SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 23, 1999
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 0-19681
JOHN B. SANFILIPPO & SON, INC.
(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
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As of February 3, 2000, 5,461,139 shares of the Registrant's Common
Stock, $.01 par value per share, excluding 117,900 treasury shares and
3,687,426 shares of the Registrant's Class A Common Stock, $.01 par value
per share, were outstanding.
JOHN B. SANFILIPPO & SON, INC.
INDEX TO FORM 10-Q
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Operations for the quarters
and twenty-six weeks ended December 23, 1999 and
December 24, 1998 3
Consolidated Balance Sheets as of December 23, 1999
and June 24, 1999 4
Consolidated Statements of Cash Flows for the twenty-six
weeks ended December 23, 1999 and December 24, 1998 5
Notes to Consolidated Financial Statements 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 -- Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
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Item 2 -- Changes in Securities 13
Item 4 -- Submission of Matters to a Vote of Security Holders 13
Item 6 -- Exhibits and Reports on Form 8-K 13
SIGNATURE 14
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EXHIBIT INDEX 15
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OMITTED FINANCIAL STATEMENTS
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None
PART I. FINANCIAL INFORMATION
Item 1 -- Financial Statements
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except earnings per share)
For the Quarter Ended For the Twenty-six Weeks Ended
-------------------------- ------------------------------
December 23, December 24, December 23, December 24,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales $124,030 $113,332 $203,554 $187,161
Cost of sales 100,505 95,133 167,480 157,546
------------ ------------ ------------ ------------
Gross profit 23,525 18,199 36,074 29,615
------------ ------------ ------------ ------------
Selling expenses 11,604 9,729 19,652 16,303
Administrative expenses 2,667 3,066 4,390 5,258
------------ ------------ ------------ ------------
14,271 12,795 24,042 21,561
------------ ------------ ------------ ------------
Income from operations 9,254 5,404 12,032 8,054
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (1,823) (2,338) (3,709) (4,613)
Interest income 19 6 25 13
Gain (loss) on disposition
of properties 31 (1) 58 10
Rental income 144 117 287 246
------------ ------------ ------------ ------------
(1,629) (2,216) (3,339) (4,344)
------------ ------------ ------------ ------------
Income before income taxes 7,625 3,188 8,693 3,710
Income tax (expense) (3,050) (1,301) (3,477) (1,536)
------------ ------------ ------------ ------------
Net income $ 4,575 $ 1,887 $ 5,216 $ 2,174
============ ============ ============ ============
Basic and diluted earnings
per common share $ 0.50 $ 0.21 $ 0.57 $ 0.24
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
December 23, June 24,
1999 1999
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ASSETS
CURRENT ASSETS:
Cash $ 2,014 $ 1,393
Accounts receivable, net 30,704 24,105
Inventories 94,134 89,033
Deferred income taxes 519 519
Income taxes receivable -- 94
Prepaid expenses and other
current assets 3,087 3,355
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TOTAL CURRENT ASSETS 130,458 118,499
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PROPERTIES:
Buildings 55,460 55,452
Machinery and equipment 75,692 73,794
Furniture and leasehold improvements 5,139 5,049
Vehicles 4,154 4,137
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140,445 138,432
Less: Accumulated depreciation 70,919 67,550
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69,526 70,882
Land 1,892 1,892
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71,418 72,774
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OTHER ASSETS:
Goodwill and other intangibles 6,535 6,941
Miscellaneous 5,837 7,010
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12,372 13,951
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$214,248 $205,224
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 19,978 $ 36,411
Current maturities of long-term debt 5,639 5,672
Accounts payable 25,297 9,839
Drafts payable 8,414 5,540
Accrued expenses 10,180 7,522
Income taxes payable 2,741 --
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TOTAL CURRENT LIABILITIES 72,249 64,984
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LONG-TERM DEBT 54,051 57,508
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LONG-TERM DEFERRED INCOME TAXES 2,738 2,738
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STOCKHOLDERS' EQUITY
Preferred Stock -- --
Class A Common Stock 37 37
Common Stock 56 56
Capital in excess of par value 57,196 57,196
Retained earnings 29,125 23,909
Treasury stock (1,204) (1,204)
------------ ---------
85,210 79,994
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$214,248 $205,224
============ =========
The accompanying notes are an integral part of these financial statements.
