SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 23, 2004
[ ] 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
--------------------------------- ----------------------
(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)
(Registrant's telephone number, including area code)
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(847) 593-2300
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 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 whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ].
As of October 29, 2004, 7,963,824 shares of the Registrant's Common Stock,
$0.01 par value per share, excluding 117,900 treasury shares, and
2,597,426 shares of the Registrant's Class A Common Stock, $0.01 par value
per share, were outstanding.
JOHN B. SANFILIPPO & SON, INC.
------------------------------
INDEX TO FORM 10-Q
------------------
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1 -- Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations for the quarters
ended September 23, 2004 and September 25, 2003 3
Consolidated Balance Sheets as of September 23, 2004
and June 24, 2004 4
Consolidated Statements of Cash Flows for the quarters
ended September 23, 2004 and September 25, 2003 5
Notes to Consolidated Financial Statements 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3 -- Quantitative and Qualitative Disclosures
About Market Risk 20
Item 4 -- Controls and Procedures 20
PART II. OTHER INFORMATION
- ---------------------------
Item 6 -- Exhibits and Reports on Form 8-K 21
SIGNATURE 22
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EXHIBIT INDEX 23
- -------------
FORWARD-LOOKING STATEMENTS
- --------------------------
This document contains certain forward-looking statements that
represent the Company's present expectations or beliefs concerning future
events. The Company cautions that such statements are qualified by
important factors. See Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Forward Looking
Statements and Factors That May Affect Future Results.
2
PART I. FINANCIAL INFORMATION
------------------------------
Item 1 -- Financial Statements (Unaudited)
- ------------------------------------------
JOHN B. SANFILIPPO & SON, INC.
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
(Dollars in thousands, except earnings per share)
For the Quarter Ended
---------------------------------------
September 23, 2004 September 25, 2003
------------------ ------------------
Net sales $134,645 $124,762
Cost of sales 117,719 99,345
-------- --------
Gross profit 16,926 25,417
-------- --------
Operating expenses:
Selling expenses 9,848 8,955
Administrative expenses 2,753 3,842
-------- --------
Total operating expenses 12,601 12,797
-------- --------
Income from operations 4,325 12,620
-------- --------
Other income (expense):
Interest expense ($182 and $200
to related parties) (311) (995)
Rental and miscellaneous income 176 117
-------- --------
Total other expense, net (135) (878)
-------- --------
Income before income taxes 4,190 11,742
Income tax expense 1,634 4.579
-------- --------
Net income $ 2,556 $ 7,163
======== ========
Basic earnings per common share $ 0.24 $ 0.77
======== ========
Diluted earnings per common share $ 0.24 $ 0.76
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3
JOHN B. SANFILIPPO & SON, INC.
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
(Unaudited)
September 23, 2004 June 24, 2004
------------------ -------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 15,146 $ 2,085
Accounts receivable, less allowances
of $2,622 and $1,977, respectively 41,865 33,735
Inventories 134,566 127,459
Income taxes receivable -- 943
Deferred income taxes 1,259 1,301
Prepaid expenses and other current assets 2,307 2,103
-------- --------
TOTAL CURRENT ASSETS 195,143 167,626
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,863 1,863
Buildings 65,931 65,747
Machinery and equipment 98,857 97,137
Furniture and leasehold improvements 5,435 5,435
Vehicles 3,101 3,013
Construction in progress 281 209
-------- --------
175,468 173,404
Less: Accumulated depreciation 106,305 104,250
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 69,163 69,154
-------- --------
Cash surrender value of officers' life
insurance and other assets 4,247 4,396
Goodwill 1,242 1,242
Brand name 2,595 2,701
-------- --------
TOTAL ASSETS $272,390 $245,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ -- $ 5,269
Current maturities of long-term debt 1,030 1,277
Accounts payable ($623 and $502 to
related parties) 47,259 16,388
Book overdraft 10,052 7,926
Accrued payroll and related benefits 6,279 9,474
Other accrued expenses 4,546 4,438
Income taxes payable 462 --
-------- --------
TOTAL CURRENT LIABILITIES 69,628 44,772
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 12,426 12,620
Deferred income taxes 6,374 6,367
-------- --------
TOTAL LONG-TERM LIABILITIES 18,800 18,987
-------- --------
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 shares issued
and outstanding 26 26
Common Stock, non-cumulative voting rights
of one vote per share, $.01 par value;
10,000,000 shares authorized, 8,081,724
and 8,079,224 shares issued and
outstanding, respectively 81 81
Capital in excess of par value 98,894 98,848
Retained earnings 86,165 83,609
Treasury stock, at cost; 117,900 shares (1,204) (1,204)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 183,962 181,360
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $272,390 $245,119
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4
JOHN B. SANFILIPPO & SON, INC.
