John B. Sanfilippo & Son - 10-Q quarterly report FY

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, and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer. þ Yes o No

Indicate by check mark whether the registrant is a shell company. o Yes þ No

As of November 14, 2005, 8,102,349 shares of the Registrant’s Common Stock, $0.01 par value per share, excluding 117,900 treasury shares, and 2,597,426 shares of the Registrant’s Class A Common Stock, $0.01 par value per share, were outstanding.

John B. Sanfilippo & Son, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in 1979 as the successor by merger to an Illinois corporation that was incorporated in 1959. As used herein, unless the context otherwise indicates, the term “Company” refers collectively to John B. Sanfilippo & Son, Inc. and its previously wholly owned subsidiary, JBS International, Inc., which was dissolved in November, 2004. The Company’s fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). Fiscal 2005, however, contained fifty-three weeks, with the fourth quarter containing fourteen weeks.

In the opinion of the Company’s management, the accompanying statements present fairly the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows, and reflect all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods. The interim results of operations are not necessarily indicative of the results to be expected for a full year. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s 2005 Annual Report filed on Form 10-K for the year ended June 30, 2005.

Inventories are stated at the lower of cost (first in, first out) or market. Inventories consist of the following (in thousands):

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 table presents the reconciliation of the weighted average shares outstanding used in computing earnings per share:

Excluded from the computation of diluted earnings per share for the quarter ended September 29, 2005 were 372,190 stock options with a weighted average exercise price of $13.45. These options were excluded from the computation due to the net loss for the quarter. Excluded from the computation of diluted earnings per share were options with exercise prices greater than the average market price of the Common Stock, totaling 3,000 for the quarter ended September 23, 2004. These options had weighted average exercise prices of $32.30.

Under the Company’s stock option plans, the Company may grant incentive and non-qualified options to purchase common stock at an exercise price equal to or greater than the fair market value at the grant date, as determined by the Board of Directors. Options vest over four years and vested options are exercisable in part or in full at any time prior to the expiration date of 5 to 10 years from the date of the grant.

At the Company’s annual meeting of stockholders on October 28, 1998, the Company’s stockholders approved the 1998 Equity Incentive Plan under which awards of non-qualified options and stock-based awards may be made. There are 700,000 shares of common stock authorized for issuance to certain key employees and “outside directors” (i.e. directors who are not employees of the Company or any of its subsidiaries). At September 29, 2005, there were 161,500 options available for distribution under this plan.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). This Statement requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees over the requisite service period. FAS 123R eliminates the alternative to use the intrinsic method of accounting provided for in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), which generally resulted in no compensation expense recorded in the financial statements related to the grant of stock options to employees if certain conditions were met.

Effective for the first quarter, the Company adopted SFAS 123R using the modified prospective method, which requires the Company to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not been restated to reflect the adoption of SFAS 123R.

Prior to the adoption of SFAS 123R, the Company included all tax benefits resulting from the exercise of stock options in operating cash flows in its consolidated statements of cash flows. In accordance with SFAS 123R, for the period beginning with first quarter of fiscal 2006, the Company includes the tax benefits from the exercise of stock options in financing cash flows in its statement of cash flows.

The Company determines fair value of such awards using the Black-Scholes option-pricing model. The following weighted average assumptions were used to value the Company’s grants through the first quarter of 2006: 3.75 and 6.25 years expected life; expected stock volatility of 51.8%; risk-free interest rate of 4.07% to 4.11%; expected forfeitures of 0%; and expected dividend yield of 0% during the expected term.

The expected term of the awards was determined using the “simplified method” as stated in SEC Staff Accounting Bulletin No. 107 that utilizes the following formula: ((vesting term + original contract term)/2). Expected stock volatility was determined based on historical volatility for either the 3.75 or 6.25 year-period preceding the measurement date. The risk-free rate was based on the yield curve in effect at the time options were granted, using U.S. treasury constant maturities over the expected life of the option. Expected forfeitures were determined based on the Company’s expectations and past experiences. Expected dividend yield was based on the Company’s dividend policy at the time the options were granted.

Under the fair value recognition provisions of SFAS 123R, stock-based compensation is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Stock-based compensation expense was $132 thousand and the related tax benefit for non-qualified stock options was $2 thousand for the first quarter of fiscal 2006.

Prior to the adoption of SFAS 123R, the Company accounted for stock-based awards to employees using the intrinsic method in accordance with APB 25. The following table illustrates the effect on net income for the first quarter of 2004 and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123R (in thousands, except per-share amounts):

Activity in the Company’s stock option plans for the first quarter of 2006 was as follows:

The weighted average fair value of options granted was $9.41 and the total intrinsic value of options exercised was $8 thousand during the first quarter of 2006.

As of September 29, 2005, there was $1.47 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. The Company expects to recognize that cost over a weighted average period of 1.61 years. The total fair value of shares vested during the period was $259 thousand.

On August 25, 2005, the Company’s Compensation, Nominating and Corporate Governance Committee approved a Supplemental Retirement Plan (the “SERP”) to cover certain executive officers of the Company. The purpose of the SERP is to provide an unfunded, non-qualified deferred compensation monthly benefit upon retirement, disability or death to a select group of management and key employees of the Company. The monthly benefit is based upon each individual’s earnings and his number of years of service. An administrative expense of $183 thousand was recognized as follows (amounts in thousands):

Additionally, an intangible asset and an additional minimum liability for accumulated benefit obligations of $10.47 million were recorded.

The Company operates in a single reportable segment through which it sells various nut products through multiple distribution channels.

The following summarizes net sales by distribution channel (in thousands):

The following summarizes sales by product type as a percentage of total gross sales. The information is based on gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.