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Twenty-six Weeks Ended
------------------------------
December 23, December 24,
1999 1998
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Cash flows from operating activities:
Net income $ 5,216 $ 2,174
Adjustments:
Depreciation and amortization 4,001 3,943
Gain on disposition of properties (58) (10)
Change in current assets and
current liabilities:
Accounts receivable, net (6,599) (7,109)
Inventories (5,101) (21,191)
Prepaid expenses and other
current assets 268 294
Accounts payable 15,458 19,796
Drafts payable 2,874 5,160
Accrued expenses 2,658 48
Income taxes payable/receivable 2,835 1,474
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Net cash provided by operating activities 21,552 4,579
------------ ------------
Cash flows from investing activities:
Acquisition of properties (2,081) (2,022)
Proceeds from disposition of properties 61 21
Other 1,012 915
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Net cash used in investing activities (1,008) (1,086)
------------ ------------
Cash flows from financing activities:
Net repayments on notes payable (16,433) (698)
Principal payments on long-term debt (3,490) (2,030)
------------ ------------
Net cash used in financing activities (19,923) (2,728)
------------ ------------
Net increase in cash 621 765
Cash:
Beginning of period 1,393 549
------------ ------------
End of period $ 2,014 $ 1,314
============ ============
Supplemental disclosures:
Interest paid $ 3,625 $ 4,737
Taxes paid 771 64
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Note 1 - Basis of Presentation
- ------------------------------
On June 25, 1999, John B. Sanfilippo & Son, Inc. (the "Company")
dissolved two of its three wholly owned subsidiaries, Sunshine Nut
Co., Inc. ("Sunshine") and Quantz Acquisition Co., Inc. and merged
such subsidiaries into and with 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 fiscal year ending June 29, 2000 will consist of
fifty-three weeks, with the fourth quarter consisting of fourteen,
rather than thirteen weeks.
Note 2 - Inventories
- --------------------
Inventories are stated at the lower of cost (first in, first out) or
market. Inventories consist of the following:
December 23, June 24,
1999 1999
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Raw material and supplies $59,562 $33,998
Work-in-process and finished goods 34,572 55,035
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$94,134 $89,033
=========== ========
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 23, 1999 For the Quarter Ended December 24, 1998
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ----------- ------------- ------------- -----------
Net Income $4,575 $1,887
Basic Earnings Per Share
Income available to common
Stockholders 4,575 9,148,565 $0.50 1,887 9,148,565 $0.21
=========== ===========
Effect of Dilutive Securities
Stock options -- --
Diluted Earnings Per Share
Income available to common
Stockholders $4,575 9,148,565 $0.50 $1,887 9,148,565 $0.21
============= ============= =========== ============= ============= ===========
For the Twenty-six Weeks Ended For the Twenty-six Weeks Ended
December 23, 1999 December 24, 1998
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ----------- ------------- ------------- -----------
Net Income $5,216 $2,174
Basic Earnings Per Share
Income available to common
Stockholders 5,216 9,148,565 $0.57 2,174 9,148,565 $0.24
=========== ===========
Effect of Dilutive Securities
Stock options 43 41
Diluted Earnings Per Share
Income available to common
Stockholders $5,216 9,148,608 $0.57 $2,174 9,148,606 $0.24
============= ============= =========== ============= ============= ===========
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 23, 1999 346,793 $ 9.33
Quarter Ended December 24, 1998 361,320 $10.23
Twenty-six Weeks Ended December 23, 1999 351,922 $ 9.37
Twenty-six Weeks Ended December 24, 1998 363,622 $10.26
Note 4 - Management's Statement
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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 normal recurring adjustments which, in the opinion of
management, are necessary for the fair presentation of the results of
the interim periods. The interim results of operations are not
necessarily indicative of the results to be expected for a full year.
