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 28, 1998
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 April 20, 1998, there were 8,971,550 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 28, 1998 and
September 27, 1997................................... 3
Consolidated Statements of Earnings - Three Months and
Six Months Ended March 28, 1998 and March 29, 1997... 5
Consolidated Statements of Cash Flows - Six Months
Ended March 28, 1998 and March 29, 1997.............. 6
Notes to the Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.14
Item 6. Exhibits and Reports on Form 8-K....................14
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 28, September 27,
1998 1997
(Unaudited)
Current assets
Cash and cash equivalents $ 2,984,000 $ 1,401,000
Accounts receivable 28,738,000 25,458,000
Inventories 14,858,000 13,535,000
Prepaid expenses and deposits 1,431,000 853,000
48,011,000 41,247,000
Property, plant and equipment,
at cost
Land 839,000 819,000
Buildings 5,432,000 5,340,000
Plant machinery and equipment 53,492,000 51,891,000
Marketing equipment 123,948,000 90,988,000
Transportation equipment 2,174,000 1,856,000
Office equipment 5,089,000 4,792,000
Improvements 7,935,000 7,837,000
Construction in progress 6,283,000 825,000
205,192,000 164,348,000
Less accumulated depreciation
and amortization 104,671,000 97,126,000
100,521,000 67,222,000
Other assets
Goodwill, trademarks and rights,
less accumulated amortization 39,521,000 21,459,000
Long term investment securities
available for sale - 495,000
Long term investment securities
held to maturity 3,168,000 3,340,000
Sundry 6,934,000 3,064,000
49,623,000 28,358,000
$198,155,000 $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 March 28, September 27,
STOCKHOLDERS' EQUITY 1998 1997
(Unaudited)
Current liabilities
Current maturities of long-
term debt $ 8,362,000 $ 16,000
Accounts payable 19,034,000 13,315,000
Accrued liabilities 9,208,000 8,652,000
36,604,000 21,983,000
Long-term debt, less current
maturities 36,416,000 5,028,000
Revolving credit line 13,000,000 -
Deferred income 537,000 532,000
Deferred income taxes 3,377,000 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, 8,943,000 and
8,850,000, respectively 38,026,000 36,908,000
Foreign currency translation
adjustment (1,501,000) (1,409,000)
Retained earnings 71,696,000 70,405,000
108,221,000 105,904,000
$198,155,000 $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 Six months ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
Net Sales $58,868,000 $50,305,000 $111,059,000 $93,906,000
Cost of goods sold 29,037,000 25,909,000 56,553,000 48,367,000
Gross profit 29,831,000 24,396,000 54,506,000 45,539,000
Operating expenses
Marketing 18,181,000 15,706,000 34,040,000 30,062,000
Distribution 5,983,000 4,664,000 10,992,000 9,117,000
Administrative 2,700,000 2,194,000 5,016,000 4,178,000
Amortization of
intangibles and
deferred costs 682,000 436,000 1,209,000 782,000
27,546,000 23,000,000 51,257,000 44,139,000
Operating income 2,285,000 1,396,000 3,249,000 1,400,000
Other income (deductions)
Investment income 119,000 141,000 297,000 396,000
Interest expense (901,000) (122,000) (1,205,000) (215,000)
Sundry (308,000) 26,000 (292,000) 33,000
Earnings before
income taxes 1,195,000 1,441,000 2,049,000 1,614,000
Income taxes 450,000 535,000 758,000 597,000
NET EARNINGS $ 745,000 $ 906,000 $ 1,291,000 $1,017,000
Earnings per diluted
share $ .08 $ .10 $ .14 $ .11
Weighted average number
of diluted shares 9,249,000 8,910,000 9,230,000 8,888,000
Earnings per basic
share $ .08 $ .10 $ .15 $ .12
Weighted average number
of basic shares 8,896,000 8,763,000 8,881,000 8,757,000
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
March 28, March 29
1998 1997
Operating activities:
Net earnings $ 1,291,000 $ 1,017,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of fixed
assets 10,400,000 8,241,000
Amortization of intangibles 1,462,000 969,000
Other adjustments 181,000 58,000
Changes in assets and liabilities, net
of effects from purchase of companies
Increase in accounts receivable (422,000) (4,686,000)
Decrease (increase) in inventories 2,308,000 (1,996,000)
Increase in prepaid expenses (272,000) (209,000)
Increase in accounts payable
and accrued liabilities 2,485,000 2,563,000
Net cash provided by operating activities 17,433,000 5,957,000
Investing activities:
Purchases of property, plant and equipment (14,892,000) (6,927,000)
Payments for purchases of companies, net of
cash acquired and debt assumed (11,953,000)(19,052,000)
Proceeds from investments held to maturity 160,000 6,075,000
Proceeds from investments available for sale 495,000 1,710,000
Other 435,000 60,000
Net cash used in investing activities (25,755,000)(18,134,000)
Financing activities:
Proceeds from borrowings 53,075,000 2,000,000
Proceeds from issuance of common stock 1,118,000 120,000
Payments of long-term debt (44,288,000) (4,000)
Net cash provided by financing activities 9,905,000 2,116,000
Net (decrease) increase in cash
and cash equivalents 1,583,000 (10,061,000)
Cash and cash equivalents at beginning of period 1,401,000 10,547,000
Cash and cash equivalents at end of period $ 2,984,000 $ 486,000
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 and six
months ended March 28, 1998 and March 29, 1997 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 products are generally higher in the third
and fourth quarters due to seasonal factors.
