UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 2001
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
As of July 19, 2001, there were 8,600,510 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1.Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2001
(unaudited) and September 30, 2000 3
Consolidated Statements of Earnings - Three
Months and Nine Months Ended June 30, 2001
and June 24, 2000 (unaudited) 5
Consolidated Statements of Cash Flows - Nine
Months Ended June 30, 2001 and June 24, 2000 6
(unaudited)
Notes to the Consolidated Financial Statements 7
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
June 30, September 30,
2001 2000
(Unaudited)
Current assets
Cash and cash equivalents $ 5,760 $ 1,379
Accounts receivable 38,086 33,626
Inventories 25,669 21,473
Prepaid expenses and other 2,032 1,418
71,547 57,896
Property, plant and equipment,
at cost
Land 795 795
Buildings 5,586 5,586
Plant machinery and
equipment 84,460 75,817
Marketing equipment 162,114 156,093
Transportation equipment 714 2,043
Office equipment 7,383 6,981
Improvements 15,191 12,705
Construction in progress 669 1,304
276,912 261,324
Less accumulated deprecia-
tion and amortization 168,323 152,155
108,589 109,169
Other assets
Goodwill, trademarks and
rights,less accumulated
amortization 48,390 48,768
Long term investment
securities held to
maturity 1,550 1,620
Sundry 2,910 2,586
52,850 52,974
$232,986 $220,039
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND June 30, September 30,
STOCKHOLDERS' EQUITY 2001 2000
(Unaudited)
(dollars in thousands,
except share information)
Current liabilities
Current maturities of
long-term debt $ 8,114 $ 2,186
Accounts payable 27,984 24,913
Accrued liabilities 12,669 8,728
48,767 35,827
Long-term debt, less
current maturities 36,498 42,481
Deferred income taxes 8,340 8,340
Other long-term liabilities 64 117
44,902 50,938
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000,000
shares; none issue - -
Common, no par value;
authorized 25,000,000
shares; issued and
outstanding, 8,578,000
and 8,522,000,
respectively 28,914 28,403
Accumulated other comprehen-
sive income (1,536) (1,616)
Retained earnings 111,939 106,487
139,317 133,274
$232,986 $220,039
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Nine months ended
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
Net Sales $100,970 $88,888 $247,847 $222,207
Cost of goods sold 50,408 42,524 126,158 108,497
Gross profit 50,562 46,364 121,689 113,710
Operating expenses
Marketing 30,229 27,535 80,043 72,546
Distribution 6,979 6,706 19,775 18,871
Administrative 3,076 2,815 9,412 8,382
Amortization of
intangibles and
deferred costs 686 688 2,037 2,172
40,970 37,744 111,267 101,971
Operating income 9,592 8,620 10,422 11,739
Other income (deductions)
Investment income 84 72 255 312
Interest expense (749) (761) (2,453) (2,099)
Sundry 245 21 430 232
Earnings before
income taxes 9,172 7,952 8,654 10,184
Income taxes 3,394 2,942 3,202 3,768
NET EARNINGS $ 5,778 $ 5,010 $ 5,452 $ 6,416
Earnings per diluted
share $ .65 $ .56 $ .63 $ .70
Weighted average number
of diluted shares 8,891 8,890 8,700 9,200
Earnings per basic
share $ .68 $ .57 $ .64 $ .72
Weighted average number
of basic shares 8,540 8,728 8,463 8,915
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands) Nine months ended
June 30, June 24,
2001 2000
Operating activities:
Net earnings $ 5,452 $ 6,416
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 22,499 19,767
Amortization of intangibles 2,512 2,594
Other adjustments 126 9
Changes in assets and liabilities,
net of effects from purchase of
companies
Increase in accounts receivable (4,474) (5,856)
Increase in inventories (4,014) (3,448)
Increase in prepaid expenses ( 614) (1,222)
Increase in accounts payable
and accrued liabilities 7,100 6,557
Net cash provided by operating
activities 28,587 24,817
Investing activities:
Purchases of property, plant
and equipment (12,875) (25,926)
Payments for purchases of
companies, net of cash
acquired and debt assumed (11,330) (1,280)
Proceeds from investments held
to maturity 70 1,109
Other (385) (361)
Net cash used in investing
activities (24,520) (26,458)
Financing activities:
Proceeds from borrowings 13,000 15,000
Proceeds from issuance of common
stock 1,769 1,186
Payments to repurchase common stock (1,400) (9,390)
Payments of long-term debt (13,055) (10,073)
Net cash provided by (used in)
financing activities 314 (3,277)
Net increase (decrease) in cash
and cash equivalents 4,381 (4,918)
Cash and cash equivalents at
beginning of period 1,379 5,945
Cash and cash equivalents at
end of period $ 5,760 $ 1,027
See accompanying notes to the consolidated financial statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying
unaudited consolidated financial statements contain
all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly
the financial position and the results of
operations and cash flows.
