EXHIBIT 13.1
J & SNACK FOODS CORP.
2003 ANNUAL REPORT
TO SHAREHOLDERS
J&J Snack Foods
6000 Central Highway
Pennsauken, NJ 08109
(856) 665-9533
www.jjsnack.com
2003 ANNUAL REPORT
Munch.
S-s-s i p.
Ah-h-h.
Mm-m-m.
Hear that?
It's the satisfied sound of snackers everywhere delighting their
senses with the J&J Snack Foods family of brands.
2003 in Review
Profile
J&J Snack Foods Corp. is a manufacturer, marketer and distributor of
an expanding variety of nutritional, popularly priced, branded niche
snack foods and beverages for the food service and retail supermarket
industries. The Company is listed on the NASDAQ exchange as ''JJSF'',
and serves both national and international markets.
Our growing portfolio of products includes soft pretzels; frozen
beverages; frozen juice bars and desserts; churros, a cinnamon pastry;
funnel cakes; cookies and bakery goods; and other snack foods and
drinks. Consumers can enjoy these nutritional and tasty products in a
variety of settings where people work, play, travel and shop.
The Company's growth is the result of a strategy that emphasizes
active development of new and innovative products, penetration into
existing market channels and expansion of established products into
new markets. Our four business groups, Food Service, Frozen Beverages,
Retail Supermarket and The Restaurant Group, were part of our 32nd
consecutive year of record sales in fiscal 2003 and are poised for
continued growth this coming year.
As we prepare for the future, J&J Snack Foods Corp. plans to continue
expanding it's unique, niche product offerings, by capitalizing on new
opportunities wherever they may be found.
Contents
Profile FLAP
Financial Highlights 1
President's Letter 2
Soft Pretzels 4
Frozen Beverages 6
Frozen Juice Bars & Desserts 8
More Snacks 10
Family of Brands 12
Financial Information 13
Corporate Information 32
Financial Highlights
Fiscal year ended in September
2003 2002 2001 2000 1999
(In thousands except per share data)
Net Sales* $ 364,567 $ 353,187 $ 328,335 $ 296,832 $ 270,835
Net Earnings $ 19,902 $ 18,113 $ 11,876 $ 9,968 $ 14,264
Total Assets $ 236,683 $ 220,036 $ 224,481 $ 220,039 $ 213,680
Long-Term Debt $ - $ - $ 28,368 $ 42,481 $ 34,660
Stockholders'
Equity $ 182,564 $ 168,709 $ 146,143 $ 133,274 $ 131,169
Common Share Data
Earnings Per
Diluted Share $ 2.20 $ 1.99 $ 1.36 $ 1.10 $ 1.50
Earnings Per
Basic Share $ 2.26 $ 2.07 $ 1.40 $ 1.13 $ 1.58
Book Value
Per Share $ 20.85 $ 18.95 $ 16.92 $ 15.64 $ 14.57
Common Shares
Outstanding
At Year End 8,757 8,903 8,636 8,522 9,000
*-Net sales from 1999 to 2001 have been reduced as a result of our
adoption of EITF 01-9, ''Accounting for Consideration Given By a
Vendor to a Customer or a Reseller of the Vendor's Products.'' These
reclassifications had no impact on reported net earnings or earnings
per share.
President's Letter
To Our Shareholders and Friends:
''Truth, justice and the American way.'' Oops... no, that was last
year's closing statement of my President's Letter. I need something
else, slightly different, as we put the finishing touches on another
good year. As I recently gazed reflectively while enjoying the natural
beauty of a pastoral country setting, the sights and sounds of nature
overwhelmed my senses. Almost like I could touch the beauty, smell its
fragrance, taste its goodness and hear the serenity. And then I
realized just how much the sensory qualities of our products
contribute to their enjoyment, and in turn, the success of our
company.
J&J Snack Foods Corp. has just completed it's 32nd consecutive year of
growth. How do we do it? Our insatiable appetite for success helps us
to sniff out opportunities wherever they can be found. Operational
discipline and good execution helps make them fit. Our dedication to
serving the public remains steadfast. And, none of this would be
possible without a truly sense-ational team working with me.
Sales and earnings set records in 2003
I am delighted to report to our shareholders our year-end results. In
2003, we set sales and earnings records again! And, earnings per share
were the highest in our corporate history.
In brief:
* Net sales grew by 3% to a record $365 million
* Net earnings climbed 10% to $19.9 million
* Earnings per share rose 11% to $2.20
* Book value increased to $20.85
Strong performance by our Food Service business group, led by
continued growth of our core and newer soft pretzel products, paved
the way. Total Food Service sales were up 8% for the year, boosted by
our award-winning PRETZEL FILLERS and GOURMET TWISTS that grew at an
even faster rate. Other products also contributed to our successful
year. Our ICEE business group, given the circumstances of weather and
store closings affecting a major customer, performed well overall.
And, although Retail Supermarket sales declined this year due to the
discontinuance of frozen novelty products introduced last year and
poor weather conditions, it is noteworthy that our retail soft pretzel
category grew.
Tuning into sensory perception
Unlike some larger food companies, our company is unique and our
products fall into specialty niche categories. In our beginning in
1971, we saw and sensed something of product lines that were
undeveloped and under-marketed. This initially included soft pretzels.
Our business grew, and later churros, frozen juice bars and desserts,
ICEE and frozen carbonated beverages, funnel cakes and cookies were
added to the mix to further delight the senses.
We continue to utilize the same strategy and basic philosophy that has
served us well over the years. By making quality niche products, being
the low cost producer and maintaining strong sales and distribution
channels, we were able to overcome a tough economic environment made
even tougher by cost increases.
We are satisfied with our recent performance but can clearly see
further success. As we begin our 33rd year in business, we remain
committed to maintaining the standards already in place, and will
focus on furthering our quest for continued growth and excellence. We
look forward to another sense-ational year in 2004!
Sincerely,
Gerald B. Shreiber
President and Chairman
December 1, 2003
Soft Pretzels
Take a good look and you'll clearly see why J&J Snack Foods Corp.
remains the world's premier and largest manufacturer of soft pretzels.
As demand continues to grow, seven of our manufacturing facilities are
busy producing the millions upon millions of soft pretzels needed to
satisfy consumers across the U.S. and around the world.
All eyes are on expanding food service sales
In fiscal 2003, food service soft pretzel sales grew an impressive
15%, primarily driven by surging sales of our gourmet style soft
pretzels. These delectable snacks can be eaten on-the-go or as a meal
replacement, and are sold at an expanding number of locations
including convenience stores, home-delivery services, mass
merchandisers, snack bars and other traditional food service outlets.
Our delicious PRETZEL FILLERS, hand-twisted soft pretzels with
scrumptious fillings and toppings, have provided a whole new way to
view soft pretzels! Enjoy any of our four appealing flavors: Twisted
Pizza, Hollerin' Jalapeno, Sweet Dream Cream Cheese and Cinnamon Apple
Harvest. PRETZEL FILLERS are available in various sizes as well as
individually wrapped.
Hungry consumers have also set their sights on GOURMET TWISTS. These
old-world, hearth-baked soft pretzels are offered in either Original
Twist or Sweet Doughlicious. Packaged with savory toppings including
butter, cinnamon-sugar and salt, they provide variety and simple
preparation. The food service picture has changed forever!
Our flagship brand - SUPERPRETZEL Soft Pretzels - provides the lion's
share of food service soft pretzel sales. They remain America's
Favorite Soft Pretzel, and are available at tens-of-thousands of high-
traffic locations across the country such as malls and shopping
centers; stadiums and sports arenas; amusement, leisure and theme
parks; chain, convenience and warehouse club stores; schools and
colleges; business and industry cafeterias and fast food outlets.
We're the apple of the School Food Service Director's eye
We remain dedicated to helping schools provide good nutrition and fun
for America's schoolchildren. Our SUPERPRETZEL product line satisfies
bread requirements for the U.S.D.A. approved National School
Lunch/Breakfast Program - making it a tasty addition to school lunch
and breakfast menus. Available in themed and shaped varieties such as
shamrocks, pumpkins, hearts and stars, School Food Service Directors
know that holiday and special menus will be seen as a hit with
students.
Still lookin' good at the supermarket
SUPERPRETZEL brand sales in retail supermarkets - which includes soft
pretzels, SOFT PRETZEL BITES and SOFTSTIX Cheese Filled Soft Pretzel
Sticks co-branded with KRAFT* - again showed an increase for the year,
thanks to a 14% sales spike for our SUPERPRETZEL SOFTSTIX. The brand
continues to lead the retail category with a commanding market share
and a presence in more than 29,000 supermarkets nationwide.
SUPERPRETZEL PRETZELFILS - a vision of the future
Watch closely, we've just reinvented at-home snacking. At the end of
our fiscal year, we began test marketing SUPERPRETZEL PRETZELFILS -
the newest member of the SUPERPRETZEL family. Flavored dough is
combined with delicious fillings and toppings to create an entirely
new snacking sensation. Eaten as a snack, mini-meal or hors d'oeuvre,
consumers can choose from three delicious flavors: pizza, pepperjack
and onion veggie cream cheese. Our innovations just keep on coming!
Our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and
PRETZEL GOURMET retail stores in the Mid-Atlantic region, continues to
serve as a valuable resource for market research and new product
evaluation.
*KRAFT and the KRAFT logo are registered trademarks owned and licensed
by Kraft Food Holdings, Inc.
Focus
Love at first
Sight
and love in every bite.
Frozen Beverages
On a hot summer day or anytime, there is no better way to cool off
than with a delicious, frosty beverage from J&J Snack Foods. Use a
straw or use a spoon, but by all means, experience this chilling
sensation.
