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 70%60% of capacity. The Company leasesowns a 101,200128,000 square foot building adjacent to its manufacturing facility in Pennsauken, New Jersey through March 2012.Jersey. 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, 16,000January 2022, 52,000 square feet of office and warehouse space located next to the Pennsauken, New Jersey plant. The Company leases through January 2011 an additional 23,000 square feet of warehouse space several blocks distant from these facilities.
The Company owns a 150,000 square foot building on eight acres in Bellmawr, New Jersey. The facility is used by the Company to manufacture some of its products including funnel cake, pretzels, churros and cookies. The facility operates at about 50%75% of capacity.
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 2017.2030. The Company leases an additional 45,00080,000 square feet of office and warehouse space, adjacent to its manufacturing facility, through November 2017.2030. The manufacturing facility operates at approximately 60%50% of capacity.
The Company leases through November 2017 a 25,000 square foot frozen juice treat and dessert manufacturing facility located in Norwalk (Los Angeles), California which operates at approximately 20%45% of capacity.
The Company leases an 85,000 square foot bakery manufacturing facility located in Atlanta, Georgia. The lease runs through December 2010.2020. The facility operates at about 50% of capacity.
The Company owns a 46,000 square foot frozen juice treat and dessert manufacturing facility and a 42,000 square foot dry storage warehouse located on six acres in Scranton, Pennsylvania. The manufacturing facility, which was expanded from 26,000 square feet in 1998, operates at approximately 60%65% of capacity.
The Company leases a 29,600 square foot soft pretzel manufacturing facility located in Hatfield, Pennsylvania. The lease runs through June 2017. The facility operates at approximately 65% of capacity.
The Company leases a 19,200 square foot soft pretzel manufacturing facility located in Carrollton, Texas. The lease runs through April 2016. The facility operates at approximately 60% of capacity.near capacity with an additional line to be added early in fiscal year 2012. The Company leases an additional property containing a 6,500 square foot storage freezer across the street from the manufacturing facility, which lease expires May 2016.
The Company leases an 18,000 square foot soft pretzel manufacturing facility located in Chambersburg, Pennsylvania. The lease runs through September 20102013 with options to extend the term. The facility operates at approximately 50%60% of capacity.
The Company’s fresh bakery products manufacturing facility and offices are located in Bridgeport, New Jersey in three buildings totaling 133,000 square feet. The buildings are leased through December 2015. The manufacturing facility operates at approximately 50%45% of capacity.
The Company leases a building in Pensacola, Florida for the manufacturing, packing and warehousing of dumplings. The building is approximately 14,000 square feet and the lease runs through December 2010.2013. The manufacturing facility operates at approximately 70%75% of capacity.
Item 3. Legal ProceedingsItem 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 HoldersItem 4. | [Removed and reserved] |
There were no matters submitted to a vote of the security holders during the quarter ended September 27, 2008.
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
Item 5. | Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities |
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “JJSF.” The following table sets forth the high and low sale price quotations as reported by NASDAQ and dividend information for the common stock for each quarter of the years ended September 29, 200725, 2010 and September 27, 2008.24, 2011.
Common Stock Market PriceCommon Stock Market Price |
| | | | | | | | | |
| | | | | | | | Dividend | |
| | High | | | Low | | | Declared | |
| | | | | | | | | |
Fiscal 2010 | | | | | | | | | |
First quarter | | $ | 44.00 | | | $ | 35.19 | | | $ | 0.1075 | |
Second quarter | | | 44.90 | | | | 36.80 | | | | 0.1075 | |
Third quarter | | | 48.51 | | | | 42.56 | | | | 0.1075 | |
Fourth quarter | | | 45.22 | | | | 37.00 | | | | 0.1075 | |
| | | | | | | | | | | | |
Fiscal 2011 | | | | | | | | | | | | |
First quarter | | $ | 49.88 | | | $ | 41.27 | | | $ | 0.1175 | |
Second quarter | | | 50.25 | | | | 41.91 | | | | 0.1175 | |
Third quarter | | | 53.44 | | | | 45.55 | | | | 0.1175 | |
Fourth quarter | | | 55.58 | | | | 43.25 | | | | 0.1175 | |
| | High | | | Low | | | Dividend Declared | |
Fiscal 2007 | | | | | | | | | |
First quarter | | $ | 42.27 | | | $ | 30.76 | | | $ | .085 | |
Second quarter | | | 43.51 | | | | 37.41 | | | | .085 | |
Third quarter | | | 41.95 | | | | 37.16 | | | | .085 | |
Fourth quarter | | | 40.14 | | | | 33.23 | | | | .085 | |
| | | | | | | | | | | | |
Fiscal 2008 | | | | | | | | | | | | |
First quarter | | $ | 38.76 | | | $ | 29.01 | | | $ | .0925 | |
Second quarter | | | 31.85 | | | | 23.38 | | | | .0925 | |
Third quarter | | | 29.97 | | | | 26.74 | | | | .0925 | |
Fourth quarter | | | 36.07 | | | | 27.00 | | | | .0925 | |
As of November 20, 2008,25, 2011, there were about 3,7007,950 beneficial shareholders.
In our fiscal year ended September 24, 2011, we did not purchase and retire any shares of our common stock. There remains 210,772 shares that can be purchased under a million share buyback authorization approved by the Company's Board of Directors in February 2008.
In our 2008 fiscal year ended September 25, 2010, we purchased and retired 135,124203,507 shares of our common stock at a cost of $3,539,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008 leaving 864,876 as the number of shares that may yet be purchased under the share buyback authorization. No shares were repurchased in the fourth quarter of the year. The Company did not repurchase any of its common stock in$7,768,000.
In our fiscal years 2007 and 2006.
Subsequent toyear ended September 27, 2008 and prior to the filing of this Form 10-K,26, 2009, we purchased and retired 400,000450,597 shares of our common stock at a cost of $12,510,000. Of the shares purchased and retired in 2009, 400,000 shares were purchased at the purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director of the Company.
For information on the Company’s Equity Compensation Plans, please see Item 12 herein.
Stock Performance Graph
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among J & J Snack Foods Corp., The NASDAQ Composite Index
And The S&P Packaged Foods & Meats Index
| *$100 invested on 9/30/03 in stock & index-including reinvestment of dividends.
Fiscal year ending September 30.
Copywright © 2008 S&P, a division of The McGraw-Hill Companies Inc. All rights reserveed
| |
Item 6. Selected Financial DataItem 6. | Selected Financial Data |
The selected financial data for the last five years was derived from our audited consolidated financial statements. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto, especially as the information pertains to fiscal 2006, 20072009, 2010 and 2008.
2011.
| | Fiscal year ended in September (In thousands except per share data) | |
| | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net Sales | | $ | 629,359 | | | $ | 568,901 | | | $ | 514,831 | | | $ | 457,112 | | | $ | 416,588 | |
Net Earnings | | $ | 27,908 | | | $ | 32,112 | | | $ | 29,450 | | | $ | 26,043 | | | $ | 22,710 | |
Total Assets | | $ | 408,408 | | | $ | 380,288 | | | $ | 340,808 | | | $ | 305,924 | | | $ | 277,424 | |
Long-Term Debt | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Capital Lease Obligations | | $ | 474 | | | $ | 565 | | | $ | — | | | $ | — | | | $ | — | |
Stockholders’ Equity | | $ | 316,778 | | | $ | 295,582 | | | $ | 263,656 | | | $ | 234,762 | | | $ | 210,096 | |
| | | | | | | | | | | | | | | | | | | | |
Common Share Data | | | | | | | | | | | | | | | | | | | | |
Earnings Per Diluted Share | | $ | 1.47 | | | $ | 1.69 | | | $ | 1.57 | | | $ | 1.40 | | | $ | 1.24 | |
Earnings Per Basic Share | | $ | 1.49 | | | $ | 1.72 | | | $ | 1.60 | | | $ | 1.43 | | | $ | 1.27 | |
Book Value Per Share | | $ | 16.90 | | | $ | 15.80 | | | $ | 14.28 | | | $ | 12.85 | | | $ | 11.67 | |
Common Shares Outstanding At Year End | | | 18,748 | | | | 18,702 | | | | 18,468 | | | | 18,272 | | | | 18,012 | |
Cash Dividends Declared Per Common Share | | $ | .37 | | | $ | .34 | | | $ | .30 | | | $ | .25 | | | $ | — | |
| | Fiscal year ended in September | |
| | (In thousands except per share data) | |
| | | | | | | | | | | | | | | |
| | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | | | |
Net Sales | | $ | 744,071 | | | $ | 696,703 | | | $ | 653,047 | | | $ | 629,359 | | | $ | 568,901 | |
Net Earnings | | $ | 55,063 | | | $ | 48,409 | | | $ | 41,312 | | | $ | 27,908 | | | $ | 32,112 | |
Total Assets | | $ | 550,816 | | | $ | 483,994 | | | $ | 439,827 | | | $ | 408,408 | | | $ | 380,288 | |
Long-Term Debt | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Capital Lease | | | | | | | | | | | | | | | | | | | | |
Obligations | | $ | 801 | | | $ | 863 | | | $ | 381 | | | $ | 474 | | | $ | 565 | |
Stockholders' Equity | | $ | 432,388 | | | $ | 380,575 | | | $ | 342,844 | | | $ | 316,778 | | | $ | 295,582 | |
Common Share Data | | | | | | | | | | | | | | | | | | | | |
Earnings Per Diluted | | | | | | | | | | | | | | | | | | | | |
Share | | $ | 2.93 | | | $ | 2.59 | | | $ | 2.21 | | | $ | 1.47 | | | $ | 1.69 | |
Earnings Per Basic | | | | | | | | | | | | | | | | | | | | |
Share | | $ | 2.95 | | | $ | 2.61 | | | $ | 2.23 | | | $ | 1.49 | | | $ | 1.72 | |
Book Value Per Share | | $ | 23.09 | | | $ | 20.58 | | | $ | 18.51 | | | $ | 16.90 | | | $ | 15.80 | |
Common Shares Outstanding | | | | | | | | | | | | | | | | | | | | |
At Year End | | | 18,727 | | | | 18,491 | | | | 18,526 | | | | 18,748 | | | | 18,702 | |
Cash Dividends Declared | | | | | | | | | | | | | | | | | | | | |
Per Common Share | | $ | 0.47 | | | $ | 0.43 | | | $ | 0.39 | | | $ | 0.37 | | | $ | 0.34 | |
Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of OperationsItem 7. | Management’s Discussion And Analysis Of Financial Condition And Results Of Operations |
In addition to historical information, this document 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
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of those financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company discloses its significant accounting policies in the accompanying notes to its audited consolidated financial statements.
Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Following are some of the areas requiring significant judgments and estimates: revenue recognition, accounts receivable, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the value and useful lives of intangible assets and insurance reserves.
There are numerous critical assumptions that may influence accounting estimates in these and other areas. We base our critical assumptions on historical experience, third-party data and various other estimates we believe to be reasonable. A description of the aforementioned policies follows:
Revenue Recognition —- We recognize revenue from our products when the products are shipped to our customerscustomers. Repair and whenmaintenance equipment service revenue is recorded when it is performed for our customers whoprovided the customer terms are that the customer is to be charged on a time and material basis. We also sell equipment service contracts with terms of coverage ranging between 12 and 60 months. We record deferred incomebasis or on equipment service contracts which is amortized by thea straight-line methodbasis over the term of the contracts.contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured. We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and trade spending.returned product. Customers generally do not have the right to return product unless it is damaged or defective. Off-invoice allowances are deducted directly from the amount invoiced to our customer when our products are shipped to the customer. Offsets to revenue for allowances, end-user pricing adjustments and trade spending are recorded primarily as a reduction of accounts receivable based on our estimates of liability which are based on customer programs and historical experience. These offsets to revenue are based primarily on the quantity of product purchased over specific time periods. For our Retail Supermarket and Frozen Beverages segments, we accrue for the liability based on products sold multiplied by per product offsets. Offsets to revenue for our Food Service segment are calculated in a similar manner for offsets owed to our direct customers; however, because shipments to end-users are unknown to us until reported by our direct customers or by the end-users, there is a greater degree of uncertainty as to the accuracy of the amounts accrued for end-user offsets. Additional uncertainty may occur as customers take deductions when they make payments to us. This creates complexities because our customers do not always provide reasons for the deductions taken. Additionally, customers may take deductions to which they are not entitled and the length of time customers take deductions to which they are entitled can vary from two weeks to well over a year. Because of the aforementioned uncertainties, the process to determine the amount of liability to record is cumbersome and subject to inaccuracies. However, wethese estimates requires judgment. We feel that due to constant monitoring of the process, any inaccuracies wouldincluding but not be material.limited to comparing actual results to estimates made on a monthly basis, these estimates are reasonable in all material respects. Our recorded liability for allowances, end-user pricing adjustments and trade spending was approximately $12,090,000$12 million and $11,793,000$13 million at September 27, 200824, 2011 and September 29, 2007,25, 2010, respectively.
Accounts Receivable —- We record accounts receivable at the time revenue is recognized. Bad debt expense is recorded in marketing and administrative expenses. The amount of the allowance for doubtful accounts is based on our estimate of the accounts receivable amount that is uncollectable. It is comprised of a general reserve based on historical experience and amounts for specific customers’ accounts receivable balances that we believe are at risk due to our knowledge of facts regarding the customer(s). We continually monitor our estimate of the allowance for doubtful accounts and adjust it monthly. We usually have 2 to 3approximately 10 customers with accounts receivable balances of between $1.5$1 million to $6$10 million. Failure of these customers, and others with lesser balances, to pay us the amounts owed, could have a material impact on our consolidated financial statements.
Accounts receivable due from any of our customers is subject to risk. Our total bad debt expense was $502,000, $189,000$423,000, $493,000 and $300,000$492,000 for the fiscal years 2008, 20072011, 2010 and 2006,2009, respectively. At September 27, 200824, 2011 and September 29, 2007,25, 2010, our accounts receivables were $61,176,000$75,000,000 and $56,772,000,$69,875,000 net of an allowance for doubtful accounts of $926,000$653,000 and $1,052,000.$591,000.
Asset Impairment — In 2006, goodwill of our frozen beverages reporting unit increased by $3,487,000 as a result of the acquisitions of ICEE of Hawaii and SLUSH PUPPIE and the goodwill of our food service reporting unit increased by $839,000 as a result of a smaller acquisition. In 2007, goodwill of our food service reporting unit increased by $1,763,000 as a result of the acquisitions of Hom/Ade Foods and DADDY RAY’S. In 2007, goodwill of our frozen beverages reporting unit increased by $603,000 as the result of the Kansas ICEE acquisition.
– We have threetwo reporting units with goodwill totaling $60,314,000$70,070,000 as of September 27, 2008. We utilize24, 2011. Goodwill is not amortized but is evaluated annually by management for impairment. Our impairment analysis for 2011 is a qualitative assessment in which we have considered historical reporting unitnet cash flows (defined as reporting unitprovided by operating income plus depreciationactivities and amortization) as a proxy for expected future reporting unit cash flowspurchases of property, plant and equipment, their relationship to evaluate the fair value of these reporting units. If the fair value estimated substantially exceeds the carrying value of goodwill, recent fair value calculations of our reporting units and our assessment of the reporting unit, includinglikelihood, based on an assessment of what we know about our Company’s products and markets, costs and general economic conditions, that the relationship of cash flow to the carrying value of goodwill if any, associated withwill change significantly in the foreseeable future. We have concluded that unit, we dogoodwill is not recognize any impairment loss. We do not engage a third party to assist in this analysis as we believe that our in-house expertise is adequate to perform the analysis.impaired.
Licenses and rights, customer relationships and non compete agreements are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. The gross carrying amount of intangible assets increased by $17,034,000 in 2006 primarily as a result of the acquisition of $15,188,000 of intangible assets of the SLUSH PUPPIE business. The gross carrying amount of intangibles increased by $39,633,000 in 2007 primarily as a result of the acquisitions of $23,771,000 and $12,799,000 of intangible assets of Hom/Ade Foods and DADDY RAY’S, respectively. Long-lived assets, including fixed assets and amortizing intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Indefinite lived intangibles are reviewed annually for impairment. Cash flow and sales analyses are used to assess impairment. The estimates of future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
Useful Lives of Intangible Assets— - Most of our trade names which have carrying value have been assigned an indefinite life and are not amortized because we plan to receive the benefit from them indefinitely. If we decide to curtail or eliminate the use of any of the trade names or if sales that are generated from any particular trade name do not support the carrying value of the trade name, then we would record an impairment or assign an estimated useful life and amortize over the remaining useful life. Rights such as prepaid licenses and non compete agreements are amortized over contractual periods. The useful lives of customer relationships are based on the discounted cash flows expected to be received from sales to the customers adjusted for an attrition rate. The loss of a major customer or declining sales in general could create an impairment charge.
Insurance Reserves —- We have a self-insured medical plan which covers approximately 1,1001,300 of our employees. We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period. We maintain a spreadsheet that includes claims payments made each month according to the date the claim was incurred. This enables us to have an historical record of claims incurred but not yet paid at any point in the past. We then compare our accrued liability to the more recent claims incurred but not yet paid amounts and adjust our recorded liability up or down accordingly. Our recorded liability at September 27, 200824, 2011 and September 29, 200725, 2010 was $772,000$1,427,000 and $801,000,$1,106,000, respectively. Considering that we have stop loss coverage of $175,000$200,000 for each individual plan subscriber, the general consistency of claims payments and the short time lag, we believe that there is not a material exposure for this liability. Because of the foregoing, we do not engage a third party actuary to assist in this analysis.
