UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 26, 2004
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) |
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
X Yes No
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
X Yes No
As of July 16, 2004, there were 8,997,274 shares of the Registrant's Common Stock outstanding.
INDEX Page Number Part I. Financial Information Item l. Consolidated Financial Statements Consolidated Balance Sheets - June 26, 2004 (unaudited) and September 27, 2003 3 Consolidated Statements of Operations - Three Months and Nine Months Ended June 26, 2004 and June 28, 2003 (unaudited) 5 Consolidated Statements of Cash Flows - Nine Months Ended June 26, 2004 and June 28, 2003 (unaudited) 6 Notes to the Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 Item 5. Other Information 23 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 24 |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 26, September 27, 2004 2003 (Unaudited) Current assets Cash and cash equivalents $ 42,072 $ 37,694 Accounts receivable 49,263 38,161 Inventories 31,621 23,202 Prepaid expenses and other 1,446 1,348 124,402 100,405 Property, plant and equipment, at cost Land 606 606 Buildings 5,106 5,106 Plant machinery and equipment 99,359 93,122 Marketing equipment 179,085 173,360 Transportation equipment 988 909 Office equipment 8,320 7,394 Improvements 15,264 15,654 Construction in progress 4,300 2,458 313,028 298,609 Less accumulated deprecia- tion and amortization 223,752 211,494 89,276 87,115 Other assets Goodwill 46,477 45,850 Other intangible assets, less accumulated amortization 2,492 1,231 Long term investment securities held to maturity - 275 Other 1,491 1,807 50,460 49,163 $264,138 $236,683 |
See accompanying notes to the consolidated financial statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND June 26, September 27, STOCKHOLDERS' EQUITY 2004 2003 (unaudited) Current liabilities Accounts payable $ 36,790 $ 27,252 Accrued liabilities 13,870 12,806 50,660 40,058 Deferred income taxes 13,374 13,374 Other long-term liabilities 484 687 13,858 14,061 Stockholders' equity Capital stock Preferred, $1 par value; authorized, 5,000,000 shares; none issued - - Common, no par value; authorized 25,000 shares; issued and outstanding, 8,969 and 8,757, respectively 31,405 28,143 Accumulated other comprehen- sive loss (2,035) (1,957) Retained earnings 170,250 156,378 199,620 182,564 $264,138 $236,683 |
See accompanying notes to the consolidated financial statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Nine months ended
June 26, June 28, June 26, June 28, 2004 2003 2004 2003 Net Sales $118,952 $102,529 $294,111 $261,181 Cost of goods sold 76,702 64,146 196,477 173,857 Gross profit 42,250 38,383 97,634 87,324 Operating expenses Marketing 15,446 14,486 39,568 37,219 Distribution 9,136 7,635 23,985 20,253 Administrative 4,024 4,114 12,365 11,323 Other general (income)expense 73 (9) 243 (61) 28,679 26,226 76,161 68,734 Operating income 13,571 12,157 21,473 18,590 Other income(expenses) Investment income 123 84 352 270 Interest expense (30) (42) (87) (96) Earnings before income taxes 13,664 12,199 21,738 18,764 Income taxes 4,959 4,391 7,866 6,754 NET EARNINGS $ 8,705 $ 7,808 $ 13,872 $ 12,010 Earnings per diluted share $.95 $.87 $1.52 $1.32 Weighted average number of diluted shares 9,163 8,937 9,122 $ 9,080 Earnings per basic share $.97 $.91 $1.56 $1.38 Weighted average number of basic shares 8,956 8,574 8,873 8,680 |
See accompanying notes to the consolidated financial statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Nine months ended June 26, June 28, 2004 2003 Operating activities: Net earnings $13,872 $12,010 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of fixed assets 17,464 18,576 Amortization of intangibles and deferred costs 744 535 Other 13 (336) Changes in assets and liabilities, net of effects from purchase of companies Increase in accounts receivable (8,677) (2,469) Increase in inventories (4,666) (3,858) Increase in prepaid expenses (9) (364) Increase in accounts payable and accrued liabilities 9,222 4,372 Net cash provided by operating activities 27,963 28,466 Investing activities: Purchase of property, plant and equipment (14,987) (14,778) Payments for purchases of companies, net of cash acquired (12,668) - Proceeds from investments held to maturity 275 400 Proceeds from disposals of property and equipment 749 2,167 Other (26) (107) Net cash used in investing activities (26,657) (12,318) Financing activities: Proceeds from issuance of stock 3,072 1,156 Payments to repurchase common stock - (8,565) Net cash provided by (used in) financing activities 3,072 (7,409) Net increase in cash and cash equivalents 4,378 8,739 Cash and cash equivalents at beginning of period 37,694 14,158 Cash and cash equivalents at end of period $42,072 $22,897 |
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments)
necessary to present fairly the financial position and
the results of operations and cash flows. Certain prior
year amounts have been reclassified to conform to the
current period presentation. These reclassifications had
no effect on reported net earnings.
