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 March 26, 1998
[ ] 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 __________
As of May 8, 1998, 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
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Operations for
the quarters and thirty-nine weeks ended March 26, 1998 and March
27, 1997 3
Consolidated Balance Sheets as of March 26, 1998
and June 26, 1997 4
Consolidated Statements of Cash Flows for the
Thirty-nine weeks ended March 26, 1998 and March 27, 1997 5
Notes to Consolidated Financial Statements 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
- ---------------------------
Item 2 -- Changes in Securities 14
Item 6 -- Exhibits and Reports on Form 8-K 14
SIGNATURE 15
- ---------
OMITTED FINANCIAL STATEMENTS
- ----------------------------
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 Thirty-nine Weeks Ended
--------------------- -------------------------------
March 26, March 27, March 26, March 27,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $ 58,145 $ 58,525 $248,084 $234,961
Cost of sales 47,279 48,962 203,911 203,673
--------- --------- --------- ---------
Gross profit 10,866 9,563 44,173 31,288
--------- --------- --------- ---------
Selling expenses 6,045 5,448 22,670 18,951
Administrative expenses 2,668 2,493 7,820 8,342
--------- --------- --------- ---------
8,713 7,941 30,490 27,293
--------- --------- --------- ---------
Income from operations 2,153 1,622 13,683 3,995
--------- --------- --------- ---------
Other income (expense):
Interest expense (2,406) (2,019) (6,254) (6,248)
Interest income 10 6 23 16
Gain (loss) on
disposition of
properties 2 -- 2 (3)
Rental income 108 115 380 311
--------- --------- --------- ---------
(2,286) (1,898) (5,849) (5,924)
--------- --------- --------- ---------
Income (loss) before
income taxes (133) (276) 7,834 (1,929)
Income tax
(expense) benefit 27 84 (3,212) 693
--------- --------- --------- ---------
Net income (loss) $ (106) $ (192) $ 4,622 $(1,236)
========= ========= ========= =========
Basic earnings (loss)
per common share $ (0.01) $ (0.02) $ 0.51 $ (0.14)
========= ========= ========= =========
Diluted earnings (loss)
per common share $ (0.01) $ (0.02) $ 0.50 $ (0.14)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
March 26, June 26,
1998 1997
--------- ---------
ASSETS
- ------
CURRENT ASSETS:
Cash $ 255 $ 631
Accounts receivable, net 17,921 25,200
Inventories 110,315 62,988
Deferred income taxes 618 618
Income taxes receivable 935 2,830
Prepaid expenses and other
current assets 3,143 1,419
--------- ---------
TOTAL CURRENT ASSETS 133,187 93,686
--------- ---------
PROPERTIES:
Buildings 55,240 55,211
Machinery and equipment 69,232 66,019
Furniture and leasehold improvements 4,987 4,956
Vehicles 4,298 4,190
--------- ---------
133,757 130,376
Less: Accumulated depreciation 59,287 53,749
--------- ---------
74,470 76,627
Land 1,892 1,892
--------- ---------
76,362 78,519
--------- ---------
OTHER ASSETS:
Goodwill and other intangibles 7,968 8,667
Miscellaneous 7,331 6,545
--------- ---------
15,299 15,212
--------- ---------
$ 224,848 $ 187,417
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ 51,996 $ 19,034
Current maturities 4,611 4,937
Accounts payable 15,138 11,193
Accrued expenses 8,295 8,656
--------- ---------
TOTAL CURRENT LIABILITIES 80,040 43,820
--------- ---------
LONG-TERM DEBT 65,450 68,862
--------- ---------
LONG-TERM DEFERRED INCOME TAXES 1,664 1,664
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Class A Common Stock 37 37
Common Stock 56 56
Capital in excess of par value 57,193 57,191
Retained earnings 21,612 16,991
Treasury stock (1,204) (1,204)
--------- ---------
77,694 73,071
--------- ---------
$ 224,848 $ 187,417
========= =========
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 Thirty-nine Weeks Ended
-------------------------------
March 26, March 27,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 4,622 $ (1,236)
Adjustments:
Depreciation and amortization 6,261 6,641
Gain on disposition of properties (2) (1)
Deferred income taxes -- 390
Change in current assets
and current liabilities:
Accounts receivable, net 7,279 (128)
Inventories (47,327) 3,928
Prepaid expenses and other current assets (1,724) (827)
Accounts payable 3,945 (1,111)
Accrued expenses (361) (240)
