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 March 25, 2006
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
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
As of April 18, 2006, there were 18,366,134 shares of the
Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 25, 2006
(unaudited) and September 24, 2005
3
Consolidated Statements of Operations (unaudited)
- Three Months and Six Months Ended March 25,
2006 and March 26, 2005 5
Consolidated Statements of Cash Flows (unaudited)
- Six Months Ended March 25, 2006 and March 26,
2005 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Item 4. Controls and Procedures 23
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 25, September 24,
2006 2005
(Unaudited)
Current assets
Cash and cash equivalents $ 9,648 $ 15,795
Marketable securities 60,750 54,225
Accounts receivable, net 47,456 46,921
Inventories 38,024 33,684
Prepaid expenses and other 1,660 1,215
Deferred income taxes 2,424 2,393
159,962 154,233
Property, plant and equipment,
at cost
Land 556 556
Buildings 4,497 4,497
Plant machinery and
equipment 107,100 105,815
Marketing equipment 192,048 188,601
Transportation equipment 1,348 1,271
Office equipment 8,451 8,966
Improvements 15,124 15,083
Construction in progress 2,819 1,354
331,943 326,143
Less accumulated deprecia-
tion and amortization 243,303 237,098
88,640 89,045
Other assets
Goodwill 54,122 53,622
Other intangible assets, net 8,314 7,043
Other 2,161 1,981
64,597 62,646
$313,199 $305,924
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND March 25, September 24,
STOCKHOLDERS' EQUITY 2006 2005
(Unaudited)
Current liabilities
Accounts payable $ 40,001 $ 37,029
Accrued liabilities 12,325 14,731
Dividends payable 1,375 1,142
53,701 52,902
Deferred income taxes 17,987 17,987
Other long-term liabilities 743 273
18,730 18,260
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 10,000
shares; none issued - -
Common, no par value;
authorized 50,000 shares;
issued and outstanding,
18,351 and 18,271 shares,
respectively 37,705 36,091
Accumulated other comprehen-
sive loss (1,924) (1,918)
Retained earnings 204,987 200,589
240,768 234,762
$313,199 $305,924
All share amounts reflect the 2-for-1 stock split effective January 5,
2006.
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 Six months ended
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
Net Sales $112,044 $99,350 $220,615 $197,871
Cost of goods sold(1) 76,818 67,154 152,272 135,679
Gross profit 35,226 32,196 68,343 62,192
Operating expenses
Marketing(2) 14,315 12,804 28,012 25,652
Distribution(3) 10,139 9,299 20,495 18,222
Administrative(4) 4,821 4,476 9,616 8,795
Other general
(income) expense (43) (76) 29 176
29,232 26,503 58,152 52,845
Operating income 5,994 5,693 10,191 9,347
Other income (expenses)
Investment income 755 392 1,458 714
Interest expense (30) (34) (59) (58)
Earnings before
income taxes 6,719 6,051 11,590 10,003
Income taxes 2,582 2,261 4,443 3,731
NET EARNING S $ 4,137 $ 3,790 $ 7,147 $ 6,272
Earnings per
diluted share $.22 $.20 $.38 $.34
Weighted average number
of diluted shares 18,811 18,581 18,754 18,526
Earnings per basic
share $.23 $.21 $.39 $ .35
Weighted average number
of basic share s 18,383 18,165 18,356 18,114
(1) Includes share-based compensation expense of $82 and $141 for the
three and six months ended March 25, 2006, respectively.
(2) Includes share-based compensation expense of $157 and $272 for the
three and six months ended March 25, 2006, respectively.
(3) Includes share-based compensation expense of $7 and $12 for the
three and six months ended March 25, 2006, respectively.
(4) Includes share-based compensation expense of $111 and $192 for the
three and six months ended March 25, 2006, respectively.
All share amounts reflect the 2-for-1 stock split effective January 5,
2006.