We self-insure, up to loss limits, worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 20082011 and 20072010 was $1,600,000$1,100,000 and $1,900,000,$2,200,000, respectively. Our total recorded liability for all years’ claims incurred but not yet paid was $6,400,000$5,700,000 and $6,800,000$7,300,000 at September 27, 200824, 2011 and September 29, 2007,25, 2010, respectively. We estimate the
liability based on total incurred claims and paid claims adjusting for loss development factors which account for the development of open claims over time. We estimate the amounts we expect to pay for some insurance years by multiplying incurred losses by a loss development factor which is based on insurance industry averages and the age of the incurred claims; our estimated liability is then the difference between the amounts we expect to pay and the amounts we have already paid for those years. Loss development factors that we use range from 1.0 to 2.0. However, for some years, the estimated liability is the difference between the amounts we have already paid for that year and the maximum we could pay under the program in effect for that particular year because the calculated amount we expect to pay is higher than the maximum. For other years, where there are few claims open, the estimated liability we record is the amount the insurance company has reserved for those claims. We evaluate our estimated liability on a continuing basis and adjust it accordingly. Due to the multi-year length of these insurance programs, there is exposure to claims coming in lower or higher than anticipated; however, due to constant monitoring and stop loss coverage of $350,000 on individual claims, we believe our exposure is not material. Because of the foregoing, we do not engage a third party actuary to assist in this analysis. In connection with these self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At each of September 27, 200824, 2011 and September 29, 2007,25, 2010, we had outstanding letters of credit totaling $9,475,000 and $9,595,000, respectively.$8,175,000.
Refer to Note A to the accompanying consolidated financial statements for additional information on our accounting policies.
RESULTS OF OPERATIONS
Fiscal 20082011 (52 weeks) Compared to Fiscal 20072010 (52 weeks)
Net sales increased $60,548,000,$47,368,000, or 11%7%, to $629,359,000$744,071,000 in fiscal 20082011 from $568,901,000$696,703,000 in fiscal 2007. Adjusting for2010.
Excluding sales related tofrom the acquisitionsacquisition of DADDY RAY’SParrot Ice in February 2010, California Churros in June 2010 and Hom/Adethe frozen handheld business of ConAgra Foods in January 2007, and WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands in April 2007,May 2011, sales increased approximately 7%, or $41,681,000.3% for the year.
We have fourthree reportable segments, as disclosed in the accompanying notes to the consolidated financial statements: Food Service, Retail Supermarkets The Restaurant Group and Frozen Beverages.
The Chief Operating Decision Maker for Food Service and Retail Supermarkets and The Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages monthly review and evaluatedetailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales is considered to be the one and only key variable monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. 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 $44,430,000,$25,756,000 or 12%6%, to $400,194,000$463,562,000 in fiscal 2008.2011. Excluding the benefit of sales from acquisitions,the acquisition of California Churros and handheld sales, food service sales increased approximately 7%.2% for the year. Soft pretzel sales to the food service market increased $925,000, or 1%,3% to $99,784,000 for the year. Sales of bakery products excluding Hom/Ade and DADDY RAY’S, increased $19,768,000, or 14%, for the year. Hom/Ade and DADDY RAY sales were $30,380,000 and $26,596,000, respectively, for the year. Churro sales were up 15%$103,943,000 for the year with $25,286,000 ofaided by increased sales to restaurant chains in 2008.the fourth quarter. Frozen juice bar and ices sales increased $3,635,000$2,467,000 or 8%5%, to $51,206,000$49,740,000 for the year primarily as the result of higher sales to school food service accounts. Churro sales to food service customers increased 31% to $41,583,000 in 2011. Without sales from California Churros, churro sales for the year would have been up about 2%. Sales of bakery products, excluding biscuit and dumpling sales and fruit and fig bar sales, increased $9,190,000, or 5%, for the year due primarily to increased sales to private label customers and to school food service. Biscuit and dumpling sales increased 4% to $34,774,000. Sales of fig and fruit bars decreased 11% to $28,363,000 due primarily to lower sales across our customer base resulting from decreased demand. Handheld sales to food service customers were $8,865,000 in 2011. Funnel cake and related funnel cake product sales decreased by $6,207,000 to $16,597,000 with sales to one customer down $9,570,000 or 75%. Sales of new products in the first twelve months since their introduction were approximately $12.5 million for the year. Without WHOLE FRUITPrice increases accounted for approximately $10.5 million of sales for the year and FRUIT-A-FREEZE,net volume increases, including new product sales increased 5%as defined above and sales resulting from the acquisitions of California Churros and handheld sales, accounted for approximately $15.3 million of sales for the year. Sales ofOperating income in our funnel cake products were down $835,000, or 12%, as sales declined to one customer. The changes in sales throughout the Food Service segment decreased from $50,220,000 in 2010 to $46,171,000 in 2011 primarily as a result of higher ingredients and packaging costs of about $16 million and increased freight and distribution costs caused by higher freight rates and the integration of the handhelds business, which were from a combinationpartially offset by the benefit of volume changes and price increases.higher pricing.
Retail SupermarketsRETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $4,981,000$14,980,000 or 10%20% to $57,112,000$91,099,000 in fiscal 2008. Total softyear 2011. Excluding handheld sales, sales increased 7% for the year. Soft pretzel sales to retail supermarkets were $27,559,000, an$32,044,000 compared to $30,463,000 in 2010 on a unit volume increase of 11% from fiscal 2007 virtually all due to pricing.2%. Sales of frozen juice barsjuices and ices increased $3,652,000 or 8% to $31,742,000 in 2008 due to increased$51,940,000 on a unit volume increase of WHOLE FRUIT and FRUIT-A-FREEZE and reduced allowances on our other products.9%. Coupon redemption costs, a reduction of sales, were essentially unchangedincreased 13% or about $458,000 for the year.
The Restaurant Group
Handheld sales to retail supermarket customers were $9,424,000 in 2011. Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET retail storesproducts in the Mid-Atlantic region, declined by 41% primarily due to closings or licensingsfirst twelve months since their introduction were approximately $4.5 million in fiscal year 2011. Price increases accounted for approximately $3.1 million of stores insales for the past year. At September 27, 2008, we had 5 stores open. Salesyear and net volume increases, including new product sales as defined above and handheld sales and net of stores opendecreased coupon costs, accounted for both years were down 4%approximately $12.0 million of sales for the year. Operating income in our Retail Supermarkets segment increased from $11,281,000 in 2010 to $11,830,000 in 2011. Operating income benefited by lower advertising expense of approximately $800,000 and higher volume and pricing, which was partially offset by higher product costs related to ingredient and packaging cost increases.
Frozen BeveragesFROZEN BEVERAGES
Frozen beverage and related product sales increased $12,178,000 or 8%4% to $170,418,000$189,410,000 in fiscal 2008.2011. Beverage sales alone were up 6%increased 4% to $133,372,000 for the year with approximately 2/3a 31% increase in sales in Mexico accounting for over 50% of the increase resulting from a change in distribution to one customer and the balance resulting from pricing. Gallonincrease. Domestic gallon sales were down 4% for the yearflat in our base ICEE business. Service revenue increased $7,554,000, or 24%,5% to $38,803,000$42,608,000 for the year with increases and decreases spread across our customer base. Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, decreased from $11,964,000 in 2010 to $11,362,000 in 2011. The estimated number of Company owned frozen beverage dispensers was 40,800 and 38,600 at September 24, 2011 and September 25, 2010, respectively. Operating income in our Frozen Beverage segment increased from $15,661,000 in 2010 to $18,582,000 in 2011 as we continue to grow this parta result of our business. Frozen carbonated machine sales decreased $1,680,000 to $14,793,000 forincreased volume as discussed above and controlled expenses. Higher gasoline costs of approximately $1.4 million impacted the year.year’s operating income.
ConsolidatedCONSOLIDATED
Other than as commented upon above by segment, there are no material specific reasons for the reported sales increases or decreases. Sales levels can be impacted by the appeal of our products to our customers and consumers and their changing tastes, competitive and pricing pressures, sales execution, marketing programs, seasonal weather, customer stability and general economic conditions.
Gross profit as a percentpercentage of sales decreased 3.09 percentage pointsto 30.88% in 20082011 from 200732.69% in 2010. Higher ingredient and packaging costs compared to 30%.last year of approximately $18 million and the mid single digit gross profit margin of handheld sales were primarily responsible for the decreased gross profit percentage. Ingredient and packaging costs can be extremely volatile and may be significantly different from what we are presently expecting and therefore we cannot project the impact of ingredient and packaging costs on our business going forward; however, there has been a very significant increase in the market cost of ingredient and packaging costs over the past eighteen months which we anticipate will result in higher costs over some portions of our fiscal year 2012. The impact of these higher costs and increased costs in operational areas may result in lower net earnings in 2012 than in 2011.
We were impacted by higher unit commodity costs of over $30,000,000 for the year. This compares to an increase of less than $10,000,000 in 2007 compared to 2006. We expect to be impacted by higher commodity costs going forward, at least over the short term; however, we do expect the magnitude of the year over year increases to continue the decline which began in our fourth quarter. Reduced trade spending of about $2,700,000 in our retail supermarket segment benefitted gross profit and contributed to the improved operating income in the Retail Supermarkets segment. Pricing and lower liability insurance costs of approximately $1,900,000 also helped to partially offset some of the commodity costs’ increase.
Total operating expenses increased $5,624,000$2,543,000 to $143,571,000$153,191,000 in fiscal 20082011 but as a percentage of sales decreased 1.44a full percentage point to 21% of sales. Marketing expenses decreased .86 percentage points to 23%9% of sales in 2008. Other general incomebecause of $375,000 this year primarily consistsreduced advertising of gains on the disposition of assets and insurance gains$800,000 in our Food Serviceretail supermarket segment and Frozen Beverages segments offset by store closing costs in our Restaurant Group segment of $102,000. Last year, other general income consisted of primarily $495,000 and $321,000 insurance gains in the Frozen Beverages and The Restaurant Group segments, respectively and a royalty settlement of $569,000 in the Food Service segment reduced by other general expense items. Marketing expenses decreased 1.26 percentage points to 11% of sales. Controlledcontrolled spending in our Food Service and Retail Supermarket segments accounted for the decline with lower advertising expense of approximately $2,000,000 accounting for about 25% of the percentage point decline.elsewhere. Distribution expenses decreasedincreased .24 of a percentage pointpoints to 8% of sales even though ourdue to higher fuel costs and freight rates. Administrative expenses decreased .18 percentage points and were approximately $2 million higher in our Frozen Beverages segment and administrative expenses were about 3-1/2%3% of sales in both years. Other general expense of $524,000 this year compared to other general expense of $2,087,000 in 2010. Included in other general expense in 2010 is $1.6 million for an unclaimed property assessment and $577,000 of acquisition costs. Included in other general expense in 2011 is $546,000 of acquisition costs.
Operating income decreased $5,244,000,$579,000 or 11%,1% to $43,336,000$76,583,000 in fiscal 2008year 2011 as a result of the aforementioned items.
Gain on the bargain purchase of a business of $6,580,000 in the third quarter resulted from the fair value of the identifiable assets acquired in the handhelds acquisition exceeding the purchase price.
Investment income decreased by $55,000$73,000 to $2,665,000 primarily$1,041,000 due to lower investment returnsthe general decline in the fourth quarter.level of interest rates.
The effective income tax rate increaseddecreased 3.51 percentage points to 39% in fiscal year 200835% from 37% in fiscal 2007. Last year included38% last year. Adjusting out the benefiteffect of the resolutiongain on bargain purchase of state and foreigna business, the effective tax matters. This year had a lower benefit from stock based compensation as well as additional expense resulting from changesrate in state tax requirements.2011 is 37%.
Net earnings decreased $4,204,000,increased $6,654,000 or 13%14%, in fiscal 20082011 to $27,908,000,$55,063,000, or $1.47$2.93 per diluted share as a result of the aforementioned items. Without the benefit of the gain on bargain purchase of a business, net earnings were $48,483,000 compared to $48,409,000 last year.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
RESULTS OF OPERATIONS
Fiscal 20072010 (52 weeks) Compared to Fiscal 2006 (532009 (52 weeks)
Net sales increased $54,070,000,$43,656,000, or 11%7%, to $568,901,000$696,703,000 in fiscal 20072010 from $514,831,000$653,047,000 in fiscal 2006. Adjusting for2009.
Excluding sales related tofrom the acquisitionsacquisition of ICEE of HawaiiParrot Ice in January 2006, SLUSH PUPPIEFebruary 2010 and California Churros in May 2006, DADDY RAY’S in January 2007, HOM/ADE Foods in January 2007, and WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands in April 2007,June 2010, sales increased approximately 2%6% for the year.
Approximately $12.7 million, or 29%, or $9,236,000.of the increased sales were sales of funnel cake fries to one customer, which is carrying the product in virtually all of its domestic locations. Although we are not able to provide an estimate of the sales going forward, we anticipate that these sales will be significantly less in fiscal year 2011.
We have fourthree reportable segments, as disclosed in the accompanying notes to the consolidated financial statements: Food Service, Retail Supermarkets The Restaurant Group and Frozen Beverages.
The Chief Operating Decision Maker for Food Service and Retail Supermarkets and The Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages monthly review and evaluatedetailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales is considered to be the one and only key variable monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. 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 $35,597,000,$18,796,000, or 11%4%, to $355,764,000$437,806,000 in fiscal 2007.2010. Excluding sales from the benefitacquisition of Hom/AdeCalifornia Churros, food service sales would have increased 4% for the year. Sales of $22,409,000, DADDY RAY’Sfunnel cake fries to one customer accounted for over 67% of the food service sales of $15,468,000, and WHOLE FRUIT and FRUIT-A-FREEZE sales of $1,781,000, sales increased approximately 1%.increase. Soft pretzel sales to the food service market decreased $722,000, orincreased 1%, to $98,859,000$100,694,000 for the year. Sales of bakery products excluding Hom/Ade and DADDY RAY’S, increased $3,648,000, or 3%, for the year. Churro sales were essentially unchanged for the year with $22,069,000 of sales in 2007. Frozen juice bar and ices sales increased $3,235,000decreased $2,999,000, or 7%6%, to $47,571,000 for the year. Without WHOLE FRUIT and FRUIT-A-FREEZE, sales increased 3%$47,273,000 for the year withprimarily as the result of lower sales to one contract packing customer and to school food service accounts. Churro sales to food service customers accountingincreased 8% to $31,732,000 in 2010. Without sales from California Churros, churro sales for mostthe year would have been down about ½ of the increase.one percent. Sales of ourbakery products, excluding biscuit and dumpling sales and fruit and fig bar sales, increased $5,606,000, or 3%, for the year due primarily to increased sales to private label customers. Biscuit and dumpling sales increased 1% to $33,326,000. Sales of fig and fruit bars decreased 4% to $31,715,000 due primarily to lower sales to one customer who discontinued a particular product. Funnel cake and related funnel cake products were down $1,198,000, or 15%, asproduct sales declinedincreased by $14,083,000 to $22,804,000 primarily due to the sales to one customer. The changesSales of new products in the first twelve months since their introduction were approximately $29 million in fiscal year 2010. Net volume increases, including new product sales throughoutas defined above and sales resulting from the acquisition of California Churros, accounted for all but approximately $1,500,000 of the sales increases this year. Price increases accounted for the remaining $1,500,000. Operating income in our Food Service segment wereincreased from $44,960,000 in 2009 to $50,220,000 in 2010 primarily as a combinationresult of increased volume changesas discussed above and price increases.lower ingredients and packaging costs of about $2 million.
Retail SupermarketsRETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $5,183,000$10,961,000 or 11%17% to $52,131,000$76,119,000 in fiscal 2007. Total softyear 2010. Soft pretzel sales to retail supermarkets were $24,867,000, an increase$30,463,000 compared to $30,506,000 in 2009 on a unit volume decrease of 10% from fiscal 2006 due to volume and pricing.less than 1%. This makes the third consecutive year of flat or modestly up or down unit sales. Sales of frozen juice barsjuices and ices increased $3,626,000,$10,469,000 or 14%,28% to $29,426,000$48,288,000 on a unit volume increase of 24%. Reduced trade spending of $1.5 million for the introduction of new frozen novelty items and a shift in 2007 from $25,800,000product mix increased sales dollars in 2006 duerelation to the overall unit volume and pricing.increases. Coupon redemption costs, a reduction of sales, were up $687,000,decreased 9% or 33%,about $354,000 for the year, because of increased distribution of coupons.
The Restaurant Group
year. Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET retail storesproducts in the Mid-Atlantic region, declined by 29%first twelve months since their introduction were approximately $4.2 million in fiscal year 2010. Net volume increases, including new product sales as defined above and net of decreased coupon costs and reduced trade spending for new product introductions, accounted for virtually all of the sales increases in 2010. Operating income in our Retail Supermarkets segment increased from $7,442,000 in 2009 to $11,281,000 in 2010 primarily due to closings or licensingsas a result of stores in the past year. At September 29, 2007, we had 9 stores open. Sales of stores open for both years were down 8%volume increases and reduced trade spending for the year.introduction of new frozen novelty items.
Frozen BeveragesFROZEN BEVERAGES
Frozen beverage and related product sales increased $14,421,000 or 10%8% to $158,420,000$182,778,000 in fiscal 2007.2010. Excluding the benefit of sales from the acquisitionsacquisition of ICEE of Hawaii and SLUSH PUPPIE, frozen beverages and related productParrot Ice, sales would have been up 2%increased 7% for the year. Beverage sales alone were up 9%increased 13% to $128,125,000 for the year. Excludingyear with increased sales to two new customers and one existing customer, sales from Parrot Ice and a 26% increase in sales in Mexico accounting for over 80% of the acquisitions, beverage sales alone would have been up 1% for the year.increase. Gallon sales were down 3% for the yearup 10% in our base ICEE business.business with sales to three customers accounting for almost all of the increase. Service revenue increased $5,831,000, or 23%,decreased 4% to $31,249,000$40,410,000 for the year with declines spread across our customer base. Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, increased from $11,729,000 in 2009 to $11,964,000 in 2010. The estimated number of Company owned frozen beverage dispensers was 38,600 and 35,700 at September 25, 2010 and September 26, 2009, respectively. Operating income in our Frozen Beverage segment increased from $14,536,000 in 2009 to $15,661,000 in 2010 as we continue to emphasize growing this parta result of our business. Frozen carbonated machine sales decreased $1,111,000 to $16,473,000 forincreased volume as discussed above. Higher gasoline costs of approximately $867,000 impacted the year.year’s operating income.
Consolidated
Other than as commented upon above by segment, there are no material specific reasons for the reported sales increases or decreases. Sales levels can be impacted by the appeal of our products to our customers and consumers and their changing tastes, competitive and pricing pressures, sales execution, marketing programs, seasonal weather, customer stability and general economic conditions.