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(Dollars in thousands)
For the Quarter Ended
----------------------------------------
September 23, 2004 September 25, 2003
------------------ ------------------
Cash flows from operating activities:
Net income $ 2,556 $ 7,163
Adjustments:
Depreciation and amortization 2,727 2,681
Gain on disposition of properties (11) --
Deferred income taxes 49 --
Tax benefit of option exercises 16 39
Change in current assets and
current liabilities:
Accounts receivable, net (8,130) (13,722)
Inventories (7,107) 6,315
Prepaid expenses and other
current assets (204) (93)
Accounts payable 30,871 19,368
Accrued expenses (3,087) (575)
Income taxes receivable/payable 1,405 4,319
Other (372) (177)
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Net cash provided by operating activities 18,713 25,318
------- --------
Cash flows from investing activities:
Purchases of plant, property and equipment (2,025) (1,600)
Facility expansion costs (84) (1,865)
Proceeds from disposition of properties 11 --
------- --------
Net cash used in investing activities (2,098) (3,465)
------- --------
Cash flows from financing activities:
Net borrowings on notes payable (5,269) (18,813)
Principal payments on long-term debt (441) (7,680)
Book overdraft 2,126 5,339
Issuance of Common Stock under option plans 30 26
------- --------
Net cash used in financing activities (3,554) (21,128)
------- --------
Net increase in cash and cash equivalents 13,061 725
Cash and cash equivalents:
Beginning of period 2,085 2,448
------- --------
End of period $15,146 $ 3,173
======= ========
The accompanying notes are an integral part of these consolidated
financial statements.
5
JOHN B. SANFILIPPO & SON, INC.
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(Dollars in thousands)
Note 1 -- Basis of Presentation
- -------------------------------
The consolidated financial statements include the accounts of John B.
Sanfilippo & Son, Inc. and its wholly-owned subsidiary, JBS
International, Inc. (collectively, the "Company"). Certain prior year's
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), but the current fiscal year ending June 30, 2005 will
consist of fifty-three weeks, with the fourth quarter containing
fourteen weeks.
The unaudited financial statements included herein have been prepared
by the Company. In the opinion of the Company's management, these
statements present fairly the consolidated statements of operations,
consolidated balance sheets and consolidated statements of cash flows,
and reflect all adjustments, consisting only of normal recurring
adjustments which, in the opinion of management, are necessary for the
fair presentation of the results of the interim periods. The interim
results of operations are not necessarily indicative of the results to
be expected for a full year. The data presented on the balance sheet
for the fiscal year ended June 24, 2004 were derived from audited
financial statements. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto
included in the Company's 2004 Annual Report filed on Form 10-K for
the year ended June 24, 2004.
Note 2 -- Inventories
- ---------------------
Inventories are stated at the lower of cost (first in, first out) or
market. Inventories consist of the following:
September 23, June 24,
2004 2004
------------- --------
Raw material and supplies $ 51,010 $ 62,256
Work-in-process and finished goods 83,556 65,203
-------- --------
$134,566 $127,459
======== ========
Note 3 -- Earnings Per Common 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:
Quarter Ended
---------------------------------------
September 23, 2004 September 25, 2003
------------------ ------------------
Weighted average shares
outstanding - basic 10,559,224 9,328,884
Effect of dilutive securities:
Stock options 159,263 151,397
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Weighted average shares
outstanding - diluted 10,718,487 9,480,281
========== =========
6
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 3,000 and 26,143 for the quarters ended
September 23, 2004 and September 25, 2003, respectively. These
options had weighted average exercise prices of $32.30 and $16.48,
respectively.
Note 4 -- Stock Option Plans
- ----------------------------
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 has 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".
Quarter Ended
---------------------------------------
September 23, 2004 September 25, 2003
------------------ ------------------
Reported net income $2,556 $7,163
Less: Compensation cost
determined under the fair value
method 63 63
------ ------
Pro forma net income $2,493 $7,100
====== ======
Basic earnings per common share:
As reported $0.24 $0.77
Pro forma $0.24 $0.76
Ddiluted earnings per common share:
As reported $0.24 $0.76
Pro forma $0.23 $0.75
Note 5 -- Distribution Channel and Product Type Sales Mix
- ---------------------------------------------------------
The Company operates in a single reportable segment through which it
sells various nut products through multiple distribution channels.
