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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 December 25, 2003
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from -------------- to --------------
Commission file number 0-19681
JOHN B. SANFILIPPO & SON, INC.
(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
(Address of Principal Executive Offices)
(Registrant's telephone number, including area code)
(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 [ ] No [X].
As of January 23, 2004, 5,716,774 shares of the Registrant's Common
Stock, $0.01 par value per share, excluding 117,900 treasury shares, and
3,667,426 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
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations for the quarters and twenty-six weeks ended
December 25, 2003 and December 26, 2002 3
Consolidated Balance Sheets as of December 25, 2003
and June 26, 2003 4
Consolidated Statements of Cash Flows for the twenty-six weeks ended
December 25, 2003 and December 26, 2002 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 18
Item 4 -- Controls and Procedures 18
PART II. OTHER INFORMATION
Item 4 -- Submission of Matters to a Vote of Security Holders 19
Item 6 -- Exhibits and Reports on Form 8-K 19
SIGNATURE 20
EXHIBIT INDEX 21
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 For the Twenty-six Weeks Ended
--------------------- ------------------------------
December 25, December 26, December 25, December 26,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Restated Restated
Note 6 Note 6
Net sales $ 171,392 $ 138,107 $ 296,153 $ 233,434
Cost of sales 138,173 111,678 237,441 193,705
---------- ---------- ---------- ----------
Gross profit 33,219 26,429 58,712 39,729
---------- ---------- ---------- ----------
Selling expenses 11,265 9,702 20,296 16,811
Administrative expenses 4,090 2,244 7,933 4,617
---------- ---------- ---------- ----------
15,355 11,946 28,229 21,428
---------- ---------- ---------- ----------
Income from operations 17,864 14,483 30,483 18,301
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (855) (1,104) (1,850) (2,282)
Rental income 119 133 237 244
Miscellaneous 1 1 1 1
---------- ---------- ---------- ----------
(735) (970) (1,612) (2,037)
---------- ---------- ---------- ----------
Income before income taxes 17,129 13,513 28,871 16,264
Income tax expense 6,680 5,270 11,260 6,343
---------- ---------- ---------- ----------
Net income and comprehensive income $ 10,449 $ 8,243 $ 17,611 $ 9,921
========== ========== ========== ==========
Basic earnings per common share $ 1.12 $ 0.90 $ 1.88 $ 1.08
========== ========== ========== ==========
Diluted earnings per common share $ 1.09 $ 0.89 $ 1.85 $ 1.07
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
3
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
(Unaudited)
-----------
December 25, 2003 June 26, 2003
----------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 1,764 $ 2,448
Accounts receivable, less allowances of
$2,683 and $1,552, respectively 50,339 29,142
Inventories 139,885 112,016
Deferred income taxes 1,290 1,257
Income taxes receivable -- 469
Prepaid expenses and other current assets 2,091 2,192
---------- ----------
TOTAL CURRENT ASSETS 195,369 147,524
---------- ----------
PROPERTIES:
Buildings 61,651 61,485
Machinery and equipment 92,780 89,980
Furniture and leasehold improvements 5,435 5,385
Vehicles 2,990 3,185
Construction in progress 4,088 1,057
---------- ----------
166,944 161,092
Less: Accumulated depreciation 99,912 95,838
---------- ----------
67,032 65,254
Land 1,863 1,863
---------- ----------
TOTAL PROPERTIES 68,895 67,117
---------- ----------
OTHER ASSETS:
Goodwill and other intangibles 4,156 4,370
Miscellaneous 4,236 4,716
---------- ----------
TOTAL OTHER ASSETS 8,392 9,086
---------- ----------
TOTAL ASSETS $ 272,656 $ 223,727
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 20,373 $ 29,702
Current maturities of long-term debt 10,817 10,776
Accounts payable 51,871 13,658
Drafts payable 13,007 5,507
Accrued expenses 12,306 12,699
Income taxes payable 2,854 --
---------- ----------
TOTAL CURRENT LIABILITIES 111,228 72,342
---------- ----------
LONG-TERM DEBT 21,139 29,640
---------- ----------
LONG-TERM DEFERRED INCOME TAXES 2,958 2,964
---------- ----------
STOCKHOLDERS' EQUITY
Class A Common Stock, convertible to 37 37
Common Stock on a per share basis, cumulative
voting rights of ten votes per share, $.01
par value; 10,000,000 shares authorized, 3,667,426 shares
issued and outstanding
Common Stock, non-cumulative voting 58 58
rights of one vote per share, $.01 par
value; 10,000,000 shares authorized, 5,834,674
and 5,775,564 shares issued and
outstanding, respectively
Capital in excess of par value 59,850 58,911
Retained earnings 78,590 60,979
Treasury stock, at cost; 117,900 shares (1,204) (1,204)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 137,331 118,781
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 272,656 $ 223,727
========== ==========
The accompanying notes are an integral part of these financial statements.
