SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q (Mark One) [ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 23, 1999 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to --------- ---------- Commission file number 0-19681 JOHN B. SANFILIPPO & SON, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 36-2419677 (State or other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 2299 Busse Road Elk Grove Village, Illinois 60007 (Address of Principal Executive Offices) Registrant's telephone number, including area code (847) 593-2300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------- ------------- As of February 3, 2000, 5,461,139 shares of the Registrant's Common Stock, $.01 par value per share, excluding 117,900 treasury shares and 3,687,426 shares of the Registrant's Class A Common Stock, $.01 par value per share, were outstanding. JOHN B. SANFILIPPO & SON, INC. INDEX TO FORM 10-Q ------------------------------ PAGE NO. -------- PART I. FINANCIAL INFORMATION - ------------------------------ Item 1 -- Consolidated Financial Statements: Consolidated Statements of Operations for the quarters and twenty-six weeks ended December 23, 1999 and December 24, 1998 3 Consolidated Balance Sheets as of December 23, 1999 and June 24, 1999 4 Consolidated Statements of Cash Flows for the twenty-six weeks ended December 23, 1999 and December 24, 1998 5 Notes to Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 -- Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION - --------------------------- Item 2 -- Changes in Securities 13 Item 4 -- Submission of Matters to a Vote of Security Holders 13 Item 6 -- Exhibits and Reports on Form 8-K 13 SIGNATURE 14 - --------- EXHIBIT INDEX 15 - ------------- OMITTED FINANCIAL STATEMENTS - ---------------------------- None PART I. FINANCIAL INFORMATION Item 1 -- Financial Statements JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except earnings per share) <TABLE> <CAPTION> For the Quarter Ended For the Twenty-six Weeks Ended -------------------------- ------------------------------ December 23, December 24, December 23, December 24, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $124,030 $113,332 $203,554 $187,161 Cost of sales 100,505 95,133 167,480 157,546 ------------ ------------ ------------ ------------ Gross profit 23,525 18,199 36,074 29,615 ------------ ------------ ------------ ------------ Selling expenses 11,604 9,729 19,652 16,303 Administrative expenses 2,667 3,066 4,390 5,258 ------------ ------------ ------------ ------------ 14,271 12,795 24,042 21,561 ------------ ------------ ------------ ------------ Income from operations 9,254 5,404 12,032 8,054 ------------ ------------ ------------ ------------ Other income (expense): Interest expense (1,823) (2,338) (3,709) (4,613) Interest income 19 6 25 13 Gain (loss) on disposition of properties 31 (1) 58 10 Rental income 144 117 287 246 ------------ ------------ ------------ ------------ (1,629) (2,216) (3,339) (4,344) ------------ ------------ ------------ ------------ Income before income taxes 7,625 3,188 8,693 3,710 Income tax (expense) (3,050) (1,301) (3,477) (1,536) ------------ ------------ ------------ ------------ Net income $ 4,575 $ 1,887 $ 5,216 $ 2,174 ============ ============ ============ ============ Basic and diluted earnings per common share $ 0.50 $ 0.21 $ 0.57 $ 0.24 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these financial statements. JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) December 23, June 24, 1999 1999 ------------ --------- ASSETS CURRENT ASSETS: Cash $ 2,014 $ 1,393 Accounts receivable, net 30,704 24,105 Inventories 94,134 89,033 Deferred income taxes 519 519 Income taxes receivable -- 94 Prepaid expenses and other current assets 3,087 3,355 ------------ --------- TOTAL CURRENT ASSETS 130,458 118,499 ------------ --------- PROPERTIES: Buildings 55,460 55,452 Machinery and equipment 75,692 73,794 Furniture and leasehold improvements 5,139 5,049 Vehicles 4,154 4,137 ------------ --------- 140,445 138,432 Less: Accumulated depreciation 70,919 67,550 ------------ --------- 69,526 70,882 Land 1,892 1,892 ------------ --------- 71,418 72,774 ------------ --------- OTHER ASSETS: Goodwill and other intangibles 6,535 6,941 Miscellaneous 5,837 7,010 ------------ --------- 12,372 13,951 ------------ --------- $214,248 $205,224 ============ ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 19,978 $ 36,411 Current maturities of long-term debt 5,639 5,672 Accounts payable 25,297 9,839 Drafts payable 8,414 5,540 Accrued expenses 10,180 7,522 Income taxes payable 2,741 -- ------------ --------- TOTAL CURRENT LIABILITIES 