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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 28, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway
Pennsauken, New Jersey 08109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (856-665-9533)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value: None None
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's 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 [ ]
As of December 9, 2002, the latest practicable date, 8,904,680 shares of
the Registrant's common stock were issued and outstanding. The aggregate
market value of shares held by non-affiliates of the Registrant on such date
was $244,563,300 based on the last price on that date of $37.50 per share,
which is an average of bid and asked prices.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2002 Annual Report to Shareholders for the fiscal
year ended September 28, 2002 and Proxy Statement for its Annual Meeting
of Shareholders to be held on February 6, 2003 are incorporated herein
by reference into Parts I, II, III and IV as set forth herein.
J & J SNACK FOODS CORP.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1 Business . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . 10
Item 3 Legal Proceedings. . . . . . . . . . . . . . 11
Item 4 Submission Of Matters To A Vote Of Security
Holders. . . . . . . . . . . . . . . . . . . 11
Executive Officers Of The Registrant . . . . 12
PART II
Item 5 Market For Registrant's Common Equity And
Related Stockholder Matters. . . . . . . . . 13
Item 6 Selected Financial Data. . . . . . . . . . . 13
Item 7 Management's Discussion And Analysis Of Finan-
cial Condition And Results Of Operations . . 13
Item 7a Quantitative And Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . 14
Item 8 Financial Statements And Supplementary Data. 15
Item 9 Changes In And Disagreements With Accountants
On Accounting And Financial Disclosure . . . 15
PART III
Item 10 Directors And Executive Officers Of The
Registrant . . . . . . . . . . . . . . . . . 16
Item 11 Executive Compensation . . . . . . . . . . . 16
Item 12 Security Ownership Of Certain Beneficial
Owners And Management. . . . . . . . . . . . 16
Item 13 Certain Relationships And Related Transactions 16
Item 14 Controls and Procedures. . . . . . . . . . . 16
PART IV
Item 15 Exhibits, Financial Statement Schedules And
Reports On Form 8-K. . . . . . . . . . . . . 18
Item 1. Business
General
J & J Snack Foods Corp. (the ''Company'' or ''J & J'') manufactures
nutritional snack foods and distributes frozen beverages which it
markets nationally to the food service and retail supermarket
industries. Its principal snack food products are soft pretzels
marketed primarily under the brand name SUPERPRETZEL and frozen juice
treats and desserts marketed primarily under the LUIGI'S, ICEE and
MINUTE MAID* brand names. J & J believes it is the largest manufacturer
of soft pretzels in the United States, Mexico and Canada. Other snack
food products include churros (an Hispanic pastry), funnel cake, popcorn
and bakery products. The Company's principal frozen beverage product is
ICEE brand frozen carbonated beverage.
The Company's Food Service and Frozen Beverages sales are made
primarily to food service customers including snack bar and food stand
locations in leading chain, department, discount, warehouse club and
convenience stores; malls and shopping centers; fast food outlets;
stadiums and sports arenas; leisure and theme parks; movie theatres;
independent retailers; and schools, colleges and other institutions.
The Company's retail supermarket customers are primarily supermarket
chains. The Company's restaurant group sells direct to the public
through its chains of specialty snack food retail outlets, BAVARIAN
PRETZEL BAKERY and PRETZEL GOURMET, located primarily in the Mid-
Atlantic States.
The Company was incorporated in 1971 under the laws of the State
of New Jersey.
The Company operates in four business segments: Food Service,
Retail Supermarkets, The Restaurant Group and Frozen Beverages. These
segments are described below.
The Chief Operating Decision Maker for Food Service, Retail
Supermarkets and The Restaurant Group and the Chief Operating Decision
Maker for Frozen Beverages monthly review and evaluate operating income
and sales in order to assess performance and allocate resources to each
individual segment. In addition, the Chief Operating Decision Makers
review and evaluate depreciation, capital spending and assets of each
segment on a quarterly basis to monitor cash flow and asset needs of
each segment.
*Minute Maid is a registered trademark of The Coca-Cola
Company
1
Food Service
The primary products sold by the food service segment are soft
pretzels, frozen juice treats and desserts, churros and baked goods.
Our customers in the food service industry include snack bars and food
stands in chain, department and discount stores; 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 food service
industry, our products are purchased by the consumer primarily for
consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket industry are
soft pretzel products - including SUPERPRETZEL - LUIGI's Real Italian
Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, ICEE Squeeze Up
Tubes and TIO PEPE'S Churros. Within the retail supermarket industry,
our frozen and prepackaged products are purchased by the consumer for
consumption at home.
The Restaurant Group
We sell direct to the public through our Restaurant Group, which
operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of
specialty snack food retail outlets.
Frozen Beverages
We sell frozen beverages to the food service industry primarily
under the names ICEE and ARCTIC BLAST in the United States, Mexico and
Canada.
Products
Soft Pretzels
The Company's soft pretzels are sold under many brand names; some
of which are: SUPERPRETZEL, PRETZEL FILLERS, GOURMET TWISTS, MR.
TWISTER, SOFT PRETZEL BITES, SOFTSTIX, SOFT PRETZEL BUNS, HOT KNOTS,
DUTCH TWIST, TEXAS TWIST and SANDWICH TWIST and; to a lesser extent,
under private labels. Soft pretzels are sold in the Food Service, Retail
Supermarket and The Restaurant Group segments. Soft pretzel sales
amounted to 28% of the Company's revenue in fiscals 2002 and 2001.
The Company's soft pretzels qualify under USDA regulations as the
nutritional equivalent of bread for purposes of the USDA school lunch
program, thereby enabling
2
a participating school to obtain partial reimbursement of the cost of
the Company's soft pretzels from the USDA.
The Company's soft pretzels are manufactured according to a
proprietary formula. Soft pretzels, ranging in size from one to ten
ounces in weight, are shaped and formed by the Company's proprietary
twister machines. These soft pretzel tying machines are automated, high
speed machines for twisting dough into the traditional pretzel shape.
Additionally, we make soft pretzels which are extruded or shaped by
hand. Soft pretzels, after processing, are primarily quick-frozen in
either raw or baked form and packaged for delivery.
The Company's principle marketing program in the Food Service
segment includes supplying ovens, mobile merchandisers, display cases,
warmers and similar merchandising equipment to the retailer to prepare
and promote the sale of soft pretzels. Some of this equipment is
proprietary, including combination warmer and display cases that
reconstitute frozen soft pretzels while displaying them, thus
eliminating the need for an oven. The Company retains ownership of the
equipment placed in customer locations and, as a result, customers are
not required to make an investment in equipment.
Frozen Juice Treats and Desserts
The Company's frozen juice treats and desserts are marketed under
the LUIGI'S, ICEE, MINUTE MAID, SHAPE-UPS, CHILL and MAMA TISH'S brand
names. Frozen juice treats and desserts are sold in the Food Service and
Retail Supermarkets segments. Frozen juice treat and dessert sales were
18% and 17% of the Company's revenue in fiscal years 2002 and 2001,
respectively.
The Company's SHAPE-UPS and MINUTE MAID frozen juice and fruit
bars are manufactured from an apple juice base to which water,
sweeteners, coloring (in some cases) and flavorings are added. The
juice bars contain two to three ounces of apple or pear juice and the
minimum daily requirement of vitamin C, and qualify as reimbursable
items under the USDA school lunch program. The juice bars are produced
in various flavors and are packaged in a sealed push-up paper container
referred to as the Milliken M-pak, which the Company believes has certain
sanitary and safety advantages.
LUIGI'S Real Italian Ice and MAMA TISH'S Italian Ice and Sorbets
are manufactured from water, sweeteners and
3
fruit juice concentrates in various flavors and are packaged in plastic
cups and in squeeze up tubes.
ICEE Squeeze Tubes are designed to capture the carbonated frozen
taste of a traditional ICEE drink. They are packaged in three and four
ounce squeeze up tubes.
MINUTE MAID soft frozen lemonade and fruit and cream swirl are
packaged in squeeze up tubes and cups.
Churros
The Company's frozen churros are sold primarily under the TIO
PEPE'S brand name. Churros are sold to the Food Service and Retail
Supermarkets segments. Churro sales were 4% of the Company's sales in
both fiscals 2002 and 2001, respectively. Churros are Hispanic donuts
in stick form which the Company produces in several sizes according to a
proprietary formula. The churros are deep fried, frozen and packaged.
At food service point-of-sale they are reheated and topped with a
cinnamon sugar mixture. The Company also sells fruit and creme filled
churros. The Company supplies churro merchandising equipment similar to
that used for its soft pretzels.
Bakery Products
The Company's bakery products are marketed under the MRS.
GOODCOOKIE, CAMDEN CREEK BAKERY and PRETZEL COOKIE brane names, and
under private labels. Bakery products include primarily cookies,
muffins and donuts. Bakery products are sold to the Food Service
segment. Bakery products sales amounted to 18% of the Company's sales
in fiscals 2002 and 2001.
Frozen Beverages
The Company markets frozen beverages primarily under the names
ICEE and ARCTIC BLAST in the United States, Mexico and Canada.
Additional frozen beverages are SMOOTHEE by ICEE, JAVA FREEZE and
CALIFORNIA NATURAL. Frozen beverages are sold in the Food Service, The
Restaurant Group and Frozen Beverages segments. Frozen beverage sales
amounted to 26% of revenue in fiscal 2002 and 28% of revenue in fiscal
2001.
Under the Company's principle marketing program, it installs
frozen beverage dispensers at customer locations and thereafter services
the machines, arranges to supply customers with ingredients required for
production of the frozen beverages, and supports customer retail sales
efforts
4
with in-store promotions and point-of-sale materials. In most cases,
the Company retains ownership of its dispensers and, as a result,
customers are not required to make an investment in equipment or arrange
for the ingredients and supplies necessary to produce and market the
frozen beverages. In fiscal 1999 the Company began providing
installation and maintenance service only to a large quick service
restaurant and others, which resulted in the increase of Customer Owned
beverage dispensers beginning in 1999. The Company also provides managed
service and sells equipment in its Frozen Beverages segment.
Each new customer location requires a frozen beverage dispenser
supplied by the Company or by the customer. Company supplied frozen
carbonated dispensers are purchased from outside vendors, built new or
rebuilt by the Company at an approximate cost of $6,000 each.
The Company provides managed service and/or products to
approximately 37,000 Company owned and customer owned dispensers.
The Company has the rights to market and distribute frozen
beverages under the name ICEE to all the Continental United States,
except for portions of eleven states.
Other Products
Other products sold by the Company include soft drinks, funnel
cakes sold under the FUNNEL CAKE FACTORY brand name, popcorn sold under
the AIRPOPT brand name and smaller amounts of various other food
products. These products are sold in the Food Service, The Restaurant
Group and Frozen Beverages segments.
Customers
The Company sells its products to two principal customer groups:
food service and retail supermarkets. The primary products sold to the
food service group are soft pretzels, frozen beverages, frozen juice
treats and desserts, churros and baked goods. The primary products
sold to the retail supermarket industry are soft pretzels and frozen
juice treats and desserts. Additionally, the Company sells soft
pretzels, frozen beverages and various other food products direct to the
public through its restaurant group, which operates BAVARIAN PRETZEL
BAKERY and
PRETZEL GOURMET, our chain of specialty snack food retail outlets.
The Food Service, The Restaurant Group and the Frozen Beverages
segments sell primarily to the food service
5
industry. The Retail Supermarkets segment sells to the retail
supermarket industry.
The Company's customers in the food service industry include snack
bars and food stands in chain, department and mass merchandising stores
such as Kmart, Wal-Mart and Target; malls and shopping centers; fast
food outlets; stadiums and sports arenas; leisure and them parks such as
Disneyland, Walt Disney World, Universal Studios, Sea World, Six Flags,
Hershey Park and Busch Gardens; convenience stores such as 7-Eleven,
Circle K, AM/PM and Wawa; movie theatres; warehouse club stores such as
Sam's Club, Costco and B.J.'s; schools, colleges and other institutions;
and independent retailers such as Mrs. Fields. Food service
concessionaires purchasing soft pretzels and other products from the
Company for use in sports arenas and for institutional meal services
include ARAMARK, Sodexho and Delaware North. Machines and machine parts
are sold to other food and beverage companies. Within the food service
industry, the Company's products are purchased by the consumer primarily
for consumption at the point-of-sale.
Sales to certain of our chain, department and mass merchandising
customers decreased in 2002 and are expected to decline further in 2003
as a result of store closings and other factors affecting their
operations.
The Company sells its products to over 90% of supermarkets in the
United States. Products sold to retail supermarket customers are
primarily soft pretzel products, including SUPERPRETZEL, LUIGI'S Real
Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, ICEE
Squeeze Up Tubes and TIO PEPE'S churros. Within the retail supermarket
industry, the Company's frozen and prepackaged products are purchased by
the consumer for consumption at home.
Marketing and Distribution
The Company has developed a national marketing program for its
products. For Food Service and Frozen Beverages segments' customers,
this marketing program includes providing ovens, mobile merchandisers,
display cases, warmers, frozen beverage dispensers and other
merchandising equipment for the individual customer's requirements and
point-of-sale materials as well as participating in trade shows and in-
store demonstrations. The Company's ongoing advertising and promotional
campaigns for its Retail Supermarket segment's products include trade
shows, newspaper advertisements with coupons, in-store demonstrations,
billboards and, periodically, television advertisements.
6
The Company develops and introduces new products on a routine
basis. The Company evaluates the success of new product introductions
on the basis of sales levels, which are reviewed no less frequently than
monthly by the Company's Chief Operating Decision Makers.
The Company's products are sold through a network of about 150
food brokers and over 1,000 independent sales distributors and the
Company's own direct sales force. For its snack food products, the
Company maintains warehouse and distribution facilities in Pennsauken,
Bellmawr and Bridgeport, New Jersey; Vernon (Los Angeles), California;
Scranton, Pittsburgh, Hatfield and Lancaster, Pennsylvania; Carrollton
(Dallas), Texas; and Solon, Ohio. Frozen beverages are distributed from
94 Company managed warehouse and distribution facilities located in 41
states, Mexico and Canada which allow the Company to directly service
its customers in the surrounding areas. The Company's products are
shipped in refrigerated and other vehicles from the Company's
manufacturing and warehouse facilities on a fleet of Company operated
tractor-trailers, trucks and vans, as well as by independent carriers.
Seasonality
The Company's sales are seasonal because frozen beverage sales and
frozen juice treats and desserts sales are generally higher during the
warmer months and sales of the Company's retail stores are generally
higher in the Company's first quarter during the holiday shopping
season.
Trademarks and Patents
The Company has numerous trademarks, the most important of which
are SUPERPRETZEL, DUTCH TWIST, TEXAS TWIST, MR. TWISTER, SOFT PRETZEL
BITES and SOFTSTIX for its pretzels products; FROSTAR, SHAPE-UPS,
MAZZONE'S, MAMA TISH'S and LUIGI'S for its frozen juice treats and
desserts; TIO PEPE'S for its churros; ARCTIC BLAST for its frozen
beverages; FUNNEL CAKE FACTORY for its funnel cake products, and MRS.
GOODCOOKIE and CAMDEN CREEK for its bakery products. The trademarks,
when renewed and continuously used, have an indefinite term and are
considered important to the Company as a means of identifying its
products.
