking statements". These forward looking
statements, which generally are followed (and therefore identified)
by a cross reference to "Factors That May Affect Future Results" or
are identified by the use of forward looking words and phrases such
as "intends", "may", "believes" and "expects", represent the
Company's present expectations or beliefs concerning future events.
The Company cautions that such statements are qualified by important
factors that could cause actual results to differ materially from
those in the forward looking statements, including the factors
described below under "Factors That May Affect Future Results", as
well as the timing and occurrence (or non-occurrence) of transactions
and events which may be subject to circumstances beyond the Company's
control. Consequently, results actually achieved may differ
materially from the expected results included in these statements.
25
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
Availability of Raw Materials and Market Price Fluctuations
- -----------------------------------------------------------
The availability and cost of raw materials for the production of the
Company's products, including peanuts, pecans, almonds, walnuts and
other nuts are subject to crop size and yield fluctuations caused by
factors beyond the Company's control, such as weather conditions,
plant diseases and changes in government programs. Additionally, the
supply of edible nuts and other raw materials used in the Company's
products could be reduced upon any determination by the United States
Department of Agriculture ("USDA") or other government agencies that
certain pesticides, herbicides or other chemicals used by growers
have left harmful residues on portions of the crop or that the crop
has been contaminated by aflatoxin or other agents.
If worldwide demand for nuts continues at recent rates, and supply
does not expand to meet demand, a reduction in availability and an
increase in the cost of raw materials would occur. This type of
increase was experienced during the last half of fiscal 2004 for most
of the Company's major nut types. The Company does not hedge against
changes in commodity prices, and thus, shortages in the supply of and
increases in the prices of nuts and other raw materials used by the
Company in its products (to the extent that cost increases cannot be
passed on to customers) could have an adverse impact on the Company's
profitability. Furthermore, fluctuations in the market prices of nuts
may affect the value of the Company's inventories and profitability.
The Company has significant inventories of nuts that would be
adversely affected by any decrease in the market price of such raw
materials. See "Introduction".
Competitive Environment
- -----------------------
The Company operates in a highly competitive environment. The
Company's principal products compete against food and snack products
manufactured and sold by numerous regional and national companies,
some of which are substantially larger and have greater resources
than the Company, such as Planters and Ralcorp Holdings, Inc. The
Company also competes with other shellers in the industrial market
and with regional processors in the retail and wholesale markets. In
order to maintain or increase its market share, the Company must
continue to price its products competitively, which may lower revenue
per unit and cause declines in gross margin, if the Company is unable
to increase unit volumes as well as reduce its costs.
Dependence Upon Customers
- -------------------------
The Company is dependent on a few significant customers for a large
portion of its total sales, particularly in the consumer channel.
Sales to the Company's five largest customers represented
approximately 39% and 37% of its consolidated gross sales in fiscal
2004 and fiscal 2003, respectively. Wal-Mart alone accounted for
approximately 19% and 17% of the Company's net sales for fiscal 2004
and fiscal 2003, respectively. The loss of one of the Company's
largest customers, or a material decrease in purchases by one or more
of its largest customers, would result in decreased sales and
adversely impact the Company's income and cash flow.
Pricing Pressures
- -----------------
As the retail grocery trade continues to consolidate and the
Company's retail customers grow larger and become more sophisticated,
the Company's retail customers are demanding lower pricing and
increased promotional programs. Further, these customers may begin to
place a greater emphasis on the lowest-cost supplier in making
purchasing decisions, particularly if buying techniques such as
reverse internet auctions increase in popularity. An increased focus
on the lowest-cost supplier could reduce the benefits of some of the
Company's competitive advantages. The Company's sales volume growth
could slow, and it may become necessary to lower the Company's prices
and increase promotional support of the Company's products, any of
which would adversely affect its gross profit margins.
Production Limitations
- ----------------------
The Company has experienced significant sales growth as its customer
demand has increased. If the Company continues to experience
comparable increases in customer demand, particularly prior to the
completion of the Company's facility consolidation project, it may be
unable to fully satisfy its customers' supply needs. If the Company
becomes unable to supply sufficient quantities of products, it may
26
lose sales and market share to its competitors.
Food Safety and Product Contamination
- -------------------------------------
The Company could be adversely affected if consumers in the Company's
principal markets lose confidence in the safety of nut products,
particularly with respect to peanut and tree nut allergies.
Individuals with peanut allergies may be at risk of serious illness
or death resulting from the consumption of the Company's nut
products. Notwithstanding existing food safety controls, the Company
processes peanuts and tree nuts on the same equipment, and there is
no guarantee that the Company's peanut-free products will not be
cross-contaminated by peanuts. Concerns generated by risks of peanut
and tree nut cross-contamination and other food safety matters may
discourage consumers from buying the Company's products, cause
production and delivery disruptions, or result in product recalls.
Product Liability and Product Recalls
- -------------------------------------
The Company faces risks associated with product liability claims and
product recalls in the event its food safety and quality control
procedures fail and its products cause injury or become adulterated
or misbranded. A product recall of a sufficient quantity, or a
significant product liability judgment against the Company, could
cause the Company's products to be unavailable for a period of time
and could result in a loss of consumer confidence in the Company's
food products. These kinds of events, were they to occur, would have
a material adverse effect on demand for the Company's products and,
consequently, the Company's income and liquidity.
Retention of Key Personnel
- --------------------------
The Company's future success will be largely dependent on the
personal efforts of its senior operating management team, including
Michael J. Valentine, the Company's Executive Vice President Finance,
Chief Financial Officer and Secretary, Jeffrey T. Sanfilippo, the
Company's Executive Vice President Sales and Marketing, and Jasper B.
Sanfilippo, Jr., the Company's Executive Vice President of
Operations, which has assumed management of the day-to-day operation
of the Company's business over the past two years. In addition, the
Company's success depends on the talents of James M. Barker, Senior
Vice President Sales and Marketing, Everardo Soria, Senior Vice
President Pecan Operations and Procurement, Walter R.
Tankersley, Jr., Senior Vice President Industrial Sales, Charles M.
Nicketta, Senior Vice President of Manufacturing and Arthur L. Timp,
Senior Vice President of Corporate Operations. The Company believes
that the expertise and knowledge of these individuals in the
industry, and in their respective fields, is a critical factor to the
Company's continued growth and success. The Company has not entered
into an employment agreement with any of these individuals, nor does
the Company have key officer insurance coverage policies in effect.
The loss of the services of any of these individuals could have a
material adverse effect on the Company's business and prospects if
the Company were unable to identify a suitable candidate to replace
any such individual. The Company's success is also dependent upon its
ability to attract and retain additional qualified marketing,
technical and other personnel, and there can be no assurance that the
Company will be able to do so.
Risks and Uncertainties Regarding Facility Consolidation Project
- ----------------------------------------------------------------
The planned facility consolidation project may not result in
significant cost savings or increases in efficiency, or allow the
Company to increase its production capabilities to meet expected
increases in customer demand. Moreover, the Company's expectations
with respect to the financial impact of the facility consolidation
project are based on numerous estimates and assumptions, any or all
of which may differ from actual results. Such differences could
substantially reduce the anticipated benefit of the project.
More specifically, the following risks, among others, may limit the
financial benefits of the facility consolidation project:
-- cost overruns in the construction of and equipment for the
new facility are possible and could offset other cost
savings expected from the consolidation;
-- the facility consolidation project is likely to have a
negative impact on the Company's earnings during the four
to five-year construction period;
27
-- the proceeds the Company receives from selling or renting
its existing facilities may be less than it expects, and
the timing of the receipt of those proceeds and the
acquisition of a replacement site may be later than the
Company has planned;
-- the facility consolidation project may not eliminate as
many redundant processes as the Company presently
anticipates;
-- the Company may not realize the expected increase in
demand for its products necessary to justify additional
production capacity created by the facility consolidation;
-- the Company may not be able to transfer production from
its existing facilities to the new facility without a
significant interruption in its business;
-- moving the Company's facilities to a new location may
cause attrition in its personnel at levels that result in
a significant interruption in its operations, and the
Company expects to incur additional annual compensation
costs of approximately $300,000 to facilitate the
retention of certain of its key personnel while the
facility consolidation project is in process; and
-- the Company expects to fund a portion of the facility
consolidation project through third party financing, which
may be at rates less favorable than its current credit
facilities.
If for any reason the Company were to realize less than the expected
benefits from the facility consolidation project, its future income
stream, cash flows and debt levels could be materially adversely
affected. In addition, the facility consolidation project is in the
early stages of planning and unanticipated risks may develop as the
project proceeds. See "Business -- Properties" for more detailed
information on the facility consolidation project.
Government Regulation
- ---------------------
The Company is subject to extensive regulation by the United States
Food and Drug Administration, the United States Department of
Agriculture, the United States Environmental Protection Agency and
other state and local authorities in jurisdictions where its products
are manufactured, processed or sold. Among other things, these
regulations govern the manufacturing, importation, processing,
packaging, storage, distribution and labeling of the Company's
products. The Company's manufacturing and processing facilities and
products are subject to periodic compliance inspections by federal,
state and local authorities. The Company is also subject to
environmental regulations governing the discharge of air emissions,
water and food waste, and the generation, handling, storage,
transportation, treatment and disposal of waste materials. Amendments
to existing statutes and regulations, adoption of new statutes and
regulations, increased production at the Company's existing
facilities as well as its expansion into new operations and
jurisdictions, may require the Company to obtain additional licenses
and permits and could require it to adapt or alter methods of
operations at costs that could be substantial. Compliance with
applicable laws and regulations may adversely affect the Company's
business. Failure to comply with applicable laws and regulations
could subject the Company to civil remedies, including fines,
injunctions, recalls or seizures, as well as possible criminal
sanctions, which could have a material adverse effect on the
Company's business.
