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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 26, 2005
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
X Yes No
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act)
X Yes No
As of April 18, 2005, there were 9,074,251 shares of the
Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 26, 2005
(unaudited) and September 25, 2004 3
Consolidated Statements of Operations (unaudited)
- Three Months and Six Months Ended March 26,
2005 and March 27, 2004 5
Consolidated Statements of Cash Flows (unaudited)
- Six Months Ended March 26, 2005 and March 27,
2004 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
Item 4. Controls and Procedures 24
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 26, September
25,
2005 2004
(Unaudited)
Current assets
Cash and cash equivalents $ 8,137 $ 19,600
Marketable securities
available for sale 41,900 36,500
Accounts receivable 38,783 47,986
Inventories 34,739 29,587
Prepaid expenses and other 1,672 1,354
Deferred income taxes 3,385 3,385
128,616 138,412
Property, plant and equipment,
at cost
Land 556 556
Buildings 4,497 4,497
Plant machinery and
equipment 104,387 100,442
Marketing equipment 186,697 182,136
Transportation equipment 1,191 1,037
Office equipment 8,609 8,411
Improvements 14,972 15,070
Construction in progress 1,853 2,731
322,762 314,880
Less accumulated deprecia-
tion and amortization 233,824 225,406
88,938 89,474
Other assets
Goodwill 51,477 46,477
Other intangible assets, net 9,751 1,804
Other 1,232 1,257
62,460 49,538
$280,014 $277,424
See accompanying notes to the consolidated financial
statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND March 26, September 25,
STOCKHOLDERS' EQUITY 2005 2004
(Unaudited)
Current liabilities
Accounts payable $ 31,708 $ 34,497
Accrued liabilities 13,403 13,149
45,111 47,646
Deferred income taxes 19,153 19,153
Other long-term liabilities 408 529
19,561 19,682
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000
shares; none issued - -
Common, no par value;
authorized 25,000 shares;
issued and outstanding,
9,074 and 9,006 shares,
respectively 34,247 33,069
Accumulated other comprehen-
sive loss (2,005) (2,061)
Retained earnings 183,100 179,088
215,342 210,096
$280,014 $277,424
See accompanying notes to the consolidated financial
statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Six months ended
March 26, March 27, March 26, March 27,
2005 2004 2005 2004
Net Sales $99,350 $95,214 $197,871 $175,159
Cost of goods sold 67,822 64,468 136,347
119,775
Gross profit 31,528 30,746 61,524
55,384
Operating expenses
Marketing 12,804 12,898 25,652 24,122
Distribution 8,631 7,889 17,554 14,849
Administrative 4,476 4,633 8,795 8,341
Other general
(income) expense (76) 203 176 170
25,835 25,623 52,177 47,482
Operating income 5,693 5,123 9,347 7,902
Other income (expenses)
Investment income 392 112 714 229
Interest expense (34) (28) (58) (57)
Earnings before
income taxes 6,051 5,207 10,003 8,074
Income taxes 2,261 1,865 3,731 2,907
NET EARNINGS $ 3,790 $ 3,342 $ 6,272 $ 5,167
Earnings per
diluted share $.41 $.36 $.68 $.57
Weighted average number
of diluted shares 9,290 9,170 9,263 9,105
Earnings per basic
share $.42 $.38 $.69 $ .58
Weighted average number
of basic shares 9,082 8,877 9,057 8,834
See accompanying notes to the consolidated financial
statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Six months ended
March 26, March 27,
2005 2004
Operating activities:
Net earnings $ 6,272 $ 5,167
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization
of fixed assets 11,424 11,688
Amortization of intangibles
and deferred costs 373 474
Other 83 83
Changes in assets and liabilities,
net of effects from purchase of companies
Decrease (increase) in accounts
receivable 9,205 (1,059)
Increase in inventories (4,598) (2,225)
Increase in prepaid expenses (318) (130)
(Decrease) increase in accounts
payable and accrued liabilities (3,787) 1,254
Net cash provided by operating
activities 18,654 15,252
Investing activities:
Purchases of property, plant
and equipment (9,828) (8,464)
Payments for purchase of companies (15,429) (12,668)
Proceeds from investments
held to maturity - 275
Purchase of marketable securities (14,400) (18,000)
Proceeds from sale of marketable
securities 9,000 1,000
Proceeds from disposal of
property and equipment 459 424
Other (25) 24
Net cash used in investing
activities (30,223) (37,409)
Financing activities:
Proceeds from issuance of stock 1,177 2,146
Payment of cash dividend (1,127) -
Net cash provided by
financing activities 50 2,146
Effect of exchange rate on cash
and cash equivalents 56 (18)
Net (decrease) increase in cash
and cash equivalents (11,463) (20,029)
Cash and cash equivalents at
beginning of period 19,600 37,694
Cash and cash equivalents at
end of period $ 8,137 $ 17,665
See accompanying notes to the consolidated financial
statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying
unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the
financial position and the results of operations and
cash flows. Certain prior year amounts have been
reclassified to conform to the current period
presentation. These reclassifications had no effect
on reported net earnings.
