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 27, 1999
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)
(State or other jurisdication 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 22, 1999, there were 8,888,107 shares of the
Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 27, 1999
and September 26, 1998 3
Consolidated Statements of Earnings - Three
Months and Six Months Ended March 27, 1999
and March 28, 1998 5
Consolidated Statements of Cash Flows - Six
Months Ended March 27, 1999 and March 28, 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
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
(dollars in thousands)
ASSETS
March 27, September 26,
1999 1998
(Unaudited)
Current assets
Cash and cash equivalents $ 1,889 $ 3,204
Accounts receivable 28,707 34,388
Inventories 18,109 16,447
Prepaid expenses and deposits 1,951 1,104
50,656 55,143
Property, plant and equipment,
at cost
Land 755 839
Buildings 5,432 5,432
Plant machinery and
equipment 63,156 60,275
Marketing equipment 130,083 126,653
Transportation equipment 1,998 2,149
Office equipment 5,945 5,446
Improvements 11,498 10,616
Construction in progress 1,918 1,154
220,785 212,564
Less accumulated deprecia-
tion and amortization 120,001 112,444
100,784 100,120
Other assets
Goodwill, trademarks and
rights,less accumulated
amortization 52,288 51,871
Long term investment
securities held to
maturity 2,871 3,127
Sundry 3,014 3,000
58,173 57,998
$209,613 $213,261
See accompanying notes to the consolidated financial
statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(dollars in thousands, except share information)
LIABILITIES AND March 27, September 26,
STOCKHOLDERS' EQUITY 1999 1998
Current liabilities
Current maturities of
long-term debt $ 8,163 $ 8,423
Accounts payable 19,646 23,222
Accrued liabilities 8,216 8,914
36,025 40,559
Long-term debt, less
current maturities 27,874 32,199
Revolving credit line 18,000 16,000
Deferred income 322 435
Deferred income taxes 4,383 4,387
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, 9,132,000
and 9,036,000,
respectively 40,627 39,120
Accumulated other comprehen-
sive income (1,633) (1,694)
Retained earnings 84,015 82,255
123,009 119,681
$209,613 $213,261
See accompanying notes to the consolidated financial
statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Six months ended
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
Net Sales $62,908 $58,868 $123,457 $111,059
Cost of goods sold 29,323 29,037 58,890 56,553
Gross profit 33,585 29,831 64,567 54,506
Operating expenses
Marketing 20,735 18,181 40,342 34,040
Distribution 7,018 5,983 13,694 10,992
Administrative 2,614 2,700 5,154 5,016
Amortization of
intangibles and
deferred costs 762 682 1,501 1,209
31,129 27,546 60,691 51,257
Operating income 2,456 2,285 3,876 3,249
Other income (deductions)
Investment income 120 119 246 297
Interest expense (773) (901) (1,652) (1,205)
Sundry 68 (308) 323 (292)
Earnings before
income taxes 1,871 1,195 2,793 2,049
Income taxes 692 450 1,033 758
NET EARNINGS $ 1,179 $ 745 $ 1,760 $ 1,291
Earnings per diluted
share $ .12 $ .08 $ .18 $ .14
Weighted average number
of diluted shares 9,638 9,249 9,579 9,230
Earnings per basic
share $ .13 $ .08 $ .19 $ .15
Weighted average number
of basic shares 9,095 8,896 9,066 8,881
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 27, March 28,
1999 1998
Operating activities:
Net earnings $ 1,760 $ 1,291
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 11,811 10,400
Amortization of intangibles 1,734 1,462
Other adjustments (15) 181
Changes in assets and liabilities,
net of effects from purchase of
companies
Decrease (increase) in accounts
receivable 5,744 (422)
(Increase)decrease in inventories (1,246) 2,308
Increase in prepaid expenses (841) (272)
(Decrease) increase in accounts
payable and accrued liabilities (4,447) 2,485
Net cash provided by operating
activities 14,500 17,433
Investing activities:
Purchases of property, plant
and equipment (12,629) (14,892)
Payments for purchases of
companies, net of cash
acquired and debt assumed (2,336) (11,953)
Proceeds from investments held
to maturity 245 160
Proceeds from investments
available for sale - 495
Other (17) 435
Net cash used in investing
activities (14,737) (25,755)
Financing activities:
Proceeds from borrowings 2,000 53,075
Proceeds from issuance of common
stock 1,507 1,118
Payments of long-term debt (4,585) (44,288)
Net cash provided by financing
activities (1,078) 9,905
Net (decrease) increase in
cash and cash equivalents (1,315) 1,583
Cash and cash equivalents at
beginning of period 3,204 1,401
Cash and cash equivalents at
end of period $ 1,889 $ 2,984
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 27, 1999 and March 28, 1998
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 26, 1998.