Economic, Political and Social Risks of Doing Business in Emerging Markets
- --------------------------------------------------------------------------
The Company purchases a substantial portion of its cashew inventories
from India, Brazil and Vietnam, which are in many respects emerging
markets. To this extent, the Company is exposed to risks inherent in
emerging markets, including:
-- increased governmental ownership and regulation of the economy;
-- greater likelihood of inflation and adverse economic conditions
stemming from governmental attempts to reduce inflation, such
as imposition of higher interest rates and wage and price
controls;
28
-- potential for contractual defaults or forced renegotiations on
purchase contracts with limited legal recourse;
-- tariffs and other barriers to trade that may reduce the
Company's profitability; and
-- civil unrest and significant political instability.
The existence of these risks in these and other foreign countries
that are the origins of the Company's raw materials could jeopardize
or limit its ability to purchase sufficient supplies of cashews and
other imported raw materials and may adversely affect the Company's
income by increasing the costs of doing business overseas.
Fixed Price Commitments
- -----------------------
From time to time, the Company enters into fixed price commitments
with its customers. Such commitments represented approximately 15% to
20% of the Company's annual net sales in fiscal 2004, and in many
cases are entered into after the Company's cost to acquire the nut
products necessary to satisfy the fixed price commitment is
substantially fixed. The Company expects to continue to enter into
fixed price commitments with respect to certain of its nut products
prior to fixing its acquisition cost in order to maintain customer
relationships or when, in management's judgment, market or crop
harvest conditions so warrant. To the extent the Company does so,
however, these fixed price commitments may result in reduced gross
profit margins that have a material adverse effect on the Company's
results of operations. The Company's results of operations were
adversely affected during the last half of fiscal 2004 as outside
purchases of almonds and pecans were required to fulfill obligations
under fixed-price contracts.
Inventory Measurement
- ---------------------
The Company purchases its nut inventories from growers and farmers in
large quantities at harvest times, which are primarily during the
second and third quarters of the Company's fiscal year, and receives
nut shipments in bulk truckloads. The weights of these nuts are
measured using truck scales at the time of receipt, and inventories
are recorded on the basis of those measurements. The nuts are then
stored in bulk in large warehouses to be shelled or processed
throughout the year. Bulk-stored nut inventories are relieved on the
basis of continuous high-speed bulk weighing systems as the nuts are
shelled or processed or on the basis of calculations derived from the
weight of the shelled nuts that are produced. While the Company
performs various procedures to confirm the accuracy of its bulk-
stored nut inventories, these inventories are estimates that must be
periodically adjusted to account for positive or negative variations,
and such adjustments directly affect earnings. The precise amount of
the Company's bulk-stored nut inventories is not known until the
entire quantity of the particular nut is depleted, which may not
necessarily occur every year. Prior crop year inventories may still
be on hand as the new crop year inventories are purchased. There can
be no assurance that such inventory quantity adjustments will not
have a material adverse effect on the Company's results of operations
in the future.
2002 Farm Bill
- --------------
The Farm Security and Rural Investment Act of 2002 (the "2002 Farm
Bill") terminated the federal peanut quota program beginning with the
2002 crop year. The 2002 Farm Bill replaced the federal peanut quota
program with a fixed payment system through the 2007 crop year that
can be either coupled or decoupled. A coupled system is tied to the
actual amount of production, while a decoupled system is not. The
series of loans and subsidies established by the 2002 Farm Bill is
similar to the systems used for other crops such as grains and
cotton. To compensate farmers for the elimination of the peanut
quota, the 2002 Farm Bill provides a buy-out at a specified rate for
each pound of peanuts that had been in that farmer's quota under the
prior program. Additionally, among other provisions, the Secretary of
Agriculture may make certain counter-cyclical payments whenever the
Secretary believes that the effective price for peanuts is less than
the target price. The termination of the federal peanut quota program
has reduced the Company's costs for peanuts and resulted in a higher
gross margin than the Company has historically achieved. Although
this margin is now similar to the Company's total gross profit
margin, the Company may be unable to maintain these higher gross
profit margins on the sale of peanuts, and the Company's business,
financial position and results of operations would thus be materially
adversely affected.
29
Public Health Security and Bioterrorism Preparedness and Response Act of 2002
- ----------------------------------------------------------------------------
The events of September 11, 2001 reinforced the need to enhance the
security of the United States. Congress responded in part by passing
the Public Health Security and Bioterrorism Preparedness and Response
Act of 2002 (the "Bioterrorism Act"). The Bioterrorism Act includes a
number of provisions to help guard against the threat of
bioterrorism, including new authority for the Secretary of Health and
Human Services ("HHS") to take action to protect the nation's food
supply against the threat of international contamination. The Food
and Drug Administration ("FDA"), as the food regulatory arm of HHS,
is responsible for developing and implementing these food safety
measures, which fall into four broad categories: (i) registration of
food facilities, (ii) establishment and maintenance of records
regarding the sources and recipients of foods, (iii) prior notice to
FDA of imported food shipments and (iv) administrative detention of
potentially affected foods. FDA has issued rules in each of these
categories, which rules generally took effect on December 12, 2003.
There can be no assurances that the effects of the Bioterrorism Act
and the related rules, including any potential disruption in the
Company's supply of imported nuts, which represented approximately
33% of the Company's total nut purchases in fiscal 2004, will not
have a material adverse effect on the Company's business, financial
position or results of operations in the future.
Peanut Shelling Industry Antitrust Investigation
- ------------------------------------------------
On June 17, 2003, the Company received a subpoena for the production
of documents and records from a grand jury in connection with an
investigation of a portion of the peanut shelling industry by the
Antitrust Division of the United States Department of Justice. The
Company believes the investigation relates to procurement pricing
practices but, given the early stage of the investigation, it could
concern other or additional business practices. The Company has
responded to the subpoena and has produced documents to the Department
of Justice, and two employees of the Company received subpoenas to
appear before the grand jury. The investigation, of which the Company
and the employees are subjects, is on-going. The investigation may
have a material adverse effect on the Company's business, financial
condition and results of operations, and on the peanut shelling
industry.
Item 7A -- Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
The Company is exposed to the impact of changes in interest rates and
to commodity prices of raw material purchases. The Company has not
entered into any arrangements to hedge against changes in market
interest rates, commodity prices or foreign currency fluctuations.
The Company is unable to engage in hedging activity related to
commodity prices, since there are no established futures markets for
nuts. Approximately 33% of nut purchases for fiscal 2004 were made
from foreign countries, and while these purchases were payable in
U.S. dollars, the underlying costs may fluctuate with changes in the
value of the U.S. dollar relative to the currency in the foreign
country.
The Company is exposed to interest rate risk on the Bank Credit
Facility, its only variable rate credit facility. A hypothetical 10%
adverse change in weighted-average interest rates would have had an
immaterial impact on the Company's net income and cash flows from
operating activities.
30
Item 8 -- Financial Statements and Supplementary Data
- -----------------------------------------------------
REPORT OF MANAGEMENT
- --------------------
The management of John B. Sanfilippo & Son, Inc. has prepared and is
responsible for the integrity of the information presented in this
Annual Report on Form 10-K, including the Company's financial
statements. These statements have been prepared in conformity with
generally accepted accounting principles and include, where
necessary, informed estimates and judgments by management.
The Company maintains systems of accounting and internal controls
designed to provide assurance that assets are properly accounted for,
as well as to ensure that the financial records are reliable for
preparing financial statements. The systems are augmented by
qualified personnel and are reviewed on a periodic basis.
The Company's independent auditors, PricewaterhouseCoopers LLP,
conduct annual audits of the Company's financial statements in
accordance with generally accepted auditing standards, which include
the review of internal controls for the purpose of establishing audit
scope and the issuance of an opinion on the fairness of such
financial statements.
The Company has an Audit Committee that meets periodically with
management and the independent accountants to review the manner in
which they are performing their responsibilities and to discuss
auditing, internal accounting controls and financial reporting
matters. The independent accountants periodically meet alone with
the Audit Committee and have free access to the Audit Committee at
any time.