The Company accounts for comprehensive income in accordance with SFAS 130, “Reporting Comprehensive Income”. The Company currently has no components of comprehensive income that are required to be disclosed separately. Consequently, comprehensive income equals net income for all periods presented.

The Company is in compliance with all restrictive covenants under its financing facilities as of September 29, 2005. However, it is probable that the Company will not be in compliance with the funded debt to EBITDA ratio covenants under its primary short-term and long-term financing facilities for the quarter ending December 29, 2005. Violations of financial covenants constitute events of default as defined in the financing facilities. Upon an event of default, outstanding amounts, including accrued interest, under the financing facilities would become immediately due. There is no assurance that the Company will be able to successfully renegotiate the existing agreements with its lenders or that the terms of the credit agreements will not be substantially changed. The inability of the Company to renegotiate the terms of its existing credit facilities or obtain new financing could have a material adverse effect on the Company’s business.

The following is a breakout of interest cost:

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements.

The Company is a processor, packager, marketer and distributor of shelled and inshell nuts. The Company also markets or distributes, and in most cases manufactures or processes, a diverse product line of food and snack items, including peanut butter, candy and confections, natural snacks and trail mixes, sunflower seeds, corn snacks and sesame products. The Company sells to the consumer market under a variety of private labels and under the Company’s brand names, primarily Fisher. The Company also sells to the industrial food service contract packaging and export markets.

The Company’s results for the first quarter of fiscal 2006 were disappointing in terms of both sales and earnings. Net sales increased by 3.0% to $138.7 million for the first quarter of fiscal 2006 compared to $134.6 million for the first quarter of fiscal 2005, but sales volume measured in pounds decreased by 10.5%. The decrease in sales volume was caused mainly by a 17.9% decrease in net sales in the Company’s consumer distribution channel. This decrease was caused in large part to the loss of private label business in the latter part of fiscal 2005 with customers that would not accept price increases. Also, market studies have shown a shift in consumer preference to branded snack nuts away from private label as the price differential between branded and private label products has narrowed due to necessary private label price increases caused by the rise in costs of tree nuts. Sales volume of the Company’s Fisher brand were virtually unchanged in the first quarter of fiscal 2006 when compared to the first quarter of fiscal 2005; however, since the majority of the Company’s consumer distribution channel business is private label, the overall decrease in the consumer distribution channel was significant.

The Company’s gross margin decreased to 9.6% of net sales for the first quarter of fiscal 2006 from 12.6% for the first quarter of fiscal 2005. The decrease in gross margin was caused by several factors. The decrease in sales volume led to a corresponding decrease in production. Manufacturing expenses of a fixed nature did not decrease with the decrease in production. Almond processing costs were negatively impacted by the lower quality of purchased almonds used in production. The shift in sales mix from the consumer distribution channel also negatively affected gross margin, as consumer sales typically carry higher gross margins than the Company’s overall gross margin. The gross margins on pecan sales were also lower in the first quarter of fiscal 2006 than the first quarter of fiscal 2005 due to significantly higher pecan costs. The rising costs of almonds continue to negatively impact the Company’s profitability. During the first quarter of fiscal 2006, the Company purchased almonds at costs significantly higher than the unit cost of almond inventory on hand at the end of fiscal 2005. These almond purchases in turn led to an increase in the unit cost of almond inventory on hand at the end of the first quarter of fiscal 2006. The almond inventory on hand at the end of the first quarter of fiscal 2006 was comprised of almonds purchased in fiscal 2005 and almonds purchased in the first quarter of fiscal 2006. As a result of the increase in almond inventory cost, the Company recorded a $2.2 million reserve during the first quarter of fiscal 2006 for losses expected on the fulfillment of certain fixed price almond contracts entered into in fiscal 2005.

Selling and administrative expenses increased to $13.4 million for the first quarter of fiscal 2006 from $12.6 million for the first quarter of fiscal 2005. This increase was caused primarily by a $0.5 million increase in legal and audit costs and a $0.2 increase due to the adoption of a supplemental retirement plan. Interest expense increased to $1.5 million for the first quarter of fiscal 2006 compared to $0.3 million for the first quarter of fiscal 2005. This increase was caused by a higher average level of borrowings and a higher interest rate on the Company’s revolving bank credit facility.

The above factors led to a net loss of ($1.1) million, or ($0.11) per share, in the first quarter of fiscal 2006 compared to net income of $2.6 million, or $0.24 per share, for the first quarter of fiscal 2005. While the Company is currently in compliance with all covenants under its credit facilities, it is probable that the Company will not be in compliance with the funded debt to EBITDA ratio covenants under the Bank Credit Facility and Note for the second quarter of fiscal 2006. The calculation of funded debt utilizes a twelve-month average outstanding balance for the Bank Credit Facility. Outstanding amounts under this facility are expected to be higher during the second quarter of fiscal 2006 than in the second quarter of fiscal 2005. The Company plans to negotiate with its lenders regarding the probable violation of the debt covenants. There is no assurance that the Company will be able to successfully renegotiate the existing agreements with its lenders or that the terms of the credit agreements will not be substantially changed. The inability of the Company to renegotiate the terms of its existing credit facilities or obtain new financing could have a material adverse effect on the Company’s business.

The possibility of growth and the seasonality of the Company’s business that has caused full-capacity utilization rates at the Company’s Chicago area facilities, led the Company to explore additional means of expanding its production capacity and enhancing its operations efficiency. As a result, the Company will consolidate its six Chicago area facilities into a single location in Elgin, Illinois. Of the six current facilities, two facilities and approximately 20% of a third facility are owned by the Company. Eighty percent of the third facility, and a fourth facility, are leased by the Company from certain partnerships owned by executive officers and directors of the Company. The remaining two facilities are leased by the Company from independent third parties.

