UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 27, 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 April 20, 2004, there were 8,910,940 shares of the
Registrant's Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets March 27, 2004
(unaudited) and September 27, 2003 3
Consolidated Statements of Operations Three
Months and Six Months Ended March 27, 2004
and March 29, 2003 (unaudited) 5
Consolidated Statements of Cash Flows Six
Months Ended March 27, 2004 and March 29,
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 21
Item 4. Controls and Procedures 21
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 27, September 27,
2004 2003
(Unaudited)
Current assets
Cash and cash equivalents $ 34,665 $ 37,694
Accounts receivable 41,665 38,161
Inventories 29,129 23,202
Prepaid expenses and other 1,567 1,348
107,026 100,405
Property, plant and equipment,
at cost
Land 606 606
Buildings 5,106 5,106
Plant machinery and
equipment 98,824 93,122
Marketing equipment 175,743 173,360
Transportation equipment 950 909
Office equipment 8,181 7,394
Improvements 15,069 15,654
Construction in progress 3,910 2,458
308,389 298,609
Less accumulated deprecia-
tion and amortization 219,525 211,494
88,864 87,115
Other assets
Goodwill 46,477 45,850
Other intangible assets,
less accumulated
amortization 2,656 1,231
Long term investment
securities held to
maturity - 275
Other 1,577 1,807
50,710 49,163
$246,600 $236,683
See accompanying notes to the consolidated financial
statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS Continued
(in thousands)
LIABILITIES AND March 27, September 27,
STOCKHOLDERS' EQUITY 2004 2003
(Unaudited)
Current liabilities
Accounts payable $ 30,889 $ 27,252
Accrued liabilities 11,690 12,806
42,579 40,058
Deferred income taxes 13,374 13,374
Other long-term liabilities 598 687
13,972 14,061
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000
shares; none issued - -
Common, no par value;
authorized 25,000
shares; issued and
outstanding, 8,906
and 8,757, respectively 30,479 28,143
Accumulated other comprehen-
sive loss (1,975) (1,957)
Retained earnings 161,545 156,378
190,049 182,564
$246,600 $236,683
See accompanying notes to the consolidated financial
statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Six months ended
March 27, March 29, March 27, March 29,
2004 2003 2004 2003
Net Sales $95,214 $81,408 $175,159 $158,652
Cost of goods sold 64,468 54,532 119,775 109,711
Gross profit 30,746 26,876 55,384 48,941
Operating expenses
Marketing 12,898 11,870 24,122 22,733
Distribution 7,889 6,490 14,849 12,618
Administrative 4,633 3,887 8,341 7,209
Other general
(income) expense 203 6 170 (52)
25,623 22,253 47,482 42,508
Operating income 5,123 4,623 7,902 6,433
Other income (expenses)
Investment income 112 88 229 186
Interest expense (28) (22) (57) (54)
Earnings before
income taxes 5,207 4,689 8,074 6,565
Income taxes 1,865 1,688 2,907 2,363
NET EARNINGS $ 3,342 $ 3,001 $ 5,167 $ 4,202
Earnings per
diluted share $.36 $.33 $.57 $.46
Weighted average number
of diluted shares 9,170 9,069 9,105 9,152
Earnings per basic
share $.38 $.34 $.58 $ .48
Weighted average number
of basic shares 8,877 8,737 8,834 8,734
See accompanying notes to the consolidated financial
statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Six months ended
March 27, March 29,
2004 2003
Operating activities:
Net earnings $ 5,167 $ 4,202
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization
of fixed assets 11,688 12,836
Amortization of intangibles
and deferred costs 474 384
Other 83 (291)
Changes in assets and liabilities,
net of effects from purchase of
companies
(Increase)decrease in accounts
receivable (1,059) 2,181
Increase in inventories (2,225) (4,812)
Increase in prepaid expenses (130) (210)
Increase in accounts payable
and accrued liabilities 1,254 103
Net cash provided by operating
activities 15,252 14,393
Investing activities:
Purchases of property, plant
and equipment (8,482) (8,262)
Payments for purchase of companies,
net of cash acquired (12,668) -
Proceeds from investments
held to maturity 275 305
Proceeds from disposals of
property and equipment 424 1,880
Other 24 (200)
Net cash used in investing
activities (20,427) (6,277)
Financing activities:
Proceeds from issuance of stock 2,146 882
Payments to repurchase common stock - (6,210)
Net cash provided by (used in)
financing activities 2,146 (5,328)
Net (decrease) increase in cash
and cash equivalents (3,029) 2,788
Cash and cash equivalents at
beginning of period 37,694 14,158
Cash and cash equivalents at
end of period $ 34,665 $ 16,946