The ICEE Company ---- our frozen beverage division ---- sets the standard
for excellence and remains the world's largest distributor of frozen
beverages. However, sales dipped slightly in fiscal 2003 primarily due
to the unusually wet summer and continued store closings at a major
account.
Connect with an ICEE anywhere
Feel like ICEE is everywhere you are? You're right! Refreshing ICEE
branded beverages are sold in more than 30,000 food service outlets
throughout the United States, Canada and Mexico, many of which also
sell our SUPERPRETZEL brand and other tasty and nutritional J&J
products. ARCTIC BLAST and other signature brands are also available
in some geographic locations. Served from our proprietary dispensing
equipment, these semi-frozen treats are an exciting and delicious
alternative to traditional juices and soft drinks for thirsty
consumers in need of a cool-down.
We are transitioning to the ICEE brand in nearly 7,000 Burger King*
locations, modifying the look of existing dispensing units to provide
additional brand exposure. Our long-term marketing agreement with The
Coca-Cola Company continues to thrive as The ICEE Company provides
ongoing managed services to dispensing machines in these Burger King
locations while The Coca-Cola Company provides the syrup. A very cool
combination indeed!
Our customers feel the love
The ICEE Company's success is owed in no small part to the ''Service
Excellence'' provided by our nationwide network of branches and
trained technicians that reports to our centralized, state-of-the-art
Customer Service Center. We perform ongoing managed service for
existing customers as well as other beverage and related food
equipment providers. As always, we remain dedicated to maintaining our
equipment in peak condition at all times and are sensitive to our
trade customers' needs. To that end, this fiscal year we began the
rollout of hand-held computers to speed up communication from the
field and reduce manual processing of service information. The
majority of the project should be implemented in fiscal 2004.
Staying in touch by way of promotions
Promotional opportunities continued to play an important role
throughout fiscal 2003. Value-added on-the-cup offers; consumer
sweepstakes and contests; feature film, video/DVD and video game tie-
ins; turnkey holiday-themed and flavor promotions; and account-
specific themed promotions are just some of the ways the ICEE brand
stays in front of consumers. Tie-ins with SUPERPRETZEL, GOURMET
TWISTS, MRS. GOODCOOKIE and other J&J products were also featured at
several national accounts, promoting sense-ational snack combinations.
Uncarbonated ways to chill out
Feel like a frosty treat without carbonation? The ICEE Company offers
three frozen beverage alternatives. In the fourth quarter, we
introduced ICEE SLUSH to schools and lower volume locations. For
schools, it is made with real fruit juice to meet specific nutritional
requirements. JAVA FREEZE, a coffee-flavored beverage, remains popular
with the college crowd. And, CALIFORNIA NATURAL ---- served with or
without alcohol ---- enhances the spectator experience at sporting
events and entertainment venues.
So when you need to chill out and the ordinary just won't do, satisfy
your senses with a frozen treat from J&J.
*Burger King is a registered trademark of Burger King Corporation.
Chillin'
Experience the ICEE
Touch
and feel the Arctic Blast.
Frozen Juice Bars & Desserts
Need a cool, refreshing treat? You're not alone. Increased consumption
of our MINUTE MAID* and BARQ'S** branded products, combined with the
efforts of our LUIGI'S, CHILL, ICEE, FROSTAR, SHAPE UPS and MAMA
TISH'S brands, helped us turn in a tasty 4% increase in food service
sales in fiscal 2003. A palatable result ---- despite Mother Nature's
wrath, which impacted sales of our frozen juice bars and dessert
brands last summer, mostly in leisure and theme venues.
Relishing our award-winning partnership
Our ongoing alliance with The Coca-Cola Company gives J&J Snack Foods
Corp. the exclusive rights to manufacture, sell and distribute
licensed frozen juice bars and desserts under the Coca-Cola*** brands
of MINUTE MAID and BARQ'S. Consumer recognition and trust of these
brands, combined with our robust distribution channels, provide a
solid foundation for success.
Our mouth-watering Coca-Cola branded products include MINUTE MAID
Juice Bars, MINUTE MAID Soft Frozen Lemonade, MINUTE MAID Fruit &
Cream Swirl and a new product with an old-fashioned feel ---- BARQ'S
Frozen Root Beer & Vanilla Ice Cream Float. This luscious frozen treat
is already causing quite a stir, garnering a pair of prestigious
industry publication awards: ''Stagnito's Best New Product Award'' and
''Best New Product Award'' from Convenience Store News. Delicious news
indeed! And, in warehouse club stores, food service frozen dessert
sales were boosted when BARQ'S Frozen Root Beer & Vanilla Ice Cream
Float and MINUTE MAID Juice Bars were successfully welcomed into the
club.
Canadians are now enjoying our taste-tempting frozen desserts, as our
ongoing efforts to expand in this geographic market have landed MINUTE
MAID Soft Frozen Lemonade into club stores and convenience stores
north of the border.
A ravenous appetite for pleasing kids and adults
J&J Snack Foods Corp. is proud to be a Patron Member of the American
School Food Service Association and pledges to remain committed to
offering nutritious products to schoolchildren. With more than 90
million servings this year, our MINUTE MAID Juice Bars, which carry
the Child Nutrition (CN) label and satisfy fruit requirements for the
National School Lunch/Breakfast Program, remain the #1 menued frozen
juice bar in America's schools. SHAPE UPS Frozen Juice Cups, juice-
based frozen desserts with holiday themed lids, provide School Food
Service Directors with lip-smackin' options for menu planning.
Still the #1 taste in the freezercase
Retail supermarket sales of frozen juice bars and desserts ---- which
includes the LUIGI'S, MINUTE MAID, BARQ'S and ICEE brands ----
experienced a decline this fiscal year due in part to lost
distribution of products introduced last year and a damp, dreary
summer which impacted all frozen novelty category sales. Although
sales of LUIGI'S Real Italian Ice were flat for the year, the brand
still sits atop the supermarket freezercase as the #1 selling Italian
ice and is very well positioned for future growth.
BARQ'S Frozen Root Beer & Vanilla Ice Cream Float was successfully
introduced in test markets in fiscal 2003, and expansion plans are in
place for this old-fashioned favorite in the coming year.
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
**BARQ'S is a registered trademark of Barq's Inc.
***Coca-Cola is a registered trademark of The Coca-Cola Company.
Crave
Bathe your tongue in
Taste
and enjoy lip smackin' fun.
More Snacks
Nothing stirs the senses quite like the sweet aroma of warm, fresh
snacks. Delicious cookies, crispy churros, fragrant funnel cakes and
other quality bakery products comprise this ever-growing niche
category for J&J Snack Foods Corp.
Ah-h-h-h-h, the sweet smell of success!
In the food service sector, MRS. GOODCOOKIE, CAMDEN CREEK and other
branded cookies serve up equally delicious whether distributed as
frozen cookie dough, pre-baked or pre-packaged cookies. And for a more
custom sensation, CAMDEN CREEK private label fund raising frozen
cookie dough has proven to be a winner, along with packaged, fun
character cookie sales to schools and sales of MRS. GOODCOOKIE frozen
cookie dough. All were key contributors to the 4% rise in dollars and
scents in 2003.
Our other taste-tempting bakery products include non-branded frozen
cookie dough, commercial specialty baking items, contract private
label products and organically certified baked goods. The 5% sales
spurt we experienced is primarily the result of growth in our contract
private label business. Additionally, our fresh bakery products which
convenience food retailer, posted increases to food service sales as
well. Soon, you may catch the aromatic whiff of many of our fresh-
baked goodies in even more places as we explore our existing
distribution channels for further opportunities.
Sensing continued growth for TIO PEPE'S
What was once a regional delicacy only in the Southwest, TIO PEPE'S
Churros ---- crispy, doughnut-like snacks ---- continue to spread their
cinnamon scent across the country and into international markets. In
fiscal 2003, food service sales of regular and fruit filled churros
beat out the previous year's sales by a nose. Both varieties are
delicious and nutritious, while fruit filled churros satisfy both
bread and fruit requirements for the U.S.D.A. National School
Lunch/Breakfast Program. International sales of churros also grew in
the Asia-Pacific region.
Funnel cakes ---- still full of fun
Available under THE FUNNEL CAKE FACTORY brand name, our fragrant
funnel cakes are sold either as frozen, pre-cooked, pre-shaped cakes
that simply need to be warmed, or as a make-your-own dry mix. Funnel
cakes are meant for family fun, so it's no surprise that the rain-
drenched summer ---- which adversely affected attendance and eating
habits at theme and leisure parks as well as other outdoor venues, the
primary distribution channel for funnel cakes ---- led to a marginal
decline in sales for fiscal 2003. But if history is any indication,
funnel cake sales should rebound quite nicely.
Despite certain adversities and challenges we experienced this past
year, we refused to let them dampen our spirits. We saw opportunities.
We felt confident. We tasted victory. We smelled success. Triumphant
once again, J&J Snack Foods Corp. experienced growth for our 32nd
consecutive year ---- now that's sense-ational!
Savor
Inhale this aromatic
Smell
and lose yourself in the moment.
J&J Snack Foods
FAMILY OF BRANDS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected
in the forward-looking statements. Important factors that might cause
such a difference include, but are not limited to, those discussed in
the ''Management's Discussion and Analysis of Financial Condition and
Results of Operations.'' Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking
statements to reflect events or circumstances that arise after the
date hereof.
