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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
SEPTEMBER 27, 2003
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
Commission File No. 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
corporation or organization) Identification No.)
6000 Central Highway 08109
Pennsauken, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (856)
665-9533
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value
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 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. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes X No ___
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the
Exchange Act) Yes X No __
As of December 8, 2003, the latest practicable date,
8,783,402 shares of the Registrant's common stock were issued
and outstanding. The aggregate market value of shares held
by non-affiliates of the Registrant on such date was
$244,563,300 based on the last price on that date of $36.08
per share, which is an average of bid and asked prices.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2003 Annual Report to Shareholders
for the fiscal year ended September 27, 2003 and Proxy
Statement for its Annual Meeting of Shareholders to be held
on February 5, 2004 are incorporated herein by reference
into Parts I, II, III and IV as set forth herein.
J & J SNACK FOODS CORP.
2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1 Business. . . . . . . . . . . . . . . . . 1
Item 2 Properties. . . . . . . . . . . . . . . . 9
Item 3 Legal Proceedings. . . . . . .. . . . . . 10
Item 4 Submission Of Matters To A Vote Of Security
Holders. . . . . . . . . . . . .. . . . . 10
PART II
Item 5 Market For Registrant's Common Equity And
Related Stockholder Matters. . . . . . . . 11
Item 6 Selected Financial Data. . . . . . . . . . 11
Item 7 Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 11
Item 7a Quantitative And Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . 12
Item 8 Financial Statements And Supplementary Data 12
Item 9 Changes In And Disagreements With Accountants
On Accounting And Financial Disclosure . . 13
Item 9A Controls and Procedures. . . . . . . . . . 13
PART III
Item 10 Directors And Executive Officers Of The
Registrant . . . . . . . . . . . . . . . . 14
Item 11 Executive Compensation . . . . . . . . . . 14
Item 12 Security Ownership Of Certain Beneficial
Owners And Management. . . . . . . . . . . 15
Item 13 Certain Relationships And Related Transactions 16
Item 14 Principal Accounting Fees and Services . . 16
PART IV
Item 15 Exhibits, Financial Statement Schedules And
Reports On Form 8-K. . . . . . . . . . . . 16
Part I
Item 1. Business
General
J & J Snack Foods Corp. (the ''Company'' or ''J & J'')
manufactures nutritional snack foods and distributes frozen
beverages which it markets nationally to the food service
and retail supermarket industries. Its principal snack
food products are soft pretzels marketed primarily under
the brand name SUPERPRETZEL and frozen juice treats and
desserts marketed primarily under the LUIGI'S, ICEE, BARQ'S*,
CHILL, and MINUTE MAID** brand names. J & J
believes it is the largest manufacturer of soft pretzels in
the United States, Mexico and Canada. Other snack food
products include churros (an Hispanic pastry), funnel cake,
popcorn and bakery products. The Company's principal frozen
beverage product is the ICEE brand frozen carbonated
beverage.
The Company's Food Service and Frozen Beverages sales
are made primarily to food service customers including
snack bar and food stand locations in leading chain,
department, discount, warehouse club and convenience
stores; malls and shopping centers; fast food outlets;
stadiums and sports arenas; leisure and theme parks; movie
theatres; independent retailers; and schools, colleges and
other institutions. The Company's retail supermarket
customers are primarily supermarket chains. The Company's
restaurant group sells direct to the public through its
chains of specialty snack food retail outlets, BAVARIAN
PRETZEL BAKERY and PRETZEL GOURMET, located primarily in
the Mid-Atlantic States.
The Company was incorporated in 1971 under the laws of
the State of New Jersey.
The Company operates in four business segments: Food
Service, Retail Supermarkets, The Restaurant Group and
Frozen Beverages. These segments are described below.
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.
1
* BARQ'S is a registered trademark of Barq's Inc.
** Minute Made is a registered trademark of the Coca-Cola
Company.
Food Service
The primary products sold by the food service segment
are soft pretzels, frozen juice treats and desserts,
churros and baked goods. Our customers in the food service
industry include snack bars and food stands in chain,
department and discount stores; malls and shopping centers;
fast food outlets; stadiums and sports arenas; leisure and
theme parks; convenience stores; movie theatres; warehouse
club stores; schools, colleges and other institutions.
Within the food service industry, our products are
purchased by the consumer primarily for consumption at the
point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket
industry are soft pretzel products - including
SUPERPRETZEL, frozen juice treats and desserts including
LUIGI's Real Italian Ice, MINUTE MAID Juice Bars and Soft
Frozen Lemonade and 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 public 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
primarily under the names ICEE and ARCTIC BLAST in the
United States, Mexico and Canada.
Products
Soft Pretzels
The Company's soft pretzels are sold under many brand
names; some of which are: SUPERPRETZEL, PRETZEL FILLERS,
PRETZELFILS, GOURMET TWISTS, MR. TWISTER, SOFT PRETZEL
BITES, SOFTSTIX, SOFT PRETZEL BUNS, HOT KNOTS, DUTCH TWIST,
TEXAS TWIST and SANDWICH TWIST and; to a lesser extent,
under private labels. Soft pretzels are sold in the Food
Service, Retail Supermarket and The Restaurant Group
segments. Soft pretzel sales amounted to 27% and 25% of the
Company's revenue in fiscals 2003 and 2002, respectively.
The Company's soft pretzels qualify under USDA
regulations as the nutritional equivalent of bread for
2
purposes of the USDA school lunch program, thereby enabling
a participating school to obtain partial reimbursement of
the cost of the Company's soft pretzels from the USDA.
The Company's soft pretzels are manufactured according
to a proprietary formula. Soft pretzels, ranging in size
from one to ten ounces in weight, are shaped and formed by
the Company's proprietary twister machines. These soft
pretzel tying machines are automated, high speed machines
for twisting dough into the traditional pretzel shape.
Additionally, we make soft pretzels which are extruded or
shaped by hand. Soft pretzels, after processing, are
primarily quick-frozen in either raw or baked form and
packaged for delivery.
The Company's principal marketing program in the Food
Service segment includes supplying ovens, mobile
merchandisers, display cases, warmers and similar
merchandising equipment to the retailer to prepare and
promote the sale of soft pretzels. Some of this equipment
is proprietary, including combination warmer and display
cases that reconstitute frozen soft pretzels while
displaying them, thus eliminating the need for an oven.
The Company retains ownership of the equipment placed in
customer locations and, as a result, customers are not
required to make an investment in equipment.
Frozen Juice Treats and Desserts
The Company's frozen juice treats and desserts are
marketed under the LUIGI'S, ICEE, BARQ'S, MINUTE MAID,
SHAPE-UPS, CHILL and MAMA TISH'S brand names. Frozen juice
treats and desserts are sold in the Food Service and Retail
Supermarkets segments. Frozen juice treat and dessert sales
were 17% and 18% of the Company's revenue in fiscal years
2003 and 2002, respectively.
The Company's SHAPE-UPS and MINUTE MAID frozen juice
and fruit bars are manufactured from an apple juice base to
which water, sweeteners, coloring (in some cases) and
flavorings are added. The juice bars contain two to three
ounces of apple or pear juice and the minimum daily
requirement of vitamin C, and qualify as reimbursable items
under the USDA school lunch program. The juice bars are
produced in various flavors and are packaged in a sealed
push-up paper container referred to as the Milliken M-pak,
which the Company believes has certain sanitary and safety
advantages.
LUIGI'S Real Italian Ice and MAMA TISH'S Italian Ice
and Sorbets are manufactured from water, sweeteners and
fruit juice concentrates in various flavors and are
packaged
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in plastic cups and in squeeze up tubes.
ICEE Squeeze Tubes are designed to capture the
carbonated frozen taste of a traditional ICEE drink. They
are packaged in three and four ounce squeeze up tubes.
MINUTE MAID soft frozen lemonade and fruit and cream
swirl are packaged in squeeze up tubes and cups.
Churros
The Company's frozen churros are sold primarily under
the TIO PEPE'S brand name. Churros are sold to the Food
Service and Retail Supermarkets segments. Churro sales were
4% of the Company's sales in both fiscals 2003 and 2002,
respectively. Churros are Hispanic donuts in stick form
which the Company produces in several sizes according to a
proprietary formula. The churros are deep fried, frozen
and packaged. At food service point-of-sale they are
reheated and topped with a cinnamon sugar mixture. The
Company also sells fruit and creme filled churros. The
Company supplies churro merchandising equipment similar to
that used for its soft pretzels.
Bakery Products
The Company's bakery products are marketed under the
MRS. GOODCOOKIE, CAMDEN CREEK BAKERY and PRETZEL COOKIE
brand names, and under private labels. Bakery products
include primarily cookies, muffins and donuts. Bakery
products are sold to the Food Service segment. Bakery
products sales amounted to 18% of the Company's sales in
fiscals 2003 and 2002.
Frozen Beverages
The Company markets frozen beverages primarily under
the names ICEE and ARCTIC BLAST in the United States,
Mexico and Canada. Additional frozen beverages are ICEE
SLUSH, JAVA FREEZE and CALIFORNIA NATURAL. Frozen
beverages are sold in the Food Service, The Restaurant
Group and Frozen Beverages segments. Frozen beverage sales
amounted to 25% of revenue in fiscal 2003 and 26% of
revenue in fiscal 2002.
Under the Company's principle marketing program, it
installs frozen beverage dispensers at customer locations
and thereafter services the machines, arranges to supply
customers with ingredients required for production of the
frozen beverages, and supports customer retail sales
efforts with in-store promotions and point-of-sale
materials. In most cases, the Company retains ownership of
its dispensers and, as a result, customers are not required
to make an
4
investment in equipment or arrange for the ingredients and
supplies necessary to produce and market the frozen
beverages. In fiscal 1999 the Company began providing
installation and maintenance service only to a large quick
service restaurant and others, which resulted in the
increase of customer owned beverage dispensers beginning in
1999. The Company also provides managed service and sells
equipment in its Frozen Beverages segment.
Each new customer location requires a frozen beverage
dispenser supplied by the Company or by the customer.
Company supplied frozen carbonated dispensers are purchased
from outside vendors, built new or rebuilt by the Company
at an approximate cost of $6,000 each.
The Company provides managed service and/or products
to approximately 41,000 Company owned and customer owned
dispensers.
The Company has the rights to market and distribute
frozen beverages under the name ICEE to all the Continental
United States, except for portions of eleven states.
Other Products
Other products sold by the Company include soft
drinks, funnel cakes sold under the FUNNEL CAKE FACTORY
brand name, popcorn sold under the AIRPOPT brand name and
smaller amounts of various other food products. These
products are sold in the Food Service, The Restaurant Group
and Frozen Beverages segments.
Customers
The Company sells its products to two principal
customer groups: food service and retail supermarkets. The
primary products sold to the food service group are soft
pretzels, frozen beverages, frozen juice treats and
desserts, churros and baked goods. The primary products
sold to the retail supermarket industry are soft pretzels
and frozen juice treats and desserts. Additionally, the
Company sells soft pretzels, frozen beverages and various
other food products direct to the public through its
restaurant group, which operates BAVARIAN PRETZEL BAKERY
and PRETZEL GOURMET, our chain of specialty snack food
retail outlets.
The Food Service, The Restaurant Group and the Frozen
Beverages segments sell primarily to the food service
industry. The Retail Supermarkets segment sells to the
retail supermarket industry.
5
The Company's customers in the food service industry
include snack bars and food stands in chain, department and
mass merchandising stores such as Kmart, Wal-Mart and
Target; malls and shopping centers; fast food outlets; The
Company's customers in the food service industry include
snack bars and food stands in chain, department and
stadiums and sports arenas; leisure and theme parks such as
Disneyland, Walt Disney World, Universal Studios, Sea
World, Six Flags, Hershey Park and Busch Gardens;
convenience stores such as 7-Eleven, Circle K, AM/PM and
Wawa; movie theatres; warehouse club stores such as Sam's
Club, Costco and B.J.'s; schools, colleges and other
institutions; and independent retailers such as Mrs.
Fields. Food service concessionaires purchasing soft
pretzels and other products from the Company for use in
sports arenas and for institutional meal services include
ARAMARK, Sodexho and Delaware North. Machines and machine
parts are sold to other food and beverage companies.
Within the food service industry, the Company's products
are purchased by the consumer primarily for consumption at
the point-of-sale.
Sales to certain of our chain, department and mass
merchandising customers decreased in 2002 and are expected
to decline further in 2003 as a result of store closings
and other factors affecting their operations.
The Company sells its products to over 90% of
supermarkets in the United States. Products sold to retail
supermarket customers are primarily 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, the Company's frozen and prepackaged
products are purchased by the consumer for consumption at
home.
Marketing and Distribution
The Company has developed a national marketing program
for its products. For Food Service and Frozen Beverages
segments' customers, this marketing program includes
providing ovens, mobile merchandisers, display cases,
warmers, frozen beverage dispensers and other merchandising
equipment for the individual customer's requirements and
point-of-sale materials as well as participating in trade
shows and in-store demonstrations. The Company's ongoing
advertising and promotional campaigns for its Retail
Supermarket segment's products include trade shows,
newspaper advertisements with coupons, in-store
demonstrations, billboards and, periodically, television
advertisements.
The Company develops and introduces new products on a
6
routine basis. The Company evaluates the success of new
product introductions on the basis of sales levels, which
are reviewed no less frequently than monthly by the
Company's Chief Operating Decision Makers.
The Company's products are sold through a network of
about 150 food brokers and over 1,000 independent sales
distributors and the Company's own direct sales force. For
its snack food products, the Company maintains warehouse
and distribution facilities in Pennsauken, Bellmawr and
Bridgeport, New Jersey; Vernon (Los Angeles), California;
Scranton, Pittsburgh, Hatfield and Lancaster, Pennsylvania;
Carrollton (Dallas), Texas; and Solon, Ohio. Frozen
beverages are distributed from 89 Company managed warehouse
and distribution facilities located in 42 states, Mexico
and Canada which allow the Company to directly service its
customers in the surrounding areas. The Company's products
are shipped in refrigerated and other vehicles from the
Company's manufacturing and warehouse facilities on a fleet
of Company operated tractor-trailers, trucks and vans, as
well as by independent carriers.
Seasonality
The Company's sales are seasonal because frozen
beverage sales and frozen juice treats and desserts sales
are generally higher during the warmer months and sales of
the Company's retail stores are generally higher in the
Company's first quarter during the holiday shopping season.
Trademarks and Patents
The Company has numerous trademarks, the most
important of which are SUPERPRETZEL, DUTCH TWIST, TEXAS
TWIST, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX and
PRETZEL FILLERS for its pretzels products; FROSTAR, SHAPE-
UPS, MAZZONE'S, MAMA TISH'S and LUIGI'S for its frozen
juice treats and desserts; TIO PEPE'S for its churros;
ARCTIC BLAST for its frozen beverages; FUNNEL CAKE FACTORY
for its funnel cake products, and MRS. GOODCOOKIE and
CAMDEN CREEK for its bakery products. The trademarks, when
renewed and continuously used, have an indefinite term and
are considered important to the Company as a means of
identifying its products.
The Company markets frozen beverages under the
trademark ICEE in all of the continental United States,
except for portions of eleven states, and in Mexico and
Canada. Additionally, the Company has the international
rights to the trademark ICEE.
7
The Company has numerous patents related to the
manufacturing and marketing of its product.
Supplies
The Company's manufactured products are produced from
raw materials which are readily available from numerous
sources. With the exception of the Company's soft pretzel
twisting equipment and funnel cake production equipment,
which are made for J & J by independent third parties, and
certain specialized packaging equipment, the Company's
manufacturing equipment is readily available from various
sources. Syrup for frozen beverages is purchased from The
Coca-Cola Company, the Pepsi Cola Company, and Western
Syrup Company. Cups, straws and lids are readily available
from various suppliers. Parts for frozen beverage
dispensing machines are manufactured internally and
purchased from other sources. Frozen beverage dispensers
are purchased primarily from IMI Cornelius, Inc.
Competition
Snack food and bakery products markets are highly
competitive. The Company's principal products compete
against similar and different food products manufactured
and sold by numerous other companies, some of which are
substantially larger and have greater resources than the
Company. As the soft pretzel, frozen juice treat and
dessert, bakery products and related markets grow,
additional competitors and new competing products may enter
the markets. Competitive factors in these markets include
product quality, customer service, taste, price, identity
and brand name awareness, method of distribution and sales
promotions.
The Company believes it is the only national
distributor of soft pretzels. However, there are numerous
regional and local manufacturers of food service and retail
supermarket soft pretzels. Competition is also increasing
in that there are several chains of retail pretzel stores
that have aggressively expanded over the past several
years. These chains compete with the Company's products.
In Frozen Beverages the Company competes directly with
other frozen beverage companies. These include several
companies which have the right to use the ICEE name in
portions of eleven states. There are many other regional
frozen beverage competitors throughout the country and one
large retail chain which uses its own frozen beverage
brand.
The Company competes with large soft drink
8
manufacturers for counter and floor space for its frozen
beverage dispensing machines at retail locations and with
products which are more widely known than the ICEE and
ARCTIC BLAST frozen beverages.
