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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 26, 2008
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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)
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Delaware
(State or Other Jurisdiction of Incorporation or Organization)
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36-2419677
(I.R.S. Employer Identification Number) |
1703 North Randall Road
Elgin, Illinois 60123
(Address of Principal Executive Offices, Zip Code)
Registrants telephone number, including area code: (847) 289-1800
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Common Stock, $.01 par value per share
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The NASDAQ Stock Market LLC
(NASDAQ Global Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: Yes o No þ.
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act: Yes o No þ.
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, as amended (the Exchange Act),
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 þ No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (229.405 of this chapter) is not contained herein, and will not be contained to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K þ.
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o
No þ.
The aggregate market value of the voting Common Stock held by non-affiliates was $62,473,445
as of December 27, 2007 (7,858,295 shares at $7.95 per share).
As
of August 28, 2008, 8,016,699 shares of the Companys Common Stock, $.01 par value (Common
Stock) and 2,597,426 shares of the Companys Class A Common Stock, $.01 par value (Class A
Stock), were outstanding. The Class A Stock is convertible at the option of the holder at any
time and from time to time (and, upon the occurrence of certain events specified in the Restated
Certificate of Incorporation, automatically converts) into one share of Common Stock.
Documents Incorporated by Reference:
Portions of the Companys definitive Proxy Statement for its Annual Meeting of Stockholders to be
held October 30, 2008 are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
PART I
Item 1 Business
a. General Development of Business
(i) Background
John B. Sanfilippo & Son, Inc. was formed as a corporation 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 throughout this annual report on Form 10-K, unless the context otherwise indicates, the terms
we, us, our or our company refer collectively to John B. Sanfilippo & Son, Inc. and its
wholly-owned subsidiary, JBSS Properties, LLC. Our fiscal year ends on the final Thursday of June
each year, and typically consists of fifty-two weeks (four thirteen week quarters). References
herein to fiscal 2009, 2008, 2007 and 2006 are to the fiscal years that will end, or ended,
June 25, 2009, June 26, 2008, June 28, 2007 and June 29, 2006, respectively.
We are one of the leading processors and marketers of tree nuts and peanuts in the United States.
These nuts are sold under a variety of private labels and under the Fisher, Flavor Tree, Sunshine
Country and Texas Pride brand names. We also market and distribute, and in most cases manufacture
or process, a diverse product line of food and snack products, including peanut butter, candy and
confections, natural snacks and trail mixes, sunflower seeds, corn snacks, sesame sticks and other
sesame snack products.
Our Internet website is accessible to the public at http://www.jbssinc.com. Information about us,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports are made available free of charge through our Internet website
as soon as reasonably practicable after such reports have been filed with the United States
Securities and Exchange Commission (the SEC). Our materials filed with the SEC are also available
on the SECs website at http://www.sec.gov. The public may read and copy any materials we file with
the SEC at the SECs public reference room at 450 Fifth St., NW, Washington, DC 20549. The public
may obtain information about the reference room by calling the SEC at 1-800-SEC-0330.
Our headquarters and executive offices are located at 1703 North Randall Road, Elgin, Illinois
60123, and our telephone number for investor relations is (847) 289-1800, extension 4612.
(ii) Facility Consolidation Project
In August 2008, we completed the consolidation of our Chicago-based facilities into a new facility
in Elgin, Illinois (the New Site). As part of the facility consolidation project, on April 15,
2005, we closed on the $48.0 million purchase of the New Site. We transferred our primary Chicago
area distribution facility from a leased location to the New Site in July 2006. Processing
operations began at the New Site in the second quarter of fiscal 2007, with operations moving from
the existing Chicago area locations, and new equipment installed, from the second quarter of fiscal
2007 through the end of August 2008. Our headquarters were relocated to the New Site in February
2007.
The facility consolidation project has generated cost savings through the elimination of redundant
costs, such as interplant freight. However, we have not yet realized the expected improvements in
manufacturing efficiencies. Also, the New Site is designed to accommodate an increase in production
capacity of 25% to 40% in part because the New Site provides substantially more square footage than
the aggregate space previously available in our Chicago area facilities. The facility consolidation
project will allow us to pursue certain new business opportunities that were not previously
available to us due to lack of production capacity. However, the benefits of the facility
consolidation project will not be realized as expected unless our sales volume improves in the
future. Some of the initiatives that we implemented in fiscal 2008 to improve our operating
performance, such as eliminating production of unprofitable products, have decreased our sales
volume. The decrease in sales volume has in the past and may in the future negatively impact our
ability to benefit from the facility consolidation project. If we are unable to obtain a
sufficient level of new profitable sales, our ability to benefit from the facility consolidation
project and our financial performance will be negatively impacted. See Part I, Item 1A ¾
Risk Factors.
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(iii) Real Estate Transactions
In furtherance of our facility consolidation project, we sold our previously owned Chicago area
facilities in July 2006. One such Chicago area facility (the Busse Road facility) was owned
partially by us and partially by a related party partnership. The portion of the Busse Road
property that we owned was sold to the related party partnership in July 2006. The related party
partnership then sold the Busse Road property to a third party, which leased back the property to
us through December 2007.
Also in July 2006, we sold our Arlington Heights and Arthur Avenue facilities and leased back the
facilities from the purchaser. The Arlington Heights facility is being leased back by us pursuant
to a lease which went through December 2008. However, we vacated the Arlington Heights facility
during the second quarter of fiscal 2008 and recognized the remaining lease liability of $0.2
million as restructuring expense. The Arthur Avenue facility was leased back by us through August
2008. We will vacate the Arthur Avenue facility at the end of August 2008.
In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14.3
million and are leasing them back. The selling price was determined by an independent appraiser to
be the fair market value, which also approximated our carrying value. The lease for the Selma,
Texas properties has a ten-year term at a fair market value rent with three five-year renewal
options. Also, we have an option to purchase the properties from the partnerships after five years
at 95% (100% in certain circumstances) of the then fair market value, but not to be less than the
$14.3 million purchase price. The financing obligation is being accounted for similar to the
accounting for a capital lease, whereby $14.3 million was recorded as a debt obligation, as the
provisions of the arrangement are not eligible for sale-leaseback accounting.
(iv) Credit Facilities
On February 7, 2008, we entered into a Credit Agreement with a new bank group (the Bank Lenders)
providing a $117.5 million revolving loan commitment and letter of credit subfacility (the New
Credit Facility). Also on February 7, 2008, we entered into a Loan Agreement with an insurance
company (the Mortgage Lender) providing us with two term loans, one in the amount of $36.0
million (Tranche A) and the other in the amount of $9.0 million (Tranche B), for an aggregate
amount of $45.0 million (the Mortgage Facility). The New Credit Facility and Mortgage Facility
replaced our prior revolving credit facility (the Prior Credit Facility) and long-term financing
facility (the Prior Note Agreement), and were secured, in part, in order to generally obtain more
flexible covenants than those associated with the Prior Note Agreement and Prior Credit Facility,
which we were not in full compliance with during the first three quarters of fiscal 2008. We
currently expect to be in compliance with all financial covenants under the New Credit Facility and
Mortgage Facility for the foreseeable future. See Item 1A Risk Factors.
The New Credit Facility is secured by substantially all of our assets other than real property and
fixtures. The Mortgage Facility is secured by mortgages on
essentially all of our owned real property located in
Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the Encumbered Properties).
The encumbered Elgin real property includes almost all of an original site (the Original Site) that was purchased prior to
our purchase of the New Site. When we entered into the New Credit Facility and Mortgage Facility,
we paid all amounts due under, and terminated the Prior Credit Facility and prepaid all amounts due
under the Prior Note Agreement. As a result of the refinancing, we were required to pay a $1.0
million debt extinguishment charge to the lenders under the Prior Credit Facility, pay a $5.2
million debt extinguishment charge to the noteholders under the Prior Note Agreement and write off
the $0.5 million in remaining unamortized balance of fees related to the Prior Credit Facility and
Prior Note Agreement. These charges were recorded in the third quarter of fiscal 2008.
The New Credit Facility matures on February 7, 2013. At our election, borrowings under the New
Credit Facility accrue interest at either (i) a rate determined pursuant to the administrative
agents prime rate minus an applicable margin determined by reference to the amount of loans which
may be advanced under a borrowing base calculation based upon accounts receivable, inventory and
machinery and equipment (the Borrowing Base Calculation), ranging from 0.00% to 0.50% or (ii) a
rate based on the London interbank offered rate (LIBOR) plus an applicable margin based upon the
Borrowing Base Calculation, ranging from 2.00% to 2.50%. The face amount of undrawn letters of
credit accrues interest at a rate of 1.50% to 2.00%, based upon the Borrowing Base Calculation.
The portion of the Borrowing Base Calculation based upon machinery and equipment will decrease by
$1.5 million per year for the first five years to coincide with amortization of the machinery and
equipment collateral. As of June 26, 2008, the weighted average interest rate for the New Credit
Facility was 5.00%. The terms of the New Credit Facility contain covenants that require us to
restrict investments, indebtedness, capital expenditures, acquisitions and certain sales of assets,
cash dividends, redemptions of capital stock and prepayment of indebtedness (if such prepayment,
among other things, is of a
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subordinate debt). If loan availability under the Borrowing Base Calculation falls below $15.0
million, we will be required to maintain a specified fixed charge coverage ratio, tested on a
monthly basis. The New Credit Facility does not include, among other things, a working capital,
EBITDA, net worth, excess availability, leverage or debt service coverage financial covenant. The
Bank Lenders are entitled to require immediate repayment of our obligations under the New Credit
Facility in the event of default on the payments required under the New Credit Facility,
non-compliance with the financial covenants or upon the occurrence of certain other defaults by us
under the New Credit Facility (including a default under the Mortgage Facility). As of June 26,
2008, we were in compliance with all covenants under the New Credit Facility and we currently
expect to be in compliance with the financial covenant in the New Credit Facility for the
foreseeable future. See Item 1A Risk Factors. As of June 26, 2008, we had $36.5 million of
available credit under the New Credit Facility.
The Mortgage Facility matures on March 1, 2023. Tranche A under the Mortgage Facility accrues
interest at a fixed interest rate of 7.63% per annum, payable monthly. Such interest rate may be
reset by the Mortgage Lender on March 1, 2018 (the Tranche A Reset Date). Monthly principal
payments in the amount of $0.2 million commenced on June 1, 2008. Tranche B under the Mortgage
Facility accrues interest at a floating rate of one month LIBOR plus 5.50% per annum, payable
monthly. The margin on such floating rate may be reset by the Mortgage Lender on March 1, 2010 and
every two years thereafter (each, a Tranche B Reset Date); provided, however, that the Mortgage
Lender may also change the underlying index on each Tranche B Reset Date occurring on and after
March 1, 2016. Monthly principal payments in the amount of $0.05 million commenced on June 1, 2008.
On the Tranche A Reset Date and each Tranche B Reset Date, the Mortgage Lender may reset the
interest rates for each of Tranche A and Tranche B, respectively, in its sole and absolute
discretion. With respect to Tranche A, if we do not accept the reset rate, Tranche A will become
due and payable on the Tranche A Reset Date, without prepayment penalty. With respect to Tranche B,
if we do not accept the reset rate, Tranche B will be due and payable on the Tranche B Reset Date,
without prepayment penalty. There can be no assurances that the reset interest rates for each of
Tranche A and Tranche B will be acceptable to us. If the reset interest rate for either Tranche A
or Tranche B is unacceptable to us and we (i) do not have sufficient funds to repay amounts due
with respect to Tranche A or Tranche B, as applicable, on the Tranche A Reset Date or Tranche B
Reset Rate, as applicable, or (ii) are unable to refinance amounts due with respect to Tranche A or
Tranche B, as applicable, on the Tranche A Reset Date or Tranche B Reset Rate, as applicable, on
terms more favorable than the reset interest rates, then such reset interest rates could have a
material adverse effect on our financial condition, results of operations and financial results.
The terms of the Mortgage Facility contain covenants that require us to maintain a specified net
worth of $110.0 million and maintain the Encumbered Properties. The Mortgage Facility is secured,
in part, by the Original Site; however, the Mortgage Lender has given its prior consent to the sale
of the Original Site under certain terms and conditions. Specifically, in the event that the
Original Site is sold prior to January 1, 2009 pursuant to a sales contract that is currently
pending, we will be required to deposit the gross proceeds into an interest-bearing escrow with the
Mortgage Lender. Then, on January 1, 2009, the Mortgage Lender has the right to either (i) apply
all or a portion of such proceeds to prepay the outstanding balance of Tranche B, with the excess,
if any, and accrued interest going to us or (ii) retain such proceeds and all accrued interest as
collateral for such additional period as it deems prudent. After January 1, 2009 (or prior to
January 1, 2009 if pursuant to a different proposal other than the pending contract), we must
obtain the consent of the Mortgage Lender prior to the sale of the Original Site. All amounts
outstanding are recorded as current liabilities as of June 26, 2008. The Mortgage Facility does not
include, among other things, a working capital, EBITDA, excess availability, fixed charge coverage,
capital expenditure, leverage or debt service coverage financial covenant. The Mortgage Lender is
entitled to require immediate repayment of our obligations under the Mortgage Facility in the event
we default in the payments required under the Mortgage Facility, non-compliance with the covenants
or upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 26,
2008, we were in compliance with all covenants under the Mortgage Facility. Since we currently
believe that we will be in compliance with the financial covenant under the Mortgage Facility for
the foreseeable future, $33.4 million has been classified as long-term debt as of June 26, 2008.
See Item 1A Risk Factors. This amount represents scheduled principal payments due under Tranche
A beyond twelve months of June 26, 2008.
(v) Restructuring Initiatives
On January 22, 2008 and February 1, 2008, we announced two separate restructuring initiatives
designed to reduce operating costs by eliminating underperforming products and the number of
employees required as a result of our facility consolidation project, which we completed in August
2008. We recognized $1.8 million of restructuring expenses in fiscal 2008 as a result of the
initiatives, which focused on the following three primary areas:
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Sales Profitability Review
We completed a sales profitability review and in connection therewith sales prices were increased
to the extent feasible with respect to certain underperforming products. In addition, as part of
this review, we discontinued approximately 1,200 products, which contributed to a decrease in our
sales volume; however, absent other considerations and influences, our overall profitability is
currently expected to increase for the near term. In order to achieve profitability for the long
term we need to, among other things, achieve profitable volume growth. See Item 1A Risk
Factors. We reduced our total number of employees by approximately 80 as a result of these
restructuring initiatives, which resulted in $0.3 million of one-time severance expense recorded in
the third quarter of fiscal 2008, all of which was paid in fiscal 2008. We expect to save
approximately $4.0 million annually in payroll and related benefits as a result of the workforce
reduction. We anticipate no further restructuring or related charges related to the sales
profitability review initiative.
Elimination of Store-Door Delivery System
We previously distributed our products to approximately 300 convenience stores, supermarkets and
other retail customer locations through a store-door delivery system. Under this system, we used a
fleet of step-vans to market and distribute nuts, snacks and candy directly to retail customers on
a store-by-store basis. Store-door delivery sales were $2.5 million for calendar 2007 and have
declined annually in recent years as fewer customers required this type of service. We ceased
distributing products using the store-door delivery system on January 22, 2008. A majority of the
store-door delivery system sales have migrated to our other distribution methods. In connection
with the discontinuance of the store-door delivery system, we terminated nine employees. The
store-door discontinuance required us to recognize a total estimated cost of $1.3 million during
the second quarter of fiscal 2008, $1.2 million of which related to the estimated cost to withdraw
from a multiemployer pension plan for the step-van drivers. The multiemployer obligation, which is
based on the previous estimate calculated by the plan, will be subject to final determination with
the union and is expected to be settled sometime during fiscal year 2009. All other charges were
fully settled as of June 26, 2008.
Facility Consolidation Project
In August 2008, we completed the consolidation of all our Chicago area facilities into the New
Site. This consolidation has allowed us to eliminate redundant costs by being able to operate at a
single facility. Due to the early completion of the consolidation, we ceased the use of the
Arlington Heights facility before the lease termination date. As a result, we recorded a lease
termination charge of $0.2 million during the second quarter of fiscal 2008. We will vacate our
remaining Elk Grove Village facility at the lease termination date at the end of August 2008.
b. Segment Reporting
We operate in a single reportable operating segment that consists of selling various nut products
through multiple distribution channels.
c. Narrative Description of Business
(i) General
As stated above, we are one of the leading processors and marketers of tree nuts and peanuts in the
United States. Through a deliberate strategy of capital expenditures and complementary
acquisitions, we have built a vertically integrated nut processing operation that enables us to
control almost every step of the process for pecans, peanuts and walnuts, including procurement
from growers, shelling, processing, packing and marketing. Vertical integration allows us to
enhance product quality and, in most crop years, to capture additional processing margins with
respect to pecans, peanuts and walnuts. In the past, our vertically integrated business model has
worked to our advantage. Our vertically integrated model, however, can under certain circumstances
result in poor earnings or losses. See Item 1A Risk Factors.
Our products are sold through the major distribution channels to significant buyers of nuts,
including food retailers, industrial users for food manufacturing, food service companies and
international customers. Selling through a wide array of distribution channels allows us to
generate multiple revenue opportunities for the nuts we process. For example, whole cashews could
be sold to food retailers and cashew pieces could be sold to industrial users. We process and sell
all major nut types consumed in the United States, including peanuts, pecans, cashews, walnuts and
almonds in a wide variety of package styles, whereas most of our competitors focus either on fewer
nut types or narrower varieties of packaging options. We process all major nut types, thus offering
our customers a complete nut product offering.
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(ii) Principal Products
Our principal products are raw and processed nuts. These products accounted for approximately
91.8%, 92.2% and 92.7% of our gross sales for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively. The nut product line includes peanuts, almonds, Brazil nuts, pecans, pistachios,
filberts, cashews, English walnuts, black walnuts, pine nuts and macadamia nuts. Our nut products
are sold in numerous package styles and sizes, from poly-cellophane packages, composite cans,
vacuum packed tins, plastic jars and glass jars for retail sales, to large cases and sacks for bulk
sales to industrial and food service customers. In addition, we offer our nut products in a variety
of different styles and seasonings, including natural, blanched, oil roasted, dry roasted,
unsalted, honey roasted, flavored, spicy, butter toffee, praline and cinnamon toasted. We sell our
products domestically to retailers and wholesalers as well as to industrial, food service and
contract packaging customers. We also sell certain of our products to foreign customers in the
retail, food service and industrial markets.
We acquire a substantial portion of our peanut, pecan and walnut requirements directly from
domestic growers. The balance of our raw nut supply is purchased from importers, traders and
domestic processors. In fiscal 2008, the majority of our peanuts, pecans and walnuts were shelled
at one of our four shelling facilities, and the remaining portion were purchased shelled from
processors. See Raw Materials and Supplies and Item 2(b) Properties Manufacturing
Capability, Utilization, Technology and Engineering below.
We manufacture and market peanut butter in several sizes and varieties, including creamy, crunchy
and natural. We also market and distribute, and in many cases process and manufacture, a wide
assortment of other food and snack products. These other products include: snack mixes, salad
toppings, natural snacks, trail mixes, dried fruit and chocolate and yogurt coated products sold to
retailers and wholesalers; baking ingredients sold to retailers, wholesalers, industrial and food
service customers; bulk food products sold to retail and food service customers; an assortment of
corn snacks, sunflower seeds, snack mixes, sesame sticks and other sesame snack products sold to
retail supermarkets, vending companies, mass merchandisers and industrial customers; and a wide
variety of toppings for ice cream and yogurt sold to food service customers.
(iii) Customers
We sell products to approximately 1,750 customers, including approximately 100 international
accounts. Retailers of our products include grocery chains, mass merchandisers, drug store chains,
convenience stores and membership clubs. Sales to Wal-Mart Stores, Inc. accounted for approximately
19%, 20% and 19% of our net sales for fiscal 2008, fiscal 2007 and fiscal 2006, respectively.
Wholesale distributors purchase products from us for resale to regional retail grocery chains and
convenience stores. Our industrial customers include bakeries, ice cream and candy manufacturers
and other food and snack processors. Food service customers include hospitals, schools,
universities, airlines, retail and wholesale restaurant businesses and national food service
franchises. In addition, we package and distribute products manufactured or processed by others.
(iv) Sales and Distribution
We market our products through our own sales department and through a network of approximately 120
independent brokers and various independent distributors and suppliers.
We distribute products from our Illinois, Georgia, California, North Carolina and Texas production
facilities and from public warehouse and distribution facilities located in various other states.
The majority of our products are shipped from our production, warehouse and distribution facilities
by contract and common carriers.
In the Chicago area, we operate an outlet store at our production facility and at four other
locations. These stores sell bulk foods and other products produced by us and other vendors.
(v) Marketing
Marketing strategies are developed by distribution channel. Private label and branded consumer
efforts are focused on building brand awareness, introducing new products, attracting new customers
and increasing consumption in the snack and baking nut categories. Industrial and food service
efforts are focused on trade-oriented marketing.
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Our consumer promotional campaigns include newspaper and radio advertisements, coupon offers and
co-op advertising with select retail customers. We also conduct integrated marketing campaigns
using multiple media outlets for the promotion of the Fisher brand, including sports marketing.
Additionally, shipper display units are utilized in retail stores in an effort to gain additional
temporary product placement and to drive sales volume.
Industrial and food service trade promotion includes attending regional and national trade shows,
trade publication advertising and one-on-one marketing. These promotional efforts highlight our
processing capabilities, broad product portfolio, product customization and packaging innovation.
Additionally, we have established a number of co-branding relationships with industrial customers.
Through participation in several trade associations, funding of industry research and sponsorship
of educational programs, we support efforts to increase awareness of the health benefits,
convenience and versatility of nuts as both a snack and a recipe ingredient among existing and
future consumers of nuts.
(vi) Competition
Our nuts and other snack food products compete against products manufactured and sold by numerous
other companies in the snack food industry, some of whom are substantially larger and have greater
resources than us. In the nut industry, we compete with, among others, Planters, Ralcorp Holdings,
Inc., Diamond Foods, Inc. and numerous regional snack food processors. Competitive factors in our
markets include price, product quality, customer service, breadth of product line, brand name
awareness, method of distribution and sales promotion. The combination of our vertically integrated
operating model with respect to pecans, peanuts and walnuts, our product quality, product offering,
brand strength and distribution model generally enable us to compete effectively in each of these
categories. See Item 1A Risk Factors below.
(vii) Raw Materials and Supplies
We purchase nuts from domestic and foreign sources. In fiscal 2008, all of our walnuts and almonds
were purchased from domestic sources. The great majority of peanuts were also purchased from
domestic sources. We purchase our pecans from the southern United States and Mexico. Cashew nuts
are imported from India, Africa, Brazil and Southeast Asia. For fiscal 2008, approximately 24% of
our nut purchases were from foreign sources.
Competition in the nut shelling industry is driven by shellers ability to access and purchase raw
nuts, to shell the nuts efficiently and to sell the nuts to processors. We shell all major domestic
nut types, with the exception of almonds, and are among a select few shellers who further process,
package and sell nuts to the end-user. Raw material pricing pressure and the high cost of equipment
automation have contributed to a consolidation among shellers across all nut types, especially
peanuts and pecans.
We are generally vertically integrated with respect to pecans, peanuts and walnuts and, unlike our
major retail competitors, who purchase nuts on the open market, we
purchase a majority of our pecans, peanuts and
walnuts directly from growers. For fiscal 2006 and the first half of fiscal 2007, during which we
had a generally vertically integrated model with respect to almonds, our results of operations were
severely impacted by a decline in the market price for almonds after entering into fixed price
purchase contracts with growers before we entered into fixed price sales contracts with customers.
In November 2006, we announced that we would no longer purchase almonds directly from growers and
discontinued our almond handling operation at the Gustine, California facility during the first
quarter of calendar 2007 when the processing of current crop year almonds purchased directly from
growers was completed. We discontinued our almond handling operation in order to reduce commodity
risk and to eliminate the significant labor costs associated with processing almonds that could not
be recovered completely when the almonds were sold. The risks associated with vertical integration
that contributed to our negative margins for almond sales also exist, to varying degrees, for
pecans, peanuts and walnuts. See Item 1A Risk Factors below.
We sponsor a seed exchange program under which we provide peanut seed to growers in return for a
commitment to repay the dollar value of that seed, plus interest, in the form of farmer stock
inshell peanuts at harvest. Approximately 76% of the farmer stock peanuts we purchased in fiscal
2008 were grown from seed provided by us. We also contract for the growing of a limited number of
generations of peanut seeds to increase seed quality and maintain desired genetic characteristics
of the peanut seed used in processing. Our peanut seed is not genetically modified.
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The availability and cost of raw materials for the production of our products, including pecans,
peanuts, walnuts, almonds, other nuts, roasting oil, sugar, dried fruit, seeds and chocolate, are
subject to crop size and yield fluctuations caused by factors beyond our control, such as weather
conditions, plant diseases and changes in customer demand. These fluctuations can adversely impact
our profitability. For example, our costs to acquire raw peanuts and cashews in fiscal 2008
increased, in part, due to adverse weather conditions. Additionally, the supply of edible nuts and
other raw materials used in our products could be reduced upon a determination by the USDA or any
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.
Due, in part, to the seasonal nature of the industry, we maintain significant inventories of
peanuts, pecans and walnuts at certain times of the year, especially in the second and third
quarters of our fiscal year. Fluctuations in the market price of pecans, peanuts and walnuts and
other nuts may affect the value of our inventory and thus our gross profit and gross profit margin.
See Introduction, Fiscal 2007 Compared to Fiscal 2006 Gross Profit under Part II, Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations. See also
Part I, Item 1A ¾ Risk Factors.
We purchase other inventory items, such as roasting oils, seasonings, plastic jars, labels,
composite cans and other packaging materials, from related parties and third parties.
(viii) Trademarks and Patents
We market our products primarily under private labels and the Fisher, Sunshine Country, Flavor Tree
and Texas Pride brand names, which are registered as trademarks with the U.S. Patent and Trademark
Office as well as in various other jurisdictions. We also own several patents of various durations.
We expect to continue to renew for the foreseeable future those trademarks that are important to
our business.
(ix) Employees
As of June 26, 2008, we had approximately 1,500 full-time employees, including approximately 160
corporate staff employees. Our labor requirements typically peak during the last quarter of the
calendar year, at which time temporary labor is generally used to supplement the full-time work
force.
(x) Seasonality
Our
business is seasonal. Demand for peanut and tree nut products is highest during the last four
months of the calendar year. Pecans and walnuts, two of our 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, our personnel requirements rise during the last four
months of the calendar year. Our working capital requirements generally peak during the third
quarter of our fiscal year. See Item 8 Financial Statements and Supplementary Data and Part II,
Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
Introduction.
(xi) Backlog
Because the time between order and shipment is usually less than three weeks, we believe that any
backlog as of a particular date is not material to an understanding of our business as a whole.
