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

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

The sales growth the Company has achieved in recent years has continued through the fiscal year to date, and in particular in the third quarter. Net sales increased 19.8% to $120.0 million in the third quarter of fiscal 2005 from $100.2 million in the third quarter of fiscal 2004 due mainly to higher average selling prices. Net sales increased 10.4% to $437.6 million for the first thirty-nine weeks of fiscal 2005 compared to the same period in the prior fiscal year. Net income rose to $2.1 million versus $1.6 million for the third quarter of fiscal 2004, driven primarily by the increase in net sales over this period. However, while sales increased during the first thirty-nine weeks of fiscal 2005, the Company's net income has declined over this period to $11.0 million compared to $19.2 million for the prior year period.

The Company faces a number of challenges as it works to continue its recent growth. For example, as a reult of recent increases in the cost of most major nut types, the Company must continue working to ensure that the selling prices for its products are both competitive and lead to favorable profit margins. In addition, the Company's Chicago area processing facilities operate at full capacity at certain times during the year. If the Company experiences growth in unit volume sales, it could exceed its capacity to meet the demand for its products, especially prior to the completion of the facility consolidation project. Throughout the process of the facility consolidation project, the Company faces potential disruptive effects on its business, such as cost overruns for the construction of the new facility or business interruptions that may result from the transfer of production to the new facility. In addition, the Company will continue to face the ongoing challenges of its business such as food safety and regulatory issues, commodity cost pressures, the antitrust investigation of a portion of the peanut shelling industry and the maintenance and growth of its customer base. See "Factors That May Affect Future Results."

The fiscal year to date increase in net sales occurred across all distribution channels, as the Company achieved a 1% increase in consumer sales, a 27% increase in food service sales, a 17% increase in industrial sales, a 41% increase in contract packaging sales and a 19% increase in export sales. Sales in the consumer distribution channel increased by just 1.3%, primarily because the extensive promotional activity for Fisher peanut products with a major customer in the first half of fiscal 2004 did not recur in the first half of fiscal 2005. Consumer sales also increased only slightly because the Company elected to forego low margin business with two other customers that it sold to in the first thirty- nine weeks of fiscal 2004 due to the customers' unwillingness to accept higher prices. The overall sales increase in the first thirty-nine weeks of fiscal 2005 was due to higher average selling prices, driven by increased costs for most major nut types. Total pounds shipped increased by 1.5% in the third quarter of fiscal 2005 when compared to the third quarter of fiscal 2004, and decreased 1.3% in the first thirty-nine weeks of fiscal 2005 when compared to the first thirty-nine weeks of fiscal 2004.

The increase in net income in the third quarter of fiscal 2005 to $2.1 million versus $1.6 million in the third quarter of fiscal 2004 is mainly attributable to higher sales resulting from higher average selling prices during the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004.

Gross profit margin decreased to 13.3% for the third quarter of fiscal 2005 from 14.5% for the third quarter of fiscal 2004. The decrease in net income to $11.0 million for the first thirty-nine weeks of fiscal 2005 compared to $19.2 million for the first thirty-nine weeks of fiscal 2004 was caused primarily by reductions in gross profit margin to 13.2% for the first thirty-nine weeks of fiscal 2005 compared to 18.4% for the first thirty-nine weeks of fiscal 2004 for reasons described below.

Almond sales had a negative impact on the Company's profitability during the first twenty-six weeks of fiscal 2005, particularly during the first quarter of fiscal 2005. The Company was required to purchase almonds in the spot market during the first quarter of fiscal 2005 to fulfill its industrial sales contracts, as its supply of higher quality and lower cost almonds purchased from growers during the 2003 crop year was exhausted. Additionally, the final settlement cost to growers for the 2003 crop year, which was determined during the first quarter of fiscal 2005, was higher than anticipated. During the second quarter of fiscal 2005, the Company completed deliveries on the majority of industrial sales contracts that were priced based on prior crop year costs. Industrial almond sales during the third quarter of fiscal 2005 were priced in line with expected 2004 crop year costs.

