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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 29, 2002
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number:0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
As of July 19, 2002, there were 8,873,270 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets - June 29, 2002
(unaudited) and September 29, 2001 3
Consolidated Statements of Earnings - Three
Months and Nine Months Ended June 29, 2002
and June 30, 2001 (unaudited) 5
Consolidated Statements of Cash Flows - Three
Months and Nine Months Ended June 29, 2002
and June 30, 2001 (unaudited) 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 29, September 29,
2002 2001
(Unaudited)
Current assets
Cash and cash equivalents $ 5,427 $ 7,437
Accounts receivable 40,930 37,018
Inventories 24,644 21,749
Prepaid expenses and other 1,630 1,197
72,631 67,401
Property, plant and equipment,
at cost
Land 756 756
Buildings 5,456 5,456
Plant machinery and
equipment 85,230 85,312
Marketing equipment 168,760 164,381
Transportation equipment 831 796
Office equipment 6,590 7,420
Improvements 15,255 15,182
Construction in progress 2,296 120
285,174 279,423
Less accumulated deprecia-
tion and amortization 190,259 174,667
94,915 104,756
Other assets
Goodwill, less accumulated
amortization 45,850 45,850
Other intangible assets,
less accumulated
amortization 1,617 1,848
Long term investment
securities held to
maturity 785 1,515
Sundry 2,804 3,111
51,056 52,324
$218,602 $224,481
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND June 29, September 29,
STOCKHOLDERS' EQUITY 2002 2001
Current liabilities
Current maturities of
long-term debt $ 112 $ 115
Accounts payable 28,170 24,515
Accrued liabilities 14,997 16,047
43,279 40,677
Long-term debt, less
current maturities 6,302 28,368
Deferred income taxes 9,228 9,228
Other long-term liabilities 160 65
15,690 37,661
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000,000
shares; none issued - -
Common, no par value;
authorized 25,000
shares; issued and
outstanding, 8,868
and 8,636, respectively 32,361 29,421
Accumulated other comprehen-
sive loss (1,767) (1,641)
Retained earnings 129,039 118,363
159,633 146,143
$218,602 $224,481
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Nine months ended
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
Net Sales $109,561 $100,970 $272,652 $247,847
Cost of goods sold 64,198 61,269 169,507 156,389
Gross profit 45,363 39,701 103,145 91,458
Operating expenses
Marketing 23,416 19,723 56,940 50,847
Distribution 6,980 6,624 19,073 18,740
Administrative 3,353 3,109 10,282 9,489
Amortization of
goodwill - 653 - 1,960
Other general
(income)expense 9 (75) 123 (220)
33,758 30,034 86,418 80,816
Operating income 11,605 9,667 16,727 10,642
Other income (deductions)
Investment income 42 84 184 255
Interest expense (80) (749) (486) (2,453)
Other - 170 - 210
Earnings before
income taxes 11,567 9,172 16,425 8,654
Income taxes 4,049 3,394 5,749 3,202
NET EARNINGS $ 7,518 $ 5,778 $ 10,676 $ 5,452
Earnings per
diluted share $.80 $.65 $1.16 $ .63
Weighted average number
of diluted shares 9,401 8,891 9,213 $ 8,700
Earnings per
basic share $.85 $.68 $1.22 $ .64
Weighted average number
of basic shares 8,840 8,540 8,730 8,463
See accompanying notes to the consolidated financial statements
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Nine months ended
June 29, June 30,
2002 2001
Operating activities:
Net earnings $10,676 $ 5,452
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 23,086 22,499
Amortization of goodwill,
intangibles and deferred costs 558 2,512
Other adjustments 250 126
Changes in assets and liabilities,
net of effects from purchase of
companies
Increase in accounts receivable (4,058) (4,474)
Increase in inventories (2,738) (4,014)
Increase in prepaid expenses (433) (614)
Increase in accounts payable
and accrued liabilities 3,027 7,100
Net cash provided by operating
activities 30,368 28,587
Investing activities:
Purchase of property, plant
and equipment (13,724) (12,875)
Payments for purchases of
companies, net of cash
acquired and debt assumed - (11,330)
Proceeds from investments
held to maturity 730 70
Other 71 (385)
Net cash used in investing
activities (12,923) (24,520)
Financing activities:
Proceeds from issuance of stock 2,614 1,769
Proceeds from borrowings 24,000 13,000
Payments to repurchase common stock - (1,400)
Payments of long-term debt (46,069) (13,055)
Net cash (used in) provided by
financing activities (19,455) 314
Net (decrease)increase in cash
and cash equivalents (2,010) 4,381
Cash and cash equivalents at
beginning of period 7,437 1,379
Cash and cash equivalents at
end of period $ 5,427 $ 5,760
See accompanying notes to the consolidated financial statements
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position and the results of
operations and cash flows. Certain prior year amounts have
been reclassified to conform to the current period
presentation. These reclassifications had no effect on
reported net earnings.