The results of operations for the three months and
six months ended March 26, 2005 and March 27, 2004
are not necessarily indicative of results for the
full year. Sales of our retail stores are generally
higher in the first quarter due to the holiday
shopping season. Sales of our frozen beverages and
frozen juice bars and ices are generally higher in
the third and fourth quarters due to warmer weather.
While we believe that the disclosures presented are
adequate to make the information not misleading, it
is suggested that these consolidated financial
statements be read in conjunction with the
consolidated financial statements and the notes
included in the Company' Annual Report on Form 10-K
for the year ended September 25, 2004.
Note 2 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
for others under time and material agreements,
revenue is recognized upon the completion of the
services. We also sell fixed-fee service contracts.
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. We provide an
allowance for doubtful receivables after taking into
account historical experience and other factors.
Note 3 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
7
arising from acquisitions are amortized by the
straight-line method over periods ranging from 4 to
20 years.
Note 4 Our calculation of earnings per share in accordance
with SFAS No. 128, "Earnings Per Share," is as
follows:
Three Months Ended March 26, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $3,790 9,082 $.42
Effect of Dilutive Securities
Options - 208 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,790 9,290 $.41
Six Months Ended March 26, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $6,272 9,057 $.69
Effect of Dilutive Securities
Options - 206 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $6,272 9,263 $.68
8
Three Months Ended March 27, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 3,342 8,877 $.38
Effect of Dilutive Securities
Options - 293 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,342 9,170 $.36
Six Months Ended March 27, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $5,167 8,834 $.58
Effect of Dilutive Securities
Options - 271 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $5,167 9,105 $.57
92,394 anti-dilutive weighted shares have been excluded in
the computation of the six months ended March 27, 2004
diluted EPS because the options' exercise price is greater
than the average market price of the common stock.
Note 5 The Company accounts for stock options under SFAS
No. 123, "Accounting for Stock-Based Compensation",
as amended by SFAS No. 148, 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. Alternatively, SFAS No. 123
permits entities to continue accounting for employee
9
stock options and similar equity instruments under
Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees".
Entities that continue to account for stock options
using APB Opinion 25 are required to make pro forma
disclosures of net income and earnings per share, as
if the fair value-based method of accounting defined
in SFAS No. 123 had been applied (see Note 6).
At March 26, 2005, the Company has two stock-based
employee compensation plans. The Company accounts
for these plans under the recognition and
measurement principles of APB No. 25, "Accounting
for Stock Issued to Employees", and related
interpretations. Stock-based employee compensation
costs are not reflected in net income, as all
options granted under the plans had an exercise
price equal to the market value of the underlying
common stock on the date of grant. The following
table illustrates the effect on net income and
earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123,
to stock-based employee compensation.
10
Three Months Ended Six Months Ended
March 26, March 27, March 26, March 27,
2005 2004 2005 2004
Net income,
as reported $3,790 $3,342 $6,272 $5,167
Less: stock-based
compensation
costs determined
under fair value
based method for
all awards 210 287 419 573
Net income, pro
forma $3,580 $3,055 $5,853 $4,594
Earnings per share
of common stock -
basic:
As reported $ .42 $ .38 $ .69 $ .58
Pro forma $ .39 $ .34 $ .65 $ .52
Earnings per share
of common stock -
diluted:
As reported $ .41 $ .36 $ .68 $ .57
Pro forma $ .39 $ .33 $ .63 $ .50
The fair value of each option grant is estimated on
the date of grant using the Black-Scholes options-
pricing model with the following weighted average
assumptions used for grants in fiscal 2005 and 2004:
expected volatility of 26% and 31%; risk-free
interest rates of 3.7% and 3.3%; and expected lives
ranging between 5 and 10 years.