The data presented on the balance sheet for the fiscal year ended June
24, 1999 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
1999 Annual Report to Stockholders for the year ended June 24, 1999.
Item 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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General
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The Company's business is seasonal. Demand for peanut and other nut
products is highest during the months of October through 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. Also, due
primarily to the seasonal nature of the Company's business, the Company
maintains significant inventories of peanuts, pecans, walnuts, almonds
and other nuts at certain times of the year, especially during the
second and third quarters of the Company's fiscal year. Fluctuations in
the market prices of such nuts may affect the value of the Company's
inventory and thus the Company's profitability. At December 23, 1999,
the Company's inventories totaled approximately $94.1 million compared
to approximately $89.0 million at June 24, 1999, and approximately
$120.7 million at December 24, 1998. The decrease in inventories at
December 23, 1999 when compared to December 24, 1998 is primarily due to
decreased dollar levels of walnuts, peanuts, almonds and pecans on hand
due primarily to: (i) lower purchases of peanuts due to a lower crop
size in fiscal 2000 compared to fiscal 1999; (ii) higher sales for the
first twenty-six weeks of fiscal 2000 compared to the first twenty-six
weeks of fiscal 1999; and (iii) lower per unit purchase costs for pecans
and almonds in the first twenty-six weeks of fiscal 2000 compared to the
first twenty-six weeks of fiscal 1999. See "Factors That May Affect
Future Results -- Availability of Raw Materials and Market Price
Fluctuations."
The Company's fiscal year ends on the last Thursday of June each year,
and references herein to "fiscal" years are to the fiscal years ended
in the indicated calendar year (for example, "fiscal 2000" refers to
the Company's fiscal year ending June 29, 2000). The Company's fiscal
year typically consists of fifty-two weeks (four thirteen week
quarters). Fiscal 2000 will consist of fifty-three weeks, with the
fourth quarter of fiscal 2000 consisting of fourteen, rather than
thirteen, weeks.
RESULTS OF OPERATIONS
- ---------------------
Net Sales. Net sales increased from approximately $113.3 million for
the second quarter of fiscal 1999 to approximately $124.0 million for
the second quarter of fiscal 2000, an increase of approximately $10.7
million, or 9.4%. Net sales increased from approximately $187.1 million
for the first twenty-six weeks of fiscal 1999 to approximately $203.6
million for the first twenty-six weeks of fiscal 2000, an increase of
approximately $16.3 million, or 8.8%. The increases, for both the
quarterly and year-to-date periods, were due primarily to higher unit
volume sales to the Company's retail, food service and export customers.
The increase in retail sales was due primarily to higher unit volume
sales of the Company's Fisher brand.
Gross Profit. Gross profit for the second quarter of fiscal 2000
increased approximately 29.3% to approximately $23.5 million from
approximately $18.2 million for the second quarter of fiscal 1999.
Gross profit margin increased from approximately 16.1% for the second
quarter of fiscal 1999 to approximately 19.0% for the second quarter of
fiscal 2000. Gross profit for first twenty-six weeks of fiscal 2000
increased approximately 21.8% to approximately $36.1 million from
approximately $29.6 million for the first twenty-six weeks of fiscal
1999. Gross profit margin increased from approximately 15.8% for the
first twenty-six weeks of fiscal 1999 to approximately 17.7% for the
first twenty-six weeks of fiscal 2000. The increases in gross profit
margin, for both the quarterly and year-to-date periods, were due
primarily to increases in unit volume sales of Fisher brand sales as a
percentage of the Company's total net sales. Also, favorably impacting
the gross profit margin was a decrease in industrial sales as a
percentage of total net sales for both the quarterly and year-to-date
periods. Industrial sales generally carry lower margins than sales to
the Company's retail and food service customers.
Selling and Administrative Expenses. Selling and administrative
expenses as a percentage of net sales increased slightly from
approximately 11.3% for the second quarter of fiscal 1999 to
approximately 11.5% for the second quarter of fiscal 2000. Selling and
administrative expenses as a percentage of net sales increased slightly
from approximately 11.5% for the first twenty-six weeks of fiscal 1999
to approximately 11.8% for the first twenty-six weeks of fiscal 2000.
Selling expenses as a percentage of net sales increased from
approximately 8.6% for the second quarter of fiscal 1999 to
approximately 9.4% for the second quarter of fiscal 2000. Selling
expenses as a percentage of net sales increased from approximately 8.7%
for the first twenty-six weeks of fiscal 1999 to approximately 9.7% for
the first twenty-six weeks of fiscal 2000. These increases, for both the
quarterly and year-to-date periods, were due primarily to an expansion
of promotional activity to support the Company's growth in its retail
business. Administrative expenses as a percentage of net sales decreased
from approximately 2.7% for the second quarter of fiscal 1999 to
approximately 2.2% for the second quarter of fiscal 2000. Administrative
expenses as a percentage of net sales decreased from approximately 2.8%
for the first twenty-six weeks of fiscal 1999 to approximately 2.2% for
the first twenty-six weeks of fiscal 2000. The decreases in
administrative expenses as a percentage of net sales, for both the
quarterly and year-to-date periods, were due primarily to: (i) the
consolidation of the administrative functions of Sunshine with the
Company's administrative functions during the fourth quarter of fiscal
1999; (ii) spreading administrative expenses over a higher revenue base;
and (iii) an increase in litigation expense recognized in the second
quarter of fiscal 1999 pertaining to a lawsuit which was subsequently
settled.