The results of operations for the three months and nine months ended June 26, 2004 and June 28, 2003 are not necessarily indicative of results for the full year. Sales at our retail stores are generally higher in the first quarter due to the holiday shopping season. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended September 27, 2003.
Note 2 We recognize revenue from Food Service, Retail
Supermarkets, The Restaurant Group and Frozen Beverage
products at the time the products are shipped to third
parties. When we perform services for others under time
and material agreements, revenue is recognized upon the
completion of the services. We also sell fixed-fee
service contracts. The terms of coverage range between
12 and 60 months. We record deferred income on service
contracts which is amortized by the straight-line method
over the term of the contracts. We provide an allowance
for doubtful receivables after taking into account
historical experience and other factors.
Note 3 Depreciation of equipment and buildings is provided for
by the straight-line method over the assets' estimated
useful lives. Amortization of improvements is provided
for by the straight-line method over the term of the
lease or the assets' estimated useful lives, whichever is
shorter. Licenses and rights arising from
acquisitions are amortized by the straight-line method over periods ranging from 4 to 20 years.
Note 4 Our calculation of earnings per share in accordance with
SFAS No. 128, "Earnings Per Share," is as follows:
Three Months Ended June 26, 2004 Income Shares Per Share (Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 8,705 8,956 $.97
Effect of Dilutive Securities
Options - 207 (.02) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $ 8,705 9,163 $.95 |
35,700 anti-dilutive weighted shares have been excluded in the computation of the three months ended June 26, 2004 diluted EPS because the options' exercise price is greater than the average market price of the common stock.
Nine Months Ended June 26, 2004 Income Shares Per Share (Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $13,872 8,873 $1.56
Effect of Dilutive Securities
Options - 249 (.04) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $13,872 9,122 $1.52 |
35,700 anti-dilutive weighted shares have been excluded in the computation of the nine months ended June 26, 2004 diluted EPS because the options' exercise price is greater than the average market price of the common stock.
Three Months Ended June 28, 2003
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $7,808 8,574 $.91
Effect of Dilutive Securities
Options - 363 (.04) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $7,808 8,937 $.87 |
93,894 anti-dilutive weighted shares have been excluded in the computation of the nine months ended June 28, 2003 diluted EPS because the options' exercise price is greater than the average market price of the common stock.
Nine Months Ended June 28, 2003 Income Shares Per Share (Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $12,010 8,680 $1.38
Effect of Dilutive Securities
Options - 400 (.06) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $12,010 9,080 $1.32 |
93,894 anti-dilutive weighted shares have been excluded in the computation of the nine months ended June 28, 2003 diluted EPS because the options' exercise price is greater than the average market price of the common stock.
Note 5 The Company accounts for stock options under SFAS No.
123, "Accounting for Stock-Based Compensation", as
amended by SFAS No. 148, 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. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees". Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value- based method of accounting defined in SFAS No. 123 had been applied.
At June 26, 2004, the Company has one stock-based employee compensation plan. The Company accounts for this plan under the recognition and measurement principles of APB No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock- based employee compensation.