/s/ Michael J. Valentine
- ------------------------
Michael J. Valentine
Executive Vice President Finance, Chief Financial Officer and Secretary
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------
To the Board of Directors
and Stockholders of
John B. Sanfilippo & Son, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of
John B. Sanfilippo & Son, Inc. and its subsidiary at June 24, 2004
and June 26, 2003, and the results of their operations and their cash
flows for the each of the three years in the period ended June 24,
2004, in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
August 13, 2004
31
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 24, 2004 and June 26, 2003
(dollars in thousands, except per share amounts)
June 24, June 26,
2004 2003
-------- --------
ASSETS
CURRENT ASSETS:
Cash $ 2,085 $ 2,448
Accounts receivable, less allowances
of $1,977 and $1,552 33,735 29,142
Inventories 127,459 112,016
Income taxes receivable 943 469
Deferred income taxes 1,301 1,257
Prepaid expenses and other
current assets 2,103 2,192
-------- --------
TOTAL CURRENT ASSETS 167,626 147,524
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,863 1,863
Buildings 65,747 61,485
Machinery and equipment 97,137 89,980
Furniture and leasehold improvements 5,435 5,385
Vehicles 3,013 3,185
Construction in progress 209 1,057
-------- --------
173,404 162,955
Less: Accumulated depreciation 104,250 95,838
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 69,154 67,117
-------- --------
Cash surrender value of officers' life
insurance and other assets 4,396 4,716
Goodwill, less accumulated amortization
of $1,262 1,242 1,242
Brand name, less accumulated amortization
of $5,219 and $4,792 2,701 3,128
-------- --------
TOTAL ASSETS $245,119 $223,727
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
32
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 24, 2004 and June 26, 2003
(dollars in thousands, except per share amounts)
June 24, June 26,
2004 2003
-------- --------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 5,269 $ 29,702
Current maturities of long-term debt 1,277 10,776
Accounts payable, including related
party payables of $502 and $550 16,388 13,658
Book overdraft 7,926 5,507
Accrued payroll and related benefits 9,474 7,440
Other accrued expenses 4,438 5,259
-------- --------
TOTAL CURRENT LIABILITIES 44,772 72,342
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 12,620 29,640
Deferred income taxes 6,367 2,964
-------- --------
TOTAL LONG-TERM LIABILITIES 18,987 32,604
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, convertible to
Common Stock on a per share basis,
cumulative voting rights of ten votes
per share, $.01 par value; 10,000,000
shares authorized, 2,597,426 and
3,667,426 shares issued and outstanding 26 37
Common Stock, noncumulative voting
rights of one vote per share, $.01 par
value; 10,000,000 shares authorized,
8,079,224 and 5,775,564 shares issued
and outstanding 81 58
Capital in excess of par value 98,848 58,911
Retained earnings 83,609 60,979
Treasury stock, at cost; 117,900 shares
of Common Stock (1,204) (1,204)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 181,360 118,781
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $245,119 $223,727
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
33
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 24, 2004, June 26, 2003 and June 27, 2002
(dollars in thousands, except for earnings per share)
Year Ended Year Ended Year Ended
June 24, 2004 June 26, 2003 June 27, 2002
------------- ------------- -------------
Net sales $520,811 $419,677 $352,799
Cost of sales 428,967 346,755 294,999
-------- -------- --------
Gross profit 91,844 72,922 57,800
-------- -------- --------
Selling expenses 37,288 33,500 30,533
Administrative expenses 13,492 10,593 9,365
-------- -------- --------
Total selling and
administrative expenses 50,780 44,093 39,898
-------- -------- --------
Income from operations 41,064 28,829 17,902
-------- -------- --------
Other income (expense):
Interest expense
($775, $842 and $899
to related parties) (3,434) (4,681) (5,757)
Debt extinguishment fees (972) -- --
Rental and miscellaneous
income 440 486 590
-------- -------- --------
Total other expense, net (3,966) (4,195) (5,167)
-------- -------- --------
Income before income taxes 37,098 24,634 12,735
Income tax expense 14,468 9,607 5,044
-------- -------- --------
Net income $ 22,630 $ 15,027 $ 7,691
======== ======== ========
Earnings per common share:
Basic $ 2.35 $ 1.63 $ 0.84
======== ======== ========
Diluted $ 2.32 $ 1.61 $ 0.84
Weighted average shares ======== ======== ========
outstanding:
Basic 9,648,456 9,198,957 9,149,672
========= ========= =========
Diluted 9,758,769 9,332,889 9,194,951
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
34
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 24, 2004, June 26, 2003 and June 27, 2002
(dollars in thousands)
Class A Common Stock Common Stock
-------------------- ------------------ Capital in Excess Retained Treasury
Shares Amount Shares Amount of Par Value Earnings Stock Total
---------- ------ ---------- ------ ----------------- -------- -------- --------
Balance, June 28, 2001 3,687,426 $37 5,579,039 $56 $57,196 $38,261 $(1,204) $ 94,346
Net income and
comprehensive income 7,691 7,691
Stock option exercises 4,900 23 23
--------- --- --------- --- ------- ------- ------- --------
Balance, June 27, 2002 3,687,426 $37 5,583,939 $56 $57,219 $45,952 $(1,204) $102,060
Net income and
comprehensive income 15,027 15,027
Stock option exercises 171,625 2 1,173 1,175
Tax benefit of stock
option exercises 519 519
Conversion of
Class A Common Stock (20,000) 20,000 --
--------- --- --------- --- ------- ------- ------- --------
Balance, June 26, 2003 3,667,426 $37 5,775,564 $58 $58,911 $60,979 $(1,204) $118,781
Net income and
comprehensive income 22,630 22,630
Stock option exercises 83,660 1 488 489
Tax benefit of stock
option exercises 856 856
Conversion of
Class A Common Stock (1,070,000) (11) 1,070,000 11 --
Issuance of Common Stock 1,150,000 11 38,593 38,604
--------- --- --------- --- ------- ------- ------- --------
Balance, June 24, 2004 2,597,426 $26 8,079,224 $81 $98,848 $83,609 $(1,204) $181,360
========= === ========= === ======= ======= ======= ========
The accompanying notes are an integral part of these consolidated
financial statements.
35
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 24, 2004, June 26, 2003 and June 27, 2002
(dollars in thousands)
Year Ended Year Ended Year Ended
June 24, 2004 June 26, 2003 June 27, 2002
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 22,630 $ 15,027 $ 7,691
Depreciation and amortization 11,190 11,248 10,428
(Gain) loss on disposition of
properties 24 (14) (13)
Deferred income taxes 3,359 (378) (123)
Tax benefit of option exercises 856 519 --
Change in current assets and
current liabilities:
Accounts receivable, net (4,593) (5,009) 2,524
Inventories (15,443) (12,531) (918)
Prepaid expenses and other
current assets 89 840 (1,101)
Accounts payable 2,730 (4,083) 6,312
Accrued expenses 1,213 2,601 1,958
Income taxes receivable/payable (474) (767) 1,178
Other (1,356) (1,508) (2,675)
-------- -------- --------
Net cash provided by operating
activities 20,225 5,945 25,261
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (6,880) (5,239) (3,388)
Facility expansion costs (4,269) (2,687) (1,171)
Proceeds from disposition
of properties 1 29 51
-------- -------- --------
Net cash used in investing activities (11,148) (7,897) (4,508)
-------- -------- --------
Cash flows from financing activities:
Net (repayments) borrowings on
notes payable (24,433) 6,183 (14,013)
Principal payments on long-term debt (26,519) (5,688) (5,671)
Book overdraft 2,419 1,458 (895)
Issuance of Common Stock under
option plans 489 1,175 --
Net proceeds from issuance
of Common Stock 38,604 -- --
-------- -------- --------
Net cash (used in) provided by
financing activities (9,440) 3,128 (20,579)
-------- -------- --------
Net (decrease) increase in cash (363) 1,176 174
Cash:
Beginning of period 2,448 1,272 1,098
-------- -------- --------
End of period $ 2,085 $ 2,448 $ 1,272
======== ======== ========
Supplemental disclosures of cash
flow information:
Interest paid $ 3,999 $ 4,579 $ 5,846
Income taxes paid 10,807 10,287 4,062
The accompanying notes are an integral part of these consolidated
financial statements.
36
JOHN B. SANFILIPPO & SON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 -- NATURE OF BUSINESS
- ----------------------------
John B. Sanfilippo & Son, Inc. is one of the leading processors and
marketers of tree nuts and peanuts in the United States. These nuts
are sold under a variety of private labels and under the Company's
Fisher, Evon's, Flavor Tree, Sunshine Country, Texas Pride and Tom
Scott brand names. The Company also markets and distributes, and in
most cases manufactures or processes, a diverse product line of food
and snack items, including peanut butter, candy and confections,
natural snacks and trail mixes, sunflower seeds, corn snacks, sesame
sticks and other sesame snack products. The Company has plants located
throughout the United States. Revenues are generated from sales to a
variety of customers, including several major retailers and the U.S.
government which are made on an unsecured basis.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------
Basis of Presentation and Consolidation
- ---------------------------------------
The consolidated financial statements include the accounts of John B.
Sanfilippo & Son, Inc. and its wholly owned subsidiary (collectively,
"JBSS" or the "Company"). All intercompany balances and transactions
have been eliminated. Certain prior years' amounts have been
reclassified to conform with the current year's presentation. The
Company's fiscal year ends on the last Thursday of June each year and
typically consists of fifty-two weeks (four thirteen week quarters).
All years presented consist of fifty-two week periods. The fiscal
year ending June 30, 2005 will consist of fifty-three weeks.
Management Estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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, allowances for
doubtful accounts and the costing and carrying value of inventories.
Actual results could differ from those estimates.
Accounts Receivable
- -------------------
Accounts receivable are stated at the amounts charged to customers,
less: (i) allowances for doubtful accounts, and (ii) reserves for
estimated cash discounts and customer deductions. The allowance for
doubtful accounts is calculated by specifically identifying customers
that are credit risks. The reserve for estimated cash discounts is
based on actual payments. 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 historical
experience.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventory costs are reviewed each quarter. Fluctuations in
the market price of peanuts, pecans, walnuts, almonds and other nuts
may affect the value of inventory and gross profit and gross profit
margin. If expected market sales prices were to move below cost, the
Company would record adjustments to write down the carrying values of
inventories to fair market value. The results of the Company's
shelling process can also result in changes to its inventory costs.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Major improvements
that extend the useful life are capitalized and charged to expense
through depreciation. Repairs and maintenance 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. Cost is depreciated
37
using the straight-line method over the following estimated useful
lives: buildings -- 30 to 40 years, machinery and equipment -- 5 to
10 years, furniture and leasehold improvements -- 5 to 10 years and
vehicles -- 3 to 5 years. Depreciation expense was $8,637, $8,253 and
$7,706 for the years ended June 24, 2004, June 26, 2003 and June 27,
2002, respectively.
Certain lease transactions relating to the financing of buildings are
accounted for as capital leases, whereby the present value of future
rental payments, discounted at the interest rate implicit in the
lease, is recorded as a liability. See Note 6. A corresponding amount
is capitalized as the cost of the assets and is depreciated on a
straight-line basis over the estimated lives of the assets or over
the lease terms which range from 20 to 30 years, whichever is
shorter. The cost and accumulated depreciation of capitalized assets
were $9,520 and $7,855, respectively at June 24, 2004, and $9,520 and
$7,444 at June 26, 2003, respectively.