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Six months ended
March 25, March 26,
2006 2005
Operating activities:
Net earnings $ 7,147 $ 6,272
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization
of fixed assets 11,487 11,424
Amortization of intangibles
and deferred costs 749 373
Share-based compensation 617 -
Deferred income taxes (31) -
Other (26) 83
Changes in assets and liabilities,
net of effects from purchase of companies
(Increase) decrease in accounts
receivable (346) 9,205
Increase in inventories (4,416) (4,598)
Increase in prepaid expenses (433) (318)
Increase (decrease) in accounts
payable and accrued liabilities 239 (3,787)
Net cash provided by operating
activities 14,987 18,654
Investing activities:
Purchases of property, plant
and equipment (10,830) (9,828)
Payments for purchase of companies,
net of cash acquired (2,401) (15,429)
Purchase of marketable securities (22,075) (14,400)
Proceeds from sale of marketable
securities 15,550 9,000
Proceeds from disposal of
property and equipment 419 459
Other (273) (25)
Net cash used in investing
activities (19,610) (30,223)
Financing activities:
Proceeds from issuance of stock 997 1,177
Payment of cash dividend (2,515) (1,127)
Net cash (used in) provided by
financing activities (1,518) 50
Effect of exchange rate on cash
and cash equivalents (6) 56
Net decrease in cash and
cash equivalents (6,147) (11,463)
Cash and cash equivalents at
beginning of period 15,795 19,600
Cash and cash equivalents at
end of period $ 9,648 $ 8,137
See accompanying notes to the consolidated financial statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position and the results of
operations and cash flows. Certain prior year amounts have been
reclassified to conform to the current period presentation.
These reclassifications had no effect on reported net earnings.
The results of operations for the three months and six months
ended March 25, 2006 and March 26, 2005 are not necessarily
indicative of results for the full year. Sales of 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 24, 2005.
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
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 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 improvements is provided for by the straight-
line method over the
7
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 (all share
amounts reflect the 2-for-1 stock split effective January 5,
2006):
Three Months Ended March 25, 2006
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $4,137 18,383 $.23
Effect of Dilutive Securities
Options - 428 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $4,137 18,811 $.22
Six Months Ended March 25, 2006
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $7,147 18,356 $.39
Effect of Dilutive Securities
Options - 398 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $7,147 18,754 $.38
8
Three Months Ended March 26, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available to
common stockholders $3,790 18,165 $.21
Effect of Dilutive Securities
Options - 416 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,790 18,581 $.20
Six Months Ended March 26, 2005
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available to
common stockholders $6,272 18,114 $.35
Effect of Dilutive Securities
Options - 412 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $6,272 18,526 $.34
Note 5 Effective with this fiscal year, the Company follows FASB
Statement No. 123(R),"Share-Based Payment". Statement 123(R)
requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements.
That cost is measured based on the fair value of the equity or
liability instruments issued.
Statement 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted
share plans, performance-based awards, share appreciation
rights, and employee share purchase plans.
9
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. The impact of Statement
123(R), if it had been in effect, on the net earnings and
related per share amounts of our fiscal years ended in September
2005, 2004 and 2003 were 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 24, 2005.
Since the Company adopted Statement 123(R) using the modified-
prospective-transition-method, prior periods have not been
restated. Under this method, we are required to record
compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted
awards that remain outstanding as of the beginning of the
period of adoption. We measured share-based compensation
cost using the Black-Scholes option pricing model.
