J&J Snack Foods
1999 Annual Report
Niche Snack Foods & Beverages
6000 Central Highway Pennsauken, NJ 08109 (856) 665-9533
www.jjsnack.com
Profile
J&J Snack Foods Corp. is a manufacturer, marketer and distributor
of an expanding variety of nutritional, popularly priced, branded
niche snack foods and beverages for the food service and retail
supermarket industries. The Company is listed on the NASDAQ
exchange as "JJSF," and serves both national and international
markets.
Our growing portfolio of products includes soft pretzels; frozen
beverages; frozen juice bars and desserts; churros, a cinnamon
pastry; funnel cakes; cookies and bakery goods; and other snack
foods and drinks. Consumers can enjoy these tasty products in a
variety of settings, including:
* Snack bars and food stands in leading chain, department,
discount and convenience stores
* Malls and shopping centers
* Fast food outlets
* Stadiums and sports arenas
* Leisure and theme parks
* Movie theatres
* Schools and colleges
* Business and industry and other institutions
* Supermarkets and warehouse club stores
As we prepare for the future, J&J Snack Foods Corp. plans to
continue expanding its unique product offerings and market niches,
capitalizing on new opportunities wherever they may be found.
Contents
Financial Highlights 1
President's Letter 2
Soft Pretzels 4
Frozen Beverages 7
Frozen Desserts 9
Other Snacks 10
Financial Information 13
Corporate Information 28
Financial Highlights
Fiscal year ended in September
(In thousands, except per share data)
1999 1998 1997 1996 1995
Net Sales $288,439 $262,390 $220,318 $186,018 $185,362
Net Earnings $14,264 $11,850 $8,159 $5,843 $5,804
Total Assets $213,680 $213,261 $136,827 $123,128 $123,309
Long-Term Debt $34,660 $48,199 $5,028 $5,010 $5,011
Stockholders'Equity $131,169 $119,681 $105,904 $96,708 $96,084
Common Share Data
Earnings Per
Diluted Share $1.50 $1.26 $.91 $.65 $.61
Earnings Per
Basic Share $1.58 $1.32 $.93 $.65 $.62
Book Value Per Share $14.57 $13.25 $11.97 $11.05 $10.53
Common Shares
Outstanding
At Year End 9,000 9,036 8,850 8,749 9,126
President's Letter
By most any standards, 1999 was a terrific year for J&J Snack
Foods Corp. For the 28th consecutive year we achieved record
sales, and earnings were the highest in our history. AGAIN!! Seems
like I've started this same message before...and stated it
proudly, too. Our performance and long-term vision, when viewed in
the bigger picture, speaks for itself. Speaking of
performance...for the last three years ended September 1999, sales
have increased from $186 million to $288 million, an increase of
55%, while net earnings have grown at a compounded annual growth
rate of over 34%. Our EBITDA (net earnings before income taxes,
interest expense, depreciation and amortization) exceeded $50
million for fiscal year 1999.
1999 Results in Brief:
* Sales increased 10% to $288,439,000 from $262,390,000
* Net earnings jumped 20% to $14,264,000 from $11,850,000
* Operating income increased 22% to $24,963,000 from $20,461,000
* EPS climbed 19% to $1.50 per share from $1.26
GBS 101=Good Business Sense
That's what we use in fulfilling our mission. Good Business Sense.
Without it, all the strategic modeling won't get you to the
continued success and the kind of results we had in 1999. We
achieved these results by applying the same grueling work
standards and culture adherence we have established and followed
for the last 28 years.
Criteria for Success
Long ago, we established simple but effective criteria that have
been the cornerstone and pillars for our success. This strategy
includes:
* Produce quality "niche" products
* Be the low cost producer
* Leadership in sales, marketing and distribution
A continued adherence and discipline to these criteria--now
recognized clearly as strengths--have been the primary reasons for
our overall business success. Last year, we continued our efforts
in growing our niche products in each of our key business areas.
This was led by SUPERPRETZEL soft pretzels and our ICEE frozen
beverage business, as well as our other leading niche snack food
products including TIO PEPE'S churros, FUNNEL CAKE FACTORY funnel
cakes and frozen cookie dough under the brand names MRS.
GOODCOOKIE and CAMDEN CREEK. Additionally, we increased category
growth and leadership in specialty frozen juice bars and desserts.
Soft Pretzels--Hard Sales
Although experiencing modest growth, soft pretzel sales were
enhanced by expansion of specialty line extension categories and
more aggressive consumer marketing programs. Our BAVARIAN PRETZEL
BAKERY stores improved profitability through more efficient
operating performance. Internal growth of our fresh baked soft
pretzels and potentially lucrative shelf stable business was
further enhanced with our continued R&D efforts and an acquisition
completed shortly after our fiscal year ended.
Dough Making
Both churro and funnel cake sales were expanded due in large part
to improved manufacturing processes and product enhancements. Our
Bakery had another good year with solid growth and increased
profitability. Our raw cookie dough business, initiated just a
year earlier under the MRS. GOODCOOKIE brand, grew significantly
and was complemented by the acquisition of CAMDEN CREEK BAKERY in
February of 1999.
A Hot Year
Frozen juice bars and desserts, under the SHAPE UPS, LUIGI'S, MAMA
TISH'S and ICEE brands, had an excellent year. Volume and sales
grew a healthy 13%. Manufacturing efficiencies from our newly
expanded state-of-the-art facility generated increased
profitability.
ICEE: The Vision and Opportunity--Part II
ICEE had another excellent year. Sales increased over 9% and
profits grew significantly. The strategic alliance with The Coca-
Cola Company, the world's leading soft drink company, is creating
new and varied opportunities in building and expanding this niche
beverage company.
During 1999 ICEE initiatives included...
* Establishing an infrastructure partnership with Coca-Cola
to provide technical service and support for all Coca-Cola frozen
beverage initiatives.
* New staff, equipment and technology that provided for the
smooth installation of frozen drink machines in several thousand
fast food restaurants.
* The introduction of several new beverage products
including:
- SMOOTHEE by ICEE: currently being test marketed in
schools and food service locations.
- JAVA FREEZE: a frozen beverage coffee drink being sold
through restaurants and convenience stores.
Our Strengths: Past--Present--Future
Simple, but effective. Niche products, low cost producer, strong
sales, marketing and distribution, complemented by strategic
alliances and partnerships with world-class companies. These are
the methods that have served us well in the past and present. And,
even more excitingly, will serve us well for the future. We are
building a strong company with solid and growing business skills.
We are complementing these strengths with corresponding strategic
relationships with world-class partners who are leaders in their
categories and share similar values. We expect these partnerships
and strengths to provide future benefits for our company and its
shareholders.
In December 1999 we entered into a long term strategic partnership
with The Minute Maid Company whereby we will produce, sell and
distribute our extended line of frozen juice products under the
Minute Maid and Hi-C brand names. This is yet another example of
our commitment to extend our niches and grow our businesses.
Gerald B. Shreiber
President and Chairman
December 1, 1999
SUPERPRETZEL: The Superpower of Soft Pretzels
J&J Snack Foods Corp. is a leader in the manufacturing, marketing
and distribution of niche snack foods. As the world's largest
manufacturer of soft pretzel products, we lead the category with
our flagship brand, SUPERPRETZEL, America's Favorite Soft Pretzel.
Leveraging SUPERPRETZEL's brand equity to provide value to our
customers, we're pioneering new territory with a diverse menu of
shaped, flavored and filled soft pretzel products. Responding to
the public's increasingly adventurous taste for unique snacks that
satisfy both the imagination and the appetite, this taste-tempting
fare includes innovative products such as SUPERPRETZEL SOFTSTIX
cheese-filled soft pretzel sticks, SUPERPRETZEL SOFT PRETZEL BITES
and other proprietary and custom-shaped pretzels.
Consumers of all shapes and sizes snap up SUPERPRETZEL products
every day at tens-of-thousands of high-traffic locations
nationwide. Inside malls and shopping centers, in chain,
convenience and warehouse club stores or supermarkets,
SUPERPRETZEL soft pretzels are high on the snacking list. Loyal
SUPERPRETZEL fans always have time for another bite --whether
glued to the movie screen, cheering in sports arenas or taking a
break at amusement, leisure and theme parks. And kids of all ages
can enjoy our SUPERPRETZEL products in school, at work or on the
way home after a busy day.
