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 December 30, 2006
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14616
J & J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1935537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Central Highway, Pennsauken, NJ 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
|X| Yes |_| No
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
|_| Yes |X| No
As of January 22, 2007, there were 18,540,788 shares of the Registrant's
Common Stock outstanding.
INDEX
Page
Number
------
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets - December 30, 2006 (unaudited) and
September 30, 2006 3
Consolidated Statements of Earnings (unaudited)- Three Months Ended
December 30, 2006 and December 24, 2005 5
Consolidated Statements of Cash Flows(unaudited)-
Three Months Ended December 30, 2006 and December
24, 2005 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20
Item 4. Controls and Procedures 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 30, September 30,
2006 2006
------------ -------------
(Unaudited)
Current assets
Cash and cash equivalents $ 22,042 $ 17,621
Marketable securities 53,125 59,000
Accounts receivable, net 44,449 53,663
Inventories 42,691 37,790
Prepaid expenses and other 1,793 1,457
Deferred income taxes 2,743 2,713
-------- --------
166,843 172,244
-------- --------
Property, plant and equipment, at cost
Land 556 556
Buildings 4,497 4,497
Plant machinery and equipment 109,619 108,682
Marketing equipment 190,953 189,925
Transportation equipment 2,074 2,013
Office equipment 9,364 9,219
Improvements 16,294 16,264
Construction in progress 3,105 2,682
-------- --------
336,462 333,838
Less accumulated depreciation and
amortization 250,843 248,391
-------- --------
85,619 85,447
-------- --------
Other assets
Goodwill 57,948 57,948
Other intangible assets, net 22,191 22,669
Prepaid acquisition costs 2,841 --
Other 2,644 2,500
-------- --------
85,624 83,117
-------- --------
$338,086 $340,808
======== ========
See accompanying notes to the consolidated financial statements.
3
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
LIABILITIES AND December 30, September 30,
STOCKHOLDERS' EQUITY 2006 2006
------------------------------------ ------------ -------------
(unaudited)
Current liabilities
Accounts payable $ 38,241 $ 40,835
Accrued liabilities 7,846 8,502
Accrued compensation expense 5,363 8,367
Dividends payable 1,574 1,385
-------- --------
53,024 59,089
-------- --------
Deferred income taxes 18,211 18,211
Other long-term liabilities 614 635
-------- --------
18,825 18,846
-------- --------
Stockholders' equity
Capital stock
Preferred, $1 par value;
authorized, 10,000
shares; none issued -- --
Common, no par value;
authorized 50,000
shares; issued and
outstanding, 18,515 and
18,468 shares, respectively 41,375 40,315
Accumulated other comprehensive loss (1,891) (1,964)
Retained earnings 226,753 224,522
-------- --------
266,237 262,873
-------- --------
$338,086 $340,808
======== ========
All share amounts reflect the 2-for-1 stock split effective January 5, 2006.
See accompanying notes to the consolidated financial statements.
4
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
---------------------------
December 30, December 24,
2006 2005
------------ ------------
Net Sales $114,142 $108,571
Cost of goods sold(1) 78,894 75,454
-------- --------
Gross profit 35,248 33,117
-------- --------
Operating expenses
Marketing(2) 14,539 13,697
Distribution(3) 10,941 10,356
Administrative(4) 4,650 4,795
Other general (income) expense (17) 72
-------- --------
30,113 28,920
-------- --------
Operating income 5,135 4,197
Other income (expenses)
Investment income 987 703
Interest expense and other (31) (29)
-------- --------
Earnings before income taxes 6,091 4,871
Income taxes 2,286 1,861
-------- --------
NET EARNINGS $ 3,805 $ 3,010
======== ========
Earnings per diluted share $ .20 $ .16
======== ========
Weighted average number of diluted
shares 18,895 18,697
======== ========
Earnings per basic share $ .21 $ .16
======== ========
Weighted average number
of basic shares 18,539 18,328
======== ========
(1) Includes share-based compensation expense of $48 and $59 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
(2) Includes share-based compensation expense of $141 and $115 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
(3) Includes share-based compensation expense of $10 and $5 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
(4) Includes share-based compensation expense of $111 and $81 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
All share amounts reflect the 2-for-1 stock split effective January 5, 2006.