The Company reviews long-lived assets to assess recoverability from
projected undiscounted cash flows whenever events or changes in facts
and circumstances indicate that the carrying value of the assets may
not be recoverable, for example, in connection with the Company's
planned facility consolidation project if it proceeds. An impairment
loss is recognized in operating results when future undiscounted cash
flows are less than the assets' carrying value. The impairment loss
would adjust the carrying value to the assets' fair value. To date
the Company has not recorded any impairment charges.
Introductory Funds
- ------------------
The ability to sell to certain retail customers often requires
upfront payments to be made by the Company. Such payments are
frequently made pursuant to contracts that stipulate the term of the
agreement, the quantity and type of products to be sold and any
exclusivity requirements. The cost of these payments is recorded as
an asset and is amortized on a straight-line basis over the term of
the contract. The Company expenses payments if no written arrangement
exists and amounts are not recoverable in the event of customer
cancellation. Total introductory funds included in the other assets
and prepaid expenses and other current assets were $1,276 at June 24,
2004 and $2,329 at June 26, 2003. Amortization expense, which is
recorded as a reduction in net sales, was $1,820, $2,262 and $1,865
for the years ended June 24, 2004, June 26, 2003 and June 27, 2002,
respectively.
Goodwill and Brand Name
- -----------------------
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets", effective June 28, 2002. SFAS
142 requires, among other things, the discontinuance of goodwill
amortization. In addition, SFAS 142 includes provisions for the
reclassification of certain existing recognized intangible assets as
goodwill, reassessment of the useful lives of existing recognized
intangible assets, reclassification of certain intangible assets out
of previously reported goodwill and the identification of reporting
units for purposes of assessing potential future impairments of
goodwill. The adoption of SFAS 142 did not have a significant impact
on the Company's results of operations as annual goodwill amortization
expense was $123 and based upon management's testing, including an
independent valuation, no impairment existed at that time.
The Company's recorded assets at June 28, 2002 included both an
intangible asset and goodwill. The intangible asset consists of the
Fisher brand name that was acquired in 1995. The Company determined
that the brand name is of a finite life and is being amortized over a
fifteen-year period. Annual amortization expense for each of the next
five fiscal years is expected to be approximately $427. Amortization
expense was approximately $427, $427 and $502 for the years ended June
24, 2004, June 26, 2003 and June 27, 2002, respectively.
Goodwill represents the excess of the purchase price over the fair
value of the net assets in the Company's acquisition of Sunshine Nut
Co., Inc. which occurred in 1992. The Company determined that it has
no separate reporting units; therefore, the goodwill impairment test
is performed using the fair value of the entire Company.
The Company is required to review the carrying value of goodwill for
impairment at least annually or if circumstances indicate that the
carrying amount of the asset may not be recoverable. If an impairment
were determined to exist, any related impairment loss would be
calculated based on fair value. Based upon the results of management's
impairment testing, no adjustment to the carrying amount of goodwill
38
and the intangible asset is required. As required under SFAS 142,
amortization of goodwill has been discontinued.
Fair Value of Financial Instruments
- -----------------------------------
Based on borrowing rates presently available to the Company under
similar borrowing arrangements, the Company believes the recorded
amount of its long-term debt obligations approximates fair market
value. The carrying amount of the Company's other financial
instruments approximates their estimated fair value based on market
prices for the same or similar type of financial instruments.
Revenue Recognition
- -------------------
The Company recognizes revenue when a persuasive arrangement exists,
title has transferred (based upon terms of shipment), price is fixed,
delivery occurs and collection is reasonably assured. The Company
sells its products under various arrangements which include customer
contracts which fix the sales price for periods, typically of up to
one year, for some industrial customers and through specific programs,
consisting of promotion allowances, volume and customer rebates and
marketing allowances, among others, to consumer and food service
customers. Revenues are recorded net of rebates and promotion and
marketing allowances. While customers do have the right to return
products, past experience has demonstrated that product returns have
been insignificant. Provisions for returns are reflected as a
reduction in net sales and are estimated based upon customer specific
circumstances.
Significant Customers
- ---------------------
The highly competitive nature of the Company's business provides an
environment for the loss of customers and the opportunity to gain new
customers. Net sales to Wal-Mart Stores, Inc. represented
approximately 19%, 17% and 16% of the Company's net sales for the
years ended June 24, 2004, June 26, 2003 and June 27, 2002,
respectively. Net accounts receivable from Wal-Mart Stores, Inc. were
$3,821 and $4,775 at June 24, 2004 and June 26, 2003, respectively.
Promotion and Advertising Costs
- -------------------------------
Promotion allowances, customer rebates and marketing allowances 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 promotion and marketing
allowances are recorded based upon terms of the actual arrangements.
Coupon incentives have not been significant and are recorded at the
time of distribution. The Company expenses the costs of advertising,
which include newspaper and other advertising activities, as
incurred. Advertising expenses for the years ended June 24, 2004,
June 26, 2003 and June 27, 2002 were $1,344, $1,042 and $694,
respectively.
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. For the years ended June 24, 2004, June 26, 2003 and June
27, 2002, shipping and handling costs totaled $16,696, $14,334 and
$12,284, respectively.
Income Taxes
- ------------
The Company accounts 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 the Company's financial statements or tax
returns. Such items give rise to differences in the financial
reporting and tax basis of assets and liabilities. In estimating
future tax consequences, the Company considers all expected future
events other than changes in tax law or rates.
Segment Reporting
- -----------------
The Company operates in a single reportable operating segment by
selling various nut products procured and processed in a vertically
integrated manner through multiple distribution channels.
39
Earnings per Share
- ------------------
Earnings per common share is calculated using the weighted average
number of shares of Common Stock and Class A Common Stock outstanding
during the period. The following table presents the reconciliation
of the weighted average shares outstanding used in computing earnings
per share:
Year Ended Year Ended Year Ended
June 24, 2004 June 26, 2003 June 27, 2002
------------- ------------- -------------
Weighted average
shares outstanding - basic 9,648,456 9,198,957 9,149,672
Effect of dilutive
securities:
Stock options 110,313 133,932 45,279
--------- --------- ---------
Weighted average shares
outstanding - diluted 9,758,769 9,332,889 9,194,951
========= ========= =========
Excluded from the computation of diluted earnings per share were
options with exercise prices greater than the average market price of
the Common Stock, totaling 7,286, 51,666 and 166,256 for the years
ended June 24, 2004, June 26, 2003 and June 27, 2002, respectively.
These options had weighted average exercise prices of $18.11, $10.38
and $10.07, respectively.
Stock-Based Compensation
- ------------------------
The Company accounts for stock-based compensation in accordance with
the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations using the intrinsic value method, which resulted in
no compensation cost for options granted. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting
Standards No. 123 ("SFAS 123") with respect to options granted to
employees.
The Company's reported net income and earnings per share would have
changed to the pro forma amounts shown below if compensation cost had
been determined based on the fair value at the grant dates in
accordance with SFAS Nos. 123 and 148, "Accounting for Stock-Based
Compensation".
Year Ended Year Ended Year Ended
June 24, 2004 June 26, 2003 June 27, 2002
------------- ------------- -------------
Reported net income $22,630 $15,027 $7,691
Less: Compensation cost
determined under the fair value
method 251 140 (7)
------- ------- ------
Pro forma net income $22,379 $14,887 $7,696
======= ======= ======
Basic earnings per common share:
As reported $2.35 $1.63 $0.84
Pro forma $2.32 $1.62 $0.84
Diluted earnings per common share:
As reported $2.32 $1.61 $0.84
Pro forma $2.29 $1.60 $0.84
The fair value of each option is estimated on the date of grant using
the Black-Scholes pricing model with the following assumptions:
Year Ended Year Ended Year Ended
June 24, 2004 June 26, 2003 June 27, 2002
------------- ------------- -------------
Average risk-free interest rate 3.6% 3.3% 4.3%
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 35.0% 34.0% 34.0%
Expected life (years) 5.0 5.0 5.0
The weighted average fair value per option granted was $6.23, $2.52
and $2.13 for the years ended June 24, 2004, June 26, 2003 and June
27, 2002, respectively.
40
Recent Accounting Pronouncements
- --------------------------------
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51" and a revised interpretation of FIN No. 46R in December
2003. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. FIN 46 became effective immediately for
all new variable interest entities created or acquired after January
31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 became effective during the
second quarter of fiscal 2004. The adoption of FIN 46 did not have a
significant effect on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends and
clarifies financial accounting and reporting for certain derivative
instruments. SFAS 149 became effective during the first quarter of
fiscal 2004. The adoption of SFAS 149 did not have any effect on the
Company's consolidated financial statements, as the Company does not
have any derivative instruments.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which establishes standards for the classification and
measurement of certain financial instruments with characteristics of
both liabilities and equity. The adoption of SFAS 150 did not have any
effect on the Company's consolidated financial statements as the
Company does not have any financial instruments within the scope of
this pronouncement.
NOTE 3 -- COMMON STOCK OFFERING
- -------------------------------
In April 2004, the Company completed an underwritten public offering
of an additional 1,150,000 shares of Common Stock at a price of
$35.75 per share, or $34.00 per share after the underwriting
discount. Total net proceeds to the Company were approximately $38.6
million, after deducting offering costs. The net proceeds were used
to prepay long-term debt and to reduce outstanding balances under the
Company's bank credit facility. See Notes 5 and 6.