Note 2 The Company's calculation of earnings per share in
accordance with SFAS No. 128, "Earnings Per Share,"
is as follows:
Three Months Ended March 27, 1999
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $1,179 9,095 $.13
Effect of Dilutive Securities
Options - 543 (.01)
Diluted EPS
Net Income available to
common stockholders plus
assumed conversions $1,179 9,638 $.12
7
Six Months Ended March 27, 1999
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $1,760 9,066 $.19
Effect of Dilutive Securities
Options - 513 (.01)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $1,760 9,579 $.18
Three Months Ended March 28, 1998
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $ 745 8,896 $.08
Effect of Dilutive Securities
Options - 353 -
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $ 745 9,249 $.08
Six Months Ended March 28, 1998
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands,
except per share amounts)
Basic EPS
Net Income available
to common stockholders $1,291 8,881 $.15
Effect of Dilutive Securities
Options - 349 (.01)
Diluted EPS
Net Income available to
common stockholders plus
assumed conversions $1,291 9,230 $.14
8
Note 3 Inventories consist of the following:
March 27, September 26,
1999 1998
(in thousands)
Finished goods $ 9,423 $ 8,054
Raw materials 2,429 2,190
Packaging materials 2,215 2,239
Equipment parts & other 4,042 3,964
$18,109 $16,447
Note 4 The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" in the first quarter of this
fiscal year. SFAS No. 130 establishes new standards
for reporting comprehensive income, which includes
net income as well as certain other items which
result in a change to equity during the period. The
adoption of SFAS No. 130 had no impact on the
Company's financial position or results of
operations. During the second quarters of 1999 and
1998 and the six months of 1999 and 1998, total
comprehensive income, which for the Company included
net income and foreign currency translation
adjustments, amounted to $1,213,000 and $697,000,
and $1,821,000 and $1,199,000, respectively.
In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and
Related Information," which is effective for all
periods beginning after December 15, 1997, but is
not required to be applied for interim reporting in
the initial year of adoption. The Company is
currently evaluating the impact of SFAS No. 131 on
the disclosures included in its annual financial
statement.
In June 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 is
required to be adopted in years beginning after June
15, 1999. Management does not anticipate the
adoption of SFAS No. 133 will have a significant
effect on earnings or the financial position of the
Company.
9
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 three months ended March 27, 1999 and March 28,
1998, fluctuations in the value of the Mexican peso caused
an increase of $34,000 and a decrease of $48,000,
respectively, in stockholders' equity because of the
revaluation of the net assets of the Company's Mexican
frozen carbonated beverage subsidiary. In the six month
periods, the increase was $61,000 in fiscal year 1999 and
the decrease was $92,000 in fiscal year 1998.
In February 1999, the Company acquired the Camden
Creek Bakery cookie business from Schwan's Sales
Enterprises, Inc., Marshall, MN for cash. Camden Creek
sells frozen ready-to-bake cookies to the food service
industry with approximate annual sales of $5,000,000.
Available to the Company are unsecured general purpose
bank lines of credit totalling $30,000,000. Borrowings
under the lines at March 27, 1999 were $18,000,000.
Results of Operations
Net sales increased $4,040,000 or 7% to $62,908,000
for the three months and $12,398,000 or 11% to $123,457,000
for the six months ended March 27, 1999 compared to the six
months ended March 28, 1998.
Sales to food service customers increased $3,351,000
or 14% in the second quarter to $28,143,000 and $5,472,000
or 12% for the six months. Approximately 25% of the second
quarter sales increase and 17% of the six month sales
increase resulted from the acquisition of the Camden Creek
Bakery cookie business. Soft pretzel sales to the food
service market increased 6% to $16,301,000 in the second
quarter and to $31,724,000 in the six months. Italian ice
and frozen juice treat and dessert sales increased 11% to
$5,758,000 in the three months and 6% to $9,920,000 in the
six months due primarily to increased unit sales to one
10
customer. Churro sales to food service customers increased
16% to $3,157,000 in the second quarter and 15% to
$5,956,000 in the six months due primarily to increased
unit sales to one customer.