Pecan sales also had a negative impact on the Company's profitability during the second and third quarters of fiscal 2005 as the cost of pecans increased dramatically. The unit cost of inshell pecans for the current crop year has almost doubled from the unit cost for the prior crop year. The Company had to fulfill remaining industrial sales contracts during the second quarter of fiscal 2005. Since these contracts were priced based on costs from the prior crop year, the Company absorbed negative margins on these sales and recorded a $0.8 million adjustment during the second quarter of fiscal 2005 to recognize losses on future shipments of outstanding contract balances at December 23, 2004. The remaining balances on these contracts were shipped during the third quarter of fiscal 2005, and generated no gross profit. All new contracts are being priced based on current crop costs. Pecan sales in the consumer distribution channel also had a negative effect on the Company's profitability during the second and third quarters of fiscal 2005 because significant increases in pecan costs could not be passed on immediately to all customers; however, all price increases were instituted by January 2005.

The Company's business is seasonal. Demand for peanut and other nut products is highest during the months of October, November and December. Peanuts, pecans, walnuts, almonds and cashews, the Company's principal raw materials, are purchased primarily during the period from August to February and are processed throughout the year. As a result of this seasonality, the Company's personnel and working capital requirements peak during the last four months of the calendar year. This seasonality also impacts capacity utilization at the Company's Chicago area facilities, as these facilities are routinely operating at full capacity for the last four months of the calendar year.

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

This facility consolidation project is anticipated to achieve two primary objectives. First, the consolidation is intended to generate cost savings through the elimination of redundant costs and improvements in manufacturing efficiencies. Second, the new facility is expected to initially increase production capacity by 25% to 40% and would provide more square footage than the aggregate space now available in the Company's existing Chicago area facilities to support future growth in the Company's business.

As an initial step in the facility consolidation project, the Company and certain related party partnerships entered into a Development Agreement (the "Development Agreement") with the City of Elgin, Illinois for the development and purchase of the land where a new facility could be constructed (the "Original Site"). The Development Agreement is subject to certain conditions, including but not limited to the completion of environmental and asbestos remediation procedures, the inclusion of the property in the Elgin enterprise zone and the establishment of a tax incremental financing district covering the property. The Company has paid $4.0 million in connection with the purchase of this land. Total expenditures at the Original Site were $6.3 million as of March 24, 2005. This amount is included as Other Assets on the Company's balance sheet as of March 24, 2005.

Subsequent to entering into the Development Agreement, the Company became aware of an existing property for sale (the "Current Site") that is preferable to the site in the Development Agreement. The Current Site is preferable for a number of reasons, including the presence of an existing structure. Although this structure will be expanded and upgraded to meet the Company's needs, the Current Site allows for an earlier project completion date, provides more certainty as to the project's total cost and provides more acreage than the site in the Development Agreement. On April 15, 2005, the Company closed on the $48.0 million purchase of the Current Site with the final $46.0 million paid using available funds under the Bank Credit Facility. The Current Site includes both an office building and a warehouse. The Company is leasing 41.5% of the office building back to the seller for a three year period, with options for an additional seven years. The remaining portion of the office building may be leased to third parties. The 653,302 square foot warehouse is being leased back to the seller through May 31, 2005, at which time the Company intends to begin its plans for expanding and modifying the warehouse. 75,000 of the 653,302 square feet is being leased back to the seller through September 1, 2005.

The Company intends to continue to develop the Original Site in conjunction with the Current Site. The Company's total required investment in the Original Site is estimated to be approximately $8 million, including $6.3 million which has already been paid. The Company intends to recover its investment in the Original Site from the subsequent sale of the site. The Company has not yet begun the process of marketing the site or identifying potential buyers.

In order to finance a portion of the Company's facility consolidation project and to provide for the Company's general working capital needs, the Company received $65 million pursuant to a note purchase agreement (the "Note Agreement") entered into on December 16, 2004 with various lenders. Under the terms of the Note Agreement, the notes have a maturity of ten years, bear interest at a fixed 4.67% annual rate and are required to be repaid in equal semi-annual principal payments of $3.6 million beginning on June 1, 2006. The proceeds from this financing were used to reduce the Company's outstanding obligations under the Bank Credit Facility in order to fund the procurement of inventories during the third quarter of fiscal 2005 and the $48 million purchase of the Elgin, Illinois site to be used for the Company's facility consolidation project, which closed on April 15, 2005.