In conjunction with the offering, an equal number of shares were sold
by selling stockholders, all of whom are directors and executive
officers of the Company or are related to directors and executive
officers of the Company. Prior to the offering, 1,070,000 shares of
Class A Stock were converted to Common Stock by the selling
stockholders for the offering. The selling stockholders also sold
80,000 shares of previously outstanding Common Stock.
In connection with the offering, the holders of Class A Stock entered
into an agreement with the Company under which they have waived their
right to convert Class A Stock to Common Stock and agreed not to
transfer or otherwise dispose of their shares of Class A Stock in a
manner that could result in conversion of such shares into Common
Stock pursuant to the Company's certificate of incorporation. These
agreements were required since the number of authorized shares of
Common Stock is currently insufficient to allow for the conversion of
all outstanding shares of Class A Stock. These agreements will
remain in effect until the Company's certificate of incorporation is
amended to increase the number of authorized shares of Common Stock.
A proposal to increase the authorized shares of Common Stock has
been submitted stockholders for approval at the Company's annual
meeting. The holders of Class A Stock hold sufficient votes to
approve this proposal.
NOTE 4 -- INVENTORIES
- ---------------------
Inventories consist of the following:
June 24, June 26,
2004 2003
-------- --------
Raw material and supplies $ 62,256 $ 36,852
Work-in-process and finished goods 65,203 75,164
-------- --------
Total $127,459 $112,016
======== ========
41
NOTE 5 -- NOTES PAYABLE
- -----------------------
On March 31, 1998, the Company entered into a new unsecured credit
facility, with certain banks, totaling $70,000 (the "Bank Credit
Facility"). On May 30, 2003, the Bank Credit Facility was amended
to, among other things, increase the total amount available under the
facility to $80,000. The Bank Credit Facility, as amended, is
comprised of (i) a working capital revolving loan, which provides for
working capital financing of up to approximately $73,053, in the
aggregate, and matures on May 31, 2006, and (ii) a $6,947 standby
letter of credit, which matures on June 1, 2006. Borrowings under the
working capital revolving loan were $5,269 and $29,702 at June 24,
2004 and June 26, 2003, respectively, and accrue interest at a rate
determined pursuant to a formula based on the agent bank's quoted
rate and the Eurodollar Interbank Rate (2.83% at June 24, 2004). The
standby letter of credit replaced a prior letter of credit securing
certain industrial development bonds that financed the original
acquisition, construction, and equipping of the Company's Bainbridge,
Georgia facility.
The Bank Credit Facility, as amended, includes certain restrictive
covenants that, among other things: (i) require the Company to
maintain a minimum tangible net worth; (ii) comply with specified
ratios; (iii) limit annual capital expenditures to $12,000; (iv)
restrict dividends to the lesser of 25% of net income for the
previous fiscal year or $5,000; (v) prohibit the Company from
redeeming shares of capital stock; and (vi) require that certain
officers and stockholders of the Company, together with their
respective family members and certain trusts created for the benefits
of their respective children, continue to own shares representing the
right to elect a majority of the directors of the Company. As of
June 24, 2004, the Company was in compliance with all restrictive
covenants, as amended, under the Bank Credit Facility.
42
NOTE 6 -- LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
June 24, June 26,
2004 2003
-------- --------
Industrial development bonds, secured by building,
machinery and equipment with a cost
aggregating $8,000 $ 6,750 $ 6,750
Capitalized lease obligations 5,247 5,786
Series A note payable, interest payable quarterly
at 8.72%, principal payable in semi-annual
installments of $200 -- 600
Series B note payable, interest payable quarterly
at 9.07%, principal payable in semi-annual
installments of $300 -- 900
Series C note payable, interest payable quarterly
at 9.07%, principal payable in semi-annual
installments of $200 -- 600
Series D note payable, interest payable quarterly
at 9.18%, principal payable in semi-annual
installments of $150 -- 450
Series E note payable, interest payable quarterly
at 7.34%, principal payable in semi-annual
installments of $400 -- 1,200
Series F notes payable, interest payable quarterly
at 9.16%, principal payable in semi-annual
installments of $475 -- 2,850
Note payable, interest payable semi-annually at
8.30%, principal payable in annual installments
of approximately $1,429 -- 4,286
Note payable, subordinated, interest payable
semi-annually at 9.38%, principal payable in annual
installments of $5,000 beginning on September 1, 2003 -- 15,000
Arlington Heights facility, first mortgage,
principal and interest payable at 8.875%, due in
monthly installments of $22 through October 1, 2015 1,900 1,994
------- --------
13,897 40,416
Less: Current maturities (1,277) (10,776)
------- --------
Total long-term debt $12,620 $ 29,640
======= ========
JBSS financed the construction of a peanut shelling plant with
industrial development bonds in 1987. On June 1, 1997, the Company
remarketed the bonds, resetting the interest rate at 5.375% through
May 2002, and at a market rate to be determined thereafter. On June
1, 2002, the Company remarketed the bonds, resetting the interest
rate at 4% through May 2006, and at a market rate to be determined
thereafter. On June 1, 2006, and on each subsequent interest reset
date for the bonds, the Company is required to redeem the bonds at
face value plus any accrued and unpaid interest, unless a bondholder
elects to retain his or her bonds. Any bonds redeemed by the Company
at the demand of a bondholder on the reset date are required to be
remarketed by the underwriter of the bonds on a "best efforts" basis.
The agreement requires the Company to redeem the bonds in varying
annual installments, ranging from $270 to $780 annually through 2017.
The scheduled June 1, 2004 payment of $270 was not made until July
1, 2004, due to an administrative error by the trustee. The Company
is also required to redeem the bonds in certain other circumstances,
for example, within 180 days after any determination that interest on
the bonds is taxable. The Company has the option at any time,
however, subject to certain conditions, to redeem the bonds at face
value plus accrued interest, if any.
On September 29, 1992, the Company entered into a long-term financing
facility with a major insurance company (the "Long-Term Financing
Facility") which provided financing to the Company evidenced by
promissory notes in the aggregate principal amount of $14,000 (the
"Initial Financing"). The Initial Financing was comprised of (i) a
$4,000 7.87% Senior Secured Term Note due 2004 (the "Series A Note"),
(ii) a $6,000 8.22% Senior Secured Term Note due 2004 (the "Series B
Note"), and (iii) a $4,000 8.22% Senior Secured Term Note due 2004
(the "Series C Note"). In addition, the Long-Term Financing Facility
included a shelf facility providing for the issuance by the Company
of additional promissory notes with an aggregate original principal
amount of up to $11,000 (the "Shelf Facility"). On January 15, 1993,
the Company borrowed $3,000 under the Shelf Facility evidenced by an
8.33% Senior Secured Term Note due 2004 (the "Series D Note"). On
September 15, 1993, the Company borrowed the remaining $8,000
available under the Shelf Facility evidenced by a 6.49% Senior
43
Secured Term Note due 2004 (the "Series E Note").
On October 19, 1993, the Long-Term Financing Facility was amended to
provide for an additional shelf facility providing for the issuance
by the Company of additional promissory notes with an aggregate
original principal amount of $10,000 and to terminate and release all
liens and security interests in Company properties. On June 23,
1994, the Company borrowed $10,000 under the additional shelf
facility evidenced by an $8,000 8.31% Series F Senior Note due May
15, 2006 (the "Series F-1 Note") and a $2,000 8.31% Series F Senior
Note due May 15, 2006 (the "Series F-2 Note").
Effective January 1, 1997, the interest rates on each promissory note
comprising the Long-Term Financing Facility were increased by 0.85%,
due to the Company not meeting the required ratio of (a) net income
plus interest expense to (b) senior funded debt for the year ended
December 31, 1996.
On September 12, 1995, the Company borrowed an additional $25,000
under an unsecured long-term financing arrangement (the "Additional
Long-Term Financing"). The Additional Long-Term Financing has a
maturity date of September 1, 2005 and (i) as to $10,000 of the
principal amount thereof, bears interest at an annual rate of 8.30%
and requires annual principal payments of approximately $1,429
through maturity, and (ii) as to the other $15,000 of the principal
amount thereof (which is subordinated to the Company's other debt
facilities), bears interest at an annual rate of 9.38% and requires
annual principal payments of $5,000 beginning on September 1, 2003
through maturity.
With proceeds from the Company's stock offering (Note 3), the Company
paid $3,150 outstanding under the Long-Term Financing Facility and
$12,857 outstanding under the Additional Long-Term Financing on June
2, 2004. Prepayment penalties, including the write-off of unamortized
origination fees, of $972 were classified in other expense in the
accompanying statement of operations because the prepayment of debt
is not considered unusual by the Company and as such these expenses
were not considered extraordinary in nature.