Income from Operations. Due to the factors discussed above, income from
operations increased from approximately $5.4 million, or 4.8% of net
sales, for the second quarter of fiscal 1999, to approximately $9.3
million, or 7.5% of net sales, for the second quarter of fiscal 2000.
For the twenty-six weeks ended December 23, 1999, income from operations
increased to approximately $12.0 million, or 5.9% of net sales, from
approximately $8.1 million, or 4.3% of net sales, for the twenty-six
weeks ended December 24, 1998.
Interest Expense. Interest expense decreased from approximately $2.3
million for the second quarter of fiscal 1999 to approximately $1.8
million for the second quarter of fiscal 2000. For the twenty-six weeks
ended December 23, 1999, interest expense was approximately $3.7
million, compared to approximately $4.6 million for the twenty-six weeks
ended December 24, 1998. The decreases in interest expense, for both
the quarterly and year-to-date periods, were due primarily to lower
average level of borrowings due to lower levels of inventories.
Income Taxes. The Company recorded income tax expense of approximately
$3.1 million, or 40.0% of income before income taxes, for the second
quarter of fiscal 2000, and approximately $3.5 million, or 40.0% of
income before income taxes for the twenty-six weeks ended December 23,
1999.
Liquidity and Capital Resources
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During the second quarter of fiscal 2000, the Company continued to
finance its activities through a bank credit facility (the "Bank Credit
Facility"), $35.0 million borrowed under a long-term financing facility
originally entered into by the Company in 1992 (the "Long-Term Financing
Facility") and $25.0 million borrowed on September 12, 1995 under a
long-term financing arrangement (the "Additional Long-Term Financing").
Net cash provided by operating activities was approximately $21.6
million for the first twenty-six weeks of fiscal 2000 compared to
approximately $4.6 million for the first twenty-six weeks of fiscal
1999. The increase in cash provided by operating activities was due
primarily to lower levels of peanut purchases in fiscal 2000 due to a
smaller crop size, and to decreased per unit costs of almonds and pecans
in fiscal 2000. During the first twenty-six weeks of fiscal 2000, the
Company invested approximately $2.1 million in capital expenditures,
compared to approximately $2.0 million for the first twenty-six weeks of
fiscal 1999, and repaid approximately $3.5 million of long-term debt,
compared to approximately $2.0 million for the first twenty-six weeks of
fiscal 1999.
The Bank Credit Facility is comprised of (i) a working capital revolving
loan which provides for working capital financing of up to approximately
$62.3 million, in the aggregate, and matures on March 31, 2001, and (ii)
a letter of credit of approximately $7.7 million to secure the
industrial development bonds which matures on June 1, 2002. Borrowings
under the working capital revolving loan accrue interest at a rate (the
weighted average of which was 6.59% at December 23, 1999) determined
pursuant to a formula based on the agent bank's quoted rate and the
Eurodollar Interbank rate.
Of the total $35.0 million of borrowings under the Long-Term Financing
Facility, $25.0 million matures on August 15, 2004, bears interest rates
ranging from 7.34% to 9.18% per annum payable quarterly, and requires
equal semi-annual principal installments based on a ten-year
amortization schedule. The remaining $10.0 million of this indebtedness
matures on May 15, 2006, bears interest at the rate of 9.16% per annum
payable quarterly, and requires equal semi-annual principal installments
based on a ten-year amortization schedule. As of December 23, 1999, the
total principal amount outstanding under the Long-Term Financing
Facility was approximately $18.8 million.
The Additional Long-Term Financing has a maturity date of September 1,
2005 and (i) as to $10.0 million of the principal amount thereof, bears
interest at an annual rate of 8.3% payable semiannually and requires
annual principal payments of approximately $1.4 million each through
maturity, and (ii) as to the other $15.0 million of the principal amount
thereof, bears interest at an annual rate of 9.38% payable semiannually
and requires principal payments of $5.0 million each on September 1,
2003 and September 1, 2004, with a final payment of $5.0 million at
maturity on September 1, 2005. As of December 23, 1999, the total
principal amount outstanding under the Additional Long-Term Financing
was approximately $23.6 million.
