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 24, 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 July 16, 2006, there were 18,459,201 shares of the
Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets - June 24, 2006
(unaudited) and September 24, 2005 3
Consolidated Statements of Operations (unaudited)
- Three Months and Nine Months Ended June 24,
2006 and June 25, 2005 5
Consolidated Statements of Cash Flows (unaudited)
- Nine Months Ended June 24, 2006 and June 25,
2005 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 26
Item 4. Controls and Procedures 26
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 27
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 24, September 24,
2006 2005
(Unaudited)
Current assets
Cash and cash equivalents $ 13,247 $ 15,795
Marketable securities 45,650 54,225
Accounts receivable, net 58,952 46,921
Inventories 40,810 33,684
Prepaid expenses and other 1,542 1,215
Deferred income taxes 2,444 2,393
162,645 154,233
Property, plant and equipment,
at cost
Land 556 556
Buildings 4,497 4,497
Plant machinery and
equipment 106,631 105,815
Marketing equipment 188,132 188,601
Transportation equipment 1,472 1,271
Office equipment 8,572 8,966
Improvements 15,162 15,083
Construction in progress 3,504 1,354
328,526 326,143
Less accumulated deprecia-
tion and amortization 245,023 237,098
83,503 89,045
Other assets
Goodwill 57,109 53,622
Other intangible assets, net 23,146 7,043
Other 2,980 1,981
83,235 62,646
$329,383 $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 June 24, September 24,
STOCKHOLDERS' EQUITY 2006 2005
(unaudited)
Current liabilities
Accounts payable $ 43,045 $ 37,029
Accrued liabilities 15,210 14,731
Dividends payable 1,383 1,142
59,638 52,902
Deferred income taxes 17,987 17,987
Other long-term liabilities 696 273
18,683 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, 18,446 and
18,272 shares, respectively 38,793 36,091
Accumulated other comprehen-
sive loss (2,121) (1,918)
Retained earnings 214,390 200,589
251,062 234,762
$329,383 $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 Nine months ended
June 24, June 25, June 24, June 25,
2006 2005 2006 2005
Net Sales $140,132 $129,452 $360,747 $327,323
(1)
Cost of goods sold 89,399 83,177 241,671 218,856
Gross profit 50,733 46,275 119,076 108,467
Operating expenses
(2)
Marketing 16,175 15,799 44,187 41,451
(3)
Distribution 12,050 10,541 32,545 28,763
(4)
Administrative 4,638 4,445 14,254 13,240
Impairment charge 1,193 - 1,193 -
Other general
(income)expense (71) (47) (42) 129
33,985 30,738 92,137 83,583
Operating income 16,748 15,537 26,939 24,884
Other income(expenses)
Investment income 786 429 2,244 1,143
Interest expense
and other (40) (45) (99) (103)
Earnings before
income taxes 17,494 15,921 29,084 25,924
Income taxes 6,708 6,042 11,151 9,773
NET EARNINGS $ 10,786 $ 9,879 $ 17,933 $ 16,151
Earnings per
diluted share $ .57 $ .53 $ .95 $ .87
Weighted average number
of diluted shares 18,866 18,648 18,792 18,566
Earnings per
basic share $ .58 $ .54 $ .97 $ .89
Weighted average number
of basic shares 18,469 18,242 18,394 18,156
(1) Includes share-based compensation expense of $80 and $221 for
the three and nine months ended June 24, 2006, respectively.
(2) Includes share-based compensation expense of $155 and $427 for
the three and nine months ended June 24, 2006, respectively.
(3) Includes share-based compensation expense of $7 and $19 for
the three and nine months ended June 24, 2006, respectively.