Aggregate maturities of long-term debt, excluding capitalized lease
obligations, are as follows for the years ending:
June 30, 2005 $ 668
June 29, 2006 6,298
June 28, 2007 123
June 26, 2008 134
June 25, 2009 147
Thereafter 1,280
------
Total $8,650
======
The Company leases buildings under capital leases are rented from
entities that are owned by certain directors, officers and
stockholders of JBSS. Future minimum payments under the leases are
summarized as follows for the years ending:
June 30, 2005 $1,308
June 29, 2006 1,308
June 28, 2007 1,308
June 26, 2008 1,308
June 25, 2009 1,308
Thereafter 1,270
------
Total future minimum lease payments 7,810
Less: Amount representing interest at a 14.1%
weighted average effective rate 2,563
------
Present value of minimum lease payments $5,247
======
44
NOTE 7 -- INCOME TAXES
- ----------------------
The provision for income taxes for the years ended June 24, 2004,
June 26, 2003 and June 27, 2002 are as follows:
June 24, June 26, June 27,
2004 2003 2002
-------- -------- --------
Current $11,109 $9,985 $5,167
Deferred 3,359 (378) (123)
------- ------ ------
Total provision for income taxes $14,468 $9,607 $5,044
======= ====== ======
The reconciliations of income taxes at the statutory federal income
tax rate to income taxes reported in the statements of operations for
the years ended June 24, 2004, June 26, 2003 and June 27, 2002 are as
follows:
June 24, June 26, June 27,
2004 2003 2002
-------- -------- --------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 4.8 4.8 5.0
Surtax exemption -- -- (0.8)
Nondeductible items -- -- 0.6
Other (0.8) (0.8) (0.2)
---- ---- ----
Effective tax rate 39.0% 39.0% 39.6%
==== ==== ====
The deferred tax assets and liabilities are comprised of the following:
June 24, 2004 June 26, 2003
------------------ ------------------
Asset Liability Asset Liability
------ --------- ------ ---------
Current:
Allowance for doubtful
accounts $ 330 $ -- $ 236 $ --
Employee compensation 455 -- 754 --
Other 516 -- 267 --
------ ------ ------ ------
Total current $1,301 $ -- $1,257 $ --
------ ------ ------ ------
Long-term:
Depreciation $ -- $8,380 $ -- $5,054
Capitalized leases 1,418 -- 1,503 --
Other 595 -- 587 --
------ ------ ------ ------
Total long-term $2,013 $8,380 $2,090 $5,054
------ ------ ------ ------
Total $3,314 $8,380 $3,347 $5,054
====== ======= ====== ======
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Operating Leases
- ----------------
The Company leases buildings and certain equipment pursuant to
agreements accounted for as operating leases. Rent expense under
these operating leases aggregated $1,319, $730 and $598 for the years
ended June 24, 2004, June 26, 2003 and June 27, 2002, respectively.
Aggregate non-cancelable lease commitments under these operating
leases are as follows for the years ending:
June 30, 2005 $1,459
June 29, 2006 1,092
June 28, 2007 304
June 26, 2008 205
June 25, 2009 65
Thereafter 2
------
$3,127
======
45
Litigation
- ----------
On June 17, 2003, the Company received a subpoena for the production
of documents and records from a grand jury in connection with an
investigation of a portion of the peanut shelling industry by the
Antitrust Division of the United States Department of Justice. The
Company believes the investigation relates to procurement pricing
practices but, given the early stage of the investigation, it could
concern other or additional business practices. The Company has
responded to the subpoena and has produced documents to the Department
of Justice, and two employees of the Company received subpoenas to
appear before the grand jury. The investigation, of which the Company
and the employees are subjects, is on-going. The investigation may
have a material adverse effect on the Company's business, financial
condition and results of operations, and on the peanut shelling
industry.
Development Agreement
- ---------------------
The Company and certain partnerships controlled by executive officers
and directors of the Company have entered into a Development Agreement
with the City of Elgin, Illinois for the development and purchase of the
land where a new facility would be constructed. The Development Agreement
is subject to certain conditions, including but not limited to the
completion of environmental and asbestos remediation procedures, the
inclusion of the property in the Elgin enterprise zone and the
establishment of a tax incremental financing district covering the property.
The Company has paid a $450 thousand deposit to the State of Illinois in
connection with the purchase of this land.
The Company is also a party to various lawsuits, proceedings and other
matters arising out of the conduct of its business. It is
management's opinion that the ultimate resolution of these matters
will not have a significant effect upon the business, financial
condition or results of operations of the Company.
NOTE 9 -- STOCKHOLDERS' EQUITY
- ------------------------------
The Company's 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 the Company's Class A Stock and Common Stock are entitled to vote.
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. Each share of the
Company's 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% of the members comprising the Board of Directors.
NOTE 10 -- STOCK OPTION PLANS
- -----------------------------
At the Company's annual meeting of stockholders on October 28, 1998,
the Company's stockholders approved a new stock option plan (the
"1998 Equity Incentive Plan"). Pursuant to the terms of the 1998
Equity Incentive Plan, qualified and non-qualified options to
purchase up to 700,000 shares of Common Stock could be awarded to
certain key employees and "outside directors" (i.e. directors who are
not employees of the Company or any of its subsidiaries). The
exercise price of the options will be determined as set forth in the
1998 Equity Incentive Plan by the Board of Directors. The exercise
price for the stock options must be at least the fair market value of
the Common Stock on the date of grant, with the exception of
nonqualified stock options which can have an exercise price equal to
at least 50% of the fair market value of the Common Stock on the date
of grant. Except as set forth in the 1998 Equity Incentive Plan,
options expire upon termination of employment or directorship. The
options granted under the 1998 Equity Incentive Plan are exercisable
25% annually commencing on the first anniversary date of grant and
become fully exercisable on the fourth anniversary date of grant.
All of the options granted, except those granted to outside
directors, were intended to qualify as incentive stock options within
the meaning of Section 422 of the Code. At June 24, 2004, options to
purchase 7,000 shares of Common Stock were outstanding under plans
that existed prior to the adoption of the 1998 Equity Incentive Plan.
Options under these plans are subject to provisions substantially the
same as those in the 1998 Equity Incentive Plan. At June 24, 2004,
there were 293,500 options available for distribution under the 1998
Equity Incentive Plan.
46
The following is a summary of activity under the Company's stock
option plans:
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at June 28, 2001 432,250 $ 4.38
Granted 8,000 $ 5.68
Exercised (4,900) $ 4.76
Canceled (140,700) $10.94
--------
Outstanding at June 27, 2002 294,650 $ 6.39
Granted 144,500 $ 7.08
Exercised (171,625) $ 6.70
Canceled (13,750) $10.73
--------
Outstanding at June 26, 2003 253,775 $ 6.33
Granted 100,500 $16.89
Exercised (83,660) $ 6.01
Canceled (7,300) $ 8.67
--------
Outstanding at June 24, 2004 263,315 $10.41
=======
Options exercisable at June 24, 2004 53,440 $ 5.33
Options exercisable at June 26, 2003 72,275 $ 5.86
Options exercisable at June 27, 2002 214,775 $ 7.14
Exercise prices for options outstanding as of June 24, 2004 ranged
from $3.44 to $32.30. The weighted average remaining contractual
life of those options is 8.0 years. The options outstanding at June
24, 2004 may be segregated into two ranges, as is shown in the
following:
Option Price Per Option Price Per
Share Range Share Range
$3.44 - $10.50 $16.42 - $32.30
---------------- ----------------
Number of options 161,315 102,000
Weighted-average exercise price $6.30 $16.90
Weighted-average remaining
life (years) 7.3 9.2
Number of options exercisable 53,065 375
Weighted average exercise price
for exercisable options $5.24 $17.51
NOTE 11 -- EMPLOYEE BENEFIT PLANS
- ---------------------------------
JBSS maintains 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. The Company contributes 50% of
the amount contributed by each employee up to certain maximums
specified in the plan. Total Company contributions to the 401(k)
plan were $640, $535 and $451 for the years ended June 24, 2004, June
26, 2003 and June 27, 2002, respectively.
JBSS contributed $89, $99 and $90 for the years ended June 24, 2004,
June 26, 2003 and June 27, 2002, respectively, to multi-employer
union-sponsored pension plans. JBSS is presently unable to determine
its respective share of either accumulated plan benefits or net assets
available for benefits under the union plans.
47
NOTE 12 -- TRANSACTIONS WITH RELATED PARTIES
- --------------------------------------------
In addition to the related party transactions described in Notes 6 and 8,
JBSS also entered into transactions with the following related parties:
Purchases
- ---------
JBSS purchases materials and manufacturing equipment from a company
that is 51% owned by the wife of the Company's Chairman of the Board
and Chief Executive Officer. The five children of the Company's
Chairman of the Board and Chief Executive Officer own the balance of
the entity either directly or as equal beneficiaries of a trust. Two
of the children are officers and directors of the Company. Purchases
aggregated $8,715, $7,170 and $6,491 for the years ended June 24,
2004, June 26, 2003 and June 27, 2002, respectively. Accounts
payable aggregated $471 and $516 at June 24, 2004 and June 26, 2003,
respectively. In addition, JBSS previously leased office and
warehouse space to the entity. Rental income from the entity
aggregated $79 for the year ended June 27, 2002.
JBSS purchases materials from a company that is 33% owned by an
individual related to the Company's Chairman of the Board and Chief
Executive Officer. Material purchases aggregated $501, $473 and $402
for the years ended June 24, 2004, June 26, 2003 and June 27, 2002,
respectively. Accounts payable aggregated $4 and $7 at June 24, 2004
and June 26, 2003, respectively.
JBSS purchases supplies from a company that is 33% owned by an
individual related to the Company's Chairman of the Board and Chief
Executive Officer. Supply purchases aggregated $305, $472 and $408
for the years ended June 24, 2004, June 26, 2003 and June 27, 2002,
respectively. Accounts payable aggregated $27 and $27 at June 24,
2004 and June 26, 2003, respectively.
Product Purchases and Sales
- ---------------------------
JBSS previously purchased materials from and sold products to a
company that was owned 33% by the Company's Chairman of the Board and
Chief Executive Officer. Material purchases aggregated $526 for the
year ended June 27, 2002. The Company sold products to the same
company aggregating $831 for the year ended June 27, 2002.
NOTE 13 -- DISTRIBUTION CHANNEL AND PRODUCT TYPE SALES MIX
- ----------------------------------------------------------
The Company operates in a single reportable operating segment through
which it sells various nut products through multiple distribution
channels.
The following summarizes net sales by distribution channel.