4
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Twenty-six Weeks Ended
------------------------------
December 25, 2003 December 26, 2002
----------------- -----------------
Cash flows from operating activities:
Net income $ 17,611 $ 9,921
Adjustments:
Depreciation and amortization 5,435 5,230
Loss (gain) on disposition of properties 25 (3)
Deferred income taxes (39) --
Tax benefit of option exercises 572 --
Change in current assets and current liabilities:
Accounts receivable, net (21,197) (11,158)
Inventories (27,869) (24,247)
Prepaid expenses and other current assets 101 862
Accounts payable 38,213 28,370
Drafts payable 7,500 5,867
Accrued expenses (393) 684
Income taxes receivable/payable 3,323 3,729
Other (444) (453)
---------- ----------
Net cash provided by operating activities 22,838 18,802
---------- ----------
Cash flows from investing activities:
Acquisition of properties (6,100) (5,031)
Proceeds from disposition of properties -- 7
---------- ----------
Net cash used in investing activities (6,100) (5,024)
---------- ----------
Cash flows from financing activities:
Net borrowings on notes payable (9,329) (9,303)
Principal payments on long-term debt (8,460) (3,424)
Issuance of Common Stock 367 --
---------- ----------
Net cash used in financing activities (17,422) (12,727)
---------- ----------
Net (decrease) increase in cash (684) 1,051
Cash:
Beginning of period 2,448 1,272
---------- ----------
End of period $ 1,764 $ 2,323
========== ==========
Supplemental disclosures:
Interest paid $ 2,017 $ 2,293
Income taxes paid 7,438 1,171
The accompanying notes are an integral part of these 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"). 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).
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 26, 2003 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 2003 Annual Report filed on Form 10-K/A for the year ended June
26, 2003 and its unaudited first quarter financial statements filed on Form
10-Q/A which reflect a restatement to change the classification of freight
costs, which had previously been reflected as a reduction in net sales rather
than selling expenses, in accordance with Emerging Issues Task Force No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." See Note 6.
Note 2 -- Inventories
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
December 25, June 26,
2003 2003
-------- --------
Raw material and supplies $ 72,878 $ 36,852
Work-in-process and finished goods 67,007 75,164
-------- --------
$139,885 $112,016
======== ========
6
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 tables present the required disclosures:
For the Quarter Ended December 25, 2003 For the Quarter Ended December 26, 2002
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Net Income $ 10,449 $ 8,243
Basic Earnings Per Common
Share
Income available to common
stockholders $ 10,449 9,361,091 $ 1.12 $ 8,243 9,153,790 $ 0.90
========= =========
Effect of Dilutive Securities
Stock options 228,249 114,336
Diluted Earnings Per Common
Share
Income available to common
stockholders $ 10,449 9,589,340 $ 1.09 $ 8,243 9,268,126 $ 0.89
=========== ============= ========= =========== ============= =========
For the Twenty-six Weeks Ended For the Twenty-six Weeks Ended
December 25, 2003 December 26, 2002
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Net Income $ 17,611 $ 9,921
Basic Earnings Per Common
Share
Income available to common
stockholders $ 17,611 9,344,988 $ 1.88 $ 9,921 9,153,627 $ 1.08
========= =========
Effect of Dilutive Securities
Stock options 189,822 86,108
Diluted Earnings Per Common
Share
Income available to common
stockholders $ 17,611 9,534,810 $ 1.85 $ 9,921 9,239,735 $ 1.07
=========== ============= ========= =========== ============= =========
The following table summarizes the weighted-average number of options which were
outstanding for the periods presented but were not included in the computation
of diluted earnings per share because the exercise prices of the options were
greater than the average market price of the common shares for the period:
Weighted-Average
Number of Options Exercise Price
----------------- -----------------
Quarter Ended December 25, 2003 -- $ --
Quarter Ended December 26, 2002 61,867 $ 11.21
Twenty-six Weeks Ended December 25, 2003 13,072 $ 16.48
Twenty-six Weeks Ended December 26, 2002 90,632 $ 9.91
Note 4 -- Stock Option Plans
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the plans
with the alternative method of SFAS 123, "Accounting for Stock-Based
Compensation", the effect on the Company's net income for the quarters and
twenty-six weeks ended December 25, 2003 and December 26, 2002 would not have
been significant.
Note 5 -- Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS 148 amends certain provisions of
SFAS 123 and is effective for fiscal years beginning after December 15, 2002.
The Company has adopted the disclosure requirements of SFAS 148, and is
currently evaluating its accounting alternatives under SFAS 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51".
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 is effective
immediately for all new variable interest
7
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
will become effective during the third quarter of fiscal 2004. The Company
enters into various transactions with certain related parties including the
rental of buildings under capital leases and purchases from entities owned
either directly or indirectly by certain directors, officers and stockholders of
the Company. The Company's adoption of FIN 46 during the second quarter of 2004
did not have any impact on the financial statements.
NOTE 6 -- NET SALES AND SELLING EXPENSES RESTATEMENT
The Company has restated its financial statements to change the
classification of freight costs, which had previously been reported as a
reduction in net sales rather than selling expenses, in accordance with the
guidance of Emerging Issues Task Force No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." The Company has made the appropriate modifications to
the consolidated statements of operations to give effect to the change in
classification of freight costs. The effect of this change in classification is
to increase net sales and selling expenses by corresponding amounts for all
periods presented, as indicated below. The change in classification has no
effect on income from operations or net income, nor any effect on the Company's
consolidated balance sheet, changes in stockholders' equity and cash flows. The
table below summarizes the effect of the change in classification.