(4) Includes share-based compensation expense of $108 and $300 for
the three and nine months ended June 24, 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)
Nine months ended
June 24, June 25,
2006 2005
Operating activities:
Net earnings $17,933 $16,151
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 17,125 17,255
Amortization of intangibles
and deferred costs 1,220 828
Share-based compensation 967 -
Deferred income taxes (51) -
Loss from disposals and impairment of
property, plant and equipment 1,127 39
Changes in assets and liabilities,
net of effects from purchase of
companies
Increase in accounts receivable (10,051) (2,855)
Increase in inventories (4,880) (4,943)
Increase in prepaid expenses (239) (85)
Increase in accounts payable
and accrued liabilities 5,920 4,544
Net cash provided by operating
activities 29,071 30,934
Investing activities:
Purchase of property, plant
and equipment (12,792) (15,583)
Payments for purchases of companies,
net of cash acquired (25,152) (16,088)
Purchase of marketable securities (24,075)
(17,400)
Proceeds from sales of marketable
securities 32,650 14,000
Proceeds from disposals of
property and equipment 750 604
Other (532) (377)
Net cash used in investing
activities (29,151) (34,844)
Financing activities:
Proceeds from issuance of stock 1,624 1,881
Payments of cash dividend (3,889) (2,260)
Net cash used in financing
activities (2,265) (379)
Effect of exchange rate on cash
and cash equivalents (203) 172
Net decrease in cash
and cash equivalents (2,548) (4,117)
Cash and cash equivalents at
beginning of period 15,795 19,600
Cash and cash equivalents at
end of period $13,247 $15,483
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 24, 2006 and June 25, 2005
are not necessarily indicative of results for the
full year. 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 consideration 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
term of the lease or the assets' estimated useful
lives, whichever is shorter. Licenses and rights
arising from acquisitions are amortized by the
7
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 June 24, 2006
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $10,786 18,469 $ .58
Effect of Dilutive Securities
Options - 397 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $10,786 18,866 $ .57
Nine Months Ended June 24, 2006
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $17,933 18,394 $ .97
Effect of Dilutive Securities
Options - 398 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $17,933 18,792 $ .95
8
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 18,242 $ .54
Effect of Dilutive Securities
Options - 406 ( .01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $9,879 18,648 $ .53
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 18,156 $ .89
Effect of Dilutive Securities
Options - 410 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $16,151 18,566 $ .87
9
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.
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
10
compensation cost using the Black-Scholes option
pricing model.
At June 24, 2006, the Company has two stock-based
employee compensation plans. Share-based
compensation of $277,000, net of a tax benefit of
$73,000, or $.015 per share, was recognized for the
three months ended June 24, 2006. For the nine
months ended June 24, 2006, share-based compensation
expense of $699,000, net of a tax benefit of
$268,000, or $.037 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
September 30, 2006. At June 24, 2006, the Company
has unrecognized compensation expense of
approximately $1.8 million to be recognized over the
next three fiscal years. Reported net income,
adjusting for share-based compensation that would
have been recognized in last year's quarter if
Statement 123(R) had been followed is (all share
amounts reflect the 2-for-1 stock split effective
January 5, 2006):
11
Three Months Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2006 2005 2006 2005
Net income,
as reported $10,786 $9,879 $17,933 $16,151
Less: stock-based
compensation
costs determined
under fair value
based method for
all awards, net
of tax - 210 - 629
Adjusted net income $10,786 $9,669 $17,933 $15,522
Earnings per share
of common stock -
basic
As reported $ .58 $ .54 $ .97 $ .89
Share-based compensation
costs - (.01) - (.04)
Adjusted net
earnings $ .58 $ .53 $ .97 $ .85
Earnings per share
of common stock -
diluted:
As reported $ .57 $ .53 $ .95 $ .87
Share-based compensation
costs - (.01) - (.03)
Adjusted net
earnings $ .57 $ .52 $ .95 $ .84
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 4.38%
and expected lives ranging between 5 and 10 years.
Expected volatility is based on the historical
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
12
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 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
13
June 15, 2005 and should be applied prospectively.
Since we essentially follow the guidelines of
Statement 151, the adoption did not have a material
impact on our financial statements.
In June 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109
(SFAS 109).
FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an entity's financial
statements in accordance with SFAS 109. FIN 48
prescribes a recognition threshold and measurement
attribute for the financial statement recognition
and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest
and penalties, accounting in interim periods,
disclosure and transition.
FIN 48 also provides guidance on financial reporting
and classification of differences between tax
positions taken in a tax return and amounts
recognized in the financial statements.
FIN 48 is effective for fiscal years beginning after
December 15, 2006; earlier application is
encouraged. We are currently evaluating the
provisions of FIN 48 to determine its impact on our
financial statements, but presently we anticipate
that its adoption will not have a material impact on
our financial statements.
Note 7 Inventories consist of the following:
June 24, September 24,
2006 2005
(in thousands)
Finished goods $21,563 $16,016
Raw materials 5,508 4,935
Packaging materials 3,866 3,485
Equipment parts & other 9,873 9,248
$40,810 $33,684
Note 8 Operating expenses include an impairment charge of
$1,193,000 in the foodservice segment in the three
and nine month periods for the writedown of robotic
14
packaging equipment based on a determination made
during the quarter that we would not be able to make
the equipment work as intended.