On April 15, 2005, the Company closed on the $48.0 million purchase of a site in Elgin, Illinois (the “Current Site”) with the final $46.0 million paid using available funds under the Bank Credit Facility. The Current Site includes both an office building and a warehouse. The Company is leasing 41.5% of the office building back to the seller for a three year period, with options for an additional seven years. The remaining portion of the office building may be leased to third parties. The 653,302 square foot warehouse building is being expanded to approximately 1,000,000 square feet and will be modified to accommodate the Company’s needs. Groundbreaking for the expansion occurred in August 2005. The construction is expected to be completed in the first half of calendar 2006. The Company’s existing Chicago area operations will be moved to the Current Site on a gradual basis.

The Company performed an analysis of its existing assets at its Chicago locations, and based on this analysis identified those assets which will be transferred to the Current Site and those that will not. For those assets which are not expected to be transferred to the Current Site, the remaining depreciation period has been reduced to reflect the Company’s estimate of the useful lives of these assets. In addition to the assets being transferred, new machinery and equipment will also be installed at the Current Site. The Company currently anticipates that operations will be fully integrated into the Current Site in December 2008.

Total additional expenditures for the facility consolidation project are estimated to be approximately $40 — $50 million, which the Company expects to finance through the Bank Credit Facility, available cash flow from operations, proceeds from the sale of existing facilities and rental income from the office building at the Current Site. The Bank Credit Facility expires on May 31, 2006. While the Company is currently negotiating with its lenders under the Bank Credit Facility and fully expects to extend the Bank Credit Facility, no assurances can be made that the Bank Credit Facility will be extended. Also, waivers will be required for the probable violation of financial covenants under the Bank Credit Facility and Note Agreement for the second quarter of fiscal 2006. See “Factors That May Affect Future Results — Risks and Uncertainties Regarding Facility Consolidation Project.”

This facility consolidation project is anticipated to achieve two primary objectives. First, the consolidation is intended to generate cost savings through the elimination of redundant costs, such as interplant freight, and improvements in manufacturing efficiencies. Second, the new facility is expected to initially increase production capacity by 25% to 40% and to provide substantially more square footage than the aggregate space now available in the Company’s existing Chicago area facilities to support future growth in the Company’s business. The facility consolidation project will allow the Company to pursue certain new business opportunities that currently are not available due to the lack of production capacity.

The Company, along with related party partnerships that own a portion of the Company’s existing Chicago area facilities, is in the process of selling these facilities. The Company intends to lease back from the ultimate purchasers that portion of the facilities that are necessary to run the Company’s business while the facility consolidation project is completed in Elgin. The Company estimates that these sale and leaseback transactions will be consummated during the first half of fiscal 2006. Based upon the bids received, the Company believes that proceeds received from the sales will exceed the Company’s carrying value of these assets. The Company’s Board of Directors has appointed an independent committee to explore alternatives with respect to the Company’s existing leases for the properties owned by the related party partnerships. The Company may be required to incur costs and/or enter into other arrangements with the related party partnerships in this regard, however, the amount of any such costs or the nature of any such arrangements have not been determined.

Prior to acquiring the Current Site, the Company and certain related party partnerships entered into a Development Agreement with the City of Elgin, Illinois (the “Development Agreement”) for the development and purchase of the land where a new facility could be constructed (the “Original Site”). The Development Agreement provides for certain conditions, including but not limited to the completion of environmental and asbestos remediation procedures, the inclusion of the property in the Elgin enterprise zone and the establishment of a tax incremental financing district covering the property. The Company fulfilled its remediation obligations under the Development Agreement during fiscal 2005, subject to final notification from the State of Illinois. The Company’s costs under the Development Agreement totaling $6.8 million are recorded as “Other Assets” at September 29, 2005 and June 30, 2005. The Company is currently negotiating with the City of Elgin for a possible transfer of title to the Company from the City of Elgin, after which time the Original Site would be marketed to potential buyers. The Company performed a review for

realization of the carrying value under the Development Agreement, and concluded that no adjustment of the carrying value was required.

In order to finance a portion of the Company’s facility consolidation project and to provide for the Company’s general working capital needs, the Company received $65.0 million pursuant to a note purchase agreement (the “Note Agreement”) entered into on December 16, 2004 with various lenders. Under the terms of the Note Agreement, the notes have a maturity of ten years, bear interest at a fixed 4.67% annual rate and are required to be repaid in equal semi-annual principal payments of $3.6 million beginning on June 1, 2006. The proceeds from this financing were used to reduce the Company’s outstanding obligations under the Bank Credit Facility in order to fund the procurement of inventories during the third quarter of fiscal 2005 and the $48 million purchase of the Current Site.

The Company’s business is seasonal. Demand for peanut and other nut products is highest during the months of October, November and December. Peanuts, pecans, walnuts and almonds, the Company’s principal raw materials, are primarily purchased between August and February and are processed throughout the year until the following harvest. As a result of this seasonality, the Company’s personnel requirements rise during the last four months of the calendar year. This seasonality also impacts capacity utilization at the Company’s Chicago area facilities, with these facilities routinely operating at full capacity during the last four months of the calendar year. The Company’s working capital requirements generally peak during the third quarter of the Company’s fiscal year.

The Company faces a number of challenges in the future. The Company’s Chicago area processing facilities operate at full capacity at certain times during the year. If the Company experiences growth in unit volume sales, it could exceed its capacity to meet the demand for its products, especially prior to the completion of the facility consolidation project. The Company faces potential disruptive effects on its business, such as cost overruns for the construction of the new facility or business interruptions that may result from the transfer of production to the new facility. In addition, the Company will continue to face the ongoing challenges of its business such as food safety and regulatory issues, the antitrust investigation of a portion of the peanut shelling industry and the maintenance and growth of its customer base. See “Factors That May Affect Future Results.”