The results of operations for the three months and nine months
ended June 29, 2002 and June 30, 2001 are not necessarily
indicative of results for the full year. Sales of the
Company's retail stores are generally higher in the first
quarter due to the holiday shopping season. Sales of the
Company's frozen beverages and frozen juice bars and ices are
generally higher in the third and fourth quarters due to warmer
weather.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is
suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and
the notes included in the Company's Annual Report on Form 10-K
for the year ended September 29, 2001.
Note 2 The Company recognizes revenue from snack food and frozen
beverage products at the time the products are shipped to third
parties. When the Company performs services under its service
contracts for frozen beverage dispenser machines, revenue is
recognized upon the completion of the services on specified
machines.
Note 3 Depreciation of equipment and buildings is provided for by the
straight-line method over the assets' estimated useful lives.
Note 4 The Company's calculation of earnings per share in accordance
with SFAS No. 128, "Earnings Per Share," is as follows:
7
Three Months Ended June 29, 2002
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 7,518 8,840 $.85
Effect of Dilutive Securities
Options - 561 (.05)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $ 7,518 9,401 $.80
Nine Months Ended June 29, 2002
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $10,676 8,730 $1.22
Effect of Dilutive Securities
Options - 483 (.06)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $10,676 9,213 $1.16
8
Three Months Ended June 30, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $5,778 8,540 $.68
Effect of Dilutive Securities
Options - 351 (.03)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $5,778 8,891 $.65
Nine Months Ended June 30, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $5,452 8,463 $.64
Effect of Dilutive Securities
Options - 237 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $5,452 8,700 $.63
Note 5 Inventories consist of the following:
June 29, September 29,
2002 2001
(in thousands)
Finished goods $12,170 $ 9,965
Raw materials 2,926 2,509
Packaging materials 3,333 3,146
Equipment parts & other 6,215 6,129
$24,644 $21,749
9
Note 6 Using the guidelines set forth in SFAS No. 131, the Company has
three reportable segments: Snack Foods, Restaurant Group and
Frozen Beverages. These segments are described below. The
segments are managed as strategic business units due in part,
but not limited to, their distinct production processes and
capital requirements.
Snack Foods
The primary products sold to the snack foods group are soft
pretzels, frozen juice treats and desserts, churros and bakery
products. The Company's customers in the snack foods group
include snack bars and food stands in chain, department and
discount stores, retail supermarkets, malls and shopping
centers; fast food outlets; stadiums and sports arenas; leisure
and theme parks; convenience stores; movie theatres; warehouse
club stores; schools, colleges and other institutions. Within
the snack foods group, the Company's products are purchased by
the consumer primarily for consumption at the point-of-sale and
at home.
Restaurant Group
The Company sells direct to the public through its restaurant
group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL
GOURMET, our chain of specialty snack food retail outlets.
Frozen Beverages
The Company markets frozen beverages to the foodservice
industry primarily under the names ICEE and ARCTIC BLAST in the
United States, Mexico and Canada.
The Company evaluates each segment's performance based on
operating income, excluding corporate and other unallocated
expenses. Information regarding the operations in these
reportable segments is as follows:
10
Three Months Ended Nine Months Ended
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
(in thousands)
Sales to External Customers:
Snack Foods $ 72,402 $ 66,492 $183,010 $166,488
Restaurant Group 2,379 2,686 8,319 9,467
Frozen Beverages 34,780 31,792 81,323 71,892
$109,561 $100,970 $272,652 $247,847
Depreciation and Amortization(1):
Snack Foods $ 3,310 $ 3,454 $ 10,193 $ 10,356
Restaurant Group 166 225 526 656
Frozen Beverages 4,319 4,134 12,925 12,038
$ 7,795 $ 7,813 $ 23,644 $ 23,050
Operating Income (loss):
Snack Foods $ 5,747 $ 5,195 $ 13,964 $ 11,177
Restaurant Group (353) (494) (835) (681)
Frozen Beverages 6,211 5,619 3,598 2,106
$ 11,605 $ 10,320 $ 16,727 $ 12,602
Capital Expenditures:
Snack Foods $ 4,656 $ 2,497 $ 7,788 $ 5,128
Restaurant Group 50 35 115 264
Frozen Beverages 1,774 3,749 5,821 7,483
$ 6,480 $ 6,281 $ 13,724 $ 12,875
Assets:
Snack Foods $124,603 $130,478 $124,603 $130,478
Restaurant Group 2,904 4,558 2,904 4,558
Frozen Beverages 91,095 97,950 91,095 97,950
$218,602 $232,986 $218,602 $232,986
(1) 2001 depreciation and amortization excludes
amortization expense associated with goodwill.
