<PAGE> 1
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
<S> <C>
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 26, 1996
[ ] 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, including Zip Code)
(847) 593-2300
(Registrant's Telephone Number, including Area Code)
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 November 11, 1996, 5,460,240 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.
</TABLE>
<PAGE> 2
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 September 26, 1996 and
September 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets as of September 26, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
thirty-nine weeks ended September 26, 1996 and
September 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 2 -- Changes in Securities. . . . . . . . . . . . . . . . . . . . . .17
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .17
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
OMITTED FINANCIAL STATEMENTS
None
<PAGE> 3
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)
<TABLE>
<CAPTION>
For The For The Thirty-Nine
Quarter Ended Weeks Ended
-------------- -------------------
September 26, September 28, September 26, September 28,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . $ 70,373 $ 67,048 $ 188,341 $ 172,955
Cost of sales. . . . . . . . . . . . 64,198 54,959 164,691 140,929
------------- ------------- ------------- -------------
Gross profit . . . . . . . . . . . . 6,175 12,089 23,650 32,026
------------- ------------- ------------- -------------
Selling expenses . . . . . . . . . . 5,945 4,975 16,351 14,571
Administrative expenses. . . . . . . 2,528 2,479 8,172 7,214
------------- ------------- ------------- -------------
8,473 7,454 24,523 21,785
------------- ------------- ------------- -------------
Income (loss) from operations. . . . (2,298) 4,635 (873) 10,241
------------- ------------- ------------- -------------
Other income (expense):
Interest expense. . . . . . . . (2,073) (1,779) (6,895) (5,641)
Interest income . . . . . . . . 5 28 22 173
Gain on disposition of properties 0 0 7 22
Rental income . . . . . . . . . 93 90 308 267
------------- ------------- ------------- -------------
(1,975) (1,661) (6,558) (5,179)
------------- ------------- ------------- -------------
Income (loss) before income taxes. . (4,273) 2,974 (7,431) 5,062
Income tax (expense) benefit . . . . 1,683 (1,190) 2,894 (2,025)
------------- ------------- ------------- -------------
Net income (loss). . . . . . . . . . $ (2,590) $ 1,784 $ (4,537) $ 3,037
============= ============= ============= =============
Earnings (loss) per common share . . $ (0.28) $ 0.20 $ (0.49) $ 0.34
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 26, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . $ 105 $ 408
Accounts receivable, net. . . . 24,010 27,789
Inventories . . . . . . . . . . 76,071 96,360
Stockholder note receivable . . --- 354
Deferred income taxes . . . . . 762 762
Prepaid expenses and other current assets 4,784 682
------------- ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . 105,732 126,355
------------- ------------
PROPERTIES:
Buildings . . . . . . . . . . . . . . . 54,939 47,831
Machinery and equipment . . . . . . . . 60,513 52,825
Furniture and leasehold improvements. . 4,921 4,813
Vehicles. . . . . . . . . . . . . . . . 4,031 3,494
Construction in progress. . . . . . . . 1,314 8,977
------------- ------------
125,718 117,940
Less: Accumulated depreciation . . . . 48,122 42,854
------------- ------------
77,596 75,086
Land. . . . . . . . . . . . . . . . . . 1,945 1,945
------------- ------------
79,541 77,031
------------- ------------
OTHER ASSETS:
Goodwill and other intangibles. . . . . 8,897 9,450
Miscellaneous . . . . . . . . . . . . . 6,375 6,166
------------- ------------
15,272 15,616
------------- ------------
$ 200,545 $ 219,002
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . $ 24,371 $ 28,582
Current maturities. . . . . . . . . . . 12,713 3,586
Accounts payable. . . . . . . . . . . . 19,639 26,727
Accrued expenses. . . . . . . . . . . . 8,044 8,668
Income taxes payable. . . . . . . . . . --- 644
------------- ------------
TOTAL CURRENT LIABILITIES . . . . . . . . 64,767 68,207
------------- ------------
LONG-TERM DEBT. . . . . . . . . . . . . . 64,202 74,681
------------- ------------
LONG-TERM DEFERRED INCOME TAXES . . . . . 503 503
------------- ------------
STOCKHOLDERS' EQUITY
Preferred Stock . . . . . . . . . . . . --- ---
Class A Common Stock. . . . . . . . . . 37 37
Common Stock. . . . . . . . . . . . . . 56 56
Capital in excess of par value. . . . . 57,191 57,191
Retained earnings . . . . . . . . . . . 14,993 19,531
Treasury stock. . . . . . . . . . . . . (1,204) (1,204)
------------- ------------
71,073 75,611
------------- ------------
$ 200,545 $ 219,002
============= ============
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
JOHN B. SANFILIPPO & SON, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For The Thirty-Nine
Weeks Ended
-------------------
September 26, September 28,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $ (4,537) $ 3,037
Adjustments:
Depreciation and amortization. . . . . . . . . . . 6,249 5,508
Gain on disposition of properties. . . . . . . . (7) (22)
Change in current assets and current liabilities:
Accounts receivable, net . . . . . . . . . . . 3,779 (2,793)
Inventories. . . . . . . . . . . . . . . . . . 20,289 9,689
Prepaid expenses and other
current assets . . . . . . . . . . . . . . . (4,102) 1,061
Accounts payable . . . . . . . . . . . . . . . (7,088) (3,489)
Accrued expenses . . . . . . . . . . . . . . . (624) 2,726
Income taxes payable . . . . . . . . . . . . . (644) 691
------------- ------------
Net cash provided by operating activities. . . . . 13,315 16,408
------------- ------------
Cash flows from investing activities:
Acquisition of properties. . . . . . . . . . . . . (6,562) (7,326)
Proceeds from disposition of properties. . . . . . 10 50
Stockholder note receivable. . . . . . . . . . . . 354 91
Note receivable from affiliate, net of
repayments . . . . . . . . . . . . . . . . . . . --- 5,790
Other. . . . . . . . . . . . . . . . . . . . . . . (603) (3,550)
Payments to acquire Machine Design, net of cash
received . . . . . . . . . . . . . . . . . . . . --- (31)
------------- ------------
Net cash (used in) investing activities. . . . . . (6,801) (4,976)
------------- ------------
Cash flows from financing activities:
Borrowings on notes payable. . . . . . . . . . . . 53,309 50,436
Repayments on notes payable. . . . . . . . . . . . (57,524) (83,648)
Proceeds from long-term debt . . . . . . . . . . . 191 27,500
Principal payments on long-term debt . . . . . . . (2,793) (5,354)
Proceeds from the issuance of stock. . . . . . . . --- 210
------------- ------------
Net cash (used in) financing activities. . . . . . (6,817) (10,856)
------------- ------------
Net increase (decrease) in cash. . . . . . . . . . (303) 576
Cash:
Beginning of period. . . . . . . . . . . . . . . . 408 515
------------- ------------
End of period. . . . . . . . . . . . . . . . . . . $ 105 $ 1,091
============= ============
Supplemental Disclosures:
Interest paid. . . . . . . . . . . . . . . . . . . $ 7,176 $ 5,405
Taxes paid . . . . . . . . . . . . . . . . . . . . 1,185 1,675
Supplemental Disclosure of noncash investing and
financing activities:
Acquisition of Fisher Nut properties payable
pursuant to a promissory note. . . . . . . . 1,250 ---
Acquisition of Machine Design. . . . . . . . . --- 1,520
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
Note 1 - Notes Payable
- -----------------------
On March 27, 1996, John B. Sanfilippo & Son, Inc. (the "Company" or
"JBS") entered into a new unsecured credit facility, with certain banks,
totalling $60,000 (the "Bank Credit Facility"). The Bank Credit Facility is
comprised of (i) a working capital revolving loan which (as described below,
depending on the time of year) provides for working capital financing of up
to approximately $51,740, in the aggregate, and matures on March 27,
1998, and (ii) an $8,260 standby letter of credit which matures on June 1,
1997. The Bank Credit Facility replaced the Company's prior unsecured credit
facility which was in effect until the Bank Credit Facility was entered into.
Borrowings under the working capital revolving loan accrue interest at a
rate (the weighted average of which was 6.79% at September 26, 1996)
determined pursuant to a formula based on the agent bank's quoted rate,
the Federal Funds Rate and the Eurodollar Interbank Rate.