The Company competes with a number of other companies
in the frozen juice treat and dessert and bakery products
markets.
Employees
The Company has approximately 2,300 full and part time
employees as of September 27, 2003. Certain production and
distribution employees at the Pennsauken, New Jersey plant
are covered by a collective bargaining agreement which
expires in September 2005. The Company considers its
employee relations to be good.
Item 2. Properties
The Company's primary east coast manufacturing
facility is located in Pennsauken, New Jersey in a 70,000
square foot building on a two acre lot. Soft pretzels are
manufactured at this Company-owned facility which also
serves as the Company's corporate headquarters. This
facility operates at approximately 80-90% of capacity. The
Company leases a 101,200 square foot building adjacent to
its manufacturing facility in Pennsauken, New Jersey
through March 2012. The Company has constructed a large
freezer within this facility for warehousing and
distribution purposes. The warehouse has a utilization
rate of 80-90% depending on product demand. The Company
also leases, through September 2011, 16,000 square feet of
office and warehouse space located next to the Pennsauken,
New Jersey plant.
The Company owns a 150,000 square foot building on
eight acres in Bellmawr, New Jersey. Approximately 30% of
the facility is leased to a third party. The remainder is
used by the Company to manufacture some of its products
including funnel cake, pretzels, churros and cookies.
The Company's primary west coast manufacturing
facility is located in Vernon (Los Angeles), California.
It consists of a 137,000 square foot facility in which soft
pretzels, churros and various lines of baked goods are
produced and warehoused. Included in the 137,000 square
foot facility is a 30,000 square foot freezer used for
warehousing and distribution purposes which was constructed
in 1996. The facility is leased through November 2017.
The Company leases an additional 45,000 square feet of
office and warehouse space, adjacent to its manufacturing
facility,
9
through November 2017. The manufacturing facility operates
at approximately 60% of capacity.
The Company owns a 52,700 square foot building located
on five acres in Chicago Heights, Illinois which is
presently for sale or lease.
The Company owns a 46,000 square foot frozen juice
treat and dessert manufacturing facility located on three
acres in Scranton, Pennsylvania. The facility, which was
expanded from 26,000 square feet in 1998, operates at
approximately 60% of capacity.
The Company leases a 29,635 square foot soft pretzel
manufacturing facility located in Hatfield, Pennsylvania.
The lease runs through June 2017. The facility operates at
approximately 70% of capacity.
The Company leases a 19,200 square foot soft pretzel
manufacturing facility located in Carrollton, Texas. The
lease runs through April 2004. The facility operates at
less than 50% of capacity.
The Company's fresh bakery products manufacturing
facility offices are located in Bridgeport, New Jersey in
two buildings totaling 94,320 square feet. The buildings
are leased through December 2011. The manufacturing
facility operates at approximately 50% of capacity.
The Company's Bavarian Pretzel Bakery headquarters and
warehouse and distribution facilities are located in a
11,000 square foot owned building in Lancaster,
Pennsylvania.
The Company also leases approximately 100 warehouse
and distribution facilities in 42 states, Mexico and
Canada.
Item 3. Legal Proceedings
The Company has no material pending legal proceedings,
other than ordinary routine litigation incidental to the
business, to which the Company or any of its subsidiaries
is a party or of which any of their property is subject.
Item 4. Submission Of Matters To A Vote Of Security Holders
There were no matters submitted to a vote of the
security holders during the quarter ended September 27,
2003.
10
PART II
Item 5. Market For Registrant's Common Equity And Related
Stockholder Matters
The Company's common stock is traded on the over-the-
counter market on the NASDAQ National Market System under
the symbol ''JJSF.'' The following table sets forth the high
and low final sale price quotations as reported by NASDAQ
for the common stock for each quarter of the years ended
September 27, 2003 and September 28, 2002.
High Low
Fiscal 2002
First quarter $26.25 $18.10
Second quarter 40.40 23.22
Third quarter 45.15 32.42
Fourth quarter 44.97 34.85
Fiscal 2003
First quarter $40.25 $30.27
Second quarter 37.85 25.31
Third quarter 34.00 28.65
Fourth quarter 37.67 29.33
On December 8, 2003, there were 8,783,402 shares of
common stock outstanding. Those shares were held by
approximately 2,200 beneficial shareholders and
shareholders of record.
The Company has never paid a cash dividend on its
common stock and does not anticipate paying cash dividends
in the foreseeable future.
For information on the Company's Equity Compensation
Plans, please see Item 12 herein.
Item 6. Selected Financial Data
The information set forth under the caption ''Financial
Highlights'' of the 2003 Annual Report to Shareholders is
incorporated herein by reference.
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
The information set forth under the caption
''Management's Discussion and Analysis of Financial
Condition and Results of Operations'' of the 2003 Annual
Report to Shareholders is incorporated herein by reference.
11
Item 7a. Quantitative And Qualitative Disclosures About
Market Risk
The following is the Company's quantitative and
qualitative analysis of its financial market risk:
Interest Rate Sensitivity
The Company has in the past entered into interest rate
swaps to limit its exposure to interest rate risk and may
continue to do so in the future if the Board of Directors
feels that such non-trading purpose is in the best interest
of the Company and its shareholders. As of September 27,
2003, the Company had no interest rate swap contracts.
Interest Rate Risk
At September 27, 2003, the Company had no long-term debt
obligations.
The Company's most significant raw material requirements
include flour, shortening, corn syrup, chocolate, and
macadamia nuts. The Company attempts to minimize the
effect of future price fluctuations related to the purchase
of raw materials primarily through forward purchasing to
cover future manufacturing requirements, generally for
periods from 1 to 24 months. Futures contracts are not
used in combination with forward purchasing of these raw
materials. The Company's procurement practices are
intended to reduce the risk of future price increases, but
also may potentially limit the ability to benefit from
possible price decreases.
Foreign Exchange Rate Risk
The Company has not entered into any forward exchange
contracts to hedge its foreign currency rate risk as of
September 27, 2003 because it does not believe its foreign
exchange exposure is significant.
Item 8. Financial Statements And Supplementary Data
The following consolidated financial statements of the
Company set forth in the 2003 Annual Report to Shareholders
are incorporated herein by reference:
Consolidated Balance Sheets as of September 27, 2003 and
September 28, 2002
Consolidated Statements of Earnings for the fiscal years
ended September 27, 2003, September 28, 2002 and
September 29, 2001
12
Consolidated Statement of Stockholders' Equity for the
three fiscal years ended September 27, 2003
Consolidated Statements of Cash Flows for the fiscal
years ended September 27, 2003, September 28, 2002
and September 29, 2001
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accounts
Item 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure
None.
Item 9A. 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-K and (ii)
any changes in internal controls over financial reporting
that occurred during the last 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
13
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.
PART III
Item 10. Directors And Executive Officers Of The Registrant
Portions of the information concerning directors,
appearing under the captions ''Information Concerning
Nominees For Election To Board'' and ''Information Concerning
Continuing Directors And Executive Officers'' in the
Company's Proxy Statement filed with the Securities and
Exchange Commission in connection with the Annual Meeting
of Shareholders to be held on February 5, 2004, is
incorporated herein by reference.
The Company has adopted a Code of Ethics pursuant to
Section 406 of the Sarbanes-Oxley Act of 2002, which
applies to the Company's principal executive officer,
principal financial officer, principal accounting officer
or controller, or persons performing similar functions and
other designated officers and employees.
Item 11. Executive Compensation
Information concerning executive compensation
appearing in the Company's Proxy Statement under the
caption ''Management Remuneraton'' is incorporated herein by
reference.
The following is a list of the executive officers of
the Company and their principal past occupations or
employment. All such persons serve at the pleasure of the
Board of Directors and have been elected to serve until the
Annual Meeting of Shareholders on February 5, 2004 or until
their successors are duly elected.
14
Name Age Position
Gerald B. Shreiber 62 Chairman of the Board,
President, Chief Executive
Officer and Director
Dennis G. Moore 48 Senior Vice President, Chief
Financial Officer, Secretary,
Treasurer and Director
Robert M. Radano 54 Senior Vice President,
Sales, Chief Operating
Officer and Director
Dan Fachner 43 President of The ICEE Company
Subsidiary
Michael Karaban 57 Senior Vice President, Marketing
Gerald B. Shreiber is the founder of the Company and
has served as its Chairman of the Board, President, and
Chief Executive Officer since its inception in 1971. His
term as a director expires in 2005.
Dennis G. Moore joined the Company in 1984. He served
in various controllership functions prior to becoming the
Chief Financial Officer in June 1992. His term as a
director expires in 2007.
Robert M. Radano joined the Company in 1972 and in May
1996 was named Chief Operating Officer of the Company.
Prior to becoming Chief Operating Officer, he was Senior
Vice President, Sales responsible for national food service
sales of J & J. His term as a director expires in 2006.
Dan Fachner has been an employee of ICEE-USA Corp.,
which was acquired by the Company in May 1987, since 1979
He was named Senior Vice President of The ICEE Company in
April 1994 and became President in May 1997.
Michael Karaban has been an employee of the Company in
charge of its marketing department since 1990 and in
February 2002 was elected Senior Vice President, Marketing.
Item 12. Security Ownership Of Certain Beneficial Owners And
Management
Information concerning the security ownership of certain
beneficial owners and management appearing in the Company's
Proxy Statement under the caption ''Principal Shareholders''
is incorporated herein by reference.
The following table details information regarding the
Company's existing equity compensation plans as of
September 27, 2003.
15
(a) (b) (c)
Number of
securities
remaining
Number of Weighted- available for
securities to average future
be issued exercise issuance
Plan Category upon exercise price of under equity
of outstanding compensation
outstanding options, plans
options, warrants and (excluding
warrants and rights securities
rights reflected in
column (a))
Equity
compensation
plans 924,629 20.98 612,000
approved by
security
holders
Equity
compensation
plans not - - -
approved by
security
holders
Total 924,629 20.98 612,000
Item 13. Certain Relationships And Related Transactions
None to Report.
Item 14. Principal Accounting Fees and Services
Information concerning the Principal Accounting Fees and
Services in the Company's Proxy Statement for the 2003
Annual Meeting of Stockholders is incorporated herein by
reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules And
Reports On Form 8-K
(a) Financial Statements
The following are incorporated by reference in Part
II of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of September 27, 2003 and
September 28, 2002
16
Consolidated Statements of Earnings for the fiscal years
ended September 27, 2003,September 28, 2002 and
September 29, 2001
Consolidated Statement of Stockholders' Equity for the
three fiscal years ended September 27, 2003
Consolidated Statements of Cash Flows for the fiscal
years ended September 27, 2003, September 28, 2002
and September 29, 2001
Notes to Consolidated Financial Statements
Financial Statement Schedule
The following are included in Part IV of this
report:
Page
Report of Independent Certified Public
Accounts on Schedule 25
Schedule:
II. Value and Qualifying Accounts 26
All other schedules are omitted either because they are
not applicable or because the information required is
contained in the financial statements or notes thereto.
Exhibits
3.1 Amended and Restated Certificate of Incorporation
filed February 28, 1990. (Incorporated by reference
from the Company's Form 10-Q dated May 4, 1990.)
3.2 Amended and Restated Bylaws adopted May 15, 1990.
(Incorporated by reference from the Company's Form
10-Q dated August 3, 1990.)
4.3 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. (Incorporated by reference from the
Company's Form 10-K dated December 21, 2001.)
10.1 Proprietary Exclusive Manufacturing Agreement dated
July 17, 1984 between J & J Snack Foods Corp. and
Wisco Industries, Inc. (Incorporated by reference
from the Company's Form S-1 dated February 4, 1986,
file no. 33-2296).
10.2*J & J Snack Foods Corp. Stock Option Plan.
(Incorporated by reference from the Company's
Definitive Proxy Statement dated December 19,
2002.)
17
10.3* J & J Snack Foods Corp. 401(k) Profit Sharing
Plan, As Amended, Effective January 1, 1989.
(Incorporated by reference from the Company's 10-
K dated December 18, 1992.)
10.4* First, Second and Third Amendments to the J & J
Snack Foods Corp. 401(k) Profit Sharing Plan.
(Incorporated by reference from the Company's 10-K
dated December 19, 1996.)
10.6 Lease dated September 24, 1991 between J & J
Snack Foods Corp. of New Jersey and A & H Bloom
Construction Co. for the 101,200 square foot
building next to the Company's manufacturing
facility in Pennsauken, New Jersey. (Incorporated
by reference form the Company's Form 10-K dated
December 17, 1991.)
10.7 Lease dated August 29, 1995 between J & J Snack
Foods Corp. and 5353 Downey Associated Ltd. for
the lease of the Vernon, CA facility.
(Incorporated by reference from the Company's
Form 10-K dated December 21, 1995.)
10.8* J & J Snack Foods Corp. Employee Stock Purchase
plan (Incorporated by reference from the
Company's Form S-8 dated May 16, 1996).
10.11 Amendment No. 1 to Lease dated August 29, 1995
between J & J Snack Foods Corp. and 5353 Downey
Associated Ltd. for the lease of the Vernon, CA
facility. (Incorporated by reference from the
Company's Form 10-K dated December 18, 2002).
10.12* Fourth and Fifth Amendments to the J & J Snack
Foods Corp. 401(k) Profit Sharing Plan.
(Incorporated by reference from the Company's
Form 10-K dated December 18, 2002).
13.1 Company's 2003 Annual Report to Shareholders
(except for the captions and information thereof
expressly incorporated by reference in this Form
10-K, the Annual Report to Shareholders is
provided solely for the information of the
Securities and Exchange Commission and is not
deemed ''filed'' as part of the Form 10-K.) (Page
27.)
14.0 Code of Ethics Pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002. (Page 64-70.)
18
22.1 Subsidiaries of J & J Snack Foods Corp. (Page
71.)
24.1 Consent of Independent Certified Public
Accountants. (Page 72.)
31.1 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Page 21-22.)
31.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Page 23-24.)
99.5 Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002. (Page 73.)
*Compensatory Plan
(b) Reports on Form 8-K
Reports on Form 8-K were filed on July 23, 2003 and
November 5, 2003.
19
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, the Registrant has
duly caused report to be signed on its behalf by the
undersigned, thereunto duly authorized.
J & J SNACK FOODS CORP.
September 9, 2004 By /s/ Gerald B. Shreiber
Gerald B. Shreiber,
Chairman of the Board,
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
September 9, 2004 /s/ Robert M. Radano
Robert M. Radano, Senior Vice
President, Sales, Chief
Operating Officer and Director
September 9, 2004 /s/ Dennis G. Moore
Dennis G. Moore, Senior Vice
President, Chief Financial
Officer and Director
September 9, 2004 /s/ Sidney R. Brown
Sidney R. Brown, Director
September 9, 2004 /s/ Peter G. Stanley
Peter G. Stanley, Director
September 9, 2004 /s/ Leonard M. Lodish
Leonard M. Lodish, Director
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON SCHEDULE
Board of Directors J & J Snack Foods Corp.
In connection with our audit of the consolidated
financial statements of J & J Snack Foods Corp. and
Subsidiaries referred to in our report dated November 5,
2003 which is included in the Annual Report to Shareholders
and incorporated by reference in Part II of this form, we
have also audited Schedule II for each of the three fiscal
years in the period ended September 27, 2003 (52 weeks, 52
weeks and 52 weeks, respectively). In our opinion, this
schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
November 5, 2003
25
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Opening Charged to Closing
Year Description Balance expense Deductions Balance
2003 Allowance for doubtful
accounts $1,839,000 $556,000 $1,404,000(1) $ 991,000
2002 Allowance for doubtful
accounts 1,672,000 372,000 205,000(1) 1,839,000
2001 Allowance for doubtful
accounts 1,573,000 438,000 339,000(1) 1,672,000
(1) Write-off uncollectible accounts receivable.
26
EXHIBIT 13.1
J & SNACK FOODS CORP.
2003 ANNUAL REPORT
TO SHAREHOLDERS
J&J Snack Foods
6000 Central Highway
Pennsauken, NJ 08109
(856) 665-9533
www.jjsnack.com
2003 ANNUAL REPORT
Munch.
S-s-s i p.
Ah-h-h.
Mm-m-m.
Hear that?
It's the satisfied sound of snackers everywhere
delighting their senses with the J&J Snack Foods family
of brands.
2003 in Review
Profile
J&J Snack Foods Corp. is a manufacturer, marketer and
distributor of an expanding variety of nutritional,
popularly priced, branded niche snack foods and
beverages for the food service and retail supermarket
industries. The Company is listed on the NASDAQ exchange
as ''JJSF'', and serves both national and international
markets.
Our growing portfolio of products includes soft
pretzels; frozen beverages; frozen juice bars and
desserts; churros, a cinnamon pastry; funnel cakes;
cookies and bakery goods; and other snack foods and
drinks. Consumers can enjoy these nutritional and tasty
products in a variety of settings where people work,
play, travel and shop.
The Company's growth is the result of a strategy that
emphasizes active development of new and innovative
products, penetration into existing market channels and
expansion of established products into new markets. Our
four business groups, Food Service, Frozen Beverages,
Retail Supermarket and The Restaurant Group, were part
of our 32nd consecutive year of record sales in fiscal
2003 and are poised for continued growth this coming
year.