Gross profit as a percentpercentage of sales decreased .71increased to 32.69% in 2010 from 31.98% in 2009. Lower ingredient and packaging costs compared to last year of a percentage pointapproximately $2.2 million, the benefit of higher volumes leveraging our fixed manufacturing costs and reduced trade spending for new product introductions in 2007 from 2006 although it remained at 33% of salesour Retail Supermarket segment were primarily responsible for both 2007 and 2006. Excluding the lowerincreased gross profit marginpercentage. Ingredient and packaging costs can be extremely volatile and may be significantly different from what we are presently expecting and therefore we cannot project the impact of ingredient and packaging costs on our business going forward; however, there has been a very significant increase in the acquired DADDY RAY’S business, gross profit percentage would have declined only .26market cost of a percentage point forflour and other commodities over the year.past six months which we anticipate will result in higher costs over some portions of our fiscal year 2011. The impact of these higher costs and increased costs in operational areas may result in lower net earnings in 2011 than in 2010.
We were impacted by higher commodity costs of over $8,000,000 for the year with over $3,500,000 impacting us in the fourth quarter. Reduced trade spending in our retail supermarket segment, other pricing and lower utility and insurance costs of approximately $1,100,000 helped to offset some of the commodity costs increase.
We expect to continue to be impacted by higher commodity costs going forward.
Total operating expenses increased $10,592,000$8,712,000 to $137,947,000$150,618,000 in fiscal 2007 but2010 and as a percentage of sales decreased .49.11 of a percentage point and remained at 22% of sales. Marketing expenses decreased .29 percentage points to 24%10% of sales. Distribution expenses decreased .13 percentage points to 7% of sales. Administrative expenses were about 3-1/2% of sales in 2007. An impairment charge lastboth years. Other general expense of $2,087,000 this year of $1,193,000 in the Food Service segment for the writedown of robotic packaging equipment and an increase ofcompared to other general income of $1,312,000 this year accounted for virtually all of the .49 percentage point decrease. Other general income of $1,388,000 this year primarily consists of $495,000 and $321,000 insurance gains$5,000 in the Frozen Beverages and The Restaurant Group segments, respectively and a royalty settlement of $569,0002009. Included in the Food Service segment reduced by other general expense items. Marketing expenses increased .38 of a percentage point but stayed at 12% of sales. Marketing expenses this year include $1,940,000is $1.6 million for an unclaimed property assessment and $577,000 of costs for a TV/Internet advertising campaign for our retail SUPERPRETZEL product.acquisition costs.
Operating income increased $3,516,000,$10,224,000 or 8%,15% to $48,580,000$77,162,000 in fiscal 2007year 2010 as a result of the aforementioned items. Excluding the writedown of robotic packaging equipment last year, operating income increased $2,323,000, or 5%. Excluding the impact of the writedown of the robotic packaging equipment last year and the increase in other general income this year, operating income was up $1,011,000, or 2%, this year.
Investment income decreased by $417,000$272,000 to $2,720,000 primarily$1,114,000 due to lower investable balancesthe general decline in the level of cash and marketable securities.interest rates.
The effective income tax rate decreased 1.42 percentage points to 37% in fiscal year 200738% from 39% in fiscal 2006 due primarilylast year. About 2/3 of this decrease was from the resolutionreduction of state and foreign$750,000 of unrecognized tax matters.benefits.
Net earnings increased $2,662,000,$7,097,000, or 9%17%, in fiscal 20072010 to $32,112,000,$48,409,000, or $1.69$2.59 per diluted share as a result of the aforementioned items.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
ACQUISITIONS
In January 2004, we acquired the assets of Country Home Bakers, Inc. Country Home Bakers, Inc., with its manufacturing facility in Atlanta, Georgia, 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.
In March 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.
On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE of Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen beverages and related products throughout the Hawaiian islands.
On May 26, 2006, The ICEE Company, our frozen carbonated beverage distribution company, acquired the SLUSH PUPPIE branded business from Dr. Pepper/Seven Up, Inc., a Cadbury Schweppes Americas Beverages Company for $18.1 million plus approximately $4.3 million in working capital. SLUSH PUPPIE, North America’s leading brand for frozen non-carbonated beverages, is sold through an existing established distributor network to over 20,000 locations in the United States and Canada as well as to certain international markets.
On January 9, 2007, we acquired the assets of Hom/Ade Foods, Inc. Hom/Ade Foods, Inc., based in Pensacola, Florida is a manufacturer and distributor of biscuits and dumplings sold under the MARY B’s and private label store brands predominatelypredominantly to the retail supermarket trade.
Annual sales of the business were approximately $30 million for the year ended December 2006.
On January 31, 2007, we acquired the assets of Radar, Inc. Radar, Inc. is a manufacturer and seller of fig and fruit bars selling its products under the brand DADDY RAY’S. Headquartered and with its manufacturing facility in Moscow Mills, Missouri (outside of St. Louis), Radar, Inc. had annual sales of approximately $23 million dollars selling to the retail grocery segment and mass merchandisers, both branded and private label.
On April 2, 2007, we acquired the WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands, along with related assets including a manufacturing facility located in Norwalk, California, selling primarily to the supermarket industry. Sales for 2007 were $2,429,000.
On June 25, 2007, we acquired the assets of an ICEE distributor in Kansas with annual sales of less than $1 million.
In February 2010, we acquired the assets of Parrot Ice, a manufacturer and distributor of a premium brand frozen beverage sold primarily in convenience stores. Revenues from Parrot Ice were approximately $1.5 million for our 2010 fiscal year.
On June 10, 2010 we acquired the assets of California Churros, Inc., a manufacturer and seller of premium brand churros selling its products under the brand CALIFORNIA CHURROS. Headquartered and with its manufacturing facility in Colton, CA, California Churros had sales of approximately $2.5 million in our 2010 fiscal year.
In May 2011, we acquired the frozen handheld business of ConAgra Foods. This business had sales of approximately $50 million over the prior twelve months to food service and retail supermarket customers and sales of $18.3 million in our 2011 fiscal year from the acquisition date. We do not expect this business to contribute operating income to the Company over the short term.
These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the accompanying consolidated financial statements from their respective acquisition dates.
LIQUIDITY AND CAPITAL RESOURCES
Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to fund future growth and expansion. See Note C to these financial statements for a discussion of auction market preferred stock which previously we had considered to be a source of liquidity.our investment securities.
Fluctuations in the value of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decreasean increase of $3,000$1,060,000 in accumulated other comprehensive loss in 20082011 and a decrease of $577,000 in 2010 and an increase of $42,000$1,428,000 in 2007 and an increase of $46,000 in 2006.2009. In 2008,2011, sales of the two subsidiaries were $11,078,000$18,025,000 as compared to $9,785,000$14,301,000 in 20072010 and $7,889,000$11,658,000 in 2006.2009.
In our 2008 fiscal year ended September 24, 2011, we did not purchase and retire any shares of our common stock. There remains 210,772 shares that can be purchased under a million share buyback authorization approved by the Company's Board of Directors in February 2008.
In our fiscal year ended September 25, 2010, we purchased and retired 135,124203,507 shares of our common stock at a cost of $3,539,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008. $7,768,000.
In our fiscal years 2007 and 2006, we did not repurchase or retire any of our Company stock.
Subsequent toyear ended September 27, 2008 and prior to the filing of this Form 10-K,26, 2009, we purchased and retired 400,000450,597 shares of our comoncommon stock at a cost of $12,510,000. Of the shares purchased and retired in 2009, 400,000 shares were purchased at the purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director of the Company.
In December 2006,November 2011, we entered into an amendment and modification to an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2011.November 2016. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under the prior facility at September 27, 200824, 2011 and September 29, 2007.25, 2010. The significant financial covenants are:
· | Earnings before interest expense and income taxes divided by interest expense shall not be less than 1.5 to 1. |
· | . | Tangible net worth must initially be more than $170$294 million. |
· | . | Total funded indebtedness divided by earnings before interestbeforeinterest expense, income taxes, depreciation and amortization shall not be greater than 2.25 to 1. |
· | Total liabilities divided by tangible net worth shall not be more than 2.0 to 1. |
We were in compliance with the financial covenants described above at September 27, 2008.24, 2011.
We self-insure, up to loss limits, certain insurable risks such as worker’sworker's compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 20082011 and 20072010 was $1,600,000$1,100,000 and $1,900,000,$2,200,000, respectively. In connection with certain self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At each of September 27, 200824, 2011 and September 29, 2007,25, 2010, we had outstanding letters of credit totaling $9,475,000 and $9,595,000, respectively.$8,175,000.
The following table presents our contractual cash flow commitments on long-term debt, operating leases, construction contracts and purchase commitments for raw materials and packaging. See Notes to the consolidated financial statements for additional information on our long-term debt and operating leases.
| | Payments Due by Period (in thousands) | |
| | Total | | | Less Than 1 Year | | | | | | 4-5 Years | | | After 5 Years | |
Long-term debt, including current maturities | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Capitalized lease obligations | | | 474 | | | | 93 | | | | 194 | | | | 187 | | | | — | |
Purchase commitments | | | 44,316 | | | | 44,316 | | | | — | | | | — | | | | — | |
Operating leases | | | 37,872 | | | | 9,716 | | | | 14,126 | | | | 6,568 | | | | 7,462 | |
Total | | $ | 82,662 | | | $ | 54,125 | | | $ | 14,320 | | | $ | 6,755 | | | $ | 7,462 | |
The amounts shown above exclude uncertain tax benefits of $1,735,000 as determined under FIN 48 as we cannot predict if or when such amounts, if any, will be paid or be payable to the taxing authorities. | | Payments Due by Period | |
| | (in thousands) | |
| | | | | Less | | | | | | | | | | |
| | | | | Than | | | 1-3 | | | 4-5 | | | After | |
| | Total | | | 1 Year | | | Years | | | Years | | | 5 Years | |
| | | | | | | | | | | | | | | | | |
Long-term debt, including current maturities | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Capital lease obligations | | | 801 | | | | 278 | | | | 422 | | | | 65 | | | | 36 | |
Purchase commitments | | | 60,000 | | | | 60,000 | | | | - | | | | - | | | | - | |
Construction Contracts | | | 4,300 | | | | 4,300 | | | | - | | | | - | | | | - | |
Operating leases | | | 49,298 | | | | 8,809 | | | | 12,451 | | | | 7,377 | | | | 20,661 | |
Total | | $ | 114,399 | | | $ | 73,387 | | | $ | 12,873 | | | $ | 7,442 | | | $ | 20,697 | |
The purchase commitments do not exceed our projected requirements over the related terms and are in the normal course of business.
Fiscal 20082011 Compared to Fiscal 20072010
Cash and cash equivalents and marketable securities held to maturity and auction market preferred stock increased $24,916,000,$38,539,000, or 44%33%, to $81,935,000$154,985,000 from a year ago primarily because net cash provided by operating activities of $54,897,000 was more than cash used for purchases of property, plant and equipment by $32,116,000, which was partially offset by cash used in financing activities of $7,600,000.reasons described below.
TradeAccounts receivables, net increased $4,404,000,$5,125,000, or 8%7%, to $61,176,000$75,000,000 in 20082011 due to primarily to higher net sales.increased sales levels in our fourth quarter which resulted primarily from the handhelds acquisition. Inventories increased $2,496,000$12,831,000 or 5%25% to $49,095,000$63,461,000 in 20082011 due primarily to higher unit costs of inventories.inventory and inventory of handhelds which accounted for over 60% of the increase.
Prepaid expenses and other decreased to $4,196,000 from $6,067,000 last year because of higher estimated federal income tax payments made in 2010 prior to the enactment of the law extending bonus depreciation.
Net property, plant and equipment was essentially unchanged at $93,064,000increased $14,558,000 to $124,650,000 because purchases of fixed assets were essentially offset byfor the improvement and expansion of our manufacturing capabilities and frozen carbonated beverage business exceeded depreciation on existing assets, and because of the addition of $11,036,000 in fixed assets.assets acquired in the handhelds acquisition.
Other intangible assets, less accumulated amortization decreased $4,700,000$3,279,000 to $53,633,000$52,005,000 due completely to amortization.intangible assets of $1,532,000 acquired in the handhelds acquisition net of amortization expense of $4,811,000.
Goodwill was unchanged at $60,314,000 from September 29, 2007 to September 27, 2008.
Accounts payable and accrued liabilities increased $550,000, or 1% from 2007$3,904,000 due to 2008 primarily becauseincreased levels of business and higher purchase costs of raw materialsingredients and packaging.
Accrued compensation expense increased 5% to $12,859,000 due to an increase in our employee base and a general increase in the level of pay rates.
Deferred income tax liabilities increased by $3,876,000$10,649,000 to $23,056,000$41,050,000 which related primarily to amortization of goodwill and other intangible assets and depreciation of property, plant and equipment.equipment and deferred taxes of $4,137,000 resulting from the gain on bargain purchase of a business.
Other long-term liabilities at September 27, 200824, 2011 include $1,735,000$973,000 of gross unrecognized tax benefits.benefits which decreased from $1,249,000 a year ago due to reductions for tax positions of prior years.
Common stock increased $1,135,000$6,564,000 to $48,415,000$45,017,000 in 20082011 because of increases totaling $6,564,000 from the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees, stock issued under our deferred stock plan and share-based compensation expense exceeded the repurchase of common stock of $3,539,000 by $1,135,000.expense.
Net cash provided by operating activities decreased $2,946,000increased $12,448,000 to $54,897,000$80,456,000 in 20082011 primarily because of thea decrease in prepaid expenses and other of $1,870,000 compared to net earningsan increase in prepaid expense and other of $4,204,000.$4,101,000 in 2010, an increase of accounts receivable of $5,231,000 in 2011 compared to an increase of $8,629,000 in 2010 and an increase in deferred income taxes of $6,108,000 in 2011 compared to an increase of $3,219,000 in 2010.
Net cash used in investing activities decreased $38,980,000increased $22,450,000 to $18,854,000$63,905,000 in 20082011 from $57,834,000$41,455,000 in 20072010 primarily because we did not make any acquisitionsnet purchases of marketable securities of $25,725,000 in 2008.
2011 compared to net proceeds from marketable securities of $16,866,000 in 2010. This change of $42,591,000 was partially offset by lower spending of $16,379,000 and $4,407,000 on the purchase of companies and property, plant and equipment, respectively.
Net cash used in financing activities of $7,600,000$3,407,000 in 20082011 compared to net cash used by financing activities of $1,769,000$12,609,000 in 2007.2010. The increasedecrease was caused primarily by $3,539,000a decrease of $7,768,000 in payments to repurchase common stock along with a decrease in proceeds from the issuance of common stock upon the exercise of stock options.stock.
In 2008,2011, the major variables in determining our net increase in cash and cash equivalents and marketable securities were our net earnings, depreciation and amortization of fixed assets, and purchases of property, plant and equipment. Additionally, in 2008, due toequipment, purchases of companies, payments of cash dividend and the failurerepurchase of the auction market, we reclassified a portion of our investment securities to long-term assets (see Note C to these financial statements).common stock. Other variables which in the past have had a significant impact on our change in cash and cash equivalents are payments for the repurchase of common stock, proceeds from borrowings and payments of long-term debt. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a significant use of cash. Although the balance of our long-term debt is $0 at September 27, 2008,24, 2011, we may borrow in the future depending on our needs.
Fiscal 20072010 Compared to Fiscal 20062009
Cash and cash equivalents and marketable securities available for saleheld to maturity decreased $19,602,000,$2,544,000, or 26%2%, to $57,019,000$116,446,000 from a year ago primarily because net cash provided by operating activities of $57,843,000 was less than cash used for purchases of property, plant and equipment and for purchase of companies by $17,669,000.ago.
Trade receivables increased $3,739,000,$8,449,000, or 7%14%, to $56,772,000$68,183,000 in 2007 due primarily to an increased level of business resulting from acquisitions and internal growth. Inventories increased $8,809,000 or 23% to $46,599,000 in 2007. The increases were2010 due primarily to increased sales levels in our fourth quarter. Inventories increased $4,626,000 or 10% to $50,630,000 in 2010 due to increased sales levels and an increase in equipment parts needed to support our frozen beverage business.
Prepaid expenses and other increased to $6,067,000 from $1,910,000 last year because of business and higher unit costsestimated federal income tax payments made prior to the enactment of inventories.the law extending bonus depreciation.
Net property, plant and equipment increased $7,775,000$12,919,000 to $93,222,000$110,092,000 because purchases of fixed assets for the improvement and expansion of our manufacturing capabilities and frozen carbonated beverage business exceeded depreciation on existing assets, and because of the addition of $3,508,000 in fixed assets acquired in acquisitions exceeded depreciationand the purchase of existing assets.a distribution freezer warehouse building which had previously been leased, for a purchase price of $5,794,000.
Other intangible assets, less accumulated amortization increased $35,664,000$6,159,000 to $58,333,000 primarily because of the purchase of$55,284,000 due to intangible assets of $23,771,000, $12,799,000, $2,731,000 and $413,000$10,846,000 acquired in the Hom/Ade Foods, DADDY RAY’S, WHOLE FRUIT and FRUIT-A-FREEZE and Kansas ICEE acquisitions respectively.net of amortization of $4,687,000.
Goodwill increased $2,366,000$9,756,000 to $60,314,000$70,070,000 from September 26, 2009 to September 25, 2010 as a result of the purchasesacquisition of the aforementioned acquisitions.California Churros.
Accounts payable and accrued liabilities increased $5,033,000, or 10% from 2006$2,484,000 due to 2007 primarily because of increased levels of business, higher costsbusiness.
Accrued compensation expense increased 5% to $12,244,000 due to an increase in our employee base, a general increase in the level of raw materials and packagingpay rates and higher income taxes payable.bonuses due to be paid.
Deferred income tax liabilities increased by $969,000$3,368,000 to $19,180,000$30,401,000 which related primarily to amortization of goodwill and other intangible assets.assets and depreciation of property, plant and equipment.
Other long-term liabilities at September 25, 2010 include $1,249,000 of gross unrecognized tax benefits which decreased from $1,895,000 a year ago due to reductions for tax positions of prior years.
