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 DecemberMarch 25, 20032004
[ ] 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
DecemberPAGE NO.
PART I. FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations for the quarters
and thirty-nine weeks ended March 25, 2004 and
March 27, 2003 3
Consolidated Balance Sheets as of March 25. 2004
and June 26, 2003 4
Consolidated Statements of Cash Flows for the thirty-nine
weeks ended March 25, 2004 and March 27, 2003 5
Notes to Consolidated Financial Statements 6
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 -- Quantitative and Qualitative Disclosures About
Market Risk 21
Item 4 -- Controls and Procedures 22
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 23
SIGNATURE 24
EXHIBIT INDEX 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-sixThirty-nine Weeks Ended
--------------------- ------------------------------ December-------------------------------
March 25, December 26, December2004 March 27, 2003 March 25, December 26,2004 March 27, 2003 2002 2003 2002
---------- ---------- ---------- ----------
Restated Restated
Note 6 Note 6-------------- -------------- -------------- --------------
Net sales $ 171,392 $ 138,107 $ 296,153 $ 233,434$100,162 $86,951 $396,315 $320,385
Cost of sales 138,173 111,678 237,441 193,705
---------- ---------- ---------- ----------85,688 71,304 323,504 264,523
-------- ------- -------- --------
Gross profit 33,219 26,429 58,712 39,729
---------- ---------- ---------- ----------14,474 15,647 72,811 55,862
-------- ------- -------- --------
Operating expenses:
Selling expenses 11,265 9,702 20,296 16,8118,474 8,325 28,396 25,622
Administrative expenses 4,090 2,244 7,933 4,617
---------- ---------- ---------- ----------
15,355 11,946 28,229 21,428
---------- ---------- ---------- ----------2,615 3,670 10,547 8,287
-------- ------- -------- --------
Total operating expenses 11,089 11,995 38,943 33,909
-------- ------- -------- --------
Income from operations 17,864 14,483 30,483 18,301
---------- ---------- ---------- ----------3,385 3,652 33,868 21,953
-------- ------- -------- --------
Other income (expense):
Interest expense (855) (1,104) (1,850) (2,282)(953) (1,192) (2,803) (3,474)
Rental income 119 133 237 244118 118 355 362
Miscellaneous -- 1 1 1 1
---------- ---------- ---------- ----------
(735) (970) (1,612) (2,037)
---------- ---------- ---------- ----------2
-------- ------- -------- --------
Total other expense, net (835) (1,073) (2,447) (3,110)
-------- ------- -------- --------
Income before income taxes 17,129 13,513 28,871 16,2642,550 2,579 31,421 18,843
Income tax expense 6,680 5,270 11,260 6,343
---------- ---------- ---------- ----------994 1,006 12,254 7,349
-------- ------- -------- --------
Net income and comprehensive income $ 10,4491,556 $ 8,2431,573 $ 17,61119,167 $ 9,921
========== ========== ========== ==========11,494
======== ======= ======== ========
Basic earnings per common share $ 1.120.17 $ 0.900.17 $ 1.882.05 $ 1.08
========== ========== ========== ==========1.25
======== ======= ======== ========
Diluted earnings per common share $ 1.090.16 $ 0.890.17 $ 1.852.01 $ 1.07
========== ========== ========== ==========1.24
======== ======= ======== ========
The accompanying notes are an integral part of these financial statementsTHE 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(Unaudited)
March 25, 2004 June 26, 2003
-------------- -------------
ASSETS
- ------
CURRENT ASSETS:
Cash $ 1,684 $ 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.$3,288 and $1,552, respectively 31,825 29,142
Inventories 152,168 112,016
Deferred income taxes 1,047 1,257
Income taxes receivable -- 469
Prepaid expenses and other current assets 2,287 2,192
-------- --------
TOTAL CURRENT ASSETS 189,011 147,524
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,863 1,863
Buildings 65,530 61,485
Machinery and equipment 95,247 89,980
Furniture and leasehold improvements 5,435 5,385
Vehicles 2,990 3,185
Construction in progress 124 1,057
-------- --------
171,189 162,955
Less: Accumulated depreciation 102,092 95,838
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 69,097 67,117
-------- --------
OTHER ASSETS:
Goodwill 1,242 1,242
Intangibles 2,808 3,128
Miscellaneous 4,334 4,716
-------- --------
TOTAL OTHER ASSETS 8,384 9,086
-------- --------
TOTAL ASSETS $266,492 $223,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ 45,915 $ 29,702
Current maturities of long-term debt 19,415 10,776
Accounts payable 24,505 13,658
Drafts payable 9,084 5,507
Accrued expenses 13,733 12,699
Income taxes payable 330 --
-------- --------
TOTAL CURRENT LIABILITIES 112,982 72,342
-------- --------
LONG-TERM DEBT 11,279 29,640
-------- --------
LONG-TERM DEFERRED INCOME TAXES 2,969 2,964
-------- --------
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,
3,667,426 shares issued and outstanding 37 37
Common Stock, non-cumulative voting rights
of one vote per share, $.01 par value;