Total inventories were approximately $198.4 million at September 29, 2005, a decrease of $19.2 million, or 8.8%, from the balance at June 30, 2005, and an increase of $63.8 million, or 47.4%, over the balance at September 23, 2004. The decrease from June 30, 2005 to September 29, 2005 is due primarily to the seasonality of crop procurement. The increase from September 23, 2004 to September 29, 2005 is due primarily to higher costs of tree nuts. Quantities on hand, measured in terms of pounds, also increased at September 29, 2005 when compared to September 23, 2004, due primarily to increases in peanuts, walnuts and cashews. Net accounts receivable were $41.3 million at September 29, 2005, an increase of approximately $2.3 million, or 5.9%, over the balance at June 30, 2005, and a decrease of $0.6 million, or 1.3% from the balance at September 23, 2004. The increase from June 30, 2005 to September 29, 2005 is due to higher monthly sales in September 2005 than in June 2005.

The Company’s fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). Fiscal 2005, however, contained fifty-three weeks, with the fourth quarter containing fourteen weeks. References herein to fiscal 2006 are to the fiscal year ending June 29, 2006. References herein to fiscal 2005 are to the fiscal year ended June 30, 2005. As used herein, unless the context otherwise indicates, the term “Company” refers collectively to John B. Sanfilippo & Son, Inc. and its previously wholly owned subsidiary, JBS International, Inc., which was dissolved in November 2004.

Net sales increased to $138.7 million for the first quarter of fiscal 2006 from approximately $134.6 million for the first quarter of fiscal 2005, an increase of $4.1 million, or 3.0%. The overall increase in net sales was due to higher prices due to higher commodity costs, especially for almonds and pecans. While sales prices increased, total pounds shipped decreased by 10.5% in the first quarter of fiscal 2006 when compared to the first quarter of fiscal 2005.

The decrease in sales volume was caused mainly by a 17.9% decrease in sales volume in the Company’s consumer distribution channel. This decrease was caused in large part to the loss of private label business in the latter part of fiscal 2005 with customers that would not accept price increases. Also, market studies have shown a shift in consumer preference to branded snack nuts away from private label as the price differential between branded and private label products has narrowed as private label sales prices have increased due to the rise in costs of tree nuts. Market studies have also shown a decrease in nut category volume sales during the first quarter of fiscal 2006. Sales volume of the Company’s Fisher brand were virtually unchanged in the first quarter of fiscal 2006 when compared to

the first quarter of fiscal 2005; however, since the majority of the Company’s consumer distribution channel business is private label, the overall decrease in the consumer distribution channel was significant.

Unit volume sales for the first quarter of fiscal 2006, when compared to the first quarter of fiscal 2005, also decreased in the Company’s industrial (2.1%), food service (6.2%) and export (3.9%) distribution channels. These decreases were caused largely by reduced demand due to higher selling prices resulting from the significantly higher costs of tree nuts. The food service decrease was also attributable to lower airline customer sales.

The following table shows a comparison of sales by distribution channel, and as a percentage of total net sales (dollars in thousands):

The following summarizes sales by product type as a percentage of total gross sales. The information is based on gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.

The Company has recently entered into a new customer relationship for baking nuts, which should add sales of approximately $6 million per year beginning in the third quarter of fiscal 2006 through fiscal 2009.

Gross profit for the first quarter of fiscal 2006 decreased 21.5% to $13.3 million from $16.9 million for the first quarter of fiscal 2005. Gross margin decreased to 9.6% of net sales for the first quarter of fiscal 2006 from 12.6% for the first quarter of fiscal 2005. The decrease in gross margin was caused by several factors. The decrease in sales volume led to a corresponding decrease in production. Manufacturing expenses of a fixed nature did not decrease with the decrease in production. Almond processing costs were negatively impacted by the lower quality of purchased almonds used in production. The shift in sales mix from the consumer distribution channel also negatively affected gross margin, as consumer sales typically carry higher gross margins than the Company’s overall gross margin. The gross margins on pecan sales were also lower in the first quarter of fiscal 2006 than the first quarter of fiscal 2005 due to significantly higher pecan costs. The rising costs of almonds continue to negatively impact the Company’s profitability. During the first quarter of fiscal 2006, the Company purchased almonds at costs significantly higher than the unit cost of almond inventory on hand at the end of fiscal 2005. These almond purchases in turn led to an increase in the unit cost of almond inventory on hand at the end of the first quarter of fiscal 2006. The almond inventory on hand at the end of the first quarter of fiscal 2006 was comprised of almonds purchased in fiscal 2005 and almonds purchased in the first quarter of fiscal 2006. As a result of the increase in almond inventory cost, the Company recorded a $2.2 million reserve during the first quarter of fiscal 2006 for losses expected on the fulfillment of certain fixed price almond contracts entered into in fiscal 2005. Favorably impacting the decrease in gross margin for the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005 was a $0.3 million almond grower liability increase for the final 2004 crop settlement recorded in the first quarter of fiscal 2006 compared to a $1.2 million increase for the final 2003 crop settlement recorded in the first quarter of fiscal 2005.

Selling and administrative expenses increased to $13.4 million, or 9.6% of net sales, for the first quarter of fiscal 2006 from $12.6 million, or 9.4% of net sales, for the first quarter of fiscal 2005. Selling expenses increased slightly to $9.9 million, or 7.1% of net sales, for the first quarter of fiscal 2006 from $9.8 million, or 7.3% of net sales, for the first quarter of fiscal 2005. Administrative expenses increased to $3.5 million, or 2.5% of net sales, for the first quarter of fiscal 2006 from $2.8 million, or 2.0% of net sales, for the first quarter of fiscal 2005. This increase was due primarily to a $0.5 million increase in legal and audit costs and $0.2 of expenses related to a supplemental retirement plan adopted in August 2005.