See accompanying notes to the consolidated financial
statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying
unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the
financial position and the results of operations and
cash flows. 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
six months ended March 27, 2004 and March 29, 2003
are not necessarily indicative of results for the
full year. Sales of 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
7
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 March 27, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $3,342 8,877 $.38
Effect of Dilutive Securities
Options - 293 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,342 9,170 $.36
Six Months Ended March 27, 2004
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $5,167 8,834 $.58
Effect of Dilutive Securities
Options - 271 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $5,167 9,105 $.57
92,394 anti-dilutive weighted shares have been excluded in
the computation of the six months ended March 27, 2004
diluted EPS because the options' exercise price is greater
than the average market price of the common stock.
8
Three Months Ended March 29, 2003
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $ 3,001 8,737 $.34
Effect of Dilutive Securities
Options - 332 (.01)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,001 9,069 $.33
95,794 anti-dilutive weighted shares have been excluded in
the computation of the three months ended March 29, 2003
diluted EPS because the options' exercise price is greater
than the average market price of the common stock.
Six Months Ended March 29, 2003
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $4,202 8,734 $.48
Effect of Dilutive Securities
Options - 418 (.02)
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $4,202 9,152 $.46
95,794 anti-dilutive weighted shares have been excluded in
the computation of the six months ended March 29, 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
9
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 March 27, 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 if the
Company had applied the fair value recognition
provisions of SFAS No. 123, to stock-based employee
compensation.
10
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2004 2003 2004 2003
Net income,
as reported $3,342 $3,001 $5,167 $4,202
Less: stock-based
compensation
costs determined
under fair value
based method for
all awards 287 325 573 666
Net income, pro
forma $3,055 $2,676 $4,594 $3,536
Earnings per share
of common stock -
basic:
As reported $ .38 $ .34 $ .58 $ .48
Pro forma $ .34 $ .31 $ .52 $ .40
Earnings per share
of common stock
diluted:
As reported $ .36 $ .33 $ .57 $ .46
Pro forma $ .33 $ .30 $ .50 $ .39
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 15%; risk-free interest rates of 3.07% and
3.24%; 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
11
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.
12
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:
March 27, September 27,
2004 2003
(in thousands)
(unaudited)
Finished goods $15,169 $10,537
Raw materials 3,335 2,775
Packaging materials 2,918 2,975
Equipment parts & other 7,707 6,915
$29,129 $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
13
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:
14
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2004 2003 2004 2003
(in thousands)
Sales to External Customers:
Food Service $ 60,747 $ 47,267 $108,688 $ 91,073
Retail Supermarket 9,289 9,393 15,566 15,132
Restaurant Group 1,971 2,353 4,539 5,443
Frozen Beverages 23,207 22,395 46,366 47,004
$ 95,214 $ 81,408 $175,159 $158,652
Depreciation and Amortization:
Food Service $ 3,506 $ 3,271 $ 6,788 $ 6,611
Retail Supermarket - - - -
Restaurant Group 99 147 210 304
Frozen Beverages 2,491 2,594 5,164 6,305
$ 6,096 $ 6,012 $ 12,162 $ 13,220
Operating Income(Loss):
Food Service $ 5,297 $ 4,869 $ 8,145 $ 7,532
Retail Supermarket 717 560 776 146
Restaurant Group (466) (313) (414) (183)
Frozen Beverages (425) (493) (605) (1,062)
$ 5,123 $ 4,623 $ 7,902 $ 6,433
Capital Expenditures:
Food Service $ 2,466 $ 2,869 $ 3,702 $ 4,267
Retail Supermarket - - - -
Restaurant Group 6 28 15 48
Frozen Beverages 2,758 2,169 4,765 3,947
$ 5,230 $ 5,066 $ 8,482 $ 8,262
Assets:
Food Service $162,166 $136,172 $162,166 $136,172
Retail Supermarket - - - -
Restaurant Group 1,654 2,542 1,654 2,542
Frozen Beverages 82,780 80,199 82,780 80,199
$246,600 $218,913 $246,600 $218,913
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.
