SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 24, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 0-19681
JOHN B. SANFILIPPO & SON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2419677
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2299 Busse Road
Elk Grove Village, Illinois 60007
(Address of Principal Executive Offices)
Registrant's telephone number, including area code
(847) 593-2300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-------- --------
As of February 8, 1999, 5,461,139 shares of the Registrant's
Common Stock, $.01 par value per share, excluding 117,900 treasury
shares and 3,687,426 shares of the Registrant's Class A Common
Stock, $.01 par value per share, were outstanding.
JOHN B. SANFILIPPO & SON, INC.
------------------------------
INDEX TO FORM 10-Q
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Operations for the quarters and twenty-
six weeks ended December 24, 1998 and December 25, 1997 3
Consolidated Balance Sheets as of December 24, 1998
and June 25, 1998 4
Consolidated Statements of Cash Flows for the twenty-six weeks ended
December 24, 1998 and December 25, 1997 5
Notes to Consolidated Financial Statements 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
- ---------------------------
Item 1 -- Legal Proceedings 16
Item 2 -- Changes in Securities 16
Item 3 -- Defaults Upon Senior Securities 16
Item 4 -- Submission of Matters to a Vote of Security Holders 17
Item 6 -- Exhibits and Reports on Form 8-K 17
SIGNATURE 18
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EXHIBIT INDEX 19
- -------------
OMITTED FINANCIAL STATEMENTS
- ----------------------------
None
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1 -- Financial Statements
- ------------------------------
<TABLE>
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except earnings per share)
<CAPTION>
For the Quarter Ended For the Twenty-six Weeks Ended
-------------------------- ------------------------------
December 24, December 25, December 24, December 25,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $113,332 $112,683 $187,161 $189,939
Cost of sales 95,133 92,180 157,546 156,632
------------ ------------ ------------ ------------
Gross profit 18,199 20,503 29,615 33,307
------------ ------------ ------------ ------------
Selling expenses 9,729 9,732 16,303 16,625
Administrative expenses 3,066 2,661 5,258 5,152
------------ ------------ ------------ ------------
12,795 12,393 21,561 21,777
------------ ------------ ------------ ------------
Income from operations 5,404 8,110 8,054 11,530
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (2,338) (2,039) (4,613) (3,848)
Interest income 6 7 13 13
Gain (loss) on disposition
of properties (1) -- 10 --
Rental income 117 154 246 272
------------ ------------ ------------ ------------
(2,216) (1,878) (4,344) (3,563)
------------ ------------ ------------ ------------
Income before income taxes 3,188 6,232 3,710 7,967
Income tax expense 1,301 2,519 1,536 3,239
------------ ------------ ------------ ------------
Net income $ 1,887 $ 3,713 $ 2,174 $ 4,728
============ ============ ============ ============
Basic earnings per
common share $ 0.21 $ 0.41 $ 0.24 $ 0.52
============ ============ ============ ============
Diluted earnings per
common share $ 0.21 $ 0.40 $ 0.24 $ 0.52
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
December 24, June 25,
1998 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 1,314 $ 549
Accounts receivable, net 31,010 23,901
Inventories 120,726 99,535
Deferred income taxes 417 417
Income taxes receivable -- 1,454
Prepaid expenses and other
current assets 2,730 3,024
------------ ------------
TOTAL CURRENT ASSETS 156,197 128,880
------------ ------------
PROPERTIES:
Buildings 55,387 55,318
Machinery and equipment 71,951 70,099
Furniture and leasehold improvements 5,044 5,001
Vehicles 4,178 4,260
------------ ------------
136,560 134,678
Less: Accumulated depreciation 64,239 60,943
------------ ------------
72,321 73,735
Land 1,892 1,892
------------ ------------
74,213 75,627
OTHER ASSETS: ------------ ------------
Goodwill and other intangibles 7,348 7,754
Miscellaneous 6,386 7,415
------------ ------------
13,734 15,169
------------ ------------
$244,144 $219,676
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 53,421 $ 48,959
Current maturities 7,224 5,789
Accounts payable 31,834 12,038
Accrued expenses 9,292 9,244
Income taxes payable 19 --
------------ ------------
TOTAL CURRENT LIABILITIES 101,790 76,030
------------ ------------
LONG-TERM DEBT 59,717 63,182
------------ ------------
LONG-TERM DEFERRED INCOME TAXES 2,266 2,266
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Class A Common Stock 37 37
Common Stock 56 56
Capital in excess of par value 57,196 57,196
Retained earnings 24,286 22,113
Treasury stock (1,204) (1,204)
------------ ------------
80,371 78,198
------------ ------------
$244,144 $219,676
============ ============
The accompanying notes are an integral part of these financial
statements.
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Twenty-six Weeks Ended
------------------------------
December 24, December 25,
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 2,174 $ 4,728
Adjustments:
Depreciation and amortization 3,943 4,263
Gain on disposition of properties (10) --
Change in current assets and
current liabilities:
Accounts receivable, net (7,109) (2,297)
Inventories (21,191) (38,453)
Prepaid expenses and other
current assets 294 (1,167)
Accounts payable 19,796 18,665
Accrued expenses 48 1,943
Income taxes payable/receivable 1,474 3,624
------------ ------------
Net cash used in operating activities (581) (8,694)
Cash flows from investing activities:
Acquisition of properties (2,022) (1,953)
Proceeds from disposition of properties 21 --
Other 915 (1,184)
------------ ------------
Net cash used in investing activities (1,086) (3,137)
------------ ------------
Cash flows from financing activities:
Net borrowings on notes payable 4,462 14,551
Principal payments on long-term debt (2,030) (2,389)
------------ ------------
Net cash provided by financing activities 2,432 12,162
------------ ------------
Net increase in cash 765 331
Cash:
Beginning of period 549 631
End of period $ 1,314 $ 962
Supplemental disclosures:
Interest paid $ 4,737 $ 3,757
Taxes paid 64 1,593
Supplemental disclosure of noncash
investing and financing activities:
Capital lease obligation incurred -- 110
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Note 1 - Basis of Consolidation
- -------------------------------
The consolidated financial statements include the accounts of
John B. Sanfilippo & Son, Inc. ("JBSS") and its wholly owned
subsidiaries (collectively, with JBSS, the "Company"),
including Sunshine Nut Co., Inc. ("Sunshine").
Note 2 - Inventories
- --------------------
Inventories are stated at the lower of cost (first in, first out)
or market. Inventories consist of the following:
December 24, June 25,
1998 1998
------------ ------------
Raw material and supplies $77,663 $52,589
Work-in-process and finished goods 43,063 46,946
------------ ------------
$120,726 $ 99,535
============ ============
Note 3 - Earnings Per Common Share
- ----------------------------------
Earnings per common share is calculated using the weighted average
number of shares of Common Stock and Class A Common Stock
outstanding during the period. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" which
is effective for all reporting periods ending after December 15,
1997, and requires restatement for all prior periods presented.