72,249 64,984 ------------ --------- LONG-TERM DEBT 54,051 57,508 ------------ --------- LONG-TERM DEFERRED INCOME TAXES 2,738 2,738 ------------ --------- STOCKHOLDERS' EQUITY Preferred Stock -- -- Class A Common Stock 37 37 Common Stock 56 56 Capital in excess of par value 57,196 57,196 Retained earnings 29,125 23,909 Treasury stock (1,204) (1,204) ------------ --------- 85,210 79,994 ------------ --------- $214,248 $205,224 ============ ========= The accompanying notes are an integral part of these financial statements. JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Twenty-six Weeks Ended ------------------------------ December 23, December 24, 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 5,216 $ 2,174 Adjustments: Depreciation and amortization 4,001 3,943 Gain on disposition of properties (58) (10) Change in current assets and current liabilities: Accounts receivable, net (6,599) (7,109) Inventories (5,101) (21,191) Prepaid expenses and other current assets 268 294 Accounts payable 15,458 19,796 Drafts payable 2,874 5,160 Accrued expenses 2,658 48 Income taxes payable/receivable 2,835 1,474 ------------ ------------ Net cash provided by operating activities 21,552 4,579 ------------ ------------ Cash flows from investing activities: Acquisition of properties (2,081) (2,022) Proceeds from disposition of properties 61 21 Other 1,012 915 ------------ ------------ Net cash used in investing activities (1,008) (1,086) ------------ ------------ Cash flows from financing activities: Net repayments on notes payable (16,433) (698) Principal payments on long-term debt (3,490) (2,030) ------------ ------------ Net cash used in financing activities (19,923) (2,728) ------------ ------------ Net increase in cash 621 765 Cash: Beginning of period 1,393 549 ------------ ------------ End of period $ 2,014 $ 1,314 ============ ============ Supplemental disclosures: Interest paid $ 3,625 $ 4,737 Taxes paid 771 64 The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Note 1 - Basis of Presentation - ------------------------------ On June 25, 1999, John B. Sanfilippo & Son, Inc. (the "Company") dissolved two of its three wholly owned subsidiaries, Sunshine Nut Co., Inc. ("Sunshine") and Quantz Acquisition Co., Inc. and merged such subsidiaries into and with the Company. The Company's fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). The fiscal year ending June 29, 2000 will consist of fifty-three weeks, with the fourth quarter consisting of fourteen, rather than thirteen weeks. Note 2 - Inventories - -------------------- Inventories are stated at the lower of cost (first in, first out) or market. Inventories consist of the following: December 23, June 24, 1999 1999 ----------- -------- Raw material and supplies $59,562 $33,998 Work-in-process and finished goods 34,572 55,035 ----------- -------- $94,134 $89,033 =========== ======== Note 3 - Earnings Per Common Share - ---------------------------------- Earnings per common share is calculated using the weighted average number of shares of Common Stock and Class A Common Stock outstanding during the period. The following tables present the required disclosures: <TABLE> <CAPTION> For the Quarter Ended December 23, 1999 For the Quarter Ended December 24, 1998 --------------------------------------- --------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------- ------------- ----------- ------------- ------------- ----------- <S> <C> <C> <C> <C> <C> <C> Net Income $4,575 $1,887 Basic Earnings Per Share Income available to common Stockholders 4,575 9,148,565 $0.50 1,887 9,148,565 $0.21 =========== =========== Effect of Dilutive Securities Stock options -- -- Diluted Earnings Per Share Income available to common Stockholders $4,575 9,148,565 $0.50 $1,887 9,148,565 $0.21 ============= ============= =========== ============= ============= =========== </TABLE> <TABLE> <CAPTION> For the Twenty-six Weeks Ended For the Twenty-six Weeks Ended December 23, 1999 December 24, 1998 --------------------------------------- --------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------- ------------- ----------- ------------- ------------- ----------- <S> <C> <C> <C> <C> <C> <C> Net Income $5,216 $2,174 Basic Earnings Per Share Income available to common Stockholders 5,216 9,148,565 $0.57 2,174 9,148,565 $0.24 =========== =========== Effect of Dilutive Securities Stock options 43 41 Diluted Earnings Per Share Income available to common Stockholders $5,216 9,148,608 $0.57 $2,174 9,148,606 $0.24 ============= ============= =========== ============= ============= =========== </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: Weighted-Average Number of Options Exercise Price ----------------- ---------------- Quarter Ended December 23, 1999 346,793 $ 9.33 Quarter Ended December 24, 1998 361,320 $10.23 Twenty-six Weeks Ended December 23, 1999 351,922 $ 9.37 Twenty-six Weeks Ended December 24, 1998 363,622 $10.26 Note 4 - Management's Statement - ------------------------------- The unaudited financial statements included herein have been prepared by the Company. In the opinion of the Company's management, these statements present fairly the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows, and reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods. The interim results of operations are not necessarily indicative of the results to be expected for a full year. The data presented on the balance sheet for the fiscal year ended June 24, 1999 were derived from audited financial statements. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1999 Annual Report to Stockholders for the year ended June 24, 1999. Item 2 - ------ 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 23, 1999, the Company's inventories totaled approximately $94.1 million compared to approximately $89.0 million at June 24, 1999, and approximately $120.7 million at December 24, 1998. The decrease in inventories at December 23, 1999 when compared to December 24, 1998 is primarily due to decreased dollar levels of walnuts, peanuts, almonds and pecans on hand due primarily to: (i) lower purchases of peanuts due to a lower crop size in fiscal 2000 compared to fiscal 1999; (ii) higher sales for the first twenty-six weeks of fiscal 2000 compared to the first twenty-six weeks of fiscal 1999; and (iii) lower per unit purchase costs for pecans and almonds in the first twenty-six weeks of fiscal 2000 compared to the first twenty-six weeks of fiscal 1999. See "Factors That May Affect Future Results -- Availability of Raw Materials and Market Price Fluctuations." The Company's fiscal year ends on the last Thursday of June each year, and references herein to "fiscal" years are to the fiscal years ended in the indicated calendar year (for example, "fiscal 2000" refers to the Company's fiscal year ending June 29, 2000). The Company's fiscal year typically consists of fifty-two weeks (four thirteen week quarters). Fiscal 2000 will consist of fifty-three weeks, with the fourth quarter of fiscal 2000 consisting of fourteen, rather than thirteen, weeks. RESULTS OF OPERATIONS - --------------------- Net Sales. Net sales increased from approximately $113.3 million for the second quarter of fiscal 1999 to approximately $124.0 million for the second quarter of fiscal 2000, an increase of approximately $10.7 million, or 9.4%. Net sales increased from approximately $187.1 million for the first twenty-six weeks of fiscal 1999 to approximately $203.6 million for the first twenty-six weeks of fiscal 2000, an increase of approximately $16.3 million, or 8.8%. The increases, for both the quarterly and year-to-date periods, were due primarily to higher unit volume sales to the Company's retail, food service and export customers. The increase in retail sales was due primarily to higher unit volume sales of the Company's Fisher brand. Gross Profit. Gross profit for the second quarter of fiscal 2000 increased approximately 29.3% to approximately $23.5 million from approximately $18.2 million for the second quarter of fiscal 1999. Gross profit margin increased from approximately 16.1% for the second quarter of fiscal 1999 to approximately 19.0% for the second quarter of fiscal 2000. Gross profit for first twenty-six weeks of fiscal 2000 increased approximately 21.8% to approximately $36.1 million from approximately $29.6 million for the first twenty-six weeks of fiscal 1999. Gross profit margin increased from approximately 15.8% for the first twenty-six weeks of fiscal 1999 to approximately 17.7% for the first twenty-six weeks of fiscal 2000. The increases in gross profit margin, for both the quarterly and year-to-date periods, were due primarily to increases in unit volume sales of Fisher brand sales as a percentage of the Company's total net sales. Also, favorably impacting the gross profit margin was a decrease in industrial sales as a percentage of total net sales for both the quarterly and year-to-date periods. Industrial sales generally carry lower margins than sales to the Company's retail and food service customers. Selling and Administrative Expenses. Selling and administrative expenses as a percentage of net sales increased slightly from approximately 11.3% for the second quarter of fiscal 1999 to approximately 11.5% for the second quarter of fiscal 2000. Selling