Critical Accounting Policies, Judgments and Estimates
An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and
trends. We focus your attention on the following:
Principles of Consolidation -- Our accounting and reporting policies
conform to accounting principles generally accepted in the United
States of America. Our consolidated financial statements include the
accounts of the Company, and all its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Revenue Recognition -- We recognize revenue from snack food and frozen
beverage products at the time the products are shipped to third
parties. When we perform services under our service contracts for
frozen beverage dispenser machines, revenue is recognized upon the
completion of the services on specified machines. We provide an
allowance for doubtful receivables after taking into consideration
historical experience and other factors.
Our product cost includes amounts for shipping and handling;
therefore, we charge our customers shipping and handling fees at the
time the products are shipped or when its services are performed. The
cost of shipping products to the customer is recognized at the time
the products are shipped to the customer and is included in
distribution expenses.
We also sell service contracts covering frozen beverage machines sold.
The terms of coverage range between 12 and 60 months. We record
deferred income on service contracts, which is amortized by the
straight-line method over the term of the contracts.
Use of Estimates -- In preparing financial statements in conformity
with accounting principles generally accepted in the United States of
America, we are required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Asset Impairment -- We completed documentation of our transitional
goodwill impairment tests during the quarter ended March 30, 2002 and
did not record any transitional goodwill impairment loss as a result
of our adoption of SFAS 142. There were no changes in the carrying
amount of goodwill for the fiscal year ended September 27, 2003.
Licenses and rights are being amortized by the straight-line method
over periods ranging from 4 to 20 years and amortization expense is
reflected throughout operating expenses. There were no changes in the
gross carrying amount of intangible assets for the fiscal year ended
September 27, 2003. Additionally, we did not record any transitional
intangible asset impairment loss upon adoption of SFAS 142.
Income Taxes -- We account for our income taxes under the liability
method. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
Commodity Price Risk Management -- Our most significant raw material
requirements include flour, shortening, corn syrup, chocolate and
macadamia nuts. We attempt to minimize the effect of future price
fluctuations related to the purchase of raw materials primarily
through forward purchasing to cover future manufacturing requirements,
generally for periods from 1 to 24 months. Futures contracts are not
used in combination with forward purchasing of these raw materials.
Our procurement practices are intended to reduce the risk of future
price increases, but also may potentially limit the ability to benefit
from possible price decreases.
Commitments and Contingencies -- We are a party to litigation that we
currently believe will not have a material adverse effect on our
financial condition or results of operations. We recognize liabilities
for contingencies and commitments when a loss is probable and
estimable. Our contractual and other commercial obligations primarily
relate to the procurement of goods and services in the normal course
of business.
Refer to Note A to the consolidated financial statements for
additional information on our accounting policies.
RESULTS OF OPERATIONS
Fiscal 2003 (52 weeks) Compared to Fiscal 2002 (52 weeks)
Net sales increased $11,380,000 or 3% to $364,567,000 in fiscal 2003
from $353,187,000 in fiscal 2002.
We have four reportable segments, as disclosed in the notes to the
consolidated financial statements: Food Service, Retail Supermarkets,
The Restaurant Group and Frozen Beverages.
The Chief Operating Decision Maker for Food Service, Retail
Supermarkets and The Restaurant Group and the Chief Operating Decision
Maker for Frozen Beverages monthly review and evaluate operating
income and sales in order to assess performance and allocate resources
to each individual segment. In addition, the Chief Operating Decision
Makers review and evaluate depreciation, capital spending and assets
of each segment on a quarterly basis to monitor cash flow and asset
needs of each segment.
Food Service
Sales to food service customers increased $15,309,000 or 8% to
$200,528,000 in fiscal 2003. Soft pretzel sales to the food service
market increased $10,160,000, or 15%, to $76,062,000 for the 2003 year
due primarily to increased sales of PRETZEL FILLERS and GOURMET
TWISTS. Increased sales to two customers accounted for approximately
64% of the soft pretzel sales' increase. Sales of bakery products
increased $3,661,000 or 6% to $67,432,000 in fiscal 2003. Churro sales
increased 3% to $12,923,000. Frozen juice bar and ices sales increased
4% to $38,120,000. All of the increases in sales throughout the Food
Service segment were from a combination of increased unit volume and
price increases.
Retail Supermarkets
Sales of products to retail supermarkets decreased $1,664,000 or 4% to
$39,702,000 in fiscal 2003. Total soft pretzel sales to retail
supermarkets were $17,195,000, an increase of 2% from fiscal 2002.
Sales of frozen juice bars and ices decreased $1,207,000 or 5% to
$24,251,000 in 2003 from $25,458,000 in 2002. Case sales of frozen
juices and ices products introduced in 2002 which were unsuccessful
were down 60% for the year.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY
and PRETZEL GOURMET retail stores in the Mid-Atlantic region, declined
by 9%, primarily due to reduced mall traffic and closings of 5
unprofitable stores.
Frozen Beverages
Frozen beverage and related product sales decreased $1,296,000 or 1%
to $114,582,000 in fiscal 2003. Beverage sales alone decreased 2% to
$89,387,000 for the year. Lower beverage sales to two customers
accounted for more than the entire decrease in beverage sales. Service
revenue increased $829,000, or 6% to $15,272,000 for the year.
Sales to certain of our mass merchandising customers decreased in 2003
and are expected to further decline in 2004 as a result of store
closings and other factors affecting their operations.
Consolidated
Gross profit was 34% of sales in both 2003 and 2002. Gross profit
benefited from a large decrease in depreciation expense which was
largely offset by increases in the unit costs of raw materials and
packaging and increases in insurance costs.
Total operating expenses increased $2,807,000 to $93,998,000 in fiscal
2003 but as a percentage of sales were 26% in 2003 and 2002. Marketing
expenses decreased less than 1/2 of 1 percent to 14% of sales in
fiscal 2003 from 15% in 2002. Distribution expenses increased less
than 1/4 of 1 percent of sales to 8% from 7% last year. Administrative
expenses were 4% in both years. Other general income increased to
$384,000 in 2003 from $19,000 because of the positive resolution of
prior acquisition liabilities.
Operating income increased $2,581,000 or 9% to $30,847,000 in fiscal
2003.
Interest expense decreased $408,000 to $113,000 in fiscal 2003 because
we had no long-term debt in 2003.
The effective income tax rate was 36% in fiscal 2003 and 35% in fiscal
2002.
Net earnings increased $1,789,000 or 10% in fiscal 2003 to $19,902,000
or $2.20 per fully diluted share.
RESULTS OF OPERATIONS
Fiscal 2002 (52 weeks) Compared to Fiscal 2001 (52 weeks)
Net sales increased $24,852,000 or 8% to $353,187,000 in fiscal 2002
from $328,335,000 in fiscal 2001.
We have four reportable segments, as disclosed in the notes to the
consolidated financial statements: Food Service, Retail Supermarkets,
The Restaurant Group and Frozen Beverages.
The Chief Operating Decision Maker for Food Service, Retail
Supermarkets and The Restaurant Group and the Chief Operating Decision
Maker for Frozen Beverages monthly review and evaluate operating
income and sales in order to assess performance and allocate resources
to each individual segment. In addition, the Chief Operating Decision
Makers review and evaluate depreciation, capital spending and assets
of each segment on a quarterly basis to monitor cash flow and asset
needs of each segment.
Food Service
Sales to food service customers increased $13,846,000 or 8% to
$185,219,000 in fiscal 2002. Soft pretzel sales to the food service
market increased 8% to $65,902,000 for the 2002 year. Sales of bakery
products increased $5,814,000 or 10% to $63,771,000 in fiscal 2002 due
to increased unit sales across our customer base due in part to our
acquisition of Uptown Bakery in November 2000. Churro sales increased
7% to $12,530,000. Frozen juice bar and ices sales increased 10% to
$36,798,000. All of the increases in sales throughout the Food Service
segment were primarily the result of changes in unit volume.
Retail Supermarkets
Sales of products to retail supermarkets increased $2,290,000 or 6% to
$41,366,000 in fiscal 2002. Total soft pretzel sales to retail
supermarkets were $16,794,000, an increase of 4% from fiscal 2001.
Sales of our flagship SUPERPRETZEL brand soft pretzels increased 5% to
$15,497,000. Sales of frozen juice bars and ices increased $1,745,000
or 7% to $25,458,000 in 2002 from $23,713,000 in 2001 due to increased
volume of LUIGI'S Real Italian Ice and the Company's MINUTE MAID*
brand licensed products.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY
and PRETZEL GOURMET retail stores in the Mid-Atlantic region, declined
by 11%, primarily due to reduced mall traffic and closings of
unprofitable stores.
Frozen Beverages
Frozen beverage and related product sales increased $10,035,000 or 9%
to $115,878,000 in fiscal 2002. Beverage sales alone increased 2% to
$91,366,000 for the year. Service revenue increased $5,625,000, or 64%
to $14,443,000 for the year.
Sales to certain of our mass merchandising customers decreased in 2002
and are expected to further decline in 2003 as a result of store
closings and other factors affecting their operations.
Consolidated
Gross profit increased to 34% of sales in 2002 from 33% of sales in
2001 primarily due to efficiencies resulting from higher volume. Gross
profit was impacted by higher property and casualty insurance costs of
approximately $900,000 for the year. The higher costs were due to
market conditions and our own claims experience.
Total operating expenses increased $3,640,000 to $91,191,000 in fiscal
2002 but as a percentage of sales decreased to 26% in 2002 from 27% in
2001. The percentage decrease was mainly attributable to our adoption
of SFAS 142 which eliminated the amortization of goodwill. Marketing
expenses increased less than 1.4 of 1 percent to 15% of sales in
fiscal 2002 from 14% in 2001. Distribution expenses decreased less
than 1.2 of 1 percent of sales to 7% from 8% last year because of
lower fuel prices early in the year and efficiencies related to higher
volume. Administrative expenses were 4% in both years. Other general
income of $19,000 in 2002 compared to other general income of $620,000
in 2001. Other general income in 2001 included gains from insurance
proceeds.