10,000,000 shares authorized, 5,856,924
and 5,775,564 shares issued and
outstanding, respectively 59 58
Capital in excess of par value 60,224 58,911
Retained earnings 80,146 60,979
Treasury stock, at cost; 117,900 shares (1,204) (1,204)
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 139,262 118,781
-------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $266,492 $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)
---------- ----------For the Thirty-nine Weeks Ended
-------------------------------
March 25, 2004 March 27, 2003
-------------- --------------
Cash flows from operating activities:
Net income $ 19,167 $ 11,494
Adjustments:
Depreciation and amortization 8,367 8,136
Loss (gain) on disposition of properties 24 (5)
Deferred income taxes 215 --
Tax benefit of option exercises 838 --
Change in current assets and current
liabilities:
Accounts receivable, net (2,683) (4,031)
Inventories (40,152) (35,688)
Prepaid expenses and other
current assets (95> 907
Accounts payable 10,847 2,219
Drafts payable 3,577 3,988
Accrued expenses 1,034 2,469
Income taxes receivable/payable 799 824
Other (1,184) (916)
-------- --------
Net cash provided by (used in)
operating activities 754 (10,603)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (5,096) (4,307)
Facility expansion costs (3,390) (1,910)
Proceeds from disposition of properties 1 20
-------- --------
Net cash used in investing activities (8,485) (6,197)
-------- --------
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 partpayable 16,213 20,737
Principal payments on long-term debt (9,722) (4,667)
Issuance of these financial statements.Common Stock 476 451
-------- --------
Net cash provided by financing activities 6,967 16,521
-------- --------
Net decrease in cash (764) (279)
Cash:
Beginning of period 2,448 1,272
-------- --------
End of period $ 1,684 $ 993
======== ========
Supplemental disclosures:
Interest paid $ 3,153 $ 3,749
Income taxes paid 10,482 6,580
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 6.7.
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
-------- --------
$139,885March 25, June 26,
2004 2003
--------- ---------
Raw material and supplies $ 83,745 $ 36,852
Work-in-process and finished goods 68,423 75,164
-------- --------
$152,168 $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
=========== ============= ========= =========== =============6
For the Quarter Ended March 25, 2004
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net Income $1,556
Basic Earnings Per Common Share
Income available to common
stockholders $1,556 9,396,394 $0.17
=====
Effect of Dilutive Securities
Stock options 210,367
---------
Diluted Earnings Per Common Share
Income available to common
stockholders $1,556 9,606,761 $0.16
====== =========
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
=========== ============= ========= =========== ==================
For the Quarter Ended March 27, 2003
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net Income $1,573
Basic Earnings Per Common Share
Income available to common
stockholders $1,573 9,182,250 $0.17
=====
Effect of Dilutive Securities
Stock options 187,993
---------
Diluted Earnings Per Common Share
Income available to common
stockholders $1,573 9,370,243 $0.17
====== =========
=====
For the Thirty-nine Weeks Ended
March 25, 2004
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net Income $19,167
Basic Earnings Per Common Share
Income available to common
stockholders $19,167 9,362,123 $2.05
=====
Effect of Dilutive Securities
Stock options 196,671
---------
Diluted Earnings Per Common Share
Income available to common
stockholders $19,167 9,558,794 $2.01
======= ========= =====
For the Thirty-nine Weeks Ended
March 27, 2003
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net Income $11,494
Basic Earnings Per Common Share
Income available to common
stockholders $11,494 9,163,133 $1.25
=====
Effect of Dilutive Securities
Stock options 120,070
---------
Diluted Earnings Per Common Share
Income available to common
stockholders $11,494 9,283,203 $1.24
======= ========= =====
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
Number of Weighted-Average
Options Exercise Price
--------- ----------------
Quarter Ended March 25, 2004 -- $ --
Quarter Ended March 27, 2003 25,400 $13.75
Thirty-nine Weeks Ended March 25, 2004 8,714 $16.48
Thirty-nine Weeks Ended March 27, 2003 68,888 $10.38
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-sixthirty-nine weeks ended
DecemberMarch 25, 20032004 and December 26, 2002March 27, 2003 would not have been significant.
7
Note 5 -- Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
CompensationDistribution Channel and Product Type Sales Mix
- 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 requirementsoperates in a single reportable segment through which it
sells various nut products through multiple distribution channels.
The following summarizes net sales by distribution channel.