Note 9 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 frozen
novelties and TIO PEPE'S Churros. Within the retail
supermarket industry, our frozen and prepackaged
products are purchased by the consumer for
consumption at home.
15
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:
16
Three Months Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2006 2005 2006 2005
(in thousands)
Sales to External Customers:
Food Service $ 82,979 $ 78,031 $228,969 $202,966
Retail Supermarket 14,510 12,742 32,204 29,478
Restaurant Group 824 1,152 3,079 4,379
Frozen Beverages 41,819 37,527 96,495 90,500
$140,132 $129,452 $360,747 $327,323
Depreciation and Amortization:
Food Service $ 3,492 $ 3,605 $ 10,510 $ 10,202
Retail Supermarket - - - -
Restaurant Group 24 52 82 170
Frozen Beverages 2,593 2,629 7,753 7,711
$ 6,109 $ 6,286 $ 18,345 $ 18,083
Operating Income(Loss):
(1)
Food Service $ 9,283 $ 8,115 $ 21,097 $ 18,340
(2)
Retail Supermarket 729 1,191 1,003 1,667
Restaurant Group (81) (110) (45) (347)
(3)
Frozen Beverages 6,817 6,341 4,884 5,224
$ 16,748 $ 15,537 $ 26,939 $ 24,884
Capital Expenditures:
Food Service $ 2,756 $ 2,256 $ 7,843 $ 6,450
Retail Supermarket - - - -
Restaurant Group 2 - 2 40
Frozen Beverages 1,940 3,499 4,947 9,093
$ 4,698 $ 5,755 $ 12,792 $ 15,583
Assets:
Food Service $204,117 $200,682 $204,117 $200,682
Retail Supermarket - - - -
Restaurant Group 871 1,062 871 1,062
Frozen Beverages 124,395 96,167 124,395 96,167
$329,383 $297,911 $329,383 $297,911
(1) Includes share-based compensation expense of $248 and $686
for the three and nine months ended June 24, 2006, respectively.
(2) Includes share-based compensation expense of $17 and $47
for the three and nine months ended June 24, 2006, respectively.
(3) Includes share-based compensation expense of $85 and $234 for
the three and nine months ended June 24, 2006, respectively.
17
Note 10 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.
Our four reporting units, which are also reportable
segments, are Food Service, Retail Supermarkets,
The Restaurant Group and Frozen Beverages.
The carrying amount of acquired intangible assets
for the Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverage segments as of
June 24, 2006 are as follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $ 9,013 $2,748 $ 6,265
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 $ 8,960 $ - $ 8,960
Amortized intangible assets
Licenses and rights $ 8,175 $ 254 $ 7,921
$17,135 $ 254 $16,881
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
18
operating expenses. In January 2006, intangible assets of
$1,746,000 were acquired in the ICEE of Hawaii acquisition
and a product license agreement for $100,000 was entered
into by the food service segment. In May 2006, intangible
assets of $15,188,000 were acquired in the SLUSH PUPPIE
acquisition. Aggregate amortization expense of intangible
assets for the three months ended June 24, 2006 and June
25, 2005 was $356,000 and $403,000, respectively and for
the nine months ended June 24, 2006 and June 25, 2005 was
$931,000 and $681,000, respectively.
Estimated amortization expense for the next five
fiscal years is approximately $1,400,000 in 2006,
$1,900,000 in 2007 and 2008 and $1,600,000 in 2009 and
2010. The weighted average amortization period of the
intangible assets is 10.24 years.
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 24,
2006 $21,386 $ - $386 $35,337 $57,109
Goodwill of $500,000 in the frozen beverages segment
was acquired in the January 2006 acquisition of ICEE of
Hawaii. Goodwill of $2,987,000 in the frozen beverages
segment was acquired in the May 2006 acquisition of the
SLUSH PUPPIE branded business.
Note 11 The amortized cost, unrealized gains and losses,
and fair market values of our investment securities
available for sale at June 24, 2006 are summarized
as follows:
19
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
Available for Sale
Securities
Equity Securities $40,650 $ - $ - $40,650
Municipal Government
Securities 5,000 - - 5,000
$45,650 $ - $ - $45,650
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:
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 June 24, 2006 and September 24, 2005,
they do not fluctuate from par.
Proceeds from the sale of marketable securities were
$17,100,000 and $32,650,000 in the three and nine months
ended June 24, 2006, respectively, with no gain or loss
recognized. We use the specific identification method to
determine the cost of securities sold.
20
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 July 6, 2006 to shareholders of record as
of the close of business on June 15, 2006.