As we prepare for the future, J&J Snack Foods Corp.
plans to continue expanding it's unique, niche product
offerings, by capitalizing on new opportunities wherever
they may be found.
Contents
Profile FLAP
Financial Highlights 1
President's Letter 2
Soft Pretzels 4
Frozen Beverages 6
Frozen Juice Bars & Desserts 8
More Snacks 10
Family of Brands 12
Financial Information 13
Corporate Information 32
Financial Highlights
Fiscal year ended in September
2003 2002 2001 2000 1999
(In thousands except per share data)
Net Sales* $ 364,567 $ 353,187 $ 328,335 $ 296,832 $ 270,835
Net Earnings $ 19,902 $ 18,113 $ 11,876 $ 9,968 $ 14,264
Total Assets $ 236,683 $ 220,036 $ 224,481 $ 220,039 $ 213,680
Long-Term Debt $ - $ - $ 28,368 $ 42,481 $ 34,660
Stockholders'
Equity $ 182,564 $ 168,709 $ 146,143 $ 133,274 $ 131,169
Common Share Data
Earnings Per
Diluted Share $ 2.20 $ 1.99 $ 1.36 $ 1.10 $ 1.50
Earnings Per
Basic Share $ 2.26 $ 2.07 $ 1.40 $ 1.13 $ 1.58
Book Value
Per Share $ 20.85 $ 18.95 $ 16.92 $ 15.64 $ 14.57
Common Shares
Outstanding
At Year End 8,757 8,903 8,636 8,522 9,000
*-Net sales from 1999 to 2001 have been reduced as a
result of our adoption of EITF 01-9, "Accounting for
Consideration Given By a Vendor to a Customer or a
Reseller of the Vendor's Products." These
reclassifications had no impact on reported net earnings
or earnings per share.
President's Letter
To Our Shareholders and Friends:
''Truth, justice and the American way.'' Oops... no,
that was last year's closing statement of my President's
Letter. I need something else, slightly different, as we
put the finishing touches on another good year. As I
recently gazed reflectively while enjoying the natural
beauty of a pastoral country setting, the sights and
sounds of nature overwhelmed my senses. Almost like I
could touch the beauty, smell its fragrance, taste its
goodness and hear the serenity. And then I realized just
how much the sensory qualities of our products
contribute to their enjoyment, and in turn, the success
of our company.
J&J Snack Foods Corp. has just completed it's 32nd
consecutive year of growth. How do we do it? Our
insatiable appetite for success helps us to sniff out
opportunities wherever they can be found. Operational
discipline and good execution helps make them fit. Our
dedication to serving the public remains steadfast. And,
none of this would be possible without a truly sense-
ational team working with me.
Sales and earnings set records in 2003
I am delighted to report to our shareholders our year-
end results. In 2003, we set sales and earnings records
again! And, earnings per share were the highest in our
corporate history.
In brief:
* Net sales grew by 3% to a record $365 million
* Net earnings climbed 10% to $19.9 million
* Earnings per share rose 11% to $2.20
* Book value increased to $20.85
Strong performance by our Food Service business group,
led by continued growth of our core and newer soft
pretzel products, paved the way. Total Food Service
sales were up 8% for the year, boosted by our award-
winning PRETZEL FILLERS and GOURMET TWISTS that grew at
an even faster rate. Other products also contributed to
our successful year. Our ICEE business group, given the
circumstances of weather and store closings affecting a
major customer, performed well overall. And, although
Retail Supermarket sales declined this year due to the
discontinuance of frozen novelty products introduced
last year and poor weather conditions, it is noteworthy
that our retail soft pretzel category grew.
Tuning into sensory perception
Unlike some larger food companies, our company is unique
and our products fall into specialty niche categories.
In our beginning in 1971, we saw and sensed something of
product lines that were undeveloped and under-marketed.
This initially included soft pretzels. Our business
grew, and later churros, frozen juice bars and desserts,
ICEE and frozen carbonated beverages, funnel cakes and
cookies were added to the mix to further delight the
senses.
We continue to utilize the same strategy and basic
philosophy that has served us well over the years. By
making quality niche products, being the low cost
producer and maintaining strong sales and distribution
channels, we were able to overcome a tough economic
environment made even tougher by cost increases.
We are satisfied with our recent performance but can
clearly see further success. As we begin our 33rd year
in business, we remain committed to maintaining the
standards already in place, and will focus on furthering
our quest for continued growth and excellence. We look
forward to another sense-ational year in 2004!
Sincerely,
Gerald B. Shreiber President and Chairman December 1,
2003
Soft Pretzels
Take a good look and you'll clearly see why J&J Snack
Foods Corp. remains the world's premier and largest
manufacturer of soft pretzels. As demand continues to
grow, seven of our manufacturing facilities are busy
producing the millions upon millions of soft pretzels
needed to satisfy consumers across the U.S. and around
the world.
All eyes are on expanding food service sales
In fiscal 2003, food service soft pretzel sales grew an
impressive 15%, primarily driven by surging sales of our
gourmet style soft pretzels. These delectable snacks can
be eaten on-the-go or as a meal replacement, and are
sold at an expanding number of locations including
convenience stores, home-delivery services, mass
merchandisers, snack bars and other traditional food
service outlets.
Our delicious PRETZEL FILLERS, hand-twisted soft
pretzels with scrumptious fillings and toppings, have
provided a whole new way to view soft pretzels! Enjoy
any of our four appealing flavors: Twisted Pizza,
Hollerin' Jalapeno, Sweet Dream Cream Cheese and
Cinnamon Apple Harvest. PRETZEL FILLERS are available in
various sizes as well as individually wrapped.
Hungry consumers have also set their sights on GOURMET
TWISTS. These old-world, hearth-baked soft pretzels are
offered in either Original Twist or Sweet Doughlicious.
Packaged with savory toppings including butter,
cinnamon-sugar and salt, they provide variety and simple
preparation. The food service picture has changed
forever!
Our flagship brand - SUPERPRETZEL Soft Pretzels -
provides the lion's share of food service soft pretzel
sales. They remain America's Favorite Soft Pretzel, and
are available at tens-of-thousands of high- traffic
locations across the country such as malls and shopping
centers; stadiums and sports arenas; amusement, leisure
and theme parks; chain, convenience and warehouse club
stores; schools and colleges; business and industry
cafeterias and fast food outlets.
We're the apple of the School Food Service Director's
eye
We remain dedicated to helping schools provide good
nutrition and fun for America's schoolchildren. Our
SUPERPRETZEL product line satisfies bread requirements
for the U.S.D.A. approved National School
Lunch/Breakfast Program - making it a tasty addition to
school lunch and breakfast menus. Available in themed
and shaped varieties such as shamrocks, pumpkins, hearts
and stars, School Food Service Directors know that
holiday and special menus will be seen as a hit with
students.
Still lookin' good at the supermarket
SUPERPRETZEL brand sales in retail supermarkets - which
includes soft pretzels, SOFT PRETZEL BITES and SOFTSTIX
Cheese Filled Soft Pretzel Sticks co-branded with KRAFT*
- again showed an increase for the year, thanks to a 14%
sales spike for our SUPERPRETZEL SOFTSTIX. The brand
continues to lead the retail category with a commanding
market share and a presence in more than 29,000
supermarkets nationwide.
SUPERPRETZEL PRETZELFILS - a vision of the future
Watch closely, we've just reinvented at-home snacking.
At the end of our fiscal year, we began test marketing
SUPERPRETZEL PRETZELFILS - the newest member of the
SUPERPRETZEL family. Flavored dough is combined with
delicious fillings and toppings to create an entirely
new snacking sensation. Eaten as a snack, mini-meal or
hors d'oeuvre, consumers can choose from three delicious
flavors: pizza, pepperjack and onion veggie cream
cheese. Our innovations just keep on coming!
Our Restaurant Group, which operates BAVARIAN PRETZEL
BAKERY and PRETZEL GOURMET retail stores in the Mid-
Atlantic region, continues to serve as a valuable
resource for market research and new product evaluation.
*KRAFT and the KRAFT logo are registered trademarks
owned and licensed by Kraft Food Holdings, Inc.
Focus
Love at first Sight and love in every bite.
Frozen Beverages
On a hot summer day or anytime, there is no better way
to cool off than with a delicious, frosty beverage from
J&J Snack Foods. Use a straw or use a spoon, but by all
means, experience this chilling sensation.
The ICEE Company ---- our frozen beverage division ----
sets the standard for excellence and remains the world's
largest distributor of frozen beverages. However, sales
dipped slightly in fiscal 2003 primarily due to the
unusually wet summer and continued store closings at a
major account.
Connect with an ICEE anywhere
Feel like ICEE is everywhere you are? You're right!
Refreshing ICEE branded beverages are sold in more than
30,000 food service outlets throughout the United
States, Canada and Mexico, many of which also sell our
SUPERPRETZEL brand and other tasty and nutritional J&J
products. ARCTIC BLAST and other signature brands are
also available in some geographic locations. Served from
our proprietary dispensing equipment, these semi-frozen
treats are an exciting and delicious alternative to
traditional juices and soft drinks for thirsty consumers
in need of a cool-down.
We are transitioning to the ICEE brand in nearly 7,000
Burger King* locations, modifying the look of existing
dispensing units to provide additional brand exposure.
Our long-term marketing agreement with The Coca-Cola
Company continues to thrive as The ICEE Company provides
ongoing managed services to dispensing machines in these
Burger King locations while The Coca-Cola Company
provides the syrup. A very cool combination indeed!
Our customers feel the love
The ICEE Company's success is owed in no small part to
the ''Service Excellence'' provided by our nationwide
network of branches and trained technicians that reports
to our centralized, state-of-the-art Customer Service
Center. We perform ongoing managed service for existing
customers as well as other beverage and related food
equipment providers. As always, we remain dedicated to
maintaining our equipment in peak condition at all times
and are sensitive to our trade customers' needs. To that
end, this fiscal year we began the rollout of hand-held
computers to speed up communication from the field and
reduce manual processing of service information. The
majority of the project should be implemented in fiscal
2004.
Staying in touch by way of promotions
Promotional opportunities continued to play an important
role throughout fiscal 2003. Value-added on-the-cup
offers; consumer sweepstakes and contests; feature film,
video/DVD and video game tie- ins; turnkey holiday-
themed and flavor promotions; and account- specific
themed promotions are just some of the ways the ICEE
brand stays in front of consumers. Tie-ins with
SUPERPRETZEL, GOURMET TWISTS, MRS. GOODCOOKIE and other
J&J products were also featured at several national
accounts, promoting sense-ational snack combinations.
Uncarbonated ways to chill out
Feel like a frosty treat without carbonation? The ICEE
Company offers three frozen beverage alternatives. In
the fourth quarter, we introduced ICEE SLUSH to schools
and lower volume locations. For schools, it is made with
real fruit juice to meet specific nutritional
requirements. JAVA FREEZE, a coffee-flavored beverage,
remains popular with the college crowd. And, CALIFORNIA
NATURAL ---- served with or without alcohol ----
enhances the spectator experience at sporting events and
entertainment venues.
So when you need to chill out and the ordinary just
won't do, satisfy your senses with a frozen treat from
J&J.
*Burger King is a registered trademark of Burger King
Corporation. Chillin' Experience the ICEE Touch and feel
the Arctic Blast.
Frozen Juice Bars & Desserts
Need a cool, refreshing treat? You're not alone.
Increased consumption of our MINUTE MAID* and BARQ'S**
branded products, combined with the efforts of our
LUIGI'S, CHILL, ICEE, FROSTAR, SHAPE UPS and MAMA TISH'S
brands, helped us turn in a tasty 4% increase in food
service sales in fiscal 2003. A palatable result ----
despite Mother Nature's wrath, which impacted sales of
our frozen juice bars and dessert brands last summer,
mostly in leisure and theme venues.
Relishing our award-winning partnership
Our ongoing alliance with The Coca-Cola Company gives
J&J Snack Foods Corp. the exclusive rights to
manufacture, sell and distribute licensed frozen juice
bars and desserts under the Coca-Cola*** brands of
MINUTE MAID and BARQ'S. Consumer recognition and trust
of these brands, combined with our robust distribution
channels, provide a solid foundation for success.
Our mouth-watering Coca-Cola branded products include
MINUTE MAID Juice Bars, MINUTE MAID Soft Frozen
Lemonade, MINUTE MAID Fruit & Cream Swirl and a new
product with an old-fashioned feel ---- BARQ'S Frozen
Root Beer & Vanilla Ice Cream Float. This luscious
frozen treat is already causing quite a stir, garnering
a pair of prestigious industry publication awards:
''Stagnito's Best New Product Award'' and ''Best New
Product Award'' from Convenience Store News. Delicious
news indeed! And, in warehouse club stores, food service
frozen dessert sales were boosted when BARQ'S Frozen
Root Beer & Vanilla Ice Cream Float and MINUTE MAID
Juice Bars were successfully welcomed into the club.
Canadians are now enjoying our taste-tempting frozen
desserts, as our ongoing efforts to expand in this
geographic market have landed MINUTE MAID Soft Frozen
Lemonade into club stores and convenience stores north
of the border.
A ravenous appetite for pleasing kids and adults
J&J Snack Foods Corp. is proud to be a Patron Member of
the American School Food Service Association and pledges
to remain committed to offering nutritious products to
schoolchildren. With more than 90 million servings this
year, our MINUTE MAID Juice Bars, which carry the Child
Nutrition (CN) label and satisfy fruit requirements for
the National School Lunch/Breakfast Program, remain the
#1 menued frozen juice bar in America's schools. SHAPE
UPS Frozen Juice Cups, juice- based frozen desserts with
holiday themed lids, provide School Food Service
Directors with lip-smackin' options for menu planning.
Still the #1 taste in the freezercase
Retail supermarket sales of frozen juice bars and
desserts ---- which includes the LUIGI'S, MINUTE MAID,
BARQ'S and ICEE brands ---- experienced a decline this
fiscal year due in part to lost distribution of products
introduced last year and a damp, dreary summer which
impacted all frozen novelty category sales. Although
sales of LUIGI'S Real Italian Ice were flat for the
year, the brand still sits atop the supermarket
freezercase as the #1 selling Italian ice and is very
well positioned for future growth.
BARQ'S Frozen Root Beer & Vanilla Ice Cream Float was
successfully introduced in test markets in fiscal 2003,
and expansion plans are in place for this old-fashioned
favorite in the coming year.
*MINUTE MAID is a registered trademark of The Coca-Cola
Company. **BARQ'S is a registered trademark of Barq's
Inc. ***Coca-Cola is a registered trademark of The Coca-
Cola Company.
Crave
Bathe your tongue in Taste and enjoy lip smackin' fun.
More Snacks
Nothing stirs the senses quite like the sweet aroma of
warm, fresh snacks. Delicious cookies, crispy churros,
fragrant funnel cakes and other quality bakery products
comprise this ever-growing niche category for J&J Snack
Foods Corp.
Ah-h-h-h-h, the sweet smell of success!
In the food service sector, MRS. GOODCOOKIE, CAMDEN
CREEK and other branded cookies serve up equally
delicious whether distributed as frozen cookie dough,
pre-baked or pre-packaged cookies. And for a more custom
sensation, CAMDEN CREEK private label fund raising
frozen cookie dough has proven to be a winner, along
with packaged, fun character cookie sales to schools and
sales of MRS. GOODCOOKIE frozen cookie dough. All were
key contributors to the 4% rise in dollars and scents in
2003.
Our other taste-tempting bakery products include non-
branded frozen cookie dough, commercial specialty baking
items, contract private label products and organically
certified baked goods. The 5% sales spurt we experienced
is primarily the result of growth in our contract
private label business. Additionally, our fresh bakery
products which convenience food retailer, posted
increases to food service sales as well. Soon, you may
catch the aromatic whiff of many of our fresh- baked
goodies in even more places as we explore our existing
distribution channels for further opportunities.
Sensing continued growth for TIO PEPE'S
What was once a regional delicacy only in the Southwest,
TIO PEPE'S Churros ---- crispy, doughnut-like snacks ---
- continue to spread their cinnamon scent across the
country and into international markets. In fiscal 2003,
food service sales of regular and fruit filled churros
beat out the previous year's sales by a nose. Both
varieties are delicious and nutritious, while fruit
filled churros satisfy both bread and fruit requirements
for the U.S.D.A. National School Lunch/Breakfast
Program. International sales of churros also grew in the
Asia-Pacific region.
Funnel cakes ---- still full of fun
Available under THE FUNNEL CAKE FACTORY brand name, our
fragrant funnel cakes are sold either as frozen, pre-
cooked, pre-shaped cakes that simply need to be warmed,
or as a make-your-own dry mix. Funnel cakes are meant
for family fun, so it's no surprise that the rain-
drenched summer ---- which adversely affected attendance
and eating habits at theme and leisure parks as well as
other outdoor venues, the primary distribution channel
for funnel cakes ---- led to a marginal decline in sales
for fiscal 2003. But if history is any indication,
funnel cake sales should rebound quite nicely.
Despite certain adversities and challenges we
experienced this past year, we refused to let them
dampen our spirits. We saw opportunities. We felt
confident. We tasted victory. We smelled success.
