J&J Snack Foods - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended June 26, 2010

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)

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated filer ¨                                                                    Accelerated filer x

Non-accelerated filer ¨                                                                        Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of July 19, 2010, there were 18,497,149 shares of the Registrant’s Common Stock outstanding.

INDEX

 

PART I. FINANCIAL INFORMATION

Item 1.            Consolidated Financial Statements

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – Continued

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)
          

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The results of operations for the three months and nine months ended June 26, 2010 and June 27, 2009 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather.

While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2009.

 

 

 

107,000 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.

 

261,595 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.

 

During the 2010 and 2009 nine month periods, the Company granted 100,330 and 4,500 stock options, respectively.  The weighted-average grant date fair value of these options was $9.11 and $7.13, respectively.  No options were granted in the third quarter of 2010 and 1,500 options were granted in the third quarter of 2009.

 

On September 30, 2007, the first day of the 2008 fiscal year, we recognized a $925,000 decrease to opening retained earnings from the cumulative effect of recognizing a liability for uncertain tax positions. The total amount of gross unrecognized tax benefits is $1,923,000 and $1,895,000 on June 26, 2010 and September 26, 2009, respectively, all of which would impact our effective tax rate over time, if recognized.  We recognize interest and penalties related to income tax matters as a part of the provision for income taxes.  As of June 26, 2010 and September 26, 2009, respectively, the Company has $818,000 and $742,000 of accrued interest and penalties.

In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.

In August 2008, the FASB issued guidance that revises the factors that a company should consider to develop renewal or extension assumptions used in estimating the useful life of a recognized intangible asset.  The new guidance will apply to all intangible assets acquired after the guidance’s effective date.  The guidance also requires new disclosures for all intangible assets recognized as of, and subsequent to, the effective date. The underlying purpose of the guidance is to improve the consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of an intangible asset. This guidance is effective for our 2010 fiscal year. The implementation of this guidance has had no effect on our consolidated financial statements.

 

In April 2009, the FASB issued guidance that amends the provisions in its guidance issued in December 2007 for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations.  This  revised guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria, included in the December 2007 guidance and carries forward most of the provisions related to acquired contingencies in its June 2001 guidance.  This guidance is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of our fiscal year 2010. The effect of this guidance on our consolidated financial statements will depend upon the nature, terms and size of any acquired contingencies consummated in fiscal year 2010 or later.

Food Service

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, WHOLE FRUIT Sorbet, FRUIT-A-FREEZE frozen fruit bars and ICEE frozen novelties.  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 and beverage machines to the food service industry, including our restaurant group, primarily under the names ICEE, SLUSH PUPPIE, PARROT ICE and ARCTIC BLAST in the United States, Mexico and Canada.  We also provide repair and maintenance service to customers for customers’ owned equipment.

 

The carrying amount of acquired intangible assets for the Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverage segments as of June 26, 2010 are as follows:

 

 

Amortized intangible assets are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses.  Intangible assets of $10,796,000 were acquired in the food service segment in the California Churros acquisition in the three months ended June 26, 2010.  Aggregate amortization expense of intangible assets for the three months ended June 26, 2010 and June 27, 2009 was $1,149,000 and $1,127,000, respectively and for the nine months ended June 26, 2010 and June 27, 2009 was $3,394,000 and $3,381,000, respectively.

 

Goodwill of $9,756,000 was acquired in the food service segment in the California Churros acquisition in the three months ended June 26, 2010.

 

 

 

 

We have concluded that the carrying value of certificates of deposit placed through the Certificate of Deposit Account Registry Service equals fair market value.  Other marketable securities held to maturity values are derived solely from level 1 inputs.  We had no holdings of AMPS at June 26, 2010 and September 26, 2009.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at June 26, 2010 are summarized as follows:

All of the certificates of deposit are within the FDIC limits for insurance coverage.

All of the certificates of deposit are within the FDIC limits for insurance coverage.

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 26, 2010 and September 26, 2009 are summarized as follows:

Proceeds from the sale and redemption of auction market preferred stock were $0 and $35,200,000 in the three and nine months ended June 27, 2009, respectively, with no gain or loss recorded.  We use the specific identification method to determine the cost of securities sold.

Proceeds from the sale and redemption of marketable securities were $53,956,000 and $4,618,000 in the three and nine months ended June 26, 2010, respectively; and $3,355,000 and $6,430,000 in the three and nine months ended June 27, 2009, respectively, with no gain or loss recorded.  We use the specific identification method to determine the cost of securities sold.