Income taxes payable/receivable 1,895 (603)
--------- ---------
Net cash provided by (used in)
operating activities (25,412) 6,813
--------- ---------
Cash flows from investing activities:
Acquisition of properties (3,260) (4,789)
Proceeds from disposition of properties 4 3
Other (822) (1,780)
--------- ---------
Net cash used in investing activities (4,078) (6,566)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on notes payable 32,962 3,276
Principal borrowings of long-term debt -- 133
Principal payments on long-term debt (3,848) (3,595)
--------- ---------
Net cash provided by (used in)
financing activities 29,114 (183)
--------- ---------
Net increase (decrease) in cash (376) 64
Cash:
Beginning of period 631 276
--------- ---------
End of period $ 255 $ 340
========= =========
Supplemental disclosures:
Interest paid $ 6,558 $ 6,568
Taxes paid 3,315 133
Supplemental disclosure of
noncash investing and financing activities:
Capital lease obligation incurred 110 79
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
NOTE 1 - BASIS OF CONSOLIDATION
- -------------------------------
The consolidated financial statements include the accounts of
John B. Sanfilippo & Son, Inc. ("JBSS") and its wholly owned
subsidiaries (collectively, with JBSS, the "Company"), including
Sunshine Nut Co., Inc. ("Sunshine").
NOTE 2 - INVENTORIES
- --------------------
Inventories are stated at the lower of cost (first in, first out)
or market. Inventories consist of the following:
March 26, June 26,
1998 1997
--------- --------
Raw material and supplies $ 66,670 $ 29,713
Work-in-process and finished goods 43,645 33,275
--------- --------
$110,315 $ 62,988
========= ========
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. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" which is
effective for all reporting periods ending after December 15,
1997, and requires restatement for all prior periods presented.
The following tables present the required disclosures under SFAS
No. 128:
For the Quarter Ended March 26, 1998 For the Quarter Ended March 27, 1997
------------------------------------ ------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Net Income (loss) $(106) $(192)
Basic Earnings Per Share
Income available to common
Stockholders (106) 9,147,699 $ (0.01) (192) 9,147,666 $ (0.02)
======== ========
Effect of Dilutive Securities
Stock options -- --
Diluted Earnings Per Share
Income available to common
Stockholders $(106) 9,147,699 $ (0.01) $(192) 9,147,666 $ (0.02)
====== ========= ======== ====== ========== ========
For the Thirty-nine Weeks Ended For the Thirty-nine Weeks Ended
March 26, 1998 March 27, 1997
----------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Net Income (loss) $4,622 $(1,236)
Basic Earnings (Loss) Per Share
Income available to common
Stockholders 4,622 9,147,677 $ 0.51 (1,236) 9,147,666 $ (0.14)
======= ========
Effect of Dilutive Securities
Stock options 23,516
Diluted Earnings Per Share
Income available to common
Stockholders $4,622 9,171,193 $ 0.50 $(1,236) 9,147,666 $ (0.14)
====== ========= ======= ======== ========= ========
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, or because the options
were anti-dilutive due to a net loss for the period:
Weighted-Average
Number of Options Exercise Price
----------------- ----------------
Quarter Ended March 26, 1998 400,009 $ 10.24
Quarter Ended March 27, 1997 354,153 $ 11.66
Thirty-nine Weeks Ended March 26, 1998 272,538 $ 12.13
Thirty-nine Weeks Ended March 27, 1997 376,688 $ 11.67
NOTE 4 - MANAGEMENT'S STATEMENT
- -------------------------------
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 transition period
ended June 26, 1997 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 Transition Report on Form 10-K
for the transition period from January 1, 1997 to June 26, 1997.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On April 30, 1997 the Board of Directors of JBSS voted to, upon
the approval of its lenders, change the Company's fiscal year from
a calendar year end to a fiscal year that ends on the final
Thursday of June of each year. A Transition Report on Form 10-K
was filed for the transition period from January 1, 1997 to June
26, 1997. This Quarterly Report on Form 10-Q is for the Company's
third quarter for the fiscal year ending June 25, 1998.