The Company currently plans to begin its expansion and modification at the warehouse building at the Current Site in June 2005. It is anticipated that the project will take three years for the facility to be fully placed in service. The Company estimates the total cost of the facility consolidation project to be between $90 and $100 million ($48 million of which was paid to acquire the Current Site), excluding the cost of developing the Original Site, which would be financed through a combination of the proceeds received through the Note Agreement, proceeds from the sale of existing facilities, rental income from lease arrangements with the seller and potential third parties, available cash flow from operations and additional borrowings under the Company's Bank Credit Facility. Although the Company believes the new facility would be accretive within two years after completing construction, there can be no assurances as to the timing or the impact on the Company's net income. See "Factors That May Affect Future Results -- Risks and Uncertainties Regarding Facility Consolidation Project."

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

Total inventories were $244.6 million at March 24, 2005, an increase of $117.2 million, or 91.9%, over the balance at June 24, 2004, and an increase of $92.4 million, or 60.8%, over the balance at March 25, 2004. The increase over June 24, 2004 is due primarily to the normal procurement of nuts in the first and second quarters of the Company's fiscal year. The increase over March 25, 2004 is due primarily to greater purchases of almonds in the current crop year compared to the previous crop year and generally higher costs for all tree nuts, particularly pecans and almonds. Net accounts receivable were $34.9 million at March 24, 2005, an increase of approximately $1.2 million, or 3.5%, over the balance at June 24, 2004, and an increase of $3.1 million, or 9.7%, over the balance at March 25, 2004. The increase over March 25, 2004 is due primarily to higher monthly sales in March 2005 than in March 2004.

The Company's fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). Fiscal 2005, however, will contain fifty-three weeks, with the fourth quarter containing fourteen weeks. References herein to fiscal 2005 are to the fiscal year ending June 30, 2005. References herein to fiscal 2004 are to the fiscal year ended June 24, 2004. As used herein, unless the context otherwise indicates, the terms "Company" and "JBSS" refer collectively to John B. Sanfilippo & Son, Inc. and its previously wholly-owned subsidiary, JBS International, Inc., which was dissolved in November 2004.

Net Sales. Net sales increased to $120.0 million for the third quarter of fiscal 2005 from $100.2 million for the third quarter of fiscal 2004, an increase of $19.8 million, or 19.8%. Net sales increased to $437.6 million for the first thirty-nine weeks of fiscal 2005 from approximately $396.3 million for the first thirty-nine weeks of fiscal 2004, an increase of $41.3 million, or 10.4%. The overall increase in net sales, for both the quarterly and year-to-date periods, was due primarily to higher prices related to higher commodity costs, especially for almonds and pecans. The total pounds shipped increased by 1.5% in the third quarter of fiscal 2005 when compared to the third quarter of fiscal 2004, and decreased by 1.3% in the first thirty-nine weeks of fiscal 2005 when compared to the first thirty-nine weeks of fiscal 2004.

Unit volume sales for the third quarter of fiscal 2005, when compared to the third quarter of fiscal 2004, increased in all of the Company's distribution channels with the exception of the industrial distribution channel. Unit volume sales for the first thirty-nine weeks of fiscal 2005, when compared to the first thirty-nine weeks of fiscal 2004, decreased in the consumer and industrial distribution channels and increased in the food service, contract packaging and export distribution channels. Sales in the consumer distribution channel increased for the quarterly period due primarily to higher peanut sales to a major customer. For the year-to-date period, sales in the consumer distribution channel increased just 1%, due primarily to lower promotional activity for Fisher peanut products at a major customer during the first half of fiscal 2005 and lost business with customers that would not accept price increases. Sales in the food service distribution channel increased, for both the quarterly and year-to-date periods, due primarily to higher airline sales, and, to a lesser extent, a general price increase across all major nut types. Sales in the contract packaging distribution channel increased significantly for both the quarterly and year-to-date periods, due primarily to the introduction of new products and expansion of business with a major customer. Sales in the export

distribution channel increased, for both the quarterly and year-to-date periods, due primarily to higher walnut sales. Sales in the industrial distribution channel decreased, for both the quarterly and year-to-date periods, due primarily to lower peanut sales as fiscal 2004 contained non-recurring significant sales of peanuts to other peanut shellers.