The Company markets frozen beverages under the trademark ICEE in
all of the continental United States, except for portions of eleven
states, and in Mexico and
Canada. Additionally, the Company has the international rights to the
trademark ICEE.
7
The Company has numerous patents related to the manufacturing and
marketing of its product.
Supplies
The Company's manufactured products are produced from raw
materials which are readily available from numerous sources. With the
exception of the Company's soft pretzel twisting equipment and funnel
cake production equipment, which are made for J & J by independent third
parties, and certain specialized packaging equipment, the Company's
manufacturing equipment is readily available from various sources.
Syrup for frozen beverages is purchased from The Coca-Cola Company, the
Pepsi Cola Company, and Western Syrup Company. Cups, straws and lids
are readily available from various suppliers. Parts for frozen beverage
dispensing machines are manufactured internally and purchased from other
sources. Frozen beverage dispensers are purchased primarily from IMI
Cornelius, Inc.
Competition
Snack food and bakery products markets are highly competitive.
The Company's principal products compete against similar and different
food products manufactured and sold by numerous other companies, some of
which are substantially larger and have greater resources than the
Company. As the soft pretzel, frozen juice treat and dessert, bakery
products and related markets grow, additional competitors and new
competing products may enter the markets. Competitive factors in these
markets include product quality, customer service, taste, price,
identity and brand name awareness, method of distribution and sales
promotions.
The Company believes it is the only national distributor of soft
pretzels. However, there are numerous regional and local manufacturers
of food service and retail supermarket soft pretzels. Competition is
also increasing in that there are several chains of retail pretzel
stores that have aggressively expanded over the past several years.
These chains compete with the Company's products.
In Frozen Beverages the Company competes directly with other
frozen beverage companies. These include several companies which have
the right to use the ICEE name in portions of eleven states. There are
many other regional frozen beverage competitors throughout the country
and one large retail chain which uses its own frozen beverage brand.
8
The Company competes with large soft drink manufacturers for
counter and floor space for its frozen beverage dispensing machines at
retail locations and with products which are more widely known than the
ICEE and ARCTIC BLAST frozen beverages.
The Company competes with a number of other companies in the
frozen juice treat and dessert and bakery products markets.
Employees
The Company has approximately 2,300 full and part time employees
as of September 28, 2002. Certain production and distribution employees
at the Pennsauken, New Jersey plant are covered by a collective
bargaining agreement which expires in September 2005. The Company
considers its employee relations to be good.
9
Item 2. Properties
The Company's primary east coast manufacturing facility is located
in Pennsauken, New Jersey in a 70,000 square foot building on a two acre
lot. Soft pretzels are manufactured at this Company-owned facility
which also serves as the Company's corporate headquarters. This
facility operates at approximately 80% of capacity. The Company leases
a 101,200 square foot building adjacent to its manufacturing facility in
Pennsauken, New Jersey through March 2012. The Company has constructed
a large freezer within this facility for warehousing and distribution
purposes. The warehouse has a utilization rate of 80-90% depending on
product demand. The Company also leases, through September 2011, 16,000
square feet of office and warehouse space located next to the
Pennsauken, New Jersey plant.
The Company owns a 150,000 square foot building on eight acres in
Bellmawr, New Jersey. Approximately 30% of the facility is leased to a
third party. The remainder is used by the Company to manufacture some
of its products including funnel cake, pretzels, churros and cookies.
The Company's primary west coast manufacturing facility is located
in Vernon (Los Angeles), California. It consists of a 137,000 square
foot facility in which soft pretzels, churros and various lines of baked
goods are produced and warehoused. Included in the 137,000 square foot
facility is a 30,000 square foot freezer used for warehousing and
distribution purposes which was constructed in 1996. The facility is
leased through November 2017. The Company leases an additional 45,000
square feet of office and warehouse space, adjacent to its manufacturing
facility, through November 2017. The manufacturing facility operates at
approximately 60% of capacity.
The Company owns a 52,700 square foot building located on five
acres in Chicago Heights, Illinois which is presently for sale or lease.
The Company owns a 46,000 square foot frozen juice treat and
dessert manufacturing facility located on three acres in Scranton,
Pennsylvania. The facility, which was expanded from 26,000 square feet
in 1998, operates at approximately 60% of capacity.
The Company leases a 29,635 square foot soft pretzel manufacturing
facility located in Hatfield, Pennsylvania.
The lease runs through June 2017. The facility operates at
approximately 70% of capacity.
10
The Company leases a 19,200 square foot soft pretzel manufacturing
facility located in Carrollton, Texas. The lease runs through April
2004. The facility operates at less than 50% of capacity.
The Company's fresh bakery products manufacturing facility offices
are located in Bridgeport, New Jersey in two buildings totaling 94,320
square feet. The buildings are leased through December 2011. The
manufacturing facility operates at approximately 50% of capacity.
The Company's Bavarian Pretzel Bakery headquarters and warehouse
and distribution facilities are located in a 11,000 square foot owned
building in Lancaster, Pennsylvania.
The Company also leases approximately 100 warehouse and
distribution facilities in 41 states, Mexico and Canada.
Item 3. Legal Proceedings
The Company has no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the
Company or any of its subsidiaries is a party or of which any of their
property is subject.
Item 4. Submission Of Matters To A Vote Of Security Holders
None.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the executive officers of the Company
and their principal past occupations or employment. All such persons
serve at the pleasure of the Board of Directors and have been elected to
serve until the Annual Meeting of Shareholders on February 6, 2003 or
until their successors are duly elected.
Name Age Position
Gerald B. Shreiber 61 Chairman of the Board, President,
Chief Executive Officer and Director
Dennis G. Moore 47 Senior Vice President, Chief
Financial Officer, Secretary,
Treasurer and Director
Robert M. Radano 53 Senior Vice President, Sales,
Chief Operating Officer and
Director
Dan Fachner 42 President of The ICEE Company
Subsidiary
Michael Karaban 56 Senior Vice President, Marketing
Gerald B. Shreiber is the founder of the Company and has served as
its Chairman of the Board, President, and Chief Executive Officer since
its inception in 1971. His term as a director expires in 2005.
Dennis G. Moore joined the Company in 1984. He served in various
controllership functions prior to becoming the Chief Financial Officer
in June 1992. His term as a director expires in 2007.
Robert M. Radano joined the Company in 1972 and in May 1996 was
named Chief Operating Officer of the Company. Prior to becoming Chief
Operating Officer, he was Senior Vice President, Sales responsible for
national food service sales of J & J. His term as a director expires in
2006.
Dan Fachner has been an employee of ICEE-USA Corp., which was
acquired by the Company in May 1987, since 1979 He was named Senior
Vice President of The ICEE Company in April 1994 and became President in
May 1997.
Michael Karaban has been an employee of the Company in charge of
its marketing department since 1992 and in February 2002 was elected
Senior Vice President, Marketing.
12
PART II
Item 5. Market For Registrant's Common Equity And
Related Stockholder Matters
The Company's common stock is traded on the over-the-counter
market on the NASDAQ National Market System under the symbol JJSF. The
following table sets forth the high and low final sale price quotations
as reported by NASDAQ for the common stock for each quarter of the years
ended September 28, 2002 and September 29, 2001.
High Low
Fiscal 2001
First quarter $18.50 $12.50
Second quarter 17.88 15.00
Third quarter 23.79 16.50
Fourth quarter 24.10 14.82
Fiscal 2002
First quarter $26.25 $18.10
Second quarter 40.40 23.22
Third quarter 45.15 32.42
Fourth quarter 44.97 34.85
On December 9, 2002, there were 8,904,680 shares of common stock
outstanding. Those shares were held by approximately 2,200 beneficial
shareholders and shareholders of record.
The Company has never paid a cash dividend on its common stock and
does not anticipate paying cash dividends in the foreseeable future.
Item 6. Selected Financial Data
The information set forth under the caption ''Financial
Highlights'' of the 2002 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
The information set forth under the caption ''Management's
Discussion and Analysis of Financial Condition and Results of
Operations'' of the 2002 Annual Report to Shareholders is incorporated
herein by reference.
13
Item 7a. Quantitative And Qualitative Disclosures
About Market Risk
The following is the Company's quantitative and qualitative
analysis of its financial market risk:
Interest Rate Sensitivity
The table below provides information about the Company's
derivative financial instruments and other financial instruments as of
September 28, 2002 that are sensitive to changes in interest rates.
These instruments include interest rate swaps. At September 28, 2002,
the Company had no long-term debt obligations. For interest rate swaps,
the table presents notional amounts and weighted-average interest rates
by expected (contractual) maturity dates. The notional amounts are used
to calculate the contractual payments to be exchanged under the swap
contract. Weighted-average variable rates are based on implied forward
rates in the yield curve at the reporting date.
Expected Maturity Date
(in thousands)
There Fair
2003 2004 2005 2006 2007 after Total Value
Interest Rate Swaps
Receive variable/pay
fixed $2,000 $ - $ - $ - $ - $ - $2,000 $ -
Average pay rate 1.81% - - - - - 1.81%
Average receive rate 6.11% - - - - - 6.11%
Interest Rate Risk
At September 28, 2002, the Company had no long-term debt
obligations. Additionally, the interest rate swap described above
expired on December 8, 2002.
The Company's most significant raw material requirements include
flour, shortening, corn syrup, chocolate, and macadamia nuts. The
Company attempts to minimize the effect of future price fluctuations
related to the purchase of raw materials primarily through forward
purchasing to cover future manufacturing requirements, generally for
periods from 1 to 24 months. Futures contracts are not used in
combination with forward purchasing of these raw materials. The
Company's procurement practices are intended to reduce the risk of
future price increases, but also may potentially limit the ability to
benefit from possible price decreases.
Foreign Exchange Rate Risk
The Company has not entered into any forward exchange contracts to
hedge its foreign currency rate risk as of
14
September 28, 2002 because it does not believe its foreign exchange
exposure is significant.
Item 8. Financial Statements And Supplementary Data
The following consolidated financial statements of the Company set
forth in the 2002 Annual Report to Shareholders are incorporated herein
by reference:
Consolidated Balance Sheets as of September 28, 2002 and
September 29, 2001
Consolidated Statements of Earnings for the fiscal years
ended September 28, 2002, September 29, 2001 and
September 30, 2000
Consolidated Statement of Stockholders' Equity for the
three fiscal years ended September 28, 2002
Consolidated Statements of Cash Flows for the fiscal
years ended September 28, 2002, September 29, 2001
and September 30, 2000
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accounts
Item 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure
None.
15
PART III
Item 10. Directors And Executive Officers Of The Registrant
Information concerning directors, appearing under the captions
''Information Concerning Nominee For Election To Board'' and
''Information Concerning Continuing Directors And Executive Officers''
in the Company's Proxy Statement filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Shareholders to be
held on February 6, 2003, is incorporated herein by reference.
Information concerning the executive officers is included on page 11
following Item 4 in Part I hereof.
Item 11. Executive Compensation
Information concerning executive compensation appearing in the
Company's Proxy Statement under the caption ''Management Remuneraton''
is incorporated herein by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And
Management
Information concerning the security ownership of certain beneficial
owners and management appearing in the Company's Proxy Statement under
the caption ''Principal Shareholders'' is incorporated herein by
reference.
Item 13. Certain Relationships And Related Transactions
Not applicable.
Item 14. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The management of the Company, including the Chief Executive
Officer and the Chief Financial Officer, have conducted an evaluation of
the effectiveness of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of
a date (the ''Evaluation Date'') within 90 days prior to the filing date
of this report. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures were effective in
ensuring that all material information relating to the Company,
including our consolidated subsidiaries, required to be filed in this
annual report has been made known to them in a timely manner.
16
(b) Changes in internal controls.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date.
17
PART IV
Item 15. Exhibits, Financial Statement Schedules And
Reports On Form 8-K
(a) Financial Statements
The following are incorporated by reference in Part II of this
report:
Report of Independent Certified Public Accounts
Consolidated Balance Sheets as of September 28, 2002 and
September 29, 2001
Consolidated Statements of Earnings for the fiscal years
ended September 28, 2002, September 29, 2001 and
September 30, 2000
Consolidated Statement of Stockholders' Equity for the
three fiscal years ended September 28, 2002
Consolidated Statements of Cash Flows for the fiscal
years ended September 28, 2002, September 29, 2001
and September 30, 2000
Notes to Consolidated Financial Statements
Financial Statement Schedule
The following are included in Part IV of this
report:
Page
Report of Independent Certified Public
Accounts on Schedule 26
Schedule:
II. Value and Qualifying Accounts 27
All other schedules are omitted either because they are not
applicable or because the information required is contained in the
financial statements or notes thereto.
Exhibits
3.1 Amended and Restated Certificate of Incorporation
filed February 28, 1990. (Incorporated by reference
from the Company's Form 10-Q dated May 4, 1990.)
3.2 Amended and Restated Bylaws adopted May 15, 1990.
(Incorporated by reference from the Company's Form
10-Q dated August 3, 1990.)
4.3 Loan Agreement dated as of December 4, 2001 by and
among J & J Snack Foods Corp. and Certain of its
Subsidiaries and Citizens Bank of Pennsylvania, as
Agent. (Incorporated by reference from the Company's Form 10-
K dated December 21, 2001.)
18
10.1 Proprietary Exclusive Manufacturing Agreement dated July 17,
1984 between J & J Snack Foods Corp. and Wisco Industries,
Inc. (Incorporated by reference from the Company's Form S-1
dated February 4, 1986, file no. 33-2296).
10.2* J & J Snack Foods Corp. Stock Option Plan.
(Incorporated by reference from the Company's Form
S-8 dated July 24, 1992, file no. 33-50036.)
10.3* J & J Snack Foods Corp. 401(k) Profit Sharing Plan, As
Amended, Effective January 1, 1989.
(Incorporated by reference from the Company's 10-K
dated December 18, 1992.)
10.4* First, Second and Third Amendments to the J & J
Snack Foods Corp. 401(k) Profit Sharing Plan.
(Incorporated by reference from the Company's 10-K
dated December 19, 1996.)
10.6 Lease dated September 24, 1991 between J & J Snack
Foods Corp. of New Jersey and A & H Bloom
Construction Co. for the 101,200 square foot
building next to the Company's manufacturing
facility in Pennsauken, New Jersey. (Incorporated
by reference form the Company's Form 10-K dated
December 17, 1991.)
10.7 Lease dated August 29, 1995 between J & J Snack
Foods Corp. and 5353 Downey Associated Ltd. for the lease of
the Vernon, CA facility. (Incorporated by reference from
the Company's Form 10-K dated December 21, 1995.)
10.8* J & J Snack Foods Corp. Employee Stock Purchase
plan (Incorporated by reference from the Company's
Form S-8 dated May 16, 1996).
10.9* Amendments to the J & J Snack Foods Corp. Stock
Option Plan and the J & J Snack Foods Corp. Non-
Statutory Stock Option Plan for Non-Employee
Directors and Chief Executive Officer.
(Incorporated by reference from the Company's
Definitive Proxy Statement dated December 15,
1999.)
10.10 Certifications Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of
2002. (Pages 28-29.)
10.11 Amendment No. 1 to Lease dated August 29, 1995 between J & J
Snack Foods Corp. and 5353 Downey
19
Associated Ltd. for the lease of the Vernon, CA facility.
(Pages 30-34.)