Continuing Our Growth
In fiscal year 1999, our food service soft pretzel business grew
modestly through extensions of food service markets including
fund-raising and home-delivery services. Additionally, our frozen
sweet dough soft pretzel program is being expanded. The
continually changing retail snack bar environment, where business
continues to be concentrated into fewer, larger customers, remains
a challenge to our Food Service Division.
We continue to invest in our manufacturing facilities to maintain
our position and standard as the low cost producer. Our objectives
are focused on increasing efficiencies from production processing
through packaging.
Project 2000--A Vision
To grow our business by grabbing attention and stimulating
appetites, we are updating our highly visible merchandising
program. This program includes a complete array of brand-oriented
point-of-sale materials, display cases and specially designed
mobile merchandising units. To spark new life into the program,
we're testing a redesigned display case, Project 2000, that
retrofits our existing merchandising units. The new display case
incorporates a more prominent SUPERPRETZEL logo and more eye-
catching graphics. We expect it to enhance brand recognition and
help increase impulse sales for SUPERPRETZEL.
A Pretzel for All Seasons...and Reasons
SUPERPRETZEL products continue to earn high grades in the school
food service market, an important channel of distribution. Popular
with children because they taste great, our soft pretzels also
help them celebrate holidays and changing seasons through
entertaining, themed promotions that include specialty soft
pretzels in fun shapes such as shamrocks, snowmen, stars and
turkeys. School food service directors appreciate the chance to
liven up their menus, plus our soft pretzel products satisfy bread
requirements for the U.S.D.A. National School Lunch/Breakfast
Program.
The SUPERPRETZEL product line continues to lead the category in
the supermarket freezer case as the number one brand of soft
pretzels. Overall sales increased a solid 10% during fiscal year
1999, a reversal of the recent negative sales trend. We continue
to provide marketing support for the SUPERPRETZEL brand to help
maintain its strong leadership position.
Sales were fueled by consumer-driven marketing activities during
fiscal 1999. We urged consumers to expand their snacking choices
by offering them inventive, non-traditional soft pretzel
experiences. This included television and billboard advertising in
select markets and promotions with other leading brands such as
Cheez Whiz* and French's** mustard. Consumers responded by
enjoying soft pretzels with their favorite toppings, including
melted cheese, flavored cream cheese, salsa and mustard.
One taste sensation, SUPERPRETZEL SOFTSTIX, which combines our
soft pretzels with KRAFT*** cheese filling, generated a sharp 33%
revenue gain during the past fiscal year. A continuing successful
co-branding agreement with KRAFT helps provide support for this
great tasting product.
Taking Shape for the Future
Our chain of retail stores, including BAVARIAN PRETZEL BAKERY and
PRETZEL GOURMET, located in malls primarily in the Mid-Atlantic
states, is operated by our Restaurant Group. Same-store sales
improved slightly during fiscal 1999 as we have streamlined the
chain to include only the highest performing stores.
Administrative cost controls had a positive impact on the bottom
line during the past year and we expect to enjoy continuing
benefits in the years to come.
*Cheez Whiz is a registered trademark of Kraft Foods, Inc.
**French's is a registered trademark of Reckitt & Colman Inc.
***KRAFT and the KRAFT logo are registered trademarks owned and
licensed by Kraft Foods, Inc.
Frozen Beverages
We'll Take the Heat
The ICEE Company, our frozen beverage division, is the world's
largest distributor of frozen beverages, selling the ICEE brand
across the country and pouring ICEE good taste across the border
into Canada and Mexico. We sweeten the mix with ARCTIC BLAST and
other brands in select markets and plan to expand the ICEE brand
internationally. Sales for frozen beverages and related products
this past fiscal year increased by 9%.
Kids of all ages enjoy our carbonated and uncarbonated semi-frozen
beverages, which can be sipped through a straw or eaten with a
spoon. Thirsty fans of these refreshing treats don't have to
travel far to satisfy their taste buds. We're just around the
corner in more than 18,000 food service locations, which serve
drink after drink all day long from proprietary dispensing
equipment. Many of these outlets also offer the perfect complement
to a cold drink--SUPERPRETZEL soft pretzels and our other niche
snack foods.
The ICEE Bear -- A Cool New Look
We broke the ice with a new ICEE image campaign during fiscal year
1999 incorporating a redesigned, contemporary look for the brand
giving the ICEE Bear a cool new look. This new look, which has
already surfaced in more than 6,000 locations, features new
lighted merchandisers and compelling point-of-sale materials.
Building on the long-term marketing agreement we iced with The
Coca-Cola Company in the previous year, we rolled out a national
program across the U.S. that blends ICEE's operational and service
system expertise with the marketing power of Coca-Cola*. We
provide installation of the drink machines and continuous service
for the ongoing rollout of FROZEN COKE* in over 7,000 Burger
King** locations and Coca-Cola provides the syrup. We've already
installed more than 4,000 units and plan to complete the project
during fiscal year 2000.
Hot New Offerings
Three new frozen uncarbonated beverages skated into the
marketplace during the past year: SMOOTHEE by ICEE, JAVA FREEZE
and FROZEN COCKTAILS.
SMOOTHEE by ICEE, with its velvety consistency and exhilarating
fruit flavors, expands the menu where ICEE frozen carbonated
beverages already are sold. With real fruit juice and popular
flavors, SMOOTHEE by ICEE also pleases palates in schools. JAVA
FREEZE, in a variety of gourmet coffee flavors, satisfies the
growing demand for coffee-flavored products. FROZEN COCKTAILS make
it easy for restaurants and sporting and entertainment venues to
dispense and serve some of the most popular frozen cocktails, with
or without alcohol.
Putting the Heat on Profitability and Service
We continue to improve the division's operating efficiency and
ability to serve our customers by implementing key organizational
improvements. During the past fiscal year we consolidated the ICEE
Company's corporate headquarters into the Ontario, California
location and expanded the service infrastructure that installs and
maintains our equipment by more than 25%.
*"Coca-Cola" and "Coke" are trademarks of The Coca-Cola Company.
**Burger King is a registered trademark of Burger King
Corporation.
Frozen Desserts
Growth is Solid
The future is solid for our niche snack food line of frozen juice
bars and desserts, including LUIGI'S, SHAPE UPS, MAMA TISH'S and
ICEE brands. New product introductions, line extensions and
increased sales of SHAPE UPS boosted frozen dessert sales in the
food service market by a strong 10%.
An Upbeat Debut
This year we introduced ICEE Squeeze Tubes to the food service
market. Capturing the carbonated fizz and taste of a traditional
ICEE drink, they extend the ICEE brand's equity and awareness.
Strong sales in food service channels, including club stores,
helped to make ICEE Squeeze Tubes one of the leading frozen
novelties this summer.
SHAPE UPS Make the Grade
Sales of SHAPE UPS frozen fruit juice bars, sold primarily through
schools, continue to shape up nicely. With colorful packaging and
U.S.D.A. approved Child Nutrition (CN) labels, these treats are
popular with children and food service directors because they
satisfy federal juice requirements, are fun, and taste good, too.
Themed promotions with SUPERPRETZEL soft pretzels helped SHAPE UPS
rise in this important channel.
Cool Gains for Frozen Desserts
Retail supermarket sales of frozen desserts experienced a strong
growth year with an increase of 19%. This was led by a sales gain
of 17% for LUIGI'S, the number one selling Italian ice in the
supermarket freezer. The introduction of ICEE Squeeze Tubes into
retail test markets exceeded expectations and will be expanded
nationally in fiscal year 2000.
Our modern and efficient Italian ice and frozen dessert plant in
Scranton, PA, whose renovation was completed last year, supported
this year's gains and paved the way for future growth.
Other Snacks
Batter Up!
Our niche snack food business of cookies, churros, funnel cakes
and other bakery goods raised lots of dough this past year. Sales
increased a sharp 15% for our Los Angeles-based West Coast Bakery,
while its manufacturing efficiencies benefited from capital
expenditures and production improvements. A combination of frozen
cookie dough, commercial baking ingredients and contract private-
label products, including organically certified baked goods,
blended together for solid growth in our bakery goods business.