(xii) Operating Hazards and Uninsured Risks
The sale of food products for human consumption involves the risk of injury to consumers as a
result of product contamination or spoilage, including the presence of foreign objects, insects,
substances, chemicals, aflatoxin and other agents, or residues introduced during the growing,
storage, handling or transportation phases. Although we (i) maintain what we believe to be rigid
quality control standards, (ii) generally inspect our products by visual examination, metal
detectors or electronic monitors at various stages of our shelling and processing operations for
all of our nut and other food products, (iii) permit the USDA to inspect all lots of peanuts
shipped to and from our peanut shelling facilities, and (iv) seek to comply with the Nutrition
Labeling and Education Act by labeling each product that we sell with labels that disclose the
nutritional value and content of each of our products, no assurance can be given that some nut or
other food products sold by us may not contain or develop harmful substances. In order to mitigate
this risk, we currently maintain
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product liability insurance of $2 million per occurrence and umbrella coverage of up to $50
million.
Item 1A Risk Factors
We face a number of significant risks and uncertainties and therefore an investment in our common
stock is subject to risks and uncertainties. Our business, results of operations and financial
condition could be materially adversely affected by the factors described below. While each risk is
described separately, some of these risks are interrelated and it is possible that certain risks
could trigger the applicability of other risks described below. Also, the risks and uncertainties
described below are not the only ones that we face. Additional risks and uncertainties not
presently known to us, or that are currently deemed immaterial, could also potentially impair our
business, results of operations and financial condition. Investors should consider the following
factors, in addition to the other information contained in this Annual Report on Form 10-K, before
deciding to purchase our common stock.
We Cannot Control the Availability of Raw Materials and Market Price Fluctuations
The availability and cost of raw materials for the production of our products, including peanuts,
pecans, almonds, walnuts and other nuts are subject to crop size and yield fluctuations caused by
factors beyond our control, such as weather conditions, plant diseases, changes in customer demand
and changes in government programs. Additionally, the supply of edible nuts and other raw materials
used in our 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. Furthermore, we are not able to hedge against
changes in commodity prices because no appropriate futures or other market to utilize for such
purpose exists, and thus, shortages in the supply of and increases in the prices of nuts and other
raw materials we use in our products (to the extent that cost increases cannot be passed on to
customers) could have an adverse impact on our profitability. For example, our costs to acquire
cashews and raw peanuts have recently increased, in part because of adverse weather conditions. We
are currently uncertain as to whether or when we will be able to fully pass on this increase in our
costs to our customers. Furthermore, fluctuations in the market prices of nuts may affect the value
of our inventories and profitability. We have significant inventories of nuts that would be
adversely affected by any decrease in the market price of such raw materials. See Part II, Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations
Introduction.
We Enter Into Fixed Price Commitments
The great majority of our industrial sales customers, and certain other customers, require us to
enter into fixed price commitments with them. Such commitments represented approximately 20% of our
annual net sales in fiscal 2008. In most cases, the fixed price commitments are entered into after
our cost to acquire the nut products necessary to satisfy the fixed price commitments are
substantially fixed. The commitments are for a fixed period of time, typically one year, but may be
extended if remaining balances exist. However, sometimes we enter into fixed price commitments with
respect to certain of our nut products before fixing our acquisition cost in order to maintain
customer relationships or when, in managements judgment, market or crop harvest conditions so
warrant. To the extent we do so, however, these fixed price commitments may result in reduced or
negative gross profit margins that have a material adverse effect on our results of operations.
We have a Generally Vertically Integrated Model With Respect to Pecans, Peanuts and Walnuts
We have a generally vertically integrated nut processing operation that enables us to control
almost every step of the process for pecans, peanuts and walnuts, including procurement from
growers. Our vertically integrated model has in the past resulted, and may in the future result,
in significant losses because we are subject to the various risks associated with purchasing
a majority of our pecans, peanuts and walnuts directly from growers, including the risk of purchasing such products
from growers at prices that later, due to altered market conditions, prove to be above market
prices. For example, our results of operations were adversely affected during fiscal 2006, during
which we had a generally vertically integrated model with respect to almonds. The market prices for
almonds declined significantly after we entered into fixed price purchase contracts directly with
growers, but before fixed price sales contracts with customers were entered into. In order to
retain customers and remain competitive, we felt it was imperative to sell the almonds at a loss.
Accordingly, because we purchase a majority of our pecans, peanuts and walnuts directly from growers using fixed
price contracts, some of which are entered into before harvest, there is a possibility that after
we enter into the fixed price contracts, market conditions may change, and we will be forced to
sell these nuts at a loss.
8
We Operate in a Competitive Environment
We operate in a highly competitive environment. Our 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 us, such as Planters and Ralcorp Holdings,
Inc. For example, our Fisher brand has declined in market share in recent years in part because the
companies who sell and market the other top branded nut products have committed significantly more
resources to such brands when compared to the resources spent by us on our Fisher brand. Our retail
competitors buy their nuts on the open market and are thus not exposed to the risks of purchasing
raw pecans, peanuts and walnuts directly from growers at fixed prices that later, due to altered
market conditions prove to be above market prices. We also compete with other shellers in the
industrial market and with regional processors in the retail and wholesale markets. In order to
maintain or increase our market share, we must continue to price our products competitively, which
may lower revenue per unit and cause declines in gross margin, if we are unable to increase unit
volumes as well as reduce our costs.
We are Dependent Upon Certain Significant Customers
We are dependent on a few significant customers for a large portion of our total sales,
particularly in the consumer channel. Sales to our five largest customers represented approximately
40%, 40% and 38% of gross sales in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Wal-Mart
alone accounted for approximately 19%, 20% and 19% of our net sales for fiscal 2008, fiscal 2007
and fiscal 2006, respectively. The loss of one of our largest customers, or a material decrease in
purchases by one or more of our largest customers, would result in decreased sales and adversely
impact our results of operations and cash flow.
We are Subject to Pricing Pressures
As the retail grocery trade continues to consolidate and our retail customers grow larger and
become more sophisticated, our 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 our competitive advantages. Our sales volume growth could
suffer, and it may become necessary to lower our prices and increase promotional support of our
products, any of which would adversely affect our gross profit and gross profit margin.
Food Safety and Product Contamination Concerns Could Have a Material Adverse Effect on Us
We could be adversely affected if consumers in our principal markets lose confidence in the safety
of nut products, particularly with respect to peanut and tree nut allergies. Individuals with nut
allergies may be at risk of serious illness or death resulting from the consumption of our nut
products, including consumption of other companies products containing our products as an
ingredient. Notwithstanding existing food safety controls, we process peanuts and tree nuts on the
same equipment, and there is no guarantee that our products will not be cross-contaminated.
Concerns generated by risks of peanut and tree nut cross-contamination and other food safety
matters may discourage consumers from buying our products, cause production and delivery
disruptions, or result in product recalls. In addition, the cooling system at the Elgin, Illinois
facility utilizes ammonia. If a leak in the system were to occur, there is a possibility that the
inventory in cold storage at the Elgin, Illinois facility could be destroyed.
Product Liability and Product Recalls May Have a Material Adverse Effect on Us
We face risks associated with product liability claims and product recalls in the event our food
safety and quality control procedures fail and our products cause injury or become adulterated or
misbranded. In addition, we do not control the labeling of other companies products containing our
products as an ingredient. A product recall of a sufficient quantity, a significant product
liability judgment against us, or other safety concerns could cause our products to be unavailable
for a period of time and could result in a loss of consumer confidence in our products. These kinds
of events, were they to occur, would have a material adverse effect on demand for our products and,
consequently, our results of operations and cash flows.
9
We are Dependent on Certain Key Personnel
Our future success will be largely dependent on the personal efforts of our senior operating
management team, including Jeffrey T. Sanfilippo, Chief Executive Officer, Michael J. Valentine,
Chief Financial Officer and Group President, James A. Valentine, Chief Information Officer and
Jasper B. Sanfilippo, Jr., Chief Operating Officer and President, who have assumed management of
the day-to-day operation of our business over the past three years. In addition, our success also
depends on the talents of Everardo Soria, Senior Vice President Pecan Operations and Procurement,
Walter R. Tankersley, Jr., Senior Vice President Industrial Sales and Michael G. Cannon, Senior
Vice President of Corporate Operations. We believe that the expertise and knowledge of these
individuals in the industry, and in their respective fields, is a critical factor to our growth and
success. We have not entered into an employment agreement with any of these individuals, nor do we
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 our business and prospects if we were unable to
identify a suitable candidate to replace any such individual. Our success is also dependent upon
our ability to attract and retain additional qualified marketing, technical and other personnel,
and there can be no assurance that we will be able to do so.
We are Subject to Risks and Uncertainties Regarding Our Facility Consolidation Project
The facility consolidation project, for which we have invested a total of over $100 million, may
not result in significant cost savings or increases in efficiency, or allow us to increase our
production capabilities to meet any future increases in customer demand. Moreover, our 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 or cause losses or adverse
financial consequences.
More specifically:
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the facility consolidation project may not eliminate as many redundant processes as we
presently anticipate; |
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sales volume may continue to decrease, in part because of our voluntary elimination of
non-profitable products, and we may not realize any future overall increases in demand for
our products necessary to justify additional production capacity available at the New Site; |
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we may not achieve the planned levels of increased efficiencies at the New Site; |
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we may not obtain tenants or receive rental income for the unused portions of the New
Site; |
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we may not receive certain outstanding written permits from the City of Elgin, as
expected; and |
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we may not be able to recover our investment in the Original Site. |
If, for any reason, we were to realize less than the expected benefits from the facility
consolidation project, our future income stream, cash flows and debt levels could be materially
adversely affected. In addition, the facility consolidation project does not have a long history.
Accordingly, unanticipated risks and problems may develop in the future.
We are Subject to Government Regulation
We are subject to extensive regulation by the United States Food and Drug Administration, the USDA,
the United States Environmental Protection Agency and other state, local and foreign authorities in
jurisdictions where our products are manufactured, processed or sold. Among other things, these
regulations govern the manufacturing, importation, processing, packaging, storage, distribution and
labeling of our products. Our manufacturing and processing facilities and products are subject to
periodic compliance inspections by federal, state, local and foreign authorities. We are also
subject to environmental regulations governing the discharge of air emissions, water and food
waste, the usage and storage of pesticides, 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 our existing facilities as well
as our expansion into new operations and jurisdictions, may require us to obtain additional
licenses and permits and could require us to adapt or alter methods of operations at costs that
could be substantial. Compliance with applicable laws and regulations may adversely affect our
business. Failure to comply with applicable laws and regulations could subject us to civil
remedies, including fines, injunctions, recalls or seizures, as well as possible criminal
sanctions, which could have a material adverse effect on our business.
10
Economic, Political and Social Risks of Doing Business in Emerging Markets May Have a Material
Adverse Effect on Us
We purchase our cashew inventories from India, Brazil and Southeast Asia, which are in many
respects emerging markets. To this extent, we are exposed to risks inherent in emerging markets,
including:
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increased governmental ownership and regulation of the economy; |
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greater likelihood of inflation and adverse economic conditions stemming from
governmental attempts to reduce inflation, such as imposition of higher interest rates and
wage and price controls; |
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potential for contractual defaults or forced renegotiations on purchase contracts with
limited legal recourse; |
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tariffs and other barriers to trade that may reduce our profitability; and |
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civil unrest and significant political instability. |
The existence of these risks in these and other foreign countries that are the origins of our raw
materials could jeopardize or limit our ability to purchase sufficient supplies of cashews and
other imported raw materials and may adversely affect our results of operations by increasing the
costs of doing business overseas.
The Way in Which We Measure Inventory May Have a Material Adverse Effect on Us
We acquire our inshell nut inventories of pecans, peanuts and walnuts from growers and farmers in
large quantities at harvest times, which are primarily during the second and third quarters of our
fiscal year, and receive 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 we perform various procedures to
periodically confirm the accuracy of our bulk-stored nut inventories, these inventories are
estimates that must be periodically adjusted to account for positive or negative variations in
quantities and yields, and such adjustments directly affect earnings. The precise amount of our
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 our results of operations in the
future.
We are Subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002
We are subject to 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 nations 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. There can be no
assurances that the effects of the Bioterrorism Act and the rules enacted there under by the FDA,
including any potential disruption in our supply of imported nuts, which represented approximately
24% of our total nut purchases in fiscal 2008, will not have a material adverse effect on our
business, financial position or results of operations in the future.
Our Largest Stockholders Possess a Majority of Aggregate Voting Power, Which May Make a Takeover or
Change in Control More Difficult
As of
August 28, 2008, Jasper B. Sanfilippo, Marian Sanfilippo, Jeffrey T. Sanfilippo, Jasper B.
Sanfilippo, Jr., Lisa A. Evon, John E. Sanfilippo and James J. Sanfilippo (the Sanfilippo Group)
own or control Common Stock (one vote per share) and Class A Common Stock (ten votes per share)
representing approximately a 52.3% voting interest in our company. As
of August 28, 2008, Michael
J. Valentine and Mathias A. Valentine (the Valentine Group) own or
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control Common Stock (one vote per share) and Class A Common Stock (ten votes per share)
representing approximately a 24.4% voting interest in our company. As a result, the Sanfilippo
Group and the Valentine Group together are able to direct the election of a majority of the members
to the Board of Directors. In addition, the Sanfilippo Group is able to exert influence on our
business that cannot be counteracted by another shareholder or group of shareholders. The
Sanfilippo Group is able to determine the outcome of nearly all matters submitted to a vote of our
stockholders, including any amendments to our certificate of incorporation or bylaws. The
Sanfilippo Group has the power to prevent a change in control or sale of our company, which may be
beneficial to the public stockholders, or cause a change in control which may not be beneficial to
the public stockholders, and can take other actions that might be less favorable to our
stockholders and more favorable to the Sanfilippo Group, subject to applicable legal limitations.
We May Incur Material Losses as a Licensed Nut Warehouse Operator under the United States Warehouse
Act
We store a large amount of peanut inventory on behalf of the United States government at various
facilities. As a licensed United States Department of Agriculture Nut Warehouse Operator, we are
responsible for delivering the loan value of the peanut inventory in our possession as represented
on the warehouse receipt on demand. Because the inventory may be stored at our facilities for a
significant period of time, the peanut inventory may decrease in value as a result of a decline in
the quality of the peanut inventory or shrinkage in the peanut inventory. We are responsible for
reimbursing the United States government for any such decline in value associated with quality
issues or shrinkage in excess of an allowable amount that arise during our custody of such
inventory. Accordingly, a significant decline in the value of the peanut inventory stored at our
facilities for these circumstances could have a material adverse effect on us.
Esentially all of Our Real Property is Encumbered, Which Could Adversely Affect Our Ability to
Obtain Additional Capital if Required
We incurred net losses of $6.0 million, $13.6 million and $16.7 million in fiscal years 2008, 2007
and 2006, respectively. We have taken certain actions aimed at improving our financial results,
such as entering into new financing arrangements, and we earned an operating profit in fiscal 2008
of $10.7 million. However, the new financing arrangements include a mortgage facility, which is
secured by essentially all of our owned real property located in Elgin, Illinois, Gustine, California and Garysburg,
North Carolina. Previously, the aforementioned properties were not
encumbered. Because essentially all of our
owned real property is now encumbered, such properties are not available as a means of securing
further capital in the event that additional capital is required because of unexpected events,
losses or other circumstances.
General Economic Conditions Could Significantly Affect Our Financial Results
General economic conditions and the possibility of an economic recession could significantly affect
our financial condition. General economic conditions, any of which could have a material adverse
effect on our results of operations and financial condition, include higher inflation, the weak
dollar, increased commodity costs, unforeseen changes in consumer demand or buying patterns, and
general transportation and fuel costs. Among other considerations, nuts and our other products are
not essential products.
Item 1B Unresolved Staff Comments
None.
Item 2 Properties
We own or lease five principal production facilities. Our primary processing and distribution
facility along with our headquarters is located at the New Site in Elgin, Illinois. The remaining
principal production facilities are located in Bainbridge, Georgia; Garysburg, North Carolina;
Selma, Texas; and Gustine, California. In addition, we operate an outlet store out of the New Site,
and own one retail store and lease three additional retail stores in the Chicago area. We also
lease space in public warehouse facilities in various states.
We believe that our facilities are generally well maintained and in good operating condition.
a. Principal Facilities
The following table provides certain information regarding our principal facilities:(1)
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Date Company |
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Constructed, |
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Square |
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Bainbridge, Georgia(2)
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245,000 |
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Owned
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Peanut shelling, purchasing, processing,
packaging, warehousing and distribution
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1987 |
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Garysburg, North Carolina
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160,000 |
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Owned
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Peanut shelling, purchasing, processing,
packaging, warehousing and distribution
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1994 |
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Selma, Texas(3)
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300,000 |
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Leased
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Pecan shelling, processing, packaging,
warehousing and distribution
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1992 |
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Gustine, California
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215,000 |
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Owned
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Walnut shelling, processing, packaging,
warehousing and distribution
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1993 |
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Elgin, Illinois(4)
(Elgin Office Building)
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400,000 |
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Owned
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Rental Property
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2005 |
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Elgin, Illinois(5)
(Elgin Warehouse Building)
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1,001,000 |
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Owned
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Processing, packaging, warehousing,
distribution and corporate offices
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2005 |
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(1) |
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In addition to the properties listed in the table, we own land in Elgin, Illinois, which we
originally anticipated using in connection with the facility consolidation project (the
Original Site). For a description of the Original Site, see Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations Introduction. |
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The Bainbridge facility is subject to a mortgage and deed of trust securing $5.125 million
(excluding accrued and unpaid interest) in industrial development bonds. See Part II, Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources. |
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The sale of the Selma, Texas properties to the related party partnerships was consummated
during the first quarter of fiscal 2007. See Item 1(a)(iii) Real Estate Transactions. |
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The Elgin Office Building (part of the New Site) was acquired in April 2005. 41.5% of the
Elgin Office Building was leased back to the seller through April 2008. The lease was not
renewed. Approximately 20% of the Elgin Office Building is currently being leased to other
third parties. The remaining portion of the office building may be leased to third parties;
however, there can be no assurance that we will be able to lease the unoccupied space.
Further capital expenditures will be necessary to lease the remaining space, including the
space previously rented by the seller of the New Site. |
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The Elgin Warehouse Building (part of the New Site) was acquired in April 2005 and was
expanded from 653,000 to 1,001,000 square feet and was modified to our specifications. Our
Chicago area distribution operation was transferred to the Elgin Warehouse Building in July
2006 and our corporate headquarters were relocated to the Elgin Warehouse Building in February
2007. The majority of our Chicago area processing activities were transferred to the Elgin
Warehouse Building during fiscal 2007, with the remaining activities transferred in fiscal
2008 and the first quarter of fiscal 2009. |
b. Manufacturing Capability, Utilization, Technology and Engineering
Our principal production facilities are equipped with modern processing and packaging machinery and
equipment.
The New Site was designed to our specifications with what we believe to be state-of-the-art
equipment. The layout is designed to efficiently move product from raw storage to processing to
packaging to distribution. The majority of processing operations at our previous Chicago area
facilities were transferred to the New Site during fiscal 2007, with the remaining operations
transferred in fiscal 2008 and the first quarter of fiscal 2009. Also, the New Site is designed to
accommodate an increase in production capacity of 25% to 40% in part because the New Site provides
substantially more square footage than the aggregate space previously available in our Chicago area
facilities.
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The Selma facility contains our automated pecan shelling and bulk packaging operation. The
facilitys pecan shelling production lines currently have the capacity to shell in excess of
90 million inshell pounds of pecans annually. For fiscal 2008, we processed approximately 60
million inshell pounds of pecans at the Selma, Texas facility.
The Bainbridge facility is located in the largest peanut producing region in the United States.
This facility takes direct delivery of farmer stock peanuts and cleans, shells, sizes, inspects,
blanches, roasts and packages them for sale to our customers. The production line at the Bainbridge
facility is almost entirely automated and has the capacity to shell approximately 120 million
inshell pounds of peanuts annually. During fiscal 2008, the Bainbridge facility shelled
approximately 67 million inshell pounds of peanuts.
The Garysburg facility has the capacity to process approximately 70 million inshell pounds of
farmer stock peanuts annually. For fiscal 2008, the Garysburg facility processed approximately 13
million pounds of inshell peanuts.
The Gustine facility is used for walnut shelling, walnut and almond processing, warehousing and
distribution. This facility has the capacity to shell in excess of 50 million inshell pounds of
walnuts annually. For fiscal 2008, the Gustine facility shelled approximately 49 million inshell
pounds of walnuts.
Item 3 Legal Proceedings
We are party to various lawsuits, proceedings and other matters arising out of the conduct of our
business. Currently, it is managements opinion that the ultimate resolution of these matters will
not have a material adverse effect upon our business, financial condition or results of operations.
Item 4 Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of fiscal 2008 to a vote of security holders,
through solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K, the following executive officer description information is included as an unnumbered item in
Part I of this Report in lieu of being included in the Proxy Statement for our annual meeting of
stockholders to be held on October 30, 2008:
Jeffrey T. Sanfilippo, Chief Executive Officer, age 45 Mr. Sanfilippo has been employed by us
since 1991 and in November 2006 was named our Chief Executive Officer. Mr. Sanfilippo served as our
Executive Vice President Sales and Marketing from January 2001 to November 2006. Mr. Sanfilippo
served as our Senior Vice President Sales and Marketing from August 1999 to January 2001. Mr.
Sanfilippo has been a member of our Board of Directors since August 1999. He served as General
Manager West Coast Operations from September 1991 to September 1993. He served as Vice President
West Coast Operations and Sales from October 1993 to September 1995. He served as Vice President
Sales and Marketing from October 1995 to August 1999.
Michael J. Valentine, Chief Financial Officer and Group President, age 49 Mr. Valentine has been
employed by us since 1987. In November 2006, Mr. Valentine was named our Chief Financial Officer
and Group President and, in May 2007, Mr. Valentine was named our Secretary. Mr. Valentine served
as our Executive Vice President Finance, Chief Financial Officer and Secretary from January 2001 to
November 2006. Mr. Valentine served as our Senior Vice President and Secretary from August 1999 to
January 2001. Mr. Valentine has been a member of our Board of Directors since April 1997. Mr.
Valentine served as our Vice President and Secretary from December 1995 to August 1999. He served
as an Assistant Secretary and the General Manager of External Operations for us from June 1987 and
1990, respectively, to December 1995. Mr. Valentines responsibilities also include our peanut
operations, including sales and procurement, and contract packaging business.
Jasper B. Sanfilippo, Jr., Chief Operating Officer and President, age 40 Mr. Sanfilippo has been
employed by us since 1992. In November 2006, Mr. Sanfilippo was named our Chief Operating Officer
and President and, in May 2007, Mr. Sanfilippo was named our Treasurer. Mr. Sanfilippo served as
our Executive Vice President Operations, retaining his position as Assistant Secretary, which he
assumed in December 1995 from 2001 to November 2006. Mr. Sanfilippo became a member of our Board of
Directors in December 2003. He became our Senior Vice President Operations in August 1999 and
served as Vice President Operations from December 1995 to August 1999. Prior to that, Mr.
Sanfilippo
14
was the General Manager of our Gustine, California facility beginning in October 1995, and from
June 1992 to October 1995 he served as Assistant Treasurer and worked in our Financial Relations
Department. Mr. Sanfilippo is responsible for our non-peanut shelling operations, including plant
operations and procurement.
James A. Valentine, Chief Information Officer, age 44 Mr. Valentine has been employed by us since
1986 and in November 2006 was named our Chief Information Officer. Mr. Valentine served as our
Executive Vice President Information Technology from August 2001 to November 2006. Mr. Valentine
served as Senior Vice President Information Technology from January 2000 to August 2001 and as Vice
President of Management Information Systems from January 1995 to January 2000.
William R. Pokrajac, Vice President, Risk Management and Investor Relations, age 54 Mr. Pokrajac
has been with us since 1985. He served as our Controller from 1987 to August 2003 and the as our
Vice President of Finance from 2001 until September 2007, when he was named Vice President, Risk
Management and Investor Relations. Mr. Pokrajac is responsible for our risk management and investor
relation activities.
Walter (Bobby) Tankersley Jr., Senior Vice President Industrial Sales, age 56 Mr. Tankersley has
been employed by us since January 2002 and is responsible for directing the sales of the industrial
distribution channel which includes pecans, almonds, walnuts, macadamias, peanuts, cashews and
hazelnuts. He has over 30 years of experience in the nut industry where he was previously Vice
President of Sales & Marketing at the Young Pecan Company and Director of Industrial Sales at the
Mauna Loa Macadamia Nut Company. In addition to sales, he is responsible for procurement of
almonds, walnuts, macadamias and pistachios as well as providing commodity analysis, crop
forecasts, and consumption trend analysis for various nut commodities.
Everardo Soria, Senior Vice President Pecan Operations and Procurement, age 51 Mr. Soria has been
with us since 1985. Mr. Soria was named Director of Pecan Operations in July 1995 and was named
Vice President Pecan Operations and Procurement in January 2002. Mr. Soria was named Senior Vice
President Pecan Operations and Procurement in August 2003. Mr. Soria is responsible for the
procurement of pecans and for the shelling of pecans at our Selma, Texas facility.
Herbert J. Marros, Director of Financial Reporting and Taxation, age 50 Mr. Marros has been with
us since 1995. Mr. Marros served as Assistant Controller from 1995 until 2003, when he was promoted
to Controller. In September 2007, Mr. Marros was named Director of Financial Reporting and
Taxation. Mr. Marros is responsible for our internal and external financial reporting and tax
activities.
Michael G. Cannon, Senior Vice President of Corporate Operations, age 55 Mr. Cannon joined us in
October 2005 as Senior Vice President of Operations. Previously, Mr. Cannon was Vice President of
Operations at Sugar Foods Corp., a manufacturer and distributor of food products, from 1995 to
October 2005. Mr. Cannon is responsible for the production operations for all of our facilities.
Frank S. Pellegrino, Corporate Controller, age 34 Mr. Pellegrino joined us in January 2007 as
Director of Accounting and was appointed Corporate Controller in September 2007. Previously, Mr.
Pellegrino was Internal Audit Manager at W.W. Grainger, a business-to-business distributor, from
June 2003 to January 2007. Prior to that, he was a Manager in the Assurance Practice of
PricewaterhouseCoopers LLP, where he was employed from 1996 to 2003. Mr. Pellegrino is responsible
for our accounting functions.
RELATIONSHIPS AMONG CERTAIN DIRECTORS AND EXECUTIVE OFFICERS
Jasper B. Sanfilippo, Chairman of the Board of our company, is (i) the father of Jasper B.
Sanfilippo, Jr. and Jeffrey T. Sanfilippo, executive officers and directors of our company, (ii)
the brother-in-law of Mathias A. Valentine, a director of our company, and (iii) the uncle of
Michael J. Valentine, an executive officer and a director of our company and James A. Valentine, an
executive officer of our company. Michael J. Valentine, Chief Financial Officer, Group President
and Secretary and a director of our company, is (i) the son of Mathias A. Valentine, (ii) the
brother of James A. Valentine, (iii) the nephew of Jasper B. Sanfilippo, and (iv) the cousin of
Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo. Jeffrey T. Sanfilippo, Chief Executive Officer
and a director of our company, is (i) the son of Jasper B. Sanfilippo, (ii) the brother of Jasper
B. Sanfilippo, Jr., (iii) the nephew of Mathias A. Valentine, and (iv) the cousin of Michael J.
Valentine and James A. Valentine. Jasper B. Sanfilippo, Jr., Chief Operating Officer, President and
Treasurer and a director of our company, is (i) the son of Jasper B. Sanfilippo, (ii) the brother
of Jeffrey T. Sanfilippo, (iii) the nephew of Mathias A. Valentine, and (iv) the cousin of Michael
J. Valentine and James A. Valentine. James A. Valentine, Chief Information Officer, is (i) the son
of Mathias A. Valentine, (ii) the brother of Michael J Valentine, (iii) the nephew of Jasper B.