Third Quarter Ended
------------------------------
Distribution Channel March 25, 2004 March 27, 2003
- -------------------- -------------- --------------
Consumer $ 48,485 $43,651
Industrial 24,397 22,122
Food Service 11,469 8,346
Contract Packaging 8,148 5,306
Export 7,663 7,526
-------- -------
Total $100,162 $86,951
======== =======
Thirty-nine Weeks Ended
------------------------------
Distribution Channel March 25, 2004 March 27, 2003
- -------------------- -------------- --------------
Consumer $227,186 $184,217
Industrial 82,479 65,122
Food Service 34,203 25,980
Contract Packaging 23,015 19,312
Export 29,432 25,754
-------- --------
Total $396,315 $320,385
======== ========
The following summarizes sales by product type as a percentage of
SFAS 148, andtotal gross sales. The information is currently evaluating its accounting alternatives under SFAS 148.
In Januarybased on gross sales, rather
than net sales, because certain adjustments, such as promotional
discounts, are not allocable to product types.
Third Quarter Ended Thirty-nine Weeks Ended
------------------- -----------------------
Product Type March 25, March 27, March 25, March 27,
2004 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 1,2004 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.-------- -------- -------- --------
Peanuts 28.3% 28.0% 25.3% 24.8%
Pecans 17.3 16.0 20.9 19.1
Cashews & Mixed Nuts 21.0 23.8 22.2 23.4
Walnuts 8.2 8.2 10.4 11.7
Almonds 15.2 12.0 11.5 9.2
Other 10.0 12.0 9.7 11.8
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
NOTE 6 -- NET SALES AND SELLING EXPENSES RESTATEMENTComprehensive 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.
NOTE 7 -- 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
for the third quarter and thirty-nine weeks ended March 27, 2003
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
8
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
AS REPORTED AS RESTATED
----------- -----------
(unaudited)
Net Sales for the -
Quarter ended March 27, 2003 $ 84,284 $ 86,951
Thirty-nine weeks ended March 27, 2003 311,589 320,385
Gross Profit for the -
Quarter ended March 27, 2003 13,072 15,647
Thirty-nine weeks ended March 27, 2003 46,672 55,862
Selling Expenses for the -
Quarter ended March 27, 2003 5,750 8,325
Thirty-nine weeks ended March 27, 2003 16,432 25,622
Total Operating Expenses for the -
Quarter ended March 27, 2003 9,420 11,995
Thirty-nine weeks ended March 27, 2003 24,719 33,909
NOTE 8 -- Subsequent Event -- Additional Public Offering
- --------------------------------------------------------
The Company completed a public offering of an additional 1,150,000
shares of Common Stock in April, 2004 at a price of $35.75 per share,
or $33.9982 per share after the underwriting discount. Total proceeds
to the Company were approximately $38.6 million, after deducting
offering costs.
In conjunction with the offering, an equal number of shares were sold
by selling stockholders, all of whom are directors and executive
officers of the Company or are related to directors and executive
officers of the Company. Prior to the offering, 1,070,000 shares of
the Company's Class A Common Stock were converted to Common Stock by
the selling stockholders for the offering. The selling stockholders
also sold 80,000 shares of previously outstanding Common Stock.
The proceeds were immediately used to reduce the outstanding
borrowings under the Company's bank credit facility. In addition, the
Company intends to repay approximately $18.6 million of long-term debt
during the fourth quarter of fiscal 2004. Approximately $8.9 million
of this long-term debt was previously scheduled for repayment in the
next twelve months. An additional $9.7 million of long-term debt was
reclassified to current liabilities as a result of the planned
prepayment.
The full details of the offering are included in the prospectus filed
under Rule 424(b)(4) under the Securities Act of 1933 as filed by the
Company on March 24, 2004.
