UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934
For the period ended December 27, 1997
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 (609) 665-9533
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
As of January 19, 1998, there were 8,889,810 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 27, 1997 and
September 27, 1997.................................... 3
Consolidated Statements of Earnings - Three Months
Ended December 27, 1997 and December 28, 1996......... 5
Consolidated Statements of Cash Flows - Three Months
Ended December 27, 1997 and December 28, 1996......... 6
Notes to the Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................... 12
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 27, September 27,
1997 1997
(Unaudited)
Current assets
Cash and cash equivalents $ 4,727,000 $ 1,401,000
Accounts receivable 24,678,000 25,458,000
Inventories 17,371,000 13,535,000
Prepaid expenses and deposits 1,193,000 853,000
47,969,000 41,247,000
Property, plant and equipment,
at cost
Land 869,000 819,000
Buildings 5,490,000 5,340,000
Plant machinery and equipment 52,668,000 51,891,000
Marketing equipment 118,272,000 90,988,000
Transportation equipment 1,835,000 1,856,000
Office equipment 4,963,000 4,792,000
Improvements 7,971,000 7,837,000
Construction in progress 1,691,000 825,000
193,759,000 164,348,000
Less accumulated depreciation
and amortization 100,760,000 97,126,000
92,999,000 67,222,000
Other assets
Goodwill, trademarks and rights,
less accumulated amortization 45,250,000 21,459,000
Long term investment securities
available for sale - 495,000
Long term investment securities
held to maturity 3,199,000 3,340,000
Sundry 6,444,000 3,064,000
54,893,000 28,358,000
$195,861,000 $136,827,000
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND December 27, September 27,
STOCKHOLDERS' EQUITY 1997 1997
(Unaudited)
Current liabilities
Current maturities of long-
term debt $ 8,317,000 $ 16,000
Accounts payable 16,129,000 13,315,000
Accrued liabilities 12,373,000 8,652,000
36,819,000 21,983,000
Long-term debt, less current
maturities 38,452,000 5,028,000
Revolving credit line 10,000,000 -
Deferred income 521,000 532,000
Deferred income taxes 3,385,000 3,380,000
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000,000
shares; none issued - -
Common, no par value;
authorized, 25,000,000
shares; issued and
outstanding, 8,872,000 and
8,850,000, respectively 37,186,000 36,908,000
Foreign currency translation
adjustment (1,453,000) (1,409,000)
Retained earnings 70,951,000 70,405,000
106,684,000 105,904,000
$195,861,000 $136,827,000
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended
December 27, December 28,
1997 1996
Net Sales $52,191,000 $43,601,000
Cost of goods sold 27,516,000 22,458,000
Gross profit 24,675,000 21,143,000
Operating expenses
Marketing 15,859,000 14,356,000
Distribution 5,009,000 4,453,000
Administrative 2,316,000 1,984,000
Amortization of
intangibles and
deferred costs 527,000 346,000
23,711,000 21,139,000
Operating income 964,000 4,000
Other income (deductions)
Investment income 178,000 255,000
Interest expense (304,000) (93,000)
Sundry 16,000 7,000
Earnings before
income taxes 854,000 173,000
Income taxes 308,000 62,000
NET EARNINGS $ 546,000 $ 111,000
Earnings per common
share $ .06 $ .01
Weighted average number
of shares 9,230,000 8,860,000
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
December 27, December 28,
1997 1996
Operating activities:
Net earnings $ 546,000 $ 111,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of fixed
assets 4,715,000 4,016,000
Amortization of intangibles 640,000 448,000
Other adjustments 191,000 69,000
Changes in assets and liabilities, net
of effects from purchase of companies
Decrease in accounts receivable 3,702,000 1,834,000
Decrease (increase) in inventories 13,000 (219,000)
Increase in prepaid expenses (32,000) (237,000)
Decrease in accounts payable and
accrued liabilities (1,527,000) (2,069,000)
Net cash provided by operating activities 8,248,000 3,953,000
Investing activities:
Purchases of property, plant and equipment (5,427,000) (3,643,000)
Payments for purchases of companies, net of
cash acquired and debt assumed (8,967,000) (11,842,000)
Proceeds from investments held to maturity 135,000 285,000
Proceeds from investments available for sale 495,000 761,000
Other 787,000 151,000
Net cash used in investing activities (12,977,000) (14,288,000)
Financing activities:
Proceeds from issuance of common stock 277,000 9,000
Proceeds from borrowings 50,000,000 -
Payments of long-term debt (42,222,000) (2,000)
Net cash provided by financing activities 8,055,000 7,000
Net increase (decrease) in cash
and cash equivalents 3,326,000 (10,328,000)
Cash and cash equivalents at beginning of period 1,401,000 10,547,000
Cash and cash equivalents at end of period $ 4,727,000 $ 219,000
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.