15
Sanfilippo, and (iv) the cousin of Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo.
PART II
Item 5 Market for Registrants Common Equity and Related Stockholder Matters
We have two classes of stock: Class A Common Stock (Class A Stock) and Common Stock. The holders
of Common Stock are entitled to elect 25% of the members of the Board of Directors, rounded up to
the nearest whole number, and the holders of Class A Stock are entitled to elect the remaining
directors. With respect to matters other than the election of directors or any matters for which
class voting is required by law, the holders of Common Stock are entitled to one vote per share
while the holders of Class A Stock are entitled to ten votes per share. Our Class A Stock is not
registered under the Securities Act of 1933 and there is no established public trading market for
the Class A Stock. However, each share of Class A Stock is convertible at the option of the holder
at any time and from time to time (and, upon the occurrence of certain events specified in our
Restated Certificate of Incorporation, automatically converts) into one share of Common Stock.
Our Common Stock is quoted on the NASDAQ Global Market and our trading symbol is JBSS. The
following tables set forth, for the quarters indicated, the high and low reported sales prices for
the Common Stock as reported on the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
Price Range of |
|
|
Common Stock |
Year Ended June 26, 2008 |
|
High |
|
Low |
4th Quarter |
|
$ |
11.40 |
|
|
$ |
8.02 |
|
3rd Quarter |
|
$ |
9.80 |
|
|
$ |
6.72 |
|
2nd Quarter |
|
$ |
10.42 |
|
|
$ |
7.25 |
|
1st Quarter |
|
$ |
12.30 |
|
|
$ |
6.73 |
|
|
|
|
|
|
|
|
|
|
|
|
Price Range of |
|
|
Common Stock |
Year Ended June 28, 2007 |
|
High |
|
Low |
4th Quarter |
|
$ |
14.25 |
|
|
$ |
10.32 |
|
3rd Quarter |
|
$ |
16.19 |
|
|
$ |
11.81 |
|
2nd Quarter |
|
$ |
12.29 |
|
|
$ |
9.80 |
|
1st Quarter |
|
$ |
13.25 |
|
|
$ |
9.78 |
|
As of August 22, 2008, there were 74 holders and 16 holders of record of our Common Stock and Class
A Stock, respectively.
Under our companys Restated Certificate of Incorporation, the Class A Stock and the Common Stock
are entitled to share equally on a share for share basis in any dividends declared by the Board of
Directors on our common equity.
Our current financing agreements prohibit the payment of dividends. No dividends have been
declared since 1995.
For purposes of the calculation of the aggregate market value of our voting stock held by
non-affiliates as set forth on the cover page of this Report, we did not consider any of the
siblings of Jasper B. Sanfilippo or Mathias A. Valentine, or any of the lineal descendants of
either Jasper B. Sanfilippo, Mathias A. Valentine or such siblings (other than those who are
executive officers of our company or who have formed a group within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, with either Jasper B. Sanfilippo or Mathias A.
Valentine) as an affiliate. See Review of Related Party Transactions and Security Ownership of
Certain Beneficial Owners and Management contained in our Proxy Statement for the 2008 Annual
Meeting and Executive Officers of the Registrant Relationships Among Certain Directors and
Executive Officers appearing immediately before Part II of this Report.
16
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes our equity compensation plans as of June 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
Weighted |
|
|
remaining available for |
|
|
|
Number of |
|
|
average |
|
|
future issuance under |
|
|
|
securities to |
|
|
exercise price |
|
|
equity compensation |
|
|
|
be issued |
|
|
of |
|
|
plans (excluding |
|
|
|
upon exercise |
|
|
outstanding |
|
|
securities reflected in the |
|
|
|
of options |
|
|
options |
|
|
first column) |
|
Equity compensation plans approved by stockholders |
|
|
470,440 |
|
|
$ |
11.49 |
|
|
|
31,000 |
|
Equity
compensation plans not approved by stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
470,440 |
|
|
$ |
11.49 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
Item 6 Selected Financial Data
The following historical consolidated financial data as of and for the years ended June 26, 2008,
June 28, 2007, June 29, 2006, June 30, 2005 and June 24, 2004 were derived from our consolidated
financial statements. The financial data should be read in conjunction with our audited
consolidated financial statements and notes thereto, which are included elsewhere herein, and with
Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations.
The information below is not necessarily indicative of the results of future operations. No
dividends have been declared since 1995.
Statement of Operations Data: (dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
June 28, |
|
|
|
|
|
|
|
|
|
|
|
|
June 26, |
|
|
2007 |
|
|
June 29, |
|
|
June 30, |
|
|
June 24, |
|
|
|
2008 |
|
|
(as revised) |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net sales |
|
$ |
541,771 |
|
|
$ |
540,858 |
|
|
$ |
579,564 |
|
|
$ |
581,729 |
|
|
$ |
520,811 |
|
Cost of sales |
|
|
475,538 |
|
|
|
499,569 |
|
|
|
542,447 |
|
|
|
503,300 |
|
|
|
428,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
66,233 |
|
|
|
41,289 |
|
|
|
37,117 |
|
|
|
78,429 |
|
|
|
91,844 |
|
Selling and administrative expenses |
|
|
53,797 |
|
|
|
55,457 |
|
|
|
55,099 |
|
|
|
51,842 |
|
|
|
50,780 |
|
Restructuring expenses |
|
|
1,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain related to real estate sales |
|
|
|
|
|
|
(3,047 |
) |
|
|
(940 |
) |
|
|
|
|
|
|
|
|
Goodwill impairment loss |
|
|
|
|
|
|
|
|
|
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
10,671 |
|
|
|
(11,121 |
) |
|
|
(18,284 |
) |
|
|
26,587 |
|
|
|
41,064 |
|
Interest expense |
|
|
(10,502 |
) |
|
|
(9,347 |
) |
|
|
(6,516 |
) |
|
|
(3,998 |
) |
|
|
(3,434 |
) |
Debt extinguishment costs |
|
|
(6,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(972 |
) |
Rental and miscellaneous (expense) income, net |
|
|
(286 |
) |
|
|
(629 |
) |
|
|
(610 |
) |
|
|
1,179 |
|
|
|
440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) before income taxes |
|
|
(6,854 |
) |
|
|
(21,097 |
) |
|
|
(25,410 |
) |
|
|
23,768 |
|
|
|
37,098 |
|
Income tax (benefit) expense |
|
|
(897 |
) |
|
|
(7,520 |
) |
|
|
(8,689 |
) |
|
|
9,269 |
|
|
|
14,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(5,957 |
) |
|
$ |
(13,577 |
) |
|
$ |
(16,721 |
) |
|
$ |
14,499 |
|
|
$ |
22,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share |
|
$ |
(0.56 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.58 |
) |
|
$ |
1.37 |
|
|
$ |
2.35 |
|
Diluted (loss) earnings per common share |
|
$ |
(0.56 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.58 |
) |
|
$ |
1.35 |
|
|
$ |
2.32 |
|
Balance Sheet Data: (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
|
|
|
|
|
|
June 26, |
|
2007 |
|
June 29, |
|
June 30, |
|
June 24, |
|
|
2008 |
|
(as revised) |
|
2006 |
|
2005 |
|
2004 |
Working capital |
|
$ |
42,863 |
|
|
$ |
15,461 |
|
|
$ |
22,617 |
|
|
$ |
137,764 |
|
|
$ |
122,854 |
|
Total assets |
|
|
350,784 |
|
|
|
367,271 |
|
|
|
390,912 |
|
|
|
394,472 |
|
|
|
246,934 |
|
Long-term debt, less current maturities |
|
|
52,356 |
|
|
|
19,783 |
|
|
|
5,618 |
|
|
|
67,002 |
|
|
|
12,620 |
|
Total debt |
|
|
132,555 |
|
|
|
148,034 |
|
|
|
137,676 |
|
|
|
144,174 |
|
|
|
19,166 |
|
Stockholders equity |
|
|
158,372 |
|
|
|
162,991 |
|
|
|
180,110 |
|
|
|
196,175 |
|
|
|
181,360 |
|
17
Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
We are one of the leading processors and marketers of peanuts, pecans, cashews, walnuts, almonds
and other nuts in the United States. These nuts are sold under a variety of private labels and
under the Fisher, Flavor Tree, Sunshine Country and Texas Pride brand names. We also market and
distribute, and in most cases manufacture or process, a diverse product line of food and snack
products, including peanut butter, candy and confections, natural snacks and trail mixes, sunflower
seeds, corn snacks, sesame sticks and other sesame snack products. We distribute our products in
the consumer, industrial, food service, contract packaging, and export distribution channels.
We improved operating results for fiscal 2008 when compared to fiscal 2007, although we still
recognized a loss before income taxes. Income from operations was $10.7 million for fiscal 2008
compared to a loss from operations of $11.1 million for fiscal 2007. This improvement was achieved
primarily through a 10.9% increase in our weighted average selling price due to a combination of
price increases and a shift in sales to the consumer and food service distribution channels from
the industrial and export distribution channels. Income from operations for fiscal 2008 reflects
$1.8 million of restructuring expenses related to the elimination of our store-door distribution
system, the facility consolidation project and the discontinuance of low volume products. Our loss
before income taxes was $6.9 million for fiscal 2008 compared to $21.1 million for fiscal 2007.
Loss before income taxes for fiscal 2008 reflects $6.7 million of debt extinguishment costs related
to a refinancing consummated during the third quarter.
Our net sales increased slightly to $541.8 million for fiscal 2008 from $540.9 million for fiscal
2007. Total pounds of all products shipped to customers decreased by 9.7% for fiscal 2008 compared
to fiscal 2007, primarily as a result of lower industrial sales due to our discontinuance of our
almond handling operation. Pounds of almonds, macadamias, peanuts and walnuts shipped to customers
declined in the yearly comparison. Total pounds of all products shipped to customers declined in
all of our distribution channels, except for the food service distribution channel. The overall
decline in sales volume was offset by price increases and a shift in sales mix, leading to the
slight increase in net sales dollars.
In addition to the debt extinguishment costs and restructuring expenses, we incurred the following
unusual or infrequent expenses during fiscal 2008:
|
|
|
$7.1 million increase in unfavorable labor and efficiency variances over fiscal 2007,
which was primarily related to the shut down and start up costs for production lines that
were moved from the previous Chicago area facilities and installed in our companys new
Elgin, Illinois facility (the New Site); |
|
|
|
|
$2.6 million in estimated redundant manufacturing expenses as production activities
occurred at the previous Chicago area facilities while the manufacturing spending in the
New Site reflected increased production levels; |
|
|
|
|
$2.6 million in external contractor charges that were related to the acceleration of
the equipment move from the existing Chicago area facilities to the New Site; and |
|
|
|
|
$0.9 million in consulting fees related to our profitability enhancement initiative,
the implementation of a new sales analysis system and the design and implementation of a
new incentive compensation plan, which rewards plan participants in connection with
year-over-year improvement in our after-tax net operating financial performance in excess
of our annual weighted-average cost of capital. |
In January 2008, we terminated our store-door distribution system as a result of our determination
that it was no longer profitable to ship products to customers through our store-door distribution
system. In connection with the discontinuance of the store-door delivery system, we terminated
nine employees. We have maintained a majority of the $2.5 million in annual sales generated
through the store-door distribution system, as business has migrated to our other distribution
methods.
Pursuant to a separate initiative, in the first two months of calendar 2008, we terminated
approximately 80 employees, approximately 5% of our work force. These terminations were possible
due to the implementation of strategies, such as consolidating all Chicago area activities at the
New Site and discontinuing 1,200 products. We recognized $0.3 million of severance expenses during
fiscal 2008 and expect to save approximately $4.0 million in payroll and related benefits annually
as a result of the work force reduction.
18
On February 7, 2008, we entered into a Credit Agreement with a new bank group (the Bank Lenders)
providing a $117.5 million revolving loan commitment and letter of credit subfacility (the New
Credit Facility). Also on February 7, 2008, we entered into a Loan Agreement with an insurance
company (the Mortgage Lender) providing us with two term loans, one in the amount of $36.0
million (Tranche A) and the other in the amount of $9.0 million (Tranche B), for an aggregate
amount of $45.0 million (the Mortgage Facility). The New Credit Facility and Mortgage Facility
replaced our prior revolving credit facility (the Prior Credit Facility) and long-term financing
facility (the Prior Note Agreement), and were secured, in part, in order to generally obtain more
flexible covenants than those associated with the Prior Note Agreement and Prior Credit Facility,
which we were not in full compliance with during the first three quarters of fiscal 2008. We
currently expect to be in compliance with all financial covenants under the New Credit Facility and
Mortgage Facility for the foreseeable future. See Item 1A Risk Factors.
The New Credit Facility is secured by substantially all our assets other than real property and
fixtures. The Mortgage Facility is secured by mortgages on
essentially all our owned real property located in
Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the Encumbered Properties).
The encumbered Elgin real property includes almost all of an original site (the Original Site) that was purchased prior to
our purchase of the New Site. At the time we entered into the New Credit Facility and Mortgage
Facility, we terminated our Prior Credit Facility and prepaid all amounts due pursuant to the Prior
Note Agreement. As a result of the refinancing, we were required to pay a $1.0 million debt
extinguishment charge to the lenders under the Prior Credit Facility, pay a $5.2 million debt
extinguishment charge to the noteholders under the Prior Note Agreement and write off the $0.5
million in remaining unamortized balance of fees related to the Prior Credit Facility and Prior
Note Agreement. These charges were recorded in the third quarter of fiscal 2008.
In August 2008, we completed the consolidation of our Chicago-based facilities into the New Site.
As part of the facility consolidation project, on April 15, 2005, we closed on the $48.0 million
purchase of the New Site. The New Site includes both an office building and a warehouse. We leased
41.5% of the office building back to the seller for a three year period ending April 2008. The
seller did not exercise its option to renew its lease and vacated the office building.
Accordingly, we are currently attempting to find replacement tenant(s) for the space rented by the
seller of the New Site. Until replacement tenant(s) are found, we will not receive the benefit of
rental income associated with such space. Approximately 20% of the office building is currently
being leased to third parties; however, there can be no assurance that we will be able to lease the
unoccupied space and further capital expenditures may be necessary to lease the remaining space,
including the space previously rented by the seller of the New Site. The 653,302 square foot
warehouse was expanded to slightly over 1,000,000 square feet during fiscal 2006 and was modified
to serve as our principal processing and distribution facility and our headquarters.
The facility consolidation project has generated cost savings through the elimination of redundant
costs, such as interplant freight. However, we have not yet realized the expected improvements in
manufacturing efficiencies. Also, the New Site is designed to accommodate an increase in production
capacity of 25% to 40% in part because the New Site provides substantially more square footage than
the aggregate space previously available in our Chicago area facilities. The facility consolidation
project will allow us to pursue certain new business opportunities that were not previously
available to us due to lack of production capacity. However, the benefits of the facility
consolidation project will not be realized as expected unless our sales volume improves in the
future. Some of the initiatives that we implemented in fiscal 2008 to improve our operating
performance, such as eliminating production of unprofitable products, have decreased our sales
volume. The decrease in sales volume has in the past and may in the future negatively impact our ability to benefit from
the facility consolidation project. If we are unable to obtain a sufficient level of new
profitable sales, our ability to benefit from the facility consolidation project and our financial
performance will be negatively impacted. See Part I, Item 1A ¾ Risk Factors.
The initiatives described above are expected to improve efficiencies and generate cost savings.
However, while we have realized cost savings in connection with the New Site through the
elimination of redundant costs, we have yet to receive the expected improvements in manufacturing
efficiencies. We are actively developing plans, especially for our Fisher brand, with the intention
of increasing sales and gross margin. As a result of these efforts, we secured significant new
private label business during fiscal 2008. Other new business opportunities are being pursued
across all of our distribution channels.
Total inventories were $127.0 million at June 26, 2008, a decrease of $7.1 million, or 5.3%, from
the balance at June 28, 2007. Pounds of raw nut input stocks also declined by 6.0%, or 2.9 million
pounds, at June 26, 2008 compared to June 28, 2007. The decline in the quantity of raw nut input
stocks was led by declines in the inventories of peanuts, walnuts and cashews which more than
offset an increase in the pounds of pecans on hand. Primarily because of improved inventory
management, the value of finished goods inventories decreased by 12.0% at June 26, 2008 compared to
June
19
28, 2007. Net accounts receivable were $34.4 million at June 26, 2008, a decrease of $1.6 million,
or 4.4%, from the balance at June 28, 2007. The decrease is due primarily to a $1.7 million
reduction in amounts related to workers compensation excess claim recovery included in accounts
receivable. Accounts receivable allowances were $2.2 million at June 26, 2008, a decrease of $0.9
million from the amount at June 28, 2007. The decrease is due to more effective procedures in
resolving customer deductions.
On March 28, 2006, JBSS Properties, LLC acquired title to the Original Site by quitclaim deed, and
JBSS Properties LLC entered into an Assignment and Assumption Agreement (the Agreement) with the
City of Elgin (the City). Under the terms of the Agreement, the City assigned to us the Citys
remaining rights and obligations under a development agreement entered into by and among our
company, certain related party partnerships and the City (the Development Agreement). We entered
into a sales contract with a potential buyer of the Original Site. Although we expect a sale to be
consummated in the next twelve months there can be no assurances that the Original Site will be
sold during such time frame. The Mortgage Facility is secured, in part, by the Original Site;
however, the Mortgage Lender has given its prior consent to the sale of the Original Site under
certain terms and conditions. Specifically, in the event that the Original Site is sold prior to
January 1, 2009 pursuant to the sales contract that is currently pending, we will be required to
deposit the gross proceeds into an interest-bearing escrow with the Mortgage Lender. Then, on
January 1, 2009, the Mortgage Lender has the right to either (i) apply all or a portion of such
proceeds to prepay the outstanding balance of Tranche B, with the excess, if any, and accrued
interest going to us or (ii) retain such proceeds and all accrued interest as collateral for such
additional period as it deems prudent. After January 1, 2009 (or prior to January 1, 2009 if
pursuant to a different proposal other than the pending contract), we must obtain the consent of
the Mortgage Lender prior to the sale of the Original Site. A portion of the Original Site contains
an office building (which we began renting during the third quarter of fiscal 2007) that may or may
not be included in the planned sale. The planned sale meets the criteria of an Asset Held for
Sale in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and is presented as a current asset in the balance
sheet as of June 26, 2008. Our costs under the Development Agreement were $6.8 million as of June
26, 2008 and June 28, 2007, $5.6 million of which is recorded as Asset Held for Sale at June 26,
2008 and June 28, 2007, and $1.2 million of which is recorded as Rental Investment Property as of
June 26, 2008 and June 28, 2007. We have reviewed the asset under the Development Agreement for
realization, and concluded that no adjustment of the carrying value is required.
Our business is seasonal. Demand for peanut and tree nut products is highest during the last four
months of the calendar year. Pecans and walnuts, two of our 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, our personnel requirements rise during the last
four months of the calendar year. Our working capital requirements generally peak during the third
quarter of our fiscal year.
We face a number of challenges in the future. Specific challenges, among others, include increasing
our profitability, intensified competition, fluctuating commodity costs and our ability to achieve
the anticipated benefits of the facility consolidation project. We will focus on seeking additional
profitable business to utilize the additional production capacity at the New Site. We expect to be
able to devote more funds to promote and advertise our Fisher brand in order to attempt to regain
market share that has been lost in recent years. In addition, we will continue to face the ongoing
challenges specific to our business such as food safety and regulatory issues and the maintenance
and growth of our customer base. See the information referenced in Part I, Item 1A Risk
Factors.
Results of Operations
The following table sets forth the percentage relationship of certain items to net sales for the
periods indicated and the percentage increase or decrease of such items from fiscal 2007 to fiscal
2008 and from fiscal 2006 to fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Sales |
|
Percentage Increase/Decrease |
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
|
Fiscal 2008 |
|
Fiscal 2007 |
|
|
Fiscal 2008 |
|
(as revised) |
|
Fiscal 2006 |
|
vs. 2007 |
|
vs. 2006 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
0.2 |
% |
|
|
(6.7) |
% |
Gross profit |
|
|
12.2 |
|
|
|
7.6 |
|
|
|
6.4 |
|
|
|
60.4 |
|
|
|
11.2 |
|
Selling expenses |
|
|
6.4 |
|
|
|
7.2 |
|
|
|
6.9 |
|
|
|
(10.5 |
) |
|
|
(2.4 |
) |
Administrative expenses |
|
|
3.5 |
|
|
|
3.0 |
|
|
|
2.6 |
|
|
|
14.9 |
|
|
|
8.6 |
|
Restructuring expenses |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain related to real estate sales |
|
|
|
|
|
|
(0.6 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
224.1 |
|
Goodwill impairment loss |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
20
Fiscal 2008 Compared to Fiscal 2007
Net Sales.
Net sales increased slightly to $541.8 million for fiscal 2008 from $540.9 million for fiscal 2007,
an increase of $0.9 million, or 0.2%. Sales volume, measured as pounds shipped, decreased by 9.7%
for the same time period. Net sales, measured in dollars and sales volume, increased in our food
service distribution channel and decreased in our industrial and export distribution channels. Net
sales in our consumer and contract packaging distribution channels increased in dollars but
decreased in sales volume. The average net sales price per pound increased in all distribution
channels.
Our costs to acquire raw peanuts have increased over 30% in fiscal 2008. The cost increases are due
to a combination of factors, including, (i) prices to peanut farmers were increased to provide
incentives for growing peanuts, (ii) the failure of the federal government to extend the storage
and handling subsidy for the last year under the 2002 Farm Bill, and (iii) drought conditions in
the southeastern United States. Our peanut sales, including peanut butter, decreased by
approximately 12% in terms of pounds shipped in fiscal 2008 compared to fiscal 2007, but increased
slightly in terms of dollars. While our overall volume was negatively impacted by the increase in
peanut prices, sufficient volume was maintained to improve our profitability.
The supply of cashews, which we procure primarily from India, Southeast Asia and Brazil, has been
negatively affected due to adverse weather conditions, increased domestic demand in India and other
factors. Accordingly, the low supply, and the weak United States dollar, has resulted in
significantly higher market prices for cashews. The low supply and high cost of cashews may
negatively affect our business and results of operations in fiscal 2009 if we are not able to
procure sufficient quantities of cashews and increase selling prices to our customers. See Part I,
Item 1A ¾ Risk Factors.
In January 2008, we terminated our store-door distribution system as a result of our determination
that it was no longer profitable to ship products to customers through our store-door distribution
system. In connection with the discontinuance of the store-door delivery system, we terminated
nine employees. We have maintained a majority of the $2.5 million in annual sales generated
through the store-door distribution system, as business has migrated to our other distribution
methods.
The following table shows a comparison of sales by distribution channel, and as a percentage of
total net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Channel |
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
Consumer |
|
$ |
294,021 |
|
|
|
54.2 |
% |
|
$ |
276,890 |
|
|
|
51.2 |
% |
Industrial |
|
|
92,792 |
|
|
|
17.1 |
|
|
|
111,998 |
|
|
|
20.7 |
|
Food Service |
|
|
68,132 |
|
|
|
12.6 |
|
|
|
61,763 |
|
|
|
11.4 |
|
Contract Packaging |
|
|
47,441 |
|
|
|
8.8 |
|
|
|
45,003 |
|
|
|
8.3 |
|
Export |
|
|
39,385 |
|
|
|
7.3 |
|
|
|
45,204 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
541,771 |
|
|
|
100.0 |
% |
|
$ |
540,858 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows an annual comparison of sales by product type as a percentage of total
gross sales. The table is based on gross sales, rather than net sales, because certain adjustments,
such as promotional discounts, are not allocable to product type.
|
|
|
|
|
|
|
|
|
Product Type |
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
Peanuts |
|
|
20.1 |
% |
|
|
20.0 |
% |
Pecans |
|
|
22.6 |
|
|
|
22.3 |
|
Cashews & Mixed Nuts |
|
|
20.8 |
|
|
|
21.1 |
|
Walnuts |
|
|
14.7 |
|
|
|
13.7 |
|
Almonds |
|
|
11.9 |
|
|
|
13.3 |
|
Other |
|
|
9.9 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
Net sales in the consumer distribution channel increased by 6.2% in dollars but decreased 3.4% in
volume in fiscal 2008 compared to fiscal 2007. The dollar increase is due primarily to price
increases and changes in sales mix. Private label consumer sales volume decreased by 1.6% in fiscal
2008 compared to fiscal 2007 due primarily to the loss of a portion of the business at a major
customer who would not accept price increases, offset almost entirely by new business. Fisher
21
brand sales volume decreased by 13.7% in fiscal 2008 compared to fiscal 2007. The decrease is due
primarily to lower snack nut sales and a $3.3 million reduction in walnut baking nut sales to a
major customer.
Net sales in the industrial distribution channel decreased by 17.1% in dollars and 27.2% in sales
volume in fiscal 2008 compared to fiscal 2007. The sales volume decrease was 21.0%, excluding raw
peanut sales to other peanut processors. Other factors for the sales volume decrease include a
decrease in almond sales due to our discontinuance of our almond handling operation and a decrease
in walnut sales due to a decrease in the availability of our supply of walnuts for the industrial
distribution channel.
Net sales in the food service distribution channel increased by 10.3% in dollars and 3.5% in volume
in fiscal 2008 compared to fiscal 2007. Consistent sales volume increases were experienced at all
major customers in the food service distribution channel.
Net sales in the contract packaging distribution channel increased by 5.4% in dollars, but
decreased 7.5% in volume in fiscal 2008 compared to fiscal 2007. The increase in net sales dollars
was due primarily to the introduction of new products for a major customer. The decrease in sales
volume is primarily due to certain sales that occurred during the first twenty-six weeks of fiscal
2007 that were subsequently discontinued.
Net sales in the export distribution channel decreased by 12.9% in dollars and 13.3% in volume in
fiscal 2008 compared to fiscal 2007. The decrease is due primarily to volume decreases in almond
and pecan sales. Almond sales declined due to the discontinuance of our almond handling operation,
which generated by-products, for which Europe is the principal market. Pecan sales in the export
distribution channel declined primarily due to decreasing our sales efforts as higher profitability
was available in our other distribution channels.
Gross Profit.
Gross profit for fiscal 2008 increased 60.4% to $66.2 million from $41.3 million for fiscal 2007.
Gross margin increased to 12.2% of net sales for fiscal 2008 from 7.6% for fiscal 2007. The gross
profit improvement was achieved primarily through price increases, the elimination of unprofitable
sales and shifts in sales mix. The gross profit increase was achieved despite the following unusual
or infrequent expenses.
|
|
|
$7.1 million increase in unfavorable labor and efficiency variances over fiscal 2007,
which was primarily related to the shut down and start up costs for production lines that
were moved from the previous Chicago area facilities and installed in the New Site; |
|
|
|
|
$2.6 million in estimated redundant manufacturing expenses as production activities
occurred at the previous Chicago area facilities while the manufacturing spending in the
New Site reflected increased production levels; and |
|
|
|
|
$2.6 million in external contractor charges that were related to the acceleration of
the equipment move from the existing Chicago area facilities to the New Site. |
Operating Expenses.