At March 25, 2006, the Company has two stock-based employee
compensation plans. Share-based compensation of $250,000, net
of a tax benefit of $107,000, or $.01 per share, was recognized
for the three months ended March 25, 2006. For the six months
ended March 25, 2006, share-based compensation expense of
$422,000, net of a tax benefit of $195,000, or $.02 per share
was recognized. The Company anticipates that share-based
compensation will not exceed $1,000,000, net of tax benefits,
or approximately $.053 per share for the year ending
10
September 30, 2006. Reported net income, adjusting for share-
based compensation that would have been
recognized in last year's comparative three and six month
periods if Statement 123(R) had been followed is (all share
amounts reflect the 2-for-1 stock split effective January 5,
2006):
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
Net income,
as reported $4,137 $3,790 $7,147 $6,272
Less: stock-based
compensation
costs determined
under fair value
based method for
all awards - 210 - 419
Adjusted net income $4,137 $3,580 $7,147 $5,853
Earnings per share
of common stock -
basic:
As reported $ .23 $ .21 $ .39 $ .35
Share-based compensation
costs - (.01) - (.03)
Adjusted net
earnings $ .23 $ .20 $ .39 $ .32
Earnings per share
of common stock -
-
diluted:
As reported $ .22 $ .20 $ .38 $ .34
Share-based compensation
costs - (.01) - (.02)
Adjusted net
earnings $ .22 $ .19 $ .38 $ .32
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
2006: expected volatility of 34%; risk-free interest rate of
4.37% and expected lives ranging between 5 and 10 years.
Expected volatility is based on the historical
11
volatility of the price of our common shares over the past 53
months for 5 year options and 10 years for 10
year options. We use historical information to estimate
expected life and forfeitures within the
valuation model. The expected term of awards represents the
period of time that options granted
are expected to be outstanding. The risk-free rate for periods
within the expected life of the option
is based on the U.S. Treasury yield curve in effect at the time
of grant. Compensation cost is recognized using a straight-line
method over the vesting or service period and is net of
estimated forfeitures.
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
- 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
12
each unit of production is decreased to assure inventories are
not measured above cost.
The guidance in Statement 151 was effective for inventory costs
during fiscal years beginning after
June 15, 2005. Since we essentially follow the guidelines of
Statement 151, the adoption did not have a material impact on
our financial statements.
Note 7 Inventories consist of the following:
March 25, September 24,
2006 2005
(in thousands)
(unaudited)
Finished goods $19,618 $16,016
Raw materials 5,141 4,935
Packaging materials 4,014 3,485
Equipment parts & other 9,251 9,248
$38,024 $33,684
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,
13
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,
BARQ'S FLOATZ and 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:
14
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
(in thousands)
Sales to External Customers:
Food Service $ 71,374 $ 63,463 $145,990 $124,935
Retail Supermarket 10,458 9,751 17,694 16,736
Restaurant Group 1,017 1,410 2,255 3,227
Frozen Beverages 29,195 24,726 54,676 52,973
$112,044 $ 99,350 $220,615 $197,871
Depreciation and Amortization:
Food Service $ 3,507 $ 3,330 $ 7,018 $ 6,597
Retail Supermarket - - - -
Restaurant Group 25 53 58 118
Frozen Beverages 2,653 2,560 5,160 5,082
$ 6,185 $ 5,943 $ 12,236 $ 11,797
Operating Income(Loss):
Food Service(1) $ 6,186 $ 5,929 $ 11,814 $ 10,225
Retail Supermarket(2) 17 216 274 476
Restaurant Group 35 (17) 36 (237)
Frozen Beverages(3) (244) (435) (1,933) (1,117)
$ 5,994 $ 5,693 $ 10,191 $ 9,347
Capital Expenditures:
Food Service $ 2,417 $ 2,327 $ 5,087 $ 4,194
Retail Supermarket - - - -
Restaurant Group - 17 - 40
Frozen Beverages 3,704 3,176 5,743 5,594
$ 6,121 $ 5,520 $ 10,830 $ 9,828
Assets:
Food Service $216,623 $190,747 $216,623 $190,747
Retail Supermarket - - - -
Restaurant Group 922 1,292 922 1,292
Frozen Beverages 95,654 87,975 95,654 87,975
$313,199 $280,014 $313,199 $280,014
(1) Includes share-based compensation expense of $254 and $438 for the
three and six months ended March 25, 2006, respectively.