Note 6 In December 2004, the FASB issued Statement 151,
"Inventory Costs, an amendment of ARB No. 43,
Chapter 4".
Statement 151 retains the general principle of ARB
43, Chapter 4, "Inventory Pricing (AC Section I78)",
that inventories are presumed to be stated at cost;
however, it amends ARB 43 to clarify that
. abnormal amounts of idle facilities, freight,
handling costs, and spoilage should be recognized
as charges of the current period
11
. allocation of fixed production overheads to
inventories should be based on the normal
capacity of the production facilities.
Statement 151 defines normal capacity as the
production expected to be achieved over a number of
periods or seasons under normal circumstances,
taking into account the loss of capacity resulting
from planned maintenance. The Board concluded that
normal capacity refers to a range of production
levels that will vary based on business- and
industry-specific factors. Accordingly, an entity
will have to use judgment to determine when
production is outside the range of expected
variation in production (either abnormally low or
abnormally high). In periods of abnormally low
production (for example, periods in which there is
significantly lower demand, labor and material
shortages exist, or there is unplanned equipment
downtime) the amount of fixed overhead allocated to
each unit of production should not be increased.
However, in periods of abnormally high production
the amount of fixed overhead allocated to each unit
of production is decreased to assure inventories are
not measured above cost.
The guidance in Statement 151 is effective for
inventory costs during fiscal years beginning after
June 15, 2005 and should be applied prospectively.
Since we essentially follow the guidelines of
Statement 151, we do not anticipate the adoption to
have a material impact on our financial statements.
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment. Statement
123(R) requires that the compensation cost relating
to share-based payment transactions be recognized in
financial statements. That cost will be measured
based on the fair value of the equity or liability
instruments issued.
This statement is effective as of the first annual
reporting period that begins after June 15, 2005.
Statement 123(R) covers a wide range of share-based
compensation arrangements including share options,
restricted share plans, performance-based awards,
share appreciation rights, and employee share
purchase plans.
12
In addition to the accounting standard that sets
forth the financial reporting objectives and related
accounting principles, Statement 123(R) includes an
appendix of implementation guidance that provides
expanded guidance on measuring the fair value of
share-based payment awards.
Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. Statement 123, as originally
issued in 1995, established as preferable a fair-
value-based method of accounting for share-based
payment transactions with employees. However, that
Statement permitted entities the option of
continuing to apply the guidance in Opinion 25, as
long as the footnotes to financial statements
disclosed what net income would have been had the
preferable fair-value-based method been used. We
anticipate implementing this new standard in the
first quarter of our fiscal year 2006. The impact
of this new standard, if it had been in effect, on
the net earnings of our fiscal years ended in
September 2004, 2003 and 2002 were disclosed in Note
A13 Accounting for Stock-Based Compensation of our
Financial Statements included in our Form 10-k for
the fiscal year ended September 25, 2004 and the
impact on the net earnings of the current quarter
and six months are disclosed in Note 5 of this Form
10-Q.
Note 7 Inventories consist of the following:
March 26, September 25,
2005 2004
(in thousands)
(unaudited)
Finished goods $18,125 $13,691
Raw materials 4,480 4,556
Packaging materials 3,590 2,984
Equipment parts & other 8,544 8,356
$34,739 $29,587
Note 8 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
13
discrete financial information for the four
operating segments mentioned above which is
available to our Chief Operating Decision Makers.
We have applied no aggregate 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.