Due to the factors discussed above, income from operations decreased to a loss of ($0.1) million, or (0.1%) of net sales, for the first quarter of fiscal 2006, from approximately $4.3 million, or 3.2% of net sales, for the first quarter of fiscal 2005.

Interest expense increased to $1.5 million for the first quarter of fiscal 2006 from $0.3 million for the first quarter of fiscal 2005. This increase was caused by a higher average level of borrowings and a higher interest rate on the Company’s revolving bank credit facility.

Net rental and miscellaneous (expense) income was an expense of $0.1 million for the first quarter of fiscal 2006 compared to income of $0.2 million for the first quarter of fiscal 2005. The decrease of $0.3 million was caused by expenses at the office building at the Current Site, including depreciation, exceeding rental income.

Income tax benefit was $0.6 million, or 35.3% of loss before income taxes for the first quarter of fiscal 2006 compared to $1.6 million, or 39.0% of income before income taxes, for the first quarter of fiscal 2005. The effective tax rate was affected in the first quarter of fiscal 2006 by the inclusion of non-deductible incentive stock option expense. The effective tax rate for the entire fiscal 2006 is expected to be approximately 39.0%.

Net loss was ($1.1) million, or ($0.11) per common share (basic and diluted), for the first quarter of fiscal 2006, compared to $2.6 million, or $0.24 per common share (basic and diluted), for the first quarter of fiscal 2005.

The primary uses of cash are to fund the Company’s current operations, including its facility consolidation project, fulfill contractual obligations and repay indebtedness. Also, various uncertainties could result in additional uses of cash, such as those pertaining to the antitrust investigation of a portion of the peanut shelling industry or other litigation.

Cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements, which can change based upon fluctuations in both quantities and market prices of the various nuts the Company sells. Current market trends in nut prices and crop estimates also impact nut procurement.

Net cash provided by operating activities was $31.6 million for the first quarter of fiscal 2006 compared to $18.7 million for the first quarter of fiscal 2005. The increase is due to lower almond and peanut purchases. Nut purchases for the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005 decreased by 36.3% in terms of pounds, and 18.6% in terms of dollars.

The Company repaid $0.2 million of long-term debt during the first quarter of fiscal 2006 compared to $0.4 million during the first quarter of fiscal 2005.

The Company’s bank credit facility (the “Bank Credit Facility”) is comprised of (i) a working capital revolving loan which provides working capital financing of up to $73.6 million in the aggregate, and matures, as amended, on May 31, 2006, and (ii) a $6.4 million letter of credit (the “IDB Letter of Credit”) to secure the industrial development bonds described

below which matures on June 1, 2006. Borrowings under the working capital revolving loan accrue interest at a rate (the weighted average of which was 6.08% at September 29, 2005) determined pursuant to a formula based on the agent bank’s quoted rate and the Eurodollar Interbank rate. As of September 29, 2005 the Company had $35.1 million of available credit under the Bank Credit Facility.

The terms of the Bank Credit Facility, as amended, matures on May 31, 2006 and includes certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) limit the Company’s annual capital expenditures; and (iii) require that Jasper B. Sanfilippo (the Company’s Chairman of the Board and Chief Executive Officer) and Mathias A. Valentine (a director and the Company’s President) together with their respective immediate family members and certain trusts created for the benefit of their respective sons and daughters, continue to own shares representing the right to elect a majority of the directors of the Company. In addition, 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 September 29, 2005, the Company was in compliance with all restrictive covenants under the Bank Credit Facility, as amended. However, it is probable that the Company will be in violation of the maximum funded debt to EBITDA ratio covenant for the second quarter of fiscal 2006. Violations of financial covenants constitute an Event of Default as defined in the Bank Credit Facility. Upon an Event of Default, all outstanding amounts, including accrued interest, under the Bank Credit Facility would become immediately due. The Company’s current business plan also contemplates that the level of availability under the Bank Credit Facility will need to be increased in order to fund the Company’s operations, including the procurement of inventories and the facility consolidation project. The Company is currently negotiating with its lenders under the Bank Credit Facility for an extension of the facility and to amend future financial covenants. Based upon recent discussions, the lenders have expressed a desire to renew the Bank Credit Facility at terms that are more favorable to the Company and to increase the total availability. While the Company fully expects to extend the Bank Credit Facility (most likely in the second quarter of fiscal 2006), negotiate modifications to financial covenants or receive any necessary waivers and increase the level of availability, no assurances can be made that the Bank Credit Facility will be extended, financial covenants modified, potential covenant violations waived or that the level of availability will be increased. If the Bank Credit Facility is not renewed, the Company believes that it will be able to secure necessary financing from other lenders who have expressed interest in negotiating with the Company. If the Company is not able to enter into another agreement, it will have to consider financing alternatives which might include identifying alternative sources of debt or equity capital or an unplanned sale of assets. The inability of the Company to modify, extend or replace its existing Bank Credit Facility would have a material adverse effect on the Company.

On December 16, 2004, the Company received $65.0 million from the Note Agreement to fund a portion of the facility consolidation project and for general working capital purposes. Under the terms of the Note Agreement, the notes have a maturity of ten years, bear interest at a 4.67% annual rate and are required to be repaid in equal semi-annual principal payments of $3.6 million beginning on June 1, 2006. As of September 29, 2005, the outstanding balance on the Note Agreement was $65.0 million.