9
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, andprofitability. While this momentum has continued
throughout fiscal 2004, gross margins have decreased in fiscal 2004.the third
quarter from those realized during the first two quarters. Net sales
increased to $171.4$100.2 million for the quarter ended DecemberMarch 25, 20032004
compared to $138.1$87.0 million for the quarter ended December 26, 2002,March 27, 2003,
representing a 24.1%15.2% increase. Net sales increased to $296.2$396.3 million
for the twenty-sixthirty-nine weeks ended DecemberMarch 25, 20032004 compared to $233.4$320.4
million for the same period in fiscal 2003 representing a 26.9%23.7%
increase. ThisWhile the thirty-nine week growth was achieved primarily
through unit volume increases throughout all of the Company's major
distribution channels.channels, roughly two-thirds of the sales increase in the
third quarter was due to higher average selling prices, primarily on
industrial and export sales. Gross margin improveddecreased by 0.33.5 percentage
points for the quarterly comparative period, and 2.8%but increased by 1.0
percentage points for the twenty-sixthirty-nine week comparative period. These improvements
wereThe
quarterly gross margin decrease in the third quarter of fiscal 2004
was due primarily to generally higher procurement costs for all major
nuts. In addition, pursuant to the results of a regular quarterly
physical inventory, the Company reduced its estimate of its bulk-
stored almond inventories at the end of its current quarter,
accounting for approximately 0.5 percentage points of the 3.5
percentage point decline in gross margin. See "Factors That May Affect
Future Results - Inventory Measurement". The thirty-nine week
improvement in gross margin was due primarily to unit volume sales
increases while certain costs of sales remainremained fixed, lower peanut
costs in the first quarter of fiscal 2004 and certain other non-
recurring benefits in fiscal 2004. Additionally, the first quarter of
fiscal 2003 included certain non-recurring items that negatively
impacted its gross margin. Net income was approximately $1.6 million
for both the quarter ended DecemberMarch 25, 2003 increased by 26.8% to
$10.4 million from the quarter ended December 26, 2002.2004 and March 27, 2003. Net
income for the twenty-sixthirty-nine week period ended DecemberMarch 25, 20032004 increased
by 77.5%66.8% to $17.6$19.2 million from the twenty-sixthirty-nine weeks ended December 26, 2002.March 27,
2003.
The Company believes that a portion of the overall increase in net
sales, for both the quarter and twenty-sixthirty-nine weeks ended DecemberMarch 25,
2003,2004, is attributable to the growing awareness of the health benefits
of nuts and the current trend toward a low carbohydrate/high protein
diet. The Company continually reviews nut consumption data prepared by
various trade associations, marketing organizations and the United
States Department of Agriculture to monitor trends in ourits 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.
10
A significant factor in the improved margins for the thirty-nine weeks
ended March 25, 2004 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 totalthe gross profit margin. Themargin for
all of the Company's products combined. Though 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 contemplatedplanned 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 ofinherent in 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 and changes in its
estimates of bulk-stored nut inventories may affect the value of the
Company's inventory and thus the Company's profitability. At DecemberMarch 25,
2003,2004, the Company's inventories totaled approximately $139.9$152.2 million
compared to approximately $112.0 million at June 26, 2003, and
approximately $123.7$135.2 million at December 26, 2002.March 27, 2003. The increase in
inventories at DecemberMarch 25, 20032004 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 DecemberMarch 25, 20032004 when compared to December 26, 2002March 27, 2003 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-sixthirty-nine weeks of
fiscal 2004 than during the first thirty-nine weeks of fiscal 2003
than during(ii) an increase in finished goods to support the first
twenty-six weeks of fiscal 2002.increase in sales
volume, and (iii) generally higher commodity costs, especially for
almonds and pecans. See "Factors That May Affect Future Results" -
"Availability of Raw Materials and Market Price Fluctuations." At
DecemberMarch 25, 2003,2004, net accounts receivable were approximately $50.3$31.8
million compared to approximately $29.1 million at June 26, 2003 and
approximately $35.3$28.2 million at December 26, 2002.March 27, 2003. The increase in net
accounts receivable at DecemberMarch 25, 20032004 when compared to June 26, 2003
is due primarily to the seasonality of the Company's business. The
increase in net accounts receivable at DecemberMarch 25, 20032004 when compared to
December 26, 2002March 27, 2003 is due primarily to the increase in net sales for the
secondthird quarter of fiscal 2004 compared to the firstthird quarter of fiscal
2003. See "Results of Operations - Net Sales". Current maturities of
long-term debt were
11
approximately $19.4 million at March 25, 2004
compared to approximately $10.8 million at June 26, 2003. The
increase is due to the Company's intention to use a portion of the
proceeds of its follow-on public offering, which was completed in
April 2004, to prepay approximately $18.6 million of its long-term
debt. See "Liquidity and Capital Resources" - "Additional Public
Offering".
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 havethe Company
has changed the classification of our freight costs. As a result, we havethe
Company has restated ourthe Consolidated Statements of Operations
included in ourits annual financial statements on Form 10-K/A for the
fiscal years ended June 26, 2003, June 27, 2002, and June 28, 2001 and
ourthe quarterly filing for the thirteen weeks ended September 25, 2003
on Form 10-Q/A. WeThe Company changed the classification of our freight
costs, which had previously been reflected as a reduction in net sales
rather
thanto selling expenses,expense, 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 ouror on the 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
haveThe Company has elected to classify our shipping and
handling costs (including freight costs) as selling expenses. We believe ourThe
Company believes this presentation makes ourits financial statements more
comparable to similar companies in our industry.similar industries. 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 reportthe
Company reports a higher gross profit than if weit were to classify
these costs as cost of goods sold. Our incomeIncome from operations, net income
and earnings per share would be the same under either approach.