(2) Includes share-based compensation expense of $17 and $30 for the
three and six months ended March 25, 2006, respectively.
(3) Includes share-based compensation expense of $86 and $149 for the
three and six months ended March 25, 2006, respectively.
15
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 no longer amortize goodwill.
Our four reporting units, which are also reportable segments,
are Food Service, Retail Supermarkets, The Restaurant Group and
Frozen Beverages.
The carrying amounts of acquired intangible assets for the Food
Service, Retail Supermarkets, The Restaurant Group and Frozen
Beverage segments as of March 25, 2006 are as follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $9,013 $2,466 $6,547
RETAIL SUPERMARKETS
Amortized intangible assets
Licenses and rights $ - $ - $ -
THE RESTAURANT GROUP
Amortized Intangible Assets
Licenses and rights $ - $ - $ -
FROZEN BEVERAGES
Indefinite lived intangible
assets
Licenses and rights $1,500 $ - $1,500
Amortized intangible assets
Licenses and rights 447 180 267
$1,947 $ 180 $1,767
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. In January 2006, intangible
assets of $1,746,000 were acquired in the ICEE of Hawaii acquisition and
a product
16
license agreement for $100,000 was entered into by the food service
segment. Aggregate amortization expense of intangible assets for the
three months ended March 25, 2006 and March 26, 2005 was $292,000 and
$155,000, respectively and for the six months ended March 25, 2006 and
March 26, 2005 was $575,000 and $278,000, respectively.
Estimated amortization expense for the next five fiscal years is
approximately $1,200,000 in 2006 and 2007,
$1,100,000 in 2008 and $900,000 in 2009 and 2010. The weighted average
amortization period of the amortizable intangible assets is 10.40 years.
Goodwill
The carrying amounts of goodwill for the Food Service, Retail
Supermarket, Restaurant Group and Frozen Beverage segments are as
follows:
Food Retail Restaurant Frozen
Service Supermarket Group Beverages Total
(in thousands)
Balance at
March 25,
2006 $21,386 $ - $386 $32,350 $54,122
Goodwill of $500,000 in the frozen beverages segment was recognized in
connection with the January 2006 acquisition of ICEE of Hawaii.
Note 10 The amortized cost, unrealized gains and losses, and fair
market values of our investment securities available for sale
at March 25, 2006 are summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $55,750 $ - $ - $55,750
Municipal Government
Securities 5,000 - - 5,000
$60,750 $ - $ - $60,750
The amortized cost, unrealized gains and losses, and fair market
values of the Company's investment securities available for sale at
September 24, 2005 are summarized as follows:
17
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $49,225 $ - $ - $49,225
Municipal Government
Securities 5,000 - - 5,000
$54,225 $ - $ - $54,225
Because of the short term nature of our investment securities held
at March 25, 2006 and September 24, 2005, they do not fluctuate from par.
Proceeds from the sale of marketable securities were
$15,550,000 and $9,000,000 in the three and six months ended March 25,
2006, respectively, with no gain or loss recorded. We use the specific
identification method to determine the cost of securities sold.
18
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 $.075 per share of its common stock payable on April 6, 2006
to shareholders of record as of the close of business on March 15, 2006.
In the three months ended March 25, 2006 and March 26, 2005,
fluctuations in the valuation of the Mexican peso caused a decrease of
$59,000 and a decrease of $11,000, respectively, in stockholders' equity
because of the translation of the net assets of the Company's Mexican
frozen beverage subsidiary. In the six month periods, there was a
decrease of $6,000 in fiscal year 2006 and an increase of $56,000 in
fiscal year 2005.
In March 2005, we acquired all of the assets of Snackworks LLC,
d/b/a Bavarian Brothers, a manufacturer of soft pretzels which operates a
production facility in Chambersburg, Pennsylvania and markets its
products under the brand names SERIOUSLY TWISTED!, BAVARIAN BROTHERS and
CINNAPRETZEL. Snackworks sells throughout the continental United States
primarily to mass merchandisers and theatres.