See accompanying notes to the consolidated financial statements.
5
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Three Months Ended
---------------------------
December 30, December 24,
2006 2005
------------ ------------
Operating activities:
Net earnings $ 3,805 $ 3,010
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of fixed assets 5,625 5,651
Amortization of intangibles
and deferred costs 592 400
Share-based compensation 310 260
Deferred income taxes (30) (11)
Other (24) 4
Changes in assets and liabilities,
net of effects from purchase of
companies
Decrease in accounts receivable 9,251 2,779
Increase in inventories (4,799) (2,980)
Increase in prepaid expenses (336) (296)
(Decrease) increase in accounts
payable and accrued liabilities (6,275) 3,830
------- --------
Net cash provided by operating
activities 8,119 12,647
------- --------
Investing activities:
Purchase of property, plant
and equipment (5,985) (4,709)
Payments for purchases of companies,
net of cash acquired (2,841) --
Purchase of marketable securities (7,000) (13,325)
Proceeds from sale of marketable
securities 12,875 5,900
Proceeds from disposal of
property and equipment 212 145
Other (395) (150)
------- --------
Net cash used in investing
activities (3,134) (12,139)
------- --------
Financing activities:
Proceeds from issuance of stock 748 338
Payments of cash dividend (1,385) (1,142)
------- --------
Net cash used in financing
activities (637) (804)
------- --------
Effect of exchange rate on cash
and cash equivalents 73 53
------- --------
Net increase (decrease) in cash
and cash equivalents 4,421 (243)
------- --------
Cash and cash equivalents at
beginning of period 17,621 15,795
------- --------
Cash and cash equivalents at
end of period $22,042 $ 15,552
======= ========
See accompanying notes to the consolidated financial statements.
6
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position
and the results of operations and cash flows. Certain prior year amounts
have been reclassified to conform to the current period presentation.
These reclassifications had no effect on reported net earnings.
The results of operations for the three months ended December 30, 2006
and December 24, 2005 are not necessarily indicative of results for the
full year. Sales of our retail stores are generally higher in the first
quarter due to the holiday shopping season. Sales of our frozen beverages
and frozen juice bars and ices are generally higher in the third and
fourth quarters due to warmer weather.
While we believe that the disclosures presented are adequate to make the
information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes included in our Annual Report on Form
10-K for the year ended September 30, 2006.
Note 2 We recognize revenue from Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverage products at the time the products
are shipped to third parties. When we perform services 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.
Note 3 Depreciation of equipment and buildings is provided for by the
straight-line method over the assets' estimated useful lives.
Amortization of improvements is provided for by the straight-line method
over the term of the lease or the assets' estimated useful lives,
whichever is shorter. Licenses and rights arising from acquisitions are
amortized by the straight-line method over periods ranging from 4 to 20
years.
7
Note 4 Our calculation of earnings per share in accordance with SFAS No. 128,
"Earnings Per Share," is as follows (all share amounts reflect the
2-for-1 stock split effective January 5, 2006):
Three Months Ended December 30, 2006
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $3,805 18,539 $ .21
Effect of Dilutive Securities
Options -- 356 (.01)
------ ------ -----
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,805 18,895 $ .20
====== ====== =====
108,200 anti-dilutive shares have been excluded from the computation of diluted
EPS because the options' exercise price is greater than the average market price
of the common stock.
Three Months Ended December 24, 2005
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
(in thousands, except per share amounts)
Basic EPS
Net Earnings available
to common stockholders $3,010 18,328 $.16
Effect of Dilutive Securities
Options -- 369 --
------ ------ ----
Diluted EPS
Net Earnings available to
common stockholders plus
assumed conversions $3,010 18,697 $.16
====== ====== ====
8
146,471 anti-dilutive shares have been excluded from the computation of diluted
EPS because the options' exercise price is greater than the average market price
of the common stock.