Selling expenses for fiscal 2008 were $34.9 million, a decrease of $4.1 million, or 10.5%, from
fiscal 2007. The decrease is due primarily to a $1.7 million reduction in freight expense due to
more customers picking up their orders at our facilities, a $1.5 million reduction in distribution
expenses related primarily to the relocation of our Chicago area distribution center to the New
Site, a $0.6 million reduction in broker commissions and a $0.4 million reduction in advertising
and promotion related expenses. Administrative expenses for fiscal 2008 were $18.9 million, an
increase of $2.4 million, or 14.9%, from fiscal 2007. This increase is due primarily to a $0.5
million increase in consulting fees related to our profitability enhancement initiative and the
design and implementation of a new incentive compensation plan, a $0.4 million increase in salaries
and a $1.7 million increase in incentive compensation related to such incentive compensation plan.
Also included in operating expenses are restructuring costs of $1.8 million for fiscal 2008. These
restructuring costs consist of $1.2 million related to the discontinuance of our store-door
distribution system, $0.3 million related to one-time severance expenses, $0.2 million related to
the exit of a leased facility before termination date at a facility no longer utilized by us and
$0.1 million of operating lease termination costs. Also included in operating expenses for fiscal
2007 is a gain of $3.0 million related to real estate sales.
Income (Loss) from Operations.
Due to the factors discussed above, the income from operations was $10.7 million, or 2.0% of net
sales, for fiscal 2008, compared to a loss from operations of $11.1 million, or (2.1)% of net
sales, for fiscal 2007.
22
Interest Expense.
Interest expense increased to $10.5 million for fiscal 2008 from $9.3 million for fiscal 2007. This
increase primarily resulted from the fact that we capitalized $0.9 million of interest in fiscal
2007 related to our facility consolidation project and capitalized no interest in fiscal 2008. In
addition, we paid higher interest rates on our Prior Credit Facility and Prior Note Agreement
during fiscal 2008 than fiscal 2007.
Debt Extinguishment Cost.
Debt extinguishment costs of $6.7 million were recorded for fiscal 2008. As a result of our
refinancing completed during the third quarter of fiscal 2008, we were required to pay a $1.0
million debt extinguishment charge to the lenders under the Prior Credit Facility, pay a $5.2
million debt extinguishment charge to the noteholders under the Prior Note Agreement and write off
the $0.5 million in remaining unamortized balance of fees related to the Prior Credit Facility and
Prior Note Agreement
Rental and Miscellaneous (Expense) Income, Net.
Net rental and miscellaneous (expense) income was an expense of $0.3 million for fiscal 2008
compared to an expense of $0.6 million for fiscal 2007. Rental expense will increase in fiscal 2009
if we are not able to secure new tenants for the unoccupied space at the office building located at
the New Site, which is currently 80% vacant.
Income Tax Benefit.
Income tax benefit was $0.9 million, or 13.1% of loss before income taxes, for fiscal 2008 compared
to $7.5 million, or 35.6%, for fiscal 2007. We have no ability to carry back losses to prior years,
since losses were experienced for fiscal 2006 and fiscal 2007. The tax benefit for fiscal 2008 was
limited to the extent that deferred tax liabilities exceeded deferred tax assets. Accordingly, no
tax benefit may be recognized if a loss occurs in fiscal 2009. As of June 26, 2008, we have a
valuation allowance of approximately $3.9 million.
Net Loss.
Net loss was $6.0 million, or $0.56 basic and diluted per common share, for fiscal 2008,
compared to $13.6 million, or $1.28 basic and diluted per common share, for fiscal 2007, due to the
factors discussed above.
Fiscal 2007 Compared to Fiscal 2006
Net Sales.
Net sales decreased to $540.9 million for fiscal 2007 from $579.6 million for fiscal 2006, a
decrease of $38.7 million or 6.7%. Unit volume, measured in terms of pounds shipped, decreased by
1.0% in fiscal 2007 compared to fiscal 2006. However, fiscal 2007 sales included a significant
increase in raw peanut sales to other peanut processors at nominal margins. Excluding these raw
peanut sales, sales volume would have decreased 6.0% for fiscal 2007 compared to fiscal 2006.
The following table shows a comparison of sales by distribution channel, and as a percentage of
total net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
Distribution Channel |
|
(as revised) |
|
|
Fiscal 2006 |
|
Consumer |
|
$ |
276,890 |
|
|
|
51.2 |
% |
|
$ |
292,890 |
|
|
|
50.6 |
% |
Industrial |
|
|
111,998 |
|
|
|
20.7 |
|
|
|
131,635 |
|
|
|
22.7 |
|
Food Service |
|
|
61,763 |
|
|
|
11.4 |
|
|
|
64,356 |
|
|
|
11.1 |
|
Contract Packaging |
|
|
45,003 |
|
|
|
8.3 |
|
|
|
44,874 |
|
|
|
7.7 |
|
Export |
|
|
45,204 |
|
|
|
8.4 |
|
|
|
45,809 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
540,858 |
|
|
|
100.0 |
% |
|
$ |
579,564 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows an annual comparison of sales by product type as a percentage of total
gross sales. The table is based on gross sales, rather than net sales, because certain adjustments,
such as promotional discounts, are not allocable to product type.
23
|
|
|
|
|
|
|
|
|
Product Type |
|
Fiscal 2007 |
|
|
Fiscal 2006 |
|
Peanuts |
|
|
20.0 |
% |
|
|
20.1 |
% |
Pecans |
|
|
22.3 |
|
|
|
21.8 |
|
Cashews & Mixed Nuts |
|
|
21.1 |
|
|
|
22.4 |
|
Walnuts |
|
|
13.7 |
|
|
|
11.8 |
|
Almonds |
|
|
13.3 |
|
|
|
15.4 |
|
Other |
|
|
9.6 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
Net sales in the consumer distribution channel decreased by 5.5% in dollars and 6.5% in volume in
fiscal 2007 compared to fiscal 2006. The unit volume sales decrease in the consumer distribution
channel was primarily responsible for the overall decrease in unit volume sales. The decrease in
consumer sales volume was due primarily to lower sales of private label products due to the loss of
a significant private label customer at the end of fiscal 2006. Sales volume of our Fisher brand
decreased 3.4% for fiscal 2007 compared to fiscal 2006. Significant increases in Fisher baking nut
sales at a major customer were more than offset by lost business and lower promotional activity at
other customers. Private label consumer sales decreased by 7.3% for fiscal 2007 compared to fiscal
2006. The loss of a significant private label customer was the primary cause for the decline. Also,
private label sales suffered due to a low retail price differential between private label and major
brand products.
Net sales in the industrial distribution channel decreased by 14.9% in dollars, but increased 14.4%
in sales volume in fiscal 2007 compared to fiscal 2006. The sales volume increase is due almost
entirely to sales of raw peanuts to other peanut processors that occurred in fiscal 2007. Excluding
these raw peanut sales, industrial sales volume would have decreased 9.4% for fiscal 2007 compared
to fiscal 2006. The decrease in industrial sales volume for fiscal 2007 (excluding raw peanut
sales) was due primarily to industrial customers not using nuts as ingredients in new products
because of the high costs of tree nuts for the 2005 crop year.
Net sales in the food service distribution channel decreased by 4.0% in dollars and 1.0% in volume
in fiscal 2007 compared to fiscal 2006. The average selling price per pound decreased in fiscal
2007 compared to fiscal 2006 due primarily to the overall lower average cost of nuts and greater
marketing program expenditures.
Net sales in the contract packaging distribution channel increased by 0.3% in dollars, but
decreased 3.2% in volume in fiscal 2007 compared to fiscal 2006 primarily due to lower sales volume
to our major contract packaging customer.
Net sales in the export distribution channel decreased by 1.3% in dollars and 4.2% in volume in
fiscal 2007 compared to fiscal 2006. The volume decrease is due primarily to lower almond
by-product sales as we processed fewer almonds in fiscal 2007 than fiscal 2006.
Gross Profit.
Gross profit in fiscal 2007 increased 11.2% to $41.3 million from $37.1 million for fiscal 2006.
Gross profit margin increased to 7.6% for fiscal 2007 from 6.4% for fiscal 2006. The increase in
gross margin was due primarily to the overall lower average cost of tree nuts and the significant
negative effects of almond sales in fiscal 2006. These factors were partially offset by increases
in unfavorable production variances of approximately $10.3 million. Unfavorable production
variances arose as a result of a 13.0% decrease in pounds produced in fiscal 2007 versus fiscal
2006 while spending increased by 4.5%. Spending increased mainly due to a significant portion of
the New Site being placed into service while operations continued in the existing Chicago-area
production facilities. The temporary redundant manufacturing costs of operating out of four
facilities in the Chicago area were approximately $4.7 million for the last half of fiscal 2007.
Also, $4.5 million of costs were incurred at the New Site during the first half of fiscal 2007
while production was very limited. The New Site accounted for 13% of the production volume that
occurred in the Chicago-area facilities in fiscal 2007, but accounted for 36% of the production
volume in the Chicago-area facilities for the fourth quarter of fiscal 2007.
Other factors in addition to the unfavorable increase in production variances negatively affected
gross profit. Approximately $1.0 million of moving costs were incurred during the fourth quarter of
fiscal 2007 to relocate machinery and equipment to the New Site. In addition, Fisher walnut
promotional activity that began late in the first quarter of fiscal 2007 that allowed us to secure
new ongoing distribution of Fisher walnut products at a major customer were at nominal gross profit
margins.
24
Operating Expenses.
Selling and administrative expenses increased to $55.5 million, or 10.3% of net sales, for fiscal
2007 from $55.1 million, or 9.5% of net sales, for fiscal 2006. Selling expenses decreased to $39.0
million, or 7.2% of net sales, for fiscal 2007 from $39.9 million, or 6.8% of net sales, for fiscal
2006. The decrease is due primarily to a $2.1 million reduction in freight expense due to lower
fuel surcharges and reduced sales volume, partially offset by $1.4 million of expenses related to
our new distribution facility. Administrative expenses increased to $16.5 million, or 3.0% of net
sales, for fiscal 2007 from $15.2 million, or 2.6% of net sales, for fiscal 2006. This increase was
due primarily to a $0.5 million increase in consulting fees, a $0.4 million increase in
compensation expense and a $0.3 increase in legal and audit expenses. Also included in operating
expenses for fiscal 2007 and fiscal 2006 are gains of $3.0 million and $0.9 million, respectively,
related to real estate sales. A goodwill impairment loss of $1.2 million was recorded for fiscal
2006, as fair value of our business at June 29, 2006 was determined to be below net book value and
there was no implied fair value of our goodwill.
Loss from Operations.
Due to the factors discussed above, the loss from operations was $11.1 million, or 2.1% of net
sales, for fiscal 2007, compared to $18.3 million, or 3.2% of net sales, for fiscal 2006.
Interest Expense.
Interest expense increased to $9.3 million for fiscal 2007 from $6.5 million for fiscal 2006. This
increase was caused primarily by higher average levels of borrowings, higher interest rates on the
Prior Credit Facility and Prior Note Agreement and a $0.9 decrease in interest capitalized in
fiscal 2007 compared to fiscal 2006.
Rental and Miscellaneous (Expense) Income, Net.
Net rental and miscellaneous (expense) income was an expense of $0.6 million for both fiscal 2007
and fiscal 2006.
Income Tax Benefit.
Income tax benefit was approximately $7.5 million, or 35.6% of loss before income taxes, for fiscal
2007, compared to income tax benefit of $8.7 million, or 34.2% of loss before income taxes, for
fiscal 2006. The increased income tax benefit rate is due primarily to fiscal 2006 containing a
goodwill impairment loss of $1.2 million which is not deductible for tax purposes.
Net Loss.
Net loss was $13.6 million, or $1.28 basic and diluted per common share, for fiscal 2007, compared
to $16.7 million, or $1.58 basic and diluted per common share, for fiscal 2006, due to the factors
discussed above.
Liquidity and Capital Resources
General.
The primary uses of cash are to fund our current operations, fulfill contractual obligations and
repay indebtedness. Also, various uncertainties could result in additional uses of cash, such as
those referred to under Part I, Item 1A, Risk Factors. The primary sources of cash are results of
operations and availability under the New Credit Facility. We anticipate that expected net cash
flow generated from operations and amounts available pursuant to the New Credit Facility will be
sufficient to fund our operations for the next twelve months. No assurance can be given, however,
that this will be the case.
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 we sell. Current market trends in nut prices
and crop estimates also impact nut procurement.
Net cash provided by operating activities was $29.6 million for fiscal 2008 compared to $22.5
million for fiscal 2007. The increase is due primarily to improved operating results.
We repaid $55.4 million of long-term debt during fiscal 2008, $50.6 million of which was the
prepayment of all amounts outstanding under the Prior Note Agreement. We received $45.0 million
from the issuance of new debt under the Mortgage Facility.
25
Financing Arrangements.
On February 7, 2008, we entered into a Credit Agreement with a new bank group (the Bank Lenders)
providing a $117.5 million revolving loan commitment and letter of credit subfacility (the New
Credit Facility). Also on February 7, 2008, we entered into a Loan Agreement with an insurance
company (the Mortgage Lender) providing us with two term loans, one in the amount of $36.0
million (Tranche A) and the other in the amount of $9.0 million (Tranche B), for an aggregate
amount of $45.0 million (the Mortgage Facility). The New Credit Facility and Mortgage Facility
replaced our prior revolving credit facility (the Prior Credit Facility) and long-term financing
facility (the Prior Note Agreement), and were secured, in part, in order to generally obtain more
flexible covenants than those associated with the Prior Note Agreement and Prior Credit Facility,
which we were not in full compliance with during the first three quarters of fiscal 2008. We
currently expect to be in compliance with all financial covenants under the New Credit Facility and
Mortgage Facility for the foreseeable future. See Item 1A Risk Factors.
The New Credit Facility is secured by substantially all our assets other than real property and
fixtures. The Mortgage Facility is secured by mortgages on essentially all of our owned real property located in
Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the Encumbered Properties).
The encumbered Elgin real property includes almost all of an original site (the Original Site) that was purchased prior to
our purchase of the New Site. At the time we entered into the New Credit Facility and Mortgage
Facility, we paid all amounts due under, and terminated the Prior Credit Facility and prepaid all
amounts due pursuant to the Prior Note Agreement
The New Credit Facility matures on February 7, 2013. At our election, borrowings under the New
Credit Facility accrue interest at either (i) a rate determined pursuant to the administrative
agents prime rate minus an applicable margin determined by reference to the amount of loans which
may be advanced under a borrowing base calculation based upon accounts receivable, inventory and
machinery and equipment (the Borrowing Base Calculation), ranging from 0.00% to 0.50% or (ii) a
rate based on the London interbank offered rate (LIBOR) plus an applicable margin based upon the
Borrowing Base Calculation, ranging from 2.00% to 2.50%. The face amount of undrawn letters of
credit accrues interest at a rate of 1.50% to 2.00%, based upon the Borrowing Base Calculation.
The portion of the Borrowing Base Calculation based upon machinery and equipment will decrease by
$1.5 million per year for the first five years to coincide with amortization of the machinery and
equipment collateral. As of June 26, 2008, the weighted average interest rate for the New Credit
Facility was 5.00%. The terms of the New Credit Facility contain covenants that require us to
restrict investments, indebtedness, capital expenditures, acquisitions and certain sales of assets,
cash dividends, redemptions of capital stock and prepayment of indebtedness (if such prepayment,
among other things, is of a subordinate debt). If loan availability under the Borrowing Base
Calculation falls below $15.0 million, we will be required to maintain a specified fixed charge
coverage ratio, tested on a monthly basis. All cash received from customers is required to be
applied against the New Credit Facility. The New Credit Facility does not include, among other
things, a working capital, EBITDA, net worth, excess availability, leverage or debt service
coverage financial covenant. The Bank Lenders are entitled to require immediate repayment of our
obligations under the New Credit Facility in the event of default on the payments required under
the New Credit Facility, non-compliance with the financial covenants or upon the occurrence of
certain other defaults by us under the New Credit Facility (including a default under the Mortgage
Facility). As of June 26, 2008, we were in compliance with all covenants under the New Credit
Facility and we currently expect to be in compliance with the financial covenant in the New Credit
Facility for the foreseeable future. See Item 1A Risk Factors. As of June 26, 2008, we had $36.5
million of available credit under the New Credit Facility.
Following the replacement of the Prior Note Agreement and Prior Credit Facility in the third
quarter of fiscal 2008, letters of credit attributable to obligations totaling $10.2 million were
still held by a lender under the Prior Credit Facility. As a result, we were required to deposit
$10.2 million in cash with such lender as collateral for the letters of credit. During the fourth
quarter of fiscal 2008, these letters of credit were transferred to the New Credit Facility, and
the $10.2 million in cash collateral was returned to us and used to pay down the New Credit
Facility.
The Mortgage Facility matures on March 1, 2023. Tranche A under the Mortgage Facility accrues
interest at a fixed interest rate of 7.63% per annum, payable monthly. Such interest rate may be
reset by the Mortgage Lender on March 1, 2018 (the Tranche A Reset Date). Monthly principal
payments in the amount of $200 commenced on June 1, 2008. Tranche B under the Mortgage Facility
accrues interest at a floating rate of one month LIBOR plus 5.50% per annum, payable monthly. The
margin on such floating rate may be reset by the Mortgage Lender on March 1, 2010 and every two
years thereafter (each, a Tranche B Reset Date); provided, however, that the Mortgage Lender may
also change the underlying index on each Tranche B Reset Date occurring on and after March 1, 2016.
Monthly principal payments in the amount of $50 commenced on June 1, 2008.
26
On the Tranche A Reset Date and each Tranche B Reset Date, the Mortgage Lender may reset the
interest rates for each of Tranche A and Tranche B, respectively, in its sole and absolute
discretion. With respect to Tranche A, if we do not accept the reset rate, Tranche A will become
due and payable on the Tranche A Reset Date, without prepayment penalty. With respect to Tranche B,
if we do not accept the reset rate, Tranche B will be due and payable on the Tranche B Reset Date,
without prepayment penalty. There can be no assurances that the reset interest rates for each of
Tranche A and Tranche B will be acceptable to us. If the reset interest rate for either Tranche A
or Tranche B is unacceptable to us and we (i) do not have sufficient funds to repay amounts due
with respect to Tranche A or Tranche B, as applicable, on the Tranche A Reset Date or Tranche B
Reset Rate, as applicable, or (ii) are unable to refinance amounts due with respect to Tranche A or
Tranche B, as applicable, on the Tranche A Reset Date or Tranche B Reset Rate, as applicable, on
terms more favorable than the reset interest rates, then such reset interest rates could have a
material adverse effect on our financial condition, results of operations and financial results.
The terms of the Mortgage Facility contain covenants that require us to maintain a specified net
worth of $110.0 million and maintain the Encumbered Properties. The Mortgage Facility is secured,
in part, by the Original Site; however, the Mortgage Lender has given its prior consent to the sale
of the Original Site under certain terms and conditions. Specifically, in the event that the
Original Site is sold prior to January 1, 2009 pursuant to a sales contract that is currently
pending, we will be required to deposit the gross proceeds into an interest-bearing escrow with the
Mortgage Lender. Then, on January 1, 2009, the Mortgage Lender has the right to either (i) apply
all or a portion of such proceeds to prepay the outstanding balance of Tranche B, with the excess,
if any, and accrued interest going to us or (ii) retain such proceeds and all accrued interest as
collateral for such additional period as it deems prudent. All amounts outstanding are recorded as
current liabilities as of June 26, 2008. After January 1, 2009 (or prior to January 1, 2009 if
pursuant to a different proposal other than the pending contract), we must obtain the consent of
the Mortgage Lender prior to the sale of the Original Site. The Mortgage Facility does not include,
among other things, a working capital, EBITDA, excess availability, fixed charge coverage, capital
expenditure, leverage or debt service coverage financial covenant. The Mortgage Lender is entitled
to require immediate repayment of our obligations under the Mortgage Facility in the event we
default in the payments required under the Mortgage Facility, non-compliance with the covenants or
upon the occurrence of certain other defaults by us under the Mortgage Facility. As of June 26,
2008, we were in compliance with all covenants under the Mortgage Facility. Since we currently
believe that we will be in compliance with the financial covenant in the Mortgage Facility for the
foreseeable future, $33.4 million has been classified as long-term debt as of June 26, 2008. See
Item 1A Risk Factors. This amount represents scheduled principal payments due under Tranche A
beyond twelve months of June 26, 2008.
As of June 26, 2008, we had $5.1 million in aggregate principal amount of industrial development
bonds (IDB Bonds) outstanding, which was originally used to finance the acquisition, construction
and equipping of our Bainbridge, Georgia facility. The bonds bear interest payable semiannually at
4.55% (which was reset on June 1, 2006) through May 2011. On June 1, 2011, and on each subsequent
interest reset date for the bonds, we are 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 us 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 us for redemption; (ii) proceeds from the remarketing of the bonds;
(iii) proceeds from a drawing under the IDB Letter of Credit held by the lenders of the New Credit
Facility (the IDB Letter of Credit); or (iv) in the event funds from the foregoing sources are
insufficient, a mandatory payment by us. Drawings under the IDB Letter of Credit to redeem bonds on
the demand of any bondholder are payable in full by us upon demand by the lenders under the New
Credit Facility. In addition, we are required to redeem the bonds in varying annual installments,
ranging from $0.4 million in fiscal 2009 to $0.8 million in fiscal 2017. We are 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. We have the option, subject to certain
conditions, to redeem the bonds at face value plus accrued interest, if any.
In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14.3
million and are leasing them back. The selling price was determined by an independent appraiser to
be the fair market value which also approximated our carrying value. The lease for the Selma, Texas
properties has a ten-year term at a fair market value rent with three five-year renewal options.
Also, we have an option to purchase the properties from the partnerships after five years at 95%
(100% in certain circumstances) of the then fair market value, but not to be less than the $14.3
million purchase price. The financing obligation is being accounted similarly to the accounting for
a capital lease, whereby $14.3 million was recorded as a debt obligation, as the provisions of the
arrangement are not eligible for sale-leaseback accounting. No gain or loss was recorded on the
transaction. These partnerships were previously consolidated as variable interest entities. Based
on reconsideration events in the third quarter of 2006 and in the first quarter of fiscal 2007, we
27
determined the partnerships were no longer subject to consolidation as variable interest entities.
These partnerships are no longer considered variable interest entities subject to consolidation as
the partnerships had substantive equity at risk at the time of entering into the Selma, Texas
sale-leaseback transaction. As of June 26, 2008, $13.9 million of the debt obligation was
outstanding.
Capital Expenditures.
We spent $11.6 million of capital expenditures in fiscal 2008 compared to $36.4 million in fiscal
2007. The decrease is due primarily to a decrease in capital expenditures related to the expansion
and modification to the New Site. The majority of new equipment at the New Site was purchased in
fiscal 2007. Total capital expenditures for fiscal 2009 are estimated to be $7 million.
Capital Resources.
As of June 26, 2008, we had $36.5 million of available credit under the New Credit Facility. We
expect to receive gross proceeds in excess of $5.6 million for the asset held for sale during the
next twelve months pursuant to a sales contract that is currently pending with respect to the
Original Site. The Mortgage Facility is secured, in part, by the Original Site; however, the
Mortgage Lender has given its prior consent to the sale of the Original Site under certain terms
and conditions. Specifically, in the event that the Original Site is sold prior to January 1, 2009
pursuant to a sales contract that is currently pending, we will be required to deposit such
proceeds into an interest-bearing escrow with the Mortgage Lender. Then, on January 1, 2009, the
Mortgage Lender has the right to either (i) apply all or a portion of such proceeds to prepay the
outstanding balance of Tranche B, with the excess, if any, and accrued interest going to us or (ii)
retain such proceeds and all accrued interest as collateral for such additional period as it deems
prudent. Scheduled long-term debt payments, including interest for fiscal 2009 are $16.3 million.
After January 1, 2009 (or prior to January 1, 2009 if pursuant to a different proposal other than
the pending contract), we must obtain the consent of the Mortgage Lender prior to the sale of the
Original Site. Scheduled operating lease payments for fiscal 2009 are $1.4 million.
Contractual Cash Obligations
At June 26, 2008, we had the following contractual cash obligations for long-term debt (including
scheduled interest payments), capital leases, operating leases, the revolving credit facility and
purchase obligations (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 1 |
|
|
|
|
|
|
|
|
|
|
More Than 5 |
|
|
|
Total |
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Years |
|
Long-term debt |
|
$ |
101,367 |
|
|
$ |
16,338 |
|
|
$ |
17,262 |
|
|
$ |
11,400 |
|
|
$ |
56,367 |
|
Capital lease obligations |
|
|
956 |
|
|
|
323 |
|
|
|
585 |
|
|
|
48 |
|
|
|
|
|
Minimum operating lease commitments |
|
|
3,399 |
|
|
|
1,391 |
|
|
|
1,518 |
|
|
|
490 |
|
|
|
|
|
Revolving credit facility borrowings |
|
|
67,948 |
|
|
|
|
|
|
|
|
|
|
|
67,948 |
|
|
|
|
|
Purchase obligations |
|
|
103,437 |
|
|
|
103,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
277,107 |
|
|
$ |
121,489 |
|
|
$ |
19,365 |
|
|
$ |
79,886 |
|
|
$ |
56,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts outstanding under our New Credit Facility, while classified as current liabilities, are
included in the 3 5 years column based upon the term of the New Credit Facility. The purchase
obligations include $103,437 of inventory purchases. Additionally, we have $9,043 of projected
retirement obligations recorded on our balance sheet as of June 26, 2008. See Note 11 in the Notes
to Consolidated Financial Statements for further details. Also, as a licensed United States
Department of Agriculture Nut Warehouse Operator, we are responsible for delivering the loan value
of the peanut inventory in our possession as represented on the warehouse receipt to the holder of
the warehouse receipt on demand. We are responsible for any decline in the value of the peanut
inventory due to decline in quality or shrinkage. Based on current expectations and historical
experience, no amounts related to a potential decline in the value of peanut inventory are included
in the schedule above.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America. The accounting policies as disclosed in the Notes to Consolidated
Financial Statements are applied in the preparation of our financial statements and accounting for
the underlying transactions and balances. The policies discussed below are considered by our
management to be critical for an understanding of our financial statements because the application
of these policies places the most significant demands on managements judgment, with financial
28
reporting results relying on estimation regarding the effect of matters that are inherently
uncertain. Specific risks, if applicable, for these critical accounting policies are described in
the following paragraphs. For a detailed discussion on the application of these and other
accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.
Preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those estimates.
Revenue Recognition.
We recognize revenue when persuasive evidence of an arrangement exists, title has transferred
(based upon terms of shipment), price is fixed, delivery occurs and collection is reasonably
assured. We sell our products under some arrangements which include customer contracts which fix
the sales price for periods typically of up to one year for some industrial customers and through
specific programs consisting of promotion allowances, volume and customer rebates and marketing
allowances, among others, to consumer and food service customers. Reserves for these programs are
established based upon the terms of specific arrangements. Revenues are recorded net of rebates and
promotion and marketing allowances. Revenues are also recorded net of customer deductions which are
provided for based on past experiences. Our net accounts receivable includes an allowance for
customer deductions. While customers do have the right to return products, past experience has
demonstrated that product returns have been insignificant. Provisions for returns are reflected as
a reduction in net sales and are estimated based upon customer specific circumstances.