RESULTS OF OPERATIONS
- ---------------------
Net Sales. Net sales increased fromto approximately $138.1$100.2 million for the
secondthird quarter of fiscal 2004 from approximately $87.0 million for the
third quarter of fiscal 2003, to approximately $171.4 million for the second quarter of
fiscal 2004, an increase of approximately $33.3$13.2
million, or 24.1%15.2%. Net sales for the first twenty-sixthirty-nine weeks of fiscal
2004 were approximately $296.2$396.3 million, an increase of approximately
$62.7$75.9 million, or 26.9%23.7%, over the net sales of approximately $233.4$320.4
million for the first twenty-sixthirty-nine weeks of fiscal 2003. The increasesincrease
in net sales for both the quarterly and twenty-six week periods, wereperiod was due primarily to: (i) higher
average selling prices in the Company's industrial and export
distribution channels which were passed on due to the Company's higher
commodity costs, and (ii) higher unit volume sales in the Company's
consumer, industrial,
exportfood service and food servicecontract packaging distribution channels.
Unit volume increased by 17.8%6.1% for the secondthird quarter of fiscal 2004
overcompared to the third quarter of fiscal 2003, and increased by 18.8%2003. The increase in net
sales for the twenty-sixthirty-nine week period.period was due primarily to a 15.0%
increase in unit
12
volume sales, primarily in the consumer, industrial
and food service distribution channels. The remainder of the increase
in net sales for both the quarterly and twenty-sixthirty-nine week periods,period was due to higher average
selling prices, primarily in the industrial and export distribution
channels for pecans, as the Company was able to sell its pecan products at higher prices
reflecting higher procurement costs.almonds and pecans.
The Company experienced significant growth in most of its key
distribution channels. Net sales in the consumer distribution channel
for the secondthird quarter of fiscal 2004 increased $19.0$4.8 million when
compared to the secondthird quarter for fiscal 2003 and $38.1$43.0 million for
the twenty-sixthirty-nine week period ended DecemberMarch 25, 2003,2004, 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-termshort-
term promotional activity, especially in the Chicago area, which may
not
10
result in a permanent increase in net sales. ThisThe quarterly
increase was driven by
increased nut consumption and efforts to increase Fisher brand marketing and
promotions, especiallyin net sales in the Chicago area.industrial distribution channel was due
primarily to higher selling prices on fixed-price contracts as these
prices were based on higher commodity costs at the time of
contracting. The increase in net sales in the industrial distribution
channel for the thirty-nine week period 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 for the thirty-nine week period 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 slightlysignificantly for both the quarterly and twenty-six week periods.period
as a new products were introduced by the Company's larger customers in
this channel.
The Company believes it is well-positioned for sales growth throughout
its major distribution channels. The Company expects the increased
demand for nuts to continue and to increase thethereby generate new selling
opportunities availablein the near term, especially in the consumer
distribution channel. The Company believes that industrial customers
will continue to develop new nut-based 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 tables show quarterly and twenty-sixthirty-nine 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% $138,107Third Quarter Ended
----------------------------------------
Distribution Channel March 25, 2004 March 27, 2003
- -------------------- ------------------ -----------------
Consumer $ 48,485 48.4% $43,651 50.2%
Industrial 24,397 24.3 22,122 25.4
Food Service 11,469 11.5 8,346 9.6
Contract Packaging 8,148 8.1 5,306 6.1
Export 7,663 7.7 7,526 8.7
-------- ----- ------- -----
Total $100,162 100.0% $86,951 100.0%
======== ===== ======= =====
13
Thirty-nine Weeks Ended
----------------------------------------
Distribution Channel March 25, 2004 March 27, 2003
- -------------------- ------------------ -----------------
Consumer $227,186 57.3% $184,217 57.5%
Industrial 82,479 20.8 65,122 20.4
Food Service 34,203 8.7 25,980 8.1
Contract Packaging 23,015 5.8 19,312 6.0
Export 29,432 7.4 25,754 8.0
-------- ----- -------- -----
Total $396,315 100.0% $320,385 100.0%
======== ===== ======== =====
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-sixthirty-nine 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 22.7Third Quarter Ended Thirty-nine Weeks Ended
------------------- -----------------------
Product Type March 25, March 27, March 25, March 27,
2004 2003 2004 2003
-------- -------- -------- --------
Peanuts 28.3% 28.0% 25.3% 24.8%
Pecans 17.3 16.0 20.9 19.1
Cashews & Mixed Nuts 21.0 23.8 22.2 20.2
Cashews & Mixed Nuts 22.0 23.4 22.6 23.2
Walnuts 8.2 8.2 10.4 11.7
Almonds 15.2 12.0 11.5 9.2
Other 10.0 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 secondthird quarter of fiscal 2004
increaseddecreased approximately 25.7%7.5% to approximately $33.2$14.5 million from
approximately $26.4$15.6 million for the secondthird quarter of fiscal 2003.