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

                               Quarter Ended               Thirty-nine Weeks Ended
                       ------------------------------   ------------------------------
Distribution Channel   March 24, 2005  March 25, 2004   March 24, 2005  March 25, 2004
--------------------   --------------  --------------   --------------  --------------
Consumer                   $ 56,496        $ 48,485         $230,152        $227,187
Industrial                   27,802          24,397           96,564          82,479
Food Service                 14,264          11,469           43,358          34,203
Contract Packaging           10,910           8,148           32,525          23,015
Export                       10,507           7,663           35,049          29,432
                           --------        --------         --------        --------
Total                      $119,979        $100,162         $437,648        $396,316
                           ========        ========         ========        ========

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

                       Quarter Ended                Thirty-nine Weeks Ended
               ------------------------------   ------------------------------
Product Type   March 24, 2005  March 25, 2004   March 24, 2005  March 25, 2004
------------   --------------  --------------   --------------  --------------
Peanuts               26.1%           28.0%            22.3%           25.1%
Pecans                20.9            17.3             24.3            20.9
Cashews &
 Mixed Nuts           20.4            21.2             22.7            22.4
Walnuts                8.3             8.2              9.7            10.4
Almonds               16.3            15.6             12.5            11.7
Other                  8.0             9.7              8.5             9.5
                     -----           -----            -----           -----
Total                100.0%          100.0%           100.0%          100.0%
                     =====           =====            =====           =====

Gross Profit. Gross profit for the third quarter of fiscal 2005 increased 10.1% to $15.9 million from $14.5 million for the third quarter of fiscal 2004. Gross profit margin decreased, however, to 13.3% for the third quarter of fiscal 2005 from 14.5% for the third quarter of fiscal 2004. Gross profit for the first thirty-nine weeks of fiscal 2005 decreased 20.5% to $57.9 million from $72.8 million for the first thirty-nine weeks of fiscal 2004. Gross profit margin decreased to 13.2% for the first thirty-nine weeks of fiscal 2005 from 18.4% for the first thirty-nine weeks of fiscal 2004. The decrease in gross margin for the quarterly period was due primarily to shipments on remaining industrial pecan contracts that were priced based on the crop costs for the prior year. While the Company recorded a reserve of $0.8 million for these contracts at the end of the second quarter of fiscal 2005, the ultimate shipments on these contracts generated zero gross profit when shipped during the third quarter of fiscal 2005. Other contributing factors to the decline include (i) higher tree nut costs that were not passed on to customers in the consumer distribution channel until January 2005; (ii) a reserve of $0.4 million established in the third quarter of fiscal 2005 for obsolete packaging material; and (iii) contract packaging sales, which generally carry lower margins than the Company's overall margins, accounting for a higher percentage of net sales in the third quarter of fiscal 2005 than in the third quarter of fiscal 2004. The decrease in gross margin for the thirty-nine week period was also due to (i) a significant increase in the cost of almonds purchased in the spot market during the first quarter of fiscal 2005; (ii) unfavorable almond processing variances generated from the use of low quality almonds that were required to be purchased during the first quarter of fiscal 2005 to fulfill customer contracts; and (iii) a higher than expected final settlement with almond growers for the 2003 crop. Gross margins were further negatively impacted to a lesser extent by a lower than expected yield on walnuts shelled

during the first quarter of fiscal 2005. Also, the gross margin in the first quarter of fiscal 2004 benefited from a sizeable gain in pecan shelling that did not occur in the first quarter of fiscal 2005.

Selling and Administrative Expenses. Selling and administrative expenses increased to $11.6 million, or 9.6% of net sales, for the third quarter of fiscal 2005 from $11.1 million, or 11.1% of net sales, for the third quarter of fiscal 2004. Selling and administrative expenses decreased to $38.3 million, or 8.8% of net sales, for the first thirty- nine weeks of fiscal 2005 from $38.9 million, or 9.8% of net sales, for the first thirty-nine weeks of fiscal 2004. Selling expenses increased slightly to $8.6 million, or 7.1% of net sales, for the third quarter of fiscal 2005 from $8.5 million, or 8.5% of net sales, for the third quarter of fiscal 2004. Selling expenses increased slightly to $29.3 million, or 6.7% of net sales, for the first thirty-nine weeks of fiscal 2005 from $28.4 million, or 7.2% of net sales, for the first thirty-nine weeks of fiscal 2004. The dollar increase in selling expenses, for both the quarterly and year-to-date periods, was due primarily to higher distribution expenses which were partially offset by lower incentive compensation costs. Administrative expenses increased to $3.0 million, or 2.5% of net sales, for the third quarter of fiscal 2005 from $2.6 million, or 2.6% of net sales, for the third quarter of fiscal 2004. This quarterly increase was due mainly to (i) higher professional fees related to corporate governance and (ii) higher bank fees related to the increase in available funds under the Company's bank credit facility along with higher fee rates under the facility due to the Company's higher debt level. Administrative expenses decreased to $9.0 million, or 2.1% of net sales, for the first thirty-nine weeks of fiscal 2005 from $10.5 million, or 2.7% of net sales, for the first thirty-nine weeks of fiscal 2004. This decrease was due primarily to lower employee incentive compensation expense attributable to lower operating results