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 March 26, 1998, the Company's inventories
totaled approximately $110.3 million compared to approximately
$63.0 million at June 26, 1997, and approximately $79.3 million at
March 27, 1997. The increase in inventories at March 26, 1998
when compared to March 27, 1997 is primarily due to increased
levels of purchases for certain nuts, especially walnuts and
pecans. See "Factors That May Affect Future Results --
Availability of Raw Materials and Market Price Fluctuations."
RESULTS OF OPERATIONS
NET SALES. Net sales decreased slightly from approximately $58.5
million for the quarter ended March 27, 1997 to approximately
$58.1 million in the third quarter of fiscal 1998, a decrease of
approximately $0.4 million, or 0.6%. The slight decrease was due
primarily to lower unit volume sales to industrial customers,
which was partially offset by an increase in unit volume sales to
retail customers. For the thirty-nine weeks ended March 26, 1998,
net sales totaled approximately $248.1 million compared to
approximately $235.0 million for the thirty-nine weeks ended March
27, 1997, representing an increase of approximately $13.1 million,
or 5.6%. This increase in net sales was due primarily to an
increase in unit volume sales to the Company's retail and food
service customers. The increase in net sales to retail customers
was due primarily to increased unit volume sales to existing
customers and the addition of several new customers. The increase
in net sales to food service customers was due primarily to
additional unit volume sales to airline customers.
GROSS PROFIT. Gross profit margin increased from 16.3% for the
quarter ended March 27, 1997 to 18.7% in the third quarter of
fiscal 1998. For the thirty-nine weeks ended March 26, 1998, the
gross profit margin increased to 17.8% compared to 13.3% for the
thirty-nine weeks ended March 27, 1997. The increase in gross
profit margin for the thirty-nine weeks ended March 26, 1998 was
due primarily to (i) a $2.6 million write-down of pecan inventory
to market value as of September 26, 1996, and corresponding low
margins on pecan sales for the quarters ended December 31, 1996
and March 27, 1997, (ii) declines in the market price for
processed pecan meats relative to the cost of pecan inventory
throughout the quarter ended September 26, 1996, and (iii)
increases in net sales as a percentage of total sales to retail
customers, which generally carry higher margins than sales to the
Company's other customers, during the thirty-nine weeks ended
March 26, 1998 compared to the thirty-nine weeks ended March 27,
1997. The increase in gross profit margin for the quarter ended
March 26, 1998 was due primarily to (i) low margins on pecan sales
for the quarter ended March 27, 1997, as discussed above, and (ii)
increases in net sales as a percentage of total sales to retail
customers, which generally carry higher margins than sales to the
Company's other customers, during the quarter ended March 26, 1998
compared to the quarter ended March 27, 1997.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales increased from 13.6% for the
quarter ended March 27, 1997 to 15.0% in the third quarter of
fiscal 1998. Selling expenses as a percentage of net sales
increased from 9.3% for the quarter ended March 27, 1997 to 10.4%
in the third quarter of fiscal 1998. Administrative expenses as a
percentage of net sales increased from 4.3% for the quarter ended
March 27, 1997 to 4.6% in the third quarter of fiscal 1998.
Selling and administrative expenses as a percentage of net sales
for the thirty-nine weeks ended March 26, 1998 increased to 12.3%
from 11.6% for the thirty-nine weeks ended March 27, 1997.
Selling expenses as a percentage of net sales for the thirty-nine
weeks ended March 26, 1998 increased to 9.1% from 8.1% for the
thirty-nine weeks ended March 27, 1997. Administrative expenses as
a percentage of net sales for the thirty-nine weeks ended March
26, 1998 decreased to 3.2% from 3.6% for the thirty-nine weeks
ended March 27, 1997. The increase in selling expenses as a
percentage of net sales for both the quarter and year-to-date
periods was due primarily to higher promotional allowances to
support the growth in the Company's sales to retail customers.