Triumphant once again, J&J Snack Foods Corp. experienced
growth for our 32nd consecutive year ---- now that's
sense-ational!
Savor
Inhale this aromatic Smell and lose yourself in the
moment.
J&J Snack Foods
FAMILY OF BRANDS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this discussion
and analysis contains forward-looking statements. The
forward-looking statements contained herein are subject
to certain risks and uncertainties that could cause
actual results to differ materially from those projected
in the forward-looking statements. Important factors
that might cause such a difference include, but are not
limited to, those discussed in the ''Management's
Discussion and Analysis of Financial Condition and
Results of Operations.'' Readers are cautioned not to
place undue reliance on these forward-looking
statements, which reflect management's analysis only as
of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking
statements to reflect events or circumstances that arise
after the date hereof.
Critical Accounting Policies, Judgments and Estimates
We prepare our financial statements in conformity with
accounting principles generally accepted in the United
States. The preparation of such financial statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of those financial statements
and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from
those estimates.
The Company discloses its significant accounting
policies in the notes to its audited consolidated
financial statements.
Judgments and estimates of uncertainties are required in
applying the Company's accounting policies in certain
areas. Following are some of the areas requiring
significant judgments and estimates: revenue
recognition, accounts receivable, cash flow and
valuation assumptions in performing asset impairment
tests of long-lived assets, estimates of the useful
lives of intangible assets and insurance reserves.
There are numerous critical assumptions that may
influence accounting estimates in these and other areas.
We base our critical assumptions on historical
experience, third-party data and various other estimates
we believe to be reasonable. A description of the
aforementioned policies follows:
Revenue recognition-We recognize revenue from our products
when the products are shipped to our customers and when
equipment service is performed for our customers who are
charged on a time and material basis. We also sell
equipment service contacts with terms of coverage ranging
between 12 and 60 months. We record deferred income on
equipment service contracts which is amortized by the
straight line method over the term of the contracts. We
record offsets to revenue for allowances, end-user pricing
adjustments and trade spending. Off-invoice allowances are
deducted directly from the amount invoiced to our customer
when our products are shipped to the customer. Offsets to
revenue for allowances, end-user pricing adjustments and
trade spending are recorded primarily as a reduction of
accounts receivable based on our estimates of liability
which are based on customer programs and historical
experience. These offsets to revenue are based primarily
on the quantity of product purchased over specific time
periods. For our retail supermarket and frozen beverages
segments, we accrue for the liability based on products
sold multiplied by per product offsets. Offsets to revenue
for our foodservice segment are calculated in a similar
manner for offsets owed to our direct customers; however,
because shipments to end-users are unknown to us until
reported by our direct customers or by the end-users, there
is a greater degree of uncertainty as to the accuracy of
the amounts accrued for end-user offsets. Additional
uncertainty may occur as customers take deductions when
they make payments to us. This creates complexities
because our customers do not always provide reasons for the
deductions taken. Additionally, customers may take
deductions to which they are not entitled and because the
length of time customers take deductions to which they are
entitled can vary from two weeks to well over a year.
Because of the aforementioned uncertainties, the process to
determine the amount of liability to record is cumbersome
and subject to inaccuracies. However, we feel that due to
constant monitoring of the process that any inaccuracies
would not be material. Our recorded liability for
allowances, end-user pricing adjustments and trade spending
was approximately $4,925,000 and $3,392,000 at September
27, 2003 and September 28, 2002, respectively. The
increase in our recorded liability was to provide for trade
spending related to the introduction of our PRETZELFILS
supermarket product as well as other general increases in
allowances throughout our businesses.
Accounts Receivable-We record accounts receivable at the
time revenue is recognized. Bad debt expense is
recorded in marketing and administrative expenses. The
amount of the allowance for doubtful accounts is based
on our estimate of the accounts receivable amount that
is uncollectable and is made up of a general reserve
based on historical experience and amounts for specific
customer's accounts receivable that we believe are at
risk due to our knowledge of facts regarding the
customer(s). We continually monitor our estimate of the
allowance for doubtful accounts and adjust it monthly.
We usually have 2 to 3 customers with accounts
receivable balances of between $1.5million to $3million.
Failure of these customers, and others with lesser
balances, to pay us the amounts owed could have a
material impact on our consolidated statement of
earnings and our consolidated statement of cash flows.
Accounts receivable due from any of our customers is
subject to risk. Our total bad debt expense was
$556,000, $372,000 and $438,000 for the fiscal years
2003, 2002 and 2001 respectively. At September 27,
2003 and September 28, 2002, our accounts receivables
were $37,645,000 and $36,922,000, net of an allowance
for doubtful accounts of $991,000 and
$1,839,000.
Asset Impairment - We completed documentation of our
transitional goodwill impairment tests during the
quarter ended March 30, 2002 and did not record any
transitional goodwill impairment loss as a result of our
adoption of SFAS 142. There were no changes in the
carrying amount of goodwill for the fiscal year ended
September 27, 2003.
We have three reporting units with goodwill totaling
$45,850,000 as of September 27,2003. We utilize
historical reporting unit cash flows (defined as
reporting unit operating income plus depreciation and
amortization) as a proxy for expected future reporting
cash flows to evaluate the fair value of these reporting
units. If the fair value so estimated substantially
exceeds the carrying value of the reporting unit,
including the goodwill, if any, associated with that
unit, we do not recognize any impairment loss. Our
restaurant group reporting unit has goodwill of $438,000
as of September 27, 2003. Our analysis of the fair
value of this reporting unit indicated that the excess
of this unit's fair value over its carrying value had
diminished over time, thus requiring management to
further analyze whether an impairment charge was
warranted. As part of this analysis, we reviewed the
future business plans of this unit as provided by the
chief operating decision maker for this unit. This plan
includes the closing of a significant number
of unprofitable stores and reductions in non store
operating expenses. Based upon this extended analysis,
we determined that impairment of goodwill for this
reporting unit should not be recognized as of our fiscal
year-end. We may need to recognize the impairment of
goodwill associated with this reporting unit in the near
future. We do not engage a third party to assist in
this analysis as we believe that our in-house expertise
is adequate to perform the analysis.
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 fiscal year ended
September 27, 2003. Additionally, we did not record any
transitional intangible asset impairment loss upon
adoption of SFAS 142.
Long-lived assets, including fixed assets and
intangibles, are reviewed for impairment as events or
changes in circumstances occur indicating that the
carrying amount of the asset may not be recoverable.
Cash flow analyses are used to assess impairment. The
estimates of future cash flows involve considerable
management judgment and are based upon assumptions about
expected future operating performance. Assumptions used
in these forecasts are consistent with internal
planning. The actual cash flows could differ from
management's estimates due to changes in business
conditions, operating performance, economic conditions,
competition and consumer preferences.
Insurance Reserves - We have a self-insured medical plan
which covers approximately 1,000 of our employees. We
record a liability for incurred but not yet paid claims
based on our historical experience of claims payments and a
calculated lag time period. We maintain a Microsoft Excel
spreadsheet that includes claims payments made each month
according to the date the claim was incurred. This enables
us to have an historical record of claims incurred but not
yet paid at any point in the past. We then compare our
accrued liability to the more recent claims incurred but
not yet paid amounts and adjust our recorded liability up
or down accordingly. Our recorded liability at September
27, 2003 and September 28, 2002 was $675,000 and $448,000,
respectively. Considering that we have stop loss coverage
of $125,000 for each individual plan subscriber, the
general consistency of claims payments and the short time
lag, we believe that there is not a material exposure for
this liability. Because of the foregoing, we do not engage
a third party actuary to assist in this analysis.
We self-insure, up to loss limits, worker's compensation
and automobile liability claims. Accruals for claims under
our self-insurance program are recorded on a claims
incurred basis. Under this program, the estimated liability
for claims incurred but unpaid in fiscal year 2003 and 2002
was $1,700,000 and $1,100,000, respectively. Our total
recorded liability for all years' claims incurred but not
yet paid was $4,324,000 and $4,285,000 at September 27,
2003 and September 28, 2002, respectively. We estimate the
liability based on total incurred claims and paid claims
adjusting for loss development factors which account for
the development of open claims over time. We estimate the
amounts we expect to pay for some insurance years by
multiplying incurred losses by a loss development factor
which is based on insurance industry averages and the age
of the incurred claims; our estimated liability is then the
difference between the amounts we expect to pay and the
amounts we have already paid for those years. Loss
development factors which we use range from 1.0 to 1.82.
However, for some years, the estimated liability is the
difference between the amounts we have already paid for
that year and the maximum we could pay under the program in
effect for that particular year because the calculated
amount we expect to pay is higher than the maximum. For
other years, where there are few claims open, the estimated
liability we record is the amount the insurance company has
reserved for those claims. We evaluate our estimated
liability on a continuing basis and adjust it accordingly.
Due to the multi-year length of these insurance programs,
there is exposure to claims coming in lower or higher than
anticipated; however, due to constant monitoring and stop
loss coverage on individual claims, we believe our exposure
is not material. Because of the foregoing, we do not engage
a third party actuary to assist in this analysis. In
connection with these self-insurance agreements, we
customarily enter into letters of credit arrangements with
our insurers. At September 27, 2003 and September 28, 2002,
we had outstanding letters of credit totaling approximately
$5,900,000 and $4,800,000, respectively.
Refer to Note A to the consolidated financial statements
for additional information on our accounting policies.
RESULTS OF OPERATIONS
Fiscal 2003 (52 weeks) Compared to Fiscal 2002 (52
weeks)
Net sales increased $11,380,000 or 3% to $364,567,000 in
fiscal 2003 from $353,187,000 in fiscal 2002.
We have four reportable segments, as disclosed in the
notes to the consolidated financial statements: Food
Service, Retail Supermarkets, The Restaurant Group and
Frozen Beverages. 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.
Food Service
Sales to food service customers increased $15,309,000 or
8% to $200,528,000 in fiscal 2003. Soft pretzel sales to
the food service market increased $10,160,000, or 15%,
to $76,062,000 for the 2003 year due primarily to
increased sales of PRETZEL FILLERS and GOURMET TWISTS,
two of our newer products in our pretzel line. Increased
sales of PRETZEL FILLERS to two customers accounted for
approximately 64% of the soft pretzel sales' increase.
Sales of bakery products increased $3,661,000 or 6% to
$67,432,000 in fiscal 2003; approximately 44% of this
increase was from sales to one customer resulting
primarily from increased sales of existing products to
its customers. Approximately $900,000 of the bakery
products increase in sales was of our branded products
sold primarily to school foodservice accounts and
approximately $1,000,000 of the increase was of sales of
private label products with increases and decreases
among many customers. Churro sales increased 3% to
$12,923,000 resulting primarily from sales of new
products to a warehouse club store customer. Frozen
juice bar and ices sales increased $1,322,000, or 4%,to
$38,120,000. This increase was mainly attributable to
higher sales to warehouse club stores of about
$1,800,000 and to school foodservice customers of about
$600,000, which were partially offset by a decline to $0
of sales to one quick serve restaurant customer from
$1,325,000 in 2002, which customer discontinued sales of
the product after a trial period in 2002. All of the
increases in sales throughout the Food Service segment
were from a combination of increased unit volume and
price increases.
Retail Supermarkets
Sales of products to retail supermarkets decreased
$1,664,000 or 4% to $39,702,000 in fiscal 2003. Total
soft pretzel sales to retail supermarkets were
$17,195,000, an increase of 2% from fiscal 2002. Sales
of frozen juice bars and ices decreased $1,207,000 or 5%
to $24,251,000 in 2003 from $25,458,000 in 2002. Case
sales of frozen juices and ices products introduced in
2002 which were unsuccessful were down 60% for the year.
Even though overall case sales of frozen juices and ices
were down 12%, sales were down only 5% because of
reduced trade spending in 2003 compared to 2002. We
believe that sales of our frozen juices and ices were
negatively impacted by unseasonably cool and rainy
weather in parts of the United States during the spring
and summer of 2003.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN
PRETZEL BAKERY and PRETZEL GOURMET retail stores in the
Mid-Atlantic region, declined by 9%, primarily due to
reduced mall traffic and closings of 5 unprofitable
stores. At September 27, 2003, we had 48 stores open
with plans to close 10 to 15 unprofitable stores in our
2004 fiscal year in hopes of improving the operating
results of this business.
Frozen Beverages
Frozen beverage and related product sales decreased
$1,296,000 or 1% to $114,582,000 in fiscal 2003.
Beverage sales alone decreased 2% to $89,387,000 for the
year. Lower beverage sales to two customers accounted
for more than the entire decrease in beverage sales.
Excluding these two customers, beverage sales alone
would have increased approximately $1,450,000, or 2%,
for the year. Sales to one of these customers may
decline further in 2004. We do not believe the impact on
consolidated operating income would be material. We
believe that beverage sales were negatively impacted by
unseasonably cool and rainy weather in parts of the
United States during the spring and summer of 2003.
Service revenue increased $829,000, or 6% to $15,272,000
for the year as we continue to emphasize this part of
our business.
Consolidated
Other than as commented upon above by segment, there are
no specific reasons for the reported sales increases or
decreases. Sales levels can be impacted by the appeal
of our products to our customers and consumers and their
changing tastes, competitive and pricing pressures,
sales execution, marketing programs , seasonal weather,
customer stability and general economic conditions.
Gross profit was 34% of sales in both 2003 and 2002.
Gross profit benefited from a decrease of approximately
$6,000,000 in depreciation expense which was largely
offset by increases in the unit costs of raw materials
and packaging of about $4,000,000 and increases in
insurance costs of about $1,300,000. The decrease in
depreciation expense related primarily to frozen
carbonated beverage dispensers acquired in an
acquisition in 1998 and which became fully depreciated
in the first quarter of 2003.
Total operating expenses increased $2,807,000 to
$93,998,000 in fiscal 2003 but as a percentage of sales
were 26% in 2003 and 2002. Marketing expenses decreased
less than 1/2 of 1 percent to 14% of sales in fiscal
2003 from 15% in 2002. The decrease in marketing
expense as a percent of sales was caused primarily by a
higher level of sales in our food service segment which
did not incur marketing expenses and by a lower level of
employee compensation in our frozen beverages segment.
Distribution expenses increased less than 1/4 of 1
percent of sales to 8% from 7% last year primarily
because of increased freight costs as a percent of
foodservice sales and slightly higher frozen beverages
distribution costs even though sales declined. .
Administrative expenses were 4% in both years. Other
general income increased to $384,000 in 2003 from
$19,000 because of the positive resolution of prior
acquisition liabilities.
Operating income increased $2,581,000 or 9% to
$30,847,000 in fiscal 2003 as a result of the
aforementioned items.
Interest expense decreased $408,000 to $113,000 in
fiscal 2003 because we had no long-term debt in 2003.
The effective income tax rate increased to 36% in fiscal
2003 from 35% in fiscal 2002 primarily because of
changes in state tax laws.
Net earnings increased $1,789,000 or 10% in fiscal 2003
to $19,902,000 or $2.20 per fully diluted share as a
result of the aforementioned items.
There are many factors which can impact our net earnings
from year to year and in the long run, among which are
the supply and cost of raw materials and labor,
insurance costs, factors impacting sales as noted above,
the continuing consolidation of our customers, our
ability to manage our manufacturing, marketing and
distribution activities, our ability to make and
integrate acquisitions and changes in tax laws and
interest rates.
RESULTS OF OPERATIONS
Fiscal 2002 (52 weeks) Compared to Fiscal 2001 (52
weeks)
Net sales increased $24,852,000 or 8% to $353,187,000 in
fiscal 2002 from $328,335,000 in fiscal 2001.
Excluding the sales benefit from the acquisition of
Uptown Bakery in November 2000, sales would have
increased approximately 6.5%.
We have four reportable segments, as disclosed in the
notes to the consolidated financial statements: Food
Service, Retail Supermarkets, The Restaurant Group and
Frozen Beverages.
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.
Food Service
Sales to food service customers increased $13,846,000 or
8% to $185,219,000 in fiscal 2002. Excluding the sales
benefit from the acquisition of Uptown Bakery, sales
would have increased about 6%. Soft pretzel sales to
the food service market increased 8% to $65,902,000 for
the 2002 year entirely due to sales of our two new
pretzel lines, GOURMET TWIST AND PRETZEL FILLERS, across
our customer base. . Sales of bakery products increased
$5,814,000 or 10% to $63,771,000 in fiscal 2002. About
60% of the bakery product sales increase resulted from
the acquisition of Uptown Bakery with the balance coming
from sales of our branded cookie products primarily to
school foodservice accounts. Churro sales increased 7%
to $12,530,000 with the sales increase spread widely
among our customers. Increased sales of fruit filled
churros accounted for about 40% of the churros' sales
increase. Frozen juice bar and ices sales increased 10%
to $36,798,000. About 40% of the increase in frozen
juice bar and ices sales were to a quick serve
restaurant in a product test; at this time, we do not
know if the product will be sold in 2003, and about 30%
of the increased sales were to school foodservice
accounts and the balance to club stores and seasonal
warm weather accounts. All of the increases in sales
throughout the Food Service segment were primarily the
result of changes in unit volume.