The goodwill and intangible assets acquired in the business combinations are recorded at fair value.  To measure fair value for such assets, we use techniques including discounted expected future cash flows (Level 3 input).

Liquidity and Capital Resources

Our current cash and cash equivalents 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 and investment securities, are sufficient to fund future growth and expansion.  See Note 12 to these financial statements for a discussion of our investment securities.

The Company’s Board of Directors declared a regular quarterly cash dividend of $.1075 per share of its common stock payable on July 7, 2010 to shareholders of record as of the close of business on June 15, 2010.

In the three months ended December 26, 2009, we purchased and retired 153,703 shares of our common stock at a cost of $5,894,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008 leaving 260,576 as the number of shares that may yet be purchased under the share buyback authorization.  We did not purchase any additional shares in the nine months ended June 26, 2010.  We purchased and retired 450,597 shares at a cost of $12,510,000 in our fiscal year ended September 26, 2009.  Of the shares purchased and retired in our fiscal year 2009, 400,000 shares were purchased at the purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, Chief Executive Officer and Director of the Company.

In the three months ended June 26, 2010 and June 27, 2009, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $98,000 and a decrease of $516,000, respectively, in accumulated other comprehensive loss.  In the nine month periods, there was a decrease of $453,000 in fiscal year 2010 and an increase of $1,365,000 in fiscal year 2009.

In February 2010, we acquired the assets of Parrot Ice, a manufacturer and distributor of a premium brand frozen beverage sold primarily in convenience stores.  We expect revenues from Parrot Ice to be less than $2 million for our 2010 fiscal year.

In June 2010, we acquired the assets of California Churros, a manufacturer and distributor of a premium brand churro. California Churros had revenue of approximately $11 million in calendar year 2009.

Our general-purpose bank credit line which expires in December 2011 provides for up to a $50,000,000 revolving credit facility.  The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at June 26, 2010.

Results of Operations

Net sales increased $9,968,000 or 6% for the three months to $189,729,000 and $25,937,000 or 6% to $496,192,000 for the nine months ended June 26, 2010 compared to the three and nine months ended June 26, 2009.

Excluding sales from the acquisition of Parrot Ice in February 2010 and California Churros in June 2010, sales increased 5% for the three and nine months.

Approximately $3.0 million, or 30%, for the three months and $10.5 million, or 40%, for the nine months of the increased sales were sales of funnel cake fries to one customer, Burger King, which is carrying the product in virtually all of its domestic locations.  We are not able to provide an estimate of these sales going forward.

FOOD SERVICE

Sales of bakery products, excluding biscuit and dumpling sales and fruit and fig bar sales, increased $733,000 or 2% in the third quarter to $41,857,000 and increased $2,935,000 or 2% for the nine months due primarily to increased sales to private label customers. Biscuit and dumpling sales decreased 7% to $6,667,000 in the quarter and were up 2% to $25,365,000 for the nine months.

Sales of fig and fruit bars decreased 1% in the third quarter to $8,565,000 and decreased 1% in the nine months to $24,571,000 due primarily to lower sales to one customer who discontinued a particular product.  Funnel cake sales increased by $2,789,000 to $5,941,000 in the quarter and by $10,797,000 to $16,955,000 in the nine months primarily due to the sales to Burger King.

Sales of new products in the first twelve months since their introduction were approximately $6.0 million in the June quarter and $21.8 million in the nine months.  Net volume increases, including new product sales as defined above and sales resulting from the acquisition of California Churros, accounted for all but approximately $800,000 of the sales increases this year. Price increases accounted for the remaining $800,000, virtually all in the third quarter.

 

RETAIL SUPERMARKETS

THE RESTAURANT GROUP

FROZEN BEVERAGES

CONSOLIDATED

Total operating expenses increased $2,315,000 in the third quarter and as a percentage of sales increased .14 of a percentage point to 21% of sales from 20% last year.  For the first nine months, operating expenses increased $4,472,000 and were 22% of sales in both years.  Marketing expenses were 10% of sales in both years’ quarters and were at 11% for both years’ nine months.  Distribution expenses were 7% in both years’ third quarter and 8% in both years’ nine months.   Administrative expenses were 3% of sales in both years’ third quarter and 4% in both years’ nine months.

The effective income tax rate increased .27 of one percent to 40% from 39% in the quarter and was estimated at 40% for both years’ nine months.

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.

PART II.  OTHER INFORMATION

 

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.