The decrease in administrative expenses as a percentage of net
sales for the year-to-date period was due primarily to the
Company's efforts to control administrative expenses coupled with
an increasing revenue base. The increase in administrative
expenses as a percentage of net sales for the quarterly period was
due primarily to an increase in expenses related to compensation
programs and a slightly smaller revenue base for this quarter
compared to the same period in fiscal 1997.
INCOME FROM OPERATIONS. Due to the factors discussed above,
income from operations increased from approximately $1.6 million,
or 2.8% of net sales, for the quarter ended March 27, 1997 to
approximately $2.2 million, or 3.7% of net sales, in the third
quarter of fiscal 1998. For the thirty-nine weeks ended March 26,
1998, income from operations increased to approximately $13.7
million, or 5.5% of net sales, from approximately $4.0 million, or
1.7% of net sales, for the thirty-nine weeks ended March 27, 1997.
INTEREST EXPENSE. Interest expense increased from approximately
$2.0 million for the quarter ended March 27, 1997 to approximately
$2.4 million in the third quarter of fiscal 1998. For the thirty-
nine weeks ended March 26, 1998, interest expense was
approximately $6.3 million, nearly the same as the amount for the
thirty-nine weeks ended March 27, 1997. The increase in
quarterly interest expense was due primarily to increased working
capital requirements related to a higher level of inventory
purchases.
INCOME TAXES. The Company recorded an income tax benefit of
approximately $27 thousand, or 20.3% of the loss before income
taxes, for the third quarter of fiscal 1998 and an income tax
expense of approximately $3.2 million, or 41.07% of income before
income taxes, for the thirty-nine weeks ended March 26, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of fiscal 1998, 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 used in operating activities was approximately $25.4
million for the thirty-nine weeks ended March 26, 1998 compared to
net cash provided by operating activities of approximately $6.8
million for the thirty-nine weeks ended March 27, 1997. The
significant decrease in cash provided by operating activities was
due primarily to increased purchases of certain nuts, especially
walnuts and pecans. The largest component of net cash used in
operating activities for the thirty-nine weeks ended March 26,
1998 was an increase of approximately $47.3 million in
inventories. During the thirty-nine weeks ended March 26, 1998,
the Company spent approximately $3.3 million in capital
expenditures, compared to approximately $4.8 million for the
thirty-nine weeks ended March 27, 1997, and repaid approximately
$3.8 million of long-term debt, compared to approximately $3.6
million for the thirty-nine weeks ended March 27, 1997.
The Bank Credit Facility was comprised of (i) a working capital
revolving loan which provided for working capital financing of up
to approximately $51.7 million, in the aggregate, and matured on
March 27, 1998, and (ii) an $8.3 million letter of credit to
secure the industrial development bonds which matures on June 1,
2002. Borrowings under the working capital revolving loan accrued
interest at a rate (the weighted average of which was 6.98% at
March 26, 1998) determined pursuant to a formula based on the
agent bank's quoted rate, the Federal Funds Rate and the
Eurodollar Interbank rate. On March 27, 1998 the Bank Credit
Facility was amended to extend the facility through April 30,
1998.
On March 31,1998, the Company entered into a new unsecured credit
facility with certain banks, totaling $70.0 million (the
"Replacement Credit Facility"), which replaced the Bank Credit
Facility. The Replacement Credit Facility is comprised of (i) a
working capital revolving loan which provides for working capital
financing of up to approximately $61.7 million, in the aggregate,
and matures on March 31, 2001, and (ii) an $8.3 million letter of
credit to secure the industrial development bonds which matures on
June 1, 2002. Borrowings under the working capital revolving
loan accrue interest at a rate determined pursuant to a formula
based on the agent bank's reference rate and the Eurodollar 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. The Long-Term Financing Facility was
amended on March 31, 1998 to, among other things, convert it from
a secured to an unsecured credit facility and conform it to
certain terms of the Replacement Credit Facility. As of March 26,
1998, the total principal amount outstanding under the Long-Term
Financing Facility was $24.8 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, beginning on September 1, 1999, 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. The Additional
Long-Term Financing was amended on March 31, 1998 to, among other
things, convert it from a secured to an unsecured credit facility
and conform it to certain terms of the Replacement Credit
Facility. As of March 26, 1998, the total principal amount
outstanding under the Additional Long-Term Financing was $25.0
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 Replacement 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 March 26, 1998, the Company had approximately $2.9 million
of available credit under the Bank Credit Facility. Approximately
$3.3 million was incurred on capital expenditures for the thirty-
nine weeks ended March 26, 1998. No significant capital
expenditures are anticipated for fiscal 1998. The Company believes
that cash flow from operating activities and funds available under
the Replacement Credit Facility will be sufficient to meet working
capital requirements and anticipated capital expenditures for the
foreseeable future.