The following summarizes net sales by distribution channel.
Quarter Ended
---------------------------------------
Distribution Channel September 23, 2004 September 25, 2003
-------------------- ------------------ ------------------
Consumer $ 70,708 $ 73,340
Industrial 30,264 24,754
Food Service 14,083 11,391
Contract Packaging 10,523 6,967
Export 9,067 8,310
-------- --------
Total $134,645 $124,762
======== ========
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 type.
7
Quarter Ended
---------------------------------------
Product Type September 23, 2004 September 25, 2003
------------ ------------------ ------------------
Peanuts 24.7% 27.0%
Pecans 22.1 18.6
Cashews & Mixed Nuts 23.7 23.6
Walnuts 8.4 10.0
Almonds 11.4 10.6
Other 9.7 10.2
----- -----
Total 100.0% 100.0%
===== =====
Note 6 -- Comprehensive Income
- ------------------------------
The Company accounts for comprehensive income in accordance with SFAS
130, "Reporting Comprehensive Income". The Company currently has no
components of comprehensive income that are required to be disclosed
separately. Consequently, comprehensive income equals net income for
all periods presented.
8
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements.
INTRODUCTION
- ------------
The Company is a processor, packager, marketer and distributor of
shelled and inshell nuts. The Company also markets or 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 and
sesame products. The Company sells to the consumer market under a
variety of private labels and under the Company's brand names,
primarily Fisher. The Company also sells to the industrial food
service contract packaging and export markets.
Fiscal 2004 was a record year for the Company in terms of both sales and
earnings. Sales continued strong in the first quarter of fiscal 2005,
when compared to the first quarter of fiscal 2004, as net sales
increased 7.9% to $134.6 million. The Company experienced growth in all
distribution channels, except for the consumer distribution channel.
Sales declined in this channel as the extensive promotional activity for
Fisher products at a major customer in the first quarter of fiscal 2004
did not recur in the first quarter of fiscal 2005. Consumer sales also
declined because one customer was completing the restructuring of its
distribution system which led to a delay in orders during the first
quarter of fiscal 2005, and because the Company elected to forego low
margin business with two other customers that it sold to in the first
quarter of fiscal 2004 due to the customers' unwillingness to accept
higher prices. The overall sales increase was due to higher average
selling prices, as costs for most major nut types have increased. Total
pounds shipped decreased by 1.4% in the first quarter of fiscal 2005
when compared to the first quarter of fiscal 2004.
While sales continued strong in the first quarter of fiscal 2005,
earnings decreased. Net income was $2.6 million for the first quarter
of fiscal 2005 compared to $7.2 million for the first quarter of fiscal
2004. This decrease was caused primarily by a reduction in gross profit
margin to 12.6% for the first quarter of fiscal 2005 compared to 20.4%
for the first quarter of 2004. The primary cause for the reduction in
gross profit margin was that almond sales generated only nominal profit
in the first quarter of fiscal 2005 due to (i) a significant increase
in the cost of almonds purchased in the spot market during the quarter,
(ii) unfavorable almond processing variances generated from the use of
low quality input stocks of available 2003 crop almonds purchased
during the quarter and (iii) higher than expected final settlement
costs with almond growers for the 2003 crop.
Almond sales had a substantially negative impact on the Company's
profitability during the first quarter of fiscal 2005. The Company was
required to purchase almonds in the spot market during the first
quarter of fiscal 2005 to fulfill its industrial sales contracts, as
its supply of higher quality and lower cost almonds purchased from
growers during the 2003 crop year was exhausted. The Company is now
receiving new 2004 crop almonds which are lower in cost and higher in
quality than the almonds that were purchased in the spot market during
the first quarter of fiscal 2005. During the second quarter of fiscal
2005, the Company will complete deliveries on the great majority of
industrial sales contracts that were priced based on prior crop year
costs. Current industrial almond sales contracts are being priced in
line with expected 2004 crop year costs.
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 year.
This seasonality also impacts capacity utilization at the Company's
Chicago area facilities, as these facilities are routinely operating at
9
full capacity for the last four months of the calendar year.