Operating income increased $7,097,000 or 34% to $28,266,000 in fiscal
2002.
Interest expense decreased $2,662,000 to $521,000 in fiscal 2002 due
to the paydown of debt and lower interest rates. As of September 28,
2002, we have repaid all of our long-term debt.
The effective income tax rate was 35% in fiscal 2002 and 36% in fiscal
2001.
Net earnings increased $6,237,000 or 53% in fiscal 2002 to $18,113,000
or $1.99 per fully diluted share.
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
ACQUISITIONS, LIQUIDITY AND CAPITAL RESOURCES
In November 2000, we acquired the assets of Uptown Bakeries for cash.
Uptown Bakeries, located in Bridgeport, NJ, sells bakery items to the
food service industry with approximate annual sales of $17,000,000.
This acquisition was accounted for under the purchase method of
accounting, and its operations are included in the consolidated
financial statements from the acquisition date.
Our future expected operating cash flow along with our borrowing
capacity are our primary sources of liquidity and we believe that
these sources are sufficient to fund future growth and expansion.
Fluctuations in the value of the Mexican peso and the resulting
revaluation of the net assets of our Mexican frozen beverage
subsidiary caused decreases of $165,000, $151,000 and $25,000 in
accumulated other comprehensive loss in the 2003, 2002 and 2001 fiscal
years, respectively. In 2003, sales of the Mexican subsidiary were
$4,354,000 as compared to $3,819,000 in 2002.
In fiscal year 2003, we purchased and retired 297,000 shares of our
common stock at a cost of $8,565,000. In fiscal year 2002, we did not
purchase or retire any of our common stock. In fiscal year 2001, we
purchased and retired 111,000 shares of our common stock at a cost of
$1,431,000. Under a buyback authorization approved by the Board of
Directors in April 2003, 478,000 shares remain to be purchased at
September 27, 2003.
Our general-purpose bank credit line provides for up to a $50,000,000
revolving credit facility. The agreement contains restrictive
covenants and requires commitment fees in accordance with standard
banking practice. There were no outstanding balances under this
facility at September 27, 2003.
The following table presents our contractual cash flow commitments on
long-term debt and operating leases. See Notes to the Consolidated
Financial Statements for additional information on our long-term debt
and operating leases.
Payments Due by Period
Less
Than 1--3 4--5 After
Total 1 Year Years Years 5 Years
(in thousands)
Long-term debt,
including current
maturities $ - $ - $ - $ - $ -
Operating leases 40,164 8,068 11,266 7,262 13,568
Total $40,164 $ 8,068 $11,266 $7,262 $13,568
As of September 27, 2003, we were committed to purchasing
approximately $13,000,000 of ingredients and packaging in fiscal year
2004. These commitments do not exceed our projected requirements over
the related terms and are in the normal course of business.
Effective December 30, 2001, we adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 01-9, ''Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the
Vendor's Products.'' EITF 01-9 addressed various issues related to the
income statement classification of certain promotional payments,
including consideration from a vendor to a reseller or another party
that purchases the vendor's products.
As a result of the adoption, we reduced both net sales and marketing
expenses by approximately $25,344,000, $27,175,000 and $23,361,000 for
the years ended 2003, 2002 and 2001, respectively. These
reclassifications have no impact on reported operating income or net
earnings or earnings per share.
On December 30, 2001, we adopted SFAS No. 144, ''Accounting for the
Impairment or Disposal of Long-Lived Assets,'' (SFAS No. 144). SFAS
No. 144 supersedes SFAS No. 121, ''Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,'' but
it retains many of the fundamental provisions of that Statement. The
adoption did not have a material effect on our financial statements.
On October 1, 2001, we adopted SFAS 133, as amended by SFAS 138,
''Accounting for Certain Derivative Instruments and Certain Hedging
Activities.'' Based on our minimal use of derivatives, the adoption of
this standard did not have a significant impact on our earnings or
financial position.
On September 30, 2001, we adopted SFAS No. 142 ''Goodwill and
Intangible Assets'' (SFAS No. 142). SFAS No. 142 includes requirements
to annually test goodwill and indefinite lived intangible assets for
impairment rather than amortize them; accordingly, we no longer
amortize goodwill, thereby eliminating an annual amortization charge
of approximately $2,600,000. We completed documentation of our
transitional goodwill impairment tests during the quarter ended March
2002 and did not record any transitional goodwill impairment loss as a
result of our adoption of SFAS No. 142. Additionally, we did not
record any transitional intangible asset impairment loss upon adoption
of SFAS No. 142. Our annual impairment evaluation reflected no
deterioration of our recorded goodwill.
In November 2002, FASB Interpretation 45, ''Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others'' (FIN 45), was issued. FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability
for the fair value of the obligation undertaken in issuing the
guarantee.
We previously did not record a liability when guaranteeing obligations
unless it became probable that we would have to perform under the
guarantee. FIN 45 applies prospectively to guarantees we issue or
modify subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a significant
impact on our consolidated financial position, results of operations
or cash flows.
In January 2002, the FASB issued FASB Interpretation 46 (FIN 46),
''Consolidation of Variable Interest Entities.'' FIN 46 clarifies the
application of Accounting Research Bulletin 51, Consolidated Financial
Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial
interest (''variable interest entities''). Variable interest entities
within the scope of FIN 46 are required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest
entity is determined to be the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected returns,
or both. FIN 46 applies immediately to variable interest entities
created after January 31, 2002, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after June 15, 2002,
to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2002. The adoption of FIN
46 did not have a material effect on our consolidated financial
position, results of operations, or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, ''Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities
and Equity.'' SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity.
Most of the guidance in SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 is not expected to
have a material effect on our consolidated financial position, results
of operations or cash flows.
Fiscal 2003 Compared to Fiscal 2002
Cash increased $23,536,000, or 166%, to $37,694,000 from a year ago
because we generated cash from operations in excess of the amount
needed for investing and financing activities.
Trade receivables increased $723,000 or 2% to $37,645,000 and
inventories increased $1,003,000 or 5% to $23,202,000 in 2003 due to
increased levels of business and higher unit costs of inventories.
Property, plant and equipment decreased $7,295,000 to $87,115,000
primarily because expenditures for dispensers required for the
expansion of our frozen beverage business, for ovens and portable
merchandisers required for the expansion of our food service business
and for the expansion and upgrading of production capability at our
manufacturing facilities was approximately $5,000,000 less than
depreciation of existing assets.
Other intangible assets, less accumulated amortization decreased
$308,000 to $1,231,000 due to amortization.
Accounts payable and accrued liabilities decreased $186,000 in 2003
from $40,244,000 in 2002.
Deferred income taxes increased by $2,568,000 to $13,374,000 which
related primarily to depreciation of property, plant and equipment.
Common stock decreased $5,882,000 to $28,143,000 in 2003 because of
the repurchase of $8,565,000 of our common stock which was partially
offset by the exercise of incentive stock options and stock issued
under our stock purchase plan for employees.
Net cash provided by operating activities decreased $4,718,000 to
$46,365,000 in 2003 primarily because of a decrease in depreciation
and amortization of fixed assets.
Net cash used in investing activities decreased $2,986,000 to
$16,502,000 in 2003 from $19,488,000 in 2002 because of an increase in
proceeds from disposal of property and equipment.
Net cash used in financing activities decreased $18,547,000 in 2003 to
$6,327,000 from $24,874,000 in 2002. The decrease was because we paid
down $28,069,000 of long-term debt in 2002 and we had no long-term
debt in 2003.
Fiscal 2002 Compared to Fiscal 2001
Cash increased 90% to $14,158,000 from a year ago because we generated
cash from operations in excess of the amount needed to pay off our
long-term debt.
Trade receivables increased $1,421,000 or 4% to $36,922,000 and
inventories increased $450,000 or 2% to $22,199,000 in 2002 due to
increased levels of business.
Property, plant and equipment decreased $10,346,000 to $94,410,000
because expenditures for dispensers required for the expansion of our
frozen beverage business, for ovens and portable merchandisers
required for the expansion of our food service business and for the
expansion and upgrading of production capability at our manufacturing
facilities was approximately $10,000,000 less than depreciation of
existing assets.
Other intangible assets, less accumulated amortization decreased
$309,000 to $1,539,000 due to amortization.
Accounts payable and accrued liabilities decreased $318,000 in 2002
from $40,562,000 in 2001.
Current maturities of long-term debt decreased by $115,000 to $0 and
long-term debt, less current maturities decreased by $28,368,000 to $0
due to our repayment of long-term debt.
Deferred income taxes increased by $1,578,000 to $10,806,000 which
related primarily to depreciation of property, plant and equipment.
Common stock increased $4,604,000 to $34,025,000 in 2002 because of
the exercise of incentive stock options and stock issued under our
stock purchase plan for employees.
Net cash provided by operating activities increased $1,629,000 to
$51,083,000 in 2002 primarily due to increased net earnings and
deferred income taxes and a smaller increase in accounts receivable,
which was partially offset by a lower increase in accounts payable and
accrued liabilities.
Net cash used in investing activities decreased $8,600,000 to
$19,488,000 in 2002 primarily because in 2001 we paid $11,330,000 to
purchase companies and had no acquisitions in 2002.
Net cash used in financing activities increased $9,566,000 in 2002 to
$24,874,000 from $15,308,000 in 2001. The increase of $9,566,000 was
the result of our repayment of approximately $12,000,000 of additional
long-term debt compared to 2001.