Common stock increased $6,182,000decreased $3,324,000 to $47,280,000$38,453,000 in 20072010 because ofincreases totaling $4,444,000 from the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees, stock issued under our deferred stock plan and share-based compensation expense.expense were less than the repurchase of common stock of $7,768,000 by $3,324,000.
Net cash provided by operating activities increased $2,878,000decreased $12,625,000 to $57,843,000$68,008,000 in 20072010 primarily because of an increaseincreases in accounts receivable, inventories and prepaid expenses and other of $8,629,000, $4,422,000 and $4,101,000, respectively, compared to decreases in accounts receivable, inventories and prepaid expenses and other in 2009 of $1,144,000, $2,993,000 and $37,000, respectively. The net change in accounts receivable and inventories of $21,326,000 was partially offset by higher net earnings of $2,662,000$7,097,000 and higher depreciation and amortization of intangibles and deferred costsfixed assets of $2,797,000 compared to 2006.$1,835,000.
Net cash used in investing activities increased $7,205,000decreased $6,370,000 to $57,834,000$41,455,000 in 20072010 from $50,629,000$47,825,000 in 20062009 primarily because of increased proceeds from marketable securities, net of purchases, which netted $16,866,000 compared to net purchases of property, plant and equipment andmarketable securities of $20,976,000 in 2009; which were partially offset by payments for purchases of companies, net of cash acquired were higherin 2010, of $25,185,000 and by $29,509,000, which was offset by the net difference between proceeds from sales of marketable securities andincreased purchases of marketable securitiesproperty, plant and equipment of $22,782,000 this year$6,341,000 in 2010 compared to last year.2009.
Net cash used in financing activities of $1,769,000$12,609,000 in 20072010 compared to net cash used by financing activities of $2,464,000$15,740,000 in 2006.2009. The decrease was caused by increased proceeds from the issuancea decrease of $4,742,000 in payments to repurchase common stock.
In 2007,2010, the major variables in determining our net increase in cash and cash equivalents and marketable securities available for sale were our net earnings, depreciation and amortization of fixed assets, purchases of property, plant and equipment, purchases of companies, payments of cash dividend and payments for the purchaserepurchase of companies.common stock. Other variables which in the past have had a significant impact on our change in cash and cash equivalents are payments for the repurchase of common stock, proceeds from borrowings and payments of long-term debt. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition in the current year.acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a significant use of cash. Although the balance of our long-term debt is $0 at September 29, 2007,25, 2010, we may borrow in the future depending on our needs.
Item 7A. Quantitative And Qualitative Disclosures About Market RiskItem 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 Company has in the past entered into interest rate swaps to limit its exposure to interest rate risk and may do so in the future if the Board of Directors feels that such non-trading purpose is in the best interest of the Company and its shareholders. As of September 27, 2008,24, 2011, the Company had no interest rate swap contracts.
Interest Rate Risk
At September 27, 2008,24, 2011, the Company had no long-term debt obligations.
Purchasing Risk
The Company’s most significant raw material requirements include flour, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of 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 12 months. FuturesFuture 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 September 27, 200824, 2011, because it does not believe its foreign exchange exposure is significant.
Item 8. Financial Statements And Supplementary DataItem 8. | Financial Statements And Supplementary Data |
The financial statements of the Company are filed under this Item 8, beginning on page F-1 of this report.
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial DisclosureItem 9. | Changes In And Disagreements With Accountants OnAccounting And Financial Disclosure |
None.
Item 9A. Controls And ProceduresItem 9A. | Controls And Procedures |
Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act"), as amended for financial reporting, as of September 27, 2008.24, 2011. Based on that evaluation, our chief executive officer and chief financial officer
concluded that these controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported as specified in Securities and Exchange Commission rules and forms. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect these controls or procedures. There were no changes in the Company’s internal controls over financial reporting that occurred during our last fiscal quarter.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include, among other things, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the chief executive officer and chief financial officer and effected by the board of directors and management 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 and includes those policies and procedures that:
| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and board of directors; |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 27, 2008.24, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment, our management believes that, as of September 27, 2008,24, 2011, our internal control over financial reporting is effective. There have been no changes that occurred during our fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm, has issued aGrant Thornton LLP, audited our internal control over financial reporting as of September 24, 2011. Their report, dated December 6, 2011, expressed an unqualified opinion on the effectiveness of our internal control over financial reporting. That report appears in Item 15 of Part IV of this Annual Report on Form 10-K on page F-2.and is incorporated by reference to this Item 9A.
Item 9B. Other InformationItem 9B. | Other Information |
There was no information required on Form 8-K during the quarter that was not reported.
PART III
Item 10. Directors, Executive Officers and Corporate GovernanceItem 10. | Directors, Executive Officers and CorporateGovernance |
Portions of the information concerning directors and executive officers, appearing under the captions “Information Concerning Nominees For Election To Board” and “Information Concerning Continuing Directors And Executive Officers” and information concerning Section 16(a) Compliance appearing under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” 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 12, 20098, 2012 (“20082010 Proxy Statement”) is incorporated herein by reference.
Portions of the information concerning the Audit Committee, the requirement for an Audit Committee Financial Expert and the Nominating Committee in the Company’s 20082010 Proxy Statement filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on February 12, 2009,8, 2012 is incorporated herein by reference.
The Company has adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, which applies to the Company’s principal executive officer and senior financial officer. The Company has also adopted a Code of Business Conduct and Ethics which applies to all employees. The Company will furnish any person, without charge, a copy of the Code of Ethics upon written request to J & J Snack Foods Corp., 6000 Central Highway, Pennsauken, New Jersey 08109, Attn: Dennis Moore. A copy of the Code of Ethics can also be found on our website at www.jjsnack.com. Any waiver of any provision of the Code of Ethics granted to the principal executive officer or senior financial officer may only be granted by a majority of the Company’s disinterested directors. If a waiver is granted, information concerning the waiver will be posted on our website www.jjsnack.com for a period of 12 months.
Item 11. Executive Compensation
Item 11. | Executive Compensation |
Information concerning executive compensation appearing in the Company’s 20082011 Proxy Statement under the caption “Management Remuneration” is incorporated herein by reference.
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 12, 20098, 2012 or until their successors are duly elected.
Name | | Age | | Position |
| | | | |
Gerald B. Shreiber | 67 | 69 | | Chairman of the Board, President, Chief Executive Officer and Director |
| | | | |
Dennis G. Moore | 53 | 56 | | Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director |
| | | | |
Robert M. Radano | 59 | 62 | | Senior Vice President, Sales and Chief Operating Officer |
| | | | |
Dan Fachner | 48 | 51 | | President of The ICEE Company Subsidiary |
| | | | |
Vincent MelchiorreGerard G. Law | 48 | Executive37 | | Senior Vice President and Chief Marketing OfficerAssistant to the President |
| | | | |
Robert J. Pape | | 54 | | Senior Vice President, Sales |
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 2010.2015.
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 2012.
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.
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.
Vincent MelchiorreGerard G. Law joined the Company in June 2007. Prior1992. He served in various manufacturing and sales management capacities prior to joiningbecoming Senior Vice President, Western Operations in 2009. He was named to his present position in 2011 in which he has responsibility for marketing, research and development and overseeing a number of the manufacturing facilities of J & J.
Robert J. Pape joined the Company he had been employed in 1998. He served in various sales and sales management positions with Weston Foods, USA for one year, The Tasty Baking Company for three years and The Campbell Soup Company for over twenty years.capacities prior to becoming Senior Vice President, Sales in 2010.
Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
Item 12. | Security Ownership Of Certain Beneficial Owners AndManagement And Related Stockholder Matters |
Information concerning the security ownership of certain beneficial owners and management appearing in the Company’s 20082011 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” is incorporated herein by reference.
The following table details information regarding the Company’s existing equity compensation plans as of September 27, 2008.24, 2011.
| | ( a ) | | | ( b ) | | | ( c ) | |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of Securities Remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) ) | |
| | | | | | | |
Equity compensation plans approved by security holders | | | 559,287 | | | $ | 37.55 | | | | 1,054,000 | |
| | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | - | | | | - | | | | - | |
| | | | | | | | | | | | |
Total | | | 559,287 | | | $ | 37.55 | | | | 1,054,000 | |
| | (a) | | | (b) | | | (c) | |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Equity compensation plans approved by security holders | | | 1,027,000 | | | $ | 21.84 | | | | 1,311,000 | |
Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
Total | | | 1,027,000 | | | $ | 21.84 | | | | 1,311,000 | |
Column C includes 473,000 from a stock option plan that has been replaced subsequent to September 24, 2011. That plan has been replaced by a plan, subject to shareholder approval in February 2012, that has 800,000 shares available for future issuance as of the date of this Form 10-K.
Item 13. Item 13. | Certain Relationships And Related Transactions, andDirector Independence |
Information concerning the Certain Relationships and Related Transactions, and Director Independence in the Company’s 2011 Proxy Statement is incorporated herein by reference.
None to report.
Item 14. Principal Accounting Fees And ServicesItem 14. | Principal Accounting Fees And Services |
Information concerning the Principal Accountant Fees and Services in the Company’s 20092011 Proxy Statement is incorporated herein by reference.
PART IV
Item 15. | Exhibits, Financial Statement Schedules |
Item 15. Exhibits,
(a) The following documents are filed as part of this Report:
(1) Financial Statements
The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements and Financial Statements Schedule on page F-1.
(2) Financial Statement SchedulesSchedule – Page S-1
| (a) | The following documents are filed as part of this Report: |
| | |
| | (1) Financial Statements |
| | |
| | The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements and Financial Statements Schedule on page F-1. |
| | |
| | (2) Financial Statement Schedules — Page S-1 |
| | |
| | Schedule II —Schedule II – Valuation and Qualifying Accounts |
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.
(b) Exhibits
| (b) | Exhibits |
| | |
| 3.1 | Amended and Restated Certificate of Incorporation filed February 28, 1990.1990 (Incorporated by reference from the Company’s Form 10-Q dated May 4, 1990.)1990). |
| | |
| 3.23.2** | Revised Bylaws adopted May 17, 2006. (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)November 19, 2007. |
| 4.3 | Amended and Restated Loan Agreement dated December 1, 2006 by and among J & J Snack Foods Corp. and Certain of its Subsidiaries and Citizens Bank of Pennsylvania, as Agent.Agent (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)2006). |
| 4.4** | First Amendment and Modification to Amended and Restated Loan Agreement. |
| 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*10.2* | J & J Snack Foods Corp. Stock Option Plan.Plan (Incorporated by reference from the Company’s Definitive Proxy Statement dated December 19, 2002.)2002). |
| | |
| 10.3*10.3* | Adoption Agreement for MFS Retirement Services, Inc. Non-Standardized 401(K) Profit Sharing Plan and Trust, effective September 1, 2004.2004 (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)2006). |
| | |
| 10.4*10.4* | J & J Snack Foods Corp. Directors’ and Consultants’ Deferred Compensation Plan adopted November 21, 2005.2005 (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)2006). |
| | |
| 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 from 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.facility (Incorporated by reference from the Company’s Form 10-K dated December 21, 1995.)1995). |
| | |
| 10.8*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). |
| | |
| 10.11 | Amendment No. 1 to Lease dated August 29, 1995 between J & J Snack Foods Corp. and 5353 Downey Associated Ltd. for the lease of the Vernon, CA facility.facility (Incorporated by reference from the Company’s Form 10-K dated December 18, 2002). |
| 10.14 | |
| 10.12 | Employment agreementLeases and amendments to leases between Vincent A. MelchiorreLiberty Venture I, LP and J & J Snack Foods Corp. for the three buildings located in Bridgeport, New Jersey (Incorporated by reference from the Company’s 8-KForm 10-K dated June 5, 2007)December 8, 2009). |
| 10.15 | Amendment No. 2 to 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 6, 2010). |
| 10.16 | Amendment to Lease dated January 1, 1996 between Country Home Bakers, LLC and Borck Associates Limited Partnership for the lease of the Atlanta, GA facility (Incorporated by reference from the Company's Form 10-k dated December 6, 2011). |
| 14.1 | Code of Ethics Pursuant to Section 406 of the Sarbanes-OxleytheSarbanes-Oxley Act of 2002. (Incorporated2002(Incorporated by reference from the Company’s 10-Q dated July 20, 2004). |
| | |
| 21.1*21.1** | Subsidiaries of J & J Snack Foods Corp. |
| | |
| 23.1*23.1** | Consent of Independent Registered Public Accounting Firm. |
| | |
| 31.1*31.1** | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2*31.2** | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1*32.1** | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002. |
| | |
| 32.2*32.2** | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002. |
| 101.1** | The following financial information from J&J Snack Foods Corp.'s Form 10-K for the year ended September 24, 2011, formatted in XBRL (eXtensible Business Reporting Language): |
(i) | Consolidated Statements of Earnings, | |
(ii) | Consolidated Balance Sheets | |
(iii) | Consolidated Statements of Cash Flows and | |
(iv) | Consolidated Statement of Changes in Stockholders' Equity | |
SIGNATURES
Pursuant to the requirements of Section 13(a) 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 8, 20086, 2011 | ByBy: | /s/ GeraldGerald B. ShreiberShreiber | |
| | Gerald B. Shreiber, Chairman of the Board, President, President, Chief Executive Officer and Director (Principal Executive Officer) | |
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.
| | |
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. |
| /s/ Gerald B. Shreiber | |
December 8, 2008 | | /s/ Gerald B. Shreiber |
6, 2011 | | Gerald B. Shreiber, Chairman of the Board, President, President, Chief Executive Officer and Director (Principal Executive Officer) | |
| | | |
| | /s/ Dennis G. Moore | |
December 8, 20086, 2011 | | /s/ Dennis G. Moore |
| | Dennis G. Moore, Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer) (Principal Accounting Officer) | |
| | | |
December 8, 2008 | | /s/ SidneySidney R. BrownBrown | |
December 6, 2011 | | Sidney R. Brown, Director | |
| | |
December 8, 2008 | | /s/ Peter G. Stanley |
| | /s/ Peter G. Stanley | |
December 6, 2011 | | Peter G. Stanley, Director | |
| | |
December 8, 2008 | | /s/ Leonard M. Lodish |
| | /s/ Leonard M. Lodish Director
| |
December 6, 2011 | | Leonard M. Lodish, Director | |
J & J SNACK FOODS CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Financial Statements: | |
| |
Report of Independent Registered Public Accounting Firm | F-2 |
| |
Consolidated Balance Sheets as of September 27, 2008 24, 2011 and September 29, 200725, 2010 | F-3 |
| |
Consolidated Statements of Earnings for fiscal years ended September 24, 2011, September 25, 2010 and September 27, 2008, September 29, 2007 and September 30, 200626, 2009 | F-4 |
| |
Consolidated Statement of Changes in Stockholders’ Equity for the fiscal years ended September 27, 2008,24, 2011, September 29, 200725, 2010 and September 30, 200626, 2009 | F-5 |
| |
Consolidated Statements of Cash Flows for fiscal years ended September 24, 2011, September 25, 2010 and September 27, 2008, September 29, 2007 and September 30, 200626, 2009 | F-6 |
| |
Notes to Consolidated Financial Statements | F-7 |
| |
Financial Statement Schedule: | |
| |
Schedule II —– Valuation and Qualifying Accounts | S-1 |
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
J&J Snack Foods Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of J&J Snack Foods Corp. and Subsidiaries as of September 27, 200824, 2011 and September 29, 2007,25, 2010, and the related consolidated statements of earnings, changes in stockholders’ equity, and cash flows for each of the three fiscal years in the three-year period ended September 27, 200824, 2011 (52 weeks, 52 weeks, and 5352 weeks, respectively). Our audits of the basic consolidated financial statements included the financial statement schedule, Valuation and Qualifying Accounts, listed in the index to the consolidated financial statements.appearing under Item 15. We have also audited J&J Snack Foods CorpCorp. and Subsidiaries’ internal control over financial reporting as of September 27, 2008,24, 2011, based on criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). J&J Snack Foods Corp. and Subsidiaries’ management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, which is included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on J&J Snack Foods Corp. and Subsidiaries’ internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated 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 27, 200824, 2011 and September 29, 2007,25, 2010, and the consolidated results of theirits operations and theirits consolidated cash flows for each of the three fiscal years in the three-year period ended September 27, 200824, 2011 (52 weeks, 52 weeks, and 53 weeks)52 weeks, respectively) in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also inIn our opinion, J&J Snack Foods Corp. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 27, 2008,24, 2011, based on criteria established in Internal Control-Integrated Framework, issued by COSO.
