UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 25, 2005
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
X Yes No
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act)
X Yes No
As of July 16, 2005, there were 9,123,636 shares of
the Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets - June 25, 2005
(unaudited) and September 25, 2004 3
Consolidated Statements of Operations - Three
Months and Nine Months Ended June 25, 2005
and June 26, 2004 (unaudited) 5
Consolidated Statements of Cash Flows - Nine
Months Ended June 25, 2005 and June 26, 2004
(unaudited) 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
Item 4. Controls and Procedures 24
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 26
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 25, September 25,
2005 2004
(Unaudited)
Current assets
Cash and cash equivalents $ 15,483 $ 19,600
Marketable securities
available for sale 39,900 36,500
Accounts receivable 50,841 47,986
Inventories 35,218 29,587
Prepaid expenses and other 1,439 1,354
Deferred income taxes 3,385 3,385
146,266 138,412
Property, plant and equipment,
at cost
Land 556 556
Buildings 4,497 4,497
Plant machinery and
equipment 106,167 100,442
Marketing equipment 190,288 182,136
Transportation equipment 1,266 1,037
Office equipment 8,755 8,411
Improvements 15,028 15,070
Construction in progress 738 2,731
327,295 314,880
Less accumulated deprecia-
tion and amortization 238,014 225,406
89,281 89,474
Other assets
Goodwill 51,477 46,477
Other intangible assets, net 9,348 1,804
Other 1,539 1,257
62,364 49,538
$297,911 $277,424
See accompanying notes to the consolidated financial
statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND June 25, September 25,
STOCKHOLDERS' EQUITY 2005 2004
(unaudited)
Current liabilities
Accounts payable $ 36,641 $ 34,497
Accrued liabilities 16,894 13,149
53,535 47,646
Deferred income taxes 19,153 19,153
Other long-term liabilities 323 529
19,476 19,682
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000,000
shares; none issued - -
Common, no par value;
authorized 25,000
shares; issued and
outstanding, 9,122 and
9,006 shares, respectively 34,950 33,069
Accumulated other comprehen-
sive loss (1,889) (2,061)
Retained earnings 191,839 179,088
224,900 210,096
$297,911 $277,424
See accompanying notes to the consolidated financial
statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Nine months ended
June 25, June 26, June 25, June 26,
2005 2004 2005 2004
Net Sales $129,452 $118,952 $327,323 $294,111
Cost of goods sold 83,177 76,702 218,856 196,477
Gross profit 46,275 42,250 108,467 97,634
Operating expenses
Marketing 15,799 15,446 41,451 39,568
Distribution 10,541 9,136 28,763 23,985
Administrative 4,445 4,024 13,240 12,365
Other general
(income)expense (47) 73 129 243
30,738 28,679 83,583 76,161
Operating income 15,537 13,571 24,884 21,473
Other income(expenses)
Investment income 429 123 1,143 352
Interest expense
and other (45) (30) (103) (87)
Earnings before
income taxes 15,921 13,664 25,924 21,738
Income taxes 6,042 4,959 9,773 7,866
NET EARNINGS $ 9,879 $ 8,705 $ 16,151 $ 13,872
Earnings per
diluted share $1.06 $.95 $1.74 $1.52
Weighted average number
of diluted shares 9,324 9,163 9,283 9,122
Earnings per
basic share $1.08 $.97 $1.78 $1.56
Weighted average number
of basic shares 9,121 8,956 9,078 8,873
See accompanying notes to the consolidated financial
statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Nine months ended
June 25, June 26,
2005 2004
Operating activities:
Net earnings $16,151 $13,872
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 17,255 17,464
Amortization of intangibles
and deferred costs 828 744
Other 39 13
Changes in assets and liabilities,
net of effects from purchase of
companies
Increase in accounts receivable (2,855) (8,677)
Increase in inventories (4,943) (4,666)
Increase in prepaid expenses (85) (9)
Increase in accounts payable
and accrued liabilities 4,544 9,222
Net cash provided by operating
activities 30,934 27,963
Investing activities:
Purchase of property, plant
and equipment (15,583) (14,909)
Payments for purchases of companies(16,088) (12,668)
Proceeds from investments
held to maturity - 275
Purchase of marketable securities (17,400) (34,500)
Proceeds from sales of marketable
securities 14,000 9,000
Proceeds from disposals of
property and equipment 604 749
Other (377) (26)
Net cash used in investing
activities (34,844) (52,079)
Financing activities:
Proceeds from issuance of stock 1,881 3,072
Payments of cash dividend (2,260) -
Net cash (used in) provided by
financing activities (379) 3,072
Effect of exchange rate on cash
and cash equivalents 172 (78)
Net decrease in cash
and cash equivalents (4,117) (21,122)
Cash and cash equivalents at
beginning of period 19,600 37,694
Cash and cash equivalents at
end of period $15,483 $16,572
See accompanying notes to the consolidated financial
statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying
unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the
financial position and the results of operations and
cash flows. Certain prior period amounts have been
reclassified to conform to the current period
presentation. These reclassifications had no effect
on reported net earnings.
