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 December 29, 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 January 15, 2002, there were 8,668,146 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets - December 29, 2001
(unaudited) and September 29, 2001 3
Consolidated Statements of Earnings - Three
Months Ended December 29, 2001 and December
30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows - Three
Months Ended December 29, 2001 and December
30, 2000 (unaudited) 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 29, September 29,
2001 2001
(Unaudited)
Current assets
Cash and cash equivalents $ 3,280 $ 7,437
Accounts receivable 31,939 37,018
Inventories 23,469 21,749
Prepaid expenses and other 1,494 1,197
60,182 67,401
Property, plant and equipment,
at cost
Land 756 756
Buildings 5,456 5,456
Plant machinery and
equipment 85,507 85,312
Marketing equipment 166,440 164,381
Transportation equipment 825 796
Office equipment 7,469 7,420
Improvements 15,033 15,182
Construction in progress 692 120
282,178 279,423
Less accumulated deprecia-
tion and amortization 181,299 174,667
100,879 104,756
Other assets
Goodwill, less accumulated
amortization 45,850 45,850
Other intangible assets,
less accumulated
amortization 1,772 1,848
Long term investment
securities held to
maturity 1,420 1,515
Sundry 2,999 3,111
52,041 52,324
$213,102 $224,481
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND December 29, September 29,
STOCKHOLDERS' EQUITY 2001 2001
Current liabilities
Current maturities of
long-term debt $ 112 $ 115
Accounts payable 20,451 24,515
Accrued liabilities 11,258 16,047
31,821 40,677
Long-term debt, less
current maturities 24,368 28,368
Deferred income taxes 9,228 9,228
Other long-term liabilities 101 65
33,697 37,661
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000
shares; none issued - -
Common, no par value;
authorized 25,000
shares; issued and
outstanding, 8,654
and 8,636, respectively 29,969 29,421
Accumulated other comprehen-
sive income (1,570) (1,641)
Retained earnings 119,185 118,363
147,584 146,143
$213,102 $224,481
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
December 29, December 30,
2001 2000
Net Sales $79,025 $70,070
Cost of goods sold 42,356 36,052
Gross profit 36,669 34,018
Operating expenses
Marketing 25,479 24,365
Distribution 6,273 6,305
Administrative 3,416 3,133
Amortization of
goodwill - 653
35,168 34,456
Operating (loss) income 1,501 (438)
Other income (deductions)
Investment income 66 81
Interest expense (282) (786)
Sundry (21) 43
Earnings (loss) before
income taxes 1,264 (1,100)
Income taxes 442 (407)
NET EARNINGS (LOSS) $ 822 $ (693)
Earnings (loss) per diluted
share $ .09 $(.08)
Weighted average number
of diluted shares 8,984 8,419
Earnings (loss) per basic share $ .10 $(.08)
Weighted average number
of basic shares 8,645 8,419
See accompanying notes to the consolidated financial statements
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
December 29, December 30,
2001 2000
Operating activities:
Net earnings (loss) $ 822 $ (693)
Adjustments to reconcile net (loss)
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 7,757 7,404
Amortization of goodwill,
intangibles and deferred costs 202 844
Other adjustments 123 (9)
Changes in assets and liabilities,
net of effects from purchase of
companies
Decrease in accounts receivable 5,079 7,723
Increase in inventories (1,720) (3,232)
Increase in prepaid expenses (297) (638)
Decrease in accounts payable
and accrued liabilities (8,490) (4,640)
Net cash provided by operating
activities 3,476 6,759
Investing activities:
Purchase of property, plant
and equipment (3,973) (3,291)
Payments for purchases of
companies, net of cash
acquired and debt assumed - (9,414)
Proceeds from investments
held to maturity 95 70
Other 26 119
Net cash used in investing
activities (3,852) (12,516)
Financing activities:
Proceeds from issuance of stock 222 34
Proceeds from borrowings 24,000 13,000
Payments to repurchase common stock - (1,400)
Payments of long-term debt (28,003) (4,025)
Net cash (used in) provided by
financing activities (3,781) 7,609
Net (decrease) increase in cash
and cash equivalents (4,157) 1,852
Cash and cash equivalents at
beginning of period 7,437 1,379
Cash and cash equivalents at
end of period $ 3,280 $ 3,231
See accompanying notes to the consolidated financial statements
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position and the results of
operations and cash flows. Certain prior year amounts have
been reclassified to conform to the current period
presentation. These reclassifications had no effect on
reported net earnings.
The results of operations for the three months ended December
29, 2001 and December 30, 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 29, 2001.