The results of operations for the three months ended
December 27, 1997 and December 28, 1996 are not necessarily
indicative of results for the full year. Sales of the
Company's retail stores are generally higher in the first
quarter due to the holiday shopping season. Sales of the
Company's frozen carbonated beverages and Italian Ice are
generally higher in the third and fourth quarters due to
warmer weather.
While the Company believes that the disclosures presented
are adequate to make the information not misleading, it is
suggested that these consolidated financial statements be
read in conjunction with the consolidated financial
statements and the notes included in the Company's Annual
Report on Form 10-K for the year ended September 27, 1997.
Note 2 Earnings per share are based on the weighted average number
of common shares outstanding, including common stock equivalents
(stock options).
Note 3 Inventories consist of the following:
December 27, September 27,
1997 1997
Finished goods $ 9,649,000 $ 7,108,000
Raw materials 1,790,000 1,789,000
Packaging materials 1,973,000 2,262,000
Equipment parts & other 3,959,000 2,376,000
$17,371,000 $13,535,000
Note 4 The amortized cost, unrealized gains and losses, and fair
market values of the Company's investment securities held
to maturity at December 27, 1997 are summarized as follows:
7
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses
Value
Held to Maturity Securities
Corporate Debt Securities $ 964,000 $ 16,000 $ - $ 980,000
Municipal Government Securities 1,735,000 16,000 - 1,751,000
Other 500,000 - - 500,000
$3,199,000 $ 32,000 $ - $3,231,000
The amortized cost, unrealized gains and losses, and fair market
values of the Company's available for sale and held to maturity
securities held at September 27, 1997 are summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale
Corporate debt securities $ 495,000 $ - $ - $ 495,000
Held to maturity
Corporate debt securities $ 970,000 $19,000 $ - $ 989,000
Municipal government securities 1,870,000 3,000 (8,000) 1,865,000
Other debt securities 500,000 - - 500,000
$3,340,000 $22,000 $ (8,000) $3,354,000
Note 5 To fund the acquisition of National ICEE Corporation, and to
retire most of its debt, the Company incurred the following
debt:
$40,000,000 unsecured term note, at an interest rate of 6.61%
fixed through swap agreements, with 60 monthly principal
payments of $666,667 plus interest beginning January 8, 1998.
At December 27, 1997, $8,000,000 of the note was classified
under current maturities of long-term debt.
$10,000,000 borrowing under a $30,000,000 unsecured general
purpose bank line of credit. Interest payments on the balance
borrowed under the line are made monthly. The interest rate on
the outstanding borrowings under the line was 6.50% at December
27, 1997. At December 27, 1997, the $10,000,000 borrowing was
classified as a long-term liability.
8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's current cash and marketable securities balances and
cash expected to be provided by future operations are its primary
sources of liquidity. The Company believes that these sources, along
with its borrowing capacity, are sufficient to fund future growth and
expansion.
In the quarter ended December 27, 1997, the devaluation of the
Mexican peso caused a reduction of $44,000 in stockholders' equity
because of the revaluation of the net assets of the Company's Mexican
frozen carbonated beverage subsidiary.
In December 1997, the Company acquired the common stock of
National ICEE Corporation, a marketer and distributor of frozen
carbonated beverages under the tradename ICEE, with approximate annual
sales of $40,000,000. As a result of the acquisition, the Company now
has the rights to market and distribute frozen carbonated beverages
under the name ICEE to all of the continental United States, except for
portions of eleven states.
The purchase price paid to the former shareholders of National
ICEE Corporation was $9,000,000 in the form of cash. Additionally, the
Company assumed approximately $44,000,000 of debt, of which
approximately $42,000,000 was retired at closing. The source of cash
utilized to retire the debt and to fund the purchase price was a
$40,000,000 unsecured term loan and an unsecured revolving line of
credit with the Company's existing banks.
In January 1997, the Company acquired the assets of Mama Tish's
International Foods for the assumption of some of its liabilities.
Mama Tish is a manufacturer and distributor of Italian ices, sorbets
and other frozen juice products with annual sales of approximately $15
million.