The Goods on the Goodies
Our branded frozen cookie dough business grew into a meaningful
business during the past fiscal year, due to the acquisition of
the CAMDEN CREEK BAKERY cookie business in February. CAMDEN CREEK
complements our growing MRS. GOODCOOKIE food service cookie line
that was introduced to the marketplace last year. Additionally, it
provides increased opportunities for J&J to expand our product
lines in additional dayparts and menu settings.
Our success in the branded frozen cookie dough business in fiscal
year 1999, egged on by this strategic mix of acquisition and
expansion, comes largely because of the sensational aromas, tastes
and textures of our products. Consumers who have experienced our
delicious, fresh-baked from the oven cookies--in popular flavors
like milk chocolate chunk, oatmeal raisin and peanut butter--
agree: our cookies are simply irresistible!
How Sweet it is
TIO PEPE'S churros, crispy cinnamon doughnut-like snacks that
traditionally have hit the sweet spot in the west and southwest
U.S., continued to delight more and more palates elsewhere for
significant sales growth.
The food service business for churros, including fruit-filled
varieties, grew by 8% during fiscal year 1999. In one corner of
this expanding market, wholesome fruit-filled churros have
captured the enthusiasm of school food service directors because
they fulfill bread and fruit requirements for the U.S.D.A.
National School Lunch/Breakfast Program. Churro business in the
retail supermarket grew this past fiscal year a strong 22% due to
increased consumption and expanded distribution.
Big Gains by the Mouthful
Sales of one of our unique niche products--funnel cakes from THE
FUNNEL CAKE FACTORY--surged by 25% primarily from expansion of our
customer base. We have seized opportunities for cooking up more
sweet results in short order in various venues this past year.
This includes traditional channels such as amusement and theme
parks and emerging outlets such as family restaurant chains
seeking innovative dessert menu items.
Available as frozen pre-cooked, pre-shaped portions that only
require warming, our funnel cakes make it easier than ever to
prepare this delicious treat. No mixing, measuring or frying--you
just heat 'em and eat 'em! THE FUNNEL CAKE FACTORY funnel cakes
also have become increasingly popular as a fun way to meet bread
standards for the U.S.D.A. National School Lunch/Breakfast
Program.
A new millennium means new opportunity for growth. J&J Snack Foods
Corp. will continue to expand its unique product offerings and
market niches, capitalizing on new opportunities wherever they may
be found.
Financial Table of Contents
Management's Discussion & Analysis of Financial Condition and
Results of Operations 13
Consolidated Statements of Earnings 17
Consolidated Balance Sheets 18
Consolidated Statement of Changes in Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
Report of Independent Certified Public Accountants 27
Corporate Information 28
J&J Snack Foods Corp. and Subsidiaries
Management's Discussion & Analysis of Financial Condition and
Results of Operations
In addition to historical information, this discussion and
analysis contains forward-looking statements. The forward-looking
statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those projected in the forward-looking statements. Important
factors that might cause such a difference include, but are not
limited to, those discussed in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis
only as of the date hereof. The Company undertakes no obligation
to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Net sales increased $26,049,000 or 10% to $288,439,000 in fiscal
1999 from $262,390,000 in fiscal 1998.
The Company has two reportable segments, as disclosed in the notes
to the consolidated financial statements: Snack Foods and Frozen
Beverages. The Snack Foods segment manufactures and distributes
snack foods and bakery items, which includes sales to food service
customers and retail supermarkets. The Frozen Beverages segment
markets and distributes frozen beverage products. These segments
are managed as strategic business units due to their distinct
production processes and capital requirements.
Snack Foods
Sales to food service customers increased $9,737,000 or 9% to
$113,207,000 in fiscal 1999. Soft pretzel sales to the food
service market increased 2% to $61,833,000. Churro sales increased
8% to $12,075,000. Frozen juice bar and dessert sales increased
10% to $27,196,000. These sales increases were due primarily to
increased unit volume to one customer in each of these categories.
Sales of cookies to food service customers increased $4,458,000,
or 167%, to $7,126,000 for the year. Approximately one-half of the
cookies sales increase resulted from the acquisition of the Camden
Creek Bakery cookie business.
Sales of products to retail supermarkets increased $5,335,000 or
14% to $43,929,000 in fiscal 1999 due in part to a new advertising
campaign. Total soft pretzel sales to retail supermarkets were
$24,027,000, an increase of 10% from fiscal 1998. Sales of our
flagship SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX,
increased 9% to $18,816,000. SOFTSTIX sales increased $745,000 or
33% to $3,031,000 from the previous year. Sales of Italian ice
increased $1,379,000 or 9% to $16,417,000 in 1999 from $15,038,000
in 1998.
Bakery sales increased $3,598,000 or 15% to $26,905,000 in fiscal
1999 due to increased unit sales across our customer base. Sales
of our Bavarian Pretzel Bakery decreased 4% to $12,649,000 for the
year due to fewer stores.
Frozen Beverages
Frozen beverage and related product sales increased $7,950,000 or
9% to $91,749,000 in fiscal 1999. Beverage sales alone increased
5% to $78,960,000 for the year, in part due to the December 1997
acquisition of National ICEE Corporation. Sales revenues were
impacted by changes in billing practices resulting in lower
revenues per gallon purchased by customers but which did not
result in an overall drop in profit margin. Gross profit on
product sales increased 12%, or $6,372,000 for the year. Service
and lease revenue increased approximately $5,000,000 for the year.
Gross profit increased to 53% of sales in 1999 from 52% of sales
in 1998. The gross profit percentage increase is primarily
attributable to improved efficiencies at our Italian ice and
frozen dessert plant in Scranton, PA and to increased gross profit
percentages of frozen beverage sales.
Total operating expenses increased $13,396,000 to $128,513,000 in
fiscal 1999 and as a percentage of sales increased less than 1% to
45% in 1999 from 1998. Marketing expenses were 30% of sales in
both fiscal 1999 and 1998. Distribution expenses increased 1/4 of
one percent to 10% of sales in 1999. Administrative expenses were
4% of sales in both fiscal 1999 and 1998.
Operating income increased $4,502,000 or 22% to $24,963,000 in
fiscal 1999.
Interest expense increased $191,000 to $3,224,000 in fiscal 1999
due to the December 1997 purchase and assumption and subsequent
refinancing of the debt of National ICEE Corporation.
Sundry income decreased by $393,000 in fiscal 1999 from $808,000
in fiscal 1998. The primary reason for the decrease was that 1998
included significant income resulting from the successful
settlement of certain litigation.
The effective income tax rate was 37% in both fiscal 1999 and
fiscal 1998.
Net earnings increased $2,414,000 or 20% in fiscal 1999 to
$14,264,000.
Fiscal 1998 Compared to Fiscal 1997
Net sales increased $42,072,000 or 19% to $262,390,000 in fiscal
1998 from $220,318,000 in fiscal 1997. Approximately $31,000,000
of the increase in sales for the year resulted from the December
1997 acquisition of National ICEE Corporation.
The Company has two reportable segments, as disclosed in the notes
to the consolidated financial statements: Snack Foods and Frozen
Beverages. The Snack Foods segment manufactures and distributes
snack foods and bakery items, which includes sales to food service
customers and retail supermarkets. The Frozen Beverages segment
markets and distributes frozen beverage products. These segments
are managed as strategic business units due to their distinct
production processes and capital requirements.
Snack Foods
Sales to food service customers increased $1,534,000 or 2% to
$103,470,000 in fiscal 1998. Soft pretzel sales to the food
service market increased 5% to $60,589,000. Churro sales increased
8% to $11,195,000. Frozen juice bar and dessert sales decreased
12% to $24,746,000 primarily due to lower sales to three
customers.
Sales of products to retail supermarkets decreased $1,708,000 or
4% to $38,594,000 in fiscal 1998. Total soft pretzel sales to
retail supermarkets were $21,849,000, a decrease of 11% from
fiscal 1997. Sales of our flagship SUPERPRETZEL brand soft
pretzels, excluding SOFTSTIX and CINNAMON RAISIN MINI'S, decreased
5% to $17,298,000. SOFTSTIX sales increased $268,000 or 13% to
$2,286,000 from the previous year. Sales of Italian ice increased
$485,000 or 3% to $15,038,000 in 1998 from $14,553,000 in 1997;
sales were impacted by limited production output during the
expansion and modernization of the Company's Italian ice and
frozen dessert plant in Scranton, PA.