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 December 29, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 822 8,645 $ .10
Effect of Dilutive Securities
Options - 339 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $ 822 8,984 $ .09
Three Months Ended December 30, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Loss available
to common stockholders $ ( 693) 8,419 $(.08)
Effect of Dilutive Securities
Options* - - -
Diluted EPS
Net Income available to
common stockholders plus
assumed conversions $ ( 693) 8,419 $(.08)
*No effect was given to the options as inclusion would be
anti-dilutive.
Note 3 Inventories consist of the following:
December 29, September 29,
2001 2001
(in thousands)
Finished goods $11,556 $ 9,965
Raw materials 2,611 2,509
Packaging materials 3,144 3,146
Equipment parts & other 6,158 6,129
$23,469 $21,749
8
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
December 29, December 30,
2001 2000
(in thousands)
Sales:
Snack Foods $ 55,045 $ 49,993
Frozen Beverages 23,980 20,077
$ 79,025 $ 70,070
Depreciation and Amortization:*
Snack Foods $ 3,669 $ 3,624
Frozen Beverages 4,290 3,971
$ 7,959 $ 7,595
Earnings (loss) Before
Goodwill Amortization
and Taxes:
Snack Foods $ 2,856 $ 2,191
Frozen Beverages (1,592) (2,638)
$ 1,264 $ (447)
Capital Expenditures:
Snack Foods $ 1,495 $ 1,731
Frozen Beverages 2,478 1,560
$ 3,973 $ 3,291
Assets:
Snack Foods $117,709 $125,419
Frozen Beverages 95,393 96,854
$213,102 $222,273
*Excludes amortization of goodwill
9
Note 5 On September 30, 2001, the Company adopted Statement of
Financial Accounting Standards No. 142 "Goodwill and
Intangible Assets" (SFAS 142). SFAS 142 includes requirements
to test goodwill and indefinite lived intangible assets for
impairment rather than amortize them; accordingly, the Company
no longer amortizes goodwill, thereby eliminating an annual
amortization charge of approximately $2,600,000.
The Company's two reporting units, which are also reportable
segments, are Snack Foods and Frozen Beverages. Both segments
have goodwill and indefinite lived intangible assets.
The carrying amount of acquired intangible assets for the Snack Foods
and Frozen Beverage segments as of December 29, 2001 are as follows:
Gross Carrying Accumulated
Amount Amortization
(in thousands)
SNACK FOODS
Amortized intangible assets
Licenses and rights $2,086 $420
FROZEN BEVERAGES
Amortized intangible assets
Licenses and rights $ 201 $ 95
Licenses and rights are being amortized by the straight-line
method over periods ranging from 4 to 20 years and amortization expense
is reflected throughout operating expenses. There were no changes in
the gross carrying amount of intangible assets for the three months
ended December 29, 2001. Additionally, the Company did not record any
transition intangible asset impairment loss upon adoption of SFAS 142.
Aggregate amortization expense of intangible assets for the 3 months
ended December 29, 2001 and December 30, 2000 was $76,000 and $28,000,
respectively.
Estimated amortization expense for the next five fiscal years is
approximately $300,000 in 2002, 2003 and 2004, $200,000 in 2005 and
$150,000 in 2006.
10
Goodwill
The carrying amounts of goodwill for the Snack Foods and Frozen
Beverage segments are as follows:
Snack Frozen
Foods Beverages Total
(in thousands)
Balance at December 29, 2001 $14,679 $31,171 $45,850
There were no changes in the carrying amount of goodwill for the
three months ended December 29, 2001.
The Company will complete documentation of its transitional
goodwill impairment tests by the end of the second quarter of 2002.
Currently, management does not anticipate it will record any
transitional goodwill impairment loss as a result of its adoption of
SFAS 142.
Reported net income for the three months ended December 29, 2001
and December 30, 2000, exclusive of amortization expense that is related
to goodwill that is no longer being amortized, would have been:
For the Three Months Ended
December 29, December 30,
2001 2000
($000's except for earnings
per share amounts)
Reported net earnings (loss) $822 $(693)
Add back: Goodwill amortization - 412
Adjusted net earnings (loss) $822 $(281)
Basic earnings per share:
Reported net earnings (loss) $.10 $(.08)
Goodwill amortization - .05
Adjusted net earnings (loss) $.10 $(.03)
Diluted earnings per share:
Reported net earnings (loss) $.09 $(.08)
Goodwill amortization - .05
Adjusted net earnings (loss) $.09 $(.03)
Note 6 Subsequent to the end of the quarter and prior to
the filing of this 10-Q, KMart Corporation filed for chapter
11 bankruptcy protection. The Company does not anticipate a
significant impact to its liquidity or results of operations
as a result of the filing.