Gross profit margin increased
fromdecreased to approximately 19.1%14.5% for the secondthird
quarter of fiscal 2003 to2004 from approximately 19.4%18.0% for the secondthird quarter
of fiscal 2004.2003. The increasedecrease in gross profit margin was due primarily
to improvedto: (i) generally higher commodity costs, especially for almonds and
purchased pecans, which were not offset by corresponding price
increases in the consumer distribution channel, (ii) low margins on
fixed-price industrial and export almond contracts as almond costs
increased after certain contracts were priced, (iii) a reduction in
the regular quarterly estimate of bulk-stored almonds physically on-
hand which accounted for pecan sales during0.5 percentage points of the total 3.5
percentage point decrease in gross margin for the quarter, asand (iv)
the necessity to purchase certain quantities of pecans and almonds on
the spot market sales prices were increasing.in order to fulfill customer requirements. Gross
profit for the first twenty-sixthirty-nine weeks of fiscal 2004 increased
approximately 47.8%30.3% to approximately $58.7$72.8 million from approximately
$39.7$55.9 million for the first twenty-sixthirty-nine weeks of fiscal 2003. Gross
profit margin increased fromto approximately 17.0%18.4% for the first twenty-sixthirty-
nine weeks of fiscal 2003 to2004 from approximately 19.8%17.4% for the first
twenty-sixthirty-nine weeks of fiscal 2004.2003. 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.costs for the first quarter
of fiscal 2004 compared to the first quarter of fiscal 2003. 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
14
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 almond shelling competitors. TheseTypically,
final prices for almonds are generally not knowndetermined until the first quarter
of the Company's fiscal year following
harvest.year.
Selling and Administrative Expenses. Selling and administrative
expenses as a percentage of net sales increased fromdecreased to approximately 8.6%11.1%
for the secondthird quarter of fiscal 2003 to2004 from approximately 9.0%13.8% for the
secondthird quarter of fiscal 2004.2003. For the first twenty-sixthirty-nine weeks of
fiscal 2004, selling and administrative expenses as a percentage of
net sales increaseddecreased to approximately 9.5%9.8% compared to approximately
9.2%10.6% for the first twenty-sixthirty-nine weeks of fiscal 2003. Selling expenses
as a percentage of net sales decreased fromto approximately 7.0%8.5% for the
secondthird quarter of fiscal 2003 to2004 from approximately 6.6%9.6% for the secondthird
quarter of fiscal 2003. Selling expenses as a percentage of net sales
increaseddecreased to approximately 7.2% for the first twenty-sixthirty-nine weeks of
fiscal 2004 from approximately 6.9%8.0% for the first twenty-sixthirty-nine weeks of
fiscal 2003. The decreases in selling expenses, for both the quarterly
and thirty-nine week periods, are due primarily to the fixed nature of
certain expenses in comparison to a larger revenue base.
Administrative expenses as a percentage of net sales decreased to
approximately 2.6% for the third quarter of fiscal 2004 to
approximately 4.2% for the third quarter 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-sixthirty-nine weeks of fiscal 2004.2004 from
approximately 2.6% for the first thirty-nine weeks of fiscal 2003. The
dollar
increases,quarterly decrease was due primarily to the establishment of
litigation reserves during the third quarter of fiscal 2003 for
bothmatters which were subsequently settled. The increase for the quarterly and twenty-sixthirty-
nine week periods, wereperiod was 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 includesincluded 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 waswere higher legal and
professional fees related to (i) the United States Department of
Justice's investigation of a portion 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 fromdecreased to approximately $14.5$3.4 million, or 10.5%3.4% of
net sales, for the secondthird quarter of fiscal 2003, to2004, from approximately
$17.9$3.7 million, or 10.4%4.2% of net sales, for the secondthird quarter of fiscal
2004.2003. Income from operations increased fromto approximately $18.3$33.9 million,
or 7.8%8.5% of net sales, for the first twenty-sixthirty-nine weeks of fiscal 2003, to2004,
from approximately $30.5$22.0 million, or 10.3%6.9% of net sales, for the first
twenty-sixthirty-nine weeks of fiscal 2004.2003.