The results of operations for the three months and
nine months ended June 25, 2005 and June 26, 2004
are not necessarily indicative of results for the
full year. Sales at our retail stores are generally
higher in the first quarter due to the holiday
shopping season. Sales of our frozen beverages and
frozen juice bars and ices are generally higher in
the third and fourth quarters due to warmer weather.
While we believe that the disclosures presented are
adequate to make the information not misleading, it
is suggested that these consolidated financial
statements be read in conjunction with the
consolidated financial statements and the notes
included in the Company's Annual Report on Form 10-K
for the year ended September 25, 2004.
Note 2 We recognize revenue from Food Service, Retail
Supermarkets, The Restaurant Group and Frozen
Beverage products at the time the products are
shipped to third parties. When we perform services
for others under time and material agreements,
revenue is recognized upon the completion of the
services. We also sell fixed-fee service contracts.
The terms of coverage range between 12 and 60
months. We record deferred income on service
contracts which is amortized by the straight-line
method over the term of the contracts. We provide an
allowance for doubtful receivables after taking into
account historical experience and other factors.
Note 3 Depreciation of equipment and buildings is provided
for by the straight-line method over the assets'
estimated useful lives. Amortization of
7
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.
Note 4 Our calculation of earnings per share in accordance
with SFAS No. 128, "Earnings Per Share," is as
follows:
Three Months Ended June 25, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 9,879 9,121 $1.08
Effect of Dilutive Securities
Options - 203 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $ 9,879 9,324 $1.06
Nine Months Ended June 25, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $16,151 9,078 $1.78
Effect of Dilutive Securities
Options - 205 (.04)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $16,151 9,283 $1.74
8
Three Months Ended June 26, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $8,705 8,956 $.97
Effect of Dilutive Securities
Options - 207 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $8,705 9,163 $.95
35,700 anti-dilutive weighted shares have been excluded in
the computation of the three months ended June 26, 2004
diluted EPS because the options' exercise price is greater
than the average market price of the common stock.
Nine Months Ended June 26, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $13,872 8,873 $1.56
Effect of Dilutive Securities
Options - 249 (.04)
Diluted EPS
Net Earnings available to common stockholders plus
assumed conversions $13,872 9,122 $1.52
35,700 anti-dilutive weighted shares have been excluded in
the computation of the nine months ended June 26, 2004
diluted EPS because the options' exercise price is greater
than the average market price of the common stock.
9
Note 5 The Company accounts for stock options under SFAS
No. 123, "Accounting for Stock-Based Compensation",
as amended by SFAS No. 148, which contains a fair
value-based method for valuing stock-based
compensation that entities may use, which measures
compensation cost at the grant date based on the
fair value of the award. Compensation is then
recognized over the service period, which is usually
the vesting period. Alternatively, SFAS No. 123
permits entities to continue accounting for employee
stock options and similar equity instruments under
Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees".
Entities that continue to account for stock options
using APB Opinion 25 are required to make pro forma
disclosures of net income and earnings per share, as
if the fair value-based method of accounting defined
in SFAS No. 123 had been applied (see Note 6).
At June 25, 2005, the Company has two stock-based
employee compensation plans. The Company accounts
for these plans under the recognition and
measurement principles of APB No. 25, "Accounting
for Stock Issued to Employees", and related
interpretations. Stock-based employee compensation
costs are not reflected in net income, as all
options granted under the plans had an exercise
price equal to the market value of the underlying
common stock on the date of grant. The following
table illustrates the effect on net income and
earnings per share as if the Company had applied the
fair value recognition provisions of SFAS No. 123,
to stock-based employee compensation.