Year Ended Year Ended Year Ended
Distribution Channel June 24, 2004 June 26, 2003 June 27, 2002
-------------------- ------------- ------------- -------------
Consumer $289,586 $237,767 $200,731
Industrial 110,813 86,176 72,326
Food Service 48,969 36,755 38,057
Contract Packaging 33,074 26,195 22,703
Export 38,369 32,784 18,983
-------- -------- --------
Total $520,811 $419,677 $352,800
======== ======== ========
48
The following summarizes sales by product type as a percentage of
total gross sales. The information is based on gross sales, rather
than net sales, because certain adjustments, such as promotional
discounts, are not allocable to product types.
Year Ended Year Ended Year Ended
Product Type June 24, 2004 June 26, 2003 June 27, 2002
------------ ------------- ------------- -------------
Peanuts 25.2% 25.3% 27.8%
Pecans 20.1 17.7 18.8
Cashews & Mixed Nuts 22.5 24.1 21.4
Walnuts 9.9 10.9 11.7
Almonds 12.1 10.1 7.7
Other 10.2 11.9 12.6
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
NOTE 14 -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------
The following table details the activity in the allowances and
reserves for accounts receivable:
Balance at
Beginning Balance at
Description of Period Additions Deductions End of Period
- ------------------------------- ---------- --------- ---------- -------------
June 24, 2004
- -------------
Allowance for doubtful accounts $ 591 $ 277 $ (218) $ 650
Reserve for cash discounts 140 5,568 (5,513) 195
Reserve for customer deductions 821 7,285 (6,974) 1,132
------ ------- --------- ------
Total $1,552 $13,130 $(12,705) $1,977
====== ======= ========= ======
June 26, 2003
- -------------
Allowance for doubtful accounts $ 511 $ 314 $ (234) $ 591
Reserve for cash discounts 109 4,516 (4,485) 140
Reserve for customer deductions 786 7,355 (7,320) 821
------ ------- --------- ------
Total $1,406 $12,185 $(12,039) $1,552
====== ======= ========= ======
June 27, 2002
- -------------
Allowance for doubtful accounts $ 390 $ 155 $ (34) $ 511
Reserve for cash discounts 109 3,928 (3,928) 109
Reserve for customer deductions 894 5,169 (5,277) 786
------ ------- --------- ------
Total $1,393 $ 9,252 $ (9,239) $1,406
====== ======= ========= ======
49
NOTE 15 -- SUPPLEMENTARY QUARTERLY DATA (Unaudited)
- ---------------------------------------------------
The following unaudited quarterly consolidated financial data are
presented for fiscal 2004 and fiscal 2003. Quarterly financial results
necessarily rely on estimates and caution is required in drawing
specific conclusions from quarterly consolidated results.
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Year Ended June 24, 2004:
Net sales $124,762 $171,392 $100,162 $124,495
Gross profit 25,417 32,920 14,474 19,033
Income from operations 12,620 17,864 3,385 7,195
Net income 7,163 10,448 1,556 3,463
Basic earnings per common share $ 0.77 $ 1.12 $ 0.17 $ 0.33
Diluted earnings per common share $ 0.76 $ 1.09 $ 0.16 0.32
Year Ended June 26, 2003:
Net sales $ 95,327 $138,107 $ 86,951 $ 99,292
Gross profit 13,558 26,657 15,647 17,060
Income from operations 3,818 14,483 3,652 6,876
Net income 1,678 8,243 1,573 3,533
Basic earnings per common share $ 0.18 $ 0.90 $ 0.17 $ 0.38
Diluted earnings per common share $ 0.18 $ 0.89 $ 0.17 $ 0.37
50
Item 9 -- Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
- ---------------------------------------------------------------------
There were no disagreements on any matters of accounting principles
or financial statement disclosure with the Company's independent
accountants during the year ended June 24, 2004, the year ended June
26, 2003 or the year ended June 27, 2002.
Item 9A -- Controls and Procedures
- ----------------------------------
As of the end of the period covered by this Annual Report on Form
10-K, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the
Company's Chairman and Chief Executive Officer along with the
Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation,
the Company's Chairman and Chief Executive Officer along with the
Company's Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be
included in the Company's periodic SEC filings. There has been no
change in the Company's internal control over financial reporting
during the Company's fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect the Company's
internal control over financial reporting.
51
PART III
--------
Item 10 -- Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
The Sections entitled "Nominees for Election by The Holders of Common
Stock," "Nominees for Election by The Holders of Class A Stock" and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's Proxy Statement for the 2004 Annual Meeting and filed
pursuant to Regulation 14A are incorporated herein by reference.
Information relating to the executive officers of the Company is
included immediately after Part I of this Report. The Company has
adopted a Code of Ethics applicable to the principal executive,
financial and accounting officers ("Code of Ethics") and a separate
Code of Conduct applicable to all employees and directors generally
("Code of Conduct"). The Code of Ethics and Code of Conduct are
available on the Company's website at www.jbssinc.com.
Item 11 -- Executive Compensation
- ---------------------------------
The Sections entitled "Compensation of Directors and Executive
Officers", "Committees and Meetings of the Board of Directors" and
"Compensation Committee Interlocks, Insider Participation and Certain
Transactions" of the Company's Proxy Statement for the 2004 Annual
Meeting are incorporated herein by reference.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
- -------------------------------------------------------------------------
The Section entitled "Security Ownership of Certain Beneficial Owners
and Management" of the Company's Proxy Statement for the 2004 Annual
Meeting is incorporated herein by reference.
Item 13 -- Certain Relationships and Related Transactions
- ---------------------------------------------------------
The Sections entitled "Executive Compensation" and "Compensation
Committee Interlocks, Insider Participation and Certain Transactions"
of the Company's Proxy Statement for the 2004 Annual Meeting are
incorporated herein by reference.
Item 14 -- Principal Accountant Fees and Services
- -------------------------------------------------
The information under the proposal entitled "Ratify Appointment of
PricewaterhouseCoopers LLP as Independent Auditors" of the Company's
Proxy Statement for the 2004 Annual Meeting is incorporated herein by
reference.
PART IV
-------
Item 15 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)(1) Financial Statements
-----------------------------
The following financial statements of the Company are included in Part
II, Item 8 of this Report:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Year Ended June 24,
2004, the Year Ended June 26, 2003 and the Year Ended June 27, 2002
Consolidated Balance Sheets as of June 24, 2004 and June 26, 2003
Consolidated Statements of Stockholders' Equity for the Year
Ended June 24, 2004, the Year Ended June 26, 2003 and the Year
Ended June 27, 2002
Consolidated Statements of Cash Flows for the Year Ended June 24,
2004, the Year Ended June 26, 2002 and the Year Ended June 27, 2002
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
----------------------------------
All schedules are omitted because they are not applicable or
the required information is shown in the Consolidated
Financial Statements or Notes thereto.
52
(3) Exhibits
-------------
The exhibits required by Item 601 of Regulation S-K and filed
herewith are listed in the Exhibit Index which follows the
signature page and immediately precedes the exhibits filed.
(b) Reports on Form 8-K
----------------------------
On April 22, 2004, the Company filed a Current Report on Form 8-K,
dated April 22, 2004, announcing quarterly financial results.
(c) Exhibits
-----------------
See Item 15(a)(3) above.
(d) Financial Statement Schedules
--------------------------------------
See Item 15(a)(2) above.
53
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JOHN B. SANFILIPPO & SON, INC.
Date: September 2, 2004 By: /s/ JASPER B. SANFILIPPO
----------------------------
Jasper B. Sanfilippo
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Name Title Date
- ------------------------- ----------------------------- -----------------
/s/ Jasper B. Sanfilippo Chairman of the Board and September 2, 2004
- ------------------------ Chief Executive Officer and
Jasper B. Sanfilippo Director (Principal
Executive Officer)
/s/ Michael J. Valentine Executive Vice President September 2, 2004
- ------------------------ Finance, Chief Financial
Michael J. Valentine Officer and Secretary and
Director (Principal
Financial Officer)
/s/ William R. Pokrajac Vice President of Finance September 2, 2004
- ----------------------- (Principal Accounting
Officer)
William R. Pokrajac
/s/ Mathias A. Valentine Director September 2, 2004
- ------------------------
Mathias A. Valentine
/s/ Jim Edgar Director September 2, 2004
- -------------
Jim Edgar
/s/ John W.A. Buyers Director September 2, 2004
- --------------------
John W.A. Buyers
/s/ Timothy R. Donovan Director September 2, 2004
- ----------------------
Timothy R. Donovan
/s/ Jeffrey T. Sanfilippo Director September 2, 2004
- -------------------------
Jeffrey T. Sanfilippo
/s/ Jasper B. Sanfilippo, Jr. Director September 2, 2004
- -----------------------------
Jasper B. Sanfilippo, Jr.
54
JOHN B. SANFILIPPO & SON, INC.