The possibility of continued growth at recent 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 to consolidate its five Chicago area facilities into a single
location through the construction of a new production and distribution
facility.
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, Illinois for the development and purchase of the land where a new
facility could be constructed (the "Original Site"). 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 $4.0 million in connection with the
purchase of this land, $3.6 million of which was paid in the second
quarter of fiscal 2005.
Subsequent to entering into the Development Agreement, the Company
became aware of an existing property for sale (the "Current Site")
that is preferable to the site in the Development Agreement. The
Current Site is preferable since it contains an existing structure.
Although this structure would need to be expanded and upgraded to meet
the Company's needs, the Current Site allows for an earlier project
completion date, provides more certainty as to the project's total
cost and provides more acreage than the site in the Development
Agreement. On September 27, 2004, the Company entered into a letter
of intent to purchase the Current Site. A definitive agreement is
expected to be executed in the second quarter of fiscal 2005. The
Company intends to continue to develop the Original Site in
conjunction with the Current Site. The Company's total investment in
the Original Site is estimated to be approximately $12 million,
including $4.0 million which has been paid. The Company expects to
recoup its investment in the Original Site from either a termination
of the Development Agreement, or subsequent sale or development of the
land.
The Company currently plans to begin the facility consolidation project
at the Current Site in fiscal 2005. It is anticipated that the project
will take two years from the time that the property is acquired to the
time it is fully placed in service. The Company estimates the total
cost of the project to be between $90 and $100 million, excluding the
cost of developing the Original Site, which would be financed through a
combination of debt, proceeds from the sale of existing facilities,
rental income from a lease arrangement with the seller and available
cash flow from operations, provided that the project occurs. Although
the Company believes the new facility would be accretive within two
years of the commencement of expansion plans, 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
recent 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, the Company nevertheless faces
potential disruptive effects on its business, such as cost overruns for
10
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, pricing
pressures, 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 $134.6 million at September 23, 2004, an
increase of approximately $7.1 million, or 5.6%, over the balance at
June 24, 2004, and an increase of $28.9 million, or 27.3%, over the
balance at September 25, 2003. The increase over June 24, 2004 is due
primarily to the procurement of 2004 crop almonds in the first quarter
of fiscal 2005. The increase over September 25, 2003 is due primarily
to more new crop year almonds procured in the first quarter of fiscal
2005 than in the first quarter of fiscal 2004 due to the timing of the
crop harvest. Net accounts receivable were $41.9 million at September
23, 2004, an increase of approximately $8.1 million, or 24.1%, over the
balance at June 24, 2004, and a decrease of $1.0 million, or 2.3%,
under the balance at September 25, 2003. The increase over June 24,
2004 is due primarily to higher monthly sales in September 2004 than in
June 2004 due to the seasonality of the Company's business.
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). Fiscal 2005, however, will contain fifty-three weeks, with
the fourth quarter containing fourteen weeks. References herein to
fiscal 2005 are to the fiscal year ending June 30, 2005. References
herein to fiscal 2004 are to the fiscal year ended June 24, 2004. 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.
RESULTS OF OPERATIONS
- ---------------------
Net Sales. Net sales increased to $134.6 million for the first quarter
of fiscal 2005 from approximately $124.8 million for the first quarter
of fiscal 2004, an increase of $9.9 million, or 7.9%. The overall
increase in net sales was due primarily to higher prices due to higher
commodity costs, especially for almonds and pecans. The total pounds
shipped decreased by 1.4% in the first quarter of fiscal 2005 when
compared to the first quarter of fiscal 2004.
Unit volume sales increased in the Company's contract packaging and food
service distribution channels. The increase in the contract packaging
distribution channel was due primarily to the introduction of new
products and expansion of business with a major customer. The increase
in the food service distribution channel was due primarily to expansion
of business at existing customers and the addition of new customers.
Unit volume sales decreased in the Company's consumer channel due
primarily to lower promotional activity for Fisher peanut products at a
major customer, lost business with customers that would not accept price
increases and delays in orders at a certain customer. Unit volume sales
in the Company's industrial and export distribution channels were
relatively constant.
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):
11
Quarter Ended
---------------------------------------
Distribution Channel September 23, 2004 September 25, 2003
-------------------- ------------------ ------------------
Consumer $ 70,708 $ 73,340
Industrial 30,264 24,754
Food Service 14,083 11,391
Contract Packaging 10,523 6,967
Export 9,067 8,310
-------- --------
Total $134,645 $124,762
======== ========
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 type.