The results of operations
for the three months and nine months ended June 30,
2001 and June 24, 2000 are not necessarily
indicative of results for the full year. Sales of
the Company's retail stores are generally higher in
the first quarter due to the holiday shopping
season. Sales of the Company's frozen beverages
and frozen juice bars and ices are generally higher
in the third and fourth quarters due to warmer
weather.
While the Company believes
that the disclosures presented are adequate to make
the information not misleading, it is suggested
that these consolidated financial statements be
read in conjunction with the consolidated financial
statements and the notes included in the Company's
Annual Report on Form 10-K for the year ended
September 30, 2000.
Note 2 The Company's calculation of earnings per share in
accordance with SFAS No. 128, "Earnings Per
Share," is as follows:
7
Three Months Ended June 30, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $5,778 8,540 $.68
Effect of Dilutive Securities
Options - 351 (.03)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $5,778 8,891 $.65
Nine Months Ended June 30,2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $5,452 8,463 $.64
Effect of Dilutive Securities
Options - 237 (.01)
Diluted EPS
Net Income available to
common stockholders plus
assumed conversions $5,452 8,700 $.63
8
Three Months Ended June 24, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $5,010 8,728 $.57
Effect of Dilutive Securities
Options - 162 (.01)
Diluted EPS
Net Income available to
common stockholders plus
assumed conversions $5,010 8,890 $.56
Nine Months Ended June 24, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $6,416 8,915 $.72
Effect of Dilutive Securities
Options - 285 (.02)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $6,416 9,200 $.70
Note 3 Inventories consist of the following:
June 30, September 30,
2001 2000
(in thousands)
Finished goods $14,367 $10,714
Raw materials 2,798 2,136
Packaging materials 3,102 2,532
Equipment parts & other 5,402 6,091
$25,669 $21,473
9
Note 4 Using the guidelines set forth in SFAS No. 131,
the Company has two reportable segments: Snack
Foods and Frozen Beverages. Snack Foods
manufactures and distributes snack foods and
bakery items. Frozen beverages markets and
distributes frozen beverage products. The
segments are managed as strategic business units
due to their distinct production processes and
capital requirements.
The Company evaluates each segment's performance
based on income or loss before taxes, excluding
corporate and other unallocated expenses and non-
recurring charges. Information regarding the
operations in these reportable segments is as
follows:
Three Months Ended Nine Months Ended
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
(in thousands)
Sales:
Snack Foods $ 69,178 $ 59,044 $175,955 $151,976
Frozen Beverages 31,792 29,844 71,892 70,231
$100,970 $ 88,888 $247,847 $222,207
Depreciation and Amortization:
Snack Foods $ 4,057 $ 3,632 $ 12,145 $ 10,476
Frozen Beverages 4,410 4,064 12,866 11,885
$ 8,467 $ 7,696 $ 25,011 $ 22,361
Income Before Taxes:
Snack Foods $ 4,703 $ 4,118 $ 10,275 $ 11,035
Frozen Beverages 4,469 3,834 (1,621) (851)
$ 9,172 $ 7,952 $ 8,654 $ 10,184
Capital Expenditures:
Snack Foods $ 2,532 $ 5,079 $ 5,392 $ 12,828
Frozen Beverages 3,749 5,201 7,483 13,098
$ 6,281 $ 10,280 $ 12,875 $ 25,926
Assets:
Snack Foods $135,036 $116,988 $135,036 $116,988
Frozen Beverages 97,950 106,295 97,950 106,295
$232,986 $223,283 $232,986 $223,283
10
Note 5 In June 1998, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was issued. Subsequent
to this statement, SFAS No. 137 was issued, which amended the
effective date of SFAS No. 133 to be all fiscal quarters of
all fiscal years beginning after June 15, 2000. In June 2000,
SFAS 138 was issued, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of
SFAS 133". SFAS 133, as amended by SFAS 138, requires that
all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of
derivatives are recorded each period in current earnings or
other comprehensive income, depending on the designation of
the hedge transaction. The Company adopted SFAS 133, as
amended by SFAS 138, in the first quarter of fiscal year 2001.