The Financial Accounting Standards Board ("FASB") issued Statement
128, "Earnings Per Share", to be effective December 15, 1997.
This recently issued standard will impact the preparation of, but
not materially affect, the financial statements of the Company.
Furthermore, the adoption of FASB 128 will not have a material
effect on the Company's financial position or its results of
operations.
The Company has reviewed its existing computer software programs and
operating systems to determine if it has software applications that
contain source codes that are unable to appropriately
interpret the upcoming calendar year 2000. As a result of such review,
the Company does not believe that such modifications or adjustments
necessary for calendar year 2000 will affect the Company in any
material respect.
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 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. For example, during the quarter ended
September 26, 1996 the Company was required to record a $2.6
million charge against its earnings to reflect the impact of a
lower cost or market adjustment of its pecan inventory. 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" and "Results of
Operations - Gross Profit".
(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
10% or less 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 in 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 1998 calendar 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 1998 calendar year is $615 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.
The North American Free Trade Agreement ("NAFTA"), effective
January 1, 1994, committed the United States, Mexico and Canada to
the elimination of quantitative restrictions and tariffs on the
cross-border movement of industrial and agricultural products.
Under NAFTA, United States import restrictions on Mexican shelled
and inshell peanuts were replaced by a tariff rate quota,
initially set at 3,377 tons and which increases by a 3% compound
rate each year until 2001. Shipments within the quota's
parameters enter the U.S. duty-free, while imports above-quota
parameters from Mexico face tariffs. The tariffs are being phased
out gradually and are scheduled to be eliminated by 2001.
The Uruguay Round Agreement of the General Agreement on Trade and
Tariffs ("GATT") took effect on July 1, 1995. Under GATT, the
United States must allow peanut imports to grow to 5% of domestic
consumption by 2001, and import quotas on peanuts were replaced by
high ad valorem tariffs, which must be reduced annually pursuant
to the terms of GATT. Also under GATT, the United States may
continue to limit imports of peanut butter but is permitted to
establish a tariff rate quota for peanut butter imports based on
1993 import levels. Peanut butter imports above the quota are
subject to an over-quota ad valorem tariff which also must be
reduced annually pursuant to the terms of GATT.
Although NAFTA and GATT do not directly affect the federal peanut
program, the federal government may, in future legislative
initiatives, reconsider the federal peanut program in light of
these agreements. The Company does not believe that NAFTA and
GATT have had a material impact on the Company's business or will
have a material impact on the Company's business in the near term.
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 6 -- Exhibits and Reports on Form 8-K
- ------------------------------------------
(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 March 26, 1998.
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: May 8, 1998 By: /s/ Gary P. Jensen
--------------------
Gary P. Jensen
Executive Vice President, Finance
and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
- -------- ----------------------
2 None
3.1 Restated Certificate of Incorporation of Registrant(2)
3.2 Certificate of Correction to Restated Certificate(2)
3.3 Bylaws of Registrant(1)
4.1 Specimen Common Stock Certificate(3)
4.2 Specimen Class A Common Stock Certificate(3)
4.3 Second Amended and Restated Note Agreement by and between the
Registrant and The Prudential Insurance Company of America
("Prudential") dated January 24, 1997 (the "Long-Term Financing
Facility")(19)
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(9)
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(10)
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(10)
4.11 Amended and Restated Guaranty Agreement dated as of October 19,
1993 by Sunshine in favor of Prudential(8)
4.12 Amendment to the Second Amended and Restated Note Agreement dated
May 21, 1997 by and among Prudential, Sunshine and the Registrant(20)
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").
4.14 Guaranty Agreement dated as of March 31, 1998 by JBS
International, Inc. ("JBSI") in favor of Prudential.
4.15 $1.8 million Promissory Note dated March 31, 1989 evidencing a
loan by Cohen Financial Corporation to LaSalle National Bank ("LNB"),
as Trustee under Trust Agreement dated March 17, 1989 and known as
Trust No. 114243(12)
4.16 Modification Agreement dated as of September 29, 1992 by and
among LaSalle National Trust, N.A. ("LaSalle Trust"), a national
banking association, not personally but as Successor Trustee to LNB
under Trust Agreement dated March 17, 1989 known as Trust
Number 114243; the Registrant; Jasper B. Sanfilippo and Mathias A.
Valentine; and Mutual Trust Life Insurance Company(5)
4.17 Note Purchase Agreement dated as of August 30, 1995 between the
Registrant and Teachers Insurance and Annuity Association of America
("Teachers")(15)
4.18 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(15)
4.19 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(15)
4.20 Guaranty Agreement dated as of August 30, 1995 by Sunshine in
favor of Teachers (Senior Notes)(15)
4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in
favor of Teachers (Senior Subordinated Notes)(15)
4.21 Amendment, Consent and Waiver, dated as of March 27, 1996, by and
among Teachers, Sunshine and the Registrant(17)
4.22 Amendment No. 2 to Note Purchase Agreement dated as of January
24, 1997 by and among Teachers, Sunshine and the Registrant(19)
4.23 Amendment to Note Purchase Agreement dated May 19, 1997 by and
among Teachers, Sunshine and the Registrant(20)
4.24 Amendment No. 3 to Note Purchase Agreement dated as of March 31,
1998 by and among Teachers, Sunshine, Quantz and the Registrant.
4.25 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of
Teachers (Senior Notes).
4.26 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of
Teachers (Senior Subordinated Notes).
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 dated as of October 1, 1991 between
JesCorp, Inc. and LNB, as Trustee under Trust Agreement dated March 17,
1989 and known as Trust No. 114243(14)
10.3 Industrial Building Lease (the "Touhy Avenue Lease") dated
November 1, 1985 between Registrant and LNB, as Trustee under Trust
Agreement dated September 20, 1966 and known as Trust No. 34837(11)
10.4 First Amendment to the Touhy Avenue Lease dated June 1, 1987(11)
10.5 Second Amendment to the Touhy Avenue Lease dated December 14,
1990(11)
10.6 Third Amendment to the Touhy Avenue Lease dated September 1,
1991(16)
10.7 Industrial Real Estate Lease (the "Lemon Avenue Lease") dated
May 7, 1991 between Registrant, Majestic Realty Co. and Patrician
Associates, Inc(1)
10.8 First Amendment to the Lemon Avenue Lease dated January 10,
1996(17)
10.9 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 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)
10.10 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)
10.11 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)
10.12 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(12)
10.13 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(12)
10.14 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(12)
10.15 Secured Promissory Note in the amount of $6,223,321.81 dated Sep-
tember 29, 1992 executed by Arthur/Busse Limited Partnership in favor
of the Registrant(5)
10.16 Tax Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
10.17 Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
10.18 The Registrant's 1991 Stock Option Plan(1)
10.19 First Amendment to the Registrant's 1991 Stock Option Plan(4)
10.20 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, and Collateral
Assignment from John E. Sanfilippo as trustee of the Jasper and Marian
Sanfilippo Irrevocable Trust, dated September 23, 1990, as assignor, to
Registrant, as assignee(7)
10.21 John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement
Number Two among Michael J. Valentine, as trustee of the Valentine Life
Insurance Trust, dated May 15, 1991, Mathias Valentine, Mary Valentine
and Registrant, and Collateral Assignment from Michael J. Valentine, as
trustee of the Valentine Life Insurance Trust, dated May 15, 1991, as
assignor, and Registrant, as assignee(7)
10.22 Certain documents relating to Reverse Split-Dollar Insurance
Agreement between Sunshine and John Charles Taylor dated November 24,
1987(12)
10.23 Outsource Agreement between the Registrant and Preferred
Products, Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT
REQUESTED](12)
10.24 Letter Agreement between the Registrant and Preferred Products,
Inc., dated February 24, 1995, amending the Outsource Agreement dated
January 19, 1994 [CONFIDENTIAL TREATMENT REQUESTED](12)
10.25 The Registrant's 1995 Equity Incentive Plan(13)
10.26 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")(16)
10.27 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 (16)
10.28 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(16)
10.29 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(16)
10.30 Credit Agreement among the Registrant, Bank of America Illinois
("BAI") as agent, NCB, The Northern Trust Company ("NTC") and BAI,
dated as of March 27, 1996(17)
10.31 Reimbursement Agreement between the Registrant and BAI, dated as
of March 27, 1996(17)
10.32 Guaranty Agreement dated as March 27, 1996 by Sunshine in favor
of BAI as agent on behalf of NCB, NTC and BAI(17)
10.33 Amendment No. 1 and Waiver to Credit Agreement dated as of August
1, 1996 by and among the Registrant, BAI, NCB and NTC(18)
10.34 Amendment No. 2 and Waiver to Credit Agreement dated as of
October 30, 1996 by and among the Registrant, BAI, NCB and NTC(18)
10.35 Amendment No. 3 to Credit Agreement dated as of January 24, 1997
by and among the Registrant, BAI, NCB, and NTC(19)
10.36 Amendment No. 5 to Credit Agreement dated as of June 2, 1997 by
and among the Registrant, BAI, NCB, and NTC(20)
10.37 Amendment No. 7 to Credit Agreement dated as of March 27, 1998 by
and among the Registrant, BAI, NCB, and NTC
10.38 Employment Agreement by and between Sunshine and John C. Taylor
dated June 17, 1992(19)
10.39 Employment Agreement by and between Sunshine and Steven G. Taylor
dated June 17, 1992(19)
10.40 Credit Agreement dated as of March 31, 1998 among the Registrant,
Sunshine, Quantz, JBSI, U.S. Bancorp Ag Credit, Inc. ("USB") as Agent,
Keybank National Association ("KNA"), and LNB.
10.41 Revolving Credit Note in the principal amount of $35.0 million
executed by the Registrant, Sunshine, Quantz and JBSI in favor of USB,
dated as of March 31, 1998.
10.42 Revolving Credit Note in the principal amount of $15.0 million
executed by the Registrant, Sunshine, Quantz and JBSI in favor of KNA,
dated as of March 31, 1998.
10.43 Revolving Credit Note in the principal amount of $20.0 million
executed by the Registrant, Sunshine, Quantz and JBSI in favor of LSB,
dated as of March 31, 1998.
11 None
15 None
17 None
18 None
24-26 None
27 Financial Data Schedule
99 None
- -------------------------------------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-43353, as filed
with the Commission on October 15, 1991 (Commission File No.
0-19681).
(2) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991
(Commission File No. 0-19681).
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Amendment No. 3), Registration No. 33-
43353, as filed with the Commission on November 25, 1991
(Commission File No. 0-19681).
(4) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended June 25, 1992
(Commission File No. 0-19681).
(5) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 29, 1992 (Commission File No. 0-
19681).
(6) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated January 15, 1993 (Commission File No. 0-
19681).
(7) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-59366, as filed
with the Commission on March 11, 1993 (Commission File No. 0-
19681).
(8) 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).
(9) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 15, 1993 (Commission file No. 0-
19681).
(10) Incorporated by reference to the Registrant's Current
Report and Form 8-K dated June 23, 1994 (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,
1993 (Commission File No. 0-19681).
(12) 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).
(13) 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).
(14) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the second quarter ended June 29, 1995
(Commission File No. 0-19681).
(15) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 12, 1995 (Commission File
No. 0-19681).
(16) 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).
(17) 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).
(18) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated January 24, 1997
(Commission file No. 0-19681).
(19) Incorporated by reference to the Registrant's Annual
Report Form 10-K for the fiscal year ended December 31, 1996
(Commission file No. 0-19681)
(20) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated May 21, 1997
(Commission file No. 0-19681)
John B. Sanfilippo & Son, Inc. will furnish any of the above
exhibits to its stockholders upon written request addressed to the
Secretary at the address given on the cover page of this Form 10-
Q. The charge for furnishing copies of the exhibits is $.25 per
page, plus postage.