Quarter Ended
---------------------------------------
Product Type September 23, 2004 September 25, 2003
------------ ------------------ ------------------
Peanuts 24.7% 27.0%
Pecans 22.1 18.6
Cashews & Mixed Nuts 23.7 23.6
Walnuts 8.4 10.0
Almonds 11.4 10.6
Other 9.7 10.2
----- -----
Total 100.0% 100.0%
===== =====
Gross Profit. Gross profit for the first quarter of fiscal 2005
decreased 33.4% to $16.9 million from $25.4 million for the first
quarter of fiscal 2004. Gross profit margin decreased to 12.6% for the
first quarter of fiscal 2005 from 20.4% for the first quarter of fiscal
2004. The decrease in gross profit margin was due primarily to
substantially lower gross profit margins earned on almond sales. The
negative impact on gross profit margin from almond sales resulted from
a significant increase in the cost of almonds purchased in the spot
market during the first quarter of fiscal 2005, unfavorable almond
processing variances generated from the use of low quality input
stocks of available 2003 crop almonds purchased during the first
quarter of fiscal 2005 and a higher than expected final settlement
with almond growers for the 2003 crop. Gross margins were further
negatively impacted to a lesser extent by lower gross margins on mixed
nuts caused by higher almond, Brazil nut and hazelnut costs and by a
lower than expected yield on walnuts shelled during the quarter.
Also, the gross margin in the first quarter of fiscal 2004 benefited
from a sizeable gain in pecan shelling that did not occur in the first
quarter of fiscal 2005.
Selling and Administrative Expenses. Selling and administrative
expenses decreased to $12.6 million, or 9.4% of net sales, for the first
quarter of fiscal 2005 from $12.8 million, or 10.3% of net sales, for
the first quarter of fiscal 2004. Selling expenses increased to $9.8
million, or 7.3% of net sales, for the first quarter of fiscal 2005 from
$9.0 million, or 7.2% of net sales, for the first quarter of fiscal
2004. The dollar increase was due primarily to higher distribution
expenses and, to a lesser extent, higher advertising costs.
Administrative expenses decreased to $2.8 million, or 2.0% of net sales,
for the first quarter of fiscal 2005 from $3.8 million, or 3.1% of net
sales, for the first quarter of fiscal 2004. This decrease was due
primarily to lower employee incentive compensation expense attributable
to lower operating results
Income from Operations. Due to the factors discussed above, income from
operations decreased to $4.3 million, or 3.2% of net sales, for the
first quarter of fiscal 2005, from approximately $12.6 million, or 10.1%
of net sales, for the first quarter of fiscal 2004.
12
Interest Expense. Interest expense decreased to $0.3 million for the
first quarter of fiscal 2005 from $1.0 million for the first quarter of
fiscal 2004. The decrease in interest expense was due primarily to lower
debt levels attributable to debt prepaid with proceeds from the
Company's stock offering which was completed in the fourth quarter of
fiscal 2004.
Income Taxes. Income tax expense was $1.6 million, or 39.0% of income
before income taxes for the first quarter of fiscal 2005 compared to
$4.6 million, or 39.0% of income before income taxes, for the first
quarter of fiscal 2004.
Net Income. Net income was $2.6 million, or $0.24 per common share
(basic and diluted), for the first quarter of fiscal 2005, compared to
$7.2 million, or $0.77 basic per common share ($0.76 diluted), for the
first quarter of fiscal 2003.
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.
Net cash provided by operating activities was $18.7 million for the
first quarter of fiscal 2005 compared to $25.3 million for the first
quarter of fiscal 2004. The decrease in cash provided by operating
activities was due primarily to lower net income and, to a lesser
extent, higher purchases of almonds.
The Company repaid $0.4 million of long-term debt during the first
quarter of fiscal 2005 compared to $7.7 million in fiscal 2004. The
significant decrease is due to the Company prepaying outstanding
balances on its two major long-term credit facilities in the fourth
quarter of fiscal 2004 with proceeds from an underwritten public stock
offering.
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 $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 3.33% at September 23, 2004) determined
pursuant to a formula based on the agent bank's quoted rate and the
Eurodollar Interbank rate. As of September 23, 2004 the Company had
$69.7 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
13
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 September 23, 2004, the Company was in compliance with all
restrictive covenants, as amended, under the Bank Credit Facility.