Income from Operations. Due to the factors discussed above, income from operations increased to $4.4 million, or 3.6% of net sales, for the third quarter of fiscal 2005, from approximately $3.4 million, or 3.4% of net sales, for the third quarter of fiscal 2004. Income from operations decreased to $19.5 million, or 4.5% of net sales, for the first thirty-nine weeks of fiscal 2005, from approximately $33.9 million, or 8.5% of net sales, for the first thirty-nine weeks of fiscal 2004.

Interest Expense. Interest expense increased to $1.3 million for the third quarter of fiscal 2005 from $1.0 million for the third quarter of fiscal 2004. This increase was due primarily to the Company's issuance on December 16, 2004, of $65.0 million of ten year notes bearing interest at a fixed rate of 4.67% under the Note Agreement to fund a portion of the Company's facility consolidation project and for general working capital purposes. Interest expense decreased to $2.0 million for the first thirty-nine weeks of fiscal 2005 from $2.8 million for the first thirty-nine weeks of fiscal 2004. The decrease in interest expense for the year-to-date period was due primarily to lower average debt levels attributable to debt prepaid with proceeds from the Company's stock offering which was completed in the fourth quarter of fiscal 2004.

Income Taxes. Income tax expense was $1.3 million, or 39.0% of income before income taxes for the third quarter of fiscal 2005 compared to $1.0 million, or 39.0% of income before income taxes, for the third quarter of fiscal 2004. Income tax expense was $7.1 million, or 39.0% of income before income taxes for the first thirty-nine weeks of fiscal 2005 compared to $12.3 million, or 39.0% of income before income taxes, for the first thirty-nine weeks of fiscal 2004.

Net Income. Net income was $2.1 million, or $0.19 basic and diluted per common share, for the third quarter of fiscal 2005, compared to $1.6 million, or $0.17 basic per common share ($0.16 diluted), for the third quarter of fiscal 2004. Net income was $11.0 million, or $1.04 basic per common share ($1.03 diluted), for the first thirty-nine weeks of fiscal 2005, compared to $19.2 million, or $2.05 basic per common share ($2.01 diluted), for the first thirty-nine weeks of fiscal 2004

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

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

Net cash used in operating activities was $82.3 million for the first thirty-nine weeks of fiscal 2005 compared to $2.8 million for the first thirty-nine weeks of fiscal 2004. The increase in cash used in operating activities was due primarily to increased inventory levels due primarily to (i) a 91.9% increase in the weighted average unit cost to acquire inshell pecans due to a small domestic crop size for the 2004 crop year and increased demand for pecans; (ii) a 49.5% increase in the weighted average unit cost to acquire almonds due to increased demand for almonds; and (iii) a 49.5% increase in the number of pounds of almonds purchased. The Company expects to generate positive cash flows from operating activities for the fourth quarter of fiscal 2005 as the procurement of nuts for the 2004 crop year has completed. The Company expects that cash flows from operating activities and available funds under the Bank Credit Facility will be sufficient to finance the Company's operations for the foreseeable future.

The Company received $65.0 of proceeds from the Note Agreement during the second quarter of fiscal 2005, accounting for a significant increase in cash provided by financing activities. These proceeds were used, in part, to fund the procurement of inventories during the third quarter of fiscal 2005. The Company repaid $0.8 million of long-term debt during the first thirty-nine weeks of fiscal 2005 compared to $9.7 million in fiscal 2004. The significant decrease is due to the Company prepaying outstanding balances on its two major long-term credit facilities in the fourth quarter of fiscal 2004 with proceeds from an underwritten public stock offering.