In the three months ended June 24, 2006 and June 25,
2005, fluctuations in the valuation of the Mexican peso
caused a decrease of $197,000 and a increase of $116,000,
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 a decrease of $203,000 in fiscal year 2006 and a
increase of $172,000 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.
On May 26, 2006, The ICEE Company, our frozen carbonated
beverage distribution company, acquired the SLUSH PUPPIE
branded business from Dr. Pepper/Seven Up, Inc., a Cadbury
Schweppes Americas Beverages Company for $18.1 million plus
approximately $4.7 in working capital. SLUSH PUPPIE, North
America's leading brand for frozen non-carbonated beverages,
is sold through an existing established distributor network to
over 20,000 locations in the United States and Canada as well
21
as to certain international markets. Sales of the SLUSH
PUPPIE business were approximately $18 million in 2005. The
allocation of the purchase price is as follows:
(in thousands)
Working capital $ 4,650
Property, plant and equipment 25
Prepaid license 1,400
Trade names 7,460
Customer relationships 6,180
Covenant not to compete 148
Goodwill 2,987
$22,850
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
in accordance with standard banking practice. There were no
outstanding balances under this facility at June 24, 2006.
Results of Operations
Net sales increased $10,680,000 or 8% for the three
months to $140,132,000 and $33,424,000 or 10% to
$360,747,000 for the nine months ended June 24, 2006
compared to the three and nine months ended June 25, 2005.
Excluding sales from the acquisitions of Snackworks, LLC in
March 2005, ICEE of Hawaii in January 2006 and SLUSH PUPPIE
in May 2006, net sales increased $8,092,000 or 6% for the
three months and $24,804,000 or 8% for the nine months
ended June 24, 2006 compared to the three and nine months
ended June 25, 2005.
FOOD SERVICE
Sales to food service customers increased $4,948,000
or 6% in the third quarter to $82,979,000 and increased
$26,003,000 or 13% for the nine months. Excluding sales
from the acquisition of Snackworks, LLC, sales to food
service customers increased $20,262,000 or 10% for the nine
months. Soft pretzel sales to the food service market
increased 7% to $25,937,000 in the third quarter and 14% to
$73,369,000 in the nine months. Excluding sales from the
acquisition of Snackworks, LLC, soft pretzel sales
22
increased 5% for the nine months. Much of the increase for
the quarter and year to date resulted from new business
generated by Snackworks' products. Italian ice and frozen
juice treat and dessert sales increased 2%, or $290,000, to
$13,692,000 in the three months and increased 8%, or
$2,052,000, to $29,061,000 in the nine months due primarily
to strong sales increases to school foodservice customers,
offset somewhat in the third quarter by lower sales to
warehouse club stores. Churro sales to food service
customers increased 60% to $6,101,000 in the third quarter
and increased 52% to $16,257,000 in the nine months
primarily due to increased sales to one customer. Sales of
bakery products were essentially flat at $33,896,000 in the
third quarter and increased $8,477,000 or 9% for the nine
months due primarily to increased sales to private label
customers. Bakery product sales were impacted by the loss
of one customer which accounted for $1.2 million of sales
in last year's third quarter. In the third quarter, sales
of our funnel cake product were up $568,000, or 23%, and in
the nine months were up $606,000, or 14% due to increased
sales to one 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 increased
$1,768,000 or 14% to $14,510,000 in the third quarter and
increased $2,726,000, or 9%, in the nine months. Soft
pretzel sales increased 1% to $4,976,000 for the quarter
and increased 2% to $17,411,000 for the nine months due
entirely to price increases. Sales of frozen juices and
ices increased $1,201,000 or 14% to $9,881,000 in the third
quarter and $753,000 or 5% to $15,732,000 in the nine
months. Case sales of frozen juices and ices products were
up 17% in the quarter and 11% for the nine months due to
the introduction of several new products. Coupon costs, a
reduction of sales, decreased by $563,000, or 54%, in the
third quarter and by $1,671,000, or 54% in the nine months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 28% to
$824,000 in the third quarter and 30% to $3,079,000 for the
nine month period. The sales decreases were caused
primarily by the closing or licensing of unprofitable
stores in the past year. Sales of stores open for both
year's quarter and nine months were down about 3% from last
year. Operating income was impacted by approximately
23
$18,000 of store closing and related costs in the nine
month period compared to $108,000 in the year ago period.
FROZEN BEVERAGES
Frozen beverage and related product sales increased
$4,292,000 or 11% to $41,819,000 in the third quarter and
$5,995,000 or 7% to $96,495,000 in the nine months.