Inventories.
Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts and processed and
packaged nut products, are stated at the lower of cost (first-in, first-out) or market. Inventory
costs are reviewed each quarter. Fluctuations in the market price of pecans, peanuts, walnuts,
almonds and other nuts may affect the value of inventory and gross profit and gross profit margin.
When expected market sales prices move below costs, we record adjustments to write down the
carrying values of inventories to lower of cost or market. The results of our shelling process can
also result in changes to our inventory costs, for example based upon actual versus expected crop
yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts and walnuts.
Quantities of inshell bulk-stored nuts are determined based on our inventory systems and are
subject to quarterly physical verification techniques including observation, weighing and other
methods. The quantities of each crop year bulk-stored nut inventories are generally shelled out
over a ten to fifteen month period, at which time revisions to any estimates are also recorded.
Impairment of Long-Lived Assets.
We review long-lived assets to assess recoverability from projected undiscounted cash flows (which
also considers the underlying fair value of the properties) whenever events or changes in facts and
circumstances indicate that the carrying value of the assets may not be recoverable. An impairment
loss is recognized in operating results when future undiscounted cash flows are less than the
assets carrying value. The impairment loss would adjust the carrying value to the assets fair
value. We did not record any impairment charges during fiscal 2008.
Introductory Funds.
The ability to sell to certain retail customers often requires upfront payments to be made by us.
Such payments are frequently made pursuant to contracts that stipulate the term of the agreement,
the quantity and type of products to be sold and any exclusivity requirements. If appropriate, the
cost of these payments is recorded as an asset and is amortized as a reduction to net sales over
the term of the contract. All contracts that are capitalized include refundability provisions. We
expense payments if no written arrangement exists.
Related Party Transactions.
As discussed in Notes 1, 5 and 12 of the Notes to Consolidated Financial Statements, we lease space
from related parties and transact with other related parties in the normal course of business. We
believe that these related party transactions are conducted on terms that are competitive with
other non-related entities at the time the transactions are entered into.
29
Income Taxes.
We account for income taxes using an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have
been reported in our financial statements or tax returns. Such items give rise to differences in
the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded
to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a
portion of the asset will not be realized. Any investment tax credits are accounted for by using
the flow-through method, whereby the credits are reflected as reductions of tax expense in the year
they are recognized in the financial statements. In estimating future tax consequences, we consider
all expected future events other than changes in tax law or rates.
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on June 29, 2007. There were no material effects associated with the implementation of
FIN 48. As of June 29, 2007, unrecognized tax benefits and accrued interest and penalties were not
material. We recognize interest and penalties accrued related to unrecognized tax benefits in the
income tax (benefit)/expense caption in the statement of operations.
As of June 26, 2008, we have $2.5 million of state and $3.3 million of federal net operating loss
carryforwards for income tax purposes. All of the state net operating loss (NOL) carryforward
relates to losses generated during the years ended June 26, 2008, June 28, 2007 and June 29, 2006.
The federal NOL carryforward relates to losses generated during the year ended June 26, 2008. The
state losses generally have a carryforward period of between 10 and 12 years before expiration. The
federal NOL carryforward relates to losses generated during the year ended June 26, 2008. The
federal losses generally have a carryforward period of 20 years before expiration. Due to our
cumulative losses for the last three fiscal years, we have provided valuation allowances of $1.6
million and $2.3 million for federal and state, respectively, related to the realization of such
operating loss carryforwards to the extent our deferred tax assets exceed our deferred tax
liabilities. We believe it is currently more likely than not that we will be unable to utilize NOLs
and as a result we have recorded a full valuation allowance as of June 26, 2008. We will consider
the need for, and the amount of, the valuation allowance in the future as actual operating results
are achieved.
We evaluate the realization of deferred tax assets by considering our historical taxable income and
future taxable income based upon the reversal of deferred tax liabilities. At June 26, 2008, other
than net operating loss carryforwards, we believe that our deferred tax assets are fully realizable
to the extent there are deferred tax liabilities that are expected to reverse over a similar time
frame.
If recurring losses are experienced in fiscal 2009, then future income tax benefits would be only
recognized to the extent there are deferred tax liabilities that are expected to reverse over a
similar time frame as loss carrybacks are unavailable.
Recent Accounting Pronouncements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007;
however, application of SFAS 157 for nonfinancial assets and nonfinancial liabilities is not
required until fiscal years beginning after November 15, 2008. We are currently assessing the
impact of SFAS 157 on our consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued EITF 06-04, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF
06-04). Under EITF 06-04, for an endorsement split-dollar life insurance contract, an employer
should recognize a liability for future benefits in accordance with FASB 106, Employers Accounting
for Postretirement Benefits Other Than Pensions or Accounting Principles Board Opinion 12. The
provisions of EITF 06-04 are effective for fiscal 2009, although early adoption is permissible. We
are currently evaluating the provisions of EITF 06-04 on our consolidated financial position,
results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), and
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB
No. 51 (SFAS No. 160). These new standards will significantly change the accounting and
reporting for business combination transactions and noncontrolling (minority) interests in
consolidated financial statements. SFAS No. 141(R) and SFAS No. 160 are required to be adopted
simultaneously and are effective for fiscal years beginning after December 15, 2008. Earlier
adoption is prohibited. We are currently evaluating the impact of adopting SFAS No. 141(R) and SFAS
No. 160 on our consolidated financial statements.
30
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures
about an entitys derivative and hedging activities. These enhanced disclosures will discuss
(i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. We are currently assessing the impact
of SFAS 161 on our consolidated financial position, results of operations and cash flows.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K, and in the Chief Executive Officers
letter to stockholders accompanying the Annual Report on Form 10-K delivered to stockholders, that
are not historical (including statements concerning our expectations regarding market risk) are
forward looking statements. These forward looking statements, which generally are followed (and
therefore identified) by a cross reference to Part I, Item 1A Risk Factors or are identified by
the use of forward looking words and phrases such as intends, may, believes and expects,
represent our present expectations or beliefs concerning future events. We undertake no obligation
to update publicly or otherwise revise any forward-looking statements, whether as a result of new
information, future events or other factors that affect the subject of these statements, except
where expressly required to do so by law. We caution that such statements are qualified by
important factors, including the factors described under Part I, Item 1A Risk Factors, 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 that may be subject
to circumstances beyond our control. Consequently, results actually achieved may differ materially
from the expected results included in these statements.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of changes in interest rates and to commodity prices of raw material
purchases. We have not entered into any arrangements to hedge against changes in market interest
rates, commodity prices or foreign currency fluctuations.
We are unable to engage in hedging activity related to commodity prices, since there are no
established futures markets for nuts. Approximately 24% of nut purchases for fiscal 2008 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.
We are exposed to interest rate risk on the New Credit Facility; our only variable rate credit
facility because we have not entered into any hedging instruments which fix the floating rate. A
hypothetical 10% adverse change in weighted-average interest rates would have had a $0.5 million
impact on our net income and cash flows from operating activities for fiscal 2008. In addition,
the interest rate on our Mortgage Facility resets in the future.
31
Item 8 Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, stockholders equity, and cash flows present fairly, in all material
respects, the financial position of John B. Sanfilippo & Son, Inc. and its subsidiaries (the
Company) at June 26, 2008 and June 28, 2007, and the results of their operations and their cash
flows for each of the three years in the period ended June 26, 2008 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
June 26, 2008, based on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements and on the Companys internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
As discussed in Note 11 to the consolidated financial statements, the Company changed the manner in
which they account for the pension benefit obligation funded status, effective as of June 28, 2007.
Also, as discussed in Note 6 to the consolidated financial statements, the Company changed the
manner in which they account for uncertain tax positions as of June 29, 2007.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
August 27, 2008
32
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 26, 2008 and June 28, 2007
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
|
June 26, 2008 |
|
|
2007
(as revised) |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
716 |
|
|
$ |
2,359 |
|
Accounts receivable, less allowances of $2,217 and $3,159, respectively |
|
|
34,424 |
|
|
|
36,024 |
|
Inventories |
|
|
127,032 |
|
|
|
134,159 |
|
Income taxes receivable |
|
|
222 |
|
|
|
6,712 |
|
Deferred income taxes |
|
|
2,595 |
|
|
|
2,140 |
|
Prepaid expenses and other current assets |
|
|
1,592 |
|
|
|
1,150 |
|
Asset held for sale |
|
|
5,569 |
|
|
|
5,569 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
172,150 |
|
|
|
188,113 |
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT: |
|
|
|
|
|
|
|
|
Land |
|
|
9,463 |
|
|
|
9,463 |
|
Buildings |
|
|
99,883 |
|
|
|
97,113 |
|
Machinery and equipment |
|
|
147,631 |
|
|
|
140,730 |
|
Furniture and leasehold improvements |
|
|
6,247 |
|
|
|
6,191 |
|
Vehicles |
|
|
724 |
|
|
|
2,880 |
|
Construction in progress |
|
|
1,411 |
|
|
|
4,487 |
|
|
|
|
|
|
|
|
|
|
|
265,359 |
|
|
|
260,864 |
|
Less: Accumulated depreciation |
|
|
123,626 |
|
|
|
117,639 |
|
|
|
|
|
|
|
|
|
|
|
141,733 |
|
|
|
143,225 |
|
Rental investment property, less accumulated depreciation of $2,660 and
$1,761, respectively |
|
|
27,471 |
|
|
|
28,370 |
|
|
|
|
|
|
|
|
TOTAL PROPERTY, PLANT AND EQUIPMENT |
|
|
169,204 |
|
|
|
171,595 |
|
|
|
|
|
|
|
|
Cash surrender value of officers life insurance and other assets |
|
|
8,435 |
|
|
|
6,141 |
|
Brand name, less accumulated amortization of $6,925 and $6,498, respectively |
|
|
995 |
|
|
|
1,422 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
350,784 |
|
|
$ |
367,271 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
33
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 26, 2008 and June 28, 2007
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
|
June 26, 2008 |
|
|
2007
(as revised) |
|
LIABILITIES & STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Revolving credit facility borrowings |
|
$ |
67,948 |
|
|
$ |
73,281 |
|
Current maturities of long-term debt, including related party debt of $216 and
$200, respectively |
|
|
12,251 |
|
|
|
54,970 |
|
Accounts payable, including related party payables of $449 and $361, respectively |
|
|
25,355 |
|
|
|
21,264 |
|
Book overdraft |
|
|
4,298 |
|
|
|
5,015 |
|
Accrued payroll and related benefits |
|
|
7,740 |
|
|
|
6,018 |
|
Accrued workers compensation |
|
|
4,838 |
|
|
|
6,686 |
|
Accrued restructuring |
|
|
1,287 |
|
|
|
|
|
Other accrued expenses |
|
|
5,570 |
|
|
|
5,418 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
129,287 |
|
|
|
172,652 |
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
Long-term debt, less current maturities, including related party debt of $13,644
and $13,860, respectively |
|
|
52,356 |
|
|
|
19,783 |
|
Retirement plan |
|
|
8,174 |
|
|
|
9,060 |
|
Deferred income taxes |
|
|
2,595 |
|
|
|
2,606 |
|
Other |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
TOTAL LONG-TERM LIABILITIES |
|
|
63,125 |
|
|
|
31,628 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Class A Common Stock, convertible to Common Stock on a per share basis, cumulative
voting rights of ten votes per share, $.01 par value; 10,000,000 shares authorized,
2,597,426 shares issued and outstanding |
|
|
26 |
|
|
|
26 |
|
Common Stock, noncumulative voting rights of one vote per share, $.01 par value;
17,000,000 shares authorized, 8,134,599 and 8,123,349 shares issued and
outstanding, respectively |
|
|
81 |
|
|
|
81 |
|
Capital in excess of par value |
|
|
100,810 |
|
|
|
100,335 |
|
Retained earnings |
|
|
61,853 |
|
|
|
67,810 |
|
Accumulated other comprehensive loss |
|
|
(3,194 |
) |
|
|
(4,057 |
) |
Treasury stock, at cost; 117,900 shares of Common Stock |
|
|
(1,204 |
) |
|
|
(1,204 |
) |
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY |
|
|
158,372 |
|
|
|
162,991 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & STOCKHOLDERS EQUITY |
|
$ |
350,784 |
|
|
$ |
367,271 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
34
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 26, 2008, June 28, 2007 and June 29, 2006
(dollars in thousands, except for earnings per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
|
June 28, 2007 |
|
|
Year Ended |
|
|
|
June 26, 2008 |
|
|
(as revised) |
|
|
June 29, 2006 |
|
Net sales |
|
$ |
541,771 |
|
|
$ |
540,858 |
|
|
$ |
579,564 |
|
Cost of sales |
|
|
475,538 |
|
|
|
499,569 |
|
|
|
542,447 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
66,233 |
|
|
|
41,289 |
|
|
|
37,117 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
34,899 |
|
|
|
39,003 |
|
|
|
39,947 |
|
Administrative expenses |
|
|
18,898 |
|
|
|
16,454 |
|
|
|
15,152 |
|
Restructuring expenses |
|
|
1,765 |
|
|
|
|
|
|
|
|
|
Gain related to real estate sales |
|
|
|
|
|
|
(3,047 |
) |
|
|
(940 |
) |
Goodwill impairment loss |
|
|
|
|
|
|
|
|
|
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
55,562 |
|
|
|
52,410 |
|
|
|
55,401 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
10,671 |
|
|
|
(11,121 |
) |
|
|
(18,284 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense ($1,109, $894 and $583 to related
parties, respectively) |
|
|
(10,502 |
) |
|
|
(9,347 |
) |
|
|
(6,516 |
) |
Debt extinguishment costs |
|
|
(6,737 |
) |
|
|
|
|
|
|
|
|
Rental and miscellaneous (expense) income, net |
|
|
(286 |
) |
|
|
(629 |
) |
|
|
(610 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(17,525 |
) |
|
|
(9,976 |
) |
|
|
(7,126 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(6,854 |
) |
|
|
(21,097 |
) |
|
|
(25,410 |
) |
Income tax benefit |
|
|
(897 |
) |
|
|
(7,520 |
) |
|
|
(8,689 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,957 |
) |
|
$ |
(13,577 |
) |
|
$ |
(16,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss per common share (basic and diluted): |
|
$ |
(0.56 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.58 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted basic and diluted average shares outstanding: |
|
|
10,610,272 |
|
|
|
10,595,996 |
|
|
|
10,584,764 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
35
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended June 26, 2008, June 28, 2007 and June 29, 2006
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Class A Common |
|
Common Stock |
|
Capital in |
|
|
|
|
|
Other |
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
|
|
|
Excess of |
|
Retained |
|
Comprehensive |
|
Treasury |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Par Value |
|
Earnings |
|
Loss |
|
Stock |
|
Total |
|
|
|
Balance, June 30, 2005 |
|
|
2,597,426 |
|
|
$ |
26 |
|
|
|
8,100,349 |
|
|
$ |
81 |
|
|
$ |
99,164 |
|
|
$ |
98,108 |
|
|
$ |
|
|
|
$ |
(1,204 |
) |
|
$ |
196,175 |
|
Net loss and
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,721 |
) |
|
|
|
|
|
|
|
|
|
|
(16,721 |
) |
Stock option exercises |
|
|
|
|
|
|
|
|
|
|
11,750 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
Tax benefit of stock
option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
Stock-based
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546 |
|
|
|
|
Balance, June 29, 2006 |
|
|
2,597,426 |
|
|
$ |
26 |
|
|
|
8,112,099 |
|
|
$ |
81 |
|
|
$ |
99,820 |
|
|
$ |
81,387 |
|
|
$ |
|
|
|
$ |
(1,204 |
) |
|
$ |
180,110 |
|
Net loss and
comprehensive loss
(as revised) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,577 |
) |
|
|
|
|
|
|
|
|
|
|
(13,577 |
) |
Stock option exercises |
|
|
|
|
|
|
|
|
|
|
11,250 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Tax benefit of stock
option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
Stock-based
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411 |
|
SFAS No. 158
adjustment, net of
income tax of $2,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,057 |
) |
|
|
|
|
|
|
(4,057 |
) |
|
|
|
Balance, June 28,
2007 (as revised) |
|
|
2,597,426 |
|
|
$ |
26 |
|
|
|
8,123,349 |
|
|
$ |
81 |
|
|
$ |
100,335 |
|
|
$ |
67,810 |
|
|
$ |
(4,057 |
) |
|
$ |
(1,204 |
) |
|
$ |
162,991 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,957 |
) |
|
|
|
|
|
|
|
|
|
|
(5,957 |
) |
Pension liability
amortization, net of
income tax benefit of
$209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389 |
|
|
|
|
|
|
|
389 |
|
Pension liability
adjustment, net of
income tax benefit of
$255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises |
|
|
|
|
|
|
|
|
|
|
11,250 |
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
Tax benefit of stock
option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Stock-based
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397 |
|
|
|
|
Balance, June 26, 2008 |
|
|
2,597,426 |
|
|
$ |
26 |
|
|
|
8,134,599 |
|
|
$ |
81 |
|
|
$ |
100,810 |
|
|
$ |
61,853 |
|
|
$ |
(3,194 |
) |
|
$ |
(1,204 |
) |
|
$ |
158,372 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
36
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 26, 2008, June 28, 2007 and June 29, 2006
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
|
June 28, 2007 |
|
|
Year Ended |
|
|
|
June 26, 2008 |
|
|
(as revised) |
|
|
June 29, 2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,957 |
) |
|
$ |
(13,577 |
) |
|
$ |
(16,721 |
) |
Depreciation and amortization |
|
|
15,742 |
|
|
|
13,584 |
|
|
|
10,000 |
|
Goodwill impairment loss |
|
|
|
|
|
|
|
|
|
|
1,242 |
|
Gain on disposition of properties |
|
|
(8 |
) |
|
|
(3,162 |
) |
|
|
(799 |
) |
Deferred income tax benefit |
|
|
(466 |
) |
|
|
(750 |
) |
|
|
(2,000 |
) |
Stock-based compensation expense |
|
|
397 |
|
|
|
411 |
|
|
|
546 |
|
Change in current assets and current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
1,600 |
|
|
|
(543 |
) |
|
|
3,521 |
|
Inventories |
|
|
7,127 |
|
|
|
30,231 |
|
|
|
53,234 |
|
Prepaid expenses and other current assets |
|
|
(442 |
) |
|
|
1,098 |
|
|
|
(585 |
) |
Accounts payable |
|
|
4,091 |
|
|
|
(2,774 |
) |
|
|
(5,870 |
) |
Accrued expenses |
|
|
1,313 |
|
|
|
(144 |
) |
|
|
3,612 |
|
Income taxes receivable/payable |
|
|
6,490 |
|
|
|
(285 |
) |
|
|
(7,222 |
) |
Other operating assets |
|
|
(270 |
) |
|
|
(1,615 |
) |
|
|
1,993 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
29,617 |
|
|
|
22,474 |
|
|
|
40,951 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(11,569 |
) |
|
|
(36,360 |
) |
|
|
(44,764 |
) |
Development agreement costs |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Proceeds from disposition of assets |
|
|
112 |
|
|
|
17,867 |
|
|
|
3,774 |
|
Cash surrender value of officers life insurance |
|
|
(205 |
) |
|
|
(289 |
) |
|
|
(287 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,662 |
) |
|
|
(18,782 |
) |
|
|
(41,281 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
|
70,859 |
|
|
|
138,491 |
|
|
|
147,009 |
|
Repayments of revolving credit borrowings |
|
|
(92,940 |
) |
|
|
(129,551 |
) |
|
|
(149,229 |
) |
Initial borrowing under new revolving credit facility |
|
|
82,031 |
|
|
|
|
|
|
|
|
|
Payment of amounts outstanding under prior revolving
credit facility |
|
|
(65,283 |
) |
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
45,000 |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(3,273 |
) |
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(55,353 |
) |
|
|
(14,078 |
) |
|
|
(5,964 |
) |
Financing obligation with related parties |
|
|
|
|
|
|
14,300 |
|
|
|
|
|
(Decrease)/increase in book overdraft |
|
|
(717 |
) |
|
|
(9,286 |
) |
|
|
11,254 |
|
Issuance of Common Stock under option plans |
|
|
72 |
|
|
|
80 |
|
|
|
71 |
|
Minority interest distribution |
|
|
|
|
|
|
(3,545 |
) |
|
|
(2,503 |
) |
Tax benefit of stock option exercises |
|
|
6 |
|
|
|
24 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(19,598 |
) |
|
|
(3,565 |
) |
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
|
(1,643 |
) |
|
|
127 |
|
|
|
347 |
|
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
2,359 |
|
|
|
2,232 |
|
|
|
1,885 |
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
716 |
|
|
$ |
2,359 |
|
|
$ |
2,232 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of interest capitalized |
|
$ |
10,456 |
|
|
$ |
8,712 |
|
|
$ |
6,217 |
|
Income taxes paid, excluding refunds of $6,675,
$6,644 and $2,193, respectively |
|
|
107 |
|
|
|
133 |
|
|
|
2,689 |
|
Capital lease obligations incurred |
|
|
207 |
|
|
|
1,117 |
|
|
|
133 |
|
The accompanying notes are an integral part of these consolidated financial statements.
37
JOHN B. SANFILIPPO & SON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
Our consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc., and
its wholly-owned subsidiary, JBSS Properties, LLC. As is discussed in Note 17, results for fiscal
2007 were revised, resulting in a $99 increase in retained earnings at the end of fiscal 2007. Our
fiscal year ends on the last Thursday of June each year, and typically consists of fifty-two weeks
(four thirteen week quarters). The accompanying consolidated financial statements and related
footnotes are presented in accordance with accounting principles generally accepted in the United
States of America (GAAP).
Management Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates include
reserves for customer deductions, allowances for doubtful accounts, the quantity and valuation of
bulk inventories, accruals for workers compensation claims, income tax accruals and various other
accrual accounts. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are stated at the amounts charged to customers, less: (i) allowances for
doubtful accounts, and (ii) reserves for estimated cash discounts and customer deductions. The
allowance for doubtful accounts is calculated by specifically identifying customers that are credit
risks. Account balances are charged off against the allowance when we feel it is probable the
receivable will not be recovered. The reserve for estimated cash discounts is based on actual
payments. The reserve for customer deductions represents known customer short payments and an
estimate of future credit memos that will be issued to customers related to rebates and allowances
for marketing and promotions based on historical experience. Included in accounts receivable as of
June 26, 2008 and June 28, 2007 are $1,000 and $2,730, respectively, relating to workers
compensation excess claim recovery.
Inventories
Inventories, which consist principally of inshell bulk-stored nuts, shelled nuts and processed and
packaged nut products, are stated at the lower of cost (first-in, first-out) or market. Inventory
costs are reviewed each quarter. Fluctuations in the market price of pecans, peanuts, walnuts,
almonds, cashews and other nuts may affect the value of inventory, gross profit and gross profit
margin. When expected market sales prices move below costs, we record adjustments to write down the
carrying values of inventories to lower of cost or market. The results of our shelling process can
also result in changes to inventory costs, such as adjustments made pursuant to actual versus
expected crop yields. We maintain significant inventories of bulk-stored inshell pecans, peanuts
and walnuts. Quantities of inshell bulk-stored nuts are determined based on our inventory systems
and are subject to quarterly physical verification techniques including observation, weighing and
other methods. The quantities of each crop year bulk-stored nut inventories are generally shelled
out over a ten to fifteen month period, at which time revisions to any estimates are also recorded.
We store a large amount of peanut inventory on behalf of the United States government at various
facilities. As a licensed United States Department of Agriculture Nut Warehouse Operator, we are
responsible for delivering the loan value of the peanut inventory in our possession as represented
on the warehouse receipt to the holder of the warehouse receipt on demand. We are responsible for
any decline in the value of the peanut inventory due to decline in quality or shrinkage in excess
of an allowable amount. No such declines in value are currently anticipated.
38
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major improvements that extend the useful life or
add capacity are capitalized and charged to expense through depreciation. Repairs and maintenance
are charged to expense as incurred. The cost and accumulated depreciation of assets sold or retired
are removed from the respective accounts, and any gain or loss is recognized currently in operating
income. Cost is depreciated using the straight-line method over the following estimated useful
lives: buildings 10 to 40 years, machinery and equipment 5 to 10 years, furniture and leasehold
improvements 5 to 10 years and vehicles 3 to 5 years. Depreciation expense was $14,063, $11,661
and $9,207 for the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. We
capitalize interest costs on our projects. The amount of interest capitalized was $0, $901 and
$1,808 for the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively.
Certain prior lease transactions with two related party partnerships relating to the financing of
buildings were previously accounted for as capital leases, whereby the present value of future
rental payments, discounted at the interest rate implicit in the lease, was recorded as a
liability. These leases were terminated at no cost to us in fiscal 2007 and 2006.
In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14.3
million and are leasing them back. The selling price was determined by an independent appraiser to
be the fair market value which also approximated our carrying value. The lease for the Selma, Texas
properties has a ten-year term at a fair market value rent with three five-year renewal options.
Also, we have an option to purchase the properties from the partnerships after five years at 95%
(100% in certain circumstances) of the then fair market value, but not to be less than the $14.3
million purchase price. The financing obligation is being accounted for similar to the accounting
for a capital lease whereby $14.3 million was recorded as a debt obligation, as the provisions of
the arrangement were not eligible for sale-leaseback accounting. No gain or loss was recorded on
the transaction. These partnerships were previously consolidated as variable interest entities.
Based on reconsideration events in the third quarter of 2006 and in the first quarter of fiscal
2007, we determined the partnerships were no longer subject to consolidation as variable interest
entities. These partnerships are no longer considered variable interest entities subject to
consolidation as the partnerships had substantive equity at risk at the time of entering into the
Selma, Texas sale-leaseback transaction.
Long-Lived Assets
We review long-lived assets to assess recoverability from projected undiscounted cash flows (which
also considers the underlying fair value of the properties) whenever events or changes in facts and
circumstances indicate that the carrying value of the assets may not be recoverable. An impairment
loss is recognized in operating results when future undiscounted cash flows are less than the
assets carrying value. The impairment loss would adjust the carrying value to the assets fair
value. To date, we have not recorded any impairment charges. In connection with our facility
consolidation project, management performed a review of assets in our then existing Chicago area
facilities. There was no impairment of these assets; however, the useful lives of certain assets
were adjusted to the remaining time that the assets were utilized. As of June 26, 2008, the
consolidation of our Chicago-based facilities into our new facility in Elgin, Illinois (the New
Site) was substantially completed.
Facility Consolidation Project/Real Estate Transactions
In April 2005, we acquired property to be used for the New Site. Two buildings are located on the
New Site, one of which is an office building of which 41.5% was leased back to the seller through
April 2008. The seller opted to not renew the lease, and we have yet to find replacement tenants.
Approximately 80% of the office building is currently vacant. The other building, a warehouse, was
expanded and modified for use as our principal processing facility and headquarters. The allocation
of the purchase price to the two buildings was determined through a third party appraisal. The
value assigned to the office building is included in rental investment property on the balance
sheet. The value assigned to the warehouse building is included in property, plant and equipment.