As discussed in Note A to the consolidated financial statements, the Company has adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, in 2008.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
November 26, 2008December 6, 2011
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share amounts) |
| | | | | | |
| | September 24, | | | September 25, | |
| | 2011 | | | 2010 | |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 87,479 | | | $ | 74,665 | |
Marketable securities held to maturity | | | 25,506 | | | | 15,481 | |
Accounts receivable, net | | | 75,000 | | | | 69,875 | |
Inventories, net | | | 63,461 | | | | 50,630 | |
Prepaid expenses and other | | | 4,196 | | | | 6,067 | |
Deferred income taxes | | | 4,208 | | | | 3,813 | |
Total current assets | | | 259,850 | | | | 220,531 | |
| | | | | | | | |
Property, plant and equipment, at cost | | | 446,856 | | | | 414,403 | |
Less accumulated depreciation and amortization | | | 322,206 | | | | 304,311 | |
| | | 124,650 | | | | 110,092 | |
| | | | | | | | |
Other assets | | | | | | | | |
Goodwill | | | 70,070 | | | | 70,070 | |
Other intangible assets, net | | | 52,005 | | | | 55,284 | |
Marketable securities held to maturity | | | 42,000 | | | | 26,300 | |
Other | | | 2,241 | | | | 1,717 | |
| | | 166,316 | | | | 153,371 | |
| | $ | 550,816 | | | $ | 483,994 | |
| | | | | | | | |
Liability and Stockholder's Equity | | | | | | | | |
Current Liabilities | | | | | | | | |
Current obligations under capital leases | | $ | 278 | | | $ | 244 | |
Accounts payable | | | 55,918 | | | | 52,338 | |
Accrued liabilities | | | 4,593 | | | | 4,269 | |
Accrued compensation expense | | | 12,859 | | | | 12,244 | |
Dividends payable | | | 2,200 | | | | 1,986 | |
Total current liabilities | | | 75,848 | | | | 71,081 | |
| | | | | | | | |
Long-term obligations under capital leases | | | 523 | | | | 619 | |
Deferred income taxes | | | 41,050 | | | | 30,401 | |
Other long-term liabilities | | | 1,007 | | | | 1,318 | |
| | | | | | | | |
Stockholders' Equity | | | | | | | | |
| | | | | | | | |
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | | | - | | | | - | |
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,727,000 and 18,491,000 respectively | | | 45,017 | | | | 38,453 | |
Accumulated other comprehensive loss | | | (3,914 | ) | | | (2,854 | ) |
Retained Earnings | | | 391,285 | | | | 344,976 | |
| | | 432,388 | | | | 380,575 | |
| | $ | 550,816 | | | $ | 483,994 | |
| | | | | | | | |
The accompanying notes are an integral part of these statements. | | | | | | | | |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSJ & J SNACK FOODS CORP. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF EARNINGS | |
|
(in thousands, except per share information) | |
| |
| | | | | Fiscal year ended | | | | |
| | | | | | | | | |
| | September 24, | | | September 25, | | | September 26, | |
| | 2011 | | | 2010 | | | 2009 | |
| | (52 weeks) | | | (52 weeks) | | | (52 weeks) | |
| | | | | | | | | |
Net Sales | | $ | 744,071 | | | $ | 696,703 | | | $ | 653,047 | |
Cost of goods sold (1) | | | 514,297 | | | | 468,923 | | | | 444,203 | |
Gross Profit | | | 229,774 | | | | 227,780 | | | | 208,844 | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Marketing (2) | | | 70,637 | | | | 72,103 | | | | 69,493 | |
Distribution (3) | | | 57,462 | | | | 52,146 | | | | 49,705 | |
Administrative (4) | | | 24,568 | | | | 24,282 | | | | 22,713 | |
Other general expense (income) | | | 524 | | | | 2,087 | | | | (5 | ) |
| | | 153,191 | | | | 150,618 | | | | 141,906 | |
Operating Income | | | 76,583 | | | | 77,162 | | | | 66,938 | |
| | | | | | | | | | | | |
Other income (expenses) | | | | | | | | | | | | |
Gain on bargain purchase of a business | | | 6,580 | | | | - | | | | - | |
Investment income | | | 1,041 | | | | 1,114 | | | | 1,386 | |
Interest expense & other | | | (138 | ) | | | (179 | ) | | | (115 | ) |
| | | | | | | | | | | | |
Earnings before income taxes | | | 84,066 | | | | 78,097 | | | | 68,209 | |
| | | | | | | | | | | | |
Income taxes | | | 29,003 | | | | 29,688 | | | | 26,897 | |
| | | | | | | | | | | | |
NET EARNINGS | | $ | 55,063 | | | $ | 48,409 | | | $ | 41,312 | |
| | | | | | | | | | | | |
Earnings per diluted share | | $ | 2.93 | | | $ | 2.59 | | | $ | 2.21 | |
| | | | | | | | | | | | |
Weighted average number of diluted shares | | | 18,789 | | | | 18,703 | | | | 18,713 | |
| | | | | | | | | | | | |
Earnings per basic share | | $ | 2.95 | | | $ | 2.61 | | | $ | 2.23 | |
| | | | | | | | | | | | |
Weighted average number of basic shares | | | 18,672 | | | | 18,528 | | | | 18,516 | |
(1) | Includes share-based compensation expense of $157 for the year ended September 24, 2011, $182 for the year ended September 25, 2010, and $211 for the year ended September 26, 2009. |
| | September 27, | | | September 29, | |
| | 2008 | | | 2007 | |
| | (in thousands, except share amounts) | |
| | | | | | |
Assets | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 44,265 | | | $ | 15,819 | |
Marketable securities held to maturity | | | 2,470 | | | | — | |
Auction market preferred stock | | | 14,000 | | | | 41,200 | |
Receivables | | | | | | | | |
Trade, less allowances of $926 and $1,052, respectively | | | 61,176 | | | | 56,772 | |
Other | | | 677 | | | | 424 | |
Inventories | | | 49,095 | | | | 46,599 | |
Prepaid expenses and other | | | 1,962 | | | | 1,425 | |
Deferred income taxes | | | 3,555 | | | | 3,125 | |
Total current assets | | | 177,200 | | | | 165,364 | |
| | | | | | | | |
Property, Plant and Equipment, at cost | | | 364,164 | | | | 352,829 | |
Less accumulated depreciation and amortization | | | 271,100 | | | | 259,607 | |
| | | 93,064 | | | | 93,222 | |
| | | | | | | | |
Other Assets | | | | | | | | |
Goodwill | | | 60,314 | | | | 60,314 | |
Other intangible assets, net | | | 53,633 | | | | 58,333 | |
Auction market preferred stock | | | 21,200 | | | | — | |
Other | | | 2,997 | | | | 3,055 | |
| | | 138,144 | | | | 121,702 | |
| | $ | 408,408 | | | $ | 380,288 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current Liabilities | | | | | | | | |
Current obligations under capital leases | | $ | 93 | | | $ | 91 | |
Accounts payable | | | 48,580 | | | | 45,278 | |
Accrued liabilities | | | 5,557 | | | | 8,309 | |
Accrued compensation expense | | | 10,232 | | | | 9,335 | |
Dividends payable | | | 1,732 | | | | 1,588 | |
Total current liabilities | | | 66,194 | | | | 64,601 | |
| | | | | | | | |
Long-term obligations under capital leases | | | 381 | | | | 474 | |
Deferred income taxes | | | 23,056 | | | | 19,180 | |
Other long-term liabilities | | | 1,999 | | | | 451 | |
| | | | | | | | |
Stockholders’ Equity | | | | | | | | |
Preferred stock, $1 par value; authorized, | | | | | | | | |
10,000,000 shares; none issued | | | — | | | | — | |
Common stock, no par value; authorized, 50,000,000 shares; | | | | | | | | |
issued and outstanding 18,748,000 and 18,702,000 respectively | | | 48,415 | | | | 47,280 | |
Accumulated other comprehensive loss | | | (2,003 | ) | | | (2,006 | ) |
Retained earnings | | | 270,366 | | | | 250,308 | |
| | | 316,778 | | | | 295,582 | |
| | $ | 408,408 | | | $ | 380,288 | |
(2) | Includes share-based compensation expense of $347 for the year ended September 24, 2011, $448 for the year ended September 25, 2010, and $729 for the year ended September 26, 2009. |
(3) | Includes share-based compensation expense of $18 for the year ended September 24, 2011, $21 for the year ended September 25, 2010, and $21 for the year ended September 26, 2009. |
(4) | Includes share-based compensation expense of $396 for the year ended September 24, 2011, $597 for the year ended September 25, 2010, and $755 for the year ended September 26, 2009. |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | |
(in thousands) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated | | | | | | | | | | |
| | | | | | | | Other | | | | | | | | | | |
| | Common Stock | | | Comprehensive | | | Retained | | | | | | Comprehensive | |
| | Shares | | | Amount | | | Loss | | | Earnings | | | Total | | | Income | |
| | | | | | | | | | | | | | | | | | |
Balance at September 28, 2008 | | | 18,748 | | | $ | 48,415 | | | $ | (2,003 | ) | | $ | 270,366 | | | $ | 316,778 | | | | |
Issuance of common stock upon exercise of stock options | | | 198 | | | | 3,284 | | | | - | | | | - | | | | 3,284 | | | | |
Issuance of common stock for employee stock purchase plan | | | 26 | | | | 687 | | | | - | | | | - | | | | 687 | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | (1,428 | ) | | | - | | | | (1,428 | ) | | $ | (1,428 | ) |
Issuance of common stock under deferred stock plan | | | 5 | | | | 368 | | | | - | | | | - | | | | 368 | | | | | |
Dividends declared | | | - | | | | - | | | | - | | | | (7,180 | ) | | | (7,180 | ) | | | | |
Share-based compensation | | | - | | | | 1,533 | | | | - | | | | - | | | | 1,533 | | | | | |
Repurchase of common stock | | | (451 | ) | | | (12,510 | ) | | | - | | | | - | | | | (12,510 | ) | | | | |
Net earnings | | | - | | | | - | | | | - | | | | 41,312 | | | | 41,312 | | | | 41,312 | |
Comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 39,884 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 26, 2009 | | | 18,526 | | | $ | 41,777 | | | $ | (3,431 | ) | | $ | 304,498 | | | $ | 342,844 | | | | | |
Issuance of common stock upon exercise of stock options | | | 142 | | | | 2,325 | | | | - | | | | - | | | | 2,325 | | | | | |
Issuance of common stock for employee stock purchase plan | | | 22 | | | | 726 | | | | - | | | | - | | | | 726 | | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | 577 | | | | - | | | | 577 | | | $ | 577 | |
Issuance of common stock under deferred stock plan | | | 5 | | | | 280 | | | | - | | | | - | | | | 280 | | | | | |
Dividends declared | | | - | | | | - | | | | - | | | | (7,931 | ) | | | (7,931 | ) | | | | |
Share-based compensation | | | - | | | | 1,113 | | | | - | | | | - | | | | 1,113 | | | | | |
Repurchase of common stock | | | (204 | ) | | | (7,768 | ) | | | - | | | | - | | | | (7,768 | ) | | | | |
Net earnings | | | - | | | | - | | | | - | | | | 48,409 | | | | 48,409 | | | | 48,409 | |
Comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 48,986 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 25, 2010 | | | 18,491 | | | $ | 38,453 | | | $ | (2,854 | ) | | $ | 344,976 | | | $ | 380,575 | | | | | |
Issuance of common stock upon exercise of stock options | | | 214 | | | | 4,608 | | | | - | | | | - | | | | 4,608 | | | | | |
Issuance of common stock for employee stock purchase plan | | | 20 | | | | 769 | | | | - | | | | - | | | | 769 | | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | (1,060 | ) | | | - | | | | (1,060 | ) | | $ | (1,060 | ) |
Issuance of common stock to directors | | | 2 | | | | 75 | | | | - | | | | - | | | | 75 | | | | | |
Dividends declared | | | | | | | | | | | - | | | | (8,754 | ) | | | (8,754 | ) | | | | |
Share-based compensation | | | | | | | 1,112 | | | | - | | | | - | | | | 1,112 | | | | | |
Repurchase of common stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | | |
Net earnings | | | - | | | | - | | | | - | | | | 55,063 | | | | 55,063 | | | | 55,063 | |
Comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 54,003 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 24, 2011 | | | 18,727 | | | $ | 45,017 | | | $ | (3,914 | ) | | $ | 391,285 | | | $ | 432,388 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of this statement. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
| | | | | | | | | |
| | | | | Fiscal Year Ended | | | | |
| | | | | | | | | |
| | September 24, | | | September 25, | | | September 26, | |
| | 2011 | | | 2010 | | | 2009 | |
| | (52 weeks) | | | (52 weeks) | | | (52 weeks) | |
| | | | | | | | | |
Operating activities: | | | | | | | | | |
Net earnings | | $ | 55,063 | | | $ | 48,409 | | | $ | 41,312 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation of fixed assets | | | 25,046 | | | | 24,498 | | | | 22,663 | |
Amortization of intangibles and deferred costs | | | 5,188 | | | | 5,354 | | | | 5,090 | |
Losses(gains) from disposals and impairment of property & equipment | | | 52 | | | | (14 | ) | | | (31 | ) |
Share-based compensation | | | 918 | | | | 1,248 | | | | 1,716 | |
Gain on bargain purchase of a business | | | (6,580 | ) | | | - | | | | - | |
Deferred income taxes | | | 6,108 | | | | 3,219 | | | | 3,839 | |
Changes in assets and liabilities net of effects from purchase of companies: | | | | | | | | | | | | |
(Increase)decrease in accounts receivable | | | (5,231 | ) | | | (8,629 | ) | | | 1,144 | |
(Increase)decrease in inventories | | | (6,262 | ) | | | (4,422 | ) | | | 2,993 | |
Decrease(increase) in prepaid expenses and other | | | 1,870 | | | | (4,101 | ) | | | 37 | |
Increase in accounts payable and accrued liabilities | | | 4,284 | | | | 2,446 | | | | 1,870 | |
Net cash provided by operating activities | | | 80,456 | | | | 68,008 | | | | 80,633 | |
Investing activities: | | | | | | | | | | | | |
Payments for purchases of companies, net of cash acquired | | | (8,806 | ) | | | (25,185 | ) | | | - | |
Purchases of property, plant and equipment | | | (29,124 | ) | | | (33,531 | ) | | | (27,190 | ) |
Purchases of marketable securities | | | (63,293 | ) | | | (50,496 | ) | | | (66,380 | ) |
Proceeds from redemption and sales of marketable securities | | | 37,568 | | | | 67,362 | | | | 10,204 | |
Proceeds from redemption and sales of auction market preferred stock | | | - | | | | - | | | | 35,200 | |
Proceeds from disposal of property and equipment | | | 394 | | | | 407 | | | | 326 | |
Other | | | (644 | ) | | | (12 | ) | | | 15 | |
Net cash used in investing activities | | | (63,905 | ) | | | (41,455 | ) | | | (47,825 | ) |
Financing activities: | | | | | | | | | | | | |
Payments to repurchase common stock | | | - | | | | (7,768 | ) | | | (12,510 | ) |
Proceeds from issuance of common stock | | | 5,377 | | | | 3,051 | | | | 3,971 | |
Payments on capitalized lease obligations | | | (244 | ) | | | (143 | ) | | | (93 | ) |
Payment of cash dividend | | | (8,540 | ) | | | (7,749 | ) | | | (7,108 | ) |
Net cash used in financing activities | | | (3,407 | ) | | | (12,609 | ) | | | (15,740 | ) |
Effect of exchange rate on cash and cash equivalents | | | (330 | ) | | | 378 | | | | (990 | ) |
Net increase in cash and cash equivalents | | | 12,814 | | | | 14,322 | | | | 16,078 | |
Cash and cash equivalents at beginning of year | | | 74,665 | | | | 60,343 | | | | 44,265 | |
Cash and cash equivalents at end of year | | $ | 87,479 | | | $ | 74,665 | | | $ | 60,343 | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these statements. | | | | | | | | | | | | |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share information)
| | Fiscal year ended | |
| | September 27, | | | September 29, | | | September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (52 weeks) | | | (52 weeks) | | | (53 weeks) | |
Net Sales | | $ | 629,359 | | | $ | 568,901 | | | $ | 514,831 | |
Cost of goods sold(1) | | | 442,452 | | | | 382,374 | | | | 342,412 | |
Gross profit | | | 186,907 | | | | 186,527 | | | | 172,419 | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Marketing(2) | | | 69,792 | | | | 70,248 | | | | 61,601 | |
Distribution(3) | | | 52,609 | | | | 48,945 | | | | 45,331 | |
Administrative(4) | | | 21,545 | | | | 20,142 | | | | 19,306 | |
Impairment charge | | | — | | | | — | | | | 1,193 | |
Other general income | | | (375 | ) | | | (1,388 | ) | | | (76 | ) |
| | | 143,571 | | | | 137,947 | | | | 127,355 | |
Operating income | | | 43,336 | | | | 48,580 | | | | 45,064 | |
| | | | | | | | | | | | |
Other income (expenses) | | | | | | | | | | | | |
Investment income | | | 2,665 | | | | 2,720 | | | | 3,137 | |
Interest expense and other | | | (116 | ) | | | (142 | ) | | | (129 | ) |
| | | 2,549 | | | | 2,578 | | | | 3,008 | |
Earnings before income taxes | | | 45,885 | | | | 51,158 | | | | 48,072 | |
| | | | | | | | | | | | |
Income taxes | | | 17,977 | | | | 19,046 | | | | 18,622 | |
| | | | | | | | | | | | |
NET EARNINGS | | $ | 27,908 | | | $ | 32,112 | | | $ | 29,450 | |
| | | | | | | | | | | | |
Earnings per diluted share | | $ | 1.47 | | | $ | 1.69 | | | $ | 1.57 | |
| | | | | | | | | | | | |
Weighted average number of diluted shares | | | 19,008 | | | | 19,005 | | | | 18,807 | |
| | | | | | | | | | | | |
Earnings per basic share | | $ | 1.49 | | | $ | 1.72 | | | $ | 1.60 | |
| | | | | | | | | | | | |
Weighted average number of basic shares | | | 18,770 | | | | 18,635 | | | | 18,421 | |
(1) | Includes share-based compensation expense of $229 for the year ended September 27, 2008, $227 for the year ended September 29, 2007 and $297 for the year ended September 30, 2006. |
(2) | Includes share-based compensation expense of $799 for the year ended September 27, 2008, $716 for the year ended September 29, 2007 and $576 for the year ended September 30, 2006. |
(3) | Includes share-based compensation expense of $23 for the year ended September 27, 2008, $50 for the year ended September 29, 2007 and $26 for the year ended September 30, 2006. |
(4) | Includes share-based compensation expense of $800 for the year ended September 27, 2008, $747 for the year ended September 29, 2007 and $687 for the year ended September 30, 2006. |
All share amounts reflect the 2-for-1 stock split effective January 5, 2006.