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands, except per share information)
Net Sales $364,567 $353,187 $328,335
Cost of goods sold 239,722 233,730 219,615
Gross profit 124,845 119,457 108,720
Operating expenses
Marketing 51,492 51,466 47,124
Distribution 27,705 26,041 25,594
Administrative 15,185 13,703 12,840
Amortization of goodwill - - 2,613
Other general income (384) (19) (620)
93,998 91,191 87,551
Operating income 30,847 28,266 21,169
Other income (expenses)
Investment income 362 268 356
Interest expense (113) (521) (3,183)
Other - - 213
249 (253) (2,614)
Earnings before income taxes 31,096 28,013 18,555
Income taxes 11,194 9,900 6,679
NET EARNINGS $ 19,902 $ 18,113 $ 11,876
Earnings per diluted share $2.20 $1.99 $1.36
Weighted-average number
of diluted shares 9,051 9,093 8,754
Earnings per basic share $2.26 $2.07 $1.40
Weighted-average number
f basic shares 8,800 8,770 8,502
The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
September 27, September 28,
2003 2002
(in thousands,
except share amounts)
Assets
Current Assets
Cash and cash equivalents $ 37,694 $ 14,158
Receivables
Trade, less allowances
of $991 and $1,839, respectively 37,645 36,922
Other 516 1,016
Inventories 23,202 22,199
Prepaid expenses and other 1,348 1,072
Total current assets 100,405 75,367
Property, Plant and Equipment, at cost 298,609 290,340
Less accumulated depreciation
and amortization 211,494 195,930
87,115 94,410
Other Assets
Goodwill 45,850 45,850
Other intangible assets, net 1,231 1,539
Long-term investment securities
held to maturity 275 675
Other 1,807 2,195
49,163 50,259
$236,683 $220,036
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 27,252 $ 27,683
Accrued liabilities 12,806 12,561
Total current liabilities 40,058 40,244
Deferred Income Taxes 13,374 10,806
Other Long-Term Liabilities 687 277
Stockholders' Equity
Preferred stock, $1 par value;
authorized, 5,000,000 shares; none
issued - -
Common stock, no par value;
authorized, 25,000,000 shares;
issued and outstanding, 8,757,000
and 8,903,000 respectively 28,143 34,025
Accumulated other comprehensive loss (1,957) (1,792)
Retained Earnings 156,378 136,476
182,564 168,709
$236,683 $220,036
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Comprehensive Retained Comprehensive
Shares Amount Loss Earnings Total Income
(in thousands)
Balance at October 1, 2000 8,522 $28,403 $(1,616) $106,487 $133,274
Issuance of common stock upon
exercise of stock options 207 2,194 - - 2,194
Issuance of common stock for
employee stock purchase plan 18 255 - - 255
Foreign currency translation
adjustment - - - (25) - $ (25)
Repurchase of common stock (111) (1,431) - - (1,431)
Net earnings - - - 11,876 11,876 11,876
Comprehensive income - - - - - $11,851
Balance at September 29, 2001 8,636 $29,421 $(1,641) $118,363 $146,143
Issuance of common stock upon
exercise of stock options 254 4,336 - - 4,336
Issuance of common stock for
employee stock purchase plan 13 268 - - 268
Foreign currency translation
adjustment - - (151) - $ (151)
Net earnings - - 18,113 18,113 18,113
Comprehensive income - - - - - $17,962
Balance at September 28, 2002 8,903 $34,025 $(1,792) $136,476 $168,709
Issuance of common stock upon
exercise of stock options 139 2,342 - - 2,342
Issuance of common stock for
employee stock purchase plan 12 341 - - 341
Foreign currency translation
adjustment - - (165) - (165)$ (165)
Repurchase of common stock (297) (8,565) - - (8,565)
Net earnings - - - 19,902 19,902 19,902
Comprehensive income - - - - - $19,737
Balance at September 27, 2003 8,75 $28,143 $(1,957) $156,378 $182,564
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands)
Operating activities:
Net earnings $19,902 $18,113 $11,876
Adjustments to reconcile
net earnings to net cash
provided by operating activities:
Depreciation and amortization
of fixed assets 24,234 30,252 30,170
Amortization of intangibles
and deferred costs 729 734 3,346
(Gains) losses from disposals
and write-downs of property & equipment (389) 255 (330)
Increase in deferred income taxes 2,568 1,578 888
Changes in assets and liabilities,
net of effects from purchase of companies:
Increase in accounts receivable (285) (1,068) (3,411)
Increase in inventories (829) (207) (361)
Increase (decrease) in prepaid
expenses and other (276) 125 221
Increase in accounts payable and
accrued liabilities 711 1,301 7,055
Net cash provided by operating
activities 46,365 51,083 49,454
Investing activities:
Purchases of property, plant and equipment (19,292) (20,479) (17,127)
Payments for purchase of companies
net of cash acquired and debt assumed - - (11,330)
Proceeds from investments held to maturity 400 840 105
Proceeds from disposal of property
and equipment 2,534 167 824
Other (144) (16) (560)
Net cash used in investing activities (16,502) (19,488) (28,088)
Financing activities:
Proceeds from borrowings - 24,000 13,000
Proceeds from issuance of common stock 2,238 3,195 2,307
Payments to repurchase common stock (8,565) - (1,431)
Payments of long-term debt - (52,069) (29,184)
Net cash used in financing activities (6,327) (24,874) (15,308)
Net increase in cash and cash equivalents 23,536 6,721 6,058
Cash and cash equivalents at beginning
of year 14,158 7,437 1,379
Cash and cash equivalents at end of year $37,694 $14,158 $ 7,437
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
J&J Snack Foods Corp. and Subsidiaries (the Company) manufactures,
markets and distributes a variety of nutritional snack foods and
beverages to the food service and retail supermarket industries. A
summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of J&J
Snack Foods Corp. and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
2. Revenue Recognition
We recognize revenue from Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverage products at the time the products
are shipped to third parties. When we perform services under service
contracts for frozen beverage dispenser machines, revenue is
recognized upon the completion of the services on specified machines.
We provide an allowance for doubtful receivables after taking into
consideration historical experience and other factors.
Effective December 30, 2001, we adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 01-9, ''Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the
Vendor's Products.'' EITF 01-9 addressed various issues related to the
income statement classification of certain promotional payments,
including consideration from a vendor to a reseller or another party
that purchases the vendor's products.
As a result of the adoption, we reduced both net sales and marketing
expenses by approximately $25,344,000, $27,175,000 and $23,361,000 for
the years ended 2003, 2002 and 2001, respectively. These
reclassifications have no impact on reported operating income or net
earnings or earnings per share.
We follow EITF Issue 00-10, ''Accounting for Shipping and Handling
Fees and Costs'' (Issue 00-10). Issue 00-10 requires that all amounts
billed to customers related to shipping and handling should be
classified as revenues. Our product costs include amounts for shipping
and handling, therefore, we charge our customers shipping and handling
fees at the time the products are shipped or when services are
performed. The cost of shipping products to the customer is recognized
at the time the products are shipped to the customer and is included
in Distribution expenses. Accordingly, this consensus opinion had no
effect on our current and previous classifications.
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101) addresses certain criteria for revenue
recognition. SAB 101 outlines the criteria that must be met to
recognize revenue and provides guidance for disclosures related to
revenue recognition policies. Our revenue recognition policies
complied with the guidance contained in SAB 101 and, therefore, our
results of operations were not materially affected.
We also sell service contracts covering frozen beverage machines sold.
The terms of coverage range between 12 and 60 months. We record
deferred income on service contracts which is amortized by the
straight-line method over the term of the contracts.
During the years ended September 27, 2003 and September 28, 2002, we
sold $2,561,000 and $2,281,000, respectively, of service contracts
related to our frozen beverage machines. At September 27, 2003 and
September 28, 2002, deferred income on service contracts was
$1,783,000 and $1,345,000, respectively, of which $687,000 is included
in other long-term liabilities as of September 27, 2003 and the
balance is reflected as short-term and included in accrued liabilities
on the consolidated balance sheet. Service contract income of
$2,122,000, $1,468,000 and $948,000 was recognized for the fiscal
years ended 2003, 2002 and 2001, respectively.
3. Foreign Currency
Assets and liabilities in foreign currencies are translated into U.S.
dollars at the rate of exchange prevailing at the balance sheet date.
Revenues and expenses are translated at the average rate of exchange
for the period. The cumulative translation adjustment is recorded as a
separate component of stockholders' equity.
4. Use of Estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
5. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with
original maturities of three months or less.
6. Concentrations of Credit Risk and Accounts Receivable
We maintain cash balances at financial institutions located in various
states. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. We periodically maintain
cash balances in excess of these insurance limits.
Other financial instruments which 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.
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 method) or market.
8. Investment Securities
We account for our investment securities in accordance with SFAS No.
115, ''Accounting for Certain Investments in Debt and Equity
Securities.'' This standard requires investments in securities to be
classified in one of three categories: held-to-maturity, trading, or
available-for-sale. Debt securities that we have the positive intent
and ability to hold are classified as held-to-maturity and are
reported at amortized cost. At September 27, 2003 and September 28,
2002, all of our debt securities are classified as held-to-maturity.
9. Depreciation and Amortization
Depreciation of equipment and buildings is provided for by the
straight-line method over the assets' estimated useful lives.
Amortization of improvements is provided for by the straight- line
method over the term of the lease or the assets' estimated useful
lives, whichever is shorter. Licenses and rights arising from
acquisitions are amortized by the straight-line method over periods
ranging from 4 to 20 years.