On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE
of Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen
beverages and related products throughout the Hawaiian islands. Annual
sales are approximately $2.3 million.
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.
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
19
in accordance with standard banking practice. There were no outstanding
balances under this facility at March 25, 2006.
Results of Operations
Net sales increased $12,694,000 or 13% for the three months to
$112,044,000 and $22,744,000 or 11% to $220,615,000 for the six months
ended March 25, 2006 compared to the three and six months ended March 26,
2005. Excluding sales from the acquisitions of Snackworks, LLC in March
2005 and ICEE of Hawaii in January 2006, net sales increased $9,771,000
or 10% for the three months and $16,712,000 or 8% for the six months
ended March 25, 2006 compared to the three and six months ended March 26,
2005.
FOOD SERVICE
Sales to food service customers increased $7,911,000 or 12% in the
second quarter to $71,374,000 and increased $21,055,000 or 17% for the
six months. Excluding sales from the acquisition of Snackworks, LLC,
sales to food service customers increased $5,279,000, or 8% in the second
quarter and increased $15,314,000, or 12% for the six months. Soft pretzel
sales to the food service market increased 14% to $23,724,000 in the
second quarter and increased 19% to $47,432,000 in the six months.
Excluding sales from the acquisition of Snackworks, LLC, soft pretzel
sales increased 2% in the second quarter and 4% for the six months.
Italian ice and frozen juice treat and dessert sales increased 15% to
$8,638,000 in the three months and 13% to $15,369,000 in the six months
primarily due to increased sales to school food service customers.
Churro sales to food service customers increased 49% to $5,276,000 in the
second quarter and were up 47% to $10,156,000 in the six months primarily
due to increased sales to two customers. Sales of bakery products
increased $2,111,000 or 7% in the second quarter to $32,697,000 and
increased $8,515,000 or 14% for the six months due primarily to increased
sales to private label customers. 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 increased
$707,000 or 7% to $10,458,000 in the second quarter and increased 6% or
$958,000 in the first half. Soft pretzel sales for the second quarter
were up 2% to $7,277,000 and were up 3% to $12,435,000 for the six
months. Sales of
20
frozen juices and ices decreased $215,000 or 6% to $3,553,000 in the
second quarter and were down 7% to $5,851,000 in the first half. Sales
were down, even though overall case volume of frozen juices and ices were
up 7% in the quarter and 2% in the six months, due to slotting expenses
and increased trade spending incurred to introduce new products. Coupon
costs, a reduction of sales, decreased by $779,000, or 57% in the second
quarter and were down 54%, or $1,108,000, for the six months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 28% to
$1,017,000 in the second quarter and 30% to $2,255,000 for the six month
period. The sales decreases were caused primarily by the closing or
licensing of unprofitable stores over the past year. Sales of stores open
for both year's quarter and six months were down about 3% from last year.
For the quarter, operating income benefitted $59,000 from income related
to the closing or sale of stores compared to a benefit of $135,000 a year
ago related to the settlement of litigation related to closed stores.
Operating income was impacted by approximately $11,000 of store closing
and related costs in the six months compared to $144,000 in the year ago
quarter.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 18% to
$29,195,000 in the second quarter and $1,703,000 or 3% to $54,676,000 in
the six month period. Beverage sales alone increased 1% to $17,593,000 in
the second quarter and were down 1% to $34,725,000 in the six months.
Excluding the benefit of sales from the acquisition of ICEE of Hawaii
during the quarter, beverage sales alone would have been down 1% in the
quarter and 2% in the six months due to a change in a pricing program to
a major customer. Service revenue was essentially flat at $5,633,000 in
the second quarter and $10,935,000 for the six months even though sales
to one customer were down over $600,000 in each of the first two
quarters. Sales of beverage machines were $4,408,000 higher this year
than last in the three month period with sales to two customers
accounting for more than half of the increase. For the six months, sales
of machines were higher by $2,109,000.