Bakery sales increased $5,351,000 or 30% to $23,307,000 in fiscal
1998 due primarily to increased product sales to one customer.
Sales of our Bavarian Pretzel Bakery increased 8% to $13,220,000
for the year.
Frozen Beverages
Frozen beverage and related product sales increased $35,884,000 or
75% to $83,799,000 in fiscal 1998. Beverage sales alone increased
72% to $75,191,000 for the year, including approximately
$31,000,000 attributable to the December 1997 acquisition of
National ICEE Corporation.
Gross profit increased to 52% of sales in 1998 from 49% of sales
in 1997. The gross profit percentage increase is primarily
attributable to higher gross profit percentages of the acquired
National ICEE Corporation business and lower flour costs, net of
higher manufacturing costs of approximately $1,300,000 incurred
during the startup of operations in the third and fourth quarters
at the Company's expanded Italian ice and frozen dessert plant in
Scranton, PA.
Total operating expenses increased $18,598,000 to $115,117,000 in
fiscal 1998 but as a percentage of sales were 44% in both 1998 and
1997. Marketing and distribution expenses were 30% and 9% of
sales, respectively, in both fiscal 1998 and 1997. Administrative
expenses decreased to 4% of sales in fiscal 1998 from 5% in fiscal
1997 due primarily to lower litigation costs in fiscal 1998.
Operating income increased $8,821,000 or 76% to $20,461,000 in
fiscal 1998.
Interest expense increased $2,602,000 to $3,033,000 in fiscal 1998
due to the purchase and assumption and subsequent refinancing of
the debt of National ICEE Corporation.
Sundry income increased by $696,000 in fiscal 1998 from $112,000
in fiscal 1997 due to the successful settlement of certain
litigation. In 1998, Sundry income was offset by $525,000 in write
offs and accruals for the closing of unprofitable Bavarian Pretzel
Bakery retail stores.
The effective income tax rate increased to 37% in fiscal 1998 from
32% in fiscal 1997. The lower rate in fiscal 1997 is due primarily
to adjustments relating to settlements of federal tax matters.
Net earnings increased $3,691,000 or 45% in fiscal 1998 to
$11,850,000.
Acquisitions, Liquidity and Capital Resources
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.
In December 1997, the Company acquired the common stock of
National ICEE Corporation. National ICEE Corporation, with annual
sales of approximately $40 million, markets and distributes frozen
carbonated beverages primarily in the eastern half of the United
States. The Company has incurred approximately $50 million of debt
to complete the acquisition. The following are the unaudited pro
forma results of operations for the fiscal years 1998 and 1997
assuming the above had occurred at the beginning of that fiscal
year:
1998 1997
(In thousands, except per share amounts)
Sales $268,390 $259,952
Net Earnings $11,346 $8,645
Earnings per diluted share $1.21 $.96
In January 1997, the Company acquired the assets of Mama Tish's
International Foods by assuming certain liabilities. Mama Tish's
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.
In October 1996, the Company acquired the assets of Bakers Best
Snack Food Corp. for cash. Bakers Best is a manufacturer of soft
pretzels selling to both the food service and retail supermarket
industries.
All of the Company's acquisitions were accounted for under the
purchase method of accounting, and the operations are included in
the consolidated financial statements from the respective
acquisition date.
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 service its debt.
Fluctuations in the value of the Mexican peso and the resulting
revaluation of the net assets of the Company's Mexican frozen
beverage subsidiary caused an increase of $93,000 and decreases of
$285,000 and $53,000 in accumulated comprehensive income (loss)
for the 1999, 1998 and 1997 fiscal years, respectively. In 1999,
sales of the Mexican subsidiary were $2,475,000 as compared to
$2,170,000 in 1998.
In April 1999, the Company purchased and retired 250,000 shares of
its common stock at a cost of $5,625,000. The Company purchased
the stock from its President and Chief Executive Officer.
An unsecured general-purpose bank line of credit totalling
$30,000,000 is available to the Company. Available borrowings
under the bank line of credit were $19,000,000 at September 25,
1999.
In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established standards for
reporting and display of comprehensive income and its components
in the financial statements. These financial statements have been
reclassified to reflect the provisions of SFAS No. 130.
In fiscal year 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 superceded SFAS 14, "Financial
Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management approach". The
management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments, as
well as disclosures about products and services and major
customers. The adoption of SFAS No. 131 did not affect the results
of operations or the financial position of the Company (see Note P
to the consolidated financial statements).
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" was issued. Subsequent to this statement,
SFAS No. 137 was issued, which amended the effective date of SFAS
No. 133 to be all fiscal quarters of all fiscal years beginning
after June 15, 2000. Based on the Company's minimal use of
derivatives at the current time, management does not anticipate
the adoption of SFAS No. 133 will have a significant impact on
earnings or financial position of the Company. However, the impact
from adopting SFAS No. 133 will depend on the nature and purpose
of the derivatives instruments in use by the Company at that time.
Fiscal 1999 Compared to Fiscal 1998
Trade receivables decreased $1,279,000 or 4% to $31,404,000 in
1999, and inventories decreased $260,000 or 2% to $16,187,000 in
1999 from 1998 primarily because of increased efficiencies in the
Company's operations.
Other receivables decreased $1,228,000 to $477,000 in 1999 due to
changes in payment programs from certain suppliers.
Property, plant and equipment increased $19,689,000 to
$232,253,000 primarily because of expenditures for dispensers
required for the expansion of the frozen beverage business, for
ovens and portable merchandisers required for the expansion of the
food service business and for the expansion and upgrading of
production and warehousing capability at the Company's
manufacturing facilities.
Goodwill, trademarks and rights, net of accumulated amortization
decreased $1,050,000 to $50,821,000 due to amortization, net of
goodwill acquired in the Camden Creek Bakery acquisition.
Accounts payable and accrued liabilities decreased $446,000 in
1999 from $32,136,000 in 1998 due primarily to a reduction in
income taxes payable.
Current maturities of long-term debt decreased by $209,000 to
$8,214,000 and long-term debt, less current maturities decreased
by $13,539,000 to $34,660,000 as a result of the use of available
cash flow from operations to pay down other debt as well as make
scheduled debt payments.
Deferred income taxes increased by $3,315,000 to $7,702,000 which
related to disposals and depreciation of property, plant and
equipment.
Common stock decreased $2,868,000 in 1999 to $36,252,000 because
of the repurchase and retirement of common stock from the
President and Chief Executive Officer of the Company, net of the
exercise of incentive stock options.
Net cash provided by operating activities increased $11,189,000 to
$48,368,000 in 1999 primarily due to increases in net earnings,
deferred taxes and depreciation and amortization of fixed assets
and a decrease in accounts receivable.
Net cash used in investing activities decreased $16,513,000 to
$28,619,000 in 1999 primarily due to a decrease of $12,477,000 in
payments for purchase of companies, net of cash acquired and debt
assumed.
Net cash used in financing activities of $17,008,000 in 1999
compared to net cash provided by financing activities of
$9,756,000 in 1998. The change of $26,764,000 was the result of a
net paydown in borrowings in 1999 of $13,748,000 compared to an
increase of $7,631,000 in borrowings to fund the acquisition of
National ICEE Corporation and the subsequent refinancing of its
debt in 1998.
Fiscal 1998 Compared to Fiscal 1997
Trade receivables increased $9,301,000 or 40% to $32,683,000 in
1998, and inventories increased $2,912,000 or 22% to $16,447,000
in 1998 from 1997 primarily because of higher sales levels
attributable to the acquisition of National ICEE Corporation.
Other receivables decreased $371,000 to $1,705,000 in 1998 due to
reimbursement received from the Company's insurance carrier on
settlement of legal matters.
Property, plant and equipment increased $48,216,000 to
$212,564,000 primarily because of expenditures for dispensers
required for the expansion of the frozen beverage business, for
ovens and portable merchandisers required for the expansion of the
food service business and for the expansion and upgrading of
production and warehousing capability at the Company's
manufacturing facilities. Additionally, property, plant and
equipment from the National ICEE Corporation acquisition accounted
for approximately one-half of the overall increase.
Goodwill, trademarks and rights, net of accumulated amortization
increased $30,412,000 to $51,871,000 due to goodwill acquired in
the National ICEE Corporation acquisition.