Note 7 On September 30, 2001, the Company adopted Statement of
Financial Accounting Standards No. 142 "Goodwill and
Intangible Assets" (SFAS 142). SFAS 142 includes requirements
to test goodwill and indefinite lived intangible assets for
impairment rather than amortize them; accordingly, the Company
no longer amortizes goodwill, thereby eliminating an annual
amortization charge of approximately $2,600,000.
11
The Company's three reporting units, which are also reportable
segments, are Snack Foods, Restaurant Group and Frozen
Beverages. Each of the segments have goodwill and indefinite
lived intangible assets.
The carrying amount of acquired intangible assets for the Snack Foods
and Frozen Beverage segments as of June 29, 2002 are as follows:
Gross Carrying Accumulated
Amount Amortization
(in thousands)
Snack Foods
Amortized intangible assets
Licenses and rights $2,066 $547
Restaurant Group
Amortized Intangible Assets
Licenses and rights $ 20 $ 18
Frozen Beverages
Amortized intangible assets
Licenses and rights $ 201 $105
Licenses and rights are being amortized by the straight-line
method over periods ranging from 4 to 20 years and amortization expense
is reflected throughout operating expenses. There were no changes in
the gross carrying amount of intangible assets for the three and nine
months ended June 29, 2002. Additionally, the Company did not record
any transition intangible asset impairment loss upon adoption of SFAS
142. Aggregate amortization expense of intangible assets for the three
months ended June 29, 2002 and June 30, 2001 was $78,000 and $109,000,
respectively and for the nine months ended June 29, 2002 and June 30,
2001 was $231,000 and $158,000, respectively.
Estimated amortization expense for the next five fiscal years is
approximately $300,000 in 2002, 2003 and 2004, $200,000 in 2005 and
$150,000 in 2006.
Goodwill
The carrying amounts of goodwill for the Snack Foods, Restaurant
Group and Frozen Beverage segments are as follows:
12
Snack Restaurant Frozen
Foods Group Beverages Total
(in thousands)
Balance at June 29, 2002 $14,241 $438 $31,171 $45,850
There were no changes in the carrying amount of goodwill for the
three and nine months ended June 29, 2002.
The Company has completed documentation of its transitional
goodwill impairment tests and has not recorded any transitional goodwill
impairment loss as a result of its adoption of SFAS 142.
Reported net income for the three and nine months ended June 29,
2002 and June 30, 2001, exclusive of amortization expense that is
related to goodwill that is no longer being amortized, would have been:
For the Three For the Nine
Months EndedMonths Ended
June June June June
29, 30, 29, 30,
2002 2001 2002 2001
($000's except for earnings
per share amounts)
Reported net earnings $7,518 $5,778 $10,676 $5,452
Add back:Goodwill amortization - 412 - 1,235
Adjusted net earnings $7,518 $6,190 $10,676 $6,687
Basic earnings per share:
Reported net earnings $ .85 $ .68 $ 1.22 $ .64
Goodwill amortization - .04 - .15
Adjusted net earnings $ .85 $ .72 $ 1.22 $ .79
Diluted earnings per share:
Reported net earnings $ .80 $ .65 $ 1.16 $ .63
Goodwill amortization - .05 - .14
Adjusted net earnings $ .80 $ .70 $ 1.16 $ .77
13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's current cash and marketable securities balances and
cash expected to be provided by future operations are its primary
sources of liquidity. The Company believes that these sources, along
with its borrowing capacity, are sufficient to fund future growth and
expansion.
In the three months ended June 29, 2002 and June 30, 2001,
fluctuations in the valuation of the Mexican peso caused a decrease of
$235,000 and an increase of $86,000, respectively, in stockholders'
equity because of the revaluation of the net assets of the Company's
Mexican frozen beverage subsidiary. In the nine month periods, there
was a decrease of $126,000 in fiscal year 2002 and an increase of
$80,000 in fiscal year 2001.
In November 2000, the Company acquired the assets of Uptown
Bakeries for cash. Uptown Bakeries, located in Bridgeport, NJ, is a
fresh bakery products manufacturer with approximately $17,000,000 in
annual sales.
In December 2001, the Company refinanced its general-purpose bank
credit line. The new agreement provides for a $50,000,000 revolving
credit facility repayable in three years, with the availability of
repayments without penalty. The new agreement contains restrictive
covenants and requires commitment fees in accordance with standard
banking practice. The outstanding balance under the new facility was
$6,000,000 at June 29, 2002.