Retail Supermarkets
Sales of products to retail supermarkets increased
$2,290,000 or 6% to $41,366,000 in fiscal 2002. Total
soft pretzel sales to retail supermarkets were
$16,794,000, an increase of 4% from fiscal 2001. Sales
of our flagship SUPERPRETZEL brand soft pretzels
increased 5% to $15,497,000 due to increased case volume
and reduced trade spending. Sales of frozen juice bars
and ices increased $1,745,000 or 7% to $25,458,000 in
2002 from $23,713,000 in 2001 due to increased volume of
LUIGI'S Real Italian Ice and the Company's MINUTE MAID*
brand licensed products. Over 80% of the higher case
volume of frozen juice bars and ices were from sales of
products introduced into supermarkets this year.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN
PRETZEL BAKERY and PRETZEL GOURMET retail stores in the
Mid-Atlantic region, declined by 11%, primarily due to
reduced mall traffic and closings of unprofitable
stores.
Frozen Beverages
Frozen beverage and related product sales increased
$10,035,000 or 9% to $115,878,000 in fiscal 2002.
Beverage sales alone increased 2% to $91,366,000 for the
year. Service revenue increased $5,625,000, or 64% to
$14,443,000 for the year as we began a more concerted
effort to pursue managed service opportunities to take
advantage of our national service infrastructure. Sales
of equipment increased $4,365,000, or 77%, due to one-
time sales to two customers
Sales to certain of our mass merchandising customers
decreased in 2002 and are expected to further decline in
2003 as a result of store closings and other factors
affecting their operations.
Consolidated
Other than as commented upon above by segment, there are
no specific reasons for the reported sales increases or
decreases. Sales levels can be impacted by the appeal
of our products to our customers and consumers and their
changing tastes, competitive and pricing pressures,
sales execution, marketing programs , seasonal weather ,
customer stability and general economic conditions.
Gross profit increased to 34% of sales in 2002 from 33%
of sales in 2001 primarily due to efficiencies resulting
from higher volume. Gross profit was impacted by higher
property and casualty insurance costs of approximately
$900,000 for the year. The higher costs were due to
market conditions and our own claims experience.
Total operating expenses increased $3,640,000 to
$91,191,000 in fiscal 2002 but as a percentage of sales
decreased to 26% in 2002 from 27% in 2001. The
percentage decrease was mainly attributable to our
adoption of SFAS 142 which eliminated amortization of
goodwill of $2,600,000. Marketing expenses increased
less than 1/4 of 1 percent to 15% of sales in fiscal
2002 from 14% in 2001. This increase resulted from an
upgrade of our point of sale materials at our Food
Service customers. Distribution expenses decreased less
than 1/2 of 1 percent of sales to 7% from 8% last year
because of lower fuel prices early in the year, lower
interest costs on operating leases and efficiencies
related to higher volume. Administrative expenses were
4% in both years. Other general income of $19,000 in
2002 compared to other general income of $620,000 in
2001. Other general income in 2001 included gains from
insurance proceeds. Operating income increased
$7,097,000 or 34% to $28,266,000 in fiscal 2002 as a
result of the aforementioned items.
Interest expense decreased $2,662,000 to $521,000 in
fiscal 2002 due to the paydown of debt and lower
interest rates. As of September 28, 2002, we have repaid
all of our long-term debt.
The effective income tax rate was 35% in fiscal 2002 and
36% in fiscal 2001.
Net earnings increased $6,237,000 or 53% in fiscal 2002
to $18,113,000 or $1.99 per fully diluted share as a
result of the aforementioned items.
There are many factors which can impact our net earnings
from year to year and in the long run, among which are
the supply and cost of raw materials and labor,
insurance costs, factors impacting sales as noted above,
the continuing consolidation of our customers, our
ability to manage our manufacturing, marketing and
distribution activities, our ability to make and
integrate acquisitions and changes in tax laws and
interest rates.
*MINUTE MAID is a registered trademark of The Coca-Cola
Company.
ACQUISITIONS, LIQUIDITY AND CAPITAL RESOURCES
In November 2000, we acquired the assets of Uptown
Bakeries for cash. Uptown Bakeries, located in
Bridgeport, NJ, sells bakery items to the food service
industry with approximate annual sales of $17,000,000.
This acquisition was accounted for under the purchase
method of accounting, and its operations are included in
the consolidated financial statements from the
acquisition date.
Although there are many factors which could impact our
operating cash flow, most notably net earnings, we
believe that our future operating cash flow, along with
our borrowing capacity, is sufficient to fund future
growth and expansion. Based on our past levels of
operating cash flow, which has averaged $48,967,000 per
year over the past three years, and the quality of our
consolidated balance sheet, we believe that we have the
capability to borrow in excess of $200,000,000. This is
management's current opinion, which could change over
time depending on future events.
Fluctuations in the value of the Mexican peso and the
resulting revaluation of the net assets of our Mexican
frozen beverage subsidiary caused decreases of $165,000,
$151,000 and $25,000 in accumulated other comprehensive
loss in the 2003, 2002 and 2001 fiscal years,
respectively. In 2003, sales of the Mexican subsidiary
were $4,354,000 as compared to $3,819,000 in 2002.
In fiscal year 2003, we purchased and retired 297,000
shares of our common stock at a cost of $8,565,000. In
fiscal year 2002, we did not purchase or retire any of
our common stock. In fiscal year 2001, we purchased and
retired 111,000 shares of our common stock at a cost of
$1,431,000. Under a buyback authorization approved by
the Board of Directors in April 2003, 478,000 shares
remain to be purchased at September 27, 2003.
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. The
significant financial covenants are:
Earnings before interest expense and income taxes
divided by interest expense shall not be less than 1.5
to 1.
Tangible net worth must be more than $90million.
Total funded indebtedness divided by earnings before
interest expense, income taxes, depreciation and
amortization shall not be greater than 2.25 to 1.
Total liabilities divided by tangible net worth shall
not be more than 2.0 to 1.
We were in compliance with all of the restrictive
covenants at September 27, 2003. There were no
outstanding balances under this facility at September
27, 2003.
We self-insure, up to loss limits, certain insurable
risks such as worker's compensation and automobile
liability claims. Accruals for claims under our self-
insurance program are recorded on a claim- incurred
basis. Under this program, the estimated liability for
claims incurred but unpaid in fiscal year 2003 and 2002
was $1,700,000 and $1,100,000, respectively. In
connection with certain self-insurance agreements, we
customarily enter into letters of credit arrangements
with our insurers. At September 27, 2003 and September
28, 2002, we had outstanding letters of credit totaling
approximately $5,900,000 and $4,800,000, respectively.
The following table presents our contractual cash flow
commitments on long-term debt and operating leases. See
Notes to the Consolidated Financial Statements for
additional information on our long-term debt and
operating leases. Payments Due by Period Less
Payments Due by Period
Less
Than 1--3 4--5 After
Total 1 Year Years Years 5 Years
(in thousands)
Long-term debt,
including current
maturities $ - $ - $ - $ - $ -
Operating leases 40,164 8,068 11,266 7,262 13,568
Total $40,164 $ 8,068 $11,266 $7,262 $13,568
As of September 27, 2003, we were committed to purchasing
approximately $13,000,000 of ingredients and packaging in
fiscal year 2004. These commitments do not exceed our
projected requirements over the related terms and are in
the normal course of business.
Effective December 30, 2001, we adopted the provisions of
Emerging Issues Task Force (EITF) Issue No. 01-9,
''Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products.'' EITF 01-
9 addressed various issues related to the income statement
classification of certain promotional payments, including
consideration from a vendor to a reseller or another party
that purchases the vendor's products.
As a result of the adoption, we reduced both net sales and
marketing expenses by approximately $25,344,000,
$27,175,000 and $23,361,000 for the years ended 2003, 2002
and 2001, respectively. These reclassifications have no
impact on reported operating income or net earnings or
earnings per share.
On December 30, 2001, we adopted SFAS No. 144, ''Accounting
for the Impairment or Disposal of Long-Lived Assets,''
(SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121,
''Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of,'' but it retains
many of the fundamental provisions of that Statement. The
adoption did not have a material effect on our financial
statements.
On October 1, 2001, we adopted SFAS 133, as amended by SFAS
138, ''Accounting for Certain Derivative Instruments and
Certain Hedging Activities.'' Based on our minimal use of
derivatives, the adoption of this standard did not have a
significant impact on our earnings or financial position.
On September 30, 2001, we adopted SFAS No. 142 ''Goodwill
and Intangible Assets'' (SFAS No. 142). SFAS No. 142
includes requirements to annually test goodwill and
indefinite lived intangible assets for impairment rather
than amortize them; accordingly, we no longer amortize
goodwill, thereby eliminating an annual amortization charge
of approximately $2,600,000. We completed documentation of
our transitional goodwill impairment tests during the
quarter ended March 2002 and did not record any
transitional goodwill impairment loss as a result of our
adoption of SFAS No. 142. Additionally, we did not record
any transitional intangible asset impairment loss upon
adoption of SFAS No. 142. Our annual impairment evaluation
reflected no deterioration of our recorded goodwill.
In November 2002, FASB Interpretation 45, ''Guarantor's
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others''
(FIN 45), was issued. FIN 45 requires a guarantor entity,
at the inception of a guarantee covered by the measurement
provisions of the interpretation, to record a liability for
the fair value of the obligation undertaken in issuing the
guarantee.
We previously did not record a liability when guaranteeing
obligations unless it became probable that we would have to
perform under the guarantee. FIN 45 applies prospectively
to guarantees we issue or modify subsequent to December 31,
2002, but has certain disclosure requirements effective for
interim and annual periods ending after December 15, 2002.
The adoption of FIN 45 did not have a significant impact on
our consolidated financial position, results of operations
or cash flows.
In January 2002, the FASB issued FASB Interpretation 46
(FIN 46), ''Consolidation of Variable Interest Entities.''
FIN 46 clarifies the application of Accounting Research
Bulletin 51, Consolidated Financial Statements, for certain
entities that do not have sufficient equity at risk for the
entity to finance its activities without additional
subordinated financial support from other parties or in
which equity investors do not have the characteristics of a
controlling financial interest (''variable interest
entities''). Variable interest entities within the scope of
FIN 46 are required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest
entity is determined to be the party that absorbs a
majority of the entity's expected losses, receives a
majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after
January 31, 2002, and to variable interest entities in
which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period
beginning after June 15, 2002, to variable interest
entities in which an enterprise holds a variable interest
that it acquired before February 1, 2002. The adoption of
FIN 46 did not have a material effect on our consolidated
financial position, results of operations, or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, ''Accounting
for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity.'' SFAS No. 150 establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both
liabilities and equity.
Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 is not expected to have a material
effect on our consolidated financial position, results of
operations or cash flows.
Fiscal 2003 Compared to Fiscal 2002
Cash increased $23,536,000, or 166%, to $37,694,000 from a
year ago because net cash provided by operating activities
of $46,365,000 exceeded the amounts of net cash used in
investing activities of $16,502,000 and financing
activities of $6,227,000.
Trade receivables increased $723,000 or 2% to $37,645,000
and inventories increased $1,003,000 or 5% to $23,202,000
in 2003 due to increased levels of business and higher unit
costs of inventories.
Property, plant and equipment decreased $7,295,000 to
$87,115,000 primarily because expenditures for dispensers
required for the expansion of our frozen beverage business,
for ovens and portable merchandisers required for the
expansion of our food service business and for the
expansion and upgrading of production capability at our
manufacturing facilities was approximately $5,000,000 less
than depreciation of existing assets.
Other intangible assets, less accumulated amortization
decreased $308,000 to $1,231,000 because they were
amortized by $308,000 in the year.
Accounts payable and accrued liabilities was essentially
unchanged from 2002 to 2003, having decreased $186,000 in
2003 from $40,244,000 in 2002.
Deferred income taxes increased by $2,568,000 to
$13,374,000 which related primarily to depreciation of
property, plant and equipment.
Common stock decreased $5,882,000 to $28,143,000 in 2003
because of the repurchase of $8,565,000 of our common stock
which was partially offset by the exercise of incentive
stock options and stock issued under our stock purchase
plan for employees.
Net cash provided by operating activities decreased
$4,718,000 to $46,365,000 in 2003 primarily because
depreciation and amortization of fixed assets decreased by
$6,023,000 which was partially offset by increased net
earnings of $1,789,000. The decrease in depreciation and
amortization expense related primarily to frozen carbonated
beverage dispensers acquired in an acquisition in 1998 and
which became fully depreciated in the first quarter of
2003.
Net cash used in investing activities decreased $2,986,000
to $16,502,000 in 2003 from $19,488,000 in 2002 because of
an increase in proceeds from disposal of property and
equipment related to sales of equipment in our frozen
beverage business and a lower level of purchases of
property plant and equipment.
Net cash used in financing activities decreased $18,547,000
in 2003 to $6,327,000 from $24,874,000 in 2002. The
decrease was because we paid down $28,069,000 of long-term
debt in 2002 and we had no long-term debt in 2003.
In 2003, the major variables in determining our net
increase in cash and cash equivalents were our net
earnings, depreciation and amortization of fixed assets ,
purchases of property, plant and equipment and payments to
repurchase common stock. Other variables which in the
past have had a significant impact on our change in cash
and cash equivalents are payments for the purchase of
companies , net of cash acquired and debt assumed ,
proceeds from borrowings and payments of long-term debt.
As discussed in results of operations , our net earnings
may be influenced by many factors. Depreciation and
amortization of fixed assets is primarily determined by
past purchases of property plant and equipment although it
could be impacted by a significant acquisition in the
current year. Purchases of property, plant and equipment is
primarily determined by our ongoing normal manufacturing
and marketing requirements but could be increased
significantly for manufacturing expansion requirements or
large frozen beverage customer needs. From time to time,
we have repurchased common stock and we anticipate that we
will again in the future. We are actively seeking
acquisitions which could be a significant use of cash.
Although the balance of our long-term debt is $0 at
September 27, 2003, we may borrow in the future depending
on our needs.
Fiscal 2002 Compared to Fiscal 2001
Cash increased 90% to $14,158,000 from a year ago because
net cash provided by operating activities of $51,083,000
exceeded the amounts of net cash used in investing
activities of $19,488,000 and financing activities of
$24,874,000. We were able to increase our cash balance by
$6,721,000 even though we used $28,069,000 of cash to pay
down long-term debt.
Trade receivables increased $1,421,000 or 4% to $36,922,000
and inventories increased $450,000 or 2% to $22,199,000 in
2002 due to increased levels of business. These increases
were modest considering our sales increase of 8% for the
year.
Property, plant and equipment decreased $10,346,000 to
$94,410,000 because expenditures for dispensers required
for the expansion of our frozen beverage business, for
ovens and portable merchandisers required for the expansion
of our food service business and for the expansion and
upgrading of production capability at our manufacturing
facilities was approximately $10,000,000 less than
depreciation of existing assets.
Other intangible assets, less accumulated amortization
decreased $309,000 to $1,539,000 because they were
amortized by $309,000 in the year.
Accounts payable and accrued liabilities decreased $318,000
in 2002 from $40,562,000 in 2001. Increases in accounts
payable of $3,168,000, due to a general increase in our
sales levels and an increase in amounts due for liability
insurance of $1,055,000, were more than offset by a
reduction of accrued liabilities related to the timing of
federal tax payments of $3,300,000 because of tax law
changes.
Current maturities of long-term debt decreased by $115,000
to $0 and long-term debt, less current maturities decreased
by $28,368,000 to $0 due to our repayment of long-term
debt.
Deferred income taxes increased by $1,578,000 to
$10,806,000 which related primarily to depreciation of
property, plant and equipment.
Common stock increased $4,604,000 to $34,025,000 in 2002
because of the exercise of incentive stock options and
stock issued under our stock purchase plan for employees.
Net cash provided by operating activities increased
$1,629,000 to$51,083,000 in 2002 primarily due to increased
net earnings of $6,237,000, which was offset by a
$2,612,000 decrease in amortization of intangibles and
deferred costs which resulted from the discontinuance of
the amortization of goodwill and by a smaller increase in
cash provided by changes in working capital of $3,353,000,
which was caused by tax law changes affecting our fourth
quarter estimated federal tax payment of $3,300,000 for our
2001 fiscal year.
Net cash used in investing activities decreased $8,600,000
to $19,488,000 in 2002 primarily because in 2001 we paid
$11,330,000 to purchase companies and had no acquisitions
in 2002. This was partially offset by increased spending
for purchases of property, plant and equipment of
$3,352,000; the increase being primarily for the
installation of a line to manufacture PRETZEL FILLERS.
Net cash used in financing activities increased $9,566,000
in 2002 to $24,874,000 from $15,308,000 in 2001. The
increase of $9,566,000 was the result of our repayment of
approximately $12,000,000 of additional long-term debt
compared to 2001 which was partially offset by changes in
the amount of proceeds for the issuance of common stock,
net of cash used to repurchase our common stock.