AS REPORTED AS RESTATED
----------- -----------
(unaudited)
Net Sales for the -
twenty-six weeks ended December 26, 2002 $ 227,305 $ 233,434
thirteen weeks ended December 26, 2002 134,236 138,107
Gross Profit for the -
twenty-six weeks ended December 26, 2002 33,600 39,729
thirteen weeks ended December 26, 2002 22,558 26,429
Selling Expenses for the -
twenty-six weeks ended December 26, 2002 10,682 16,811
thirteen weeks ended December 26, 2002 5,831 9,702
Total Selling and Administrative Expenses for the -
twenty-six weeks ended December 26, 2002 15,299 21,428
thirteen weeks ended December 26, 2002 8,075 11,946
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 2003 was a record-setting year for the Company, in terms of both sales
and profitability, and this momentum has continued in fiscal 2004. Net sales
increased to $171.4 million for the quarter ended December 25, 2003 compared to
$138.1 million for the quarter ended December 26, 2002, representing a 24.1%
increase. Net sales increased to $296.2 million for the twenty-six weeks ended
December 25, 2003 compared to $233.4 million for the same period in fiscal 2003,
representing a 26.9% increase. This growth was achieved primarily through unit
volume increases throughout all of the Company's major distribution channels.
Gross margin improved by 0.3 percentage points for the quarterly comparative
period, and 2.8% for the twenty-six week comparative period. These improvements
were due primarily to unit volume sales increases while certain costs of sales
remain fixed, lower peanut costs in the first quarter of fiscal 2004 and certain
other non- recurring benefits in 2004. Additionally, the first quarter of fiscal
2003 included certain non-recurring items that negatively impacted its gross
margin. Net income for the quarter ended December 25, 2003 increased by 26.8% to
$10.4 million from the quarter ended December 26, 2002. Net income for the
twenty-six week period ended December 25, 2003 increased by 77.5% to $17.6
million from the twenty-six weeks ended December 26, 2002.
The Company believes that a portion of the overall increase in net sales, for
both the quarter and twenty-six weeks ended December 25, 2003, 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 United States Department of Agriculture to monitor trends in our
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.
The Company then develops business strategies through analysis of this
consumption and supply information.
A significant factor in the improved margins has been the effect of the
termination of the federal peanut quota program in the 2002 Farm Bill, as
defined below, which reduced the Company's costs for peanuts beginning in the
second quarter of fiscal 2003. The positive effect on margins was partially
offset by a smaller decrease in peanut selling prices. The gross profit margin
on peanuts is now similar to total gross profit margin. The Company believes
that the 2002 Farm Bill will continue to have a favorable impact on the purchase
prices of peanuts for the foreseeable future, though there is no assurance that
the related favorable effects on margins will continue.
The Company faces a number of challenges as it works to continue record growth.
Due to the recent unit volume sales growth, the Chicago area processing
facilities operate at full capacity at certain times of the year. If unit volume
sales growth continues, the Company could exceed its capacity to meet the demand
for its products, especially prior to the completion of the contemplated
facility consolidation project. If the Company proceeds with the facility
consolidation project, which would require approximately four to five years to
complete, it nevertheless would face potential disruptive effects on the
business, such as cost overruns for the construction of the new facility or
business interruptions that may result from the transfer of production to
9
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.
The Company's business is seasonal. Demand for peanut and other nut products is
highest during the months of September, 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, with these facilities routinely operating at
full capacity during the last four months of the calendar year.
Due primarily to the seasonal nature of the Company's business, the Company
maintains significant inventories of peanuts, pecans, walnuts, almonds and other
nuts at certain times of the year, especially during the second and third
quarters of the Company's fiscal year. Fluctuations in the market prices of such
nuts may affect the value of the Company's inventory and thus the Company's
profitability. At December 25, 2003, the Company's inventories totaled
approximately $139.9 million compared to approximately $112.0 million at June
26, 2003, and approximately $123.7 million at December 26, 2002. The increase in
inventories at December 25, 2003 when compared to June 26, 2003 occurred
primarily because the majority of nut purchases are made during the second and
third quarters of the Company's fiscal year. The increase in inventories at
December 25, 2003 when compared to December 26, 2002 is primarily due to (i) an
increase in finished goods to support the increase in sales volume, and (ii) an
increase in the quantity of inshell pecans on hand due to higher purchases
during the first twenty-six weeks of fiscal 2003 than during the first
twenty-six weeks of fiscal 2002. See "Factors That May Affect Future Results" -
"Availability of Raw Materials and Market Price Fluctuations." At December 25,
2003, net accounts receivable were approximately $50.3 million compared to
approximately $29.1 million at June 26, 2003 and approximately $35.3 million at
December 26, 2002. The increase in net accounts receivable at December 25, 2003
when compared to June 26, 2003 is due primarily to the seasonality of the
Company's business. The increase in net accounts receivable at December 25, 2003
when compared to December 26, 2002 is due primarily to the increase in net sales
for the second quarter of fiscal 2004 compared to the first quarter of fiscal
2003. See "Results of Operations - Net Sales".
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 ending June 24, 2004. References
herein to fiscal 2003 are to the fiscal year ended June 26, 2003.