Excluding the benefit of sales from the acquisitions of
ICEE of Hawaii and SLUSH PUPPIE, frozen beverages and
related product sales would have been up 5% for the quarter
and 3% for the nine months. Beverage sales alone were up
8% to $28,911,000 in the third quarter and 3% to
$63,636,000 in the nine months. Excluding the benefit of
sales from the acquisitions, beverage sales alone would
have been unchanged in the quarter and down 1% in the nine
months due to a change in a pricing program to a major
customer. Service revenue increased 5% to $6,911,000 in
the third quarter and 2% to $17,846,000 in the nine months
even though sales to one customer were down about $300,000
in the quarter and $1,600,000 for the nine months. Sales of
beverage machines were $3,868,000 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 $1,759,000 compared to
last year.
CONSOLIDATED
Gross profit as a percentage of sales increased to
36.20% in the three month period from 35.75% last year but
decreased to 33.01% in the nine month period from 33.14% a
year ago. The nine month drop in gross profit percentage
resulted from increased sales of lower margin beverage
machines in our frozen beverages segment. The third
quarter improvement in gross profit percentage resulted
from efficiencies from higher volume and pricing, which
included reduced coupon expense in our retail supermarkets
segment, which more than offset continuing commodity and
utility cost increases as well as slotting expense to
introduce new retail supermarket products. We were
impacted by higher commodity and packaging costs of
approximately $1,500,000 and $3,100,000 and higher utility
costs of approximately $450,000 and $1,700,000 for the
three and nine month periods, respectively. We expect to
continue to be impacted by higher commodity and packaging
pricing, utility cost increases and slotting costs over the
short term.
24
Total operating expenses increased $3,247,000 in the
third quarter but as a percentage of sales were 24% in both
year's quarters. For the nine months, operating expenses
increased $8,554,000 but as a percentage of sales were 26%
for both years. Marketing expenses were at 12% in both
years' three month period although they dropped about 3/4 of
a percentage point as a percent of sales in the period. For
the nine months, marketing expenses dropped about 4/10% of
a percentage point to 12% from 13% last year. The
percentage decreases were the result of controlled spending
throughout all of our businesses and the increased level of
sales. Distribution expenses increased about 1/2 of a
percentage point to 9% in the three months, primarily
because of higher fuel and third party trucking costs and
were 9% of sales in both year's nine month period. We
expect higher gasoline costs and third party trucking costs
to continue to impact our operating income over the short
term. Administrative expenses as a percent of sales were
3% in both years' third quarter and were 4% for the nine
months in both years. Operating expenses include an
impairment charge of $1,193,000 in the food service segment
in the three and nine month periods for the writedown of
robotic packaging equipment based on a determination made
during the quarter that we would not be able to make the
equipment work as intended.
Operating income increased $1,211,000 or 8% to
$16,748,000 in the third quarter and $2,055,000 or 8% to
$26,939,000 in the nine months as a result of the
aforementioned. Operating income also benefitted by lower
group health insurance costs of about $300,000 in the
quarter and $850,000 for the nine months. Excluding the
impact of share-based compensation expense recognized this
year and not last year, operating income increased 10% for
the quarter and 12% for the nine months. Excluding the
impact of share-based compensation expense recognized this
year and not last year and excluding the impact of the
writedown of impaired robotic packaging equipment,
operating income increased 18% for the quarter and 17% for
the nine months.
Investment income increased by $357,000 to $786,000 in
this year's third quarter and by $1,101,000 to $2,244,000
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 this year
compared to 37% in last year's periods due a higher level
25
of state taxes and a lower tax benefit on share-based
compensation.
Net earnings increased $907,000 or 9% in the three
month period to $10,786,000 and increased 11% or $1,782,000
in the nine months this year from $16,151,000 last year.
Excluding the impact of share-based compensation expense
recognized this year and not last year, net earnings
increased 12% for the quarter and 15% for the year.
Excluding the impact of share-based compensation expense
recognized this year and not last year and excluding the
impact of the writedown of impaired robotic packaging
equipment, net earnings increased 19% for the quarter and
20% for the 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
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 June 24, 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
26
factors that could significantly affect these controls
subsequent to the date of such evaluation.
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.
99.6 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, 2006, May 25, 2006 and May 31,
2006
27
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 24, 2006 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: July 24, 2006 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
28
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 24, 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 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 24, 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), the undersigned officer 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 24, 2006 (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 24, 2006
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial 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.
Exhibit 99.6
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), the undersigned officer 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 24, 2006 (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 24, 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.