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.
3
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.
4
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.
5
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.
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 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
7
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.
8
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
9
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.
10
Three Months Ended Nine Months Ended
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.
11
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.
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:
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,
13
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 Nine Months Ended
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.
15
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:
16
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.
17
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
18
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,
19
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.
20
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.
21
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
22
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.
23
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.
24
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
25
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
I hereby acknowledge receipt of the Code of Ethics for
Senior Financial Officers (the "Code") of J & J Snack
Foods Corp. I have read the Code and understand and
acknowledge that I may be subject to disciplinary
action including, but not limited to suspension,
dismissal, or any other action, including legal
action, by J & J Snack Foods Corp. in the event of my
violation of the Code.
Date: _____________
_________________________
Name
_________________________
Signature
_________________________
Title
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.
Date: ________________
_________________________
Name
_________________________
Signature
_________________________
Title
.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.