Interest Expense. Interest expense decreased fromto approximately $1.1$1.0
million for the secondthird quarter of fiscal 2003 to2004 from approximately $0.9$1.2
million for the secondthird quarter of fiscal 2004.2003. For the first twenty-sixthirty-
nine weeks of fiscal 2004,2003, interest expense decreased to approximately
$1.9$2.8 million from approximately $2.3$3.5 million for the first twenty-sixthirty-nine
weeks of fiscal 2003. The decreases in interest expense, for both the
quarterly and twenty-sixthirty-nine 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$1.0 million, or
39.0% of income before income taxes for the secondthird quarter of fiscal
2004 compared to approximately $5.3$1.0 million, or 39.0% of income before
income taxes, for the secondthird quarter of fiscal 2003. Income tax expense
was approximately $11.3$12.3 million, or 39.0% of income before income
taxes for the first twenty-sixthirty-nine
15
weeks of fiscal 2004 compared to approximately $6.3$7.3 million, or 39.0%
of income before income taxes, for the first twenty-sixthirty-nine weeks of
fiscal 2003.
Net Income. Net income was approximately $10.4$1.6 million, or $1.12$0.17 basic
per common share ($1.090.16 diluted), for the secondthird quarter of fiscal
2004, compared to approximately $8.2$1.6 million, or $0.90$0.17 basic and
diluted per common share, ($0.89 diluted), for the secondthird quarter of fiscal 2003. Net
income was approximately $17.6$19.2 million, or $1.88$2.05 basic per common
share ($1.852.01 diluted), for the first twenty-sixthirty-nine weeks of fiscal 2004,
compared to approximately $9.9$11.5 million, or $1.08$1.25 basic per common
share ($1.071.24 diluted), for the first twenty-sixthirty-nine 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$0.8 million for the first twenty-sixthirty-nine
weeks of fiscal 2004 compared to approximately $18.8$10.6 million of cash
used in operating activities for the first twenty-sixthirty-nine weeks of fiscal
2003. The increase in cash provided by operating activities for the
first twenty-sixthirty-nine weeks of fiscal 2004 when compared to the first
twenty-sixthirty-nine weeks of fiscal 2003 was due primarily to improved
operating results. Nut purchases were approximately 18.2%21.9% greater in
the first twenty-sixthirty-nine weeks of fiscal 2004 than in the first twenty-sixthirty-
nine weeks of fiscal 2003. During the first twenty-sixthirty-nine weeks of
fiscal 2004, the Company spentcash used in investing activities were approximately $6.1$8.5
million on capital expenditures, compared to approximately $5.0$6.2 million forduring the first
twenty-sixthirty-nine 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 befacility, which was completed during the third
quarter of fiscal 2004.
The Company is currently exploringplanning the possible consolidation of its Chicago
area production facilities into a single location through the
construction of a new production facility. If the consolidationproject proceeds, it
is unlikely that such a facilitythe project could be financed using solely the
Company's existing credit facilities. In that event, the Company would
evaluateconsider the use of other financing alternatives including, but not
limited to, debt financing, proceeds from the sale of existing Chicago
area facilities and/or cash flowflows from operations.operating activities. The site
selection and groundbreaking are expected to occur during the first
half of fiscal 2005. The Company currently projects that the facility
consolidation project will require a total investment of approximately
$75.0 to $85.0 million, which would be incurred during the next four
to five years. During the first twenty-sixthirty-nine weeks of fiscal 2004, the
Company repaid approximately $8.5$9.7 million of long-term debt compared
to approximately $3.4$4.7 million during the first twenty-sixthirty-nine weeks of
fiscal 2003, as the first scheduled annual $5.0 million payment of
subordinated debt under the Additional Long-Term Financing discussed below(as defined
below) became due.
ADDITIONAL PUBLIC OFFERING
- --------------------------
The Company completed a public offering of an additional 1,150,000
shares of Common Stock in April, 2004 at a price of $35.75 per share,
or $33.9982 per share after the underwriting discount. Total proceeds
to the Company were approximately $38.6 million, after deducting
offering costs.
16
In conjunction with the offering, an equal number of shares were sold
by selling stockholders, all of whom are directors and executive
officers of the Company or are related to directors and executive
officers of the Company. Prior to the offering, 1,070,000 shares of
the Company's Class A Common Stock were converted to Common Stock by
the selling stockholders for the offering. The selling stockholders
also sold 80,000 shares of previously outstanding Common Stock.
The proceeds were immediately used to reduce the outstanding
borrowings under the Company's Bank Credit Facility (as defined
below). In addition, the Company intends to repay approximately $18.6
million of long-term debt during the fourth quarter of fiscal 2004,
including the prepayment in full of the Long-Term Credit Facility (as
defined below) and the Additional Long-Term Financing. Approximately
$8.9 million of this long-term debt was previously scheduled for
repayment in the next twelve months. An additional $9.7 million of
long-term debt was reclassified to current liabilities as a result of
the planned prepayment.