June 26, June 28, June 26, June 28, 2004 2003 2004 2003 Net income, as reported $8,705 $7,808 $13,872 $12,010 Less: stock-based compensation costs determined under fair value based method for all awards 288 317 861 983 Net income, pro forma $8,417 $7,491 $13,011 $11,027 Earnings per share of common stock - basic: As reported $ .97 $ .91 $ 1.56 $ 1.38 Pro forma $ .94 $ .87 $ 1.47 $ 1.27 Earnings per share of common stock - diluted: As reported $ .95 $ .87 $ 1.52 $ 1.32 Pro forma $ .92 $ .84 $ 1.43 $ 1.21 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2003 and fiscal 2004: expected volatility of 43% and 26%; risk-free interest rates of 3.07% for 2003 and ranging between 2.91% and 3.16% for 2004; and expected lives ranging between 5 and 10 years.
Note 6 In November 2002, FASB Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others'
(FIN 45), was issued. FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a
liability for the fair value of the obligation undertaken
in issuing the guarantee.
We previously did not record a liability when guaranteeing obligations unless it became probable that we would have to perform under the guarantee.
FIN 45 applies prospectively to guarantees we issue or modify subsequent to December 31, 2002, but has certain disclosure requirements effective for interim and annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a significant impact on our consolidated financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. We adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on our consolidated financial statements since we currently have no variable interest entities.
In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities (SPE). The consolidation requirements apply to all SPE's in the first fiscal year or interim period ending after December 15, 2003. We adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on our consolidated financial statements since we currently have no SPE's.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on our consolidated financial position, results of operations or cash flows.
Note 7 Inventories consist of the following:
June 26, September 27, 2004 2003 (in thousands) Finished goods $15,946 $10,537 Raw materials 4,674 2,775 Packaging materials 3,027 2,975 Equipment parts & other 7,974 6,915 $31,621 $23,202 |
Note 8 We principally sell our products to the food service and
retail supermarket industries. We also distribute our
products directly to the consumer through our chain of
retail stores referred to as The Restaurant Group. Sales
and results of our frozen beverages business are
monitored separately from the balance of our food service
business and restaurant group because of different
distribution and capital requirements. We maintain
separate and discrete financial information for the four
operating segments mentioned above which is available to
our Chief Operating Decision Makers. We have applied no
aggregate criteria to any of these operating segments in
order to determine reportable segments. Our four
reportable segments are Food Service, Retail
Supermarkets, The Restaurant Group and Frozen Beverages.
All inter-segment net sales and expenses have been
eliminated in computing net sales and operating income
(loss). These segments are described below.
Food Service
The primary products sold to the food service group are soft pretzels, frozen juice treats and desserts, churros and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry,
our products are purchased by the consumer primarily for consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket industry are soft pretzel products, including SUPERPRETZEL, LUIGI'S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, ICEE Squeeze Up Tubes and TIO PEPE'S Churros. Within the retail supermarket industry, our frozen and prepackaged products are purchased by the consumer for consumption at home.
The Restaurant Group
We sell direct to the consumer through our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of specialty snack food retail outlets.
Frozen Beverages
We sell frozen beverages to the food service industry,
including our restaurant group, primarily under the
names ICEE and ARCTIC BLAST in the United States, Mexico
and Canada.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and The Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages monthly review and evaluate operating income and sales in order to assess performance and allocate resources to each individual segment. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these four reportable segments is as follows:
June 26, June 28, June 26, June 28, 2004 2003 2004 2003 (in thousands) Sales to External Customers: Food Service $ 69,644 $ 53,842 $178,332 $144,915 Retail Supermarket 12,990 13,557 28,556 28,689 Restaurant Group 1,567 2,228 6,106 7,671 Frozen Beverages 34,751 32,902 81,117 79,906 $118,952 $102,529 $294,111 $261,181 Depreciation and Amortization: Food Service $ 3,495 $ 3,217 $ 10,283 $ 9,828 Retail Supermarket - - - - Restaurant Group 84 143 294 447 Frozen Beverages 2,467 2,531 7,631 8,836 $ 6,046 $ 5,891 $ 18,208 $ 19,111 Operating Income: Food Service $ 6,583 $ 5,250 $ 14,728 $ 12,782 Retail Supermarket 1,220 1,389 1,996 1,535 Restaurant Group (353) (417) (767) (600) Frozen Beverages 6,121 5,935 5,516 4,873 $ 13,571 $ 12,157 $ 21,473 $ 18,590 Capital Expenditures: Food Service $ 2,473 $ 3,271 $ 6,175 $ 7,538 Retail Supermarket - - - - Restaurant Group - 7 15 55 Frozen Beverages 4,032 3,238 8,797 7,185 $ 6,505 $ 6,516 $ 14,987 $ 14,778 Assets: Food Service $170,771 $140,753 $170,771 $140,753 Retail Supermarket - - - - Restaurant Group 1,600 2,360 1,600 2,360 Frozen Beverages 91,767 85,847 91,767 85,847 $264,138 $228,960 $264,138 $228,960 |
Note 9 We follow SFAS No. 142 "Goodwill and Intangible Assets".
SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather
than amortize them; accordingly, we no longer amortize
goodwill.
Our four reporting units, which are also reportable segments, are Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverages. Each of the segments have goodwill and indefinite lived intangible assets.
The carrying amount of acquired intangible assets for the Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverage segments as of June 26, 2004 are as follows:
Gross Net Carrying Accumulated Carrying Amount Amortization Amount (in thousands) |
FOOD SERVICE
Amortized intangible assets Licenses and rights $3,730 $1,297 $2,433 RETAIL SUPERMARKETS Amortized intangible assets Licenses and rights $ - $ - $ - THE RESTAURANT GROUP Amortized intangible assets Licenses and rights $ 20 $ 20 $ - FROZEN BEVERAGES Amortized intangible assets Licenses and rights $ 201 $ 142 $ 59 |
Licenses and rights are being amortized by the straight- line method over periods ranging from 4 to 20 years and amortization expense is reflected throughout operating expenses. There were no changes in the gross carrying amount of intangible assets for the three and nine months ended June 26, 2004. Aggregate amortization expense of intangible assets for the three months ended June 26, 2004 and June 28, 2003 was $149,000 and $76,000, respectively and for the nine months ended June 26, 2004 and June 28, 2003 was $388,000 and $231,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $570,000 in 2004 and 2005, and $500,000 in 2006, 2007 and 2008.
Goodwill
The carrying amounts of goodwill for the Food Service, Restaurant Group and Frozen Beverage segments are as follows:
Food Retail Restaurant Frozen Service Supermarket Group Beverages Total
(in thousands)
Balance at
June 26,
2004 $14,241 $ - $386 $31,850 $46,477
There were no changes in the carrying amount of goodwill for the three months ended June 26, 2004.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Our current cash and cash equivalents balance and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion.
In the three months ended June 26, 2004 and June 28, 2003, fluctuations in the valuation of the Mexican peso caused a decrease of $60,000 and an increase of $51,000, respectively, in stockholders' equity because of the revaluation of the net assets of the Company's Mexican frozen beverage subsidiary. In the nine month periods, there was a decrease of $78,000 in fiscal year 2004 and a decrease of $48,000 in fiscal year 2003.
On January 5, 2004, we acquired the assets of Country Home Bakers, Inc. for approximately $13 million in cash. Country Home Bakers, Inc., with its manufacturing facility in Atlanta, GA, manufactures and distributes bakery products to the food service and supermarket industries. Its product line includes cookies, biscuits, and frozen doughs sold under the names READI- BAKE, COUNTRY HOME and private labels sold through supermarket in-store bakeries. Total annual sales are estimated to be approximately $48 million.
Our general-purpose bank credit line provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at June 26, 2004.
Results of Operations
Net sales increased $16,423,000 or 16% for the three months to $118,952,000 and $32,930,000 or 13% to $294,111,000 for the nine months ended June 26, 2004 compared to the three and nine months ended June 28, 2003. Excluding sales from the acquisition of Country Home Bakers, Inc. in January 2004, net sales increased $4,219,000 or 4% for the three months and $8,911,000 or 3% for the nine months ended June 26, 2004 compared to the three and nine months ended June 28, 2003.