The net rental income from the office building included in rental and miscellaneous expense
(income), net, was an expense of $867, $1,122 and $1,115 for the years ended June 26, 2008, June
28, 2007 and June 29, 2006, respectively. Gross rental income was $2,324, $1,740 and $1,665 for the
years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. Future gross rental
income under the office building operating lease is as follows for the years ending:
39
|
|
|
|
|
June 25, 2009 |
|
$ |
1,154 |
|
June 24, 2010 |
|
|
1,163 |
|
June 30, 2011 |
|
|
1,165 |
|
June 28, 2012 |
|
|
1,094 |
|
June 27, 2013 |
|
|
1,067 |
|
Thereafter |
|
|
3,419 |
|
|
|
|
|
|
|
$ |
9,062 |
|
|
|
|
|
Prior to acquiring the New Site, our 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 provided 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. We fulfilled our remediation obligations under the Development Agreement during
fiscal 2005. On February 1, 2006, our company and the related party partnerships entered into a
Termination Agreement with the City of Elgin whereby the Development Agreement was terminated and
our company and the City of Elgin (the City) became obligated to convey the property to our
company and the partnerships within thirty days. The partnerships subsequently agreed to convey
their respective interests in the Original Site to us by quitclaim deed without consideration. On
March 28, 2006, JBSS Properties, LLC (JBSS LLC), our wholly owned subsidiary, acquired title to
the Original Site by quitclaim deed, and JBSS LLC entered into an Assignment and Assumption
Agreement (the Agreement) with the City. Under the terms of the Agreement, the City assigned to
us all the Citys remaining rights and obligations under the Development Agreement. We expect to
sell the Original Site during the next twelve months. A portion of the Original Site contains an
office building (which we began renting during the third quarter of fiscal 2007) that may or may
not be included in the planned sale. In the event that the Original Site is sold prior to January
1, 2009 pursuant to a sales contract that is currently pending, we will be required to deposit the
gross proceeds into an interest-bearing escrow with the Mortgage Lender. Then, on January 1, 2009,
the Mortgage Lender has the right to either (i) apply all or a portion of such proceeds to prepay
the outstanding balance of Tranche B, with the excess, if any, and accrued interest going to us or
(ii) retain such proceeds and all accrued interest as collateral for such additional period as it
deems prudent. The planned sale meets the criteria of an Asset Held for Sale in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets and is presented as a current asset in the balance sheet as of June 26, 2008 and
June 28, 2007. Our costs under the Development Agreement were $6,806 at June 26, 2008 and June 28,
2007, $5,569 of which is recorded as Asset Held for Sale and $1,237 is recorded as Rental
Investment Property as of June 26, 2008 and June 28, 2007. We reviewed the asset under the
Development Agreement for realization, and concluded that no adjustment of the carrying value was
required.
In furtherance of our facility consolidation project, we sold our Chicago area facilities in July
2006. One such Chicago area facility (the Busse Road facility) was owned directly by us and the
remaining portion owned by a consolidated partnership, a variable interest entity. The lease
between us and the partnership was terminated in July 2006 upon completion of the property sale
transaction. The related party partnership sold the property to a third party, which was leased
back the property to us through December 2007. The proceeds upon disposition of the property by the
partnership totaled $9.6 million (with $2.0 million directly allocable to our owned portion of the
property), resulting in us recognizing a gain of approximately $4.6 million (net of $1.3 million
being deferred and amortized as reductions in rental expense over the lease term), with offsetting
amounts applicable to the partnerships minority interest of $4.6 million. As we were the primary
beneficiary of the partnership, upon consolidation of the partnership as a variable interest
entity, the deficit, which includes losses in excess of the minority interest, was absorbed by us.
Upon sale of the facility by the partnership for a gain, the previously recognized losses
attributable to the minority interest of approximately $1.1 million were recovered by us to the
extent such losses were previously allocated to our operations in consolidation and reduced any
gain allocable to the partnership interest. A deferred gain of $0.4 million was included in current
liabilities as of June 28, 2007. No deferred gain exists at June 26, 2008 since the lease expired
during fiscal 2008.
Also in July 2006, we sold our Arlington Heights and Arthur Avenue facilities for a combined $7.8
million in proceeds and leased back the facilities from the purchaser. The Arlington Heights
facility is being leased back by us pursuant to a lease which went through December 2008. The
Arthur Avenue facility is being leased back through August 2008. The gain on these property sale
transactions totaled $1.8 million, net of $1.2 million being deferred and amortized as reductions
in rental expense over the lease terms, ranging from 17 to 29 months. We ceased operations at the
Arlington Heights facility during the second quarter of fiscal 2008 and recognized $173 of
restructuring expense due to the transfer of operations prior to the lease expiration. In order to
sell the Arlington Heights facility, we prepaid our existing mortgage obligations of $1,684 plus a
$279 prepayment fee. A deferred gain of $0.7 million was recorded as of June 28,
40
2007, $0.5 million of which was included in current liabilities. The deferred gain recorded on the
sale of the Arlington Heights facility was considered in the determination of restructuring
expenses, since we vacated the facility during the second quarter of fiscal 2008. Only an
immaterial deferred gain exists for the sale of the Arthur Avenue facility as of June 26, 2008.
In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14.3
million and are leasing them back. The selling price was determined by an independent appraiser to
be the fair market value which also approximated our carrying value. The lease for the Selma, Texas
properties has a ten-year term at a fair market value rent with three five-year renewal options.
Also, we have an option to purchase the properties from the partnerships after five years at 95%
(100% in certain circumstances) of the then fair market value, but not to be less than the $14.3
million purchase price. The financing obligation is being accounted for similar to the accounting
for a capital lease whereby $14.3 million was recorded as a debt obligation, as the provisions of
the arrangement are not eligible for sale-leaseback accounting. No gain or loss was recorded on the
transaction. These partnerships were previously consolidated as variable interest entities. Based
on reconsideration events in the third quarter of 2006 and in the first quarter of fiscal 2007, we
determined the partnerships were no longer subject to consolidation as variable interest entities.
These partnerships are no longer considered variable interest entities subject to consolidation as
the partnerships had substantive equity at risk at the time of entering into the Selma, Texas
sale-leaseback transaction.
We leased certain properties during fiscal 2006 from two related party partnerships (consolidated
variable interest entities), one of which was terminated in March 2006 and the other terminated in
July 2006. In March 2006, we sold a facility owned by one of the partnerships consolidated as a
variable interest entity. As we were the primary beneficiary of the partnership, upon consolidation
of the partnership as a variable interest entity the deficit, which includes losses in excess of
the minority interest, was absorbed by us. Upon sale of the facility by the partnership for a gain,
the previously recognized losses attributable to the minority interest of $0.9 million were
recovered by us to the extent such losses were previously allocated to us in consolidation and
reduced any gain allocable to the partnership interest. Additionally, as the partnership and not
our company was entitled to the net proceeds from the sale, we recorded an equal and offsetting
minority interest amount for the partnerships gain on the sale of approximately $3.5 million in
other income and expense.
Introductory Funds
The ability to sell to certain retail customers often requires upfront payments to be made by us.
Such payments are frequently made pursuant to contracts that stipulate the term of the agreement,
the quantity and type of products to be sold and any exclusivity requirements. If appropriate, the
cost of these payments is recorded as an asset and is amortized over the term of the contract. We
expense payments if no written arrangement exists and amounts are not recoverable in the event of
customer cancellation. Total introductory funds included in prepaid expenses and other current
assets were $882 at June 26, 2008 and $385 at June 28, 2007. Amortization expense, which is
recorded as a reduction in net sales, was $1,252, $1,497 and $367 for the years ended June 26,
2008, June 28, 2007 and June 29, 2006, respectively.
Goodwill and Brand Name
Brand name consists of the Fisher brand name that was acquired in 1995. We are amortizing the brand
name over a fifteen-year period on a straight-line basis with no estimated residual value. Annual
amortization expense for each of the next two fiscal years is expected to be $427, with the
remaining amount of $141 amortized in fiscal 2011. Amortization expense was $427, $426 and $427 for
the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively.
Goodwill represented the excess of the purchase price over the fair value of the net assets from
our acquisition of Sunshine Nut Co., Inc. which occurred in 1992. A goodwill impairment loss of
$1,242 was recorded for the year ended June 29, 2006. Fair value, based on considerations of the
quoted market price with an estimated control premium, and estimated cash flow forecasts of our
reporting unit, was determined to be below its net book value and there was no implied fair value
of our goodwill.
Fair Value of Financial Instruments
Based on borrowing rates presently available to us under similar borrowing arrangements, we believe
the recorded amount of our long-term debt obligations approximates fair market value. The carrying
amount of our other financial instruments approximates their estimated fair value based on market
prices for the same or similar type of financial instruments.
41
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, title has transferred
(based upon terms of shipment), price is fixed, delivery occurs and collection is reasonably
assured. We sell our products under some arrangements which include customer contracts which fix
the sales price for periods, typically of up to one year, for some industrial customers and through
specific programs consisting of promotion allowances, volume and customer rebates and marketing
allowances, among others, to consumer and food service customers. Revenues are recorded net of
rebates and promotion and marketing allowances. While customers do have the right to return
products, past experience has demonstrated that product returns have been insignificant. Provisions
for returns are reflected as a reduction in net sales and are estimated based upon customer
specific circumstances. Billings for shipping and handling costs are included in revenues.
Significant Customers
The highly competitive nature of our business provides an environment for the loss of customers and
the opportunity to gain new customers. Net sales to Wal-Mart Stores, Inc. represented approximately
19%, 20% and 19% of our net sales for the years ended June 26, 2008, June 28, 2007 and June 29,
2006, respectively. Net accounts receivable from Wal-Mart Stores, Inc. were $3,510 and $4,140 at
June 26, 2008 and June 28, 2007, respectively.
Promotion and Advertising Costs
Promotion allowances, customer rebates and marketing allowances are recorded at the time revenue is
recognized and are reflected as reductions in sales. Annual volume rebates are estimated based upon
projected volumes for the year, while promotion and marketing allowances are recorded based upon
terms of the actual arrangements. Coupon incentives have not been significant and are recorded at
the time of distribution. We expense the costs of advertising, which include newspaper and other
advertising activities, as incurred. Advertising expenses for the years ended June 26, 2008, June
28, 2007 and June 29, 2006 were $2,346, $2,778 and $2,297, respectively.
Shipping and Handling Costs
Shipping and handling costs, which include freight and other expenses to prepare finished goods for
shipment, are included in selling expenses. For the years ended June 26, 2008, June 28, 2007 and
June 29, 2006, shipping and handling costs totaled $15,551, $18,291 and $18,767, respectively.
Income Taxes
We account for income taxes using an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have
been reported in our financial statements or tax returns. Such items give rise to differences in
the financial reporting and tax basis of assets and liabilities. A valuation allowance is recorded
to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a
portion of the asset will not be realized. Any investment tax credits are accounted for by using
the flow-through method, whereby the credits are reflected as reductions of tax expense in the year
they are recognized in the financial statements. In estimating future tax consequences, we consider
all expected future events other than changes in tax law or rates.
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on June 29, 2007. There were no material effects associated with the implementation of
FIN 48. As of June 29, 2007, unrecognized tax benefits and accrued interest and penalties were not
material. We recognize interest and penalties accrued related to unrecognized tax benefits in the
income tax (benefit)/expense caption in the statement of operations.
Segment Reporting
We operate in a single reportable operating segment that consists of selling various nut products
through multiple distribution channels.
Earnings per Share
Earnings per common share are 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:
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
June 26, 2008 |
|
June 28, 2007 |
|
June 29, 2006 |
Weighted average shares outstanding basic |
|
|
10,610,272 |
|
|
|
10,595,996 |
|
|
|
10,584,764 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
10,610,272 |
|
|
|
10,595,996 |
|
|
|
10,584,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All outstanding options were excluded from the calculation of diluted earnings per share for the
years ended June 26, 2008, June 28, 2007 and June 29, 2006 due to net losses. Total options
excluded from the calculation of diluted earnings per share were 470,440, 353,690 and 324,815 for
the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. These options had
weighted average exercise prices of $11.49, $13.00 and $13.70, respectively.
Stock-Based Compensation
Effective for the first quarter of fiscal 2006, we adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), using the modified
prospective application method. Under this transition method, we record compensation expense for
all awards granted after the date of adoption, and for the unvested portion of previously granted
awards that remained outstanding at the date of adoption.
Comprehensive Loss (Income)
We account for comprehensive loss (income) in accordance with SFAS 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and displaying comprehensive loss
(income) and its components in a full set of general-purpose financial statements. The statement
requires that all components of comprehensive loss (income) be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007;
however, application of SFAS 157 for nonfinancial assets and nonfinancial liabilities is not
required until fiscal years beginning after November 15, 2008. We are currently assessing the
impact of SFAS 157 on our consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued EITF 06-04, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF
06-04). Under EITF 06-04, for an endorsement split-dollar life insurance contract, an employer
should recognize a liability for future benefits in accordance with FASB 106, Employers Accounting
for Postretirement Benefits Other Than Pensions or Accounting Principles Board Opinion 12. The
provisions of EITF 06-04 are effective for fiscal 2009, although early adoption is permissible. We
are currently evaluating the provisions of EITF 06-04 on our consolidated financial position,
results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), and
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB
No. 51 (SFAS No. 160). These new standards will significantly change the accounting and
reporting for business combination transactions and noncontrolling (minority) interests in
consolidated financial statements. SFAS No. 141(R) and SFAS No. 160 are required to be adopted
simultaneously and are effective for fiscal years beginning after December 15, 2008. Earlier
adoption is prohibited. We are currently evaluating the impact of adopting SFAS No. 141(R) and SFAS
No. 160 on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures
about an entitys derivative and hedging activities. These enhanced disclosures will discuss
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. We are currently assessing the impact
of SFAS 161 on our consolidated financial position, results of operations and cash flows.
43
NOTE 2 NATURE OF BUSINESS AND MANAGEMENT PLANS
We are one of the leading processors and marketers of tree nuts and peanuts in the United States.
These nuts are sold under a variety of private labels and under the Fisher, Flavor Tree, Sunshine
Country and Texas Pride brand names. We also market and distribute, and in most cases manufacture
or process, a diverse product line of food and snack products, including peanut butter, candy and
confections, natural snacks and trail mixes, sunflower seeds, corn snacks, sesame sticks and other
sesame snack products. We have plants located throughout the United States. Revenues are generated
from sales to a variety of customers, including several major retailers and the U.S. government
which are made on an unsecured basis.
In fiscal 2008, we took actions to address the uncertainty surrounding our ability to meet the
prior restrictive covenants of our Prior Credit Facility and Prior Note Agreement (as defined in
Note 4 and Note 5, respectively, in the Notes to Consolidated Financial Statements) and to improve
financial performance, which actions included securing new financing during the third quarter of
fiscal 2008 comprised of a revolving credit facility and a mortgage term loan. The new revolving
credit facility contains one financial covenant, which we currently believe will be attainable.
Compliance is dependent upon maintaining a $15.0 million level of excess availability under the
revolving credit facility and achieving a certain fixed charge coverage ratio if the $15.0 million
level of excess availability is not met. The mortgage term loan is collateralized by certain real
property and fixtures and is subject to a minimum net worth requirement of $110.0 million. The new
financing arrangements provide us with increased flexibility to accomplish our objectives and
improve future financial performance.
Our financial performance has improved in fiscal 2008. The loss before income taxes was $6.9
million, including $6.7 million of debt extinguishment costs and $1.8 million of restructuring
costs, for fiscal 2008 compared to no such charges for fiscal 2007. The loss before income taxes
for fiscal 2008 also contains certain unusual or infrequent expenses in addition to the debt
extinguishment and restructuring costs, including:
|
|
|
an increase in unfavorable labor and efficiency variances over fiscal 2007, which was
primarily related to the shut down and start up costs for production lines that were moved
from the previous Chicago area facilities and installed in the new facility in Elgin,
Illinois (the New Site); |
|
|
|
|
redundant manufacturing expenses as production activities occurred at the previous
Chicago area facilities while the manufacturing spending in the New Site reflected
increased production levels; |
|
|
|
|
external contractor charges that were related to the acceleration of the equipment move
from the existing Chicago area facilities to the New Site; and |
|
|
|
|
consulting fees related to our profitability enhancement initiative, the implementation
of a new sales analysis system and the design and implementation of a new incentive
compensation plan, which rewards plan participants in connection with year-over-year
improvement in our after-tax net operating financial performance in excess of our annual
cost of capital. |
Management also conducted profitability reviews of all products sold to customers. We engaged a
profitability enhancement consultant (which was a requirement relating to the waivers received from
the lenders under our Prior Note Agreement and Prior Credit Facility for non-compliance with
financial covenants for the third quarter of fiscal 2007) to assist in this process and in our
forecasting procedures. The result of this profitability review led to price increases for many
products and the eventual discontinuance of approximately 1,200 products, or approximately 30% of
the number of products sold by us, during the third quarter of fiscal 2008. Also, in the first two
months of calendar 2008, we terminated approximately 80 employees, approximately 5% of our work
force, pursuant to an initiative separate from the store-door discontinuance described below. These
terminations were possible due to our initiatives, such as consolidating all Chicago area
activities at the New Site and discontinuing 1,200 products. We expect to save approximately $4.0
million in payroll and related benefits annually as a result of the work force reduction.
We terminated our store-door distribution system in January 2008 as a result of our determination
that it is no longer profitable to ship products to customers through our store-door distribution
system. In connection with the discontinuance of the store-door delivery system, we terminated
nine employees. We have maintained a majority of the $2.5 million in annual sales generated
through the store-door distribution system, as business has migrated to our other distribution
methods.
44
The initiatives described above are expected to improve efficiencies and generate cost savings.
However, while we have realized cost savings in connection with the New Site through the
elimination of redundant costs, we have yet to receive the expected improvements in manufacturing
efficiencies. We are actively developing plans, especially for our Fisher brand, with the intention
of increasing sales and gross margin. As a result of these efforts, we secured significant new
private label business during fiscal 2008. Other new business opportunities are being pursued
across all of our distribution channels. However, the efforts to reduce unprofitable products has
contributed to a decrease in sales volume, which has in the past and may in the future, negatively
impact our ability to benefit from the facility consolidation project.
In summary, management believes the changes associated with our financing arrangements, in
combination with the previously mentioned business initiatives, provides us with greater financial
flexibility and the ability to sustain ongoing operations of the business.
NOTE 3 INVENTORIES
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
Raw material and supplies |
|
$ |
59,770 |
|
|
$ |
57,348 |
|
Work-in-process and finished goods |
|
|
67,262 |
|
|
|
76,811 |
|
|
|
|
|
|
|
|
Total |
|
$ |
127,032 |
|
|
$ |
134,159 |
|
|
|
|
|
|
|
|
NOTE 4 REVOLVING CREDIT FACILITY
On February 7, 2008, we entered into a Credit Agreement with a new bank group (the Bank Lenders)
providing a $117.5 million revolving loan commitment and letter of credit subfacility (the New
Credit Facility). The New Credit Facility is secured by substantially all our assets other than
real property and fixtures. When we entered into the New Credit Facility, we paid all amounts
under, and terminated our prior revolving credit facility (the Prior Credit Facility). As a
result of the refinancing, we were required to pay a $1.0 million debt extinguishment charge to the
lenders under the Prior Credit Facility and write off the $0.2 million in remaining unamortized
balance of fees related to the Prior Credit Facility. These charges were recorded in the third
quarter of fiscal 2008.
The New Credit Facility matures on February 7, 2013. At our election, borrowings under the New
Credit Facility accrue interest at either (i) a rate determined pursuant to the administrative
agents prime rate minus an applicable margin determined by reference to the amount of loans which
may be advanced under a borrowing base calculation based upon accounts receivable, inventory and
machinery and equipment (the Borrowing Base Calculation), ranging from 0.00% to 0.50% or (ii) a
rate based on the London interbank offered rate (LIBOR) plus an applicable margin based upon the
Borrowing Base Calculation, ranging from 2.00% to 2.50%. The face amount of undrawn letters of
credit accrues interest at a rate of 1.50% to 2.00%, based upon the Borrowing Base Calculation.
The portion of the Borrowing Base Calculation based upon machinery and equipment will decrease by
$1.5 million per year for the first five years to coincide with amortization of the machinery and
equipment collateral. As of June 26, 2008, the weighted average interest rate for the New Credit
Facility was 5.00%. The terms of the New Credit Facility contain covenants that require us to
restrict investments, indebtedness, capital expenditures, acquisitions and certain sales of assets,
cash dividends, redemptions of capital stock and prepayment of indebtedness (if such prepayment,
among other things, is of a subordinate debt). If loan availability under the Borrowing Base
Calculation falls below $15.0 million, we will be required to maintain a specified fixed charge
coverage ratio, tested on a monthly basis. The New Credit Facility does not include, among other
things, a working capital, EBITDA, net worth, excess availability, leverage or debt service
coverage financial covenant. The Bank Lenders are entitled to require immediate repayment of the
our obligations under the New Credit Facility in the event of default on the payments required
under the New Credit Facility, non-compliance with the financial covenants or upon the occurrence
of certain other defaults by us under the New Credit Facility (including a default under the
Mortgage Facility, as defined in Note 5). As of June 26, 2008, we were in compliance with all
covenants under the New Credit Facility and we currently expect to be in compliance with the
financial covenant in the New Credit Facility for the foreseeable future. As of June 26, 2008, we
had $36.5 million of available credit under the New Credit Facility.
Following the replacement of the Prior Note Agreement and Prior Credit Facility in the third
quarter of fiscal 2008, letters of credit attributable to obligations totaling $10.2 million were
still held by a lender under the Prior Credit Facility. As a result, we were required to deposit
$10.2 million in cash with such lender as collateral for the letters of
45
credit. During the fourth quarter of fiscal 2008, these letters of credit were transferred to the
New Credit Facility, and the $10.2 million in cash collateral was returned to us and used to pay
down the New Credit Facility.
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
Mortgage facility (Tranche
A), collateralized by real
property, due in monthly
principal installments of
$200 plus interest at 7.63%
per annum from June 2008 to
February 2008 with a final
principal payment of $600
in March 2023 |
|
$ |
35,800 |
|
|
$ |
|
|
Mortgage facility (Tranche
B), collateralized by real
property, due in monthly
principal installments of
$50 plus interest at LIBOR
plus 5.50% per annum from
June 2023 to February 2008
with a final principal
payment of $150 in March
2008 |
|
|
8,950 |
|
|
|
|
|
Notes payable, interest
payable semiannually at
5.92%, principal payable in
semi-annual installments of
$3,611 beginning on
June 1, 2006 |
|
|
|
|
|
|
54,167 |
|
Industrial development
bonds, collateralized by
building, machinery and
equipment with a cost
aggregating $8,000 |
|
|
5,125 |
|
|
|
5,500 |
|
Selma, Texas facility
financing obligation to
related parties, due in
monthly installments of
$109 through September 1,
2031 |
|
|
13,860 |
|
|
|
14,060 |
|
Capitalized equipment leases |
|
|
872 |
|
|
|
1,026 |
|
|
|
|
|
|
|
|
|
|
|
64,607 |
|
|
|
74,753 |
|
Less: Current maturities |
|
|
(12,251 |
) |
|
|
(54,970 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
52,356 |
|
|
$ |
19,783 |
|
|
|
|
|
|
|
|
On February 7, 2008, we entered into a Loan Agreement with an insurance company (the Mortgage
Lender) providing us with two term loans, one in the amount of $36.0 million (Tranche A) and the
other in the amount of $9.0 million (Tranche B), for an aggregate amount of $45.0 million (the
Mortgage Facility). The Mortgage Facility is secured by mortgages on essentially all of our owned real property
located in Elgin, Illinois, Gustine, California and Garysburg, North Carolina (the Encumbered
Properties). The encumbered Elgin real property includes almost all of an original site (the Original Site) that was
purchased prior to our purchase of the New Site. At the time that we entered into the Mortgage
Facility, we prepaid all amounts due pursuant to our prior long-term financing facility (the Prior
Note Agreement). As a result of the refinancing, we were required to pay a $5.2 million debt
extinguishment charge to the noteholders under the Prior Note Agreement and write off the $0.3
million in remaining unamortized balance of fees related to the Prior Note Agreement. These charges
were recorded in the third quarter of fiscal 2008.
The Mortgage Facility matures on March 1, 2023. Tranche A under the Mortgage Facility accrues
interest at a fixed interest rate of 7.63% per annum, payable monthly. Such interest rate may be
reset by the Mortgage Lender on March 1, 2018 (the Tranche A Reset Date). Monthly principal
payments in the amount of $200 commenced on June 1, 2008. Tranche B under the Mortgage Facility
accrues interest at a floating rate of one month LIBOR plus 5.50% per annum, payable monthly. The
margin on such floating rate may be reset by the Mortgage Lender on March 1, 2010 and every two
years thereafter (each, a Tranche B Reset Date); provided, however, that the Mortgage Lender may
also change the underlying index on each Tranche B Reset Date occurring on and after March 1, 2016.
Monthly principal payments in the amount of $50 commenced on June 1, 2008.
On the Tranche A Reset Date and each Tranche B Reset Date, the Mortgage Lender may reset the
interest rates for each of Tranche A and Tranche B, respectively, in its sole and absolute
discretion. With respect to Tranche A, if we do not accept the reset rate, Tranche A will become
due and payable on the Tranche A Reset Date, without prepayment penalty. With respect to Tranche B,
if we do not accept the reset rate, Tranche B will be due and payable on the Tranche B Reset Date,
without prepayment penalty. There can be no assurances that the reset interest rates for each of
Tranche A and Tranche B will be acceptable to us. If the reset interest rate for either Tranche A
or Tranche B is unacceptable to us and we (i) do not have sufficient funds to repay amounts due
with respect to Tranche A or Tranche B, as applicable, on the Tranche A Reset Date or Tranche B
Reset Rate, as applicable, or (ii) are unable to refinance amounts due with respect to Tranche A or
Tranche B, as applicable, on the Tranche A Reset Date or Tranche B Reset Rate, as applicable, on
terms
46
more favorable than the reset interest rates, then such reset interest rates could have a material
adverse effect on our financial condition, results of operations and financial results.
The terms of the Mortgage Facility contain covenants that require us to maintain a specified net
worth of $110.0 million and maintain the Encumbered Properties. In addition, the Mortgage Facility
provides that in the event that the Original Site is sold prior to January 1, 2009 pursuant to a
sales contract that is currently pending, we will be required to deposit the gross proceeds into an
interest-bearing escrow with the Mortgage Lender. Then, on January 1, 2009, the Mortgage Lender
has the right to either (i) apply all or a portion of such proceeds to prepay the outstanding
balance of Tranche B, with the excess, if any, and accrued interest going to us or (ii) retain such
proceeds and all accrued interest as collateral for such additional period as it deems prudent.
After January 1, 2009 (or prior to January 1, 2009 if pursuant to a different proposal other than
the pending contract), we must obtain the consent of the Mortgage Lender prior to the sale of the
Original Site. All amounts outstanding are recorded as current liabilities as of June 26, 2008.
The Mortgage Facility does not include, among other things, a working capital, EBITDA, excess
availability, fixed charge coverage, capital expenditure, leverage or debt service coverage
financial covenant. The Mortgage Lender is entitled to require immediate repayment of our
obligations under the Mortgage Facility in the event we default in the payments required under the
Mortgage Facility, non-compliance with the covenants or upon the occurrence of certain other
defaults by us under the Mortgage Facility. As of June 26, 2008, we were in compliance with all
covenants under the Mortgage Facility. Since we currently believe that we will be in compliance
with the financial covenant in the Mortgage Facility for the foreseeable future, $33.4 million has
been classified as long-term debt as of June 26, 2008. This amount represents scheduled principal
payments due under Tranche A beyond twelve months of June 26, 2008.