The standby letter of credit replaced a prior letter of credit securing
certain industrial development bonds which financed the original acquisition,
construction, and equipping of the Company's Bainbridge, Georgia facility.
In addition to the Bank Credit Facility, the Company has entered into (i) an
unsecured long-term financing facility totalling $35.0 million (the "Long-Term
Financing Facility"), and (ii) an unsecured long-term financing arrangement
totalling $25.0 million (the "Additional Long-Term Financing"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
The Bank Credit Facility, as amended, includes certain restrictive
covenants that, among other things; (i) require the Company to maintain
a minimum tangible net worth; (ii) comply with specified ratios; (iii) limit
1996 and 1997 annual capital expenditures to $8,200 (excluding
expenditures related to the Fisher Nut business) and $7,200, respectively;
(iv) restrict dividends to 25% of cumulative net earnings from January 1,
1996; and (v) require that certain officers and stockholders of the Company,
together with their respective immediate family members and certain trusts
created for the benefit of their respective children, continue to own shares
representing the right to elect a majority of the directors of the Company.
As of the end of the second quarter of 1996, the Company was not in
compliance with the fixed charge coverage ratio covenants under the Bank
Credit Facility and the Additional Long-Term Financing. In addition, on
August 1, 1996 the Company violated the "clean down covenant" under the
Bank Credit Facility, which requires that the aggregate amount outstanding
under the Bank Credit Facility from August 1 through September 30 of each
year not exceed $25,000. As of August 1, 1996, the Company's aggregate
borrowings under the Bank Credit Facility totalled approximately $35,000.
On September 9, 1996, the Company entered into Amendment No. 1 and
Waiver to Credit Agreement ("Amendment No. 1") under the Bank Credit
Facility. Amendment No. 1 waived the Company's failure to comply with
the fixed charge coverage ratio covenant for the quarter ended June 27,
1996. Amendment No. 1 also amended the Bank Credit Facility's "clean
down covenant" to increase the aggregate amount of indebtedness
permitted to be outstanding from August 1, 1996 through September 30,
1996 from $25,000 to $40,000. Amendment No. 1 also, among other
things, (a) reduced the capital expenditure limitation (excluding
expenditures related to the Fisher Nut business) to $8,200 from $10,000
for 1996, and (b) increased the interest rate under the Bank Credit Facility
by .50%. The Company also received from its lender under (i) the
Additional Long-Term Financing a waiver of the above-described fixed
charge coverage ratio violation and any cross-default under the Additional
Long-Term Financing caused by the above-described violations under the
Bank Credit Facility, and (ii) the Long-Term Financing Facility a waiver of
the cross-default under that facility caused by the above-described
violations under the Bank Credit Facility and the Additional Long-Term
Financing.
As of the end of the third quarter of 1996, the Company was not in
compliance with the fixed charge coverage ratio covenants under the Bank
Credit Facility, the Long-Term Financing Facility and the Additional Long-
Term Financing. The Company entered into Amendment No. 2 and Waiver to
Credit Agreement ("Amendment No. 2") as of October 30, 1996 under the Bank
Credit Facility. Amendment No. 2 waived the Company's failure to comply with
the fixed charge coverage ratio covenant for the quarter ended September 26,
1996. Amendment No. 2 also requires the Company to amend the Bank Credit
Facility to, among other things: (i) convert the fixed charge coverage ratio
covenant from a most recent four quarter calculation to an individual quarter
<PAGE> 7
calculation, beginning with the quarter ending December 31, 1996 and
continuing for each of the next four quarters; (ii) decrease the annual
capital expenditure limitation to $7,200 from $10,000 for 1997; (iii) increase
the aggregate amount outstanding limitation under the Bank Credit Facility's
"clean down covenant" to $40,000 from $25,000, for the period from August 1,
1997 through September 30, 1997; and (iv) grant, by November 27, 1996, (a) a
first priority perfected security interest and lien in substantially all of
the Company's assets to secure the Company's obligations under the Bank Credit
Facility, the Long-Term Financing Facility and the senior portion of the
Additional Long-Term Financing; and (b) a junior security interest in the
Company's assets to secure the obligations under the subordinated portion of
the Additional Long-Term Financing. The Company also received from the lender
under (i) the Additional Long-Term Financing a waiver of the above-described
fixed charge coverage ratio violation and any cross-default under the
Additional Long-Term Financing caused by violations under the Bank Credit
Facility and the Long-Term Financing Facility, and (ii) the Long-Term
Financing Facility a waiver of the above-described fixed charge coverage
ratio violation and any cross-default under the Long-Term Financing Facility
caused by violations under the Bank Credit Facility and the Additional
Long-Term Financing. The Company also anticipates amending both the Long-Term
Financing Facility and the Additional Long-Term Financing to conform them
with the amended Bank Credit Facility.
For further information regarding the terms of the amendments to the Bank
Credit Facility see "Managements Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Note 2 - Inventories
- --------------------
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
September 26, December 31,
1996 1995
------------- ------------
Raw material and supplies $ 45,176 $ 70,465
Work-in-process and finished goods 30,895 25,895
------ -------
$ 76,071 $ 96,360
====== ======
Note 3 - Stock Option Plan
- --------------------------
Options to purchase Common Stock granted under the Company's 1991
Stock Option Plan are exercisable 25% annually commencing on the first
anniversary of the date of grant and become fully exercisable on the fourth
anniversary of the date of grant. Effective February 28, 1995, the Board
of Directors terminated early the 1991 Stock Option Plan. The termination
of the 1991 Stock Option Plan did not, however, affect options granted
under the 1991 Stock Option Plan which remained outstanding as of the
effective date of such termination. Accordingly, the unexercised options
outstanding under the 1991 Stock Option Plan at September 26, 1996 will
continue to be governed by the terms of the 1991 Stock Option Plan.
The following is a summary of activity under the 1991 Stock Option Plan
during the thirty-nine weeks ended September 26, 1996:
Number Option Price
of Shares Per Share
--------- -------------
Outstanding at December 31, 1995 344,150 $6.00-$16.50
Cancelled (49,850) $6.00-$15.00
--------
Outstanding at September 26, 1996 294,300 $6.00-$16.50
=======
Options exercisable at September 26, 1996 253,413
=======
Options available for grant at September 26, 1996 0
=======
<PAGE> 8
Options to purchase Common Stock granted under the Company's 1995
Equity Incentive Plan are exercisable 25% annually commencing on the
first anniversary of the date of grant and become fully exercisable on the
fourth anniversary of the date of grant. On February 1, 1996, the
Company's Stock Option Committee granted a stock option to purchase
2,000 shares of Common Stock at an exercise price of $8.625 per share,
the closing price of the Common Stock on February 1, 1996. On April 30,
1996, the Company granted a stock option to purchase 1,000 shares of
Common Stock to each of its three "outside directors" (i.e., directors who
are not employees of the Company or any of its subsidiaries). These
options were granted in accordance with a formula specified under the
1995 Equity Incentive Plan upon the election of such outside directors to
the Company's Board on April 30, 1996 and, pursuant to such formula,
have an exercise price of $6.625 per share, the closing price of the
Common Stock on April 30, 1996. On June 24, 1996, the Company's
Stock Option Committee granted a stock option to purchase 1,000 shares
of Common Stock at an exercise price of $6.75, the closing price of the
Common Stock on June 24, 1996. On August 5, 1996, the Company's
Stock Option Committee granted a stock option to purchase 1,000 shares
of Common Stock at an exercise price of $5.25, the closing price of the
Common Stock on August 5, 1996.
The following is a summary of activity under the 1995 Equity Incentive
Plan:
Number Option Price
of Shares Per Share
--------- --------------
Outstanding at December 31, 1995 92,300 $8.25-$10.50
Granted . 7,000 $5.25-$8.625
Cancelled (6,200) $9.375
--------
Outstanding at September 26, 1996 93,100 $5.25-$10.50
Options exercisable at September 26, 1996 1,500
========
Options available for grant at September 26, 1996 106,900
========
Note 4 - 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. Common stock equivalents (stock options)
had an immaterial effect on earnings per share for the third quarter of 1996
and 1995 and, accordingly, have not been included in the weighted
average shares outstanding. Fully diluted earnings per common share,
which include the effect of conversion of common stock equivalents, for the
third quarter of 1996 and 1995 are not materially different from the earnings
per share presented. The weighted average number of shares aggregated
9,147,666 for both the third quarters of 1996 and 1995, and 9,147,666 and
9,044,111 for the thirty-nine weeks ended September 26, 1996 and
September 28, 1995, respectively.