FOOD SERVICE
Sales to food service customers increased $15,802,000 or 29% in the third quarter to $69,644,000 and increased $33,417,000 or 23% for the nine months. Excluding sales from the
acquisition of Country Home Bakers, Inc., sales to food service
customers increased $3,598,000 or 7% in the third quarter and
increased $9,398,000 or 6% for the nine months. Soft pretzel
sales to the food service market increased 11% to $20,214,000 in
the third quarter and 6% to $59,455,000 in the nine months due
primarily to increased sales of PRETZEL FILLERS. Sales to three
customers accounted for approximately 55% of the soft pretzel
sales' increase in the third quarter. For the nine months, a
significant drop-off in sales to one customer which had
increased significantly in the year ago period was more than
offset by significant increases in sales to two other customers.
Italian ice and frozen juice treat and dessert sales decreased
1%, or
$137,000, to $12,827,000 in the three months and decreased 2%,
or $619,000, to $25,242,000 in the nine months. Continued
strength in our school food service business and sales of BARQ'S
FLOATZ, a frozen root beer and ice cream float, in warehouse
club stores have offset most of the declines which resulted from
replacement of our products with low carb products in some
warehouse club stores. Churro sales to food service customers
decreased 1% to $3,373,000 in the third quarter and increased 1%
to $9,755,000 in the nine months. Sales of bakery products
increased $14,170,000 or 81% in the third quarter to $31,617,000
and increased $30,573,000 or 62% for the nine months. Excluding
sales from the acquisition of Country Home Bakers, Inc., sales
of bakery products increased $1,966,000 or 11% in the third
quarter and $6,554,000 or 13% for the nine months due to
increased sales to existing customers and sales to new
customers. The changes in sales throughout the food service
segment were from a combination of volume changes and price
increases.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets decreased $567,000 or 4% to $12,990,000 in the third quarter and were essentially unchanged from last year with sales of $28,556,000 in the nine months. Soft pretzel sales increased 7% to $4,240,000 for the quarter and increased 7% to $14,221,000 for the nine months due to sales of our recently introduced PRETZELFILS. Sales of frozen juices and ices decreased $721,000 or 7% to $9,240,000 in the third quarter and $715,000 or 4% to $15,578,000 in the nine months. Case sales of frozen juices and ices products were down 9% in the quarter and 10% for the nine months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 30% to $1,567,000 in the third quarter and 20% to $6,106,000 for the nine month period. The sales decreases were caused primarily by decreased mall traffic and the closing or licensing of unprofitable stores. During the first nine months of the year,
thirteen stores were closed or licensed to others, leaving a total of 35 open at quarter end. Operating income was impacted during the nine months by approximately $120,000 of store closing costs.
FROZEN BEVERAGES
Frozen beverage and related product sales increased $1,849,000 or 6% to $34,751,000 in the third quarter and $1,211,000 or 2% to $81,117,000 in the nine months. Beverage sales alone were essentially unchanged at $26,717,000 in the third quarter and increased 1%, or $637,000 to $61,757,000 for the nine months. Managed service revenue increased 30% to $4,921,000 in the third quarter and 19% to $12,934,000 in the nine months as we continue to emphasize growing this portion of our business.
CONSOLIDATED
Gross profit as a percentage of sales decreased almost two full percentage points to 36% this year from 37% in last year's quarter and was at 33% for both years' nine months. The decrease in the third quarter resulted primarily from increased sales of lower margin bakery products and the impact of higher group insurance and commodity costs. For the nine months, a lower level of allowances in our retail supermarket business and reduced depreciation of our frozen beverage dispensing machines offset the impact on the gross profit percentage from the increased level of bakery sales and the higher group insurance and commodity costs.
Total operating expenses increased $2,453,000 in the third quarter and as a percentage of sales decreased to 24% from 26% in last year's same quarter. For the nine months, operating expenses increased $7,427,000 but as a percentage of sales were 26% in both years. Marketing expenses decreased to 13% of sales in this year's third quarter and nine months from 14% in both periods last year. The percentage decreases were the result of lower spending throughout all of our businesses and the increased level of bakery sales. Distribution expenses increased about 1/2 of 1 percent of sales in the third quarter to 8% of sales primarily because of higher fuel costs and were at 8% for both years' nine months. Administrative expenses as a percent of sales decreased to 3% in the quarter from 4% last year and were 4% for the nine months in both years. Administrative expenses benefitted from lower legal expenses of approximately $400,000 in this year's quarter compared to last year.