10.12* Fourth and Fifth Amendments to the J & J Snack Foods Corp.
401(k) Profit Sharing Plan. (Pages 35-37.)
13.1 Company's 2002 Annual Report to Shareholders
(except for the captions and information thereof
expressly incorporated by reference in this Form
10-K, the Annual Report to Shareholders is
provided solely for the information of the
Securities and Exchange Commission and is not
deemed ''filed'' as part of the Form 10-K.)
(Page 38.)
22.1 Subsidiaries of J & J Snack Foods Corp. (Page 70.).
24.1 Consent of Independent Certified Public Accountants.(Page
71.)
*Compensatory Plan
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the
last quarter of the period covered by this report.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
J & J SNACK FOODS CORP.
December 18, 2002 By /s/ Gerald B. Shreiber
Gerald B. Shreiber,
Chairman of the Board,
President, Chief Executive
Officer and Director
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 and in the capacities and on the dates
indicated.
December 18, 2002 /s/ Robert M. Radano
Robert M. Radano, Senior Vice
President, Sales, Chief
Operating Officer and Director
December 18, 2002 /s/ Dennis G. Moore
Dennis G. Moore, Senior Vice
President, Chief Financial
Officer and Director
December 18, 2002 /s/ Stephen N. Frankel
Stephen N. Frankel, Director
December 18, 2002 /s/ Peter G. Stanley
Peter G. Stanley, Director
December 18, 2002 /s/ Leonard M. Lodish
Leonard M. Lodish, Director
21
CERTIFICATIONS
I, Dennis G. Moore, certify that:
1. I have reviewed this annual report on Form 10-K of J & J Snack Foods
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the
22
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: December 18, 2002
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
23
CERTIFICATIONS
I, Gerald B. Shreiber, certify that:
1. I have reviewed this annual report on Form 10-K of J & J Snack Foods
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the
24
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: December 18, 2002
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
25
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON SCHEDULE
Board of Directors
J & J Snack Foods Corp.
In connection with our audit of the consolidated financial statements
of J & J Snack Foods Corp. and Subsidiaries referred to in our report
dated November 6, 2002 which is included in the Annual Report to
Shareholders and incorporated by reference in Part II of this form, we
have also audited Schedule II for each of the three fiscal years in the
period ended September 28, 2002 (52 weeks, 52 weeks and 53 weeks,
respectively). In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
November 5, 2002
26
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Opening Charged to
Year Description Balance expense Deductions
2002 Allowance for
doubtful accounts $1,672,000 $ 372,000 $205,000(1) $1,839,000
2001 Allowance for
doubtful accounts 1,573,000 438,000 339,000(1) 1,672,000
2000 Allowance for
doubtful accounts 806,000 1,384,000 617,000(1) 1,573,000
________
(1) Write-off uncollectible accounts receivable.
27
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of J & J Snack Foods Corp.
(the "Company") on Form 10-K for the year ended September 28, 2002
filed with the Securities and Exchange Commission (the "Report"), I,
Dennis G. Moore, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the consolidated financial condition
of the Company as of the dates presented and the
consolidated result of operations of the Company for the
periods presented.
Dated: December 18, 2002
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part
of the Report or as a separate disclosure document.
28
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of J & J Snack Foods Corp.
(the "Company") on Form 10-K for the year ended September 28, 2002
filed with the Securities and Exchange Commission (the "Report"), I,
Gerald B. Shreiber, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the consolidated financial condition
of the Company as of the dates presented and the
consolidated result of operations of the Company for the
periods presented.
Dated: December 18, 2002
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part
of the Report or as a separate disclosure document.
29
AMENDMENT NO. 1
TO STANDARD INDUSTRIAL LEASE - NET DATED AUGUST 29, 1995
("LEASE")
by and between
5353 DOWNEY ASSOCIATES LTD., a California limited partnership
(hereinafter referred to as "Lessor") and J & J SNACK FOODS
CORP. and J & J SNACK FOODS CORP. OF CALIFORNIA (hereinafter
collectively, referred to as "Lessee")
For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Lessor and Lessee
agree to amend the Lease as follows:
1. Paragraph 2 of the Lease is deleted in its entirety and is
replaced with the following:
"2. Premises. Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of
the conditions set forth herein, that certain real property
situated in the County of Los Angeles, State of California,
commonly known as 5353 (Unit A), 5499 (Unit B), 5477 (Unit C) and
5401 (Unit E) Downey Road, Vernon, California, as more
particularly described on Exhibit "A" attached hereto and made
a part hereof:
"(a) The portion of the Premises at 5353 Downey Road is
composed of a portion of a larger parcel (s) of land improved
with a building (s) in which the demised space shown as Unit
"A", Unit "B", Unit "C" and Unit "E" on Exhibit "A"
contains approximately 182,832 square feet of ground floor area.
"(b) The remaining land area of the larger parcels of which
the Premises is composed not presently utilized for permanent
improvements is hereby designated as "common areas" and is
cross-hatched on Exhibit "A" attached hereto. Lessee is
granted the non-exclusive right to use the common areas, in
common with other tenants of the buildings located on the parcels
of land on which the buildings are located.
"Said real property including the land and all improvements
therein, is herein called the "Premises"."
2. Paragraph 3 of the Lease is deleted in its entirety and is
replaced with the following:
"3. Term. The term of this Lease shall be for twenty-
two (22) years commencing on December 1, 1995 and terminating on
November 30, 2017."
3. Paragraph 4 of the Lease is deleted in its entirety and is
replaced with the following:
"4. Rent. Commencing December 1, 1995 and
continuing throughout the remainder of the lease term, Lessee
shall pay to Lessor rent for the Premises, monthly payments as
set forth below, in advance, without deduction or offset, on the
first day of each month of the term hereof:
Lease Period Sq Ft Rent Per Total Rent Total Rent
S.F./Mo. PerMonth Per Year
12/1/95 - 11/30/96 136,564 0.2650 36,190 434,280
12/1/96 - 11/30/97 136,564 0.2700 36,872 442,464
12/1/97 - 11/30/98 136,564 0.2750 37,555 450,660
12/1/98 - 11/30/99 136,564 0.2800 38,238 458,856
12/1/99 - 11/30/00 136,564 0.2850 38,921 467,052
12/1/00 - 11/30/01 136,564 0.2900 39,604 475,248
12/1/01 - 9/30/02 136,564 0.2950 40,286 483,437
10/1/02 - 11/30/03 182,832 0.3051 55,782 669,385
12/1/03 - 11/30/04 182,832 0.3157 57,720 692,641
12/1/04 - 11/30/05 182,832 0.3213 58,744 704,927
12/1/05 - 11/30/06 182,832 0.3263 59,658 715,897
12/1/06 - 11/30/07 182,832 0.3325 60,792 729,500
12/1/07 - 11/30/08 182,832 0.3357 61,377 736,520
12/1/08 - 11/30/09 182,832 0.3400 62,163 745,955
12/1/09 - 11/30/10 182,832 0.3450 63,077 756,924
12/1/10 - 11/30/11 182,832 0.3500 63,991 767,894
12/1/11 - 11/30/12 182,832 0.3550 64,905 778,864
12/1/12 - 11/30/13 182,832 0.3600 65,820 789,834
12/1/13 - 11/30/14 182,832 0.3650 66,734 800,804
12/1/14 - 11/30/15 182,832 0.3700 67,648 811,774
12/1/15 - 11/30/16 182,832 0.3750 68,562 822,744
12/1/16 - 11/30/17 182,832 0.3800 69,476 833,714
"Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the monthly
installment. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other
persons or at such other places as Lessor may designate in
writing."
4. In Paragraph 7.1 (b), the last sentence is amended and
modified to read as follows:
"Lessor and Lessee have agreed that Lessee's proportionate
share is 84.152 percent."
5. The Site Plan attached to this First Amendment as Exhibit
"A" supersedes and replaces the Site Plan attached to the Lease
as Exhibit "A".
6. Notwithstanding Paragraph 6.3(a) of the Lease to the
contrary, Lessee accepts Unit E (5401 Downey Road), in
its As-Is condition, and Lessor has no obligation to
improve, repair or maintain Unit E, and Lessor makes no
representations or warranties, either express or implied, as
to the condition of Unit E, or its suitability for Lessee's
intended use.
7. Except as modified by this First Amendment, all other terms
and conditions of the Lease shall remain in full force and
effect.
8. The parties acknowledge and agree that this First Amendment
shall be void and of no further force and effect should the
existing Tenant in Unit E, Duo Industries, affirm or its existing
Lease with the Bankruptcy Court in connection with Duo Industries
bankruptcy. This is a condition subsequent to the effectiveness
of this First Amendment.
The parties have executed this First Amendment at the place
on the dates specified immediately adjacent to their respective
signatures.
LESSOR:
5353 DOWNEY ASSOCIATES LTD., a
Executed at Beverly Hills, CA California limited Partnership
on September ______, 2002
Address: 9595 Wilshire Blvd. By:
Suite 511 Michael L. Schwab,
Beverly Hills, CA 90212 General Partner
SIGNATURES CONTINUED ON THE NEXT PAGE
LESSEE:
Executed at J & J SNACK FOODS CORP. OF
CALIFORNIA
on September ________, 2002
Address: _________________________ By:
_________________________ ____________________
(Type Name)
_________________________ Its:
(Title)
By:
____________________
(Type Name)
Its:
(Title)
[Corporate Seal]
Executed at J & J SNACK FOODS CORP. OF
CALIFORNIA
on September _______, 2002
Address: __________________________ By:
__________________________ ____________________
(Type Name)
__________________________ Its:
(Title)
By:
____________________
(Type Name)
Its:
(Title)
[Corporate Seal]
FOURTH AMENDMENT
TO THE
J&J SNACK FOODS CORP.
401(k) PROFIT SHARING PLAN
THIS FOURTH AMENDMENT to the J&J Snack Foods Corp. 401(k)
Profit Sharing Plan ("Plan"), which Plan was amended and
restated effective January 1, 1989, amends and modifies the
Plan pursuant to the right to amend reserved in Section 7.1 of
the Plan, as follows:
A.
Section 1.14 is hereby deleted in its entirety
and the following inserted in lieu thereof:
1.14 "Employee" means any person who
is employed by the Employer or
Affiliated Employer, but excludes the
following:
(a)
any person who is an independent
contractor, and
(b)
any person whose employment becomes
the subject matter of a collective
bargaining agreement between
employee representatives and the
Employer or Affiliated Employer
unless, through good faith
bargaining, such employees are
included as Employees.
Employee shall include Leased Employees
within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such
Leased Employees are covered by a Plan
described in Code Section 414(n)(5) and
such Leased Employees do not constitute
more than 20% of the recipient's non-
highly compensated workforce.
B.
The second sentence of the second paragraph of
Section 6.4(a) is hereby deleted in its entirety
and the following inserted in lieu thereof:
. . . However, at the election of
the Terminated Participant, the
Administrator shall direct the
Trustee to cause the entire vested
portion of the Terminated
Participant's Combined Account to be
payable to such Terminated
Participant as soon as
administratively feasible after the
month in which the Participant
terminates employment with the
Employer or Affiliated Employer.
C.
The effective date of the provisions of this
Fourth Amendment to the Plan shall be January 1,
1997.
D.
Except as specifically amended above, the Plan
shall remain unchanged and, as amended herein,
shall continue in full force and effect.
WITNESS the signature of the undersigned who is an
authorized officer of J&J Snack Foods Corporation as of this
31st day of December, 1997.
J&J SNACK FOODS CORPORATION
By /S/Dennis G. Moore
Title Senior Vice President
FIFTH AMENDMENT
TO THE
J & J SNACK FOODS CORPORATION
401(k) PROFIT SHARING PLAN
THIS FIFTH AMENDMENT to the J & J Snack Foods Corporation
401(k) Profit Sharing Plan ("Plan"), which Plan was amended
and restated effective January 1, 1989, amends and modifies
the Plan pursuant to the right to amend reserved in Section
7.1 of the Plan, as follows:
A.
The last sentence of section 1.62 is hereby deleted in its
entirety and the following is inserted in lieu thereof:
All Years of Service with an Affiliated
Employer, including service prior to the
time the company became an Affiliated
Employer, shall be recognized for
eligibility and, unless determined
otherwise from time to time by the Board
of Directors of the company, for vesting.
B.
Article III is hereby amended by adding the following to the end
thereof:
3.9 ELIGIBILITY OF REHIRED EMPLOYEE
An Employee who is rehired by the Employer
shall be eligible to begin participating in the
Plan as of his date of rehire, provided he had
met the eligibility rules outlined in Section
3.1, above, prior to his original termination of
employment with the Employer. All other rehired
Employees shall become eligible to begin
participating in the Plan as outlined in Section
3.1, above.
C.
The effective date of the provisions of this Fifth Amendment to
the Plan shall be January 1, 1998.
D.
Except as specifically amended above, the Plan shall remain
unchanged and, as amended herein shall continue in full force and
effect.
WITNESS the signature of the undersigned who is an authorized officer of
J & J Snack Foods Corporation as of this 14th day of July, 1998.
J & J SNACK FOODS CORPORATION
By /S/Dennis G. Moore
Title Senior Vice President
J&J Snack Foods
6000 Central Highway
Pennsauken, NJ 08109
(856) 665-9533
www.jjsnack.com
2002 ANNUAL REPORT
The fabulous family of brands from J&J Snack Foods wages a never-ending
battle against the forces of boring snacks...
Financial Highlights
Fiscal year ended in September
2002 2001 2000 1999 1998
(In thousands except per share data)
Net Sales* $353,187 $328,335 $296,832 $270,835 $246,233
Net Earnings $18,113 $11,876 $9,968 $14,264 $11,850
Total Assets $220,036 $224,481 $220,039 $213,680 $213,261
Long-Term Debt $ - $28,368 $42,481 $34,660 $48,199
Stockholders'
Equity $168,709 $146,143 $133,274 $131,169 $119,681
Common Share Data
Earnings Per
Diluted Share $1.99 $1.36 $1.10 $1.50 $1.26
Earnings Per
Basic Share $2.07 $1.40 $1.13 $1.58 $1.32
Book Value
Per Share $18.95 $16.92 $15.64 $14.57 $13.25
Common Shares
Outstanding At
Year End 8,903 8,636 8,522 9,000 9,036
Contents...
2002 In Review 1
President's Letter 2
Soft Pretzels 4
Frozen Beverages 6
Frozen Juice Bars & Desserts 8
More Snacks 10
Family of Brands 12
Financial Information 13
Corporate Information 32
*Previous years' net sales have been reduced as a result of our adoption of EITF
Issue No. 01-9, "Accounting for Consideration Given By a Vendor to a Customer
or a Reseller of the Vendor's Products." These reclassifications had no impact
on reported net earnings or earnings per share.
2002 in review
Every day the battle rages on, pitting the agents of good and evil against each
other in a never-ending fight to satisfy hunger and thirst. But fear not, J&J
Snack Foods Corp. saved the day once again in 2002 as we continued to provide
new and exciting snack food alternatives.
Over the course of our 31-year history, our arsenal of products has grown to
include soft pretzels; frozen beverages; frozen juice bars and desserts; churros
(a cinnamon pastry); funnel cakes; cookies and bakery goods; as well as other
snack foods and drinks that are sold to the food service and retail supermarket
industries.