In December 2001, the Company borrowed $5,000,000 on its general-
purpose bank credit line to pay off early its $5,000,000 7.25%
redeemable economic development revenue bond payable December 2005.
Results of Operations
Net sales increased $8,591,000 or 9% for the three months and
$24,805,000 or 10% to $272,652,000 for the nine months ended June 29,
2002 compared to the same periods ended June 30, 2001. Excluding sales
resulting from the acquisition of Uptown Bakeries, sales increased
approximately 9% for the nine month period compared to a year ago.
14
SNACK FOODS
Sales to foodservice customers increased $3,328,000 or 7% in the
third quarter to $51,074,000 and increased
$12,397,000 or 10% for the nine months. Excluding sales resulting from
acquisitions, sales would have increased 8% for the nine months. Soft
pretzel sales to the foodservice market increased 13% to $16,516,000 in
the third quarter and 10% to $49,434,000 in the nine months due
primarily to increased sales of PRETZEL FILLERS and GOURMET TWISTS.
Excluding sales resulting from acquisitions, foodservice soft pretzel
sales would have increased 9% in the nine month period. Sales of bakery
products increased $704,000 or 5% in the third quarter to $16,164,000
and increased $6,233,000 or 15% for the nine months due to increased
unit sales across our customer base and the acquisition of Uptown
Bakeries. Frozen juice bars and ices sales increased 5% to $13,087,000
in the three months and increased 7% to $24,694,000 in the nine month
period. Churro sales to foodservice customers increased 9% to
$3,346,000 in the third quarter and 6% to $9,320,000 in the nine months.
Sales of products to retail supermarkets increased
$2,582,000 or 14% to $21,328,000 in the third quarter and 9% to
$48,108,000 in the nine months. Soft pretzel sales of $5,765,000 for
the quarter and $20,749,000 for the nine months were essentially
unchanged from the year ago periods. Sales of our flagship SUPERPRETZEL
brand soft pretzels increased less than 1% for both periods. Sales of
frozen juices and ices increased $2,562,000 or 19% to $15,853,000 in the
third quarter and $4,086,000 or 17% to $27,531,000 in the nine months
primarily due to new product introductions and increased consumer
demand.
The increases in sales throughout the SNACK FOODS segment were
primarily the result of changes in unit volume.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 11% to $2,379,000 in the
third quarter and 12% to $8,319,000 for the nine month period. The
sales decreases were caused primarily by decreased mall traffic and the
closing of unprofitable stores.
FROZEN BEVERAGES
Frozen beverage and related product sales increased $2,988,000
or 9% to $34,780,000 in the third quarter and $9,431,000 or 13% to
$81,323,000 in the nine months. Beverage sales alone decreased 1%
to $27,497,000 in the
15
third quarter and increased 3% to $62,606,000 for the nine months.
Service revenue increased 89% to $4,808,000 in the third quarter and 78%
to $11,080,000 in the nine months.
CONSOLIDATED
Gross profit as a percentage of sales increased to 41% and 38% in
the current year's three and nine month periods, respectively, from 39%
and 37% in the corresponding periods last year primarily due to
efficiencies resulting from higher volume.
Total operating expenses increased $3,724,000 in the third quarter
and as a percentage of sales increased to 31% from 30% in last year's
same quarter. For the nine months, operating expenses increased
$5,602,000 and as a percentage of sales decreased to 32% from 33% last
year. Marketing expenses increased to 21% of sales in the third quarter
from 20% last year and were 21% of sales in both years' nine month
periods. The increase in marketing expenses as a percentage of sales was
primarily caused by increased trade spending for sales of products to
retail supermarkets. Distribution expenses decreased less than 1/4 of 1
percent of sales in the third quarter to 6% of sales and decreased about
1/2 of 1 percent of sales to 7% in the nine months. Administrative
expenses as a percent of sales were 3% for the third quarter in both
years and 4% for the nine months in both years.
Operating income increased $1,938,000 or 20% to $11,605,000 in the
third quarter and $6,085,000 or 57% to $16,727,000 in the nine months.
For the three and nine months, interest expense decreased $669,000
and $1,967,000, respectively, due to reduced debt and lower levels of
interest rates.
The effective income tax rate has been estimated at 35% for this
years' periods and 37% for 2001 periods.
Net earnings increased $1,740,000 or 30% in the three month period
to $7,518,000 and increased $5,224,000 or 96% in the nine months to
$10,676,000.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment
of its sensitivity to market risk since its presentation set
forth, in item 7a. "Quantitative and Qualitative Disclosures
About Market Risk," in its 2001 annual report on Form 10-K
filed with the SEC.
17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - There were no reports on Form 8-K for
the three months ended June 29, 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: July 24, 2002 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: July 24, 2002 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
19