The following tables present the required disclosures under SFAS
No. 128:
<TABLE>
<CAPTION>
For the Quarter Ended December 24, 1998 For the Quarter Ended December 25, 1997
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- ------------- ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $1,887 $3,713
Basic Earnings Per Share
Income available to common
stockholders 1,887 9,148,565 $0.21 3,713 9,147,666 $0.41
========== ==========
Effect of Dilutive Securities
Stock options -- 31,098
Diluted Earnings Per Share
Income available to common
stockholders $1,887 9,148,565 $0.21 $3,713 9,178,764 $0.40
============== ============= ========== ============== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
For the Twenty-six Weeks Ended For the Twenty-six Weeks Ended
December 24, 1998 December 25, 1997
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- ------------- ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $2,174 $4,728
Basic Earnings Per Share
Income available to common
stockholders 2,174 9,148,565 $0.24 4,728 9,147,666 $0.52
========== ==========
Effect of Dilutive Securities
Stock options 41 30,957
Diluted Earnings Per Share
Income available to common
stockholders $2,174 9,148,606 $0.24 $4,728 9,178,623 $0.52
========== ==========
</TABLE>
The following table summarizes the weighted-average number of
options which were outstanding for the periods presented but were
not included in the computation of diluted earnings per share
because the exercise prices of the options were greater than the
average market price of the common shares for the period:
Number of Weighted-Average
Options Exercise Price
--------- ----------------
Quarter Ended December 24, 1998 361,320 $ 10.23
Quarter Ended December 25, 1997 274,244 $ 12.13
Twenty-six Weeks Ended December 24, 1998 363,622 $ 10.26
Twenty-six Weeks Ended December 25, 1997 273,256 $ 12.15
Note 4 - Stock Option Plan
- --------------------------
Effective August 27, 1998, the Company's Board of Directors
terminated the 1995 Equity Incentive Plan. The unexercised
options outstanding at December 24, 1998 to purchase 156,900
shares of Common Stock, however, were not affected by the
termination and will continue to be governed by the terms of the
1995 Equity Incentive Plan.
At the Company's annual meeting of stockholders on October 28,
1998, the Company's stockholders approved, and the Company
adopted, effective as of September 1, 1998, a new stock option
plan (the "1998 Equity Incentive Plan") to replace the 1995
Equity Incentive Plan. The 1998 Equity Incentive Plan provides
that an aggregate of 350,000 authorized but unissued shares of
Common Stock will be available for awards in the form of stock
options, including options intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal
Revenue Code and nonqualified stock options. Such options may be
granted to any employee of the Company (except that the Company's
Chairman of the Board and Chief Executive Officer and the
Company's President are not eligible to participate in the 1998
Equity Incentive Plan) or any of its subsidiaries or to any
director who is not an employee of the Company or any of its
subsidiaries (an "Outside Director"). Outside Directors,
however, are only eligible to receive nonqualified options granted
in accordance with a specific formula provided in the 1998 Equity
Incentive Plan.
Generally, each stock option granted under the 1998 Equity
Incentive Plan will become exercisable in equal installments of
25% of the shares covered by the option on the first four
anniversaries of the date of grant, subject to, in the case of an
employee, continued employment with the Company, or in the case of
an Outside Director, continued service as a director, on such
date. The exercise price for each stock option granted under the
1998 Equity Incentive Plan will be determined by the Board of
Directors (the "Option Price") and must be equal to fair market
value of the Common Stock on the date of grant, with the exception
of (i) nonqualified stock options, which must have an Option Price
equal to at least 50% of the fair market value of the Common Stock
on the date of grant, and (ii) incentive stock options granted to
an employee who is a holder of more than 10% of the voting power
of the Company's capital stock, which must have an Option Price
equal to at least 110% of the fair market value of the Common
Stock on the date of grant.
The Company did not grant any stock options pursuant to the 1998
Equity Incentive Plan during the quarter ended September 24, 1998.
On October 28, 1998, however, the Company granted a stock option
to purchase 1,000 shares of Common Stock to each of its three
Outside Directors. These options were granted in accordance with
the formula specified under the 1998 Equity Incentive Plan upon
the election of such Outside Directors to the Company's Board of
Directors on October 28, 1998 and, pursuant to such formula, have
an Option Price of $4.25 per share, the closing price of the
Common Stock on October 28, 1998.
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. The
data presented on the balance sheet for the fiscal year ended June
25, 1998 were derived from audited financial statements. It is
suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's 1998 Annual Report to Stockholders for the year ended
June 25, 1998.
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
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 calendar year. Also, due primarily to the
seasonal nature of the Company's business, the Company maintains
significant inventories of peanuts, pecans, walnuts, almonds and
other nuts at certain times of the year, especially during the
second and third quarters of the Company's fiscal year.
Fluctuations in the market prices of such nuts may affect the
value of the Company's inventory and thus the Company's
profitability. At December 24, 1998, the Company's inventories
totaled approximately $120.7 million compared to approximately
$99.5 million at June 25, 1998, and approximately $101.4 million
at December 25, 1997. The increase in inventories at December 24,
1998 when compared to December 25, 1997 is primarily due to (i)
increased levels of peanuts on hand due to higher purchases in the
1998 crop year than in the preceding crop year, and (ii) higher
unit costs for pecans in the 1998 crop year than in the preceding
crop year. See "Factors That May Affect Future Results --
Availability of Raw Materials and Market Price Fluctuations."
RESULTS OF OPERATIONS
- ---------------------
Net Sales. Net sales increased from approximately $112.7 million
for the second quarter of fiscal 1998 to approximately $113.3
million for the second quarter of fiscal 1999, an increase of
approximately $0.6 million, or 0.6%. For the twenty-six weeks
ended December 24, 1998, net sales totaled approximately $187.2
million compared to approximately $189.9 million for the twenty-
six weeks ended December 25, 1997, representing a decrease of
approximately $2.8 million, or 1.5%. The increase for the quarter
was due primarily to increases in unit volume sales to the
Company's food service and export customers, which were offset
partially by decreases in unit volume sales to the Company's
retail and industrial customers. The decrease for the year-to-date
period was due primarily to lower unit volume sales to retail
customers, caused primarily by declines in regional brand and
private label sales as a result of increased competitive activity.
See "Factors That May Affect Future Results - Competitive
Environment."
Gross Profit. Gross profit for the second quarter of fiscal 1999
decreased approximately 11.2% to approximately $18.2 million from
approximately $20.5 million for the second quarter of fiscal 1998.
Gross profit for the twenty-six weeks ended December 24, 1998
decreased approximately 11.1% to approximately $29.6 million from
approximately $33.3 million for the twenty-six weeks ended
December 25, 1997. Gross profit margin decreased from
approximately 18.2% for the second quarter of fiscal 1998 to
approximately 16.1% for the second quarter of fiscal 1999. The
decrease in gross profit margin for both the quarterly and year-
to-date periods was due primarily to a decrease in sales as a
percentage of the Company's total net sales to retail customers,
which sales generally carry higher margins than sales to the
Company's other customers, during fiscal 1999 compared to fiscal
1998.