NET SALES AND SELLING EXPENSES RESTATEMENT
In accordance with authoritative accounting literature, we have changed the
classification of our freight costs. As a result, we have restated our
Consolidated Statements of Operations included in our annual financial
statements on Form 10-K/A for the fiscal years ended June 26, 2003, June 27,
2002, and June 28, 2001 and our quarterly filing for the thirteen weeks ended
September 25, 2003 on Form 10-Q/A. We changed the classification of our freight
costs, which had previously been reflected as a reduction in net sales rather
than selling expenses, in accordance with the guidance of Emerging Issues Task
Force No 00-10 ("EITF, 00-10"), "Accounting for Shipping and Handling Fees and
Costs."
As a result of this restatement, our net sales, gross profit, selling expenses
and total selling, general and administrative expenses each increased by the
corresponding amount of our freight costs. These changes had no effect on
income, including net income and earnings per share, nor our consolidated
balance sheet, stockholders' equity and cash flows.
EITF 00-10 allows companies to classify shipping and handling costs in either or
both of cost of goods sold or selling, general and administrative costs. We
have elected to classify our shipping and handling costs (including freight
costs) as selling expenses. We believe our presentation makes our financial
statements comparable to similar companies in our industry. Some other
comparable companies, however, include shipping and handling costs in their
costs of goods sold and others include portions of shipping and handling costs
in both their cost of goods sold and selling, general and administrative
expenses.
As a result of classifying our freight costs as selling expenses, we report a
higher gross profit than if we were to classify these costs as cost of goods
sold. Our income from operations, net income and earnings per share would be the
same under either approach.
RESULTS OF OPERATIONS
Net Sales. Net sales increased from approximately $138.1 million for the second
quarter of fiscal 2003 to approximately $171.4 million for the second quarter of
fiscal 2004, an increase of approximately $33.3 million, or 24.1%. Net sales for
the first twenty-six weeks of fiscal 2004 were approximately $296.2 million, an
increase of approximately $62.7 million, or 26.9%, over the net sales of
approximately $233.4 million for the first twenty-six weeks of fiscal 2003. The
increases in net sales, for both the quarterly and twenty-six week periods, were
due primarily to higher unit volume sales in the Company's consumer, industrial,
export and food service distribution channels. Unit volume increased by 17.8%
for the second quarter of fiscal 2004 over fiscal 2003, and increased by 18.8%
for the twenty-six week period. The remainder of the increase in net sales, for
both the quarterly and twenty-six week periods, was due to higher selling prices
for pecans, as the Company was able to sell its pecan products at higher prices
reflecting higher procurement costs.
The Company experienced significant growth in most of its key distribution
channels. Net sales in the consumer distribution channel for the second quarter
of fiscal 2004 increased $19.0 million when compared to the second quarter for
fiscal 2003 and $38.1 million for the twenty-six week period ended December 25,
2003, 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
10
result in a permanent increase in net sales. This increase was driven by
increased nut consumption and efforts to increase 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 nutrition bars. 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 slightly for both
the quarterly and twenty-six week periods.
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 to increase the selling opportunities available in the consumer
distribution channel. The Company believes that industrial customers will
continue to develop new nut-based products to capitalize on 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 tables show quarterly and twenty-six week comparisons of sales by
distribution channel, and as a percentage of total net sales (dollars in
thousands):
Second Quarter Ended
--------------------
Distribution Channel December 25, 2003 December 26, 2002
- -------------------- ----------------- -----------------
Consumer $105,341 61.4% $ 86,355 62.5%
Industrial 33,352 19.5 23,226 16.8
Food Service 11,342 6.6 9,141 6.6
Contract Packaging 7,901 4.6 7,293 5.3
Export 13,456 7.9 12,092 8.8
-------- ----- -------- -----
Total $171,392 100.0% $138,107 100.0%
======== ===== ======== =====
Twenty-six Weeks Ended
----------------------
Distribution Channel December 25, 2003 December 26, 2002
- -------------------- ----------------- -----------------
Consumer $178,701 60.3% $140,566 60.2%
Industrial 58,082 19.6 43,000 18.4
Food Service 22,734 7.7 17,634 7.6
Contract Packaging 14,867 5.0 14,006 6.0
Export 21,769 7.4 18,228 7.8
-------- ----- -------- -----
Total $296,153 100.0% $233,434 100.0%
======== ===== ======== =====
The following table shows a quarterly and twenty-six week 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 types.