The terms of the Note Agreement include certain restrictive covenants that, among other things, require the Company to maintain specified financial ratios. These covenants coincide with those included in the Bank Credit Facility. As of September 29, 2005, the Company was in compliance with all restrictive covenants under the Note Agreement. However, it is probable that the Company will not be in compliance with the maximum funded debt to EBITDA ratio covenant for the second quarter of fiscal 2006. Violations of financial covenants constitute an Event of Default as defined in the Note Agreement. Upon an Event of Default, all outstanding amounts, including accrued interest, under the Note Agreement would become immediately due. The Company will negotiate with the lenders under the Note Agreement for amendments to future financial covenants or waivers of covenant violations. The inability of the Company to amend future financial covenants or receive waivers for covenant violations would have a material adverse effect on the Company.

As of September 29, 2005, the Company had $6.2 million in aggregate principal amount of industrial development bonds outstanding, which was originally used to finance the acquisition, construction and equipping of the Company’s Bainbridge, Georgia facility. The bonds bear interest payable semiannually at 4.00% (which was reset on June 1, 2002) through May 2006. On June 1, 2006, and on each subsequent interest reset date for the bonds, the Company is required to redeem the bonds at face value plus any accrued and unpaid interest, unless a bondholder elects to retain his or her bonds. Any bonds redeemed by the Company at the demand of a bondholder on the reset date are required to be remarketed by the underwriter of the bonds on a “best efforts” basis. Funds for the redemption of bonds on the demand of any bondholder are required to be obtained from the following sources in the following order of priority: (i) funds supplied by the Company for redemption; (ii) proceeds from the remarketing of the bonds; (iii) proceeds from a drawing under the IDB Letter of Credit; or (iv) in the event funds from the foregoing sources are insufficient, a mandatory payment by the Company. Drawings under the IDB Letter of Credit to redeem bonds on the demand of any bondholder are payable in full by the Company upon demand of the lenders under the Bank Credit Facility. In addition, the Company is required to redeem the bonds in varying annual installments, ranging from $0.3 million in fiscal 2006 to $0.8

million in fiscal 2017. The Company is also required to redeem the bonds in certain other circumstances; for example, within 180 days after any determination that interest on the bonds is taxable. The Company has the option, subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any.

The Company spent $5.7 million on capital expenditures in the first quarter of fiscal 2006 compared to $2.1 million in the first quarter of fiscal 2005. The increase is due primarily to $2.7 million spent in the first quarter of fiscal 2006 related to the facility consolidation. The Company expects to incur an additional $40 — $50 million on the facility consolidation project from fiscal 2006 to fiscal 2009, primarily related to the construction of an expansion to the Current Site and the purchase of capital equipment. Groundbreaking at the Current Site occurred in August 2005. The Company entered into a contract with a general contractor for an estimated amount of $23.2 million, $2.1 million of which was paid during the first quarter of fiscal 2006, to construct the expansion of the Current Site. This expansion is scheduled to be completed in the spring of calendar 2006. Capital expenditures for fiscal 2006 that are unrelated to the facility consolidation project are expected to be approximately $12 million.

The Company, along with related party partnerships that own a portion of the Company’s Chicago area facilities, is in the process of selling these facilities. The Company intends to lease back from the eventual buyer or buyers of these properties the portion of the facilities that are necessary to run the Company’s business while the facility consolidation project is completed at the Current Site. The Company estimates that these sale and leaseback transactions will be consummated during the second quarter of fiscal 2006. Based upon the bids received, the Company believes that proceeds received from the sales will exceed the Company’s carrying value of these assets. The Company’s Board of Directors has appointed an independent committee to explore alternatives with respect to the Company’s existing leases for the properties owned by the related party partnerships. The Company may be required to incur costs and/or enter into other arrangements with the related party partnerships in this regard, however, the amount of any such costs or the nature of any such arrangements have not been determined.

The statements contained in this filing that are not historical (including statements concerning the Company’s expectations regarding market risk) are “forward looking statements”. These forward looking statements, which generally are followed (and therefore identified) by a cross reference to “Factors That May Affect Future Results” or are identified by the use of forward looking words and phrases such as “intends”, “may”, “believes” and “expects”, represent the Company’s present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors, including the factors described below under “Factors That May Affect Future Results”, that could cause actual results to differ materially from those in the forward looking statements, as well as the timing and occurrence (or nonoccurrence) of transactions and events which may be subject to circumstances beyond the Company’s control. Consequently, results actually achieved may differ materially from the expected results included in these statements.

The availability and cost of raw materials for the production of the Company’s products, including peanuts, pecans, almonds, walnuts and other nuts are subject to crop size and yield fluctuations caused by factors beyond the Company’s control, such as weather conditions, plant diseases and changes in government programs. 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 agencies 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. If worldwide demand for nuts continues at recent rates, and supply does not expand to meet demand, a reduction in availability and an increase in the cost of raw materials would occur. This type of increase was experienced during the last half of fiscal 2004 and during fiscal 2005 and the first quarter of fiscal 2006 for most of the Company’s major nut types. The Company is not able to hedge against changes in commodity prices because no market to do so exists, and thus, shortages in the supply of and increases in the prices of nuts and other raw materials used by the Company in its products (to the extent that cost increases cannot be passed on to customers) could have an adverse impact on the Company’s profitability. Furthermore, fluctuations in the market prices of nuts may affect the value of the Company’s inventories and profitability. The Company has significant inventories of nuts that would be adversely affected by any decrease in the market price of such raw materials. See “Introduction”.

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 and Ralcorp Holdings, 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.

The Company is dependent on a few significant customers for a large portion of its total sales, particularly in the consumer channel. Sales to the Company’s five largest customers represented approximately 38%, 39% and 37% of gross sales in fiscal 2005, fiscal 2004 and fiscal 2003, respectively. Wal-Mart alone accounted for approximately 18%, 19% and 17% of the Company’s net sales for fiscal 2005, fiscal 2004 and fiscal 2003, respectively. The loss of one of the Company’s largest customers, or a material decrease in purchases by one or more of its largest customers, would result in decreased sales and adversely impact the Company’s income and cash flow.