Selling and Administrative Expenses. Selling and administrative
expenses as a percentage of net sales increased from approximately
11.0% for the second quarter of fiscal 1998 to approximately 11.3%
for the second quarter of fiscal 1999. Selling expenses as a
percentage of net sales were approximately 8.6% for both the
second quarters of fiscal 1999 and fiscal 1998. Administrative
expenses as a percentage of net sales increased from approximately
2.4% for the second quarter of fiscal 1998 to approximately 2.7%
for the second quarter of fiscal 1999. Selling and administrative
expenses as a percentage of net sales were approximately 11.5% for
both the twenty-six weeks ended December 24, 1998 and December 25,
1997. Selling expenses as a percentage of net sales decreased
marginally to approximately 8.7% for the twenty-six weeks ended
December 24, 1998 from approximately 8.8% for the twenty-six weeks
ended December 25, 1997. Administrative expenses as a percentage
of net sales increased from approximately 2.7% for the twenty-six
weeks ended December 25, 1997 to approximately 2.8% for the
twenty-six weeks ended December 24, 1998. The increase in
administrative expenses as a percentage of net sales for both the
quarterly and year-to-date periods was due to an increase in the
reserve for the Crane Litigation (see "Part II. Other Information
- - Item 1 -- Legal Proceedings". Exclusive of this increase in
the reserve relating to the Crane Litigation, administrative
expenses as a percentage of net sales decreased for both the
quarterly and year-to-date periods due to decreases in expenses
related to compensation programs and in amortization of expenses
related to acquisitions.
Income from Operations. Due to the factors discussed above,
income from operations decreased from approximately $8.1 million,
or 7.2% of net sales, for the second quarter of fiscal 1998, to
approximately $5.4 million, or 4.8% of net sales, for the second
quarter of fiscal 1999. For the twenty-six weeks ended December
24, 1998, income from operations decreased to approximately $8.1
million, or 4.3% of net sales, from approximately $11.5 million,
or 6.1% of net sales, for the twenty-six weeks ended December 25,
1997.
Interest Expense. Interest expense increased from approximately
$2.0 million for the second quarter of fiscal 1998 to
approximately $2.3 million for the second quarter of fiscal 1999.
For the twenty-six weeks ended December 24, 1998, interest expense
was approximately $4.6 million, compared to approximately $3.8
million for the twenty-six weeks ended December 25, 1997. The
increase in quarterly and year-to-date interest expense was due
primarily to a higher average level of borrowings to support
higher levels of inventories.
Income Taxes. The Company recorded income tax expense of
approximately $1.3 million, or 40.8% of income before income
taxes, for the second quarter of fiscal 1999, and approximately
$1.5 million, or 41.4% of income before income taxes, for the
twenty-six weeks ended December 24, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the second quarter of fiscal 1999, the Company continued to
finance its activities through a bank credit facility (the "Bank
Credit Facility"), $35.0 million borrowed under a long-term
financing facility originally entered into by the Company in 1992
(the "Long-Term Financing Facility") and $25.0 million borrowed on
September 12, 1995 under a long-term financing arrangement (the
"Additional Long-Term Financing").
Net cash used in operating activities was approximately $0.6
million for the twenty-six weeks ended December 24, 1998 compared
to approximately $8.7 million for the twenty-six weeks ended
December 25, 1997. The decrease in cash used in operating
activities was due primarily to reductions in the purchases of
walnuts in fiscal 1999, offset partially by increases in peanut
purchases in fiscal 1999. During both the twenty-six weeks ended
December 24, 1998 and the twenty-six weeks ended December 25,
1997, the Company spent approximately $2.0 million in capital
expenditures. The Company repaid approximately $2.0 million of
long-term debt during the twenty-six weeks ended December 24,
1998, compared to approximately $2.4 million for the twenty-six
weeks ended December 25, 1997.
The Bank Credit Facility is comprised of (i) a working capital
revolving loan which provided for working capital financing of up
to approximately $61.9 million, in the aggregate, and matures on
March 31, 2001, and (ii) an approximately $8.1 million letter of
credit to secure the industrial development bonds which matures on
June 1, 2002. Borrowings under the working capital revolving loan
accrued interest at a rate (the weighted average of which was
6.59% at December 24, 1998) determined pursuant to a formula based
on the agent bank's quoted rate and the Eurodollar Interbank rate.
Of the total $35.0 million of borrowings under the Long-Term
Financing Facility, $25.0 million matures on August 15, 2004,
bears interest rates ranging from 7.34% to 9.18% per annum payable
quarterly, and requires equal semi-annual principal installments
based on a ten-year amortization schedule. The remaining $10.0
million of this indebtedness matures on May 15, 2006, bears
interest at the rate of 9.16% per annum payable quarterly, and
requires equal semi-annual principal installments based on a ten-
year amortization schedule. As of December 24, 1998, the total
principal amount outstanding under the Long-Term Financing
Facility was approximately $22.4 million.
The Additional Long-Term Financing has a maturity date of
September 1, 2005 and (i) as to $10.0 million of the principal
amount thereof, bears interest at an annual rate of 8.3% payable
semiannually and, beginning on September 1, 1999, requires annual
principal payments of approximately $1.4 million each through
maturity, and (ii) as to the other $15.0 million of the principal
amount thereof, bears interest at an annual rate of 9.38% payable
semiannually and requires principal payments of $5.0 million each
on September 1, 2003 and September 1, 2004, with a final payment
of $5.0 million at maturity on September 1, 2005. As of December
24, 1998, the total principal amount outstanding under the
Additional Long-Term Financing was $25.0 million.
The terms of the Company's financing facilities, as amended,
include certain restrictive covenants that, among other things:
(i) require the Company to maintain specified financial ratios;
(ii) limit the Company's capital expenditures to $7.5 million
annually; and (iii) require that Jasper B. Sanfilippo (the
Company's Chairman of the Board and Chief Executive Officer) and
Mathias A. Valentine (a director and the Company's President)
together with their respective immediate family members and
certain trusts created for the benefit of their respective sons
and daughters, continue to own shares representing the right to
elect a majority of the directors of the Company. In addition,
(i) the Long-Term Financing Facility limits the Company's payment
of dividends to a cumulative amount not to exceed 25% of the
Company's cumulative net income from and after January 1, 1996,
(ii) the Additional Long-Term Financing limits cumulative
dividends to the sum of (a) 50% of the Company's cumulative net
income (or minus 100% of the Company's cumulative net loss) from
and after January 1, 1995 to the date the dividend is declared,
(b) the cumulative amount of the net proceeds received by the
Company during the same period from any sale of its capital stock,
and (c) $5.0 million, and (iii) the Bank Credit Facility limits
dividends to the lesser of (a) 25% of net income for the previous
fiscal year, and (b) $5.0 million and prohibits the Company from
redeeming shares of capital stock. See "Part II. Other Information --
Item 3 -- Defaults Upon Senior Securities".
As of the end of the second quarter of fiscal 1999, the Company
was not in compliance with the fixed charge coverage ratio
covenant under the Long-Term Financing Facility and the Additional
Long-Term Financing. Additionally, as of the end of the second
quarter of fiscal 1999, the Company was not in compliance with the
inter-company debt covenant under the Long-Term Financing
Facility. Furthermore, the Crane Litigation (see "Part II. Other
Information - Item 1 -- Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Selling and Administrative
Expenses") resulted in an event of default under the Long-Term
Financing Facility and the Additional Long-Term Financing. On
February 5, 1999, the Company entered into a waiver and amendment
under the Long-Term Financing Facility, which waived the Company's
failure to comply with the above described covenants, and amended
(i) the fixed charge coverage ratio covenant through the first
quarter of fiscal 2000 and (ii) the inter-company debt covenant
through the first quarter of fiscal 2000. On February 5, 1999,
the Company entered into a waiver and amendment under the
Additional Long-Term Financing, which waived the Company's failure
to comply with the above described covenants, and amended the
fixed charge coverage ratio covenant through the fourth quarter of
fiscal 1999. The Company also received from its lender under (i)
the Bank Credit Facility, a waiver of any cross-default under the
Bank Credit Facility caused by the above described violations
under the Long-Term Financing Facility and the Additional Long-
Term Financing; (ii) the Long-Term Financing Facility, a waiver of
any cross-default under the Long-Term Financing Facility caused by
the above described violations under the Additional Long-Term
Financing; and (iii) the Additional Long-Term Financing, a waiver
of any cross-default under the Additional Long-Term Financing
caused by the above described violations under the Long-Term
Financing Facility.