and administrative expenses as a percentage of net sales increased slightly from approximately 11.5% for the first twenty-six weeks of fiscal 1999 to approximately 11.8% for the first twenty-six weeks of fiscal 2000. Selling expenses as a percentage of net sales increased from approximately 8.6% for the second quarter of fiscal 1999 to approximately 9.4% for the second quarter of fiscal 2000. Selling expenses as a percentage of net sales increased from approximately 8.7% for the first twenty-six weeks of fiscal 1999 to approximately 9.7% for the first twenty-six weeks of fiscal 2000. These increases, for both the quarterly and year-to-date periods, were due primarily to an expansion of promotional activity to support the Company's growth in its retail business. Administrative expenses as a percentage of net sales decreased from approximately 2.7% for the second quarter of fiscal 1999 to approximately 2.2% for the second quarter of fiscal 2000. Administrative expenses as a percentage of net sales decreased from approximately 2.8% for the first twenty-six weeks of fiscal 1999 to approximately 2.2% for the first twenty-six weeks of fiscal 2000. The decreases in administrative expenses as a percentage of net sales, for both the quarterly and year-to-date periods, were due primarily to: (i) the consolidation of the administrative functions of Sunshine with the Company's administrative functions during the fourth quarter of fiscal 1999; (ii) spreading administrative expenses over a higher revenue base; and (iii) an increase in litigation expense recognized in the second quarter of fiscal 1999 pertaining to a lawsuit which was subsequently settled. Income from Operations. Due to the factors discussed above, income from operations increased from approximately $5.4 million, or 4.8% of net sales, for the second quarter of fiscal 1999, to approximately $9.3 million, or 7.5% of net sales, for the second quarter of fiscal 2000. For the twenty-six weeks ended December 23, 1999, income from operations increased to approximately $12.0 million, or 5.9% of net sales, from approximately $8.1 million, or 4.3% of net sales, for the twenty-six weeks ended December 24, 1998. Interest Expense. Interest expense decreased from approximately $2.3 million for the second quarter of fiscal 1999 to approximately $1.8 million for the second quarter of fiscal 2000. For the twenty-six weeks ended December 23, 1999, interest expense was approximately $3.7 million, compared to approximately $4.6 million for the twenty-six weeks ended December 24, 1998. The decreases in interest expense, for both the quarterly and year-to-date periods, were due primarily to lower average level of borrowings due to lower levels of inventories. Income Taxes. The Company recorded income tax expense of approximately $3.1 million, or 40.0% of income before income taxes, for the second quarter of fiscal 2000, and approximately $3.5 million, or 40.0% of income before income taxes for the twenty-six weeks ended December 23, 1999. Liquidity and Capital Resources - ------------------------------- During the second quarter of fiscal 2000, the Company continued to finance its activities through a bank credit facility (the "Bank Credit Facility"), $35.0 million borrowed under a long-term financing facility originally entered into by the Company in 1992 (the "Long-Term Financing Facility") and $25.0 million borrowed on September 12, 1995 under a long-term financing arrangement (the "Additional Long-Term Financing"). Net cash provided by operating activities was approximately $21.6 million for the first twenty-six weeks of fiscal 2000 compared to approximately $4.6 million for the first twenty-six weeks of fiscal 1999. The increase in cash provided by operating activities was due primarily to lower levels of peanut purchases in fiscal 2000 due to a smaller crop size, and to decreased per unit costs of almonds and pecans in fiscal 2000. During the first twenty-six weeks of fiscal 2000, the Company invested approximately $2.1 million in capital expenditures, compared to approximately $2.0 million for the first twenty-six weeks of fiscal 1999, and repaid approximately $3.5 million of long-term debt, compared to approximately $2.0 million for the first twenty-six weeks of fiscal 1999. The Bank Credit Facility is comprised of (i) a working capital revolving loan which provides for working capital financing of up to approximately $62.3 million, in the aggregate, and matures on March 31, 2001, and (ii) a letter of credit of approximately $7.7 million to secure the industrial development bonds which matures on June 1, 2002. Borrowings under the working