The Company's bank credit facility (the "Bank Credit Facility") is comprised of (i) a working capital revolving loan which provides working capital financing of up to $73.1 million, in the aggregate, and matures, as amended, on May 31, 2006, and (ii) a $6.9 million letter of credit (the "IDB Letter of Credit") to secure the industrial development bonds described below which matures on June 1, 2006. On March 7, 2005, the bank credit facility was amended, whereby the working capital revolving loan provides an additional $25.0 million of financing through June 30, 2005. Borrowings under the working capital revolving loan accrue interest at a rate (the weighted average of which was 4.83% at March 24, 2005) determined pursuant to a formula based on the agent bank's quoted rate and the Eurodollar Interbank rate. As of March 24, 2005 the Company had $61.9 million of available credit under the Bank Credit Facility. On April 15, 2005, the Company completed its acquisition of the Current Site with $46.0 million paid at closing with available funds under the Bank Credit Facility.

The terms of the Bank Credit Facility, as amended, include certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) limit the Company's annual capital expenditures; and (iii) require that Jasper B. Sanfilippo (the Company's Chairman of the Board and Chief Executive Officer) and Mathias
A. Valentine (a director and the Company's President) together with their respective immediate family members and certain trusts created for the benefit of their respective sons and daughters, continue to own

shares representing the right to elect a majority of the directors of the Company. In addition, the Bank Credit Facility limits dividends to the lesser of (a) 25% of net income for the previous fiscal year, or (b) $5.0 million, and prohibits the Company from redeeming shares of capital stock. As of March 24, 2005, the Company was in compliance with all restrictive covenants, as amended, under the Bank Credit Facility.

On December 16, 2004, the Company received $65.0 million from the Note Agreement to fund a portion of the facility consolidation project and for general working capital purposes. Under the terms of the Note Agreement, the notes have a maturity of ten years, bear interest at a 4.67% annual rate and are required to be repaid in equal semi-annual principal payments of $3.6 million beginning on June 1, 2006. As of March 24, 2005, the outstanding balance on the Note Agreement was $65.0 million.

The terms of the Note Agreement include certain restrictive covenants that, among other things, require the Company to maintain specified financial ratios. These covenants coincide with those included in the Bank Credit Facility. As of March 24, 2005, the Company was in compliance with all restrictive covenants under the Note Agreement.

As of March 24, 2005, the Company had approximately $6.5 million in aggregate principal amount of industrial development bonds outstanding, which was originally used to finance the acquisition, construction and equipping of the Company's Bainbridge, Georgia facility. The bonds bear interest payable semiannually at 4.00% (which was reset on June 1, 2002) through May 2006. On June 1, 2006, and on each subsequent interest reset date for the bonds, the Company is required to redeem the bonds at face value plus any accrued and unpaid interest, unless a bondholder elects to retain his or her bonds. Any bonds redeemed by the Company at the demand of a bondholder on the reset date are required to be remarketed by the underwriter of the bonds on a "best efforts" basis. Funds for the redemption of bonds on the demand of any bondholder are required to be obtained from the following sources in the following order of priority: (i) funds supplied by the Company for redemption;
(ii) proceeds from the remarketing of the bonds; (iii) proceeds from a drawing under the IDB Letter of Credit; or (iv) in the event funds from the foregoing sources are insufficient, a mandatory payment by the Company. Drawings under the IDB Letter of Credit to redeem bonds on the demand of any bondholder are payable in full by the Company upon demand of the lenders under the Bank Credit Facility. In addition, the Company is required to redeem the bonds in varying annual installments, ranging from approximately $0.3 million in fiscal 2005 to approximately $0.8 million in fiscal 2017. The Company is also required to redeem the bonds in certain other circumstances; for example, within 180 days after any determination that interest on the bonds is taxable. The Company has the option, subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any.

The Company spent $6.9 million on capital expenditures not related to facility expansion costs in the first thirty-nine weeks of fiscal 2005 compared to $5.0 million in the first thirty-nine weeks of fiscal 2004. Facility expansion costs totaled $8.2 million during the first thirty- nine weeks of fiscal 2005, of which $5.8 million relate to the Original Site and $2.4 million to the Current Site. Total capital expenditures for fiscal 2005 are expected to be between $10 million and $12 million, excluding any amounts for the planned facility consolidation project.

The Company currently plans to begin the facility consolidation project at the Current Site in June 2005. On April 15, 2005, the Company paid $46.0 million to close on the Company's acquisition of the Current Site with available funds under the Bank Credit Facility. It is anticipated that the project will take three years to be fully placed in service. The Company estimates the total cost of the project to be between $90 and $100 million, including the cost of moving existing operations and investment in new equipment. In addition, the Company also expects to spend up to an additional $2 million to develop the Original Site, bringing the total investment in the Original Site to approximately $8 million. The Company intends to

recover its investment in the Original Site from the subsequent sale of the site.