Second Quarter Ended Twenty-six Weeks Ended
-------------------- ----------------------
Product Type December 25, 2003 December 26, 2002 December 25, 2003 December 26, 2002
------------ ----------------- ----------------- ----------------- -----------------
Peanuts 22.2% 20.6% 24.2% 23.6%
Pecans 24.8 22.7 22.2 20.2
Cashews & Mixed Nuts 22.0 23.4 22.6 23.2
Walnuts 12.0 13.6 11.1 13.0
Almonds 9.9 8.3 10.2 8.2
Other 9.1 11.4 9.7 11.8
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
11
Gross Profit. Gross profit for the second quarter of fiscal 2004 increased
approximately 25.7% to approximately $33.2 million from approximately $26.4
million for the second quarter of fiscal 2003. Gross profit margin increased
from approximately 19.1% for the second quarter of fiscal 2003 to approximately
19.4% for the second quarter of fiscal 2004. The increase in gross profit margin
was due primarily to improved margins for pecan sales during the quarter as
market sales prices were increasing. Gross profit for the first twenty-six weeks
of fiscal 2004 increased approximately 47.8% to approximately $58.7 million from
approximately $39.7 million for the first twenty-six weeks of fiscal 2003. Gross
profit margin increased from approximately 17.0% for the first twenty-six weeks
of fiscal 2003 to approximately 19.8% for the first twenty-six weeks of fiscal
2004. The increase in gross profit margin was due primarily to unit volume sales
increases while certain costs of sales remained fixed, and we experienced lower
peanut costs. Also, favorably impacting gross profit margin for the first
quarter of fiscal 2004 were better than anticipated results in the Company's
pecan shelling operation, which led to a positive adjustment to our pecan
inventory. These favorable results became apparent as the remaining balance of
the 2002 pecan crop was shelled during the first quarter of fiscal 2004. The
effect of this pecan quantity increase was partially offset by an increase in
the amount due to almond growers pursuant to the final settlement of the 2002
crop. The amounts paid to a majority of almond growers are dependent upon the
final prices paid by certain of the Company's competitors. These final prices
are generally not known until the first quarter of the fiscal year following
harvest.
Selling and Administrative Expenses. Selling and administrative expenses as a
percentage of net sales increased from approximately 8.6% for the second quarter
of fiscal 2003 to approximately 9.0% for the second quarter of fiscal 2004. For
the first twenty-six weeks of fiscal 2004, selling and administrative expenses
as a percentage of net sales increased to approximately 9.5% compared to
approximately 9.2% for the first twenty-six weeks of fiscal 2003. Selling
expenses as a percentage of net sales decreased from approximately 7.0% for the
second quarter of fiscal 2003 to approximately 6.6% for the second quarter of
fiscal 2003. Selling expenses as a percentage of net sales increased to
approximately 7.2% for the first twenty-six weeks of fiscal 2004 from
approximately 6.9% for the first twenty-six weeks of fiscal 2003. Administrative
expenses as a percentage of net sales increased from approximately 1.6% for the
second quarter of fiscal 2003 to approximately 2.4% for the second quarter of
fiscal 2004. Administrative expenses as a percentage of net sales increased from
approximately 2.0% for the first twenty-six weeks of fiscal 2003 to
approximately 2.7% for the first twenty-six weeks of fiscal 2004. The dollar
increases, for both the quarterly and twenty-six week periods, were due
primarily to higher employee incentive compensation attributable to the
Company's improved operating results in fiscal 2004. The second quarter of
fiscal 2003 also includes the receipt of a contract settlement payment from a
customer who previously chose not to honor a supply contract. Also contributing
to the increases in administrative expenses was higher legal and professional
fees related to (i) the United States Department of Justice's investigation of
the peanut shelling industry and (ii) compliance with the Sarbanes-Oxley Act of
2002 and other corporate governance regulation. See "Factors That May Affect
Future Results - Peanut Shelling Industry Antitrust Investigation."
Income from Operations. Due to the factors discussed above, income from
operations increased from approximately $14.5 million, or 10.5% of net sales,
for the second quarter of fiscal 2003, to approximately $17.9 million, or 10.4%
of net sales, for the second quarter of fiscal 2004. Income from operations
increased from approximately $18.3 million, or 7.8% of net sales, for the first
twenty-six weeks of fiscal 2003, to approximately $30.5 million, or 10.3% of net
sales, for the first twenty-six weeks of fiscal 2004.
Interest Expense. Interest expense decreased from approximately $1.1 million for
the second quarter of fiscal 2003 to approximately $0.9 million for the second
quarter of fiscal 2004. For the first twenty-six weeks of fiscal 2004, interest
expense decreased to approximately $1.9 million from approximately $2.3 million
for the first twenty-six weeks of fiscal 2003. The decreases in interest
expense, for both the quarterly and twenty-six week periods, were due primarily
to lower average rates of borrowings and lower balances resulting from scheduled
debt payments. During the first quarter of fiscal 2004, the Company paid the
first of three annual installments on its $15.0 million
12
subordinated debt, which bears a 9.38% interest rate.
Income Taxes. Income tax expense was approximately $6.7 million, or 39.0% of
income before income taxes for the second quarter of fiscal 2004 compared to
approximately $5.3 million, or 39.0% of income before income taxes, for the
second quarter of fiscal 2003. Income tax expense was approximately $11.3
million, or 39.0% of income before income taxes for the first twenty-six weeks
of fiscal 2004 compared to approximately $6.3 million, or 39.0% of income before
income taxes, for the first twenty-six weeks of fiscal 2003.