On December 30, 2001, we adopted SFAS No. 144, ''Accounting for the
Impairment or Disposal of Long-Lived Assets,'' (SFAS No. 144). SFAS
No. 144 supersedes SFAS No. 121, ''Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,'' but
it retains many .of the fundamental provisions of that Statement. The
adoption did not have a material effect on our financial statements.
10. Fair Value of Financial Instruments
The carrying value of our short-term financial instruments, such as
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 which
will be in effect when these differences reverse. Deferred tax expense
is the result of changes in deferred tax assets and liabilities.
12. Earnings Per Common Share
We follow SFAS No. 128, ''Earnings Per Share'' (EPS). Basic EPS
excludes dilution and is computed by dividing income available to
common shareholders by the weighted average common shares outstanding
during the period. Diluted EPS takes into consideration the potential
dilution that could occur if securities (stock options) or other
contracts to issue common stock were exercised and converted into
common stock.
The Company's calculation of EPS is as follows:
Fiscal year ended September 27, 2003
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $19,902 8,800 $2.26
Effect of Dilutive Securities
Options - 251 (.06)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $19,902 9,051 $2.20
168,394 anti-dilutive weighted shares have been excluded in the
computation of 2003 diluted EPS because the options' exercise price is
greater than the average market price of the common stock.
Fiscal year ended September 28, 2002
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $18,113 8,770 $2.07
Effect of Dilutive Securities
Options - 323 (.08)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $18,113 9,093 $1.99
110,000 anti-dilutive weighted shares have been excluded in the
computation of 2002 diluted EPS because the options'exercise price is
greater than the average market price of the common stock.
Fiscal year ended September 29, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $11,876 8,502 $1.40
Effect of Dilutive Securities
Options - 252 (.04)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $11,876 8,754 $1.36
294,167 anti-dilutive weighted shares have been excluded in the
computation of 2001 diluted EPS because the options' exercise price is
greater than the average market price of the common stock.
13. Accounting for Stock-Based Compensation
The Company accounts for stock options under SFAS No. 123,
''Accounting for Stock-Based Compensation,'' as amended by SFAS No.
148, which contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation
is then recognized over the service period, which is usually the
vesting period. Alternatively, SFAS No. 123 permits entities to
continue accounting for employee stock options and similar equity
instruments under Accounting Principles Board (APB) Opinion 25,
''Accounting for Stock Issued to Employees.'' Entities that continue
to account for stock options using APB Opinion 25 are required to make
pro forma disclosures of net income and earnings per share, as if the
fair value-based method of accounting defined in SFAS No. 123 had been
applied.
At September 27, 2003, the Company has one stock-based employee
compensation plan. The Company accounts for this plan under the
recognition and measurement principles of APB No. 25, ''Accounting for
Stock Issued to Employees,'' and related interpretations. Stock-based
employee compensation costs are not reflected in net income, as all
options granted under the plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions
of SFAS No. 123, to stock-based employee compensation.
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands, except per share amounts)
Net income, as reported $19,902 $18,113 $11,876
Less: stock-based compensation
costs determined under fair value
based method for all awards 1,189 1,353 1,651
Net income, pro forma $18,713 $16,760 $10,225
Earnings per share of
common stock -- basic:
As reported $ 2.26 $ 2.07 $ 1.40
Pro forma $ 2.13 $ 1.91 $ 1.20
Earnings per share of
common stock -- diluted:
As reported $ 2.20 $ 1.99 $ 1.36
Pro forma $ 2.07 $ 1.84 $ 1.17
The fair value of these options is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions for grants in fiscal 2003, 2002 and 2001,
respectively; expected volatility of 43% for fiscal year 2003, 40%
for year 2002 and 38% for year 2001; risk-free interest rates of
3.07%, 3.58% and 4.69%; and expected lives ranging between 5 and 10
years for all years.
14. Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense
was $2,119,000, $1,619,000, and $1,765,000 for the fiscal years 2003,
2002 and 2001, respectively.
15. Interest Rate Risk Management
In prior years, we used interest rate swaps to modify the interest
rate characteristics of certain long-term obligations. As of September
27, 2003, we had no interest rate swap contracts.
Interest rate swaps are expected to be effective economic hedges and
have a high correlation with the items being hedged at inception and
throughout the hedge period. The variable interest rate of a swap
contract is referenced to the same index as the variable interest rate
of the debt being hedged.
Interest rate swaps are accounted for using the accrual method, with
an adjustment to interest expense in the income statement. The effects
of swap positions are included in financing activities in the
Statement of Cash Flows. Interest receivable or payable under the swap
contracts is included in Receivables or Accounts Payable. Unrealized
gains and losses on the swaps are not recognized in the balance sheet.
Realized gains and losses from disposition or settlement of swap
contracts are deferred on the balance sheet and amortized to interest
expense over the appropriate period.
If the hedged item is settled or terminated, deferred and/or
unrecognized gains or losses on the hedging instrument on that date
are recognized as an adjustment to the gain or loss on disposition or
termination of the related hedged item. Future accruals on the swap
and subsequent gains and losses on the swap or forward contract are
included in income in the period they occur.
We follow SFAS No. 133, as amended by SFAS No. 138, ''Accounting for
Certain Derivative Instruments and Certain Hedging Activities.'' Based
on our minimal use of derivatives, this standard does not have a
significant impact on our earnings or financial position.
16. Commodity Price Risk Management
Our most significant raw material requirements include flour,
shortening, corn syrup, chocolate, and macadamia nuts. We attempt to
minimize the effect of future price fluctuations related to the
purchase of raw materials primarily through forward purchasing to
cover future manufacturing requirements, generally for periods from 1
to 24 months. As of September 27, 2003, we have approximately
$13,000,000 of such commitments. Futures contracts are not used in
combination with forward purchasing of these raw materials. Our
procurement practices are intended to reduce the risk .of future price
increases, but also may potentially limit the ability to benefit from
possible price decreases.
17. Comprehensive Income
We follow SFAS No. 130, ''Reporting Comprehensive Income.'' This
standard established new standards for reporting comprehensive income,
which includes net income as well as certain other items which result
in a change to equity during the period.
18. Segment Reporting
We follow SFAS No. 131, ''Disclosures about Segments of an Enterprise
and Related Information.'' The management approach designates the
internal organization that is used by management for making operating
decisions and assessing performance as the source of our reportable
segments.
19. Recent Accounting Pronouncements
Effective December 30, 2001, we adopted the provisions of EITF Issue
No. 01-9, ''Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products.'' EITF 01-9 addressed
various issues related to the income statement classification of
certain promotional payments, including consideration from a vendor to
a reseller or another party that purchases the vendor's products.
As a result of the adoption, we reduced both net sales and marketing
expenses by approximately $25,344,000, $27,175,000 and $23,361,000 for
the years ended 2003, 2002 and 2001, respectively. EITF Issue No. 01-9
requires certain marketing expenses incurred by us, not previously
reclassified, to be classified as deductions from revenue. These
reclassifications have no impact on reported operating income or net
earnings or earnings per share.
On September 30, 2001, we adopted SFAS No. 142 ''Goodwill and
Intangible Assets'' (SFAS No. 142). SFAS No. 142 includes requirements
to test goodwill and indefinite lived intangible assets for impairment
rather than amortize them; accordingly, we no longer amortize
goodwill, thereby eliminating an annual amortization charge of
approximately $2,600,000. We completed documentation of our
transitional goodwill impairment tests during the quarter ended March
2002 and did not record any transitional goodwill impairment loss as a
result of our adoption of SFAS 142. Additionally, we did not record
any transitional intangible asset impairment loss upon adoption of
SFAS No. 142. Our annual impairment evaluation reflected no
deterioration of our recorded goodwill.
In November 2002, FASB Interpretation 45, ''Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others'' (FIN 45), was issued. FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability
for the fair value of the obligation undertaken in issuing the
guarantee.
We previously did not record a liability when guaranteeing obligations
unless it became probable that we would have to perform under the
guarantee. FIN 45 applies prospectively to guarantees we issue or
modify subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a significant
impact on our consolidated financial position, results of operations
or cash flows.
In January 2002, the FASB issued FASB Interpretation 46 (FIN 46),
''Consolidation of Variable Interest Entities.'' FIN 46 clarifies the
application of Accounting Research Bulletin 51, Consolidated Financial
Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial
interest (''variable interest entities''). Variable interest entities
within the scope of FIN 46 are required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest
entity is determined to be the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected returns,
or both. FIN 46 applies immediately to variable interest entities
created after January 31, 2002, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after June 15, 2002,
to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2002. The adoption of FIN
46 did not have a material effect on our consolidated financial
position, results of operations, or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, ''Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities
and Equity.'' SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity.
Most of the guidance in SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 is not expected to
have a material effect on our consolidated financial position, results
of operations or cash flows.
20. Reclassifications
Certain prior year financial statement amounts have been reclassified
to be consistent with the presentation for the current year.
NOTE B - ACQUISITIONS
On November 20, 2000, we acquired the assets of Uptown Bakeries for
cash. Uptown Bakeries, located in Bridgeport, NJ, sells fresh bakery
products to the food service industry with approximate annual sales of
$17 million.
This acquisition was accounted for under the purchase method of
accounting, and its operations are included in the consolidated
financial statement from the acquisition date.
NOTE C - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values
of our long-term investment securities held to maturity at September
27, 2003 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $ 275 $ 5 $ - $ 280
The amortized cost, gross unrealized gains and losses, and fair values
of our long-term investment securities held to maturity at September
28, 2002 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $ 675 $ 40 $ - $ 715
The following table lists the maturities of long-term investment
securities classified as held to maturity at September 27, 2003:
Amortized Fair
Cost Value
(in thousands)
Due after one year through five years $ 275 $ 280
There were no proceeds from sales of securities in the past three
years. We use the specific identification method to determine the cost
of securities sold.