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

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

The availability and cost of raw materials for the production of the Company's products, including peanuts, pecans, almonds, walnuts and other nuts are subject to crop size and yield fluctuations caused by factors beyond the Company's control, such as weather conditions, plant diseases and changes in government programs. Additionally, the supply of edible nuts and other raw materials used in the Company's products could be reduced upon any determination by the United States Department of Agriculture ("USDA") or other government agencies that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by aflatoxin or other agents. If worldwide demand for nuts continues at recent rates, and supply does not expand to meet demand, a reduction in availability and an increase in the cost of raw materials would occur. This type of increase was experienced during the last half of fiscal 2004 and during the first thirty-nine weeks of fiscal 2005 for most of the Company's major nut types. The Company does not hedge against changes in commodity prices, and thus, shortages in the supply of and increases in the prices of nuts and other raw materials used by the Company in its products (to the extent that cost increases cannot be passed on to customers) could have an adverse impact on the Company's profitability. Furthermore, fluctuations in the market prices of nuts may affect the value of the Company's inventories and profitability. The Company has significant inventories of nuts that would be adversely affected by any decrease in the market price of such raw materials. See "Introduction".

The Company operates in a highly competitive environment. The Company's principal products compete against food and snack products manufactured and sold by numerous regional and national companies, some of which are substantially larger and have greater resources than the Company, such as Planters and Ralcorp Holdings, Inc. The Company also competes with other shellers in the industrial market and with regional processors in the retail and wholesale markets. In order to maintain or increase its market share, the Company must continue to price its products competitively, which may lower revenue per unit and cause declines in gross margin, if the Company is unable to increase unit volumes as well as reduce its costs.

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

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

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

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

The Company's future success will be largely dependent on the personal efforts of its senior operating management team, including Michael J. Valentine, the Company's Executive Vice President Finance, Chief Financial Officer and Secretary, Jeffrey T. Sanfilippo, the Company's Executive Vice President Sales and Marketing, and Jasper B. Sanfilippo, Jr., the Company's Executive Vice President of Operations, which has assumed management of the day-to-day operation of the Company's business over the past two years. In addition, the Company's success depends on the talents of James M. Barker, Senior Vice President Sales and Marketing, Everardo Soria, Senior Vice President Pecan Operations and Procurement, Walter R. Tankersley, Jr., Senior Vice President Industrial Sales, Charles M. Nicketta, Senior Vice President of Manufacturing and Arthur L. Timp, Senior Vice President of Corporate Operations. The Company believes that the expertise and knowledge of these individuals in the industry, and in their respective fields, is a critical factor to the Company's continued growth and success. The Company has not entered into an employment agreement with any of these individuals, nor does the Company have key officer insurance coverage policies in effect. The loss of the services of any of these individuals could have a material adverse effect on the Company's business and prospects if the Company were unable to identify a suitable candidate to replace any such individual. The Company's success is also dependent upon its ability to attract and retain additional qualified marketing, technical and other personnel, and there can be no assurance that the Company will be able to do so.

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

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

-- delays and cost overruns in the construction of and equipment for the new facility are possible and could offset other cost savings expected from the consolidation;

-- the facility consolidation project is likely to have a negative impact on the Company's earnings during the construction period;

-- the proceeds the Company receives from selling or renting its existing facilities may be less than it expects, and the timing of the receipt of those proceeds may be later than the Company has planned;

-- the facility consolidation project may not eliminate as many redundant processes as the Company presently anticipates;

-- the Company may not realize the expected increase in demand for its products necessary to justify additional production capacity created by the facility consolidation;

-- the Company may have problems or unexpected costs in transferring equipment or obtaining new equipment;

-- the Company may not be able to transfer production from its existing facilities to the new facility without a significant interruption in its business;

-- moving the Company's facilities to a new location may cause attrition in its personnel at levels that result in a significant interruption in its operations, and the Company expects to incur additional annual compensation costs of approximately $300,000 to facilitate the retention of certain of its key personnel while the facility consolidation project is in process;

-- the Company may be required to fund a portion of the facility consolidation project through additional financing, which may be at rates less favorable than its current credit facilities;

-- the Company may not receive the anticipated rental income for the unused portion of the Current Site; and

-- the Company may not be able to recover its investment in the Original Site.