Our four business groups, Food Service, Retail Supermarket, The Restaurant Group
and Frozen Beverages, stood tall to allow us to achieve record sales in fiscal
2002 of $353 million, marking our 31st consecutive year of record sales.
* Our Food Service group, the backbone of the company, posted an impressive 8%
sales growth. The sales gains were driven by soft pretzel product introductions
and strong showings from frozen desserts and cookies.
* Our Retail Supermarket business responded in kind with a 6% sales increase,
due primarily to the expansion and growth of the frozen desserts business,
including our LUIGI'S and MINUTE MAID brand licensed dessert products.
* Our Frozen Beverage business, led by the ever-popular ICEE brand, generated a
sales increase of 9% with a significant growth in service revenue.
Though our troops have gained momentum in fiscal 2002, hunger and thirst are
mighty adversaries that never sleep. J&J pledges to remain vigilant in our
duties to protect the population from snacking boredom. Wherever there is hunger
that demands to be satisfied - or thirst begging to be quenched - you can count
on J&J to come to the rescue!
President's Letter
Faster than a speeding bullet!. . .that's how fast this fiscal year seems to
have shot by. Our fiscal year 2002, which crept in like a hesitant, slow-moving
shadow burdened by the sadness of last year's 9/11 tragedy, gathered momentum
and flew by in a flash. And giving credit where credit is due, our J&J Snack
Foods team prevailed with another record year, soaring to new heights.
SOARING TO NEW HEIGHTS
For the 31st consecutive year we set sales records exceeding that of the
previous year. Unusual. . .yes. How many other companies can proclaim the same?
Extraordinary may be the only proper way to describe this kind of continued
growth and success. A summary glance of fiscal year '02 includes:
* Net sales grew by 8% to a record $353 million
* Net earnings soared 53% to $18 million
* Earnings per share rocketed 46% to $1.99 per share, the highest
in our history
* Book value rose to $18.95 per share
TRUTH, JUSTICE AND THE J&J WAY
Our forever strategy and basic philosophy continues:
* Find a niche and develop it;
* Be a low-cost producer;
* Establish leadership in sales, marketing and distribution;
And along the way, be a model of corporate citizenship and integrity, setting
standards to be admired and respected by friend and foe alike.
This past year we enhanced and further developed our skills and niches. New
products were introduced in several of our business categories. The success of
our ''first-of-its-kind'' PRETZEL FILLERS, a line of filled and topped soft
pretzels, introduced in fiscal year '01, was further expanded into our growing
food service distribution channels. This year we introduced GOURMET TWISTS,
topped soft pretzels that offer consumers old-world, hearth-baked favorites with
a variety of toppings, both sweet and savory. For the second straight year our
soft pretzel products received numerous awards and accolades, including the
Award of Excellence from The American Tasting Institute.
Our frozen juice bar and dessert products again grew across all channels.
Bolstered by new creations - like LUIGI'S SWIRL - and continued momentum from
sales of MINUTE MAID* licensed products, we had another record year in frozen
desserts. Additionally, BARQ'S** Frozen Root Beer Float, licensed from The Coca-
Cola Company, was test marketed in late summer with positive results. We expect
to see continued sales growth across all channels with these products in fiscal
year '03.
Cookie sales, led by MRS. GOODCOOKIE and CAMDEN CREEK BAKERY brands, were up
sharply for the year. And despite soft attendance at leisure and theme parks, we
nevertheless grew our churro sales. New product development and continued
improvements of our fresh bakery products also contributed to our record year.
The ICEE Company flies higher and higher - setting records in sales revenues and
contribution to earnings. Besides growing its ICEE beverage sales, ICEE further
enhanced and expanded its niche as a managed service provider by offering a
level of service that is faster than a speeding bullet and stronger than a
locomotive. Continuing its infrastructure partnership with The Coca-Cola
Company, ICEE is now providing managed service to over 35,000 beverage
dispensing machines throughout the U.S., Mexico and Canada. Celebrating its 35th
year as a super beverage, ICEE is indeed defying gravity and soaring to new
heights.
LOOK UP IN THE SKY - IT'S A BIRD, IT'S A PLANE, IT'S. . .
J&J Snack Foods continuing our profitable growth. We don't have any pie-in-the-
sky concepts or foolishness about the business environment. We are old-fashioned
that way. Find a niche and develop it. Protect it and maintain it. Grow the
category and expand it. Invest in our products and our people. Enhance
shareholder value. Work hard. . .real hard, and have fun doing it.
This past year our company, in addition to its record-setting performance,
achieved another milestone - we are debt free. We have zero debt, excellent cash
flow and surplus cash for our everyday needs. Putting that money to work and
paying close attention to its well-being is what we do best. Our capable and
dedicated management team will see that we continue to do the same in fiscal
year '03. At J&J Snack Foods, we have spent the past 31 years growing our
business and setting a standard of excellence. We are eager to continue this
trend. That's the truth, justice and the J&J way.
God Bless America.
Sincerely,
Gerald B. Shreiber
President and Chairman
December 2, 2002
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
**BARQ'S is a registered trademark of Barq's, Inc.
Soft Pretzels...
Citizens rejoice! J&J Snack Foods expanded its position as the world's largest
manufacturer of soft pretzels with seven manufacturing facilities across the
United States and millions and millions of units produced each year. And our
flagship brand, SUPERPRETZEL Soft Pretzels, remains America's Favorite Soft
Pretzel after three decades.
Breaking the Boring Snack Barrier
When it comes to soft pretzels, one thing is clear... it's not just a pretzel
anymore! PRETZEL FILLERS, hand-twisted soft pretzels with scrumptious fillings
and toppings, helped increase food service soft pretzel sales 8% this year. This
new generation of soft pretzels was successfully launched last year and is
available in four taste-bud-tempting flavors: Twisted Pizza, Hollerin' Jalape-o,
Cinnamon Apple Harvest and Sweet Dream Cream Cheese. Only X-ray vision could
detect the explosion of flavor inside!
GOURMET TWISTS, which made their delectable debut in 2002, also contributed to
food service soft pretzel sales. Available in two flavors: Original Twist and
Sweet Doughlicious, these old-world, hearth-baked soft pretzels come packaged
with sweet and savory toppings including butter, cinnamon-sugar and salt.
As citizens everywhere strive to do even more in less time, these two lines of
value-added gourmet soft pretzels are being gobbled up in sports arenas, leisure
and theme parks, movie theaters, business and industry cafeterias and even mass
merchandisers. These offerings satisfy today's consumers' desire for good-
tasting, on-the-go mini meals. And now, the recent addition of a smaller-size
PRETZEL FILLER, including an individually wrapped version, should help us
conquer even more distribution channels going forward.
Eureka! They're Everywhere
Across this great country of ours, SUPERPRETZEL Soft Pretzels are enjoyed by
consumers at tens-of-thousands of high-traffic locations. They can be found in
similar locations where our gourmet soft pretzels are sold, as well as malls and
shopping centers; chain, convenience and warehouse club stores; schools and
colleges and fast food outlets. So fear not, wherever you go, you can count on
SUPERPRETZEL Soft Pretzels to defeat and satisfy your hunger.
Have No Fear... SUPERPRETZELS Are Here
In school cafeterias across the country, kids crave the great taste of
SUPERPRETZEL Soft Pretzels... emphasizing the relevance of this all-important
distribution channel. School Food Service Directors commend their nutritional
value, as they meet bread components under the Child Nutrition Program. Our new
peanut butter and jelly-filled PBJ CRUISERS provide both bread and protein
components. And, our ever-expanding line of themed and shaped SUPERPRETZEL Soft
Pretzels - which includes shamrocks, pumpkins, hearts and stars-ensures holiday
and special event menus are never dull... a brilliant plan!
SUPERPRETZEL Sales at the Supermarket Continue to Fly High
We're triumphing over our competitors with a solid market share and a presence
in freezer cases in more than 29,000 supermarkets. The SUPERPRETZEL brand
continues to be the clear category leader, posting increases in sales in this
important business segment for the fourth consecutive year. Our successful
retail lineup also includes SOFT PRETZEL BITES and SOFTSTIX Cheese-Filled Soft
Pretzel Sticks, which are co-branded with KRAFT.*
The Restaurant Group - which operates BAVARIAN PRETZEL BAKERY and PRETZEL
GOURMET retail stores in the Mid-Atlantic region - experienced a decline in
sales consistent with its strategy of closing under-performing stores together
with the impact of decreased mall traffic. But, alas, all is not lost. The Group
continues to provide benefits as an invaluable market research and product
testing ground for other J&J products.
* KRAFT and the KRAFT logo are registered trademarks owned and licensed by Kraft
Foods Holdings, Inc.
Frozen Beverages
In the heat of the day and the dark of the night, ICEE to the rescue! Thanks to
the tireless efforts of ICEE Bear and his esteemed colleagues, sales for The
ICEE Company, our frozen beverage division and the world's largest distributor
of frozen beverages, increased a sharp 9% in fiscal 2002. While beverage sales
alone increased, managed service revenue grew sharply at a 64% clip. The ICEE
brand is sold throughout the United States, Canada and Mexico, while other
brands such as ARCTIC BLAST are also available in selected geographic locations.
Knocking Out Thirst Everywhere ... POW!
ICEE frozen beverages are thirst-quenching treats served from our proprietary
dispensing equipment and can be enjoyed by sipping through a straw or eating
with a spoon. And now, more folks than ever can cool off - because in fiscal
2002 we installed even more dispensing machines - giving ICEE and our other
frozen beverages a presence in more than 25,000 food service outlets across the
country. Many of these locations also offer SUPERPRETZEL Soft Pretzels and other
J&J snack food products, creating the ultimate dynamic duo against hunger and
thirst.
Joining Forces With a Powerful Ally
J&J's long-term marketing partnership with The Coca-Cola Company is proof of the
power of partnerships of two world-class brands. This strategic union meshes the
operational and service system expertise of The ICEE Company with the
unsurpassed marketing power and brand recognition of Coca-Cola.* One aspect of
this alliance is that The ICEE Company provides the ongoing managed services in
Burger King** locations, while The Coca-Cola Company provides the syrup. Now
that's a force to be reckoned with!
Providing Heroic Levels of Service
"Service Excellence" has long been a key factor in ICEE's success. Our second-
to-none service team consists of a nationwide network of branches and trained
technicians backed by our centralized, state-of-the-art Customer Service Center.
Their fearless mission is to continue to provide top-notch service to our
existing customers, while attracting new customers and expanding our network to
include other beverage and related food equipment providers and users. Score one
for the good guys!
Leapin' Longevity - ICEE Turns 35!
For 35 years the ICEE brand has delivered a cool, refreshing beverage
alternative... time sure flies when you're having fun! Promotional and
merchandising programs have always been terrific vehicles to help build
awareness and stimulate sales - and to commemorate ICEE's 35th anniversary, we
added a sweepstakes and a series of collector's cups to our promotional machine.
We also continue our ongoing major movie, video/DVD and video game release tie-
ins, on-cup offers and NFL*** and NASCAR**** cup promotions. Plus, increased
emphasis on flavor-rotation promotions ensure an account's menu offerings are
never dull.
A Triple Treat in the Fight Against Thirst
Sold by The ICEE Company through multiple food service channels, all who try our
frozen uncarbonated beverages surrender to their taste. SMOOTHEE by ICEE, made
with real fruit juice in a variety of flavors, is a favorite with schoolchildren
and School Food Service Directors. JAVA FREEZE, a coffee-flavored beverage, is
fast becoming a staple of the college and university scene. CALIFORNIA NATURAL,
served with or without alcohol, has found its niche in entertainment and
sporting venues.
* Coca-Cola is a registered trademark of The Coca-Cola Company.
** Burger King is a registered trademark of Burger King Corporation.
*** NFL is a registered trademark of The National Football League.
**** NASCAR is a registered trademark of The National Association for Stock Car
Auto Racing, Inc.
Frozen Juice Bars & Desserts
Fiscal 2002 was a super year for frozen juice bars and desserts - posting a
double-digit sales spike of 10% in food service sales. The growth was due to
increased sales of MINUTE MAID* Juice Bars to schools, increased sales of MINUTE
MAID Soft Frozen Lemonade to club stores and strong performances from other
brands including LUIGI'S, ICEE, CHILL, SHAPE UPS and MAMA TISH'S. Super indeed!
Together, We Will Prevail
When we joined forces with The Minute Maid Company in 1999, we knew we were on
to something big. J&J's expertise in frozen desserts coupled with the strong
consumer awareness of the MINUTE MAID brand continue to produce impressive
results. This partnership provides J&J with exclusive rights to manufacture,
sell and distribute licensed frozen juice products under the MINUTE MAID brand.
This past summer, our MINUTE MAID Soft Frozen Lemonade even made its way to the
McDonald's** Dollar Menu in key Mid-Atlantic regions. Humans of all ages can't
help but succumb to their cool taste.
We Protect and Serve Our Kids
J&J Snack Foods has always been committed to providing delicious and nutritious
snacks to America's schoolchildren. As a Patron Member of the American School
Food Service Association we constantly work to ensure the best nutrition for
students. Our good work has paid dividends... MINUTE MAID Juice Bars - made with
90% real fruit juice - stand tall as the #1 menued frozen juice bar with more
than 80 million served this year! They proudly carry the Child Nutrition (CN)
Label and satisfy the fruit components for the National School Lunch/Breakfast
Program, as do our SHAPE UPS Frozen Juice Cups. These juice-based frozen
desserts come with holiday themed lids, making them the ideal choice for festive
snacking. These two frozen treats, along with our SUPERPRETZEL Soft Pretzel Fun
Shapes and CAMDEN CREEK Themed Cookies help J&J rule in school.
Sending In Food Service Reinforcements
When it comes to MINUTE MAID Juice Bars, it's okay to be blue... blue raspberry,
that is! Introduced to school food service, this expands our flavor offerings to
eight. We expanded the CHILL brand with the addition of CHILL Cotton Candy
Meltdown in squeeze tubes, which was introduced in leisure and theme parks. And
our partnership with The Coca-Cola Company has produced yet another promising
result, BARQ'S*** Frozen Root Beer & Vanilla Ice Cream Float for a mid-season
test in club stores. Onward and upward!
Conquering the Freezer Case
J&J's ongoing battle in the retail supermarket during fiscal 2002 was worth the
effort. We experienced a 7% sales increase... no surprise considering the
caliber of our ammunition. LUIGI'S Real Italian Ice - the #1 selling Italian ice
- - led the charge with a double-digit sales gain, benefiting from increased sales
of existing varieties and the national rollout of LUIGI'S SWIRL, a twisted
mixing of two mouth-watering flavors in one delicious treat.
Our MINUTE MAID retail brand experienced growth as well. This line is comprised
of MINUTE MAID Juice Bars, MINUTE MAID Soft Frozen Lemonade and MINUTE MAID
Fruit & Cream Swirl, an orange sorbet and vanilla ice cream combo introduced in
2002. What a super lineup!
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
**McDonald's is a registered trademark of McDonald's Corporation.
***Barq's is a registered trademark of Barq's Inc.
More Snacks
J&J also wages battle against hunger and humdrum snacks with our dynamic lineup
of niche snack foods and bakery items that include cookies, churros and funnel
cakes. The competition takes notice as we face the snacking world head-on and
make our presence known.