NOTE D - INVENTORIES
Inventories consist of the following:
September 27, September 28,
2003 2002
(in thousands)
Finished goods $10,537 $10,001
Raw materials 2,775 2,846
Packaging materials 2,975 2,914
Equipment parts and other 6,915 6,438
$23,202 $22,199
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
September 27, September 28, Estimated
2003 2002 Useful Lives
(in thousands)
Land $ 606 $ 756 -
Buildings 5,106 5,456 15-39.5 years
Plant machinery and equipment 93,122 88,908 5-10 years
Marketing equipment 173,360 171,429 5 years
Transportation equipment 909 828 5 years
Office equipment 7,394 6,832 3-5 years
Improvements 15,654 15,885 5-20 years
Construction in progress 2,458 246 --
$298,609 $290,340
NOTE F - GOODWILL AND INTANGIBLE ASSETS
On September 30, 2001, we adopted SFAS No. 142 ''Goodwill and
Intangible Assets'' (SFAS No. 142). SFAS No. 142 includes requirements
to test goodwill and indefinite lived intangible assets for impairment
rather than amortize them; accordingly, we no longer amortize
goodwill, thereby eliminating an annual amortization charge of
approximately $2,600,000.
Our four reporting units, which are also reportable segments, are Food
Service, Retail Supermarket, The Restaurant Group and Frozen
Beverages.
The carrying amount of acquired intangible assets for the reportable
segments are as follows:
September 27, 2003 September 28, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Food Service
Amortized intangible assets
Licenses and rights $2,066 $ 908 $2,066 $ 619
Retail Supermarket
Amortized intangible assets
Licenses and rights $ - $ - $ - $ -
The Restaurant Group
Amortized intangible assets
Licenses and rights $ 20 $ 20 $ 20 $ 19
Frozen Beverages
Amortized intangible assets
Licenses and rights $ 201 $ 128 $ 201 $ 110
Licenses and rights are being amortized by the straight-line method
over periods ranging from 4 to 20 years and amortization expense is
reflected throughout operating expenses. There were no changes in the
gross carrying amount of intangible assets for fiscal years 2003 and
2002. Additionally, we did not record any transitional intangible
asset impairment loss upon adoption of SFAS 142. Aggregate
amortization expense of intangible assets for the fiscal years 2003,
2002 and 2001 was $308,000, $309,000 and $271,000.
Estimated amortization expense for the next five fiscal years is
approximately $300,000 in 2004, $200,000 in 2005, and $150,000 in
2006, 2007 and 2008.
Goodwill
The carrying amounts of goodwill for the reportable segments are as
follows:
Food Retail Rest. Frozen
Service Supermarkets Group Beverages Total
(in thousands)
Balance at
September 27,
2003 $14,241 $ - $ 438 $31,171 $45,850
Balance at
September 28,
2002 $14,241 $ - $ 438 $31,171 $45,850
There were no changes in the carrying amount of goodwill for the year
ended September 27, 2003.
Reported net income, exclusive of amortization expense that is related
to goodwill that is no longer being amortized, would have been:
Fiscal year ended
September September September
2003 2002 2001
Reported net earnings $19,902 $18,113 $11,876
Add back: Goodwill amortization - - 1,674
Adjusted net earnings $19,902 $18,113 $13,550
Basic earnings per share:
Reported net earnings $ 2.26 $ 2.07 $ 1.40
Goodwill amortization - - .19
Adjusted net earnings $ 2.26 $ 2.07 $ 1.59
Diluted earnings per share:
Reported net earnings $ 2.20 $ 1.99 $ 1.36
Goodwill amortization - - .19
Adjusted net earnings $ 2.20 $ 1.99 $ 1.55
NOTE G - ACCRUED LIABILITIES
Included in accrued liabilities is accrued compensation of $6,133,000
and $6,121,000 as of September 27, 2003 and September 28, 2002,
respectively.
NOTE H - LONG-TERM DEBT
Our general-purpose bank credit line agreement provides fora
$50,000,000 revolving credit facility repayable in December 2004, 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, 2003 and September 28,
2002, there were no outstanding balances under this facility.
NOTE I - INCOME TAXES
Income tax expense is as follows:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Current
U.S. Federal $ 7,790 $7,510 $5,042
Foreign 66 43 96
State 770 769 653
$ 8,626 $8,322 $5,791
Deferred
U.S. Federal $ 2,360 $1,450 $ 816
State 208 128 72
2,568 1,578 888
$11,194 $9,900 $6,679
The provisions for income taxes differ from the amounts computed by
applying the federal income tax rate of approximately 35% to earnings
before income taxes for the following reasons:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Income taxes at statutory rates $10,649 $9,753 $6,309
Increase (decrease) in
taxes resulting from:
State income taxes, net of federal
income tax benefit 636 552 360
Other, net (91) (405) 10
$11,194 $9,900 $6,679
Deferred tax assets and liabilities consist of the following:
September 27, September 28,
2003 2002
(in thousands)
Deferred tax assets
Vacation accrual $ 601 $ 531
Insurance accrual 1,099 1,068
Deferred income 409 168
Allowances 873 1,310
Other, net 434 297
3,416 3,374
Deferred tax liabilities
Depreciation of property
and equipment 16,682 14,072
Other, net 108 108
16,790 14,180
$13,374 $10,806
NOTE J - LEASE COMMITMENTS
1. Lease Commitments
The following is a summary of approximate future minimum rental
commitments for noncancelable operating leases with terms of more than
one year as of September 27, 2003:
Plants and
Offices Equipment Total
(in thousands)
2004 $ 4,864 $3,204 $ 8,068
2005 4,151 1,889 6,040
2006 3,637 1,589 5,226
2007 3,159 890 4,049
2008 and thereafter 16,309 472 16,781
$32,120 $8,044 $40,164
Total rent expense was $9,991,000, $10,017,000 and $10,537,000 for
fiscal years 2003, 2002 and 2001, respectively.
2. Other Commitments
We are a party to litigation which management currently believes will
not have a material adverse effect on our financial condition or
results of operations.
We self-insure, up to loss limits, certain insurable risks such as
worker's compensation and automobile liability claims. Accruals for
claims under our self-insurance program are recorded on a claim-
incurred basis. Under this program, the estimated liability for claims
incurred but unpaid in fiscal year 2003 and 2002 was $1,700,000 and
$1,100,000, respectively. In connection with certain self-insurance
agreements, we customarily enter into letters of credit arrangements
with our insurers. At September 27, 2003 and September 28, 2002, we
had outstanding letters of credit totaling approximately $5,900,000
and $4,800,000, respectively.
NOTE K - CAPITAL Stock
Under our current share repurchase program authorized by the Board of
Directors, 478,000 shares remain to be repurchased as of September 27,
2003. In fiscal year 2003, we purchased and retired 297,000 shares of
our common stock at a cost of $8,565,000. In fiscal year 2001, we
purchased and retired 111,000 shares of our common stock at a cost of
$1,431,000.
NOTE L - STOCK OPTIONS
We have a Stock Option Plan (the ''Plan''). Pursuant to the Plan,
stock options may be granted to officers and our key employees which
qualify as incentive stock options as well as stock options which are
nonqualified. The exercise price of incentive stock options is at
least the fair market value of the common stock on the date of grant.
The exercise price for nonqualified options is determined by a
committee of the Board of Directors. The options are generally
exercisable after three years and expire no later than ten years from
date of grant. There were 400,000 shares reserved under the Plan;
options for 320,000 shares remain unissued as of September 27, 2003.
A summary of the status of our option plans as of fiscal years 2003,
2002 and 2001 and the changes during the years ended on those dates is
represented below:
Incentive Stock Options Nonqualified
Stock Options
Weighted- Weighted-
Stock Average Stock Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
Balance, October 1, 2000 915,294 $14.92 356,000 $13.99
Granted 182,333 21.24 34,000 20.60
Exercised (195,800) 10.80 (34,000) 12.00
Cancelled (21,000) 15.10 - -
Balance, September 29, 2001 880,827 17.08 356,000 14.75
Granted 81,333 38.21 34,000 39.53
Exercised (239,583) 14.19 (34,000) 10.75
Cancelled (25,386) 19.96 - -
Balance, September 28, 2002 697,191 20.40 356,000 17.55
Granted 80,000 33.83 - -
Exercised (118,456) 16.86 (37,000) 13.63
Cancelled (53,106) 24.05 - -
Balance, September 27, 2003 605,629 $22.55 319,000 $18.00
Exercisable Options,
September 27, 2003 297,621 319,000
The weighted-average fair value of incentive options granted during
fiscal years ended September 27, 2003, September 28, 2002 and
September 29, 2001 was $14.15, $15.39 and $8.19, respectively. The
weighted-average fair value of nonqualified stock options granted
during fiscal years ended September 28, 2002 and September 29, 2001
was $23.93 and $12.22, respectively.
The following table summarizes information about incentive stock
options outstanding at September 27, 2003:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted
Range of At Remaining Average At Average
Exercise Sept. 27, Contractual Exercise Sept. 27, Exercise
Prices 2003 Life Price 2003 Price
$12.75-$19.00 164,750 6.95 years $13.41 159,750 $13.34
$19.38-$24.16 301,485 4.62 years $21.41 137,871 $21.63
$33.70-$38.48 139,394 4.58 years $35.81 -
605,629 297,621
The following table summarizes information about nonqualified stock
options outstanding at September 27, 2003:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted
Range of At Remaining Average At Average
Exercise Sept. 27, Contractual Exercise Sept. 27, Exercise
Prices 2003 Life Price 2003 Price
$11.00-$15.94 183,000 2.87 years $12.59 183,000 $12.59
$19.25-$21.75 102,000 5.93 years $20.53 102,000 $20.53
$39.53 34,000 8.60 years $39.53 34,000 $39.53
319,000 319,000
NOTE M - 401(k) PROFIT-SHARING PLAN
We maintain a 401(k) profit-sharing plan for our employees. Under this
plan, we may make discretionary profit-sharing and matching 401(k)
contributions. Contributions of $1,071,000, $1,051,000 and $866,000
were made in fiscal years 2003, 2002 and 2001, respectively.
NOTE N - CASH FLOW INFORMATION
The following is supplemental cash flow information:
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(in thousands)
Cash paid for:
Interest $ 138 $ 1,068 $2,966
Income taxes 7,321 10,429 344
NOTE O - SEGMENT REPORTING
We principally sell our products to the food service and retail
supermarket industries. We also distribute our products directly to
the consumer through our chain of retail stores referred to as The
Restaurant Group. Sales and results of our frozen beverages business
are monitored separately from the balance of our food service business
and restaurant group because of different distribution and capital
requirements. We maintain separate and discrete financial information
for the four operating segments mentioned above which is available to
our Chief Operating Decision Makers. We have applied no aggregate
criteria to any of these operating segments in order to determine
reportable segments.
Our four reportable segments are Food Service, Retail Supermarkets,
The Restaurant Group and Frozen Beverages. All inter-segment net sales
and expenses have been eliminated in computing net sales and operating
income (loss). These segments are described below.
Food Service
The primary products sold to the food service group are soft pretzels,
frozen juice treats and desserts, churros and baked goods. Our
customers in the food service industry include snack bars and food
stands in chain, department and discount stores; malls and shopping
centers; fast food outlets; stadiums and sports arenas; leisure and
theme parks; convenience stores; movie theatres; warehouse club
stores; schools, colleges and other institutions. Within the food
service industry, our products are purchased by the consumer primarily
for consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket industry are soft
pretzel products, including SUPERPRETZEL, LUIGI'S Real Italian Ice,
MINUTE MAID* Juice Bars and Soft Frozen Lemonade, ICEE Squeeze Up
Tubes and TIO PEPE'S Churros. Within the retail supermarket industry,
our frozen and prepackaged products are purchased by the consumer for
consumption at home.
The Restaurant Group
We sell direct to the consumer through our Restaurant Group, which
operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of
specialty snack food retail outlets.
Frozen Beverages
We sell frozen beverages to the food service industry, including our
restaurant group, primarily under the names ICEE and ARCTIC BLAST in
the United States, Mexico and Canada.
The Chief Operating Decision Maker for Food Service, Retail
Supermarkets and The Restaurant Group and the Chief Operating Decision
Maker for Frozen Beverages monthly review and evaluate operating
income and sales in order to assess performance and allocate resources
to each individual segment. In addition, the Chief Operating Decision
Makers review and evaluate depreciation, capital spending and assets
of each segment on a quarterly basis to monitor cash flow and asset
needs of each segment. Information regarding the operations in these
four reportable segments is as follows:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Sales to external customers:
Food Service $200,528 $185,219 $171,373
Retail Supermarket 39,702 41,366 39,076
The Restaurant Group 9,755 10,724 12,043
Frozen Beverages 114,582 115,878 105,843
$364,567 $353,187 $328,335
Depreciation and Amortization(1):
Food Service $ 13,098 $ 13,547 $ 13,832
Retail Supermarket - - -
The Restaurant Group 558 682 854
Frozen Beverages 11,307 16,757 16,217
$ 24,963 $ 30,986 $ 30,903
Operating Income (Loss)(1):
Food Service $ 17,804 $ 17,382 $ 15,103
Retail Supermarket 2,144 1,936 1,770
The Restaurant Group (975) (915) (1,450)
Frozen Beverages 11,874 9,863 8,359
$ 30,847 $ 28,266 $ 23,782
Capital Expenditures:
Food Service $ 9,929 $ 11,418 $ 6,673
Retail Supermarket - - -
The Restaurant Group 61 159 268
Frozen Beverages 9,302 8,902 10,186
$ 19,292 $ 20,479 $ 17,127
Assets:
Food Service $151,000 $129,702 $124,951
Retail Supermarket - - -
Frozen Beverages 83,491 87,413 95,498
$236,683 $220,036 $224,481
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
(1) 2001 depreciation and amortization expense excludes amortization
expense associated with goodwill.
NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal year ended September 27, 2003
Net
Earnings
Net Per Diluted
Net Sales Gross Profit Earnings Share(1)
(in thousands, except per share information)
1st Quarter $77,244 $ 22,065 $ 1,201 $ .13
2nd Quarter 81,408 26,876 3,001 .33
3rd Quarter 102,529 38,383 7,808 .87
4th Quarter 103,386 37,521 7,892 .88
Total $364,567 $124,845 $19,902 $ 2.21
Fiscal year ended September 28, 2002
Net
Earnings
Net Per Diluted
Net Sales Gross Profit Earnings Share(1)
(in thousands, except per share information)
1st Quarter $ 74,797 $ 22,044 $ 822 $ .09
2nd Quarter 77,712 25,156 2,336 .25
3rd Quarter 100,628 36,430 7,518 .80
4th Quarter 100,050 35,827 7,437 .81
Total $353,187 $119,457 $18,113 $ 1.95
(1) Total of quarterly amounts does not necessarily agree to the
annual report amounts due to separate quarterly calculations of
weighted average shares outstanding.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
J&J Snack Foods Corp.
We have audited the accompanying consolidated balance sheets of J&J
Snack Foods Corp. and Subsidiaries as of September 27, 2003 and
September 28, 2002, and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of
the fiscal years in the three-year period ended September 27, 2003 (52
weeks, 52 weeks and 52 weeks, respectively). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of J&J Snack Foods Corp. and Subsidiaries as of September 27, 2003 and
September 28, 2002, and the consolidated results of their operations
and their consolidated cash flows for each of the fiscal years in the
three-year period ended September 27, 2003 in conformity with
accounting principles generally accepted in the United States of
America.
Grant Thornton LLP
Philadelphia, Pennsylvania
November 5, 2003
CORPORATE INFORMATION
Directors
Gerald B. Shreiber
Chairman of the Board, President
and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and
Chief Operating Officer
Sidney R. Brown (1), (2)
Chief Executive Officer,
NFI Industries
Peter G. Stanley (1), (2)
Vice President,
Emerging Growth Equities, Ltd.
Leonard M. Lodish, Ph.D. (1), (2)
Samuel R. Harrell Professor,
Marketing Department of the Wharton School,
University of Pennsylvania
Officers
Gerald B. Shreiber
Chairman of the Board, President
and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and
Chief Operating Officer
Michael Karaban
Senior Vice President, Marketing
Paul L. Hirschman
Vice President, Information Systems
Officers of Subsidiary Companies
J&J SNACK FOODS Sales CORP.
John Duckett
Vice President, Service & Assembly
Anthony P. Harrison II
Vice President, Quality Control and
Research & Development
H. Robert Long
Vice President, Distribution
Harry A. McLaughlin
Vice President, Controller
Robert J. Pape
Vice President, Sales-Retail
Milton L. Segal
Vice President, Purchasing
Steven J. Taylor
Vice President, Sales - Food Service
Thomas Weber
Vice President, Operations
MIA PRODUCTS
T.J. Couzens
Vice President/General Manager
THE ICEE COMPANY
Dan Fachner
President
Kent Galloway
Vice President and
Chief Financial Officer
Joe Boulanger
Vice President/General Manager
Western Zone
Lou Fiorentino
Vice President/General Manager
Eastern Zone
Rick Naylor
Vice President/General Manager
Central Zone
Rod Sexton
Vice President of Service Operations
Susan Woods
Vice President, Marketing
ICEE DE MEXICO, S.A. DE C.V.
Andres Gonzalez
Vice President
PRETZELS, INC.
Gary Powell
President
(1) Audit Committee Member.
(2) Compensation Committee Member.
Quarterly Common Stock Data
Market Price
Fiscal 2003 High Low
1st Quarter $40.25 $30.27
2nd Quarter 37.85 25.31
3rd Quarter 34.00 28.65
4th Quarter 37.67 29.33
Fiscal 2002 High Low
1st Quarter $26.25 $18.10
2nd Quarter 40.40 23.22
3rd Quarter 45.15 32.42
4th Quarter 44.97 34.85
Stock Listing
The common stock of J&J Snack Foods Corp. is traded on the NASDAQ
National Market System with the symbol JJSF.
Transfer Agent and Registrar
American Stock Transfer & Trust Company New York, NY
Independent Accountants
Grant Thornton LLP Philadelphia, PA
Counsel
Blank Rome LLP
Cherry Hill, NJ
Annual Meeting
The Annual Meeting of Shareholders is scheduled for Thursday, February
5, 2004 at 10:00 a.m. at the Hilton at Cherry Hill, 2349 W. Marlton
Pike, Cherry Hill, NJ.
Form 10 - K
Copies of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge by writing to:
J&J Snack Foods Corp.
6000 Central Highway
Pennsauken, NJ 08109
Attention: Dennis G. Moore
website
www.jjsnack.com
There's only one conclusion:
Snack foods and beverages from J&J are simply sense-ational!
Yum-m-m.
J&J Snack Foods
6000 Central Highway
Pennsauken, NJ 08109
(856) 665-9533
www.jjsnack.com