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 The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," which eliminates primary and fully
diluted earnings per share and requires presentation of
basic and diluted earnings per share in conjunction with
the disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to
common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per
share take into account the potential dilution that could
occur if securities or other contracts to issue common
stock were exercised and converted into common stock.
Earnings per share calculations for 1997 have been
restated to reflect the adoption of SFAS No. 128.
The Company's calculation of earnings per share in
accordance with SFAS No. 128, "Earnings Per Share,"
is as follows:
Three Months Ended March 28, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $745,000 8,896,000 $.08
Effect of Dilutive Securities
Options - 353,000 -
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $745,000 9,249,000 $.08
7
Six Months Ended March 28, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $1,291,000 8,881,000 $.15
Effect of Dilutive Securities
Options - 349,000 (.01)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $1,291,000 9,230,000 $.14
Three Months Ended March 29, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $ 906,000 8,763,000 $.10
Effect of Dilutive Securities
Options - 147,000 -
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $ 906,000 8,910,000 $.10
Six Months Ended March 29, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $1,017,000 8,757,000 $.12
Effect of Dilutive Securities
Options - 131,000 (.01)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $1,017,000 8,888,000 $.11
8
Note 3 Inventories consist of the following:
March 28, September 27,
1998 1997
Finished goods $ 7,550,000 $ 7,108,000
Raw materials 1,701,000 1,789,000
Packaging materials 1,829,000 2,262,000
Equipment parts & other 3,778,000 2,376,000
$14,858,000 $13,535,000
Note 4 The amortized cost, unrealized gains and losses, and fair
market values of the Company's long-term investment
securities held to maturity at March 28, 1998 are
summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to Maturity Securities
Corporate Debt Securities $ 958,000 $70,000 $ - $1,028,000
Municipal Government Securities 1,710,000 15,000 - 1,725,000
Other 500,000 - - 500,000
$3,168,000 $85,000 $ - $3,253,000
The amortized cost, unrealized gains and losses, and fair market
values of the Company's long-term investment securities available for
sale and held to maturity 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 securities
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 in
December 1997, 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 March 28, 1998, $8,000,000 of the note
was classified under current maturities of long-term debt.
At March 28, 1998 the balance on the note was $38,000,000.
9
$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 6.16% at March 28, 1998. At March 28, 1998, the
$13,000,000 in borrowings under the line were classified as
a long-term liability.
10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's cash expected to be provided by future operations and
its available lines of credit are its primary sources of short term
liquidity. The Company believes that these sources, along with its
borrowing capacity, are sufficient to fund future growth and
expansion.
In the six months ended March 28, 1998, the devaluation of the
Mexican peso caused a reduction of $92,000 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
March 28, 1998 were $13,000,000.
Results of Operations
Net sales increased $8,563,000 or 17% to $58,868,000 for the three
months and $17,153,000 or 18% to $111,059,000 for the six months
ended March 28, 1998 compared to the six months ended March 27,
1997. Excluding sales
11
of acquired businesses, net sales increased $1,522,000 or 3% for the
three months and $7,084,000 or 8% for the six months.
Sales to food service customers increased $748,000 or 3% in the
second quarter to $24,792,000 and $1,603,000 or 4% for the six
months. Excluding sales of acquired businesses, sales to food
service customers increased $532,000 or 2% for the quarter and
increased $519,000 or 1% for the six months. Soft pretzel sales to
the food service market increased 4% to $15,429,000 in the second
quarter and 2% to $29,813,000 in the six months. Excluding sales of
acquired businesses, food service soft pretzel sales increased
$589,000 or 4% in the second quarter and increased $279,000 or 1% in
the six month period. Italian ice and frozen juice treat and
dessert sales decreased 8% to $5,177,000 in the three months and
increased 2% to $9,394,000 in the six months. Excluding sales of
acquired businesses, Italian ice and frozen juice and dessert sales
decreased 12% in the second quarter and 12% for the six month
period. Churro sales to food service customers increased 14% to
$2,719,000 in the second quarter and 7% to $5,195,000 in the six
months due to increased volume.