14
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:
15
Three Months Ended Six Months Ended
March 26, March 27, March 26, March 27,
2005 2004 2005 2004
(in thousands)
Sales to External Customers:
Food Service $ 63,463 $ 60,747 $124,935 $108,688
Retail Supermarket 9,751 9,289 16,736 15,566
Restaurant Group 1,410 1,971 3,227 4,539
Frozen Beverages 24,726 23,207 52,973 46,366
$ 99,350 $ 95,214 $197,871 $175,159
Depreciation and Amortization:
Food Service $ 3,330 $ 3,506 $ 6,597 $ 6,788
Retail Supermarket - - - -
Restaurant Group 53 99 118 210
Frozen Beverages 2,560 2,491 5,082 5,164
$ 5,943 $ 6,096 $ 11,797 $ 12,162
Operating Income(Loss):
Food Service $ 5,929 $ 5,297 $ 10,225 $ 8,145
Retail Supermarket 216 717 476 776
Restaurant Group (17) (466) (237) (414)
Frozen Beverages (435) (425) (1,117) (605)
$ 5,693 $ 5,123 $ 9,347 $ 7,902
Capital Expenditures:
Food Service $ 2,327 $ 2,466 $ 4,194 $ 3,702
Retail Supermarket - - - -
Restaurant Group 17 6 40 15
Frozen Beverages 3,176 2,758 5,594 4,765
$ 5,520 $ 5,230 $ 9,828 $ 8,482
Assets:
Food Service $190,747 $162,166 $190,747 $162,166
Retail Supermarket - - - -
Restaurant Group 1,292 1,654 1,292 1,654
Frozen Beverages 87,975 82,780 87,975 82,780
$280,014 $246,600 $280,014 $246,600
Note 9 We follow SFAS No. 142 "Goodwill and Intangible
Assets." 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.
Our four reporting units, which are also reportable
segments, are Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverages. Each of the
segments have goodwill and indefinite lived
intangible assets.
16
The carrying amount of acquired intangible assets for the
Food Service, Retail Supermarkets, The Restaurant Group
and Frozen Beverage segments as of March 26, 2005 are as
follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $11,307 $1,602 $9,705
RETAIL SUPERMARKETS
Amortized intangible assets
Licenses and rights $ - $ - $ -
THE RESTAURANT GROUP
Amortized Intangible Assets
Licenses and rights $ - $ - $ -
FROZEN BEVERAGES
Amortized intangible assets
Licenses and rights $ 201 $ 155 $ 46
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. Aggregate amortization expense of
intangible assets for the three months ended March 26, 2005
and March 27, 2004 was $155,000 and $161,000, respectively
and for the six months ended March 26, 2005 and March 27,
2004 was $278,000 and $239,000, respectively.
Estimated amortization expense for the next five
fiscal years is approximately $1,066,000 in 2005,
$1,560,000 in 2006 and 2007, $1,500,000 in 2008 and
$1,335,000 in 2009. The weighted average amortization
period of the intangible assets is 7.25 years.
On March 17, 2005, we acquired all of the assets of
Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of
soft pretzels headquartered in Rancho Cucamonga, California
for $14.7 million plus approximately $600,000 for
inventory. Snackworks operates production facilities in
California and Chambersburg, Pennsylvania and markets its
products under the brand names SERIOUSLY TWISTED!, BAVARIAN
BROTHERS and CINNAPRETZEL. Snackworks sells throughout
the continental
17
United States primarily to mass merchandisers and theatres.
Annual sales are approximately $11 million.
We allocated $8,000,000 0f the purchase price of
Snackworks, LLC to amortizable intangible assets and
$5,000,000 to goodwill. We are in the process of obtaining
a third party valuation of certain assets of Snackworks;
therefore, this allocation of the purchase price is subject
to revision.
Goodwill
The carrying amounts of goodwill for the Food Service,
Retail Supermarket, Restaurant Group and Frozen Beverage
segments are as follows:
Food Retail Restaurant Frozen
Service Supermarket Group Beverages Total
(in thousands)
Balance at
March 26,
2005 $19,241 $ - $386 $31,850 $51,477
Foodservice goodwill increased by $5 million during
the quarter ended March 26, 2005 as a result of the
acquisition of Snackworks, LLC.
Note 10 The amortized cost, unrealized gains and losses,
and fair market values of our investment
securities available for sale at March 26, 2005
are summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $41,900 $ - $ - $41,900
The amortized cost, unrealized gains and losses, and
fair market values of the Company's investment
securities available for sale at September 25, 2004
are summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $36,500 $ - $ - $36,500
18
Proceeds from the sale of marketable securities were
$4,000,000 and $9,000,000 in the three and six months ended
March 26, 2005, respectively, with no gain or loss
recorded. We use the specific identification method to
determine the cost of securities sold.