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
capital expenditures to $7.5 million annually; and (iii) require that
Jasper B. Sanfilippo (the Company's Chairman of the Board and Chief
Executive Officer) and Mathias A. Valentine (a director and the
Company's President) together with their respective immediate family
members and certain trusts created for the benefit of their respective
sons and daughters, continue to own shares representing the right to
elect a majority of the directors of the Company. In addition, (i) the
Long-Term Financing Facility limits the Company's payment of dividends
to a cumulative amount not to exceed 25% of the Company's cumulative net
income from and after January 1, 1996, (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 Company from
redeeming shares of capital stock.
As of December 23, 1999, the Company had approximately $40.0 million of
available credit under the Bank Credit Facility. Approximately $2.1
million was incurred on capital expenditures for the first twenty-six
weeks of fiscal 2000. No significant capital expenditures are
anticipated for the foreseeable future. The Company believes that cash
flow from operating activities and funds available under the Bank Credit
Facility (assuming the Company maintains compliance with the restrictive
covenants under the Bank Credit Facility currently in effect, or, in the
event of any subsequent non-compliance, is able to obtain any necessary
waivers) will be sufficient to meet working capital requirements and
anticipated capital expenditures for the foreseeable future.
Year 2000
- ---------
As of the date of this report, the Company `s information systems were
not adversely affected by the change to the calendar year 2000. There
were no internal system disruptions and the Company is not aware of any
failures affecting third parties with whom the Company conducts
business. The Company will continue to monitor the situation for any
internal or third party disruptions, but expects none at this time.
Costs incurred by the Company related to Year 2000 issues were not
material.
Factors That May Affect Future Results
- --------------------------------------
(a) Availability of Raw Materials and Market Price Fluctuations
- ----------------------------------------------------------------
The availability and cost of raw materials for the production of the
Company's products, including peanuts, pecans, other nuts, dried fruit
and chocolate, are subject to crop size and yield fluctuations caused by
factors beyond the Company's control, such as weather condition and
plant diseases. 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 agency that certain pesticides, herbicides or other
chemicals used by growers have left harmful residues on portions of the
crop or that the crop has been contaminated by aflatoxin or other
agents. Shortages in the supply of and increases in the prices of nuts
and other raw materials used by the Company in its products could have
an adverse impact on the Company's profitability. Furthermore,
fluctuations in the market prices of nuts, dried fruit or chocolate may
affect the value of the Company's inventory and the Company's
profitability. The Company has a significant inventory of nuts, dried
fruit and chocolate 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 Lifesavers Company (a subsidiary of RJR Nabisco, Inc.). The
Company also competes with other shellers in the industrial market and
with regional processors in the retail and wholesale markets. In order
to maintain or increase its market share, the Company must continue to
price its products competitively, which may lower revenue per unit and
cause declines in gross margin, if the Company is unable to increase
unit volumes as well as reduce its costs.
(c) Fixed Price Commitments
- ---------------------------
From time to time, the Company enters into fixed price commitments with
its customers. However, such commitments typically represent
approximately 10% of the Company's annual net sales and are normally
entered into after the Company's cost to acquire the nut products
necessary to satisfy the fixed price commitment is substantially fixed.
The Company will continue to enter into fixed price commitments with
respect to certain of its nut products prior to fixing its acquisition
cost when, in management's judgment, market or crop harvest conditions
so warrant. To the extent the Company does so, these fixed price
commitments may result in losses. Historically, however, such losses
have generally been offset by gains on other fixed price commitments.
However, there can be no assurance that losses from fixed price
commitments may not have a material adverse effect on the Company's
results of operations.
(d) Federal Regulation of Peanut Prices, Quotas and Poundage Allotments
- -----------------------------------------------------------------------
Peanuts are an important part of the Company's product line.
Approximately 50% of the total pounds of products processed annually by
the Company are peanuts, peanut butter and other products containing
peanuts. The production and marketing of peanuts are regulated by the
USDA under the Agricultural Adjustment Act of 1938 (the "Agricultural
Adjustment Act"). The Agricultural Adjustment Act, and regulations
promulgated thereunder, support the peanut crop by: (i) limiting peanut
imports; (ii) limiting the amount of peanuts that American farmers are
allowed to take to the domestic market each year; and (iii) setting a
minimum price that a sheller must pay for peanuts which may be sold for
domestic consumption. The amount of peanuts that American farmers can
sell each year is determined by the Secretary of Agriculture and is
based upon the prior year's peanut consumption in the United States.