Operating income increased $1,414,000 or 12% to $13,571,000 in the third quarter and $2,883,000 or 16% to $21,473,000 in the nine months as a result of the aforementioned.
Operating income was impacted by approximately $1,050,000 of higher group medical insurance costs in the first nine months of the year compared to last year; we expect these costs to continue to increase for the foreseeable future. The trend in commodity costs has overall been moderately unfavorable; for the quarter, our commodity costs were approximately $600,000 higher than a year ago on a unit cost basis and about $1.3 million higher for the nine months. Although the prices of eggs, shortening, butter and cheese have come down from their recent highs, the prices are still historically high and will continue to be a factor in our results. Flour prices have also begun to moderate although the market is still 5-10% higher than a year ago.
The effective income tax rate has been estimated at 36% for
all periods reported.
Net earnings increased $897,000 or 11% in the three month
period to $8,705,000 and increased 16% or $1,862,000 in the nine
months this year from $12,010,000 last year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth, in item 7a. "Quantitative and Qualitative Disclosures About Market Risk," in its 2003 annual report on Form 10-K filed with the SEC.
Item 4. Controls and Procedures
Quarterly evaluation of the Company's Disclosure and
Internal Controls. The Company evaluated (i) the
effectiveness of the design and operation of its
disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by this
Form 10-Q and (ii) any changes in internal controls over
financial reporting that occurred during the third
quarter of its fiscal year. This evaluation ("Controls
Evaluation") was done under the supervision and with the
participation of management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer
("CFO").
Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared. In accord with the U.S. Securities and Exchange Commission's requirements, the CEO and CFO conducted an evaluation of the Company's
internal control over financial reporting (the "Internal Controls") to determine whether there have been any changes in Internal Controls that occurred during the quarter which have materially affected or which are reasonable likely to materially affect Internal Controls. Based on this evaluation, there have been no such changes in Internal Controls during the quarter covered by this report.
Item 5. Other Information
During the quarter ended June 26, 2004, our Board of Directors adopted changes to the Code of Ethics for Senior Officers. The Code of Ethics for Senior Officers is posted on our website, www.jjsnack.com, and is attached hereto as Exhibit 14.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
14 Code of Ethics for Chief Executive and Senior Financial Officers
31.1 & Certification Pursuant to Section 302 of the
31.2 Sarbanes-Oxley Act of 2002
99.5 Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K - Report on Form 8-K was filed on April 26, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: July 20, 2004 /s/ Gerald B. Shreiber Gerald B. Shreiber President Dated: July 20, 2004 /s/ Dennis G. Moore Dennis G. Moore Senior Vice President and Chief Financial Officer |
Exhibit 14
J & J SNACK FOODS CORP.
CODE OF ETHICS FOR CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS
I. Introduction
This Code of Ethics for Senior Financial Officers (the
"Code") applies to the Senior Officers of J & J Snack
Foods Corp. (the "Company") and its subsidiaries. The
term "Senior Officer", as used in this Code, means the
Company's Chief Executive Officer, Chief Financial
Officer, Principal Accounting Officer, Controller and
any other person performing similar functions, as well
as other officers in charge of a principal business
unit, division or function or who perform a policy
making function, as provided by the rules and
regulations of the U.S. Securities and Exchange
Commission (the "SEC"). While this Code provides
general guidance for appropriate conduct and avoidance
of conflicts of interest, it does not supersede
specific policies that are set forth in other Company
policy statements.
The purpose of this Code is to deter wrongdoing,
provide guidance to the Company's Senior Officers with
regard to and to promote the following:
. honest and ethical conduct, including the
ethical handling of actual or apparent
conflicts of interest between personal and
professional relationships;
. full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company;
. compliance with applicable governmental laws, rules and regulations;
. prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and
. accountability for adherence to the Code.