10
Three Months Ended Nine Months Ended
June 25, June 26, June 25, June 26,
2005 2004 2005 2004
Net income,
as reported $9,879 $8,705 $16,151 $13,872
Less: stock-based
compensation
costs determined
under fair value
based method for
all awards 210 288 629 861
Net income, pro
forma $9,669 $8,417 $15,522 $13,011
Earnings per share
of common stock -
basic:
As reported $ 1.08 $ .97 $ 1.78 $ 1.56
Pro forma $ 1.06 $ .94 $ 1.71 $ 1.47
Earnings per share
of common stock -
diluted:
As reported $ 1.06 $ .95 $ 1.74 $ 1.52
Pro forma $ 1.04 $ .92 $ 1.67 $ 1.43
The fair value of each option grant is estimated on
the date of grant using the Black-Scholes options-
pricing model with the following weighted average
assumptions used for grants in fiscal 2005 and 2004:
expected volatility of 16% and 26%; risk-free
interest rates ranging between 3.70% and 3.83% and
2.91% and 3.16%; and expected lives ranging between
5 and 10 years.
Note 6 In December 2004, the FASB issued Statement 151,
"Inventory Costs, an amendment of ARB No. 43,
Chapter 4".
Statement 151 retains the general principle of ARB
43, Chapter 4, "Inventory Pricing (AC Section I78)",
that inventories are presumed to be stated at cost;
however, it amends ARB 43 to clarify that
11
. abnormal amounts of idle facilities, freight,
handling costs, and spoilage should be recognized
as charges of the current period
. allocation of fixed production overheads to
inventories should be based on the normal
capacity of the production facilities.
Statement 151 defines normal capacity as the
production expected to be achieved over a number of
periods or seasons under normal circumstances,
taking into account the loss of capacity resulting
from planned maintenance. The Board concluded that
normal capacity refers to a range of production
levels that will vary based on business- and
industry-specific factors. Accordingly, an entity
will have to use judgment to determine when
production is outside the range of expected
variation in production (either abnormally low or
abnormally high). In periods of abnormally low
production (for example, periods in which there is
significantly lower demand, labor and material
shortages exist, or there is unplanned equipment
downtime) the amount of fixed overhead allocated to
each unit of production should not be increased.
However, in periods of abnormally high production
the amount of fixed overhead allocated to each unit
of production is decreased to assure inventories are
not measured above cost.
The guidance in Statement 151 is effective for
inventory costs during fiscal years beginning after
June 15, 2005 and should be applied prospectively.
Since we essentially follow the guidelines of
Statement 151, we do not anticipate the adoption to
have a material impact on our financial statements.
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment. Statement
123(R) requires that the compensation cost relating
to share-based payment transactions be recognized in
financial statements. That cost will be measured
based on the fair value of the equity or liability
instruments issued.
This statement is effective as of the first annual
reporting period that begins after June 15, 2005. As
a result, we will be required to adopt Statement
123(R) on September 25, 2005.
12
Statement 123(R) covers a wide range of share-based
compensation arrangements including share options,
restricted share plans, performance-based awards,
share appreciation rights, and employee share
purchase plans.
In addition to the accounting standard that sets
forth the financial reporting objectives and related
accounting principles, Statement 123(R) includes an
appendix of implementation guidance that provides
expanded guidance on measuring the fair value of
share-based payment awards.
Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. Statement 123, as originally
issued in 1995, established as preferable a fair-
value-based method of accounting for share-based
payment transactions with employees. However, that
Statement permitted entities the option of
continuing to apply the guidance in Opinion 25, as
long as the footnotes to financial statements
disclosed what net income would have been had the
preferable fair-value-based method been used. We
anticipate implementing this new standard in the
first quarter of our fiscal year 2006. The impact
of this new standard, if it had been in effect, on
the net earnings of our fiscal years ended in
September 2004, 2003 and 2002 was disclosed in Note
A13 Accounting for Stock-Based Compensation of our
Financial Statements included in our Form 10-K for
the fiscal year ended September 25, 2004 and the
impact on the net earnings of the current quarter
and nine months are disclosed in Note 5 of this Form
10-Q.