We financed the construction of a peanut shelling plant with industrial development bonds in 1987.
On June 1, 2006, we remarketed the bonds, resetting the interest rate at 4.55% through May 2011,
and at a market rate to be determined thereafter. On June 1, 2011, and on each subsequent interest
reset date for the bonds, we are 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 us 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. The agreement requires us to redeem the bonds in varying
annual installments, ranging from $405 to $760 annually through 2017. We are 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. We have the option at any time, however,
subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any.
In September 2006, we sold our Selma, Texas properties to two related party partnerships for $14.3
million and are leasing them back. The selling price was determined by an independent appraiser to
be the fair market value which also approximated our carrying value. The lease for the Selma, Texas
properties has a ten-year term at a fair market value rent with three five-year renewal options.
Also, we have an option to purchase the properties from the partnerships after five years at 95%
(100% in certain circumstances) of the then fair market value, but not to be less than the $14.3
million purchase price. The financing obligation is being accounted for similar to the accounting
for a capital lease, whereby $14.3 million was recorded as a debt obligation, as the provisions of
the arrangement are not eligible for sale-leaseback accounting. No gain or loss was recorded on the
transaction. These partnerships were previously consolidated as variable interest entities. Based
on reconsideration events in the third quarter of 2006 and in the first quarter of fiscal 2007, we
determined the partnerships were no longer subject to consolidation as variable interest entities.
These partnerships are no longer considered variable interest entities subject to consolidation as
the partnerships had substantive equity at risk at the time of entering into the Selma, Texas
sale-leaseback transaction.
Aggregate maturities of long-term debt are as follows for the years ending:
|
|
|
|
|
June 25, 2009 |
|
$ |
12,251 |
|
June 24, 2010 |
|
|
3,340 |
|
June 30, 2011 |
|
|
7,213 |
|
June 28, 2012 |
|
|
2,716 |
|
June 27, 2013 |
|
|
2,702 |
|
Thereafter |
|
|
36,385 |
|
|
|
|
|
Total |
|
$ |
64,607 |
|
|
|
|
|
NOTE 6 INCOME TAXES
The (benefit) provision for income taxes for the years ended June 26, 2008, June 28, 2007 and June
29, 2006 are as follows:
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
June 29, 2006 |
|
Current |
|
$ |
(431 |
) |
|
$ |
(6,770 |
) |
|
$ |
(6,689 |
) |
Deferred |
|
|
(466 |
) |
|
|
(750 |
) |
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total benefit for income taxes |
|
$ |
(897 |
) |
|
$ |
(7,520 |
) |
|
$ |
(8,689 |
) |
|
|
|
|
|
|
|
|
|
|
The reconciliations of income taxes at the statutory federal income tax rate to income taxes
reported in the statements of operations for the years ended June 26, 2008, June 28, 2007 and June
29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
|
|
|
|
June 26, |
|
|
2007 |
|
|
June 29, |
|
|
|
2008 |
|
|
(as revised) |
|
|
2006 |
|
Federal statutory income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal benefit |
|
|
6.9 |
|
|
|
4.4 |
|
|
|
4.8 |
|
Effect of SFAS 158 |
|
|
3.8 |
|
|
|
|
|
|
|
|
|
Goodwill impairment loss |
|
|
|
|
|
|
|
|
|
|
(1.9 |
) |
Valuation allowance for net state operating loss carryforwards |
|
|
(7.9 |
) |
|
|
(4.4 |
) |
|
|
(2.0 |
) |
Valuation allowance for net federal operating loss carryforwards |
|
|
(23.0 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
(1.7 |
) |
|
|
0.6 |
|
|
|
(1.7 |
) |
|
|
|
Effective tax rate |
|
|
13.1 |
% |
|
|
35.6 |
% |
|
|
34.2 |
% |
|
|
|
The deferred tax assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
160 |
|
|
$ |
|
|
|
$ |
155 |
|
|
$ |
|
|
Employee compensation |
|
|
1,182 |
|
|
|
|
|
|
|
602 |
|
|
|
|
|
Inventory |
|
|
93 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
Deferred revenue |
|
|
15 |
|
|
|
|
|
|
|
363 |
|
|
|
|
|
Workers compensation |
|
|
1,458 |
|
|
|
|
|
|
|
1,503 |
|
|
|
|
|
Valuation allowance |
|
|
(1,091 |
) |
|
|
|
|
|
|
(606 |
) |
|
|
|
|
Restructuring |
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
237 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
$ |
2,595 |
|
|
$ |
|
|
|
$ |
2,140 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
|
|
|
$ |
(9,264 |
) |
|
$ |
|
|
|
$ |
(7,522 |
) |
Amortization |
|
|
79 |
|
|
|
|
|
|
|
234 |
|
|
|
|
|
Capitalized leases |
|
|
234 |
|
|
|
|
|
|
|
201 |
|
|
|
|
|
Operating loss carryforwards |
|
|
5,818 |
|
|
|
|
|
|
|
2,095 |
|
|
|
|
|
Retirement plan |
|
|
3,106 |
|
|
|
|
|
|
|
3,530 |
|
|
|
|
|
Valuation allowance |
|
|
(2,817 |
) |
|
|
|
|
|
|
(1,439 |
) |
|
|
|
|
Other |
|
|
249 |
|
|
|
|
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term |
|
$ |
6,669 |
|
|
$ |
(9,264 |
) |
|
$ |
4,916 |
|
|
$ |
(7,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,264 |
|
|
$ |
(9,264 |
) |
|
$ |
7,056 |
|
|
$ |
(7,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 26, 2008, we have $2.5 million of state and $3.3 million of federal net operating loss
carryforwards for income tax purposes. All of the state net operating loss (NOL) carryforward
relates to losses generated during the years ended June 26, 2008, June 28, 2007 and June 29, 2006.
The federal NOL carryforward relates to losses generated during the year ended June 26, 2008. The
state losses generally have a carryforward period of between 10 and 12 years before expiration. The
federal NOL carryforward relates to losses generated during the year ended June 26, 2008. The
federal losses generally have a carryforward period of 20 years before expiration. Due to our
cumulative losses for the last three fiscal years, we have provided valuation allowances of $1.6
million and $2.3 million for federal and state, respectively, related to the realization of such
operating loss carryforwards to the extent our deferred tax assets exceed our deferred tax
liabilities. We believe it is currently more likely than not that we will be unable to utilize NOLs
and as a result we have recorded a full valuation allowance as of June 26, 2008. We will consider
the need for, and the amount of, the valuation allowance in the future as actual operating results
are achieved.
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on
48
June 29, 2007. There were no material effects associated with the implementation of
FIN 48. As of June 29, 2007, unrecognized tax benefits and accrued interest and penalties were not
material. We recognize interest and penalties accrued related to unrecognized tax benefits in the income tax (benefit)/expense caption in the
statement of operations. We file income tax returns with federal and state tax authorities within
the United States of America. The Internal Revenue Service is currently auditing our tax returns
for fiscal 2004. The Illinois Department of Revenue has concluded its audits of our tax returns
through fiscal 2005. No other tax jurisdictions are material to us.
As of June 26, 2008, there have been no material changes to the amount of unrecognized tax
benefits. We do not anticipate that total unrecognized tax benefits will significantly change in
the future.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Operating Leases
We lease buildings and certain equipment pursuant to agreements accounted for as operating leases.
Rent expense under these operating leases aggregated $2,032, $2,723 and $2,342 for the years ended
June 26, 2008, June 28, 2007 and June 29, 2006, respectively. Aggregate non-cancelable lease
commitments under these operating leases are as follows for the years ending:
|
|
|
|
|
June 25, 2009 |
|
$ |
1,391 |
|
June 24, 2010 |
|
|
844 |
|
June 30, 2011 |
|
|
674 |
|
June 28, 2012 |
|
|
354 |
|
June 27, 2013 |
|
|
136 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
3,399 |
|
|
|
|
|
Litigation
We are a party to various lawsuits, proceedings and other matters arising out of the conduct of our
business. It is managements opinion that the ultimate resolution of these matters will not have a
significant effect upon our business, financial condition or results of operations.
NOTE 8 STOCKHOLDERS EQUITY
Our Class A Common Stock, $.01 par value (the Class A Stock), has cumulative voting rights with
respect to the election of those directors which the holders of Class A Stock are entitled to
elect, and 10 votes per share on all other matters on which holders of our companys Class A Stock
and Common Stock are entitled to vote. In addition, each share of Class A Stock is convertible at
the option of the holder at any time into one share of Common Stock and automatically converts into
one share of Common Stock upon any sale or transfer other than to related individuals. Each share
of our companys Common Stock, $.01 par value (the Common Stock) has noncumulative voting rights
of one vote per share. The Class A Stock and the Common Stock are entitled to share equally, on a
share-for-share basis, in any cash dividends declared by the Board of Directors, and the holders of
the Common Stock are entitled to elect 25% of the members comprising the Board of Directors.
NOTE 9 STOCK OPTION PLANS
At our annual meeting of stockholders on October 28, 1998, our stockholders approved a new stock
option plan (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 our employees or
employees of our subsidiary). The exercise price of the options will be determined as set forth in
the 1998 Equity Incentive Plan by the Board of Directors. The exercise price for the stock options
must be at least the fair market value of the Common Stock on the date of grant, with the exception
of nonqualified stock options, which can have an exercise price equal to at least 50% of the fair
market value of the Common Stock on the date of grant. Except as set forth in the 1998 Equity
Incentive Plan, options expire upon termination of employment or directorship. The options granted
under the 1998 Equity Incentive Plan are exercisable 25% annually commencing on the first
anniversary date of grant and become fully exercisable on the fourth anniversary date of grant.
Options generally will expire no later than ten years after the date on which they are granted. We
issue new shares of Common Stock upon exercise of stock options. Through fiscal 2007, all of the
options granted, except those
49
granted to outside directors, were intended to qualify as incentive
stock options within the meaning of Section 422 of the Code. Effective fiscal 2008, all option
grants are non-qualified awards. At June 26, 2008, there were 31,000 options available for
distribution under this plan. Option exercises are satisfied through the issuance of new shares of
Common Stock.
We determine fair value of such awards using the Black-Scholes option-pricing model. The following
assumptions were used to value our grants during fiscal 2008: 6.25 years expected life; expected
stock volatility from 52.4% to 54.3%; risk-free interest rate of 2.79% to 4.28%; expected
forfeitures of 5%; 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 the 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 our expectations and past
experiences. Expected dividend yield was based on our dividend policy at the time the options were
granted.
The following weighted-average assumptions used to determine the fair value of options granted for
the years ended June 26, 2008, June 28, 2007 and June 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
June 28, 2007 |
|
June 29, 2006 |
Average risk-free interest rate |
|
|
3.7 |
% |
|
|
4.6 |
% |
|
|
4.1 |
% |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected volatility |
|
|
54.3 |
% |
|
|
54.0 |
% |
|
|
54.7 |
% |
Expected life (years) |
|
|
6.3 |
|
|
|
5.8 |
|
|
|
5.7 |
|
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 $397, $411 and $546 for the years ended June 26, 2008,
June 28, 2007 and June 29, 2006, respectively, and the related tax benefit for non-qualified stock
options was $6, $24 and $39 for the years ended June 26, 2008, June 28, 2007 and June 29, 2006,
respectively.
Activity in our stock option plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
Outstanding at June 30, 2005 |
|
|
314,190 |
|
|
$ |
12.37 |
|
Activity: |
|
|
|
|
|
|
|
|
Granted |
|
|
66,000 |
|
|
|
18.73 |
|
Exercised |
|
|
(11,750 |
) |
|
|
6.03 |
|
Forfeited |
|
|
(43,625 |
) |
|
|
13.82 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 29, 2006 |
|
|
324,815 |
|
|
$ |
13.70 |
|
Activity: |
|
|
|
|
|
|
|
|
Granted |
|
|
76,000 |
|
|
|
10.25 |
|
Exercised |
|
|
(11,250 |
) |
|
|
6.80 |
|
Forfeited |
|
|
(35,875 |
) |
|
|
15.48 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 28, 2007 |
|
|
353,690 |
|
|
$ |
13.00 |
|
Activity: |
|
|
|
|
|
|
|
|
Granted |
|
|
151,500 |
|
|
|
7.98 |
|
Exercised |
|
|
(11,250 |
) |
|
|
6.40 |
|
Forfeited |
|
|
(23,500 |
) |
|
|
13.98 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 26, 2008 |
|
|
470,440 |
|
|
$ |
11.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 26, 2008 |
|
|
238,690 |
|
|
$ |
12.72 |
|
Exercisable at June 28, 2007 |
|
|
199,690 |
|
|
$ |
11.60 |
|
Exercisable at June 29, 2006 |
|
|
142,815 |
|
|
$ |
10.49 |
|
The number of stock options vested, and expected to vest in the future, as of June 26, 2008 is not
significantly different from the number of stock options outstanding at June 26, 2008, as stated
above. The weighted average fair value of
options granted was $4.47, $5.47 and $9.85 for the years ended June 26, 2008, June 28, 2007 and
June 29, 2006,
50
respectively. The total intrinsic value of all options exercised was $16, $63 and
$104 for the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. All 151,500
options granted during fiscal 2008 were at exercise prices equal to the market price of Common
Stock at the grant date. Of the 76,000 total options granted during fiscal 2007, 14,000 were at
exercise prices greater than the market price of the Common Stock at the grant date with a weighted
average fair value of $4.52 per share, and the remaining 62,000 options were at exercise prices
equal to the market price of Common Stock at the grant date with a weighted average fair value of
$5.68 per share. Of the 66,000 total options granted during fiscal 2006, 14,000 were at exercise
prices greater than the market price of the Common Stock at the grant date with a weighted average
fair value of $8.21 per share, and the remaining 52,000 options were at exercise prices equal to
the market price of Common Stock at the grant date with a weighted average fair value of $10.29 per
share.
As of June 26, 2008, there was $887 of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under our stock option plans. We expect to recognize
that cost over a weighted average period of 1.2 years. The total fair value of shares vested during
fiscal 2008 was $991.
Exercise prices for options outstanding as of June 26, 2008 ranged from $3.44 to $32.30. The
weighted average remaining contractual life of those options is 6.4 years, and 4.6 years for those
exercisable. The aggregate intrinsic value of outstanding options at June 26, 2008 was $341, $230
for those exercisable. The options outstanding at June 26, 2008 may be segregated into two ranges,
as is shown in the following:
|
|
|
|
|
|
|
|
|
|
|
Option Price Per Share Range |
|
|
$3.44 - $11.89 |
|
$15.14 - $32.30 |
Number of options |
|
|
305,315 |
|
|
|
165,125 |
|
Weighted-average exercise price |
|
$ |
7.93 |
|
|
$ |
18.06 |
|
Weighted-average remaining life (years) |
|
|
7.1 |
|
|
|
5.1 |
|
Number of options exercisable |
|
|
111,690 |
|
|
|
127,000 |
|
Weighted average exercise price for exercisable options |
|
$ |
6.89 |
|
|
$ |
17.85 |
|
NOTE 10 EMPLOYEE BENEFIT PLANS
We maintain a contributory plan established pursuant to the provisions of section 401(k) of the
Internal Revenue Code. The plan provides retirement benefits for all nonunion employees meeting
minimum age and service requirements. We contribute 50% of the amount contributed by each employee
up to certain maximums specified in the plan. Our contributions to the 401(k) plan were $628, $655
and $629 for the years ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively.
We contributed $324, $241 and $128 for the years ended June 26, 2008, June 28, 2007 and June 29,
2006, respectively, to multi-employer union-sponsored pension plans. We are presently unable to
determine our respective share of either accumulated plan benefits or net assets available for
benefits under the union plans. We recorded a $1,200 liability during the year ended June 26, 2008
as the estimated cost to withdraw from the multi-employer union-sponsored plan for the step van
drivers that were employed for our store-door delivery system that was discontinued during the
third quarter of fiscal 2008. See Note 16.
NOTE 11 RETIREMENT PLAN
On August 2, 2007, the committee then known as the Compensation, Nominating and Corporate
Governance Committee (the Committee) approved a restated Supplemental Employee Retirement Plan
(SERP) for certain executive officers and key employees, effective as of August 25, 2005. The
restated SERP changes the plan adopted on August 25, 2005 to, among other things, clarify certain
actuarial provisions and incorporate new Internal Revenue Service requirements. The SERP is an
unfunded, non-qualified benefit plan that will provide eligible participants with monthly benefits
upon retirement, disability or death, subject to certain conditions. Benefits paid to retirees are
based on age at retirement, years of credited service, and average compensation. We use our fiscal
year-end as the measurement date for obligation and asset calculations. Effective June 28, 2007, we
adopted the recognition and disclosure provisions of SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statement No. 87, 99,
106 and 123(R) (SFAS 158), which required the recognition of the funded status of the SERP on
the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and
transition obligations that have not yet been recognized are now required to be recorded as a
component of Accumulated Other Comprehensive Loss (AOCL).
51
The following table presents the changes in the projected benefit obligation for the fiscal years
ended:
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
Change in projected benefit obligation |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year or plan inception |
|
$ |
9,289 |
|
|
$ |
10,249 |
|
Service cost |
|
|
138 |
|
|
|
262 |
|
Interest cost |
|
|
575 |
|
|
|
653 |
|
Actuarial gain |
|
|
(729 |
) |
|
|
(1,530 |
) |
Benefits paid |
|
|
(230 |
) |
|
|
(345 |
) |
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
$9,043 |
|
|
$ |
$9,289 |
|
|
|
|
|
|
|
|
Components of the actuarial gain portion of the change in projected benefit obligation are
presented below for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
June 29, 2006 |
|
Actuarial Gain |
|
|
|
|
|
|
|
|
|
|
|
|
Change in bonus expectation |
|
$ |
|
|
|
$ |
(453 |
) |
|
$ |
(3,141 |
) |
Change in discount rate |
|
|
(267 |
) |
|
|
182 |
|
|
|
(1,906 |
) |
Adjustment to projected retiree benefit |
|
|
(310 |
) |
|
|
(914 |
) |
|
|
|
|
Other |
|
|
(152 |
) |
|
|
(345 |
) |
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
Actuarial gain |
|
$ |
(729 |
) |
|
$ |
(1,530 |
) |
|
$ |
(5,453 |
) |
|
|
|
|
|
|
|
|
|
|
The components of the net periodic pension cost are as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
June 29, 2006 |
|
Service cost |
|
$ |
138 |
|
|
$ |
262 |
|
|
$ |
386 |
|
Interest cost |
|
|
575 |
|
|
|
653 |
|
|
|
642 |
|
Recognized gain amortization |
|
|
(359 |
) |
|
|
(306 |
) |
|
|
|
|
Prior service cost amortization |
|
|
957 |
|
|
|
957 |
|
|
|
798 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
1,311 |
|
|
$ |
1,566 |
|
|
$ |
1,826 |
|
|
|
|
|
|
|
|
|
|
|
Significant assumptions related to our SERP include the discount rate used to calculate the
actuarial present value of benefit obligations to be paid in the future and the average rate of
compensation expense increase by SERP participants.
We used the following assumptions to calculate the benefit obligations of our SERP as follows for
the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
June 28, 2007 |
|
June 29, 2006 |
Discount rate |
|
|
6.52 |
% |
|
|
6.27 |
% |
|
|
6.44 |
% |
Rate of compensation increases |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
Bonus payment |
|
60% of base, paid 3 of 5 years |
|
60% of base, paid 3 of 5 years |
|
60% of base, paid annually |
52
We used the following assumptions to calculate the net periodic costs of our SERP as follows for
the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
June 28, 2007 |
|
June 29, 2006 |
Discount rate |
|
|
6.27 |
% |
|
|
6.44 |
% |
|
|
5.25 |
% |
Rate of compensation increases |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.00 |
% |
Bonus payment |
|
60% of base, paid 3 of 5 years |
|
60% of base, paid annually |
|
100% of base, paid annually |
The assumed discount rate is based, in part, upon a discount rate modeling process that considers
both high quality long-term indices and the duration of the SERP plan relative to the durations
implicit in the broader indices. The discount rate is utilized principally in calculating the
actuarial present value of our obligation and periodic expense pursuant to the SERP. To the extent
the discount rate increases or decreases, our SERP obligation is decreased or increased,
accordingly.
The following table presents the benefits expected to be paid in the next ten fiscal years:
|
|
|
|
|
Fiscal year |
|
|
|
|
2009 |
|
$ |
868 |
|
2010 |
|
|
653 |
|
2011 |
|
|
650 |
|
2012 |
|
|
646 |
|
2013 |
|
|
639 |
|
2014 2018 |
|
|
2,998 |
|
The following table presents the components of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
Net gain |
|
$ |
7,048 |
|
|
$ |
6,678 |
|
Prior service cost |
|
|
(11,962 |
) |
|
|
(12,919 |
) |
Tax effect |
|
|
1,720 |
|
|
|
2,184 |
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(3,194 |
) |
|
$ |
(4,057 |
) |
|
|
|
|
|
|
|
We expect to recognize $957 of the prior service cost offset by $323 of the net gain in net
periodic benefit cost for the year ending June 25, 2009.
NOTE 12 TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described in Notes 1 and 5, we also entered into
transactions with the following related parties:
We purchase materials and manufacturing equipment from a company that is effectively owned by
children of our Chairman of the Board. Two of the children are officers and directors of our
company. Purchases from this related entity aggregated $9,420, $9,772 and $9,799 for the years
ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. Accounts payable to this
related entity aggregated $430 and $358 at June 26, 2008 and June 28, 2007, respectively.
We purchase materials from a company that is 50% owned by an individual related to our Chairman of
the Board. Material purchases from this related entity aggregated $330, $784 and $682 for the years
ended June 26, 2008, June 28, 2007 and June 29, 2006, respectively. Accounts payable to this
related entity aggregated $19 and $3 at June 26, 2008 and June 28, 2007, respectively.
NOTE 13 DISTRIBUTION CHANNEL AND PRODUCT TYPE SALES MIX
We operate in a single reportable operating segment through which we sell various nut products
through multiple distribution channels.
53
The following summarizes net sales by distribution channel for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2007 |
|
|
|
|
Distribution Channel |
|
June 26, 2008 |
|
|
(as revised) |
|
|
June 29, 2006 |
|
Consumer |
|
$ |
294,021 |
|
|
$ |
276,890 |
|
|
$ |
292,890 |
|
Industrial |
|
|
92,792 |
|
|
|
111,998 |
|
|
|
131,635 |
|
Food Service |
|
|
68,132 |
|
|
|
61,763 |
|
|
|
64,356 |
|
Contract Packaging |
|
|
47,441 |
|
|
|
45,003 |
|
|
|
44,874 |
|
Export |
|
|
39,385 |
|
|
|
45,204 |
|
|
|
45,809 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
541,771 |
|
|
$ |
540,858 |
|
|
$ |
579,564 |
|
|
|
|
|
|
|
|
|
|
|
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 types.
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Type |
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
June 29, 2006 |
|
Peanuts |
|
|
20.1 |
% |
|
|
20.0 |
% |
|
|
20.1 |
% |
Pecans |
|
|
22.6 |
|
|
|
22.3 |
|
|
|
21.8 |
|
Cashews & Mixed Nuts |
|
|
20.8 |
|
|
|
21.1 |
|
|
|
22.4 |
|
Walnuts |
|
|
14.7 |
|
|
|
13.7 |
|
|
|
11.8 |
|
Almonds |
|
|
11.9 |
|
|
|
13.3 |
|
|
|
15.4 |
|
Other |
|
|
9.9 |
|
|
|
9.6 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
NOTE 14 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The following table details the activity in various allowance and reserve accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Description |
|
of Period |
|
|
Additions |
|
|
Deductions |
|
|
End of Period |
|
June 26, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
$ |
2,012 |
|
|
$ |
1,896 |
|
|
$ |
|
|
|
$ |
3,908 |
|
Allowance for doubtful accounts |
|
|
183 |
|
|
|
60 |
|
|
|
(132 |
) |
|
|
111 |
|
Reserve for cash discounts |
|
|
225 |
|
|
|
6,065 |
|
|
|
(5,980 |
) |
|
|
310 |
|
Reserve for customer deductions |
|
|
2,751 |
|
|
|
5,089 |
|
|
|
(6,044 |
) |
|
|
1,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,171 |
|
|
$ |
13,110 |
|
|
$ |
(12,156 |
) |
|
$ |
6,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
$ |
500 |
|
|
$ |
1,512 |
|
|
$ |
|
|
|
$ |
2,012 |
|
Allowance for doubtful accounts |
|
|
304 |
|
|
|
355 |
|
|
|
(476 |
) |
|
|
183 |
|
Reserve for cash discounts |
|
|
280 |
|
|
|
5,591 |
|
|
|
(5,646 |
) |
|
|
225 |
|
Reserve for customer deductions |
|
|
3,182 |
|
|
|
6,308 |
|
|
|
(6,739 |
) |
|
|
2,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,266 |
|
|
$ |
13,766 |
|
|
$ |
(12,861 |
) |
|
$ |
5,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
$ |
|
|
|
$ |
500 |
|
|
$ |
|
|
|
$ |
500 |
|
Allowance for doubtful accounts |
|
|
887 |
|
|
|
88 |
|
|
|
(671 |
) |
|
|
304 |
|
Reserve for cash discounts |
|
|
280 |
|
|
|
6,055 |
|
|
|
(6,055 |
) |
|
|
280 |
|
Reserve for customer deductions |
|
|
2,562 |
|
|
|
8,752 |
|
|
|
(8,132 |
) |
|
|
3,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,729 |
|
|
$ |
15,395 |
|
|
$ |
(14,858 |
) |
|
$ |
4,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
NOTE 15 INTEREST COST
The following is a breakout of interest cost for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008 |
|
|
June 28, 2007 |
|
|
June 29, 2006 |
|
Gross interest cost |
|
$ |
10,502 |
|
|
$ |
10,248 |
|
|
$ |
8,324 |
|
Capitalized interest |
|
|
|
|
|
|
(901 |
) |
|
|
(1,808 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
10,502 |
|
|
$ |
9,347 |
|
|
$ |
6,516 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 RESTRUCTURING AND RELATED CHARGES
On January 22, 2008 and February 1, 2008 we announced two separate restructuring initiatives to
reduce operating costs by eliminating underperforming products and the number of employees required
as a result of our facility consolidation project, which we completed in August 2008. The
initiatives focused on three primary areas:
Sales Profitability Review
We completed a sales profitability review and in connection therewith sales prices were increased
to the extent feasible with respect to certain underperforming products. In addition, as part of
this review, we discontinued approximately 1,200 products, which contributed to a decrease in our
sales volume; however, absent other considerations and influences, our overall profitability is
currently expected to increase for the near term. In order to achieve profitability for the long
term we need to, among other things, achieve profitable volume growth. We reduced our total number
of employees by approximately 80 as a result of these restructuring initiatives, which resulted in
$325 of one-time severance expense recorded in the third quarter of fiscal 2008, all of which was
paid in fiscal 2008. We anticipate no further restructuring or related charges related to the sales
profitability review initiative.