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
- -------- ------------------------------------------------------------------
1 Underwriting Agreement dated as of March 23, 2004, by and among the
Registrant, the selling stockholders named therein and the
underwriters named therein, filed herewith
2 Not applicable
3.1 Restated Certificate of Incorporation of Registrant(2)
3.2 Certificate of Correction to Restated Certificate(2)
3.3 Bylaws of Registrant(1)
4.1 Specimen Common Stock Certificate(3)
4.2 Specimen Class A Common Stock Certificate(3)
5-9 Not applicable
10.1 Certain documents relating to $8.0 million Decatur County-Bainbridge
Industrial Development Authority Industrial Development Revenue
Bonds (John B. Sanfilippo & Son, Inc. Project) Series 1987 dated
as of June 1, 1987(1)
10.2 Industrial Building Lease (the "Touhy Avenue Lease") dated
November 1, 1985 between the Registrant and LNB, as Trustee under
Trust Agreement dated September 20, 1966 and known as Trust
No. 34837(6)
10.3 First Amendment to the Touhy Avenue Lease dated June 1, 1987(6)
10.4 Second Amendment to the Touhy Avenue Lease dated December
14, 1990(6)
10.5 Third Amendment to the Touhy Avenue Lease dated September 1, 1991(9)
10.6 Mortgage, Assignment of Rents and Security Agreement made on
September 29, 1992 by LaSalle Trust, not personally but as
Successor Trustee under Trust Agreement dated February 7, 1979
and known as Trust Number 100628 in favor of the Registrant
relating to the properties commonly known as 2299 Busse Road and
1717 Arthur Avenue, Elk Grove Village, Illinois(5)
10.7 Industrial Building Lease dated June 1, 1985 between Registrant
and LNB, as Trustee under Trust Agreement dated February 7, 1979
and known as Trust No. 100628(1)
10.8 First Amendment to Industrial Building Lease dated September
29, 1992 by and between the Registrant and LaSalle Trust, not
personally but as Successor Trustee under Trust Agreement dated
February 7, 1979 and known as Trust Number 100628(5)
10.9 Second Amendment to Industrial Building Lease dated March 3, 1995
by and between the Registrant and LaSalle Trust, not personally
but as Successor Trustee under Trust Agreement dated February
7, 1979 and known as Trust Number 100628(7)
10.10 Third Amendment to Industrial Building Lease dated August 15, 1998
by and between the Registrant and LaSalle Trust, not personally
but as Successor Trustee under Trust Agreement dated February
7, 1979 and known as Trust Number 100628(11)
10.11 Ground Lease dated January 1, 1995 between the Registrant and
LaSalle Trust, not personally but as Successor Trustee under
Trust Agreement dated February 7, 1979 and known as Trust
Number 100628(7)
55
10.12 Party Wall Agreement, dated March 3, 1995 between the Registrant,
LaSalle Trust, not personally but as Successor Trustee under
Trust Agreement dated February 7, 1979 and known as Trust Number
100628, and the Arthur/Busse Limited Partnership(7)
10.13 Tax Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
*10.14 Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
*10.15 The Registrant's 1991 Stock Option Plan(1)
*10.16 First Amendment to the Registrant's 1991 Stock Option Plan(4)
10.17 Outsource Agreement between the Registrant and Preferred Products,
Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT REQUESTED](7)
10.18 Letter Agreement between the Registrant and Preferred Products,
Inc.dated February 24, 1995, amending the Outsource Agreement
dated January 19, 1994 [CONFIDENTIAL TREATMENT REQUESTED](7)
*10.19 The Registrant's 1995 Equity Incentive Plan(8)
10.20 Promissory Note (the "ILIC Promissory Note") in the original
principal amount of $2.5 million, dated September 27, 1995 and
executed by the Registrant in favor of Indianapolis Life
Insurance Company ("ILIC")(9)
10.21 First Mortgage and Security Agreement (the "ILIC Mortgage") by and
between the Registrant, as mortgagor, and ILIC, as mortgagee,
dated September 27, 1995, and securing the ILIC Promissory Note
and relating to the property commonly known as 3001 Malmo Drive,
Arlington Heights, Illinois(9)
10.22 Assignment of Rents, Leases, Income and Profits dated September
27, 1995, executed by the Registrant in favor of ILIC and relating
to the ILIC Promissory Note, the ILIC Mortgage and the Arlington
Heights facility(9)
10.23 Environmental Risk Agreement dated September 27, 1995, executed
by the Registrant in favor of ILIC and relating to the ILIC
Promissory Note, the ILIC Mortgage and the Arlington Heights
facility(9)
10.24 Credit Agreement dated as of March 31, 1998 among the Registrant,
Sunshine, Quantz, JBSI, U.S. Bancorp Ag Credit, Inc. ("USB") as
Agent, Keybank National Association ("KNA"), and LNB(10)
*10.25 The Registrant's 1998 Equity Incentive Plan(12)
*10.26 First Amendment to the Registrant's 1998 Equity Incentive Plan(14)
10.27 Second Amendment to Credit Agreement dated May 10, 2000 by and
among the Registrant, JBSI, USB as Agent, LNB and SunTrust Bank,
N.A.("STB") (replacing KNA)(13)
10.28 Third Amendment to Credit Agreement dated May 20, 2002 by and among
the Registrant, JBSI, USB as Agent, LNB and STB(15)
10.29 Fourth Amendment to Credit Agreement dated May 30, 2003 by and
among the Registrant, JBSI, USB as Agent, LNB and STB(16)
10.30 Revolving Credit Note in the principal amount of $40.0 million
executed by the Registrant and JBSI in favor of USB, dated as of
May 30, 2003(16)
10.31 Revolving Credit Note in the principal amount of approximately
$22.9 million executed by the Registrant and JBSI in favor of
STB, dated as of May 30, 2003(16)
10.32 Revolving Credit Note in the principal amount of approximately
$17.1 million executed by the Registrant and JBSI in favor of LSB,
dated as of May 30, 2003(16)
56
10.33 Industrial Building Lease between the Registrant and Cabot
Acquisition, LLC dated April 18, 2003(18)
*10.34 Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar
Insurance Agreement Number One among John E. Sanfilippo, as
trustee of the Jasper and Marian Sanfilippo Irrevocable Trust,
dated September 23, 1990, Jasper B. Sanfilippo, Marian R.
Sanfilippo and Registrant, dated December 31, 2003(17)
*10.35 Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar
Insurance Agreement Number Two among Michael J. Valentine, as
trustee of the Valentine Life Insurance Trust, Mathias Valentine,
Mary Valentine and Registrant, dated December 31, 2003(17)
10.36 Request for Waiver and Restriction on Transfer, dated January 22,
2004, by and between the Registrant and each holder of the
Registrant's Class A Common Stock(18)
10.37 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Mathias A. Valentine(18)
10.38 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the Michael J.
Valentine Trust(18)
10.39 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the James
Valentine Trust(18)
10.40 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the Mary Jo
Carroll Trust(18)
10.41 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Marian Sanfilippo, Trustee of the John E.
Sanfilippo Irrevocable Trust Agreement Dated 10/08/96(18)
10.42 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Marian Sanfilippo, Trustee of the James J.
Sanfilippo Irrevocable Trust Agreement Dated 10/08/96(18)
10.43 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Marian Sanfilippo, Trustee of the Jeffrey T.
Sanfilippo Irrevocable Trust Agreement Dated 10/08/96(18)
10.44 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Marian Sanfilippo, Trustee of the Lisa Sanfilippo
Irrevocable Trust Agreement Dated 1/21/93(18)
10.45 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Marian Sanfilippo, Trustee of the Jasper B.
Sanfilippo Irrevocable Trust Agreement Dated 10/08/96(18)
10.46 Amendment, dated February 12, 2004, to Amended and Restated John
B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number
One among John E. Sanfilippo, as trustee of the Jasper and Marian
Sanfilippo Irrevocable Trust, dated September 23, 1990, Jasper B.
Sanfilippo, Marian R. Sanfilippo and Registrant, dated December
31, 2003(18)
10.47 Amendment, dated February 12, 2004, to Amended and Restated John
B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number
Two among Michael J. Valentine, as trustee of the Valentine Life
Insurance Trust, Mathias Valentine, Mary Valentine and Registrant,
dated December 31, 2003(18)
10.48 Development Agreement dated as of May 26, 2004, by and between the
City of Elgin, an Illinois municipal corporation, John B.
Sanfilippo & Son, Inc., a Delaware corporation, Arthur/Busse
Limited Partnership, an Illinois limited partnership, and 300
East Touhy Avenue Limited Partnership, an Illinois limited
partnership, filed herewith.
10.49 Agreement For Sale of Real Property, dated as of June 18, 2004, by
and between the State of Illinois, acting by and through its
Department of Central Management Services, and the City of Elgin,
filed herewith.
11-20 Not applicable
21 Subsidiaries of the Registrant, filed herewith
57
22 Not applicable
23 Consent of PricewaterhouseCoopers LLP, filed herewith
24-31 Not applicable
31.1 Certification of Jasper B. Sanfilippo pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, as amended, filed herewith
31.2 Certification of Michael J. Valentine pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, as amended, filed herewith
32.1 Certification of Jasper B. Sanfilippo pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
32.2 Certification of Michael J. Valentine pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
33-99 Not applicable
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-43353, as filed with
the Commission on October 15, 1991 (Commission File No. 0-19681).
(2) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 (Commission
File No. 0-19681).
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Amendment No. 3), Registration No. 33-43353,
as filed with the Commission on November 25, 1991
(Commission File No. 0-19681).
(4) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the second quarter ended June 25, 1992 (Commission
File No. 0-19681).
(5) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated September 29, 1992 (Commission File No. 0-19681).
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (Commission
File No. 0-19681).
(7) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (Commission
File No. 0-19681).
(8) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the first quarter ended March 30, 1995 (Commission
File No. 0-19681).
(9) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the third quarter ended September 28, 1995
(Commission File No. 0-19681).
(10) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the third quarter ended March 26, 1998
(Commission File No. 0-19681).
(11) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 25, 1998 (Commission
File No. 0-19681).
58
(12) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the first quarter ended September 24, 1998
(Commission File No. 0-19681).
(13) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 29, 2000 (Commission
File No. 0-19681).
(14) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the second quarter ended December 28, 2000
(Commission File No. 0-19681).
(15) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 27, 2002 (Commission File
No. 0-19681).
(16) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 26, 2003 (Commission File
No. 0-19681).
(17) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended December 25, 2003
(Commission File No. 0-19681).
(18) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Amendment No. 2), Registration No. 333-
112221, as filed with the Commission on March 10, 2004.
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14(c).
59