Sales of products to retail supermarkets increased
$1,005,000 or 10% to $10,577,000 in the second quarter and
11% to $18,443,000 in the first half due in part to a new
advertising campaign. Soft pretzel sales for the second
quarter and six months were up 14% to $7,484,000 and
$13,284,000, respectively. Sales of our flagship
SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX,
increased 11% in the second quarter and 12% for the six
months. Sales of Italian ice increased $61,000 or 2% to
$2,571,000 in the second quarter and $195,000 or 5% to
$4,203,000 in the first half.
Frozen carbonated beverage and related product sales
decreased $738,000 or 4% to $16,035,000 in the second
quarter and increased $3,660,000 or 13% to $32,910,000 in
the six months. Beverage sales alone decreased 8% in the
second quarter and increased 15% in the first half to
$14,019,000 and $29,005,000, respectively. The sales
decreases are attributable to changes in billing practices
resulting in lower revenues per gallon purchased by
customers but which did not result in an overall
deterioration of our profit margin. Gross profit dollars on
beverage sales increased 8% in the second quarter from a
year ago.
Bakery sales increased $696,000 or 15% to $5,219,000
in the second quarter and $1,717,000 or 16% to $12,462,000
in the first six months due to increased unit sales across
our customer base. Sales of our Bavarian Pretzel Bakery
decreased 9% to $2,934,000 in the second quarter and 5% to
$6,833,000 in the six month period primarily due to fewer
stores.
Gross profit as a percentage of sales increased to 53%
and 52% in the current year's three and six month periods
from 51% and 49% in the corresponding periods last year.
This gross profit percentage increase is primarily
attributable to increased gross profit percentages of
frozen carbonated sales and increased sales of higher
margin frozen carbonated beverages due to the acquisition
of National ICEE Corporation late in the 1998 first
quarter.
11
Total operating expenses increased $3,583,000 in the
second quarter and as a percentage of sales increased to
49% from 47% in last year's same quarter. For the first
half, operating expenses increased $9,434,000 and as a
percentage of sales increased to 49% this year from 46%
last year. Marketing expenses increased to 33% of sales in
this year's three and six month periods from 31% of sales
in last year's corresponding periods. The marketing
percentage increase is due to substantially higher
advertising and marketing spending to promote sales to
retail supermarkets as well as to the change in billing
practices in our frozen carbonated beverage business.
Additionally, for the six month period, higher operating
expenses from increased frozen carbonated beverage sales
attributed to the percentage increase. Distribution
expenses increased to 11% of sales in this year's periods
from 10% of sales in last year's periods. The distribution
expense percentage increase is attributable to the change
in frozen carbonated beverage billing practices, the
increased frozen carbonated beverage business over the six
month period and a shift in product mix. As a percentage of
sales, administrative expenses decreased less than / of one
percent in both the three and six month periods from the
year ago periods.
Operating income increased $171,000 or 7% to
$2,456,000 in the second quarter and $627,000 or 19% to
$3,876,000 in the first half.
For the six months, interest expense increased
$477,000 from last year due to the assumption and
subsequent refinancing of the debt of National Icee
Corporation. For the quarter, interest expense decreased
$128,000 due in part to lower interest rates and the
capitalization of construction interest.
Sundry income of $68,000 in this year's second quarter
compared to sundry expense of $308,000 last year and sundry
income of $323,000 in this year's six months compared to
sundry expense of $292,000 last year. Sundry income in
this year's six months includes income from a favorable
settlement of litigation. Sundry expense in both periods
last 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
37% in this year's second quarter and six months compared
12
to 38% in last year's second quarter and 37% in last year's
six months.
Net earnings increased $434,000 or 58% in the current
three month period to $1,179,000 and increased $469,000 or
36% in the current six month period to $1,760,000.
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 1998
annual report on Form 10-K filed with the SEC.
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 11, 1999 is as follows:
Absentees
Votes Cast and Broker
For Against Withheld Non Votes
Election of Leonard
M. Lodish 8,259,114 - 182,666 -
as Director
The Company had 9,036,833 shares outstanding on
December 14, 1998, the record date.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - There were no reports on Form
8-K for the three months ended March 27, 1999
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: April 30, 1999 /s/Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: April 30, 1999 /s/Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
15
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 30, 1999 __________________________
Gerald B. Shreiber
President
Dated: April 30, 1999
__________________________
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
15