As the retail grocery trade continues to consolidate and the Company’s retail customers grow larger and become more sophisticated, the Company’s retail customers are demanding lower pricing and increased promotional programs. Further, these customers may begin to place a greater emphasis on the lowest-cost supplier in making purchasing decisions, particularly if buying techniques such as reverse internet auctions increase in popularity. An increased focus on the lowest-cost supplier could reduce the benefits of some of the Company’s competitive advantages. The Company’s sales volume growth could slow, and it may become necessary to lower the Company’s prices and increase promotional support of the Company’s products, any of which would adversely affect its gross profit.

The Company has experienced significant sales growth as its customer demand has increased. If the Company continues to experience comparable increases in customer demand, particularly prior to the completion of the Company’s facility consolidation project, it may be unable to fully satisfy its customers’ supply needs. If the Company becomes unable to supply sufficient quantities of products, it may lose sales and market share to its competitors.

The Company could be adversely affected if consumers in the Company’s principal markets lose confidence in the safety of nut products, particularly with respect to peanut and tree nut allergies. Individuals with peanut allergies may be at risk of serious illness or death resulting from the consumption of the Company’s nut products, including consumption of other companies’ products containing the Company’s products as an ingredient. Notwithstanding existing food safety controls, the Company processes peanuts and tree nuts on the same equipment, and there is no guarantee that the Company’s peanut-free products will not be cross-contaminated by peanuts. Concerns generated by risks of peanut and tree nut cross-contamination and other food safety matters may discourage consumers from buying the Company’s products, cause production and delivery disruptions, or result in product recalls.

The Company faces risks associated with product liability claims and product recalls in the event its food safety and quality control procedures fail and its products cause injury or become adulterated or misbranded. In addition, the Company does not control the labeling of other companies’ products containing the Company’s products as an ingredient. A product recall of a sufficient quantity, or a significant product liability judgment against the Company, could cause the Company’s products to be unavailable for a period of time and could result in a loss of consumer confidence in the Company’s food products. These kinds of events, were they to occur, would have a material adverse effect on demand for the Company’s products and, consequently, the Company’s income and liquidity.

The Company’s future success will be largely dependent on the personal efforts of its senior operating management team, including Michael J. Valentine, the Company’s Executive Vice President Finance, Chief Financial Officer and Secretary, Jeffrey T. Sanfilippo, the Company’s Executive Vice President Sales and Marketing, and Jasper B. Sanfilippo, Jr., the Company’s Executive Vice President of Operations, which has assumed management of the day-to-day operation of the Company’s business over the past two years. In addition, the Company’s success depends on the talents of James M. Barker, Senior Vice President Sales and Marketing, Everardo Soria, Senior Vice President Pecan Operations and Procurement, Walter R. Tankersley, Jr., Senior Vice President Industrial Sales and Charles M. Nicketta, Senior Vice President of Manufacturing. The Company believes that the expertise and knowledge of these individuals in the industry, and in their respective fields, is a critical factor to the Company’s continued growth and success. The Company has not entered into an employment agreement with any of these individuals, nor does the Company have key officer insurance coverage policies in effect. The loss of the services of any of these individuals

could have a material adverse effect on the Company’s business and prospects if the Company were unable to identify a suitable candidate to replace any such individual. The Company’s success is also dependent upon its ability to attract and retain additional qualified marketing, technical and other personnel, and there can be no assurance that the Company will be able to do so.

The facility consolidation project may not result in significant cost savings or increases in efficiency, or allow the Company to increase its production capabilities to meet expected increases in customer demand. Moreover, the Company’s expectations with respect to the financial impact of the facility consolidation project are based on numerous estimates and assumptions, any or all of which may differ from actual results. Such differences could substantially reduce the anticipated benefit of the project.

More specifically, the following risks, among others, may limit the financial benefits of the facility consolidation project:

If for any reason the Company were to realize less than the expected benefits from the facility consolidation project, its future income stream, cash flows and debt levels could be materially adversely affected. In addition, the facility consolidation project is a long-term project and unanticipated risks may develop as the project proceeds.

The Company is subject to extensive regulation by the United States Food and Drug Administration, the United States Department of Agriculture, the United States Environmental Protection Agency and other state and local authorities in jurisdictions where its products are manufactured, processed or sold. Among other things, these regulations govern the manufacturing, importation, processing, packaging, storage, distribution and labeling of the Company’s products. The Company’s manufacturing and processing facilities and products are subject to periodic compliance inspections by federal, state and local authorities. The Company is also subject to environmental regulations governing the discharge of air emissions, water and food waste, and the generation, handling, storage, transportation, treatment and disposal of waste materials. Amendments to existing statutes and regulations, adoption of new statutes and regulations, increased production at the Company’s existing facilities as well as its expansion into new operations and jurisdictions, may require the Company to obtain additional licenses and permits and could require it to adapt or alter methods of operations at costs that could be substantial. Compliance with applicable laws and regulations may adversely affect the Company’s business. Failure to comply with applicable laws and regulations could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as possible criminal sanctions, which could have a material adverse effect on the Company’s business.

The Company purchases a substantial portion of its cashew inventories from India, Brazil and Vietnam, which are in many respects emerging markets. To this extent, the Company is exposed to risks inherent in emerging markets, including:

The existence of these risks in these and other foreign countries that are the origins of the Company’s raw materials could jeopardize or limit its ability to purchase sufficient supplies of cashews and other imported raw materials and may adversely affect the Company’s income by increasing the costs of doing business overseas.