In November 1996, the Company acquired all of the common stock of
Pretzels, Inc. for cash. Trading as Texas Twist, Pretzels, Inc. is a
soft pretzel manufacturer selling to both the food service and retail
supermarket industries with annual sales of approximately $1.4 million.
In October 1996, the Company acquired the assets of Bakers Best
Snack Foods Corp. for cash. Bakers Best is a manufacturer of soft
pretzels selling to both the food service and retail supermarket
industries with annual sales of approximately $4 million.
Available to the Company are unsecured general purpose bank lines
of credit totalling $30,000,000. Borrowings under the lines at
December 27, 1997 were
$10,000,000.
Results of Operations
Net sales increased $8,590,000 or 20% to $52,191,000 for the three
months ended December 27, 1997 compared to the three months ended
December 28, 1996.
9
Excluding sales of acquired businesses, net sales increased $5,562,000
or 13% for the quarter.
Sales to food service customers increased $980,000 or 5% in the
first quarter to $22,670,000. Excluding sales of acquired businesses,
sales to food service customers increased $112,000 or less than 1% for
the period. Soft pretzel sales to the food service market decreased
less than 1% to $14,384,000 in the quarter. Excluding sales of
acquired businesses, food service soft pretzel sales decreased $300,000
or 2%. Soft pretzel unit volume declined approximately 5%. Italian
ice and frozen juice treat and dessert sales increased 23% to
$4,342,000 in the three months. Approximately 75% of the Italian ice
and frozen juice and dessert sales increase was from sales of an
acquired business. Churro sales to food service customers were
$2,476,000, essentially unchanged from last year.
Sales of products to retail supermarkets decreased $569,000 or 8%
to $6,857,000 in the first quarter. Excluding sales of an acquired
business, sales to retail supermarkets decreased 12%. Soft pretzel
sales for the first quarter were down 22% to $4,947,000 due to an
overall decline in category unit volume. Sales of the flagship
SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX and CINNAMON
RAISIN, decreased 14% in the first quarter. Sales of Italian Ice
increased $615,000 or 70% to $1,498,000 in the first quarter.
Excluding sales of an acquired business, Italian Ice sales increased
$279,000 or 32%.
Frozen carbonated beverage and related product sales increased
$4,187,000 or 51% to $12,477,000 in the first quarter. Beverage sales
alone increased 31% to $10,053,000. Excluding sales resulting from the
acquisition of National ICEE Corporation in December 1997, frozen
carbonated beverage and related product sales increased $2,471,000 or
30% from last year and beverage sales alone increased 11%.
Approximately $1,725,000 of the $2,471,000 sales increase was from
sales of equipment and service revenue.
Bakery sales increased $3,653,000 or 142% to $6,222,000 in the
first quarter due to increased product sales to one customer. Sales of
Bavarian Pretzel Bakery increased $339,000 or 9% to $3,965,000 in the
quarter from last year. Approximately one third of the increase came
from sales of an acquired business.
Gross profit as a percentage of sales decreased to 47% in the
current first quarter from 48% in the year ago period. This gross
profit percentage decrease is primarily attributable to lower gross
profit percentages of the increased bakery and frozen carbonated
beverage equipment sales.
Total operating expenses increased $2,572,000 in the first quarter
and as a percentage of sales decreased to 45% from 48% in last year's
same quarter. Marketing expenses decreased to 30% of sales from 33% in
last year's first quarter. The decrease in marketing expense as a
percent of sales is attributable primarily to the increased bakery and
frozen carbonated beverage equipment sales which incurred relatively
little marketing expense. Distribution expenses were 10% of sales in
both year's first quarter. Administrative expenses decreased
fractionally to 4% of sales from 5% of sales last year. Amortization
of intangibles and deferred costs increased to $527,000 from $346,000
because of the amortization of goodwill of acquired businesses.
10
Operating income increased $960,000 to $964,000 in the first
quarter from $4,000 in last year's quarter.
Investment income decreased $77,000 to $178,000 in the quarter
from last year due primarily to a lower level of investable funds.
Interest expense increased $211,000 from last year's quarter to
$304,000 this year due to the assumption and subsequent refinancing of
the debt of National ICEE Corporation.
The effective income tax rate has been estimated at 36% in both
three month periods.
Net earnings increased $435,000 or 392% in the current three month
period to $546,000. Without National ICEE Corporation's seasonal loss,
net earnings would have been approximately $730,000.
11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - A report on Form 8-K
was filed on December 23, 1997.
12
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: February 10, 1998 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: February 10, 1998 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
13
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: February 10, 1998
Gerald B. Shreiber
President
Dated: February 10, 1998
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
13