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
| | | | | | | | Accumulated Other | | | | | | | | | | |
| | Common Stock | | | Comprehensive | | | Retained | | | | | | Comprehensive | |
| | Shares | | | Amount | | | Loss | | | Earnings | | | Total | | | Income | |
Balance at September 25, 2005 | | | 18,272 | | | $ | 36,593 | | | $ | (1,918 | ) | | $ | 200,589 | | | $ | 235,264 | | | | |
Issuance of common stock upon exercise of stock options | | | 164 | | | | 2,253 | | | | — | | | | — | | | | 2,253 | | | | |
Issuance of common stock for employee stock purchase plan | | | 23 | | | | 556 | | | | — | | | | — | | | | 556 | | | | |
Foreign currency translation adjustment | | | — | | | | — | | | | (46 | ) | | | — | | | | (46 | ) | | $ | (46 | ) |
Issuance of common stock under deferred stock plan | | | 9 | | | | 392 | | | | — | | | | — | | | | 392 | | | | | |
Dividends declared | | | — | | | | — | | | | — | | | | (5,517 | ) | | | (5,517 | ) | | | | |
Share-based compensation | | | — | | | | 1,304 | | | | — | | | | — | | | | 1,304 | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 29,450 | | | | 29,450 | | | | 29,450 | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 29,404 | |
Balance at September 30, 2006 | | | 18,468 | | | $ | 41,098 | | | $ | (1,964 | ) | | $ | 224,522 | | | $ | 263,656 | | | | | |
Issuance of common stock upon exercise of stock options | | | 211 | | | | 3,669 | | | | — | | | | — | | | | 3,669 | | | | | |
Issuance of common stock for employee stock purchase plan | | | 23 | | | | 700 | | | | — | | | | — | | | | 700 | | | | | |
Foreign currency translation adjustment | | | — | | | | — | | | | (42 | ) | | | — | | | | (42 | ) | | $ | (42 | ) |
Issuance of common stock under deferred stock plan | | | — | | | | 275 | | | | — | | | | — | | | | 275 | | | | | |
Dividends declared | | | — | | | | — | | | | — | | | | (6,326 | ) | | | (6,326 | ) | | | | |
Share-based compensation | | | — | | | | 1,538 | | | | — | | | | — | | | | 1,538 | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 32,112 | | | | 32,112 | | | | 32,112 | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 32,070 | |
Balance at September 29, 2007 | | | 18,702 | | | $ | 47,280 | | | $ | (2,006 | ) | | $ | 250,308 | | | $ | 295,582 | | | | | |
Cumulative effective of change in accounting for income taxes | | | — | | | | — | | | | — | | | | (925 | ) | | | (925 | ) | | | | |
Issuance of common stock upon exercise of stock options | | | 150 | | | | 2,029 | | | | — | | | | — | | | | 2,029 | | | | | |
Issuance of common stock for employee stock purchase plan | | | 31 | | | | 782 | | | | — | | | | — | | | | 782 | | | | | |
Foreign currency translation adjustment | | | — | | | | — | | | | 3 | | | | — | | | | 3 | | | $ | 3 | |
Issuance of common stock under deferred stock plan | | | — | | | | 388 | | | | — | | | | — | | | | 388 | | | | | |
Dividends declared | | | — | | | | — | | | | — | | | | (6,925) | | | | (6,925 | ) | | | | |
Share-based compensation | | | — | | | | 1,475 | | | | — | | | | — | | | | 1,475 | | | | | |
Repurchase of common stock | | | (135 | ) | | | (3,539 | ) | | | — | | | | — | | | | (3,539) | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 27,908 | | | | 27,908 | | | | 27,908 | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 27,911 | |
Balance at September 27, 2008 | | | 18,748 | | | $ | 48,415 | | | $ | (2,003 | ) | | $ | 270,366 | | | $ | 316,778 | | | | | |
All share amounts reflect the 2-for-1 stock split effective January 5, 2006.
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | Fiscal year ended | |
| | September 27, | | | September 29, | | | September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (52 weeks) | | | (52 weeks) | | | (53 weeks) | |
Operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 27,908 | | | $ | 32,112 | | | $ | 29,450 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization of fixed assets | | | 22,181 | | | | 22,451 | | | | 22,848 | |
Amortization of intangibles and deferred costs | | | 5,289 | | | | 4,557 | | | | 1,760 | |
(Gains) losses from disposals and impairment of property & equipment | | | (174 | ) | | | (49 | ) | | | 1,062 | |
Other | | | — | | | | (150 | ) | | | — | |
Share-based compensation | | | 1,851 | | | | 1,740 | | | | 1,586 | |
Deferred income taxes | | | 3,446 | | | | 557 | | | | (96 | ) |
Changes in assets and liabilities, net of effects from purchase of companies: | | | | | | | | | | | | |
Increase in accounts receivable | | | (4,701 | ) | | | (569 | ) | | | (4,223 | ) |
Increase in inventories | | | (2,448 | ) | | | (5,722 | ) | | | (2,160 | ) |
Increase in prepaid expenses and other | | | (537 | ) | | | (65 | ) | | | (167 | ) |
Increase in accounts payable and accrued liabilities | | | 2,082 | | | | 2,981 | | | | 4,905 | |
Net cash provided by operating activities | | | 54,897 | | | | 57,843 | | | | 54,965 | |
| | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (22,781 | ) | | | (22,765 | ) | | | (19,739 | ) |
Payments for purchases of companies, net of cash acquired | | | — | | | | (52,747 | ) | | | (26,264 | ) |
Purchase of marketable securities | | | (12,970 | ) | | | (60,875 | ) | | | (40,825 | ) |
Proceeds from sales of marketable securities | | | 6,500 | | | | 78,882 | | | | 36,050 | |
Proceeds from redemption of auction market preferred stock | | | 10,000 | | | | — | | | | — | |
Proceeds from disposal of property and equipment | | | 932 | | | | 592 | | | | 1,046 | |
Other | | | (535 | ) | | | (921 | ) | | | (897 | ) |
Net cash used in investing activities | | | (18,854 | ) | | | (57,834 | ) | | | (50,629 | ) |
| | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | |
Payments to repurchase common stock | | | (3,539 | ) | | | — | | | | — | |
Proceeds from issuance of common stock | | | 2,811 | | | | 4,369 | | | | 2,809 | |
Payments of cash dividend | | | (6,781 | ) | | | (6,123 | ) | | | (5,273 | ) |
Payments on capitalized lease obligations | | | (91 | ) | | | (15 | ) | | | — | |
Net cash used in financing activities | | | (7,600 | ) | | | (1,769 | ) | | | (2,464 | ) |
Effect of exchange rate on cash and cash equivalents | | | 3 | | | | (42 | ) | | | (46 | ) |
Net increase (decrease) in cash and cash equivalents | | | 28,446 | | | | (1,802 | ) | | | 1,826 | |
Cash and cash equivalents at beginning of year | | | 15,819 | | | | 17,621 | | | | 15,795 | |
Cash and cash equivalents at end of year | | $ | 44,265 | | | $ | 15,819 | | | $ | 17,621 | |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
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 Beverageour products at the timewhen the products are shipped to third parties. When we perform services underour customers. Repair and maintenance equipment service contracts for frozen beverage dispenser machines, revenue is recognized uponrecorded when it is performed provided the completioncustomer terms are that the customer is to be charged on a time and material basis or on a straight-line basis over the term of the services on specified machines.contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured. We provide an allowancerecord offsets to revenue for doubtful receivables after taking into consideration historical experienceallowances, end-user pricing adjustments, trade spending, coupon redemption costs and other factors.returned product. Customers generally do not have the right to return product unless it is damaged or defective.
We follow EITF Issue 00-10, “Accounting for Shipping and Handling Fees and Costs” (Issue 00-10). Issue 00-10 requires that allAll amounts billed to customers related to shipping and handling should beare 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 our policy is to classify them as Distribution expenses. The cost of shipping products to the customer classified as Distribution expenses was $52,609,000, $48,945,000$57,462,000, $52,146,000 and $45,331,000$49,705,000 for the fiscal years ended 2008, 20072011, 2010 and 2006,2009, respectively.
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101) and Staff Accounting Bulletin No. 104, Revenue Recognition, corrected copy (SAB 104) address certain criteria for revenue recognition. SAB 101 and SAB 104 outline the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Our revenue recognition policies comply with the guidance contained in SABs 101 and 104.
We also sell service contracts covering frozen beverage machines sold. The terms of coverage range between 1 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 27, 2008,24, 2011, September 29, 200725, 2010 and September 30, 2006,26, 2009, we sold $11,881,000, $9,000,000$18,711,000, $16,185,000 and $6,000,000,$16,745,000, respectively, of repair and maintenance service contracts related to our frozen beverage machines. At September 27, 200824, 2011 and September 29, 2007,25, 2010, deferred income on repair and maintenance service contracts was $1,130,000$1,383,000 and $1,160,000,$1,416,000, respectively, of which $144,000$34,000 and $126,000$67,000 is included in other long-term liabilities as of September 27, 200824, 2011 and September 29, 2007,25, 2010, respectively and the balance is reflected as short-term and included in accrued liabilities on the consolidated balance sheet. ServiceRepair and maintenance service contract income of $11,911,000, $9,612,000$18,744,000, $16,192,000 and $5,883,000$16,451,000 was recognized for the fiscal years ended 2008, 20072011, 2010 and 2006,2009, 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 and changes to such are included in comprehensive income.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
6. Concentrations of Credit Risk and Accounts Receivable
We maintain cash balances at financial institutions located in various states. Accounts at each institutionOur cash is in bank accounts which are insured by the Federal Deposit Insurance Corporation up to $250,000. We customarily maintain cash balances in excess of these insurance limits.with no limit.
Other financialFinancial instruments that could potentially subject us to concentrations of credit risk are trade accounts receivable; however, such risks are limited due to the large number of customers comprising our customer base and their dispersion across geographic regions. We usually have 2 to 3approximately 10 customers with accounts receivable balances of between $1,500,000 to $6,000,000.$1 million and $7 million.
We have several large customers that account for a significant portion of our sales. Our top ten customers accounted for 42%43%, 42% and 45%43% of our sales during fiscal years 2008, 20072011, 2010 and 2006,2009, respectively, with our largest customer accounting for 9%8% of our sales in 2008 and2011, 8% in 20072010 and 2006.9% in 2009. Three of the ten customers are food distributors who sell our product to many end users.
The majority of our accounts receivable are due from trade customers. Credit is extended based on evaluation of our customers’ financial condition and collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, customers’ current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
7. Inventories
Inventories are valued at the lower of cost (determined by the first-in, first-out or weighted-average method) or market.
We follow FASB Statement 151, “Inventory Costs, an amendmentrecognize abnormal amounts of Accounting Research Bulletin (ARB) No. 43, Chapter 4,” (Statement 151).
Statement 151 retainsidle facilities, freight, handling costs, and spoilage as charges of the general principlecurrent period. Additionally, we allocate fixed production overheads to inventories based on the normal capacity of ARB 43, Chapter 4, “Inventory Pricing”, 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 |
| | |
| ● | allocation of fixed production overheads to inventories should be based on the normal capacity of the production facilities. |
Statement 151 definesour production facilities. We calculate 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
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
business- and industry-specific factors. Accordingly, an entity will haveThis requires us 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 shouldis 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.
We review for slow moving and obsolete inventory and a reserve is established for the value of inventory that we estimate will not be used. At September 27, 200824, 2011 and September 29, 2007,25, 2010, our reserve for inventory was $3,817,000$4,615,000 and $2,864,000,$4,189,000, respectively.
8. Investment Securities
We account forclassify our investment securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (SFAS No. 115). This standard requires investments in securities to be classified in one of three categories: held to maturity, trading, or available for sale; however, we have classified our auction market preferred stock separately onin our balance sheetstatement of cash flows because of the failure of the auction market beginning in February 2008. The balance of our investment portfolio consists solely of investments classified as held to maturity and is accounted for as such in accordance with SFAS No. 115.maturity. See Note C for further information on our holdings of auction market preferred stock.investment securities.
9. Depreciation and Amortization
Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. We review our equipment and buildings to ensure that they provide economic benefit and are not impaired.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 acquisitionscustomer relationships and non compete agreements are being amortized by the straight-line method over periods ranging from 43 to 20 years.years and amortization expense is reflected throughout operating expenses.
We follow SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144)Long-lived assets, including fixed assets and SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). We review our equipment and buildings to ensure that they provide economic benefit. We recorded an impairment charge of $1,193,000 in 2006 in the food service segment for the writedown of robotic packaging equipment based on a determination made during the year that we would not be able to make the equipment work as intended. We use market value tests and discounted cash flow models to test goodwill and other intangible assets for impairment. These assetsamortizing intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Indefinite lived intangibles are reviewed annually or more frequently as a triggering event, such as the lossfor impairment. Cash flow and sales analyses are used to assess impairment. The estimates of a major customer, might occur.future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
10. Fair Value of Financial Instruments
The carrying value of our short-term financial instruments, such as accounts receivables and accounts payable, approximate their fair values, based on the short-term maturities of these instruments.
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 that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
In June 2006, the FASB issued Interpretation No. 48 (FIN 48), AccountingAdditionally, we recognize a liability for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (SFAS 109).
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attributeassociated penalties and interest for the financial statement recognition and measurement of a tax positionpositions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accountingreturn which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in interim periods, disclosure and transition.our financial statements for these uncertain tax positions.
FIN 48 also provides guidance on financial reporting and classification of differences between tax positions taken in a tax return and amounts recognized in the financial statements.
We adopted FIN 48 on September 30, 2007, the first day of the 2008 fiscal year, and, as a result, recognized a $925,000 decrease to opening retained earnings from the cumulative effect of adoption. As of September 27, 2008,24, 2011 and September 25, 2010, the total amount of gross unrecognized tax benefits is $1,735,000,$973,000 and $1,249,000, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to income tax matters as a part of the provision for income taxes. As of September 27, 2008, theThe Company had $588,000$335,000 and $429,000 of accrued interest and penalties. During the year endedpenalties as of September 27, 2008, we24, 2011 and September 25, 2010, respectively. We recognized $6,000$8,000 and $7,000 of penalties and interest.interest in the years ended September 24, 2011 and September 25, 2010, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | (in thousands) | | | (in thousands) | |
Balance at September 30, 2007 | | $ | 1,925 | | |
Balance at September 25, 2010 | | | $ | 1,249 | |
Additions based on tax positions related to the current year | | | — | | | | 110 | |
Additions for tax positions of prior years | | | 190 | | |
Reductions for tax positions of prior years | | | (338 | ) | | | (386 | ) |
Settlements | | | (42 | ) | | | - | |
Balance at September 27, 2008 | | $ | 1,735 | | |
Balance at September 24, 2011 | | | $ | 973 | |
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtuallytax. Virtually all the returns noted above are open for examination for three to four years.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
12. Earnings Per Common Share
We follow SFAS No. 128, “Earnings Per Share”Basic earnings per common 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.
Our calculation of EPS is as follows (all share amounts reflect the 2-for-1 stock split effective January 5, 2006):follows:
| | Fiscal Year Ended September 24, 2011 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 55,063 | | | | 18,672 | | | $ | 2.95 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | - | | | | 117 | | | $ | (0.02 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 55,063 | | | | 18,789 | | | $ | 2.93 | |
| | | | | | | | | | | | |
143,515 anti-dilutive shares have been excluded in the computation of 2011 diluted EPS because the options' exercise price is greater than the average market price of the common stock. |
| | Fiscal Year Ended September 27, 2008 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 27,908 | | | | 18,770 | | | $ | 1.49 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | — | | | | 238 | | | | (.02 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 27,908 | | | | 19,008 | | | $ | 1.47 | |
273,471 anti-dilutive shares have been excluded in the computation of 2008 diluted EPS because the options’ exercise price is greater than the average market price of the common stock. | | Fiscal Year Ended September 25, 2010 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 48,409 | | | | 18,528 | | | $ | 2.61 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | - | | | | 175 | | | | (0.02 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 48,409 | | | | 18,703 | | | $ | 2.59 | |
| | | | | | | | | | | | |
110,910 anti-dilutive shares have been excluded in the computation of 2010 diluted EPS because the options' exercise price is greater than the average market price of the common stock. |
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A —– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | Fiscal Year Ended September 29, 2007 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 32,112 | | | | 18,635 | | | $ | 1.72 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | — | | | | 370 | | | | (.03 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 32,112 | | | | 19,005 | | | $ | 1.69 | |
128,200 anti-dilutive shares have been excluded in the computation of 2007 diluted EPS because the options’ exercise price is greater than the average market price of the common stock.
| | Fiscal Year Ended September 30, 2006 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 29,450 | | | | 18,421 | | | $ | 1.60 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | — | | | | 386 | | | | (.03 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 29,450 | | | | 18,807 | | | $ | 1.57 | |
500 anti-dilutive shares have been excluded in the computation of 2006 diluted EPS because the options’ exercise price is greater than the average market price of the common stock. | | Fiscal Year Ended September 26, 2009 | |
| | Income | | | Shares | | | Per Share | |
| | (Numerator) | | | (Denominator) | | | Amount | |
| | (in thousands, except per share amounts) | |
Earnings Per Basic Share | | | | | | | | | |
Net Income available to common stockholders | | $ | 41,312 | | | | 18,516 | | | $ | 2.23 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Options | | | - | | | | 197 | | | | (0.02 | ) |
| | | | | | | | | | | | |
Earnings Per Diluted Share | | | | | | | | | | | | |
Net Income available to common stockholders plus assumed conversions | | $ | 41,312 | | | | 18,713 | | | $ | 2.21 | |
| | | | | | | | | | | | |
114,236 anti-dilutive shares have been excluded in the computation of 2009 diluted EPS because the options' exercise price is greater than the average market price of the common stock. |
13. Accounting for Stock-Based Compensation
The Company follows FASB Statement No. 123(R), “Share-Based Payment”. Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the fair value of the equity or liability instruments issued.
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.
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.
At September 27, 2008,24, 2011, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:
| | Fiscal Year Ended | | | Fiscal year ended | |
| | September 27, | | | September 29, | | | September 30, | | | September 24, | | | September 25, | | | September 26, | |
| | | | | | | | 2006 | | | 2011 | | | 2010 | | | 2009 | |
| | (in thousands, except per share amounts) | | | (in thousands, except per share amounts) | |
Stock Options | | $ | 1,019 | | | $ | 833 | | | $ | 823 | | |
| | | | | | | | | | |
Stock options | | | $ | 288 | | | $ | 592 | | | $ | 508 | |
Stock purchase plan | | | 137 | | | | 146 | | | | 165 | | | | 203 | | | | 184 | | | | 237 | |
Deferred stock issued to outside directors | | | 138 | | | | 138 | | | | 173 | | | | 46 | | | | 138 | | | | 138 | |
Restricted stock issued to an employee | | | 100 | | | | 31 | | | | — | | | | - | | | | 28 | | | | 87 | |
| | $ | 1,394 | | | $ | 1,148 | | | $ | 1,161 | | | $ | 537 | | | $ | 942 | | | $ | 970 | |
| | | | | | | | | | | | | |
Per diluted share | | $ | .07 | | | $ | .06 | | | $ | .06 | | | $ | 0.03 | | | $ | 0.05 | | | $ | 0.05 | |
| | | | | | | | | | | | | |
The above compensation is net of tax benefits | | $ | 457 | | | $ | 592 | | | $ | 425 | | | $ | 381 | | | $ | 306 | | | $ | 746 | |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
At September 27, 2008,24, 2011, the Company has unrecognized compensation expense of approximately $1.6$2.4 million to be recognized over the next three fiscal years.