As of December 24, 1998, the Company had approximately $14.5
million of available credit under the Bank Credit Facility.
Approximately $2.0 million was incurred on capital expenditures
for the twenty-six weeks ended December 24, 1998. No significant
capital expenditures are anticipated for fiscal 1999. The Company
believes that cash flow from operating activities and funds
available under the Bank Credit Facility (assuming the Company
maintains compliance with the covenants under the Bank Credit Facility
currently in effect, or, in the event of any subsequent non-
compliance, is able to obtain any necessary waivers) will be
sufficient to meet working capital requirements and anticipated capital
expenditures for the foreseeable future.
Year 2000
- ---------
The Company has substantially completed its review of its internal
systems, processes and facilities to determine if it has software
or hardware applications that are unable to appropriately
interpret or recognize the calendar year 2000 (the "Year 2000").
In addition, the Company is in the process of conducting a survey
of third parties with whom it has material business relationships
(such as customers, suppliers and financial institutions) to
determine if they have Year 2000 issues that will materially and
adversely impact the Company.
The Company believes, based on representations from its software
vendors, that its internal computer system (which was installed in
1991) and applications are Year 2000 compliant. Furthermore, a
regularly scheduled upgrade of the internal computer system to the
latest release was implemented during the first quarter of fiscal
1999. The internal computer system is responsible for inventory
control applications, financial reporting and payroll. In
addition, the Company has reviewed its manufacturing operations
and has determined that no material portion of such operations is
date sensitive. Certain of the Company's customers submit orders
through Electronic Data Interchange ("EDI"), a third party
computer system utilized by the Company. A regularly scheduled
upgrade of the Company's EDI system was performed in the second
quarter of fiscal 1999. The Company believes, based on
representations from its software vendors, that its EDI system is
Year 2000 compliant. The Company is also reviewing its desktop
computer systems and facilities for Year 2000 issues (and expects
to complete that review early in calendar 1999), but does not
presently believe that any Year 2000 issues related to such
systems and facilities would have a material adverse effect on the
Company.
Also, the Company is in the process of making initial inquiries of
third parties with whom it has material business relationships to
determine whether they will be able to resolve in a timely manner
any Year 2000 problems materially and adversely affecting the
Company. In the course of these initial inquiries, which have
focused primarily on the Company's major customers, the Company
has not been made aware of any material Year 2000 issues which
would adversely affect the Company. In addition, the Company's
major vendors are growers, and the Company believes they are not
dependent upon computers in order to transact business. The
Company expects to complete a survey of such third parties by the end of
the third quarter of calendar year 1999.
Based upon the Company's review of its systems and the current
status of the Company's survey of third parties with whom it has
material business relationships, the Company has not identified
any material costs to address, or material risks related to, Year
2000 issues. There can be no assurance, however, that Year 2000
issues will not have a material adverse effect on the Company if
the Company and/or those with whom it conducts business are
unsuccessful in identifying or implementing timely solutions to
any Year 2000 issues. The Company intends to continue its review
of its Year 2000 status with the intention of completing that
review on the schedule described above and, as to the extent
necessary, developing Year 2000 contingency plans for critical
business processes. In a worst case Year 2000 scenario, the
Company presently believes it would revert back to manual
applications to perform order entry, billing and similar
functions.
Factors That May Affect Future Results
- --------------------------------------
(a) Availability of Raw Materials and Market Price Fluctuations
- ----------------------------------------------------------------
The availability and cost of raw materials for the production of
the Company's products, including peanuts, pecans, other nuts,
dried fruit and chocolate, are subject to crop size and yield
fluctuations caused by factors beyond the Company's control, such
as weather 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 United
States Department of Agriculture ("USDA") or other government
agency that certain pesticides, herbicides or other chemicals used
by growers have left harmful residues on portions of the crop or
that the crop has been contaminated by aflatoxin or other agents.
Shortages in the supply of and increases in the prices of nuts
and other raw materials used by the Company in its products could
have an adverse impact on the Company's profitability.
Furthermore, fluctuations in the market prices of nuts, dried
fruit or chocolate may affect the value of the Company's inventory
and the Company's profitability. For example, during the quarter
ended September 26, 1996 the Company was required to record a $2.6
million charge against its earnings to reflect the impact of a
lower cost or market adjustment of its pecan inventory. The
Company has a significant inventory of nuts, dried fruit and
chocolate that would be adversely affected by any decrease in the
market price of such raw materials. See "General" and "Results
of Operations - Gross Profit".
(b) Competitive Environment
- ---------------------------
The Company operates in a highly competitive environment. The
Company's principal products compete against food and snack
products manufactured and sold by numerous regional and national
companies, some of which are substantially larger and have greater
resources than the Company, such as Planters Lifesavers Company (a
subsidiary of RJR Nabisco, Inc.). The Company also competes with
other shellers in the industrial market and with regional
processors in the retail and wholesale markets. In order to
maintain or increase its market share, the Company must continue
to price its products competitively. This competitive pricing 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. See "Results of Operations - Net Sales."
(c) Fixed Price Commitments
- ---------------------------
From time to time, the Company enters into fixed price commitments
with its customers. However, such commitments typically represent
10% or less of the Company's annual net sales and are normally
entered into after the Company's cost to acquire the nut products
necessary to satisfy the fixed price commitment is substantially
fixed. The Company will continue to enter into fixed price
commitments with respect to certain of its nut products prior to
fixing its acquisition cost when, in management's judgment, market
or crop harvest conditions so warrant. To the extent the Company
does so, these fixed price commitments may result in losses.
Historically, however, such losses have generally been offset by
gains on other fixed price commitments. However, there can be no
assurance that losses from fixed price commitments may not have a
material adverse effect on the Company's results of operations.
(d) Federal Regulation of Peanut Prices, Quotas and Poundage Allotments
- -----------------------------------------------------------------------
Peanuts are an important part of the Company's product line.
Approximately 50% of the total pounds of products processed
annually by the Company are peanuts, peanut butter and other
products containing peanuts. The production and marketing of
peanuts are regulated by the USDA under the Agricultural
Adjustment Act of 1938 (the "Agricultural Adjustment Act"). The
Agricultural Adjustment Act, and regulations promulgated
thereunder, support the peanut crop by: (i) limiting peanut
imports (other than as described below pursuant to the North
American Free Trade Agreement and the Uruguay Round Agreement of
the General Agreement on Trade and Tariffs), (ii) limiting the
amount of peanuts that American farmers are allowed to take to the
domestic market each year, and (iii) setting a minimum price that
a sheller must pay for peanuts which may be sold for domestic
consumption. The amount of peanuts that American farmers can sell
each year is determined by the Secretary of Agriculture and is
based upon the prior year's peanut consumption in the United
States. Only peanuts that qualify under the quota may be sold for
domestic food products and seed. The peanut quota for the 1999
calendar year is approximately 1.2 million tons. Peanuts in
excess of the quota are called "additional peanuts" and generally
may only be exported or used domestically for crushing into oil or
meal. Current regulations permit additional peanuts to be
domestically processed and exported as finished goods to any
foreign country. The quota support price for the 1999 calendar
year is approximately $615 per ton.