Note 7 Inventories consist of the following:
June 25, September 25,
2005 2004
(in thousands)
Finished goods $17,977 $13,691
Raw materials 4,820 4,556
Packaging materials 3,491 2,984
Equipment parts & other 8,930 8,356
$35,218 $29,587
13
Note 8 We principally sell our products to the food service
and retail supermarket industries. We also
distribute our products directly to the consumer
through our chain of retail stores referred to as
The Restaurant Group. Sales and results of our
frozen beverages business are monitored separately
from the balance of our food service business and
restaurant group because of different distribution
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.
14
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.
15
Information regarding the operations in these four
reportable segments is as follows:
Three Months Ended Nine Months Ended
June 25, June 26, June 25, June 26,
2005 2004 2005 2004
(in thousands)
Sales to External Customers:
Food Service $ 78,031 $ 69,644 $202,966 $178,332
Retail Supermarket 12,742 12,990 29,478 28,556
Restaurant Group 1,152 1,567 4,379 6,106
Frozen Beverages 37,527 34,751 90,500 81,117
$129,452 $118,952 $327,323 $294,111
Depreciation and Amortization:
Food Service $ 3,605 $ 3,495 $ 10,202 $ 10,283
Retail Supermarket - - - -
Restaurant Group 52 84 170 294
Frozen Beverages 2,629 2,467 7,711 7,631
$ 6,286 $ 6,046 $ 18,083 $ 18,208
Operating Income:
Food Service $ 8,115 $ 6,583 $ 18,340 $ 14,728
Retail Supermarket 1,191 1,220 1,667 1,996
Restaurant Group (110) (353) (347) (767)
Frozen Beverages 6,341 6,121 5,224 5,516
$ 15,537 $ 13,571 $ 24,884 $ 21,473
Capital Expenditures:
Food Service $ 2,256 $ 2,473 $ 6,450 $ 6,175
Retail Supermarket - - - -
Restaurant Group - - 40 15
Frozen Beverages 3,499 3,972 9,093 8,719
$ 5,755 $ 6,445 $ 15,583 $ 14,909
Assets:
Food Service $200,682 $170,771 $200,682 $170,771
Retail Supermarket - - - -
Restaurant Group 1,062 1,600 1,062 1,600
Frozen Beverages 96,167 91,767 96,167 91,767
$297,911 $264,138 $297,911 $264,138
Note 9 We follow SFAS No. 142 "Goodwill and Intangible
Assets". SFAS No. 142 includes requirements to test
goodwill and indefinite lived intangible assets for
impairment rather than amortize them; accordingly,
we do not amortize goodwill.
16
Our four reporting units, which are also reportable
segments, are Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverages. Each of the
segments have goodwill and indefinite lived
intangible assets.
The carrying amount of acquired intangible assets
for the Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverage segments as of
June 25, 2005 are as follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $11,307 $2,000 $9,307
RETAIL SUPERMARKETS
Amortized intangible assets
Licenses and rights $ - $ - $ -
THE RESTAURANT GROUP
Amortized intangible assets
Licenses and rights $ - $ - $ -
FROZEN BEVERAGES
Amortized intangible assets
Licenses and rights $ 201 $ 160 $ 41
Licenses and rights are being amortized by the
straight-line method over periods ranging from 4 to 20
years and amortization expense is reflected throughout
operating expenses. Aggregate amortization expense of
intangible assets for the three months ended June 25, 2005
and June 26, 2004 was $403,000 and $149,000, respectively
and for the nine months ended June 25, 2005 and June 26,
2004 was $681,000 and $388,000, respectively.
17
Estimated amortization expense for the next five
fiscal years is approximately $1,066,000 in 2005,
$1,560,000 in 2006 and 2007, $1,500,000 in 2008 and
$1,335,000 in 2009. The weighted average amortization
period of the intangible assets is 7.25 years.
On March 17, 2005, we acquired all of the assets of
Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of
soft pretzels headquartered in Rancho Cucamonga, California
for $14.7 million plus approximately $600,000 for
inventory. Snackworks operates production facilities in
California and Chambersburg, Pennsylvania and markets its
products under the brand names SERIOUSLY TWISTED!, BAVARIAN
BROTHERS and CINNAPRETZEL. Snackworks sells throughout the
continental United States primarily to mass merchandisers
and theatres. Annual sales are approximately $11 million.
We allocated $8,225,000 0f the purchase price of
Snackworks, LLC to amortizable intangible assets and
$5,000,000 to goodwill. We are in the process of obtaining
a third party valuation of certain assets of Snackworks;
therefore, this preliminary allocation of the purchase
price is subject to revision.