Each day, you are faced with making decisions that
will affect the Company's business. You are obligated
to comply with the Code guidelines and should avoid
even the appearance of unethical or unprofessional
behavior. To that end, you should seek advice from
the Company's Compliance Officer when faced with a
situation that may violate or give the appearance of
violating the Code, Company policies, laws, rules or
regulations. The Company's Compliance Officer is its
Chief Financial Officer.
II. Honest and Ethical Conduct
The Company expects and requires ethical behavior from
the Senior Officers. You owe a duty of loyalty to the
Company and you are expected to act in the best
interests of the Company. Further, you must engage in
and promote honest and ethical conduct, including
handling actual or apparent conflicts of interest in
an ethical manner and act with honesty and integrity.
III. Conflicts of Interest
A conflict of interest exists when your personal
interests interfere with, or give the appearance of
interfering with, the interests of the Company. In
the best interests of the Company, you must avoid
actual or apparent conflicts between your private
interests and those of the Company, including
obtaining improper personal benefits as a result of
your position. In addition, you should not use
corporate assets information or one's position for
personal gain.
Conflicts of interest may manifest themselves in many
ways and may reach farther than just the person
employed by the Company. In fact, many conflicts
arise as a result of situations involving your
relative.
IV. Accuracy of Reporting
A. Generally
As a publicly traded Company, the Company has a
duty to comply with federal and state laws and
regulations with respect to accuracy in the
information it reports to the SEC and communicate to
the public. The Company's financial statements are
relied upon both internally and externally by
individuals making business or investment decisions.
Accuracy and candor is critical to the financial
health of the Company. Senior Officers must help to
ensure that all of the Company's periodic reports and
public statements contain full, fair, accurate, timely
and understandable disclosures. Anyone who becomes
aware of inaccuracies contained in the Company's
reports and public statements, or material omissions
from the Company's reports and public statements is
required to immediately report such inconsistencies or
omissions to the Chairman of the Company's Audit
Committee. As a result, senior officers must act in
good faith, responsibly with due care and diligence
and without misrepresenting or omitting material facts
or permitting independent judgment to be compromised.
B. Financial Reporting Obligations of Senior
Officers
As a Senior Officer, you are charged with the
responsibility of ensuring that the financial
statements, reports and other documents filed or
submitted to the SEC as well as other public
communications made by the Company (collectively, "SEC
Reports and Public Documents") are accurate and fairly
disclose the Company's assets, liabilities and other
material transactions engaged in by the Company. You
are responsible for the SEC Reports and Public
Documents meeting the following requirements:
. SEC Reports and Public Documents must, in
reasonable detail, accurately and fairly
reflect the transactions engaged in by the
Company and acquisitions and dispositions of
the Company's assets.
. SEC Reports and Public Documents must not contain any untrue statement of material fact that would make the statements in the SEC Reports and Public Documents misleading.
. Financial reports must be prepared in
accordance with, or reconciled to, Generally
Accepted Accounting Principles and
applicable SEC rules, including the SEC
accounting rules.
. SEC Reports and Public Documents must
contain full, fair, accurate, timely and
understandable disclosure.
Furthermore, you are responsible for reporting
any inaccuracies or mistakes in the SEC Reports and
Public Documents to the President and the Chairman of
the Audit Committee.
To the extent your responsibility deals with a
portion of the Company's activities, your particular
duties with respect to the above are limited to those
matters in your areas of responsibility or other
matters of which you have knowledge.
Finally, you are required to respect the
confidentiality of information acquired in the course
of the performance of your responsibilities.
V. Compliance with Laws, Rules and Regulations
The Company's continued and current success largely
depends upon its reputation for engaging in its
business in an ethical and legal manner. Therefore,
all Senior Officers must comply with both the letter
and spirit of federal, state and local laws, rules and
regulations applicable to the Company's business.
VI. Responsibility for Reporting
The Company has established a reporting system that
requires Senior Officers to report violations of any
of the policies set forth in this Code. These
mandatory reporting obligations apply whether or not
the reporting person was personally involved in the
alleged violation of the policies set forth in this
Code.
Upon observing or learning of any violation of the
policies set forth in this Code, Senior Officers must
report the same by writing a letter describing the
suspected violation with as much detail as possible
and sending the letter to the Chairman of the Audit
Committee.