The 1996 Farm Bill extended the federal support and subsidy
program for peanuts for seven years. However, there are no
assurances that Congress will not change or eliminate the program
prior to its scheduled expiration. Changes in the federal peanut
program could significantly affect the supply of, and price for,
peanuts. While the Company has successfully operated in a market
shaped by the federal peanut program for many years, the Company
believes that it could adapt to a market without federal
regulation if that were to become necessary. However, the Company
has no experience in operating in such a peanut market, and no
assurances can be given that the elimination or modification of
the federal peanut program would not adversely affect the
Company's business. Future changes in import quota limitations or
the quota support price for peanuts at a time when the Company is
maintaining a significant inventory of peanuts or has significant
outstanding purchase commitments could adversely affect the
Company's business by lowering the market value of the peanuts in
its inventory or the peanuts which it is committed to buy. While
the Company believes that its ability to use its raw peanut
inventories in its own processing operations gives it greater
protection against these changes than is possessed by certain
competitors whose operations are limited to either shelling or
processing, no assurances can be given that future changes in, or
the elimination of, the federal peanut program or import quotas
will not adversely affect the Company's business.
The North American Free Trade Agreement ("NAFTA"), effective
January 1, 1994, committed the United States, Mexico and Canada to
the elimination of quantitative restrictions and tariffs on the
cross-border movement of industrial and agricultural products.
Under NAFTA, United States import restrictions on Mexican shelled
and inshell peanuts were replaced by a tariff rate quota,
initially set at 3,377 tons and which increases by a 3% compound
rate each year until 2001. Shipments within the quota's
parameters enter the U.S. duty-free, while imports above-quota
parameters from Mexico face tariffs. The tariffs are being phased
out gradually and are scheduled to be eliminated by 2001.
The Uruguay Round Agreement of the General Agreement on Trade and
Tariffs ("GATT") took effect on July 1, 1995. Under GATT, the
United States must allow peanut imports to grow to 5% of domestic
consumption by 2001, and import quotas on peanuts were replaced by
high ad valorem tariffs, which must be reduced annually pursuant
to the terms of GATT. Also under GATT, the United States may
continue to limit imports of peanut butter but is permitted to
establish a tariff rate quota for peanut butter imports based on
1993 import levels. Peanut butter imports above the quota are
subject to an over-quota ad valorem tariff which also must be
reduced annually pursuant to the terms of GATT.
Although NAFTA and GATT do not directly affect the federal peanut
program, the federal government may, in future legislative
initiatives, reconsider the federal peanut program in light of
these agreements. The Company does not believe that NAFTA and
GATT have had a material impact on the Company's business or will
have a material impact on the Company's business in the near term.
Item 3
- ------
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company has not entered into transactions using derivative
financial instruments. The Company believes that its exposure to
market risk related to its other financial instruments (which are
the debt instruments under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources") is not material.
PART II. OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
In March 1995, Bert S. Crane, Nancy M. Crane, Mary Crane Couchman and
Karen Crane (collectively, the "Crane Plaintiffs") filed a lawsuit (the
"Crane Litigation") against the Company alleging that the Company had
incorrectly calculated the purchase price due them for walnuts purchased
by the Company under a Walnut Purchase Agreement entered into on
April 15, 1993. The Crane Litigation was filed in the United States
District Court for the Eastern District of California
(Case No. CV-F-95-5179 REC). On November 19, 1998, the court issued its
opinion in the Crane Litigation finding that the Crane Plaintiffs are
entitled to judgment against the Company in the total amount of
approximately $540 thousand plus (i) a late payment penalty (calculated
from June 1, 1996 to date of payment) imposed under Section 55881 of
the California Food and Agricultural Code, (ii) reasonable attorneys'
fees, and (iii) costs. The Company is currently considering appealing
the opinion and has posted an appeal bond. As of December 24, 1998,
the Company increased its reserve for the Crane Litigation from $0.3
million to $0.9 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations --
Selling and Administrative Expenses".
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 3 -- Defaults Upon Senior Securities
- -----------------------------------------
As of the end of the second quarter of fiscal 1999, the Company
was not in compliance with the fixed charge coverage ratio
covenant under the Long-Term Financing Facility and the Additional
Long-Term Financing. Additionally, as of the end of the second
quarter of fiscal 1999, the Company was not in compliance with the
inter-company debt covenant under the Long-Term Financing
Facility. Furthermore, the Crane Litigation (see "Part II. Other
Information - Item 1 -- Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Selling and Administrative
Expenses") resulted in an event of default under the Long-Term
Financing Facility and the Additional Long-Term Financing. On
February 5, 1999, the Company entered into a waiver and amendment
under the Long-Term Financing Facility, which waived the Company's
failure to comply with the above described covenants, and amended
(i) the fixed charge coverage ratio covenant through the first
quarter of fiscal 2000 and (ii) the inter-company debt covenant
through the first quarter of fiscal 2000. On February 5, 1999,
the Company entered into a waiver and amendment under the
Additional Long-Term Financing, which waived the Company's failure
to comply with the above described covenants, and amended the
fixed charge coverage ratio covenant through the fourth quarter of
fiscal 1999. The Company also received from its lender under (i)
the Bank Credit Facility, a waiver of any cross-default under the
Bank Credit Facility caused by the above described violations
under the Long-Term Financing Facility and the Additional Long-
Term Financing; (ii) the Long-Term Financing Facility, a waiver of
any cross-default under the Long-Term Financing Facility caused by
the above described violations under the Additional Long-Term
Financing; and (iii) the Additional Long-Term Financing, a waiver
of any cross-default under the Additional Long-Term Financing
caused by the above described violations under the Long-Term
Financing Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The only matters submitted to a vote of the Company's Stockholders
during the quarter ended December 24, 1998 were (i) the election
of directors, (ii) the ratification of the appointment of
PricewaterhouseCoopers LLP by the Company's Board of Directors as
the Company's independent accountants for fiscal 1999, and (iii)
the approval of the John B. Sanfilippo & Son, Inc. 1998 Equity
Incentive Plan (the "1998 Equity Incentive Plan"). The matters
were submitted to the Company's stockholders in connection with,
and voted upon at the Company's 1998 Annual Meeting of
Stockholders, which was held on October 28, 1998. The information
called for by this Item 4 with respect to such matters was
previously reported in, and is hereby answered by reference to the
information set forth under, Item 5 - "Other Information" to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 24, 1998.
Item 6 -- Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) The exhibits filed herewith are listed in the exhibit index
which follows the signature page and immediately precedes the
exhibits filed.
(b) Reports on Form 8-K: There were no Current Reports on
Form 8-K filed during the quarter ended December 24, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHN B. SANFILIPPO & SON, INC.