19
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Our current cash and marketable securities balances
and cash expected to be provided by future operations are
our primary sources of liquidity. We believe that these
sources, along with our borrowing capacity, are sufficient
to fund future growth and expansion.
The Company's Board of Directors declared a regular
quarterly cash dividend of $.125 per share of its common
stock payable on April 5, 2005 to shareholders of record as
of the close of business on March 15, 2005.
In the three months ended March 26, 2005 and March 27,
2004, fluctuations in the valuation of the Mexican peso
caused a decrease of $11,000 and a increase of $49,000,
respectively, in stockholders' equity because of the
translation of the net assets of the Company's Mexican
frozen beverage subsidiary. In the six month periods, there
was an increase of $56,000 in fiscal year 2005 and a
decrease of $18,000 in fiscal year 2004.
On January 5, 2004, we acquired all of the assets of
Country Home Bakers, Inc. Country Home Bakers, Inc., with
its manufacturing facility in Atlanta, GA, manufactures and
distributes bakery products to the food service and
supermarket industries. Its product line includes cookies,
biscuits, and frozen doughs sold under the names READI-
BAKE, COUNTRY HOME and private labels sold through
supermarket in-store bakeries.
On March 17, 2005, we acquired all of the assets of
Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of
soft pretzels headquartered in Rancho Cucamonga,
California. Snackworks operates production facilities in
California and Chambersburg, Pennsylvania and markets its
products under the brand names SERIOUSLY TWISTED!, BAVARIAN
BROTHERS and CINNAPRETZEL. Snackworks sells throughout the
continental United States primarily to mass merchandisers
and theatres. Annual sales are approximately $11 million.
These acquisitions were accounted for under the
purchase method of accounting, and their operations are
included in the consolidated financial statements from
their respective acquisition dates. We are in the process
of obtaining a third party valuation of certain assets of
Snackworks, LLC; therefore the allocation of the purchase
price is subject to revision.
20
Our general-purpose bank credit line provides for up
to a $50,000,000 revolving credit facility. The agreement
contains restrictive covenants and requires commitment fees
in accordance with standard banking practice. There were no
outstanding balances under this facility at March 26, 2005.
Results of Operations
Net sales increased $4,136,000 or 4% for the three
months to $99,350,000 and $22,712,000 or 13% to
$197,871,000 for the six months ended March 26, 2005
compared to the three and six months ended March 27, 2004.
Excluding sales from the acquisitions of Country Home
Bakers, Inc. in January 2004 and Snackworks, LLC in March
2005, net sales increased $3,962,000 or 4% for the three
months and $10,058,000 or 6% for the six months ended March
26, 2005 compared to the three and six months ended March
27, 2004.
FOOD SERVICE
Sales to food service customers increased $2,716,000
or 4% in the second quarter to $63,463,000 and increased
$16,247,000 or 15% for the six months. Excluding sales from
the acquisitions of Country Home Bakers, Inc. and
Snackworks, LLC, sales to food service customers increased
$2,542,000, or 4% in the second quarter and increased
$3,593,000, or 3% for the six months. Soft pretzel sales to
the food service market increased 2% to $20,737,000 in the
second quarter and increased 2% to $39,953,000 in the six
months. Excluding sales from the acquisition of
Snackworks,LLC, soft pretzel sales increased 1% in the
second quarter and for the six months. Italian ice and
frozen juice treat and dessert sales increased 11% to
$7,490,000 in the three months and 10% to $13,607,000 in
the six months primarily due to increased sales to school
food service customers and warehouse club stores. Churro
sales to food service customers increased 11% to $3,535,000
in the second quarter and were up 8% to $6,909,000 in the
six months due to general increases across our customer
base. Sales of bakery products increased $1,228,000 or 4%
in the second quarter to $30,586,000 and increased
$13,765,000 or 28% for the six months. Excluding sales from
the acquisition of Country Home Bakers, Inc., sales of
bakery products increased $1,285,000 or 3% for the six
months due to increased sales to existing customers and
sales to new customers. The changes in sales throughout the
food service segment were from a combination of volume
changes and price increases.