Elimination of Store-Door Delivery System
We previously distributed our products to approximately 300 convenience stores, supermarkets and
other retail customer locations through a store-door delivery system. Under this system, we used a
fleet of step-vans to market and distribute nuts, snacks and candy directly to retail customers on
a store-by-store basis. Store-door delivery sales were $2.5 million for calendar 2007 and have
declined annually in recent years as fewer customers required this type of service. We ceased
distributing products using the store-door delivery system on January 22, 2008. A majority of the
store-door delivery system sales have migrated to our other distribution methods. In connection
with the discontinuance of the store-door delivery system, we terminated nine employees. The
store-door discontinuance required us to recognize a total estimated cost of $1,400 during fiscal
2008, $1,200 of which related to the estimated cost to withdraw from a multiemployer pension plan
for the step-van drivers, $30 of which related to severance for the unionized route drivers and
$133 of which related to accelerating depreciation for step-vans and $37 of which related to the
termination of step-van leases. The multiemployer obligation, which is based on the previous
estimate calculated by the plan, will be subject to final determination with the union and is
expected to be settled sometime during fiscal year 2009. All other charges were fully settled as
of June 26, 2008.
Facility Consolidation Project
In August 2008, we completed the consolidation of all our Chicago area facilities into the New
Site. This consolidation has allowed us to eliminate redundant costs by being able to operate at a
single facility. Due to the early completion of the consolidation, we ceased the use of the
Arlington Heights facility before the lease termination date. As a result, we recorded a lease
termination charge of $173 during the second quarter of fiscal 2008. We will vacate our remaining
Elk Grove Village facility at the lease termination date at the end of August 2008.
55
The following restructuring expenses were incurred in fiscal 2008:
|
|
|
|
|
|
|
June 26, |
|
Restructuring: |
|
2008 |
|
Multiemployer pension withdrawal |
|
$ |
1,200 |
|
Severance |
|
|
355 |
|
Lease termination |
|
|
210 |
|
|
|
|
|
Total |
|
$ |
1,765 |
|
|
|
|
|
The total accrued as of June 26, 2008 was comprised of the following components:
|
|
|
|
|
|
|
June 26, |
|
Category |
|
2008 |
|
Multiemployer pension withdrawal |
|
$ |
1,200 |
|
Lease termination |
|
|
87 |
|
|
|
|
|
Total |
|
$ |
1,287 |
|
|
|
|
|
The multiemployer obligation, which is based on the previous estimate calculated by the plan, will
be subject to final determination with the union and is expected to be settled sometime during
fiscal year 2009. Lease termination obligations are expected to be fully settled by December 31,
2008.
NOTE 17 REVISION OF FISCAL 2007 FINANCIAL STATEMENTS
In September 2006, the Securities and Exchange Commission staff issued Staff Accounting
Bulletin No. 108 (SAB Topic 1N), Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (SAB 108), which outlines the
approach registrants should use to quantify misstatements in financial statements. SAB 108 changed
practice by requiring registrants to use a combination of two approaches, the rollover approach,
which quantifies a misstatement by focusing on the income statement impact, and the iron curtain
approach, which quantifies a misstatement based on the effects of correcting the period end balance
sheet. SAB 108 requires registrants to adjust their financial statements if either approach results
in a conclusion that an error is material. If the misstatement that exists after recording the
adjustment in the current year financial statements is material (considering all relevant
quantitative and qualitative factors), the prior year financial statements should be corrected,
even though such revision previously was and continues to be immaterial to the prior year financial
statements. Correcting prior year financial statements for immaterial errors does not require
previously filed reports to be amended. Such correction may be made the next time the registrant
files the prior year financial statements. SAB 108 was effective for fiscal years ending after
November 15, 2006 and it was adopted by us for the year ended June 28, 2007.
During the second quarter of fiscal 2008, we identified an overstatement of our accrued liabilities
for real estate taxes totaling $834, with $678 related to fiscal 2007. This misstatement began
during the first quarter of fiscal 2007 and increased each quarter through the first quarter of
fiscal 2008. We evaluated the effects of this misstatement on prior periods consolidated financial
statements with the guidance provided by SAB 108 and concluded that the misstatement was immaterial
both quantitatively and qualitatively considering Staff Accounting Bulletin No. 99, Materiality for
the annual and all quarterly reporting periods for fiscal 2007 and the first quarter of 2008.
However, we considered the effects of correcting this misstatement on our interim and forecasted
annual results of operations for the period ending December 27, 2007 and the year ending June 26,
2008, respectively, and concluded that it was appropriate to revise the previously issued 2007
interim and annual financial statements and first quarter 2008 interim financial statements to
reflect the correction of the misstatement. Additionally, during the fourth quarter of fiscal 2008
we identified another immaterial error that overstated fiscal 2007 sales and accounts receivable by
$520 that occurred during the second quarter of fiscal 2007 and have revised the previously issued
fiscal 2007 financial statements to reflect its correction.
56
These revisions
net to a $99 reduction to our net loss for the year ended June 29, 2007.
The impact
of both of the misstatements discussed above to the previously reported fiscal 2007
financial statements is as follows:
Statement
of Operations Year Ended June 28, 2007
|
|
|
|
|
|
|
|
|
|
|
(As reported) |
|
(As revised) |
Net sales |
|
$ |
541,378 |
|
|
$ |
540,858 |
|
Cost of sales |
|
|
500,247 |
|
|
|
499,569 |
|
Gross profit |
|
|
41,131 |
|
|
|
41,289 |
|
(Loss) from operations |
|
|
(11,279 |
) |
|
|
(11,121 |
) |
(Loss) before income taxes |
|
|
(21,255 |
) |
|
|
(21,097 |
) |
Income tax (benefit) |
|
|
(7,579 |
) |
|
|
(7,520 |
) |
Net (loss) |
|
|
(13,676 |
) |
|
|
(13,577 |
) |
Basic and diluted (loss) per common share |
|
|
(1.29 |
) |
|
|
(1.28 |
) |
|
Balance Sheet June 28, 2007 |
| |
|
|
|
|
(As reported) |
|
(As revised) |
Accounts receivable, net |
|
$ |
36,544 |
|
|
$ |
36,024 |
|
Income taxes receivable |
|
|
6,771 |
|
|
|
6,712 |
|
Total current assets |
|
|
188,692 |
|
|
|
188,113 |
|
Total assets |
|
|
367,850 |
|
|
|
367,271 |
|
Other accrued expenses |
|
|
6,096 |
|
|
|
5,418 |
|
Total current liabilities |
|
|
173,330 |
|
|
|
172,652 |
|
Retained earnings |
|
|
67,711 |
|
|
|
67,810 |
|
Total stockholders equity |
|
|
162,892 |
|
|
|
162,991 |
|
Total liabilities and stockholders equity |
|
|
367,850 |
|
|
|
367,271 |
|
|
Statement
of Cash Flows Year Ended June 28, 2007 |
| |
|
|
|
|
(As reported) |
|
(As revised) |
Net loss |
|
$ |
(13,676 |
) |
|
$ |
(13,577 |
) |
Change in current assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(1,063 |
) |
|
|
(543 |
) |
Accrued expenses |
|
|
534 |
|
|
|
(144 |
) |
Income taxes receivable |
|
|
(344 |
) |
|
|
(285 |
) |
57
NOTE 18 SUPPLEMENTARY QUARTERLY DATA (Unaudited)
The following unaudited quarterly consolidated financial data are presented for fiscal 2008 and
fiscal 2007. Quarterly financial results necessarily rely on estimates and caution is required in
drawing specific conclusions from quarterly consolidated results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Year Ended June 26, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
132,808 |
|
|
$ |
176,990 |
|
|
$ |
106,716 |
|
|
$ |
125,257 |
|
Gross profit |
|
|
11,800 |
|
|
|
23,337 |
|
|
|
12,838 |
|
|
|
18,258 |
|
(Loss) income from operations |
|
|
(1,095 |
) |
|
|
6,666 |
|
|
|
130 |
|
|
|
4,970 |
|
Net (loss) income |
|
|
(3,389 |
) |
|
|
3,517 |
|
|
|
(8,750 |
) |
|
|
2,665 |
|
Basic and diluted (loss)
earnings per common share |
|
$ |
(0.32 |
) |
|
$ |
0.33 |
|
|
$ |
(0.82 |
) |
|
$ |
0.25 |
|
Year Ended June 28, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
133,793 |
|
|
$ |
177,134 |
|
|
$ |
107,009 |
|
|
$ |
122,922 |
|
Gross profit |
|
|
5,965 |
|
|
|
18,808 |
|
|
|
6,055 |
|
|
|
10,461 |
|
(Loss) income from operations |
|
|
(5,639 |
) |
|
|
3,427 |
|
|
|
(6,032 |
) |
|
|
(2,877 |
) |
Net (loss) income |
|
|
(4,668 |
) |
|
|
1,019 |
|
|
|
(6,124 |
) |
|
|
(3,804 |
) |
Basic and diluted (loss)
earnings per common share |
|
$ |
(0.44 |
) |
|
$ |
0.10 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.36 |
) |
The first quarter of fiscal 2008 contained (i) $3.1 million of additional labor and overhead
inefficiencies over the first quarter of fiscal 2007 due to the start-up of production lines at the
our new facility in Elgin, Illinois (the New Site), (ii) $1.4 million of redundant costs at the
New Site while production continued at the old Chicago area facilities and (iii) $1.5 million in
external contractor charges to move existing machinery and equipment to the New Site. The second
quarter of fiscal 2008 contained (i) $2.9 million of additional labor and overhead inefficiencies,
(ii) $1.0 million in redundant costs and (iii) $0.5 million in external contractor charges. Also,
the second quarter of fiscal 2008 contained $1.4 million of restructuring expenses related
primarily to the discontinuance of our store-door delivery system. The third quarter of fiscal 2008
contained $6.7 million of debt extinguishment costs related to our refinancing. Also, the third
quarter of fiscal 2008 contained (i) $1.0 million of additional labor and overhead inefficiencies
over the third quarter of fiscal 2007 and (ii) $0.4 million of restructuring, related primarily to
severance due to job eliminations.
The first quarter of fiscal 2007 contained a $3.0 million gain related to real estate transactions.
Also included in the quarter were (i) a $0.6 million net downward revision to the estimate of
on-hand quantities of bulk-stored inshell pecan and walnut inventories and (ii) $1.5 million in
manufacturing expenses at the New Site before production began at the facility. The second quarter
of fiscal 2007 contained $3.0 million of manufacturing expenses at the New Site while production
was limited at the New Site. The third quarter of fiscal 2007 contained $2.5 million of redundant
manufacturing expenses as production increased at the New Site while operations continued at the
existing Chicago area facilities. The fourth quarter contained $2.2 million of such redundant costs
along with (i) $1.0 million in costs related to moving equipment to the New Site, (ii) $0.5 million
in consulting fees related to our efforts to remediate the material weakness, and (iii) $0.2
million related to credit facility waiver and amendment fees.
The information presented above reflects the revisions described in Note 17 as follows:
|
|
|
Decreased the net loss and loss per common diluted share by $153 ($0.02 per share),
$58 ($0.00 per share) and $105 ($0.01 per share) in the 2007 first quarter, third
quarter and fourth quarter, respectively. |
|
|
|
|
Decreased net income and income per common diluted share by $217 ($0.02 per share)
in the second quarter of 2007. |
|
|
|
|
Decreased the net loss and loss per common diluted share by $156 ($0.01) per share
in the first quarter of 2008. |
The revision relating to real estate taxes was reflected in our unaudited condensed consolidated
financial statement included in our quarterly reports on Form 10-Q for the quarters ended December
27, 2007 and March 27, 2008.
58
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), we conducted an evaluation of the
effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on this
evaluation, our CEO and CFO concluded that, as of June 26, 2008, our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms and is accumulated and
reported to our management, including our CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our CEO and CFO, we carried out an
evaluation of the effectiveness of our internal control over financial reporting as of June 26,
2008, based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management has concluded
that our internal control over financial reporting was effective as of June 26, 2008.
The effectiveness of our internal control over financial reporting as of June 26, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated
in their report contained in this Annual Report on Form 10-K.
Remediation of Fiscal 2007 Material Weakness
The following material weakness that was reported in our Annual Report on Form 10-K for the fiscal
year ended June 28, 2007 was remediated as of June 26, 2008:
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We did not maintain effective controls to ensure the completeness and accuracy of financial
forecast information communicated within the organization on a timely basis. Specifically,
there were insufficient financial forecast controls to ensure accurate forecasts and
adequate sharing of information between our accounting, sales and operating departments to
(i) properly assess our ability to comply with future debt covenant requirements, in order
to properly classify debt in the balance sheet and provide accurate disclosures regarding
debt covenant compliance, or (ii) forecast future cash flows or operating results for
long-lived asset impairment assessment or deferred income tax valuation allowance
consideration. Additionally, we had not established the organizational infrastructure to
properly support the financial forecast and forecast monitoring process. This control
deficiency resulted in the restatement of the 2006 consolidated financial statements,
affecting the classification of long-term debt, valuation allowance associated with state
tax net operating loss carryforwards and disclosures relating to our ability to continue as
a going concern. This control deficiency could have resulted in a misstatement of the
aforementioned account balances and disclosures that would have resulted in a material
misstatement of the annual or interim consolidated financial statements that would not have
been prevented or detected. Accordingly, we determined that this control deficiency
constituted a material weakness at June 28, 2007. |
To remediate this material weakness during fiscal 2008, we:
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Improved our organizational structure by hiring a manager of forecasting,
planning and analysis. The manager reports to the CFO and was hired during the first
quarter of fiscal 2008. This person has extensive experience in this area and is now
responsible for the development and monitoring of our forecasting procedures, under the
supervision of the CFO. |
59
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Utilized outside consultants to assist in developing our financial plan for
fiscal 2008 and fiscal 2009. |
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Developed additional procedures in financial reporting areas affected by
financial forecasts to ensure accurate forecasting and adequate sharing of information
relevant to the forecast between accounting, sales and operating departments. |
The procedures and infrastructure that we established in the first quarter of fiscal 2008 enabled
us to realize significant improvements in our forecasting processes during the remainder of fiscal
2008. As a result of the improvements established during fiscal 2008, we were able to forecast on a
timely basis with an appropriate level of completeness and accuracy our future debt covenant
compliance, perform any applicable impairment assessments and appropriately conclude on the
treatment of the tax valuation allowance. While we continue to further refine our forecasting
procedures, we have concluded that our current procedures and infrastructure have operated
effectively during the second half of fiscal 2008 and would have prevented or detected a material
misstatement of the annual or interim consolidated financial statements. We have therefore
concluded that the fiscal 2007 material weakness has been remediated as of June 26, 2008.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that occurred during the fourth
fiscal quarter ended June 26, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that the Disclosure Controls or our
Internal Control over Financial Reporting will prevent or detect all errors and all fraud. A
control, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the controls objectives will be met. Further, the design of a control must reflect
the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all internal controls, no
evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Controls can also be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls. The design of any
control is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with associated policies or procedures. Because of the
inherent limitations in a cost-effective control, misstatements due to error or fraud may occur and
not be detected.
PART III
Item 10 Directors and Executive Officers of the Registrant
The Sections entitled Nominees for Election by The Holders of Common Stock, Nominees for
Election by The Holders of Class A Stock, Section 16(a) Beneficial Ownership Reporting
Compliance and Corporate GovernanceBoard Meetings and CommitteesAudit Committee and
Corporate GovernanceIndependence of the Audit Committee of our Proxy Statement for the 2008
Annual Meeting and filed pursuant to Regulation 14A are incorporated herein by reference.
Information relating to the executive officers of our company is included immediately before Part
II of this Report.
We have adopted a Code of Ethics applicable to the principal executive, financial and accounting
officers (Code of Ethics) and a separate Code of Conduct applicable to all employees and
directors generally (Code of Conduct). The Code of Ethics and Code of Conduct are available on
our website at www.jbssinc.com.
Item 11 Executive Compensation
The Sections entitled Compensation of Directors and Executive Officers, Compensation, Discussion
& Analysis , Compensation Committee Interlocks and Insider Participation and Compensation
Committee Report of our Proxy Statement for the 2008 Annual Meeting are incorporated herein by
reference.
60
Item 12 Security Ownership of Certain Beneficial Owners and Management
The Section entitled Security Ownership of Certain Beneficial Owners and Management of our Proxy
Statement for the 2008 Annual Meeting is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions, and Director Independence
The Sections entitled Corporate GovernanceIndependence of the Board of Directors and Review of
Related Party Transactions of our Proxy Statement for the 2008 Annual Meeting are incorporated
herein by reference.
Item 14 Principal Accountant Fees and Services
The information under the proposal entitled Ratify Appointment of PricewaterhouseCoopers LLP as
Independent Registered Public Accounting Firm of our Proxy Statement for the 2008 Annual Meeting
is incorporated herein by reference.
PART IV
Item 15 Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
The following financial statements are included in Part II, Item 8 Financial Statements and
Supplementary Data:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Year Ended June 26, 2008, the Year Ended June 28,
2007 and the Year Ended June 29, 2006
Consolidated Balance Sheets as of June 26, 2008 and June 28, 2007
Consolidated Statements of Stockholders Equity for the Year Ended June 26, 2008, the Year Ended
June 28, 2007 and the Year Ended June 29, 2006
Consolidated Statements of Cash Flows for the Year Ended June 26, 2008, the Year Ended June 28,
2007 and the Year Ended June 29, 2006
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in
the Consolidated Financial Statements or Notes thereto.
(3) Exhibits
The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit
Index which follows the signature page and immediately precedes the exhibits filed.
(b) Exhibits
See Item 15(a)(3) above.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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JOHN B. SANFILIPPO & SON, INC. |
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Date: August 28, 2008
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By:
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/s/ Jeffrey T. Sanfilippo
Jeffrey T. Sanfilippo
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Chief Executive Officer |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant in the capacities and on the dates
indicated.
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Name |
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Title |
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Date |
/s/ Jeffrey T. Sanfilippo
Jeffrey T. Sanfilippo
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Chief Executive Officer
(Principal Executive Officer)
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August 28, 2008 |
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/s/ Michael J. Valentine
Michael J. Valentine
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Chief Financial Officer and Group President and Director
(Principal Financial Officer)
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August 28, 2008 |
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/s/ Herbert J. Marros
Herbert J. Marros
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Director of Financial Reporting and Taxation
(Principal Accounting Officer)
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August 28, 2008 |
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/s/ Jasper B. Sanfilippo
Jasper B. Sanfilippo
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Chairman of the Board
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August 28, 2008 |
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/s/ Mathias A. Valentine
Mathias A. Valentine
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Director
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August 28, 2008 |
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Director
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August 28, 2008 |
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/s/ Timothy R. Donovan
Timothy R. Donovan
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Director
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August 28, 2008 |
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/s/ Jasper B. Sanfilippo, Jr.
Jasper B. Sanfilippo, Jr.
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Director
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August 28, 2008 |
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/s/ Daniel M. Wright
Daniel M. Wright
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Director
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August 28, 2008 |
62
JOHN B. SANFILIPPO & SON, INC.
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
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Exhibit |
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Number |
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Description |
3.1
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Restated Certificate of Incorporation of Registrant(22) |
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3.2
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Amended and Restated Bylaws of Registrant(21) |
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4.1
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Specimen Common Stock Certificate(3) |
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4.2
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Specimen Class A Common Stock Certificate(3) |
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5-9
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Not applicable |
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10.1
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Certain documents relating to $8.0 million Decatur County-Bainbridge Industrial Development Authority
Industrial Development Revenue Bonds (John B. Sanfilippo & Son, Inc. Project) Series 1987 dated as of June 1,
1987(1) |
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10.2
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Tax Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial
public offering(2) |
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10.3
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Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial
public offering(2) |
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*10.4
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The Registrants 1998 Equity Incentive Plan(4) |
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*10.5
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First Amendment to the Registrants 1998 Equity Incentive Plan(5) |
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*10.6
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Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number One among John E.
Sanfilippo, as trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990,
Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, dated December 31, 2003(6) |
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*10.7
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Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael
J. Valentine, as trustee of the Valentine Life Insurance Trust, Mathias Valentine, Mary Valentine and
Registrant, dated December 31, 2003(6) |
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*10.8
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Amendment, dated February 12, 2004, to Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar
Insurance Agreement Number One among John E. Sanfilippo, as trustee of the Jasper and Marian Sanfilippo
Irrevocable Trust, dated September 23, 1990, Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, dated
December 31, 2003(7) |
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*10.9
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Amendment, dated February 12, 2004, to Amended and Restated John B. Sanfilippo & Son, Inc. Split-Dollar
Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust,
Mathias Valentine, Mary Valentine and Registrant, dated December 31, 2003(7) |
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10.10
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Development Agreement dated as of May 26, 2004, by and between the City of Elgin, an Illinois municipal
corporation, the Registrant, Arthur/Busse Limited Partnership, an Illinois limited partnership, and 300 East
Touhy Avenue Limited Partnership, an Illinois limited partnership(8) |
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10.11
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Agreement For Sale of Real Property, dated as of June 18, 2004, by and between the State of Illinois, acting
by and through its Department of Central Management Services, and the City of Elgin(8) |
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10.12
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Agreement for Purchase and Sale between Matsushita Electric Corporation of America and the Company, dated
December 2, 2004(9) |
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10.13
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First Amendment to Purchase and Sale Agreement dated March 2, 2005 by and between Panasonic Corporation of
North America (Panasonic), f/k/a Matsushita Electric Corporation, and the Company(10) |
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10.14
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Office Lease dated April 15, 2005 between the Company, as landlord, and Panasonic, as tenant(11) |
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10.15
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Warehouse Lease dated April 15, 2005 between the Company, as landlord, and Panasonic, as tenant(11) |
63
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Exhibit |
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Number |
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Description |
*10.16
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The Registrants Restated Supplemental Retirement Plan (18) |
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*10.17
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Form of Option Grant Agreement under 1998 Equity Incentive Plan(12) |
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10.18
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Termination Agreement dated as of January 11, 2006, by and between the City of Elgin, an Illinois municipal
corporation, the Registrant, Arthur/Busse Limited Partnership, an Illinois limited partnership, and 300 East
Touhy Avenue Limited Partnership, an Illinois limited partnership(13) |
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10.19
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Assignment and Assumption Agreement dated March 28, 2006 by and between JBSS Properties LLC and the City of
Elgin, Illinois(14) |
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10.20
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Agreement of Purchase and Sale between the Company and Prologis(15) |
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10.21
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Lease Agreement between the Company, as Tenant, and Palmtree Acquisition Corporation, as Landlord for
property at 3001 Malmo Drive, Arlington Heights, Illinois(16) |
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10.22
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Lease Agreement between the Company, as Tenant, and Palmtree Acquisition Corporation, as Landlord for
property at 1851 Arthur Avenue, Elk Grove Village, Illinois(16) |
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10.23
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Agreement for Purchase of Real Estate and Related Property by and among the Company, as Seller, and
Arthur/Busse Limited Partnership and 300 East Touhy Limited Partnership, as Purchasers(17) |
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10.24
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Industrial Building Lease by and between the Company, as Tenant, and Arthur/Busse Limited Partnership and 300
East Touhy Limited Partnership, as Landlord, dated September 20, 2006(17) |
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*10.25
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Sanfilippo Value Added Plan dated October 24, 2007(19) |
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10.26
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Credit Agreement dated as of February 7, 2008, by and among the Company, the financial institutions named
therein as lenders, Wells Fargo Foothill, LLC, (WFF) as the arranger and administrative agent for the
lenders and Wachovia Capital Finance Corporation (Central), in its capacity as documentation
agent(20) |
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10.27
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Security Agreement dated as of February 7, 2008, by the Company in favor of WFF, as administrative agent for
the lenders(20) |
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10.28
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Loan Agreement dated as of February 7, 2008, by and between the Company and Transamerica Financial Life
Insurance Company (TFLIC)(20) |
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10.29
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Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of February 7, 2008,
made by the Company related to its Elgin, Illinois property for the benefit of TFLIC(20) |
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10.30
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Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of February 7, 2008,
made by JBSS Properties LLC related to its Elgin, Illinois property for the benefit of TFLIC(20) |
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10.31
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Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of
February 7, 2008, made by the Company related to its Gustine, California property for the benefit of
TFLIC(20) |
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10.32
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Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of
February 7, 2008, made by the Company related to its Garysburg, North Carolina property for the benefit of
TFLIC(20) |
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10.33
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Promissory Note (Tranche A) dated February 7, 2008, in the principal amount of $36.0 million executed by the
Company in favor of TFLIC(20) |
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10.34
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Promissory Note (Tranche B) dated February 7, 2008, in the principal amount of $9.0 million executed by the
Company in favor of TFLIC(20) |
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11-20
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Not applicable |
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21
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Subsidiaries of the Registrant, filed herewith |
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22
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Not applicable |
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23
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Consent of PricewaterhouseCoopers LLP, filed herewith |
64
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Exhibit |
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Number |
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Description |
24 -30
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Not applicable |
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31.1
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Certification of Jeffrey T. Sanfilippo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended,
filed herewith |
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31.2
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Certification of Michael J. Valentine pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended,
filed herewith |
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32.1
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Certification of Jeffrey T. Sanfilippo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith |
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32.2
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Certification of Michael J. Valentine pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith |
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33-100
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Not applicable |
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(1) |
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Incorporated by reference to the Registrants Registration Statement on Form S-1,
Registration No. 33-43353, as filed with the Commission on October 15, 1991 (Commission File
No. 0-19681). |
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(2) |
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Incorporated by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (Commission File No. 0-19681). |
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(3) |
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Incorporated by reference to the Registrants Registration Statement on Form S-1
(Amendment No. 3), Registration No. 33-43353, as filed with the Commission on November 25,
1991 (Commission File No. 0-19681). |
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(4) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
first quarter ended September 24, 1998 (Commission File No. 0-19681). |
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(5) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
second quarter ended December 28, 2000 (Commission File No. 0-19681). |
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(6) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
second quarter ended December 25, 2003 (Commission File No. 0-19681). |
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(7) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
third quarter ended March 25, 2004 (Commission File No. 0-19681). |
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(8) |
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Incorporated by reference to the Registrants Annual Report on Form 10-K for the fiscal
year ended June 24, 2004 (Commission File No. 0-19681). |
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(9) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated
December 2, 2004 (Commission File No. 0-19681). |
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(10) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated March 2,
2005 (Commission File No. 0-19681). |
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(11) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated April
15, 2005 (Commission File No. 0-19681). |
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(12) |
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Incorporated by reference to the Registrants Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 (Commission File No. 0-19681). |
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(13) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
second quarter ended December 29, 2005 (Commission File No. 0-19681). |
65
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(14) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated March
28, 2006 (Commission File No. 0-19681). |
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(15) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated May 11,
2006 (Commission File No. 0-19681). |
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(16) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated July 14,
2006 (Commission File No. 0-19681). |
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(17) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated
September 20, 2006 (Commission File No. 0-19681). |
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(18) |
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Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 28, 2007 (Commission File No. 0-19681). |
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(19) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated October 24,
2007 (Commission File No. 0-19681). |
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(20) |
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Incorporated by reference to the Registrants Current Report on Form 8-K dated February 7,
2008 (Commission File No. 0-19681). |
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(21) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the first
quarter ended September 27, 2007 (Commission File No. 0-19681). |
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(22) |
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Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the third
quarter ended March 24, 2005 (Commission File No. 0-19681). |
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* |
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Indicates a management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c). |
66