Based on the Company's minimal use of derivatives at the
current time, the adoption of this standard did not have a
significant impact on earnings or financial position of the
Company.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101) which
addresses certain criteria for revenue recognition. SAB
101, as amended by SAB 101A and SAB 101B, outlines the
criteria that must be met to
recognize revenue and provides guidance for disclosures
related to revenue recognition policies.
The Company implemented the applicable provisions of SAB
101 as amended by SAB 101A in the first quarter of fiscal
year 2001. Management believes the Company's revenue
recognition policies comply with the guidance contained
in the SAB and, therefore, the Company's results of
operations were not materially affected.
In May 2000, The Emerging Issues Task Force reached
consensus opinions on Issue 00-14, "Accounting for
Certain Sales Incentives (Issue 00-14)". Issue 00-14
pertains to the recognition, measurement, and income
statement classification of certain sales incentives,
including discounts, coupons, rebates, and free products
or services received by the
customer. The issue requires certain incentives to
11
be classified as a reduction of revenue. The Company
reclassed $744,000 and $691,000 of sales incentives from
marketing expense to reduction of sales in the three
months ended June 30, 2001 and June 24, 2000,
respectively, and $1,881,000 and $1,563,000 in the nine
months ended June 24, 2001 and June 30, 2000,
respectively.
On June 29, 2001, the Financial Accounting Standards
Board (FASB) approved for issuance Statement of Financial
Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. Major
provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must
use the purchase method of accounting; the pooling of
interest method of accounting is prohibited except for
transactions initiated before July 1, 2001; intangible
assets acquired in a business combination must be
recorded separtely from goodwill if they arise from
contractual or other legal rights or are separable from
the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability; goodwill
and intangible assets with indefinite lives are not
amortized but tested for impairment annually, except in
certain circumstances, and whenever there is an
impairment indicator; all acquired goodwill must be
assigned to reporting units for purposes of impairment
testing and segment reporting; effective January 1, 2002,
goodwill will no longer be subject to amortization.
Management is currently reviewing the provisions of these
Statements and their impact on the Company's results of
operations.
12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's current cash and marketable securities
balances and cash expected to be provided by future operations are
its primary sources of liquidity. The Company believes that these
sources, along with its borrowing capacity, are sufficient to fund
future growth and expansion.
In the three months ended June 30, 2001 and June 24, 2000,
fluctuations in the value of the Mexican peso caused an increase
of $86,000 and a decrease of $118,000, respectively, in
stockholders' equity because of the revaluation of the net assets
of the Company's Mexican frozen beverage subsidiary. In the nine
month periods, the increase was $80,000 in fiscal year 2001 and
the decrease was $93,000 in fiscal year 2000.
In November 2000, the Company acquired the assets of Uptown
Bakeries for cash. Uptown Bakeries, located in Bridgeport, NJ, is
a fresh bakery products manufacturer with approximately
$17,000,000 in annual sales.
In February 2001, the Company acquired the assets, and
exclusive rights for food service channels, of Chill brand fruit
ices. Chill Ices have approximately $3 million in annual
foodservice sales.
In December 2000, the Company refinanced its unsecured term
loan and its general-purpose bank credit line with a general
purpose unsecured bank credit line of $60,000,000. The new
agreement contains restrictive covenants and requires commitment
fees in accordance with standard banking practice. Borrowings
under the line at June 30, 2001 were $39,000,000.
In the nine months ended June 30, 2001, the Company
purchased and retired 109,300 shares of its common stock at a cost
of $1,400,000. Under a buyback authorization approved by the
Board of Directors in fiscal year 2000, 277,000 shares remain to
be purchased.
13
Results of Operations
Net sales increased $12,082,000 or 14% to $100,970,000 for
the three months and $25,640,000 or 12% to $247,847,000
for the nine months ended June 30, 2001 compared to the same
periods ended June 24, 2000. Excluding sales resulting from
acquisitions, sales increased 7% for the three month period and 6%
for the nine month period compared to a year ago.
SNACK FOODS
Sales to food service customers increased $7,046,000 or 22%
in the third quarter to $39,250,000 and increased $15,747,000 or
18% for the nine months. Excluding sales resulting from
acquisitions, sales would have increased approximately 3% for the
third quarter and 4% for the nine months. Soft pretzels sales to
the food service market increased approximately 2% in the third
quarter and
nine months to $14,751,000 and $45,281,000, respectively.