Accounts payable and accrued liabilities increased $10,169,000 in
1998 from $21,967,000 in 1997 due primarily to the acquisition of
National ICEE Corporation and higher sales levels.
Current maturities of long-term debt increased by $8,407,000 to
$8,423,000 and long-term debt, less current maturities increased
by $43,171,000 to $48,199,000 due to borrowings to fund the
acquisition of National ICEE Corporation and the subsequent
refinancing of its debt.
Deferred income decreased $97,000 to $435,000 primarily as a
result of the reduction in the Company's guarantees related to the
sale of its Hawaiian ICEE operations.
Deferred Income Taxes increased by $1,007,000 to $4,387,000 in
1998 which related to depreciation of property, plant and
equipment.
Common stock increased $2,212,000 in 1998 to $39,120,000 primarily
because of the exercise of incentive stock options.
Net cash provided by operating activities increased $16,808,000 to
$37,179,000 in 1998 primarily due to increases in net earnings,
depreciation and amortization of fixed assets, amortization of
intangibles and deferred costs and accounts payable and accrued
liabilities.
Net cash used in investing activities increased $14,659,000 to
$45,132,000 in 1998 primarily due to purchases of property, plant
and equipment which increased by $12,222,000 in 1998. Expenditures
increased for dispensers for the expansion of the frozen beverage
business and for the expansion and modernization of the Company's
Italian ice and frozen dessert plant in Scranton, PA.
Net cash provided by financing activities of $9,756,000 in 1998
compared to $956,000 in 1997. The increase was due to a net
increase in borrowings to fund the acquisition of National ICEE
Corporation and the subsequent refinancing of its debt.
Consolidated Statements of Earnings
Fiscal year ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands, except per share amounts)
Net sales $ 288,439 $ 262,390 $ 220,318
Cost of goods sold 134,963 126,812 112,159
Gross profit 153,476 135,578 108,159
Operating expenses
Marketing 86,809 77,385 65,231
Distribution 28,066 24,846 19,197
Administrative 10,668 10,072 10,326
Amortization of
intangibles and
deferred costs 2,970 2,814 1,765
128,513 115,117 96,519
Operating income 24,963 20,461 11,640
Other income (deductions)
Investment income 487 573 630
Interest expense (3,224) (3,033) (431)
Sundry 415 808 112
(2,322) (1,652) 311
Earnings before
income taxes 22,641 18,809 11,951
Income taxes 8,377 6,959 3,792
NET EARNINGS $ 14,264 $ 11,850 $ 8,159
Earnings per diluted
share $1.50 $1.26 $.91
Weighted average number
of diluted shares 9,530 9,368 8,985
Earnings per basic share $1.58 $1.32 $.93
Weighted average number
of basic shares 9,025 8,947 8,781
The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets
September 25, September 26,
1999 1998
(In thousands, except share amounts)
Assets
Current Assets
Cash and cash equivalents $ 5,945 $ 3,204
Short-term investment
securities held to maturity 924 --
Receivables
Trade, less allowance
of $806 and $597,
respectively 31,404 32,683
Other 477 1,705
Inventories 16,187 16,447
Prepaid expenses and deposits 1,130 1,104
Total current assets 56,067 55,143
Property, Plant and Equipment,
at cost 232,253 212,564
Less accumulated depreciation
and amortization 130,292 112,444
101,961 100,120
Other Assets
Goodwill, trademarks and
rights, less accumulated
amortization of $11,406
and $9,712, respectively 50,821 51,871
Long-term investment securities
held to maturity 1,925 3,127
Sundry 2,906 3,000
55,652 57,998
$ 213,680 $ 213,261
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of
long-term debt $ 8,214 $ 8,423
Accounts payable 23,272 23,222
Accrued liabilities 8,418 8,914
Total current liabilities 39,904 40,559
Long-Term Debt, less current
maturities 34,660 48,199
Deferred Income Taxes 7,702 4,387
Other long-term liabilities 245 435
Commitments -- --
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, 9,000,000
and 9,036,000 respectively 36,251 39,120
Accumulated other comprehensive loss (1,601) (1,694)
Retained earnings 96,519 82,255
131,169 119,681
$ 213,680 $ 213,261
The accompanying notes are an integral part of these
statements.
Consolidated Statement of Changes in Stockholders' Equity
Accumulated
Other
Common Stock Compre- Compre-
hensive Retained hensive
Shares Amount Loss Earnings Total Income
(In thousands)
Balance at September 29, 1996 8,749 $35,818 $(1,356) $62,246 $96,708
Issuance of common stock upon
exercise of stock options 84 945 -- -- 945
Issuance of common stock for
employee stock purchase plan 17 145 -- -- 145
Foreign currency translation
adjustment -- -- (53) -- (53)$ (53)
Net earnings for the fiscal year
ended September 27, 1997 -- -- -- 8,159 8,159 8,159
Comprehensive Income -- -- -- -- -- $8,106
Balance at September 27, 1997 8,850 36,908 (1,409) 70,405 105,904
Issuance of common stock upon
exercise of stock options 171 2,017 -- -- 2,017
Issuance of common stock for
employee stock purchase plan 15 195 -- -- 195
Foreign currency translation
adjustment -- -- (285) -- (285) $(285)
Net earnings for the fiscal year
ended September 26, 1998 -- -- -- 11,850 11,850 11,850
Comprehensive Income -- -- -- -- -- $11,565
Balance at September 26, 1998 9,036 39,120 (1,694) 82,255 119,681
Issuance of common stock upon
exercise of stock options 200 2,487 -- -- 2,487
Issuance of common stock for
employee stock purchase plan 14 269 -- -- 269
Foreign currency translation
adjustment -- -- 93 -- 93 $ 93
Repurchase of common stock (250) (5,625) -- -- (5,625)
Net earnings for the fiscal year
ended September 25, 1999 -- -- -- 14,264 14,264 14,264
Comprehensive Income -- -- -- -- -- $14,357
Balance at September 25, 1999 9,000 $36,251 $(1,601)$96,519$131,169
The accompanying notes are an integral part of this statement.
Consolidated Statements of Cash Flows
Fiscal year ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands)
Operating activities:
Net earnings $ 14,264 $ 11,850 $ 8,159
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and amortization
of fixed assets 24,179 21,807 17,090
Amortization of intangibles
and deferred costs 3,459 3,352 2,180
Losses (gains) from disposals
of property and equipment 168 306 (26)
Increase (decrease) in deferred
income taxes 3,315 1,007 (23)
Other adjustments 73 23 14
Changes in assets and liabilities,
net of effects from purchase
of companies:
Decrease (increase) in
accounts receivable 2,609 (6,378) (6,615)
Decrease (increase) in
inventories 700 958 (1,008)
(Increase) decrease in
prepaid expenses (21) (71) 174
(Decrease) increase in
accounts payable and
accrued liabilities (378) 4,325 426
Net cash provided by operating
activities 48,368 37,179 20,371
Investing activities:
Purchases of property, plant
and equipment (26,606) (31,803) (19,581)
Payments for purchases of companies,
net of cash acquired and
debt assumed (2,336) (14,813) (18,601)
Proceeds from investments held
to maturity 255 190 6,146
Proceeds from investments available
for sale -- 495 1,710
Proceeds from disposals of property
and equipment 518 1,000 273
Other (450) (201) (420)
Net cash used in investing
activities (28,619) (45,132) (30,473)
Financing activities:
Proceeds from borrowings 4,000 56,150 35
Proceeds from issuance of common
stock 2,365 2,125 930
Payments to repurchase common stock (5,625) -- --
Payments of long-term debt (17,748) (48,519) (9)
Net cash provided by (used in)
financing activities (17,008) 9,756 956
Net increase (decrease) in
cash and cash equivalents 2,741 1,803 (9,146)
Cash and cash equivalents at beginning
of year 3,204 1,401 10,547
Cash and cash equivalents at end
of year $ 5,945 $ 3,204 $ 1,401
The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements
Note A--Summary of Significant Accounting Policies
J&J Snack Foods Corp. and Subsidiaries (the Company) manufactures,
markets and distributes a variety of nutritional snack foods and
beverages to the food service and retail supermarket industries. A
summary of the significant accounting policies consistently
applied in the preparation of the accompanying consolidated
financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of J&J
Snack Foods Corp. and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
2. Revenue Recognition
The Company recognizes revenue when its product is shipped or its
services are performed.