Net Income. Net income was approximately $10.4 million, or $1.12 basic per
common share ($1.09 diluted), for the second quarter of fiscal 2004, compared to
approximately $8.2 million, or $0.90 basic per common share ($0.89 diluted), for
the second quarter of fiscal 2003. Net income was approximately $17.6 million,
or $1.88 basic per common share ($1.85 diluted), for the first twenty-six weeks
of fiscal 2004, compared to approximately $9.9 million, or $1.08 basic per
common share ($1.07 diluted), for the first twenty-six weeks of fiscal 2003, 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.
Net cash provided by operating activities was approximately $22.8 million for
the first twenty-six weeks of fiscal 2004 compared to approximately $18.8
million for the first twenty-six weeks of fiscal 2003. The increase in cash
provided by operating activities for the first twenty-six weeks of fiscal 2004
when compared to the first twenty-six weeks of fiscal 2003 was due primarily to
improved operating results. Nut purchases were approximately 18.2% greater in
the first twenty-six weeks of fiscal 2004 than in the first twenty-six weeks of
fiscal 2003.
During the first twenty-six weeks of fiscal 2004, the Company spent
approximately $6.1 million on capital expenditures, compared to approximately
$5.0 million for the first twenty-six weeks of fiscal 2003. The most significant
project for fiscal 2004 is the expansion of the storage capacity of inshell
pecans at the Selma, Texas facility. This project should be completed during the
third quarter of fiscal 2004. The Company is currently exploring the possible
consolidation of its Chicago area production facilities into a single location
through the construction of a new production facility. If the consolidation
proceeds, it is unlikely that such a facility could be financed using solely the
Company's existing credit facilities. In that event, the Company would evaluate
other financing alternatives, including but not limited to debt financing,
proceeds from the sale of existing Chicago area facilities and/or cash flow from
operations. During the first twenty-six weeks of fiscal 2004, the Company repaid
approximately $8.5 million of long-term debt compared to approximately $3.4
million during the first twenty-six weeks of fiscal 2003, as the first scheduled
annual $5.0 million payment of subordinated debt under the Additional Long-Term
Financing discussed below became due.
FINANCING ARRANGEMENTS
The Company's Bank Credit Facility is comprised of (i) a working capital
revolving loan, which provides for working capital financing of up to
approximately $73.1 million, in the aggregate, and matures, as amended, on May
31, 2006, and (ii) a letter of credit of approximately $6.9 million (the "IDB
Letter of Credit") to secure industrial development bonds, which matures on June
1, 2006. Borrowings under the working capital revolving loan accrue interest at
a rate determined pursuant to a formula based on the agent bank's quoted rate
and the Eurodollar Interbank rate, the weighted average of which was 2.54% at
December 25, 2003. As
13
of December 25, 2003, the Company had approximately $49.5 million of available
credit under the Bank Credit Facility.
As of December 25, 2003, the total principal amount outstanding under the $35.0
million long-term credit facility entered into in 1992 (the "Long-Term Financing
Facility") was approximately $4.9 million. Of the 4.9 million, $2.5 million
bears interest at rates ranging from 7.34% to 9.18% per annum payable quarterly,
and requires equal semi-annual principal installments of approximately $1.3
million, with the final installment due on August 16, 2004. The remaining
approximately $2.4 million of this indebtedness bears interest at a rate of
9.16% per annum payable quarterly, and requires equal semi-annual principal
installments of approximately $0.5 million, with the final installment due on
May 15, 2006.
As of December 25, 2003, the total principal amount outstanding under the $25.0
million long-term credit facility entered into in 1995 (the "Additional
Long-Term Financing") was approximately $12.9 million. Of the $12.9 million,
approximately $2.9 million bears interest at a rate of 8.3% per annum payable
semiannually, and requires equal annual principal installments of approximately
$1.4 million, with the final installment due on September 1, 2005. The remaining
$10.0 million of this indebtedness (which is subordinated to the Company's other
financing facilities) bears interest at a rate of 9.38% per annum payable
semiannually, and requires equal annual principal installments of $5.0 million,
with the final installment due on September 1, 2005.
As of December 25, 2003, the Company had $6.75 million in aggregate principal
amount of industrial development bonds outstanding, which was used to finance
the acquisition, construction and equipping of the 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
2004 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 terms of the Company's financing facilities, 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, (i) the Long-Term
Financing Facility limits the Company's payment of dividends to a cumulative
amount not to exceed 25% of the Company's cumulative net income from and after
January 1, 1996 to the date the dividend is declared, (ii) the Additional
Long-Term Financing limits cumulative dividends to the sum of (a) 50% of the
Company's cumulative net income (or minus 100% of the Company's cumulative net
loss) from and after January 1, 1995 to the date the dividend is declared, (b)
the cumulative amount of the net proceeds received by the Company during the
same period from any sale of its capital stock, and (c) $5.0 million, and (iii)
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
14
Company from redeeming shares of capital stock. As of December 25, 2003, the
Company was in compliance with all restrictive covenants under its financing
facilities.