Note 5 The Company follows FASB Statement No. 123(R), "Share-Based Payment".
Statement 123(R) requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements.
That cost is measured based on the fair value of the equity or liability
instruments issued.
Statement 123(R) covers a wide range of share-based compensation
arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share
purchase plans.
In addition to the accounting standard that sets forth the financial
reporting objectives and related accounting principles, Statement 123(R)
includes an appendix of implementation guidance that provides expanded
guidance on measuring the fair value of share-based payment awards.
At December 30, 2006, the Company has two stock-based employee
compensation plans. Share-based compensation of $144,000, net of a tax
benefit of $166,000, or $.01 per share, was recognized for the three
months ended December 30, 2006. Share-based compensation of $171,000, net
of a tax benefit of $89,000, or $.01 per share, was recognized for the
three months ended December 24, 2005. The Company anticipates that
share-based compensation will not exceed $1,200,000, net of tax benefits,
or approximately $.065 per share for the year ending September 29, 2007.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions used for grants in fiscal 2007 and 2006: expected
volatility of 26% and 34%; risk-free interest rates of 4.53% and 4.37%;
dividend rate of .92% and 1.0% and expected lives ranging between 5 and
10 years.
During the 2007 and 2006 first quarters, the Company granted 108,200 and
152,471 stock options, respectively. The weighted-average grant date fair
value of these options was $12.02 and $10.04, respectively.
9
Expected volatility for both years is based on the historical volatility
of the price of our common shares over the past 53 months for 5 year
options and 10 years for 10 year options. We use historical information
to estimate expected life and forfeitures within the valuation model. The
expected term of awards represents the period of time that options
granted are expected to be outstanding. The risk-free rate for periods
within the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant. Compensation cost is
recognized using a straight-line method over the vesting or service
period and is net of estimated forfeitures.
Note 6 In June 2006, the FASB issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement No. 109 (SFAS 109).
FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS
109. FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
FIN 48 also provides guidance on financial reporting and classification
of differences between tax positions taken in a tax return and amounts
recognized in the financial statements.
FIN 48 is effective for fiscal years beginning after December 15, 2006;
earlier application is encouraged. We are currently evaluating the
provisions of FIN 48 to determine its impact on our financial statements.
In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements." SAB 108
was issued to provide consistency between how registrants quantify
financial statement misstatements.
10
Historically, there have been two widely used methods for quantifying the
effects of financial statement misstatements. These methods are referred
to as the "roll-over" and "iron curtain" method. The roll-over method
quantifies the amount by which the current year income statement is
misstated. Exclusive reliance on an income statement approach can result
in the accumulation of errors on the balance sheet that may not have been
material to any individual income statement, but which may misstate one
or more balance sheet accounts. The iron curtain method quantifies the
error as the cumulative amount by which the current year balance sheet is
misstated. Exclusive reliance on a balance sheet approach can result in
disregarding the effects of errors in the current year income statement
that results from the correction of an error existing in previously
issued financial statements. We currently use the roll-over method for
quantifying identified financial statement misstatements.
SAB 108 established an approach that requires quantification of financial
statement misstatements based on the effects of the misstatement on each
of the company's financial statements and the related financial statement
disclosures. This approach is commonly referred to as the "dual approach"
because it requires quantification of errors under both the roll-over and
iron curtain methods.
SAB 108 allows registrants to initially apply the dual approach either by
(1) retroactively adjusting prior financial statements as if the dual
approach had always been used or by (2) recording the cumulative effect
of initially applying the dual approach as adjustments to the carrying
values of assets and liabilities as of October 1, 2006 with an offsetting
adjustment recorded to the opening balance of retained earnings. Use of
this "cumulative effect" transition method requires detailed disclosure
of the nature and amount of each individual error being corrected through
the cumulative adjustment and how and when it arose.
11
We do not expect to record any such cumulative adjustment.
Note 7 Inventories consist of the following:
December 30, September 30,
2006 2006
------------ -------------
(unaudited)
(in thousands)
Finished goods $22,407 $18,398
Raw materials 5,705 5,415
Packaging materials 4,244 3,803
Equipment parts & other 10,335 10,174
------- -------
$42,691 $37,790
======= =======
Note 8 We principally sell our products to the food service and retail
supermarket industries. We also distribute our products directly to the
consumer through our chain of retail stores referred to as The Restaurant
Group. Sales and results of our frozen beverages business are monitored
separately from the balance of our food service business and restaurant
group because of different distribution and capital requirements. We
maintain separate and discrete financial information for the four
operating segments mentioned above which is available to our Chief
Operating Decision Makers. We have applied no aggregate criteria to any
of these operating segments in order to determine reportable segments.
Our four reportable segments are Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverages. All inter-segment net sales and
expenses have been eliminated in computing net sales and operating income
(loss). These segments are described below.
Food Service
The primary products sold by 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.
12
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 frozen novelties
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, SLUSH PUPPIE and ARCTIC
BLAST in the United States, Mexico and Canada.
13
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:
Three Months Ended
---------------------------
December 30, December 24,
2006 2005
------------ ------------
(unaudited)
(in thousands)
Sales to external customers:
Food Service $ 75,480 $ 74,616
Retail Supermarket 8,288 7,236
The Restaurant Group 970 1,238
Frozen Beverages 29,404 25,481
-------- --------
$114,142 $108,571
======== ========
Depreciation and Amortization:
Food Service $ 3,464 $ 3,511
Retail Supermarket -- --
The Restaurant Group 18 33
Frozen Beverages 2,735 2,507
-------- --------
$ 6,217 $ 6,051
======== ========
Operating Income(Loss):
Food Service(1) $ 5,836 $ 5,628
Retail Supermarket(2) 575 257
The Restaurant Group 122 1
Frozen Beverages(3) (1,398) (1,689)
-------- --------
$ 5,135 $ 4,197
======== ========
Capital Expenditures:
Food Service $ 2,331 $ 2,670
Retail Supermarket -- --
The Restaurant Group 1 --
Frozen Beverages 3,653 2,039
-------- --------
$ 5,985 $ 4,709
======== ========
Assets:
Food Service $217,868 $217,979
Retail Supermarket -- --
Restaurant Group 959 1,052
Frozen Beverages 119,259 93,242
-------- --------
$338,086 $312,273
======== ========
(1) Includes share-based compensation expense of $226 and $184 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
(2) Includes share-based compensation expense of $11 and $13 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
(3) Includes share-based compensation expense of $73 and $63 for the three
months ended December 30, 2006 and December 24, 2005, respectively.
14
Note 9 We follow SFAS No. 142 "Goodwill and Intangible Assets." SFAS No. 142
includes requirements to test goodwill and indefinite lived intangible
assets for impairment rather than amortize them; accordingly, we no
longer amortize goodwill.
Our four reporting units, which are also reportable segments, are Food
Service, Retail Supermarkets, The Restaurant Group and Frozen Beverages.
The carrying amount of acquired intangible assets for the Food Service,
Retail Supermarkets, The Restaurant Group and Frozen Beverage segments as
of December 30, 2006 are as follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
-------- ------------ --------
(in thousands)
FOOD SERVICE
Amortized intangible assets
Licenses and rights $ 9,013 $ 3,311 $ 5,702
======= ======= =======
RETAIL SUPERMARKETS
Amortized intangible assets
Licenses and rights $ -- $ -- $ --
======= ======= =======
THE RESTAURANT GROUP
Amortized intangible assets
Licenses and rights $ -- $ -- $ --
======= ======= =======
FROZEN BEVERAGES
Indefinite lived intangible
assets Licenses and rights $ 8,960 $ -- $ 8,960
Amortized intangible assets
Licenses and rights $ 8,175 $ 646 $ 7,529
------- ------- -------
$17,135 $ 646 $16,489
======= ======= =======
Licenses and rights are being amortized by the straight-line method over
periods ranging from 4 to 20 years and amortization expense is reflected
throughout operating expenses. There were no changes in the gross carrying
amount of intangible assets for the three months ended December 30, 2006.
Aggregate amortization expense of intangible assets for the 3 months ended
December 30, 2006 and December 24, 2005 was $478,000 and $283,000, respectively.
15
Estimated amortization expense for the next five fiscal years is
approximately $1,900,000 in 2007, $1,800,000 in 2008, $1,600,000 in 2009 and
2010 and $1,500,000 in 2011. The weighted average amortization period of the
intangible assets is 10.2 years.
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket,
Restaurant Group and Frozen Beverage segments are as follows:
Food Retail Restaurant Frozen
Service Supermarket Group Beverages Total
------- ----------- ---------- --------- -------
(in thousands)
Balance at
December 30, 2006 $22,225 $ - $386 $35,337 $57,948
======= === ==== ======= =======
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Our current cash and marketable securities balances and cash expected to
be provided by future operations are our primary sources of liquidity. We
believe that these sources, along with our borrowing capacity, are sufficient to
fund future growth and expansion.
The Company's Board of Directors declared a regular quarterly cash
dividend of $.085 per share of its common stock payable on January 4, 2007 to
shareholders of record as of the close of business on December 15, 2006.
In the quarters ended December 30, 2006 and December 24, 2005 fluctuations
in the valuation of the Mexican peso caused an increase of $73,000 and an
increase of $53,000 in stockholders' equity, respectively, because of the
translation of the net assets of the Company's Mexican frozen beverage
subsidiary.
On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE of
Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen beverages and
related products throughout the Hawaiian islands. Annual sales are approximately
$2.3 million.
On May 26, 2006, The ICEE Company, our frozen carbonated beverage
distribution company, acquired the SLUSH PUPPIE branded business from Dr.
Pepper/Seven Up, Inc., a Cadbury Schweppes Americas Beverages Company for $18.1
million plus approximately $4.3 million in working capital. SLUSH PUPPIE, North
America's leading brand for frozen non-carbonated beverages, is sold through an
existing established distributor network to over 20,000 locations in the United
States and Canada as well as to certain international markets. Sales of the
SLUSH PUPPIE business were approximately $18 million in 2005.
On January 9, 2007 we acquired the assets of Hom/Ade Foods, Inc., a
manufacturer and distributor of biscuits and dumplings sold under the MARY B's
and private label store brands to the supermarket industry. Hom/Ade,
headquartered in Pensacola, Florida, has annual sales of approximately $30
million. Included in other assets on the December 30, 2006 Balance Sheet is a
$2.8 million deposit made toward the purchase price. The deposit is also
included in Payments for purchases of companies, net of cash acquired on the
Conslidated Statement of Cash Flows for the three months ended December 30,
2006.
17
These acquisitions were and will be accounted for under the purchase
method of accounting, and their operations are and will be included in the
consolidated financial statements from their respective acquisition dates.
Our general-purpose bank credit line provides for up to a $50,000,000
revolving credit facility. The agreement contains restrictive covenants and
requires commitment fees in accordance with standard banking practice. There
were no outstanding balances under this facility at December 30, 2006.
Results of Operations
Net sales increased $5,571,000 or 5% to $114,142,000 for the three months
ended December 30, 2006 compared to the three months ended December 24, 2005.
Approximately $2,900,000 of the sales increase resulted from the acquisitions of
ICEE of Hawaii in January 2006 and SLUSH PUPPIE in May 2006. Excluding these
sales, sales increased approximately 2.5%.
FOOD SERVICE
Sales to food service customers increased $864,000 or 1% in the first
quarter to $75,480,000. Soft pretzel sales increased $123,000 or about 1/2 of
one percent from last year to $23,831,000 in this year's quarter. Italian ice
and frozen juice treat and dessert sales increased 14% to $7,692,000 in the
three months primarily due to increased sales to school food service. Churro
sales to food service customers increased 7% to $5,241,000 in the quarter with
about 1/2 of the sales increase going to one customer. Sales of bakery products
decreased 2% to $37,426,000 from $38,021,000 last year due primarily to
decreased sales to a varied range of private label customers and to school food
service accounts. The changes in sales throughout the food service segment were
from a combination of volume changes and price increases.
18
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $1,052,000 to
$8,288,000 or 15% in the first quarter. Soft pretzel sales for the first quarter
were up 10% to $5,676,000 due to volume and pricing. Sales of frozen juices and
ices increased 23% to $2,834,000 in the quarter primarily due to the
introduction of several new products in 2006.
THE RESTAURANT GROUP
Sales of our Restaurant Group decreased 22% to $970,000 in the first
quarter. The sales decrease was caused primarily by the closing of unprofitable
stores in fiscal year 2006. Sales of stores open for both years' quarter were up
about 1%. Operating income benefitted this year compared to last year in that
last year included $60,000 of store closing and related costs compared to none
this year.
FROZEN BEVERAGES
Frozen beverage and related product sales increased $3,923,000 or 15% to
$29,404,000 in the first quarter. Excluding the impact of the ICEE of Hawaii and
SLUSH PUPPIE acquisitions, sales were up 4%. Beverage sales alone were up 14% to
$19,585,000 for the quarter but up only 1% on a 5% decline in gallons excluding
sales from the acquisitions. Service revenue increased 23% to $6,536,000 in this
year's first quarter with two customers accounting for about 1/2 of the
increase. Overall profitability in the quarter was impacted by seasonal
operating losses in the SLUSH PUPPIE business of about $250,000.
CONSOLIDATED
Gross profit as a percentage of sales increased to 30.88% from last year's
30.50% as cost decreases in group health insurance, property and casualty
insurance and utilities totalling approximately $900,000 and pricing offset
higher commodity costs of approximately $1,500,000 and general cost increases.
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Total operating expenses increased $1,193,000 in the first quarter but as
a percentage of sales decreased 1/4 of one percent to 26% from 27% last year.
Marketing expenses were 13% of sales in both years' quarters. Distribution
expenses were 10% of sales in both years' quarters. Administrative expenses as a
percent of sales decreased about 1/3 of one percent and were 4% of sales for
both years.
Operating income increased 22% to $5,135,000 this year from $4,197,000 a
year ago.
Operating income was impacted by approximately $600,000 of costs for the
Company's National Sales meeting held this quarter. The Company did not have a
comparable meeting in fiscal year 2006.
Investment income increased by $284,000 to $987,000 due to an increase in
the general level of interest rates and higher investable balances of cash and
marketable securities.
The effective income tax rate has been estimated at 38% in both years'
first quarter.
Net earnings increased 26% to $3,805,000 in this year's first quarter
compared to net earnings of $3,010,000 in the year ago period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment of its
sensitivity to market risk since its presentation set forth, in item 7a.
"Quantitative and Qualitative Disclosures About Market Risk," in its
2006 annual report on Form 10-K filed with the SEC.
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Item 4. Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the
Company (its principal executive officer and principal financial
officer, respectively) have concluded, based on their evaluation as of
December 30, 2006, that the Company's disclosure controls and procedures
are effective to ensure that information required to be disclosed by the
Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms,
and include controls and procedures designed to ensure that information
required to be disclosed by the Company in such reports is accumulated
and communicated to the Company's management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
There were no changes in the Company's internal controls over financial
reporting or in other factors that could significantly affect these
controls subsequent to the date of such evaluation.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
31.1 & 31.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
99.5 & 99.6 Certification Pursuant to the 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K - Reports on Form 8-K were filed on
November 8, 2006 and November 21, 2006.
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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: January 23, 2007 /s/ Gerald B. Shreiber
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Gerald B. Shreiber
President
Dated: January 23, 2007 /s/ Dennis G. Moore
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Dennis G. Moore
Senior Vice President and
Chief Financial Officer
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