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands, except per share information)
Net Sales $364,567 $353,187 $328,335
Cost of goods sold 239,722 233,730 219,615
Gross profit 124,845 119,457 108,720
Operating expenses
Marketing 51,492 51,466 47,124
Distribution 27,705 26,041 25,594
Administrative 15,185 13,703 12,840
Amortization of goodwill - - 2,613
Other general income (384) (19) (620)
93,998 91,191 87,551
Operating income 30,847 28,266 21,169
Other income (expenses)
Investment income 362 268 356
Interest expense (113) (521) (3,183)
Other - - 213
249 (253) (2,614)
Earnings before income taxes 31,096 28,013 18,555
Income taxes 11,194 9,900 6,679
NET EARNINGS $ 19,902 $ 18,113 $ 11,876
Earnings per diluted share $2.20 $1.99 $1.36
Weighted-average number
of diluted shares 9,051 9,093 8,754
Earnings per basic share $2.26 $2.07 $1.40
Weighted-average number
f basic shares 8,800 8,770 8,502
The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
September 27, September 28,
2003 2002
(in thousands,
except share amounts)
Assets
Current Assets
Cash and cash equivalents $ 37,694 $ 14,158
Receivables
Trade, less allowances
of $991 and $1,839, respectively 37,645 36,922
Other 516 1,016
Inventories 23,202 22,199
Prepaid expenses and other 1,348 1,072
Total current assets 100,405 75,367
Property, Plant and Equipment, at cost 298,609 290,340
Less accumulated depreciation
and amortization 211,494 195,930
87,115 94,410
Other Assets
Goodwill 45,850 45,850
Other intangible assets, net 1,231 1,539
Long-term investment securities
held to maturity 275 675
Other 1,807 2,195
49,163 50,259
$236,683 $220,036
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 27,252 $ 27,683
Accrued liabilities 12,806 12,561
Total current liabilities 40,058 40,244
Deferred Income Taxes 13,374 10,806
Other Long-Term Liabilities 687 277
Stockholders' Equity
Preferred stock, $1 par value;
authorized, 5,000,000 shares; none
issued - -
Common stock, no par value;
authorized, 25,000,000 shares;
issued and outstanding, 8,757,000
and 8,903,000 respectively 28,143 34,025
Accumulated other comprehensive loss (1,957) (1,792)
Retained Earnings 156,378 136,476
182,564 168,709
$236,683 $220,036
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Comprehensive Retained Comprehensive
Shares Amount Loss Earnings Total Income
(in thousands)
Balance at October 1, 2000 8,522 $28,403 $(1,616) $106,487 $133,274
Issuance of common stock upon
exercise of stock options 207 2,194 - - 2,194
Issuance of common stock for
employee stock purchase plan 18 255 - - 255
Foreign currency translation
adjustment - - - (25) - $ (25)
Repurchase of common stock (111) (1,431) - - (1,431)
Net earnings - - - 11,876 11,876 11,876
Comprehensive income - - - - - $11,851
Balance at September 29, 2001 8,636 $29,421 $(1,641) $118,363 $146,143
Issuance of common stock upon
exercise of stock options 254 4,336 - - 4,336
Issuance of common stock for
employee stock purchase plan 13 268 - - 268
Foreign currency translation
adjustment - - (151) - $ (151)
Net earnings - - 18,113 18,113 18,113
Comprehensive income - - - - - $17,962
Balance at September 28, 2002 8,903 $34,025 $(1,792) $136,476 $168,709
Issuance of common stock upon
exercise of stock options 139 2,342 - - 2,342
Issuance of common stock for
employee stock purchase plan 12 341 - - 341
Foreign currency translation
adjustment - - (165) - (165)$ (165)
Repurchase of common stock (297) (8,565) - - (8,565)
Net earnings - - - 19,902 19,902 19,902
Comprehensive income - - - - - $19,737
Balance at September 27, 2003 8,75 $28,143 $(1,957) $156,378 $182,564
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands)
Operating activities:
Net earnings $19,902 $18,113 $11,876
Adjustments to reconcile
net earnings to net cash
provided by operating activities:
Depreciation and amortization
of fixed assets 24,234 30,252 30,170
Amortization of intangibles
and deferred costs 729 734 3,346
(Gains) losses from disposals
and write-downs of property & equipment (389) 255 (330)
Increase in deferred income taxes 2,568 1,578 888
Changes in assets and liabilities,
net of effects from purchase of companies:
Increase in accounts receivable (285) (1,068) (3,411)
Increase in inventories (829) (207) (361)
Increase (decrease) in prepaid
expenses and other (276) 125 221
Increase in accounts payable and
accrued liabilities 711 1,301 7,055
Net cash provided by operating
activities 46,365 51,083 49,454
Investing activities:
Purchases of property, plant and equipment (19,292) (20,479) (17,127)
Payments for purchase of companies
net of cash acquired and debt assumed - - (11,330)
Proceeds from investments held to maturity 400 840 105
Proceeds from disposal of property
and equipment 2,534 167 824
Other (144) (16) (560)
Net cash used in investing activities (16,502) (19,488) (28,088)
Financing activities:
Proceeds from borrowings - 24,000 13,000
Proceeds from issuance of common stock 2,238 3,195 2,307
Payments to repurchase common stock (8,565) - (1,431)
Payments of long-term debt - (52,069) (29,184)
Net cash used in financing activities (6,327) (24,874) (15,308)
Net increase in cash and cash equivalents 23,536 6,721 6,058
Cash and cash equivalents at beginning
of year 14,158 7,437 1,379
Cash and cash equivalents at end of year $37,694 $14,158 $ 7,437
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
J&J Snack Foods Corp. and Subsidiaries (the Company)
manufactures, markets and distributes a variety of
nutritional snack foods and beverages to the food
service and retail supermarket industries. A summary of
the significant accounting policies consistently applied
in the preparation of the accompanying consolidated
financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include the
accounts of J&J Snack Foods Corp. and its wholly-owned
subsidiaries. Intercompany balances and transactions
have been eliminated in the consolidated financial
statements.
2. Revenue Recognition
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 under service
contracts for frozen beverage dispenser machines,
revenue is recognized upon the completion of the
services on specified machines. We provide an allowance
for doubtful receivables after taking into consideration
historical experience and other factors.
Effective December 30, 2001, we adopted the provisions
of Emerging Issues Task Force (EITF) Issue No. 01-9,
''Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products.'' EITF
01-9 addressed various issues related to the income
statement classification of certain promotional
payments, including consideration from a vendor to a
reseller or another party that purchases the vendor's
products.
As a result of the adoption, we reduced both net sales
and marketing expenses by approximately $25,344,000,
$27,175,000 and $23,361,000 for the years ended 2003,
2002 and 2001, respectively. These reclassifications
have no impact on reported operating income or net
earnings or earnings per share.
We follow EITF Issue 00-10, ''Accounting for Shipping
and Handling Fees and Costs'' (Issue 00-10). Issue 00-10
requires that all amounts billed to customers related to
shipping and handling should be classified as revenues.
Our product costs include amounts for shipping and
handling, therefore, we charge our customers shipping
and handling fees at the time the products are shipped
or when services are performed. The cost of shipping
products to the customer is recognized at the time the
products are shipped to the customer and our policy is
to classify them as Distribution expenses. The cost of
shipping products to the customer classified as
Distribution expenses was $27,705,000, $26,041,000 and
$25,594,000 for the fiscal years ended 2003, 2002 and
2001, respectively. Accordingly, this consensus opinion
had no effect on our current and previous
classifications.
Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements (SAB 101) addresses certain
criteria for revenue recognition. SAB 101 outlines the
criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue
recognition policies. Our revenue recognition policies
complied with the guidance contained in SAB 101 and,
therefore, our results of operations were not materially
affected.
We also sell service contracts covering frozen beverage
machines sold. 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.
During the years ended September 27, 2003 and September
28, 2002, we sold $2,561,000 and $2,281,000,
respectively, of service contracts related to our frozen
beverage machines. At September 27, 2003 and September
28, 2002, deferred income on service contracts was
$1,783,000 and $1,345,000, respectively, of which
$687,000 is included in other long-term liabilities as
of September 27, 2003 and the balance is reflected as
short-term and included in accrued liabilities on the
consolidated balance sheet. Service contract income of
$2,122,000, $1,468,000 and $948,000 was recognized for
the fiscal years ended 2003, 2002 and 2001,
respectively. 3. Foreign Currency
Assets and liabilities in foreign currencies are
translated into U.S. dollars at the rate of exchange
prevailing at the balance sheet date. Revenues and
expenses are translated at the average rate of exchange
for the period. The cumulative translation adjustment is
recorded as a separate component of stockholders'
equity.
4. Use of Estimates
In preparing financial statements in conformity with
accounting principles generally accepted in the United
States of America, management is required to make
estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5. Cash Equivalents
Cash equivalents are short-term, highly liquid
investments with original maturities of three months or
less.
6. Concentrations of Credit Risk and Accounts Receivable
We maintain cash balances at financial institutions
located in various states. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation
up to $100,000. We periodically maintain cash balances
in excess of these insurance limits.
Other financial instruments which could potentially
subject us to concentrations of credit risk are trade
accounts receivable; however, such risks are limited due
to the large number of customers comprising our customer
base and their dispersion across geographic regions. We
usually have 2 to 3 customers with accounts receivable
balances of between $1,500,000 to $3,000,000.
The majority of our accounts receivable are due from
trade customers. Credit is extended based on evaluation
of our customers' financial condition and collateral is
not required. Accounts receivable payment terms vary and
are stated in the financial statements at amounts due
from customers net of an allowance for doubtful
accounts. Accounts outstanding longer than the payment
terms are considered past due. We determine our
allowance by considering a number of factors, including
the length of time trade accounts receivable are past
due, our previous loss history, customers' current
ability to pay their obligations to us, and the
condition of the general economy and the industry as a
whole. We write off accounts receivable when they become
uncollectible, and payments subsequently received on
such receivables are credited to the allowance for
doubtful accounts.
7. Inventories are valued at the lower of cost
(determined by the first- in, first-out method) or
market.
8. Investment Securities
We account for our investment securities in accordance
with SFAS No. 115, ''Accounting for Certain Investments
in Debt and Equity Securities.'' This standard requires
investments in securities to be classified in one of
three categories: held-to-maturity, trading, or
available-for-sale. Debt securities that we have the
positive intent and ability to hold are classified as
held-to-maturity and are reported at amortized cost. At
September 27, 2003 and September 28, 2002, all of our
debt securities are classified as held-to-maturity.
9. Depreciation and Amortization
Depreciation of equipment and buildings is provided for
by the straight-line method over the assets' estimated
useful lives. Amortization of improvements is provided
for by the straight- line method over the term of the
lease or the assets' estimated useful lives, whichever
is shorter. Licenses and rights arising from
acquisitions are amortized by the straight-line method
over periods ranging from 4 to 20 years.
On December 30, 2001, we adopted SFAS No. 144,
''Accounting for the Impairment or Disposal of Long-
Lived Assets,'' (SFAS No. 144). SFAS No. 144 supersedes
SFAS No. 121, ''Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed
of,'' but it retains many .of the fundamental provisions
of that Statement. The adoption did not have a material
effect on our financial statements.
10. Fair Value of Financial Instruments
The carrying value of our short-term financial
instruments, such as accounts receivables and accounts
payable, approximate their fair values, based on the
short-term maturities of these instruments.
11. Income Taxes
We account for our income taxes under the liability
method. Under the liability method, deferred tax assets
and liabilities are determined based on the difference
between the financial statement and tax bases of assets
and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
12. Earnings Per Common Share
We follow SFAS No. 128, ''Earnings Per Share'' (EPS).
Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted
average common shares outstanding during the period.
Diluted EPS takes into consideration the potential
dilution that could occur if securities (stock options)
or other contracts to issue common stock were exercised
and converted into common stock.
The Company's calculation of EPS is as follows:
Fiscal year ended September 27, 2003
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $19,902 8,800 $2.26
Effect of Dilutive Securities
Options - 251 (.06)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $19,902 9,051 $2.20
168,394 anti-dilutive weighted shares have been excluded in the
computation of 2003 diluted EPS because the options' exercise price is
greater than the average market price of the common stock.
Fiscal year ended September 28, 2002
Income Shares Per Share
(Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $18,113 8,770 $2.07
Effect of Dilutive Securities
Options - 323 (.08)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $18,113 9,093 $1.99
110,000 anti-dilutive weighted shares have been excluded in the
computation of 2002 diluted EPS because the options'exercise price is
greater than the average market price of the common stock.
Fiscal year ended September 29, 2001
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available
to common stockholders $11,876 8,502 $1.40
Effect of Dilutive Securities
Options - 252 (.04)
Earnings Per Diluted Share
Net Income available to
common stockholders plus
assumed conversions $11,876 8,754 $1.36
294,167 anti-dilutive weighted shares have been excluded in
the
computation of 2001 diluted EPS because the options'
exercise price is
greater than the average market price of the common stock.
13. Accounting for Stock-Based Compensation
The Company accounts for stock options under SFAS No.
123, ''Accounting for Stock-Based Compensation,'' as
amended by SFAS No. 148, which contains a fair value-
based method for valuing stock-based compensation that
entities may use, which measures compensation cost at
the grant date based on the fair value of the award.
Compensation is then recognized over the service period,
which is usually the vesting period. Alternatively, SFAS
No. 123 permits entities to continue accounting for
employee stock options and similar equity instruments
under Accounting Principles Board (APB) Opinion 25,
''Accounting for Stock Issued to Employees.'' Entities
that continue to account for stock options using APB
Opinion 25 are required to make pro forma disclosures of
net income and earnings per share, as if the fair value-
based method of accounting defined in SFAS No. 123 had
been applied.
At September 27, 2003, 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.
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(52 weeks) (52 weeks) (52 weeks)
(in thousands, except per share amounts)
Net income, as reported $19,902 $18,113 $11,876
Less: stock-based compensation
costs determined under fair value
based method for all awards 1,189 1,353 1,651
Net income, pro forma $18,713 $16,760 $10,225
Earnings per share of
common stock -- basic:
As reported $ 2.26 $ 2.07 $ 1.40
Pro forma $ 2.13 $ 1.91 $ 1.20
Earnings per share of
common stock -- diluted:
As reported $ 2.20 $ 1.99 $ 1.36
Pro forma $ 2.07 $ 1.84 $ 1.17
The fair value of these options is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for grants in fiscal
2003, 2002 and 2001, respectively; expected volatility
of43% for fiscal year 2003, 40% for year 2002 and 38% for
year 2001; risk-free interest rates of 3.07%, 3.58% and
4.69%; and expected lives ranging between 5 and 10 years
for all years.
14. Advertising Costs
Advertising costs are expensed as incurred. Total
advertising expense was $2,119,000, $1,619,000, and
$1,765,000 for the fiscal years 2003, 2002 and 2001,
respectively.
15. Interest Rate Risk Management
In prior years, we used interest rate swaps to modify
the interest rate characteristics of certain long-term
obligations. As of September 27, 2003, we had no
interest rate swap contracts.
Interest rate swaps are expected to be effective
economic hedges and have a high correlation with the
items being hedged at inception and throughout the hedge
period. The variable interest rate of a swap contract is
referenced to the same index as the variable interest
rate of the debt being hedged.
Interest rate swaps are accounted for using the accrual
method, with an adjustment to interest expense in the
income statement. The effects of swap positions are
included in financing activities in the Statement of
Cash Flows. Interest receivable or payable under the
swap contracts is included in Receivables or Accounts
Payable. Unrealized gains and losses on the swaps are
not recognized in the balance sheet. Realized gains and
losses from disposition or settlement of swap contracts
are deferred on the balance sheet and amortized to
interest expense over the appropriate period.
If the hedged item is settled or terminated, deferred
and/or unrecognized gains or losses on the hedging
instrument on that date are recognized as an adjustment
to the gain or loss on disposition or termination of the
related hedged item. Future accruals on the swap and
subsequent gains and losses on the swap or forward
contract are included in income in the period they
occur.
We follow SFAS No. 133, as amended by SFAS No. 138,
''Accounting for Certain Derivative Instruments and
Certain Hedging Activities.'' Based on our minimal use
of derivatives, this standard does not have a
significant impact on our earnings or financial
position.
16. Commodity Price Risk Management
Our most significant raw material requirements include
flour, shortening, corn syrup, chocolate, and macadamia
nuts. We attempt to minimize the effect of future price
fluctuations related to the purchase of raw materials
primarily through forward purchasing to cover future
manufacturing requirements, generally for periods from 1
to 24 months. As of September 27, 2003, we have
approximately $13,000,000 of such commitments. Futures
contracts are not used in combination with forward
purchasing of these raw materials. Our procurement
practices are intended to reduce the risk .of future
price increases, but also may potentially limit the
ability to benefit from possible price decreases.
17. Comprehensive Income
We follow SFAS No. 130, ''Reporting Comprehensive
Income.'' This standard established new standards for
reporting comprehensive income, which includes net
income as well as certain other items which result in a
change to equity during the period.
18. Segment Reporting
We follow SFAS No. 131, ''Disclosures about Segments of
an Enterprise and Related Information.'' The management
approach designates the internal organization that is
used by management for making operating decisions and
assessing performance as the source of our reportable
segments.