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 foreseeable
future. However, if the Company elects to pursue the facility consolidation
project, additional financing sources may be required to fund the capital
expenditures that would be necessary for the project.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS 148 amends certain provisions of
SFAS 123 and is effective for fiscal years beginning after December 15, 2002.
The Company has adopted the disclosure requirements of SFAS 148, and is
currently its accounting alternatives under SFAS 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51".
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 is 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 will become effective during the
third quarter of fiscal 2004. The Company enters into various transactions with
certain related parties including the rental of buildings under capital leases
and purchases from entities owned either directly or indirectly by certain
directors, officers and stockholders of the Company. The adoption of FIN 46
during the second quarter did not have any impact on the financial statements
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 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.
15
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 will occur. We do 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 "General".
(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) 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 2003, 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 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 losses that have a material
adverse effect on the Company's results of operations.
(d) INVENTORY MEASUREMENT
The Company purchases its inshell nut inventories in large quantities at harvest
times, which are primarily during the second and third quarters of the Company's
fiscal year, and receives inshell nut shipments in bulk truckloads. The weights
of the inshell nuts are measured using truck scales at the time of receipt, and
inventories are recorded on the basis of those measurements. The inshell nuts
are than stored in bulk in large warehouses to be shelled throughout the year.
The inshell inventories are relieved on the basis of continuous high-speed bulk
weighing systems as the nuts are shelled 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 inshell 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 inshell 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.
(e) 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
16
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. Therefore, the gross margin on peanuts is higher than the
Company has historically achieved. Although this margin is now similar to the
Company's total gross profit margin, we 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 will be materially adversely
affected.
(f) 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 is the process of
issuing rules in each of these categories, which rules generally took effect on
December 12, 2003. There can be no assurances that effects of the Bioterrorism
Act and the related rules, including any potential disruption in the Company's
supply of imported nuts, which represent approximately 37% of the Company's
total nut purchases, will not have a material adverse effect on the Company's
business, financial position or results of operations in the future.
(g) 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 investigation, of
which the Company is a subject, is on-going. The Company has responded to the
subpoena and produced documents to the Department of Justice. 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.
17
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into transactions using derivative financial
instruments. The Company believes that its exposure to market risk related to
its other financial instruments (which are the debt instruments under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources") is not material.
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 second fiscal quarter ended
December 25, 2003 that has materially affected, or is reasonably likely to
materially affect the Company's internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's 2003 Annual Meeting of Stockholders was held on October 29, 2003
for the purpose of (i) electing those directors entitled to be elected by the
holders of the Company's Class A Common Stock, (ii) electing those directors
entitled to be elected by the holders of the Company's Common Stock, (iii)
ratifying the action of the Company's Audit Committee of the Board of Directors
in appointing PricewaterhouseCoopers LLP as independent accountants for fiscal
2004, and (iv) transacting such other business properly brought before the
meeting. The meeting proceeded and (i) the holders of Class A Common Stock
elected Jasper B. Sanfilippo, Mathias A. Valentine, Michael J. Valentine,
Jeffrey T. Sanfilippo and Timothy R. Donovan to serve on the Company's Board of
Directors by a unanimous vote of 3,667,426 votes cast for, representing 100% of
the then outstanding shares of Class A Common Stock, (ii) the holders of Common
Stock elected Governor Jim R. Edgar by a vote of 5,061,345 votes cast for and
234,723 votes withheld, (iii) the holders of Common Stock elected John W. A.
Buyers by a vote of 5,062,725 votes cast for and 233,343 votes withheld, and
(iv) the holders of Class A Common Stock and Common Stock ratified the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for fiscal 2004 by a total of 41,926,468 votes cast for
ratification, 40,780 votes against ratification and 3,080 abstentions.
Item 6 -- Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the exhibit index
that follows the certifications page and immediately precedes
the exhibits filed.
(b) Reports on Form 8-K:
On October 24, 2003, the Company filed a Current Report on
Form 8-K, dated October 22, 2003, announcing quarterly
financial results.