CONSOLIDATED
Gross profit as a percentage of sales decreased to
21
31.43% in the three month period from 32.40% last year and decreased to
30.98% in the six month period from 31.43% a year ago. About 1/2 of the
three month and 1/5 of the six month drop in gross profit percentage
resulted from increased sales of lower margin beverage machines in our
frozen beverages segment. We were also impacted by higher commodity
costs of approximately $1,000,000 and $1,600,000 and higher utility costs
of approximately $550,000 and $1,250,000 for the three and six months'
periods, respectively; as well as by slotting expense to introduce new
retail supermarket products. We expect to continue to be impacted by
higher commodity pricing, utility cost increases and slotting costs over
the short term. These cost increases more than offset efficiencies from
higher volume and pricing, which included reduced coupon expense in our
retail supermarkets segment.
Total operating expenses increased $2,729,000 in the second quarter
but as a percentage of sales dropped about 1/2 of one percentage point to
26% of sales from 27% last year. For the first half, operating expenses
increased $5,307,000 but as a percentage of sales dropped about 1/3 of
one percentage point to 26% from 27% last year. Marketing expenses were
13% of sales in all periods and distribution expenses were 9% of sales in
all periods. However, we expect higher gasoline costs and third party
trucking costs to impact our operating income over the short term.
Administrative costs decreased about .20 percentage points to 4% in this
year's second quarter from 5% last year and were 4% of sales for both
years' six months. Other general expense of $29,000 in this year's six
month period compared to $176,000 of other expense last year. The
improvement was due to lower asset writedowns and costs relating to the
early closing of Restaurant Group stores.
Operating income increased $301,000 or 5% to $5,994,000 in the
second quarter and $844,000 or 9% to $10,191,000 in the first half.
Excluding the impact of share-based compensation expense recognized this
year and not last year, operating income increased 12% in the quarter and
16% for the six months.
Investment income increased by $363,000 to $755,000 in this year's
second quarter and by $744,000 to $1,458,000 in the first six months due
primarily to an increase in the general level of interest rates.
The effective income tax rate has been estimated at 38% for the
second quarter and first half this year compared to 37% for last year's
periods. The increase is due to a higher
22
level of state taxes and a lower tax benefit on share-based compensation.
Net earnings increased $347,000 or 9% in the current three month
period to $4,137,000 and increased 14% to
$7,147,000 in the six months this year from $6,272,000 last year.
Excluding the impact of share-based compensation expense recognized this
year and not last year, net earnings increased 16% in the quarter and 21%
for the six months.
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 2005 annual
report on Form 10-K filed with the SEC.
Item 4. Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of
the Company (its principal executive officer and principal
financial officer, respectively) have concluded, based on their
evaluation as of March 25, 2006, that the Company's disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports filed or
submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information
required to be disclosed by the Company in such reports is
accumulated and communicated to the Company's management,
including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
There were no changes in the Company's internal controls over
financial reporting or in other factors that could significantly
affect these controls subsequent to the date of such evaluation.
23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The results of voting at the Annual Meeting of Shareholders held on
February 7, 2006 is as follows:
Votes Cast Absentees
and Broker
For Against Withheld Non Votes
Election of
Peter Stanley
as Director 8,264,232 - 299,949 -
The Company had 9,147,351 shares outstanding on December 10, 2005
the record date.
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) Report on Form 8-K - Reports on Form 8-K were filed on January
23, 2006, January 31, 2006 and February 9, 2006.
24
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: April 20, 2006 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: April 20, 2006 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
25
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 second 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: April 20, 2006
/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 second 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: April 20, 2006
/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 March 26, 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: April 20, 2006
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Dated: April 20, 2006
/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.