19. Recent Accounting Pronouncements
Effective December 30, 2001, we adopted the provisions
of EITF Issue No. 01-9, ''Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the
Vendor's Products.'' EITF 01-9 addressed various issues
related to the income statement classification of
certain promotional payments, including consideration
from a vendor to a reseller or another party that
purchases the vendor's products.
As a result of the adoption, we reduced both net sales
and marketing expenses by approximately $25,344,000,
$27,175,000 and $23,361,000 for the years ended 2003,
2002 and 2001, respectively. EITF Issue No. 01-9
requires certain marketing expenses incurred by us, not
previously reclassified, to be classified as deductions
from revenue. These reclassifications have no impact on
reported operating income or net earnings or earnings
per share.
On September 30, 2001, we adopted SFAS No. 142
''Goodwill and Intangible Assets'' (SFAS No. 142). 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, thereby eliminating an annual amortization
charge of approximately $2,600,000. We completed
documentation of our transitional goodwill impairment
tests during the quarter ended March 2002 and did not
record any transitional goodwill impairment loss as a
result of our adoption of SFAS 142. Additionally, we did
not record any transitional intangible asset impairment
loss upon adoption of SFAS No. 142. Our annual
impairment evaluation reflected no deterioration of our
recorded goodwill.
In November 2002, FASB Interpretation 45, ''Guarantor's
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of
Others'' (FIN 45), was issued. FIN 45 requires a
guarantor entity, at the inception of a guarantee
covered by the measurement provisions of the
interpretation, to record a liability for the fair value
of the obligation undertaken in issuing the guarantee.
We previously did not record a liability when
guaranteeing obligations unless it became probable that
we would have to perform under the guarantee. FIN 45
applies prospectively to guarantees we issue or modify
subsequent to December 31, 2002, but has certain
disclosure requirements effective for interim and annual
periods ending after December 15, 2002. The adoption of
FIN 45 did not have a significant impact on our
consolidated financial position, results of operations
or cash flows.
In January 2002, the FASB issued FASB Interpretation 46
(FIN 46), ''Consolidation of Variable Interest
Entities.'' FIN 46 clarifies the application of
Accounting Research Bulletin 51, Consolidated Financial
Statements, for certain entities that do not have
sufficient equity at risk for the entity to finance its
activities without additional subordinated financial
support from other parties or in which equity investors
do not have the characteristics of a controlling
financial interest (''variable interest entities'').
Variable interest entities within the scope of FIN 46
are required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable
interest entity is determined to be the party that
absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both.
FIN 46 applies immediately to variable interest entities
created after January 31, 2002, and to variable interest
entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2002, to
variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1,
2002. The adoption of FIN 46 did not have a material
effect on our consolidated financial position, results
of operations, or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150,
''Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.'' SFAS
No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments
with characteristics of both liabilities and equity.
Most of the guidance in SFAS No. 150 is effective for
all financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 is not
expected to have a material effect on our consolidated
financial position, results of operations or cash flows.
20. Reclassifications Certain prior year financial
statement amounts have been reclassified to be
consistent with the presentation for the current year.
NOTE B - ACQUISITIONS
On November 20, 2000, we acquired the assets of Uptown
Bakeries for cash. Uptown Bakeries, located in
Bridgeport, NJ, sells fresh bakery products to the food
service industry with approximate annual sales of $17
million.
This acquisition was accounted for under the purchase
method of accounting, and its operations are included in
the consolidated financial statement from the
acquisition date.
NOTE C - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses,
and fair values of our long-term investment securities
held to maturity at September 27, 2003 are summarized as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $ 275 $ 5 $ - $ 280
The amortized cost, gross unrealized gains and losses, and fair values
of our long-term investment securities held to maturity at September
28, 2002 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Municipal government
securities $ 675 $ 40 $ - $ 715
The following table lists the maturities of long-term investment
securities classified as held to maturity at September 27, 2003:
Amortized Fair
Cost Value
(in thousands)
Due after one year through five years $ 275 $ 280
There were no proceeds from sales of securities in the past
three
years. We use the specific identification method to
determine the cost
of securities sold.
NOTE D - INVENTORIES
Inventories consist of the following:
September 27, September 28,
2003 2002
(in thousands)
Finished goods $10,537 $10,001
Raw materials 2,775 2,846
Packaging materials 2,975 2,914
Equipment parts and other 6,915 6,438
$23,202 $22,199
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
September 27, September 28, Estimated
2003 2002 Useful Lives
(in thousands)
Land $ 606 $ 756 -
Buildings 5,106 5,456 15-39.5 years
Plant machinery and equipment 93,122 88,908 5-10 years
Marketing equipment 173,360 171,429 5 years
Transportation equipment 909 828 5 years
Office equipment 7,394 6,832 3-5 years
Improvements 15,654 15,885 5-20 years
Construction in progress 2,458 246 --
$298,609 $290,340
NOTE F - GOODWILL AND INTANGIBLE ASSETS
On September 30, 2001, we adopted SFAS No. 142
''Goodwill and Intangible Assets'' (SFAS No. 142). 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, thereby eliminating an annual amortization
charge of approximately $2,600,000.
Our four reporting units, which are also reportable
segments, are Food Service, Retail Supermarket, The
Restaurant Group and Frozen Beverages.
The carrying amount of acquired intangible assets for
the reportable segments are as follows:
September 27, 2003 September 28, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Food Service
Amortized intangible assets
Licenses and rights $2,066 $ 908 $2,066 $ 619
Retail Supermarket
Amortized intangible assets
Licenses and rights $ - $ - $ - $ -
The Restaurant Group
Amortized intangible assets
Licenses and rights $ 20 $ 20 $ 20 $ 19
Frozen Beverages
Amortized intangible assets
Licenses and rights $ 201 $ 128 $ 201 $ 110
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 fiscal years 2003 and
2002. Additionally, we did not record any transitional
intangible asset impairment loss upon adoption of SFAS 142.
Aggregate amortization expense of intangible assets for the
fiscal years 2003, 2002 and 2001 was $308,000, $309,000 and
$271,000.
Estimated amortization expense for the next five fiscal
years is approximately $300,000 in 2004, $200,000 in 2005,
and $150,000 in 2006, 2007 and 2008. The weighted average
amortization period of the intangible assets is 8.14 years.
Goodwill
The carrying amounts of goodwill for the reportable
segments are as
follows:
Food Retail Rest. Frozen
Service Supermarkets Group Beverages Total
(in thousands)
Balance at
September 27,
2003 $14,241 $ - $ 438 $31,171 $45,850
Balance at
September 28,
2002 $14,241 $ - $ 438 $31,171 $45,850
There were no changes in the carrying amount of goodwill for the year
ended September 27, 2003.
Reported net income, exclusive of amortization expense that is related
to goodwill that is no longer being amortized, would have been:
Fiscal year ended
September September September
2003 2002 2001
Reported net earnings $19,902 $18,113 $11,876
Add back: Goodwill amortization - - 1,674
Adjusted net earnings $19,902 $18,113 $13,550
Basic earnings per share:
Reported net earnings $ 2.26 $ 2.07 $ 1.40
Goodwill amortization - - .19
Adjusted net earnings $ 2.26 $ 2.07 $ 1.59
Diluted earnings per share:
Reported net earnings $ 2.20 $ 1.99 $ 1.36
Goodwill amortization - - .19
Adjusted net earnings $ 2.20 $ 1.99 $ 1.55
NOTE G - ACCRUED LIABILITIES
Included in accrued liabilities is accrued compensation
of $6,133,000 and $6,121,000 as of September 27, 2003
and September 28, 2002, respectively.
NOTE H - LONG-TERM DEBT
Our general-purpose bank credit line agreement provides
fora $50,000,000 revolving credit facility repayable in
December 2004, with the availability of repayments without
penalty. The agreement contains restrictive covenants and
requires commitment fees in accordance with standard
banking practice. As of September 27, 2003 and September
28, 2002, there were no outstanding balances under this
facility.
We self-insure, up to loss limits, certain insurable risks
such as worker's compensation and automobile liability
claims. Accruals for claims under our self-insurance
program are recorded on a claim- incurred basis. Under this
program, the estimated liability for claims incurred but
unpaid in fiscal year 2003 and 2002 was $1,700,000 and
$1,100,000, respectively. In connection with certain self-
insurance agreements, we customarily enter into letters of
credit arrangements with our insurers. At September 27,
2003 and September 28, 2002, we had outstanding letters of
credit totaling approximately $5,900,000 and $4,800,000,
respectively.
NOTE I - INCOME TAXES
Income tax expense is as follows:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Current
U.S. Federal $ 7,790 $7,510 $5,042
Foreign 66 43 96
State 770 769 653
$ 8,626 $8,322 $5,791
Deferred
U.S. Federal $ 2,360 $1,450 $ 816
State 208 128 72
2,568 1,578 888
$11,194 $9,900 $6,679
The provisions for income taxes differ from the amounts computed by
applying the federal income tax rate of approximately 35% to earnings
before income taxes for the following reasons:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Income taxes at statutory rates $10,649 $9,753 $6,309
Increase (decrease) in
taxes resulting from:
State income taxes, net of federal
income tax benefit 636 552 360
Other, net (91) (405) 10
$11,194 $9,900 $6,679
Deferred tax assets and liabilities consist of the following:
September 27, September 28,
2003 2002
(in thousands)
Deferred tax assets
Vacation accrual $ 601 $ 531
Insurance accrual 1,099 1,068
Deferred income 409 168
Allowances 873 1,310
Other, net 434 297
3,416 3,374
Deferred tax liabilities
Depreciation of property
and equipment 16,682 14,072
Other, net 108 108
16,790 14,180
$13,374 $10,806
NOTE J - LEASE COMMITMENTS
1. Lease Commitments
The following is a summary of approximate future minimum
rental commitments for noncancelable operating leases
with terms of more than one year as of September 27,
2003:
Plants and
Offices Equipment Total
(in thousands)
2004 $ 4,864 $3,204 $ 8,068
2005 4,151 1,889 6,040
2006 3,637 1,589 5,226
2007 3,159 890 4,049
2008 and thereafter 16,309 472 16,781
$32,120 $8,044 $40,164
Total rent expense was $9,991,000, $10,017,000 and
$10,537,000 for fiscal years 2003, 2002 and 2001,
respectively.
2. Other Commitments
We are a party to litigation which management currently
believes will not have a material adverse effect on our
financial condition or results of operations.
We self-insure, up to loss limits, certain insurable
risks such as worker's compensation and automobile
liability claims. Accruals for claims under our self-
insurance program are recorded on a claim- incurred
basis. Under this program, the estimated liability for
claims incurred but unpaid in fiscal year 2003 and 2002
was $1,700,000 and $1,100,000, respectively. In
connection with certain self-insurance agreements, we
customarily enter into letters of credit arrangements
with our insurers. At September 27, 2003 and September
28, 2002, we had outstanding letters of credit totaling
approximately $5,900,000 and $4,800,000, respectively.
NOTE K - CAPITAL Stock
Under our current share repurchase program authorized by
the Board of Directors, 478,000 shares remain to be
repurchased as of September 27, 2003. In fiscal year
2003, we purchased and retired 297,000 shares of our
common stock at a cost of $8,565,000. In fiscal year
2001, we purchased and retired 111,000 shares of our
common stock at a cost of $1,431,000.
NOTE L - STOCK OPTIONS
We have a Stock Option Plan (the ''Plan''). Pursuant to the
Plan, stock options may be granted to officers and our key
employees which qualify as incentive stock options as well
as stock options which are nonqualified. The exercise price
of incentive stock options is at least the fair market
value of the common stock on the date of grant. The
exercise price for nonqualified options is determined by a
committee of the Board of Directors. The options are
generally exercisable after three years and expire no later
than ten years from date of grant. There were 400,000
shares reserved under the Plan; options for 320,000 shares
remain unissued as of September 27, 2003.
A summary of the status of our option plans as of fiscal
years 2003, 2002 and 2001 and the changes during the
years ended on those dates is represented below:
Incentive Stock Options Nonqualified
Stock Options
Weighted- Weighted-
Stock Average Stock Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
Balance, October 1, 2000 915,294 $14.92 356,000 $13.99
Granted 182,333 21.24 34,000 20.60
Exercised (195,800) 10.80 (34,000) 12.00
Cancelled (21,000) 15.10 - -
Balance, September 29, 2001 880,827 17.08 356,000 14.75
Granted 81,333 38.21 34,000 39.53
Exercised (239,583) 14.19 (34,000) 10.75
Cancelled (25,386) 19.96 - -
Balance, September 28, 2002 697,191 20.40 356,000 17.55
Granted 80,000 33.83 - -
Exercised (118,456) 16.86 (37,000) 13.63
Cancelled (53,106) 24.05 - -
Balance, September 27, 2003 605,629 $22.55 319,000 $18.00
Exercisable Options,
September 27, 2003 297,621 319,000
The weighted-average fair value of incentive options
granted during fiscal years ended September 27, 2003,
September 28, 2002 and September 29, 2001 was $14.15,
$15.39 and $8.19, respectively. The weighted-average fair
value of nonqualified stock options granted during fiscal
years ended September 28, 2002 and September 29, 2001 was
$23.93 and $12.22, respectively.
The following table summarizes information about incentive
stock options outstanding at September 27, 2003:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted
Range of At Remaining Average At Average
Exercise Sept. 27, Contractual Exercise Sept. 27, Exercise
Prices 2003 Life Price 2003 Price
$12.75-$19.00 164,750 6.95 years $13.41 159,750 $13.34
$19.38-$24.16 301,485 4.62 years $21.41 137,871 $21.63
$33.70-$38.48 139,394 4.58 years $35.81 -
605,629 297,621
The following table summarizes information about nonqualified stock
options outstanding at September 27, 2003:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted
Range of At Remaining Average At Average
Exercise Sept. 27, Contractual Exercise Sept. 27, Exercise
Prices 2003 Life Price 2003 Price
$11.00-$15.94 183,000 2.87 years $12.59 183,000 $12.59
$19.25-$21.75 102,000 5.93 years $20.53 102,000 $20.53
$39.53 34,000 8.60 years $39.53 34,000 $39.53
319,000 319,000
NOTE M - 401(k) PROFIT-SHARING PLAN
We maintain a 401(k) profit-sharing plan for our
employees. Under this plan, we may make discretionary
profit-sharing and matching 401(k) contributions.
Contributions of $1,071,000, $1,051,000 and $866,000
were made in fiscal years 2003, 2002 and 2001,
respectively.
NOTE N - CASH FLOW INFORMATION
The following is supplemental cash flow information:
Fiscal year ended
September 27, September 28, September 29,
2003 2002 2001
(in thousands)
Cash paid for:
Interest $ 138 $ 1,068 $2,966
Income taxes 7,321 10,429 344
NOTE O - SEGMENT REPORTING
We principally sell our products to the food service and
retail supermarket industries. We also distribute our
products directly to the consumer through our chain of
retail stores referred to as The Restaurant Group. Sales
and results of our frozen beverages business are
monitored separately from the balance of our food
service business and restaurant group because of
different distribution and capital requirements. We
maintain separate and discrete financial information for
the four operating segments mentioned above which is
available to our Chief Operating Decision Makers. We
have applied no aggregate criteria to any of these
operating segments in order to determine reportable
segments.
Our four reportable segments are Food Service, Retail
Supermarkets, The Restaurant Group and Frozen Beverages.
All inter-segment net sales and expenses have been
eliminated in computing net sales and operating income
(loss). These segments are described below.
Food Service The primary products sold to the food
service group are soft pretzels, frozen juice treats and
desserts, churros and baked goods. Our customers in the
food service industry include snack bars and food stands
in chain, department and discount stores; malls and
shopping centers; fast food outlets; stadiums and sports
arenas; leisure and theme parks; convenience stores;
movie theatres; warehouse club stores; schools, colleges
and other institutions. Within the food service
industry, our products are purchased by the consumer
primarily for consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket
industry are soft pretzel products, including
SUPERPRETZEL, LUIGI'S Real Italian Ice, MINUTE MAID*
Juice Bars and Soft Frozen Lemonade, ICEE Squeeze Up
Tubes and TIO PEPE'S Churros. Within the retail
supermarket industry, our frozen and prepackaged
products are purchased by the consumer for consumption
at home.
The Restaurant Group
We sell direct to the consumer through our Restaurant
Group, which operates BAVARIAN PRETZEL BAKERY and
PRETZEL GOURMET, our chain of specialty snack food
retail outlets.
Frozen Beverages
We sell frozen beverages to the food service industry,
including our restaurant group, primarily under the
names ICEE and ARCTIC BLAST in the United States, Mexico
and Canada.