capital revolving loan accrue interest at a rate (the weighted average of which was 6.59% at December 23, 1999) determined pursuant to a formula based on the agent bank's quoted rate and the Eurodollar Interbank rate. Of the total $35.0 million of borrowings under the Long-Term Financing Facility, $25.0 million matures on August 15, 2004, bears interest rates ranging from 7.34% to 9.18% per annum payable quarterly, and requires equal semi-annual principal installments based on a ten-year amortization schedule. The remaining $10.0 million of this indebtedness matures on May 15, 2006, bears interest at the rate of 9.16% per annum payable quarterly, and requires equal semi-annual principal installments based on a ten-year amortization schedule. As of December 23, 1999, the total principal amount outstanding under the Long-Term Financing Facility was approximately $18.8 million. The Additional Long-Term Financing has a maturity date of September 1, 2005 and (i) as to $10.0 million of the principal amount thereof, bears interest at an annual rate of 8.3% payable semiannually and requires annual principal payments of approximately $1.4 million each through maturity, and (ii) as to the other $15.0 million of the principal amount thereof, bears interest at an annual rate of 9.38% payable semiannually and requires principal payments of $5.0 million each on September 1, 2003 and September 1, 2004, with a final payment of $5.0 million at maturity on September 1, 2005. As of December 23, 1999, the total principal amount outstanding under the Additional Long-Term Financing was approximately $23.6 million. The terms of the Company's financing facilities, as amended, include certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) limit the Company's capital expenditures to $7.5 million annually; and (iii) require that Jasper B. Sanfilippo (the Company's Chairman of the Board and Chief Executive Officer) and Mathias A. Valentine (a director and the Company's President) together with their respective immediate family members and certain trusts created for the benefit of their respective sons and daughters, continue to own shares representing the right to elect a majority of the directors of the Company. In addition, (i) the Long-Term Financing Facility limits the Company's payment of dividends to a cumulative amount not to exceed 25% of the Company's cumulative net income from and after January 1, 1996, (ii) the Additional Long-Term Financing limits cumulative dividends to the sum of (a) 50% of the Company's cumulative net income (or minus 100% of the Company's cumulative net loss) from and after January 1, 1995 to the date the dividend is declared, (b) the cumulative amount of the net proceeds received by the Company during the same period from any sale of its capital stock, and (c) $5.0 million, and (iii) the Bank Credit Facility limits dividends to the lesser of (a) 25% of net income for the previous fiscal year, or (b) $5.0 million and prohibits the Company from redeeming shares of capital stock. As of December 23, 1999, the Company had approximately $40.0 million of available credit under the Bank Credit Facility. Approximately $2.1 million was incurred on capital expenditures for the first twenty-six weeks of fiscal 2000. No significant capital expenditures are anticipated for the foreseeable future. The Company believes that cash flow from operating activities and funds available under the Bank Credit Facility (assuming the Company maintains compliance with the restrictive covenants under the Bank Credit Facility currently in effect, or, in the event of any subsequent non-compliance, is able to obtain any necessary waivers) will be sufficient to meet working capital requirements and anticipated capital expenditures for the foreseeable future. Year 2000 - --------- As of the date of this report, the Company `s information systems were not adversely affected by the change to the calendar year 2000. There were no internal system disruptions and the Company is not aware of any failures affecting third parties with whom the Company conducts business. The Company will continue to monitor the situation for any internal or third party disruptions, but expects none at this time. Costs incurred by the Company related to Year 2000 issues were not material. Factors That May Affect Future Results - -------------------------------------- (a) Availability of Raw Materials and Market Price Fluctuations - ---------------------------------------------------------------- The availability and cost of raw materials for the production of the Company's products, including peanuts, pecans, other nuts, dried fruit