The Company sells service contracts covering frozen carbonated
beverage machines sold. The terms of coverage range between 12 and
48 months. The Company records deferred income on service
contracts which is amortized by the straight-line method over the
term of the contracts.
During the years ended September 25, 1999 and September 26, 1998,
the Company sold $836,000 and $509,000, respectively, of service
contracts related to its frozen beverage machines. At September
25, 1999, deferred income on service contracts was $138,000, of
which $137,000 is reflected as short-term and included in accrued
liabilities on the consolidated balance sheet. Service contract
income of $897,000, $578,000 and $179,000 was recognized for the
fiscal years ended 1999, 1998 and 1997, respectively.
3. Foreign Currency
Assets and liabilities in foreign currencies are translated into
U.S. dollars at the rate of exchange prevailing at the balance
sheet date. Revenues and expenses are translated at the average
rate of exchange for the period. The cumulative translation
adjustment is recorded as a separate component of stockholders'
equity.
4. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
5. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with
original maturities of three months or less.
6. Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables
are limited due to the dispersion of the Company's customers over
different industries and geographies.
7. Inventories
Inventories are valued at the lower of cost (determined by the
first-in, first-out method) or market.
8. Investment Securities
The Company classifies its investments in securities in one of
three categories: held to maturity, trading and available for
sale. Debt securities that the Company has the positive intent and
ability to hold to maturity are classified as held to maturity and
are reported at amortized cost. As the Company does not engage in
securities trading, the balance of its debt securities and any
equity securities are classified as available for sale. Net
unrealized gains and losses, if significant on such securities,
net of income tax, are reported as a separate component of
stockholders' equity and excluded from the determination of net
income.
9. Depreciation and Amortization
Depreciation of equipment and buildings is provided for by the
straight-line and accelerated methods 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 life, whichever is shorter. Goodwill, trademarks
and rights arising from acquisitions are amortized by the
straight-line method over periods ranging from 5 to 30 years.
Management reviews the realization of goodwill based upon past and
expected performance of individual acquired businesses.
In fiscal year 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which provides guidance on when to recognize and how
to measure impairment losses of long-lived assets and certain
identifiable intangibles and how to value long-lived assets to be
disposed of. There was no material impact as a result of the
adoption of SFAS No. 121 on the financial position and results of
operations of the Company.
10. Fair Value of Financial Instruments
The carrying value of the Company's short-term financial
instruments, such as receivables and accounts payable approximate
their fair values, based on the short-term maturities of these
instruments. The carrying value of long-term debt obligations,
consisting primarily of unsecured term note and an unsecured
general purpose credit line with interest rates based on current
short-term market rates, approximates the fair value at September
25, 1999 and September 26, 1998.
11. Income Taxes
The Company accounts for its income taxes under the liability
method. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities.
12. Earnings Per Common Share
In fiscal year 1998, the Company adopted SFAS No. 128, "Earnings
Per Share" ("EPS"). The new standard eliminated primary and fully
diluted EPS and instead requires presentation of basic and diluted
EPS in conjunction with the disclosure of the methodology used in
computing such EPS. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted
average common shares outstanding during the period. Diluted EPS
takes into consideration the potential dilution that could occur
if securities (stock options) or other contracts to issue common
stock were exercised and converted into common stock. EPS
calculations for 1997 have been restated to reflect the adoption
of SFAS No. 128. The effect of adopting this new standard was not
material.
13. Accounting for Stock-Based Compensation
In fiscal year 1997, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which contains a fair value-based
method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the
fair value of the award. Compensation is then recognized over the
service period, which is usually the vesting period. The Company
has chosen an alternative, permitted by the standard, to continue
accounting for employee stock options and similar equity
instruments under Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees."
14. Advertising Costs
Advertising costs are expensed as incurred. Total advertising
expense was $5,537,000, $4,128,000, and $3,892,000 for the fiscal
years 1999, 1998 and 1997, respectively.
15. Interest Rate Risk Management
As part of its risk management activities, the Company uses
interest rate swaps to modify the interest rate characteristics of
certain long-term obligations. The Company holds no other
derivatives or similar instruments. The derivatives contracts are
designated as hedges when acquired. They are expected to be
effective economic hedges and have high correlation with the items
being hedged at inception and throughout the hedge period. The
variable interest rate of a swap contract is referenced to the
same index as the variable interest rate of the debt being hedged.
Interest rate swaps are accounted for using the accrual method,
with an adjustment to interest expense in the income statement.
The effects of swap positions are included in financing activities
in the Statements of Cash Flows. Interest receivable or payable
under the swap contracts is included in Receivables or Accounts
Payable. Unrealized gains and losses on the swaps are not
recognized in the balance sheet. Realized gains and losses from
disposition or settlement of swap contracts are deferred on the
balance sheet and amortized to interest expense over the
appropriate period.
If the hedged item is settled or terminated, deferred and/or
unrecognized gains or losses on the hedging instrument on that
date are recognized as an adjustment to the gain or loss on
disposition or termination of the related hedged item. Future
accruals on the swap and subsequent gains and losses on the swap
or forward contract are included in income in the period they
occur.
16. Comprehensive Income
In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established standards for
reporting and display of comprehensive income and its components
in the financial statements. These financial statements have been
reclassified to reflect the provisions of SFAS No. 130.
17. Segment Reporting
In fiscal year 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 superceded SFAS 14, "Financial
Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management approach". The
management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments, as
well as disclosures about products and services and major
customers. The adoption of SFAS No. 131 did not affect the results
of operations or the financial position of the Company. (See Note
P.)
18. Recent Accounting Pronouncements
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" was issued. Subsequent to this statement,
SFAS No. 137 was issued, which amended the effective date of SFAS
No. 133 to be all fiscal quarters of all fiscal years beginning
after June 15, 2000. Based on the Company's minimal use of
derivatives at the current time, management does not anticipate
the adoption of SFAS No. 133 will have a significant impact on
earnings or financial position of the Company. However, the impact
from adopting SFAS No. 133 will depend on the nature and purpose
of the derivatives instruments in use by the Company at that time.
Note B--Acquisitions
In February 1999, the Company acquired the Camden Creek Bakery
cookie business from Schwan's Sales Enterprises, Inc., Marshall,
MN. Camden Creek sells frozen ready-to-bake cookies to the food
service industry with approximately $4.6 million of sales in 1998.
In December 1997, the Company acquired the common stock of
National ICEE Corporation. National ICEE Corporation, with annual
sales of approximately $40 million, markets and distributes frozen
carbonated beverages primarily in the eastern half of the United
States. The Company incurred approximately $50 million of debt to
complete the acquisition. The following are the unaudited pro
forma results of operations for the fiscal years 1998 and 1997
assuming the above had occurred at the beginning of that fiscal
year (in thousands, except per share amounts):
1998 1997
Sales $268,390 $259,952
Net Earnings $11,346 $8,645
Earnings per diluted share $1.21 $.96
In January 1997, the Company acquired the assets of Mama Tish's
International Foods by assuming certain of its liabilities. Mama
Tish's is a manufacturer and distributor of Italian ices, sorbets
and other frozen juice products.
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.
In October 1996, the Company acquired the assets of Bakers Best
Snack Food Corp. for cash. Bakers Best is a manufacturer of soft
pretzels selling to both the food service and retail supermarket
industries.
The acquisitions were accounted for under the purchase method of
accounting, and the operations are included in the consolidated
financial statements from the respective acquisition dates.
Note C--Credit Arrangements
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 September
25, 1999, $8,000,000 of the note was classified under current
maturities of long-term debt. At September 25, 1999, the principal
balance of the note was $26,000,000. (See Note H.)
$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 due monthly. The interest rate on the
outstanding borrowings under the line was 5.95% at September 25,
1999. Borrowings under the credit line were $11,000,000 at
September 25, 1999. (See Note H.)