15
The carrying amount of acquired intangible assets for the
Food Service, Retail Supermarkets, The Restaurant Group
and Frozen Beverage segments as of March 27, 2004 are as
follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $3,730 $1,137 $2,593
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 $ 138 $ 63
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. The gross carrying amount of
intangible assets for the three and six months ended March
27, 2004 increased by $1,663,000 related to the acquisition
of Country Home Bakers, Inc. Aggregate amortization expense
of intangible assets for the three months ended March 27,
2004 and March 29, 2003 was $161,000 and $77,000,
respectively and for the six months ended March 27, 2004
and March 29, 2003 was $239,000 and $155,000, 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.
16
Goodwill
The carrying amounts of goodwill for the Food Service,
Retail Supermarket, Restaurant Group and Frozen Beverage
segments are as follows:
Food Retail Restaurant Frozen
Service Supermarket Group Beverages Total
(in thousands)
Balance at
March 27,
2004 $14,241 $ - $386 $31,850 $46,477
As a result of the quarterly impairment testing performed,
we deemed it necessary to record an impairment charge of $52,000
within the Restaurant Group segment. The Restaurant Group segment
is comprised solely of retail stores. The impairment charge is
the result of diminished operating performance at certain of
these stores.
17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Our current cash and marketable securities balances
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 March 27, 2004 and March 29,
2003, fluctuations in the valuation of the Mexican peso
caused an increase of $49,000 and a decrease of $70,000,
respectively, in stockholders' equity because of the
revaluation of the net assets of the Company's Mexican
frozen beverage subsidiary. In the six month periods, there
was a decrease of $18,000 in fiscal year 2004 and a
decrease of $99,000 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 $55
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 March 27, 2004.
The expiration date of the credit line has been extended to
December 2006.
Results of Operations
Net sales increased $13,806,000 or 17% for the three
months to $95,214,000 and $16,507,000 or 10% to
$175,159,000 for the six months ended March 27, 2004
compared to the three and six months ended March 29, 2003.
Excluding sales from the acquisition of Country Home
Bakers, Inc. in January 2004, net sales increased
$1,991,000 or 2% for the three months and $4,692,000 or 3%
for the six months ended March 27, 2004 compared to the
three and six months ended March 29, 2003.
18
FOOD SERVICE
Sales to food service customers increased $13,480,000
or 29% in the second quarter to $60,747,000 and increased
$17,615,000 or 19% for the six months. Excluding sales from
the acquisition of Country Home Bakers, Inc., sales to food
service customers increased $1,665,000, or 4% in the second
quarter and increased $5,800,000, or 6% for the six months.
Soft pretzel sales to the food service market decreased 1%
to $20,357,000 in the second quarter and increased 4% to
$39,241,000 in the six months. The 1% decrease in pretzel
sales for the quarter compares to a 19% increase in the
year ago quarter and resulted from a drop-off in sales to
one customer which had increased significantly in the year
ago quarter. Italian ice and frozen juice treat and dessert
sales decreased 12% to $6,763,000 in the three months and
4% to $12,415,000 in the six months due to decreased sales
to warehouse club stores who have replaced some of our
products with low carb products. Churro sales to food
service customers increased 3% to $3,199,000 in the second
quarter and were up 3% to $6,382,000 in the six months.