Date: February 8, 1999 By: /s/ Gary P. Jensen
------------------
Gary P. Jensen
Executive Vice President, Finance
and Chief Financial Officer
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- ----------------------------------------------------------
2 None
3.1 Restated Certificate of Incorporation of Registrant(2)
3.2 Certificate of Correction to Restated Certificate(2)
3.3 Bylaws of Registrant(1)
4.1 Specimen Common Stock Certificate(3)
4.2 Specimen Class A Common Stock Certificate(3)
4.3 Second Amended and Restated Note Agreement by and between the
Registrant and The Prudential Insurance Company of America
("Prudential") dated January 24, 1997 (the "Long-Term
Financing Facility")(19)
4.4 7.87% Series A Senior Note dated September 29, 1992 in the
original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.5 8.22% Series B Senior Note dated September 29, 1992 in the
original principal amount of $6.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.6 8.22% Series C Senior Note dated September 29, 1992 in the
original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.7 8.33% Series D Senior Note dated January 15, 1993 in the
original principal amount of $3.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(6)
4.8 6.49% Series E Senior Note dated September 15, 1993 in the
original principal amount of $8.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(9)
4.9 8.31% Series F Senior Note dated June 23, 1994 in the
original principal amount of $8.0 million due May 15, 2006
executed by the Registrant in favor of Prudential(10)
4.10 8.31% Series F Senior Note dated June 23, 1994 in the
original principal amount of $2.0 million due May 15, 2006
executed by the Registrant in favor of Prudential(10)
4.11 Amended and Restated Guaranty Agreement dated as of October
19, 1993 by Sunshine in favor of Prudential(8)
4.12 Amendment to the Second Amended and Restated Note Agreement
dated May 21, 1997 by and among Prudential, Sunshine and the
Registrant(20)
4.13 Amendment to the Second Amended and Restated Note Agreement
dated March 31, 1998 by and among Prudential, the Registrant,
Sunshine, and Quantz Acquisition Co., Inc. ("Quantz")(21)
4.14 Guaranty Agreement dated as of March 31, 1998 by JBS
International, Inc. ("JBSI") in favor of Prudential(21)
4.15 Amendment and Waiver to the Second Amended and Restated Note
Agreement dated February 5, 1999 by and among Prudential, the
Registrant, Sunshine, JBSI and Quantz
4.16 $1.8 million Promissory Note dated March 31, 1989 evidencing
a loan by Cohen Financial Corporation to LaSalle National Bank
("LNB"), as Trustee under Trust Agreement dated March 17, 1989
and known as Trust No. 114243(12)
4.17 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)
4.18 Note Purchase Agreement dated as of August 30, 1995 between
the Registrant and Teachers Insurance and Annuity Association of
America ("Teachers")(15)
4.19 8.30% Senior Note due 2005 in the original principal amount
of $10.0 million, dated September 12, 1995 and executed by the
Registrant in favor of Teachers(15)
4.20 9.38% Senior Subordinated Note due 2005 in the original
principal amount of $15.0 million, dated September 12, 1995 and
executed by the Registrant in favor of Teachers(15)
4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine
in favor of Teachers (Senior Notes)(15)
4.22 Guaranty Agreement dated as of August 30, 1995 by Sunshine
in favor of Teachers (Senior Subordinated Notes)(15)
4.23 Amendment, Consent and Waiver, dated as of March 27, 1996,
by and among Teachers, Sunshine and the Registrant(17)
4.24 Amendment No. 2 to Note Purchase Agreement dated as of
January 24, 1997 by and among Teachers, Sunshine and the
Registrant(19)
4.25 Amendment to Note Purchase Agreement dated May 19, 1997 by
and among Teachers, Sunshine and the Registrant(20)
4.26 Amendment No. 3 to Note Purchase Agreement dated as of March
31, 1998 by and among Teachers, Sunshine, Quantz and the
Registrant(21)
4.27 Guaranty Agreement dated as of March 31, 1998 by JBSI in
favor of Teachers (Senior Notes)(21)
4.28 Guaranty Agreement dated as of March 31, 1998 by JBSI in
favor of Teachers (Senior Subordinated Notes)(21)
4.29 Amendment and Waiver to Note Purchase Agreement dated
February 5, 1999 by and among Teachers, Sunshine, Quantz, JBSI
and the Registrant
10.1 Certain documents relating to $8.0 million Decatur County-
Bainbridge Industrial Development Authority Industrial
Development Revenue Bonds (John B. Sanfilippo & Son, Inc.
Project) Series 1987 dated as of June 1, 1987(1)
10.2 Industrial Building Lease dated as of October 1, 1991
between JesCorp., Inc. and LNB, as Trustee under Trust Agreement
dated March 17, 1989 and known as Trust No. 114243(14)
10.3 Industrial Building Lease (the "Touhy Avenue Lease") dated
November 1, 1985 between Registrant and LNB, as Trustee under
Trust Agreement dated September 20, 1966 and known as Trust No.
34837(11)
10.4 First Amendment to the Touhy Avenue Lease dated June 1,
1987(11)
10.5 Second Amendment to the Touhy Avenue Lease dated December
14, 1990(11)
10.6 Third Amendment to the Touhy Avenue Lease dated September 1,
1991(16)
10.7 Industrial Real Estate Lease (the "Lemon Avenue Lease")
dated May 7, 1991 between Registrant, Majestic Realty Co. and
Patrician Associates, Inc(1)
10.8 First Amendment to the Lemon Avenue Lease dated January 10,
1996(17)
10.9 Mortgage, Assignment of Rents and Security Agreement made on
September 29, 1992 by LaSalle Trust, not personally but as
Successor Trustee under Trust Agreement dated February 7, 1979
known as Trust Number 100628 in favor of the Registrant relating
to the properties commonly known as 2299 Busse Road and 1717
Arthur Avenue, Elk Grove Village, Illinois(5)
10.10 Industrial Building Lease dated June 1, 1985 between
Registrant and LNB, as Trustee under Trust Agreement dated
February 7, 1979 and known as Trust No. 100628(1)
10.11 First Amendment to Industrial Building Lease dated
September 29, 1992 by and between the Registrant and LaSalle
Trust, not personally but as Successor Trustee under Trust
Agreement dated February 7, 1979 and known as Trust Number
100628(5)
10.12 Second Amendment to Industrial Building Lease dated March
3, 1995, by and between the Registrant and LaSalle Trust, not
personally but as Successor Trustee under Trust Agreement dated
February 7, 1979 and known as Trust Number 100628(12)
10.13 Third Amendment to Industrial Building Lease dated August
15, 1998, by and between the Registrant and LaSalle Trust, not
personally but as Successor Trustee under Trust Agreement dated
February 7, 1979 and known as Trust Number 100628(22)
10.14 Ground Lease dated January 1, 1995, between the Registrant
and LaSalle Trust, not personally but as Successor Trustee under
Trust Agreement dated February 7, 1979 and known as Trust Number
100628(12)
10.15 Party Wall Agreement, dated March 3, 1995, between the
Registrant, LaSalle Trust, not personally but as Successor
Trustee under Trust Agreement dated February 7, 1979 and known as
Trust Number 100628 and the Arthur/Busse Limited Partnership(12)
10.16 Secured Promissory Note in the amount of $6,223,321.81
dated September 29, 1992 executed by Arthur/Busse Limited
Partnership in favor of the Registrant(5)
10.17 Tax Indemnification Agreement between Registrant and
certain Stockholders of Registrant prior to its initial public
offering(2)
10.18 Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
10.19 The Registrant's 1991 Stock Option Plan(1)
10.20 First Amendment to the Registrant's 1991 Stock Option
Plan(4)
10.21 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)
10.22 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)
10.23 Certain documents relating to Reverse Split-Dollar
Insurance Agreement between Sunshine and John Charles Taylor
dated November 24, 1987(12)
10.24 Outsource Agreement between the Registrant and Preferred
Products, Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT
REQUESTED](12)
10.25 Letter Agreement between the Registrant and Preferred
Products, Inc., dated February 24, 1995, amending the Outsource
Agreement dated January 19, 1994 [CONFIDENTIAL TREATMENT
REQUESTED](12)
10.26 The Registrant's 1995 Equity Incentive Plan(13)
10.27 Promissory Note (the "ILIC Promissory Note") in the
original principal amount of $2.5 million, dated September 27,
1995 and executed by the Registrant in favor of Indianapolis Life
Insurance Company ("ILIC")(16)
10.28 First Mortgage and Security Agreement (the "ILIC"
Mortgage") by and between the Registrant, as mortgagor, and ILIC,
as mortgagee, dated September 27, 1995, and securing the ILIC
Promissory Note and relating to the property commonly known as
3001 Malmo Drive, Arlington Heights, Illinois (16)
10.29 Assignment of Rents, Leases, Income and Profits dated
September 27, 1995, executed by the Registrant in favor of ILIC
and relating to the ILIC Promissory Note, the ILIC Mortgage and
the Arlington Heights facility(16)
10.30 Environmental Risk Agreement dated September 27, 1995,
executed by the Registrant in favor of ILIC and relating to the
ILIC Promissory Note, the ILIC Mortgage and the Arlington Heights
facility(16)
10.31 Credit Agreement among the Registrant, Bank of America
Illinois ("BAI") as agent, NCB, The Northern Trust Company
("NTC") and BAI, dated as of March 27, 1996(17)
10.32 Reimbursement Agreement between the Registrant and BAI,
dated as of March 27, 1996(17)
10.33 Guaranty Agreement dated as March 27, 1996 by Sunshine in
favor of BAI as agent on behalf of NCB, NTC and BAI(17)
10.34 Amendment No. 1 and Waiver to Credit Agreement dated as of
August 1, 1996 by and among the Registrant, BAI, NCB and NTC(18)
10.35 Amendment No. 2 and Waiver to Credit Agreement dated as of
October 30, 1996 by and among the Registrant, BAI, NCB and NTC(18)
10.36 Amendment No. 3 to Credit Agreement dated as of January 24,
1997 by and among the Registrant, BAI, NCB, and NTC(19)
10.37 Amendment No. 5 to Credit Agreement dated as of June 2,
1997 by and among the Registrant, BAI, NCB, and NTC(20)
10.38 Amendment No. 7 to Credit Agreement dated as of March 27,
1998 by and among the Registrant, BAI, NCB, and NTC(21)
10.39 Employment Agreement by and between Sunshine and Steven G.
Taylor dated June 17, 1992(19)
10.40 Credit Agreement dated as of March 31, 1998 among the
Registrant, Sunshine, Quantz, JBSI, U.S. Bancorp Ag Credit, Inc.
("USB") as Agent, Keybank National Association ("KNA"), and
LNB(21)
10.41 Revolving Credit Note in the principal amount of $35.0
million executed by the Registrant, Sunshine, Quantz and JBSI in
favor of USB, dated as of March 31, 1998(21)
10.42 Revolving Credit Note in the principal amount of $15.0
million executed by the Registrant, Sunshine, Quantz and JBSI in
favor of KNA, dated as of March 31, 1998(21)
10.43 Revolving Credit Note in the principal amount of $20.0
million executed by the Registrant, Sunshine, Quantz and JBSI in
favor of LSB, dated as of March 31, 1998(21)
10.44 The Registrant's 1998 Equity Incentive Plan(23)
11 None
15 None
17 None
18 None
24-26 None
27 Financial Data Schedule
99 None
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-43353, as filed
with the Commission on October 15, 1991 (Commission File No.
0-19681).
(2) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991
(Commission File No. 0-19681).
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Amendment No. 3), Registration No. 33-
43353, as filed with the Commission on November 25, 1991
(Commission File No. 0-19681).
(4) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended June 25, 1992
(Commission File No. 0-19681).
(5) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 29, 1992 (Commission File No. 0-
19681).
(6) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated January 15, 1993 (Commission File No. 0-
19681).
(7) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-59366, as filed
with the Commission on March 11, 1993 (Commission File No. 0-
19681).
(8) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the third quarter ended September 30, 1993
(Commission File No. 0-19681).
(9) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 15, 1993 (Commission file No. 0-
19681).
(10) Incorporated by reference to the Registrant's Current
Report and Form 8-K dated June 23, 1994 (Commission File No.
0-19681).
(11) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993 (Commission File No. 0-19681).
(12) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (Commission File No. 0-19681).
(13) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the first quarter ended March 30, 1995
(Commission File No. 0-19681).
(14) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the second quarter ended June 29, 1995
(Commission File No. 0-19681).
(15) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 12, 1995 (Commission File
No. 0-19681).
(16) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended September 28,
1995 (Commission file No. 0-19681).
(17) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995 (Commission file No. 0-19681).
(18) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated January 24, 1997
(Commission file No. 0-19681).
(19) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
(Commission file No. 0-19681).
(20) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated May 21, 1997
(Commission file No. 0-19681).
(21) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended
March 26, 1998 (Commission file No. 0-19681).
(22) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 25,
1998 (Commission file No. 0-19681).
(23) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the first quarter ended September 24,
1998 (Commission file No. 0-19681).
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.
February 5, 1999
Mr. Gary P. Jensen
Vice President/Finance &
Chief Financial Officer
John B. Sanfilippo & Son, Inc.
2299 Busse Road
Elk Grove Village, IL 60007
Re: Second Amended and Restated Note Agreement
Dear Mr. Jensen:
Pursuant to your letter of January 14, 1999, you have
advised The Prudential Insurance Company of America
("Prudential"), of the violation by John B. Sanfilippo & Son,
Inc. (the "Company") of Sections 6R(e) and 6B(2)(vi) of that
certain Second Amended and Restated Note Agreement dated as of
January 24, 1997 between the Company and Prudential, as amended
(the "Note Agreement") and the occurrence of an Event of Default
under Section 7A(xiii) of the Note Agreement, and have requested
that Prudential waive any breach of the Note Agreement as a
result of the violations of the Fixed Charge Covenant Ratio and
restriction on Sunshine's indebtedness to the Company required
under the aforementioned sections for the Company's fiscal
quarter period ended December 24, 1998, as well as waive any
Event of Default under Section 7A (xiii) of the Note Agreement
and as a result of the occurrence of an Event of Default by the
Company under the Teachers Note Agreement and the Bank Agreement
resulting from the breach by the Company of similar provisions of
said agreements. You have further requested that Prudential
amend Sections 6R(e) and 6B(2)(vi) of the Note Agreement for
future Fiscal Quarters.
Capitalized terms used herein shall, unless otherwise
defined herein, have the meanings provided in the Note Agreement.
Prudential hereby waives the Event of Default under the
Note Agreement resulting from the Company's violation of Sections
6R(e) and 6B(2)(vi) of the Note Agreement for the period ending
December 24, 1998 and waives the Event of Default thereunder by
virtue of the occurrence of the specified default under Section
7A(xiii) thereof and any defaults under the Note Agreement
resulting from such violations of the Teachers Note Agreement or
Bank Agreement, whether by means of a cross default to the Note
Agreement or as a direct breach of such agreements.