The reporting person is required to sign the letter,
unless such complaint relates to matters covered by
the Whistle-Blower Policy described below. The letter
will be treated confidentially by the Company unless
disclosure is required or deemed advisable by the
Company in connection with any actual or potential
governmental investigation or unless advised by the
Company's outside counsel that disclosure would be in
the interest of the Company. Anonymous letters and
anonymous e-mail will not normally be investigated,
unless the correspondence concerns questionable
accounting or auditing matters covered by the Whistle-
Blower Policy. All letters should contain as much
specific detail as possible to allow the Company to
conduct an investigation of the reported matter.
Once the Company receives notice of a suspected
violation of this Code, the Company shall promptly
begin an investigation. Such investigation shall be
supervised by the Audit Committee with respect to
Senior Officers. Once a violation is found to exist,
such individual shall be subject to disciplinary
action as described in Section XI of the Code.
Pursuant to the Company's Whistle-Blower Policy, the
system of receipt, retention, and treatment of
complaints regarding accounting, internal accounting
controls or auditing matters that ensures the
confidential and anonymous submission of concerns
regarding questionable accounting or auditing matters
is covered by a separate policy adopted by the
Company. You can get a copy of such policy from the
Company's Compliance Officer.
The Company will not condone any form of retribution
upon any Senior Officer who uses the reporting system
in good faith to report suspected wrongdoers, unless
the individual reporting the violation is one of the
violators. The Company will not tolerate any
harassment or intimidation of any Senior Officer using
the reporting system. The Company will also exercise
disciplinary action against any Senior Officer who is
found to have intimidated or harassed a person who has
reported a suspected violation in good faith.
VII. Compliance; Administration
As a condition of employment and continued employment, each Senior Officer must accept the responsibility of complying with the foregoing policies and acknowledge his or her receipt of the Code by executing the Acknowledgement attached hereto. The Company will, at least annually, require each Senior Officer to complete and submit a certification in a form designated by the Company pertaining to compliance with the policies set forth in this Code; a copy of one such form is contained in this Code. The Company reserves the right to request any such Senior Officer to complete and submit such certification at any time or as frequently as the Company may deem advisable.
Any Senior Officer who violates any of these policies
is subject to disciplinary action including but not
limited to suspension or termination of employment,
and such other action, including legal action, as the
Company believes to be appropriate under the
circumstances. The Audit Committee will make the
determination as to penalties applicable to Senior
Officers for Code violations.
VIII.Amendments; Waiver
The Company reserves the right to amend, waive or alter the policies set forth in the Code at any time. Any amendment to the Code or waiver or implicit waiver of any provision of the Code for Senior Officers requires the approval of a majority of the Company's disinterested directors. Unless the SEC rules and regulations otherwise provide, amendments and waivers of any provision of the Code applicable to Senior Officers must be promptly disclosed in accordance with SEC regulations, including an explanation of why the waiver or implicit waiver was granted. Waivers include, among other things, the Company's failure to take action with respect to violations of Code provisions following the Company's receipt of notice of the violation.
Adopted: April 29, 2004.
ACKNOWLEDGEMENT
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS REPORTING FORM
The undersigned hereby certifies that he or she is not aware of any of the following:
1. Any violation of the Code of Ethics for Chief Executive Officer and Senior Financial Officers (the "Code") of J & J Snack Foods Corp. and its subsidiaries (collectively, the "Company") by the undersigned; or
2. Any violation of the Code by Company directors, officers or employees.
.Violations reported under the Whistle-Blower Policy
are not covered by this Form.
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis G. Moore, certify that:
1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: July 20, 2004 /s/ Dennis G. Moore Dennis G. Moore Chief Financial Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gerald B. Shreiber, certify that:
1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: July 20, 2004 /s/ Gerald B. Shreiber Gerald B. Shreiber Chief Executive Officer Exhibit 99.5 |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of J & J Snack Foods Corp. (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 26, 2004 (the "Report") that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: July 20, 2004 /s/ Dennis G. Moore Dennis G. Moore Chief Financial Officer Dated: July 20, 2004 /s/ Gerald B. Shreiber Gerald B. Shreiber Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.