As of September 23, 2004, the Company had approximately $6.5
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 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 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.
The Company intends to finance up to $65 million of the cost of the
facility consolidation project with a private placement of debt which
should be completed in the second quarter of fiscal 2005. The Company is
required to obtain the consent of its lenders under the Bank Credit
Facility in order to proceed with the facility consolidation project and
the private placement of debt. The Company is working with its lenders
under the Bank Credit Facility to obtain such consent.
Capital Expenditures
- --------------------
The Company spent $2.1 million on capital expenditures in the first
quarter of fiscal 2005 compared to $3.5 million in the first quarter of
fiscal 2004. The decrease is due primarily to amounts spent in the first
quarter of fiscal 2004 related to the expansion of the storage capacity
for inshell pecans at the Selma, Texas location. This project was
completed in fiscal 2004. Total capital expenditures for fiscal 2005 are
expected to be between $10 million and $12 million, excluding any
amounts for the planned facility consolidation project.
The Company currently plans to begin the facility consolidation
project at the Current Site in fiscal 2005. It is anticipated that the
project will take two years from the time that the property is
acquired to the time it is fully placed in service. The Company
estimates the total cost of the project to be between $90 and $100
million, excluding the cost of developing the Original Site, which
includes the cost of moving existing operations and investment in new
equipment. Also, an additional $8 million is expected to be incurred,
for a total of approximately $12 million, to continue to develop the
Original Site. The Company expects to recoup its investment in the
Original Site from either a termination of the Development Agreement,
or subsequent sale or development of the land.
14
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this filing 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,
including the factors described below under "Factors That May Affect
Future Results", that could cause actual results to differ materially
from those in the forward looking statements, as well as the timing and
occurrence (or nonoccurrence) 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
(a) 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 and during the first quarter of fiscal 2005 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".
(b) 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.
(c) 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% of gross sales in fiscal 2004. Wal-Mart alone
accounted for approximately 19% of the Company's net sales for fiscal
2004. 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. Gross sales to Wal-Mart decreased by
15
13% in the first quarter of fiscal 2005 when compared to the first
quarter of fiscal 2004,
(d) 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.
(e) 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
lose sales and market share to its competitors.
(f) 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.
(g) 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.
(h) 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
16
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.
(i) 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
construction period;
-- 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;
-- 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; and
-- the Company may not be able to recoup its investment in the
Original Site.
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.
17
(j) 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.
(k) 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;
-- 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.
(l) 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 commitments are for a fixed period of time, typically one year, but
may be extended if remaining balances exist. 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
18
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 and the
first quarter of fiscal 2005 as outside purchases of almonds and pecans
were required to fulfill obligations under fixed-price contracts.
(m) 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.
(n) 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.
(o) 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
19
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.
(p) 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 have appeared 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 3 -- 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.
Item 4 -- Controls and Procedures
- ---------------------------------
As of the end of the period covered by this Quarterly Report on Form
10-Q, 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 first fiscal quarter ended September 23, 2004
that has materially affected, or is reasonably likely to materially
affect the Company's internal control over financial reporting.
20
PART II. OTHER INFORMATION
- ---------------------------
Item 6 -- Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) The exhibits filed herewith are listed in the exhibit index that
follows the signature page and immediately precedes the exhibits
filed.
(b) Reports on Form 8-K:
On August 11, 2004, the Company filed a Current Report on Form 8-K,
dated August 4, 2004, providing a presentation that was made at the
Adams, Harkness & Hill Summer Seminar in Boston.
On August 23, 2004, the Company filed a Current Report on Form 8-K,
dated August 19, 2004, announcing quarterly and annual financial
results.
21
SIGNATURE
---------
Pursuant to the requirements 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: October 29, 2004 By: /s/ Michael J. Valentine
-------------------------
Michael J. Valentine
Executive Vice President Finance,
Chief Financial Officer
and Secretary
22
EXHIBIT INDEX
-------------
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
- ------ ----------------------------------------------------------------
2 Not applicable
3.1 Restated Certificate of Incorporation of Registrant(2)
3.2 Certificate of Correction to Restated Certificate(2)
3.3 Amendment to Restated Certificate of Incorporation, filed herewith
3.4 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)
23
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)
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)
24
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)
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)
25
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(19)
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(19)
11 Not applicable
15 Not applicable
18-19 Not applicable
22-24 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).
26
(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).
(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.
(19) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 24, 2004 (Commission File
No. 0-19681).
27