Goodwill
The carrying amounts of goodwill for the Food Service,
Restaurant Group and Frozen Beverage segments are as
follows:
Food Retail Restaurant Frozen
Service Supermarket Group Beverages Total
(in thousands)
Balance at
June 25,
2005 $19,241 $ - $386 $31,850 $51,477
There were no changes in the carrying amount of
goodwill for the three months ended June 25, 2005.
Note 10 The amortized cost, unrealized gains and losses,
and fair market values of our investment securities
available for sale at June 25, 2005 are summarized
as follows:
18
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $36,900 $ - $ - $36,900
Municipal Government
Securities 3,000 - - 3,000
$39,900 $ - $ - $39,900
The amortized cost, unrealized gains and losses, and
fair market values of the Company's investment
securities available for sale at September 25, 2004
are summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $36,500 $ - $ - $36,500
Proceeds from the sale of marketable securities were
$5,000,000 and $14,000,000 in the three and nine months
ended June 25, 2005, respectively, with no gain or loss
recorded. We use the specific identification method to
determine the cost of securities sold.
19
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Our current cash and marketable securities balances
and cash expected to be provided by future operations are
our primary sources of liquidity. We believe that these
sources, along with our borrowing capacity, are sufficient
to fund future growth and expansion.
The Company's Board of Directors declared a regular
quarterly cash dividend of $.125 per share of its common
stock payable on July 6, 2005 to shareholders of record as
of the close of business on June 15, 2005.
In the three months ended June 25, 2005 and June 26,
2004, fluctuations in the valuation of the Mexican peso
caused an increase of $116,000 and a decrease of $60,000,
respectively, in stockholders' equity because of the
translation of the net assets of the Company's Mexican
frozen beverage subsidiary. In the nine month periods,
there was an increase of $172,000 in fiscal year 2005 and a
decrease of $78,000 in fiscal year 2004.
On January 5, 2004, we acquired the assets of Country
Home Bakers, Inc. Country Home Bakers, Inc., with its
manufacturing facility in Atlanta, GA, manufactures and
distributes bakery products to the food service and
supermarket industries. Its product line includes cookies,
biscuits, and frozen doughs sold under the names READI-
BAKE, COUNTRY HOME and private labels sold through
supermarket in-store bakeries.
On March 17, 2005, we acquired all of the assets of
Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of
soft pretzels headquartered in Rancho Cucamonga,
California. Snackworks operates production facilities in
California and Chambersburg, Pennsylvania and markets its
products under the brand names SERIOUSLY TWISTED!, BAVARIAN
BROTHERS and CINNAPRETZEL. Snackworks sells throughout the
continental United States primarily to mass merchandisers
and theatres. Annual sales are approximately $11 million.
These acquisitions were accounted for under the
purchase method of accounting, and their operations are
included in the consolidated financial statements from
their respective acquisition dates. We are in the process
of obtaining a third party valuation of certain assets of
20
Snackworks, LLC; therefore the allocation of the purchase
price is subject to revision.
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 June 25, 2005.
Results of Operations
Net sales increased $10,500,000 or 9% for the three
months to $129,452,000 and $33,312,000 or 11% to
$327,323,000 for the nine months ended June 25, 2005
compared to the three and nine months ended June 26, 2004.
Excluding sales from the acquisition of Country Home
Bakers, Inc. in January 2004 and Snackworks, LLC in March
2005, net sales increased $7,445,000 or 6% for the three
months and $17,503,000 or 6% for the nine months ended June
25, 2005 compared to the three and nine months ended June
26, 2004.
FOOD SERVICE
Sales to food service customers increased $8,387,000
or 12% in the third quarter to $78,031,000 and increased
$24,634,000 or 14% for the nine months. Excluding sales
from the acquisition of Country Home Bakers, Inc. and
Snackworks, LLC, sales to food service customers increased
$5,332,000 or 8% in the third quarter and increased
$8,925,000 or 5% for the nine months. Soft pretzel sales to
the food service market increased 20% to $24,235,000 in the
third quarter and 8% to $64,188,000 in the nine months.