Note D--Investment Securities
The amortized cost, gross unrealized gains and losses, and fair
values of the Company's investment securities held to maturity at
September 25, 1999 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
Corporate debt
securities $ 924 $ -- $ -- $ 924
Municipal
government
securities 1,425 -- (17) 1,408
Other debt
securities 500 -- -- 500
$ 2,849 $ -- $ (17) $ 2,832
The amortized cost, gross unrealized gains and losses, and
fair values of the Company's investment securities held to
maturity at September 26, 1998 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
Corporate debt
securities $ 947 $ 38 $ -- $ 985
Municipal
Government
securities 1,680 28 -- 1,708
Other debt
securities 500 -- -- 500
$ 3,127 $ 66 $ -- $ 3,193
The following table lists the maturities of investment securities
classified as held to maturity at September 25, 1999:
Amortized
Cost Fair Value
(In thousands)
Due in less than one year $ 924 $ 924
Due after one year through five years 1,925 1,908
$ 2,849 $ 2,832
Proceeds from sales of securities were $255,000, $495,000 and
$1,710,000 for fiscal years 1999, 1998 and 1997, respectively. The
Company uses the specific identification method to determine the
cost of securities sold. No material gains or losses were realized
on sales of investment securities.
Note E--Inventories
Inventories consist of the following:
September 25, September 26,
1999 1998
(In thousands)
Finished goods $ 8,118 $ 8,054
Raw materials 1,579 2,190
Packaging materials 1,770 2,239
Equipment parts and other 4,720 3,964
$ 16,187 $ 16,447
Note F--Property, Plant and Equipment
Property, plant and equipment consist of the following:
September 25, September 26, Estimated
1999 1998 Useful
Lives
(In thousands)
Land $ 745 $ 839 --
Buildings 5,386 5,432 15-39.5 years
Plant machinery
and equipment 66,305 60,275 5-10 years
Marketing equipment 138,335 126,653 5 years
Transportation
equipment 2,049 2,149 5 years
Office equipment 6,308 5,446 3-5 years
Improvements 11,769 10,616 5-20 years
Construction in
progress 1,356 1,154 --
$ 232,253 $ 212,564
Note G--Accrued Liabilities
Included in accrued liabilities is accrued compensation of
$5,024,000 and $4,297,000 as of September 25, 1999 and September
26, 1998, respectively.
Note H--Long-Term Debt
Long-term debt consists of the following:
September 25, September 26,
1999 1998
(In thousands)
$40,000,000 unsecured term note,
with 60 monthly principal payments
of $666,667 plus 6.61% interest
beginning January 8, 1998
(subject to financial covenants) $ 26,000 $ 34,000
$30,000,000 unsecured general-
purpose bank credit line, with
interest rate tied to LIBOR with
interest payments due monthly
(subject to financial covenants) 11,000 16,000
7.25% redeemable economic
development revenue bonds payable
December 2005; interest payable
semiannually (subject to financial
covenants) 5,000 5,000
Other 874 1,622
42,874 56,622
Less current maturities 8,214 8,423
$ 34,660 $ 48,199
Annual principal payments of long-term debt as of September 25,
1999 are as follows (in thousands):
2000 $ 8,214
2001 19,178
2002 8,113
2003 2,369
2004 --
2005 and thereafter 5,000
$ 42,874
Note I--Income Taxes
Income tax expense is as follows:
Fiscal year ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands)
Current
U.S. Federal $ 4,516 $ 5,389 $ 3,381
Foreign 55 38 40
State 491 525 394
5,062 5,952 3,815
Deferred (Benefit)
U.S. Federal 3,046 913 (3)
Foreign -- 7 (23)
State 269 87 3
3,315 1,007 (23)
$ 8,377 $ 6,959 $ 3,792
The provisions for income taxes differ from the amounts computed
by applying the federal income tax rate of approximately 34% to
earnings before income taxes for the following reasons:
Fiscal year ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands)
Income taxes at
statutory rates $ 7,698 $ 6,395 $4,063
Increase (decrease)
in taxes resulting
from:
State income taxes,
net of federal
income tax benefit 324 404 267
Nontaxable income (38) (55) (120)
Other, net 393 215 (418)
$ 8,377 $ 6,959 $ 3,792
Deferred tax assets and liabilities consist of the following:
Fiscal year ended
September 25, September 26,
1999 1998
(In thousands)
Deferred tax assets:
Vacation accrual $ 391 $ 298
Insurance accrual 862 515
Deferred income 134 206
Other, net 956 458
2,343 1,477
Deferred tax liabilities:
Depreciation of property
and equipment 9,436 5,628
Other, net 609 236
10,045 5,864
$ 7,702 $ 4,387
Note J--Earnings Per Share
The Company's calculation of EPS in accordance with SFAS No. 128,
"Earnings Per Share," is as follows:
Fiscal Year Ended September 25, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
(In thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to
common stockholders $ 14,264 9,025 $ 1.58
Effect of Dilutive Securities
Options -- 505 (.08)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $ 14,264 9,530 $ 1.50
Fiscal Year Ended September 26, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
(In thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to
common stockholders $ 11,850 8,947 $ 1.32
Effect of Dilutive Securities
Options -- 421 (.06)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $ 11,850 9,368 $ 1.26
Fiscal Year Ended September 27, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
(In thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to
common stockholders $ 8,159 8,781 $.93
Effect of Dilutive Securities
Options -- 204 (.02)
Earnings Per Diluted Share
Net Income available
to common stockholders plus
assumed conversions $ 8,159 8,985 $.91
Note K--Commitments
1. Lease Commitments
The following is a summary of approximate future minimum rental
commitments for noncancelable operating leases with terms of more
than one year as of September 25, 1999:
Plants and
Offices Equipment Total
(In thousands)
2000 $ 4,082 $ 3,795 $ 7,877
2001 3,497 3,078 6,575
2002 3,102 2,314 5,416
2003 2,651 1,696 4,347
2004 2,284 819 3,103
2005 and thereafter 11,020 399 11,419
$ 26,636 $ 12,101 $ 38,737
Total rent expense was $8,547,000, $7,766,000 and $6,002,000 for
fiscal years 1999, 1998 and 1997, respectively.
2. Other Commitments
The Company is a party to litigation which management currently
believes will not have a material adverse effect on the Company's
financial condition or results of operations.
Note L--Capital Stock
Under share repurchase programs authorized by the Board of
Directors, 712,000 shares remain to be repurchased. In fiscal year
1999, the Company purchased and retired 250,000 shares of its
common stock at a cost of $5,625,000. The Company purchased the
stock from its President and Chief Executive Officer.
Note M--Stock Options
The Company has a Stock Option Plan (the "Plan"). Pursuant to the
Plan, stock options may be granted to officers and key employees
of the Company which qualify as incentive stock options as well as
stock options which are nonqualified. The exercise price of
incentive stock options is at least the fair market value of the
common stock on the date of grant. The exercise price for
nonqualified options is determined by a committee of the Board of
Directors. The options are generally exercisable after three years
and expire no later than ten years from date of grant. There were
1,500,000 shares reserved under the Plan; options for 268,000
shares remain unissued as of September 25, 1999.
The Company has a nonqualified stock option plan for nonemployee
directors and the Chief Executive Officer of the Company whereby a
total of 340,000 shares of common stock may be issued. Under this
plan, each nonemployee director is granted options to purchase
3,000 shares of common stock, and the Chief Executive Officer is
granted options to purchase 25,000 shares annually. The option
price is equal to the fair market value of the common stock at the
date of grant, and the options expire ten years after date of
grant. Other nonqualified options have been issued to the Chief
Executive Officer, directors and certain employees.
The Company has adopted only the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." It applies APB
Opinion No. 25 and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-
based compensation plans. Had compensation cost for the plans been
determined based on the fair value of the options at the grant
date consistent with SFAS No. 123, the Company's net earnings and
earnings per common share would have been reduced to the pro forma
amounts indicated below:
Fiscal Year Ended
September 25, September 26, September 27,
1999 1998 1997
(in thousands, except per share amounts)
Net Earnings:
As reported $14,264 $11,850 $8,159
Pro forma 13,054 11,112 7,697
Earnings Per Diluted Share:
As reported $1.50 $1.26 $.91
Pro forma 1.37 1.18 .86
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants before October 1, 1995. The
fair value of these options is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions for grants in fiscal 1999, 1998 and
1997, respectively; expected volatility of 40% in 1999 and 30% in
1998 and 1997; risk-free interest rates of 6.21%, 5.12% and 6.71%;
and expected lives ranging between 4.5 and 10 years for all years.