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 2008, 20072011, 2010 and 2006:2009: expected volatility of 25.2%28.6% for fiscal year 2008, 27.4%2011, 29.0% for fiscal year 2010 and 23.3% for year 2007 and 34.2% for year 2006;2009: weighted average risk-free interest rates of 3.60%1.56%, 4.57%2.21% and 4.41%2.70%; dividend rate of 1.1%.9%, .9%1.2% and 1%1.2% and expected lives ranging between 5 and 10 years for all years. ExpectedAn expected forfeiture ratesrate of 15%, 15% and 18% were13% was used for fiscal years 2008, 20072011 and 2006, respectively.2010 and 15% was used for 2009.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Expected volatility is based on the historical volatility of the price of our common shares over the past 50 to 5354 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
14. Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense was $1,666,000, $4,084,000,$1,919,000, $2,751,000 and $1,589,000$2,267,000 for the fiscal years 2008, 20072011, 2010 and 2006,2009, respectively.
15. Commodity Price Risk Management
Our most significant raw material requirements include flour, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of 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 12 months. As of September 27, 2008,24, 2011, we have approximately $44,000,000$60 million 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. Our policy is to recognize estimated losses on purchase commitments when they occur. At each of the last three fiscal year ends, we did not have any material losses on our purchase commitments.
16. Research and Development Costs
Research and development costs are expensed as incurred. Total research and development expense was $571,000, $529,000$941,000, $866,000 and $558,000$761,000 for the fiscal years 2008, 20072011, 2010 and 2006,2009, respectively.
17. Recent Accounting Pronouncements
In January 2010, the FASB issued guidance that amends existing disclosure requirements of fair value measurements adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This guidance was effective for our fiscal year beginning September 2006,26, 2010, except for the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issuedrequirement to provide consistency between how registrants quantifyLevel 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for our fiscal year beginning September 25, 2011. Since this standard impacts disclosure requirements only, its adoption has not and will not have any impact on the Company’s consolidated results of operations or financial statement misstatements. We did not record any adjustment upon adoption in 2007 due to immateriality.condition.
In September 2006,December 2010, the FASB issued Statement No. 157, “Fair Value Measurements” (FAS 157). FAS 157 establishesguidance which requires that if a common definition for how companiescompany presents comparative financial statements to include business combinations, the company should measure fair value when they are requireddisclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This guidance also expands the supplemental pro forma adjustments to useinclude a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The statementdescription of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effective for our 2009 fiscal year. We are currently evaluatingyear beginning September 25, 2011. The adoption of this guidance will not have a material impact on the provisionsCompany’s financial position, results of FAS 157operations or cash flows.
In May 2011, the FASB issued guidance which amends current fair value measurement and disclosure guidance to determine itsinclude increased transparency around valuation inputs and investment categorization. This guidance results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements. This guidance will be effective for our second quarter of fiscal year 2012, and is not expected to have a material impact on our financial statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A —– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On February 15, 2007,
In June 2011, the FASB issued Statement No. 159, “The Fair Value Optionguidance which gives us the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, we are required to present each component of other comprehensive income along with a total for Financial Assetsother comprehensive income, and Financial Liabilities,” (SFAS 159).a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The Fair value option established by SFAS 159 permits, but doesamendments in this guidance do not require, allchange the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance will be effective for our fiscal year 2013, and is not expected to have a material impact on our financial statements.
In December 2010, the FASB issued guidance related to goodwill impairment testing for reporting entities to choosewith a zero or negative carrying amount. Under the amended guidance, we must consider whether it is more likely than not that a goodwill impairment exists for reporting units with a zero or negative carrying amount. If it is more likely than not that a goodwill impairment exists, the second step of the goodwill impairment test must be performed to measure eligible items at fair value at specified election dates. An entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159amount of the goodwill impairment loss, if any. This guidance is effective for our 2009 fiscal year. We are currently assessing what theyear 2012 and is not expected to have a material impact of the adoption of this standard would be on the Company’sour financial position and/or results of operations.statements.
In December 2007,September 2011, the FASB issued Statement 141 (revised 2007), “Business Combinations” (Statement 141R). When effective, Statement 141R will replace existing Statement 141 in its entirety.
Statement 141Rguidance to simplify the current two-step goodwill impairment test. This guidance permits entities to first perform a qualitative assessment to determine whether it is effective for our 2010 fiscal year. Both early adoption and retrospective application are prohibited.
In December 2007, The FASB issued Statement 160, “Noncontrolling Interests in Consolidated Financial Statements: an amendmentmore likely than not (a likelihood of ARB No. 51.” Statement 160 replaces the existing minority-interest provisions of Accounting Research Bulletin (ARB) 51, “Consolidated Financial Statements,” by defining a new term—noncontrolling interests—to replace what were previously called minority interests.
Statement 160 establishes noncontrolling interests as a component of the equity of a consolidated entity.
The underlying principle of the new standard ismore than 50 percent) that both the controlling interest and the noncontrolling interests are part of the equity of a single economic entity: the consolidated reporting entity.
Statement 160 is effective for our 2010 fiscal year.
Early adoption is prohibited. A parent company is prohibited from changing the amounts recognized for acquisitions or dispositions of noncontrolling interests or for a loss of control of a subsidiary in previous periods. However, the parent must apply the disclosure and presentation provisions of Statement 160 retrospectively for all periods presented.
In August 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, “Determination of the Useful Life of Intangible Assets.” The FSP revises the factors that a company should consider to develop renewal or extension assumptions used in estimating the useful life of a recognized intangible asset. The new guidance will apply to all intangible assets acquired after the FSP’s effective date. The FSP also requires new disclosures for all intangible assets recognized as of, and subsequent to, the FSP’s effective date.
The underlying purpose of the FSP is to improve the consistency between the period of expected cash flows used to measure the fair value of a recognized intangible assetreporting unit is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it would then perform the first step of the current two-step goodwill impairment test; otherwise, no further impairment test would be required. Entities are permitted to make the election to perform the qualitative assessment on a period-by-period basis. Under the new guidance, an entity applying the qualitative assessment must (1) consider the totality of the relevant factors (existing events or circumstances) and (2) weigh those factors according to their effect on the difference between a reporting unit’s fair value and its carrying amount. In addition to the factors described in the amended guidance, an entity must also consider other positive and mitigating events and circumstances that might impact its qualitative assessment. Also under the amended guidance, an entity is no longer permitted to carry forward the calculation of a reporting unit’s fair value from a prior year when performing step one of the goodwill impairment test. The amended guidance further clarifies that the requirements to disclose certain quantitative information about significant unobservable inputs used in a Level 3 fair value measurement do not apply to measurements related to accounting and reporting for goodwill after its initial recognition in a business combination. The amended guidance requires entities that perform the qualitative assessment to consider the difference between the fair value and the useful lifecarrying amount from a recent fair value calculation of an intangible asseta reporting unit, if available, as determined under FASB Statement 142, “Goodwill and Other Intangible Assets.”
FSP FAS 142-3a factor in determining whether the reporting unit’s fair value more likely than not exceeds its carrying amount. The amended guidance is effective prospectively for annual and interim goodwill impairment tests performed for our 2010 fiscal year 2013. We are permitted to apply, and have applied, the amended guidance for our annual impairment tests for our 2011 year. EarlyThe adoption is prohibited.of this guidance had no effect on our consolidated financial statements.
18. Reclassifications
Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.
NOTE B —– ACQUISITIONS
In January 2004, we acquired the assets of Country Home Bakers, Inc. Country Home Bakers, Inc., with its manufacturing facility in Atlanta, Georgia, 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.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B — ACQUISITIONS (Continued)
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 $14.8 million plus approximately $600,000 for inventory. Snackworks operated 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.
On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE of Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen beverages and related products throughout the Hawaiian islands. Annual sales are approximately $2.3 million.
On May 26, 2006, The ICEE Company, our frozen carbonated beverage distribution company, acquired the SLUSH PUPPIE branded business from Dr. Pepper/Seven Up, Inc., a Cadbury Schweppes Americas Beverages Company for $18.1 million plus approximately $4.3 million in working capital. SLUSH PUPPIE, North America’s leading brand for frozen non-carbonated beverages, is sold through an existing established distributor network to over 20,000 locations in the United States and Canada as well as to certain international markets. The allocation of the purchase price is as follows:
| | (in thousands) | |
Working Capital | | $ | 4,264 | |
Property, plant and equipment | | | 25 | |
Prepaid license | | | 1,400 | |
Trade names | | | 7,460 | |
Customer relationships | | | 6,180 | |
Covenant not to compete | | | 148 | |
Goodwill | | | 2,987 | |
| | $ | 22,464 | |
On January 9, 2007 we acquired the assets of Hom/Ade Foods, Inc., a manufacturer and distributor of biscuits and dumplings sold under the MARY B’S and private label store brands to the supermarket industry. Hom/Ade is headquartered in Pensacola, Florida.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B – ACQUISITIONS (Continued)
On January 31, 2007 we acquired the assets of Radar Inc., a manufacturer and seller of fig and fruit bars selling its products under the brand DADDY RAY’S. Headquartered and with its manufacturing facility in Moscow Mills, Missouri (outside of St. Louis), Radar, Inc. had annual sales of approximately $23 million dollars sellingsells to the retail grocery segment and mass merchandisers, both branded and private label.
On April 2, 2007, we acquired the WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Fruit Bar brands, along with related assets including a manufacturing facility located in Norwalk, California which sells primarily to the supermarket industry.
On June 25, 2007, we acquired the assets of an ICEE distributor in Kansas with annual salesKansas.
In February 2010, we acquired the assets of less than $1 million.Parrot Ice, a manufacturer and distributor of a premium brand frozen beverage sold primarily in convenience stores. Revenues from Parrot Ice were approximately $1.5 million for our 2010 fiscal year.
In June 2010, we acquired the assets of California Churros, a manufacturer and distributor of a premium brand churro. Revenues from California Churros were approximately $2.5 million for our 2010 fiscal year.
The allocation of the purchase pricesprice allocation for the Hom/Ade and Radar acquisitionsCalifornia Churros acquisition and other acquisitions, including Parrot Ice, which were made during the 20072010 fiscal year is as follows:
| | California Churros | | | Other | |
| | (in thousands) | |
| | | |
Working Capital | | $ | 1,075 | | | $ | - | |
Property, plant & equipment | | | 2,373 | | | | 1,135 | |
Trade Names | | | 4,024 | | | | - | |
Customer Relationships | | | 6,737 | | | | - | |
Covenant not to Compete | | | 35 | | | | 50 | |
Goodwill | | | 9,756 | | | | - | |
| | $ | 24,000 | | | $ | 1,185 | |
| | Hom/Ade | | | Radar | | | Other | |
| | | | | (in thousands) | | | | |
Working Capital | | $ | 1,410 | | | $ | 1,284 | | | $ | 989 | |
Property, plant & equipment | | | 233 | | | | 5,750 | | | | 1,442 | |
Trade Names | | | 6,220 | | | | 1,960 | | | | 3,086 | |
Customer Relationships | | | 17,250 | | | | 10,730 | | | | 58 | |
Covenant not to Compete | | | 301 | | | | 109 | | | | — | |
Goodwill | | | 476 | | | | 1,287 | | | | 603 | |
| | $ | 25,890 | | | $ | 21,120 | | | $ | 6,178 | |
Acquisition costs of $184,000 for these acquisitions are included in administrative and other general expense for the year ended September 25, 2010.
In May 2011, we acquired the frozen handheld business of ConAgra Foods. This business had sales of approximately $50 million over the prior twelve months to food service and retail supermarket customers and sales of $18.3 million in our 2011 fiscal year from the acquisition date.
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B —– ACQUISITIONS (Continued)
Included in theThe purchase price for Hom/Ade is a pre-acquisition contingency which was settled in the first quarter of fiscal year 2008 for approximately $1.9 million.
The following pro forma information discloses net sales, net earnings and earnings per shareallocation for the three fiscal years ended September 27, 2008 including the sales and net earnings of Hom/Ade, Radar and Slush Puppie for all periods.
The impact of the other acquisitions made during the periods on net sales, net earnings and earnings per share was not significant.handhelds acquisition is as follows:
| | Pro Forma Fiscal year ended | |
| | September 27, | | | September 29, | | | September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (52 weeks) | | | (52 weeks) | | | (53 weeks) | |
| | (in thousands except per share information) | |
Net Sales | | $ | 629,359 | | | $ | 581,024 | | | $ | 566,297 | |
Net Earnings | | $ | 27,908 | | | $ | 33,235 | | | $ | 33,819 | |
Earnings per diluted share | | $ | 1.47 | | | $ | 1.75 | | | $ | 1.80 | |
Earnings per basic share | | $ | 1.49 | | | $ | 1.78 | | | $ | 1.84 | |
| | (in thousands) | |
| | | |
Working Capital | | $ | 6,955 | |
Property, plant & equipment | | | 11,036 | |
Trade Names | | | 1,325 | |
Customer Relationships | | | 207 | |
Deferred tax liability | | | (4,137 | ) |
| | | | |
| | | | |
Net Assets Acquired | | | 15,386 | |
| | | | |
Purchase Price | | | 8,806 | |
| | | | |
Gain on bargain purchase | | $ | 6,580 | |
These acquisitions were accountedThe purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $6,580,000 which is included in other income in the consolidated statement of earnings for underthe year ended September 24, 2011. The gain on bargain purchase resulted from the fair value of the identifiable net assets acquired exceeding the purchase methodprice.
Acquisition costs of accounting, and their operations$546,000 for the handhelds acquisition are included in other general expense in the accompanying consolidated financial statements from their acquisition dates.
of earnings for the year ended September 24, 2011.
The goodwill and intangible assets acquired in the business combinations are recorded at fair value. To measure fair value for such assets, we use techniques including discounted expected future cash flows (Level 3 input).
NOTE C —– INVESTMENT SECURITIES
We have classified our investment securities as marketable securities held to maturity and auction market preferred stock (“AMPS”)(AMPS). The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:
Level 1 | Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
Level 2 | Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and |
Level 3 | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
We have concluded that the carrying value of certificates of deposit placed through the Certificate of Deposit Account Registry Service equals fair market value. Other marketable securities held to maturity values are derived solely from level 1 inputs.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C – INVESTMENT SECURITIES (Continued)
The amortized cost, unrealized gains and losses, and fair market values of our marketableinvestment securities held to maturity at September 27, 200824, 2011 are summarized as follows:
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Market Value | |
| | (in thousands) | |
Certificates of Deposit | | $ | 2,470 | | | $ | — | | | $ | 6 | | | $ | 2,464 | |
| | $ | 2,470 | | | $ | — | | | $ | 6 | | | $ | 2,464 | |
| | | | | Gross | | | Gross | | | Fair | |
| | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| | Cost | | | Gains | | | Losses | | | Value | |
| | (in thousands) | |
US Government Agency Debt | | $ | 42,000 | | | $ | 52 | | | $ | 62 | | | $ | 41,990 | |
FDIC Backed Corporate Debt | | | 8,015 | | | | 18 | | | | - | | | | 8,033 | |
Certificates of Deposit | | | 17,491 | | | | 1 | | | | - | | | | 17,492 | |
| | $ | 67,506 | | | $ | 71 | | | $ | 62 | | | $ | 67,515 | |
All of the certificates of deposit are within the FDIC limits for insurance coverage.
The amortized cost, unrealized gains and losses, and fair market values of our auction market preferred stockinvestment securities held to maturity at September 27, 200825, 2010 are summarized as follows:
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Market Value | |
| | (in thousands) | |
Auction Market Preferred Stock Equity Securities | | $ | 35,200 | | | $ | — | | | $ | — | | | $ | 35,200 | |
| | $ | 35,200 | | | $ | — | | | $ | — | | | $ | 35,200 | |
| | | | | Gross | | | Gross | | | Fair | |
| | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| | Cost | | | Gains | | | Losses | | | Value | |
| | (in thousands) | |
US Government Agency Debt | | $ | 8,000 | | | $ | 53 | | | $ | - | | | $ | 8,053 | |
FDIC Backed Corporate Debt | | | 13,107 | | | | 144 | | | | - | | | | 13,251 | |
Certificates of Deposit | | | 20,674 | | | | 5 | | | | | | | | 20,679 | |
| | $ | 41,781 | | | $ | 202 | | | $ | - | | | $ | 41,983 | |
J & J SNACK FOODS CORP. AND SUBSIDIARIESAll of the certificates of deposit are within the FDIC limits for insurance coverage.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C — INVESTMENT SECURITIES (Continued)
The amortized cost unrealized gains and losses, and fair market valuesvalue of our auction market preferred stockthe Company’s held to maturity securities by contractual maturity at September 29, 200724, 2011 and September 25, 2010 are summarized as follows:
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Market Value | |
| | (in thousands) | |
Auction Market Preferred Stock Equity Securities | | $ | 41,200 | | | $ | — | | | $ | — | | | $ | 41,200 | |
| | $ | 41,200 | | | $ | — | | | $ | — | | | $ | 41,200 | |
At September 27, 2008, we held $35.2 million of AMPS which are valued at par, our cost; $14.0 million are classified as current assets and $21.2 million are classified as long-term assets on our balance sheet. On September 27, 2007, we held $41.2 million of AMPS which were also valued at par but which were all classified as current assets.
The AMPS we own are senior equity securities of closed-end funds and have priority over the fund’s common shares as to distribution of assets and dividends, as described in each fund’s prospectus.