Excluding sales from the acquisition of Snackworks, LLC,
soft pretzel sales increased 5% in the third quarter and 3%
for the nine months. Increased sales to one customer
accounted for two-thirds of the third quarter increase and
almost all of the nine month increase. Italian ice and
frozen juice treat and dessert sales increased 4%, or
$575,000, to $13,402,000 in the three months and increased
7%, or $1,767,000, to $27,009,000 in the nine months due to
increased sales to warehouse clubs, school food service and
private label accounts. Churro sales to food service
customers increased 13% to $3,805,000 in the third quarter
and increased 10% to $10,714,000 in the nine months. One
customer accounted for approximately 25% of the quarter and
nine months increase with the balance coming from general
increases across our customer base. Sales of bakery
products increased $2,317,000 or 7% in the third quarter to
21
$33,934,000 and increased $16,082,000 or 20% for the nine
months. Excluding sales from the acquisition of Country
Home Bakers, Inc., sales of bakery products increased
$3,602,000 or 4% in the nine months due to increased sales
to existing customers and sales to new customers. In the
third quarter, sales of our funnel cake product were up
$1,094,000, or 80%, due to sales to one new customer. The
changes in sales throughout the food service segment were
from a combination of volume changes and price increases.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets decreased
$248,000 or 2% to $12,742,000 in the third quarter and
increased $922,000, or 3%, in the nine months. Soft pretzel
sales increased 16% to $4,923,000 for the quarter and
increased 20% to $16,997,000 for the nine months due mainly
to sales of PRETZELFILS in new markets and by increased
sales of our regular SUPERPRETZEL in existing markets.
Sales of frozen juices and ices decreased $560,000 or 6% to
$8,680,000 in the third quarter and $599,000 or 4% to
$14,979,000 in the nine months. Case sales of frozen juices
and ices products were down 11% in the quarter and 8% for
the nine months. Coupon costs, a reduction of sales,
increased by $293,000, or 39%, in the second quarter and
were up $1,036,000, or 50% in the nine months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 26% to
$1,152,000 in the third quarter and 28% to $4,379,000 for
the nine month period. The sales decreases were caused
primarily by the closing or licensing of unprofitable
stores in the past year. During the first nine months of
this year, nine stores were closed or licensed to others,
leaving a total of 21 open at quarter end. Operating
income was impacted during the nine months by approximately
$108,000 of store closing costs.
FROZEN BEVERAGES
Frozen beverage and related product sales increased
$2,776,000 or 8% to $37,527,000 in the third quarter and
$9,383,000 or 12% to $90,500,000 in the nine months.
Beverage sales alone were essentially unchanged at
$26,712,000 in the third quarter and $61,711,000 in the
nine months. Managed service revenue increased 34% to
$6,600,000 in the third quarter and 36% to $17,576,000 in
the nine months. Sales of beverage machines were $4,993,000
22
higher this year than last in the nine month period with
two customers accounting for more than half of the
increase. In the third quarter, sales of machines were
higher by $919,000 compared to last year.
CONSOLIDATED
Gross profit as a percentage of sales was 36% and 33%
in both year's third quarter and nine months, respectively.
The percentages remained constant because increases in
efficiencies due to higher volume in our food service
segment offset higher coupon expense in our retail
supermarket business, increased sales of low margin
beverage machines in our frozen beverage segment and higher
group medical and liability insurance costs throughout our
business.
Total operating expenses increased $2,059,000 in the
third quarter but as a percentage of sales were 24% in both
year's quarters. For the nine months, operating expenses
increased $7,422,000 but as a percentage of sales were 26%
for both years. Marketing expenses decreased to 12% of
sales in this year's third quarter from 13% last year and
were at 13% in both years' nine month period although they
dropped about 3/4 of a percentage point as a percent of sales
in the nine month period. The percentage decreases were
the result of controlled spending throughout all of our
businesses and the increased level of sales. Distribution
expenses were 8% of sales in the third quarter for both
years and increased to 9% of sales in the nine months from
8% of sales last year primarily because of higher fuel
costs and third party trucking costs. Administrative
expenses as a percent of sales were 3% in both year's third
quarter and were 4% for the nine months in both years.
Operating income increased $1,966,000 or 14% to
$15,537,000 in the third quarter and $3,411,000 or 16% to
$24,884,000 in the nine months as a result of the
aforementioned.
Operating income was impacted by approximately
$300,000 of higher group medical and liability insurance
costs in the third quarter compared to a year ago and by
approximately $1 million for the nine months due in large
part to increased workers compensation claims costs.