Food Service Cookies... Moving at Warp Speed
Sales of our food service branded cookies continue to gain momentum, finishing
2002 with an 18% increase. Our products include frozen cookie dough, pre-baked
cookies and packaged cookies bearing the brand names MRS. GOODCOOKIE, CAMDEN
CREEK and others.
To ensure the citizens of our great country are served the very best, we
researched and reformulated our MRS. GOODCOOKIE product to invent an even better
taste and a more aesthetically pleasing look and feel. And, to capitalize on the
equity and consumer recognition of the ICEE brand, we added ICEE Cookies to our
lineup. These shaped cookies are red and blue and depict ICEE brand images...
what a cool weapon against boring snacks! These, plus our successful efforts to
increase distribution into the growing fundraising channel for our cookie brands
mean it's full speed ahead for food service.
An Arsenal of Options
Our other bakery products, which include frozen cookie dough, commercial
specialty baking products, contract private label products and organically
certified baked goods, posted a slight sales increase in 2002. And our fresh
bakery products, which include bagels, donuts, muffins, cookies and fresh-baked
soft pretzels added reinforcements to our food service arsenal as well.
TIO PEPE'S Expands On All Fronts
The expansion of TIO PEPE'S Churros (crispy, cinnamon donut-like snacks)
continues, as the product further infiltrates the United States and abroad -
especially the Asia-Pacific region. Sales of churros continue to grow in both
the food service and retail supermarket sectors. In school food service, our
fruit-filled churros are being enjoyed by the children who love them, and by
School Food Service Directors who appreciate that they satisfy both bread and
fruit requirements for the U.S.D.A. National School Lunch/Breakfast Program.
Funnel Cakes Poised to Strike Back
Fiscal 2002 was an excellent year for J&J Snack Foods. However, our funnel
cakes, sold under THE FUNNEL CAKE FACTORY brand name through our food service
division experienced a modest decline in 2002. As families traveled less,
attendance at leisure and theme parks, the main distribution channel for funnel
cakes, declined. But have no fear... as citizens everywhere get back to doing
the things they love, THE FUNNEL CAKE FACTORY Funnel Cakes will be ready. And
they will continue as yet another menu item in schools that satisfy bread
requirements for the U.S.D.A. National School Lunch/Breakfast Program.
The forces of hunger and thirst are relentless. J&J Snack Foods remains
undaunted in our task to win this never-ending battle. So be brave citizens, and
remember, J&J is a force to be reckoned with... we will prevail!
J&J Snack Foods Corp.
FAMILY OF BRANDS
Management's Discussion and Analysis
of Financial Condition and Results of Operations
In addition to historical information, this discussion and analysis contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
Critical Accounting Policies, Judgments and Estimates
An understanding of our accounting policies is necessary for a complete analysis
of our results, financial position, liquidity and trends. We focus your
attention on the following:
Principles of Consolidation - Our accounting and reporting policies conform to
accounting principles generally accepted in the United States of America. Our
consolidated financial statements include the accounts of the Company, and all
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Revenue Recognition - We recognize revenue from snack food and frozen beverage
products at the time the products are shipped to third parties. When we perform
services under our service contracts for frozen beverage dispenser machines,
revenue is recognized upon the completion of the services on specified machines.
We provide an allowance for doubtful receivables after taking into consideration
historical experience and other factors.
Our product cost includes amounts for shipping and handling; therefore, we
charge our customers shipping and handling fees at the time the products are
shipped or when our services are performed. The cost of shipping products to the
customer is recognized at the time the products are shipped to the customer and
is included in distribution expenses.
We also sell service contracts covering frozen beverage machines. The terms of
coverage range between 12 and 60 months. We record deferred income on service
contracts, which is amortized by the straight-line method over the term of the
contracts.
Use of Estimates - In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America, we are
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the 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. Actual results could differ from those
estimates.
Asset Impairment - We completed documentation of our transitional goodwill
impairment tests during the quarter ended March 30, 2002 and did not record any
transitional goodwill impairment loss as a result of our adoption of SFAS No.
142. There were no changes in the carrying amount of goodwill for the fiscal
year ended September 28, 2002.
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 fiscal year ended September 28, 2002. Additionally, we
did not record any transition intangible asset impairment loss upon adoption of
SFAS No.142.
Income Taxes - We account for our income taxes under the liability method. Under
the liability method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities
Interest Rate Risk Management - As part of our risk management activities, we
use interest rate swaps to modify the interest rate characteristics of certain
long-term obligations. We hold no other derivatives or similar instruments. The
derivatives contracts are designated as hedges when acquired. They are expected
to be effective economic hedges and have high correlation with the items being
hedged at inception and throughout the hedge period. The variable interest rate
of swap contracts are referenced to the same index as the variable interest rate
of the debt being hedged.
Interest rate swaps are accounted for using the accrual method, with an
adjustment to interest expense in the income statement. Interest receivable or
payable under the swap contracts is included in receivables or accounts payable.
Unrealized gains and losses on the swaps are not recognized in the balance
sheet. Realized gains and losses from disposition or settlement of swap
contracts are deferred on the balance sheet and amortized to interest expense
over the appropriate period.
Commodity Price Risk Management - Our most significant raw material requirements
include flour, shortening, corn syrup, chocolate and macadamia nuts. We attempt
to minimize the effect of future price fluctuations related to the purchase of
raw materials primarily through forward purchasing to cover future manufacturing
requirements, generally for periods from 1 to 24 months. Futures contracts are
not used in combination with forward purchasing of these raw materials. Our
procurement practices are intended to reduce the risk of future price increases,
but also may potentially limit the ability to benefit from possible price
decreases.
Commitments and Contingencies - We are a party to litigation that we currently
believe will not have a material adverse effect on our financial condition or
results of operations. We recognize liabilities for contingencies and
commitments when a loss is probable and estimable. Our contractual and other
commercial obligations primarily relate to the procurement of goods and services
in the normal course of business.
Refer to Note A to the consolidated financial statements for additional
information on our accounting policies.
RESULTS OF OPERATIONS
Fiscal 2002 (52 weeks) Compared to Fiscal 2001 (52 weeks)
Net sales increased $24,852,000 or 8% to $353,187,000 in fiscal 2002 from
$328,335,000 in fiscal 2001.
We have four reportable segments, as disclosed in the notes to the consolidated
financial statements: Food Service, Retail Supermarkets, The Restaurant Group
and Frozen Beverages.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and The
Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages
monthly review and evaluate operating income and sales in order to assess
performance and allocate resources to each individual segment. In addition, the
Chief Operating Decision Makers review and evaluate depreciation, capital
spending and assets of each segment on a quarterly basis to monitor cash flow
and asset needs of each segment.
Food Service
Sales to food service customers increased $13,846,000 or 8% to $185,219,000 in
fiscal 2002. Soft pretzel sales to the food service market increased 8% to
$65,902,000 for the 2002 year. Sales of bakery products increased $5,814,000 or
10% to $63,771,000 in fiscal 2002 due to increased unit sales across our
customer base due in part to our acquisition of Uptown Bakery in November 2000.
Churro sales increased 7% to $12,530,000. Frozen juice bars and ices sales
increased 10% to $36,798,000. All of the increases in sales throughout the food
service segment were primarily the result of changes in unit volume.
Retail Supermarkets
Sales of products to retail supermarkets increased $2,290,000 or 6% to
$41,366,000 in fiscal 2002. Total soft pretzel sales to retail supermarkets were
$16,794,000, an increase of 4% from fiscal 2001. Sales of our flagship
SUPERPRETZEL brand soft pretzels increased 5% to $15,497,000. Sales of frozen
juice bars and ices increased $1,745,000 or 7% to $25,458,000 in 2002 from
$23,713,000 in 2001 due to increased volume of LUIGI'S Real Italian Ice and the
Company's MINUTE MAID* brand licensed products.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and
PRETZEL GOURMET retail stores in the Mid-Atlantic region, declined by 11%,
primarily due to reduced mall traffic and closings of unprofitable stores.
Frozen Beverages
Frozen beverage and related product sales increased $10,035,000 or 9% to
$115,878,000 in fiscal 2002. Beverage sales alone increased 2% to $91,366,000
for the year. Service revenue increased $5,625,000, or 64% to $14,443,000 for
the year.
Sales to certain of our mass merchandising customers decreased in 2002 and are
expected to further decline in 2003 as a result of store closings and other
factors affecting their operations.
Consolidated
Gross profit increased to 34% of sales in 2002 from 33% of sales in 2001
primarily due to efficiencies resulting from higher volume. Gross profit was
impacted by higher property and casualty insurance costs of approximately
$900,000 for the year. The higher costs were due to market conditions and our
own claims experience.
Total operating expenses increased $3,640,000 to $91,191,000 in fiscal 2002 but
as a percentage of sales decreased to 26% in 2002 from 27% in 2001. The
percentage decrease was mainly attributable to our adoption of SFAS No.142 which
eliminated the amortization of goodwill. Marketing expenses increased less than
1/4 of 1 percent to 15% of sales in fiscal 2002 from 14% in 2001. Distribution
expenses decreased less than 1/2 of 1 percent of sales to 7% from 8% last year
because of lower fuel prices early in the year and efficiencies related to
higher volume. Administrative expenses were 4% in both years. Other general
income declined to $19,000 in 2002 compared to other general income of $620,000
in 2001. Other general income in 2001 included gains from insurance proceeds.
Operating income increased $7,097,000 or 34% to $28,266,000 in fiscal 2002.
Interest expense decreased $2,662,000 to $521,000 in fiscal 2002 due to the
paydown of debt and lower interest rates. As of September 28, 2002, we have
repaid all of our long-term debt.
The effective income tax rate was 35% in fiscal 2002 and 36% in fiscal 2001.
Net earnings increased $6,237,000 or 53% in fiscal 2002 to $18,113,000 or $1.99
per fully diluted share.
* MINUTE MAID is a registered trademark of The Coca-Cola Company.
RESULTS OF OPERATIONS
Fiscal 2001 (52 weeks) Compared to Fiscal 2000 (53 weeks)
Net sales increased $31,503,000 or 11% to $328,335,000 in fiscal 2001 from
$296,832,000 in fiscal 2000. Excluding sales resulting from acquisitions, sales
increased 5% for the 52 weeks compared to the 53 weeks in fiscal 2000.
We have four reportable segments, as disclosed in the notes to the consolidated
financial statements: Food Service, Retail Supermarkets, The Restaurant Group
and Frozen Beverages.
Food Service
Sales to food service customers increased $23,780,000 or 16% to $171,373,000 in
fiscal 2001. Excluding sales resulting from acquisitions, sales would have
increased approximately 4% for the year. Soft pretzel sales to the food service
market increased 2% to $61,520,000 for the 2001 year. Excluding sales resulting
from acquisitions, food service soft pretzel sales would have decreased
approximately 3%. Sales of bakery products increased $16,952,000 or 41% to
$57,957,000 in fiscal 2001 due to increased unit sales across our customer base
and the acquisition of Uptown Bakery. Churro sales increased 3% to $11,478,000.
Frozen juice bars and ices sales increased 16% to $33,558,000. Approximately 40%
of the frozen juice bars and ices sales increase resulted from acquisitions.
Sales of cookies to food service customers increased $2,346,000, or 20%, to
$13,943,000 for the year. All of the increases and decreases in sales throughout
the food service segment were primarily the result of changes in unit volume.
Retail Supermarkets
Sales of products to retail supermarkets increased $6,830,000 or 21% to
$39,076,000 in fiscal 2001. Total soft pretzel sales to retail supermarkets were
$16,197,000, an increase of 4% from fiscal 2000. Sales of our flagship
SUPERPRETZEL brand soft pretzels increased 3% to $14,817,000. Sales of frozen
juice bars and ices increased $6,472,000 or 38% to $23,713,000 in 2001 from
$17,241,000 in 2000 due to increased volume of LUIGI'S Real Italian Ice and the
Company's MINUTE MAID* brand licensed products.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and
PRETZEL GOURMET retail stores in the Mid-Atlantic region, declined by 6%,
primarily due to reduced mall traffic and closings of unprofitable stores.
Frozen Beverages
Frozen beverage and related product sales increased $1,672,000 or 2% to
$105,843,000 in fiscal 2001. Beverage sales alone increased 2% to $89,930,000
for the year although gross profit on beverage sales was essentially unchanged
for the year. Service revenue increased $1,433,000, or 13% to $12,396,000 for
the year.
Consolidated
Gross profit decreased to 33% of sales in 2001 from 35% of sales in 2000.
Approximately 85% of the decrease is due to the inclusion of Uptown Bakeries
since the acquisition in November 2000 which had a low gross profit percentage
relative to the balance of our business. Gross profit was impacted by higher
property and casualty insurance costs of approximately $1,500,000 for the year.
The higher costs were due to market conditions and our own claims experience.
Total operating expenses increased $2,247,000 to $87,551,000 in fiscal 2001 and
as a percentage of sales decreased to 27% in 2001 from 29% in 2000. Marketing
expenses decreased to 14% of sales in fiscal 2001 from 15% in 2000 because of
the inclusion of Uptown Bakeries which had no significant marketing expenses.
Distribution and administrative expenses were 8% and 4%, respectively, in both
years.
Operating income increased $3,063,000 or 17% to $21,169,000 in fiscal 2001.
Interest expense increased $428,000 to $3,183,000 in fiscal 2001 due to debt
incurred to fund acquisitions and a $213,000 charge to writedown a swap
agreement to fair value.
Other general income increased $1,326,000 to $620,000 in 2001 compared to other
general expense of $706,000 in 2000, primarily due to insurance gains in 2001
compared to the writedown to its net realizable value of property held for sale
in 2000.
The effective income tax rate was 36% in fiscal 2001 and 37% in fiscal 2000.
Net earnings increased $1,908,000 or 19% in fiscal 2001 to $11,876,000 or $1.36
per fully diluted share.
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
ACQUISITIONS, LIQUIDITY AND CAPITAL RESOURCES
In November 2000, we acquired the assets of Uptown Bakeries for cash. Uptown
Bakeries, located in Bridgeport, NJ, sells bakery items to the food service
industry with approximate annual sales of $17,000,000.
This acquisition was accounted for under the purchase method of accounting, and
its operations are included in the consolidated financial statements from the
acquisition date.
Our future expected operating cash flow along with our borrowing capacity are
our primary sources of liquidity and we believe that these sources are
sufficient to fund future growth and expansion.
Fluctuations in the value of the Mexican peso and the resulting revaluation of
the net assets of our Mexican frozen beverage subsidiary caused decreases of
$151,000, $25,000 and $15,000 in accumulated other comprehensive loss in the
2002, 2001 and 2000 fiscal years, respectively. In 2002, sales of the Mexican
subsidiary were $3,819,000 as compared to $3,248,000 in 2001.
In fiscal year 2001, we purchased and retired 111,000 shares of our common stock
at a cost of $1,431,000. In fiscal year 2000, we purchased and retired 614,000
shares of our common stock at a cost of $9,834,000.
Under a buyback authorization approved by the Board of Directors in 1999,
275,000 shares remain to be purchased at September 28, 2002.
In December 2001, we refinanced our general-purpose bank credit line. There were
no outstanding balances under this facility at September 28, 2002. This
agreement provides for a $50,000,000 revolving credit facility. The new
agreement contains restrictive covenants and requires commitment fees in
accordance with standard banking practice.
In December 2001, we borrowed $5,000,000 on our general-purpose bank credit line
to pay off early our $5,000,000 7.25% redeemable economic development revenue
bond originally payable December 2005.
The following table presents our contractual cash flow commitments on long-term
debt and operating leases. See Notes H and K to the consolidated financial
statements for additional information on our long-term debt and operating
leases.
Payments Due by Period
Less
Than 1-3 4-5 After
Total 1 Year Years Years 5 Years
(in thousands)
Long-term debt,
including
current
maturities $ - $ - $ - $ - $ -
Operating
leases 42,565 8,734 11,641 6,548 15,642
Total $42,565 $8,734 $11,641 $6,548 $15,642
As of September 28, 2002, we were committed to purchasing approximately
$11,000,000 of ingredients and packaging in fiscal year 2003. These commitments
do not exceed our projected requirements over the related terms and are in the
normal course of business.
Effective December 30, 2001, we adopted the provisions of Emerging Issues Task
Force (EITF) Issue No. 01-9, "Accounting for Consideration Given by a Vendor to
a Customer or a Reseller of the Vendor's Products." EITF Issue No. 01-9
addressed various issues related to the income statement classification of
certain promotional payments, including consideration from a vendor to a
reseller or another party that purchases the vendor's products.
Upon adoption, we reduced both net sales and marketing expenses by $23,361,000
and $21,658,000 for the years ended 2001 and 2000, respectively. EITF Issue No.
01-9 requires certain marketing expenses incurred by the Company, not previously
reclassified, to be classified as deductions from revenue. These
reclassifications have no impact on reported operating income or net earnings or
earnings per share.
On December 30, 2001, we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," (SFAS No. 144). SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," but it retains many of the fundamental provisions of
that Statement. The adoption did not have a material effect on our financial
statements.
On October 1, 2001, we adopted SFAS No. 133, as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." Based on our minimal use of derivatives, the adoption of this
standard did not have a significant impact on our earnings or financial
position.
On September 30, 2001, we adopted SFAS No. 142 "Goodwill and Intangible
Assets" (SFAS No. 142). SFAS No. 142 includes requirements to annually test
goodwill and indefinite lived intangible assets for impairment rather than
amortize them; accordingly, we no longer amortize goodwill, thereby eliminating
an annual amortization charge of approximately $2,600,000. We have completed
documentation of our transitional goodwill impairment tests and have not
recorded any transitional goodwill impairment loss as a result of our adoption
of SFAS No. 142. Additionally, we did not record any transitional intangible
asset impairment loss upon adoption of SFAS No. 142.
Fiscal 2002 Compared to Fiscal 2001
Cash increased 90% to $14,158,000 from a year ago because we generated cash from
operations in excess of the amount needed to pay off our long-term debt.
Trade receivables increased $1,421,000 or 4% to $36,922,000 and inventories
increased $450,000 or 2% to $22,199,000 in 2002 due to increased levels of
business.
Property, plant and equipment decreased $10,346,000 to $94,410,000 because
expenditures for dispensers required for the expansion of our frozen beverage
business, for ovens and portable merchandisers required for the expansion of our
food service business and for the expansion and upgrading of production
capability at our manufacturing facilities was approximately $10,000,000 less
than depreciation of existing assets.
Other intangible assets, less accumulated amortization decreased $309,000 to
$1,539,000 due to amortization.
Accounts payable and accrued liabilities decreased $318,000 in 2002 from
$40,562,000 in 2001.
Current maturities of long-term debt decreased by $115,000 to $0 and long-term
debt, less current maturities decreased by $28,368,000 to $0 due to our
repayment of long-term debt.
Deferred income taxes increased by $1,578,000 to $10,806,000 which related
primarily to depreciation of property, plant and equipment.
Common stock increased $4,604,000 to $34,025,000 in 2002 because of the exercise
of incentive stock options and stock issued under our stock purchase plan for
employees.
Net cash provided by operating activities increased $1,629,000 to $51,083,000 in
2002 primarily due to increased net earnings and deferred income taxes and a
smaller increase in accounts receivable, which was partially offset by a lower
increase in accounts payable and accrued liabilities.
Net cash used in investing activities decreased $8,600,000 to $19,488,000 in
2002 primarily because in 2001 we paid $11,330,000 to purchase companies and had
no acquisitions in 2002.
Net cash used in financing activities increased $9,566,000 in 2002 to
$24,874,000 from $15,308,000 in 2001. The increase of $9,566,000 was the result
of our repayment of approximately $12,000,000 of additional long-term debt
compared to 2001.
Fiscal 2001 Compared to Fiscal 2000
Trade receivables increased $2,533,000 or 7% to $35,501,000 in 2001 due
primarily to the receivables of Uptown Bakeries, which we acquired in November
2000. Inventories increased $276,000 or 1% to $21,749,000 in 2001.
Property, plant and equipment decreased $4,413,000 to $104,756,000 because
expenditures for dispensers required for the expansion of our frozen beverage
business, for ovens and portable merchandisers required for the expansion of our
food service business and for the expansion and upgrading of production
capability at our manufacturing facilities was approximately $13,000,000 less
than depreciation of existing assets which was partially offset by the property,
plant and equipment acquired in the Uptown Bakeries' acquisition.
Goodwill, trademarks and rights, net of accumulated amortization decreased
$1,070,000 to $47,698,000 due to amortization net of the acquisition of the
CHILL brand fruit ice license agreement.
Accounts payable and accrued liabilities increased $5,039,000 in 2001 from
$33,641,000 in 2000 due primarily to an increase in income taxes payable
resulting from a change in the due date of the September 15 federal estimated
tax payment to October 1.
Current maturities of long-term debt decreased by $2,071,000 to $115,000 and
long-term debt, less current maturities decreased by $14,113,000 to $28,368,000
primarily due to the paydown of debt.
Deferred income taxes increased by $888,000 to $9,228,000 which related
primarily to disposals and depreciation of property, plant and equipment.
Common stock increased $1,018,000 to $29,421,000 in 2001 because of the exercise
of incentive stock options and stock issued under our stock purchase plan for
employees.
Net cash provided by operating activities increased $12,248,000 to $49,454,000
in 2001 primarily due to increased net earnings, depreciation and amortization
of fixed assets, deferred income taxes and accounts payable and accrued
liabilities.
Net cash used in investing activities decreased $6,995,000 to $28,088,000 in
2001 primarily due to decreased purchases of property, plant and equipment.
Net cash used in financing activities increased $8,619,000 in 2001 to
$15,308,000 from $6,689,000 in 2000. The increase of $8,619,000 was the
result of net paydown in borrowings in 2001 of $16,184,000 compared to an
increase in borrowings of $1,793,000 in 2000 offset by a decrease of
$8,403,000 in payments to repurchase common stock.
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(52 weeks) (52 weeks) (53 weeks)
(in thousands, except per share information)
Net Sales $353,187 $328,335 $296,832
Cost of goods sold 233,730 219,615 193,422
Gross profit 119,457 108,720 103,410
Operating expenses
Marketing 51,466 47,124 45,245
Distribution 26,041 25,594 25,032
Administrative 13,703 12,840 11,699
Amortization of goodwill - 2,613 2,622
Other general (income) expense (19) (620) 706
91,191 87,551 85,304
Operating income 28,266 21,169 18,106
Other income (expenses)
Investment income 268 356 409
Interest expense (521) (3,183) (2,755)
Other - 213 63
(253) (2,614) (2,283)
Earnings before income taxes 28,013 18,555 15,823
Income taxes 9,900 6,679 5,855
NET EARNINGS $ 18,113 $ 11,876 $ 9,968
Earnings per diluted share $1.99 $1.36 $1.10
Weighted-average number of diluted shares 9,093 8,754 9,063
Earnings per basic share $2.07 $1.40 $1.13
Weighted-average number of basic shares 8,770 8,502 8,819
The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets
September 28, September 29,
2002 2001
(in thousands,
except share amounts)
Assets
Current Assets
Cash and cash equivalents $14,158 $7,437
Receivables
Trade, less allowances of $1,839
and $1,672, respectively 36,922 35,501
Other 1,016 1,517
Inventories 22,199 21,749
Prepaid expenses and other 1,072 1,197
Total current assets 75,367 67,401
Property, Plant and Equipment, at cost 290,340 279,423
Less accumulated depreciation
and amortization 195,930 174,667
94,410 104,756
Other Assets
Goodwill 45,850 45,850
Other intangible assets, net 1,539 1,848
Long-term investment securities held to maturity 675 1,515
Other 2,195 3,111
50,259 52,324
$220,036 $224,481
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt $ - $ 115
Accounts payable 27,683 24,515
Accrued liabilities 12,561 16,047
Total current liabilities 40,244 40,677
Long-Term Debt, less current maturities - 28,368
Deferred Income Taxes 10,806 9,228
Other long-term liabilities 277 65
Stockholders' Equity
Preferred stock, $1 par value; authorized,
5,000,000 shares; none issued - -
Common stock, no par value; authorized,
25,000,000 shares; issued and outstanding,
8,903,000 and 8,636,000 respectively 34,025 29,421
Accumulated other comprehensive loss (1,792) (1,641)
Retained earnings 136,476 118,363
168,709 146,143
$220,036 $224,481
The accompanying notes are an integral part of these statements.
Consolidated Statement of Changes in Stockholders' Equity
Accumulated
Other
Common Stock Compre- Retained Compre-
hensive hensive
Shares Amount Loss Earnings Total Income
(in thousands)
Balance at September
26, 1999 9,000 $36,251 $(1,601) $96,519 $131,169
Issuance of common
stock upon exercise
of stock options 118 1,688 - - 1,688
Issuance of common
stock for employee
stock purchase plan 18 298 - - 298
Foreign currency
translation adjustment - - (15) - (15) $(15)
Repurchase of common
stock (614) (9,834) - - (9,834)
Net earnings - - - 9,968 9,968 9,968
Comprehensive income - - - - - $9,953
Balance at September
30, 2000 8,522 $28,403 $(1,616)$106,487 $133,274
Issuance of common
stock upon exercise
of stock options 207 2,194 - - 2,194
Issuance of common
stock for employee
stock purchase plan 18 255 - - 255
Foreign currency
translation adjustment - - (25) - (25) $(25)
Repurchase of common
stock (111) (1,431) - - (1,431)
Net earnings - - - 11,876 11,876 11,876
Comprehensive income - - - - - $11,851
Balance at September
29, 2001 8,636 $29,421 $(1,641)$118,363 $146,143
Issuance of common
stock upon exercise
of stock options 254 4,336 - - 4,336
Issuance of common
stock for employee
stock purchase plan 13 268 - - 268
Foreign currency
translation adjustment - - (151) - (151) $(151)
Net earnings - - - 18,113 18,113 18,113
Comprehensive income - - - - - $17,962
Balance at September
28, 2002 8,903 $34,025 $(1,792)$136,476 $168,709
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows
Fiscal year ended
Sept. 28, Sept. 29, Sept. 30,
2002 2001 2000
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Operating activities:
Net earnings $18,113 $11,876 $9,968
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization
of fixed assets 30,252 30,170 26,947
Amortization of intangibles and
deferred costs 734 3,346 3,435
Losses (gains) from disposals and
write-downs of property &
equipment 255 (330) 830
Increase in deferred income
taxes 1,578 888 638
Changes in assets and liabilities,
net of effects from purchase of
companies:
Increase in accounts receivable (1,068) (3,411) (1,783)
Increase in inventories (207) (361) (4,997)
Decrease (increase) in prepaid
expenses and other 125 221 (288)
Increase in accounts payable
and accrued liabilities 1,301 7,055 2,456
Net cash provided by operating
activities 51,083 49,454 37,206
Investing activities:
Purchases of property, plant and
equipment (20,479) (17,127) (34,928)
Payments for purchase of companies,
net of cash acquired and debt assumed - (11,330) (1,280)
Proceeds from investments held
to maturity 840 105 1,229
Proceeds from disposal of property
and equipment 167 824 428
Other (16) (560) (532)
Net cash used in investing
activities (19,488) (28,088) (35,083)
Financing activities:
Proceeds from borrowings 24,000 13,000 11,000
Proceeds from issuance of common stock 3,195 2,307 1,352
Payments to repurchase common stock - (1,431) (9,834)
Payments of long-term debt (52,069) (29,184) (9,207)
Net cash used in financing
activities (24,874) (15,308) (6,689)
Net increase (decrease) in cash
and cash equivalents 6,721 6,058 (4,566)
Cash and cash equivalents at
beginning of year 7,437 1,379 5,945
Cash and cash equivalents at
end of year $14,158 $7,437 $1,379
The accompanying notes are an integral part of these statements.
Notes to consolidated financial statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
J&J Snack Foods Corp. and Subsidiaries (the Company) manufactures, markets and
distributes a variety of nutritional snack foods and beverages to the food
service and retail supermarket industries. A summary of the significant
accounting policies consistently applied in the preparation of the accompanying
consolidated financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of J&J Snack Foods
Corp. and its wholly owned subsidiaries. Intercompany balances and transactions
have been eliminated in the consolidated financial statements.
2. Revenue Recognition
We recognize revenue from Food Service, Retail Supermarkets, The Restaurant
Group and Frozen Beverage products at the time the products are shipped to third
parties. When we perform services under service contracts for frozen beverage
dispenser machines, revenue is recognized upon the completion of the services on
specified machines. We provide an allowance for doubtful receivables after
taking into consideration historical experience and other factors.
Effective December 30, 2001, we adopted the provisions of Emerging Issues Task
Force (EITF) Issue No. 01-9, "Accounting for Consideration Given by a Vendor to
a Customer or a Reseller of the Vendor's Products." EITF Issue No. 01-9
addressed various issues related to the income statement classification of
certain promotional payments, including consideration from a vendor to a
reseller or another party that purchases the vendor's products.
Upon adoption, we reduced both net sales and marketing expenses by $23,361,000
and $21,658,000 for the years ended 2001 and 2000, respectively. EITF Issue No.
01-9 requires certain marketing expenses incurred by us, not previously
reclassified, to be classified as deductions from revenue. These
reclassifications have no impact on reported operating income or net earnings or
earnings per share.
In September 2000, the EITF reached a consensus on Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs" (Issue No. 00-10). Issue No. 00-10
requires that all amounts billed to customers related to shipping and handling
should be classified as revenues. Our product costs include amounts for shipping
and handling, therefore, we charge our customers shipping and handling fees at
the time the products are shipped or when services are performed. The cost of
shipping products to the customer is recognized at the time the products are
shipped to the customer and is included in distribution expenses. Accordingly,
this consensus opinion had no effect on our current and previous
classifications.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101) which
addresses certain criteria for revenue recognition. SAB 101 outlines the
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. We implemented the
provisions of SAB 101 on October 1, 2000. Our revenue recognition policies
complied with the guidance contained in SAB 101 and, therefore, our results of
operations were not materially affected.
We also sell service contracts covering frozen beverage machines. The terms of
coverage range between 12 and 60 months. We record deferred income on service
contracts which is amortized by the straight-line method over the term of the
contracts.
During the years ended September 28, 2002 and September 29, 2001, we sold
$2,281,000 and $1,329,000, respectively, of service contracts related to our
frozen beverage machines. At September 28, 2002 and September 29, 2001, deferred
income on service contracts was $1,345,000 and $533,000, respectively, of which
$278,000 is included in other long-term liabilities as of September 28, 2002 and
the balance is reflected as short-term and included in accrued liabilities on
the consolidated balance sheet. Service contract income of $1,468,000, $948,000
and $1,143,000 was recognized for the fiscal years ended 2002, 2001 and 2000,
respectively.
3. Foreign Currency
Assets and liabilities in foreign currencies are translated into U.S. dollars at
the rate of exchange prevailing at the balance sheet date. Revenues and expenses
are translated at the average rate of exchange for the period. The cumulative
translation adjustment is recorded as a separate component of stockholders'
equity.
4. Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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. Actual results could differ from those estimates.
5. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less.
6. Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited due
to the dispersion of our customers over different industries and geographies.
7. Inventories
Inventories are valued at the lower of cost (determined by the first-in, first-
out method) or market.
8. Investment Securities
We classify our investments in securities in one of two categories: held to
maturity and available for sale. Debt securities that we have the positive
intent and ability to hold to maturity are classified as held to maturity and
are reported at amortized cost. The balance of our debt securities and any
equity securities are classified as available for sale.
Net unrealized gains and losses, if significant, on such securities, net of
income tax, are reported as a separate component of stockholders' equity and
excluded from the determination of net income.
9. Depreciation and Amortization
Depreciation of equipment and buildings is provided for by the straight-line
method over the assets' estimated useful lives. Amortization of improvements is
provided for by the straight-line method over the term of the lease or the
assets' estimated useful lives, whichever is shorter. Licenses and rights
arising from acquisitions are amortized by the straight-line method over periods
ranging from 4 to 20 years.
On December 30, 2001, we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," (SFAS No. 144). SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," but it retains many of the fundamental provisions of
that Statement. The adoption did not have a material effect on our financial
statements.
10. Fair Value of Financial Instruments
The carrying value of our short-term financial instruments, such as receivables
and accounts payable, approximate their fair values, based on the short-term
maturities of these instruments. The carrying value of long-term debt
obligations, consisting primarily of an unsecured term note and an unsecured
general purpose credit line with interest rates based on current short-term
market rates, approximated the fair value at September 29, 2001. We had no long-
term debt at September 28, 2002.
11. Income Taxes
We account for our income taxes under the liability method. Under the liability
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
12. Earnings Per Common Share
We follow SFAS No. 128, "Earnings Per Share" (EPS). Basic EPS excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average common shares outstanding during the period. Diluted EPS
takes into consideration the potential dilution that could occur if securities
(stock options) or other contracts to issue common stock were exercised and
converted into common stock.
13. Accounting for Stock-Based Compensation
We follow SFAS No. 123, "Accounting for Stock-Based Compensation," which
contains a fair value-based method for valuing stock-based compensation that
entities may use, which measures compensation cost at the grant date based on
the fair value of the award. Compensation is then recognized over the service
period, which is usually the vesting period. We have chosen an alternative,
permitted by the standard, to continue accounting for employee stock options and
similar equity instruments under APB Opinion No. 25, "Accounting for Stock
Issued to Employees."
14. Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense was
$1,619,000, $1,765,000, and $1,730,000 for the fiscal years 2002, 2001 and 2000,
respectively.
15. Interest Rate Risk Management
As part of our risk management activities, we use interest rate swaps to modify
the interest rate characteristics of certain long-term obligations. We hold no
other derivatives or similar instruments. The derivatives contracts are
designated as hedges when acquired.
They are expected to be effective economic hedges and have high correlation with
the items being hedged at inception and throughout the hedge period. The
variable interest rate of a swap contract is referenced to the same index as the
variable interest rate of the debt being hedged.
Interest rate swaps are accounted for using the accrual method, with an
adjustment to interest expense in the income statement. The effects of swap
positions are included in financing activities in the Statement of Cash Flows.
Interest receivable or payable under the swap contracts is included in
Receivables or Accounts Payable. Unrealized gains and losses on the swaps are
not recognized in the balance sheet. Realized gains and losses from disposition
or settlement of swap contracts are deferred on the balance sheet and amortized
to interest expense over the appropriate period.
If the hedged item is settled or terminated, deferred and/or unrecognized gains
or losses on the hedging instrument on that date are recognized as an adjustment
to the gain or loss on disposition or termination of the related hedged item.
Future accruals on the swap and subsequent gains and losses on the swap or
forward contract are included in income in the period they occur.
We follow SFAS No. 133, as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." Based on our minimal
use of derivatives, this standard does not have a significant impact on our
earnings or financial position.
16. Commodity Price Risk Management
Our most significant raw material requirements include flour, shortening, corn
syrup, chocolate and macadamia nuts. We attempt to minimize the effect of future
price fluctuations related to the purchase of raw materials primarily through
forward purchasing to cover future manufacturing requirements, generally for
periods from 1 to 24 months. As of September 28, 2002, we have approximately
$11,000,000 of such commitments. Futures contracts are not used in combination
with forward purchasing of these raw materials. Our procurement practices are
intended to reduce the risk of future price increases, but also may potentially
limit the ability to benefit from possible price decreases.
17. Comprehensive Income
We follow SFAS No. 130, "Reporting Comprehensive Income." This standard
established new standards for reporting comprehensive income, which includes net
income as well as certain other items which result in a change to equity during
the period.
18. Segment Reporting
We follow SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of our reportable segments.
19. Recent Accounting Pronouncements
Effective December 30, 2001, we adopted the provisions of EITF Issue No. 01-9,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products."
EITF Issue No. 01-9 addressed various issues related to the income statement
classification of certain promotional payments, including consideration from a
vendor to a reseller or another party that purchases the vendor's products.
Upon adoption, we reduced both net sales and marketing expenses by approximately
$23,361,000 and $21,658,000 for the years ended 2001 and 2000, respectively.
EITF Issue No. 01-9 requires certain marketing expenses incurred by the Company,
not previously reclassified, to be classified as deductions from revenue. These
reclassifications have no impact on reported operating income or net earnings or
earnings per share.
On September 30, 2001, we adopted SFAS No. 142 "Goodwill and Intangible
Assets" (SFAS No. 142). SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather than amortize them;
accordingly, we no longer amortize goodwill, thereby eliminating an annual
amortization charge of approximately $2,600,000. We have completed documentation
of our transitional goodwill impairment tests and have not recorded any
transitional goodwill impairment loss as a result of our adoption of SFAS No.
142. Additionally, we did not record any transition intangible asset impairment
loss upon adoption of SFAS No. 142.
20. Reclassifications
Certain prior year financial statement amounts have been reclassified to be
consistent with the presentation for the current year.
NOTE B - ACQUISITIONS
On November 20, 2000, we acquired the assets of Uptown Bakeries for cash. Uptown
Bakeries, located in Bridgeport, NJ, sells fresh bakery products to the food
service industry with approximate annual sales of $17 million.
This acquisition was accounted for under the purchase method of accounting, and
its operations are included in the consolidated financial statement from the
acquisition date.
NOTE C - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of our
long-term investment securities held to maturity at September 28, 2002 are
summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $675 $40 $ - $715
The amortized cost, gross unrealized gains and losses, and fair values of our
long-term investment securities held to maturity at September 29, 2001 are
summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $1,015 $30 $ - 1,045
Other debt securities 500 - - 500
$1,515 $30 $ - $1,545
The following table lists the maturities of long-term investment
securities classified as held to maturity at September 28, 2002:
Amortized Fair
Cost Value
(in thousands)
Due after one year through five years $675 $715
There were no proceeds from sales of securities in the past three years. We use
the specific identification method to determine the cost of securities sold.
NOTE D - INVENTORIES
Inventories consist of the following:
September 28, September 29,
2002 2001
(in thousands)
Finished goods $10,001 $9,965
Raw materials 2,846 2,509
Packaging materials 2,914 3,146
Equipment parts and other 6,438 6,129
$22,199 $21,749
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
September 28, September 29, Estimated
2002 2001 Useful Lives
(in thousands)
Land $756 $756 -
Buildings 5,456 5,456 15-39.5 years
Plant machinery
and equipment 88,908 85,312 5-10 years
Marketing equipment 171,429 164,381 5 years
Transportation equipment 828 796 5 years
Office equipment 6,832 7,420 3-5 years
Improvements 15,885 15,182 5-20 years
Construction in progress 246 120 -
$290,340 $279,423
NOTE F - GOODWILL AND INTANGIBLE ASSETS
On September 30, 2001, we adopted SFAS No. 142 "Goodwill and Intangible
Assets" (SFAS No. 142). SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather than amortize them;
accordingly, we no longer amortize goodwill, thereby eliminating an annual
amortization charge of approximately $2,600,000.
Our four reporting units, which are also reportable segments, are Food Service,
Retail Supermarket, The Restaurant Group and Frozen Beverages.
The carrying amount of acquired intangible assets for the reportable segments
are as follows:
September 28, 2002 September 29, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Food Service
Amortized intangible assets
Licenses and rights $2,066 $619 $2,066 $330
Retail Supermarket
Amortized intangible assets
Licenses and rights $ - $ - $ - $ -
The Restaurant Group
Amortized intangible assets
Licenses and rights $20 $19 $20 $15
Frozen Beverages
Amortized intangible assets
Licenses and rights $201 $110 $201 $94
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 fiscal year 2002 and an increase of $1,816,000 for fiscal
year 2001. Additionally, we did not record any transitional intangible asset
impairment loss upon adoption of SFAS No. 142. Aggregate amortization expense of
intangible assets for the fiscal years 2002, 2001 and 2000 was $309,000,
$271,000 and $223,000.
Estimated amortization expense for the next five fiscal years is approximately
$300,000 in 2003 and 2004, $200,000 in 2005, and $150,000 in 2006 and 2007.
Goodwill
The carrying amounts of goodwill for the reportable segments are as follows:
Food Retail Restaurant Frozen
Service Supermarkets Group Beverages Total
(in thousands)
Balance at
September 28, 2002 $14,241 $ - $438 $31,171 $45,850
Balance at
September 29, 2001 $14,241 $ - $438 $31,171 $45,850
There were no changes in the carrying amount of goodwill for the year ended
September 28, 2002. For the year ended September 29, 2001, the carrying amount
of goodwill decreased $2,615,000 as a result of amortization prior to adopting
SFAS No. 142.
We have completed documentation of our transitional goodwill impairment tests
and have not recorded any transitional goodwill impairment loss as a result of
our adoption of SFAS No. 142.
Reported net income, exclusive of amortization expense that is related to
goodwill that is no longer being amortized, would have been:
Fiscal year ended
September September September
2002 2001 2000
Reported net earnings $18,113 $11,876 $9,968
Goodwill amortization - 1,674 1,652
Adjusted net earnings $18,113 $13,550 $11,620
Basic earnings per share:
Reported net earnings $2.07 $1.40 $1.13
Goodwill amortization - .19 .19
Adjusted net earnings $2.07 $1.59 $1.32
Diluted earnings per share:
Reported net earnings $1.99 $1.36 $1.10
Goodwill amortization - .19 .18
Adjusted net earnings $1.99 $1.55 $1.28
NOTE G - Accrued liabilities
Included in accrued liabilities is accrued compensation of $6,121,000 and
$4,922,000 as of September 28, 2002 and September 29, 2001, respectively.
NOTE H - LONG-TERM DEBT
In December 2001, we refinanced our general-purpose bank credit line. There were
no outstanding balances under this facility at September 28, 2002 and the
Company has no outstanding long-term debt as of September 28, 2002. The
agreement provides for a $50,000,000 revolving credit facility repayable in
three years, with the availability of repayments without penalty. The agreement
contains restrictive covenants and requires commitment fees in accordance with
standard banking practice.
Long-term debt consists of the following:
September 28, September 29,
2002 2001
(in thousands)
Bank debt refinanced in 2002 $ - $23,000
$50,000,000 unsecured general-purpose bank
credit line, with interest rate tied to LIBOR with
interest payments due monthly (subject to
financial covenants), subsequently refinanced
as long-term, discussed above - -
7.25% redeemable economic development
revenue bonds payable December 2005;
interest payable semi-annually (subject to
financial covenants); paid off December 2001 - 5,000
Other - 483
- 28,483
Less current maturities - 115
$ - $28,368
NOTE I - INCOME TAXES
Income tax expense is as follows:
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(in thousands)
Current
U.S. Federal $7,510 $5,042 $4,697
Foreign 43 96 41
State 769 653 479
$8,322 $5,791 $5,217
Deferred
U.S. Federal $1,450 $816 $606
State 128 72 32
1,578 888 638
$9,900 $6,679 $5,855
The provisions for income taxes differ from the amounts computed by applying the
federal income tax rate of approximately 34% to earnings before income taxes for
the following reasons:
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(in thousands)
Income taxes at statutory rates $9,753 $6,309 $5,341
Increase (decrease) in
taxes resulting from:
State income taxes, net of federal
income tax benefit 552 360 337
Nontaxable income (14) (11) (28)
Other, net (391) 21 205
$9,900 $6,679 $5,855
Deferred tax assets and liabilities consist of the following:
September 28, September 29,
2002 2001
(in thousands)
Deferred tax assets
Vacation accrual $531 $483
Insurance accrual 1,068 899
Allowances 1,310 1,201
Other, net 465 407
3,374 2,990
Deferred tax liabilities
Depreciation of property and equipment 14,072 12,087
Other, net 108 131
14,180 12,218
$10,806 $9,228
NOTE J - EARNINGS PER SHARE
The Company's calculation of EPS is as follows:
Fiscal year ended September 28, 2002
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $18,113 8,770 $2.07
Effect of Dilutive Securities
Options - 323 (.08)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $18,113 9,093 $1.99
110,000 anti-dilutive weighted shares have been excluded in the computation of
2002 diluted EPS because the options' exercise price is greater than the average
market price of the common stock.
Fiscal year ended September 29, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $11,876 8,502 $1.40
Effect of Dilutive Securities
Options - 252 (.04)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $11,876 8,754 $1.36
294,167 anti-dilutive weighted shares have been excluded in the computation of
2001 diluted EPS because the options' exercise price is greater than the average
market price of the common stock.
Fiscal year ended September 30, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $9,968 8,819 $1.13
Effect of Dilutive Securities
Options - 244 (.03)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $9,968 9,063 $1.10
241,363 anti-dilutive weighted shares have been excluded in the computation of
2000 diluted EPS because the options' exercise price is greater than the average
market price of the common stock.
NOTE K - COMMITMENTS
1. Lease Commitments
The following is a summary of approximate future minimum rental commitments for
noncancelable operating leases with terms of more than one year as of September
28, 2002:
Plants and
Offices Equipment Total
(in thousands)
2003 $4,882 $3,852 $8,734
2004 4,215 2,768 6,983
2005 3,597 1,061 4,658
2006 3,193 294 3,487
2007 and thereafter 18,684 19 18,703
$34,571 $7,994 $42,565
Total rent expense was $10,017,000, $10,537,000 and $9,330,000 for fiscal years
2002, 2001 and 2000, respectively.
2. Other Commitments
We are a party to litigation which management currently believes will not have a
material adverse effect on our financial condition or results of operations.