11
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 quarters ended December 29, 2001 and December 30, 2000
fluctuations in the valuation of the Mexican peso caused an increase of
$71,000 and a decrease of $38,000 in stockholders' equity because of the
revaluation of the net assets of the Company's Mexican frozen beverage
subsidiary.
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.
Subsequent to September 29, 2001 and prior to the issuance of
these financial statements, the Company refinanced its general-purpose
bank credit line. The outstanding balance under this facility was
$23,000,000 at September 29, 2001. The new agreement provided for up to
a $50,000,000 revolving credit facility repayable in three years, with
the availability of repayments without penalty. The new agreement
contains restrictive covenants and requires commitment fees in
accordance with standard banking practice.
In December 2001, the Company borrowed $5,000,000 on its general-
purpose bank credit line to pay off early its $5,000,000 7.25%
redeemable economic development revenue bond payable December 2005.
Results of Operations
Net sales increased $8,955,000 or 13% for the three months ended
December 29, 2001 compared to the three months ended December 30, 2000.
Excluding sales resulting from the acquisition of Uptown Bakeries,
sales increased approximately 9% compared to the year ago period.
12
SNACK FOODS
Sales to food service customers increased $5,902,000 or 21% in
the first quarter to $33,879,000. Excluding sales from acquisitions,
food service sales increased approximately 13% from last year. Soft
pretzel sales increased $1,465,000 or 10% from last year to $15,670,000
in this year's quarter due to sales of recently introduced PRETZEL
FILLERS. Excluding sales from the Uptown acquisition, soft pretzel
sales would have been up approximately 8% from a year ago. Italian ice
and frozen juice treat and dessert sales increased 18% to $5,046,000 in
the three months due to increased sales to school food service
customers. Churro sales to food service customers increased 1% to
$2,852,000 in the quarter. Cookie sales increased 40% to $5,194,000
from $3,704,000 last year due to increased distribution.
Sales of products to retail supermarkets decreased
$90,000 or 1% in the first quarter. Soft pretzel sales for the first
quarter were down 2% to $6,629,000. Sales of our flagship SUPERPRETZEL
brand soft pretzels decreased 2% in the first quarter. Sales of frozen
juices and ices increased $87,000 or 2% to $3,943,000 in the quarter.
Bakery sales decreased $209,000 or 3% to $7,246,000 in the first
quarter due to decreased unit sales to one customer. Sales of our
Bavarian Pretzel Bakery decreased $551,000 or 14% to $3,413,000
in the quarter from last year due to decreased mall traffic and the
closing of unprofitable stores.
All of the snack foods sales' increase and decreases were
primarily due to changes in unit volume.
FROZEN BEVERAGES
Frozen beverage and related product sales increased
$3,903,000 or 19% to $23,980,000 in the first quarter. Beverage sales
alone increased 4% to $17,918,000 and gross profit on beverage sales
increased 6%. Service and lease revenue increased $833,000 or 33% from
the first quarter of fiscal year 2001 and equipment sales increased from
$678,000 last year to $2,894,000 this year.
CONSOLIDATED
Gross profit as a percentage of sales decreased to 46% in this
year's first quarter from 49% last year. The decrease in gross profit
percentage is due to the inclusion of Uptown Bakeries, which has a low
gross profit percentage
13
relative to the balance of the Company's business, for an entire quarter
and the increase in low margin Frozen Beverage equipment sales.
Total operating expenses increased $712,000 in the first quarter
but as a percentage of sales decreased to 45% from 49% in last year's
same quarter. Marketing expenses decreased to 32% of sales from 35% in
last year's quarter due to the inclusion of Uptown Bakeries, which had
no significant marketing expenses, the increase in Frozen Beverage
equipment sales and lower spending as a percent of sales in our food
service and retail supermarket businesses. Distribution expenses
decreased to 8% of sales this year from 9% last year due to the
inclusion of Uptown Bakeries, which has no distribution costs, for the
full quarter, Frozen Beverage equipment sales and lower fuel costs.
Administrative expenses as a percent of sales remained at 4% compared to
last year. Amortization of goodwill ceased as a result of the adoption
of SFAS 142 this year.
Operating income of $1,501,000 in this year's first quarter
compared to an operating loss of $438,000 in last year's quarter.
Interest expense decreased $504,000 from last year's quarter to
$282,000 this year due to decreased debt and lower interest rates.
The effective income tax rate has been estimated at 35% this year
compared to 37% in last year's quarter. The reduction is due to the
impact of the adoption of SFAS 142 and other factors.
Net earnings of $822,000 in this year's first quarter compared to
a net loss of $693,000 in the year ago period.
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 1998 annual report on Form 10-K
filed with the SEC.
14
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 December 29, 2001.
15
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: January 23, 2002 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: January 23, 2002 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
16