Manufacturing plant utilities costs were higher by about
$200,000 for the quarter and $540,000 for the nine months.
We expect that continuing increases in the cost of
23
utilities will continue to have a significant impact on our
operating results. The impact of commodity cost increases
has overall diminished from the levels of increases that
were reported in previous filings.
Investment income increased by $306,000 to $429,000 in
this year's third quarter and by $791,000 in the nine
months primarily due to an increase in the general level of
interest rates.
The effective income tax rate has been estimated at
38% for the third quarter and nine months compared to 36%
in last year's periods due to estimated increases in state
tax payments.
Net earnings increased $1,174,000 or 13% in the three
month period to $9,879,000 and increased 16% or $2,279,000
in the nine months this year from $13,872,000 last year.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
There has been no material change in the Company's
assessment of its sensitivity to market risk since
its presentation set forth, in item 7a.
"Quantitative and Qualitative Disclosures About
Market Risk," in its 2004 annual report on Form 10-K
filed with the SEC.
Item 4. Controls and Procedures
Quarterly evaluation of the Company's Disclosure and
Internal Controls. The Company evaluated (i) the
effectiveness of the design and operation of its
disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by
this Form 10-Q and (ii) any changes in internal
controls over financial reporting that occurred
during the third quarter of its fiscal year. This
evaluation ("Controls Evaluation") was done under
the supervision and with the participation of
management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. A
control system, no matter how well conceived and
operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system
are met. Further, the design of a control system
24
must reflect the fact that there are resource
constraints, and the benefits of controls must be
considered relative to their costs. Because of the
inherent limitations in all control systems, no
evaluation of controls can provide absolute
assurance that all control issues and instances of
fraud, if any, within the Company have been
detected. Because of the inherent limitations in a
cost effective control system, misstatements due to
error or fraud may occur and not be detected. The
Company conducts periodic evaluations of its
internal controls to enhance, where necessary, its
procedures and controls.
Conclusions. Based upon the Controls Evaluation,
the CEO and CFO have concluded that the Disclosure
Controls are effective in reaching a reasonable
level of assurance that information required to be
disclosed by the Company in the reports that it
files or submits is recorded, processed, summarized
and reported within the time period specified in the
SEC's rules and forms and that management is timely
alerted to material information relating to the
Company during the period when its periodic reports
are being prepared. Additionally, in accord with the
U.S. Securities and Exchange Commission's
requirements, the CEO and CFO conducted an
evaluation of the Company's internal control over
financial reporting (the "Internal Controls") to
determine whether there have been any changes in
Internal Controls that occurred during the quarter
which have materially affected or which are
reasonably likely to materially affect Internal
Controls. Based on this evaluation, there have been
no such changes in Internal Controls during the
quarter covered by this report.
25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
31.1 & Certification Pursuant to Section 302 of
31.2 the Sarbanes-Oxley Act of 2002
99.5 Certification Pursuant to the 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
b) Reports on Form 8-K - Reports on Form 8-K were
filed on April 21, 2005 and May 26, 2005.
26
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: July 20, 2005 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: July 20, 2005 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
27
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis G. Moore, certify that:
1. I have reviewed this report on Form 10-Q of J & J
Snack Foods Corp.;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officers and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal controls and
procedures for financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal controls and
procedures for financial reporting, or caused such internal
controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrant's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's third fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal controls over
financial reporting.
Date: July 20, 2005
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gerald B. Shreiber, certify that:
1. I have reviewed this report on Form 10-Q of J & J
Snack Foods Corp.;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officers and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal controls and
procedures for financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and
procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal controls and
procedures for financial reporting, or caused such internal
controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrant's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's third fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal controls over
financial reporting.
Date: July 20, 2005
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
Exhibit 99.5
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Section 1350 of Chapter 63 of Title 18 of the United
States Code), each of the undersigned officers of J & J
Snack Foods Corp. (the "Company"), does hereby certify with
respect to the Quarterly Report of the Company on Form 10-Q
for the quarter ended June 25, 2005 (the "Report") that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the
Company.
Dated: July 20, 2005
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Dated: July 20, 2005
/s/ Gerald B. Shreiber
Gerald B. Shreiber
Chief Executive Officer
The foregoing certification is being furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Section 1350 of Chapter 63 of Title 18 of the United
States Code) and is not being filed as part of the Report
or as a separate disclosure document.