Under normal auction market conditions, dividends on the AMPS for each dividend period (generally 7 to 49 days) are set at a rate determined through an auction process that brings together bidders who seek to buy AMPS and holders of AMPS who seek to sell. Investors and potential investors typically had purchased the AMPS in an auction by submitting orders to a broker-dealer, typically, an investment bank. However, beginning in mid February 2008, the auction process has not been supported by broker-dealers and auctions have failed and continue to fail. In the case of a failed auction, the dividends continue to be paid at the applicable “failure” rate for each security until an auction can establish a market clearing rate. For most of the funds we own, the specified “failure” rate is the current applicable LIBOR rate plus 125 basis points or 125% of the rate, whichever is greater. Other of the funds we own have different formulas which produce comparable dividend rates.
The assets of closed-end funds, which are valued on a daily basis, serve as the collateral for issuance of the AMPS. The AMPS must meet certain specified asset coverage tests, which include a requirement set forth under the Investment Company Act of 1940 that closed-end funds maintain asset coverage of at least 200% with respect to the AMPS and any other outstanding senior securities; i.e. closed-end funds must have at least $2 of collateral for every $1 of AMPS issued. If the funds don’t meet the asset coverage tests, then the fund must redeem them. All the $35.2 million of securities held by J & J is AAA rated. The collateral held by the funds are generally municipal securities or common and preferred stock of public corporations.
Presently, we are unable to sell the AMPS and we do not believe the auction process for AMPS will be reestablished in the near term, if ever. However, on August 21, 2008, Merrill Lynch announced a plan to purchase, at par, AMPS held by J & J and other of its clients. Under this plan, we can sell our AMPS to Merrill Lynch at anytime between January 2, 2009 and January 15, 2010. Additionally, issuers of many of the closed-end funds who have issued AMPS have made public announcements of their intent to work toward redeeming the securities and a portion of the type of security we own have been redeemed by the issuers since the auction process failed. Considering this, the Merrill Lynch plan, and that the AMPS are collateralized and continue to pay dividends, we have not recorded an impairment.
We will continue to assess the need to record an impairment on a quarterly basis.
Redemption of our AMPS subsequent to the failure of the auction process was $10,000,000, our carrying value, in the year ended September 27, 2008. Subsequent to September 27, 2008 and prior to the filing of this Form 10-K, approximately $14,000,000 of our AMPS have been redeemed at our carrying value and are therefore classified as current assets on our September 27, 2008 balance sheet. | | September 24, 2011 | | | September 25, 2010 | |
| | | | | Fair | | | | | | Fair | |
| | Amortized | | | Market | | | Amortized | | | Market | |
| | Cost | | | Value | | | Cost | | | Value | |
| | (in thousands) | |
Due in one year or less | | $ | 25,506 | | | $ | 25,525 | | | $ | 15,481 | | | $ | 15,501 | |
Due after one year through five years | | | 6,000 | | | | 6,014 | | | | 26,300 | | | | 26,482 | |
Due after five years through ten years | | | 36,000 | | | | 35,976 | | | | - | | | | - | |
Total held to maturity securities | | $ | 67,506 | | | $ | 67,515 | | | $ | 41,781 | | | $ | 41,983 | |
Less current portion | | | 25,506 | | | | 25,525 | | | | 15,481 | | | | 15,501 | |
Long term held to maturity securities | | $ | 42,000 | | | $ | 41,990 | | | $ | 26,300 | | | $ | 26,482 | |
Proceeds from the sale and redemption of AMPSmarketable securities were $16,500,000$37,568,000, $67,362,000 and $78,882,000$10,204,000 in the periodsyears ended September 27, 2008,24, 2011, September 25, 2010 and September 29, 2007,26, 2009, respectively, with no gain or loss recorded. We use the specific identification method to determine the cost of securities sold.
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D —– INVENTORIES
Inventories consist of the following:
| | September 27, | | | September 29, | |
| | 2008 | | | 2007 | |
| | (in thousands) | |
Finished goods | | $ | 23,512 | | | $ | 23,207 | |
Raw materials | | | 7,658 | | | | 6,703 | |
Packaging materials | | | 5,405 | | | | 4,833 | |
Equipment parts and other | | | 12,520 | | | | 11,856 | |
| | $ | 49,095 | | | $ | 46,599 | |
| | September 24, | | | September 25, | |
| | 2011 | | | 2010 | |
| | | (in thousands) | |
Finished goods | | $ | 28,770 | | | $ | 22,171 | |
Raw materials | | | 13,160 | | | | 8,702 | |
Packaging materials | | | 5,791 | | | | 4,727 | |
Equipment parts and other | | | 15,740 | | | | 15,030 | |
| | $ | 63,461 | | | $ | 50,630 | |
Inventory is presented net of an allowance for obsolescence of $3,817,000$4,615,000 and $2,864,000$4,189,000 as of fiscal year ends 20082011 and 2007,2010, respectively.
NOTE E —– PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| | September 27, | | | September 29, | | | Estimated | |
| | 2008 | | | 2007 | | | Useful Lives | |
| | (in thousands) | |
Land | | $ | 1,416 | | | $ | 1,316 | | | | — | |
Buildings | | | 8,672 | | | | 7,751 | | | 15-39.5 years | |
Plant machinery and equipment | | | 124,591 | | | | 117,468 | | | 5-20 years | |
Marketing equipment | | | 195,878 | | | | 191,778 | | | 5-7 years | |
Transportation equipment | | | 2,878 | | | | 2,810 | | | 5 years | |
Office equipment | | | 10,820 | | | | 10,020 | | | 3-5 years | |
Improvements | | | 17,694 | | | | 17,556 | | | 5-20 years | |
Construction in progress | | | 2,215 | | | | 4,130 | | | | — | |
| | $ | 364,164 | | | $ | 352,829 | | | | | |
| | September 24, | | | September 25, | | | Estimated | |
| | 2011 | | | 2010 | | | Useful Lives | |
| | (in thousands) | | | | |
| | | | | | | | | |
Land | | $ | 2,496 | | | $ | 2,016 | | | | - | |
Buildings | | | 15,766 | | | | 13,266 | | | 15-39.5 years | |
Plant machinery and equipment | | | 158,408 | | | | 144,697 | | | 5-20 years | |
Marketing equipment | | | 223,490 | | | | 214,545 | | | 5-7 years | |
| | | 4,264 | | | | 3,785 | | | 5 years | |
Office equipment | | | 13,650 | | | | 12,690 | | | 3-5 years | |
Improvements | | | 21,054 | | | | 19,590 | | | 5-20 years | |
| | | 7,728 | | | | 3,814 | | | | - | |
| | $ | 446,856 | | | $ | 414,403 | | | | | |
Depreciation expense was $25,046,000, $24,498,000 and $22,663,000 for fiscal years 2011, 2010 and 2009, respectively.
J & J SNACK FOODS CORP. AND SUBSIDIARIESSUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F —– GOODWILL AND INTANGIBLE ASSETS
Our fourthree 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 27, 2008 | | | September 29, 2007 | | | September 24, 2011 | | | September 25, 2010 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Gross Carrying Amount | | | Accumulated Amortization | | | Gross | | | | | | Gross | | | | |
| | (in thousands) | | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | |
Food Service | | | | | | | | | | | | | |
| | | Amount | | | Amortization | | | Amount | | | Amortization | |
| | | (in thousands) | |
FOOD SERVICE | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | |
Trade Names | | | $ | 12,880 | | | $ | - | | | $ | 12,204 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
Amortized intangible assets | | | | | | | | | | | | | | | | | |
Non compete agreements | | | | 470 | | | | 425 | | | | 470 | | | | 351 | |
Customer relationships | | | | 40,024 | | | | 18,993 | | | | 40,024 | | | | 15,160 | |
License and rights | | | | 3,606 | | | | 2,425 | | | | 3,606 | | | | 2,287 | |
| | | $ | 56,980 | | | $ | 21,843 | | | $ | 56,304 | | | $ | 17,798 | |
| | | | | | | | | | | | | | | | | |
RETAIL SUPERMARKETS | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | |
Trade Names | | | $ | 3,380 | | | $ | - | | | $ | 2,731 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
Amortized Intangible Assets | | | | | | | | | | | | | | | | | |
Customer relationships | | | | 207 | | | | 8 | | | | - | | | | - | |
| | | $ | 3,587 | | | $ | 8 | | | $ | 2,731 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
FROZEN BEVERAGES | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade Names | | $ | 8,180 | | | $ | — | | | $ | 8,180 | | | $ | — | | | $ | 9,315 | | | $ | - | | | $ | 9,315 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non compete agreements | | | 435 | | | | 215 | | | | 435 | | | | 133 | | | | 198 | | | | 189 | | | | 198 | | | | 165 | |
Customer relationships | | | 33,287 | | | | 8,087 | | | | 33,287 | | | | 4,472 | | | | 6,478 | | | | 3,540 | | | | 6,478 | | | | 2,876 | |
Licenses and rights | | | 3,606 | | | | 1,835 | | | | 3,606 | | | | 1,609 | | | | 1,601 | | | | 574 | | | | 1,601 | | | | 504 | |
| | $ | 45,508 | | | $ | 10,137 | | | $ | 45,508 | | | $ | 6,214 | | | $ | 17,592 | | | $ | 4,303 | | | $ | 17,592 | | | $ | 3,545 | |
Retail Supermarket | | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | |
Trade Names | | $ | 2,731 | | | $ | — | | | $ | 2,731 | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Restaurant Group | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Amortized intangible assets | | | | | | | | | | | | | | | | | |
Licenses and rights | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
| | | | | | | | | | | | | | | | | |
Frozen Beverages | | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | |
Trade Names | | $ | 9,315 | | | $ | — | | | $ | 9,315 | | | $ | — | | |
| | | | | | | | | | | | | | | | | |
Amortized intangible assets | | | | | | | | | | | | | | | | | |
Non compete agreements | | | 148 | | | | 99 | | | | 148 | | | | 56 | | |
Customer relationships | | | 6,478 | | | | 1,548 | | | | 6,478 | | | | 884 | | |
Licenses and rights | | | 1,601 | | | | 364 | | | | 1,601 | | | | 294 | | |
| | $ | 17,542 | | | $ | 2,011 | | | $ | 17,542 | | | $ | 1,234 | | |
CONSOLIDATED | | | $ | 78,159 | | | $ | 26,154 | | | $ | 76,627 | | | $ | 21,343 | |
The gross carrying amount of intangible assets is determined by applying a discounted cash flow model to the future sales and earnings associated with each intangible asset or is set by contract cost. The amortization period used for definite lived intangible assets is set by contract period or by the period over which the bulk of the discounted cash flow is expected to be generated. We currently believe that we will receive the benefit from the use of the trade names classified as indefinite lived intangible assets indefinitely and they are therefore not amortized.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F – GOODWILL AND INTANGIBLE ASSETS (Continued)
Licenses and rights, customer relationships and non compete agreements are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. In January 2006, intangible
Amortizing intangibles are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Indefinite lived intangibles are reviewed annually for impairment. Cash flow and sales analyses are used to assess impairment. The estimates of future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
Intangible assets of $1,746,000$10,796,000 were acquired in the ICEE of Hawaii acquisition and a product license agreement for $100,000 was entered into by the food service segment. In May 2006, intangiblesegment in the California Churros acquisition in fiscal year 2010.
Intangible assets of $15,188,000$676,000 and $856,000 were acquired in the SLUSH PUPPIE acquisition.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F — GOODWILL AND INTANGIBLE ASSETS (Continued)
In January 2007, intangible assets of $23,771,000food service and $12,799,000 were acquiredretail supermarket segments, respectively, in the Hom/Ade Foods and DADDY RAY’S acquisitions, respectively. In April 2007, intangible assets of $2,731,000 were acquired in the WHOLE FRUIT and FRUIT-A-FREEZE acquisitions and $413,000 was acquired in the Kansas ICEEhandhelds acquisition in June 2007.fiscal year 2011.
Aggregate amortization expense of intangible assets for the fiscal years 2008, 20072011, 2010 and 20062009 was $4,700,000, $3,974,000$4,811,000, $4,687,000 and $1,408,000.$4,508,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $4,500,000 in 20092012, $4,400,000 in 2013 and 2010,2014, $4,300,000 in 2015 and $4,100,000 in 2011, $3,800,000 in 2012 and $3,700,000 in 2013.2016. The weighted average amortization period of the intangible assets is 10.310.1 years.
Goodwill
The carrying amounts of goodwill for the reportable segments are as follows:
| | Food | | | Retail | | | Frozen | | | | |
| | Service | | | Supermarkets | | | Beverages | | | Total | |
| | (in thousands) | |
| | | | | | | | | | | | |
Balance at September 24, 2011 | | $ | 34,130 | | | $ | - | | | $ | 35,940 | | | $ | 70,070 | |
| | | | | | | | | | | | | | | | |
Balance at September 25, 2010 | | $ | 34,130 | | | $ | - | | | $ | 35,940 | | | $ | 70,070 | |
| | Food Service | | | Retail Supermarkets | | | Restaurant Group | | | Frozen Beverages | | | Total | |
| | (in thousands) | |
Balance at September 27, 2008 | | $ | 23,988 | | | $ | — | | | $ | 386 | | | $ | 35,940 | | | $ | 60,314 | |
Balance at September 29, 2007 | | $ | 23,988 | | | $ | — | | | $ | 386 | | | $ | 35,940 | | | $ | 60,314 | |
Goodwill of $839,000 in the food service segment was acquired in an August 2006 acquisition. Goodwill of $500,000 in the frozen beverages segment was acquired in the January 2006 acquisition of ICEE of Hawaii. Goodwill of $2,987,000 in the frozen beverages segment was acquired in the May 2006 acquisition of the SLUSH PUPPIE branded business. Goodwill of $1,763,000 was acquired in the January 2007 acquisitions of Hom/Ade Foods and DADDY RAY’S and $603,000 was acquired in the June 2007 Kansas ICEE acquisition.
The carrying value of goodwill is determined based on the excess of the purchase price of acquisitions over the estimated fair value of tangible and intangible net assets. Goodwill is not amortized but is evaluated annually by management for impairment. Our impairment analysis for 2011 is a qualitative assessment in which we have considered historical net cash provided by operating activities and purchases of property , plant and equipment, their relationship to the carrying value of goodwill, recent fair value calculations of our reporting units and our assessment of the likelihood, based on an assessment of what we know about our Company’s products and markets, costs and general economic conditions, that the relationship of cash flow to the carrying value of goodwill will change significantly in the foreseeable future. Our impairment analysis for 2010 and 2009 was based on a combination of the income approach, which estimates the fair value discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices. Under the income approach the Company used a discounted cash flow which requires Level 3 inputs such as: annual growth rates, discount rates based upon the weighted average cost of capital and terminal values based upon our stock market multiples. There were no impairment charges in 2008, 20072011, 2010 or 2006.2009.
Goodwill of $9,756,000 was acquired in the food service segment in the California Churros acquisition in fiscal year 2010.
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G —– LONG-TERM DEBT
In December 2006,November 2011, we entered into an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2011,November 2016, with the availability of repayments without penalty. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. As of September 27, 200824, 2011 and September 29, 2007,25, 2010, there were no outstanding balances under the prior facility.
NOTE H —– OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
| | September 27, | | | September 29, | |
| | 2008 | | | 2007 | |
| | (in thousands) | |
Capital lease obligations, with interest at 2.6%, payable in monthly installments of $8,700, through August 2013 | | $ | 474 | | | $ | 565 | |
Less current portion | | | 93 | | | | 91 | |
| | $ | 381 | | | $ | 474 | |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | September 24, | | | September 25, | |
| | 2011 | | | 2010 | |
| | (in thousands) | |
Capital lease obligations, with interest at 7.6%, payable in monthly installments of $3,162, through November 2017 | | $ | 182 | | | $ | - | |
| | | | | | | | |
Capital lease obligations, with interest at 5.8%, payable in monthly installments of $14,625, through May 2014 | | | 432 | | | | 578 | |
| | | | | | | | |
Capital lease obligations, with interest at 2.6%, payable in monthly installments in $8,700, through August 2013 | | | 187 | | | | 285 | |
| | | 801 | | | | 863 | |
Less current portion | | | 278 | | | | 244 | |
| | $ | 523 | | | $ | 619 | |
NOTE I —– INCOME TAXES
Income tax expense (benefit) is as follows:
| | Fiscal year ended | |
| | September 24, | | | September 25, | | | September 26, | |
| | 2011 | | | 2010 | | | 2009 | |
| | (in thousands) | |
Current | | | | | | | | | |
U.S. Federal | | $ | 17,065 | | | $ | 21,020 | | | $ | 18,574 | |
Foreign | | | 950 | | | | 970 | | | | 706 | |
State | | | 4,871 | | | | 4,484 | | | | 3,744 | |
| | | 22,886 | | | | 26,474 | | | | 23,024 | |
| | | | | | | | | | | | |
Deferred | | | | | | | | | | | | |
U.S. Federal | | $ | 3,988 | | | $ | 2,692 | | | $ | 3,106 | |
Foreign | | | 409 | | | | (48 | ) | | | 109 | |
State | | | 1,720 | | | | 570 | | | | 658 | |
| | | 6,117 | | | | 3,214 | | | | 3,873 | |
| | $ | 29,003 | | | $ | 29,688 | | | $ | 26,897 | |
| | Fiscal year ended | |
| | September 27, | | | September 29, | | | September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
| | (in thousands) | |
Current | | | | | | | | | |
U.S. Federal | | $ | 11,417 | | | $ | 15,485 | | | $ | 15,982 | |
Foreign | | | 844 | | | | 423 | | | | 233 | |
State | | | 2,270 | | | | 2,581 | | | | 2,503 | |
| | | 14,531 | | | | 18,489 | | | | 18,718 | |
| | | | | | | | | | | | |
Deferred | | | | | | | | | | | | |
U.S. Federal | | | 2,983 | | | | 474 | | | | (82 | ) |
Foreign | | | (168 | ) | | | — | | | | — | |
State | | | 631 | | | | 83 | | | | (14 | ) |
| | | 3,446 | | | | 557 | | | | (96 | ) |
| | $ | 17,977 | | | $ | 19,046 | | | $ | 18,622 | |
J & J SNACK FOODS CORP. AND SUBSIDIARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I – INCOME TAXES (Continued)
The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately 35% to earnings before income taxes for the following reasons: