UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 27, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (609) 665-9533
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
As of July 15, 1998, there were 9,028,120 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 27, 1998 and
September 27, 1997................................. 3
Consolidated Statements of Earnings - Three Months and
Nine Months Ended June 27, 1998 and June 28, 1997.. 5
Consolidated Statements of Cash Flows - Nine Months
Ended June 27, 1998 and June 28, 1997.............. 6
Notes to the Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................. 15
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 27, September 27,
1998 1997
(Unaudited)
Current assets
Cash and cash equivalents $ 2,740,000 $ 1,401,000
Accounts receivable 31,367,000 25,458,000
Inventories 16,462,000 13,535,000
Prepaid expenses and deposits 1,470,000 853,000
52,039,000 41,247,000
Property, plant and equipment,
at cost
Land 839,000 819,000
Buildings 5,432,000 5,340,000
Plant machinery and equipment 61,236,000 51,891,000
Marketing equipment 127,735,000 90,988,000
Transportation equipment 2,205,000 1,856,000
Office equipment 5,233,000 4,792,000
Improvements 8,287,000 7,837,000
Construction in progress 984,000 825,000
211,951,000 164,348,000
Less accumulated depreciation
and amortization 108,726,000 97,126,000
103,225,000 67,222,000
Other assets
Goodwill, trademarks and rights,
less accumulated amortization 39,032,000 21,459,000
Long term investment securities
available for sale - 495,000
Long term investment securities
held to maturity 3,148,000 3,340,000
Sundry 6,970,000 3,064,000
49,150,000 28,358,000
$204,414,000 $136,827,000
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND June 27, September 27,
STOCKHOLDERS' EQUITY 1998 1997
(Unaudited)
Current liabilities
Current maturities of long-
term debt $ 8,312,000 $ 16,000
Accounts payable 22,825,000 13,315,000
Accrued liabilities 9,213,000 8,652,000
40,350,000 21,983,000
Long-term debt, less current
maturities 34,472,000 5,028,000
Revolving credit line 12,000,000 -
Deferred income 500,000 532,000
Deferred income taxes 3,385,000 3,380,000
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 5,000,000
shares; none issued - -
Common, no par value;
authorized, 25,000,000
shares; issued and
outstanding, 9,016,000 and
8,850,000, respectively 38,863,000 36,908,000
Foreign currency translation
adjustment (1,568,000) (1,409,000)
Retained earnings 76,412,000 70,405,000
113,707,000 105,904,000
$204,414,000 $136,827,000
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Nine months ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
Net Sales $73,276,000 $63,448,000 $184,335,000 $157,354,000
Cost of goods sold 34,750,000 32,404,000 91,303,000 80,771,000
Gross profit 38,526,000 31,044,000 93,032,000 76,583,000
Operating expenses
Marketing 21,496,000 17,764,000 55,536,000 47,826,000
Distribution 6,807,000 5,263,000 17,799,000 14,380,000
Administrative 2,257,000 2,619,000 7,273,000 6,797,000
Amortization of
intangibles and
deferred costs 730,000 451,000 1,939,000 1,233,000
31,290,000 26,097,000 82,547,000 70,236,000
Operating income 7,236,000 4,947,000 10,485,000 6,347,000
Other income (deductions)
Investment income 87,000 94,000 384,000 490,000
Interest expense (948,000) (111,000) (2,153,000) (326,000)
Sundry 1,111,000 83,000 819,000 116,000
Earnings before
income taxes 7,486,000 5,013,000 9,535,000 6,627,000
Income taxes 2,770,000 1,855,000 3,528,000 2,452,000
NET EARNINGS $ 4,716,000 $ 3,158,000 $ 6,007,000 $ 4,175,000
Earnings per diluted
share $.50 $.35 $.64 $.47
Weighted average number
of diluted shares 9,455,000 9,005,000 9,315,000 8,920,000
Earnings per basic
share $.52 $.36 $.67 $.48
Weighted average number
of basic shares 8,994,000 8,776,000 8,918,000 8,763,000
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
June 27, June 28,
1998 1997
Cash flows from operating activities:
Net earnings $ 6,007,000 $ 4,175,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of fixed
assets 16,101,000 1 2,532,000
Amortization of intangibles and deferred
costs 2,318,000 1,454,000
Other adjustments 217,000 -
Changes in assets and liabilities, net of
effects from purchase of companies
Increase in accounts receivable (3,114,000) (10,209,000)
Decrease (increase) in inventories 406,000 (1,803,000)
(Increase) decrease in prepaid expenses (314,000) 264,000
Increase in accounts payable and
accrued liabilities 6,273,000 6,394,000
Net cash provided by operating activities 27,894,000 12,807,000
Cash flows from investing activities:
Purchases of property, plant and equipment (23,271,000) (14,147,000)
Payments for purchase of companies, net of
cash acquired and debt assumed (12,200,000) (18,873,000)
Proceeds from investments held to maturity 175,000 6,116,000
Proceeds from investments available for sale 495,000 1,710,000
Other 498,000 (18,000)
Net cash used in investing activities (34,303,000) (25,212,000)
Cash flows from financing activities:
Proceeds from borrowings 53,120,000 1,500,000
Proceeds from issuance of common stock 1,955,000 396,000
Payments of long-term debt (47,327,000) (6,000)
Net cash used in financing activities 7,748,000 1,890,000
Net increase (decrease) in cash and
cash equivalents 1,339,000 (10,515,000)
Cash and cash equivalents at beginning of period 1,401,000 10,547,000
Cash and cash equivalents at end of period $ 2,740,000 $ 32,000
See accompanying notes to the consolidated financial statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments)
necessary to present fairly the financial position and
the results of operations and cash flows.
The results of operations for the three months and nine
months ended June 27, 1998 and June 28, 1997 are not
necessarily indicative of results for the full year.
Sales of the Company's retail stores are generally higher
in the first quarter due to the holiday shopping season.
Sales of the Company's frozen carbonated beverages and
Italian ice products are generally higher in the third
and fourth quarters due to seasonal factors.
While the Company believes that the disclosures presented
are adequate to make the information not misleading, it
is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial
statements and the notes included in the Company's Annual
Report on Form 10-K for the year ended September 27,
1997.
Note 2 The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," which eliminates primary and fully diluted
earnings per share and requires presentation of basic and
diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to
common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per
share take into account the potential dilution that could
occur if securities or other contracts to issue common
stock were exercised and converted into common stock.
Earnings per share calculations for 1997 have been
restated to reflect the adoption of SFAS No. 128.
The Company's calculation of earnings per share in
accordance with SFAS No. 128, "Earnings Per Share," is as
follows:
7
Three Months Ended June 27, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $4,716,000 8,994,000 $.52
Effect of Dilutive Securities
Options - 461,000 (.02)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $4,716,000 9,455,000 $.50
Nine Months Ended June 27, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $6,007,000 8,918,000 $.67
Effect of Dilutive Securities
Options - 397,000 (.03)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $6,007,000 9,315,000 $.64
Three Months Ended June 28, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $3,158,000 8,776,000 $.36
Effect of Dilutive Securities
Options - 229,000 (.01)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $3,158,000 9,005,000 $.35
8
Nine Months Ended June 28, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income available
to common stockholders $4,175,000 8,763,000 $.48
Effect of Dilutive Securities
Options - 157,000 (.01)
Diluted EPS
Net Income available to common
stockholders plus assumed
conversions $4,175,000 8,920,000 $.47
Note 3 Inventories consist of the following:
June 27, September 27,
1998 1997
Finished goods $ 9,131,000 $ 7,108,000
Raw materials 1,902,000 1,789,000
Packaging materials 2,247,000 2,262,000
Equipment parts & other 3,182,000 2,376,000
$16,462,000 $13,535,000
Note 4 The amortized cost, unrealized gains and losses, and fair
market values of the Company's long-term investment
securities held to maturity at June 27, 1998 are
summarized as follows:
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to Maturity Securities
Corporate Debt Securities $ 953,000 $36,000 $ - $ 989,000
Municipal Government Securities 1,695,000 24,000 - 1,719,000
Other 500,000 - - 500,000
$3,148,000 $60,000 $ - $3,208,000
The amortized cost, unrealized gains and losses, and fair market
values of the Company's long-term investment securities available for
sale and held to maturity at September 27, 1997 are summarized as
follows:
9
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Available for sale
Corporate debt securities $ 495,000 $ - $ - $ 495,000
Held to maturity securities
Corporate debt securities $ 970,000 $19,000 $ - $ 989,000
Municipal government securities 1,870,000 3,000 (8,000) 1,865,000
Other debt securities 500,000 - - 500,000
$3,340,000 $22,000 $ (8,000) $3,354,000
Note 5 To fund the acquisition of National ICEE Corporation in
December 1997, and to retire most of its debt, the Company
incurred the following debt:
$40,000,000 unsecured term note, at an interest rate of
6.61% fixed through swap agreements, with 60 monthly
principal payments of $666,667 plus interest beginning
January 8, 1998. At June 27, 1998, $8,000,000 of the note
was classified under current maturities of long-term debt.
At June 27, 1998, the balance on the note was $36,000,000.
$10,000,000 borrowing under a $30,000,000 unsecured general
purpose bank line of credit. Interest payments on the
balance borrowed under the line are made monthly. The
interest rate on the outstanding borrowings under the line
was 6.16% at June 27, 1998. At June 27, 1998, $12,000,000
in borrowings was classified as a long-term liability.
10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's cash expected to be provided by future operations
and its available lines of credit are its primary sources of short-
term liquidity. The Company believes that these sources, along with
its borrowing capacity, are sufficient to fund future growth and
expansion.
In the nine months ended June 27, 1998, the devaluation of the
Mexican peso caused a reduction of $159,000 in stockholders' equity
because of the revaluation of the net assets of the Company's Mexican
frozen carbonated beverage subsidiary.
In December 1997, the Company acquired the common stock of
National ICEE Corporation, a marketer and distributor of frozen
carbonated beverages under the tradename ICEE, with approximate
annual sales of $40,000,000. As a result of the acquisition, the
Company now has the rights to market and distribute frozen carbonated
beverages under the name ICEE to all of the continental United
States, except for portions of eleven states.
The purchase price paid to the former shareholders of National
ICEE Corporation was $9,000,000 in the form of cash. Additionally,
the Company assumed approximately $44,000,000 of debt, of which
approximately $42,000,000 was retired at closing. The source of cash
utilized to retire the debt and to fund the purchase price was a
$40,000,000 unsecured term loan and an unsecured revolving line of
credit with the Company's existing banks.
In January 1997, the Company acquired the assets of Mama Tish?s
International Foods for the assumption of some of its liabilities.
Mama Tish is a manufacturer and distributor of Italian ices, sorbets
and other frozen juice products with annual sales of approximately
$15 million.
In November 1996, the Company acquired all of the common stock of
Pretzels, Inc. for cash. Trading as Texas Twist, Pretzels, Inc. is a
soft pretzel manufacturer selling to both the food service and retail
supermarket industries with annual sales of approximately $1.4
million.
In October 1996, the Company acquired the assets of Bakers Best
Snack Foods Corp. for cash. Bakers Best is a manufacturer of soft
pretzels selling to both the food service and retail supermarket
industries with annual sales of approximately $4 million.
Available to the Company are unsecured general purpose bank lines
of credit totaling $30,000,000. Borrowings under the lines at June
27, 1998 were $12,000,000.
11
Results of Operations
Net sales increased $9,828,000 or 15% to $73,276,000 for the
three months and $26,981,000 or 17% to $184,335,000 for the nine months
ended June 27, 1998 compared to the nine months ended June 28, 1997.
Excluding sales of acquired businesses, net sales decreased
approximately $400,000 or less than 1% for the three months
and increased approximately $5,200,000 or 3% for the nine months.
Sales to food service customers decreased $1,651,000 or 6% in the
third quarter to $28,289,000 and were essentially unchanged for the
nine months. Excluding sales of acquired businesses, sales to food
service customers decreased $1,651,000 or 6% for the quarter and
decreased $1,132,000 or 1% for the nine months. Soft pretzel sales
to the food service market increased 8% to $15,371,000 in the third
quarter and 4% to $45,184,000 in the nine months. Increased sales of
soft pretzels to one customer in the third quarter accounted for
approximately 40% of the third quarter sales increase and 30% of the
nine month sales increase. Excluding sales of acquired businesses,
food service soft pretzel sales increased $1,188,000 or 8% in the
third quarter and increased $1,467,000 or 3% in the nine month
period. Italian ice and frozen juice treat and dessert sales
decreased 29% to $8,099,000 in the three months and 15% to
$17,493,000 in the nine months. Decreased sales to three customers
during the three months accounted for essentially all of the third
quarter and nine month sales decrease, respectively. Excluding sales
of an acquired business, the sales decrease was $3,264,000 or 29% in
the third quarter and $3,828,000 or 19% in the nine month period.
Churro sales to food service customers increased 7% to $3,017,000 in
the third quarter and 7% to $8,212,000 in the nine months.
Sales of products to retail supermarkets decreased $660,000 or 6%
to $10,445,000 in the third quarter and 6% to $26,999,000 in the nine
months. Excluding sales of acquired businesses, sales to retail
supermarkets were down 6% in the quarter and 8% for the nine months.
Soft pretzel sales for the third quarter were down 3% and for the
nine months were down 13% from last year to $4,766,000 and $16,423,000,
respectively. SOFTSTIX sales increased $206,000 or 61% to $543,000
in the third quarter and $111,000 or 7% in the nine months. Sales of
the flagship SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX and
CINNAMON RAISIN, decreased 2% in the third quarter and 5% for the
nine months. Sales of Italian ice decreased $615,000 or 10% to
$5,264,000 in the third quarter and increased $223,000 or 2% to
$9,272,000 in the nine months. Sales were impacted by limited
production output during the expansion and modernization of the
Company's Italian ice and frozen dessert plant in Scranton, PA.
Excluding sales of an acquired business, Italian ice sales were down
2% for the nine months.
Frozen carbonated beverage and related product sales increased
$11,876,000 or 85% to $25,915,000 in the third quarter and
$23,823,000 or 76% to $55,165,000 in the nine months. Beverage and
beverage cup and lid sales alone
12
increased 87% in the third quarter and 72% in the nine months to
$23,341,000 and $48,655,000, respectively. Excluding sales resulting
from the acquisition of National Icee Corporation in December 1997,
frozen carbonated beverage and related product sales increased
$1,719,000 or 12% in the third quarter from last year and $3,800,000
or 12% in the nine months.
Bakery sales increased $97,000 or 2% to $5,644,000 in the third
quarter and $4,218,000 or 35% to $16,389,000 in the first nine months
due to increased product sales to one customer.
Sales of our Bavarian Pretzel Bakery increased 6% to $2,983,000
in the third quarter and 9% to $836,000 in the nine month period.
Excluding sales of an acquired business, sales were up 6% in the nine
months.
Gross profit as a percentage of sales increased to 53% and 50% in
the third quarter and nine months, respectively, from 49% in the
corresponding periods last period. The gross profit percentage
increases are primarily attributable to higher gross profit
percentages of the acquired National Icee Corporation business and
lower flour costs offset by higher manufacturing costs of
approximately $1,000,000 incurred during the startup of operations in
the third quarter at the Company's expanded Italian ice and frozen
dessert plant in Scranton, PA.
Total operating expenses increased $5,193,000 in the third
quarter and as a percentage of sales increased to 43% from 41% in
last year's same quarter. For the nine months, operating expenses
increased $12,311,000 and as a percentage of sales were 45% in both
years' periods. Marketing expenses increased to 29% of sales in this
year's third quarter from 28% last year and were 30% of sales in the
nine month period this year and last. Distribution expenses
increased to 9% of sales in this year's third quarter from 8% of
sales last year and to 10% of sales in this year's nine month period
from 9% in the year ago period. The increases in marketing and
distribution expenses as a percentage of sales were due to higher
operating expenses of the acquired National Icee Corporation
business. Administration expenses decreased to 3% of sales in the
third quarter from 4% in all other periods due primarily to higher
sales levels.
Operating income increased $2,289,000 or 46% to $7,236,000 in the
third quarter and $4,138,000 or 65% to $10,485,000 in the nine
months.
Investment income decreased 7% in the third quarter and 22% in
the nine months due to sharply lower levels of investable funds which
were used to pay for acquisitions. Interest expense increased
$837,000 and $1,827,000 in the quarter and nine months, respectively,
due to the assumption and subsequent refinancing of the debt of
National Icee Corporation.
13
Sundry income increased by $1,028,000 in the third quarter and
$703,000 in the nine months due to the successful settlement of
certain litigation. For the nine month period, sundry income was
offset by $419,000 in write offs and reserves for the closing down of
unprofitable retail stores of our Bavarian Pretzel Bakery.
The effective income tax rate has been estimated at 37% in all
periods reported.
Net earnings increased $1,558,000 or 49% in the current three
month period to $4,716,000 and $1,832,000 or 44% in the current nine
month period to $6,007,000. Excluding the impact of National Icee
Corporation, net earnings would have been approximately $4,200,000,
or 33% higher than last year in the third quarter and $6,500,000 or
56% higher than last year for the nine month period.
14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - There were no reports on Form 8-K
for the three months ended June 27, 1998.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: August 7, 1998 /s/ Gerald B. Shreiber
Gerald B. Shreiber
President
Dated: August 7, 1998 /s/ Dennis G. Moore
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
Dated: August 7, 1998
Gerald B. Shreiber
President
Dated: August 7, 1998
Dennis G. Moore
Senior Vice President and
Chief Financial Officer
16
5
1000
9-MOS
SEP-26-1998
JUN-27-1998
2740
0
32054
(687)
16462
52039
211951
(108726)
204414
40350
46472
0
0
38863
74844
204414
184335
184335
91303
82547
0
0
2153
9535
3528
6007
0
0
0
6007
0.67
0.64
5
1000
9-MOS
SEP-27-1997
JUN-28-1997
32
0
29958
(362)
14412
44803
161411
(93735)
139516
29190
5004
0
0
36374
64995
139516
157354
157354
80771
70236
0
0
326
6627
2452
4175
0
0
0
4175
0.48
0.47