Sales of bakery products increased $14,475,000 or 97% in
the second quarter to $29,358,000 and increased $16,403,000
or 51% for the six months. Excluding sales from the
acquisition of Country Home Bakers, Inc., sales of bakery
products increased $2,660,000 or 18% in the second quarter
and $4,588,000 or 14% for the six 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
$104,000 or 1% to $9,289,000 in the second quarter and
increased 3% to $15,566,000 in the first half. Soft pretzel
sales for the second quarter were up 3% to $5,774,000 and
were up 7% to $9,981,000 for the six months due mainly to
sales of our recently introduced PRETZELFILS. Sales of
frozen juices and ices decreased $141,000 or 4% to
$3,848,000 in the second quarter and were essentially
unchanged at $6,338,000 in the first half, although case
sales of frozen juices and ices were down about 12% for the
quarter and six months.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 16% to
$1,971,000 in the second quarter and 17% to $4,539,000 for
the six month period. The sales decreases were caused
primarily by decreased mall traffic and the closing or
licensing of unprofitable stores. During the quarter, eight
19
stores were closed or licensed to others, leaving a total
of 38 open at quarter end. Operating income was impacted
during the quarter by approximately $160,000 of closing
costs.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 4%
to $23,207,000 in the second quarter and decreased $638,000
or 1% to $46,366,000 in the six month period. Excluding the
sale of equipment to one customer in last year's first
quarter, sales would have been up about 2% for the six
months. Beverage sales alone increased 6% to $17,629,000 in
the second quarter and 2% to $35,040,000 in the six months.
Service revenue increased 2% to $3,898,000 in the second
quarter and 14% to $8,013,000 for the six months.
CONSOLIDATED
Gross profit as a percentage of sales decreased to 32%
in the current year's three month period from 33% last year
and increased to 32% in the six months period from 31% a
year ago. The decrease in the second quarter resulted
primarily from increased sales of bakery products. The
increase in the six months was caused primarily by a lower
level of allowances in our retail supermarket business and
reduced depreciation of our frozen beverage dispensing
machines.
Total operating expenses increased $3,370,000 in the
second quarter but as a percentage of sales remained at
27%. For the first half, operating expenses increased
$4,974,000 but as a percentage of sales also remained at
27%. Marketing expenses decreased to 14% of sales in the
second quarter from 15% last year and were 14% of sales in
both years' six month periods. Distribution expenses were
8% of sales in all periods and Administrative expenses as a
percent of sales were 5% for all periods.
Operating income increased $500,000 or 11% to
$5,123,000 in the second quarter and $1,469,000 or 23% to
$7,902,000 in the first half.
Operating income was impacted by approximately
$800,000 of higher group medical insurance costs in the
first six 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; although recent sharp
increases in the price of eggs, shortening, butter and
cheese, if sustained, could have a significant impact on
our operating income as long as prices remain at their high
levels. Additionally, flour prices, currently 15-20% above
20
prior year levels, could impact our operating income as
well over the foreseeable future.
The effective income tax rate has been estimated at
36% for all periods reported.
Net earnings increased $341,000 or 11% in the current
three month period to $3,342,000 and increased 23% to
$5,167,000 in the six months this year from $4,202,000 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 second 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
21
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.
22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The results of voting at the Annual Meeting of
Shareholders held on February 5, 2004 is as follows:
Absentees
Votes Cast and Broker
For Against Withheld Non Votes
Election of
Leonard Lodish
as Director 7,423,008 - 305,813 -
Election of
Sidney Brown
as Director 7,427,524 - 301,297 -
Proposal to
approve certain
performance-
based compensation
for Gerald B.
Shreiber 6,385,899 323,246 - -
The Company had 8,783,402 shares outstanding on
December 8, 2003 the record date.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.4 Second Amendment to the Loan Agreement
dated as of December 4, 2001 by and among
J & J Snack Foods Corp. and Certain of its
Subsidiaries and Citizens Bank of
Pennsylvania, as Agent
31.1 & Certification Pursuant to Section 302 of
31.2 the 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) Report on Form 8-K - Report on Form 8-K for the
three months ended December 27, 2003 was filed on
January 22, 2004.
23
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: September 9, 2004 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: September 9, 2004 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
24
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 second 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: September 9, 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 second 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: September 9, 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 March 27, 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: September 9, 2004
/s/ Dennis G. Moore
Dennis G. Moore
Chief Financial Officer
Dated: September 9, 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.