and chocolate, are subject to crop size and yield fluctuations caused by factors beyond the Company's control, such as weather condition and plant diseases. Additionally, the supply of edible nuts and other raw materials used in the Company's products could be reduced upon any determination by the United States Department of Agriculture ("USDA") or other government agency that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by aflatoxin or other agents. Shortages in the supply of and increases in the prices of nuts and other raw materials used by the Company in its products could have an adverse impact on the Company's profitability. Furthermore, fluctuations in the market prices of nuts, dried fruit or chocolate may affect the value of the Company's inventory and the Company's profitability. The Company has a significant inventory of nuts, dried fruit and chocolate that would be adversely affected by any decrease in the market price of such raw materials. See "General". (b) Competitive Environment - --------------------------- The Company operates in a highly competitive environment. The Company's principal products compete against food and snack products manufactured and sold by numerous regional and national companies, some of which are substantially larger and have greater resources than the Company, such as Planters Lifesavers Company (a subsidiary of RJR Nabisco, Inc.). The Company also competes with other shellers in the industrial market and with regional processors in the retail and wholesale markets. In order to maintain or increase its market share, the Company must continue to price its products competitively, which may lower revenue per unit and cause declines in gross margin, if the Company is unable to increase unit volumes as well as reduce its costs. (c) Fixed Price Commitments - --------------------------- From time to time, the Company enters into fixed price commitments with its customers. However, such commitments typically represent approximately 10% of the Company's annual net sales and are normally entered into after the Company's cost to acquire the nut products necessary to satisfy the fixed price commitment is substantially fixed. The Company will continue to enter into fixed price commitments with respect to certain of its nut products prior to fixing its acquisition cost when, in management's judgment, market or crop harvest conditions so warrant. To the extent the Company does so, these fixed price commitments may result in losses. Historically, however, such losses have generally been offset by gains on other fixed price commitments. However, there can be no assurance that losses from fixed price commitments may not have a material adverse effect on the Company's results of operations. (d) Federal Regulation of Peanut Prices, Quotas and Poundage Allotments - ----------------------------------------------------------------------- Peanuts are an important part of the Company's product line. Approximately 50% of the total pounds of products processed annually by the Company are peanuts, peanut butter and other products containing peanuts. The production and marketing of peanuts are regulated by the USDA under the Agricultural Adjustment Act of 1938 (the "Agricultural Adjustment Act"). The Agricultural Adjustment Act, and regulations promulgated thereunder, support the peanut crop by: (i) limiting peanut imports; (ii) limiting the amount of peanuts that American farmers are allowed to take to the domestic market each year; and (iii) setting a minimum price that a sheller must pay for peanuts which may be sold for domestic consumption. The amount of peanuts that American farmers can sell each year is determined by the Secretary of Agriculture and is based upon the prior year's peanut consumption in the United States. Only peanuts that qualify under the quota may be sold for domestic food products and seed. The peanut quota for the 1999 crop year is approximately 1.2 million tons. Peanuts in excess of the quota are called "additional peanuts" and generally may only be exported or used domestically for crushing into oil or meal. Current regulations permit additional peanuts to be domestically processed and exported as finished goods to any foreign country. The quota support price for the 1999 crop year is approximately $610 per ton. The 1996 Farm Bill extended the federal support and subsidy program for peanuts for seven years. However, there are no assurances that Congress will not change or eliminate the program prior to its scheduled expiration. Changes in the federal peanut program could significantly affect the supply of, and price for, peanuts. While