21
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased
$462,000 or 5% to $9,751,000 in the second quarter and
increased 8% or $1,170,000 in the first half. Soft pretzel
sales for the second quarter were up 23% to $7,114,000 and
were up 21% to $12,074,000 for the six months due mainly to
sales of PRETZELFILS in new markets and by increased sales
of our regular SUPERPRETZEL in existing markets. Sales of
frozen juices and ices decreased $80,000 or 2% to
$3,768,000 in the second quarter and were down less than
1% to $6,299,000 in the first half. Coupon costs, a
reduction of sales, increased by $726,000, or 113% in the
second quarter and were up 56%, or $743,000, for the six
months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 28% to
$1,410,000 in the second quarter and 29% to $3,227,000 for
the six month period. The sales decreases were caused
primarily by the closing or licensing of unprofitable
stores over the past year. During the first six months of
the year, five stores were closed, leaving a total of 25
open at quarter end. Operating income was favorably
impacted by approximately $135,000 during the quarter due
to the settlement of litigation related to closed stores.
The year ago quarter was negatively impacted by about
$160,000 of store closing costs.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 7%
to $24,726,000 in the second quarter and $6,607,000
or 14% to $52,973,000 in the six month period. Beverage
sales alone decreased 1% to $17,424,000 in the second
quarter and were essentially unchanged at $34,999,000 in
the six months. Service revenue increased 45% to $5,636,000
in the second quarter and 37% to $10,976,000 for the six
months. Sales of beverage machines were $4,074,000 higher
this year than last in the six month period with sales to
two customers accounting for more than half of the
increase. For the second quarter, sales of machines were
higher by $147,000. Profit margins on the sales of
machines were lower than in the past due to competition and
the higher volume in our first quarter which put a strain
on our cost structure.
CONSOLIDATED
Gross profit as a percentage of sales was 32% in the
both year's three month period and decreased to 31% in the
22
six months period from 32% a year ago. The decrease in the
six months was caused primarily by the increased sales of
low margin beverage machines in our frozen beverages
segment and higher coupon expense in our retail supermarket
business.
Total operating expenses increased $212,000 in the
second quarter but as a percentage of sales decreased to
26% from 27% last year. For the first half, operating
expenses increased $4,695,000 but as a percentage of sales
also decreased to 26% from 27% last year. Marketing
expenses decreased to 13% of sales in the second quarter
and six months from 14% last year. The decrease in expenses
was broad based among our business segments. Distribution
expenses increased to 9% from 8% last year in both the
second quarter and six months due primarily to the higher
cost of gasoline and third party trucking costs. We
anticipate higher gasoline and third party trucking costs
to continue to have a significant impact on our operating
income. Administrative costs were 5% of sales in both
year's second quarters and decreased about one-third of a
percentage point to 4% for the six months which resulted
primarily from the decreased costs at Country Home Bakers
this year compared to the year ago transition period after
the acquisition. Other general income of $76,000 in this
year's second quarter compared to other general expense of
$203,000 last year. Last year's expense included $160,000
of costs related to the closing of Restaurant Group stores;
this year's income included a $140,000 reduction of expense
resulting from the conclusion of litigation related to
closed stores.
Operating income increased $570,000 or 11% to
$5,693,000 in the second quarter and $1,445,000 or 18% to
$9,347,000 in the first half.
Operating income was impacted by approximately
$375,000 of higher group medical and liability
insurance costs and commodity unit costs in the second
quarter compared to a year ago and by $930,000 for the six
months. Manufacturing plant utilities costs were higher by
about $250,000 for the three months and $370,000 for the
six months. We anticipate that continuing increases in the
cost of utilities will continue to have a significant
impact on our operating income.
Investment income increased by $280,000 to $392,000 in
this year's second quarter and by $485,000 to $714,000 in
the first six months due to higher investable balances of
cash and an increase in the general level of interest
rates.
23
The effective income tax rate has been estimated at 37%
for the second quarter and first half this year compared to
36% for last year's periods.
Net earnings increased $448,000 or 13% in the current
three month period to $3,790,000 and increased 21% to
$6,272,000 in the six months this year from $5,167,000 last
year.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
There has been no material change in the Company's
assessment of its sensitivity to market risk since
its presentation set forth, in item 7a.
"Quantitative and Qualitative Disclosures About
Market Risk," in its 2004 annual report on Form 10-K
filed with the SEC.