Excluding sales resulting from acquisitions, food service soft
pretzel sales would have decreased approximately 3% in the third
quarter and the nine month period. Frozen juice bars and ices
sales increased 28% to $12,473,000 in the three months and 13% to
$23,085,000 in the nine months. Approximately one third of the
frozen juice bars and ices sales' increase in both periods
resulted from acquisitions. Churro sales to food service
customers decreased 4% to $2,890,000 in the third quarter and
increased 6% to $8,489,000 in the nine months. Cookie sales
increased 32% to $2,926,000 in the third quarter and 29% to
$9,898,000 in the nine months.
Sales of products to retail supermarkets increased
$1,674,000 or 10% to $18,746,000 in the third quarter and
22% to $43,983,000 in the nine months. Soft pretzel sales for the
third quarter were down 5% and for the nine months were up 7% from
last year to $5,778,000 and $20,737,000, respectively. Sales of
our flagship SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX,
decreased 11% in the third quarter and increased 4% for the nine
months. Sales of frozen juice bars and ices increased $2,124,000
or 19% to
$13,291,000 in the third quarter and increased $6,498,000 or 38%
to $23,445,000 in the nine months. Sales of the Company's Minute
Maid brand licensed products, introduced
*Minute Maid is a registered trademark of The Coca-Cola Company.
14
in last year's second quarter, accounted for approximately one
half of the nine months' frozen juice bars and ices' sales
increase and sales of LUIGI'S Real Italian Ice accounted for
almost 90% of the third quarter sales increase.
Bakery sales increased $1,644,000 or 24% to $8,496,000 in
the third quarter and $646,000 or 3% to $21,556,000 in the nine
months. The third quarter increase was due primarily to increased
unit sales to one customer. Sales of our Bavarian Pretzel Bakery
decreased 8% to $2,686,000 in the third quarter and 3% to
$9,467,000 in the nine month period due primarily to decreased
mall traffic.
FROZEN BEVERAGES
Frozen beverage and related product sales increased
$1,948,000 or 7% to $31,792,000 in the third quarter and
$1,661,000 or 2% to $71,892,000 in the nine months. Beverage
sales alone increased 9% in the third quarter to
$27,670,000 and 4% to $2,593,000 in the nine months. Gross profit
on beverage sales increased 5% in the quarter and less than 1% in
the nine months. Service and lease revenue increased $509,000 in
the third quarter and $758,000 in the nine months.
CONSOLIDATED
Gross profit as a percentage of sales decreased to 50% and
49% in the current third quarter and nine months, respectively,
from 52% and 51% in the corresponding periods last year. The
gross profit percentage decline in this year's periods is due to
the inclusion of Uptown Bakeries which has a low gross profit
percentage relative to the balance of the Company's business.
Total operating expenses increased $3,226,000 in the third
quarter and as a percentage of sales decreased to 41% from 42% in
last year's same quarter. For the nine months, operating expenses
increased $9,296,000 and as a percentage
of sales decreased to 45% from 46% last year. Marketing expenses
decreased to 30% of sales in this year's third quarter from 31%
last year and decreased less than one
15
percentage point of sales to 32% of sales in the nine months
from 33% of sales last year. Distribution expenses
decreased less than one percentage point of sales to 7% of
sales in the third quarter from 8% in last year's quarter
and were 8% of sales in both year's nine months period. The
decrease in marketing and distribution expenses as a percent
of sales is caused by the inclusion of Uptown Bakeries which
has virtually no marketing and distribution expenses.
Administration expenses were 3% and 4% of sales in both
year's third quarter and nine months, respectively.
Operating income increased $972,000 or 11% to
$9,592,000 in the third quarter and decreased $1,317,000 or
11% to $10,422,000 in the nine months.
Operating income was impacted by higher property and
casualty insurance costs of approximately $850,000 in the
third quarter and $1,150,000 in the nine month period. The
higher costs were due to market conditions and the Company's
claims experience.
Interest expense decreased $12,000 in the third
quarter and increased $354,000 in the nine months. The
increase in expense for the nine months was due to debt
incurred to fund acquisitions.
Sundry income increased $224,000 in the third quarter
and $198,000 in the nine months, primarily due to the
settlement of certain litigation.
The effective income tax rate has been estimated at
37% in all periods reported.
Net earnings increased $768,000 or 15% in the current
three month period to $5,778,000 and decreased $964,000 or
15% in the current nine month period to $5,452,000.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
There has been no material change in the Company's
assessment of its sensitivity to market risk since its
presentation set forth, in item 7a. "Quantitative and
Qualitative Disclosures About Market Risk," in its 2000
annual report on Form 10-K filed with the SEC.16
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - There were no reports
on Form 8-K for the three months ended June
30, 2001.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: July 26, 2001 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: July 26, 2001 /s/ Dennis G. Moore
Senior Vice President and
Chief Financial Officer
18