Note 5 - 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. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
<PAGE> 9
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
--------------------------------------------------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the following Management's Discussion
and Analysis of Financial Condition and Results of Operations which
are not historical are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements, which are generally followed (and
therefor identified) by a cross reference to "Factors That May Affect
Future Results," represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such
statements are qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements,
including the factors described below under "Factors That May Affect
Future Results." Results actually achieved thus may differ materially
from expected results included in these statements.
General
- -------
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 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 first and fourth quarters
of each year. Fluctuations in the market prices of such nuts may affect the
value of the Company's inventory and thus the Company's profitability.
Declines in the market prices for pecans have negatively affected the
Company's gross profit margins for the quarter and thirty-nine weeks ended
September 26, 1996. Furthermore, the Company recorded a $2.6 million
write down of its pecan inventory to market value as of September 26,
1996. At September 26, 1996, the Company's inventories totalled
approximately $76.1 million compared to approximately $96.4 million at
December 31, 1995, and approximately $79.3 million as of the end of the
third quarter of 1995. See "-- Factors that May Affect Future Results --
Availability of Raw Materials and Market Price Fluctuations."
The Company's net sales to industrial customers increased both in amount
and as a percentage of the Company's total net sales from 1992 to 1995
due primarily to a combination of the Company's acquisition of Sunshine
Nut Co., Inc. ("Sunshine"), which sells a greater portion of its products to
industrial customers than JBS, and an overall increase in unit volume. In
addition, the increase in the Company's processing and shelling capacity
created by the Garysburg, North Carolina facility, the Selma, Texas facility
and the Gustine, California facility has contributed to the increase in sales
to industrial customers (which are generally made at lower margins than
sales to other customers) both in amount and as a percentage of the
Company's total net sales and could result in further such increases. See
"-- Factors that May Affect Future Results -- Sales to Industrial Customers".
Results of Operations
- ---------------------
Net Sales. Net sales increased from approximately $67.0 million in the
third quarter of 1995 to approximately $70.3 million in the third quarter of
1996, an increase of approximately $3.3 million, or 5.0%. For the thirty-
nine weeks ended September 26, 1996, net sales totalled approximately
$188.3 million compared to approximately $173.0 million for the thirty-nine
weeks ended September 28, 1995, representing an increase of
approximately $15.4 million, or 8.9%. The increase in net sales for the
quarter ended September 26, 1996 was due primarily to increased unit
volume sales to the Company's retail customers. The increase in net sales
<PAGE> 10
for the thirty-nine weeks ended September 26, 1996 was due primarily to
increased unit volume sales to the Company's retail and industrial
customers. The increase in net sales to retail customers for the quarter
and thirty-nine weeks ended September 26, 1996 was due primarily to the
additional sales generated by the Company's Fisher Nut division, which
was acquired by the Company in the fourth quarter of 1995, and to
additional sales generated under the Company's long-term supply contract
with Preferred Products, Inc., a wholly-owned subsidiary of Supervalu, Inc.,
which was entered into in the first quarter of 1995. These increases in net
sales to retail customers were partially offset by decreases in net sales to
certain retail customers such as Sam's Club. During the first quarter of
1996, the Company was outbid for Sam's Club business, which accounted
for approximately $23.4 million of the Company's net sales in 1995. See
"--Gross Profit" and "Factors That May Affect Future Results - Competitive
Environment". The increase in net sales to industrial customers for the
thirty-nine weeks ended September 26 1996 was due primarily to additional
unit volume sales by Sunshine during the first half of 1996. Net sales to
industrial customers decreased in the third quarter of 1996 when compared
to the third quarter of 1995 due primarily to lower selling prices for pecans.
Net sales to the Company's contract manufacturing and government
customers increased slightly for the quarter ended September 26, 1996,
and are relatively unchanged for the thirty-nine weeks ended September
26, 1996. Net sales to food service customers increased for both the
quarter and thirty-nine weeks ended September 26, 1996 due to higher
sales to airlines.
Gross Profit. Gross profit margin decreased from 18.0% in the third quarter
of 1995 to 8.8% in the third quarter of 1996. For the thirty-nine weeks
ended September 26, 1996, the gross profit margin decreased from 18.5%
in 1995 to 12.6% in 1996. This decrease was due primarily to (i) declines
in the market price for processed pecan meats throughout 1996 relative
to the cost of pecan inventory, (ii) a $2.6 million write-down of pecan
inventory to market value as of September 26, 1996, (iii) increases in raw
material costs which the Company was unable to offset with increases in
selling prices, and (iv) increases in production-related expenses resulting
from the Company's relocation of its pecan shelling operations to a new
facility, which began production in January 1996, and which during the first
quarter of 1996, operated at levels of efficiency below those achieved at
the Company's old pecan shelling facility.
Selling and Administrative Expenses. Selling and administrative expenses
as a percentage of net sales increased from 11.1% in the third quarter of
1995 to 12.0% in the third quarter of 1996. Selling expenses as a
percentage of net sales increased from 7.4% in the third quarter of 1995
to 8.4% in the third quarter of 1996. Administrative expenses as a
percentage of net sales decreased slightly from 3.7% in the third quarter
of 1995 to 3.6% in the third quarter of 1996. Selling and administrative
expenses as a percentage of net sales for the thirty-nine weeks ended
September 26, 1996 increased from 12.6% for the thirty-nine weeks ended
September 28, 1995 to 13.0% for the thirty-nine weeks ended September
26, 1996. Selling expenses as a percentage of net sales for the thirty-nine
weeks ended September 26, 1996 increased to 8.7% from 8.4% for the
same period in 1995. Administrative expenses as a percentage of net
sales for the thirty-nine weeks ended September 26, 1996 increased
slightly to 4.3% from 4.2% for the same period in 1995. The increase in
selling expenses as a percentage of net sales for both the quarter and
thirty-nine weeks ended June 27, 1996 was due primarily to higher
promotional allowances and commissions. The slight decrease in
administrative expenses as a percentage of net sales for the third quarter
ended September 26, 1996 was due primarily to lower compensation
related expenses. The increase in administrative expenses as a
percentage of net sales for the thirty-nine weeks ended September 26,
1996 was due primarily to (i) higher staffing costs related to the Company's
acquisition of the Fisher Nut business and at Sunshine, and (ii) amortization
expense related to acquisitions.
Income from Operations. Due to the factors discussed above, income from
operations decreased from approximately $4.6 million in the third quarter
of 1995 to a loss of approximately $2.3 million in the third quarter of 1996,
a decrease of approximately $6.9 million, or 150.0%. For the thirty-nine
weeks ended September 26, 1996, income from operations decreased from
approximately $10.2 million to a loss of approximately $0.9 million, a
decrease of approximately $11.1 million, or 108.5%.
Interest Expense. Interest expense increased from approximately $1.8
million in the third quarter of 1995 to approximately $2.1 million in the
third quarter of 1996, an increase of approximately $0.3 million, or 16.5%.
<PAGE> 11
Interest expense for the thirty-nine weeks ended September 26, 1996
increased from approximately $5.6 million to approximately $6.9 million,
an increase of approximately $1.3 million, or 22.2%. The increase for both
the third quarter and thirty-nine weeks ended September 26, 1996 were
due primarily to higher average level of borrowings, due to increased
working capital, acquisitions and capital expenditures.
Income Taxes. The Company recorded an income tax benefit of
approximately $1.7 million, or 37.4% of the loss before income taxes, for
the third quarter of 1996, and approximately $2.9 million, or 38.9% of the
loss before income taxes, for the thirty-nine weeks ended September 26,
1996.
Liquidity and Capital Resources
- -------------------------------
During the third quarter of 1996, the Company continued to finance its
activities through (i) an unsecured credit facility totalling $60.0 million
entered into by the Company in 1996 (the "Bank Credit Facility"), (ii) an
unsecured long-term financing facility totalling $35.0 million entered into
by the Company in 1992 (the "Long-Term Financing Facility"), and (iii) an
unsecured long-term financing arrangement totalling $25.0 million entered
into by the Company in 1995 (the "Additional Long-Term Financing"). As
more fully described below, at the end of the third quarter of 1996, the
Company was not in compliance with the fixed charge coverage ratio
covenants under the Bank Credit Facility, the Long-Term Financing Facility
and the Additional Long-Term Financing. The Company entered into, as
of October 30, 1996, Amendment No. 2 and Waiver to Credit Agreement
("Amendment No. 2") under the Bank Credit Facility. Amendment No. 2
waived the Company's non-compliance with the fixed charge coverage ratio
covenant for the quarter ended September 26, 1996. Amendment No. 2 also
requires the Company to amend the Bank Credit Facility to, among other
things: (i) convert the fixed charge coverage ratio covenant from a most
recent four quarter calculation to an individual quarter calculation,
beginning with the quarter ending December 31, 1996 and continuing for each
of the next four quarters; (ii) decrease the annual capital expenditure
limitation to $7.2 million from $10.0 million for 1997; (iii) increase the
aggregate amount outstanding limitation under the Bank Credit Facility's
"clean down covenant" to $40.0 million from $25.0 million for the period
from August 1, 1997 through September 30, 1997; and (iv) grant, by November
27, 1996, (a) a first priority perfected security interest and lien in
substantially all of the Company's assets to secure the Company's obligations
under the Bank Credit Facility, the Long-Term Financing Facility and the
senior portion of the Additional Long-Term Financing; and (b) a junior
security interest in the Company's assets to secure the obligations under
the subordinated portion of the Additional Long-Term Financing. The Company
also anticipates amending both the Long-Term Financing Facility and the
Additional Long-Term Financing to conform them with the amended Bank Credit
Facility. The Company also received from the lender under (i) the Additional
Long-Term Financing a waiver of the above-described fixed charge coverage
ratio violation and any cross-default under the Additional Long-Term Financing
caused by violations under the Bank Credit Facility and the Long-Term Financing
Facility, and (ii) the Long-Term Financing Facility a waiver of the
above-described fixed charge coverage ratio violation and any cross-default
under the Long-Term Financing Facility caused by violations under the Bank
Credit Facility and the Additional Long-Term Financing.
Net cash provided by operating activities was approximately $13.3 million
for the thirty-nine weeks ended September 26, 1996 compared to
approximately $16.4 million for the same period of 1995. The most
significant factor in the approximately $3.1 million decrease in net cash
provided by operating activities is that a net loss of approximately $4.5
million was incurred for the thirty-nine weeks ended September 26, 1996,
compared to net income of approximately $3.0 in the comparable period
of 1995. The largest component of net cash provided by operating activities
was a decrease of approximately $20.2 million in inventories. The largest
component of net cash used in investing activities for the thirty-nine weeks
ended September 26, 1996 was approximately $6.6 million in capital
expenditures. During the thirty-nine weeks ended September 26, 1996, the
Company repaid approximately $2.8 million of long-term debt, compared
to approximately $5.4 million for the same period in 1995.
The Bank Credit Facility is comprised of (i) a working capital revolving loan
which (as described below, depending on the time of year) provides for
working capital financing of up to approximately $51.7 million, in the
aggregate, and matures on March 27, 1998, and (ii) an $8.3 million letter
<PAGE> 12
of credit to secure the industrial development bonds described below which
mature on June 1, 1997. Borrowings under the working capital revolving
loan accrue interest at a rate (the weighted average of which was 6.79%
at September 26, 1996) determined pursuant to a formula based on the
agent bank's quoted rate, the Federal Funds Rate and the Eurodollar
Interbank Rate. The aggregate amount outstanding under the Bank Credit
Facility is limited to specified amounts which vary, because of the seasonal
nature of the Company's business, from $60.0 million during January
through March, to $50.0 million during April through May, to $40.0 million
during June through July, to $25.0 million during August through
September, to $50.0 million during October through December. The Bank
Credit Facility was amended as of August 1, 1996 to increase the
aggregate outstanding limit for August through September of 1996 to $40.0
million. The Bank Credit Facility was amended as of October 30, 1996 to
increase the aggregate outstanding limit for August through September of
1997 to $40.0 million. As of September 26, 1996, there was approximately
$28.9 million of borrowings outstanding under the Bank Credit Facility.
Of the total $35.0 million of borrowings under the Long-Term Financing
Facility, $25.0 million matures on August 15, 2004, bears interest at rates
ranging from 6.49% to 8.33% per annum payable quarterly, and requires
equal semi-annual principal installments of approximately $1.3 million
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 8.31% per annum payable quarterly, and requires semi-annual principal
installments ranging from $0.5 million to $0.6 million based on a ten-year
amortization schedule. As of September 26, 1996, there was
approximately $30.2 million of borrowings outstanding under the Long-Term
Financing Facility.
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. As of September 26, 1996, there
was approximately $25.0 million of borrowings outstanding under the
Additional Long-Term Financing.
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 amount the
Company may spend annually on capital expenditures, and (iii) require that
Jasper B. Sanfilippo (the Company's Chairman of the Board and Chief
Executive Officer) and Mathias A. Valentine (a director and the Company's
President) together with their respective immediate family members and
certain trusts created for the benefit of their respective sons and daughters,
continue to own shares representing the right to elect a majority of the
directors of the Company. In addition, (i) the Long-Term Financing Facility
limits the Company's payment of dividends to a cumulative amount not to
exceed 25% of the company's cumulative net income from and after
January 1, 1993, (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, (iii) the
Bank Credit Facility limits the Company's payment of dividends to a cumulative
amount not to exceed 25% of the Company's net income from and after
January 1, 1996, and (iv) the Bank Credit Facility prohibits the Company
from spending more than $1.0 million to redeem shares of capital stock for
the entire term of the agreement.
As of the end of the second quarter of 1996, the Company was not in
compliance with the fixed charge coverage ratio covenants under the Bank
Credit Facility and the Additional Long-Term Financing. In addition, on
August 1, 1996 the Company violated the "clean down covenant" under the
Bank Credit Facility, which requires that the aggregate amount outstanding
under the Bank Credit Facility from August 1 through September 30 of each
year not exceed $25.0 million. As of August 1, 1996, the Company's
aggregate borrowings under the Bank Credit Facility totalled approximately
$35.0 million. On September 9, 1996, the Company entered into
<PAGE> 13
Amendment No. 1 and Waiver to Credit Agreement ("Amendment No. 1")
under the Bank Credit Facility. Amendment No. 1 waived the Company's
failure to comply with the fixed charge coverage ratio covenant for the
quarter ended June 27, 1996. Amendment No. 1 also amended the Bank
Credit Facility's "clean down covenant" to increase the aggregate amount
of indebtedness permitted to be outstanding under the Bank Credit Facility
from August 1, 1996 through September 30, 1996 from $25.0 million to
$40.0 million. Amendment No. 1 also, among other things, (a) reduced the
capital expenditure limitation (excluding expenditures related to the Fisher
Nut business) to $8.2 million from $10.0 million for 1996, and (b) increased
the interest rate under the Bank Credit Facility by .50%. The Company
also received from its lender under (i) the Additional Long-Term Financing
a waiver of the above-described fixed charge coverage ratio violation and
any cross-default under the Additional Long-Term Financing caused by the
above-described violations under the Bank Credit Facility, and (ii) the Long-
Term Financing Facility a waiver of the cross-default under that facility
caused by the above-described violation under the Bank Credit Facility and
the Additional Long-Term Financing.
As of the end of the third quarter of 1996, the Company was not in
compliance with the fixed charge coverage ratio covenants under the Bank
Credit Facility, the Long-Term Financing Facility and the Additional Long-
Term Financing. Amendment No. 2 waived the Company's failure to comply with
the fixed charge coverage ratio covenant for the quarter ended September 26,
1996. Amendment No. 2 also requires the Company to amend the Bank Credit
Facility to, among other things: (i) convert the fixed charge coverage
ratio covenant from a most recent four quarter calculation to an individual
quarter calculation, beginning with the quarter ending December 31, 1996
and continuing for each of the next four quarters; (ii) decrease the annual
capital expenditure limitation to $7.2 million from $10.0 million for 1997;
(iii) increase the aggregate amount outstanding limitation under the Bank
Credit Facility's "clean down covenant" to $40.0 million from $25.0 million
for the period from August 1, 1997 through September 30, 1997; and (iv) grant,
by November 27, 1996, (a) a first priority perfected security interest and
lien in substantially all of the Company's assets to secure the Company's
obligations under the Bank Credit Facility, the Long-Term Financing Facility
and the senior portion of the Additional Long-Term Financing; and (b) a
junior security interest in the Company's assets to secure the obligations
under the subordinated portion of the Additional Long-Term Financing.
The Company also received from the lender under (i) the Additional Long-Term
Financing a waiver of the above-described fixed charge coverage ratio
violation and any cross-default under the Additional Long-Term Financing
caused by violations under the Bank Credit Facility and the Long-Term
Financing Facility, and (ii) the Long-Term Financing Facility a waiver of
the above-described fixed charge coverage ratio violation and any
cross-default under the Long-Term Financing Facility caused by violations
under the Bank Credit Facility and the Additional Long-Term Financing. As
described above, Amendment No. 2 also requires the Company to pledge
substantially all of its assets by November 27, 1996, to secure the
obligations under the Bank Credit Facility, the Long-Term Credit Facility
and the Additional Long-Term Financing.
The Company has $8.0 million in aggregate principal amount of industrial
development bonds outstanding which were used to finance the original
acquisition, construction and equipping of the Company's Bainbridge,
Georgia facility. The bonds bear interest payable semi-annually at 6%
through May 1997 and at a market rate to be determined thereafter. On
June 1, 1997, 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 re-marketed by the
underwriter of the bonds on a "best efforts" basis. In addition, the
Company is required to redeem the bonds in varying annual installments,
ranging from $170,000 to $780,000, beginning in 1998 and continuing
through 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.
As of September 26, 1996, the Company had approximately $11.1 million
of available credit under the Bank Credit Facility. The Company currently
expects to incur a total of approximately $8.2 million in capital expenditures
in 1996 (excluding capital expenditures related to the Fisher Nut business),
of which an aggregate of approximately $6.6 million were incurred during
the thirty-nine weeks ended September 26, 1996. The Company believes
<PAGE> 14
that cash flow from operating activities and funds available under the Bank
Credit Facility (assuming the Company maintains compliance - or obtains
waivers of any subsequent noncompliance - with the covenants under the
Bank Credit Facility, as amended) will be sufficient to meet working capital
requirements and anticipated capital expenditures for the foreseeable
future. See "-- Factors That May Affect Future Results -- Growth
Initiatives".
Factors That May Affect Future Results
- --------------------------------------
(a) Growth Initiatives
------------------
Over the past three years, the Company has substantially increased its
shelling, processing and manufacturing capacity by a combination of
strategic acquisitions and improvements to and expansions of its facilities.
The Company has increased its borrowings to finance these acquisitions,
improvements and expansions, as well as its increased costs of operations
and increased investments in inventory related to the resulting increased
production capacity. Underutilization of its increased production capacity
has had a negative impact on the Company's gross profit and gross profit
margin. Until such time as the Company is able to more fully utilize its
increased production capacity through further increases in its sales volume,
the Company's results of operations may continue to be adversely affected.
Furthermore, although the Company believes that cash flow from
operations and funds available under its credit facilities (assuming the
Company maintains compliance - or obtains waivers of any subsequent
noncompliance - with the covenants under its financing arrangements as
currently in effect and as subsequently amended) will be sufficient to meet
the Company's working capital requirements and anticipated capital
expenditures for 1996, there can be no assurance that such cash flow and
credit availability will be sufficient to meet future capital requirements or
that the Company will remain in compliance with such covenants. The
Company strives to update and improve its management information
systems to ensure their adequacy. Although the Company believes that
its management information systems currently provide the Company with
the information necessary to manage its businesses, there can be no
assurance that the Company's management information systems will meet
the Company's future requirements. See "-- Liquidity and Capital
Resources".
(b) 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 conditions 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 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. Market price declines for pecans have negatively affected
the Company's gross profit margins in 1996, and required the Company
to write down its pecan inventory $2.6 million as of September 26, 1996.
(c) 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
JBS, such as Planters Lifesavers Company (a subsidiary of RJR Nabisco,
Inc.). JBS 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
<PAGE> 15
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.
(d) Sales to Industrial Customers
-----------------------------
The increase in the Company's processing and shelling capacity created
by its recently constructed or expanded facilities and increased sales by
Sunshine may result in further increases in net sales to industrial
customers, both in amount and as a percentage of the Company's total
sales. Because sales to industrial customers are generally made at lower
margins than sales to other customers, increases in such sales may
adversely affect the Company's profit margins.
(e) 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 only 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 of 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.
(f) Federal Regulation of Peanut Prices, Quotas and Poundage Allotments
-------------------------------------------------------------------
Approximately 50% of the total pounds of products processed by the
Company during 1993, 1994, and 1995 were peanuts, peanut butter and
other products containing peanuts. The Company purchases a majority
of its peanut requirements directly from growers and obtains its remaining
requirements from other shellers. The supply of peanuts is subject to
federal regulations which restrict peanut imports and the tonnage of
peanuts farmers may market domestically. These regulations create
market conditions which may not be indicative of conditions that would
prevail if the federal program were eliminated. The 1996 Farm Bill, which
became law during the first quarter, phases out over a seven-year period
many of the existing federal farm support and subsidy programs, but rejects
efforts to eliminate the federal support program for peanuts. However,
the federal price support for peanuts was cut to $610 per ton from $678 per
ton.
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 in-shell peanuts are
replaced by a tariff rate quota, initially set at 3,377 tons, which will grow
by a 3% compound rate over a 15-year transition period. In-quota
shipments enter the U.S. duty-free, while above-quota imports from Mexico
face tariff rates equivalent to approximately 120% on shelled and 185% on
in-shell peanuts. The tariff rates will be phased out at a rate of 15% per
year in each of the first six years, with the remaining tariff rate to be
phased out in equal installments over the next nine years. The Company
does not believe NAFTA will have a material impact on the federal peanut
program in the near term. Because of the relatively small amount of
peanuts currently grown in Mexico, the full effect of NAFTA on the
Company's business and opportunities cannot yet be fully assessed.
However, than can be no assurance that NAFTA will not have a material
adverse effect on the federal peanut program and the Company in the
future.
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
within six years. Import quotas on peanuts have been replaced by high
ad valorem tariffs, which must be reduced by 15% annually. The United
States may limit imports of peanut butter, but must establish a tariff rate
<PAGE> 16
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 will be reduced by 15% annually.
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.
Changes in, or the elimination or nonrenewal of, the federal peanut
program could significantly affect the supply of, and price for, peanuts.
While JBS has successfully operated in a market shaped by the federal
peanut program for many years, JBS believes that it could adapt to a
market without federal regulation. However, JBS 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 JBS'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.
<PAGE> 17
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) Exhibits: The exhibits required by Item 601 of Regulation S-K follow:
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 Amended and Restated Note Purchase and Private Shelf Agreement
by and between the Registrant and The Prudential Insurance
Company of America ("Prudential") dated as of October 19, 1993
(the "Long-Term Credit Facility")(8)
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)
<PAGE> 18
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(11)
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(11)
4.11 Amended and Restated Guaranty Agreement dated as of October 19,
1993 by Sunshine in favor of Prudential(8)
4.12 First Amendment to the Long-Term Credit Facility dated as of August 31,
1994 by and between Prudential, Sunshine Nut Co., Inc. ("Sunshine") and
the Registrant(12)
4.13 Second Amendment to the Long-Term Credit Facility dated as of
September 12, 1995 by and among Prudential, Sunshine and the
Registrant(17)
4.14 Third Amendment to the Long-Term Credit Facility dated as of February
20, 1996 by and between Prudential, Sunshine and the Registrant(20)
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(14)
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")(17)
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(17)
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(17)
4.20 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of
Teachers ("Senior Notes")(17)
4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of
Teachers ("Senior Subordinated Notes")(17)
<PAGE> 19
4.22 Amendment, Consent and Waiver, dated as of March 27, 1996, by and
among Teachers, Sunshine and the Registrant(20)
10.1 Certain documents relating to $8.0 million Decatur County-Bainbridge
Industrial Development Authority Industrial Development Revenue Bonds
(the "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(16)
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(13)
10.4 First Amendment to the Touhy Avenue Lease dated June 1, 1987(13)
10.5 Second Amendment to the Touhy Avenue Lease dated December 14,
1990(13)
10.6 Third Amendment to the Touhy Avenue Lease dated September 1,
1991(18)
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(20)
10.9 $4.0 million Promissory Note dated October 5, 1988 evidencing a loan to
Registrant by Jasper B. Sanfilippo(1)
10.10 Form of Receivable Assignment Agreement between Registrant and
Jasper B. Sanfilippo and form of $1,153,801.36 Promissory Note executed
by Jasper B. Sanfilippo in connection therewith(14)
10.11 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)
10.12 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)
10.13 First Amendment to Industrial 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)
<PAGE> 20
10.14 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(14)
10.15 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(14)
10.16 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(14)
10.17 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)
10.18 Tax Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
10.19 Indemnification Agreement between Registrant and certain Stockholders
of Registrant prior to its initial public offering(2)
10.20 The Registrant's 1991 Stock Option Plan(1)
10.21 First Amendment to the Registrant's 1991 Stock Option Plan(4)
10.22 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)
10.23 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)
10.24 License to Use Trade Name, Trademarks and Service Marks, dated
April 15, 1993 by and among Bert S. Crane, Nancy M. Crane, Bert A.
Crane, Mary Crane Couchman, Karen N. Crane, Crane Walnut Orchards
Processing Division, Amsterdam Land and Cattle Company, Inc. and the
Registrant(10)
10.25 Credit Agreement among the Registrant, American National Bank and
Trust Company of Chicago ("ANB") as agent, LNB, National City Bank
("NCB") and ANB, dated as of October 19, 1993(8)
<PAGE> 21
10.26 Guaranty Agreement dated as of October 19, 1993 by Sunshine in favor
of ANB, as agent on behalf of LNB, NCB and ANB(8)
10.27 Amendment to Amended and Restated Reimbursement Agreement dated
as of October 19, 1993 by and among the Registrant, LNB and ANB(8)
10.28 Amendment No. 1 to Bank Credit Facility entered into as of August 31,
1994 by and among the Registrant, ANB, LNB and NCB(12)
10.29 Amendment No. 2 to Bank Credit Facility entered into as of September 1,
1994 by and among the Registrant, ANB, LNB and NCB(12)
10.30 Amendment No. 3 to Bank Credit Facility dated as of September 13, 1995
by and among the Registrant, ANB, LNB and NCB.(17)
10.31 Memorandum of Agreement dated February 24, 1994, between the
Registrant and The Fisher Nut Company ("Fisher")(13)
10.32 Asset Purchase and Sales Agreement, dated as of October 10, 1995, by
and among The Procter & Gamble Company, ("P&G"), The Procter &
Gamble Distribution Company ("P&GDC"), Fisher and the Registrant(19)
10.33 Inventory Purchase Agreement, dated as of October 10, 1995, by and
among P&G, P&GDC, Fisher and the Registrant(19)
10.34 Equipment Purchase Agreement, dated as of October 10, 1995, by and
between Fisher and the Registrant(19)
10.35 Lease Agreement, dated as of December 10, 1993, by and between
LaSalle Trust and the Registrant for the premises at 3001 Malmo Drive,
Arlington Heights, Illinois(16)
10.36 Certain documents relating to Reverse Split-Dollar Insurance Agreement
between Sunshine and John Charles Taylor dated November 24, 1987(14)
10.37 Outsource Agreement between the Registrant and Preferred Products,
Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT](14)
10.38 Letter Agreement between the Registrant and Preferred Products, Inc.,
dated February 24, 1995, amending the Outsource Agreement dated
January 19, 1994 [CONFIDENTIAL TREATMENT](14)
10.39 The Registrant's 1995 Equity Incentive Plan(15)
10.40 Merger Agreement dated May 31, 1995, among the Registrant, Quantz
Acquisition Co., Inc. James B. Quantz, the National Bank of South
Carolina, as Trustee of the James Bland Quantz Irrevocable Trust dated
May 6, 1980, and Machine Design Incorporated [CONFIDENTIAL
TREATMENT](16)
10.41 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")(18)
<PAGE> 22
10.42 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 (the "Arlington Heights Facility")(18)
10.43 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(18)
10.44 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(18)
10.45 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(20)
10.46 Reimbursement Agreement between the Registrant and BAI, dated as of
March 27, 1996(20)
10.47 Guaranty Agreement dated as of March 27, 1996 by Sunshine in favor of
BAI as agent on behalf of NCB, NTC and BAI(20)
10.48 Amendment No. 1 and Waiver to Credit Agreement dated as of August 1,
1996 by and among the Registrant, BAI, NCB, and NTC (filed as exhibit
10.48)
10.49 Amendment No. 2 and Waiver to Credit Agreement dated as of October
30, 1996 by and among the Registrant, BAI, NCB, and NTC (filed as
exhibit 10.49)
11 None
15 None
18 None
19 None
22-24 None
27 Financial Data Schedule (filed as exhibit 27)
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).
<PAGE> 23
(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 Amendment No. 1 to
Registration Statement on Form S-1, Registration No. 33-59366, as
filed with the commission on April 19, 1993 (Commission File No. 0-
19681).
(11) Incorporated by reference to the Registrant's Current Report and Form
8-K dated June 23, 1994 (Commission File No. 0-19681).
(12) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the third quarter ended September 29, 1994
(Commission File No. 0-19681).
(13) 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).
(14) 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).
(15) 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).
(16) 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).
(17) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 12, 1995 (Commission File No. 0-19681).
(18) 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).
<PAGE> 24
(19) Incorporated by reference to the Registrant's Current Report on Form
8-K dated November 6, 1995 (Commission file No. 0-19681).
(20) 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).
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.
(b) Reports on Form 8-K:
During the third quarter ended September 26, 1996, the Company filed
one Current Report on Form 8-K dated July 3, 1996. The Current Report
dated July 3, 1996 reported pursuant to Item 5 thereof that Larry D.
Ray was resigning, effective August 2, 1996, as an officer and Director
of the Company.
<PAGE> 25
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: November 11, 1996 By: /s/Gary P. Jensen
---------------------------
Gary P. Jensen
Executive Vice President, Finance
and Chief Financial Officer
AMENDMENT NO. 1 AND WAIVER TO CREDIT AGREEMENT
-----------------------------------------------
This Amendment No. 1 and Waiver is dated as of August
1, 1996 by and among John B. Sanfilippo & Son, Inc. (the
"Borrower"), the Lenders parties hereto and Bank of America
Illinois, as Agent for the Lenders (Amendment No. 1").
W I T N E S S E T H;
WHEREAS, the Borrower, the Lenders and the Agent are
parties to that certain Credit Agreement dated as of March 27,
1996 (the "Agreement"); and
WHEREAS, the Borrower and the Lenders desire to amend
the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises
herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Each capitalized term used herein but not otherwise
defined herein shall have the meaning ascribed to such term
in the Agreement.
2. The definition of "Applicable Margin" appearing in
Section 1.1 of the Agreement shall be restated in its entirety
as follows:
"'Applicable Margin' means a rate per annum equal
to 1.35%."
3. The Agent and the Lenders hereby waive compliance
with Section 8.2.4(d) of the Agreement solely for the Fiscal
Quarter ending June 27, 1996.
4. Section 8.2.4(f) of the Agreement shall be amended
by deleting the number "$20,000,000" appearing therein and
substituting in lieu thereof the term "Fixed Asset Advance."
5. Section 8.2.7 of the Agreement shall be restated in
its entirety as follows:
"SECTION 8.2.7. Capital Expenditures, etc. The
Borrower will not, and will not permit any of its Subsidiaries to,
make Capital Expenditures in any Fiscal Year, except (a)
Capital Expenditures incurred before December 31, 1996
related to acquisitions for the Fisher Nut Co. business, (b)
Capital Expenditures incurred during Fiscal Year 1996 not
exceeding $8,200,000 in the aggregate, and (c) Capital
Expenditures in subsequent Fiscal Years that do not exceed
in the aggregate for each such Fiscal Year $10,000,000.
6. Section 8.2.15 of the Agreement shall be restated in
its entirety as follows:
"SECTION 8.2.15. Clean Down. The Borrower shall
not permit at any time the amount of the Borrowing Base to
be less than zero (0), nor shall the Borrower permit the
aggregate amount of Credit Extensions at any time
outstanding under this Agreement (including in such amount,
without duplication, the aggregate Letter of Credit
Outstandings) to exceed the amount shown below as in effect
at the time:
Period Maximum Permitted Amounts
------ -------------------------
January 1 through March 31 $60,000,000
of each year
April 1 through May 31 $50,000,000
of each year
June 1 through July 31 $40,000,000
of each year
August 1 through September 30 $40,000,000
of 1996
August 1 through September 30 $25,000,000
of 1997
October 1 through December 31 $50,000,000"
of each year
7. The Borrower represents and warrants that, after
giving effect to this Amendment No.1, no Default or Event of
Default exists and is continuing.
8. This Amendment No. 1 shall become effective as of
August 1, 1996 upon satisfaction of the following conditions.
(i) the Borrower, the Agent, Sunshine Nut Co. and
each of the Lenders shall have executed and delivered
a counterpart of this Amendment.
(ii) the Agent shall have received, in sufficient copies
for each Bank, the following inform an substance
satisfactory to the Agent and its counsel:
(A) an incumbency certificate.
(B) a board of directors resolution authorizing the
execution and delivery of this Amendment No. 1.
(C) a certificate from the Borrower's chief financial
Authorized Officer Certifying that on the date
hereof and after giving effect to this Amendment No. 1 no
Default or Event of Default has occurred and is
continuing.
(D) a written consent hereto from each of the
holders of promissory notes under the Prudential Note
Agreement and the Teachers Note Agreement.
(iii) the Borrower shall have paid the fees and out-of-
pocket costs and expenses of counsel for the Agent
incurred in connection with the negotiation, preparation,
execution and delivery of this Amendment No. 1.
9. Except as specifically set forth in this Amendment
No. 1, the Agreement and the other Loan Documents shall
remain unaltered and in full force and effect and the respective
terms, conditions and covenants thereof are hereby ratified
and confirmed in all respects.
10. Upon the effectiveness of this Amendment No. 1,
each reference in the Agreement to "this Agreement", "hereof",
"herein" or "hereunder" or words of like import, and all
references to the Agreement in any other Loan Documents
shall mean and be a reference to the Agreement as amended
hereby.
11. This Amendment No. 1 may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
12. THIS AMENDMENT NO. 1 SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS.
(Signature pages follow)
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment No. 1 and Waiver to Credit Agreement as of
the date first above written.
JOHN B. SANFILIPPO & SON, INC.
By /s/ Gary P. Jensen
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer
BANK OF AMERICA ILLINOIS,
in its capacity as Agent
By /s/ David L. Graham
-----------------------------------
Title: Agency Management Services
Senior Agency Officer
BANK OF AMERICA ILLINOIS, in its Capacity
as a Lender, Issuing Lender and Issuer
By /s/ Peter T. Keseric
-----------------------------------
Title: Senior Vice President
THE NORTHERN TRUST COMPANY, in its Capacity
as a Lender
By /s/ Arthur J. Fogel
-----------------------------------
Title: Vice President
NATIONAL CITY BANK, in its Capacity
as a Lender
By /s/ Diego Tobon
-----------------------------------
Title: Vice President
AMENDMENT NO. 2 AND WAIVER TO CREDIT AGREEMENT
----------------------------------------------
This Amendment No. 2 and Waiver is dated as of October
30, 1996 by and among John B. Sanfilippo & Son, Inc. (the
"Borrower"), the Lenders parties hereto and Bank of America
Illinois, as Agent for the Lenders (Amendment No. 2").
W I T N E S S E T H;
WHEREAS, the Borrower, the Lenders and the Agent are
parties to that certain Credit Agreement dated as of March 27,
1996, as amended by that certain Amendment No. 1 and
Waiver to Credit Agreement dated as of August 1, 1996 (the
"Agreement"); and
WHEREAS, the Borrower and the Lenders desire to amend
the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises
herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Each capitalized term used herein but not otherwise
defined herein shall have the meaning ascribed to such term
in the Agreement.
2. The Agent and the Lenders hereby waive compliance
with Section 8.2.4(d) of the Agreement solely for the Fiscal
Quarter ending September 26, 1996.
3. The following text shall be inserted as Section 9.1.10
of the Agreement:
"9.1.10 Failure to Secure Obligations. Either
the Borrower, Sunshine, the Trustee under that certain
Trust Agreement dated February 7, 1979 and known as Trust
No. 100628, or the Trustee under that certain Trust Agreement
dated September 20, 1966 and known as Trust No. 34837,
has failed to pledge, on or before November 27,
1996, substantially all its assets to Agent, Lenders, Prudential
and Teachers Insurance and Annuity Association of America
(with respect solely to the Senior Notes under the Teachers
Note Agreement) in accordance with all the terms and
conditions of the Letter and Term Sheet attached to
Amendment No. 2. and Waiver dated as of October 30,
1996"
4. The Borrower represents and warrants that, after
giving effect to this Amendment No. 2, no Default or Event of
Default exists and is continuing under the Agreement and no
default exists under the Teachers Note Agreement and the
Prudential Note Agreement.
5. This Amendment No. 2 shall become effective as of
October 30,1996 upon satisfaction of the following conditions:
(i) the Borrower, the Agent, Sunshine and each of the
Lenders shall have executed and delivered a
counterpart of this Amendment No. 2.
(ii) the Borrower, the Agent, Sunshine and each of the
Lenders shall have executed and delivered a
counterpart of the Term Sheet attached hereto.
(iii) The Agent shall have received, in sufficient copies
for each Lender, the following in form and substance
satisfactory to the Agent and its counsel:
(A) a board of directors resolution authorizing the
execution and delivery of this Amendment No. 2.
(B) a certificate from the Borrower's chief financial
Authorized Officer certifying that on the date hereof
and after giving effect to this Amendment No. 2 no Default
or Event of Default has occurred and is continuing.
(C) a written consent hereto from each of the
holders of promissory notes under the Prudential Note
Agreement and the Teachers Note Agreement.
(D) a written waiver of the minimum fixed charge
coverage ration requirements set forth in the
Teachers Note Agreement, executed by Teachers Insurance
and Annuity Association of America.
(E) a written waiver of the minimum fixed charge
coverage ratio requirements set forth in the
Prudential Note Agreement, executed by Prudential.
(iv) the Borrower shall have paid the outstanding fees
and out-of-pocket costs and expenses of counsel for the
Agent in the approximate amount of $4,300 and the
additional fees and out-of-pocket costs and expenses
incurred in connection with the negotiation, preparation,
execution and delivery of this Amendment No. 2.
6. Except as specifically set forth in this Amendment
No. 2, the Agreement and the other Loan Documents shall
remain unaltered and in full force and effect and the respective
terms, conditions and covenants thereof are hereby ratified
and confirmed in all respects.
7. Upon the effectiveness of this Amendment No. 2,
each reference in the Agreement to "this Agreement", "hereof",
"herein" or "hereunder" or words of like import, and all
references to the Agreement in any other Loan Documents
shall mean and be a reference to the Agreement as amended
hereby.
8. This Amendment No. 2 may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
9. THIS AMENDMENT NO. 2 SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS.
(Signature pages follow)
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment No. 1 and Waiver to Credit Agreement as of
the date first above written.
JOHN B. SANFILIPPO & SON, INC.