The great majority of the Company’s industrial sales, and certain other customers, require the Company to enter into fixed price commitments with its customers. Such commitments represented approximately 28% of the Company’s annual net sales in fiscal 2005, and in many cases are entered into after the Company’s cost to acquire the nut products necessary to satisfy the fixed price commitment is substantially fixed. The commitments are for a fixed period of time, typically one year, but may be extended if remaining balances exist. The Company expects to continue to enter into fixed price commitments with respect to certain of its nut products prior to fixing its acquisition cost in order to maintain customer relationships or when, in management’s judgment, market or crop harvest conditions so warrant. To the extent the Company does so, however, these fixed price commitments may result in reduced gross profit margins or generate losses that have a material adverse effect on the Company’s results of operations.

The Company purchases its nut inventories from growers and farmers in large quantities at harvest times, which are primarily during the second and third quarters of the Company’s fiscal year, and receives nut shipments in bulk truckloads. The weights of these nuts are measured using truck scales at the time of receipt, and inventories are recorded on the basis of those measurements. The nuts are then stored in bulk in large warehouses to be shelled or processed throughout the year. Bulk-stored nut inventories are relieved on the basis of continuous high-speed bulk weighing systems as the nuts are shelled or processed or on the basis of calculations derived from the weight of the shelled nuts that are produced. While the Company performs various procedures to confirm the accuracy of its bulk-stored nut inventories, these inventories are estimates that must be periodically adjusted to account for positive or negative variations, and such adjustments directly affect earnings. The precise amount of the Company’s bulk-stored

nut inventories is not known until the entire quantity of the particular nut is depleted, which may not necessarily occur every year. Prior crop year inventories may still be on hand as the new crop year inventories are purchased. There can be no assurance that such inventory quantity adjustments will not have a material adverse effect on the Company’s results of operations in the future.

The Farm Security and Rural Investment Act of 2002 (the “2002 Farm Bill”) terminated the federal peanut quota program beginning with the 2002 crop year. The 2002 Farm Bill replaced the federal peanut quota program with a fixed payment system through the 2007 crop year that can be either coupled or decoupled. A coupled system is tied to the actual amount of production, while a decoupled system is not. The series of loans and subsidies established by the 2002 Farm Bill is similar to the systems used for other crops such as grains and cotton. To compensate farmers for the elimination of the peanut quota, the 2002 Farm Bill provides a buy-out at a specified rate for each pound of peanuts that had been in that farmer’s quota under the prior program. Additionally, among other provisions, the Secretary of Agriculture may make certain counter-cyclical payments whenever the Secretary believes that the effective price for peanuts is less than the target price. The termination of the federal peanut quota program has reduced the Company’s costs for peanuts, beginning in fiscal 2003, and has resulted in a higher gross margin than the Company has historically achieved. Although this margin is now similar to the Company’s total gross profit margin, the Company may be unable to maintain these higher gross profit margins on the sale of peanuts, and the Company’s business, financial position and results of operations would thus be materially adversely affected.

The events of September 11, 2001 reinforced the need to enhance the security of the United States. Congress responded in part by passing the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the “Bioterrorism Act”). The Bioterrorism Act includes a number of provisions to help guard against the threat of bioterrorism, including new authority for the Secretary of Health and Human Services (“HHS”) to take action to protect the nation’s food supply against the threat of international contamination. The Food and Drug Administration (“FDA”), as the food regulatory arm of HHS, is responsible for developing and implementing these food safety measures, which fall into four broad categories: (i) registration of food facilities, (ii) establishment and maintenance of records regarding the sources and recipients of foods, (iii) prior notice to FDA of imported food shipments and (iv) administrative detention of potentially affected foods. FDA has issued rules in each of these categories, which rules generally took effect on December 12, 2003. There can be no assurances that the effects of the Bioterrorism Act and the related rules, including any potential disruption in the Company’s supply of imported nuts, which represented approximately 37% of the Company’s total nut purchases in fiscal 2005, will not have a material adverse effect on the Company’s business, financial position or results of operations in the future.

On June 17, 2003, the Company received a subpoena for the production of documents and records from a grand jury in connection with an investigation of a portion of the peanut shelling industry by the Antitrust Division of the United States Department of Justice. The Company believes the investigation relates to procurement pricing practices but it could concern other or additional business practices. The Company has responded to the subpoena and has produced documents to the Department of Justice, and two employees of the Company have appeared before the grand jury. The investigation, of which the Company and the employees are subjects, is on-going. The investigation may have a material adverse effect on the Company’s business, financial condition and results of operations, and on the peanut shelling industry.

The Company is exposed to the impact of changes in interest rates and to commodity prices of raw material purchases. The Company has not entered into any arrangements to hedge against changes in market interest rates, commodity prices or foreign currency fluctuations.

The Company is unable to engage in hedging activity related to commodity prices, since there are no established futures markets for nuts. Approximately 37% of nut purchases for fiscal 2005 were made from foreign countries, and while these purchases were payable in U.S. dollars, the underlying costs may fluctuate with changes in the value of the U.S. dollar relative to the currency in the foreign country.

The Company is exposed to interest rate risk on the Bank Credit Facility, its only variable rate credit facility because the Company has not entered into any hedging instruments which fix the floating rate. A hypothetical 10% adverse change in weighted-average interest rates would have had an immaterial impact on the Company’s net income and cash flows from operating activities.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of September 29, 2005. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 29, 2005, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

In connection with the evaluation by management, including the Company’s Chief Executive Officer and Chief Financial Officer, there were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended September 29, 2005 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

The exhibits filed herewith are listed in the exhibit index that follows the signature page and immediately precedes the exhibits filed.

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 on November 14, 2005.