Item 4. Controls and Procedures
Quarterly evaluation of the Company's Disclosure and
Internal Controls. The Company evaluated (i) the
effectiveness of the design and operation of its
disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by
this Form 10-Q and (ii) any changes in internal
controls over financial reporting that occurred
during the second quarter of its fiscal year. This
evaluation ("Controls Evaluation") was done under
the supervision and with the participation of
management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. A
control system, no matter how well conceived and
operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system
are met. Further, the design of a control system
must reflect the fact that there are resource
constraints, and the benefits of controls must be
considered relative to their costs. Because of the
inherent limitations in all control systems, no
evaluation of controls can provide absolute
assurance that all control issues and instances of
fraud, if any, within the Company have been
detected. Because of the inherent limitations in a
cost effective control system, misstatements due to
error or fraud may occur and not be detected. The
Company conducts periodic evaluations of its
24
internal controls to enhance, where necessary, its
procedures and controls.
Conclusions. Based upon the Controls Evaluation,
the CEO and CFO have concluded that the Disclosure
Controls are effective in reaching a reasonable
level of assurance that information required to be
disclosed by the Company in the reports that it
files or submits is recorded, processed, summarized
and reported within the time period specified in the
SEC's rules and forms and that management is timely
alerted to material information relating to the
Company during the period when its periodic reports
are being prepared. However, the CEO and CFO did
become aware of significant deficiencies in our
internal controls in the areas of account
reconciliations and segregation of duties in some of
our disbursements, inventory and purchasing
functions. We believe that these deficiencies did
not affect the accuracy of our financial statements
included in this report. In order to correct these
deficiencies, the Company is continuing to enforce
existing policies and improving segregation of
duties where applicable. Additionally, in accord
with the U.S. Securities and Exchange Commission's
requirements, the CEO and CFO conducted an
evaluation of the Company's internal control over
financial reporting (the "Internal Controls") to
determine whether there have been any changes in
Internal Controls that occurred during the quarter
which have materially affected or which are
reasonably likely to materially affect Internal
Controls. Based on this evaluation, there have been
no such changes in Internal Controls during the
quarter covered by this report.
25
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The results of voting at the Annual Meeting of
Shareholders held on February 10, 2005 is as follows:
Absentees
Votes Cast and Broker
For Against Withheld Non Votes
Election of
Gerald B.
Shreiber
as Director 7,863,046 - 502,286 -
Amendment to
the Stock
Option Plan 6,371,754 1,120,379 - -
The Company had 9,012,591 shares outstanding on
December 13, 2004 the record date.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
31.1 & Certification Pursuant to Section 302 of
31.2 the Sarbanes-Oxley Act of 2002
99.5 Certification Pursuant to the 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
b) Report on Form 8-K - Reports on Form 8-K were filed
on January 20, 2005, February 23, 2005 and March 18,
2005.
26
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: April 20, 2005 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: April 20, 2005 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
27
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis G. Moore, certify that:
1. I have reviewed this report on Form 10-Q of J & J
Snack Foods Corp.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements,
and other financial information included in this 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
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-15(e) and 15d-15(e)) and internal controls and
procedures for financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 report is being prepared;
b) designed such internal controls and
procedures for financial reporting, or caused such internal
controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrant's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's second fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, 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 and material
weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: April 20, 2005
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gerald B. Shreiber, certify that:
1. I have reviewed this report on Form 10-Q of J & J
Snack Foods Corp.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements,
and other financial information included in this 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
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-15(e) and 15d-15(e)) and internal controls and
procedures for financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 report is being prepared;
b) designed such internal controls and
procedures for financial reporting, or caused such internal
controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrant's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's second fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, 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 and material
weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: April 20, 2005
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
Exhibit 99.5
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Section 1350 of Chapter 63 of Title 18 of the United
States Code), each of the undersigned officers of J & J
Snack Foods Corp. (the "Company"), does hereby certify with
respect to the Quarterly Report of the Company on Form 10-Q
for the quarter ended March 26, 2005 (the "Report") that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the
Company.
Dated: April 20, 2005
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Dated: April 20, 2005
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
The foregoing certification is being furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Section 1350 of Chapter 63 of Title 18 of the United
States Code) and is not being filed as part of the Report
or as a separate disclosure document.