By /s/ Gary P. Jensen
------------------------------------
Title: Executive Vice President and
Chief Financial Officer
BANK OF AMERICA ILLINOIS, in its Capacity
as Agent
By /s/ David L. Graham
------------------------------------
Title: Agency Management Services
Senior Agency Officer
BANK OF AMERICA ILLINOIS, in its Capacity
as a Lender, Issuing Lender and Issuer
By /s/ Peter T. Keseric
------------------------------------
Title: Senior Vice President
THE NORTHERN TRUST COMPANY, in its Capacity
as a Lender
By /s/ Arthur J. Fogel
------------------------------------
Title: Vice President
NATIONAL CITY BANK, in its Capacity
as a Lender
By /s/ Diego Tobon
------------------------------------
Title: Vice President
TERM SHEET FOR COLLATERALIZATION
1. Section 8.2.15 of the Agreement shall be amended
to change the Maximum Permitted Amount of
Credit Extensions for the period from August 1, 1997
through September 30, 1997 from $25,000,000 to
$40,000,000.
2. Section 8.2.7 of the Agreement shall be amended to
limit Capital Expenditures made by Borrower or any
of its Subsidiaries during the Fiscal Year ending on
December 31, 1997 to $7,200,000.
3. Section 8.2.4(d) of the Agreement shall be amended
to require the following minimum Fixed Charge
Coverage Ratios:
Minimum Fixed Charge For the
Coverage Ratio Quarter Ended
-------------------- -----------------
1.00 December 31, 1996
0.50 March 31, 1997
1.00 June 30, 1997
1.75 September 30, 1997
2.00 December 31, 1997
4. As a condition to the amendments contemplated in
this Term Sheet and consummation of the
Collateralization, the Borrower shall reimburse the Agent for
costs and expenses related to a field review audit performed
earlier this year pursuant to Section 8.1.7 of the
Agreement.
5. Section 8.1.7 of the Agreement shall be amended to
require the Borrower to reimburse the Agent for
costs and expenses up to an aggregate of $15,000 per Fiscal
Year related to two field review audits per Fiscal Year.
6. The Prudential Note Agreement and Teachers Note
Agreement shall be amended to the extent
necessary so that the financial covenants contained in the
Prudential Note Agreement and Section 9.1 of the
Teachers Note Agreement (relating to the Senior
Notes) shall be no more restrictive than those contained in the
Agreement. In addition, the Teachers Note Agreement shall
be amended to the extent necessary so that the
financial covenants applicable to the Senior
Subordinated Notes are no more restrictive as
compared to the amended financial covenants for the
Senior Notes thereunder as such covenants were prior to the
amendments contemplated hereunder.
7. It is not contemplated that any fee or rate increase
shall be paid or incurred by the Borrower as a result
of the Collateralization. However, if a fee or rate
increase shall be paid or incurred by the Borrower
to Teachers or Prudential as a result of the
Collateralization, then the Borrower shall pay or incur a
commensurate fee or rate increase to the Lenders.
8. Borrower and Sunshine shall grant first priority
perfected security interests and liens in substantially
all of their assets, real, personal or mixed, including but not
limited to owned and leased real estate, accounts,
chattel paper, documents, equipment, fixtures,
general intangibles, inventory, instruments, patents,
trademarks, tradenames, and proceeds of the
foregoing, to secure, on a pari passu basis, the
obligations under that certain Credit Agreement dated as of
March 27, 1996, as amended (the "Agreement"), the
Senior Notes issued pursuant to the Teachers Note
Agreement and the Senior Notes issued pursuant to the
Prudential Note Agreement. Agent shall serve as Collateral
Agent for Lenders, Teachers and Prudential. The
security interests and liens shall also secure the
Lenders' cash management services and any Letters of Credit
issued pursuant to the Agreement, including but not
limited to that certain $8.3 million standby Letter of
Credit securing industrial revenue bonds in connection with the
Borrower's Bainbridge, Georgia facility.
9. The Trustee under that certain Trust Agreement
dated February 7, 1979 and known as Trust No.
100628 and the Trustee under that certain Trust Agreement
dated September 20, 1966 and known as Trust No.
34837 shall grant first priority perfected security
interests and liens in substantially all of the Trusts' assets,
including but not limited to the real estate located in
Elk Grove Village, Illinois and Des Plaines, Illinois,
in the event that the Agent determines in its sole
discretion that (i) the Trusts own significant
unencumbered assets and (ii) that the granting of such
security interests and liens is appropriate.
10. The Senior Subordinated Notes issued pursuant to
the Teachers Note Agreement shall be secured by
a completely subordinated silent junior security interest in the
Borrower's assets, including but not limited to: the holders of
the Senior Subordinated Notes shall have no right
to contest (i) any cash collateral order, debtor-in -
possession financing order or adequate protection rights that
the Agent or Lenders may seek, (ii) the release
of any liens, or (iii) the enforcement of any liens.
11. The Collateralization shall include the execution and
delivery of definitive documentation implementing the
Collateralization and deemed appropriate by the
Agent, including but not limited to a third amendment to the
Agreement, security agreements, mortgages,
assignments of leases, trademark and patent
security interests, bailee letters, landlord waivers, and
an opinion of counsel to the Borrower in form and
substance satisfactory in all respects to Agent.
12. The Collateralization shall include the filing of all
UCC financing statements, mortgages and other
public filings in such forms and at such locations as the Agent
deems appropriate.
13. The Agreement and Exhibit F (the Form of Borrowing
Base Certificate) shall be amended to clarify the
calculation of the Borrowing Base.
14. Legal fees for the Collateralization shall not exceed
the following amounts:
Agent $45,000
Borrower $__________
Prudential an amount satisfactory to Agent
Teachers an amount satisfactory to Agent
The foregoing amounts are based upon the following
assumptions. To the extent a party incurs fees in
excess of the foregoing due to another party not adhering to
the assumptions, the Borrower shall pay the additional fees
associated therewith:
a. The Agent's counsel shall prepare the
amendment to the Agreement and all operative
security agreements and mortgages for the Collateralization.
Prudential and Teachers' counsel shall each
prepare its client's respective amendments
and consents for its client's loan documentation.
b. The Agreement, Teachers Note Agreement
and Prudential Note Agreement will not be
substantially amended.
c. Negotiations will take place in Chicago and the
transaction will close in Chicago. The
transaction will close by November 27, 1996.
d. No extensive environmental, tax, ERISA or
labor due diligence will be required.
e. All parties to the transaction will provide timely
comments in writing, and the negotiating
positions of such parties will be reasonable. Each party will
exercise cost discipline by coordinating into one submission
the comments of its various representatives.
f. The negotiations will not require more than two
turns of the documents. Borrower's counsel
will prepare the documentation customarily prepared by
Borrower's counsel.
g. The cost of negotiating title insurance and
landlord, mortgagee and bailee waivers will
be additional charges.
h. The intellectual property is owned by Borrower
free of licensing restrictions.
i. Out-of-pocket costs and expenses, including
filing fees and cost of local real estate counsel,
will be additional charges.
15. The definition of "Fixed Asset Advance" in Section
1.1 of the Agreement shall be amended to define
"Fixed Asset Advance" as either (a) the formulation
reflected in the current Agreement and (b) the
margined appraised value of certain equipment
collateral and certain mortgaged real estate, whichever is
greater for each calendar month. The appraisal must
be reasonably acceptable to Agent. The advance
rate shall be determined by the Agent in its sole
discretion.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the John B.
Sanfilippo & Son, Inc. Consolidated Statement of Operations for the thirty-nine
weeks ended September 26, 1996 and Consolidated Balance Sheet as of September
26, 1996 and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-26-1996
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 24,010
<ALLOWANCES> 0
<INVENTORY> 76,071
<CURRENT-ASSETS> 105,732
<PP&E> 127,663
<DEPRECIATION> 48,122
<TOTAL-ASSETS> 200,545
<CURRENT-LIABILITIES> 64,767
<BONDS> 64,202
0
0
<COMMON> 93
<OTHER-SE> 70,980
<TOTAL-LIABILITY-AND-EQUITY> 200,545
<SALES> 188,341
<TOTAL-REVENUES> 188,341
<CGS> 164,691
<TOTAL-COSTS> 164,691
<OTHER-EXPENSES> 24,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,895
<INCOME-PRETAX> (7,431)
<INCOME-TAX> (2,894)
<INCOME-CONTINUING> (4,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,537)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