19
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: January 27, 2004 By: /s/ Michael J. Valentine
-------------------------------------
Michael J. Valentine
Executive Vice President Finance,
Chief Financial Officer and Secretary
20
EXHIBIT INDEX
Exhibit
Number Description
- ------------------------------------------------------------------------------------------------------------------------------------
2 None
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)
4.3 Second Amended and Restated Note Agreement by and between the Registrant and The Prudential Insurance Company of America
("Prudential") dated January 24, 1997 (the "Long-Term Financing Facility")(16)
4.4 7.87% Series A Senior Note dated September 29, 1992 in the original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.5 8.22% Series B Senior Note dated September 29, 1992 in the original principal amount of $6.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.6 8.22% Series C Senior Note dated September 29, 1992 in the original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.7 8.33% Series D Senior Note dated January 15, 1993 in the original principal amount of $3.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(6)
4.8 6.49% Series E Senior Note dated September 15, 1993 in the original principal amount of $8.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(8)
4.9 8.31% Series F Senior Note dated June 23, 1994 in the original principal amount of $8.0 million due May 15, 2006 executed
by the Registrant in favor of Prudential(9)
4.10 8.31% Series F Senior Note dated June 23, 1994 in the original principal amount of $2.0 million due May 15, 2006 executed
by the Registrant in favor of Prudential(9)
4.11 Amended and Restated Guaranty Agreement dated as of October 19, 1993 by Sunshine in favor of Prudential(7)
4.12 Amendment to the Second Amended and Restated Note Agreement dated May 21, 1997 by and among Prudential, Sunshine and the
Registrant(17)
4.13 Amendment to the Second Amended and Restated Note Agreement dated March 31, 1998 by and among Prudential, the Registrant,
Sunshine and Quantz Acquisition Co., Inc. ("Quantz")(18)
4.14 Guaranty Agreement dated as of March 31, 1998 by JBS International, Inc. ("JBSI") in favor of Prudential(18)
4.15 Amendment and Waiver to the Second Amended and Restated Note Agreement dated February 5, 1999 by and among Prudential, the
Registrant, Sunshine, JBSI and Quantz(21)
4.16 Amendment to the Second Amended and Restated Note Agreement dated May 30, 2003 by and among Prudential, the Registrant and
JBSI(26)
21
Exhibit
Number Description
- ------------------------------------------------------------------------------------------------------------------------------------
4.17 Guaranty Agreement dated as of May 30, 2003 by JBSI in favor of Prudential(26)
4.18 Note Purchase Agreement dated as of August 30, 1995 between the Registrant and Teachers Insurance and Annuity Association
of America ("Teachers")(13)
4.19 8.30% Senior Note due 2005 in the original principal amount of $10.0 million, dated September 12, 1995 and executed by the
Registrant in favor of Teachers(13)
4.20 9.38% Senior Subordinated Note due 2005 in the original principal amount of $15.0 million, dated September 12, 1995 and
executed by the Registrant in favor of Teachers(13)
4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Notes)(13)
4.22 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Subordinated Notes)(13)
4.23 Amendment, Consent and Waiver, dated as of March 27, 1996, by and among Teachers, Sunshine and the Registrant(15)
4.24 Amendment No. 2 to Note Purchase Agreement dated as of January 24, 1997 by and among Teachers, Sunshine and the
Registrant(16)
4.25 Amendment to Note Purchase Agreement dated May 19, 1997 by and among Teachers, Sunshine and the Registrant(18)
4.26 Amendment No. 3 to Note Purchase Agreement dated as of March 31, 1998 by and among Teachers, Sunshine, Quantz and the
Registrant(18)
4.27 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Notes)(18)
4.28 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Subordinated Notes)(18)
4.29 Amendment and Waiver to Note Purchase Agreement dated February 5, 1999 by and among Teachers, Sunshine, Quantz, JBSI and
the Registrant(21)
4.30 Amendment and waiver to Note Purchase Agreement dated October 26, 1999 between Teachers and the Registrant(22)
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(10)
10.3 First Amendment to the Touhy Avenue Lease dated June 1, 1987(10)
10.4 Second Amendment to the Touhy Avenue Lease dated December 14, 1990(10)
10.5 Third Amendment to the Touhy Avenue Lease dated September 1, 1991(14)
22
Exhibit
Number Description
- ------------------------------------------------------------------------------------------------------------------------------------
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(11)
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(19)
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(11)
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(11)
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](11)
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](11)
10.19 The Registrant's 1995 Equity Incentive Plan(12)
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")(14)
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(14)
23
Exhibit
Number Description
- ------------------------------------------------------------------------------------------------------------------------------------
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(14)
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(14)
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(18)
10.25 The Registrant's 1998 Equity Incentive Plan(21)
10.26 First Amendment to the Registrant's 1998 Equity Incentive Plan(24)
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)(23)
10.28 Third Amendment to Credit Agreement dated May 20, 2002 by and among the Registrant, JBSI, USB as Agent, LNB and STB(25)
10.29 Fourth Amendment to Credit Agreement dated May 30, 2003 by and among the Registrant, JBSI, USB as Agent, LNB and STB(26)
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(26)
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(26)
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(26)
10.33 Industrial Building Lease between the Registrant and Cabot Acquisition, LLC dated April 18, 2003(26)
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, filed herewith
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, filed herewith
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
24
(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 Current Report on Form
8-K dated January 15, 1993 (Commission File No. 0-19681).
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the third quarter ended September 30, 1993 (Commission File
No. 0-19681).
(8) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 15, 1993 (Commission File No. 0-19681).
(9) Incorporated by reference to the Registrant's Current Report and Form
8-K dated June 23, 1994 (Commission File No. 0-19681).
(10) 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).
(11) 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).
(12) 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).
(13) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 12, 1995 (Commission File No. 0-19681).
(14) 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).
(15) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (Commission File No.
0-19681).
(16) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (Commission File No.
0-19681).
25
(17) Incorporated by reference to the Registrant's Current Report on Form
8-K dated May 21, 1997 (Commission File No. 0-19681).
(18) 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).
(19) 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).
(20) 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).
(21) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the second quarter ended December 24, 1998 (Commission File
No. 0-19681).
(22) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the first quarter ended September 23, 1999 (Commission File
No. 0-19681).
(23) 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).
(24) 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).
(25) 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).
(26) 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).
26