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

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

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

-- increased governmental ownership and regulation of the economy;

-- 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;

-- potential for contractual defaults or forced renegotiations on purchase contracts with limited legal recourse;

-- tariffs and other barriers to trade that may reduce the Company's profitability; and

-- civil unrest and significant political instability.

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

From time to time, the Company enters into fixed price commitments with its customers. Such commitments represented approximately 15% to 20% of the Company's annual net sales in fiscal 2004, and in many cases are entered into after the Company's cost to acquire the nut products necessary to satisfy the fixed price commitment is substantially fixed. The commitments are for a fixed period of time, typically one year, but may be extended if remaining balances exist. The Company expects to continue to enter into fixed price commitments with respect to certain of its nut products prior to fixing its acquisition cost in order to maintain customer relationships or when, in management's judgment, market or crop harvest conditions so warrant. To the extent the Company does so, however, these fixed price commitments may result in reduced gross profit margins that have a material adverse effect on the Company's results of operations. The Company's results of operations were adversely affected during the last half of fiscal 2004 and the first quarter of fiscal 2005 as outside purchases of almonds and pecans were required to fulfill obligations under fixed-price contracts. The Company's results of operations were also negatively impacted during the second and third quarters of fiscal 2005 as 2004 crop tree nuts (at higher costs) were used to fulfill remaining balances on contracts that were priced using 2003 crop costs.

The Company purchases its nut inventories from growers and farmers in large quantities at harvest times, which are primarily during the second and third quarters of the Company's fiscal year, and receives nut shipments in bulk truckloads. The weights of these nuts are measured using truck scales at the time of receipt, and inventories are recorded on the basis of those measurements. The nuts are then stored in bulk in large warehouses to be shelled or processed throughout the year. Bulk- stored nut inventories are relieved on the basis of continuous high- speed bulk weighing systems as the nuts are shelled or processed or on the basis of calculations derived from the weight of the shelled nuts that are produced. While the Company performs various procedures to confirm the accuracy of its bulk-stored nut inventories, these inventories are estimates that must be periodically adjusted to account for positive or negative variations, and such adjustments directly affect earnings. The precise amount of the Company's bulk-stored nut inventories is not known until the entire quantity of the particular nut is depleted, which may not necessarily occur every year. Prior crop year inventories may still be on hand as the new crop year inventories are purchased. There can be no assurance that such inventory quantity adjustments will not have a material adverse effect on the Company's results of operations in the future.

The events of September 11, 2001 reinforced the need to enhance the security of the United States. Congress responded in part by passing the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the "Bioterrorism Act"). The Bioterrorism Act includes a number of provisions to help guard against the threat of bioterrorism, including new authority for the Secretary of Health and Human Services ("HHS") to take action to protect the nation's food supply against the threat of international contamination. The Food and Drug Administration ("FDA"), as the food regulatory arm of HHS, is responsible for developing and implementing these food safety measures, which fall into four broad categories: (i) registration of food facilities, (ii) establishment and maintenance of records regarding the sources and recipients of foods,
(iii) prior notice to FDA of imported food shipments and (iv) administrative detention of potentially affected foods. FDA has issued rules in each of these categories, which rules generally took effect on December 12, 2003. There can be no assurances that the effects of the Bioterrorism Act and the related rules, including any potential disruption in the Company's supply of imported nuts, which represented approximately 33% of the Company's total nut purchases in fiscal 2004, will not have a material adverse effect on the Company's business, financial position or results of operations in the future.

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

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 123R, "Share-Based Payment" ("SFAS 123R"), which requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of the compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.

SFAS 123R replaces FASB Statement No. 123, "Accounting for Stock Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R is effective for the Company's first quarter of fiscal 2006. The Company is currently evaluating the impact that the adoption of SFAS 123R will have on its consolidated financial position, results of operations and cash flows.

In November, 2004, the FASB issued Statement No. 151, "Inventory Costs"("SFAS 151") an amendment of ARB No. 43, Chapter 4. SFAS 151 clarifies the accounting for abnormal amounts of the idle facility expense, freight, handling costs and wasted material (spoilage). SFAS 151 is effective for the Company's first quarter of fiscal 2006. The Company is currently evaluating the impact that the adoption of SFAS 151 will have on its consolidated financial position, results of operations and cash flows