We self-insure, up to loss limits, certain insurable risks such as worker's
compensation and automobile liability claims. Accruals for claims under our
self-insurance program are recorded on a claim-incurred basis. Under this
program, the estimated liability for claims incurred but unpaid in fiscal year
2002 and 2001 was $1,025,000 and $2,168,000, respectively. In connection with
certain self-insurance agreements, we customarily enter into letters of credit
arrangements with our insurers. At September 28, 2002 and September 29, 2001, we
had outstanding letters of credit totaling approximately $4,800,000 and
$3,000,000, respectively.
NOTE L - CAPITAL STOCK
Under our current share repurchase program authorized by the Board of Directors,
275,000 shares remain to be repurchased as of September 28, 2002. In fiscal year
2001, we purchased and retired 111,000 shares of our common stock at a cost of
$1,431,000. In fiscal year 2000, we purchased and retired 614,000 shares of our
common stock at a cost of $9,834,000.
NOTE M - STOCK OPTIONS
We have a Stock Option Plan (the "Plan"). Pursuant to the Plan, stock options
may be granted to officers and our key employees which qualify as incentive
stock options as well as stock options which are nonqualified. The exercise
price of incentive stock options is at least the fair market value of the common
stock on the date of grant. The exercise price for nonqualified options is
determined by a committee of the Board of Directors. The options are generally
exercisable after three years and expire no later than ten years from date of
grant. There were 2,000,000 shares reserved under the Plan; options for 0 shares
remain unissued as of September 28, 2002.
We have a nonqualified stock option plan for nonemployee directors and our Chief
Executive Officer whereby a total of 440,000 shares of common stock may be
issued. Under this plan, each nonemployee director is granted options to
purchase 3,000 shares of common stock, and the Chief Executive Officer is
granted options to purchase 25,000 shares annually. The option price is equal to
the fair market value of the common stock at the date of grant, and the options
expire ten years after date of grant. Other nonqualified options have been
issued to the Chief Executive Officer, directors and certain employees.
We have adopted only the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." It applies APB No. 25 and related interpretations in
accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans. Had compensation cost for the plans been
determined based on the fair value of the options at the grant date consistent
with SFAS No. 123, our net earnings and earnings per common share would have
been reduced to the pro forma amounts indicated below:
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(in thousands, except per share amounts)
Net Earnings:
As reported $18,113 $11,876 $9,968
Pro forma $16,760 $10,225 $8,609
Earnings Per Diluted Share:
As reported $1.99 $1.36 $1.10
Pro forma $1.84 $1.17 $.95
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
before October 1, 1995. The fair value of these options is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for grants in fiscal 2002, 2001 and 2000,
respectively; expected volatility of 40% for fiscal year 2002, 38% for year 2001
and 30% for year 2000; risk-free interest rates of 3.58%, 4.69% and 6.35%; and
expected lives ranging between 5 and 10 years for all years.
A summary of the status of our option plans as of fiscal years 2002, 2001 and
2000 and the changes during the years ended on those dates is represented below:
Incentive Stock Options Nonqualified Stock Options
Weighted- Weighted-
Stock Average Stock Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
Balance, September 26, 1999 950,659 $14.67 332,500 $13.56
Granted 186,334 13.68 34,000 15.94
Exercised (113,253) 10.43 (10,500) 7.00
Cancelled (108,446) 15.55 - -
Balance, September 30, 2000 915,294 14.92 356,000 13.99
Granted 182,333 21.24 34,000 20.60
Exercised (195,800) 10.80 ( 34,000) 12.00
Cancelled (21,000) 15.10 - -
Balance, September 29, 2001 880,827 17.08 356,000 14.75
Granted 81,333 38.21 34,000 39.53
Exercised (239,583) 14.19 (34,000) 10.75
Cancelled (25,386) 19.96 - -
Balance, September 28, 2002 697,191 $20.40 356,000 $17.55
Exercisable Options,
September 28, 2002 263,827 322,000
The weighted-average fair value of incentive options granted during fiscal years
ended September 28, 2002, September 29, 2001 and September 30, 2000 was $15.39,
$8.19 and $4.93, respectively. The weighted-average fair value of nonqualified
stock options granted during fiscal years ended September 28, 2002, September
29, 2001 and September 30, 2000 was $23.93, $12.22 and $8.95, respectively.
The following table summarizes information about incentive stock options
outstanding at September 28, 2002:
Options Outstanding Options Exercisable
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
September 28, Contractual Exercise September 28, Exercise
Range of
Exercise Prices 2002 Life Price 2002 Price
$12.75-$19.00 281,214 5.39 years $14.24 101,464 $15.81
$19.38-$24.16 339,977 5.43 years $21.45 162,363 $21.72
$38.48 76,000 5.00 years $38.48 -
697,191 263,827
The following table summarizes information about nonqualified stock options
outstanding at September 28, 2002:
Options Outstanding Options Exercisable
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
September 28, Contractual Exercise September 28, Exercise
Range of
Exercise Prices 2002 Life Price 2002 Price
$11.00-$15.94 220,000 3.31 years $12.77 220,000 $12.77
$19.25-$21.75 102,000 6.92 years $20.53 102,000 $20.53
$39.53 34,000 9.59 years $39.53 -
356,000 322,000
NOTE N - 401(k) PROFIT-SHARING PLAN
We maintain a 401(k) profit-sharing plan for our employees. Under this plan, we
may make discretionary profit-sharing and matching 401(k) contributions.
Contributions of $1,051,000, $866,000 and $819,000 were made in fiscal years
2002, 2001 and 2000, respectively.
NOTE O - CASH FLOW INFORMATION
The following is supplemental cash flow information:
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(in thousands)
Cash paid for:
Interest $1,068 $2,966 $2,649
Income taxes 10,429 344 3,474
NOTE P - SEGMENT REPORTING
We principally sell our products to the food service and retail supermarket
industries. We also distribute our products directly to the consumer through our
chain of retail stores referred to as The Restaurant Group. Sales and results of
our frozen beverages business are monitored separately from the balance of our
food service business and restaurant group because of different distribution and
capital requirements. We maintain separate and discrete financial information
for the four operating segments mentioned above which is available to our Chief
Operating Decision Makers. We have applied no aggregation criteria to any of
these operating segments in order to determine reportable segments. Our four
reportable segments are Food Service, Retail Supermarkets, The Restaurant Group
and Frozen Beverages. All inter-segment net sales and expenses have been
eliminated in computing net sales and operating income (loss). These segments
are described below.
Food Service
The primary products sold to the food service group are soft pretzels, frozen
juice treats and desserts, churros and baked goods. Our customers in the food
service industry include snack bars and food stands in chain, department and
discount stores; 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 food
service industry, our products are purchased by the consumer primarily for
consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket industry are soft pretzel
products-including SUPERPRETZEL-LUIGI'S Real Italian Ice, MINUTE MAID Juice Bars
and Soft Frozen Lemonade, ICEE Squeeze Up Tubes and TIO PEPE'S Churros. Within
the retail supermarket industry, our frozen and prepackaged products are
purchased by the consumer for consumption at home.
The Restaurant Group
We sell direct to the consumer through our Restaurant Group, which operates
BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of specialty snack food
retail outlets.
Frozen Beverages
We sell frozen beverages to the food service industry, including our Restaurant
Group, primarily under the names ICEE and ARCTIC BLAST in the United States,
Mexico and Canada.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and The
Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages
monthly review and evaluate operating income and sales in order to assess
performance and allocate resources to each individual segment. In addition, the
Chief Operating Decision Makers review and evaluate depreciation, capital
spending and assets of each segment on a quarterly basis to monitor cash flow
and asset needs of each segment. Information regarding the operations in these
four reportable segments is as follows:
Fiscal year ended
September 28, September 29, September 30,
2002 2001 2000
(in thousands)
Sales to external customers:
Food Service $185,219 $171,373 $147,593
Retail Supermarket 41,366 39,076 32,246
The Restaurant Group 10,724 12,043 12,822
Frozen Beverages 115,878 105,843 104,171
$353,187 $328,335 $296,832
Depreciation and Amortization(1):
Food Service $13,547 $13,832 $11,974
Retail Supermarket - - -
The Restaurant Group 682 854 781
Frozen Beverages 16,757 16,217 15,005
$30,986 $30,903 $27,760
Operating Income (Loss)(1):
Food Service $17,382 $15,103 $13,146
Retail Supermarket 1,936 1,770 246
The Restaurant Group (915) (1,450) (764)
Frozen Beverages 9,863 8,359 8,100
$28,266 $23,782 $20,728
Capital Expenditures:
Food Service $11,418 $6,673 $16,295
Retail Supermarket - - -
The Restaurant Group 159 268 1,411
Frozen Beverages 8,902 10,186 17,222
$20,479 $17,127 $34,928
Assets:
Food Service $129,702 $124,951 $112,248
Retail Supermarket - - -
The Restaurant Group 2,921 4,032 4,996
Frozen Beverages 87,413 95,498 102,795
$220,036 $224,481 $220,039
NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal year ended September 28, 2002
Net
Earnings
Net Per Diluted
Net Sales Gross Profit Earnings Share(2)
(in thousands, except per share information)
1st Quarter $74,797 $22,044 $822 $.09
2nd Quarter 77,712 25,156 2,336 .25
3rd Quarter 100,628 36,430 7,518 .80
4th Quarter 100,050 35,827 7,437 .81
Total $353,187 $119,457 $18,113 $1.95
Fiscal year ended September 29, 2001
Net
Earnings/
Loss
Net Per Diluted
Net Sales Gross Profit Earnings Share(2)
(in thousands, except per share information)
1st Quarter $65,550 $19,928 $(693) $(0.08)
2nd Quarter 71,357 21,859 367 0.04
3rd Quarter 93,989 32,720 5,778 0.65
4th Quarter 97,439 34,213 6,424 0.72
Total $328,335 $108,720 $11,876 $1.33
(1) 2001 and 2000 depreciation and amortization expense excludes amortization
expense associated with goodwill.
(2) Total of quarterly amounts do not necessarily agree to the annual report
amounts due to separate quarterly calculations of weighted-average shares
outstanding.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
J&J Snack Foods Corp.
We have audited the accompanying consolidated balance sheets of J&J Snack Foods
Corp. and Subsidiaries as of September 28, 2002 and September 29, 2001, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the fiscal years in the three-year period ended September
28, 2002 (52 weeks, 52 weeks and 53 weeks, respectively). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of J&J Snack Foods
Corp. and Subsidiaries as of September 28, 2002 and September 29, 2001, and the
consolidated results of their operations and their consolidated cash flows for
each of the fiscal years in the three-year period ended September 28, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
Grant Thornton LLP
Philadelphia, Pennsylvania
November 6, 2001
Corporate Information
Directors
Gerald B. Shreiber
Chairman of the Board, President and Chief Executive Officer
Dennis G. Moore Senior Vice President,
Chief Financial Officer, Secretary and Treasurer
Robert M. Radano
Senior Vice President and Chief Operating Officer
Stephen N. Frankel (1), (2)
President, Stephen N. Frankel Realtor, Inc.
Peter G. Stanley (1), (2)
Vice President,
Emerging Growth Equities, Ltd.
Leonard M. Lodish, Ph.D. (1), (2)
Samuel R. Harrell Professor, Marketing Department of the Wharton School,
University of Pennsylvania
Officers
Gerald B. Shreiber
Chairman of the Board, President and Chief Executive Officer
Dennis G. Moore
Senior Vice President, Chief Financial Officer, Secretary and Treasurer
Robert M. Radano
Senior Vice President and Chief Operating Officer
Michael Karaban
Senior Vice President, Marketing
Paul L. Hirschman
Vice President, Information Systems
Officers of Subsidiary Companies
J&J SNACK FOODS Sales CORP.
John Duckett
Vice President, Service & Assembly
Anthony P. Harrison II
Vice President, Quality Control and Research & Development
H. Robert Long
Vice President, Distribution
Harry A. McLaughlin
Vice President, Controller
Robert J. Pape
Vice President, Sales-Retail
Milton L. Segal
Vice President, Purchasing
Steven J. Taylor
Vice President, Sales - Food Service
Thomas Weber
Vice President, Operations
MIA PRODUCTS
T.J. Couzens
Vice President/General Manager
THE ICEE COMPANY
Dan Fachner
President
Kent Galloway
Vice President and Chief Financial Officer
Joe Boulanger
Vice President/General Manager Western Zone
Lou Fiorentino
Vice President/General Manager Eastern Zone
Rick Naylor
Vice President/General Manager Central Zone
Rod Sexton
Vice President of Service Operations
Susan Woods
Vice President, Marketing
ICEE DE MEXICO, S.A. DE C.V.
Andres Gonzalez
Vice President
PRETZELS, INC.
Gary Powell
President
(1) Audit Committee Member
(2) Compensation Committee Member
Quarterly Common Stock Data
Market Price
Fiscal 2002 High Low
1st Quarter $26.25 $18.10
2nd Quarter 40.40 23.22
3rd Quarter 45.15 32.42
4th Quarter 44.97 34.85
Fiscal 2001 High Low
1st Quarter $18.50 $12.50
2nd Quarter 17.88 15.00
3rd Quarter 23.79 16.50
4th Quarter 24.10 14.82
Stock Listing
The common stock of J&J Snack Foods Corp. is traded on the NASDAQ National
Market System with the symbol JJSF.
Transfer Agent and Registrar
American Stock Transfer Trust Company
New York, NY
Independent Accountants
Grant Thornton LLP
Philadelphia, PA
Counsel
Blank, Rome, Comisky & McCauley LLP
Cherry Hill, NJ
Annual Meeting
Meeting of Shareholders is scheduled for Thursday, February 6, 2003 at 10:00
a.m. at the Hilton at Cherry Hill, 2349 W. Marlton Pike, Cherry Hill, NJ.
Form 10-K
Copies of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K may be obtained without charge by writing to:
J&J Snack Foods Corp.
6000 Central Highway
Pennsauken, NJ 08109
Attention: Dennis G. Moore
website
www.jjsnack.com
Snackers of the world--go forth--secure in the knowledge that J&J Snack Foods
will defend great snacking...Today,tomorrow and beyond!
SUBSIDIARIES OF J & J SNACK FOODS CORP.
Place of
Incorporation
J & J Snack Foods Investment Corp. Delaware
The ICEE Company Delaware
J & J Snack Foods Corp. of California California
J & J Snack Foods Corp./Midwest Illinois
J & J Snack Foods Corp./Mia Pennsylvania
J & J Snack Foods Corp. of Pennsylvania Pennsylvania
J & J Snack Foods Sales Corp. New Jersey
J & J Snack Foods Sales Corp. of Texas Texas
J & J Snack Foods Transport Corp. New Jersey
ICEE-Canada, Inc. Canada
ICEE de Mexico, S.A. De C.V. Mexico
J & J Restaurant Group, Inc. Pennsylvania
Bakers Best Snack Food Corp. Pennsylvania
Pretzels, Inc. Texas
Federal PBC Company Pennsylvania
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 5, 2002 accompanying the
consolidated financial statements and schedule incorporated by reference
or included in the Annual Report of J & J Snack Foods Corp. and
Subsidiaries on Form 10-K for the year ended September 28, 2002. We
hereby consent to the incorporation by reference of said reports in the
Registration Statement of J & J Snack Foods Corp. and Subsidiaries on
Forms S-8 (File No. 333-94795, effective January 18, 2000, File No. 333-
03833, effective May 16, 1996, File No. 33-87532, effective December 16,
1994 and File No. 33-50036, effective July 24, 1992).
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
December 18, 2002
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