The full details of the offering are included in the prospectus filed
under Rule 424(b)(4) under the Securities Act of 1933 as filed by the
Company on March 24, 2004.
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%2.58% at DecemberMarch 25, 2003.2004. As 13
of December 25, 2003,March 24, 2004, the Company
had approximately $49.5$24.1 million of available credit under the Bank
Credit Facility.
As of DecemberMarch 25, 2003,2004, 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$3.8 million. Of the
4.9$3.8 million, $2.5$1.4 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. The Company intends to prepay all amounts
outstanding under the Long-Term Financing Facility during the fourth
quarter of fiscal 2004. See "Additional Public Offering".
As of DecemberMarch 25, 2003,2004, 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 aan
8.3% 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.
The Company intends to prepay all amounts outstanding under the
Additional Long-Term Financing during the fourth quarter of fiscal
2004. See "Additional Public Offering".
17
As of DecemberMarch 25, 2003,2004, 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-TermLong-
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 DecemberMarch 25, 2003,2004, the Company was in compliance
with all restrictive covenants under its financing facilities. The
Company has received consents from the lenders under the Bank Credit
Facility to prepay the amounts outstanding under the Long-Term Credit
Facility and the Additional Long-Term Financing..
The Company believes that cash flow from operating activities, the
recently completed follow-on public offering and funds available under
the Bank Credit Facility will be sufficient to meet working capital
requirements and anticipated capital expenditures for the foreseeablenear future.
However, if the Company elects to pursue the facility consolidation
project, additional financing sources may be required to fund the
$75.0 - $85.0 of capital expenditures that would be necessary for the
project.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002,facility consolidation project over 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 entitiesnext four 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 statementsfive years.
18
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 ResultsFACTORS 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.
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 willwould occur. We doThis type of
increase was experienced during the third quarter of fiscal 2004 for
almonds and pecans. 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 "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.
19
(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 in order to maintain
customer relationships or when, in management's judgment, market or
crop harvest conditions so warrant. To the extent the Company does so,
however, these fixed price commitments may result in losses that have
a material adverse effect on the Company's results of operations. The
Company's results of operations were adversely affected during the
third quarter of fiscal 2004 as outside purchases of almonds and
pecans were required to fulfill obligations under fixed-price
contracts.
(d) INVENTORY MEASUREMENT
-------------------------
The Company purchases its inshell 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 inshell nut shipments in bulk truckloads. The weights of the inshellthese
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 thanthen stored in bulk in large warehouses to be shelled or processed
throughout the year. The inshellBulk-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 inshellbulk-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 inshellbulk-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.
(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, wethe
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 willwould thus be materially adversely affected.
20
(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 representrepresented
approximately 37% of the Company's total nut purchases in fiscal 2003,
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 is exposed to the impact of changes in interest rates and
to commodity prices of raw material purchases. The Company has not
entered into transactions using derivative financial
instruments.any arrangements to hedge against changes in market
interest rates, commodity prices or foreign currency fluctuations.
The Company believes that its exposureis unable to market riskengage in hedging activity related to
commodity prices, since there are no established futures markets for
nuts. Approximately 37% of nut purchases for fiscal 2003 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 other financial instruments (which areonly variable rate credit facility. A hypothetical 10%
adverse change in weighted-average interest rates would have had an
immaterial impact on the debt instruments under
"Management's DiscussionCompany's net income and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources") is not material.cash flows from
operating activities.
21
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 that is 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 secondthird fiscal quarter ended DecemberMarch 25, 20032004 that
has materially affected, or is reasonably likely to materially affect
the Company's internal control over financial reporting.
1822
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,January 29, 2004, the Company filed a Current Report on
Form 8-K, dated October 22, 2003,January 27, 2004, announcing quarterly
financial results.
1923
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,May 5, 2004 By: /s/ Michael J. Valentine
-------------------------------------------------------------
Michael J. Valentine
Executive Vice President
Finance, Chief Financial Officer
and Secretary
2024
EXHIBIT INDEX
Exhibit
Number Description
- ------------------------------------------------------------------------------------------------------------------------------------
-------------
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)
25
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)
2226
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)
27
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(27)
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(27)
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(28)
10.37 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Mathias A. Valentine(28)
10.38 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the Michael J.
Valentine Trust(28)
10.39 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the James
Valentine Trust(28)
28
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 herewith10.40 Letter Agreement, dated January 21, 2004, by and between the
Registrant and Michael J. Valentine, Trustee of the Mary Jo
Carroll Trust(28)
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(28)
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(28)
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(28)
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(28)
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(28)
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(28)
10.47 Amendment, dated February 12, 2004, toAmended 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(28)
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).
29
(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).
30
(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(27) 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).
(28) 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.
31