A summary of the status of the Company's option plans as of fiscal
years 1999, 1998 and 1997 and the changes during the years ended
on those dates is represented below:
Incentive Nonqualified
Stock Options Stock Options
Weighted- Weighted-
Stock Average Stock Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
Balance,
September 29, 1996 745,493 $10.97 315,000 $11.27
Granted 267,743 $11.53 34,000 $12.75
Exercised (84,200) $ 9.38 -- --
Cancelled (52,650) $11.15 -- --
Balance,
September 27, 1997 876,386 $11.26 349,000 $11.41
Granted 223,396 $15.77 34,000 $19.25
Exercised (150,949) $12.56 (22,500) $ 6.63
Cancelled (52,500) $11.40 -- --
Balance,
September 26, 1998 896,333 $12.18 360,500 $12.41
Granted 241,860 $21.87 34,000 $21.75
Exercised (149,960) $11.62 (62,000) $11.39
Cancelled (37,574) $12.22 -- --
Balance,
September 25, 1999 950,659 $14.67 332,500 $13.56
Exercisable Options,
September 25, 1999 292,153 298,500
The weighted-average fair value of incentive options granted
during fiscal years ended September 25, 1999, September 26, 1998
and September 27, 1997 was $9.22, $5.31 and $4.24, respectively.
The weighted-average fair value of nonqualified stock options
granted during fiscal years ended September 25, 1999, September
26, 1998 and September 27, 1997 was $13.75, $10.56 and $5.97,
respectively.
The following table summarizes information about incentive stock
options outstanding at September 25, 1999:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of September Contractual Exercise September Exercise
Exercise Prices 25,1999 Life Price 25, 1999 Price
$ 7.25 - $10.50 170,000 1.6 years $ 9.38 170,000 $ 9.38
$11.00 - $16.38 550,799 2.7 years $13.31 122,153 $11.38
$20.00 - $24.50 229,860 4.2 years $21.84 -- --
950,659 292,153
The following table summarizes information about nonqualified
stock options outstanding at September 25, 1999:
Options Outstanding Options Exercisable
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of September Contractual Exercise September Exercise
Exercise Prices 25,1999 Life Price 25, 1999 Price
$ 7.25 - $10.75 44,500 2.1 years $ 9.92 44,500 $ 9.92
$11.00 - $13.625 220,000 4.9 years $12.12 220,000 $12.16
$19.25 - $21.75 68,000 9.1 years $20.50 34,000 $19.25
332,500 298,500
Note N--401(k) Profit-Sharing Plan
The Company maintains a 401(k) profit-sharing plan for its
employees. Under this plan, the Company may make discretionary
profit-sharing and matching 401(k) contributions. Contributions of
$684,000, $512,000 and $404,000 were made in fiscal years 1999,
1998 and 1997, respectively.
Note O--Cash Flow Information
The following is supplemental cash flow information:
Fiscal Year Ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands)
Cash paid for:
Interest $ 3,231 $ 2,870 $ 431
Income taxes 5,617 6,461 4,469
Note P--Segment Reporting
Using the guidelines set forth in SFAS No. 131, the Company has
two reportable segments: Snack Foods and Frozen Beverages. Snack
Foods manufactures and distributes snack foods and bakery items.
Frozen Beverages markets and distributes frozen beverage products.
The segments are managed as strategic business units due to their
distinct production processes and capital requirements.
The Company evaluates each segment's performance based on income
or loss before taxes, excluding corporate and other unallocated
expenses and non-recurring charges. Information regarding the
operations in these reportable segments is as follows:
Fiscal year ended
September 25, September 26, September 27,
1999 1998 1997
(In thousands)
Sales:
Snack Foods $ 196,690 $ 178,591 $ 172,403
Frozen Beverages 91,749 83,799 47,915
$ 288,439 $ 262,390 $ 220,318
Depreciation and
Amortization:
Snack Foods $ 13,039 $ 12,167 $ 11,020
Frozen Beverages 14,599 12,992 8,250
$ 27,638 $ 25,159 $ 19,270
Income Before Taxes:
Snack Foods $ 17,227 $ 14,418 $ 9,512
Frozen Beverages 5,414 4,391 2,439
$ 22,641 $ 18,809 $ 11,951
Capital Expenditures:
Snack Foods $ 12,332 $ 15,604 $ 9,502
Frozen Beverages 14,274 16,199 10,079
$ 26,606 $ 31,803 $ 19,581
Assets:
Snack Foods $ 112,271 $ 109,378 $ 106,790
Frozen Beverages 101,409 103,883 30,037
$ 213,680 $ 213,261 $ 136,827
Sales to a single Snack Foods' customer were approximately 10% of
the Company's sales for each of the years ending 1998 and 1997.
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
J&J SNACK FOODS CORP.
We have audited the accompanying consolidated balance sheets of
J&J Snack Foods Corp. and Subsidiaries as of September 25, 1999
and September 26, 1998, and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each
of the fiscal years in the three-year period ended September 25,
1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of J&J Snack Foods Corp. and Subsidiaries as of September
25, 1999 and September 26, 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the
fiscal years in the three-year period ended September 25, 1999 in
conformity with generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
November 2, 1999
Corporate Information
Directors
Gerald B. Shreiber
Chairman of the Board,
President and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and Chief Operating Officer
Stephen N. Frankel
President,
Stephen N. Frankel Realtor, Inc.
Peter G. Stanley
Consultant
Leonard M. Lodish, Ph.D.
Samuel R. Harrell Professor,
Marketing Department of the Wharton School,
University of Pennsylvania
Officers
Gerald B. Shreiber
Chairman of the Board,
President and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and Chief Operating Officer
Robyn Shreiber Cook
Senior Vice President, West
Paul L. Hirschman
Vice President, Information Systems
Officers of Subsidiary Companies
J&J SNACK FOODS CORP. OF NEW JERSEY
John Duckett
Vice President, Service & Assembly
Anthony P. Harrison II
Vice President, Quality Control and Research & Development
John P. Heim
Vice President, Engineering & Manufacturing
Michael Karaban
Vice President, Marketing
H. Robert Long
Vice President, Distribution
Craig S. Parker
Vice President, School Food Service & Branded Concepts
Milton L. Segal
Vice President, Purchasing
Steven J. Taylor
Vice President, Sales
J&J SNACK FOODS CORP. OF CALIFORNIA
Don Smith
Vice President, Research and Development
MIA PRODUCTS
T.J. Couzens
Vice President/General Manager
THE ICEE COMPANY
Dan Fachner
President
Kent Galloway
Vice President and Chief Financial Officer
Joe Boulanger
Vice President/General Manager
Western Zone
Lou Fiorentino
Vice President/General Manager
Eastern Zone
Rick Naylor
Vice President/General Manager
Central Zone
Rod Sexton
Vice President of Service Operations
ICEE DE MEXICO, S.A. DE C.V.
Andres Gonzalez
Vice President
PRETZELS, INC.
Gary Powell
President
Quarterly Common Stock Data
Market Price
Fiscal 1999 High Low
1st Quarter 22 1/2 15 3/4
2nd Quarter 25 19 5/16
3rd Quarter 24 19 3/4
4th Quarter 24 7/16 20 1/4
Fiscal 1998 High Low
1st Quarter 17 3/8 13 1/2
2nd Quarter 19 1/2 12 1/2
3rd Quarter 20 3/4 17 7/8
4th Quarter 22 1/4 14 3/4
Stock Listing
The common stock of J&J Snack Foods Corp.
is traded on the over-the-counter market
on the NASDAQ National Market System
with the symbol JJSF.
Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Independent Accountants
Grant Thornton LLP
Counsel
Blank, Rome, Comisky & McCauley LLP
Annual Meeting
The Annual Meeting of Shareholders
is scheduled for Thursday, February 3, 2000
at 10:00 a.m. at the Hilton at
Cherry Hill, 2349 W. Marlton Pike,
Cherry Hill, New Jersey.
Form 10-K
Copies of the Company's Annual Report
to the Securities and Exchange Commission
on Form 10-K may be obtained without charge
by writing to:
J&J Snack Foods Corp.
6000 Central Highway
Pennsauken, NJ 08109
Attention: Dennis G. Moore
Web Site
www.jjsnack.com