Prudential further agrees to amend the Note Agreement
as follows:
1. Section 6R(e) of the Note Agreement is hereby
amended to provide that for each of the Company's Fiscal Quarters
from and after the Fiscal Quarter ended December 24, 1998 to and
including the Fiscal Quarter ended September 23, 1999, the
Rolling Fixed Charge Coverage Ratio on a consolidated basis as of
the end of each Fiscal Quarter shall not be less than 1.25 to
1.0. Thereafter the required Rolling Fixed Charge Coverage Ratio
on a consolidated basis as of the end of each Fiscal Quarter
shall not be less than 1.75 to 1.0.
2. Section 6B(2)(vi) of the Note Agreement is hereby
amended to provide that for each of the Company's Fiscal Quarters
from and after the Fiscal Quarter ended December 24, 1998 to and
including the Fiscal Quarter ended September 23, 1999, the
aggregate amount of Indebtedness of Sunshine to the Company shall
not exceed $35,000,000. Thereafter, Indebtedness of Sunshine to
the Company shall not exceed $30,000,000.
Except as amended hereby, the Note Agreement remains
unchanged and in full force and effect.
This waiver and amendment shall not be deemed a waiver
of any other Events of Default or any of Prudential's rights and
remedies, all of which are hereby expressly reserved or an
amendment to any other provisions of the Note Agreement not
specifically amended hereby.
Very truly yours,
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ Marie Fioramonti
--------------------
Marie Fioramonti
Title: Vice President
ACKNOWLEDGED AND AGREED:
JOHN B. SANFILIPPO & SON, INC.
By: /s/ Gary P. Jensen
------------------
Gary P. Jensen
Title: Executive Vice President, Finance
and Chief Financial Officer
February 5, 1999
Mr. Gary P. Jensen
Vice President/Finance &
Chief Financial Officer
John B. Sanfilippo & Son, Inc.
2299 Busse Road
Elk Grove Village, IL 60007
Re: $10,000,000 8.30% Senior Notes due 2005
$15,000,000 9.38% Senior Subordinated Notes due
2005
Dear Mr. Jensen:
Pursuant to your letter of January 14, 1999, you have
advised Teachers Insurance and Annuity Association of America
("Teachers"), of the violation by John B. Sanfilippo & Son, Inc.
(the "Company") of Section 9.l of that certain Note Purchase
Agreement dated as of August 30, 1995, between the Company and
Teachers, as amended from time to time (the "Note Purchase
Agreement") for the Company's fiscal quarter ended December 24,
1998, and the occurrence of an Event of Default under Section
12.1(M) of the Note Purchase Agreement as the result of an
adverse ruling in certain pending litigation against the Company.
In this regard, you have requested that Teachers waive any
breach of the Note Purchase Agreement as a result of the
violation of the Fixed Charge Covenant Ratio required under the
aforementioned section for the Company's fiscal quarter ended
December 24, 1998, as well as a waiver of any Event of Default
under the Note Purchase Agreement as a result of the occurrence
of an Event of Default under Section 12.1(M) of the Note Purchase
Agreement and the declaration of defaults by Prudential and the
Banks under the Prudential Note Purchase Agreement and the Bank
Agreement resulting from the breach by the Company of similar
provisions of said agreements.
Capitalized terms used herein shall, unless otherwise
defined herein, have the meanings provided in the Note Purchase
Agreement.
Subject to the conditions precedent set forth below,
Teachers hereby waives any Event of Default under the Note
Purchase Agreement resulting from the Company's violation of
Section 9.1 of the Note Purchase Agreement for the period ending
December 24, 1998 and waives any Event of Default thereunder by
virtue of the occurrence of any default under Section 12.1(M) or
under the Prudential Note Purchase Agreement or Bank Agreement
resulting from such breaches of the Note Purchase Agreement,
whether by means of a cross default to the Note Purchase
Agreement, or as a direct breach of such agreements.
Subject to the conditions precedent set forth below,
Teachers further agrees to amend the Note Purchase Agreement as
follows:
1. Section 9.1 of the Note Purchase Agreement is
hereby amended to provide that for each of the Company's fiscal
periods from and after the fiscal period ended December 24, 1998
to and including fiscal period ending June 24, 1999, the Fixed
Charge Coverage Ratio for the period of four consecutive
quarterly fiscal periods of the Company ending before any
measurement date shall not be less than 1.25 to 1.0. Thereafter,
the required Fixed Charge Coverage Ratio for the period of four
consecutive quarterly fiscal periods ending before any
measurement date shall not be less than 1.75 to 1.0.
2. Section 10.1 of the Note Purchase Agreement is
hereby amended to provide that for each of the Company's fiscal
periods from and after the fiscal period ended December 24, 1998
to and including the fiscal period ending June 24, 1999, the
Fixed Charge Coverage Ratio for the period of four consecutive
quarterly fiscal periods of the Company ending before any
measurement date shall not be less than 1.20 to 1.0. Thereafter,
the required Fixed Charge Coverage Ratio for the Period of four
consecutive quarterly fiscal periods ending before any
measurement date shall not less than 1.35 to 1.0.
Except as amended hereby, the Note Purchase Agreement
remains unchanged and in full force and effect.
The effectiveness of this waiver and amendment is
conditioned upon the receipt by Teachers of evidence of the
waiver by Prudential and the Banks of defaults arising under the
Prudential Note Purchase Agreement and Bank Agreement resulting
from the breach by the Company of provisions of said agreements
similar to the Events of Default set forth above and the
amendment of the Fixed Charge Coverage Ratio under the Prudential
Note Purchase Agreement similar to the amendment to the Note
Purchase Agreement set forth above.
This waiver shall not be deemed a waiver of any other
Event of Default or any of Teacher's rights and remedies, all of
which are hereby expressly reserved, or an amendment to any other
provisions of the Note Purchase Agreement not specifically
amended hereby.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ David Persky
----------------
David Persky
Title: Associate Director
ACKNOWLEDGED AND AGREED:
JOHN B. SANFILIPPO & SON, INC.
By: /s/ Gary P. Jensen
------------------
Gary P. Jensen
Title: Executive Vice President, Finance
and Chief Financial Officer
<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 twenty-six
weeks ended December 24, 1998 and Consolidated Balance Sheet as of December 24,
1998 and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-24-1999
<PERIOD-END> DEC-24-1998
<CASH> 1,314
<SECURITIES> 0
<RECEIVABLES> 31,010
<ALLOWANCES> 0
<INVENTORY> 120,726
<CURRENT-ASSETS> 156,197
<PP&E> 138,452
<DEPRECIATION> 64,239
<TOTAL-ASSETS> 244,144
<CURRENT-LIABILITIES> 101,790
<BONDS> 59,717
0
0
<COMMON> 93
<OTHER-SE> 80,278
<TOTAL-LIABILITY-AND-EQUITY> 244,144
<SALES> 187,161
<TOTAL-REVENUES> 187,161
<CGS> 157,546
<TOTAL-COSTS> 157,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,613
<INCOME-PRETAX> 3,710
<INCOME-TAX> 1,536
<INCOME-CONTINUING> 2,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,174
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