the Company has successfully operated in a market shaped by the federal peanut program for many years, the Company believes that it could adapt to a market without federal regulation if that were to become necessary. However, the Company has no experience in operating in such a peanut market, and no assurances can be given that the elimination or modification of the federal peanut program would not adversely affect the Company's business. Future changes in import quota limitations or the quota support price for peanuts at a time when the Company is maintaining a significant inventory of peanuts or has significant outstanding purchase commitments could adversely affect the Company's business by lowering the market value of the peanuts in its inventory or the peanuts which it is committed to buy. While the Company believes that its ability to use its raw peanut inventories in its own processing operations gives it greater protection against these changes than is possessed by certain competitors whose operations are limited to either shelling or processing, no assurances can be given that future changes in, or the elimination of, the federal peanut program or import quotas will not adversely affect the Company's business. (e) Financial Covenants - ------------------------ From time to time, the Company has not complied with certain financial covenants under its three primary financing facilities. A default under one of the Company's three primary financing arrangements constitutes a cross-default under the other primary financing arrangements. Therefore, in the event of any non-compliance, the Company would be required to obtain a waiver from each of its three primary lenders for a single default. While the Company has always obtained waivers from its primary lenders for past non-compliance with its financial covenants, and believes it would be able to obtain similar waivers in the future, there can be no assurance that, in the event of any non-compliance, the Company's lenders would always provide such waivers. If the Company were unable to secure any necessary waivers from its primary lenders, the primary lenders would have the right to accelerate the balances due under the financing facilities. If such balances were accelerated, the Company may be required to borrow money at higher costs. See "Liquidity and Capital Resources". Item 3 - ------ Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- The Company has not entered into transactions using derivative financial instruments. The Company believes that its exposure to market risk related to its other financial instruments (which are the debt instruments under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources") is not material. PART II. OTHER INFORMATION - --------------------------- Item 2 -- Changes in Securities - ------------------------------- As described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" under Part I of this report, there are restrictive covenants under the Company's financing facilities which limit the payment of dividends. Item 4 -- Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- The only matters submitted to a vote of the Company's Stockholders during the quarter ended December 23, 1999 were (i) the election of directors, and (ii) the ratification of the appointment of PricewaterhouseCoopers LLP by the Company's Board of Directors as the Company's independent accountants for fiscal 2000. The matters were submitted to the Company's stockholders in connection with, and voted upon at the Company's 1999 Annual Meeting of Stockholders, which was held on October 27, 1999. The information called for by this Item 4 with respect to such matters was previously reported in, and is hereby answered by reference to the information set forth under, Item 5 - "Other Information" in the Company's Quarterly Report on Form 10-Q for the quarter ended September 23, 1999. Item 6 -- Exhibits and Reports on Form 8-K - ------------------------------------------ (a) The exhibits filed herewith are listed in the exhibit index which follows the signature page and immediately precedes the exhibits filed. (b) Reports on Form 8-K: There were no Current Reports on Form 8- K filed during the quarter ended December 23, 1999. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN B. SANFILIPPO & SON, INC. Date: February 3, 2000 By: /s/ Gary P. Jensen -------------------------------- Gary P. Jensen Executive Vice President Finance and Chief Financial Officer EXHIBIT INDEX ------------- Exhibit Number Description - ------- ----------- 10.1 Employment Agreement between the Company and Steven G. Taylor 27 Financial Data Schedule