Only peanuts that qualify under the quota may be sold for domestic food
products and seed. The peanut quota for the 1999 crop year is
approximately 1.2 million tons. Peanuts in excess of the quota are
called "additional peanuts" and generally may only be exported or used
domestically for crushing into oil or meal. Current regulations permit
additional peanuts to be domestically processed and exported as finished
goods to any foreign country. The quota support price for the 1999 crop
year is approximately $610 per ton.
The 1996 Farm Bill extended the federal support and subsidy program for
peanuts for seven years. However, there are no assurances that Congress
will not change or eliminate the program prior to its scheduled
expiration. Changes in the federal peanut program could significantly
affect the supply of, and price for, peanuts. While the Company has
successfully operated in a market shaped by the federal peanut program
for many years, the Company believes that it could adapt to a market
without federal regulation if that were to become necessary. However,
the Company has no experience in operating in such a peanut market, and
no assurances can be given that the elimination or modification of the
federal peanut program would not adversely affect the Company's
business. Future changes in import quota limitations or the quota
support price for peanuts at a time when the Company is maintaining a
significant inventory of peanuts or has significant outstanding purchase
commitments could adversely affect the Company's business by lowering
the market value of the peanuts in its inventory or the peanuts which it
is committed to buy. While the Company believes that its ability to use
its raw peanut inventories in its own processing operations gives it
greater protection against these changes than is possessed by certain
competitors whose operations are limited to either shelling or
processing, no assurances can be given that future changes in, or the
elimination of, the federal peanut program or import quotas will not
adversely affect the Company's business.
(e) Financial Covenants
- ------------------------
From time to time, the Company has not complied with certain financial
covenants under its three primary financing facilities. A default under
one of the Company's three primary financing arrangements constitutes a
cross-default under the other primary financing arrangements.
Therefore, in the event of any non-compliance, the Company would be
required to obtain a waiver from each of its three primary lenders for a
single default.
While the Company has always obtained waivers from its primary lenders
for past non-compliance with its financial covenants, and believes it
would be able to obtain similar waivers in the future, there can be no
assurance that, in the event of any non-compliance, the Company's
lenders would always provide such waivers. If the Company were unable
to secure any necessary waivers from its primary lenders, the primary
lenders would have the right to accelerate the balances due under the
financing facilities. If such balances were accelerated, the Company
may be required to borrow money at higher costs. See "Liquidity and
Capital Resources".
Item 3
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Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company has not entered into transactions using derivative financial
instruments. The Company believes that its exposure to market risk
related to its other financial instruments (which are the debt
instruments under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources")
is not material.
PART II. OTHER INFORMATION
- ---------------------------
Item 2 -- Changes in Securities
- -------------------------------
As described above under "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" under Part I of this report, there are restrictive covenants
under the Company's financing facilities which limit the payment of
dividends.
Item 4 -- Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
The only matters submitted to a vote of the Company's Stockholders
during the quarter ended December 23, 1999 were (i) the election of
directors, and (ii) the ratification of the appointment of
PricewaterhouseCoopers LLP by the Company's Board of Directors as the
Company's independent accountants for fiscal 2000. The matters were
submitted to the Company's stockholders in connection with, and voted
upon at the Company's 1999 Annual Meeting of Stockholders, which was
held on October 27, 1999. The information called for by this Item 4
with respect to such matters was previously reported in, and is hereby
answered by reference to the information set forth under, Item 5 -
"Other Information" in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 23, 1999.
Item 6 -- Exhibits and Reports on Form 8-K
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(a) The exhibits filed herewith are listed in the exhibit index which
follows the signature page and immediately precedes the exhibits
filed.
(b) Reports on Form 8-K: There were no Current Reports on Form 8-
K filed during the quarter ended December 23, 1999.
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: February 3, 2000 By: /s/ Gary P. Jensen
--------------------------------
Gary P. Jensen
Executive Vice President Finance
and Chief Financial Officer
EXHIBIT INDEX
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Exhibit
Number Description
- ------- -----------
10.1 Employment Agreement between the Company and Steven G. Taylor
27 Financial Data Schedule