The Chief Operating Decision Maker for Food Service,
Retail Supermarkets and The Restaurant Group and the
Chief Operating Decision Maker for Frozen Beverages
monthly review and evaluate operating income and sales
in order to assess performance and allocate resources to
each individual segment. In addition, the Chief
Operating Decision Makers review and evaluate
depreciation, capital spending and assets of each
segment on a quarterly basis to monitor cash flow and
asset needs of each segment. Information regarding the
operations in these four reportable segments is as
follows:
Fiscal year ended
Sept. 27, Sept. 28, Sept. 29,
2003 2002 2001
(in thousands)
Sales to external customers:
Food Service $200,528 $185,219 $171,373
Retail Supermarket 39,702 41,366 39,076
The Restaurant Group 9,755 10,724 12,043
Frozen Beverages 114,582 115,878 105,843
$364,567 $353,187 $328,335
Depreciation and Amortization(1):
Food Service $ 13,098 $ 13,547 $ 13,832
Retail Supermarket - - -
The Restaurant Group 558 682 854
Frozen Beverages 11,307 16,757 16,217
$ 24,963 $ 30,986 $ 30,903
Operating Income (Loss)(1):
Food Service $ 17,804 $ 17,382 $ 15,103
Retail Supermarket 2,144 1,936 1,770
The Restaurant Group (975) (915) (1,450)
Frozen Beverages 11,874 9,863 8,359
$ 30,847 $ 28,266 $ 23,782
Capital Expenditures:
Food Service $ 9,929 $ 11,418 $ 6,673
Retail Supermarket - - -
The Restaurant Group 61 159 268
Frozen Beverages 9,302 8,902 10,186
$ 19,292 $ 20,479 $ 17,127
Assets:
Food Service $151,000 $129,702 $124,951
Retail Supermarket - - -
Frozen Beverages 83,491 87,413 95,498
$236,683 $220,036 $224,481
*MINUTE MAID is a registered trademark of The Coca-Cola
Company.
(1) 2001 depreciation and amortization expense excludes
amortization expense associated with goodwill.
NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal year ended September 27, 2003
Net
Earnings
Net Per Diluted
Net Sales Gross Profit Earnings Share(1)
(in thousands, except per share information)
1st Quarter $77,244 $ 22,065 $ 1,201 $ .13
2nd Quarter 81,408 26,876 3,001 .33
3rd Quarter 102,529 38,383 7,808 .87
4th Quarter 103,386 37,521 7,892 .88
Total $364,567 $124,845 $19,902 $ 2.21
Fiscal year ended September 28, 2002
Net
Earnings
Net Per Diluted
Net Sales Gross Profit Earnings Share(1)
(in thousands, except per share information)
1st Quarter $ 74,797 $ 22,044 $ 822 $ .09
2nd Quarter 77,712 25,156 2,336 .25
3rd Quarter 100,628 36,430 7,518 .80
4th Quarter 100,050 35,827 7,437 .81
Total $353,187 $119,457 $18,113 $ 1.95
(1) Total of quarterly amounts does not necessarily
agree to the annual report amounts due to separate
quarterly calculations of weighted average shares
outstanding.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
J&J Snack Foods Corp.
We have audited the accompanying consolidated balance
sheets of J&J Snack Foods Corp. and Subsidiaries as of
September 27, 2003 and September 28, 2002, and the
related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the
fiscal years in the three-year period ended September
27, 2003 (52 weeks, 52 weeks and 52 weeks,
respectively). These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe
that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of J&J Snack Foods Corp.
and Subsidiaries as of September 27, 2003 and September
28, 2002, and the consolidated results of their
operations and their consolidated cash flows for each of
the fiscal years in the three-year period ended
September 27, 2003 in conformity with accounting
principles generally accepted in the United States of
America.
Grant Thornton LLP Philadelphia, Pennsylvania November
5, 2003
CORPORATE INFORMATION
Directors
Gerald B. Shreiber
Chairman of the Board, President
and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and
Chief Operating Officer
Sidney R. Brown (1), (2)
Chief Executive Officer,
NFI Industries
Peter G. Stanley (1), (2)
Vice President,
Emerging Growth Equities, Ltd.
Leonard M. Lodish, Ph.D. (1), (2)
Samuel R. Harrell Professor,
Marketing Department of the Wharton School,
University of Pennsylvania
Officers
Gerald B. Shreiber
Chairman of the Board, President
and Chief Executive Officer
Dennis G. Moore
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert M. Radano
Senior Vice President and
Chief Operating Officer
Michael Karaban
Senior Vice President, Marketing
Paul L. Hirschman
Vice President, Information Systems
Officers of Subsidiary Companies
J&J SNACK FOODS Sales CORP.
John Duckett
Vice President, Service & Assembly
Anthony P. Harrison II
Vice President, Quality Control and
Research & Development
H. Robert Long
Vice President, Distribution
Harry A. McLaughlin
Vice President, Controller
Robert J. Pape
Vice President, Sales-Retail
Milton L. Segal
Vice President, Purchasing
Steven J. Taylor
Vice President, Sales - Food Service
Thomas Weber
Vice President, Operations
MIA PRODUCTS
T.J. Couzens
Vice President/General Manager
THE ICEE COMPANY
Dan Fachner
President
Kent Galloway
Vice President and
Chief Financial Officer
Joe Boulanger
Vice President/General
Manager Western Zone
Lou Fiorentino
Vice President/General Manager
Eastern Zone
Rick Naylor
Vice President/General Manager
Central Zone
Rod Sexton Vice
President of Service Operations
Susan Woods
Vice President, Marketing
ICEE DE MEXICO, S.A. DE C.V.
Andres Gonzalez
Vice President
PRETZELS, INC.
Gary Powell President
(1) Audit Committee Member.
(2) Compensation Committee Member.
Quarterly Common Stock Data
Market Price
Fiscal 2003 High Low
1st Quarter $40.25 $30.27
2nd Quarter 37.85 25.31
3rd Quarter 34.00 28.65
4th Quarter 37.67 29.33
Fiscal 2002 High Low
1st Quarter $26.25 $18.10
2nd Quarter 40.40 23.22
3rd Quarter 45.15 32.42
4th Quarter 44.97 34.85
Stock Listing
The common stock of J&J Snack Foods Corp. is traded on
the NASDAQ National Market System with the symbol JJSF.
Transfer Agent and Registrar American Stock Transfer &
Trust Company New York, NY
Independent Accountants
Grant Thornton LLP Philadelphia, PA
Counsel
Blank Rome LLP
Cherry Hill, NJ
Annual Meeting
The Annual Meeting of Shareholders is scheduled for
Thursday, February 5, 2004 at 10:00 a.m. at the Hilton
at Cherry Hill, 2349 W. Marlton Pike, Cherry Hill, NJ.
Form 10 - K
Copies of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K may be obtained
without charge by writing to:
J&J Snack Foods Corp.
6000 Central Highway
Pennsauken, NJ 08109
Attention: Dennis G. Moore
or by accessing our website, www.jjsnack.com, on which
our SEC filings are made available on the same day as
filed or by going to the SEC's Public Reference Room to
read and copy filings or by accessing the SEC's website,
www.sec.gov.
website
www.jjsnack.com
There's only one conclusion:
Snack foods and beverages from J&J are simply sense-
ational!
Yum-m-m.
J&J Snack Foods
6000 Central Highway
Pennsauken, NJ 08109
(856) 665-9533
www.jjsnack.com
EXHIBIT 14.0 - CODE OF ETHICS
J&J SNACK FOODS CORP.
(THE ''CORPORATION'')
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER
OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS AND
OTHER DESIGNATED OFFICERS AND EMPLOYEES
I. Covered Officers/Purpose of the Code
This code of ethics (this ''Code'') for the Corporation
applies to principal executive officer, principal financial
officer, principal accounting officer or controller, or
persons performing similar functions or other designated
officers and employees of the Corporation and its subsidiaries
(collectively, the ''Covered Officers'' each of
whom is set forth in Exhibit A) for the purpose of
promoting:
. 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 a
registrant files with, or submits to, the
Securities and Exchange Commission (''SEC'') and in
other public communications made by the
Corporation;
. compliance with applicable laws and governmental
rules and regulations;
. the prompt internal reporting of violations of
the Code to an appropriate person or persons
identified in the Code; and
. accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of
business ethics and should be sensitive to situations that
may give rise to actual as well as apparent conflicts of
interest.
64
II. Covered Officers Should Handle Ethically Actual and
Apparent Conflicts of Interest
Overview. A ''conflict of interest'' occurs when a
Covered Officer's private interest interferes with the
interests of, or his service to, the Corporation. For
example, a conflict of interest would arise if a Covered
Officer or a member of his family, receives improper
personal benefits as a result of his position in the
Corporation.
The following list provides examples of conflicts of
interest under the Code, but Covered Officers should keep
in mind that these examples are not exhaustive. The
overarching principle is that the personal interest of a
Covered Officer should not be placed improperly before the
interest of the Corporation.
* * * *
Each Covered Officer must:
. not use his personal influence or personal
relationships improperly to influence investment
decisions or financial reporting by the
Corporation whereby the Covered Officer would
benefit personally to the detriment of the
Corporation;
. not cause the Corporation to take action, or fail
to take action, for the individual personal
benefit of the Covered Officer rather than for
the benefit of the Corporation; and
. not use material non-public knowledge of
portfolio transactions made or contemplated for
the Corporation to trade personally or cause
others to trade personally in contemplation of the
market effect of such transactions.
There are some conflict of interest situations that
should be discussed with the Corporation's Chairman of the
Audit Committee (the ''Chairman''). Examples of these include: (1)
(1) Any activity or relationship that would present a
conflict for a Covered Officer would likely also
present a conflict for the Covered Officer if a member
of the Covered Officer's family engages in such an
activity or has such a relationship.
65
. service as director on the board of any public or
private company;
. the receipt of any non-nominal gifts from any
person or company with which the Corporation has
current or
. prospective business dealings. For purposes of
this Code, ''non-nominal'' are those gifts in
excess of the current National Association of
Securities Dealers limit of $100;
. the receipt of any entertainment from any company
with which the Corporation has current or
prospective business dealings, unless such
entertainment is business-related, reasonable in
cost, appropriate as to time and place, and not
so frequent as to raise any question of
impropriety;
. a direct or indirect financial interest in
commissions, transaction charges or spreads paid
by the Corporation for effecting portfolio
transactions or for selling or repurchasing
shares other than an interest arising from the
Covered Officer's employment, such as
compensation or equity ownership.
III. Disclosure & Compliance
. each Covered Officer should be familiar with the
disclosure requirements generally applicable to
the Corporation;
. each Covered Officer should not knowingly
misrepresent, or cause others to misrepresent,
facts about the Corporation to others, whether
within or outside the Corporation, including to
the Corporation's directors and auditors, and to
governmental regulators and self-regulatory
organizations;
. each Covered Officer should, to the extent
appropriate within his area of responsibility,
consult with other officers and employees of the
Corporation and the Corporation's adviser or
subadviser with the goal of promoting full, fair,
accurate, timely and understandable disclosure in
the reports and documents the Corporation files
with, or submits to, the SEC and in other public
communications made by the Corporation; and
66
. it is the responsibility of each Covered Officer
to promote compliance with the standards and
restrictions imposed by applicable laws, rules
and regulations.
IV. Reporting and Accountability
Each Covered Officer must:
. upon adoption of the Code (or thereafter as
applicable, upon becoming a Covered Officer),
affirm in writing to the Board that he has
received, read, and understands the Code;
. annually thereafter affirm to the Board that he
has complied with the requirements of the Code;
. not retaliate against any employee or Covered
Officer or their affiliated persons for reports
of potential violations that are made in good
faith;
. notify the Chairman promptly if he knows of any
violation of this Code. Failure to do so is
itself a violation of this Code, and
. report at least annually any change in his
affiliations from the prior year.
The Chairman is responsible for applying this Code to
specific situations in which questions are presented under
it and has the authority to interpret this Code in any
particular situation. However, notwithstanding the
foregoing, the Audit Committee (the ''Committee'') is
responsible for granting waivers and determining sanctions,
as appropriate, and any approvals, interpretations or
waivers sought by a Covered Officer will be considered by
the Committee.
The Corporation will follow these procedures in
investigating and enforcing this Code:
. the Chairman will take any action he considers
appropriate to investigate any actual or
potential violations reported to him;
. if, after such investigation, the Chairman
believes that no violation has occurred, the
Chairman shall meet with the person reporting the
67
violation for the purposes of informing such
person of the reason for not taking action;
. any matter that the Chairman believes is a
violation will be reported to the Committee;
. if the Committee concurs that a violation has
occurred, it will inform and make a
recommendation to the Board, which will consider
appropriate action, which may include review of,
and appropriate modifications to, applicable
policies and procedures; or dismissal of the
Covered Officer as an officer or employee of the
Corporation;
. the Committee will be responsible for granting
waivers, as appropriate; and
. any changes to or waivers of this Code will, to
the extent required, be disclosed as provided by
SEC rules.
The Committee, in determining whether waivers should
be granted and whether violations have occurred, and the
Chairman, in rendering decisions and interpretations and in
conducting investigations of potential violations under the
Code, may, at their discretion, consult with such other
persons as they may determine to be appropriate, including,
but not limited to, counsel to the Corporation, independent
auditors or other consultants, subject to any requirement
to seek pre-approval from the Corporation's Committee for
the retention of independent auditors to perform
permissible non-audit services.
V. Waivers
A Covered Officer may request a waiver of any of the
provisions of this Code by submitting a written request for
such waiver to the Committee setting forth the basis for
such request and explaining how the waiver would be
consistent with the standards of conduct described herein.
The Committee shall review such request and make a
determination thereon in writing, which shall be binding.
In determining whether to waive any provisions of this
Code, the Committee shall consider whether the proposed
waiver is consistent with honest and ethical conduct.
The Chairman shall submit an annual report to the Board
regarding waivers granted.
68
VI. Other Policies and Procedures
This Code shall be the sole code of ethics adopted by the
Corporation for purposes of Section 406 of the Sarbanes-
Oxley Act and the rules and forms applicable to it
thereunder.
VII. Amendments
Any amendments to this code, other than amendments to
Exhibit A, must be approved or ratified by a majority vote
of the Corporation's board, including a majority of
independent directors.
VIII. Confidentiality
All reports and records prepared or maintained pursuant to
this Code will he considered confidential and shall be
maintained and protected accordingly. Except as otherwise
required by law or this Code, such matters shall not be
disclosed to anyone other than the Board and its counsel,
or independent auditors or other consultants referred to
in Section IV above.
IX. Internal Use
The Code is intended solely for the internal use by the
Corporation and does not constitute an admission by or on
behalf of any person, as to any fact, circumstance, or
legal conclusion.
Date: December 1, 2003
69
Exhibit A
(as December 1, 2003)
Principal Executive Officer: Gerald Shreiber
Principal Accounting Officer or person performing similar
functions: Dennis G. Moore
Other Designated Officers and Employees:
Tom Weber Al Weber
Jack Manderbaugh Tony Wilburn
Frank Shreiber Cory Couch
Reggie Santos Russ Wylie
Bob Long Phil Heffelfinger
Chuck Chivis Tom Conley
Rich Bezila Tom Hunter
Wayne Childs Ed Townsend
Ray Lucier Tom Hunter
Ernest Fogle Helene Merrion
Frank Coy Henry Anderson
John Dubas Patricia Ford
John Lewandoski Deborah Fritchman
Scott Ambruster Paul Tames
Eric Bliss Andy Levin
Gerard Law Alan Murphy
Leong Chai Tan Jerry Lockridge
Alma Bickham Sergio Leal
Leroy Lovier Marco Poblano
Dan Fachner Kent Galloway
Rod Sexton Joe Boulanger
Rick Naylor Frank Fiorentino
Mark Winterhalter Susan Woods
David Lauder Debra McKeon
Debra Todd Kathleen Moeller
Roy McKenzie Jane Sommers
Gary Powell Brenda Whitman
Jeff Radanof John Paul
Paul Hirschman Harry Fronjian
Harry McLaughlin Thomas Couzens
70
EXHIBIT 22.1 - SUBSIDIARIES OF J & J SNACK FOODS CORP.
Place of
Incorporation
J & J Snack Foods Investment Corp. Delaware
The ICEE Company Delaware
J & J Snack Foods Corp. of California California
J & J Snack Foods Corp./Midwest Illinois
J & J Snack Foods Corp./Mia Pennsylvania
J & J Snack Foods Corp. of Pennsylvania Pennsylvania
J & J Snack Foods Sales Corp. New Jersey
J & J Snack Foods Sales Corp. of Texas Texas
J & J Snack Foods Transport Corp. New Jersey
ICEE-Canada, Inc. Canada
ICEE de Mexico, S.A. De C.V. Mexico
J & J Restaurant Group, LLC
Bakers Best Snack Food Corp. Pennsylvania
Pretzels, Inc. Texas
Federal PBC Company Pennsylvania
71
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 5, 2003
accompanying the consolidated financial statements and
schedule incorporated by reference or included in the
Annual Report of J & J Snack Foods Corp. and Subsidiaries
on Form 10-K for the year ended September 27, 2003. We
hereby consent to the incorporation by reference of said
reports in the Registration Statement of J & J Snack Foods
Corp. and Subsidiaries on Forms S-8 (File No. 333-94795,
effective January 18, 2000, File No. 333-03833, effective
May 16, 1996, File No. 33-87532, effective December 16,
1994 and File No. 33-50036, effective July 24, 1992).
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
December 18, 2003
72
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-K 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;
21
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 fourth 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
22
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-K 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;
23
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 fourth 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
24
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 Annual Report of the Company on Form 10-K
for the year ended September 27, 2003 (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.
73