Sales of products to retail supermarkets decreased $744,000 or 7%
to $9,572,000 in the second quarter and 7% to $16,554,000 in the
first half due to lower sales of its CINNAMON RAISIN and Bakers Best
product lines. Excluding sales of acquired businesses, sales to
retail supermarkets were down 8% in the quarter and 9% for the six
months. Soft pretzel sales for the second quarter and six months
were down 14% to $6,585,000 and 17% to $11,657,000, respectively.
Sales of the flagship SUPERPRETZEL brand soft pretzels, excluding
SOFTSTIX and CINNAMON RAISIN, decreased 3% in the second quarter and
7% for the six months. Sales of Italian ice increased $223,000 or
10% to $2,510,000 in the second quarter and $838,000 or 26% to
$4,008,000 in the first half. Excluding sales of an acquired
business, Italian ice sales were up 7% in the quarter and 14% in the
first half.
Frozen carbonated beverage and related product sales increased
$7,760,000 or 86% to $16,773,000 in the second quarter and
$11,947,000 or 69% to $29,250,000 in the six months. Beverage
sales alone increased 88% in the second quarter and 61% in the first
half to $15,261,000 and $25,314,000, respectively. Excluding sales
resulting from the acquisition of National Icee Corporation in
December 1997, frozen carbonated beverage and related product sales
increased $1,114,000 or 12% in the second quarter from last year and
$3,585,000 or 21% in the first six months. Approximately $1,900,000
of the $3,585,000 six month sales increase was from sales of
equipment and service revenue.
Bakery sales increased $468,000 or 12% to $4,523,000 in the second
quarter and $4,121,000 or 62% to $10,745,000 in the first six months
due to increased product sales to one customer.
Sales of our Bavarian Pretzel Bakery increased 12% to $3,208,000 in
the second quarter and 10% to $7,173,000 in the six month period due
primarily to increased same store sales.
Gross profit as a percentage of sales increased to 51% and 49% in
the current year's three and six month periods from 48% in the
corresponding
12
periods last year. This gross profit percentage increase is
primarily attributable to higher gross profit percentages of the
acquired National Icee Corporation business and lower flour costs.
Total operating expenses increased $4,546,000 in the second quarter
and as a percentage of sales increased to 47% from 46% in last
year's same quarter. For the first half, operating expenses
increased $7,118,000 and as a percentage of sales decreased to 46%
this year from 47% last year. Marketing expenses were 31% of sales
in this year's and last year's quarter and decreased to 31% of sales
in this year's six month period from 32% a year ago. Distribution
expenses increased to 10% of sales in this year's second quarter
from 9% of sales last year and were 10% of sales this year and last
for the six month period. As a percentage of sales, administrative
expenses were essentially unchanged.
Operating income increased $889,000 or 64% to $2,285,000 in the
second quarter and $1,849,000 or 132% to $3,249,000 in the first
half.
Investment income decreased $22,000 to $119,000 in the second
quarter and $99,000 to $297,000 in the six months due primarily to
sharply lower levels of investable funds which were used to pay for
acquisitions.
Interest expense increased $779,000 and $990,000 in the quarter and
six months, respectively, due to the assumption and subsequent
refinancing of the debt of National Icee Corporation.
Sundry expense of $308,000 in this year's second quarter compared
to sundry income of $26,000 last year and sundry expense of $292,000
in this year's six months compared to sundry income of $33,000 last
year. Sundry expense in both periods this year includes $375,000 in
write offs and reserves for the closing down of unprofitable retail
stores of our Bavarian Pretzel Bakery.
The effective income tax rate has been estimated at 38% in this
year's second quarter and 37% in the six months compared to 37% in
both periods last year.
Net earnings decreased $161,000 or 18% in the current three month
period to $745,000 and increased $274,000 or 27% in the current six
month period to $1,291,000. Without National Icee Corporation's
seasonal loss, net earnings would have been approximately
$1,600,000, or 77% higher than last year in the second quarter and
$2,300,000 or 126% higher than last year for the six month period.
13
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 4, 1998 is as follows:
Votes Cast Absentees and
Matter For Against Withheld Broker Non Votes
Election of Stephen N. Frankel
as Director 7,967,536 47,586 - -
Approval of the Employee Stock
Purchase Plan 6,945,558 63,453 - -
The Company had 8,872,567 shares outstanding on December 8,
1997, the record date.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - A report on Form 8-K/A was filed on
February 20, 1998.
14
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: May 8, 1998 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: May 8, 1998 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
15